Profit vs customer : a comparative analysis of the financial perormance goal orientations

Abstract

Which goal orientation results in better performance? A profit orientation or a customer orientation? To date, researchers have presented opposing arguments with respect to this important issue, stating that both orientations lead to above average returns. Therefore this papers seeks to address this issue. This paper aims to contribute to quantitative research conducted in the Strategic Management field because the results have significant implications for decision making procedures of firm strategies. To address this debate, the researcher empirically tests the reported financial results of firms characterised under each strategic orientation. Coding of CEO letters and letters to shareholders provided the two groups of companies tested and literature provided the categorisations. The results show that a customer orientation leads to better financial performance than a profit orientation over a 15 year timeframe in terms of two measure of profitability, the internal accounting measure of Return on Equity (ROE) and market related measure of Share Price Appreciation. The results have significant implication for decision makers and strategy theory as empirical tests over the 15 year period clearly demonstrate the superiority of a customer orientation over a profit orientation in attaining superior financial performance.