Q3- “The Customer is King”; But the King is Blind!?

In a free market economy “the customer is queen”:

  • She decides what gets produced in the economy. The superiority of the market economy over centralized planning lies in the democratic decision making that millions of consumers make every day.
  • Value is created whenever she decides to buy something. Her satisfaction (=consumer surplus) drives the creation of wealth (=net revenues of producers) in a market economy. Net revenues of producers are added up in the computation of Gross Domestic Product.
  • Widening and freeing her choices is the reason why governments seek to increase competition by freer trade (e.g. lower tariffs and less regulations) and freer entry (e.g. decartelizing or demonopolizing industries)
  • Her judgments select the better products from the poor ones. As a result, products and services get better and better.
  • Her decision, if correctly transmitted back to intermediate customers in a value chain, result in enterprise effectiveness and efficiency.
  • Her values/choices are the ultimate criteria in various quality management tools: kaizen, business process improvement, Lean Production, Lean Six Sigma, etc.

That is also why good KM (and correct KM) starts with recognizing what internal and external customers want. That is why KM must be demand-driven.

There is an ugly flaw in this nice and neat economic arrangement: most consumers make decisions with practically zero knowledge of the human, social, environmental and cultural costs inflicted elsewhere while producing what she buys. This ignorance distorts the pricing of goods and services (e.g. social costs are often not factored into prices of goods and services) and continues to result in producing the wrong goods or producing goods in the wrong way.

Most production activities by the private sector generate unintended, unwanted or unexpected social consequences (economists call these diseconomies or externalities). I will make a stronger statement: ALL production activities by the private sector generate unintended, unwanted or unexpected social consequences. I remember a remark by a lady demographer friend: “the most private act (the sex act) results in the most public consequences (the many impacts of population growth)!” I think the only way to avoid externalities from production activities is to operate a factory in Mars or elsewhere in outer space sufficiently away from the earth.

Should the customer-king (or customer-queen) be dethroned? Or should the customer be assisted better? Providing adequate knowledge for making better decisions is a basic KM goal. Can KM correct this flaw and if so, how?

Did we miss anything in the above analysis? Are there other ways of looking at this flaw in the free market system? Is it really a flaw?

What do you think?

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