Archive for the ‘balanced scorecard’ Category

Customer satisfaction drives profits

Most of the customer-facing employees don’t know that short-term and long-term profit of a company heavily depends on customer satisfaction. This is especially true in Germany.  

By not addressing customer satisfaction, company’s management doesn’t utilize the full financial potential of the company. The management may not provide the right incentives to its employees to foster customer satisfaction, like tying compensation to customer satisfaction. Or even worse, it doesn’t understand this dependency itself. So, if employees know about the relationship between customer satisfaction and profit, they may not care. 

But understanding profit drivers is not rocket science. Since the goal of every for-profit company is to make profit, as the name implies, every company should know its internal and external profit drivers and be able to control at least the internal ones. Since customers are those that through purchase of services and goods generate revenues for the company, making customer satisfied will drive revenues. This satisfaction doesn’t depend only on the services and goods sold to customers, but also on the overall experience they have when dealing with the company before, during, and after purchase. In the service industry it is especially this experience that drives customer satisfaction. 

Every company has processes in place for how to develop and deliver goods and services to customers. These internal processes are developed by company’s employees, as are the actual goods and services. While developing the goods and services and the processes behind them, employees need to keep customers in mind to ensure customer satisfaction. 

This concept of employees driving internal processes, these processes driving then customer satisfaction, and customer satisfaction driving at the end company’s profit is best captured by the balanced scorecard framework. The balanced scorecard framework has been developed in 1992 by two Harvard professors, Robert Kaplan and David Norton, and has been implemented in thousands of organizations worldwide. 

In addition to not realizing how customer satisfaction drives profits, most companies also don’t realize that poor service experienced by a customer doesn’t impact only the future life time business with that customer, but also may impact the business with other customers. A customer shares his or her service experience, especially the poor one, on average with seven other people within immediate circles of family, friends, and colleagues. Hence, a company not fixing a negative service experience is running the risk of losing life-time business with eight existing or potential customers. 

It is advisable for German companies to understand how customer satisfaction drives profit. And they should then pay attention to all drivers of customer satisfaction in order to fully utilize the financial potential of the company.