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Recently, I was in Hyderabad, India, teaching a course on Customer-Focused Marketing Strategy at the Indian School of Business.  As a pre-reading for the course, I recommended Ted Levitt's classic article Marketing Myopia - classics do have their place, even in an age of bulimic sound bytes! 

Even though I have read Marketing Myopia several times, I favored discretion over valor and decided to read it one more time, just in case somebody was hell bent on peppering me with tough questions. 

Reading the article again was more than just a born again experience.  It was a lesson in humility.  Here was an article, first written in 1960, that had nailed several things we are still wrestling with today.  Little wonder that the late Ted Levitt is regarded as one of the most widely respected thinkers in the field of marketing and management. His work and writings have changed the way companies think about their businesses, organize for innovation and creativity, and market their products and services. 

A homage to some of Ted Levitt's best thinking follows:

Marketing Myopia

The article that gave rise to the famous aphorism - "Customers don't buy 1/4" drills, they buy 1/4" holes."  It still provokes serious thinking.  The big idea - get companies to think of their businesses in terms of customers needs, not in terms of the physical products and services they produce.  Levitt asserted that all companies and industries were once growth industries.  If they have stopped growing it is not because markets are saturated, but because management failed to correctly grasp what business the company was in.  Invariably, companies that run into growth problems suffer from one overarching weakness; they are overly focused on physical products and services - credit cards, cell phones, mortgages, HDTV - and less on customers and their needs.

After the Sale is Over  - - -

Long before there was CRM and Relationship Marketing, Ted Levitt was discussing the importance of cultivating relationships with customers.  The big idea - a sale signals the end of courtship and the beginning of a marriage with the customer.  The quality of the marriage determines whether there will be continued or expanded business, or troubles and divorce.  Levitt considered relationships with customers as an asset.  The more complex the product and service, the more salient the customers' needs, the more critical and valuable is this asset.  He advised companies to manage and continually invest in this asset, since over time relationships would trump all other aspects of the marketing system, including technology. 

Marketing Success Through Differentiation - of Anything

The big idea - every company should resist the push towards becoming a commodity, by attempting to differentiate not only their products and services, but by differentiating their whole business, in terms of what they offer and how they operate.  What we call reinventing business models today.    To elaborate, the basics of checking and savings accounts at Citi, Bank of America, Chase, and HSBC may be identical, but how these banks do business and the resultant customer experience may be wholly different/differentiated, and hence a non-commodity.

Moral of the story - knowing the catch phrases from the most recent NY Times best seller list may get you attention at cocktail parties.  But knowing the essence of classical marketing and business writings will get you the promotion you desire and significantly add to your bank balance!  Not a bad thing in any age, especially in today's recessionary times.

In Rethinking Marketing: From Marketing Products to Cultivating Customers my co-authors and I wrote about how companies must make products and brands subservient to long-term customer relationships.  We also made the point that for ongoing customer value innovation to become a part of the DNA of the organization, it is important that the company move from an internally focused concept of customer value creation, to a more open, collaborative model of co-creating value with customers and other key stakeholders.

In much the same way, I'm more convinced than ever that we must rethink the purpose of modern businesses.  As the global financial crisis has so bluntly shown us, "maximizing shareholder value" is no longer a sustainable purpose for business.  We doubt it ever was.  But back then, Jack Welch was preaching the gospel and companies were lapping it up.  Interestingly, even Jack Welch is no longer singing the "maximize shareholder value" song. This is the age of consumer capitalism and the triple bottom line.  The new gospel is people, planet, and then profits.  Near term thinking that just does good for the company without consideration for the environment, or the social social systems that a company operates in, is not a responsible option!    

So where should we look for new role models? 

Across the border to the north, and across the Atlantic to the sub-continent.

 

Recently I read an article describing Ratan Tata's visit to Canada to deliver the first Thomas Bata Lecture on Responsible Capitalism.

The late Thomas Bata and Ratan Tata, and their corporations have a lot in common.  They epitomize socially-conscious leadership. 

The Tata story has been well covered in this article, which sums up the vision as follows:

Since its founding in 1868, Tata has operated on the premise that a company thrives on social capital (the value created from investing in good community and human relationships) in the same way that it relies on hard assets for sustainable growth. With every generation, Tata's executives and managers say, they have nurtured and improved their capability for "stakeholder management": basing investments and operating decisions on the needs and interests of all who will be affected. For Tata, this means shareholders, employees, customers, and the people of the countries where Tata operates -- historically India, but potentially anywhere.

These are not platitudes. Tata has won the goodwill of the people not by talk, but through action. Key decisions are based on the impact on society.  The company's humanitarian actions, for both employees and non-employees, following the dastardly November 2008 terrorist attacks on the Taj hotel are well documented, and have won raging applause from even the most anodized critics of business. 

People first, business second.  Both Bata and Tata teach us that it is possible to be a global powerhouse without sacrificing one's soul.  It is not necessary to separate social good from business well being, as so many companies do.

Dartmouth's Professor Vijay Govindarajan explains the Tata Nano as a social innovation:

Through his actions in the Tata Nano project, Ratan Tata has demonstrated that capitalism can have a soul--the profit mission and the social mission do not conflict and can, in fact, be pursued simultaneously. 

Increasingly, we are going to see businesses doing well by doing good, a philosophy that guides thinking and decision making at Unilever. In a recent discussion, Harish Manwani - President Asia, Africa, Eastern and Central European Regions at Unilever - shared that for Unilever value co-creation was not just collaborating with customers, it is collaborating with the interlinked ecosystems that the company operates in.  According to him, this passion and commitment to doing well by doing good, is the reason why the Dow Jones Sustainability Index has rated Unilever as the best company in its category for ten years running. I intend featuring more of the Unilever social responsibility story in my forthcoming blogs.

Social good and company well being can co-exist, as the examples of Bata, Tata, and Unilever demonstrate.  They should not be divorced from each other any longer. The people and the social systems they live in are both customers of the company.  The paramount purpose of modern businesses should be more than just "Do No Harm."  Rather it must be "Do Long Term Good for All."

India's economy and its companies have been getting a lot of attention in the past decade.  A trend map of India at the annual Davos conference will attest to this.  A decade ago, India was invisible at Davos.  Today, to the uninformed observer, Davos may well be a Bollywood party.    

The Tata Group, Mittal, Reliance, Infosys, Hindustan Computers Limited, Ranbaxy, ICICI, Hero-Honda, and Bharati Airtel are a few Indian companies that regularly garner media headlines.  The world knows a lot about these companies, and their products.  But what does the world know about the leadership of these companies?  The answer is very little.  Beyond a few names, like Naryan Murthy, Ratan Tata, Mukesh Ambani, and Laxmi Mittal, the West knows little about how Indian companies are managed.  The India Way, authored by Peter Capelli, Harbir Singh, Jitendra V. Singh, and Michael Useem intends to rectify that.  

Do Indian companies have their own way of managing and running their companies?  The answer is a most emphatic YES!  Instead of using management ideas and practices that dominate Western businesses, Indian companies are applying fresh practices of their own, to shape their strategy, leadership, talent, and organizational culture.

Here is a sampling:

• The best Indian companies drive their performance by investing in people; motivating them, empowering them, and investing in their training
• For them, the CEO's office and function is not as critical as in the West.  Many of these companies don't even have that title, and practice group decision-making at the top
• Envisioning a path to the future, strategic thinking, and guiding change is very critical to the leadership of these companies
• As is being inspirational, accountable, and entrepreneurial

 

Corporate Social Responsibility (CSR), is not an occasional, negotiable activity for most Indian companies.  Partly because most organizations in India tend to be surrounded by mass poverty, and partly because CSR is a reputational asset that helps negotiate deals with the government, companies are very serious about their obligations to the ecosystem they operate in.  40% of all Indian companies routinely monitor their progress on CSR goals, compared to just 17% in the U.S.  

Are these practices transferable to the West?  That all depends on the priorities of Western companies.  Consider the top priorities of Indian companies:

• Looking beyond stockholders' interests to public mission and national purpose
• Drawing on improvisation, adaptation, and resilience to overcome endless hurdles
• Identifying products and services of compelling value to customers
• Investing in talent and building a stirring culture. 

Perhaps the experience of dealing with obstructionist bureaucracies, crumbling and antiquated infrastructure, and growing up in hardship and scarcity can't be replicated.  But inspiration to do well by one's employees, and build lasting legacies, around entrepreneurship and long-term success, can certainly be imported, and emulated.   

There's always been an India Way.  Its just that its more palpable today.  Hunger can be a beautiful thing - especially the hunger of challenger companies not to be perceived as mere Xerox copies of front line Fortune 500 companies.  Let's hope, for their own sake, Indian companies don't forget this.  

The old adage - Fat Dogs Don't Fetch - applies to all companies in all countries!

Recently, I had the pleasure of being introduced to ICFAI University, one of India's leading educational institutions, recognized for its skills in developing innovative educational programs and writing insightful case studies.  It is also a leading publisher, 18 magazines and 46 journals, in areas such as marketing, finance, environment, and health care.

Effective Executive is the flagship magazine of the University.  Started in 2000 and published monthly, it features articles on topics like marketing, strategy, sustainability, and innovation.  Every issue also features interviews on these topics with experts.  In the recent past, the magazine has interviewed globally renowned experts and intellectuals, like Philip Kotler, Michael Tracy, Pankaj Ghemawat, Vijay Govindarajan, and Dr.A.P.J.Abdul Kalam, a renowned nuclear scientist, and former President of India.

The magazine's latest issue is dedicated to the theme Co-Creation: the New Frontiers of Competitive Advantage.  The issue features an interview conducted with me on my HBR article and on co-creation. 

I would like to share two key topics covered by the interview.  The first deals with the nature of co-creation, and the second with the difference between customization and co-creation.

Understanding co-creation

Cogito ergo sum - one of Descartes's most famous legacies - loosely translated as, I think, therefore I am.

Peter Drucker had a similar way of introducing himself - I write - is how he used to introduce himself.  What Peter should have really said was - I think and I write, and I don't know which one comes first.  An interesting chicken and egg problem, but not one you lose sleep over, especially if your writing borders on the prolific, and your thinking can stand the test of time!

November 2009 marked the 100th anniversary of Peter Drucker's birth and we should celebrate it.  Universally acclaimed as a great management thinker and business guru, for over 50 years, from the early 1950's to the early 2000's his provocative and often controversial ideas dominated the business world. 

The management kingdom is rediscovering him and finding him to be just as relevant as he was all those years ago. 

HBR ran a special issue on Drucker in Nov. 2009 - asking What Would Peter Drucker Do?

Books like Inside Drucker's Brain are attempting to make him and his cutting edge thinking more accessible.  

Paradoxically, in the West, where he made his greatest contributions, he is all but forgotten, pushed aside by gurus du jour.  On the other side of the Atlantic, Drucker societies are still alive and flourishing.  They assemble routinely to discuss his work and learn from his teachings.

It is impossible to compress a sixty-year career comprising over thirty books that have sold over 5 million copies and scores of articles, including some HBR classics, in a page or two.  So, how about we take inspiration from Hollywood and present instead a 90 second trailer on the World according to Peter Drucker.

His signature idea - Management by Objectives; still relevant, especially as companies flounder with direction and purpose. 

His committed and unwavering focus - the long term health and well being of companies, not short-term hits.  He rarely blamed individuals, maintaining that it was always the underlying systems that were the root causes of failure.  He believed organizations should constantly challenge their design and operations; he saw this as the key to long-term well being.

His favorite questions - What is your company's ultimate purpose? Who is the customer? What is your mission?  What is it you should continue to do?  What is it you should stop doing? Where has the obsession with the short-term undermined long-term effectiveness? Why aren't some younger people in the company earning more than the Directors?  

His passions - writing, context-bound thinking, integrating ideas, processes not outcomes, urging companies to innovate and create the future, long-term corporate well being, nurturing future stars, and of course - the CUSTOMER!

What did A.G. Lafley, ex CEO of P&G, learn from Drucker?

In A.G.'s own words:

Over the years, I learned many things from Peter, but far and away the most important were the simplest:

1. The purpose of company is to create a customer.
2. A business is defined by the needs, wants, desires a customer satisfies when buying the company's product or service.
3. To satisfy the customer is the most important mission and purpose of every business.

No presentation of Peter Drucker's work is complete without sharing some of his memorable quotes and brilliant observations.  A very brief, you might even say self-serving, sampling related to marketing, the customer, and innovation follow.   

• Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation. Marketing and innovation produce results; all the rest are costs. 

• The customer rather than the manufacturer defines a market

• Of course innovation is risky.  But so is stepping into the car to drive to the supermarket for a loaf of bread.  All economic activity is by definition 'high risk.' And defending yesterday - that is, not innovating - is far more risky than making tomorrow.

Paraphrasing Drucker and taking a few artistic liberties: since customers define markets, and market creation should be the fundamental focus of a company, and innovation is the primary fuel that drives this market creation - then what better world to be thinking, writing, and consulting in, than customer-driven innovation!

We are being constantly reminded, by scholars, practitioners, and journalists, that today's individuals and business organizations live in a highly networked, interactive, and collaborative world. 

This new reality has given rise to new customer behaviors, and to entirely new vocabularies.  The consumer is dead, long live Prosumers, Trysumers, and several other forms of  - - - sumers yet to be born.

• Prosumers - today's customers are both producers and consumers; i.e., they are not just consumption machines, but also contributors and co-creators of unique value
  
  
• Trysumers - consumers immune to most advertising, who enjoy full access to information, reviews, and navigation, who love to try out new products and services - appliances, artists, outfits, food, holiday destinations - new "anything", with post mass-market gusto

Despite this daily dose of revivalist thinking, several companies approach their customers and markets as if they were still stuck in the 1960s; an era of impersonal transactions with the customer, relying on everything "mass" - mass markets, mass media, and mass undifferentiated value.  For these companies, Marketing is still a one-way street, where companies do the talking and influencing through their advertising, and customers do the listening and consuming; passively at the end of a long invisible value chain.

There is something wrong with this picture and it needs fixing.  What is wrong is that most companies are still set up to market products.  That needs fixing.  Companies must transition from marketing products to cultivating customers! 

In the January-February Harvard Business Review article - Rethinking Marketing (download here) - my co-authors (Roland Rust, Christine Moorman) and I discuss how companies must shift their focus from driving product-centered transactions, to building long-term relationships with customers by offering whichever of the company's products the customer values most at any given time. 

This can only be done if companies make products and brands subservient to long-term customer relationships.  And that means - reinventing the marketing department altogether.

The essence of reconfiguring marketing as a customer department is captured in this diagram:

The traditional marketing department must be reconfigured as a customer department that puts building customer relationships ahead of pushing specific products. To this end, product managers and customer-focused departments report to a Chief Customer Officer instead of a CMO, and support the strategies of customer or segment managers.

Two key implications of this reconfiguration need additional emphasis:

• First, reconfiguration is not merely drawing a different looking organizational chart, with different sounding titles.  It is a fundamental shift in allocating, sharing, and managing resources - people, budgets, and information.  This has implications not only for which tasks get priority and how they are executed, but also for who is the best person to execute them.  For instance, since the role of the customer manager is the ultimate expression of what marketing should be - cocreating unique value with and for specific customers - we expect them to approach their task more like consumer anthropologists and behavioral scientists (see my post on A.G. Lafley), as opposed to advertising or promotion specialists.
  
  
• Second, in this reconfigured world, being able to offer relevant consumer value at all times becomes a key driver of business success and profitable growth.  For ongoing customer value innovation to become a part of the DNA of the organization, it is important that the company move from an internally focused concept of customer value creation, to a more open, collaborative model of co-creating value with customers and other key stakeholders.  Integrating R&D into the customer department will go a long way to ensuring that the customer remains at the center of all value creation activities.

A migration from marketing products to cultivating customers will also require a shift in metrics to gauge the effectiveness of a company's customer-focused strategy.  We discuss four new ways of thinking about business success in this customer-led world of marketing:

• Focus more on customer profitability, less on product profitability
• Customer Lifetime Value (CLV) thinking should trump maximizing current sales thinking
• Customer equity - the sum of all CLV's of a company's customer base - should replace a brand equity orientation  
• Companies should pay more attention to customer equity share, and less attention to market share
  

I hope you find the article relevant, interesting, and useful.  If you're having similar discussions in your own organizations, please share them with me.  I'd love to start a conversation with you on how we need to rethink and reinvent the fundamental focus of marketing.

DOWNLOAD: Rethinking Marketing, by Roland Rust, Christine Moormon, Gaurav Bhalla, Harvard Business Review, January-February 2010.  

CMO Archetypes:



While the effort of the AMA to peer into the future is laudable, I am personally very troubled by the output, and the lack of emphasis on some fundamental game-changing trends like customer collaboration, value co-creation, customization, and open systems thinking.  

Page Moreau is an Associate Professor of Marketing at the Leeds School of Business at the University of Colorado in Boulder.  She obtained her Ph.D. In Marketing from Columbia University.  Her research interests span the areas of customization, value co-creation, innovation, and customer collaboration.  Her 2005 paper: Designing the Solution: The Impact of Constraints on Consumers' Creativity, received the best paper award in 2008.  No that's not a typo.  Academics like ideas in papers to ferment before they recognize them! 

I met Page a few years ago at an MSI conference on Innovation.  We met again in June this year at yet another MSI conference at which she presented some of her ideas on customization.  I thought the blog's readers would be interested, so I invited her for a conversation, to share her thinking, and she most graciously accepted.

Hyatt Hotel's has been in the news lately - for all the wrong reasons.  As was the CEO of Whole Foods a few weeks ago!  In fact, I could begin this blog the way I began my May 21 blog (What do General Mills and Finland have in common?) and ask - what do the Hyatt Hotel and the CEO of Whole Foods, John Mackey, have in common?  

On August 11, John Mackey penned a op-ed on health care reform in the WSJ strongly aligned with right wing, conservative thinking.  His opening quote makes transparent his personal leanings.

"The problem with socialism is that eventually you run out of other people's money." - Margaret Thatcher

On Sep. 17, Hyatt fired approximately 100 housekeeping staff in Boston.  According to the Globe, Hyatt fired housekeepers at the Hyatt Regency Boston, Hyatt Harborside, and Hyatt Regency Cambridge, replacing them with workers from an Atlanta staffing company.



One can argue what's wrong with that.  The constitution of the United States guarantees a person the right to free speech, and capitalism the right to a company to structure its labor force and its costs (most of the fired housekeepers were minority women, making $15 an hour; it is expected the replacement workers will make $8 an hour).

However, in today's networked, interconnected world, company's and CEOs are not just individuals or employers.  They are symbols of what their companies stand for, and for what their customers stand for.

Customers who shop at Whole Foods are liberal, pro-environment, anti GMO, pro-organic food people.  It is not that they want to deny John Mackey the right to his opinions; it is that they felt let down and violated.  John's op-ed diminished the value customers derive from their association with the store and their shopping experience there. Take a look at the poll at wholeboycott.com:

 

Clearly, those who run Whole Foods have not spent enough time to understand the dynamics of today's interconnected networked world.  The concept of customer value has changed.  Customers don't just derive value from the products and services a store has to offer, they also derive value from what the company and its executives stand for.

Hyatt's case is no different.  The outrage is not about whether it's a good business decision - its not about Hyatt's understanding of cost cutting and optimizing a housekeeping budget - its whether Hyatt has a good heart or not?  The issue is also about whether I will get value by staying at a hotel chain that acts in such a heartless fashion.

A company or a CEO can't be so naïve as to ignore the context they operate in.  There is still blood on the streets.  A large number of people are struggling to get by and the evening news is full of heartbreak stories.  We live in an era where Politicians are actually regarded as more trustworthy than Business Leaders!  Don't believe me?  Ask CNN!

Today's customers are talking to each other - in both the real and digital worlds.  Though what they say in the digital world can often be more potent, due to the speed and ease with which digital opinion can whip up bystanders into a frenzy about issues they deeply care about.  The environment is one such issue, health care is another, having a job and avoiding economic pain probably tops the list.

Are John Mackey and Hyatt not listening?  Intelligent companies in touch with the realities of the digital market place don't just listen when customers talk to them.  They listen even when customers are not talking to them or about them.  Why?  Because smart companies realize they don't control the conversation agenda, they are merely a part of it. 

It's a good season for change!  Sitting on the fence is not an option, especially when it comes to the environment.  

The United States has reached the edge of deferment; it must now embrace sustainability and engage its citizens in green and clean initiatives.  President Obama has promised $80 billion of the economic stimulus package for this cause.  Furthermore, with the average American generating four pounds of trash per day and 10 tons of carbon per year, rhetoric alone won't do, we need action.  

While the U.S. is rarely recognized among the greenest countries--in fact, it falls a dismal third from the bottom in its Environmental Performance Index category--it boasts a number of communities and states that are front runners when it comes to sustainability.  In fact, if California were a country, it would qualify among the world's greenest with the world's largest solar power plant, wind farm, and geothermal installation.  

Which begs the question, if a few communities and states can achieve this state of awareness and action, why not the entire country?  The true goal has to be effective and active engagement of citizens on a broader national scale, not just in self-contained, isolated pockets.  It's not going to be easy; USA's population is 12 times that of Scandinavia--the established leader of the green movement.  Add to it the burden of the recession and an argument could be made as to why an average citizen may not be as amenable as in more prosperous times.

But there is hope and energy as a select group of cities like San Francisco (changing the way we think about recycling) and Portland (spearheading the mass transit revolution) lead the charge toward the New Economy. 

Long the capital of American architecture, Chicago has emerged as a leader in green architecture and landscaping as well.  Its "Forward Chicago" initiative engages companies and citizens in improving the city, while also strengthening its bid for the 2016 Olympics through the following measures:

• Recent establishment of a citywide "Challenge" that offers citizens $800 for reducing their carbon emissions.
• Conversion of 4 million square feet of public and private roof space into gardens, saving thousands of dollars in energy costs.
• Citizen contributions to city "greening" efforts, planting more than 500,000 trees and helping convert 200 acres to park space.

Minneapolis empowers its citizens to fight climate change by using a system of mini-grants.  Neighborhoods, individuals, and community groups can submit innovative ideas to receive grants ranging between $1,000 and $10,000.  Funds have been used on projects ranging from the installation of at-home power consumption monitors to "block parties" that focus on how neighborhoods can fight global warming.  Many grant recipients also sign up for the Minnesota Energy Challenge, which encourages residents to make significant lifestyle changes and reduce their carbon footprints.  In 2007 and 2008, the grants collectively aimed to reduce carbon dioxide emissions by 10.9 tons and save $1.33 million in annual energy costs.

When it comes to renewable energy, Austin, Texas--also home to Whole Foods--attracts international attention.  Austin Energy is the country's largest provider of renewable energy, and the City of Austin aims to become carbon neutral by 2020.  With such lofty goals, they use a combination of positive and negative reinforcement to engage their citizens:

• Resident rebates for energy-efficient home improvements; at-home solar panels subsidized at 50%.
• Discounts throughout the city on rainwater barrels and low-flow toilets.
• Home energy audits required prior to putting a house on the market.

San Francisco strengthens its hold on its title as the lead recycler in America with a new mandate for composting food scraps.  With a goal of keeping 75% of recyclable material out of landfills by 2010, residents face a $500 fine should they fail to compost. 

Will these measures close the gap, as San Francisco moves toward a waste-free city?

 
And finally, there's Portland--the city that many recognize as the greenest in America.  Portland stands alone as an example of holistic green urban planning.  Its sustainability plans reach back several decades and have involved its residents at every stage of the process.

A few examples of what the city and its residents have jointly accomplished are presented below.
 

• Investments in mass transit and trail development rather than highway construction result in 25% of Portland residents commuting by bike, carpool, or mass transit.  They've also contributed to a nascent biking industry based in Portland.
• State tax credits for businesses and residents using renewable energy are encouraging a fast transition in power sources.  Currently, 50% of the supply derives from renewable energy, with a goal of 100% by 2012.
• The city's land-use policies and urban growth boundaries have motivated citizens and politicians to commit to becoming a "20 Minute City." This means that residents will soon be able to travel wherever they need to go by walking or cycling for 20 minutes.
• Through the "Portland Composts" program, more than 200 city restaurants have begun composting their food waste--and encouraging their patrons to do the same.  

 

Despite its bad rap, the United States boasts several cities with admirable green initiatives.  However, what's missing from the resume is a single model city representing a comprehensive and complete eco-success story. 

Some may argue that the foundation for such a model eco-city has been laid on the West Coast, and it's only a matter of time as progressive practices spread from Seattle down to San Diego.  That said, a more significant commitment to holistic urban planning, that relies not only on legislation, but an extensive engagement of citizens and residents across all dimensions of sustainability--can only help accelerate the creation of a model American eco-city.