Being in a business in which no industry segment is more than 10% of our revenue gives me the good fortune to work with many different industries and to build professional and personal relationships with people across different industries.
Recently I was asked to attend a strategy meeting of an FMCG (Fast moving consumer goods) company. The Asia head of this company wanted to get an outsider perspective on the leadership and it's discussions in a time of slowing economy.
Even in this turmoil filled economy I continue to be an unashamedly free market capitalist. But the discussions at the strategy meeting felt hollow and incomplete. The whole conversation had all segments of the business concentrate only on the benefits (short term) to the share holders and ignored all the other stake holders in the company.
Let me explain: Every business has 4 major stake holders; the customer, the employee, the investors and the supplier. About 80% of the discussions at the meeting centred around spinning things for the investor conference. About 10% of the time involved talk about employee morale. The remaining 10% was spent on pressurizing suppliers into providing better terms and repackaging existing products in different ways to add profits. There was 0% discussion on providing tangible value to the ‘CUSTOMER’.
Investors in a business are clearly important. They are also fickle, and many of them care more for short term profits than on long term success. The employees, at least a vast majority of them want to build successful careers, wealth and value for themselves and the companies they work for. They have longer term loyalty towards the company. The customer, wether he buys milk, or she buys instant noodle, or an electronic gadget is the one that will ensure long term success or failure of the company.
I asked the question to the group that I was observing – why their focus was so heavily lopsided towards making the investor happy, at the expense of all the other stake holders. None of the senior execs had a reasonable answer that they themselves could rally behind. After about three hours, the discussion got shepherded towards value creation and profitable growth. In the time of economic turmoil, common sense often takes a back seat. It is important to keep the core values of your business in sight, develop tangible value to all your stake holders, and most importantly not get caught up in financial and tax engineering to make your company look better to Wall Street. In panic people often come up with ideas that could create short term finacial gains but could end up killing the organization.
Ensure that the fundamentals of the business with and the core values do not get diluted by “smart talk” about fake value. “It is too complex to explain or understand” is the most commonly used line by engineers of fake value –whether it be financial engineering or engineering products or services with limited value to the customer.
5 comments:
Just what the doctor prescribed. Chandran, you may be "an unashamedly free market capitalist" and, I for one am not. If there were more "capitalists" like you, we would not be in the present mess. May your tribe grow!
The title was "catchy". More importantly, I am glad that I read your thoughts and well written matter.
My few cents on the subject - I think there should be a healthy BALANCE between "short term" and "long term" benefits if such a thing exists. The balance would depend on a number of factors that includes the risk the organization can take and also the economic times!!. The investor, the organization, the employee and the customer should benefit for a sustaining business. The degree of benefit to each stake holder may be different, but I agree the CUSTOMER is not to be forgotten; if there are no "happy" customers the business will cease to exist over time and all the stake holders will be effected.
Unfortunately, most investors and other stake holders look for short term benefits for immediate gratification - probably the main reason for the current economic mess!!
I believe that global capitalism has worked well. What often happens is that many people forget that this model was arguably designed by the people for the people. The end game is to improve the lot of all members of society. Clearly, not all players agree with this premise: even those affected the most by the dark side of global capitalism have been coerced or seduced into believing at this system is best, warts and all. The focus of the enterprise should become more aligned towards the employees:who at the end are the most important stakeholders: they give most of their time, risk more of their life (think stress, travel, relationships), than any of the other stakeholders you mention. As you write Capital is fickle, most shareholders don't even know the name of the company they own, as they most likely invest indirectly through mutual funds, pension funds or other indirect vehicles; suppliers can come and go, and as those of us who has dealt with purchasing agents realize they are not there to build win-win relationships; customers may be the most fickle of all. I also believe that the employees are the "soul" and "concience" of the enterprise: they are the ones who knudge the organization to care about the environment, the less fortunate of our society, and the well being of the local community where the enterprise is allowed to play.
Here is to the of the most important stakeholder: the employee!
Your comments on employees is very relevant. The customers pay the employees salaries, hence ensuring customer success, will lead to employee success (in well run companies)
I got a number of emails about this note form many different people in a number of organizations. Most wanted to say that the employee is the most important part of the organization. The thing to remember is that there should be a good balance. One of the reasons we are in a financial crisis is that many employees in the financial institutions took very good care of themselves,and let their customers fail - and hence their companies failed.
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