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Chapter 1 (Continued Page 2 of 3) |
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Today, however, knowledge workers largely control themselves. The old model of ‘command and control’ does not work with knowledge workers. What’s needed is a system that nurtures self-directed workers, often operating within teams, with the flexibility to change on the fly as market needs dictate, within the parameters set by management. Leadership and management need to operate with their “ears close to the ground,” so they can anticipate the needs of their knowledge workers and the markets they serve. They need to create “closed-loop feedback” processes. The brand concept can serve this need, but only when the definition of brand practice moves beyond its traditional media links, and expands to include the enterprises’ internal operational aspects.
Perhaps part of the answer to why there’s so much pressure on management is due to the rapid pace of change in today’s world.
The Nature of What Now Creates Value However, rapid change may not be the only answer to why this is happening. We’ve gone through periods of rapid change before. And every period of rapid transformation, from an agrarian to an industrial to a service to a knowledge economy created winners and losers. The answer most likely lies in the nature of what now creates value within the firm.
The industrial economy of the last century taught us that scale and scope were vital to competitiveness, and, therefore, the ability to create value. And the constraint to scale and scope was capital. Massive amounts of capital were needed to build huge steel, transportation, warehousing, manufacturing and other industrial concerns and infrastructure. Only then could goods be mass-produced cheaply, driving share growth and profits.
Financial and standard cost-accounting systems were fine-tuned to provide information that could be used to manage in this environment.
In most markets, there was an irresistible push to become the biggest ‘vertically integrated’ provider, so that costs could be driven down through mass purchasing power, and per unit costs could be minimized, thus enhancing pricing power and the ability to drive share. This created a competitive cycle that resulted in most industries going through a series of consolidations that eventually produced about three main market survivors, with a bunch of small niche players. That was a ‘mass market’ model. In the post WWII era this model worked well as consumers were hungry for any kinds of goods and services in most product categories. Since most consumers had relatively low levels of disposable income compared to today, price was an important consideration in many product categories. During this era, brands were associated with a certain level of quality, each at a price point, and brands acted as an implied warranty.
Capital is no longer the key constraint. As the late Peter Drucker observed, “…there is an enormous amount of surplus capital in the world for which there is no productive investment. The supply greatly exceeds the demand.” It is certainly necessary for enterprises to have access to capital and use of it, but the availability or the cost to use capital is not sufficient to describe today’s constraints on a firm’s ability to generate value.
In the second half of the 20th century, the economy changed dramatically from a manufacturing-based economy to the service and knowledge-based economy that we have today. As economies have advanced the world over, the percentage of U.S. jobs in manufacturing has declined. The Department of Labor forecasts that goods-producing employment in the U.S. will drop from 23% of the non-farm labor force in 1990 to 18% by 2010, while the share of services employment will rise from 77% in 1990 to 82% in 2010. Jobs of all kinds are also requiring more knowledge.
Today’s constraints seem more tied into people, information, organization and process. Of those four, people are the most important. Human capital, properly motivated, is the most powerful force on earth. Today, people are expensive cogs within increasingly decentralized, flattened, less capital-intensive organizations. People are expensive to educate, hire, train, support and replace. What is limiting their power within some organizations so those companies are not competitive? What is nurturing their power within other organizations so those companies are wildly successful?
Of course, you have to provide people with the right tools with which to do their jobs. Access to information, flexible team-based structures, feedback, funding, and proper goals all help to create a productive climate.
People Power Drives Value Creation Via Innovation With the right support in place, people power will drive value creation through innovation. Often, several companies combine their talents and create ‘network effects’ as they generate value for their served markets. The “wintel” combination of MicroSoft Windows-based software providers and compatible Intel-based computers created a virtuous cycle that met the needs of corporate and personal computer users while increasing product functionality and reducing prices. That set the stage for other players, like Google and eBay to further amplify the network effect in other applications and markets. Network effects enabled rapid scalability and increases in scope.
The innovation that created the personal computer and the chips that powered them created opportunities to develop industries and serve new markets. However, accompanying these opportunities were risks. The opportunity/risk continuum was subject to company leadership and management selecting the right value creators in order to realize the opportunity while reducing the risk. Innovation was required to create ‘virtual’ companies via networks, thus more quickly realizing opportunity while limiting (or at least spreading out) the risks. However, who owns the “Wintel” brand? How do the various players partition the value of the network?
The greater the difference between what company leaders and managers think the value creators are, and the perception of investors, employees, suppliers and customers as to what are the most important creators of value, the greater the chances that success will be illusory. If there is a gap between the different perceptions, then company leaders and managers may think they are effectively communicating, when, in fact, they are not. These ‘value perception’ and ‘value reporting’ gaps make for frustration and disappointment on the parts of many of the key players. And that leads to changes in the executive suite. We need to develop a new language of values and value that is understood by all the players and encompasses both tangible and intangible assets.
Perhaps another way of explaining why there is turmoil in the executive suite is the information explosion. The information explosion, as evidenced by the internet and by the proliferation of customer information databases within companies, coupled with concerns about how that information is used and disseminated, has created an environment where customers are looking for ‘seamless’ interactions, respect of their privacy and confidentiality in the way their information is handled. The revelations of security breaches and the misappropriation of consumers’ information for use in ‘identity theft’ scams have created this concern. This is an opportunity.
At the same time, the customer has changed. The customer of today enjoys relatively high levels of disposable income. The customer of today often values time over money. Another outcome of the information explosion - easy access to information, has made consumers more savvy and sophisticated than ever. And, in an increasingly time-constrained world, this fast access to information has value. “Not your father’s Oldsmobile” has taken on greater significance with the demise of the Oldsmobile brand – and helps to underscore the changes in customers’ relationships with their brands. To appreciate why this is important, let’s take a look at what’s changed in the overall economy.
In the economy of the last century, the producer held pricing power. Goods were relatively scarce, and information about them was provided most often by the producer, via mass media, other forms of advertising, and at the point of sale. Today, while those tools are still in use, the Internet makes product and pricing information easily available to most consumers. This information is often made available by third parties, and may not be what the producer of the goods or services would have presented. Comparisons can be made instantly. Chat rooms and blogs make getting information about user experiences of actual consumers of a product or service easier than ever before. Producer claims and brand promises must deliver. If they don’t, the word gets out far and wide – at the speed of light. The Internet has created transparency. Or, as some wag has observed: “Either no one knows the secret, or everyone knows the secret.”
The experience of engaging with the brand over multiple channels (Internet, retail location, catalog, etc.) must be made seamless and optimized from the customer’s perspective. This has become critical. According to Forrester Research, 65 percent of all shoppers now shop and browse both on and off-line. 51 percent of shoppers characterize themselves as active cross-channel shoppers. ShopLocal.com reported that 83.4 million consumers made in-store purchases during the 2004 holiday season after researching the purchase online. That’s up 20 percent over 2003.
This phenomenon is not limited to retail. GM and AIG, two of the top ten Fortune 500 companies sell services and provide customer information through several channels. AIG connects with customers through brick-and-mortar offices, printed materials, a contact center, and a Web site. Pfizer, Merck and other pharmaceutical companies don’t sell directly to consumers, but they do provide products and information to physicians via sales reps, contact centers, email, and printed materials.
A better understanding of how to “orchestrate” multiple channels leads to greater customer loyalty and higher levels of spending. Industry experts say that the multi-channel shopper spends 30 percent more on average. This is another opportunity.
Furthermore, products are becoming more and more alike. As manufacturing techniques become more flexible and automated, and supply chains more integrated and efficient, product differentiation derived from the manufacture of goods has diminished. Fast cycle “reverse design” and manufacturing times have reduced first mover advantage. Six Sigma manufacturing and ISO standards have made product quality a given. Proliferation of product categories and products has created higher “noise” levels. It’s more difficult now to get someone’s attention based on product attributes alone. The traditional 4 P’s of marketing: product, place, price and promotion, are now table stakes, not the source of sustainable competitive advantage.
The Search For Meaning Customers today are looking for more than an assurance of quality from their brands, they are looking for meaning. Meaning is often defined by the relationship between the customer and the product and/or service. One way meaning is provided is by customization of the product and/or service to better meet the needs of the customer. More products are letting the customer design the final performance and “look” of the product, down to having the customer’s name on the product. Many cars enable their customers to choose from hundreds of options online, and design their own car. Instead of mass markets, we’re moving towards markets of one. In a world of parity products, those that can differentiate and define their brand via customization create value.
Technology and the rising rate of discovery enable the rapid development of new technologies and faster rates of obsolescence. Those companies, and their brands, that can rise above their physical or technology-based underpinnings, and migrate from one technology platform to another, will represent ongoing value. Those brands that can ‘cross the chasm’ of changing technology will be able to generate ongoing trust and value as they extend their relationship with their customers.
Beyond the performance options and features of the product or service, the real change in the relationship between the customer and the brand is focused on the emotional meaning the brand imparts to the customer, and vice-versa. This has created a need for a whole new way to look at the leadership and management of the company producing the brand, and how its customer-facing employees and channel partners engage and service the customer.
Showing “one face” to the customer is critical if the relationship is to be extended into the future. However, many companies are structured as “silos,” and more time is spent on internal departmental agendas, than on the customers’ agenda. Given today’s demanding and fickle customer that is a prescription for failure.
Of course, the way many companies “keep score” via their standard cost accounting systems and organizational structures, encourages a silo-driven, inside-out view of the customer. Sub-optimization of the customer relationship is often the end-result with customer churn the inevitable outcome. This destroys value. As an example, in many companies the sales department is often compensated for adding customers and volume with little regard for the ability of the organization to properly fulfill the promises made to those customers. That’s because the overall focus of the firm is on share growth. Every customer is a good customer – or so it appears. That’s old economy thinking, based on old metrics.
There is a need for new measurement systems that look at each customer as a unique opportunity. Share of customer (or share of wallet along with customer longevity) must receive at least equal emphasis with share of market. Share of market, blindly pursued, can actually reduce profitability. Each customer must be valued individually in terms of their “fit” with the company providing products and services to them. The focus switches to customer profitability, customer longevity and the creation of greater brand asset value. This focus creates extraordinary value.
Thus, the “search for meaning” has implications for today’s companies in terms of focus, organizational structure, pricing policy, hiring and recruitment practices, offerings, channels, and brands. For the CEO and other C-level executives, the meaning is clear, they must become knowledgeable about their company brand, product brands, and service brands, and have a vision for how their organization can create value for their served markets in a manner that is sustainable, understandable, and actionable. Each CEO must view them selves as the Chief Brand Officer, or they need to hire someone to fill that role that reports directly to them.
Convergence Another aspect of change can be summed up by “convergence.” For public companies, your customer and employee may also be your shareholder. With the rise of the affluent middle class, and the accumulation of trillions of dollars by the baby boomer generation, we are witnessing the first generation of truly widespread workers/owners. For the first time in the United States, over half the households (56.9 million) owns stock, either directly or through a mutual fund. A company’s employees and customers may also be the owners, either directly through ownership of the company’s stock in a tax-advantaged 401K or other qualified retirement plan or in a taxable account, or indirectly though participation in a mutual fund that owns shares in the company, and is housed in a similar plan. The same stakeholder effect also is at work in debt-based instruments like corporate grade bond issues and funds.
We truly are becoming an “ownership” society.
As the boundaries between employees, shareholders and customers blur, the implications for the company and their stakeholders are profound. With this change to an ownership society, our expectations of the companies in our lives have changed and risen; we now hold corporations to a higher standard, they are ‘personalities’ within our lives. As such, we hold them responsible for their actions and the effects of those actions on local, national and international communities.
This promises to accelerate, or at the very least support, a movement towards company’s re-examining their relationship with their communities. There is a need for new thinking in the area of corporate social responsibility that will positively impact value creation. This is another opportunity, and the implications for leaders and managers and corporate brands are many.
What Determines Winners And Losers? To answer this question, we must ask several more questions: · What changing role must the CEO play in helping their firm be among the winners – and how can he or she survive long enough to have a positive impact? · What changed role must marketing, advertising, IT, HR and other departments play to support the CEO and help the firm prosper? · How can this be accomplished in a way that provides financial types the transparent intangible asset value information they need? · Will that ‘buy’ the CEO and the rest of the management team the support and time to see initiatives bear fruit? · How can individual investors spot the winners? · What are the implications for the people that work for the firm? For strategic partners, channels, and other stakeholders? For their communities?
Most of all, is there an overarching principle and approach that can: · Synthesize all the pressures on CEO’s, their companies and service providers, · Provide them with a way to rationalize what is happening, · Arm them with insight to put this into a context that is understandable, provides motivation, can be executed throughout the organization - and be measured?
Our solution addresses and satisfies each of these questions.
We know that the focus on short-term results often creates programs and behaviors that weaken the opportunity for long-term value creation. A strong case needs to be established for patience in the boardroom and on Wall Street, based on a better understanding of what will build value over time. Lack of knowledge about brand practice and measurement as a tool for leadership and management; and about other value creation tools like innovation in products, processes, strategic partnering, licensing, etc. lead many to confuse frantic activity with progress.
Our solution separates the important from the not so important, and provides the framework and discipline necessary for leadership and management teams to focus on the truly important. |
