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.
Rule #1 – Always Meet and Exceed Customer Expectations.
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.
Rule #2 – Work to Build Long-Term Profitability and Increased Long-Term Value of the Business.
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“)
Rule #3 – Treat Your Employees the Same Way You Expect Them to Treat Your Best Customers.
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.
No company can thrive without top-notch employees and people-focused management strategies. Management must aim to transform all their employees into their best employees. This does not mean that everyone will have the same experience, education, skills, and performance abilities. It does mean however, that all your employees should be the best at what they do — that their personality and capabilities match their title, position, and the work they actually do in an ethically responsible way.
Jim Collins, in his book Good to Great, dubbed the process of hiring the most suitable employees “getting the right people on the bus.” Collins and his team of researchers examined hundreds of companies across many different industries and conclusively proved that having the right employees is a critical element that makes good businesses become great enterprises.
The executives who ignited the transformations from good to great did not first figure out where to drive the bus and then get people to take it there. No, they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it. They said, in essence, “Look, I don’t really know where we should take this bus. But I know this much: If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we’ll figure out how to take it someplace great.”
Management is responsible for establishing and promoting a culture that does not tolerate employees who put out the “bare minimums” or are just “good enough.” Those individuals that don’t meet the excellence criteria should be put on notice and given an opportunity to improve within a reasonable amount of time. If no improvement is forthcoming, management should quickly fire them and find more suitable employees. It is better to have a total of 10 employees doing the work of 20 with each getting paid twice as much, than paying 10 mediocre employees and 10 productive individuals who carry most of the load but are paid less than what their contributions require.
Practicing the Three Rules
You might think that given how simple and straightforward these three rules are and the benefits they would produce for companies, that management would scramble to implement them. Unfortunately, experience has shown that only a few companies practice all three rules, many barely practice two or even one, and some practice none at all. Is it any wonder why we’re so often disappointed as customers and discouraged as employees?