From my years of experience working for different companies and teaching various graduate business courses, I developed three rules that management must practice in order to achieve long-term profitability and success. Follow these rules and a business can remain healthy and prosper. Ignore them and failure is virtually guaranteed in the long term.
Meeting and exceeding customer expectations is the most important but often overlooked rule of business. The only way a company stays in business is if the customer is satisfied with its product or service. This generates profit, builds long-term stability, and meets the challenge of competitors. Meeting expectations should be considered the baseline for company performance. Exceeding expectations should be the ultimate goal.
The best way for a business to exceed their customers' expectations is by providing real value for the price asked in exchange. When clients purchase a product or service and feel that they have received something worthwhile in return, baseline expectations have been met. When they maintain that perspective weeks, months, or even years later, the company is well on its way towards exceeding expectations. A sure-fire way to determine if expectations are exceeded is when customers are willing to pay extra for your products or services despite lower prices or extra features offered by competitors.
Some companies seem to practice this rule very well, such as: Costco, Sony, Toyota, USAA, Apple, ING Direct, Google, Amazon, Southwest Airlines, Zappos.com, and Wal-Mart. On the other hand companies like Microsoft, eBay, Time Warner, Bank of America, Washington Mutual, Countrywide, Chrysler, GM, United Airlines, and Kmart fell significantly short of the baseline. Out of these last ten, five declared bankruptcy (United Airlines twice), three have been taken over by other companies, and a couple had to accept federal bailouts to survive and will still need to be re-organized.
A company is in business to earn a healthy return. If a business does not work towards achieving long-term profitability and increased value it must close, period. There is no point in risking money, time, energy, and resources to break even or lose money. It would be better for that money to be invested somewhere else and earn a corresponding rate of return, while saving everyone's time and efforts.
The owners and managers of a business must maintain their focus on creating sustainable long-term profitability and value. This means that short-term tactics must be subordinated to the long-term strategies that reinforce healthy profitability, not the other way around. Unfortunately, many executives and companies sacrifice resources, employee morale, customer satisfaction, product or service quality, and future competitive strategies through excessive preoccupation with short-term profitability. Often management's reliance on cost-cutting measures, asset sales, and outsourcing strategies will negatively affect customer and employee satisfaction, endanger the company's brand, decrease overall value, and weaken the company's ability to achieve sustained growth in the future.
In his essay, "Management Beyond the Day," Dr. Hermann Simon observes, "Good management has nothing to do with short-term successes and the management elixirs that allegedly led to them. It cannot be achieved by judgments based on quarterly results, but rather emerges from a deeply rooted understanding of the durable, unclouded by short-term spectacular success stories." Yet, many compensation packages, reward mechanisms, and promotion criteria in organizations focus solely on short-term results and benefits of management decisions at the expense of brand strength and future competitive advantages, and without regard to the long-term consequences of such actions.
As I emphasized in a previous article: Profitability is extremely important only as long as it increases the long-term value, survivability, and growth prospects of a company. True and healthy profitability can only be achieved through hard work, focus, and continuing improvement and innovation, that provide real, sustainable, and increasing value to shareholders (owners), customers, and employees. The other kind of short-term “profitability” is merely an illusion that allows the company to be destroyed from the inside for some minimal gains or to decorate shareholder reports. (Managing for Long-Term Success and Profitability, http://chrisbanescu.com/blog/2008/08/29/managing-for-long-term-success-and-profitability/)
Employees play the most critical part in the long-term success and survivability of a company. It is essential that management only hire and promote the best people, continually treat them with the respect, care, and concern shown to their best customers, and ethically reward them according to the proportional value and contributions these employees bring to the table. This approach is key in insuring that the first two important rules in business will operate effectively and consistently in an organization.
Read full article on the Chris Banescu.com site.