Market View: Work for Main Street not Wall Street

Profit is the reward a company gets for satisfying customers, not the main objective.

By John Stanton, Contributing Editor

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About 10 years ago I wrote an article in Food Processing magazine titled, “Who’s running the show?” (read the online version here) At the time I was very concerned about the trend taking place in food companies where misguided financial managers were having a negative impact on research and development and marketing decisions.

My concern was that we have lost sight of the fact that profit is the reward a company gets for satisfying customers. When profit becomes the main objective, customer satisfaction is often sacrificed.

In a recent article in Time magazine, Rana Foroohar states, “As Wall Street's values are strangling American business, finance calls the shots and we all lose.” She makes the most basic observations, that business is increasingly serving financial markets rather than the financial markets serving our businesses.

It is my opinion that this trend, while it may have helped CEOs' compensation, has led to general customer dissatisfaction. This may be why half of all corporate mergers and acquisitions ended in failure.

Have we as an industry let the financial people of Wall Street guide our boards of directors into believing that moving money from this account to that account is more important than making and selling products that delight our customers?

Peter Drucker said the two most important functions of a firm are marketing and innovation. He didn’t mean the marketing department or R&D but rather the function of keeping the focus on the customer and being able to give the changing consumer what they want.

What is happening more and more today is that we turn over the money made from products that R&D created and that marketing/sales sold to the accountants, and they suddenly act like it was their money from the beginning. They seem to contribute no real value except to figure out what to do with the money that someone else earned.

Once the money is turned over to the accountants, they treat the people who made the products and sold the products like they were trying to constantly “misspend the company’s money.” They check all the expenses of people in R&D/production and marketing/sales like they are crooks. However they are like the “welfare employees” of the firm who take the handouts of other laborers, and they don’t seem even the least bit embarrassed that they are paid with money that others earned.

It is not just the consumers who are hurt by the financial focus of the business, but it also has a negative effect on the morale of the people in research and development and marketing. From a marketing perspective, what is the sense of trying to understand consumers' problems and bring new product ideas to R&D, if in fact the ideas won't be executed. Equally as bad is having an R&D department whose primary function is to develop a new flavor or a new form of an existing product simply to be able to put something new on the shelf.

The basic business model, “Find out what people want, give it to them, and charge a fair price,” seems to be replaced by “Get people to buy more of what were already making, and charge more for it.”

It was so patently obvious to me that I couldn't help but ask a senior manager at a food company how this can happen. He told me he agrees, but if he tries to focus on a future that is longer than one quarter, he will most likely be fired.

I think this trend spells long-term disaster for the legacy food industry. As they try to drain every last cent out of their existing product portfolio, new entrepreneurial companies will focus on delighting the customer and coming up with new and exciting ideas for the consumer. One can argue that our legacy food industry can simply buy up those new entrepreneurs and integrate the new products into their large portfolios. History has shown that strategy fails as much as it succeeds, and more importantly the legacy food companies pay a steep premium to buy successful companies that focus on consumers and not financial markets.

Have we as an industry let the financial people of Wall Street guide our boards of directors into believing that moving money from this account to that account is more important than making and selling products that delight our customers? What is worse is that I don’t see much hope in getting the reins back.

Maybe I’m Chicken Little and I am yelling “the sky is falling.” Maybe our companies can get along just fine with the finance people fawning over Wall Street while ignoring Main Street but I don’t think so.

The business press has reeled with articles about why our traditional brands are losing power and why private label brands are growing every year. Maybe it is why mega retailers are telling our old respected brands what to make and how to make them. Once our great brands called on retailers with information about how much consumers loved our products. Today retailers instruct us on how much they will charge us to put our products in their stores. It is like they are doing us a favor.

Our future is on Main Street not Wall Street, and we need to do everything possible to get the boards of directors to recognize that.

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