What do companies really know about their employees and customers? Not much, according to Barry D. Libert, prominent consultant and speaker. Libert is coauthor of Cracking the Value Code: How Successful Businesses Are Creating Wealth in the New Economy and the forthcoming Value Rx: How to Make the Most of Your Organization's Assets and Relationships.
UBIQUITY: It seems like every company in the United States claims that its most important assets are its customers and employees. Do you believe these companies?
BARRY LIBERT: No. We asked 500 CEOs, CFOs and other organizational leaders that question two years in a row and they all said the exact same thing: "Our customers are our most important assets, our employees are our most important assets, or our suppliers are our most important assets." But when you ask: "What are their names?" "Do you keep track of them?" "Do you spend money on measuring them?" or "Do your technologies enable them?" the answer is no. In comparison, I could say that I don't beat my wife. But if I don't know my wife's name, don't know my children's names, and don't pay attention to them, am I a good husband? In the same way, companies don't really know their most valuable assets.
UBIQUITY: What should companies be doing?
LIBERT: The first step is knowing someone's name. It's just a common courtesy. The next is knowing something about them -- what they want, what's important to them, how they want it. I don't think businesses know very much about those next-level answers.
UBIQUITY: How would you suggest that they get to know their customers?
LIBERT: Increasingly in our economy every product and every service is becoming a commodity. If that's the case, it's difficult for customers to differentiate one product from another. It's very hard for an employee to differentiate one job from another and it's increasingly hard for investors and suppliers to differentiate one company from another. Businesses need to accept that it's no longer a war about products or markets -- it's a war for relationships. Companies need to first accept the reality that ultimately their product or service is not unique, therefore the only thing that is unique is the relationship they have with somebody. They should begin to think in those terms and put in the right technologies to understand who their customers are and what they want.
UBIQUITY: And you're suggesting that most companies do not understand this?
LIBERT: That's correct. If you talk to most companies, they can give you complete details on SKU (stock keeping unit) management: What cereal they have, where that cereal is stocked, how much is in stock, which buildings they have, how much money they've spent, what are the debt instruments on each one of them, where are their factories, how much equipment is in each factory, what's their capital, its cost and investment. But if you ask for that same level of detail about customers -- the names of every one of their customers, when they purchased last, what they purchased last, how often they purchased from you, why they did not purchase from you -- you get a blank stare. If you try the same thing for employees, suppliers and investors, it gets worse. They can't tell you the names of all of their employees, why those employees work for them, why those employees don't want to work for them, what other companies their employees would like to work for, or the names of their investors, why they invest in the company, and what other companies they invest in.
UBIQUITY: Why don't businesses understand how important it is? Why are they slow learners on this?
LIBERT: Historically, business has been about making things. I don't care if it's making a product or making a service. That was very hard for a company to do well. Quality experts such as Deming and others taught businesses that proficiency in making something, whether product or service, is a valuable component in business success. I don't know of any gurus who say, "Making something counts, but having relationships counts too. Here are the rules of relationship creation and management." I didn't get that in school or college, let alone business school. I had to get that on the job. Our leaders have not been taught and they struggle with managing their business relationships.
UBIQUITY: Has the Internet changed the awareness of relationships?
LIBERT: I think it has. It's important that we accept the fact that we live in a global environment and there are so many customers, employees, suppliers and investors that it is impossible for us to think about business the way maybe my grandfather did, which was as a little storefront serving local customers in local communities. Local now means serving global customers with global employees and global investors and global communities. Today's technologies, Internet being one of them, link all of those local relationships into a global enterprise. The result is that the only way to keep track of the names and preferences of all the stakeholders and build relationships with them is to use technology in a connected world.
UBIQUITY: And you think the situation is just as bad with regard to employees as it is with customers?
LIBERT: The research says it's worse. About two-thirds of companies are doing something about their customers -- learning their names, learning their preferences, installing technologies, measuring the depth and breadth of their relationships. Only about 45 percent of companies are doing anything about employee relationship management, primarily concerning cost of turnover. That's how businesses think about employer turnover rates or, you could call it, divorce rates. Although businesses say that employees are their most important asset, they actually think of employees as their biggest expense. And they don't have a great desire to manage and create relationships with expenses. You really see that with suppliers. Less than 45 percent of companies have any interest whatsoever in their suppliers and less than half of than, about 22 percent, are doing anything to keep track of them.
UBIQUITY: Recently, since the bursting of the dot-com bubble, many companies have laid off significant numbers of people. One of the prominent exceptions is Hewlett-Packard who instead is cutting down salaries rather than laying off people. Does that suggest a different and interesting approach? Does it suggest that they care more about their employees than other companies do?
LIBERT: It might suggest that the company is saying, "To fire a valuable employee means we would essentially eliminate large sums of our intellectual capital. So, I'd rather cut my costs, which is salaries, during difficult times than cut a person." Said differently in the home, I'd rather cut back on expenses than fire my wife. The Charles Schwab Corporation did some of the same although they're doing some terminations, by starting first with cutting back. I think that is an interesting experiment. We're trying to understand that if we cut back our most important assets in a knowledge economy, we are essentially ridding ourselves of our assets.
UBIQUITY: Earlier you mentioned the various Cs -- CEO and CFO and so forth. Has there ever been a C-level person that is an ombudsman, a top-level executive, who says, "My responsibility is to make sure that my organization takes this business of knowing the customers and employees and suppliers very seriously?"
LIBERT: I'd never heard of it. I watched the CEO Summit and every guy said, "I've got my head down. I'm producing monetary results." Businesses don't realize this but if you're only producing financial results there's a good chance you're not producing customers because all business is about balance. You're not producing customer results and you're not producing employee and supplier results. You're doing a good job of producing the bottom line, which means you're destroying other relationships along the way. You're not in balance.
UBIQUITY: The companies then obviously need some sort of therapy.
LIBERT: They surely need new insight. Therapy is one of the ideas that comes to mind.
UBIQUITY: How do they break this habit they've had for -- well, how long have they had it?
LIBERT: They've had it for as long as business has been around. Products and money ruled and relationships and knowledge were secondary. I think that not only do we have to fix the measurement system, I think that leaders of our economy need executive coaching with regard to understanding the balance that they must strike between where they spend their time and money.
UBIQUITY: You've done a lot of consulting and you've tried hard to make your clients really understand these points. How often have you left a company feeling especially good about what you've accomplished?
LIBERT: I want to be really clear: not often. One of the reasons I left the consulting industry was that these messages for many years fell on deaf ears. They said, "Barry, this is all touchy-feely. This is women's stuff. This is stuff for your house and home, but this has no place in business." That's changing. I've been doing this for a very long time. They're listening now. They're willing to talk about it but they really need to talk about customer relationship management differently. Now you hear, "How do I sell more to my customers?" Put it in the following context, if you think about relationship management with your wife as "how do I sell her more stuff," my guess is you won't be married very long.
UBIQUITY: Does this same analogy hold true for the other stakeholders, like customers, suppliers and investors?
LIBERT: Yes. Think of suppliers as your children or your parents. If you optimized your children or parents -- which means you squeezed more out of them -- my guess is you wouldn't have them for much longer either. No one wants to be optimized. You wouldn't like it if I said I want to optimize you or I want to minimize you. Yet those are two ideas that business leaders use -- they want to optimize customers and minimize suppliers. People don't like to be thought of in that context. I think people see what's happening and are becoming increasingly angry.
UBIQUITY: In addition to emphasizing the need for companies to maintain good relationships with customers and others, you've talked about the importance of establishing good measurement systems. What are the first steps that businesses should take to create or fix their measurement systems?
LIBERT: They must create key performance indicators for every single relationship they have. A simple one is exactly how we started this conversation -- know everyone's name and put it in a relational database. I don't mean the payroll system or the accounts payable or accounts receivable system. It should be a relational database of all of your relationships. Second, find out how long you've had them, how sustainable they are. Third is to know how much you paid for them. You had to pay somebody to get these relationships.
UBIQUITY: What else do you need to know?
LIBERT: You need to know much it would cost you to lose them. This information has to be gathered over time because they couldn't answer those questions on Day One. What I've done is started very basically -- how many do I have, what are they worth for me, what would it cost me to get them, what would it cost me to lose them? I have two kids and one wife in my household. What has it cost me over time?
UBIQUITY: What can you tell us about your new book?
LIBERT: It's called Value Rx: How To Make The Most of Your Assets and Relationships. It goes into some of these issues in greater detail and then it asks you to take a variety of tests to ask yourself many of the things we touched on in this conversation. The book also describes how to take the actions necessary, both in terms of technologies, strategies, risk and measurement, to begin to create solutions.
UBIQUITY: So what's the ultimate solution to these issues?
LIBERT: Convergence -- the convergence between personal and business. The world is moving to the fact that we cannot tell the differences increasingly between our personal and business lives. My office is at home. I telecommute. My wife helps me out at business. I help her in her business. We transition between personal Web sites and business Web sites, investor Web sites. We interconnect globally and locally. Our communities are blurring between our business and personal communities. I think the true convergence is between our personal and business lives, which means our personal business values. Said differently, businesses need to look to the social scientists to understand what creates good, normal behaviors in relationships. By the same token, social scientists should look to the business world for good insights about how to bring wealth and help and health to the social sciences of the world. The bottom line is that our personal values will be driving business success. And so, the real story is about the convergence of personal values that show I care and I share.