Why the customer must be king

CUSTOMER focus is a bit like communication. Every chief executive pays lip service to it. And just as most would happily locate their public relations department and its communicators in Inverness if they thought they could get away with it, many do not have the slightest intention of making the sacrifices and fundamental organisational and cultural changes that genuine customer focus requires.

The point of a business may be to have a customer, but that is not the point of life in the executive suite. With a handful of exceptions - Tesco springs to mind, and possibly Lloyds TSB - the commitment is just not there.

The City does not help. Genuine customer focus does not come from expressing good intentions at an analysts' briefing nor trumpeting virtue from the rooftops, but that is what the City rewards. Fund managers may demand a customerfacing strategy from executives but it then punishes them ruthlessly a few trading periods later when that strategy fails to deliver the hopedfor rewards. Ask Luqman Arnold at Abbey, who is paying the price for being prematurely seduced down this route, or the more spectacular casualties at Marks & Spencer.

The long haul is not what the City is about - how can it be when the difference between outperformance and purgatory is whether the fund manager is overweight or underweight in the handful of key stocks that dominate indices in the threemonthly periods over which he or she is judged? Instead the City seeks and rewards instant gratification - achieved through either cost-cutting or acquisitions - because these create short-term performance.

That is understandable, but it ignores the essential truth that companies build reputations for service one customer at a time and it is a process that cannot be rushed. The lesson to be drawn from companies such as Marks & Spencer, which has suffered so much this week, is that executives who do not understand this will most likely fail.

Bonus stupidity

IF YOU want loyalty, get a dog, might well be the motto of the investment banking industry. No sooner have the bonus cheques been cashed and the largesse from the best year in three shared out, than the round of musical chairs begins.

On Tuesday, Merrill Lynch lost people it would rather have kept to Morgan Stanley and Goldman Sachs. Yesterday it was Fox Pitt, Kelton's-turn to see its talent walk out of the door. And these are just the cases that made the papers. Next week, no doubt, there will be more.

Investment banking really is a ridiculous business. When times were bad, guaranteed bonuses had to be paid to persuade the good staff to stick around until the climate improved. Now times are better they are given ludicrously high bonuses to stay on board a bit longer.

The revenue from their deals is needed to feed the cost furnaces of organisations where, as we have just seen in a court case, people are already so overpaid that they would have us believe they may not immediately notice the odd million if it were to go missing from their bank account.

One might well ask what logic there is in giving them yet more money - particularly as it seems conspicuously to fail to buy loyalty. But the point is that the pressure of the job is so awful, the worth of what investment bankers do so marginal and the climate and culture in which they work so unpleasant that money is the only reason for doing it.

Worse, the absolute sums have lost all meaning. The motivation now is purely to make sure that whatever the banker gets, it is more than his or her peers get.

And as long as clients are stupid enough to pay without question the absurd fees bankers demand for their shareholder value-destroying services, they will see no reason to change.

Undervalued

THE decision by the new management at NM Rothschild to pull out of gold trading after almost 200 years is reminiscent of UBS's decision to drop the Warburg name a few days after celebrating the centenary of its founder Sigmund's birth.

Both make sense to people who look at the numbers and the marketing plans of 25-year-olds. But they fill with horror any who seek to understand the culture of these businesses and what made them great.

What hope is there for a financial institution when its management does not appreciate that the true worth of an asset is not its value in the balance sheet but what the outside world thinks of it? May these executives one day be forgiven for not appreciating what they had.

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