Customer Satisfaction as a Predictor of Future Performance and Executive Compensation

A company cannot simply exist in the here and now. It must constantly evaluate its horizons and the intervening landscape to ensure a safe and financially secure future. But have the required techniques changed in the fast-paced and quickly changing 21st century economy? The answer is yes. Or more precisely, if they haven’t yet changed in an organization, they will have to do so pretty fast.

Traditionally, planning of a company’s future was based first on hard financial performance data – numbers that reflected profit and loss, return on assets (ROA), stock price, and so on. Secondly these numbers helped determine another influential tool: executive compensation. Locating, hiring and retaining top executive talent is vital to ensuring the right minds are in place to set the course for the company, and this has led to some significant bidding wars and healthy salaries for the person upon whom the company’s short, medium and long-term future rests.

Numerous business analysts have therefore questioned whether metrics other than financial ones should be used to help determine a company’s performance and executive compensation. Does customer satisfaction count? One article, written by Vincent O’Connell and Don O’Sullivan for the MIT Sloan Management Review, basically concluded by saying “it depends.”  It depends on the company, the industry, and the relationship that customer satisfaction has to the bottom line, for example, whether improvements in customer satisfaction would cost more than they are worth. Again, the authors’ conclusions were, “it depends.”

This may be so, but it is important to recognize that much has changed in the short time between this article’s  publication, 2016, and today. In fact, any decision maker who responds to this observation by saying, “but that was only four years ago,” reveals a significant weakness that threatens to crumble the foundations of the company they oversee.  In today’s digital economy, fiscal years must be seen like “dog years,” in the way we generally assess the life and development of our canine friends in a ratio of one human year equals seven dog years. As such, in terms of global developments, especially commercial, ecological and political, 2016 is more like 21 years ago than three.

For organizations, the most potent development in this era is in data. Data is everywhere, and data rules supreme. Managers and executives who took their university schooling and early management education prior to 2016 are working from a playbook in which things are more static, and which unfold more slowly. A five-year plan made more sense in the days when it took a corporate ship that many years to alter its course.

Today, any executive who has not studied the case histories of Uber, AirBnBAmazon or Wework are at a strategic disadvantage. These companies, and many more like them, have upended their industries’ business models in shockingly short periods of time. Some have yet to turn a profit and are losing money massively, yet they persist and thrive.  And most of the reason for this new brand of success has to do with the use of customer-based relationships, crowd-sourced employment, and the virality of social media, little of which can be found in textbooks that still quote Drucker and pay homage to the balanced scorecard.

The voice of the external customer is vital to the short and long-term success of any organization. It must be captured and factored in as a living, breathing reflection of customer satisfaction in retail as well as B2B. We exist in an era where every person expects to be treated in a  bespoke manner as an individual. They will demonstrate their own definitions of customer satisfaction through their actions and words, both of which can be tracked and parsed as data, whether structured data, like a survey, or unstructured like a comment or a Tweet.

Consider showrooming as an example. Showrooming is an activity in which a customer visits a store, looks at a product they wish to buy, and then right there in the store they order the exact item from Amazon or Wayfair. The retail store has had to act as an unwitting showroom and makes no money from the sale. Obviously the metrics of customer satisfaction in this case point to a paradox. The pricing and service provided by Amazon or Wayfair is more pleasing than that of the brick and mortar store, even though the key deficiency of the online store – the lack of haptic, tangible experience – is made up for by the hapless retail store that acts as its proxy. Obviously there is a customer satisfaction gap that both online and real-world retailers must compete to fill in their own ways. This cannot be done using strategies that were born in the age before social media.

So the question around customer satisfaction data should no longer be whether it’s relevant, but should be how do we get hold of it?

The same applies  to the voice of the internal customer. Employees of all ages are vastly more aware of their career mobility than at any previous time. They expect a great deal of internal customer service in terms of working environments, work-life balance, the use of wireless technology and virtual collaboration space, and even the ethics of their employer along key axes such as transparency, green initiatives and gender issues.

These people, once considered employees, must now be approached as internal customers, involved in a transactional relationship, and from whom feedback data is as critical as external customers.

Thus to return to the initial question of whether customer satisfaction should be factored as a predictor of future performance and executive compensation, it might be time to retire the context-specific answer of “it depends” and place customer satisfaction squarely on the plate, alongside cybersecurity and artificial intelligence as vital new elements of a company’s heartbeat.

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