THREE ESSENTIAL QUESTIONS DIRECTORS SHOULD BE ASKING ABOUT CUSTOMER SATISFACTION

Peter Drucker said that the most important task of business is to please customers and that everything else is just costs. Only satisfied customers - who remain loyal, spend increasing shares of wallet and promote the firm through positive word of mouth – can produce shareholder value.

Directors monitor financial statements and cost structures closely, but how much time each year do they devote to how management is planning to grow revenues and satisfy its customers? Sales growth and market share are certainly important measures, but they are lagging indicators.

Here are three key questions Board members might consider asking senior management each year in order to keep revenues growing.

1. Are we staying current with customers’ changing needs?

Do we know who our key customers are and what motivates them to give us their business? Do we conduct research among a true cross-section of the market to be sure we understand what drives customer satisfaction? Does our research give us direction on how to innovate in order to keep up with changing needs – especially for those customers who are most profitable for us?

By asking about customers’ changing needs, the Board is making certain that senior management has a clear and up-to-date view of who its current and potential customers are and what it will take to satisfy those customers – profitably.

2. Are we sure we are out-performing our competitors?

How satisfied are customers with us compared to our competition? Are we seen as the strongest in the market or just an also-ran? If we are not the top rated firm by most customers, are we at least top rated by a profitable or desirable segment of customers or do we have a plan to achieve a top rating? If we are top rated, what are we doing to remain at the top?

By asking about competitive performance, the Board is demonstrating to senior management how important it is to take a broad look at the whole market place and to think strategically about what must be done to make the business a powerful and successful competitor.

3. Are we investing the right resources to ensure our customers are satisfied?

Where and how much do we need to invest in order to ensure we are out-performing the competition in satisfying the market place? Should we invest in innovative products or services, in developing a stronger work force, in providing better quality or in something else? How are we going to afford the investments we need to make?

By asking questions about investing for customer satisfaction, Board members demonstrate they know that shareholder value flows from a secure revenue stream and the potential for rapid growth. Customers face choices every day about how to spend their money. Only firms that focus intensely on understanding and anticipating changing customer needs and that can prove they are using their resources to meet those needs better than the competition will win investors and growth.

Directors who encourage management to retain this focus on the customer and to incorporate it into the firm’s strategic plans, measures and resource allocations will perform a powerful role in the firm’s success.

Diane Schmalensee is President of Schmalensee Partners, specializing in customer satisfaction measurement and action. She serves on many Boards and is Chair of the Pioneer Institute for Public Policy Research. She can be reached at 617-566-6474.