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Tonic 4 Business - Newsletter Quarter 2, 2010
Why the Customer Must be King

28th May 2010
Mary Hanson

Quarterly returns and shareholder focus have been at the centre of Business Strategy for the last decade. As companies made ever increasing profits the emphasis shifted from the customer to the share holder and with that the drive for short-term quarterly returns - the consequences of this on the market place are evident.  For many companies caught up in todays economic uncertainties it may be worth revisiting the lessons of the past.  Going back to a previous challenging economic decade takes us to the 1980’s early 1990’s and  re-examining what the business gurus of the day were advocating gives us some interesting insights into how companies can regain consumer confidence, increase sales and differentiate themselves from their competitors.

In 1982 W. Edwards Deming wrote the following in his preface to his famous publication of the time, “Out of the Crisis”.

“Performance of management should be measured by potential to stay in business, to protect investment, to ensure future dividends and jobs through improvement of product and service for the future, not by the quarterly dividend”.

Deming was very much of the view that it is first necessary to know what to do and to learn how to change.
In his work Deming advocates the application of 14 Points for Management - these points he argues can work in any industry of any size.
1. Create constancy of purpose toward improvement of product and service (focus on quality of the product and quality of service).
2. Adopt the new philosophy - take on leadership for change.
3. Cease dependence on inspection to achieve quality - build quality into the product.
4. Minimize total cost - move toward a single supplier for any one item (building up loyalty & trust).
5. Improve constantly the system of production and service and as a consequence decrease costs.
6. Institute training on the job.
7. Institute leadership - “the aim of supervision should be to help people and machines and gadgets to to a better job”.
8. Drive out fear.
9. Break down barriers between departments - getting people from different disciplines to work together as a team.
10. Eliminate targets for the workforce asking for zero defects & higher productivity levels - as the bulk of the causes of low quality and productivity belong to the system and not to the workforce.
11. Implement Leadership
12. Re-introduce pride of workmanship (getting people to take pride in their work).
13. Institute a vigorous program of education and self-improvement.
14. Get everyone in the organisation working on the transformation - transformation is everybody’s job.

Another business household name from the 1980’s was Tom Peters who together with Waterman published "In Search of Excellence", this book formed the platform for the McKinsey 7-S Model.

The research for In Search of Excellence was taken from a review conducted by Peters and Waterman which examined 43 of Fortune 500's top performing companies. They started with a list of 62 of the best performing McKinsey clients and then applied performance measures to filter out what they saw to be the weaker companies.
Peters and Waterman identified what they saw as eight key themes to successful leadership:-
1. A bias for action, active decision making - 'getting on with it'.
2. Close to the customer - learning from the people served by the business.
3. Autonomy and entrepreneurship - fostering innovation and nurturing 'champions'.
4. Productivity through people - treating rank and file employees as a source of quality.
5. Hands-on, value-driven - management philosophy that guides everyday practice - management showing its commitment.
6. Stick to the knitting - stay with the business that you know.
7. Simple form, lean staff - some of the best companies have minimal HQ staff.
8. Simultaneous loose-tight properties - autonomy in shop-floor activities plus centralised values.

Rolling on to the 21st Century and in an effort to assess how today’s successful senior managers are leading their Companies through the recession makes for some interesting comparisons.

McKinsey & Company conducted a series of interviews with the CEOs of major companies to hear how they were dealing with the global recession. The following are some extracts from that research:
Confront reality - this is about acknowledging that there are issues with the Company and recognizing that difficulties may lie ahead if not dealt with.

Herbert Henkel, chairman, president and CEO of Ingersoll Rand was quoted as saying, “Always question whether the “halo effect” of a business or business situation is blinding you to what lies on the horizon.”

Getting ahead of the curve - look ahead and consider what might lie in the future - what will be the opportunities and what will be the challenges and start to take steps to deal with these.
Make decisions quickly - gather as much data as you can as quickly as possible but move on the data quickly.

Put Strategy centre stage - discussions on strategy are no longer a once a year event - but rather reviewed on a more frequent basis - checking the validity of the strategy to deliver the business objectives.

Be transparent with employees - “The only way to address uncertainty is to communicate and communicate. And when you think you’ve just got to everybody, then communicate some more.” It is much easier for employees to understand changes that impact directly on them when they understand why those changes have to happen.

Be open with investors - McKinsey state that most of the CEO’s they interviewed commented on the extent to which they were communicating with their investors. The importance of transparency. Interestingly they comment that “in times of crisis, there is a tendency to focus entirely on short-term results - a tendency CEOs should counter.”

Build and protect the culture - Many of the business leaders interviewed commented on the importance of a strong culture and how this had helped them and their employees to deal with the difficulties they have faced into - but equally they felt that it was important not to compromise or sacrifice the culture even when under pressure.

Keep faith with the future - Whilst dealing with the pressures of the here and now - it was also demonstrated that companies need to remain forward looking. Look for opportunities to gain a competitive advantage over your competitors, examine ways to achieve higher productivity, entering new market and ensure not to sacrifice the company’s talent in the pursuit of lower cost.

Key Themes running through all of this advice are:-

Look after your customers - seek out their opinions and research their needs - the customers buy your product and investors will only invest if the customers are buying!
Innovation - how are you going to differentiate from your competitors - what will give you the extra edge.
Leadership - Decisiveness, Foresight, Leading Change, Speed.  Customers, Shareholders, Employees need to see strong leadership in the business to make them feel confident about the future.
Keep the culture - look after your employees (hold on to your talent); keep your employees engaged -


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