What’s the current fuss about customers? Shouldn’t firms care for all their stakeholders? In fact, I am often asked: Is there even any difference between customer capitalism, shareholder capitalism, or stakeholder capitalism? After all, can’t you be entirely responsive to your customers under the same governance structure and management, whether you put customers, shareholders, or stakeholders first?
What such questioners miss is that the advent of customer capitalism involves much more than a decision to prioritize of one class of stakeholder over another within the firm’s existing structure and way of operating. In fact, customer capitalism is built on a different kind of thinking, that has led to new structures, new ways of operating, new kinds of leadership, and paradoxically, extraordinary profitability.
The Rise Of Customer Primacy
The pivotal idea that the purpose of a firm begins with customers came from the management guru, Peter Drucker, who wrote in 1954: “There is only one valid definition of business purpose: to create a customer.” Only one. Drucker submitted the idea as a plausible narrative. It was not based on a quantitative study of existing firms. At the time, there were no such firms to study. It was Drucker’s theorizing as to what should be the purpose of a firm, given his understanding of the dynamic of companies under capitalism. Making money was a result, not the goal of the firm.
For the next half-century, firms largely ignored Drucker’s idea. As part of their public relations statements, firms often declared that “our customers are number one” and indeed, most firms did what they could for their customers within the limits of their existing structures and processes. But mostly firms after the 1970s increasingly pursued shareholder value—maximizing profits for the company, its shareholders, and its executives. Customers were not usually number one.
This new management thinking began to take hold first in software development, following the Agile Manifesto of 2001, which offered a set of priorities and principles as a better way of developing software.
In time, as the digital age unfolded and developing software became steadily more important, customer-centric thinking began spreading from the IT department to running the entire firm, eventually transforming almost every facet of management.
In January 2010, management guru Roger Martin, announced to the world in Harvard Business Review that a new era—customer capitalism—had begun. And in 2011, the financial sector also grasped that “software is eating the world.”
Customer Capitalism: A Different Way Of Thinking
Before this, management thinking reflected an internal view of the firm. Management was about making the firm operate more efficiently and effectively within a relatively stable world, with given systems, processes, and practices. The firm did what it could for the customer within the constraints of its existing systems. Top management knew best and issued directives to the rest of the organization, using steep chains of command to ensure order. Car companies competed against other car companies, banks with other banks, and so on. Managers saw themselves as solving the equivalent of familiar jigsaw puzzles. If they could fit the pieces together into the correct pattern, they could extract, and take, the value they believed to be their due.
Customer capitalism embodies different thinking. The perspective is mainly external. Success depends less on the internal workings of the firm and more on its ability to master a turbulent unpredictable world of exponential technological possibilities and to delight unpredictable customers. Innovation is pivotal and involves not merely adapting and improving what already exists, but creating what is new. The firm aspires to generate new possibilities of working, operating, interacting, playing, and living for its customers. In the process, the firm helps create a new world, just as artists create works of art. Staff and partners are active in the creative process, not mere executors of management’s commands. Competition—can come from anywhere. The firm is not merely copying, adapting, or learning known rules. Profits are emergent effects of invention and creation. They are the results of making rather than taking, often out of literally nothing.
Customer Capitalism: A Different Kind Of Management
This different thinking sparked a dramatic transformation away from top-down bureaucracy, in which individuals reported to bosses and focused on outputs and profits, and towards a new, more agile way of operating, with self-organizing teams linked in a network, with a clear line of sight to customers and a mandate to be responsive to their needs, The need to delight customers, rather than merely satisfying their needs, implies a level of empathy for, and responsiveness to, customers that is impossible to accomplish with top-down bureaucracy.
Today, it is increasingly becoming apparent that firms embracing the new, more agile ways of creating value for customers, can move more quickly, operate more efficiently, mobilize more resources, attract more talent, and use it more effectively, win over customers more readily, and enjoy more elevated market capitalizations. Accordingly, the most successful exponents of customer-capitalism—Alphabet, Amazon, Apple and Microsoft—have become the most valuable firms on the planet, while former giants, like IBM and GE, which persisted with industrial-era thinking, went into steep decline.
Customer Capitalism: A Different Kind Of Leadership
Such a deep-seated changes require leadership shifts at the very top of the organization. Merely telling people to delight customers, , or delegating implementation to lower levels, or throwing money at the problem, have turned out to be ineffective. Leaders must exemplify the new way of thinking and the modus operandi in their own conduct. Instead of controlling and containing, they must become inspiring and energizing. See for instance the case of JP Morgan Chase.
As compared to the grind of bureaucracy in the industrial era, the new management practices— encouraging the love of customers and the use of self-organizing teams—were a nice surprise. They could potentially free the human spirit in the workplace from the tyranny of a money-hungry hierarchy, while also making companies more productive for customers and for society. The idea of delighting customers had resonance with the other-directed thinking of age-old ethics, in sharp contrast to the self-centered avarice explicit in maximizing shareholder value..
While no firm fully reflects all the aspirations of customer capitalism in everything it does, there is an increasingly sharp divide between the financial results of firms that embrace customer primacy and those of firms that doggedly continue as hierarchical bureaucracies. This steadily growing financial gap ensures the continuing spread of customer capitalism, despite the disruption to established management practice.
And read also:
What JPMorgan Must Do To Get The Stock Market’s Respect
Why Your Mission Statement Must Include Customer Primacy
The Link LonkJune 27, 2022 at 03:11PM
https://www.forbes.com/sites/stevedenning/2022/06/27/why-firms-find-implementing-customer-primacy-so-hard/
Why Firms Find Implementing Customer Primacy So Hard - Forbes
https://news.google.com/search?q=hard&hl=en-US&gl=US&ceid=US:en
