Seeking the customer perspective
Indeed, in speaking with several industry leaders, we found general agreement that having the customer voice within the boardroom is a critical industry strategy today. While a focus on employees, profits and operations is of natural importance to boards, the customer perspective is important for understanding the needs and experiences of those buying your services.
“At the end of the day, the business we are in is not just about selling a widget,” said Sameer Kishore, president and CEO of Milestone Technologies, an IT managed services provider. “We are trying to solve customers’ problems, so if we have a voice that can amplify the customer point of view, I think that’s a big win.”
“Clients are trusting us with the hearts and lungs of their businesses,” said Martin Schroeter, the CEO of Kyndryl, an IT infrastructure services company. “So when building the board, we need to understand customer point of view.”
Having that voice on the board is not about increasing sales — and in fact most likely cannot be, due to conflict-of-interest concerns. Instead, our interviews pointed to many other valuable benefits. Customers with knowledge of the industry, product and/or technology can help the board with strategies for improving relationships with existing customers, identifying new customers, branding and marketing, and investment and M&A opportunities.
“Recognizing the core portfolio of services we bring to the table, we wanted a board member aligned to those verticals, having experience in those verticals, ultimately providing domain expertise, strategy and connections,” said Leela Kaza, CEO of Accolite Digital, a provider of cloud and digital product engineering services.
Finding the right customer voice
Central to the success of this board strategy is finding the right type of customer to add as a director. Some executives we spoke with say they look to add an actual buyer — be it the CTO, CIO, CDO or the CEO.
“Buyers tend to have a better network to solicit other views and tend to be more focused on where the value creation opportunities are, versus the details of feature development they want to see,” Obermaier said.
Kishore said that the customer perspective he looks for is linked primarily to the level of insight a director can provide about how a customer perceives and uses the services.
“I think it's not so much about whether they’ve bought IT services before, but it's really about, are they leveraging the idea?” Kishore said. “The right person could even be a head of marketing within a bank, or the head of risk at an investment bank. They are leveraging the idea, even if they aren’t directly buying it. That’s important to us because we’re trying to solve business problems for our customers.”
Understanding problems from the customer’s perspective is also beneficial for private equity firms and their portfolio companies. Shashank Singh, a partner at Apax Partners, a private equity firm, said that including clients onto boards is pervasive and invaluable among many industry segments.
“It’s almost par for the course with us when we build boards and add independent directors,” Singh said. “We always include folks who understand an industry from the customer’s perspective.”
While this strategy is gaining increasing momentum, it also has challenges — in particular, the very real potential for conflict of interest. In general, directors on publicly traded companies are not considered independent if their companies account for more than 2 percent of revenues among NASDAQ-traded companies, and 5 percent at those traded on the New York Stock Exchange. Further, legal and/or compliance teams may not allow an employee with buying oversight on the board of a supplier company. One private equity partner we spoke with said that the portfolio companies he works with more often opt for customer advisory boards as a way to hear the customer voice while eliminating the possibility of a conflict of interest on the board if the company goes public in an IPO.
If hurdles do arise, our interviewees pointed to a variety of viable alternatives, including recently retired former customers, those who have moved to non-customer organizations, or people who come from adjacent industries that are not possible clients. In one situation, a CEO decided not to pursue a recently appointed board director’s company as a client, valuing the director’s independence and impact over the potential revenue from the company. In another, the recently appointed board director recused himself from the supplier evaluation process to ensure there would be no conflict of interest.
At the end of the day, no matter the specific strategy, bringing a customer point of view directly to the board is not about increasing sales, but rather about ensuring that the customer’s perspective on your company and the service it provides does not go ignored in the company’s strategic planning. Furthermore, as acquisition-led growth is becoming an increasingly important part of a company’s growth strategy, bringing an objective view of the competitive environment to the table will be a critical input in a company’s build-vs.-buy strategy.
As Obermaier says, “I think about this person’s role less as one of opening doors to sell into new buyers, and more one of making sure that we are delighting and retaining our existing customers.”