Customer-Related Executive Leadership Turnover: A Costly Dilemma

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’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.

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.

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.”

Sash Vaid

Assistant Professor, Marketing

Sash Vaid’s research focuses on marketing interfaces, along two dimensions that are intrinsic and extrinsic to the firm, specifically – functional and technological. The first dimension, the focus of this research, explores marketing’s interfaces with other functions within the firm: sales, operations, finance, human resource, among others. The second dimension investigates marketing’s interfaces with a range of technologies associated with: consumer policies, AI, lead generation, marketing automation systems, healthcare, mobility/geodata, etc.