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Customers are the source of all cash flow. Organic growth depends on developing relationships with new and existing customers. And future growth prospects are baked into stock market valuations of companies.

Yet an increasingly high percentage of Fortune 500 CEOs have not come up the ranks through marketing or sales. At the same time, in many companies, the chief marketing officer position turns over every two years. Facing the current economic downturn, companies need marketing skills more than ever. But while every corporate mission statement pays lip service to respecting customer needs, actual customer expertise is typically a mile wide and an inch deep.

Marketing expertise depends on customer insights. These insights cannot be gleaned from looking at market research data on a computer screen. Just like politics, all marketing is retail. The customer votes every day at the supermarket ballot box. To be customer-oriented, executives must get out and meet customers on their home turf - in their homes, on job sites, in their offices. Here the CEO has to set an example. AG Lafley, CEO of Procter & Gamble, reinstituted consumer home visits and store visits for himself and his senior executives after discovering that Procter's product managers spent on average only three percent of their time in contact with end consumers. Terry Leahy, CEO of Tesco, the UK supermarket chain, spends two days a week in stores interacting with employees and customers.

But how far should the CEO go? What percentage of his or her time should be spent interacting with customers? Perhaps we can all agree on at least 10 percent, but as much as fifty percent? Of course, a company suffering a temporary crisis of confidence requires all hands on deck. But, in normal circumstances, the answer depends on at least two things: the nature of the business and the company's strategy. In a service business like Tesco's, the health of the brand depends heavily on the quality of the millions of daily transactions between shoppers and staff. Motivating the front-line personnel is critical. But in the pharmaceutical business, the key to success is not customer intimacy but product innovation; the CEO will need to spend time with his chief scientists, medical opinion leaders, government regulators and CEOs of the companies distributing pharmaceuticals, but not so much time with end consumers. And, if cost minimization is the focus of the business strategy, it's not necessary for the CEO to spend time learning how different clients would prefer customized solutions.

Even in companies that see customer intimacy as their point of strategic differentiation, there are two reasons why CEOs should be cautious about overdoing the percentage of time interfacing with customers. First, marketing and selling should be a prime task of the CEO's direct reports, the individual business unit leaders. The CEO should not have to do their work for them, except, in occasional cases, to be brought in to close a major sale. The hero salesman does not usually make a good general manager or CEO. Second, no CEO -- especially one with a marketing background -- should spend time with customers as a way of avoiding dealing with other important aspects of the business (such as managing the balance sheet) or mentoring and coaching direct reports. A good CEO knows how to balance time spent on the outside versus the inside.

While balancing their own time, CEOs should nevertheless work hard to insure the continuous attention of their people to customers. They should do the following three things:

First, the CEO should spearhead the identification of three or four customer health metrics that are leading indicators of sales or profit performance. These metrics should not be off-the-shelf standbys such as customer satisfaction (which, in any case, is a lagging indicator): they must be specific to the strategy of the business. Company scores on these metrics may be benchmarked against direct competitors and/or outstanding companies in other industries.

Second, CEOs must ensure an adequate pipeline of new product and market opportunities. This requires the investment in uncovering customer insights discussed above, either through business leaders regularly going into the field and through more formal customer research studies.

Third, the CEO has to develop marketing talent throughout the company. This cannot merely mean appointing a high-profile rainmaker as chief marketing officer. It requires the long-term infusion of customer centricity and marketing strategy capability throughout the organization. Over time, this should mean a higher percentage of general managers coming up through the marketing ranks.

Every CEO should spend at least 10 percent of his or her time making sure these three challenges. Running around visiting customers is simply not enough.

Comments

Dear Professor Quelch

I am writing after I read about you on the FT Management blog, as sales was my job for 11 years in Switzerland; the only country we did not deal with was the USA, where our mother company was headquartered.

Kundenbetreuung (looking after customers) is a key part of successful Swiss exporting. As the home market in Switzerland (pop. 7,5m) is small the only way to expand the economy was through exporting. Everyone knows the saying "The customer is king" but Swiss-Germans go further with "Der Kunde ist König, aber wer ist Kaiser?" (The customer is king, but who is emperor?). The answer is a Swiss sales manager who has a great customer base which he makes sure keeps on growing.

As Germany is Switzerland's biggest customer, that is a huge challenge in itself for Swiss exporters as Germans are demanding customers. Twenty percent of Swiss exports went to Germany in 2005*, out of a total of 62,2% which went to the EU (25) as a whole.

Apprentices here in Switzerland are not even allowed to answer the phone - in case it is a customer calling - until they are judged capable of dealing with a customer's enquiry, complaint or other matter, in the correct, prescribed way.

*UBS Die Schweiz in Zahlen (edition of 2006)

- Posted by f. huber
September 23, 2008 11:54 AM

Professor Quelch has rightly pointed out that it is not "how much" rather it is "in what way" that a CEO should interact with the customers.

Nevertheless, a certain amount of direct contact that he calls as "running around" is inevitable and even unavoidable. This is done for a variety of reasons that range from satisfying (major) customer ego, the need to get a feel of the turf (which in turn helps reviewing marketing strategies) as well the nature of the business itself. For instance, large turnkey companies who operate qith a small but powerful set of customers call for direct involvement of the CEO even if he/she were to be a non marketing person by profession.

With due respect to Professor Quelch it might be difficult to place a number - such as ten percent - to determine the amount of time that a CEO needs to put in even for the three issues he refers to at the end of the article. The time measure would itself depend on the nature of business, the cycle of the business and not forgetting intensity of competition.

Thanks for reading this.

- Posted by S.A.Krishnan
September 24, 2008 10:16 AM

“But while every corporate mission statement pays lip service to respecting customer needs, actual customer expertise is typically a mile wide and an inch deep.”

Only John Quelch with rich experience and impeccable track record could deliver such an eye-opener. There is a lot of wasteful expenditure on the stereotyped routine CRM activities even in front line companies. Recently, while staying in a prestigious five star hotel I ordered dinner on the room- service number. I was shocked, when before the room service delivered the order; a CRM ‘sweetie’ phoned and asked if I enjoyed the food!

After the punch-packed dramatic start, the impact weakened due to apparently contradictory statements.

• “-------there are two reasons why CEOs should be cautious about overdoing the percentage of time interfacing with customers”
• “AG Lafley, CEO of Procter & Gamble, reinstituted consumer home visits and store visits for HIMSELF (emphasis added) and his senior -----------“

To my mind, once a CEO starts visiting homes and stores s/he would be compelled to overdo the activity or displease those not visited.

In fact, the very idea of CEOs ‘working’ with customers is contradicted, and quite rightly in the later part of the fine article. CEOs should leave the working part to professional marketers. S/he should keep in touch with customers through rounds of conferences, golfing, events, dinners, etc. The level of customer satisfaction and complaints if any would surface in such informal encounters; these should be followed up earnestly and corrective actions ensured and communicated.

I wish to cite my most valuable lesson here. Recently, I was driving with a VP-Marketing. of an auto giant. He saw a truck of his company at a gas station. He went to the driver and had a detailed conversation and later recorded the facts on his cell. I asked him as to how he planned to use the information. He said the truck had one serious defect; he would trace back production and quality records of the unit and the whole batch of that week, not for finding who went wrong but to know what went wrong and what corrections were needed. This is subtle non-interfering CRM.

- Posted by S S Patil
September 24, 2008 11:23 AM

While I agree that the CEO should interact directly with customers, it's clearly important to focus on the nature of that interaction and not just the percent of the CEO's time spent doing this. I work primarily in the food and packaged goods arena and have witnessed many "top to top" interactions that were largely without value. If the CEO is reading his presentation deck for the first time in the car on the way to the customer, you can be pretty sure not much of value will come out of the interaction.

The point of the CEO interaction (except in crisis or new strategy situations) should be primarily to listen and to understand customer needs and perspectives; not to dominate the interaction by presenting the company vision and stressing how "customer centric" it is!
There should also be clear, meaningful next steps and not just "make work" projects.
Let's put a high quality threshold on CEO interaction and focus on having meaningful conversation with customers.

- Posted by Simon Ashbourne
September 30, 2008 5:02 PM

Good morning,
Surely it is not the amount of time that counts, but the nurturing of a culture that places (selected or priority) customers and market segments in the bullseye of the execution of strategy.

Employees watch what CEO's do, and do not necessarily listen to what they say, so the example of Lafley meeting with individual consumers sends a very powerful message to the business about what their priorities should be. However, in a case where such a visit was the one and only, and seen as a "bit of decoration" after which the CEO went back to squeezing the short term operating budgets, then it would be conter-productive,as employees will see it for the humbug it is, and act accordingly.

Spend the necessary time developing and continuously evolving a customer centric culture, rather than counting how often you speak to customers.

Allen Roberts

- Posted by Allen Roberts
September 30, 2008 9:13 PM

John,

The customer is king, cash is king.
This feels like one of those great Homer Simpson 'doh' moments of this current crisis! Brilliant in its simplicity!

As we look at many of the major companies, especially in the financial services industry, we wonder how many of the management cadre have had real 'customer experience'- of the type you speak of. Sure they can all boast MBA's from prestigious business schools and impressive resumes littered with M&A experience, but good old fashioned organic growth? Sales experience? Actually understanding what a customer wants and fashioning a solution to deliver that? I suspect not.

I know this is an issue your colleague Scott Anthony blogs on quite a bit and I whole heartedly agree with him. However, what you have pointed out is the need for the CEO to spearhead this. Which is exactly what has been lost in the last 10 years,(exceptions exist of course.)

We believe that what we are seeing at present is the end of a cycle. A cycle typified by false wealth,false growth and false leadership. Thankfully, we will soon be returning to good old fashioned growth. The type of growth based on nothing more than understanding what the customer needs, giving it to them and getting cash in return. Ahhh... now there's a novel business model!

- Posted by michael Johnson
September 30, 2008 11:30 PM

An interesting aside would be to debate how seriously CEOs and indeed, other senior managers, take face-to-face customer interactions. My experience of watching a number of them is that they spend an inordinate amount of time and energy being defensive and justifying their company and actions, rather than seriously addressing customer complaints and suggestions, or recognising insights.
Even when they do, I find the nature of most responses is to make minor adjustments, not major strategic changes.
So in the end, it's not really about how much time is spent with customers and consumers, but how perceptive CEOs are, how they're basically wired to pick up nuances even in the briefest and most innocuous of interactions. And here, sadly, it boils down to individual characteristics and value systems.

- Posted by Namit
October 1, 2008 2:15 AM

Would you consider joining social networking communities, responding to blogs, and even publishing a blog an effective use of a CEO's time?

I have found that social networks tend to be a bit homogeneous and possibly negatively skewed, but there are definitely nuggets to be obtained.

The question my clients ask is how much time, and what is the appropriate way to engage in communities. My response is to do a lot of listening and to employ productivity tools to make such listening efficient and as noise-free as possible.

- Posted by Scott Clark
October 1, 2008 9:29 AM

Dear Mr. Quelch:

CEO should spend 25% time meeting/interacting with customer and 25% time mingling with sales and marketing teams to better understand their activities. 25% time building strategic relationship with business partners...

Sales and marketing are the bridges to customer and pay a vital role in aligning future direction of an organization.
Looking at the dashboards and sales pipeline may not give the CEO accurate information to make appropriate decision. CEO must meet with sales and marketing teams along with management to better understand what’s making the company tick, which prospects are showing up on the radar and make sure that sales teams have all the resources required to close new customers.

Proactive and in the loop CEO will make better decisions.

Thanks!
Ajay

- Posted by Ajay S. Hayer (AJ)
October 1, 2008 5:38 PM

I once maintained in one of my (partially) wasted writing effort that it is the way a product is actually used by end users, the major and minor details of product functioning, its performance characteristics and user's utilities, that directly and indirectly creep into the producing company's operations and learning strategies.
Therefore, in my product-utitility-exaggerated view, the mode of product usage bears on how much attention should management pay to aligning company's operations with the product. If the product usage is standardised and bears low-risk to the end user (imperial or metric bolting or providing internet blogging platforms, perhaps), why not find better use for manager's time and concentrate on cost cutting, 'operations aligning' or CRM (I would not think managing such products may yield enough opportunity for playing golf with major customers). Yet, if the product is technically or otherwise complicated or implies potentially higher risks for the user (mortgage derivatives?), top managers might be better off spending more time on establishing details of product use, its hazards and deficiencies out with customers.

- Posted by yy
October 3, 2008 3:22 AM

I think that reviewing an absolute number as the percentage of time is one possible metric.

And yet there could be other metrics such as
What is the line between the Marketing Manager and the CEO
and is the CEO complementing what the Marketing Manager
needs him to complement.

Maybe it is the combination of the market needs, the company's
profile and custure, the marketing / development departments
execution as well as the CEO and marketing manager personal
touch.

Maybe another metric is if the company has reached its goals...
If so then all participants has paid their due...

Yours,

Jack.

The IT Professional Master Mind Forum - You are not alone Anymore
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- Posted by Jack
October 3, 2008 11:04 AM

Dear John,

Whilst working in sales for last nine years.I sometime get derailed from customers pulse,if I don't visit customers even within one week.Research & gut fill manytimes mislead us or time consuming to understand the real facts.Somebody might comment about my shortsightedness towards bigger picture.But as a Senior Manager you must have immediate screening power to get the true feel.Nothing like it,if you have hands on customer understanding.

Thanks for raising the issue in a cruicial moment of world our economy.Application of your thought will certainly improve the "White collers' productivity".

Thanks,

Masum U Khan
Bangladesh

- Posted by Masum U Khan
October 5, 2008 6:19 AM

Dear John,

Customer contact time for any executive is "the moment of truth".

Executives with minumum customer contact time and maximum "figures/sheets..etc" contact time may easily miss the "truth".

The pharmaceutical industry you mentioned in your example, the end consumer is not really the customer that should be contacted but all the other peole in contact with them as you rightly listed (medical opinion leaders, government regulators and CEOs of the companies distributing pharmaceuticals) in addition to the physicians who prescribe the medicines.

Thanx

- Posted by Nader Rizkalla
October 5, 2008 11:54 AM

Professor Quelch,

There is another dimension of customer contact that is important to the CEO. If your company provides a product or service that passes thru a distributor and is installed by that distributor then contact with the end customer is vital. Only by making on site visits can you determine whether your product is performing as you have been informed thru the organization.
Personal experience suggests that at least monthly visits keep the CEO fully aware of how all the variables that interact in delivering your product or service are performing. These visits also provide an opportunity to assess priorities for new product or service development activities.
Positive feedback also provides the CEO with specific opportunities to recognize performance by various members of his or her organization.

- Posted by D Pratt
October 6, 2008 11:19 AM

What is the purpose of the CEO working with Customers?
Is it to:
Sell more products and services?
Understand their markets?
Determine why some customers buy from them and others don't?
Gauge the competition?
Research new product developments?
Better understand their customers?
Unravel the mysteries of selling?
Try to figure out whether the sales process their company uses actually works? It's not about "sales logic." It's about statistical performance analysis.

Until the CEO gets out and does all of that, she/he is in the dark about one of the most important of all business functions.

The last item on the above list is the most crucial to business success.

- Posted by JacquesW
October 6, 2008 3:19 PM

John

Everything you say is valid and one can not argue with it. However what you say is theoretical in a world where a large number of CEOs make themselves unaccountable and reap the rewards of their position whether they succeed or fail; for these people there is little incentive to get to grips with the real issues of business - sell products for more than they cost to make - which is where the customers' choice of buying controls everything and alignment to that choice will mean life or death for the vendor.

- Posted by Dominic Rowsell
October 12, 2008 1:14 AM

Can you give some examples from any "non-tech" industry of such leading indicators? I'm really curious as to what these measures may be. Are you also suggesting that the measures be validated via correlation analysis or inferentially?

Thanks - great idea here, just wondering if it is practical.

- Posted by MT
October 14, 2008 11:10 AM

Dear John,
I agree with you that CEOs should understand customer behaviour of its own products and competitors products. By mingling with customers with an inquiring mind, a CEO will be able to ascertain first hand customer feedback, pluses and minuses of own product and competitors products. This information can be use to develop strategies and to validate market research.

The percentage of the time that should be spent with the customer should depend on factors such as type of industry, product, market, nature of competitive environment, stage of life cycle, etc..

Understanding customers and knowledge and skills of marketing of CEO would definitely be an asset to the organization.
Shalika

- Posted by Shalika
November 24, 2008 10:47 PM

Dear John, I couldn't have agreed with you more. I had an opportunity to work with a great leader Venkatesh Roddam, who was the CEO of Satyam BPO then. He always told us that life is a balance of risk, reward, and regrets. If you take a little personal risk and call customers and partners, your rewards will be great. And you can avoid some nasty regrets. And he showed us the simple formula of growing revenues over 100 percent year on year by connecting with our customers.

- Posted by Kulwinder Singh - Head Marketing APAC Satyam
November 28, 2008 8:47 AM

Dear John,

Years back at the start of my career at Xerox India, their existed an unstated rule in the company about interacting with customers. The minimum time prescribed for the Top Management was 30%. Some of the intended consequences were :-
a. To demonstrate committment of service
b. Understand customer expectations and preferences
c. Help coach sales professionals
d. Develop leaders with a conviction on Xerox products and services

Two decades have passed by and several sales people are today top business leaders in India and abroad. One common thread that binds them all is their conviction in visiting clients regularly

As a best practice, lot of us are trying to implement this thought and time is now ripe to thank Karl Kummer - Dir Business Operations in India 1987-1990 for implementing this so religiously and making so many of us successful.

Sid

- Posted by Siddhartha Bhattacharjee
January 13, 2009 5:58 AM

Domino Software

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