How do you balance the needs of customer and share holders wealth?

Answer 1

IntroductionAn entity may have different objectives as some will drive with the primary vision of maximizing customer satisfaction and others will concentrate more on maximizing share holders wealth.

Customer is a person, company, or other entity which buys goods and services produced by another person, company, or other entity and has the ability to choose between alternatives. Share holder is the one who owns shares of stock in a corporation or mutual fund. For corporations, along with the ownership comes a right to declared dividends and the right to vote on certain company matters, including the directors. When an organization is going to achieve their goals and objectives, there may be conflicts between objectives of above stake holder groups. However customer and share holder is one of component of the stake holder groups of a particular company. This describes how to balance conflicts among above stake holder group's objectives.

Needs of customersThe basic need of customer is obtaining quality product or a service from a merchant. However with the high competition of the market, most company's have been given many facilities to their customers to delight them rather than giving only a satisfaction from a particular transaction. Therefore customers are thinking today about products or services which they expect to buy beyond the basic level. Therefore today customer needs and wants are highly complex. As an example, when a particular customer is transacting with a particular organization, buyer will think about service level quality, employee relationship, organization's social responsibilities, environmental friendliness etc. Therefore today organizations should consider this factor when attracting and maintaining customers. Share holders wealthWhen considering the share holders, their ultimate objective is to maximize the wealth. In here companies have to think on increasing the share holder wealth to satisfy them also when operate the business. This management principle of maximizing share holder wealth, also known under value based management, states that management should first and foremost consider the interests of shareholders in its business decisions. Although this is built into the legal premise of a publicly traded company, this concept is usually highlighted in opposition to alleged examples of CEO's and other management actions which enrich themselves at the expense of shareholders. In this time there may be a conflict when satisfying both customers and share holders because, money should balance between both parties.

"Shareholders vs. Customers: Who Comes First?"

What can be the answer to this question? If you want to create long-term shareholder value in any business, you must meet your customer's need. That means delivering a product or service with the best mix of price, convenience, quality, and service.

There's a reason both Wal-Mart and Macy's can exist. Or why both BMW and Hyundai can be successful. These companies have found the right mix of those ingredients above to attract a loyal customer base.

A Wal-Mart shareholder doesn't demand that it maximize the markup on each product they sell because the company model is maximizing volume based on low prices. We could all agree that Wal-Mart has been reasonably successful employing this model. On the other hand, Macy's may have a higher markup on the goods they sell. Why? Because it's necessary if they want to provide the level of service and shopping environment for which they have come to be known. These two are two different business models, but also successful.

So one business "puts the customer first" by keeping prices low, and its business model has rewarded shareholders quite handsomely. The second business "puts the customer first" by providing a high-service shopping experience in an attractive environment. It too has created value for its shareholders. Does either company put its shareholders ahead of its customers? Does either company put its customers ahead of shareholders? How could you tell? That's the thing. If a company serves its customers well, it also serves its shareholders well. By asking the "Shareholders or customers, who comes first?" question, we make the assumption that these two things are mutually exclusive. That mean, we can't have two things that are first. No business exists without customers. If you don't fulfill a need for your customers, your business will cease to exist and you won't provide a return for your shareholders. It seems that the two are pretty well aligned.

Jack Taylor, the founder of Enterprise car Rental Company, said, "Take care of your customers and employees first, and profit will take care of itself." If Mr. Taylor is right, then when you put your customers first, you are putting your shareholders first also.

So the answer to the question, "Who comes first in your business, your customers or your shareholders?" The answer would be; both come first.