CX Science: why B2B companies should get a customer on their Board of Directors
What:
Having a customer on your Board of Directors if you are a B2B company will improve your business performance.
The effect is stronger when there are frequent changes of customer needs and preferences, and if the company's business is not too diversified.
The impact of having a customer on your board stems from the customer orientation and knowledge they bring into the boardroom.
Now what:
If you are a B2B company, try to get a customer of yours on your Board of Directors
Look for someone who is an executive, rather than an independent director on the customer side.
Mind the conditions under which a customer on your Board of Directors brings the highest value: when the business is less diversified and customer demands change frequently.
What's on the Board's agenda is on the company's agenda
The Board of Directors of any company is a vital part of the firm's life. The Board is the level at which the company strategy is created, evaluated, and pivoted. And it is again the Board that monitors if company's performance ultimately meets the expectations of stakeholders and is on track to deliver the needed results.
It comes as no surprise then, that the composition of the Board determines for a large degree the direction in which the company is going to go. The thing is, Boards are rarely customer-driven. Instead, "...finance-, accounting-, and other compliance-oriented perspectives" dominate.
Get a customer of yours on the Board
Given that Boards rarely include customer-facing roles, except Marketing ones, how can we put customers on the agenda of the top leadership team?
This study, published last year in the Journal of Marketing, gives an answer: have a customer in your company's boardroom.
What are the benefits companies who have a customer on their Board of Directors reap? Importantly, it increases the board's customer orientation and the level of customer knowledge. This makes the Board's decisions more customer-centric, thus ultimately putting the company in a better position to satisfy its client needs and improves firm performance.
To be specific, the authors studied a sample of 900 companies and found out that a customer on the Board increases Tobin’s q by 11.7%. This is a huge increase that is driven by a relatively simple to do but crucial action - becoming more customer-centric by having a customer of yours serve on your Board of Directors.
(for the less-financially savvy among us, such as myself: "Tobin’s q is the ratio of a firm’s market value to the replacement cost of its assets (Tobin 1969). By combining capital market data with accounting data, Tobin’s q not only measures the premium (discount) that the financial market is willing to pay above (below) the book value but also uses the correct risk-adjusted discount rate.)"1
How to maximize the effect?
Now, admittedly, there are business contexts better suited to make the most of a customer on their Board of Directors.
First and foremost, B2B companies are in a better position to make the most of this. As the authors put it, "This proposition applies mainly to B2B firms because, although board members
at business-to-consumer (B2C) firms may well be consumers of the firm’s products, such consumption is easy to imitate for any board member and thus is not a source of valuable resources." In other words, in B2C context a customer wouldn't bring that much a unique perspective to drive competitive advantage.
Secondly, having a customer on the Board is even more beneficial when demand uncertaintly is high - when "buyers’ needs and preferences frequently change"2. This makes it difficult for companies to meet customer demands and requires constant adaptation. Guess who is best positioned to help firms understand customer expectations? Indeed - a customer.
Thirdly, the more diversified a company is, the less a customer on its Board impacts its performance. This also makes perfect sense - the customer is a customer of a specific product. If a company produces multiple products, a customer of a single one can potentially impact only one of them.
So what?
Knowing this, it might be beneficial to consider getting a customer of yours to serve on your Board of Directors (if you are a B2B company). This will help increase the customer orientation of the Board, which will in turn imbue its decisions with customer-centricity, thus making the company better positioned to meet the ever changing customer needs.
My best wishes for a great day ahead!
CX Inspirations - card 9
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