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Customer-Related Executive Leadership Turnover: A Costly Dilemma
May 16, 2023 ·
Contributed by: Izabela Shubair, DeGroote Contributor
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When your favourite brand hires a new chief marketing officer, chances are you may hear about it. Press releases go out to the media and proud tweets appear online, announcing the valuable addition. The same can’t be said when turnover occurs in such customer-related executive leadership — where execs are the “frontline at the top of the firm”. The much quieter affair of customer-related executive leadership turnover (CrELT) makes up the latest research of DeGroote marketing assistant professor, Sash Vaid.
Aspects of customer-related management likely to be impacted by such customer-related turnover interface across customer management strategy. That includes choice, characteristics, segment, satisfaction, channels, sales, and more. As Vaid’s first-of-its-kind research has discovered, CrELT’s effect on a firm’s financial performance is costly. In some cases, to the tune of nearly $30 million.
“This research reemphasizes marketing interfaces, particularly its boundary-spanning role, and thus the centrality of marketing to a firm’s existence,” says Vaid. “CrELT is not just any part of the firm’s proverbial roof shaking. It’s the part connected to the firm’s very foundation — the customer. These execs are not armchair experts on customers. They lead and understand the frontline, since they have been in the frontline at some point in time. Their expertise is built on personally going through the rut of customer issues by being directly accountable for the sales revenue coming from selling the firm’s products and services. So, CrELT can disrupt everything from frontline sales to marketing relationships that are built over long periods of time. Yet, there is no prior research that has studied CrELT.”
CrELT’s Impact on Firm Performance
So, just what kind of impact can customer-related executive leadership turnover have on firm performance? For a firm in S&P Global index with an annual net income of an average of $3 billion, CrELT should result in a loss of $28 million. Customer-related executives in the C-suite are decision makers who have a significant amount of influence on the activities of frontline staff. They also understand customers better and often maintain important customer relationships. When they leave an organization, it impacts buyer-seller interactions and the framework that helps to ensure a product or service meets customer values and needs is diluted.
“You would see how the firm’s financial performance is hurt in various ways,” says Vaid. “It could disrupt forecasting, product strategy and placement, and even create customer disruptions. At the customer level, for example, you may know the manager at a certain store you visit. As part of the shake-up, if that manager also leaves or is fired, a new manager may come in and bring their own team. So, you walk into that store and may decide you no longer want to shop there because the previous manager was really sensitive to your needs. CrELT is a trickle-down effect.”
Another aspect of the domino effect of CrELT is voluntary peer exits, which refers to executives who leave and are followed by their peers — creating an environment where others become less motivated to remain at the firm. Vaid found that more voluntary exits strengthened the negative effect of CrELT on firm performance. However, firms with a greater degree of debt-to-assets ratio, which signals an ability to tolerate risk, did not feel CrELT’s negative effects as strongly.
“When there is more debt available to a firm, shareholders have better information on the financial structure of the firm, and that is a good thing in times of change,” Vaid explains. “Also, with higher debt-to-asset ratio, firms have more financial resources available, so it lessens the blow of CrELT.”
The Hush Behind CrELT
Vaid suspects the reasons for the lack of reporting on CrELT can be attributed to firms not wanting to publicize the loss of such assets if the turnover is voluntary or if the executive is fired, since both reflect poorly on the firm. The lack of CrELT data, meanwhile, he says may be attributed to the fact that studying, for example, the careers of CEOs is easier. That’s because there is one CEO per firm versus multiple customer-related executives.
“As for the lack of data on CrELT, it’s simply not easily accessible. That’s what makes my research quite unique. I have access to departures and the reasons why people leave.”
“When we talk about layoffs, it’s typically a policy decision made by top management and communicated to shareholders,” he explains. “Turnovers are much more strategic in nature, and not policy related. That means it typically looks bad that such an asset got away. Firms will not want to announce that. You may just see some murky news item buried somewhere on a website.
What’s Next?
Interestingly, Vaid’s research couldn’t determine the role demotions played in firm performance after CrELT. To explore this further, Vaid plans to build on his current data set to examine CrELT in industrial business-to-business (B2B) firms, where customers become even more important because the consumer base is smaller than in business-to-consumer settings. He hopes to understand whether stress-related factors could be contributing to CrELT in industrial settings, and examine whether factors that were not as significant in the initial study, such as demotions, affect firm performance.
“I do expect that the stressful work-related turnovers in industrial settings will be consequential to firm performance,” he says. “We also want to see whether demotions can worsen that relationship. My gut feeling is that demotions should have a big impact. So, we’re excited to see how that plays out.”
