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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."

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!

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.  

You can hardly turn on the television or open a newspaper without witnessing a company's advertisements featuring its "green" or "sustainable" products or business practices. 

In response to rapidly growing demand from consumers, the market for these products tripled between 2007 and 2008 with Nielsen predicting a marketplace of more than $400 billion in 2010.

But what do companies mean when they claim a green product or sustainable business practice?  A range of interpretations exist, but the majority feature these ideas:

•    Green products are both environmentally and socially responsible and can often be described as follows: organically grown, locally sourced, carbon-neutral, recycled/recyclable, and/or energy-efficient.  A variety of sources show that consumers perceive consumer goods manufacturers such as Seventh Generation, which makes cleaning products from natural ingredients, and Toyota, with the Prius and its commitment to environmental management, as some of the world's greenest companies.

•    Sustainable business practice can include organizations that produce green products and services but more broadly, it requires a corporate focus on long-term benefits for the environment, community, and society.  Sustainable companies also pursue the "triple bottom line" of people, planet, and profits.  Wal-Mart and Whirlpool, with their efforts to "green" their entire supply chains and introduce eco-friendly products to the masses, represent two companies dedicated to sustainable development.  Some researchers also cite products linked to a cause, such as the Product Red suite, whereby companies donate proceeds to fighting AIDS in Africa.

Due in large part to rapidly shifting consumer attitudes and increasing enthusiasm for green products, companies ranging from Honda to Clorox brought nearly 6,000 "green" products to market in 2007 alone.  However, this proliferation of products during a global recession has led consumers to become very discerning regarding the legitimacy of companies' green claims.  The cynicism is justified, as often terms like green and sustainable are used to describe a variety of practices ranging from "greenwashing" to reputation-management to customer-focused, holistic sustainable business practice.  

As more companies make green claims, government and consumer scrutiny of these claims also increases.  Many groups now watch out for greenwashing, a practice whereby companies lead consumers to think that their products are more environmentally friendly than they actually are.  Clairol received considerable scrutiny in the early 2000s for claims that its Herbal Essences line offered "a truly organic experience," when in fact, the formula included many chemicals.  More recently, Kmart and other chains have provoked criticisms for false claims of biodegradable paper goods.

Companies working to improve their reputation in the area of sustainability attempt to offset or neutralize the effects of their businesses without concerning themselves with influencing consumer behavior or the behavior of partners in their supply chain.  Enterprise Rent-a-Car, for example, has independently committed to building 50 million trees over the next 50 years to more than offset the emissions from its vehicles.

However, the most interesting examples of greening and sustainability tend to be where companies actively involve their customers in sustainable business practice.  These companies are most likely to improve their own profitability and succeed in tangibly benefiting their communities through improved consumer behavior.  A few examples of companies leading the pack follow.

Whole Foods won the 2009 Green Choice award from Natural Health magazine due to its commitment to substantive, earth-friendly initiatives that inspire its suppliers, competitors, and customers to follow suit. 
•    After banning plastic bags from its stores in early 2008, the company recently announced that three times as many customers now shop with reusable bags.   Furthermore, it estimates that this shift has kept 150 million bags out of landfills since 2008.  COO A.C. Gallo states, "At first we wondered if shoppers would just switch to paper but to our great surprise, people have been truly excited about using reusable bags."

Fairmont Hotels and Resorts was the first global hotel to launch an environmental management program back in 1990.  Since then, its commitment to sustainability has touched its partners, guests, and the broader business community. 
•    By 2010, the company's largest suppliers will comply with its Green Procurement Policy.
•    The company has sold tens of thousands of copies of its Green Partnership Guide, a "going green" handbook for companies across industries. 
•    Guests worldwide pay a premium to contribute to the company's environmental initiatives, which include Lexus Hybrid Living Suites and Travel Green packages:

Finally, retail giant Wal-Mart has committed itself to improving sustainability across every facet of its business, extending this goal from suppliers to stores to consumers.  The trump card with consumers, not surprisingly, continues to be everyday low prices even within its green product lines.  Evidence that collaboration with consumers is working:
•    66% higher adoption rate of green products (including compact fluorescent bulbs, organic foods, and paper products made with recycled material) among its shoppers between April 2007 to April 2008
•    Increased mainstream acceptance and purchase of Clorox Green Works natural cleaning products and Fair Trade coffee

Corporate practices in green and sustainable initiatives are still in an embryonic stage, making it difficult to offer a prescription for those companies who have yet to start walking.  Perhaps you have come across some initiatives that have impressed you or made you change your own behavior. 

Care to share them with the readers of this blog?  Please do, we can learn together.

In the Feb. 2009 issue of HBR, Tom Davenport offers advice on how to design smart business experiments. His main assertion is that in too many companies business innovations are launched on a wing and a prayer.  

Have you heard Branford Marsalis' rendition of I heard you twice the first time? 

Virtually all business performance indicators suggest that GM is in serious trouble. The company has lost $73 billion since the end of 2004, sales for 2008 are down by 20%, and market share of new car sales, excluding luxury brands like Saab, is below 10%.  Not surprising therefore that a variety of prescriptions are being offered to help restore GM to good health. 

Trying to restore GM to its previous levels of glory and market dominance is like trying to drive a car looking in the rear view mirror.  What we need today is windshield thinking; fresh forward-looking concepts that will help re-invent GM for new and emerging market, economic, and social realities.
 
The social, economic, and management forces that made GM a great car company have played themselves out. In the early 20's when GM was in its take-off stage of growth, American society was taking off as well.  People were moving from rural areas to urban areas, new highways and bridges were being built, and suburban USA was beginning to change the way America lived, shopped, worked, and played.  Sloan's brilliant insight into America's changing economic class structure - a car for every purse and purpose - helped millions of Americans establish their newly attained economic identities through the GM brand they drove.

Not surprising therefore that it was not just GM's economic assets that grew during this period.  Its symbolic assets grew as well.  GM came to be more than just a car company - it became a cultural and economic icon as well.  America had bought into what GM stood for; the company and its cars had become a means to an end, a means to upward economic and social mobility.

But that was yesterday.  Today's reality is different.  GM is no longer a part of America's iconic or symbolic consciousness.  CEO Rick Wagoner's assertion that the domestic auto business remains a path of upward mobility for millions of American families may be correct, but GM's contribution to that upward mobility has been shrinking for over three decades now.  In this context, urging GM to fix what is broken is only a partial solution.  All that it will do is temporarily stem the bleeding.  Good housekeeping may fix the plumbing leaks; it will not resolve the fundamental problems of an alienated customer base and an irrelevant iconic status.
 
To reverse the decline of its economic and symbolic value to America, GM needs to reinvent itself. 

Companies like IBM, Kodak, and Apple have demonstrated the superiority of reinvention over fixing.  They extricated themselves from shrinking sales and profits by reinventing their futures and finding different ways to shake hands with the market.
 
So how can GM reinvent itself?   
 
First, GM needs to cause itself more pain.  It needs to blow up its own memory banks, so that it can forget that it was once the world's most dominant car company.  To look at economic and social realities GM faces today with a fresh pair of eyes, will require giving up the car maker mentality.  Few companies suffer economic collapse due to memory failure; most do because they remember too much too long.   
 
Second, GM needs to find a new value-ecology to play in.  One of the fastest growing new angles lies at the intersection of transportation and energy.  A new ecosystem surrounding green technologies, alternative fuels, and emission free transportation is growing rapidly.  Entire cities, communities, and countries are already on board.  San Francisco recently unveiled ambitious plans to turn the Bay area into one of the world's leading centers for electric vehicles.  On the other side of the Atlantic, Sweden has made an astounding pledge to phase out fossil fuel usage by 2020.  Its citizens are already using buses and cars powered by methane made from garbage. 
 
Third, GM needs to rethink its markets and customers.  Markets and customers are not just those who consume GM's products and services.  Markets and customers should also include those who enable the consumption of GM's products and services - cities, governments, transit and public transport authorities, energy providers, and distributors.
 
Fourth, GM needs a new blueprint for drawing its own boundaries and determining who to partner with.  Trying to do everything yourself is yesterday's thinking, as is turning a blind eye to activities that lie outside a company's domain of primary operations.  In today's connected world, companies create value for their customers and for themselves by aligning with a carefully chosen set of collaborators.  Should GM collaborate with cities like San Francisco and invest in infrastructure projects for electric vehicles?  Or with companies involved in the production and distribution of alternate fuels?  Who GM decides to flock with in its new incarnation will significantly determine its future economic and iconic value.   
 
Fifth, GM must invest in a different set of eyes and ears - a set that promotes strategic sensitivity and vigilance.  GM lost its way because it lost touch with how its markets, consumers, and competition were changing.  Staying connected with the market, engaging customers in innovation conversations, and paying attention to changes taking place at the periphery before they become mainstream trends will help GM's reinvention efforts.

And finally, GM needs to rethink its approach to managing and management.  GM needs a management team that favors learning, investment, and innovation.  In the early part of the 20^th century, managing at GM was all about shaping markets and creating possibilities.  A combination of big ideas and business experimentation helped GM outpace its competitors.  Ideas, experimentation, and execution that create and shape markets are going to be at a premium in the first half of this century as well, not housekeeping fundamentals like quality and efficiency. 

Is GM capable of building a new organization in this century, the way it did in the last?  Is it capable of committing itself to a new risk?  That depends on what it values more - memories of bygone greatness, or the entrepreneurial excitement of a brand new economic and social journey, but with no guarantees of gold at the end of the rainbow.  Few companies get a second chance; even fewer use it wisely. 
 
Surprise us, GM.

Customer-driven innovation requires a shift in a company's mindset.

Without a customer there is no business!  What could be more obvious than that?  But while most companies claim to be customer-centric, or customer focused, few really are.  Why?  Because most companies are still product-centric, orchestrating customer interactions around a set of rigidly defined company offerings; they have yet to make the transition to co-creating relevant and uniquely meaningful value through personalized customer interactions.   

Take the example of Sport and Health, a chain of fitness clubs in the Northern Virginia area.  My family and I have been a member of this club for over 15 years.  During this time, the fundamental structure of the club has remained unchanged.  The basic identity of the club still revolves around its physical offerings - courts for tennis, racquet ball, and basketball, indoor track, fitness machines, spin cycles, swimming pool, racquet ball courts, and exercise/dance studios. 

However, we, the customers, have changed and so have our fitness needs.  If the club was truly customer-focused as it claims, then it should invest in understanding how its customers' needs are changing as they pass through various stages of their life-cycle.  Fifteen years ago, we had a child at home, we are empty nesters now.  Recently, when my membership came up for renewal, I decided to test the system.  After several irritating attempts I finally managed to connect with a human being.  I asked if they would be willing to accommodate my changed workout habits and fitness needs through a custom created membership plan.  The answer was a crisp no!  I could select from one of six standard membership alternatives; one, two, or a three year membership term, with tennis or without tennis. 

 Not all organizations are like the Health Club.  On a recent visit to the Boeing 737 plant, I saw first hand the extent to which Boeing works with its customers, different airlines of the world, to co-create relevant and specific customer value.  The interior of the plane is totally co-created by Boeing and the buying airline.

Starbucks is another example.  A key ingredient in Starbucks popularity is the ability of a customer to "co-create her coffee."  I'm pretty sure that if you were to walk in today and ask for a Gingersnap Latte without whipped cream they would oblige you, even though the drink preparation script specifies a whipped cream topping.  The Barista may lecture you on what you are giving up, but that's subject matter for another blog. 

Several factors contribute to companies falling short of their customer focused claims.  Key among them are:

1. Co-creating value with customers is effortful
2. Having to expend the extra effort tests a company's will; most companies come up short
3. Service companies, health clubs, restaurants, etc., still have a poor understanding  of innovation and its role in creating incremental customer value
4. Customer-driven innovation requires a shift in mindset, from a company-centric view that believes that value is intrinsic to a company's offerings, to a customer-centric view that says value is co-created through individual-specific interactions between consumers and companies