Archives for posts with tag: Shareholder Value

Advertising in the 21st century

December 2, 2010 //

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“Advertising says to people, “Here’s what we’ve got. Here’s what it’ll do for you. Here’s how to get it.” – Leo Burnett

I’ve been in advertising for more than 15 years. I believe good advertising can enrich people, it can inspire them and I regard advertising as a noble profession. If there’s a better way to showcase to people what your brand has to offer, explain the benefits and ways to get the product/service, I haven’t experienced it. Nobody has.

So, why does Adland have such an image problem? Why do 76% of Americans think companies lie in ads? (2009 Yankelovich study) Why do people have problems trusting any of our communications? And, why are we starting to see real recruiting challenges in an economy nobody would describe as humming?

Some blame holding companies and their pure focus on shareholder value, rather than focusing on reinvention of the agency model. Some blame the compensation structure that rewards bodies and time, not great ideas. Some blame the split of media and creative. You ask people in the industry, everybody has a different explanation for the current state of the ad industry.

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The problem goes much deeper: people have lost trust in institutions and business. And, let’s be honest, businesses and institutions have betrayed that trust. BP, Enron, Vioxx, Facebook, Catholic Church, Congress, your local city government: We’re surrounded by brands and institutions that betrayed us, lied to us, treated us like dumb sheep, acted like they were above the law. And advertising provides the background noise to that sad drama with exaggerated product claims and photoshopped models. The threat to advertising and our industry is a threat to capitalism. And, just like advertising, I haven’t seen a better system than the capitalistic system.

But, it’s time to change both.

We need to make the advertising industry better. And, at the same, improve the overall capitalistic system. Just like capitalism, the advertising industry needs to cut its worst excesses or Uncle Sam will do it for us. ( In case, you don’t believe me: Have you seen the FTC proposal for a ‘Do Not Track’ option?)

Our future will not look like the past. The past was based on a model of industrial production, the new model will be based on a globalized, collaborative information model. It can’t be about more stuff and pure growth. It has to be about being better, kinder, lovelier and inspiring. It can’t be about targeting consumers, it has to be about collaborating with all of our stakeholders. Ultimately, we have to change our vision and mission of the advertising industry:

  • Our main goal is to make the world a better place. Adding value, inspiring, enhancing life experiences. Making money is a by-product, not the overarching goal.
  • A brand is developed by all stakeholders. Not the marketing department.
  • Business is about fairness, joy and love. Not cut-throat competitive tactics.
  • We work with human beings. Not human resources.
  • We collaborate with competitors to enhance each other’s products/services. Not buy them out to eliminate their intellectual work and the value they could have added.
  • Customers are all people affected by the creation of the product or service. Not just end users.
  • We will communicate values that brands stand for and live. And not some fake world that never existed.
  • Advertising is helping to change the world. Not just change behavior for more consumption.

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The belief that this is just a bump in the road and everything will get back to normal at one point is the biggest threat we’re facing. The new normal will be completely different from the old normal. The demands and expectations on capitalism and our industry will grow, just like people expect more and more from brands and institutions. If you think the last decade was filled with change, you ain’t see nothing yet. Think about it:

  • How ware we going to deal with India and China as the new dominant forces in the global economy?
  • What are you going to do when your competitors 2015 come from Vietnam, Spain and Nigeria? Not New York and San Francisco.
  • How will we replace dumb growth with smart growth?
  • How will we strengthen our country’s fiscal future while investing in our people?
  • What types of jobs will we offer to people that had jobs that will never be replaced?
  • How are we going to deal with the demographic challenge?
  • How are we going to revive the middle class?
  • (Insert 500 more urgent questions here.)

The next decade will bring a collision of forces that that threaten to disrupt the Western system, and call into question capitalism, a force on which our prosperity and stability have rested for decades. Forget the financial crisis, the debt crisis, all these political fights pundits tend to focus on. These are just precursors. We’re facing graver economic challenges that are long-term and threaten capitalism as a model for the world. The stakes couldn’t be higher: if we don’t maneuver successfully through the coming storms, we’ll face a major backlash against our economic model. If the world loses faith in capitalism’s ability to improve the lives of everybody, we will have failed miserably and doomed the developing world to infinite poverty.

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We really have no choice: All of us have to create a better form of capitalism. And our job as advertisers is to create a better form of advertising and being a support pillar for the new, more human form of capitalism. We are building this new reality with every decision we make, with every ad we create, with every product purchase we make. For years, we mistakenly believed we had ascended to the zenith of modern capitalism. We knew all of the answers and just need to optimize a little bit here, increase efficiency there and everything would be fine. Events and facts taught us that the journey of capitalism might have just begun. And we need to ask that age-old question again: How can we make the world a better place?

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Why advertising professionals need to be economic professionals

November 23, 2010 //

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Unless you lived on the moon, you realize the global economy is struggling because most corporations are not constructed to produce any real value. They are designed to maximize shareholder value while stakeholders are getting squeezed to improve the bottom line and introduce as many efficiencies as possible. Add to that corporate welfare, Fed and Treasury policies, regulations (or lack thereof) and you end up with a toxic mess of an ongoing banking crisis, mind-numbing landscapes of mini malls, toxicity in assets, the environment and the overall capitalistic world we are living in. And, while people are crowding the bargain bins, corporations continue to develop cheaper ways to satisfy the need for the bargain. Interestingly, when you produce a mediocre product/service (create thin value, as Umair Haque calls it), the price is all what matters. When you create real value/thick value, price becomes a tertiary consideration. Call it awesomeness, call it being amazing, call it being a linchpin.

With a few, rare exceptions, advertising has focused on creating thin value. Rather than inspiring people with marketing for products that add value, most of marketing/advertising is focused on brainwashing people into buying stuff that makes no difference. Just another item I can use and throw away/forget about effortlessly without considering the implications for the rest of the world. (Labor Conditions, Environment, Export/Import Structures)

Now, let’s look at the advertising/marketing industry. It’s not a dying industry but an industry in deep trouble. We are not considered partners, we’re just another vendor that sells questionable value. Media Buying has become a commodity, media planning to follow soon. The people we market to are busy tuning us out because they don’t feel marketing creates any real value. While we continue to communicate to people as they were still consumers, they are busy producing, communicating and building networks. We have commoditized our industry to death, starting to hop on a dangerous death spiral. Just like the whole economic system.

Advertising is just one pillar of the economic system we’re living in. Advertising can’t change the world or make it a better place. But, as part of a new economic system, advertising can be an inspiration, an artistic expression of the paradigm change. As an industry, we need to focus on the drastic changes the economic system is going through. We can safely say, the end of creating slim/thin value for profit is fast approaching. No matter how good your strategies/tactics/ideas are, unless you create real value for society with your products and services, you will fail in the long run.

My headline “Why advertising professionals need to be economic professionals” didn’t imply you need to watch Bloomberg all day, read each article in the WSJ or get a degree in economics. Most of what you read or see there is just an expression of times almost passed. All of us need to understand that our whole economic system is transforming and changing into something much more substantial, sustainable and human. Advertising is just another expression of this change. Please work, create, add value accordingly.

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Transform your business – Interactive Management (Pt. 3)

June 16, 2010 //

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Image: Courtesy of 24.media.tumblr

“The conventional definition of management is getting work done through people, but real management is developing people through work.” – Agha Hasan Abedi

Humans are a very diverse species. Each one of us is unique, we all have our strengths and flaws. Surprisingly there are not many variations of basic management categories: Reactive, inactive, proactive and interactive. Let’s briefly evaluate all four of them:

Reactive Management

Run, run, run. And then run more. The reactive approach to a problem is first to identify its cause or source, then try to remove or suppress it. Being reactive implies your action begins after the fact; acting in response to a stimulus or situation, as if simply poised waiting for something to happen. We know, this is never the case. Managers usually feel reactive when they are hit by something they didn’t anticipate.

Organizations in which reactive management is dominant tend to use as their model the oldest and most stable form of organization known, the big family. Like most families, most reactive organizations function as autocratic hierarchies. Ironically, although reactive planning is authorized from the top down, the actual planning is carried out from the bottom up.

Reactive planning is always focused on getting rid of what is not wanted. The problem with that paradigm is that when one gets rid of what one does not want, often one does not get what one wants but gets what one wants even less. However, effective management focuses on getting what one wants, not getting rid of what one does not want. Reactive organizations walk into the future, facing the past, backward.

Inactive Management

We all experienced it: A crisis is unfolding before us and we don’t do anything. We might have good intentions to solve the problem but another, more important crisis is taking all of our attention. A few days later, the initial crisis resolved itself. That’s Garden Eden of inactive management. Unlike the reactivist, who tries to eliminate the cause of a problem, the inactivist settles for suppressing the symptoms. The inactive manager is always in crisis management mode. Our increasingly complex world increases the numbers and severity of crisis. That keeps the inactive manager very busy trying to prevent change. His attention is occupied keeping people busy doing nothing.

You’ll find inactive managers in organizations whose survival is independent of its performance. Many government agencies come to mind, subsidized and regulated organizations. They tend to change when somebody imposes their will on them.

Proactive Management

Proactive management implies that your response is preceding the action. Creating a solution before being requested to have one. Anticipating what is needed and having it ready. This seems like a great position to be in; however you need to know what to be ready for. You cannot anticipate everything. Proactive managers predict and prepare, that is, they attempt to predict the future, then establish the objectives they want to attain, and finally create a plan to get from where they are to where they want to be. Forecasting is a major preoccupation of proactive managers.

The proactive manager believes there are a few problems that technology can’t solve, the reactive manager tends to think they can only be solved by a softer, human approach. Unfortunately for proactive managers, as the rate of change in the environment accelerates and the environment becomes more complex, their ability to forecast accurately deteriorates. Many proactive plans are never completely implemented because errors in the forecasts on which they are based become apparent, nullifying the plan. In addition, it is very apparent that the objective of planning should not be to prepare for a future that is largely out of our control, but to control that future as much as possible by developing mechanisms/products that have the most effect on our futures.

Interactive Management

The objective of management should be to create as much of the future as is possible. Implementing an interactive management style means managers get involved with people without there being a problem or a situation. They understand what’s happening around them. The more a manager knows about the whole organizational system, the goals of each person, the more successful the organization and the manager will be. Interactive management asks executives to very involved with the system environment, thereby giving them access to a myriad of insights and knowledge. It allows an organization to maximize their resource – they don’t have to wait for events, overplan for possibilities or jump the gun.

Implementing an interactive management system doesn’t mean the organization will never be blindsided. However, when the unexpected happens, management will have a better sense of how urgent the matter is because they live and experience the priorities of the business. They will know who to deal with so the situation can be resolved with a minimum of resources and effort.

There are three major characteristics of Interactive Planning and Management: a) Interactive Management plan backward from where they want to be to where they are. b) Interactive planning, management and execution is a continuous process. The process is the goal, not the final plan. Because there is no more final plan. c) Every stakeholder  is part of the collaborative planning process. This increases the chances of successful implementations dramatically since every stakeholder has a vested interest in success.

Because the principal product of interactive management is engagement throughout the organization (Planning, Implementation and Optimization), and because it requires as many stakeholders as possible to participate, it requires a significant change in the role of management. They are no longer required to spend the majority of their time preparing plans. Instead, their role is to encourage and facilitate, educate and advise.

In Part 4, we’ll be talking about the interactive planning process in detail.

For reference, Part 1 (Systems Thinking) can be found here and Part 2 (Systems) here.

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Transform your business – Types of Systems (Part 2)

June 15, 2010 //

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Image: Courtesy of 28.media.tumblr

There are systems that are machines; there are systems that are organisms; and there are systems that are social systems. You would be really stupid to treat a machine as an organism. No machine has any goals of survival or growth. But, for some reason, we do treat organisms as machines. Actually, most companies continue to do so. Treating organisms as machines or social systems as machine might be somehow useful. But it doesn’t deliver the multitude of benefits when looking at a social system as a social system.

One of the unintended consequences of this thinking is the tendency to make people behave as though they were machines. Dehumanizing work has led to alienation from institutions, one of the biggest challenges for companies. The reductive doctrine just goes against anything humans believe in: Holistic medicine, the Earth as a global ecosystem, our planet as part of a bigger universe. We’re living in an age of expansion: To understand anything, we have to look at larger systems. Sure, we might never completely understand everything but our understanding increases when we look at the larger picture, reflecting on the largest systems our mind can comprehend.

But, first, let’s have a look how we got here:

From Industrial Revolution to modern corporation

The Industrial Revolution was about the mechanization of work. First thing we did is to take each task apart. Reducing work to elementary tasks. The next step was to mechanize those tasks. We separated tasks into two piles: tasks machines could do and tasks people were assigned to (because it was too complex for machines, human labor was cheaper, etc.). Once we completed the analysis, we aggregated our findings and developed a workflow of elementary tasks performed by men and machines. These are the basics of a modern factory.

In the early stages of industrialization, an enterprise was created to serve an owner. The only reason of existence for the enterprise was to provide the owner with a return on his investment. The worker was a machine: Input equals Output. As the size and complexity of organizations increased, it became less effective to manage them as though they were machines. Decentralizing control became necessary which was incompatible with a mechanistic conception of an organization.

The next step in organization structures was to separate the body (Corpus, meaning body), the operating unit, and the brain, management. This was a fairly easy way to manage an organization’s growth and increase the diversity of its outputs. The body was mindless. It had no choice. It was still a tool, a lever to be pulled.

In the 60’s, various civil movements (civil liberties, environmental, etc.) formed outside of social systems, insisting that their interests be better served by the systems that affected them. Ethics and social responsibility became cornerstones of successful corporations. The command and control management culture changed during that time, focusing more on managing interactions and enabling people to do their jobs better.

While a lot of progress was being made during that time, companies had to react to the advances in information technology and communication. The common belief was (and often is) that people would react mechanistically to information, meaning more and more information and better communication structures would increase the performance of businesses dramatically. As we all experienced during the Great Recession and the demise of various financial models, humans don’t react deterministically to the information they receive.

Shareholder Value vs Stakeholder Value

The main challenge for modern enterprises is to transform from a shareholder-centric to a stakeholder-centric point of view. It’s not enough anymore to create wealth for a limited amount of shareholders; modern enterprises are tasked to create and distribute wealth throughout society. The primary task for each modern enterprise is to provide productive employment with purpose. Companies have to develop communities of purpose focusing on a common cause, which emanates from common values, vision, and passion.

Sharing a common purpose helps companies to deal effectively with increasing information overload and intensifying conflicts. A social enterprise is capable of continuously dissolving conflict while increasing choice. This requires a new organizational concept that sees evolution as its most important objective. Evolution doesn’t always mean growth: Growth may occur without evolution and vice versa. This new organizational model needs to be based on the pillars of democracy, must be multi-dimensional (function, output and stakeholders), agile planning and an optimization system.

In Part 3, we’ll discuss what new forms of management are needed for the social enterprise based on the principles of Human Business Design.

In case you missed it, Part 1 talked about the nature of systems.

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What is the value of your brand?

April 13, 2010 //

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Image courtesy of 24.media.tumblr.com

When we started this venture we call BatesHook, I was reflecting on my work life and experience, trying to implement best practices into my own company, hoping to avoid the dreaded pitfalls. And I was trying to find the common thread why I loved working for this company and dreaded working for this one. Why 8 hours at one agency killed my spirit, while 16 hours here made me feel alive. It all came down to one thing: Values. One brand stood for something, the other place shared only one tangible value: shareholder return.

There’s nothing wrong with making money but if that’s the only reason for an organization to be around, you can see it permeating the entire organization, up to the C-Suite where the sound of cash registers drones out any sense of decency and humanity. Layoffs just equal cost savings not human misery. All sorts of shortcuts equal improvement of the short-term bottom line, just to conveniently ignore the long-term costs.

After the multitude of bubbles have burst, shareholder value and making money for the sake of money doesn’t feel that good anymore. And consumers are craving institutions that care and give back. This and the age of product parity lead to an avalanche of brands that suddenly care, that support businesses in making positive change, try to rebrand themselves as green or just transform communities around the world (right after they almost destroyed the whole financial system).

Most of this comes across as advertising, not as a commitment. Because it’s not rooted in real values, we are starting to deal with caring parity: Suddenly everybody cares for the wrong reason. Consumers want us to care, let’s care. Brands purely jumping on the caring bandwagon are missing out on a huge opportunity: Stand for something. Have values. And express yourself as an organization based on these values.

What gets you more excited? The horsepower of the new Accord or the power of dreams outside of Honda’s corporate walls?  What are you talking about more? That Dove has no soap scum or that physical beauty is only skin deep? What’s more interesting? The newest feature on a Dell Computer or their commitment to eliminate the digital divide? (Just an idea, Dell.)

Standing for something that’s rooted in corporate values eliminates the need to spout off undifferentiated messages, bland and politically correct brand communiques and mind-numbing feature lists. Sure, standing for something is not easy. It might offend some. Actually, it better offend some. Not everybody will like it. But real leaders don’t care. Brand leaders. Human leaders.

“The ultimate measure of a man is not where he stands in moments of comfort and convenience, but where stands at tome of challenge and controversy.” –Dr. Martin Luther King Kr.

The values of your brand determines the value of your brand.

So, what’s your brand standing for?

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Review of "Flip the funnel"

March 22, 2010 //

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Image Courtesy of Fubiz

I like people who forget about safe bets and stick their heads out, risking to have their heads chopped off. I like people who take risks. And I like people who go against the grain.

And, that’s why I like Joseph Jaffe. I especially like to spar with him (We had a few of those exchanges.), hoping I could find more reasons reading his new book “Flip the funnel – How to use existing customers to gain new ones.”

Jaffe’s premise is that companies should reverse their marketing tactics and focus their efforts on customer retention by having the highest quality customer experience. (Reminded me of the Zeus Jones vision of Marketing as a Service.) By focusing on current customers and delighting them with superior service, companies can activate happy customers to become evangelists for the brand. Customer Service, often outsourced and seen as a necessary but unloved cost center, should be at the table with R&D, Marketing and Sales when strategic decisions are being made.

These are not revolutionary thoughts for many of us but rebellious ideas for the majority of companies who are still considering their customer service as a cost center and hide behind the walls of phone trees aka customer avoidance centers. The book appeals less to people knee-deep into the evolving world of Social Marketing but it should be read by anyone starting to understand that we live in a new marketing reality with changed rules.

A few additional thoughts:

– Yes, we all love Zappos. But, we don’t need to hear about them anymore. Using Zappos as the banner child for customer service has been done by too many people too many times.

– Some of the examples (Motrin, United, Obama, etc.) are tired and don’t really need to be repeated over and over again. However, Jaffe provides new case studies that I wasn’t aware of.

– Best Buy: I don’t get the hype about Twelpforce and all these great initiatives that Best Buy is developing and implementing. My problem with all this is that Best Buy offers a horrendous store experience. I just purchased a Mac and the associate asked me at least 10 times if I didn’t want to sign up for their numerous extended warranties. I’m not the only one feeling bullied and Best Buy seems to push their employees extremely hard to make a certain quota. And the results of this bullying are even apparent in Jaffe’s book: While he writes pages lauding Best Buy’s social effort, on page 239 he shares a chart from Forrester Research ranking Customer Experience for major companies. All the tweeting and blogging of Best Buy didn’t make any difference; They are still ranked in the bottom quantile or better: the hall of shame.

Social Marketing doesn’t pack a punch when it’s just used to market to people, when it’s basically masking severe organizational problems.

Social Marketing can pack a Tyson punch when it’s used to transform companies. By focusing on effectiveness of your workforce and less on efficiency. By focusing more on human interactions and less on technology. By making stakeholder value a priority, not shareholder value.

This has to be the focus of our industry in the years to come. It’s interesting to follow the evolution of Jaffe’s thinking: From post-mass media to Conversational Marketing and now the focus on Customer Service. I wonder if the next book will be about Human Business Design? Oh wait, that’s my book.

My point: Everybody involved in Social Media understands that the challenge all of us are facing are institutionalized processes and structures. We experience these challenges each and every day when evangelizing new ways to communicate within and outside of your brand. That’s why people talk about E2.0 and Social Business Design. Jaffe’s book is a good start and should be considered by anyone interested in transforming companies.

However, all of us need to dig much, much deeper. If you thought convincing companies to tweet or blog was hard, don’t bother trying to transform a business. The former is a tiny sandhill, the latter a Mount Everest. Let’s start climbing.

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What B2C needs to learn from B2B

February 22, 2010 //

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The B2B playbook is well known: B2B don’t focus on selling specific products, they are mostly focused on listening to customers and meeting their needs. Let’s say you are selling Cloud Computing. You have to identify first why a customer would like to switch: Lower computer and/or software costs, improved performance, improved document format compatibility, unlimited capacity, increased data reliability. In addition, sales people need to identify why customers might be hesitant to make the switch: Reliability, specific location of data is unknown, personal identifiable information can be distorted and a switch might disrupt the organization for a specific time. These insights allow you to organize your enterprise and sales organization based on customer needs, fostering long-term relationships by promoting whichever of the company’s products the customers values most at this moment in time.

Compare this customer focus to the current B2C landscape: Most companies still use the top-down method to develop products: Develop a new product based on (often) flawed customer research, such as focus groups or surveys. Hand the new product over to the marketing department which identifies segments to target, sets the price and promotions and develops the communication plan. The whole organization is set up to push products out, transact as much as possible. A short-term strategy that is showing decline in performance due to the need of consumers to develop relationships with brands.

Instead, brand have to focus on building lifetime value by humanizing the brand-people relationship and create a culture (followed by structure) to execute this new strategy.

One of the major changes in human relationship organizations is the elimination of the CMO position and transferring all responsibilities to the Chief Customer Officer. Forrester’s briefing titled “Customer Experience thrives with executive leadership” found that “firms with these leaders view customer experience as more important, have more enterprisewide customer experience efforts, report having fewer obstacles, do more primary customer research, and score better in all three areas of Experience-Based Differentiation.” Executive stewardship is imperative to implement the next steps:

  • Move CRM out of IT and into the customer department.
  • Use market research throughout the organization to improve customer lifetime value. As an example, R&D needs to work directly with people to develop products that answer emerging needs.
  • Sales and Marketing should be merged into one division, reporting to the new Customer Division. Sales needs to step up and help marketing develop communications because they are closer to the ground and understand what consumers desire.
  • Let your best sales people (your greatest fans) in and collaborate with them throughout the product development process.
  • Suppliers and other stakeholders should not deal primarily with procurement, they are customers as well and should be treated as that.
  • Develop new metrics that focus less on short-term goals and more on customer profitability and lifetime value. Extend these new metrics to financial reporting, helping the markets to understand that stock prices should reflect this new model. Focus on market share should be replaced by focus on customer equity value.

Transforming an organization to focus more on customers is a challenging task. However, continuing on the current path is not an option. Unless brands consider extinction an option.

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Toyota and J&J – the tale of two company cultures

February 10, 2010 //

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The once admired Toyota brand is in deep trouble. Not one day passes without another recall and frightening insights into the culture of the rapidly expanding brand. If any company was ever the banner child for business management strategies and lean manufacturing, it was Toyota. Kaizen (Japanese for improvement) was the buzzword for Toyota’s business system, continually improving all functions of their business, from manufacturing to management and from the CEO to the assembly line workers. Key elements of kaizen are quality, effort, involvement of all employees, willingness to change, and communication. Most see kaizen from an operational point of view. That’s where the disconnect is. At its core, kaizen is about cultural change and unless this change is implemented none of the tools and technologies will work. Kaizen is about focusing less on short-term goals and shifting the cultural focus to long-term goals and stability. And that’s where Toyota lost its way.

They were so focused on grabbing the title of world’s largest automaker that they completely forget about their principles that made them such a respected brand: Focusing on gas-sucking vehicles because Detroit owned that market. A secretive and bureaucratic culture, centrally controlled after Jim Press left for Chrysler. Resting on their laurels and believing in their own corporate speak, not connecting with their stakeholders, purely focusing on expansion and shareholder value.

It’s just maddening to read how for years Toyota tried to skirt the issues, not dealing with the real problem, just trying to avoid bad PR. Compare this to Johnson & Johnson’s Tylenol recall: the first death occurred September 29, 1982. 6 days later Johnson & Johnson pulled 31 million bottles, with a retail value of $100 million. They also advertised that nobody should consume any products containing acetaminophen. Their market share collapsed from 35% to 8%, just to rebound within a year.

Why was Johnson & Johnson able to react so promptly and why is Toyota acting like Bill Clinton, debating the definition of ‘is’?

A look at Johnson & Johnson’s credo is very revealing:

“We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services. In meeting their needs everything we do must be of high quality. We must constantly strive to reduce our costs in order to maintain reasonable prices. Customers’ orders must be serviced promptly and accurately. Our suppliers and distributors must have an opportunity to make a fair profit. We are responsible to our employees, the men and women who work with us throughout the world. Everyone must be considered as an individual. We must respect their dignity and recognize their merit. They must have a sense of security in their jobs. Compensation must be fair and adequate, and working conditions clean, orderly and safe. We must be mindful of ways to help our employees fulfill their family responsibilities. Employees must feel free to make suggestions and complaints. There must be equal opportunity for employment, development and advancement for those qualified. We must provide competent management, and their actions must be just and ethical. We are responsible to the communities in which we live and work and to the world community as well. We must be good citizens–support good works and charities and bear our fair share of taxes. We must encourage civic improvements and better health and education. We must maintain in good order the property we are privileged to use, protecting the environment and natural resources. Our final responsibility is to our stockholders. Business must make a sound profit. We must experiment with new ideas. Research must be carried on, innovative programs developed and mistakes paid for. New equipment must be purchased, new facilities provided and new products launched. Reserves must be created to provide for adverse times. When we operate according to these principles, the stockholders should realize a fair return.”

J&J’s primary goal is to satisfy their customers. Not the shareholders. The shareholders come last. Shareholder value becomes an organic result of good customer experiences and valuable relationships with stakeholders. Toyota went exactly the opposite way: Cutting prices for all their suppliers, not reacting to dropping customer satisfaction scores and disregarding customer complaints that lead to the devastating recalls.

Sure, there is the Toyota Way. While J&J lived its credo throughout tough times, Toyota got sidetracked. Joseph Jaffe gives good advice to the marketing and PR department at Toyota. But that’s the second step. The first step for Toyota is look deep inside and change their culture. It’s getting late. Kaizen made you the admired brand you once were. Kaizen as a cultural change system can do it again.

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Shareholder value vs. Stakeholder value

January 21, 2010 //

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In a world driven by human and intellectual capital, traditional Org Charts, Employee Handbooks and most traditional tools that used to help enterprises to run their business have become increasingly unreliable and ineffective. High performance and value creation doesn’t originate from to traditional enterprise tools or new technologies, it originates from focusing on the human side of business.

Jack Welch had it right when he said: “The essence of competitiveness is liberated when we make people believe that what they think and do is important – and then get out of their way while they do it.”

Enterprises face the biggest challenges to humanize their business since their organizations are driven by spreadsheets and shareholder value. As we’ve learned throughout the Great Recession, many companies leveraged their future away by focusing on short-term gains, destroying long-term value over time.

While shareholder value will remain a dominant metric, businesses have to focus their attention more and more on their relationships with customers, employees, partners, and all other stakeholder groups. By investing in these relationships, businesses will be able to create long-term value and, ultimately, shareholder value.

We believe that those organization aspiring to succeed in the current socio-economic environment have to understand holistically who their key stakeholders are and what they want. They have clearly defined strategies to ensure that constant value is delivered to these stakeholders. They have implemented processes to support this strategy and understand the necessary capabilities to execute processes. And they have thought through and communicated what the organization needs from its stakeholders – Loyalty, profitability, investment, etc.

Too often, metrics are derived from strategy. It seems so obvious. But it’s a trap. You can go from A to B directly, pass by C or go from A to D to C and end at B. Strategy is not a destination, it’s a choice of one path you’re going to take. Metrics help you track whether you’re moving in the right direction. Most corporate initiatives are focused on incremental improvements – expand your business to a new market, grow your product line, find new consumers. All these initiatives are developed with the belief that they will enable the business to deliver better value to all its stakeholders. That’s why focusing on the stakeholder perspective is imperative to deliver replicable value, choose the right strategy and exact metrics. When formulating strategies, businesses need to consider the wants and needs of all their stakeholders. This is not limited to primary stakeholders, the view needs to be expanded to the general public, special interest groups, legal and regulatory community. If this broad view of stakeholders is not adopted, businesses run the risk failing to satisfy the needs of their stakeholders, opening themselves up for revenge on multiple Social Media channels.

So, what is the best path for businesses to increase stakeholder value?

1) Stakeholder Satisfaction: Who are the most influential stakeholders and what do they desire?

2) Performance Strategies: What strategies should the organization adopt to ensure the desires of stakeholders are satisfied?

3) Measurement: Metrics are required to track if the chosen strategies are actually implemented. Metrics help to communicate strategies throughout the organization. Metrics combined with incentives help to speed up implementation. And, ultimately, metrics help you determine if the chosen strategy was the right one and if not, why. When the measures are consistent with the organization’s strategies, they encourage behaviors that are consistent with the mission and vision of the business.

4) Align processes with strategies: What processes do we need to put in place to allow the strategies to be executed?

5) Capabilities: What capabilities do we require to operate these processes? Today, tomorrow and in the future?

6) Stakeholder Contribution and Collaboration: What contribution does the business require from its stakeholders to succeed? How can we maintain and enhance these capabilities?

This complex exercise will help your business to face the challenging socio-economic environment and adapt efficiently. Or as Jack Welch said:

“An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.”

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Categories Organizational change, Sales & Marketing Strategy