Why is this relevant?
Because Directors need to ensure that the business which they play a role in guiding has an intimate understanding of a broad range of stakeholder groups that determine their short-, medium-, as well as long-term success. Those groups are not merely ‘the organisation, staff and clients/customers’. They include, for example, regulatory organisations, suppliers and value chain players, environmentalists, various societal groups, champions of sustainability, and service providers. But all too often the focus of Boards tends to be narrow and not built upon a sufficiently informed understanding of some or many of those stakeholders.
How do we know this?
Marcollie Blue Strategist, Ian Ivey, completed two ‘Business Future Fitness’ surveys of Trinidad and Tobago based medium and large size enterprises on behalf of the Caribbean Industrial Research Institute during 2012 and 2014. In total 51 different companies participated, 29 of those in both surveys. The survey askes 119 questions in 12 theme areas grouped under four main headings:
- Business Structure and Function
- Customers and Clients
The survey results delivered a stark warning to the majority of participating businesses that they were at moderate to high risk because of their lack of understanding of one of their most important stakeholder groups – Customers and Clients.
How were they at risk?
- In terms of their overall lack of understanding of demographic factors that were changing the profile of their future customer/client base e.g. generational change, aging populations.
- In terms of their lack of understanding of changing customer/client lifestyle wants and needs e.g. the trend to more single person lifestyles and changing priorities in spending allocation.
The figure illustrates what percentage of all respondents were at high or moderate risk in these two areas and that, in the 2014 Survey, the outcomes were worse than in 2012.
What does this mean for Boards and Directors?
Customers and Clients are the most important stakeholder group for any business. Understanding their changing ‘wants’ (where price is not so important) and ‘needs’ (where price is very important) is critical to the future of any business. There are great examples of businesses which failed to understand their changing customer base and their associated ‘wants’ and ‘needs’ e.g. Kodak and Blackberry. The cost to their shareholders and broader eco-system of stakeholders was huge due to that lack of understanding. Because one of the key roles of Boards and Directors is to ensure risk is being managed well, there is a real need to understand the factors that are changing the market space in which they operate. The outcomes of these surveys illustrate that many companies do not have such an understanding and, as a result, are likely to face some real challenges in future years as clients and customers move towards better offers. If they do that, everything else that Boards and Directors deal with lose relevance. In other words, their risk management strategy is poorly informed and their focus misdirected.