It was the legendary Jack Welch who said: “If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction, and cash flow.”
By Guy Whitcroft
Whether, or not, you agree with his leadership style, there’s little question of the common sense of his focus – especially in these VUCA times.
Customer satisfaction is key, for without customers you have no business. Satisfied customers keep coming back and so you don’t have to spend so much valuable time, effort and money attracting new ones.
To improve profitability and business growth focus efforts on customer satisfaction and then on increasing your average transaction value and frequency to these happy customers. McDonald’s famous, “Do you want fries with that?” question is credited with doubling its profitability when it was introduced, and there’s no question that the margins it makes from fries and drinks far eclipse those from its core hamburger product.
Remember, the more your customers depend on you, the harder it is for them to move.
Employee satisfaction is the next critical item. The costs of replacing somebody can be as high as four-times their annual salary when all aspects are considered, while there’s also no question that, as Vaughn Aust said, “Happy employees lead to happy customers, which leads to more profits.”
If your staff enjoy their jobs and their work environment, they’re more productive, their interactions with customers, suppliers and others outside the business are more positive, and this attitude results in more sales, better profitability and increased satisfaction all around – reducing your costs, raising revenue and improving profitability.
A positive and accountable work culture is essential for business success today.
The final point Welch made was the importance of cash flow. It was Peter Drucker who said: “Entrepreneurs believe that profit is what matters most in a new enterprise. But profit is secondary. Cash flow matters most.”
This is, of course, because profits only become real when the transaction is paid for and, in times of high interest rates and volatile currencies, as we’re seeing now, delays in being paid can have a marked impact on profitability – potentially even negating it completely for a transaction.
So, beware those great-looking big-deal opportunities that often come with the expectation of low margins because of volume, and long payment dates. History is littered with businesses that have had to close down because of such deals.
Successful businesses track their cash flow on a daily basis and never relax their efforts to collect their money on time.
There’s a reason why, when directors consider whether the business is a “going concern” – which they should ideally do at monthly board meetings, especially in these volatile times – they’re required to look at not just the solvency (assets exceeding liabilities) of the company, but its liquidity position too (essentially, whether the business can be expected to meet its payments on time over the next 12 to 18 months). And, should they not do so, they risk being held liable for any debts, losses and other costs incurred in connection with the business.
In these volatile times, paying attention to customer satisfaction, employee satisfaction, and cash flow will mean a more successful business.