Why leaders need to put customers first: with commoditized products and more choices for customers than ever, strong leaders are needed to drive strategy and operations and to establish a customer-service focus, the true differentiator for a successful business.

No matter what your industry, your product or service and no matter what your business model or business purpose, a prime concern of every business is the competitive landscape. While innovative products and services are constantly coming to market, it is rare, indeed, for a sole company to have a monopoly on any customer segment.

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The reality is that a key element for any business is its ability to outdo its competitors--by offering a better, faster or cheaper product or service that gets and keeps more customers than competitors do.

In order to achieve market leadership, a company needs to ensure that its strategies and operations are first rate. And, sitting atop the company as a whole, as well as at the top of each unit, division or department must reside a leader who is strong both strategically and operationally. That's because leadership is the connection that creates motivating cultures and builds successful customer relationships--the two main ingredients that power a company's profit chain.

While strategic leadership is a critical building block for setting tone and direction, it has only an indirect impact on organizational vitality and success. To ensure organizational vitality, leaders need to go beyond just strategic leadership and combine it with good operational leadership. In other words, it is the combination of a compelling vision and direction, together with a good job of implementation in the eyes of employees, customers and shareholders that ensures organizational success.

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When employees are passionate about what they do, are clear about their roles and goals and perceive that the organization is fair and just in its treatment of coworkers and customers, the impact on their desire to serve is tremendous. Employees who lack passion display their lack of enthusiasm by not serving the company's customers well. Indeed, The Leadership Profit Chain, a whitepaper developed by The Ken Blanchard Companies, describes results of a 2005 study that clearly links employee job and company satisfaction to customer satisfaction.

Based on an exhaustive literature review of hundreds of studies from 1980 to 2005, the study indicates that a major challenge for today's and future leaders--in every division of a company--is to create a motivating environment for their people that encourages and empowers them to serve the company's customers. As such, it boils down to a basic message: Take care of the people who take care of your customers.

This message has repeated itself more recently in other surveys by The Ken Blanchard Companies. One survey, conducted earlier this year--polling over 1,000 human resource managers and corporate leaders--asked respondents to identify the top issues they expect to face over the next three years at an organizational, managerial and employee development level. Between now and the year 2010, respondents said that at the managerial level their biggest challenges were selecting and retaining key talent, developing potential leaders and building customer loyalty.

The number one challenge, selecting and retaining key talent, is primarily due to a perceived shrinking of the labor pool--especially among highly skilled workers. Respondents also expressed concern about the increasing costs of locating and recruiting the people they need to make their companies successful.

The second challenge, developing potential leaders, was driven by the concern in many organizations that they will not have the type of highly skilled leadership they need to develop strategies and equip people to ensure profitable growth in the future.

The third key challenge, building customer loyalty, was cited most often because it was seen as a sustainable differentiator and true competitive advantage in a business environment where customers have more choice than ever before.

Specifically, findings in the survey related to most pressing issues this year are enlightening. These include:

* Competitors evolving and competition appearing from new sources;

* The feasibility of growth and expansion while facing a lack of skilled labor;

* The need to shore up internal leadership and management bench strength and retain top talent; and

* Balancing these high-level internal concerns and the demands created by serving and satisfying customers.

Leadership Challenges Intensify 

Of the issues above, each seems to intensify the effects of the other. For example, the number one concern--increased competition--affects a company's ability to attract and retain good people. It also creates a climate where customers form a "commodity" mindset. This drives price sensitivity and the need to differentiate products, services and offerings in a way that capitalizes on an organization's value proposition.

Organizations cite the need to grow with a strategic focus along with increasing efficiency, streamlining work functions and providing quality products and services while simplifying and standardizing processes. Also, respondents indicated the need to grow leadership bench strength through succession planning to take their organizations in the right direction.

Finally, there is the recognition that people are a key variable in being able to meet growth and customer service goals. Respondents continue to place leadership development, selecting and retaining key talent, creating an engaged workforce and managerial skills as critical areas of focus.

They also believe that competitive advantage and business success hinge on good leadership--stating that leadership drives improvement in all other areas. Additionally, leadership has taken new importance since older managers are approaching retirement, and the shrinking labor pool contributes to the high cost of recruiting talented and qualified people, in both line and leadership positions.

In the area of employee-development challenges, the respondents are concerned with:

* Developing managerial and supervisory skills (this has remained the number one issue for five consecutive years); and

* Customer relationship skills. Top management ranks these as the most critical employee development need.

In another recent follow-up survey, more than 800 mid-to-upper-level line managers and human resource and training vice presidents, directors and managers shared their opinions and perspectives specifically on the topic of customer loyalty. In this study, 74 percent of respondents said their organizations were highly focused on customer service improvement--which includes customer loyalty.

And while this is a big issue for the vast majority of companies, only 44 percent of these same respondents said that their organization had a formal process for achieving their desired service improvements. Also, only 48 percent said that their customer-facing employees are truly empowered to take action to resolve a negative customer experience.

This gap indicates a major operational challenge for the responding companies. While they have the desire to be customer-focused, they obviously do not have the plans in place for making that vision a reality. Without leadership that can turn plans into reality, these companies won't have much chance to achieve more than mediocre performance.

An 'Inside-Outside' Solution

To create an effective and growth-oriented organization, what is needed is an "inside-outside solution." To position an organization for success, leaders need to put their employees in a position to win. In too many organizations, the systems and structures derail people. The organization may want to serve customers, but policies and procedures make getting the job done harder instead of easier. In these organizations, systems or structures steer employees in the wrong direction.

Leaders in high-performing organizations, on the other hand, make sure that everyone knows that his or her job is to back up the key frontline person at that moment. In such companies, the structure is organized in a way that allows employees to respond quickly to customer needs, anticipate trends and get in front of problems. Constant innovation in operating practices, market strategies, products and services are developed to make it easier for employees to serve customers.

The process used by one of the largest financial institutions in the U.S. illustrates this well. In this organization, leaders wanted to create the kind of environment that would allow it to grow and, at the same time, create a customer-focused experience.

In preparation, leaders asked themselves some hard questions: "How do we capture the minds and hearts of our greatest asset--our people?" "What does it take to deliver exceptional service every single time?" "How do we simultaneously create growth and improve service?"

The solution was to create the kind of environment in which both internal and external relationships would thrive. To begin, leaders held roundtable meetings throughout the organization. This was essential to ensure an understanding of the goals and obtain support for the initiative. Next, they discussed roadblocks to providing excellent customer service. They were intrigued to find the value in asking people to disclose and discuss their business problems and then regroup those problems to form a smaller set of action-oriented items.

Since part of a leader's mission is to empower people, leadership in this organization recognized that if they wanted to "push" authority to people, they must also help those people move into a new world where they would feel and act more empowered. Thus, they made a special effort to provide the necessary guidance and reassurance to those who required it.

Finally, they took steps to preserve the excitement and momentum of the new customer service initiative. For example, they sent out a 6,500-member survey where they asked, "Is there traction?" "Have you seen changes?" "Are we communicating well?"

This financial institution is now more than two years into its transformation. Results show that teamwork and communication among the employees serving customer has improved substantially, and the organization has retained more clients and is enjoying increased business as their clients rave about the services.

One key takeaway from this example is that leadership identified improving teamwork and communication inside the organization as a key component of its customer service initiative. They made sure that every client--both inside and outside the organization--received superior service.

These leaders recognized that great external customer service begins with great internal customer service. They knew that when individuals within the organization treat each other with empathy and respect, they are far more likely to treat their external customers in kind. Great customer service organizations analyze every key interaction they have with customers, whether they are external or internal, and determine how they would like that scenario to play out to meet customer needs.

The Leader's Role

How can leaders encourage and empower people to serve customers at a higher level and realize that they can--and do--make a difference? It starts by changing the hierarchy to focus everybody's energy on making customers everybody's first priority.

In a traditional organization, employees often spend more time worrying about meeting the needs of their immediate superior than their customers. In these organizations, "boss watching" becomes a popular sport, and people get promoted for their upward-influencing skills. All the energy in the organization moves up the hierarchy as people try to please and be responsive to their bosses, instead of focusing their energy on meeting customer needs.

As a result, employees constantly try to protect themselves rather than move the organization in the proper direction. In such a scenario, bureaucracy rules and policies and procedures carry the day.

Strong leaders are able to turn the traditional pyramid hierarchy upside down so that the frontline people are at the top, enabling them to respond quickly to their customers. These leaders do that by looking down the traditional hierarchy and asking, "What can I do for all of you?" rather than having their people looking up the hierarchy and saying, "What can we do for you?"

If leaders are unresponsive to their people's needs and desires, these employees will likely mirror that behavior toward the company's customers. On the other hand, when frontline customer-contact people are treated as responsible owners of the company's customer-service vision, they consistently serve customers at a high level.

What about the costs associated with empowering employees to serve customers at this level? It's admirable, but does it make good business sense? The answer is yes, as evidenced by the results achieved by another large U.S. bank.

When the vice president of leadership development was asked to identify and act on his firm's various challenges, he began by determining the organization's priorities. Maintaining employee engagement, building customer loyalty and executing revenue-growth strategies were high on the list. While the bank was recognized as a leader within its industry, its position was not reflected in its customer base or its numbers.

"We were running customers off faster than we were acquiring them," the VP complained. To remedy this, leadership began to focus on the firm's two key assets--its employees and its customers.

This involved committing to a leadership and coaching model that "promoted two-way dialogue to enhance the relationship between leader and employee." Special emphasis was placed on "partnering for performance," which opened up communication between managers and direct reports by increasing the quality and frequency of conversations. Leaders adopted the philosophy that leadership is not something you do to people, but something you do with people.

The results were galvanizing: managerial skills effectiveness ratings improved from 63 percent before training to 99 percent afterward. Leaders began to realize that happy employees--well-taken-care-of employees--really want to serve customers. And, it started to show in the results, with earnings increases across the board, including: a 50 percent increase in small business loans; a 44 percent increase in commercial deposits; a 25 percent boost in consumer deposits; a 21 percent increase in consumer loans; and a 21 percent hike in net income.

What Great Leaders Know and Do

Creating a service culture is everyone's responsibility, from top management to frontline employees, and, therefore, having the right kind of leadership is essential. Leaders play a major role in setting the direction and taking responsibility for developing a compelling vision, empowering their employees to meet or exceed customer needs and acting as cheerleaders and supporters.

Leaders must also walk the talk of the organization's service vision--allowing others to follow suit. As a result, customers are more satisfied and will maintain a long-term relationship with the company. The support employees receive that enables them to manifest value for the customer depends on leadership.

Looking Ahead

Looking out to 2010, survey respondents said they expect:

* Both industry consolidation and global competition will increase;

* Technology issues will intensify; and

* Increasing challenges will require a focus on selection and retention of key talent, succession planning and increasing innovation.

At a time when customers have more choices than ever, if you don't take care of your customers, some other business is ready, willing and able to do it. The only thing your competition can't steal from you is the unique relationship you have with your employees and the relationships your people have with your customers.

The responsibility to take care of the ultimate customer by building a motivating culture and internal environment is the role of leaders. The ensuing profits and financial strength are the applause for a job well done.

SCOTT BLANCHARD is Executive Vice President, Client Solutions, for The Ken Blanchard Companies (www.kenblanchard.com), a leadership training and development company headquartered in San Diego. He is co-author of Leading at a Higher Level: Blanchard on Leadership and Creating High Performing Organizations.

RELATED ARTICLE: SERVE: How Great Business Leaders Succeed

In The Secret: What Great Leaders Know--And Do, co-authors Ken Blanchard and Mark Miller (Vice President of Training and Development for the 1,100-strong quick-service restaurant chain Chick-fil-A) developed the acronym SERVE to describe five fundamental ways in which every great leader serves.

S for See the Future

This has to do with the visionary role of leaders. Leadership is about taking people from one place to another. Once a clear vision is established, goals and strategies can be developed within the context of the vision. Consider these questions:

Where do you want your team or organization to be in five years?

How many members of your team could tell you what the team is trying to become or achieve?

What values do you want to drive the behavior of your team or organization?

E for Engage and Develop People

As a leader, once the vision and direction are set, you have to turn the pyramid upside down and focus on engaging and developing your people so that they can live according to the vision. You also must take care of your customers in a way that creates long-term loyalty. Consider these questions:

To what extent have you successfully engaged each member of your team?

What are 10 specific things you could do to engage individuals more effectively in the work of the team and the organization?

What have you done to suggest to the team that when it comes to implementation activities, you work for them?

R for Reinvent Continuously

Reinventing Continuously has three aspects. First, great leaders reinvent continuously on a personal level. They are always interested in ways to enhance their own knowledge and skills. The very best leaders are learners.

The second part of Reinvent Continuously applies to systems and processes. Great leaders are always seeking answers to questions like:

How can we do the work better?

How can we do it with fewer errors?

How can we do it faster?

How can we do it for less?

What systems or processes can we change to enhance performance?

The third part of Reinvent Continuously is the idea of structural invention. Many people assume that an organizational structure is permanent. In many cases, the organizational structure no longer serves the business--the people are serving the structure.

Great leaders understand that their organizational structure should be fluid and flexible. That belief is key to creating the energizing structures and systems that are characteristic of high-performing organizations. Other, less proficient leaders tend to let the structure drive their decisions rather than adapting the structure to meet the business's ever-changing demands. It's good to have a plan; it's good to have your structure in place. But always be watchful and determine whether it's serving you, your customers and your people well. If it's not, change it.

V for Value Results and Relationships

Great leaders--those who lead at a higher level--value both results and relationships. Both are critical for long-term survival. Not either/or, but both/and. For too long, many leaders have felt that they needed to choose. Most corporate leaders have said it's all about results.

In reality, there are two tests of a leader. First, does he or she get results? Second, does he or she have followers? By the way, if you don't have followers, it's very hard to get long-term results. Consider these questions:

How much emphasis do you place on getting results?

How many of your people would say that you have made a significant investment in their lives?

What are the ways in which you have expressed appreciation for work well done in the last 30 days?

E for Embody the Values

All genuine leadership is built on trust. There are many ways to build trust. One way is to live consistently with the values you profess. If I say customers are important, my actions had better support that statement. If I choose to live as if customers are not important, people will have reason to question my trustworthiness. In the final analysis, if I am deemed untrustworthy by my people, I will not be trusted--or followed as a leader.

Embody the Values is all about walking your talk. The leader, above all, has to be a walking example of the vision. Leaders who say, "Do as I say, not as I do" are ineffective in the long run. Consider these questions:

What are some ways you can communicate your core values to your team over the next month?

How can you alter your daily activities to create greater personal alignment with these values?

How can you recognize and reward people who embody these values?

RELATED ARTICLE: TAKEAWAYS

** A key element for any business is its ability to best its competitors--by offering a better, faster or cheaper product or service that keeps more customers.

** Leadership is the connection that creates motivating cultures and builds successful customer relationships--the two main ingredients that power a company's profit chain.

** Leaders in high-performing organizations make sure that everyone knows that his or her job is to back up the key frontline person at the moment when a customer decision is critical.