Focusing on Consumers May Not Be Any Smarter Than Focusing on Shareholders

Two pieces in the January/February issue of Harvard Business Review focus on the importance of customers, and both--I think--make the same mistake.

The first, by Roger Martin of the University of Toronto, makes the case that companies have been focused on shareholder value for the past three decades, to the detriment of their shareholders--an argument with which I have a good deal of sympathy.

Martin draws on some historic data showing that shareholder returns actually went down during the "shareholder value era" (which he defines as stretching from 1977 to 2008) to make the case that "to create shareholder value, you should instead aim to maximize customer satisfaction."

I think Martin is on to something, but I would make the case that companies should in fact be focused on the needs of all stakeholders: employees, customers, shareholders and--in today's hyper-transparent social media age--communities.

Martin touches on this possibility, but dismisses it in a sidebar that argues "there can be only one goal," or more specifically that companies "can maximize only one variable." That may be true, but it doesn't prove that customer satisfaction is the one variable that companies should be maximizing. More important, it doesn't prove that maximizing a single variable is the best approach to creating a successful, sustainable business.

Indeed, in arguing for a shift from focusing exclusively on shareholders to focusing exclusively on customers, it seems to me that Martin is simply creating a new variation on the same mistake. (Consider: Martin makes the case that focusing on customers will create a better return for investors; I could make a similar case that focusing on employees will create a better experience for customers.)

Managing the conflicting demands of multiple stakeholders is, it seems to me, what makes management challenging and interesting. Any attempt to reduce that task to a single dimensional is an over-simplification.

In the second article, Roland Rust, Christine Moorman and Guarav Halla (University of Maryland, Duke University and consulting firm Knowledge Kinetics respectively) make the case that companies need to reorganize their marketing to put "cultivating relationships ahead of building brands."

Again, I think the authors are half right. The idea that there needs to be (and for many companies, already is) a focus on relationships is relatively uncontroversial. But I'm not sure why the emphasis is exclusively on customer relationships. To my mind, companies need to reorient themselves around managing their relationships with all of their key stakeholders.

There is a function in most companies dedicated to that idea. Now what's that called again....