Some weeks ago, I wrote about how sustainable business success is founded on achieving a balance between customer value and shareholder value. I noted that this simple maxim is actually very hard to achieve on a consistent basis. Companies are constantly veering too far in the direction of customer value by delighting their customers with high quality products and services but failing to earn enough to cover their economic costs; or in the direction of shareholder value by delighting their investors but leaving customers feeling fleeced – even endangered.
I believe that Toyota is going to be used for years to come as the textbook case of a company that strayed too far in the direction of shareholder value. The current edition of BusinessWeek contains a fascinating account about how the “suits” took over at Toyota and obsessively pursued the goal of cost reduction, blind the fact that some of the costs were “good costs” (they were directly related to customer benefits) rather than inefficiency.
Jim Press, Toyota’s senior US executive, put it very bluntly “the root cause of the problem is that the company was hijacked by… financially oriented pirates.”
As Toyota’s experience shows, it can take years for the imbalance in a business strategy to become evident in the marketplace (especially if, like Toyota, you are good at fending off investigations by the NHTSA). But eventually the fact that you have debased your customer value offer becomes impossible to ignore.