How are you engaging your customers?

To create satisfied customers doesn’t really make you successful anymore – apart from creating value you also need to engage your customer to grow your revenue.

Customers are not just looking for the same product or service they have only cheaper or with an extra feature – they are looking for something radically useful or something that creates meaning for them.

Every market matures and in every mature market the product/service looks more and more alike. It will be based on the same technology made on the same factory or delivered after the same principles. Not much room for differentiation other than price that shrinks the pie for all market players. All products will eventually satisfy customers but not necessarily engage them.

To engage customers you will need to go beyond the product or service itself. It is not about what you do, it is about why you do it and how you do it.

 "Always start with why" Simon Sinek

Customer engagement is an emotional relation between the customer and one or more actors associated with the company. It is certainly possible to create an emotional relationship between a customer and a product/service brand as is seen with luxury items and cars; however this is not possible in most markets.

Relationship with the product itself

When products and services become more alike it becomes more important how it is made and what the overall purpose of the producing company is. It is not anymore about transactional selling but more about a relationship and eventually being part of a movement.

Relationship with the company

Customers don’t buy from you just because you want a lot of money but they might want to buy from you if your company is trying to support society or making the world a better place. The low priority of CSR in many companies, will not work in the future. It does not inspire customers or employees. The new hyper growth companies predominantly from the US, all has a strong purpose in the centre of their activity. Google, Apple, Tesla, Facebook and similar are not in the business just to make money – they want to make a difference also. This engages not only employees but also customers.

Relationship with touch points

The rise of the internet and social media has made many companies forget that their employees are vital in creating engagement with customers. Unfortunately only 13% of all employees worldwide are engaged and hence capable of creating customer engagement. The service aspect has also been neglected even though there is a higher probability in creating an engaged customer through a service issue than there is through a normal successful delivery.

The massive advertising on social media that looks the same as the old newspaper advertising can create awareness but is not successful in creating engagement. Most companies miss the point of having their senior managers’ active on social media (Only 28% of CEO has social media accounts). CEO’s have an opportunity to engage in conversations about purpose and sustainable production that can catapult engagement. Leaders like Tim Cook (Apple), Elon Musk (Tesla) Eric Schmidt (Google) are all very active in engaging both customers and employees.

Relationship with other stakeholders

The most important consumer buying decisions are heavily impacted by people close to the consumer and different interest groups. You cannot ignore Greenpeace, Amnesty international or trade unions anymore. The company need to include all stakeholders into their strategy formation and make it transparent. A transparent company does not need to hide behind a brand.

The link between Employee and Customer engagement

Gallup has shown that there is a strong relationship from Employee Engagement over customer engagement to financial results. Companies that manage to engage both customers and employees have 240% better results on performance related parameters.

"Companies that engage both customers and employees have 240% better results on performance parameters." Gallup

Top 10 dangers in your BIG is BEAUTIFUL Strategy

To want to grow and become a bigger company is a normal objective for most businesses, but in some companies it becomes the main purpose – above and beyond becoming a better company and creating value for the company’s stakeholders. 

Like revenue and profit, size is really an outcome – it is a measure of how much your customers are willing to pay for your services and how inspired your employees are. Both are shaped significantly by the way the company treats its other and often weaker stakeholders.

If customers and employees are just plankton feeding your corporate whale you can use the shortcut of an acquisition strategy.

Unfortunately the BIG is Beautiful thinking has been accepted as a commandment in the corporate religion not to be challenged – only good things comes out pursuing BIG. It is well documented that large companies have scale of economies and can do a lot of things cheaper than smaller companies. 

BIG companies can compete more effectively in traditional markets and squeeze smaller players out of the distribution channels and outspend them. This has worked in the industrial age and to a degree in the knowledge age – but the global business environment is changing:

• The average lifespan of an S&P 500 company has declined from 70 years in the 1920s to 15 years today. 

• More than half the S&P500 companies from year 2000 have disappeared. 

• There are 40% less public companies in the US than in 2000. In UK it is 50% less

If large corporations were a species – we would call it endangered - Lynn Stout, UCLA

If companies manage to get into fortune 50 they are almost guaranteed not to grow. So treating  growth and size as a married couple is wrong – they are not even dating!

Contrary to the BIG is Beautiful thinking it is not the asset builders that have dominated the most recent future – it is time to look at the dangers of being big.

Top 10 dangers in your BIG is BEAUTIFUL Strategy

1. Takeover targets are not just about tangible assets anymore.

To buy acquire a company you have to pay more than it is worth and find synergies (short for axing management and all staff functions, marketing and sales). This worked well when assets mainly where brick, machines, products and other tangibles but this has been overtaken by intangible values like knowledge, brand, engagement and networking capabilities. 

2. Asset hoarding is not the most effective business model anymore

The companies with the most effective business models seen from a revenue and profit perspective is not relying on the traditional logic of buying competitors or squeezing them out of markets. The new network companies like Google, Apple (in its app store driven version), Amazon and their likes are connecting manufacturers and suppliers with consumers and buyers in a massive scale.

The central goal was not to buy their way to big but to create massive value for users with radically useful products. Big was certainly an outcome.

3. Acquisitions are not as profitable as they used to be

 Few in numbers the network companies normally create markets rather than fight the incumbents in their well-defined little market sandboxes with set rules about who own the toys. In the process of creating new markets they destroy old markets. The incumbents in the mobile phone market fell as a result of the appstores – not the smart phones. The newspaper industry lost half its advertising revenue to Google in a few years and Amazon is closing brick and mortar stores. 

Being big in a market that is being disrupted does not protect a company; it just means a larger and more smelly carcass.

It is also well known that acquisitions are a reset button that can mask a company’s true performance. When the balance sheets merge the CEO gets a new lease of his corner office making it impossible to really measure the value of an acquisition.

Asset builders are not the largest animals in the jungle anymore and the networking companies don’t want to buy them or even compete with them. They will be outmaneuvered.

4. When you buy intangibles they might not work in your company.

This became obvious when McDonalds bought Chipotle and although they expanded the chain dramatically the Chipotle sustainability brand grew faster outside McDonalds. From a valuation of 1.5B$ in 2006 when it was sold to 23B$ today – this McDonald could not unlock. As knowledge become more generally available more value is locked in the engagement created with employees and customers. Both can walk out the door at any time.

5. A takeover destroys massive amounts of value

If an acquisition is driven by being “BIG” rather than synergies with the existing organisations the value extraction process becomes painful as cannot buy a company for what it is worth – you have to pay more. The headcount stripping exercise is only seen as impacting cost when in reality it affects all areas of the business – people have a lot of knowledge that is not captured in systems. A long time after the CEO declares the acquisition a success and completed customers and employees are still suffering from lack of knowledgeable people that could have intervened when the poorly integrated systems fail. Before the systems are up running the next acquisition will be lined up.

Synergies are often internally driven not market driven

If an acquisition was treated like a product 

6. Measurement often destroys more value than it creates 

The growth imperative often forces organisations to take a very short sighted approach. Acquisitions and other “getting big” initiatives have to be successful and results demonstrated immediately. Anybody that has been through a merger knows that it often take many years before the merger is settled – not quarters.

Large organisations also tend to measure the wrong things. Typically the focus is on the easy rather than the important measures which lead to a cost centric culture. Creating value and innovation is a long term process that cannot effectively be managed through cost control. Finally large companies tend to use the measurements for the wrong purpose. Measurements are typically used to control people and not to develop and motivate them.

“No measure does less damage than wrong measures or measures used for the wrong purpose” Jeffrey Pfeffer

7. Innovation and creativity declines as corporation grows

Most of the truly innovative companies of our time did not exist a few years ago and they claim to fame is not innovative products it is innovative business models and thinking. This kind of innovation rarely happens in large corporations.

Larger corporations also have difficulty tapping into their people creativity as the executive suite gets isolated from their people, from customers and society at large and frankly they often don’t believe in the organisations value capabilities

In a survey of 400 CFOs 80% stated “they would reduce discretionary spending on potentially value creating activities in order to meet short term earnings targets”   The Boston Consulting Group

8. The illusion of bigger means more diversified and lower risk

The prevailing wisdom is that when companies diversify they also lower risk although the financial crisis should have eradicated that assumption it still lives on. Markets are not safe isolated lakes where the larges fish rule – disruptors empty these lakes fast. 

Many companies rely on some commodities that seriously impact their business either as raw goods or as finished products. These markets used to follow demand and supply models before the derivatives markets started to dominate. Today every $ of commodity traded Is multiplied by hundreds of dollars of derivative contracts that are controlled by algorithms rather than people – perfect bubble economy conditions.

9. Corporate Silence, Effectiveness & Psychological distance

The larger a corporation becomes the more it follows the conventional wisdom it has created. There is no consent and all views are convergent with the logic of the corporation and its industry. This is coined corporate silence. 

In large scale organisations efficiency becomes the focus rather than actually investigating if processes create the desired output. Effective is forgotten and finally the psychological distance between large corporation managers and ordinary customers and customers becomes so large that they really fail to understand each other.

10. Large organisations have lower engagement

As Gallup has demonstrated, companies with a high level of engagement outperform their low engagement peers on all revenue, profit and quality parameters. 

At the same time they can demonstrate that there is a significant correlation between size and engagement levels.

Is it time to rethink your BIG IS BEAUTIFUL strategy?

Will purpose and transparency kill your business model? Better create a new one fast.

The traditional approach to employee and other stakeholder engagement activities has been addressed predominantly on an operational level  with a focus on what the corporation is doing. By changing practices it is indeed possible to impact engagement but only if your stakeholders believe that you are doing it for the right reasons and in the right way.

Stakeholder engagement  strategies should follow Simon Sinek's golden circle model – always start with the why, followed by the how before you even start thinking about the what.

The Why

Stakeholders will forgive you for mistakes done for the right reasons – not for perfect products created by the exploitation of others. Although most companies have been started to serve a specific purpose or create value for stakeholders, the same companies often over time transform their value focus to a cost focus. A transformation that narrows the value creation to one single stakeholder – the shareholder itself. Many senior managers proudly declare their purpose as serving the shareholder – even when the other stakeholders are listening.

“Problems are just businesses waiting for the right entrepreneur to unlock the value.” Jay Samit         

Assuming that taking from the environment, society, the customers and the employees to give to shareholders is in the best long term interest of the shareholder is not logical. The shareholder will benefit when all other stakeholders benefit in a way that creates long term sustainable competitive advantage.

Most companies start like disruptive wolfs hunting apathetic market sheep busy competing for grass. Over time they themselves become sheep anxiously scanning for disruptive predators while protecting their patch of grass. Not a purpose that is likely to engage stakeholders.

Preserving or recreation of the purpose of the corporation will be increasingly important with the wave of millenials taking over as the prime stakeholders. It will be important to have a ”why” that serves many stakeholders simultaneously in what is know as super alignment.

"Make yourself sheep and the wolves will eat you" 

Benjamin Franklin                                       

The How

The rise of the millenials also makes it important how corporations operate not only as a corporate citizen with respect for society, the environment, customers, employees and other stakeholders but also with transparency.

The concept of corporate transparency is developing rapidly and can be a major source of stakeholder engagement. From being a spotlight you only pointed at the cleaner areas of the corporate exhibition halls the social media revolution is illuminating everything, including dirty laundry. Transparency is not a strategy anymore – organisations will have to work on creating sustainable business models that can withstand light rather than try and sugarcoat the existing business model.

”Transparency may be the most disruptive and far reaching 

innovation to come out of social media”           Paul Gillin

Transparency normally stops when getting close to the business model and the supply chain. Traditional companies are not comfortable disclosing their internal costs of manufacturing and similar. The official reason is that it is proprietary information that needs to be held from competitors but it could also bet that  customers would be furious knowing how they get robbed. And the other sheep are probably experts in grass anyway.

A few brave companies are taking this next step and disclosing internal costs to their customers. The company Everlane in the fashion industry have given full disclosure in a market where 8x markup is common. No doubt they will attract unwanted attention to the other sheep in that marketplace and has the potential of becoming a wolf.

It is uncomfortable for most leaders to address the why and the how of their strategy. ”Why cant we just focus on the shareholder like everybody else”? ”Why can’t we hide the true nature of our operation so we do not attract uncomfortable questions”?

Unfortunately addressing the why and the how of the strategy is seen as a negative that adds costs and not as having the potential to create significant engagement with the company's stakeholders.

“The best way to predict the future is to invent it.”

                                                              Alan Kay

Capitalism 1.0 is dead - Long live capitalism 2.0. How to compete in the new economy

Many mature industries are being disrupted by new agile companies that lack respect for the old and well established rules. The incumbent players have a very difficult time to analyse and respond with effective countermeasures against these disruptors. The disruptors often use new technology to their advantage: The cloud, mobile devices, social networking, sensors and big data are some of the tools. None of these technologies are really based on proprietary technology and could be deployed by the incumbents – this is not the real threat against them. The real threat to the established businesses from the new players is that they think differently about business and leadership.

To understand the difference it is necessary to review the current narrative that exists about the business world and capitalism. According to Edward Freeman, Professor at Darden Business School, the old business paradigm is based on a number of assumptions:

• Business is primarily about making money
• The only constituency that really matters is the shareholder
• There does not need to be a concern for the environment, because we live in a world of limitless resources
• Capitalism works because people are self-interested
• Given the opportunity, business people will cheat or cut corners.
• Business works because people are competitive and greedy.

These assumptions show themselves in a lot of both internal and external communication from large corporations – focus is on the shareholder. The assumptions are also confirmed when legislators make new laws –business and banks in particular has seen tighter regulations based on distrust from the regulators. This is not without merit – Quartz.com shows the top 9 banks have used more than 15B$ in litigation charges in just one quarter.  Dissatisfied customers are faced with endless pages of legal T&C’s, rules and inflexibility all designed to protect the shareholders. Employees are faced with HR departments not designed to enable people but to limit them with endless conduct manuals written by legal department. Also NGO’s has been battling with business based on a basic distrust in their intentions. 

Many new companies do not follow this logic – largely because it is based on the business logic of Generation X and the Baby Boomers. The new business logic is the logic of generation Y – Capitalism 2.0.

It might not be obvious to everybody but some visionary business leaders have identified the shift:

“On the face of it, shareholder value is the dumbest idea in the world”

Jack Welsh, exCEO GE

“Pure focus on shareholders alienates the employee, 

the customer the supplier and everybody else”

Kip Tindell, CEO The Container Store

“We’re not going into the three-month rat-races. We’re not working for our shareholders. We’re working for the consumer, 

we are focused and the shareholder gets rewarded.” 

Paul Polman, CEO Unilever

“We prefer to forgo revenue, rather than bring a product to market that does not delight customers. Doing so negatively affects the short term, but positively affects the long term. There are many other companies that do not follow this philosophy that may be a more attractive home for investor capital. 

Tesla is not going to change.”

Elon Musk, CEO Tesla

Driven by Generation Y, the paradigm of Capitalism 2.0 is based on value creation for all stakeholders (defined as groups that are affected by the actions of the corporation or that can affect it). In Edward Freeman’s definition:

• Business is primarily about purpose – revenue and profit follows
• Any business creates and destroys value for stakeholders – Leading a business involves getting these interests going in the same direction
• Capitalism works because we are complex creatures with many needs and wants. People can act in multiple ways: selfish, cooperative and altruistic. Incentives are important but so are values
• Most people tell the truth, keep their promises and act responsibly most of the time and we expect that.
• Business and capitalism is the greatest system of Social Corporation ever invented. Competition is important in free society as it ensures options but value creation is the engine of capitalism

No doubt capitalism 2.0 will require leaders to deal with much more complex and conflict interests but there is a lot to be gained. In leadership circles it is understood that satisfied employees and customers does not lead to financial results as it used to – satisfaction is not sufficient anymore. To create great results you need engaged employees creating engaged customers and that needs more than a good product and a service. 

“Customers will never love a company until the employees love it first”

Simon Sinek

What is needed is a high level purpose that engages, followed by actions that demonstrate commitment to that purpose even when in trouble.

Ed Freeman outlines three main principles that need to be followed when creating business strategies according to the new paradigm:

• Interconnection – Because stakeholder interests go together over time, we need solutions that satisfy multiple stakeholders simultaneously.
• No Trade-offs – We try never to trade off the interests of one versus the other continuously over time
• The principle of friction: It is not just who agree with you - sometime your opponents are helping you create value. We want friction to go away but understanding friction can be a source of value. Critics are telling you something about your business. How can we use this critique to become better at what we do? Meet with critics ahead of time - you can improve before implementations.

Not trying to give the impression that this will be easy, Ed Freeman suggests that business leaders should utilise the only free resource available to them – creativity of their people. Involve many stakeholders and allow them to think and explore freely about value creation according to the principles and wonders might happen.

One of the fastest growing companies of the new economy is Facebook. Their commitment to Capitalism 2.0 is very visible in Mark Zuckerberg’s letter to the shareholders prior to their IPO:

"Facebook was not originally created to be a company. 

It was built to accomplish a social mission — to make the world more open and connected. We think it’s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and 

why we do the things we do” 

Mark Zuckerberg, CEO Facebook

If your company is struggling with flat or declining revenue in mature markets that are being attacked by innovative disruptive start-ups, maybe it is time to rethink your purpose.

“When is now a good time”

Act like you are alone and in a start-up scenario (Because you probably are)

Working in large companies in mature industries you are likely to feel a degree of safety and security in your employment. There is an illusion that it is a lot safer than being on your own in a start-up situation. This might not be the case at all and you could benefit changing your mind to think like an entrepreneur.

The illusion of safety

In mature industries, companies often follow a red ocean strategy of direct competition with like minded competitors – deliver more for less – every year – until somebody changes the rules. The company is likely based on a long and glorious history of growth, results and acquisitions and is founded on the logic that history success guarantees future success. This logic works fine until somebody decides to change the rules of the market through disruption. Size and capital is not the guarantee for survival it used to be.

Even if you are a great employee and the company want to keep you they might not be able to in their fight for survival. Maybe it is time to pretend that you are on your own and fighting for relevance in an environment that is changing faster than ever (because you probably are)

Is your behavior locked in the logic of your industry?

Many employees follow a strategy similar to the red ocean inside the corporation. The impression of collaboration coexists with hidden competition amongst co workers: Deliver more for less until you get chosen for promotion.  This competition for reward and promotion is rarely expressed but nevertheless very real and permeates the decision making processes:  Who are favored and gets the power. You are not likely to get your promotion by competing: Doing more for less. There is no logic in promoting hard workers.  If you don’t find yourself in this situation, you won’t feel envy when your colleagues get promoted instead of you – you will keep working hard until it is your turn or you don’t want promotion at all.

Is there another way?

If you do have ambition, it can be worth looking at the company the way many start-ups look at the market they want to engage. Rarely do they choose to battle the industry leaders head-on in a red ocean strategy but rather follow a blue ocean strategy.

Red Ocean Strategy	Blue Ocean Strategy
Compete	Complement
Beat Competition	Make competition irrelevant
Exploit exiting demand	Create new demand
Work with value cost trade off	Break value cost trade off

Rather than competing with your co-workers – find ways of complementing what they are already doing. Explore new ways of creating value for the organisation outside the current scenarios. It might not be easy but this is what new start-ups face every day and you can learn from that. You will have to challenge the existing thinking and the rules they are based on, and you are likely to face resistance. But if you don’t, you might find yourself competing with somebody willing to do your job cheaper or you will be competing with a machine.

If you can’t win – change the rules

Peter Diamandis

A war is raging between two different corporate models.

The basic assumptions of the effective operation of most of today’s largest corporations are largely founded on the thinking of Milton Friedman back in the 1970. Corporations should only exist to create profit to shareholders though operation inside the frame of the law. Later years has modulated the goal from profit to value, from shareholders to stakeholders and increased the scope from within the law also to include ethical CSR related goals also. But the corporate communication does not reveal this change; most corporate communication is still focused on quarterly profits and not on long term potential goals that could provide benefits to a larger group of stakeholders. The profits made are mainly used to invest in own equity, return to shareholders and to acquire competitors in the industry with the aim to become larger and more cost efficient.

It is almost like large corporate dinosaurs happily grassing on the fat fields of loyal or locked customers feeling secure in their sheer size and power. But something is changing. New nimble companies with very different thinking based on different assumptions are not only challenging the dinosaur corporations – they are starting to kill them. Maybe the rules are changing, maybe the meteor has already struck and the grass is withering.

Companies like Netflix, Tesla, AirBnB, Uber and a lot others are seriously disrupting existing industries fast. The size of nimble companies like Google, Amazon and Ebay suggests it is not just about being small – you can be nimble and large at the same time.

The dinosaur corporations all behave like the nimble companies will not have an impact on their business as they operate completely different. Maybe they think it will only affect certain industries or it is about technology or the internet. Maybe they are wrong, maybe it is about different thinking.

The new nimble companies are based on very different assumptions and operation of the human network called the corporation. A lot of this is based on a different model of how humans are motivated, are thinking and are acting. Most of the nimble companies have a very different relationship with their employees. They don’t call them “Our greatest strength” and then treat them like resources force fitted into boxes, grades and rankings.

They are not managed in rigid organisational structures with a very well defined boundary and strict rules for cross border activity. In nimble companies the employees are not confined by organisational structure, their networks are both external and internal to the corporation. Their roles, responsibilities and teams change according to the task and are to a high degree self-organised.

Their behavior is not dictated by monumental HR policies, described in endless documents created by legal and designed to defend the corporation against the employee.  Their Terms and Conditions are not designed to protect the corporation against the customer.

But the largest difference between the dinosaurs and the nimble organisations are in their purpose; why do they exist. The nimble organisations all have a very good idea of why they exist, what they want to achieve.

Making money as Friedman suggested is not a purpose – it is an outcome of a purpose that can engage customers, employees and other stakeholders. Engagement does not create dissatisfied shareholders.

“There can be no strategy without noble cause” Clausewitz