Management


Economist  explained why you shouldn’t shop at Walmart on Friday (Black Friday.) A dumbed-down America wasn’t listening. He laid out the hard truths about American labor:

A half century ago America’s largest private-sector employer was General Motors, whose full-time workers earned an average hourly wage of around $50, in today’s dollars, including health and pension benefits. Today, America’s largest employer is Walmart, whose average employee earns $8.81 an hour. A third of Walmart’s employees work less than 28 hours per week and don’t qualify for benefits.

A Nation Sliding Backwards

One of the reasons for the decline of the middle class in America is the decline of labor unions. Membership is down from 33% of private sector workers in the 1950s to fewer than 7% today. Walmart’s employees have no union to represent them, and have been receiving a tiny portion of the corporate earnings compared to that the United Auto Workers members received in the 1950s.

Last year Walmart earned $16 billion, reporting a 9% increase in earnings ($3.6 billion) in the third quarter, but most of the profit went to Walmart’s shareholders, including the Walton family.

  • The Walton family earned more on their Walmart stock than the combined earnings of the bottom 40% of American workers.

The employee strike on Friday was a show of protest against wages as low at $8 an hour, unsafe and unsanitary working conditions, excessive hours, and sexual harassment.

A Company In Denial

Walmart fought back, filing a complaint with the National Labor Relations Board to ban the strikes. OUR Walmart, the worker organization that is coordinating the protests backed by the United Food and Commercial Workers Union, estimates that nationwide, there were more than 1,000 individual actions. But Walmart chose to put out dishonest talking points, saying that less than 500 workers absented themselves. Bill Simon, president and CEO of Walmart U.S. issued this lie:

Only 26 protests occurred at stores last night and many of them did not include any Walmart associates. We estimate that less than 50 associates participated in the protest nationwide. In fact, this year, roughly the same number of associates missed their scheduled shift as last year.”

On a conference call Friday, Dan Schlademan, director of the union’s Making Change at Walmart campaign, said that, while his organization does not yet have a precise count of the number of workers who walked off since the strikes are ongoing,  there were hundreds of workers and thousands of supporters. Many cities around the country had higher-than-expected turnouts. According to The Huffington Post’s  and 

At the Walmart in Paramount, where The Huffington Post counted 600 people at one point, organizers later said that a total of 1,500 people had shown up. Nine people were arrested for sitting in the street, which had been blocked off for the protesters. Those arrested included three Walmart employees, a father of a worker, a former worker, two clergy members and two other supporters, according to organizers.

In places where fewer strikers than expected joined the protests, one reason is that the company intimidates anyone who considers joining a labor group. Three workers who did not participate strike told The Huffington Post that they shared the concerns about low wages, lost benefits and retaliation for speaking up, but they were too afraid of losing their jobs to strike.  Jaime Durand, a Walmart human relations manager  said:

In Texas, we own our parking lots. We won’t ask them to stop what they’re doing, but we will be asking them to leave private property so we can maintain a safe area for our customers.

Why It Matters To All

What happens at Walmart has far-reaching economic consequences. Its pay scale and working conditions set the standard for competitors. Today, the median wage is 8% lower than it was in 2000.  Without a vibrant and growing middle class, the economy will continue to falter. This is especially true now that most new jobs in America are in personal services like retail, and have low pay and bad hours. According to the Bureau of Labor and Statistics:

  • The average full-time retail worker earns between $18,000 and $21,000 per year.

“But Walmart Labor Policies Keep Prices Low”

A new study by the think tank Demos reports that low salaries actually depress the economy. The report finds that even raising the salary of all full-time workers at large retailers to $25,000 per year would lift more than 700,000 people out of poverty. The cost: only a 1% price increase for customers.

But what would the wage increase cost retailers? According to the report:

  • the cost to major retailers of raising salaries would be 1% of the sector’s $2.17 trillion in total annual sales – $20.8 billion.
  • Yet the increased purchasing power of lower-wage workers would generate $4 billion to $5 billion in additional retail sales.

Whatever Happened to Smart Management Practices?

The real costs of Dickensian labor policies like those practiced at companies like Walmart and Hostess are more than our economy can afford. At Hostess, labor unions were unfairly blamed for a pending bankruptcy that was caused entirely by this kind of mismanagement. The end result is that the workers, company and consumers all lose.

The Real Story At Hostess Brands: Hostess Brands, Inc., maker of Twinkies, founded in 1930, is about to permanently shut its doors, putting 18,500 people out of work. While management has been placing the blame on the BCTGM (Bakery, Confectionery Tobacco and Grain Millars International Union), the union representing Hostess employees, the real cause was inexcusably poor management.

  • The company has had two bankruptcies since 2004 due to poor management, as witnessed by the fact that it has had no less than six CEOs since 2002.
  • A Wall Street private equity firm and two hedge funds made matters worse, burdening Hostess with $800 million of debt.

Yet, the company was never moved to employ sound business practices to improve it’s market position.

  • In the 1990s, Hostess overextended itself, doubling its production facilities and employees.
  • In the early 2000s, ignoring the advice of market analysts, it bought back numerous shares of its own stock, which caused enormous debt described as “balance sheet degradation.”
  • During the 2000s, Hostess shut down 21 production facilities and cut its total workforce from 35,000 to 18,000.

To make matters worse, rather than face the fact that they were a company in distress, and working to improve their market position and rationalize their management, the company chose to ignore its fundamentals:

  • Hostess failed to invest in upgrading technology that was growing obsolete.
  • It failed to address the fact that it continued to lose market share.
  • It continued accruing debt.
  • It generously rewarded its top executives, doubling and even tripling their annual salaries.

Hostess’ Union Pitches In To Rescue The Company

Even so, following In the wake of Hostess’ 2004 bankruptcy, the union (BCTGM) did what they could to help, giving back $110 million in concessions. They showed more business acumen than the highly paid executives. They provided the give backs in exchange for the company’s promise that it would invest in new machinery and new technology, and improve it’s market position.

Hostess Fails To Do Their Share

Hostess broke that promise, and failed to follow through on those long-term investments. Instead they continued to churn their assets and their CEOs, rewarding themselves bigger bonuses. Rather than address their failing business model, here’s how they hey attempted to keep the scheme going by doing the following:

  • Management approached the BCTGM with unrealistic demands for pay and benefit cuts of between 27-32 percent.
  • They began looking to “harvest” as much of the company’s assets as it could on the way out.

The union and workers by now understood what was going on.  Hostess management could not be counted on to run a business. By a 92% vote, the union rejected the massive cuts, knowing the company was no longer sustainable.

Lessons Learned: Labor Has A Stake

Labor has a huge stake in the operations of a company.  By excluding them from the table, American businesses have written their own epitaph. While the corporate propaganda machine would have you believe that mismanagement of the American economy is the fault of the government and regulations, this is not even close to the hard economic truth that large corporations are running their businesses as cash cows for their top executives without regard for the real long-term interests of the company, it’s employees, consumers or the economy at large.  sums it up well:

Hostess is a cautionary tale. It’s a company that was not only systematically picked clean by Wall Street vultures, it’s one whose executives lavishly compensated themselves during its death throes. For Hostess, it’s been one reckless, greedy move after another — one management fiasco after another — and yet they’ve been unwilling to blame themselves. They blame the union for this whole mess.

Given the increased power of these vulture capitalists, Americans increasingly feel powerless to do anything but express angst in unfocused displays of tea party revolt. Rather than learn the lessons of history, our anger is increasingly coopted by corporate populist fronts like the tea party. The very fact that incompetent heirs like corporate vulture Mitt Romney and George W. Bush were considered to be viable presidential candidates is indicative of the extent of the problem.

So what can we do? Stand with the workers of Walmart, as they express their grievances.

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Petraeus and the Rise of Narcissistic Leaders

HBR Blog Network has published a timely article on something most of us understand as the Achilles heel of many of our leaders.

Research by Stanford colleague Charles O’Reilly and colleagues finds that  narcissistic leaders are characterized by the traits of dominance, self-confidence, a sense of entitlement, grandiosity, and low empathy. While narcissism is useful for attaining leadership positions, maintaining power, and even stimulating creativity and innovation, it can prove deleterious in the long run. O’Reilly’s research of Silicon Valley executives shows that narcissistic CEOs earn more, last in their jobs longer, but also have a larger gap between their pay and the pay of their senior team:

And while narcissism and the associated behaviors may indeed help people ascend into leadership roles, as recent experience suggests, narcissistic individuals also contain the seeds of their own (self)-destruction. And leaders’ downfalls are costly — Lockheed now has to find another person to assume the CEO role, and President Obama must find someone to take over the CIA. So while indeed there are productive narcissists, narcissistic behavior can be very unproductive for both the work organizations and the people who experience it.

Surveys of college students shows narcissism on the rise over time. Could that help to explain the gridlock in Washington and self serving agendas of business leaders today?

The Problem

Avi Dan of Forbes discusses why agencies have no incentive to come up with big ideas.

The reason is simple: most marketers pay agencies based on labor cost, an approach that turns agencies into vendors rather than partners. This encourages agencies to engage in include various bad behaviors:
  • Padding their activity.
  • Billing inflated costs to their clients.
  • Expanding the scope of work.

A Solution

Fixed pricing is the surest recipe to encourage the agency to settle for mediocrity, because payment is not conditioned on results. Since the current practice compensates an agency equally for good and bad work, a model that more highly compensates good advertising that delivers superior ROI might be an alternative:

Quality of ideas should determine not only agency tenure, but also the level of remuneration. It’s time to consider transitioning from the standard fee compensation to a new structure that will demand of agencies brilliant ideas as their contribution to a genuine partnership.

Dan recommends a model similar to that used in the entertainment industry. If agencies assume some of the cost of research and developing and producing the advertising, and performance goals were met, the agency could be compensated for taking the risk with the client by sharing in the profits. Or the agency could be granted a royalty agreement for the time its work supports a brand. He concludes on this intriguing note:

Just Imagine if the CMO of a company told the board that they are investing millions in advertising but the agency agreed to forgo all or part of its profit margin in the case of failure. That kind of compensation, focusing reward on success and failure of the agency’s output, not input of labor hours as it is now, would turn client/agency relationships into what marketers want from their agencies: creating growth.

Marketing Meets Social Meets R&D

 of Mindjumpers Social Media Group in her post, Case of Creative Crowdsourcing: Let Your Fans Guide Your Brand, highlights how crowdsourcing gives a voice to your fans to inspire brand loyalty.

“Do Us a Flavor” 

PepsiCo’s Frito-Lay division launched it’s “Do Us a Flavor” campaign launched in July, 2012. Lay’s is asking its US website, fans to “come up with the next great Lay’s flavor.” They invite users to name their flavor, pick out what ingredients will go into it and share their inspiration online or by text message. The payoff? The person who submits the winning flavor can win $1 million dollars or 1% of the chips’ 2013 net sales (the greater).

This campaign,  first launched in the UK in 2008 and then in several other countries across Europe, Asia, Africa and South America.  The campaign was successful in more than 14 countries, generating more than 8 million chips flavor ideas globally. It resulted in the creation of numerous new flavors, including: Chili & Chocolate, Caesar Salad, Late Night Kebob,  Thailand’s hot and spicy crab, Turkey’s haydari and India’s mastana mango.  Salman Amin, Executive Vice President Sales and Marketing, PepsiCo says he decided to launch the campaign in the U.S. because:

Judging from the success of these contests worldwide, we feel confident that the response will be incredibly enthusiastic here in the U.S. Consumers love to create new products and fervently support brands and companies that demonstrate they truly value their opinions. Moreover, everyone loves potato chips—each of us has a favorite taste that came from years of experimentation, and we all like contests with big prizes that reward our creativity.

Takeaways

  • Engagement People like to have their voices and opinions heard. By asking fans to submit a flavor, Lay’s makes them feel special, while an incentive to participate can generate even more engagement.
  • Attention News spreads fast among engaged fans as their participation shows in their Facebook newsfeeds.
  • Personal relationship You build a stronger relationship with customers by making them feel part of the company’s core processes. Guillaume Jesel, a Senior Vice President for global marketing at MAC describes the strategy as letting “the consumers take the steering wheel for a while.”
  • Problem solving Crowdsourcing provides you a quicker and lower cost way to decide on your next product, inspired by consumers’ needs and wishes.
  • Replicate success A winning idea in one market may work in many other markets as well with similar preferences.

Other successful crowdsourcing campaigns that have helped brands design their new products include:

Several have led to incredible levels of consumer engagement:

How Crowdsourcing Works

  1. You identify a problem
  2. You broadcast the problem
  3. The “crowd” (fans) submit solutions
  4. You and the crowd vet the solutions
  5. You reward winning solvers.
  6. Everybody profits

Dion Hinchcliffe of ebiz explains that internet startups that have had considerable success with crowdsourcing over the last few years, including with its more serious cousin peer production, have recently focused on creating the tools and communities for enterprises. They include the online design service Crowdspring, and other early providers such as Amazon’s excellent Mechanical Turk and Innocentive. The economics and results of crowdsourcing are often compelling. LG recently designed a new phone this way for just $20,000 (details and submissions here). Crowdsourcing services include idea generation, design work, execution of business processes, testing services, and even customer support, all of which can now be connected, often programmatically, directly to a company’s supply chain. While companies such as Netflix (the Netflix Prize) and Emporis have built their own internal crowdsourcing capabilities internally, most companies rely on commercial services  for the necessary ingredients of effective crowdsourcing, including configurablearchitectures of participation, legal constructs, customer support, and communities of users ready to contribute.  Crowdsourcing campaigns typically pay by the unit of work (such as a successfully completed task) or for a successful solution to a problem, usually in the form of a prize.

Why Use Crowdsourcing?

The reasons for a business to use crowdsourcing are varied:

  • The ability to offload peak demand
  • Access to cheaper business inputs
  • Generating better results
  • Tackling problems that would have been too difficult to do otherwise.

A challenge is the swamping of inputs – the richness and variety of contributions, while wonderful, can require considerable review to find the best ones.  Crowdsourcing services now address this with filters and controls, such as Kluster’s ability to more readily tune the “relative influence” of various types of participants.

Five Functional Business Areas Suitable for Crowdsourcing

Here are examples of some of the business uses of crowdsourcing today:

1. Problem Solving

Innocentive, the leading open innovation service, has over 180,000 contributors who can work on problems in science, manufacturing, biotech, medicine and many other fields. They offer rewards ranging from $5,000 up to $1 million for solutions to submitted problems.  An article in The Economist reports a 74% ROI for crowdsourcing over central production methods. Other options include GuruStormsPhiloptima and PlanetEureka.

2. Design

Crowdsourced design services like Crowdspring provide marketplaces to allows for crowdsourcing Web designs cheaply and quickly. Others, like Denook, offer design for other things like apparel. BootB, can help companies crowdsource marketing and creative work. General purpose tools like Kluster can help companies strategically farm specific design decisions across their own private or public community. Services such as Elance provide on-demand design work, but are not structured to create multiple competing inputs.

3. Work

For many kinds of simple tasks, there are highly granular on-demand work marketplaces. Mechanical Turk and CrowdFlower are two of the top solutions in this area. A good example is CastingWords, one of the best audio transacription web services, which breaks up recordings into tiny pieces and distributes them across the world to Mechanical Turk workers for conversion to text. For IT shops TopCoder offers crowdsourcing for software development from , the “world’s largest competitive software development community with 220,326 developers representing over 200 countries.

4. Testing. “Users as testers” assures broadbased and thorough user input from customers. Services such as uTest are bringing crowdsourcing to testing of software and other services.

5. Support. Online customer communities are a growing source of crowdsourced customer service and support for companies that understand how to grow and nurture them. Services such as FixyaGetSatisfaction and CrossLoop crowdsource customer support to get the answers to questions companies have that are often more accurate than what the companies can generate internally by themselves.

Like many aspects of digital business, crowdsourcing is a very recent development that is still in its early stages. Creative companies have an opportunity to use it to link marketing more closely to research, development, design and customer service, forging competitive marketplace advantages.

The Mindful Manager

Here is an excerpt from a Huff Post article by Adam Weinberg, President World Learning, that make a point about some fundamental business skills that are not necessarily taught in most formal curricula.

It is interesting to note that they coincide with certain principles of Buddhist practice related to overcoming mental conditioning, which is what is needed to “think outside the box,” but that also inform judgment and action and impact results. Please note that Buddhism as described herein is not properly religion, but rather a methodology for the practice of mental cultivation.

“In its essence, leadership is about putting theory into practice — figuring out what needs to be done, learning how to do it, but then finding the motivation to take meaningful action…As an educator, I think about the obligation to help rising generations acquire a few key attributes that are in short supply. Three of these are at the top of my mind these days.

  1. First, we need people with stellar cross-cultural skills. The future will not only be shaped by how well we transcend differences, but how well we synthesize differences into new ways of thinking and acting.
  2. Second, we need people who can practice insight to see through complexity and chaos to find simple and elegant solutions. Fundamentally, it is about making connections that previously eluded us between seemingly disparate thoughts, in ways that allow us to find clever, simple and practical solutions to problems that seemed intractable.
  3. Third, we need to nurture patience and perseverance. Most things that matter take time. This will become truer over time, as the organizations that shape our lives and the problems we face grow in size. Change happens when a group of people stick with an idea over a sustained period, working through early setbacks to eventually succeed.

Modern society does not foster these traits. Educational institutions can be a countervailing force when they create spaces for young people to work together over sustained periods to identify problems and engage in problem solving that encourages them to ask new questions, draw connections, and find new ways to address old problems.”

Business Skills and Buddhist Mindfulness

A Wall Street Journal article by Beth Gardiner discusses how business schools are beginning to embrace the teaching and studying of mindfulness, the Buddhist approach to increasing awareness of oneself and one’s surroundings, a practice whose popularity has been growing in the corporate world.

Some M.B.A. and executive-education courses offer techniques to help executives calm their minds and increase their focus, which, they hold, “are crucial for those hoping to succeed in an increasingly frenetic environment where distractions from an always-buzzing phone to pressure for strong quarterly profit reports constantly impinge on decisions.”

The technique is important for executives who want to become aware of reflexive, emotional reactions that can lead to bad decisions.

Surveying Institutional Mindfulness

Ms. Donde Ashmos Plowman, dean of the University of Nebraska-Lincoln College of Business Administration has also examined the mindfulness of organizations, a concept previously introduced by Karl Weick, at the University of Michigan’s Ross School of Business.

Mindful organizations are those that pay close attention to what is happening within the organization, and are ready to correct mistakes rather than punishing workers who report them and respond quickly to changes or problems, Ms. Plowman said.
Since critics have accused business schools of culpability in the many high-profile lapses of corporate ethics in recent years, Dean Plowman felt that studying the schools’ state of institutional mindfulness might provide indications of their readiness for self-correction. She tried to quantify the mindfulness of 180 different business schools by providing questionnaires to deans and other administrators.

The researchers noticed that deans rated their schools’ mindfulness more highly than did those working for them. Ms. Plowman concludes:

It’s easy for people at the head of an organization to end up in a bubble. That really alerted me to say, ‘What do I need to do as a dean to improve the way we communicate?’

Mindfulness for Culture Change

Lausanne, Switzerland’s IMD business school leadership professor Ben Bryant introduces executive education students to techniques for concentrating on their breathing and becoming aware of sounds to help them center themselves at the office or in a business meeting.

Mr. Bryant feels it is worthwhile to help decision makers better direct their attention. He states that, for CEOs in particular:

It’s the smallest things that they do that have huge ripple effects. Because their lives are so busy and so loaded up with things, they miss too many opportunities to make either themselves or their organizations different.

In instituting “the mindful approach to changing culture,” Professor Bryant notes that the engineering approach to corporate change that CEOs and managers tend to be comfortable with, while a good start, it is also extremely limited.

The Engineering Approach to Changing Culture

Of six levels of innovation culture that can be identified, 3 of these – slogans, incubation and compliance – form an “engineering approach” to shaping culture. They represent clear, relatively easy-to-implement actions that can be taken to “fix” the company so that its culture encourages innovation:

Slogan level:  A slogan should reflect company culture, and many are also created to shape culture, but the reality rarely lives up to the rhetoric. A disconnect often exists between what an organization says it values through the slogan (innovation) and the message being sent out by top management to employees (make the numbers with no surprises).

Incubation level: This level appoints a chief innovation manager or creates different groups, such as corporate venture units, “skunkworks” and new product development teams to be  responsible for innovation. According to Professor Bryant, research shows that 80-90% of company corporate venture units fail, however, and are also not sufficient to shape an innovative culture.

Compliance level: This refers to systems and processes put in place to direct innovative behaviors and activities, including: suggestion schemes to encourage creativity; NPD processes and stage-gating to help with decision making and coordination of innovative ideas; and reward and recognition programs. These processes are designed to “drag” people into an innovative way of thinking, but even these are still not enough to make the transition to a truly innovative culture.

3 Levels of Innovation Culture

The last three levels of innovation culture – attention, disruption, and interaction – that form the base of the pyramid. Forming the “mindful approach,” these take into account the fact that people watch and take their cue from top-level leaders – and every word and action of such leaders is important. Because achieving these levels requires managers to change often unconscious behaviors and overturn rituals, routines, and processes that reinforce deeply routed traditional values rather than inspire innovation, the practice of mindfulness should inform their thoughts, words and actions.

Attention level: Even if a company has implemented an engineering approach to changing culture, it will do little if the top-level leaders are not paying attention to actions and people that promote innovation. If managers are focused on processes and outputs that never deviate from a defined standard, there will be no innovation. Also, giving attention to people based on their place in the organization’s hierarchy instead of their expertise also impedes innovation. Leaders who truly want an innovative culture need to “switch their attention to variance over the mean, context over content, risk over creativity, and knowledge over status.

Disruption level: Senior managers need to manage the tension between conformity and disruption to allow innovation to occur. The way in which people who do not conform are treated sends a message to other employees, and an army of “good soldiers” will never become innovative.  One way to achieve this is for managers themselves to act disruptively, but with skill – pushing the company out of its comfort zone and showing direction, much like some of the iconoclastic stories associated with Zen masters. Small, symbolic actions that take people by surprise can lead to real culture change.

Interaction level: What happens “in the moment” when a leader interacts with employees is critical to a company’s culture. Whether a leader inspires fear or challenge, and shows ambiguity, or focus, defensiveness or a willingness to learn, pessimism or optimism, such information is communicated in a split second, and often unconsciously. This level is the hardest to achieve, requiring leaders to be constantly self-aware in every interaction with their people.

Mindfulness for Self Management

Jeremy Hunter, who teaches at the Peter F. Drucker and Masatoshi Ito Graduate School of Management at Claremont Graduate University outside Los Angeles, believes mindfulness should be at the center of business schools’ teaching because it is about improving the quality of attention, which is key to productivity in the modern workplace.

In a series of four seven-week executive-education classes, and a separate course for M.B.A. students, Professor Hunter teaches what he calls self-management, “managing your insides so you can deal with your outsides better.” He often starts class with a brief meditation, and covers topics like managing emotional reactions and dealing with change:

To me, it’s fundamental to how work gets done these days. Basically, that’s what work is, attention.

Best Practice: One of Professor Hunter’s student became frustrated with weekly work meetings where staff were more focused on their cellphones than the discussion.  After taking the course, he became convinced that the answer was  to insist that everyone depoist their phones into a box before starting. The weekly gathering soon became so much more efficient that it was cut from from 90 minutes to an hour.

Mindfulness for Leadership Effectiveness

At Harvard Business School, leadership professor William George focuses on helping businesspeople to better understand their emotions. He ran a two-day conference in 2010 on mindful leadership with a Tibetan Buddhist meditation master, and has meditated regularly since 1975.

In his executive-education class on leadership development, he instructs students who include CEOs to open up to others about their toughest experiences.

Such conversations can increase self-awareness, which Professor George sees as central to good leadership. It isn’t a lack of intelligence that causes executives to make poor decisions, but a lack of awareness of the feelings that drive their reactions, he said.

It’s the inability to admit your own mistakes, or your fear of failure, your fear of rejection, your desire to be seen as Mr. Perfect, or Ms. Perfect in front of groups, that’s what leads to failure. It’s amazing to me how executives in their 40s or 50s who are running giant enterprises can get really into this.

The comments spurred by The Wall Street Journal article shows the increasing acceptance of mindfulness as an organizational tool.  Dr. Gaby Cora of Executive Health and Wealth Institute writes: “This is exactly the core of my work assisting C-level executives and entrepreneurs who are leading under pressure. I help them maximize their performance and productivity while being well, healthy, and experiencing peace of mind.”

Marketing Accountability

According to New Media and Marketing.com, a UK-based Fournaise Marketing Group in its 2012 Global Marketing Effectiveness Program, interviewed more than 1,200 large corporation and SMB CEOs and decision-makers in North America, Europe, Asia and Australia. Its findings:

80% of CEOs Do Not Really Trust Marketers (Except If They Are “ROI Marketers”):

  • 80% of CEOs admit they do not really trust and are not very impressed by the work done by Marketers
  • In comparison, 90% of the same CEOs do trust and value the opinion and work of CFOs and CIOs.

Why is this?

  • 78% of CEOs think Marketers too often lose sight of what their real job is: to generate more customer demand for their products/services in a business-quantifiable and business-measurable way.
  • 75% of CEOs think Marketers misunderstand (and misuse) the “real business” definition of the words “Results”, “ROI” and “Performance” and therefore do not adequately speak the language of their top management.

These CEOs apparently feel that Marketers are not properly zooming in on a few critical key business performance indicators to precisely measure, quantify and report on the level of customer demand they are asked to deliver, and are instead “drowning everybody with data and analyses that are too remote from the P&L.”

69% of B2C CEOs believe B2C Marketers now live too much in their creative and social media bubble and focus too much on parameters such as “likes”, “tweets”, “feeds” or “followers” – parameters they can’t really prove generate more (business-quantifiable) customer demand for their products/services. They judge these parameters  “interesting but not critical.”

Benefits of Key Metrics

Inbound Sales Network weighs in on the issue of how to hold marketing accountable to the bottom line success of the company, creating valued opportunities for Marketing to gain a more valued seat at the executive table:

With programs like inbound marketing, marketing automation and integration with CRM systems, marketing is able to create closed loop reporting system…Marketing will now be able to make a business case about why they deserve a larger budget or a great share of the current one…With the ability to track where each lead comes from and the cost of that lead, marketing can now show why they deserve more and be held accountable for performance.

Constructing a basic set of marketing metrics to get an accurate measure of ROMI (Return on Marketing Investment) or program effectiveness helps Marketers:

  • Ensure they are spending more on the things that drive profitable revenue and less and less on things that don’t.
  • Predict how much revenue the spend on a certain marketing tactic is likely to yield in a certain time period.
  • Provide a complete reporting system to get insight into sales effectiveness and overall sales pipeline velocity.
  • Work more synergistically with Sales to deliver greater results and meet monthly and quarterly targets.

For CEOs in prospect-driven industries such as education, financial services and insurance, more customer demand means fuelling more qualified or sales-ready prospects to the sales pipeline – prospects that can then be converted faster into actual revenue by Sales Forces. Some metrics that can help fill that need are featured on Inbound Sales Network.

Closing the Trust Gap

According to Fournaise, the core source of the problem CEOs have with marketing is that 80% of CEOs believe Marketers are too disconnected from the short-, medium- and long-term financial realities of companies.

These CEOs feel Marketers are too distracted in technology and have forgotten that technology is only a support tool that does not create demand per se – only accurate strategies and campaigns pushing the right products, product benefits, content and customer value propositions do.

A word of caution, however: in contrast to the pipeline metrics offered in Inbound Sales Network, another key finding of the research shows that CEOs also feel Marketers have been starting to wrongly focus on performance indicators that are actually not theirs, such as prospect conversions and revenue in reporting. They feel that these are primarily Sales Force-related performance indicators, and Marketers should focus instead on the customer demand-related indicators directly linked to their job for which they have 100% control.

What CEOs Expect: ROI Marketers

75% of CEOs think Marketers misunderstand  the “real business” definition of the words “Results”, “ROI” and “Performance” and therefore do not adequately speak the language of their top management: these CEOs fail to understand why Marketers cannot zoom in on a few critical key business performance indicators to precisely measure, quantify and report on the level of customer demand they are asked to deliver, instead of drowning everybody with data and analyses that are too remote from the P&L.

CEOs believe they trust CFOs and CIOs because they are 100% ROI-focused – where every dollar spent must have a measurable, quantifiable and positive impact on the company’s P&L and operations. To earn the CEOs’ trust and prove that they can be solid business generators, 74% of CEOs want Marketers to become 100% ROI-focused: they call them “ROI Marketers”.  In this context, CEOs have a clear vision of what they expect from ROI Marketers:

82% of B2C CEOs would like B2C ROI Marketers to focus on tracking, reporting and boosting four Key Marketing Performance Indicators such as:
  • Sell-in.
  • Sell-out.
  • Market Share, and
  • Marketing ROI (the correlation between Marketing spending and the gross profit generated from it).
85% of B2B CEOs and B2C CEOs in prospect-driven industries like financial services would like prospect-driven ROI Marketers to focus on tracking, reporting and boosting four Key Marketing Performance Indicators:
  • Prospect Volume.
  • Prospect Quality Rate.
  • Marketing Effectiveness Rate (percentage of Marketing spending that directly generated prospects.)
  • BizPM™ (business potential generated by Marketing).

Jerome Fontaine, CEO & Chief Tracker of Fournaise, sums it up as follows:

People trust doctors, surgeons, lawyers, pilots or accountants: simply because they know these no-nonsense professionals are trained to focus on the right set of data to take the best decisions and achieve the best outcomes possible. CEOs trust CFOs and CIOs for the same reasons. It’s not a game of data, but rather a game of the “right & relevant” data for the right purpose and the right decision-making, with no fluff around. Marketers will have to understand that they need to start “cutting the rubbish” if they are to earn the trust of CEOs and if they want to have a bigger impact in the boardroom. They will have to transform themselves into true business-driven ROI Marketers or forever remain in what 65% of CEOs told us they call Marketing la-la land.

Snap! principle of key Marketing Metrics:

“It’s not a game of data, but rather a game of the right & relevant data for the right purpose and the right decision-making.”

The Gallup Path to Business Performance

The Gallup Path: Microeconomics

Gallup developed a model to describe the path between employees’ individual contribution and the company’s ultimate business outcome – an increase in company value, usually measured by increase in stock price and market valuation.

The Gallup Path was created from the study of how the world’s best companies have created sustainable, authentic growth through maximizing their relationships with their customers and employees, using research of more than 25 million customers, 7 million employees, 250,000 managers, and 40,000 leaders in more than 500 organizations around the world.

From this research Gallup created an integrated solution that businesses in various economic sectors can use to drive performance throughout their organizations. But the bottom line is that maximizing individual performance drives company performance.

1. Real Profit Increase Drives Stock Increase

Of the variables that influence a company’s market that are in its control, real profit increase is the most important driver of stock increase (sustained vs. short-term profitability.) These exclude creative accounting, such as write-downs, aggressive one-time charges, or forcing orders for products at the end-of-period to overstate revenue, and include:

  • Solid operational initiatives, such as improving process efficiency or cutting costs.
  • Sustained profit increase from normal operations.

2. Sustainable Growth Drives Real Profit Increase

Real profit increase can only be driven by sustainable growth, as opposed to “bought growth.” A company can buy growth through various techniques that create a  spike in your revenue while failing to address the issue of sustaining that revenue, and typically undermining it, including:

  • Acquiring another company’s revenue stream.
  • Slashing prices.
  • Opening as many new locations as possible as quickly as possible.

Sustainable growth is measured by metrics such as revenue per store, or revenue per product, or number of services used per customer which reveal whether or not your revenue stream is robust.
3. Engaged Customers Drive Sustainable Growth

The most critical driver of sustainable growth is an expanding base of engaged customers, and in some industries it is critical to have a growing base of engaged customers who are willing to pay a premium price. It is even better if these engaged customers become advocates, thereby creating a large, vocal, and unpaid sales force.

True customer engagement is created, not just by sales and marketing communications (“brand promise”), but  providing a superior product and service (“brand experience.”) A company can only create a growing number of engaged customers if its brand experience matches or exceeds its brand promise.

4. Engaged Employees Drive Customer Engagement

“Fully engaged” employees are an important subject of Gallup research and can answer all the questions in the Gallup Q12 with a strong affirmative. This tool correlates employee attitudes to five outcome measures: 1. employee retention, 2. productivity, 3. customer satisfaction/engagement, 4. safety, and 5. profitability. In addition to the strong link between engaged employees and customer engagement, there are often direct links between an increase in the number of engaged employees and profit, through increases in productivity, or decreases in employee turnover.

5. The Right Managers Drive Employee Engagement

At the entry point of The Path, you must first identify the employees’ individual strengths, to position individuals to perform roles that capitalize on these strengths.  The key is to identify a person’s dominant themes of talent, then refine them with knowledge and skills (Gallup believes that companies spend too much time focusing on  skills and knowledge and not nearly enough on their talents, which are the basis of strength and success. Gallup tools for this include its strengths-based selection and strengths-based development.

To engage talented employees successfully means selecting and developing great managers. Companies that are unable to create this kind of environment will lose more talented people than they keep by miscasting, overpromoting, undervaluing, and otherwise misusing the talented employees who do stay. Lacking talented people in the right roles, this company will have to revert to less robust routes to performance:

  • Overreliance on marketing.
  • Acquisition
  • Frantic push for “bought” growth.

Success Stories in Financial Services

These Gallup Management Journal articles and case studies provide case studies at each link of the Path, including

Snap! principle of a “path” to business performance:

Company performance is driven by maximizing individual performance.

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