Tuesday, March 06, 2012

Dan Adams of AIM: Maximizing Customer Satisfaction May Lead to More Success than Maximizing Shareholder Value

  • A New Management Strategy from AIM

  • Since the mid-1970s, maximization of shareholder value (based on a Jensen and Meckling journal article) has generally been sancrosanct as a motto for top executives, MBA programs and other business commentators. Dan Adams, President of AIM, likes value maximumization as a RESULT but not nearly as much as a goal. Instead, Adams recommends emphasizing understanding and satisfying customer desires. Adams provides six reasons for his perspective: investors (especially short-term investors such as mutual funds) are more concerned with your apparent health than your actual health; an emphasis on share price maximization lends itself to excessive consideration of short-term vs. long-term issues; share value maximization has NOT worked during the last 35 years (this one can be questioned--the 35 years prior to 1976 were arguably among the greatest growth years in U.S. history), tangible goals are more likely to be met (Adams considers share maximization somewhat etherial) and employees need something inspiring to work for (perhaps Adams' strongest argument) and finally, understanding customer needs and desires can make you more successful not only with a specific customer but with other customers as well.

    At minimum, Adams has written a thought-provoking article well worthy of management accountants, managers, financial specialists and a host of business academics. At most, Adams may have started a paradigm-shift in management which could lead to a better understanding of how to succeed in business. Already in value-added analysis, we look for activities which make a product or service more beneficial to users--why not extend this to the overall management of a business or organization?


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