The Correlation between Customer Management and Business Performance is Clear

In our report 'The customer management scorecard: the state of the nation' ^[1], we discussed several approaches that have influenced and shaped our thinking and can help create customer value. These included the Deming Prize, the Malcolm Baldridge National Quality Award, the EFQM Business Excellence Model, the Balanced Scorecard, and the American Customer Satisfaction Index (ACSI).

Professor Peter Doyle of Warwick Business School ^[2] refers to how managers have sometimes confused maximizing shareholder value and maximizing profitability. Doyle states that the two are completely different and that:

Maximizing profitability is short term and invariably erodes the company's long-term market competitiveness. It is about cutting costs and shedding assets to produce quick improvements in earnings. By neglecting new market opportunities and failing to reinvest, such strategies destroy rather than create economic value. Strategies aimed at maximising shareholder value are different. They focus on identifying growth opportunities and building competitive advantage. They punish short-term strategies that destroy assets and fail to capitalise on the company's core capabilities.

There is a close correlation (0.88) between the Dow Jones and the ACSI. Researchers at the University of Michigan Business School ^[3] claim that market value added (MVA), stock price, and return on investment are highly related to the ACSI. Their research shows that companies with the top 50 per cent of ACSI scores created an average US $24 billion in shareholder wealth while firms with the bottom 50 per cent of scores generated only US $14 billion. An article ^[4] by Michael Lowenstein describes how the ACSI shows that satisfaction scores for airlines, banks, department stores, fast-food restaurants, hospitals, hotels and telephone companies are all down. Lowenstein suggests the reasons for this include cost reduction pressures, reduction of investment in human factor in favour of technology, and the attitude of senior management, as it shapes the culture, structure, systems and processes within the company.

Further evidence ^[5] that the implementation of best practice and quality management principles has an impact on the bottom line can be found in a recent study conducted by Dr Vinod Singhal of Georgia Institute of Technology and Dr Kevin Hendricks of the College of William and Mary. ^[6] Their five-year study of over 600 quality award winners concluded that award winners achieved significant improvement in operating income, stock value, sales revenue, return on sales, asset growth and employment. The researchers tracked performance over five years, from one year before the award to four years after receipt. Compared with a control group, award winners achieved a 44 per cent higher stock market price, 48 per cent higher growth in operating income and 37 per cent higher growth in sales revenue.

QCi commissioned research ^[7] to examine the correlation between how well a company manages its customers and business performance. It showed strong correlation (0.8) between good customer management performance and business performance (Figure 16.1). In other words those companies that look after their customers and are truly customer-centric are more likely to return better financial results. This research indicates that a system approach to customer management is likely to lead to stronger business performance. This is shown in Figure 16.2, which shows how the overall CMAT score (the score of how well companies manage customers) and scores for each element of the CMAT model correlate with business performance.

The highest correlation is with the overall CMAT score itself, implying that greatest business performance is likely to be achieved by carrying out a number of 'priority' activities across the whole model: a first pass across the model if you like. This approach is likely to be more beneficial than focusing deeply on one area, such as analysis and planning. While correlation does not necessarily mean causation, all the combined evidence from the various performance studies suggests that striving towards best practice across the 'system' delivers a sound return on investment.