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The Myth that Shareholder Returns and Customer Outcomes are disconnected

Are Great Shareholder returns and great customer outcomes incompatible?

One of the startling recommendations in Australia of the Hayne Financial Service Royal Commission report is that businesses and executives have been too focused on shareholder returns at the expense of other outcomes for customers.

The Australian media has picked up on this theme and is starting to discuss fundamental shifts away from principles that were written by Milton Friedman in the 1960s, namely that companies exist primarily to deliver returns for their shareholders. One article in the Australian even tried to claim that waves of automation and IVRs were a result of this shareholder obsession and a mismatch with customer service. The thrust of a range of writing is that an over focus on shareholders has driven some companies to abuse and mistreat their customers. The unfortunate implication of this is that somehow a focus on customers is incompatible with shareholder returns. We think those conclusions are incorrect and if anything, the opposite applies; namely that an obsession with customers can be great for shareholders. In this paper we’ll discuss:

  • customer obsession and great customer service is at the core of some of the most successful businesses of our time.

  • reducing cost and serving customers well are not incompatible

  • the investment community has the greatest “mismatch” and ignorance of customer outcomes and their focus is impacting business results and lastly that:

  • poorly designed measures and controls at more junior levels in organisations have been the source of most of the reported customer issues

Customer Obsession and Long-Term Total Shareholder Returns

The most valuable company in the world at time of writing is who for the


last twenty-five years has strived to be “Earth’s most customer centric company”. The company’s valuation touched $1trillion in 2018 which is remarkable for a company formed only in the late 1990s. Amazon’s customer ratings on the American satisfaction index have often topped that poll and they have succeeded in building trust and loyalty in their customer base. They demonstrate that a focus on customers as a strategy can deliver outstanding returns for shareholders. Google and Apple are also often regarded as “customer centric” with Apple having produced a range of devices that have transformed how we consume music and then interact through truly smart phones. Google’s search is so accepted by customers that it has become a verb. They are also in the top five most valuable businesses and have delivered outstanding shareholder returns.

There are many Australian companies who have also experienced tremendous growth through a customer focus. Flight Centre has been a great growth story through a great service offer that many customers rave about. The turnaround of the Coles supermarkets in the last decade included a much improved “customer offer”. B2B businesses like Xero have grown market share and revenue through delivery of a great customer experience. There is clear and compelling evidence that offering a great product, services and experiences to customers can be a great strategy for shareholders so this flies in the face of the idea that companies can’t deliver for both customers and shareholders.

There is also a body evidence that mismanagement of customers is bad for shareholders. When the combined Vodafone/Hutchison JV in Australia had network issues (known as Vodafail) they lost market share and shareholder value. All three major Australian utility companies suffered through problematic system migrations in the last decade leading to high costs of service, high costs of complaints and diminished reputations. Collectively they lost market share at this time. One of the major Health Insurers had long service and claim wait times and lost market share through that period. All four of the major Australian banks have suffered reputational and shareholder value damage because of the customer related issues that have emerged at the Royal Commission. They have put aside over $1b in “make good” costs to repair problems that have been exposed illustrating that bad service has a quantifiable cost that damages the share price. This demonstrates that poor customer outcomes often drive poor shareholder outcomes.

Of course there are still instances of companies trying to cut corners to increase returns at the customers’ expense. Airlines seem to cancel flights in order maximise loads and profitability and many phone and utility companies seem happy to leave customers on the wrong “plan” to increase profits. However, business writers such as Don Peppers believe that these short term moves that “dud” customers and break trust between company and customer will come back to hurt the company. Trust is seen as a valuable asset for businesses and losing it damages brand value and therefore shareholder value.

Cost Cutting and the Customer

Another recent article claimed that companies adopting waves of automation like IVRs

and bots were putting shareholders ahead of customers. It is true that many waves of automation like IVRs, digital self-service and apps have offered lower cost transactions and enabled staff savings. However, they have also offered convenience and choice for the customer, so it hasn’t been solely a one-way street. This debate though, shouldn’t just be about companies trying to move customer interactions to self service or lower cost channels. We have written extensively about the ability to cut costs and help customers by getting rid of “bad contacts” and giving customers convenience through appropriate self-service. Amazon, who pioneered many of the ideas we documented in “the Best Service is no Service” (Josey Bass 2008) are popular with customers because they have made themselves so easy to deal with. They have worked, systematically, to drive out the need for contact thereby reducing cost and reducing customer effort. On a typical order with Amazon, customers receive constant notifications and can even cancel an order and return goods with very little effort. The customer experience is fantastic as a result, so the shareholders are getting high levels of revenue at low cost. Amazon demonstrates that customer effort and cost reduction usually go hand in hand and deliver both for customers and shareholders.

Many companies have further opportunities to reduce effort for customers and save. For example, those that have under invested in self-service through digital and apps, or many who haven’t established mechanisms for proactive contact (that prevent expensive emails and calls). The cost of proactive notification via emails, apps and texts is now far lower and therefore enables companies to pre-empt many contacts which delivers customers greater information, and controls costs.

When contacts are necessary, many organisations still have badly designed or poorly managed customer facing processes and therefore end up spending more on long contacts and repeat contacts. Drivers of these extra costs include badly trained staff, poorly designed skill models or poorly managed off shore functions. These drivers produce low rates of resolution, expensive escalations and high rates of repeat contacts and complaints.

There are many levers to pull that can deliver better customer outcomes like less contact, shorter contacts and reduced repeats/complaints. Our most common work has been to rethink contact centre operating models to both “lean” the processes and get complex work to staff who can solve the issues. These projects have often delivered 20-30% less effort for customers and cut costs for shareholders. Government institutions, with no profit motive, are also recognising that better managed contact delivers happier stakeholders and reduced cost. The ATO in Australia has been an early adopter of automation and digital solutions for customers that have provided convenience and low effort contact. These examples demonstrate that cost cutting, done the right way, can be a win for customers and shareholders.

Investment Community “Customer” Disconnect

The investment analysts and fund managers are now seen as a key stakeholder by company executives and boards and there are regular investor and analyst briefings. They hold the keys to the rating of stocks and influence market perception of each

company. Unfortunately, there appears to be a disconnect between the way investment analysts and fund managers “rate” customer investments or customer focus of executive teams. The disconnect occurs because market analysts find it hard to evaluate the financial impact of investments in customers until the financial results flow. A stock will only be “re-rated” by the analyst community once revenue or cost numbers start to trend in a different direction. They won’t re-rate a stock because of an improved NPS score or a reduction in calls per customer even though they are important customer metrics that are predictors of revenue and cost.

External analysts seem to spend little time analysing the efficiency and effectiveness of organisations for the customer. They either don’t have or don’t use data like contact rates, service levels or customer satisfaction scores to rate businesses. While the analyst community has access to public ratings such as Morgan Bank Satisfaction Polls or JD Power ratings in the United States, few seem to have models that translate improved ratings into other financial metrics. Nor do they ask for clear cost drivers like contacts per account or the level of complaints. This means that companies who see these metrics as key goals are using leading indicators that the “markets” don’t value and track. When an executive team launches a series of customer related improvements such as new channels or improved customer processes these barely rate with investment analysts compared to “cost cutting transformations” or “acquisition and divestments”. Even initiatives with a revenue growth goal often don’t get a company re-rated until the numbers start to flow to annual reports.

Those executives who embark on customer driven strategies do so despite, not because, of the way their businesses are measured. Often executives have to ignore the market analysts desire for short term cost cutting to make customer focused improvements. For example, when National Australia Bank cut a series of customer fees that they had found customers hated, the market analysts lambasted the short term loss in revenue. The strategy was the right one to grow share of wallet and long-term relationships with customers, but this didn’t meet the short term goals of fund managers tracked on quarterly performance. Executives and boards investing in customer improvements therefore need to be able to “resist” short-termism in the investment community. Founder/owners are prominent in many of the organisations like Amazon (Jeff Bezos) and Flight Centre (Graham Turner) that have been focused on the customer. Founders like these continue to make customers and customer investments a high priority ignoring other analyst demands because they have a long term focus for the business.

Low Level Measures and Control Disconnect

Many of the issues of bad corporate behaviour have often been about individuals at the “customer coal face” in areas like insurance sales, financial advice, loan origination or aged care service delivery. It seems to have been measures and rewards of customer facing staff that have driven the errant behaviours rather than those of the executive team. In our experience many executive teams in many industries are now measured on some key customer metrics like Net Promoter Score or ranking in some form of satisfaction surveys. That hasn’t prevented a rogue adviser or sales person giving bad advice or selling inappropriately. There is a disconnect between what the executive team are striving for in customer outcomes and the behaviours at the front line.

The real root causes of these issues seem to have been metrics and rewards driving the wrong behaviours of front-line staff combined with inadequate controls to catch the behaviours. We are highlighting the measures and rewards because without these, the controls might not be needed. We talked in a previous paper of how we often change the focus of metrics in our work to measures that have embedded controls or those that may not need controls. For example, if we measure staff purely on sales outcomes eg S$$ sold, then that may require a control to ensure they sell appropriately. However, if we measure sales staff on how well they execute the “right” sales process (having defined what the right process looks like), this will deliver compliant experiences and successful sales outcomes. The same applies in service environments where we often move organisations away from absolute measures like handling time (which agents trick by hanging up on customers or transferring to others) to measures of process adherence that drive good outcomes and productivity. Our conclusion is that the poor customer outcomes are often a result of poor metrics that don’t embrace well defined and controlled processes.


We hope these ideas are of interest and have countered the myth that good customer treatment and shareholder outcomes are somehow mismatched. If anything, we’d like the debate to be about how companies can improve outcomes for customers and thereby produce shareholder returns. We hope the mechanisms we have suggested such as reducing bad contacts and measurement alignment, will be adopted and we are happy to discuss how to make these things happen in detail.

Please get in touch if you think you would like more information by emailing to or calling 03 9499 3550. More details are at

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