As the much-discussed $85.4 billion merger between Time Warner and AT&T looms, both corporate behemoths realize the importance of balancing the needs of both investors and customers. Truly, Time Warner's unprecedented acquisition would give consumers better access to high-quality, innovative video content while also establishing a pipeline for increased shareholder revenue.
It's a potential win-win of epic proportions for everyone involved, and while leaders are optimistic at the beginning of a merger, it doesn’t always turn out that way. In today’s marketplace, it isn't enough to focus predominantly on shareholders and keep them happy.
Your clients must be just as – or even more – satisfied. After all, unhappy customers increase the churn, or attrition, rate, and that usually affects earnings.
Walking that line
We don't have to go back too far in time to find one of the most disastrous mergers of all time: the now infamous marriage of Time Warner and AOL in 2000. Today, it serves as a reminder of how bad mergers can go, even when both companies are at the height of their respective powers.
AOL could aid Time Warner in establishing an online presence, while Time Warner provided AOL access to its extensive collection of content. On paper, everything worked, but nothing worked in practice. The dot-com bubble burst, the economy took a downturn and AOL's subscription revenue plummeted more than $200 billion.
Furthermore, AOL's business model, which charged customers on the basis of monthly usage, wasn't defensible in the long term. Not monitoring customer needs and shifting focuses were just two of many factors that condemned a partnership that, earlier, looked like a slam dunk.
For many years, investors mainly focused on a company’s earning potential and downplayed customers in lieu of shareholders, as had been the guiding investor mantra since the mid-1970s. Today, there is a broader understanding that shareholders aren't a company's only stakeholders. Internal and external customers (e.g., employees and vendors) also make up these constituents.
Corporations should have goals that extend beyond shareholder valuation. They should set their strategic sights on all aspects of the business, like accountable money management practices, strong and empowered employee culture traditions, a deep understanding of competitors, and the never-ending pursuit of innovation.
Sustaining harmony between shareholder and customer needs
Juggling all of the elements required to keep a company moving in a fiscally responsible direction can be daunting, even for executives with considerable experience. Focusing on these three goals will help maintain the balance.
1. Stay profitable. Executives must cater to investors' need for return on investment. The more profit an organization earns, the higher the chances that investors will be less worried about other elements of the business.
The AOL-Time Warner merger was a clear-cut example of just this. AOL's steep drop in revenue showcased a lack of understanding – not only of the marketplace but also what customers hoped to gain from it. That lack of insight almost certainly leads to less profit and less of a leg to stand on in any merger.
2. Remain innovative. The more innovative a company can be, the better it is for everyone. Often companies learn this too late in the game – just look at Blockbuster.
The rental chain passed on the chance to buy Netflix for $50 million back in 2000, which looks like a bargain in today's landscape. At the time, Netflix mailed DVDs to subscribers and didn't net much of a profit, which played a bit part in Blockbuster's decision to forgo the deal.
Though it's a painful example of a great merger that never happened, Blockbuster is an example of a company that looked too much at today and not enough at how to stay innovative for tomorrow and beyond. Customers demand relevancy, and staying in front of the pack is vital to long-term success. Research and intelligence about your market and your competitors should be on your permanent management agenda.
3. Nurture customer relationships. Add value for your customers and employees, treating them with respect and offering top-notch service. Create a genuine relationship with your consumers, and they will reward you with loyalty.
Disney’s union with Pixar didn't just net each company a sizable financial windfall; it also produced a number of unforgettable film projects that have connected with a loyal, engaged audience. Disney-Pixar is today synonymous with unique, grounded storytelling that leaves viewers coming back for more.
For many executives, the realities of balancing shareholder and customer needs appear contradictory, but that is simply not true. The key is to seek out pertinent areas where their needs dovetail and to maximize those situations. Then, you can create strategies to specifically serve both groups.
When the needs of a company's investors and supporters are integrated and upheld, the organization has a better opportunity to build sustainable long-term revenue streams.