Many business leaders run their business on a combination of financial targets and ratios that at best give a view of where the company has been but say nothing about where the company is going. Despite the common use of Vision statements and balanced scorecards with targets for customer satisfaction and employee satisfaction, business leaders frequently find themselves stuck in the hectic race for short-term financial targets.
Managers find that they are perceived as successful by their superiors even if they miss so called “soft” targets as long as they reach or exceed their financial targets. The opposite, however is frequently not the case! Line managers who achieve good results on non-financial targets like processes, or employee and customer satisfaction but miss short-term financial targets are typically not as well thought of.
Profit is the result of successful business. But these profits are the result of people managing processes to create goods or services which satisfy customer needs. It is logical then that to increase profits managers must focus on the behaviours, processes and customer needs that create outstanding financial returns not the returns in themselves. One major problem with this way of thinking is that managers have very little knowledge in the behavioural sciences and therefore find it very difficult if not impossible to define which key customer needs to focus on and what employee behaviours will satisfy those needs.
Many companies spend large sums of money researching customer and employee satisfaction but many researchers admit that the real value of the research seldom reaches line management. Managers may have targets in their balanced scorecards to improve customer and employee satisfaction but they get little or no help in defining the changes necessary for reaching these goals. Instead managers do what they know best; cut costs, eliminate risk, focus on technology and lower prices to gain new customers or retain old ones.
Cost cutting is justifiable when changes in the environment make it possible to satisfy customers as well, or better than before with less cost. Managers have difficulty knowing how cost-cutting will impact customer satisfaction and often find out the hard way after the fact.