The Power of Marketing

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Does your company have a marketing function?  Do the people involved in it actually do marketing?

I continue to be amazed at how few people in business truly understand the concept and value of marketing.  In many organizations, marketing activity consists of nothing more than handling the company's advertising, website, and product literature activities.  This is unfortunate because of the huge potential that marketing can have on the company's overall success.

What is Marketing?

Companies are in business to create value for customers and, because of this, they can't succeed without effective marketing.  Marketing enables an understanding of the customer's needs to determine the type and mix of products or services that will create value.  In effect, the more effective marketing is performed, the more successful the company will be.

Marketing has the potential to have an enormous impact on the organization.  It drives sales by aligning the product or service offering to the needs of the market.  It drives manufacturing by providing direction on cycle times, inventory levels, and target costs.  It drives new product development by providing information on what customers want and need.

Buried in the Organization

One sign that a company may not understand or value marketing is having it lumped into the sales function.  Often a company will have a "Sales & Marketing" department that is mostly (if not completely) staffed with salespeople.  I have worked with companies in the past where people were actually hired into "marketing" positions, only to have their responsibilities gradually shifted toward sales.  This is unfortunate because marketing drives sales - it is not the other way around.

I have also worked with companies that, except for advertising or promotions, had no marketing function at all.  Marketing strategy in these companies weas informal and inconstant.  And these were not small companies - one in particular had revenues of almost $1 billion.

When a leader does not understand what marketing encompasses, he or she will not see the value of having one or more full-time people responsible for marketing (unless, as mentioned above, those people are involved in advertising or promotions, which can produce fairly quick results).

It could be the inability to easily measure the effectiveness of marketing that keeps it from getting the emphasis it deserves.  Other functions like manufacturing, procurement, engineering, and sales are much easier to evaluate with traditional measures (although, as I have argued in previous posts, many of these "traditional" measures are ineffective and, in some cases, destructive).

A leader should never get so hung up on measures that an activity is not given proper focus.

Marketing Needs to Drive

Marketing is not just another function.  In fact, it is so critical to the company's success that it really needs to be elevated above "functional" status.  Rather than burying it deep inside the organization, it needs to reside at the highest level and drive the company.

Placing marketing at the organization's highest level will assure it has the authority to influence all aspects of the company's operation.  Organizationally, marketing should provide direction to operations, sales, and product development because of the direct impact it has over each of these functions.  Since this would be too much of a change for some companies, the idea of separating marketing from sales and elevating it to the senior executive level should at least be considered.

Continuing to ignore the importance and power of marketing will hurt the company and keep the business from ever reaching its full potential.  Without the development and implementation of an effective marketing strategy, any level of success achieved will be short-lived and the company will forever be in the shadows of the likes of Apple, Samsung, Pepsi, and others who understand how to use marketing to achieve success.

Television Advertising: The Internet's Next Victim

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"[Companies] must be prepared for major change in the future, and you must start now.  If someone else's revolutionary innovation catches you unawares, you must abandon what made you successful and take an entirely different course immediately." - Peter Drucker (1973)

I'm continually amazed at the way the internet has changed - and continues to change - the world of business.  Many of the changes appear to happen fairly slowly and are not readily apparent until well after the shift has occurred and left companies that didn't see it coming in serious trouble.

Lately, I've noticed a change in advertising that is affecting ad agencies, producers of consumer products, and television networks.  The internet is providing virtually free access to existing and potential customers - a situation that with the exception of a few isolated instances, had never before existed.

Seeking Out Commercials

Companies are starting to take their ads to sites like YouTube and, if successful, can reach millions of people for free.  As an example, a recent Coca-Cola Happiness Machine ad has had almost 2.4 million hits since being uploaded.  And since people are actually seeking out this video (and others like it), it's really falls into the category of indirect advertising, because it entertains as much as it sells.

This situation has many implications for those involved in making and airing commercials.  Television networks now face a serious threat that will most likely put downward pressure on rates for air time.  Advertisers now have somewhere else to go to air their commercials and, although the ads have to be creative and produced well enough that people will want to watch them, the money saved in airtime charges can more than pay for extra production costs.

For the television networks, it can mean a serious hit on revenues in the future, which is one of the reasons that has led to the battles between the networks and television subscription providers.  The networks can not count on ad revenues into the future to cover their costs and meet earnings targets.  To make up for lost future revenues, they are asking for more money from the subscription providers that want to carry their channels.  To read a blog post on the increasing tensions between the networks and subscription providers, click here.

Length No Longer An Issue

Another result of the birth of indirect internet advertising is that it no longer limits commercials to 30 or 60 seconds (the Coca-Cola video runs 2:03).  Fashion house Donna Karan has produced a "mini-film" entitled, Four-Play with Christina Ricci that is really nothing more than a 2:09 commercial.  The ad, which has not (and was never intended to) run on television, has had several hundred-thousand hits on a variety of fashion websites since its "release."  This type of advertising is becoming very popular in the fashion industry.

A final thought that comes to mind about this situation is the fact that it's much easier for advertisers to track the number of views its commercials are getting.  Television ratings services and subscription providers can report the number of television sets that were tuned to a particular station at a particular time a commercial aired, but there is no certainty that people didn't walk off or even paid attention during the commercial.  The growing use of DVRs has also made it very easy to skip ads to get back to the show.  When someone hits a video on the internet, on the other hand, it is pretty well certain that they are watching it.

Staying Ahead Of The Curve

Although it has been reported recently that television ad rates have returned to pre-recession levels, there's no telling what lies ahead for the networks.  One thing for sure, though, is that the television advertising industry is changing.  Just like other changes that are occurring - or will occur - because of the internet, it's vital for companies to pay attention to the world around them and be extremely sensitive to the subtle shifts that without warning can turn into whole-scale changes to the business environment.  And as fast as things are changing in today's world, falling behind is not something that a business wants to do.

Call Center Focus: Serving or Selling?

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There was an interesting article in the June 7 WSJ [link] about efforts to improve the quality of service provided by call centers.  My first reaction was "it's about time" as the article described efforts by some businesses to emphasize the quality of service more, and the quantity of calls handled per agent less.  As I read on, however, I concluded that some companies still don't understand the concept of customer service.

Focusing on the Wrong Lever

I spoke at a call center conference in Europe last year and was disappointed - although not really surprised - to learn that the industry's main (and virtually only) focus continued to be cost-cutting with little or no emphasis on quality.  The main topic of my presentation was related to increasing competitiveness by focusing on higher quality services at lower costs than their customers (i.e., the companies that contract their services) are able to do themselves.  The basic premise of the talk was, if a call center established a clear and consistent purpose, took care of and invested in its team members, continually improved its processes, and focused on its customers (those whose calls they handled), it would dominate the market.  Based on my personal experiences with call centers as a consumer since the conference, however, I don't think my message was accepted.

I don't totally blame the call centers for this misplaced focus.  These companies have responded to pressure from their direct customers to continually reduce the price of service, and have been forced to cut costs or die.  In Portugal, for example, the entire industry has been under attack by competitors in low cost countries where wages are lower.  The reduced prices offered by competitors is resulting in a loss of business for Portuguese companies on a daily basis.

Whatever internal problems the industry is facing, though, I can't think of anyone who hasn't had at least one frustrating encounter with a call center agent.  In fact, according to the article, 68% of people surveyed had stopped doing business with at least one company in 2009 because of poor service.

As I read the article, I did find it refreshing to learn that some companies are starting to understand the link between customer service and increased business.  As an example, in an attempt to increase customer loyalty, American Express has begun shifting the focus of its agents toward the level of service provided rather than the quantity of calls handled.

Do They Really Understand?

Most people do understand that financial benefits to a company are the result of customer satisfaction.  Statements in the article about increased loyalty leading to "a bigger share of the patient wallet," and increasing call center resources to upsell or "retain customers and sell higher-priced services," however, made me realize that many companies still don't comprehend the importance of, and reasons for, taking care of customers.

Looking at it as a simple cause and effect relationship, the cause is making customers happy and the effect is increased revenue.  Like any cause and effect situation, however, one cannot focus on the effect.  Attempts to increase business will not lead to happier customers and, therefore, will not result in actually increasing business.  High pressure sales tactics from call center agents will not satisfy customers who call, but judging by some of the comments in the article, it's clear that satisfying customers is not the objective of some of these companies anyway.

I can't imagine how angry a customer will get when an agent listens to his or her problem and responds by attempting to sell more of a company's products or services.  The situation could get downright ugly.

Internal or External to the Company - It's Still a System

One of the biggest problems with call centers is that they are often operated as separate entities from the business.  The producer or service provider causes the problems for customers that the call centers are expected to resolve.  When I asked several people at the conference about feeding information about the problems encountered back to their customers, I was told that it was not normally done (to be fair, I only talked to a small percentage of the conference's attendees).  During the discussion, I found that there is often so much pressure to process calls that no valuable information is recorded and fed back to the business to prevent similar problems from recurring in the future.  This practice results in losing a significant amount of valuable information for problem-solving.

Whether a company handles its own call center or contracts it to an outside agency, it is still a valuable part of its system.  Although call centers need to take responsibility for satisfying customers who call with problems, the real improvement comes from providing a higher level of quality in the first place.  The better the quality of products or services provided by the producer, the lower the volume of calls to the call center, making more time available to handle those who do call (provided that lower volumes do not mean laying off agents).

If Only . . . 

To be fair, some of the companies referenced in the article do seem to understand that better customer service from call center agents leads to more satisfied customers which, in turn, leads to more revenue for the company.  Others seem to think that skipping steps will lead to the same results.  Unfortunately, these companies will probably find out the hard way that it won't.

The more I learn about call centers, the more I wonder where we would be today if the obsession all along had been with quality improvement rather than cost-cutting.  My guess is that there it would mean a significantly fewer number of people in the world needing blood pressure medication.

A Systems Approach to Business - Part 3

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Note:  This is the third part in a three-part post on the subject of systems thinking in business.  To read the first two posts, go to Part 1 and Part 2.  To download the paper in its entirety, please go to the downloads section of www.praecedogroup.com.

Defragging the Company

Moving focus from individual components to the overall system requires a significant amount of commitment and patience by the company's leaders.  The steps to begin the process of defragging a company include the following:

• Promote the Generalists:  Move leaders from specialists to generalists to increase understanding and leadership of, people, information, material, products, and services- how they flow and work together to serve customers;
   
• Coach & Mentor:  Coach and mentor people to increase the level of understanding throughout the company regarding how each job supports other areas in the achieving the fundamental purpose.  Those who work in support areas need to clearly understand that they exist solely to support the company's main processes that serve customers (which, by the way, doesn't make them any less significant to the company).
  
  When done correctly, value stream mapping (VSM) is an excellent tool to help clarify the company's high level system, including the interactions of people and teams;
   
• Enable Relevant Feedback:  Implement a feedback system (e.g., a 360° system) that includes input from a person's internal customers, and is focused on improving performance - rather than documenting and blaming for poor performance;
   
• Clarify Expectations:  Set objectives based on supporting achievement of high-level (companywide) objectives and tie incentives to company or division performance - or, if done extremely carefully, based on success in supporting improvement efforts.  Clarify expectations regarding participation in change initiatives and improvement activities and focus efforts on the company's overall success - create an obsession for satisfying customers.
  
  As an example, a reward system for the plant managers in Situation #3 from Part 1 based on companywide results rather than individual plant results can lead to improved teamwork and cooperation between plants, and improved results for the company.

It's the Big Picture that Matters

Since there are few, if any, who would argue that company performance matters more than individual or department performance, it becomes a question of whether individual performance can be accurately measured as a contributor to company performance.  Although it's perfectly natural to want to evaluate how much value an individual or team is contributing, most organizations are far too complex to do it with simple, one-dimensional measures.  Most people are intelligent enough to do what it takes to meet virtually any goal or make any measure look good - even if it detracts from overall company performance.  There are unfortunately numerous examples over the last several years of unethical or illegal behavior driven by internal or external company measures.  Putting these examples aside, however, I truly believe that most people care about the success of the organization but have learned what to do to survive in today's business world.

Fragmented thinking is one of the biggest barriers to long-term success for a company.  Moving to systems thinking requires a fundamental shift that many will be unable to do.  Communicating the vision, clarifying expectations, and continual coaching must replace dictating and obsessive measuring and evaluation of people as a management style.  If you've hired the right people and are consistent in your approach, your move toward systems thinking - as measured by continually improving financial results - will occur.

A Systems Approach to Business - Part 2

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This is the second in a series of three posts on the subject of systems thinking in business.  To read the first post, please click [here]

Why We Fragment

I could cite many more examples in addition to those listed in the previous post where goals set for individuals or teams resulted in fragmenting the company and compromising results.  Although fragmenting is destructive to organizations, it continues to be used for a variety of reasons:

• Simplicity:  It's much easier to manage an organization by breaking it into components than to comprehend and manage the whole.  For example, holding a supply chain manager accountable for reducing material costs is easier than setting a total cost objective (which includes accounting for factors like incoming inspection, customer returns related to supplier quality, inventory carrying costs related to increased leadtimes and late deliveries, etc.).  From a systems perspective, however, total cost much more accurately measures the supply chain's contribution to the company than does material costs. 
   
• Lack of Trust:  Micromanagement - which is unfortunately very common in organizations today - results from a lack of trust in people, and cannot coexist with systems thinking.  Leading from a holistic perspective requires relying on vision, clear expectations, delegation of responsibilities, and encouraging people to support other areas, rather than setting easily measurable goals and dictating how work is to be done.  People must be given the authority (as well as a method, training, and the responsibility) to improve processes - including the hand-offs between processes - without detailed input from supervisors.
  
  Another factor that leads to fragmentation is a lack of trust and patience that the organization will achieve targets without knowing that the components are meeting targets.  Even if there is no proven relationship between the targets set for individuals or departments and the targets for the organization, people feel like they're being proactive when they can measure something.  And, as mentioned above, implementing an indicator that accurately measures a person's real contribution to the system is difficult and expensive to maintain;
   
• Functionally-Focused Leaders:  Leaders who lack experience outside of their own function have trouble clearly understanding how their areas support others in the organization.  As an example, a CFO who implements a system that improves productivity within the finance team but causes additional work for other parts of the company does not understand the role of finance within the organization.
   
• Layoffs:  Nothing can make people worry less about the company and more about their own jobs than a round of layoffs.  When layoffs occur, people turn their focus to pleasing the boss instead of pleasing internal and/or external customers, and will do whatever it takes to survive, even if their actions do not support the organization's performance.  Unfortunately, layoffs have become commonplace in U.S. organizations and the practice continues to fragment companies.

Many people know of no other way to manage a company than to break it into "manageable" pieces, but experience continues to show that the practice leads to suboptimal results.  Continual efforts throughout the organization to understand (see figure 1) and continually improve the system will yield much higher returns than worrying about measuring people and individual teams.

A Systems Approach to Business - Part 1

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Note:  This is the first in a series of three posts on the subject of systems thinking in business.  Systems thinking is an critical subject for organizational leadership that cannot be adequately covered in a single post.

"If you try to take a cat apart to see how it works, the first thing you have in your hands is a non-working cat."  Douglas Adams

In the most basic sense, an organization is a continually developing system of people, processes, equipment, and sub-systems working together to achieve a common purpose (the key word for this discussion being 'system').  Like any organic system, organizations are complex and need to be managed as a whole in order to achieve the purpose.  Efforts to break a company apart and focus on individual elements can negatively affect the balance and interfere with success by creating competition and fragmentation between components.

Although most people in business would agree that the performance of the company is more important than that of individuals or teams, the way many organizations are managed achieves just the opposite.  For a variety of reasons, leaders inadvertently fragment organizations, and set individual or team goals and objectives that often interfere with long-term success.

Consider the following:

Situation #1
In an attempt to reduce material costs, an incentive program for the supply chain team is implemented with rewards tied to containment and reduction of costs.  The program succeeds in reducing material costs but leads to increased production costs, customer returns, shipping delays, and warranty expenses due to the purchase of substandard materials and longer supplier deliveries.


Situation #2
Sales managers are rewarded based on revenues generated from the regions they manage.  The sales manager in Scandinavia has a significant opportunity with a new customer but, to secure the business, needs a good deal of technical assistance from the sales manager in France - who is very knowledgeable in this customer's particular application.  Although the French sales manager wants to help, he feels he can't afford to spend time on an activity that will not generate sales in his territory.

Both sales managers end up barely meeting their targets, but the company misses the opportunity to secure business from a new customer.  Also, teamwork between the sales managers has been damaged.

Situation #3
Plant managers in a global manufacturing company are measured and rewarded on meeting EBIT targets for activity in their plants.  Plant A has more demand than capacity, while Plant B has more capacity than demand.  The manager of Plant A decides to buy products from the outside to meet demand.  In order to meet the EBIT target, however, he orders product from a competitor instead of Plant B because of a lower price (the manager of Plant B priced the product high enough to assure the order wouldn't negatively affect his plant's EBIT).

As a result, the manager of Plant A met his targets and received a bonus while the manager of Plant B did not.  Because Plant B did not meet its targets, the company as a whole failed to meet its targets.  Teamwork between each of the plants, which was already strained, has deteriorated further.

There are numerous examples like the above where goals or measures encourage behavior that fragments the organization.  Although it seems perfectly logical to evaluate performance of a team member on a measure like EBIT or sales revenues, it can easily cause someone to act in a way that is detrimental to the performance of the organization, as a whole.

Organizations are far too complex to objectively, accurately, and easily evaluate an individual's performance.  Extreme care must be taken when setting objectives and basing rewards on achieving individual targets. 

The more one adopts systems thinking and understands how it is important to continually focus on improving the overall system - especially the hand-offs between people and teams - the easier it is to abandon traditional measurement and reward systems and move to a more holistic approach to leadership.