Beyond Profits

Working for employee and customer satisfaction ought to be the primary aim for any organisation

In the past year, India’s leading financial dailies have featured companies going belly up so frequently that it no longer serves as news when yet another failure is reported. This desensitisation is all the more worrying, considering the vital lessons to be learned by evaluating the strategies that went awry, causing the deaths of so many concerns and brands in the marketplace. Managers will ignore them at their peril.

To succeed, businesses must systematically create value. This value must be provided to at least three distinct groups - shareholders (in the form of a return on investment), customers (in the form of a quality product or service at an attractive price), and employees (by way of providing personal and career satisfaction).

However, over 80 per cent of the measurements used to manage a company are designed to gauge annual returns to shareholders. Most management decisions are therefore biased towards delivering short-term value to them. An income statement or balance sheet tells us almost nothing about the company’s ability to create value for customers and employees and, therefore, long term shareholder value. Although customers and employees are possibly the only assets of a company that appreciate in value.

Obsession with shareholder information is a hangover from early industrialisation in India, when the survival of process industries such as steel and textiles depended on attracting vast capital needed to power those firms. Those days are since gone, but the measurement systems they spawned are still with us. It is these partial measurements, and not the stupidity of the managers, that lead to poor decisions and lost opportunities. CEOS must now define what should be measured companywide to ensure long-term shareholder value.

Satisfaction measurement
What can be measured can be managed in terms of planning, control and improvement. The corollary is that whatever escapes measurement becomes an unknown variable and ultimately wreaks havoc in a management system. If Newton had studied what large corporations measure, he probably would have concluded that the management theory for business success is that ‘only short-term profits matter’.

But businesses require far more than mere short-term profits. They require the continuous creation of value. Only information that tells managers whether the company indeed is providing value is critical. All other information is secondary. Ultimately, the customer pays our salary. Market research for measuring customer satisfaction should therefore be the mandate. And a prerequisite to customer satisfaction is employee satisfaction. While it is important to measure satisfaction, to succeed we need to change the measures of satisfaction.

A careful scrutiny of the Indian Maerchant Chamber’s Ramkrishna Bajaj National Quality Award criteria reinforces the concept of creating value for customers, employees, the community and shareholders. The most important measures culled from the criteria are:

• Reliability of producers and services
• Repeat business
• Appraisal and target setting
• Improvement suggestions received
• Involvement in community education and training
• Export earnings
• Supplier performance
• Process capability

Each of these measures should be examined for trends. Each trend should be benchmarked against the relevant best-in-class. Only then will a CEO not be embarrassed by bad results.

Without these measures, a CEO would be like a pilot flying an aeroplane with nothing but the airspeed indicator telling him how he is doing. Without the use of an altimeter or compass, most planes would crash. And without the right measurements, most otganisations face a similar fate. An effective leadership compass, such as the International Quality Rating System, can transform bad results to good.

The reality is that because of the all-absorbing challenge of a successful flight, CEOS have little time and energy to address their real jobs, the redesign of the plane and its instrumentation. Unless, of course, you are Suresh Krishna of Sundaram Fasteners or Chandra Mohan of Punjab Tractors.