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How important is customer satisfaction for long term shareholder value

There has been much consideration of the drive for organisations to create value for shareholders, and much argument that the creation of value for shareholders is derived from the reduction of operational costs. The proponents of the techniques of shareholder value would deny this and argue that the creation of value for shareholders derives from improved decision making. Thus the discourse of shareholder value suggests that the use of such techniques leads to decision making which will optimise the performance of a company in both the short and the long term. Furthermore all companies which make use of shareholder value techniques recognise that the satisfying of the needs of key stakeholders – of which customers are always one – is an essential part of the creation of shareholder value. This paper takes this as a starting point and explores the difference between declared practice from the strategic decision makers and actual practice at an operational level. The paper is based upon a case study using British Airways, but with supporting evidence from other companies. Through an exploration of operational practice the paper argues that often the creation of value for shareholders is operationalised through the reduction of costs within the organisation but that this is primarily derived from the externalisation of those costs to others. The discourse concerning the externalisation of costs normally focuses upon society and the environment but in this paper the focus is upon the externalisation of costs to customers. It is argued in this paper that such a focus upon customers reintegrates the accounting rationale for the creation of shareholder value with the strategic decision making function of the organisation, while questioning the fashion for outsourcing operational activity and focusing upon core competencies. The paper thereby argues that much of the current concern for the creation of shareholder value is based upon the satisfying of short term motives at the expense of the long term organisational future. The performance management system An important feature of all approaches to performance management is the alignment of organisational objectives, measures of performance and strategic decision making towards the promotion of value creation at all levels of the business (Cornelius and Davies, 1997). The need for this alignment of the internal planning and control systems is not new and Emmanuel, Otley and Merchant (1990) suggest that: