The Age of Customer Capitalism-January 2010

The Age of Customer Capitalism talks about the relationship between shareholder’s value and customer’s value. It goes through the history of capitalism where initially there is a need to separate the ownership and management of business, hiring professionals to manage the business.

Because of principal-agent problem, we see the rise of shareholders’ value capitalism where there is a strong focus for corporations to improve/increase shareholders’ value. But with such type of capitalism, and the only way to realize a higher shareholders’ value is through the stock prices, we see some corporations’ management start to ‘manipulate’ stock prices by trying to exceed expectations of Wall Street. Such moves create knee-jerk reactions to the stock prices and a lot of price volatility.

Moreover, because of shareholders’ value capitalism we see the rise of stock options featuring in the remuneration package of CEOs so as to align their interest with that of the shareholders. But this has made management short-sighted, and for those retired CEOs, their successors will most likely have their work cut out for them. In the last decade, we have seen what consequences such capitalism has brought about.

In this article, a new era of capitalism is coined and that is “Customer Capitalism” where the focus is on increasing customers’ value. Personally, I concur with this new capitalism. Customers are the main foundation of any businesses. Without customers, there cannot be any business at all. Given the booms and busts that are coming fast and furious, a re-focus back on customer’s value would create a sustainable business because customers are mostly value seeking. Customers will always patronize the companies that give them the most value, no matter in good or bad times. As such, companies that focus on customers are going to survive well in bad times.

I think the second group of people CEOs should focus on is employees. Especially front-line employees, they are the one that has the most direct impact on the customer’s value created besides the value that the product or services provided. So I strongly feel that if a company wants to refocus on customers’ value again, there must be a strong partnership formed with front-line staff. Listen to their feedback and needs, make changes/improvements to processes, and most importantly adjust their remuneration package accordingly to reinforce the idea of being customer-centric so that substantial customers’ value can be created.