How powerful are your customers?

2011

Three recent news stories in the Australian media, at first seemingly unrelated, have caught my attention in recent days.

"Norris' pay cut after rate hike fury"
Commonwealth Bank of Australia customers have struck back over the chief executive Ralph Norris's decision last November to push through a super-sized interest rate rise on mortgages.

"Airline decides Singapore Girl ads still fly"
Singapore Girl makes her return to advertising after a five-year absence in a spot that harks back to an age when she was filmed in exotic locations delivering her trademark customer service.

"Joyce has no choice but to push into Asia"
Almost three years after he took the reins, the chief executive of Qantas, Alan Joyce, has taken the biggest gamble of his career. It is also one of - if not the - biggest bets in Qantas's 90-year history.

Joyce's decision to shift the Flying Kangaroo's centre of gravity towards a lower cost base in Asia threatens to test the goodwill it has gained from the Australian public.

But there's a common theme in all three stories: customer power.

At last it seems as if customers, who have for so long taken a back seat to investors, are now coming into their own.

In the case of CEO Norris, his pay has been cut from $16.1 million last year to $8.6 million at June end this year. And why?

After making a very unpopular decision late last year to raise interest rates above the level recommended by the Reserve Bank of Australia, the Commonwealth Bank of Australia's customer satisfaction ranking dived.

Much of Norris' pay cut was due to a program, which tied long-term incentives for CBA executives to improvements in customer satisfaction. After steadily climbing up the ranks under Norris, CBA was closing in on the top ranked ANZ Bank in terms of customer satisfaction until his decision saw the customer satisfaction ranking slip to number four amongst the big banks.

The second story shows how Singapore Airlines have fared by placing a priority on customer satisfaction. Established in 1972, Singapore Airlines has been ranked in the top three airlines in the world for their entire history. They are also the second largest airline in the world (by market share).

Co-incidentally (or is it?) they have also consistently been one of the most profitable. While many airlines have struggled financially over recent times, SIA made a profit of S$1.1 billion this financial year.

Some analysts have suggested that SIA's success (service and financial) is due to the lower wages paid in Asia. I disagree. Profit follows service, not service follows profit. The service culture prevalent within SIA was highlighted recently when a flight attendant, asked why SIA provided such great service responded, "We don't aim to be the best; we just aim to do our best".

And so to the final story, Qantas, the "Flying Kangaroo" who for a number of years has had as its advertising theme "I still call Australia home", using the iconic music and lyrics by the late Peter Allen.

I've written previously about Qantas and its problematic future. It seems as though CEO Joyce is now making a strategic decision to change the airline's home base from Australia to Asia (rumoured, although not confirmed, to be Singapore).

The logic is simple. Cheaper costs, greater profits. Ultimately, the changes are about significantly lowering Qantas's cost base. Joyce would not put a dollar figure on the costs to be stripped out of the international premium business, other than to say that it was "20 per cent more costly to run than competitors such as Singapore Airlines."

And this move is likely to reduce staff numbers by up to 1,000. These staff reductions are not in back-end functions or at the executive level, but rather pilots, cabin crew and ground staff – the front-end customer service people.

The most lucrative business for airlines is in the premium business-class service. Are current premium-class customers going to be any better served with the changes announced by Joyce? (Qantas dropped to number eight most popular airline in the recent aviation satisfaction surveys). Will this move be likely to attract new customers?

Ultimately it will be the customers who make the decision on how successful this new Qantas strategy will be.

As managers and leaders, my question is "What can we learn from these stories about customer power?"

In response, readers may point to the need to have a more balanced approach to stakeholder management, a.k.a. the balanced scorecard. And you'd be right – at least in theory. In practice, how many organizations have such a balanced approach to stakeholder management?

I have four questions that you might care to consider as a leader/manager:

  1. What went well or not so well in these three stories?
  2. What can I learn as a leader/manager from these?
  3. What would I (or my organization, my team) do differently in similar circumstances?
  4. Is there something I now need to plan for as a result of this learning? If so, what?

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About The Author

Bob Selden
Bob Selden

Bob Selden is MD of the Australian National Learning Institute and author of What To Do When You Become The Boss. He has been a boss many times over. He's also worked for many. Some of these relationships have been fantastic and some did not work as well as they might have.