BBC Radio 4 produces a very interesting programme called ‘The Bottom Line’. Every week the show collects together three top business executives and the presenter, Evan Davis, focuses on asking them about just one or two issues related to running a company.
It really is essential listening for anyone interested in how companies operate and Davis himself is an experienced economist who manages to cut through most of the jargon used by modern executives.
I mention the show because there was a discussion on the last one about how customers can effectively shop around for services when they don’t have access to all the information they really need to make a decision. In economics this is known as the principal-agent problem, but most of us see it in our daily life.
Think of when your car engine starts to malfunction. You take it to the garage and have to trust the mechanic – he could tell you that it just needs a change of oil or he could tell you the gearbox has to be replaced. Unless you are also a car mechanic, and can check what he is telling you, you just have to trust his judgement.
It’s the same kind of problem when you need legal advice. You want to buy some expertise from a lawyer – there are a lot of lawyers out there, but how do you choose between them? Do you select one just because they are local?
Having the right information can be critical, but the issue that struck me about this problem is that service and respect for the customer is crucial for most businesses.
There are some companies that can get away with providing a terrible service because they will get more business anyway. Restaurants located next to a major tourist attraction are a good example – no matter how bad the place is, there will always be a fresh batch of tourists tomorrow. Go to Piccadilly Circus and you will see what I mean.
But most companies can’t operate like this, their service to the customer and integrity are vital for survival. All three of the chief executives on the last programme said that they would not be in business today if they did not treat their customers with respect, and that really is the bottom line.
Photo by Rainy city licensed under Creative Commons