Is business strategy wrong?

Or at least that part that talks about improving the bottom line through better customer service?

That’s the conclusion reported by Business Week on a survey of 146 publicly traded corporations. Basically, they found no correlation between customer satisfaction and YTD stock returns. For you geeks out there, the regression line was y = -0.6x+79.17, with R^2=0.018. What this means is that there is actually a slight negative correlation between stock market returns and customer satisfaction (that is, higher customer satisfaction scores are associated — very slightly — with lower stock market returns), but with an R^2  so near zero, a better conclusion is that there is no meaningful relationship.

What does this mean? For one thing, a glance at the list shows a heavy bias towards long-established companies: think Delta, JP Morgan Chase, etc. As far as the airline industry goes, once the US Airways – American merger completes, the remaining majors will be virtual monopolies in their home markets, with all of the incentives to improve service that monopolies usually have. As for most of the other companies, well, once you become a large, bureaucratic, publicly traded corporation, expenses like “customer satisfaction” often become costs to be minimized so as to pump up the bottom line (and executive bonuses). In other words, the survey may be biased towards corporate dinosaurs and not typical of the vast majority of business enterprises. If that’s the case (look over the list and decide for yourself), then good customer service might still be an important component of the strategies for most businesses.

To the extent my analysis is correct, up-and-coming companies that are not beholden to next quarter’s bottom line (and are not monopolies) have huge advantages. For the 146 companies on the list, you may be seeing one of nature’s recycling mechanisms at work.

What did Boyd say about customer satisfaction? Nothing. If you’re adventurous, you might try inferring something from his discussion of grand strategy, one purpose of which is to attract the uncommitted to our side — check out Patterns 139-144 and Strategic Game 53-57. [You can download all of Boyd’s presentations from our Articles page.]

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2 thoughts on “Is business strategy wrong?

  1. top executive bonuses based on earnings/share and having higher correlation with other factors …

    Stockman in “The Great Deformation: The Corruption of Capitalism in America” pg457/loc9844-46:

    The leader was ExxonMobil, which repurchased $160 billion of its own shares during 2004-2011. It was followed by Microsoft at $100 billion, IBM at $75 billion, and Hewlett-Packard, Proctor & Gamble, and Cisco with $50 billion each. Even the floundering shipwreck of merger mania known as Time Warner Inc. bought back $25 billion.

    IBM specific … pg464/loc9995-10000:

    IBM was not the born-again growth machine trumpeted by the mob of Wall Street momo traders. It was actually a stock buyback contraption on steroids. During the five years ending in fiscal 2011, the company spent a staggering $67 billion repurchasing its own shares, a figure that was equal to 100 percent of its net income.

    pg465/10014-17:

    Total shareholder distributions, including dividends, amounted to $82 billion, or 122 percent, of net income over this five-year period. Likewise, during the last five years IBM spent less on capital investment than its depreciation and amortization charges, and also shrank its constant dollar spending for research and development by nearly 2 percent annually.

    … snip …

    and IBM board OK repurchase of another $15B of stock
    http://phys.org/news/2013-10-ibm-board-repurchase-15b-stock.html

    also Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers
    http://www.amazon.com/Retirement-Heist-Companies-American-ebook/dp/B003QMLC6K/
    and some IBM specific from book
    http://www.ibmemployee.com/RetirementHeist.shtml

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