Monday, June 20, 2011

Sacred cows and holy grails.

Whatever happened to that business catchphrase “the customer is king”? Or the “customer is always right”?

Has it been consigned to useless rhetoric as many of our aphorisms and universal truths tend to be? Has it become nothing more than a bit of “rah-rah” to fit into some advertising campaign or to get unwilling staff a bit fired up in improving service?

It is such a pity…because customer focus and the pursuit of service excellence are the essence of economics. It is much more than rhetoric. It is much more than sloganeering. It is indeed the holy grail of a market driven economy. Seeing customer service as the ultimate super-ordinate goal of business brings to life the axiomatic truth that supply exists to serve demand. It is not the other way around. It is an obscene thought that markets or the customer collective is an exploitable entity that exists to generate profits, create shareholder value, pay executive and other salaries, create jobs, pay taxes et al. This has arguably been the cause of many of our economic ills, particularly in the past few decades.

The whole debacle over the Walmart entry into the South African market is an important case in point. Very little of the public discussion and popular media coverage centred on what it would mean for South African consumers. One would have thought that the Competition Tribunal’s main concern would have been those benefits rather than prescribing conditions for entry. Perhaps it did take a balanced view in the end, but the fact that it had to spend so much time and debate on paying homage to other sacred cows is a worrying reflection of how far we have moved from the holy grail of customer sovereignty. Indeed, one can also ask whether it is at all appropriate to compromise customer interests in achieving a “balanced” solution.

From a purely consumer point of view, one should celebrate the entry of the world’s biggest retail group into the country. It will certainly shake-up competitiveness in retail which, not so long ago, was being questioned by the unions in the wake of bread price collusion. The deal represents some R16bn in investment, the promise of 50 new stores and some 6000 new jobs. This is only the “beast in the bush” as the Economist called it, if we fear disturbing growing protectionism, labour inflexibility and inefficiencies that have already tumbled us down to number 54 in the Global Competitiveness Index. That same article made the point that in the United States, Walmart was instrumental in reducing inflation.

In the big metros and abundant shopping mall areas one can sometimes lose sight of the benefit of competition. Swellendam has been abuzz recently with the opening of a new mall, and the coming to town of a Checkers store to compete against Spar, OK Bazaars, Shoprite, and a local discounter, Check-in. For some weeks now, there’s been much animated talk about prices, specials, parking areas and service comparisons. All agree that each store has upped its game quite a bit.

Competition in retail is only one thread of a much bigger economic tapestry. Customer sovereignty is not just a slogan. It recognises the important axiom that ultimately our true value lies in our capacity to make a contribution to others. Business is an important conduit for achieving this. In a market orientated economy all other considerations are secondary to this one overriding principle. You cannot create jobs by throwing tax payers money at it. You also should not preserve jobs by protecting gross inefficiencies. Jobs are created by serving the needs and wants of others. Jobs are preserved by competing effectively against all comers. The foundation of creating wealth is in adding value for others and indeed in accounting, wealth is measured by measuring value added. This again underscores the problem of our time of froth liquidity based on wealth creation without tangible value having been added.

In much of my consulting I would encourage companies to approach any problem, from major strategic issues to minor employee disputes from the perspective of what would be in the best interests of the customer. It is virtually infallible as a beacon and cuts through petty and narrow interest like a hot knife through butter. It invariably leads to a solution that few can challenge as being biased.

We have deviated quite severely from the purist market driven path in which the customer is king in all things. We have created many sacred cows that stand in the way of that holy grail. These include trade protectionism, executive remuneration driven by share value, profit maximisation at any cost; narrow labour interests, rigid pay demands and burgeoning taxes. To this one can add the more shady activities such as corruption, nepotism, cronyism, and collusion. The thought comes to mind whether one would not have a valid case in challenging these practices, both “legitimate” and shady under the new Consumer Protection Act. They are more invidious and damaging to longer term consumer interests than occasional malpractices.

There are some very eloquent arguments in defence of market interventions. Most of them are legitimately based on the misbehaviour of interests devoid of sound human values. The only question that we need to ask ourselves is whether the customer should be knocked so far off the pedestal as we have done. Should we not brandish the butcher’s knife at some of the sacred cows?

From an global perspective, the principle of providing humankind with the best products at the best price should be an overriding guide. But, as the Doha trade talks keep on revealing, narrow national interests continue to bedevil this process.

From a national perspective, trade liberalisation and competitiveness are by far the most essential ingredients for a successful economy in the longer term, underpinning the prescription discovered some years ago by World Bank researchers, that successful economies are those with an external focus and strong domestic people development policies. Yet, inflated popular expectations keep on driving national policies in the opposite direction.

From a company perspective, the most sustainable are those whose primary measurements of success are customer satisfaction, market share and innovation, a contented workforce and healthy profitability.

From an individual perspective, the most empowered and arguably the most content are those who seek meaning by adding value to the lives of their fellow human beings.

Many countries, businesses and individuals today are market led. The really great ones are sincerely market driven.

The customer is indeed king.

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