Social media stimulates sales

http://www.itweb.co.za/index.php?option=com_content&view=article&id=36955&catid=69&o=esme&E=ezines@ecomms.co.za

 

Social networks – Twitter, Facebook and MXit – are the next step in developing a solid foundation for a customer-centric business and being up to date with the latest consumer demands.

This is according to Yaron Assabi, CEO of Digital Solutions Group, speaking at the recent ITWeb BPM summit held in Midrand.

He estimates that 98% of consumers refrain from purchasing a product after a bad experience with either the company or the product and this massively affects business success.

According to Assabi, managing strong ties of communication with consumers is key to developing a rigid knowledge foundation about a product and motivates the business to re-invent and improve its services.

“Consumers have full control over successful businesses because they own the relationship with the company and shape the brand.”

Since companies are unable to receive all consumer views about their product due to limited measures of consumer-company communication, he motivated them to partake in social media as well.

Twitter, Facebook live chats and MXit are the fastest growing forms of social media, which enable suppliers to know about consumer views of their products. He also advised businesses to make room for consumers to rate its services through SMS, and to become proactive instead of reactive.

He believes that in future, the most powerful brands will be customer-centric and successful companies will know their customers very well.

According to Assabi, a successful business is owned by consumers since companies no longer control the mass message about its products. He believes one customer experience with the product can either lead to another customer’s purchasing the product or refraining from doing so.

Assabi criticised businesses for adopting company-driven approaches, focusing on efficiency and lengthy deployments. He encouraged businesses to embark on customer-driven approaches, focusing on unified loyalty and consistent good experience.

He believes these are the fundamental building blocks for a solid customer to company relationship.

“A great customer experience therefore requires that knowledge exchanges take place in a timely way across all communication channels and is consistently accurate, relevant, clear and up-to-date,” said Assabi.

Shareholders v stakeholders

A new idolatry

The economic crisis has revived the old debate about whether firms should focus most on their shareholders, their customers or their workers

Apr 22nd 2010 | From The Economist print edition

THE era of “Jack Welch capitalism” may be drawing to a close, predicted Richard Lambert, the head of the Confederation of British Industry (CBI), in a speech last month. When “Neutron Jack” (so nicknamed for his readiness to fire employees) ran GE, he was regarded as the incarnation of the idea that a firm’s sole aim should be maximising returns to its shareholders. This idea has dominated American business for the past 25 years, and was spreading rapidly around the world until the financial crisis hit, calling its wisdom into question. Even Mr Welch has expressed doubts: “On the face of it, shareholder value is the dumbest idea in the world,” he said last year.

In an article in a recent issue of the Harvard Business Review, Roger Martin, dean of the University of Toronto’s Rotman School of Management, charts the rise of what he calls the “tragically flawed premise” that firms should focus on maximising shareholder value, and argues that “it is time we abandoned it.” The obsession with shareholder value began in 1976, he says, when Michael Jensen and William Meckling, two economists, published an article, “Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure”, which argued that the owners of companies were getting short shift from professional managers. The most cited academic article about business to this day, it inspired a seemingly irresistible movement to get managers to focus on value for shareholders. Converts to the creed had little time for other “stakeholders”: customers, employees, suppliers, society at large and so forth. American and British value-maximisers reserved particular disdain for the “stakeholder capitalism” practised in continental Europe. 

Now, Mr Martin argues, shareholder value should give way to “customer-driven capitalism” in which firms “should instead aim to maximise customer satisfaction.” This idea is winning some converts. Paul Polman, who last year became boss of Unilever, a consumer-goods giant, recently said to the Financial Times, “I do not work for the shareholder, to be honest; I work for the consumer, the customer…I’m not driven and I don’t drive this business model by driving shareholder value.”

Nor is it just customers who are expected to benefit from a backlash against the cult of shareholder value. Mr Lambert reports that a recent survey of the CBI’s members found that most expected that a “more collaborative approach would emerge with various different groups of stakeholders”, including suppliers and the institutions that educate workers. And a forthcoming book by Vineet Nayar, the chief executive of HCL Technologies, a fast-growing Indian business-process outsourcing firm, takes a quite different position to Mr Martin, as is evident from its title: “Employees First, Customers Second”.

Has the shareholder-value model really failed, however? The financial meltdown has certainly undermined two of the big ideas inspired by Messrs Jensen and Meckling: that senior managers’ pay should be closely linked to their firm’s share price, and that private equity, backed by mountains of debt, would do a better job of getting managers to maximise value than the public equity markets. The bubbles during the past decade in both stockmarkets and, later, the market for corporate debt highlighted serious flaws with both of these ideas, or at least with the way they were implemented.

A firm’s share price on any given day, needless to say, can be a very poor guide to long-term shareholder value. Yet bosses typically had their pay linked to short-term movements in share prices, which encouraged them to take measures to push the share price up quickly, rather than to maximise shareholder value in the long run (by when they would probably have departed). Similarly, private-equity firms took on too much debt during the credit bubble, when it was available on absurdly generous terms, and are now having to make value-destroying cuts at many of the companies in their portfolios as a result.

In some ways the current travails of Goldman Sachs (see article) epitomise the problem. The investment bank embraced the maximisation of shareholder value when it went public in 1999. Although it insists that it does not live quarter to quarter, senior figures from its previous incarnation as a partnership, when it naturally championed the long-term interests of its employees (the partners), argue that it would have been much more wary in those days of any deals that made a quick buck at the risk of alienating customers. But, as Mr Lambert points out, “It wasn’t just the banks which had a rush of blood to the head. For a few years, a fair number of other companies seemed to put almost as much effort into managing their balance-sheets as into wooing their customers.” In his view, “If you concentrate on maximising value to shareholders over the short term, you put at risk the relationships that will determine your longer-term success.”

Yet this need not mean that the veneration of shareholder value is wrong, and should be replaced by worship at the altar of some other business deity. Most of those preaching reverence for other stakeholders concede that the two are usually not mutually exclusive, and indeed, often mutually reinforcing. Mr Martin, for example, admits that “increased shareholder value is one of the by-products of a focus on customer satisfaction.” Likewise, in India’s technology industry, where retaining talented staff is arguably managers’ hardest task, Mr Nayar’s devotion to employees, which he says has helped increase revenues and profits, may be the best way to maximise long-term shareholder value.

In other words, the problem is not the emphasis on shareholder value, but the use of short-term increases in a firm’s share price as a proxy for it. Ironically, shareholders themselves have helped spread this confusion. Along with activist hedge funds, many institutional investors have idolised short-term profits and share-price increases rather than engaging recalcitrant managers in discussions about corporate governance or executive pay.

Giving shareholders more power to influence management (especially in America) and encouraging them to use it should prompt them and the managers they employ to take a longer view. In America, Congress is considering several measures to bolster shareholders at managers’ expense. In Britain, the Financial Reporting Council has proposed a “stewardship code” to invigorate institutional investors. “This is a phoney war between shareholder capitalism and stakeholder capitalism, as we haven’t really tried shareholder capitalism,” says Anne Simpson, who oversees corporate-governance activism for CalPERS, America’s biggest public pension fund. “Rather than give up on shareholder value, let’s have a real go at setting up shareholder capitalism.”

The Secret to Meaningful Customer Relationships

Agency theorist Michael Jensen has a very clever view about qualitative performance assessment. He notes that subordinates generally object to receiving qualitative performance feedback from their superior, especially if it is at all negative. They typically are dismissive of the qualitative feedback and ask for the feedback to be on a quantitative basis only.

Jensen’s counter-intuitive advice to the superior is not to apologize for the qualitative nature of the feedback but rather to tell the subordinate that if he could actually be evaluated using purely quantitative measures, his job should be outsourced. That is because if everything important about his work could be defined quantitatively, it would be easy and more efficient to design a contract with clearly defined service level agreements with an outsourced provider.

What this means is that a smart subordinate should actually want the relationship with the firm to be based at least in some part on things that are qualitative — that require judgment and interpretation because these are what makes it necessary and optimal for him to be an actual part of the firm. A quantitatively based relationship is a shallow one while one that has an important qualitative dimension is a deeper one.

The same logic applies to a firm’s relationships with customers. If our understanding of customers is based entirely on quantitative analysis, we will have a shallow rather than deep relationship with them.

This runs against the prevailing view of customer understanding. Quantitative customer analysis with a large statistically significant sample and multiple choice questions that enable quantitative analysis of the answers is deemed ‘rigorous’. Qualitative customer research that uses small samples and conversational and/or observational approaches is considered by many to be lax and/or shoddy — and certainly unscientific.

The former represents an interesting definition of rigor. It is rigorous from a numerical statistical perspective. But note what we have to give up in order to acquire this ‘rigor’. It means that our words have to be used, not the respondents’ words.

For example: “How important on a scale from 1 to 5 is reputation for thorough after-sale service to your purchase decision?” As research tool designers, we know what we mean by ‘reputation’, ‘thorough’, ‘service’ and ‘purchase decision’. And we know what we mean by 1 through 5. And we will have an idea of what the model respondent means by these terms if we did rigorous pre-testing of the instrument with a customer sample.

But we won’t know the definitions of the respondent who is answering this particular question. And we won’t know whether the respondent thinks about the decision in entirely different ways. And even if she does, we will take her answers and add them to the rest of the answers to do rigorous quantitative analysis of what they mean as if every respondent meant the same thing. We have to accept a really shallow relationship with the customer to get a ‘rigorous understanding’ of them. In other words, we have to give up a whole lot to be ‘rigorous’.

Qualitative, and especially observational or ethnographic, research enables us to delve much more deeply into the relationship between our firm and its product/service and the customer. Because we aren’t obsessed about adding all the responses together for ‘rigorous quantitative analysis’, we can let the customer use his own voice/words/vocabulary. Because customers often struggle to put into words their feelings about products, services or providers, we can watch them do what they really do, rather than what they say they do — and may not actually do. This all enables a much more nuanced view of our customer.

But all of that is subject to qualitative judgments on our part. The quality and depth of our relationship with the customer will be a function of the quality of our interpretative eyes and ears. However, unlike with quantitative research where we really have no chance, with qualitative research we have a fighting chance of attaining a deep understanding of our customers. Unlike with quantitative research where we in essence ask them to tell us what they think, need and want, with qualitative techniques, we take on very directly as our job to form a thoughtful interpretation.

Of course, qualitative customer research doesn’t trump quantitative research across all dimensions. The ever-present danger with qualitative research is that the subjects are not representative of the entire customer base in substantial part because the sample sizes are almost certain to be considerably smaller due to the greater amount of time involved. And qualitative research is more likely to tie up the time of important managers than quantitative research which is often outsourced to experienced providers.

That having been said, if you want a deep relationship with your customers don’t spend your time talking to them through the vehicle of quantitative research tools.

Roger Martin is the dean of the Rotman School of Management.