The Biblical parable of the wise and foolish builders illustrates the importance of constructing one’s life from the ground up by starting with a firm foundation. The wise man built his house on rock; the foolish man built his on sand. When the winds blew (or the wolf in the similar story of the three little pigs), the house built on rock stood while the one built on sand, while it might have looked fine on the outside, inevitably crumbled.
The parable has profound implications for each of us on a personal level. It also speaks volumes to the companies we own, manage, and work for on a daily basis. Logic would follow that organizations (and the people who make them up) conducting themselves with high integrity and character are best positioned to withstand the impending storms of competition, shrinking margins and ever-rising customer expectations. Such noble platitudes do not automatically guarantee our beloved organizations will survive, much less thrive, over the long haul.
The nature of capitalism dictates that profits are the life-blood of corporate growth and sustainability. Former Secretary of Commerce Charles Sawyer aptly noted that “Profit is the ignition system of our economic engine.” The recipe for constructing an enterprise that is truly built to last would thus seem to be an aggregate of highly principled and highly profitable business practices.
In his groundbreaking book, The Ultimate Question, Fred Reichheld explores the concept of “bad profits.” Bad profits are accrued at the expense of customer relationships. Whenever a customer feels manipulated, misled, mistrusted or ignored as part of the product/service experience, resulting profits are bad… bad from both the customer’s point of view and for the organization itself. Such profits may temporarily pad your corporate balance sheet, but over time they can cause irreparable harm.
You don’t have to look far to discover examples of companies generating bad profits. The recent United Airlines debacle in which a paying customer was summarily dragged from a plane after refusing to yield his seat to a United employee immediately comes to mind. The airline industry’s long-standing practice of intentionally overbooking flights has now cost United dearly. Bad profits at Wells Fargo extended into the realm of illegal activities in 2016 when bank employees secretly created millions of unauthorized bank and credit card accounts without their customers’ knowledge.
Other more subtle examples of bad profits are rampant. Ever try to decipher the vaguely itemized charges on your cell or cable bill? How about the use of “convenience fees” required to make certain types of on-line purchases? Or what should we make of various retailers that invoke a “restocking fee” for items we legitimately choose to return? Last but not least, what about unhelpful or even unethical sales people that try to push us into a purchase that is clearly not in our best interest?
Just because bad profits don’t show up on your general ledger doesn’t mean they aren’t a real and present danger. Left unaddressed, they will alienate your customers and demoralize your employees. Their tolerance by leaders signals an implied acceptance to those they lead. They also ultimately result in lost market share and the erosion of your brand (i.e. foundation). Here are two simple steps to follow as you seek to ensure your organization remains ground on a rock foundation.
- Identify the Enemy
Start by asking yourself: “Are the products and services we provide actually perceived by customers as value added?” “Do my customers feel like our business practices are designed to do something for them or to do something to them?” Your honest answer to these questions will go a long way in vetting out potential areas of concern.
You’ll also want to explore these questions with your internal team. Don’t limit your investigation to those in a leadership capacity, but also gather insights from front line personnel who interact with customers on a daily basis.
And don’t forget to gather input directly from your customers. Leveraging multiple listening posts is recommended, to include traditional survey tools, customer focus groups and personal interviews. Depending on your industry, much of the information you seek may already be contained via social media. Regardless of methodology, the key is to make it easy and non-threatening for your customers to vent.
- Be Mission Focused Versus Profit Focused
As an organizational leader, you are responsible for modeling the way for your team. It’s one thing to be able to succinctly articulate your company’s core values, but personally demonstrating these competencies through your daily actions and communications will motivate your employees to do the same. Make sure your overall mission speaks to things like putting the customer first and improving the lives of your customers. Set the tone by eliminating any current business practices that undermine customer relationships. Celebrate employees who help make a difference in this area.
What type of organization do you want to be known for… one that is ultimately compromised by the pursuit of short-term profits, or one that stands strong through the storm by always putting your customers first?
Business must be run at a profit, else it will die. But when anyone tries to run a business solely for profit, then also the business must die, for it no longer has a reason for existence.
– Henry Ford