Bob Rinderle / Business & Beyond

Customer Value Versus Shareholder Value

I've long railed against shareholder value as the driving economic principle for public companies. Obviously corporations are in business to make money, and shareholders deserve to reap the rewards of their investments.  But as the excellent Peter Drucker stated decades ago, profit is not the explanation, cause, or rationale for business strategy, but rather proof of its validity.

The purpose of business is to create a customer.  And to do this, companies must have something of value (and desire) to sell.  Who has better shareholder value - Apple or GM?  Who as more desirable products - Apple or GM? 

Given my bias against managing enterprise value according to quarterly profit goals, I was shocked and pleasantly surprised to read Shoshana Zuboff state the following in Businessweek:

"As a professor at the Harvard Business School, including 15 years teaching in the MBA program, I have come to believe that much of what my colleagues and I taught has caused real suffering, suppressed wealth creation, destabilized the world economy, and accelerated the demise of the 20th century capitalism in which the U.S. played the leading role....  Under the flag of shareholder value (a concept honed by HBS faculty and glorified in many of our courses), firms also turned to financialization....  a typical indicator of economic decline."

Can't Cut Your Way To Growth

Times are tough.  Valuations are tanking.  Fortunes are vanishing.  Jobs are slashed.  And cliches of "doing more with less" and working "leaner and meaner" are again all the buzz.  

But you can't cut your way to growth and longer hours do not equal better output: 90% of all new product introductions fail despite years of marketplace research and R&D investment, and 65% of all merger and acquisition activity is said to destroy more value than it creates.  Will longer hours improve these percentages?  No.  But increasing the percentage of strategically creative, entrepreneurially-oriented people within your company will. 

Businesses have to work smarter - but that means understanding where the value in the organization exists and understanding how to leverage and enhance that value.  And more time does not equal more value. 

The fallacy of measuring output according to full-time employee equivalents (FTEs) is the belief that hours equal productivity.  But most companies are unwilling to take the steps to truly know their employees - to know which "B" performers propel the company but operate outside the sphere of kiss-asses and cliques best known to management.  And let's face it, every company has a ton of bureaucratic crap and internal politics that retard its responsiveness. 

Cracking the whip on workers has always struck me as the most lazy of all management solutions and a quick way to increase disloyalty, low morale, and costly turnover.  It also reminds me of some wonderful Peter Drucker quotes:

"Half the leaders I have met don't need to learn what to do.  They need to learn what to stop."

"There is nothing so useless as doing efficiently that which should not be done at all."

"Most of what we call management consists of making it difficult for people to get their work done." 

Bernbach On Creativity

My career has been influenced over the years by two great forces: Peter Drucker, the preeminent authority on management theory, and Bill Bernbach, the father of contemporary advertising.  If I ever started my own agency I'd be tempted to call it Bernbach & Bob to promote and honor the timeless truths expressed by the genius who changed our industry forever.  As a follow-up to my previous post, two of Bernbach's quotes come to mind:

"There are few things more destructive than an unsound idea persuasively expressed."

"Properly practiced creativity must result in greater sales more economically achieved."

Purpose of Business

The purpose of business is to create a customer.

It is not to create shareholder value, capture market share, reward MBOs, or create superstar CEOs.

The purpose is not even profit. Profit is not the explanation, cause, or rationale for business strategy but rather the proof of its validity.

The legendary Peter Drucker first made these observations nearly 50 years ago, and yet the challenge of putting the customer first is still just as challenging today - maybe more so given the rise of consumer empowerment enabled by the Internet, fostered through social media, and elevated to new heights by the voice of the individual.