In today’s hyper-competitive business environment, companies have embraced customer-centricity as a guiding principle. It’s become almost a dogma—businesses tirelessly strive to understand and cater to the needs of their customers, seeking to provide superior value and build lasting relationships. But there’s a hidden risk in this obsession: focusing too much on customers can come at the expense of other key stakeholders, particularly employees. And while keeping customers happy is essential, neglecting the people who serve those customers—the employees—can be a recipe for long-term failure.The insights from a recent research paper by the author and his colleague “Balancing customer and employee orientations: Impact on financial distress and firm value” published in the Marketing Intelligence & Planning journal underscore the significance of adopting a more balanced approach. The study reveals that companies which balance their strategic focus between customers and employees enjoy greater financial resilience, reduced risk of bankruptcy, and enhanced firm valuation. This research highlights that an overemphasis on customers, to the exclusion of employees, may lead to detrimental outcomes for a business.The Risk of New Marketing Myopia
As far back as 2010, marketing scholars N Craig Smith, Minette Drumwright, and Mary Gentile coined the term “new marketing myopia” to describe this issue. They argued that an exclusive focus on customers could cause businesses to lose sight of their broader responsibilities and relationships, especially with employees. While customer satisfaction undoubtedly boosts business performance, it’s important not to ignore the very people who make that satisfaction possible: the employees. This myopia can create a distortion in strategic vision, leading companies to make short-term gains at the expense of long-term sustainability.
To avoid falling into this trap, businesses must embrace what the research terms a Balanced Orientation (BO)—a strategy that gives equal attention to both employees and customers. This is not to say that customer-centricity should be abandoned. Rather, companies should realize that employees are as critical to success as customers. The two groups are not adversaries; in fact, they are deeply interconnected. A company’s ability to deliver value to its customers depends heavily on the engagement, motivation, and satisfaction of its employees.
Why Employee Orientation Matters
A customer-oriented approach, when well-implemented, offers several benefits: increased customer loyalty, better market positioning, and higher profitability. But these benefits may only be sustainable if accompanied by a strong focus on employees. Employee Orientation (EO) is equally important because it creates an organizational culture that nurtures, supports, and motivates the workforce. Employees who feel valued and engaged are more likely to provide excellent service, be more innovative, and stay with the company longer.
Unfortunately, in many organizations, employees are treated as an afterthought. The assumption is that customer satisfaction is paramount, and as long as customers are happy, everything else will fall into place. This one-dimensional thinking leads to high employee turnover, low morale, and ultimately, a degradation in service quality. Customers, who are supposed to be the beneficiaries of this customer-centric focus, end up receiving poor service from disengaged employees.
A balanced approach helps prevent this. Companies that prioritize both Customer Orientation (CO) and Employee Orientation (EO) foster an environment where employees are more aligned with the company’s mission to serve customers. This alignment enhances productivity and creativity, as employees feel empowered to take ownership of their roles and contribute to the company’s long-term success. It’s no coincidence that companies known for excellent customer service—such as Southwest Airlines or Zappos—are also known for their exceptional treatment of employees.
The Financial Upside of Balanced Orientation
The research goes further to show that firms with a balanced focus between customers and employees significantly reduce their risk of financial distress and enjoy higher long-term firm value. This finding is particularly important in today’s volatile markets, where businesses face greater uncertainty and competition. Firms that adopt a Balanced Orientation are better equipped to navigate these challenges because they cultivate strong relationships with both employees and customers. These relationships form the foundation for resilience, helping companies weather economic downturns and competitive pressures.
One of the key findings is that a balance between EO and CO leads to better financial performance, as measured by metrics like Tobin’s Q (a forward-looking measure of firm value) and the Altman Z-Score (an indicator of bankruptcy risk). Firms that achieve this balance enjoy increased market valuation, primarily because satisfied employees lead to satisfied customers. Happy employees are less likely to leave, reducing costly turnover, while also delivering superior service, which boosts customer loyalty and retention.
This balanced focus also signals to investors that the company is well-managed and strategically sound. Shareholders and stakeholders alike recognize the importance of investing in both employee wellbeing and customer satisfaction as a way to ensure long-term profitability. The study highlights that companies with a balanced approach see a reduction in financial volatility and risk, leading to greater investor confidence and improved market stability.
Practical Steps for Balancing Customer and Employee Needs
For companies looking to implement a more balanced strategy, it’s essential to integrate EO and CO into their decision-making processes. One practical tool is the Balanced Scorecard, which allows firms to track performance metrics related to both employee engagement and customer satisfaction. By making sure both of these factors are measured and addressed in corporate strategy, companies can ensure that neither group is neglected.
Moreover, fostering open communication between employees and management is crucial. 360-degree feedback systems can provide valuable insights into how employees perceive the organization and its focus. These systems help identify areas where employees feel underappreciated or disconnected, allowing management to make improvements that ultimately benefit both the workforce and the customer base.
In resource-constrained environments, such as in many emerging markets, businesses may find it difficult to give equal weight to both employees and customers at the same time. In such cases, adopting a sequential or alternating approach to balancing EO and CO could be effective. This means that companies might prioritize one over the other for short periods but ultimately aim to achieve a long-term equilibrium.
Conclusion: The Future of Strategic Management
The message is clear: businesses that place all their bets on customer-centricity without considering the needs of their employees are setting themselves up for long-term failure. As the research suggests, companies must avoid falling prey to new marketing myopia by adopting a more balanced strategic approach.
Employees are the lifeblood of any organization, and their wellbeing directly affects how well they can serve customers. Therefore, the smartest companies are those that recognize the interconnectedness of these two critical groups and invest in both. By balancing their focus on customers and employees, businesses can ensure not only higher customer satisfaction and employee engagement but also stronger financial performance, greater resilience, and a brighter future. In an age when competition is fierce and markets are volatile, this balanced approach may be the key to long-term success and survival.
The author, Pratik Modi, is Dean, School of Management at BML Munjal University.
DISCLAIMER: The views expressed are solely of the author and ETHRWorld does not necessarily subscribe to it. ETHRWorld will not be responsible for any damage caused to any person or organisation directly or indirectly.
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