Are Customers Or Employees More Important?

In 2005, Vineet Nayar made waves when he announced that the Indian IT company HCL would put employees first. The announcement went against the prevailing orthodoxy that customers should be everything, with Nayar arguing that if employees were treated well then customers would inevitably be so too.

It's a perspective that has received a growing number of supporters, including the likes of Richard Branson. It's by no means universal, however, with Amazon famously having an empty chair at company meetings to represent customers. The company has also a somewhat patchy record when it comes to treating employees well.

Customer comes first

Research from Columbia Business School suggests that the approach adopted by Amazon tends to be more common than that of HCL, even while the "Great Resignation" means that many organizations are struggling to fill vacancies.

The researchers analyze the transcripts of earnings calls given by S&P 500 companies to understand what the priorities of executives are. The analysis reveals that executives are around ten times as likely to talk about customers as they are to talk about employees. What's more, this ratio has widened over the past 15 years.

This focus on customers continued when the researchers analyzed a wider range of corporate literature, including strategy textbooks, articles in the Harvard Business Review, and academic journal articles. Amazon are perhaps the prime example of this trend, as customers are mentioned in Jeff Bezos' annual letter to Amazon shareholders around five times as often as employees are.

“Record numbers of employees are leaving their jobs, and low employee engagement levels are leading to the new phenomenon of ‘quiet quitting.’ These disruptions and productivity losses not only slow down operations, but they can also significantly hurt a company’s bottom line.” the researchers explain. “One reason for the growing dissatisfaction might be that company priorities are disproportionately focused on the customer, while shortchanging the employees. Every company leader at every level, whether they manage two people or a team of 5,000, should consider how they think about customers and start applying that approach to how they treat employees.”

Misguided focus

The researchers found that practically all earnings calls had at least one mention of customers, but employees warranted a mention in barely half of them. What's more, when employees are mentioned, it is often in a negative way. For instance, around half of the mentions are associated with "prevention-focused" words, such as anxious, threat, and pain.

This is partly explained by the fact that the experience of many senior executives tended to be more customer-focused than employee-focused. The researchers believe this is also reflected in the academic literature that trains managers.

“The consumer-centric business model is continuing to evolve, becoming more personalized than ever. These trends are affecting the labor market, and how employees are treated,” the researchers conclude. “Our findings emphasize that companies should recognize that employees are also consumers; and as consumers, they are accustomed to personalized experiences and are seeking this within their jobs. In order for companies to remain agile and innovative, they need human labor, and for employees to remain creative and innovative, companies need to also adopt a more employee-centric approach.”

Why this matters

Research from Binghamton University underlines why this is so important. The researchers wanted to test how big an impact employee-focus had on the performance of employees. They examined around 1,000 people from the Taiwanese military and another 200 full-time employees in the United States. They were looking specifically at performance levels under three distinct leadership styles:

• Authoritarian-dominant leadership, whereby leaders usually asserted complete control and authority over their subordinates.
• Benevolence-dominant leadership, whereby the leaders' main concern is the wellbeing of their subordinates.
• Classical paternalistic leadership, whereby a combination of the two aforementioned styles is used.

When the data was crunched, the researchers found that the authoritarian-dominant leadership style was almost universally associated with negative job performance. The flip side was that benevolence-dominant leadership was almost universally found to have a positive impact on job performance.

Caring leadership

Interestingly, this classical paternalistic style also had a strong impact on performance, with similar results achieved as the benevolent style. The authors believe this stretches all the way back to our childhoods.

“The parent and child relationship is the first leader-follower relationship that people experience. It can become a bit of a prototype of what we expect out of leadership going forward, and the paternalistic leadership style kind of resembles that of a parent,” they propose.

They believe that the results clearly show that providing support for employees is a vital part of the leader's role, alongside providing structure and setting expectations. By providing help and guidance towards those goals however, the leader develops the social ties and support networks to help their team thrive. Interestingly, the results were consistent across both the American and Taiwanese groups, despite the very different cultures, both in national and organizational terms.

“The consistency in the results across different cultures and different job types is fascinating. It suggests that the effectiveness of paternalistic leadership may be more broad-based than previously thought, and it may be all about how people respond to leaders and not about where they live or the type of work they do,” the authors conclude.

So it seems that Nayer et al are probably right, and that senior executives would be better served if they focus a bit more on their employees, as this will ultimately benefit their customers too.