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Customers Expect Rewards in Exchange for Their Loyalty

'Customer Loyalty: How to Earn It, How to Keep It' by Jill Griffin (ISBN 0787963887) If you are over sixty, you may remember the thrill of filling S&H Greenstamps books and taking them to the redemption center.

That is how loyalty programs suck us in: we buy the things we always buy, but we get something extra. The more we buy, the bigger the reward. Today we expect loyalty programs to be part of our purchases, hence the popularity of frequent-flyer miles, supermarket discounts, merchandise rewards for credit card spending, and lower fees for maintaining higher bank balances.

But Loyalty Programs are Not Enough

You must offer a compelling value proposition and ensure that the customer’s experience is positive.

The financial value of a loyal customer is well documented. It costs a company to acquire (buy) customers with advertising, loss-leader items, and other incentives for initial purchases. If customers buy again, the company makes back its money. If they keep buying, more money is made. It becomes cheaper for the company to satisfy customers because repeat customers do not need as much support and understand the value of the brand. They even send new business. Therefore, companies need enticing ways of keeping customers.

You now have many options for incenting loyalty. You can offer discounts, provide points redeemable for free stuff, offer improved service (such as free shipping or fast turnaround), or priority treatment. As you look at your loyalty programs, determine which rewards appeal most to your customers—and then match the rewards to their desires.

Three Motivators for Loyalty

Three Motivators for Customer Loyalty Programs I see three reward programs, each supporting a different motivation for loyalty. Each motivation can be expressed positively or negatively:

  1. Reward/Greed. This is the “I get something for nothing” motivator. Flyer miles, and membership points are examples that appeal to people on a personal level. S&H Greenstamps recently reinvented itself as S&H Greenpoints ( Their motto is “Earn them on the things you buy. Spend them on the things that make you happy.” You now register as a Green–points user and collect electronic points for shopping at affiliated stores or Web sites. You redeem your points from an online catalog of products.
  2. Philanthropy/Guilt. Some customers react more on a community level. These customers respond most positively to loyalty rewards such as donations to charity. A good example is the affinity credit card. I have accepted credit card offers from banks because a small donation in my name will be made to my alma mater. You can get affinity cards for your favorite charity. It is a painless method of philanthropy because you do not take anything out of your wallet; the vendors with whom you do business give the money.
  3. Love/Obligation (or Fear). This loyalty program is targeted at customers who want rewards to serve them as a family rather than an individual. These customers also want relief from the financial burdens of family obligations. A new company that has endorsed this motivation for loyalty is UPromise. Its loyalty program makes donations in their children’s names to tax-deferred college funds when purchases are made from participating companies.

Most companies have a mix of customers with different hot buttons. You can offer different types of reward programs to appeal to each type of customer.

Dangers of Outside Loyalty Programs

Customers Expect Rewards in Exchange for Their Loyalty Loyalty programs provide rewards separate from the brand of the company sponsoring the rewards. In addition, there are dangers inherent in promoting outside brands as a bonus.

  1. More expensive to fulfill. When you offer a product from a different company, you may pay less than its list price, but the cost is still tangible, and you do not control it.
  2. Loyalty to the reward, not the brand. The biggest danger of offering rewards that are not part of your brand is that customers become more loyal to the reward system than to you.
  3. Held hostage to your loyalty program. As a company offering rewards you are, in some way, being held prisoner by your rewards provider.

As appealing as loyalty programs may be, they are not enough to keep customers coming back. Unless the customer finds value in your products and finds it easy and pleasant to do business with you, no loyalty program will work. You must have a compelling value proposition independent of any reward system. Your customers must value you! The loyalty reward is just a bonus.

Identify the motivators and incentives that appeal most to your target audience and customers.

Posted in Business and Strategy Management and Leadership

How to Use Benchmarking as a Strategic Leadership Investment

Benchmarking in Strategic Management

Benchmarking is more than simply making a collection of statistical comparisons. If handled properly, the technique can be used to create significant efficiency improvements in your organization.

A company measures its performance against that of other companies to assess whether it standards are higher or lower.

Collecting snapshots of what that so doing, but failing to examine the reasons for differences in performance, and not using the data to identify and developing best practice.

Benchmarking in Strategic Management

There is little point in spending time and effort collecting comparative data for its own sake, or if managers use it is only to justify current standards.

There are five main stages to effect a benchmarking.

  1. Selecting aspects of performance that can be improved, and defining them in a way that enables relevant comparative data to be obtained—in effect, producing performance indicators that will make sense to other organizations.
  2. Choosing relevant organizations from which to obtain core or headline data
  3. Studying the state to improve possible opportunities for improvement.
  4. Examining the procedures of the best performing organizations to pick ideas that can be adopted or adapted to achieve performance improvements.
  5. Implementing any new processes.

'Benchmarking for Best Practices' by Christopher E. Bogan (ISBN 0070063753) In selecting performance indicators the call for in pieces of initial data collection, it is helpful to distinguish between input and output measures and, unpredictable, the place priority on the latter. It is often easier to define inputs and outputs. Examples of input measures include staffing ratios, per capita expenditure on training or, in manufacturing companies, the wearying proportions of labor, materials, and overhead costs.

The drawback with input measures is that they greatly provide an indication of the quality of outputs. Take, for example, the widely used indicator of response time to customer enquiries. This provides only part of the picture because it gives no indication of the quality of service. Apparently, good figures may conceal significant customer dissatisfaction, while longer response times may result in clients being delighted with the results.

Benchmarking for Strategic Leadership

Benchmarking for Strategic Leadership

Ideally, this practice involves high standards in both inputs and outputs. Indexes of customer satisfaction one form of output measurement. Some personal departments conduct surveys in which their international clients—the line managers—are asked to rate the quality of the various services provided by the Department. If other organizations conducting similar surveys can be found, these ratings can for part of a benchmarking study and may indicate areas where a change of procedures could lead to improvements.

There are two different approaches—genital and selective—are choosing organizations from which to obtain comparative data. The main purpose of the fourth month in is to produce a whole range of performance measures across an entire sector. Examples of general data sources include the government’s ratings of people performance in every primary school; the audit commission’s performance indicators for local authorities et cetera.

The state must be considered with caution. Misleading conclusions can be drawn from individual performance indicators when they are viewed in isolation.

Approach that is more selective is required when an aspect of performance and that requires attention has already been identified.

In this case, it is necessary to identify organizations of brought similar nature—preferably those with a reputation for effectiveness in the relevant activity.

With the topic-based benchmarking, it is possible to collect more data about a single issue than can be obtained from a general survey. It may also be feasible to ask but spends to supplement their answers by sending details of specific policies, such as copies of absence control procedures of performance appraisal guidelines.

Performance and Competitive Benchmarking

'Benchmarking The Search for Industry Best Practices' by Robert C. Camp (ISBN 1563273527) The purpose of obtaining benchmark data needs to be kept firmly in mind: identifying potential improvements in performance. Once such opportunities have been spotted, the more intensive aspects of benchmarking can begin.

The score beyond the study of comparative statistics and the documentation of other people’s procedures. They involve a detailed, on the ground study of the methods of high performing organizations. Understandably, this requires the full co-operation of the group concerned, though it is encouraging that many companies are willing to provide extensive information and facilities.

The organizations that have benefited from the suspect of benchmarking recommend the use of steady teams including staff from different functions and levels.

The final stage of the benchmarking process is the implementation of new systems. Here, it is important to recognize that the success of other businesses may be influenced by the motivational and cultural context in which their systems operate, as much as by the technical characteristics of the systems themselves. As a result, of the issues for steady teams to investigate is the nature of the homework environment—physical and psychological—in which best practice flourishes.

Posted in Business and Strategy

How to Increase Profits with Ethics

The Ethics of Profit, the Profit of Ethics

Amid an ethics crisis, we can’t fake credibility. Trust is now a function of ethical behavior, not stated intention. To be believable is now a matter of substance, not image. Once you’ve baked this attitude into your organization’s DNA, you’ll find that responding to customer needs, outpacing competitors, and introducing groundbreaking innovation becomes an organic part of how you do business.

The Ethics of Profit, the Profit of Ethics Executives are required to be whole persons and create whole companies. Excesses in one area—such as ruthless acknowledgement of facts and numbers exclusively—and neglect in another—such as minimizing the emotional catastrophes that accompany downsizing, mergers, and acquisitions—predict ruin. Being razor sharp strategically—as was Enron—but lacking the common courage to put wild risks into cool perspective, cascaded a company from the crowning jewel of opulence to the dark abyss of bankruptcy. Refusing to be whole is the recipe for meltdown.

Incomplete human beings become defective managers. To survive today’s ethics breakdown requires executives to mobilize their full potential.

Answers lie in courageous decisions—to be authentically open-minded, to make self-transcending commitments, and to be responsible to help co-create a communal culture. That is ethics!

You increase real profits with true ethics through attitudes and actions.

If a tree is dying, don’t just prune it but examine the soil. And if a business is failing, examine the leadership attitudes for lack of excellence and greatness. Authentic leaders send messages to their people that transform the culture. Leaders help awaken these attitudes in their people. All attitudes are needed. All are ethical values. One alone will not do. Attitudes precede the techniques. How-tos without right attitudes are empty gestures.

Principle #1 for Ethical Profits: Freedom is the Foundation

How to Increase Profits with Ethics The foundation of leadership is knowing that we are born with free will, we have free will, and we can never relinquish our free will. Until our dying day will we have free will. Free will is a clear experience. Free will makes ethics possible. Free will is the source of our power and the origin of our anxiety.

Usual leadership theory tells us to influence people’s thoughts and feelings. And coaching is to help leaders convince people to think and to feel in ways helpful to a business’ bottom line: think of the mission of the company and feel loyal and joyful towards the company. What is missing is the will. We believe that workers think and feel, have ideas and emotions, but we ignore the reality of a free will.

Leadership is to know, learn, and teach freedom, free will, consequences, responsibility, ownership, accountability, and ultimately choosing accountability for the sake of both financial necessity and existential honor. Here, in the inner zone of freedom and free will, lies the bedrock of the health of your body, your loves, and your pocketbook. As leader, you are a secular apostle preaching the power of freedom.

Principle #2 for Ethical Profits: Leaders Choose Principle

Leaders freely choose to live by principle. Immanuel Kant wrote; “Two things fill the mind with ever-increasing wonder and awe, the more often and the more intensely the mind of thought is drawn to them: the starry heavens above me and the moral law within me.” The moral law within me! Don’t we all sense it, if we hold still and listen in silence?

We all have a conscience. It draws us like a magnet to principle. It is never selfish. Conscience and the moral law have a mysterious draw or claim on us. Because of it, we can distinguish good from bad, right from wrong. It is related to respect, pride, dignity, and self-esteem. We know that we have a duty, a destiny, a task in life.

Authentic Leadership It is aroused by words, such as fairness, justice, equality, and liberty. The Declaration of Independence and the Constitution resonate movingly to something inside that can only be called our conscience. Unless we respond to our inner soul, we skirt the perilous edge. Authentic leaders turn back from greed and selfishness, from narcissism and naive values, to return instead to things that matter most—to things that are eternal, genuinely worthy, honest, generous, and clean. True value is not what one person or one sect dictates to the rest of us. True value results from honest and collective examination of who we are, where we come from, and where we are going. The poet Rilke said, “Do not seek answers; live the questions.” Leaders heed this call.

Principle #3 for Ethical Profits: Realism is a Way of Life

Realism is more than the numbers: it means you never lie to yourself, you do not deny the truth about yourself. You know that when something hurts, when you get inordinately angry, upset, enraged, or irrational, it is because you are threatened fundamentally, for you secretly agree. You can’t let it go and, in fact, as a last resort, expel this insight about yourself forcibly from your consciousness. Each person has a point of inferiority. There, when touched, you are sensitive, and there, when reminded, you become virulently defensive. There you say, not that you think you are inferior, but there in your depraved image of yourself you say that in fact you are inferior! But you keep the secret and get furious at anyone who dares to point it out to you.

Coming to terms with that reality, accepting that perception of yourself, is the very heart of your strength and your power as a rightful leader of men and women. You can take criticism, fair or unfair; you can take put downs, deserved or not; you can tolerate defeat, expected or not; and you can survive disgrace and humiliation.

To get there is realism beyond the statistics and strikes at the core of your emotional intelligence. People with power are both adulated and hated beyond what is reasonable. They can take it, even thrive on it and learn from it, and teach others how under such circumstances—not only to preserve their dignity but to magnify it. To restore your inner self-respect when logic is against it is to “pull yourself up by your bootstraps.” That is why life confronts us with its tests and furnishes us with their messages. This is that bit of the soul which gets its baptism of fire. Have you passed the test?

Principle #4 for Ethical Profits: Grand Strategy is a Rare Virtue

The mark of an authentic leader is commitment to grand strategy. To enlarge the scope of your strategy, take any big news story—the War on Terror, once envied and lionized CEOs now facing censure, suicide bombers, and terrorist attacks—and ask: what deep lessons are there for me in how I conduct my business and my life?

What messages, what learning, about the things that you control can you derive from an enlarged perspective of any monumental event? Impeachment teaches us that dubious actions have unexpected and dramatic consequences, and sports victories teach us the power of persistence, commitment, focus, and dedication. You then ask: How does that apply to me and to my business? Do this with inspiration and creative innovation.

Principle #5 for Ethical Profits: Lead Through Language

Intelligent Leadership Conversations Language is all the action you have. But it has power. At every opportunity, you engage workers in intelligent leadership conversations. You talk knowledgeably and authoritatively about free will and responsibility, of principle and conscience, of hard facts and self-knowledge, of grand strategy and innovation, and of greatness and chaos, as the ineradicable structures of the human mind. You talk through stories and metaphors—sports, politics, religion, entertainment, adventure, family, career moves—and relate that to work and company. You let everyone know: “This is how we do business here.”

Relationship between Business Ethics and Profits

The notions of business ethics and profits must once have had originality; they did not start out of the ground populous, lettered, and versed in many of the arts of life; they made themselves all this, and were then the greatest and most powerful nations of the world. More seriously, the more comfortable managers grow with the ingrained abuses of ethics in their businesses, the harder it is to make any changes, and the more vulnerable their companies become to uncertainties around the corner.

Relationship Between Business Ethics and Profits The combination of all these causes forms so great a mass of influences hostile to Individuality, that it is not easy to see how it can stand its ground.

Many unconventional marketing practices are not yet governed by clear rules regarding ethics. This is a big turning point in the transformation, both practically and emotionally.

The three phases of change can be managed in such a way that people understand the strategic rationale for the decisions handed down, even when they are tough, and clearly understand their role in shaping the new organization.

Ethics, in the end, is not something we do. It is something we become.

Posted in Management and Leadership

The Best Leaders Model Their Stated Priorities

Leaders Model Stated Priorities

Everyone is a boss-watcher. “Other people take their cue from the leader—not from what the leader says, but what the leader does,” says Colin Powell.

The leader is always in a glass house. People listen to the words, but what really interests them is what the boss does. People carefully track what questions he asks, what reports she asks for and reads, what meeting agenda priorities he sets, what resources she allocates, whom he criticizes, what thrills or angers her, whom he lauds, whom she promotes, whom he assigns to which project, and whom she visits and hangs out with.

People observe these things, and then, regardless of the boss’s words they draw conclusions about what’s really important, what’s truly urgent, what must be the top priorities, and who the leader is. When the leader’s words and deeds match, the leader’s credibility and influence go up in their eyes. When they don’t, credibility and influence are diminished. This is such a powerful and predictable process that leaders have no neutral actions. Each action or decision has great symbolic impact.

Too often, leaders aren’t aware that they’re being observed, and that colleagues have long memories. Some leaders think nothing about promising something and not delivering, or stating a priority and not “living” it. If an executive states that being customer-centric is a priority, but he is not spending more time with customers, then he’s not walking the talk He’s not doing the work of leadership. If she doesn’t personally insure that capital allocation, performance metrics, sourcing, logistics, scheduling, information systems, and compensation reflect a customer-centric priority, she’s not walking the talk She’s not doing the work of leadership. In both cases, it’s not likely that innovative, proactive customer-centric work will be done.

In contrast, effective managers know that their glass house offers enormous leverage in boosting performance, as well as their own credibility and influence—but only if they become the ultimate role model. For example, if a leader talks about honesty, candor, open-door communication, collaboration, or risk-taking, then that leader more than anyone else—must model and support those virtues. The leader must not only be honest and candid, but also ensure that employees who do the same are properly acknowledged, rewarded, and protected. When people see these actions, they know that they can count on their leader, and are more likely to cultivate those virtues themselves. The leader’s power and integrity are enhanced in the process.

Effective managers become the ultimate role model

How powerful is the “glass house effect”? Well, consider how it might be applied to a current vexing national problem. Over the past 24 months the integrity and liquidity of our capital markets have been assailed by a wave of scandals revolving around fraudulent financial reporting, sleight-of-hand accounting, piracy in the executive suites, and incestuous self-serving relationships among accountants, consultants, analysts, and investment bankers. The effect not only extends the economic recession, but it also breeds doubt and cynicism about the market system.

When President Bush spoke about corporate malfeasance, about righting wrongs and putting the bad guys away, few question his sincerity. But to take advantage of the “glass house” effect, he could use the “bully pulpit” of his office to do the following:

  • Talk frankly about honesty, full disclosure and transparency in reporting.
  • Decry phony revenues, bogus earnings, spinning IPO’s, cozy analyst investment banker relationships, and risk-free executive compensation.
  • Cite high-profile examples of greed and deceit, express serious concern, and offer inspirational alternatives.
  • Refer to abuses in governance and underscore the fiduciary responsibility.
  • Discuss accountability for illegal activity, including civil litigation, criminal prosecution, and imprisonment.
  • Tell new SEC head William Donaldson to aggressively pursue corporate corruption and market abuses to avoid conflict-of-interest charges.
  • Tell us that his new team will be packed with people of impeccable independence, integrity, and competence.
  • Raise the SEC’s annual funding as the agency copes with many cases. Leaders define their agenda by the resources they allocate to it.
  • Insist that the agency aggressively pursue corporate corruption.

Great leaders mobilize people to do extraordinary things with simple ideas. During the 20 years that Jack Welch transformed GE, he was only committed to a few strategic priorities: globalization, total quality, boundaryless, de-bureaucratization, and e-commerce. None of these initiatives were new. Many companies had similar objectives. But Welch demonstrated a fanatic obsession with driving each initiative, and held his managers accountable for achieving results. GE people knew where their CEO stood. Welch’s approach was aligned with Powell’s advice: “Figure out what is crucial, and stay focused” When people see that resolve, they “get” what their mindsets and behaviors ought to be.

Great leaders clearly state their principles and goals and follow through. They live the principles, own the goals, and ensure that everyone is aware of it. If you’re a leader, learn to use your visibility to your advantage.

Posted in Management and Leadership

Take Care of Business by Posting Sincere Quarterly Results While Building Long-term Value

Balanced Shareholder Value Technological progress over the last decade—especially in communications—has accelerated the expansion of commerce, the creation of wealth, and the pace of living.

Consider a few statistics. There are now 15,000 communications service providers operating worldwide; just one decade ago, there were less than 1,000. Last year, enough fiber optic cable was laid to encircle the earth some 400 times. Internet traffic is doubling every 100 days. Nearly 350 million people are already online worldwide with 100 million more expected to join them in 2001. Buying and selling on the Internet, or ecommerce, has reached $700 billion worldwide—and is expected to approach $7 trillion in five years.

Technology and Growth

The technology industry has played a central role in contributing to this growth. Technology company is creating the systems and technologies that will make the Internet mobile and able to do things we can only dream of today. With the phenomenal growth of the Internet, the penetration of cable television and the rise of wireless communications, we live in a world where fact-based information, tailored to our individual tastes, is available 24/7 wherever we are. That is the bright side. On the darker side, the same technology is also delivering us rumors, innuendo, and blatant misinformation.

Pressures of Instant Information on Stockholders With our robust economy, expectations for a better life have never been higher. However, in many cases, high expectations give way to instant gratification and outright greed. Overnight wealth is now part of pop culture. The objective of corporations is to create wealth for shareowners by delivering products and services that customers find of value. You cannot do that if employees are in a free-for-all to undermine their colleagues. Creating value is a far different game than scheming to be the last person standing. And it requires far different behavior to succeed.

In any institution, you can find people who are out for personal gain at the expense of the enterprise. However, the lack of integrity catches up with them. It always does. At the same time, the business world does have its problems, real as well as perceived, including events that raise questions about corporate behavior.

Accidents happen. The Exxon Valdez oil spill was an accident. Manufacturing errors happen. That’s why Bridgestone and Ford are in the headlines today. And sabotage happens. How companies respond to these crises determines the size and healing time of the blemish on their reputations. Companies, like Johnson & Johnson, that are proactive and completely open with the public, recover fast.

Corporate reputations always seem to be under scrutiny. Corporations owe something to their workers, the communities in which they operate, shareowners, and other constituencies. Shortly after I joined technology company, the company held its annual Global Days of Caring—a worldwide employee volunteer effort in which tens of thousands of technology company people participate in worthwhile community projects, ranging from cleaning up parks, beaches and playgrounds, to assisting at childcare, senior citizen centers and homeless shelters. Making a difference in communities has become a central part of technology company’s culture.

Pressures of Instant Information on Stockholders

But meeting the needs of shareowners, employees, and the community is increasingly difficult, because companies face new pressures that are created by the combination of instant information and the growing notion of instant gratification by investors.

A few years ago, business could plan and execute for the long term. Sometimes that meant making sacrifices in the short term that retarded bottom-line growth for a quarter or two. But such sacrifices had the potential to create breakthroughs in technology that could change an industry, the way my company did with the invention of the transistor, lasers, and fiber optics—technologies that spawned new industries.

If a company was strong and had a reputation for making successful transitions and delivering value to customers, investors tended to show patience because they understood that efforts were being make for the long-term health of the business.

How to Beat Wall Street Reliably Today, instead of the idea of who will win in the long term, the market is focused on who’s winning this quarter, who’s winning today. Business has become a spectator sport, a high-stakes game that is played out daily by people who watch corporate box scores scroll across their PCs and television sets, by people who place instant online bets that are based on breaking news, rumors, or the body language of a CEO on CNBC’s Squawk Box—all designed to feed into Wall Street, which has become a casino as millions of new players ante up for the next deal.

Business journalists and financial analysts have the power to cut a company’s market value in half with a single negative comment, or instantly drive its value up with a glowing report.

With the constant bombardment of gossip, rumor, and sometimes deliberately misleading information, it has become increasingly difficult to determine what legitimate business news is.

The temptation to manipulate the system is as strong as the opportunity to do so. At Technology company technologies, we have regular contact with many financial analysts. In addition, the people we deal with are trying to do the right things. But they are under severe pressure in a world that’s been sped up and turned upside down. Their reputations have been built on solid analysis of income statements and balance sheets. That’s how value used to be determined. Now Internet upstarts with small revenue streams and losses instead of earnings can have huge market valuations. How do you analyze these companies and make recommendations to investors?

How to Beat the Street Reliably

'Investor Relations For the Emerging Company' by Ralph Rieves (ISBN 0230341969) Compounding the difficulty is the sheer speed of the market rollercoaster. One analyst recently said, “We live 12-week lives,” living quarter to quarter with the companies he is covering. That’s not healthy. That 12-week life involves predicting an earnings number with factors such as a company’s strength, the market’s strength, as well as a company’s own guidance on what it expects to deliver. They sit on the sidelines, watching and waiting. Meanwhile, companies are on the field competing—driving their businesses toward the finish line. They’re under phenomenal pressure to perform well and cross the finish line with increasingly higher results. It’s not enough to deliver what’s expected. The system rewards companies who under-promise and over-deliver. That’s the only way to consistently beat the Street’s expectations.

Not only are there expectations of a specific earnings number, there are expectations of a precision in delivering the number. In effect, the system is demanding perfect execution in every 12-week period. We have arrived at the age of instant analysis and sound bites that can cause major tremors in the market.

This is the reality companies face today as they work to serve their customers and build value for their owners clearly pressures are great to deliver strong quarterly performance—to “beat the Street”—and to do it consistently to keep the stock price rising.

Stock price was always the key measure of a company’s long-term health. But today stocks have become a strategic weapon. Stocks are the new currency for acquisitions of companies, technologies, and employees to bolster a firm’s competitive capabilities. Your stock price puts you in a position to be the parent or the acquired. Also, the value of a stock has a major impact on a company’s ability to attract and retain employees. Upstart Internet companies that are preparing to go public can be a huge temptation. Much is riding on quarterly performance. In striving not to disappoint Wall Street, companies are tempted to make short-term decisions that could be harmful in the long term. Worse, some companies are under such heavy pressure in the competition for investor dollars that they feel compelled to overstate their market performance and exaggerate their potential. So they provide a set of lenses for the fortunetellers. Sometimes it’s a microscope. Sometimes it’s a telescope. And very often it’s a kaleidoscope. Politicians call it “spin doctoring.” And some businesses have honed it into an art form.

'Using Investor Relations to Maximize Equity Valuation' by Thomas Ryan (ISBN 047167852X) If it works, it’s easier to do it a second time and a third time, until it becomes an addictive drug. Many companies have been on drugs. It’s time to get off them and begin managing their businesses, instead of managing their stock price. It’s a lot easier to cling to your values when you’re riding high. But the true test of a company’s character comes when it stumbles.

I believe that it’s the job of senior corporate leaders to step up to this challenge—to change the game by striking the right balance between the long- and short-term decisions that produce lasting health for companies. Business leaders must refuse to be drawn into shortsighted decisions that are driven by the media frenzy. They must resist being dragged to center-stage in the spectator sport that business has become. Business leaders have been entrusted to build strong companies by growing real value through innovating and delivering products that change the way people live and work. Instead of concentrating on what’s needed to make analysts happy, leaders should be focused of what they can do to serve their customers better. In the long-term that could mean facing up to the prospect of short-term pain if it’s necessary to sustain long-term gain.

Creating Balanced Shareholder Value Over the Long Term

Creating Balanced Shareholder Value Over the Long Term The system may be out of control, but the future is not. Value is not created overnight or over a 12-week period. Value comes from creating products and services that meet market needs. That’s not a short-term proposition. Companies experience vicissitudes. The fast pace of today’s marketplace requires constant adjustments and transitions. Often, companies that go through those transitions will pay the price for a quarter or two. But if they perform well, they come back quickly because of the bandwagon mentality of Wall Street’s fortunetellers.

Every year Fortune magazine compiles a list of America’s most admired companies. The criteria for the list range from long-term investment value to social responsibility. They are also viewed as the best places to work. These companies are taking care of business and meeting the needs of their shareowners, their customers, and their employees. And doing so has paid off. The top 10 percent of Fortune‘s list of most admired companies did twice as well in the stock market as the bottom 10 percent. That’s encouraging, because it says that in the end, good companies will always justify their value as long as they do the right things the right way.

Assess how well you balance short-term expediency and long-term growth.

Posted in Management and Leadership

Engage in a Constructive Leadership Dialogue

Conduct Soul-searching Interviews with Outsiders

Engage in a Constructive Leadership Dialogue If you are a leader, what is your most important job? As stated by John Kotter, leaders groom organizations for transformation and help them manage as they struggle through it. That is their foremost job. However, how do they go about doing it? Jack Welch, former CEO of General Electric, once said: “My main job was developing talent. I was a gardener providing water and other nourishment to our top 750 people. Of course, I had to pull out some weeds, too.”

Evidently, setting a direction for the future is an important aspect of leadership. Telling what the organization should become in the long term and how it should get there becomes the foremost duty. Soon after taking the helm of IBM, Lou Gerstner announced, “The last thing IBM needs right now is a vision.” Some people nailed his hide to the wall for that statement. He explains that reporters dropped the words “right now” from his statement. Gerstner felt that IBM was long on vision statements, but short on getting the job done. Fixing the company was all about execution.

Creating a Culture of Leadership

Execution is nothing but aligning people, motivating them, and creating a culture of leadership. Kotter contrasts execution with equally important but managerial duties such as planning, budgeting, organizing, staffing, controlling, and problem solving. The value of a wonderful strategy is only achieved when it is carried out. And it is the people who make the grand vision a reality. That’s why, as Jack Welch points out, leaders need to make it a priority to plant and nourish talented people at every level.

If you lead a big organization like General Electric, you might have assets at your disposal like the GE John F. Welch Leadership Center at Crotonville, the world’s first major corporate business school. Here everyone from important customers and partners to present and future GE leaders come together to identify opportunities and debate issues. But few organizations have the resources to invest like GE. They can’t operate a dedicated leadership center.

Creating a Culture of Leadership The constraint of a smaller budget is hardly an excuse to not operate key levers that drive superior performance in people. Going back to Welch’s garden analogy, some aspects of cultivation are free, such as sunshine. But how you choose to orient your garden in relationship to the sun makes all the difference. If you place your garden under a large shade tree, you cut it off from necessary nourishment.

While a leader needs to have a strong sense of the direction, cultivating new culture by changing people’s frame of mind and behaviors is the hardest part. In doing so, they can follow the profit-at-any-price model by relying on fear, pressure, and greed, or they can follow a more sensible leadership model based on inspiration, motivation, and enthusiasm.

Four Bad Leadership Models

Even leaders who articulate a convincing vision, inspire followers, and display passion and courage to take on challenges can have wasteful traits that limit them. These tend to manifest themselves in four ways:

  • Know-it-alls: They start believing that they know and do this better than anybody, and believe that they don’t need others as much as others need them. So they tend to treat others as dispensable and tune them out.
  • Micromanagers: They get mired in minutiae and sometimes miss the forest for the trees. By measuring too much, they measure nothing.
  • Perfectionists: They spend too much time doing things right rather than doing the right things, thereby losing focus. They take any constructive feedback as a direct hit and return what they see as not-so-friendly fire.
  • Detached: They become emotionally distant and lose the intimacy and connection to other people. To any push-back, they respond: “Tough! If I can do it, so can you.”

When these behaviors occur, the results follow quickly: Any constructive confrontation within the executive team ends almost immediately. Honest exchange of ideas on options and their pros and cons ceases. What is happening on the ground to the foot soldiers becomes irrelevant. The pressure people feel becomes unbearable. The “guilt trip” that nobody else is pulling their weight becomes harder to take. Any semblance of work-life balance is lost. Conversations become one-way streets, and people feel like glorified order-takers. It seems like they have ceded all authority to the boss.

The leader is quickly surrounded by loyal sycophants in the inner circle who simply want to ride the coattails. Everyone else is in the outer circle-albeit with more self-esteem, yet fearful to say that the emperor has no clothes. Soon people start telling the leader what the leader wants to hear, lest their heads are chopped off. Collaboration comes to a grinding halt, and providing lip service becomes the politically correct thing to do. Everyone looks out for themselves, and any mutually shared goals, if they exist, take a back seat. Any sense of intimacy, camaraderie, and belonging on the team becomes non-existent.

Any concept of a team breaks down. Any sense of empowerment evaporates. The vision of the leader becomes a pipe dream. The strategic plan to get there suddenly has strong disbelievers. The short-term results, obtained through draconian measures, become harder to sustain. As Michael Maccoby notes: “Narcissistic leaders can self-destruct and lead their people astray.” So, there is plenty of leadership, but little followership.

Foster Competencies to Compete in the Future

Foster Competencies to Compete in the Future A key challenge for leaders competing for the future is to foster competencies that provide access to tomorrow’s opportunities. Further, as discussed by Gary Hamel and C. K. Prahalad in Competing for the Future, leaders need to find innovative applications of the current competencies. Leaders must objectively assess and proactively improve the caliber of the executive team and the organization as a whole.

However, before a leader can assess the caliber of the executive team, he must take stock of his own. Surveys—whether leadership or 360 degree—are popular and necessary, but rarely tell the leader the whole story. Objective, confidential, and focused interviews by an outsider with each individual on the executive team can deliver unvarnished truth-rich information about what’s really happening behind closed doors. Is there a true strategic alignment? How is the leadership style perceived? How much constructive confrontation occurs? Do people collaborate or simply provide lip service? Is everyone pulling in the same direction?

There are five prerequisites to getting the most from these interviews:

  1. Right reason. First, conduct the interviews for the right reason: improving leadership by eliminating unproductive behaviors. If the hidden agenda is to vilify non-performers or to find scapegoats, the approach backfires.
  2. Objectivity. You need an objective outsider to hold the mirror. This person must not be afraid to find out the truth and tell it like it is.
  3. Confidentiality. The interviews have to be treated as confidential, and the interviewer can’t make any direct attribution to a specific individual. Despite all the talk about openness, blackballing is still a common practice.
  4. Specificity. While recognizing that everyone’s reality is different, the interviews have to focus on direct observations, experiences, and involvement rather than hearsay.
  5. Commitment. There must be a commitment to develop an action plan at the individual and team level.

If these criteria are met, the insights gained from interviews can help create a high-performance culture. The honest feedback and recommendations can raise the candor and constructive dialogue.

Baseball manager Tommy Lasorda said leading people is like holding a dove in your hand. “If you hold it too tightly, you kill it; but if you hold it too loosely, you lose it.” Finding that delicate balance between providing nourishment and pulling weeds is the key to effective leadership. But it begins with looking in the mirror.

Posted in Leaders and Innovators

Tap the Power of Your Viral Customers

Viral Customers are Your Brand Ambassadors

Viral Customers are Your Brand Ambassadors Whether you are aware of it or not, customers are talking about you this very minute. They are offering opinions, trading experiences, and influencing other customers about you—your company, products, services, and reputation.

Welcome to the world of the “viral customer,” the turbocharged version of the word-of-mouth customer. If you’re not aware of your company’s viral customers, you need to be. If you haven’t geared your company to their growing influence, you had better start now. These talkative, influential customers will play a critical role in the future of your marketing schemes, loyalty programs, customer service efforts, public relations outreach, brand management, privacy policies, and bottom line.

The Internet has created a generation of so-called “viral customers.” Viral customers can be champions or destroyers. They can talk trash about you or trumpet your worth. Which route they take depends on you.

  • If customers are happy with their encounters with you, they are likely to tell lots of their friends. In essence, they become viral ambassadors who will rave about your company to others to create a gush of goodwill. These ambassadors can be valuable, low-cost avenues for building existing relationships, recruiting new customers and keeping old customers happy for life.
  • But if customers are not satisfied, watch out. So-called “viral rebels” can destroy your products, brands, and reputation as they share negative experiences. Moreover, at the moment of negative feedback, they’re likely to be in a “switch mode,” ready to find someone else to satisfy them in ways that your company hasn’t or won’t.

Are you paying attention to what your own viral customers are saying and doing? We’ve found that some companies and industries are more “viral” than others. Customers are much more likely to pass along opinions to others about insurance firms, health maintenance companies, utilities, banks, long-distance and wireless telephone companies, mail delivery services, Internet service providers and auto manufacturers.

What’s at stake is more than the lifetime value of a single customer. Everyone in the viral rebel’s sphere of influence is also at stake, because even though the original customer may walk away from you, he or she is not necessarily finished. The bad-mouthing continues. Suddenly, one person’s negative encounter becomes everyone’s shared experience, and you’re left to pick up the pieces, re-establish ties, win confidence, and regain long-term loyalty.

Some Brands and Issues are More Viral Than Others

Some Brands and Issues are More Viral Than Others Certain brands elicit highly viral customer buzz. Billing issues typically fly off the virility chart. Other hot-button issues involve safety among automakers, baggage claim among airlines, customer service at e-commerce sites, hygiene at restaurants, and staff attitude at retail stores.

If you listen to your viral customers, you will know whether your marketing budget is based on the correct assumptions. You’ll be able to apply one-to-one marketing principles to customer feedback, making your customer insight even richer and more robust. You will know which brands are working. You’ll know your company customer service record, because you will have real-time feedback from the customers. You will identify trouble spots or opportunities well in advance, enabling you to take advantage of positive feedback or stop negative feedback before it explodes.

As you analyze the customer insight you receive, you become wiser and more adaptable, smarter and better able to react, respond, and retool. You start giving customers what they want—easy and convenient communication. They want to be heard. They want to help others, and they want a forum that fits their propensity to rant or rave.

In a world governed by customer insight, all feedback is gold and every complaint is a gift. Raw data guides us, but insight that has quality and meaning enlightens us. Anticipation beats perspiration, and the only way to know what is around the next bend is to pay attention to the curve as it develops.

Here’s five things you can do to tap the power of viral customers:

  • Identify them. Viral customers communicate with you frequently by e-mail, letter or phone. They send copies to others, are passionate or emotional about their experiences and are among the first to try new products or services.
  • Make communication easy. Offer as many ways as possible for customers to get in touch with you-a toll-free phone number, Web-site e-mail address, third-party feedback service, street address or special mailing address.
  • Respond quickly. Respond quickly and in the same fashion. Be empathetic.
  • Mine the negative comments. Respond decisively so that the customer decides to remain in your camp. Don’t give a reason to bolt to the competition.
  • Build the relationship. Add communicative customers to a preferred-customer list. Extend special offers, ask their input on new products and services, and ask how you can improve the relationship. The more you integrate the relationship, the stronger it will be.
Posted in Business and Strategy Management and Leadership

Putting Your Creativity to Work and Improving the Bottom Line

Fostering Creativity at Work

Fostering Creativity at Work When the going gets tough, many companies cut costs, cling to tradition, and stay under radar. Such reaction is short-sighted. There are lessons to be learned from companies like HP, Virgin, Disney, and other innovators who not only stay the course through uncertainty, but excel. The most innovative companies don’t take cover—they get going. They embrace creativity and innovation in both good times and tough times.

Creativity helps us reinvent when faced with opportunity and survive when faced with challenges. Creative people find new solutions and enjoy a timeless advantage.

What characterizes a company? Its people, process, values, size, resources—or maybe it’s an unorthodox approach to business.

Few companies even begin to embrace the power of creativity and reinvention. Yet we see bold possibilities. We see signs of a new era where creativity drives the bottom line—where business escapes tradition and embraces new practices that nurture the cultural creative mindset.

A Time for Unleashing Your Creativity at Work

Rule-breakers tend to be the more nimble upstarts.

Jack Welch, former CEO of General Electric, said: “Today business is about the resiliency of ideas. It’s about rallying people and the ideas of people.” Companies don’t simply want to make a better product; they want to dramatically transform their culture to lead their industry. The best organizations are committing more people, resources, time and money to increasing creativity and innovation. It’s a smart investment.

Look at Eli Lilly. Instead of churning constantly inside the company to generate new ideas, they’ve reinvented scientific research and created a free market of ideas. The company founded Inno-Centive, a web-based community of problem-solvers and solution-seekers. They tap scientific minds worldwide to create solutions for financial reward.

Success can no longer be sustained with incremental improvements; we must find new sources of growth to leap forward in much wider measure.

Why is Creativity Important in the Workplace: Creativity and the Bottom Line

Creativity and the Bottom Line Although it is difficult to measure creativity’s impact on the bottom line, we see that four benchmarks make or break the bottom line:

  1. Profitability. A creative company produces more great ideas that impact the bottom line. Better product = sales; efficient method = savings; better service = more customers. Hanes recognized this when they reinvented the T-shirt. The Hanes Tagless Tee shirt is the first innovation in the industry in 10 years.
  2. Industry leadership. Leading companies innovate for the long-term. They are visionary, looking at the future with a wide lens. Today’s rapid pace of change means companies can no longer deliver the same products and services in the same way for long. As technology services evolved, IBM, Compaq, and Intel all had to transform their business models. Fox News helped reinvent the cable news industry, repositioning itself as a lively, in-your-face opinion page. And it became the number-one cable news outlet. Innovate or get left behind.
  3. Retention. A more creative culture equates to happier employees. Creative companies embrace more humanistic values, like leadership support, risk tolerance, individual expression, and intrinsic motivation. Peter Coy, Business Week columnist, writes: “In the Creative Economy, the most important intellectual property isn’t software or music or movies. It’s the ideas inside employees’ heads. Leaders create an environment that makes the best people want to stay.”
  4. Motivation. When people feel their ideas are valued they contribute more to the company. Creative companies have a people-first approach, embracing attributes like autonomy and personal challenge. Winnebago discovered this with their innovation program. Every Friday, Winnebago CEO Bruce Hertzke hands out dividend-savings checks and has his photo taken with employees who have made revenue or savings suggestions. Over 10,300 ideas have been implemented, and employees have received $500,000 for their ideas. Employee creativity saved the company $5.5 million in the first year alone. Yet people are primarily motivated by intrinsic reward.

Leaders must balance financial rewards with recognition, rewarding work, and enrichment from the culture. Brainstorming is just one technique. It even has variants. Such methods can be useful in creating food for thought. Also has the advantage of including staff and encouraging an innovative thinking environment—if done well.

Finally, let’s not forget basic business survival. Creativity is required to innovate but it’s also necessary to keep the pipeline full and move forward.

Fostering Creativity at Work: The Ultimate Measure of Value

Executives who are committed to increasing creativity and innovation must first accept this universal rule: Creativity requires a new mindset, which is produced only from cultural transformation.

Leaders must accept that development of human capital requires a greater investment than other types of capital—in terms of money, time, and commitment. The ultimate measure of a company’s value is its people. In creativity, everything comes down to people. Dick Brown, CEO of EDS, puts it this way: “Most business leaders are more comfortable with numbers. While I am very numbers-focused, you can’t change a business with numbers. Numbers are the end result. You change a business by changing the behavior of its people.”

Yet it’s not enough to hire a few creative people or hold an off-site meeting in hopes of finding an innovation “quickfix.” Leaders must rebuild the culture, align the systems, and develop the knowledge of the company. Leaders must care for, nurture, and sustain the culture. They must rediscover their child-like imagination, find their passion, surprise people, and be a little unorthodox.

Guiding Strategies for Enhancing Creativity at Work

Strategies for Enhancing Creativity at Work Here are some strategies to guide the creative leader:

  • Nurture creativity from the top down and bottom up by finding champions in the ranks of junior positions and senior executives.
  • Encourage “skinned knees” by developing a risk-tolerant culture that values the mindset of creativity and rewards both behavior and results.
  • Enact intrinsic and extrinsic rewards for creativity that value the balance of knowledge and imagination.
  • Redesign structures to allow for free flow of ideas. Divisions often work differently from one another. Create venture groups, autonomous communities, and flexible innovation processes.
  • Allow employees to venture out and learn about the world they serve. Many innovations fail because people don’t understand the customer.
  • Create new ways of learning and reward it. Jack Welch says, “You raise the collective intellect by learning, sharing learning, and acting on that learning.”
  • Increase accountability and recognition for breakthrough ideas that create new sources of growth.
  • Create a new language for creativity that infuses the culture with fresh, simple, goal-focused vernacular.
  • Walk the talk. Deliver on the vision and promises through committed action. Redesign performance measurement and talent management in line with innovation.
  • Surprise people. Do new things in new ways and be curious, energetic, passionate, and open-minded. Use this research as the basis for highly focused idea-generation sessions.

The most creative companies aren’t always the cutest companies. Creativity does not equal whimsy—or any other idiosyncrasy of the extinct dot-com cultures. Fun is an important part of it; people can’t be inspired when they’re bored in tedium. Yet creativity is so much more. In fact, it’s really hard work. The common thread is that inspiration strikes people in different ways at different, and often unexpected, times.

Posted in Business and Strategy Leaders and Innovators

Use the Theory of Constraints to Create a Viable Vision

Any complex system is based on inherent simplicity

Strategic Vision is Viable

Viable vision is the opportunity of a company to have, within four years, annual net profit equal to its current total sales. Any complex system is based on intrinsic simplicity. Capitalizing on the inherent simplicity empowers incredible improvements within a short time. The more data needed to designate fully a system, the more complex it is. Enumerating reductions in total systems costs that are often heart to the customer company is also difficult. Most companies, even small ones, are complex and accordingly challenging to manage. The few elements commanding the performance of the system are the restrictions or advantage points —the Theory of Constraints.

When I scrutinize a company, I am rather fulfilled only when I clearly see how it is possible to bring the company to have, within four years, annual net profit equal to its current total sales. That is what I mean by a “viable vision.” In emergent markets such as China and India, clients want decent quality products that are simple to install, use, and maintain.

I am careful when sharing this anticipation with the top management; I expose the reasons why I believe this vision is viable. I share my analysis of what is obstructive performance. Using logic, I deduce the steps that will eradicate that block. Then I detail the steps to take to capitalize on that breakthrough. In this way, the reaction of top managers is, “This is common sense. Why aren’t we doing it?”

Capitalizing on Strategic Simplicity

Any complex system is based on inherent simplicity. Capitalizing on the inherent simplicity enables implausible improvements within a short time.

The more data needed to describe fully a system, the more complex it is. These infringements come at a significant cost to the organization, since too much time spent on day-to-day details can endanger future growth.

How complex is the system you manage? How many pages are needed to describe every process and the relationships with each client? Most companies, even small ones, are complex and thus tough to manage.

We manage a complex system by dissecting it into subsystems that are less complex. However, this can lead to miss-synchronization, harmful local optima, and the silo mentality. Since our systems are compound, we might think that all we can do is to improve synchronization and nurture collaboration between the subsystems. Public corporations are required to maximize their return to shareholders—not to customers. If this is the only option we contemplate, we will believe that achieving a major jump in profit within a short time is a rarity. We will think that creating net profit equal to current total sales in less than four years is unrealistic.

Leaders of successful innovation exertions are gifted visionaries. To see the potential of a company, we need to realize that the thing that makes our system difficult to manage is that what is done in one place has complications in other places; the cause-and-effect relationships turn our system into a maze. Strategically central issues and opportunities can occur at any time, and they cannot always wait for the next planning cycle or off-site to roll around. However, that fact also provides the key to the solution. This model had served them well. However, they began conjecturing about their organization in the future. They began to wonder if the model would work when the commodity that was being passed around was information, not metal.

Examine a system and ask, what is the minimum number of points we must impact to impact the whole system? If the answer is “10 points,” this is a challenging system to manage because it has too many degrees of freedom. However, if the answer is “one point,” this system is easy to manage.

Theory of Strategic Constraints - Strategic Wisdom

Now, the more interdependence between the components of the system, the fewer degrees of freedom the system has. However, the realities and the consequences of how they actually use their time are often quite different. Bearing in mind the complexity of your system, only a few elements govern the entire system. The more composite the system, the more profound is its essential simplicity.

To capitalize on the inherent simplicity, we must identify those few elements that govern the system. In addition, if we clarify the cause-and-effect relationships among all elements of the system, we can manage the system to achieve higher performance.

Companies turn out to be too focused on executing today’s business model and stop thinking about the fact that business models are perishable. Because companies’ decision-making systems are designed to push investments to initiatives that offer the most perceptible and immediate returns, companies shortchange investments in initiatives that are imperative to their long-term strategies.

Theory of Strategic Constraints

The few elements dictating the performance of the system are the constraints or advantage points-the Theory of Constraints (TOC).

In this school of management, we are qualified never to bring forward problems without a recommended solution. The marketing and strategy of companies is in it’s not luck. They have to be streetwise but not necessarily wise in other ways. They need to be fledgling and without much need for sleep. If you read these books, you will agree that the conclusions are horse sense, even though they fly in the face of common practice. Moreover, if you put it into practice, you experience remarkable improvements in a short time.

Is a viable vision possible for your company? Is it feasible to have, within four years, yearly net profit equal to its current yearly sales? The complications are discouraging. For example, such profitability is impossible without a huge increase in sales, and this is doable only if you have a remarkable new offer accepted by your markets. Can such an offer exist? Can you produce on such an offer? What investments will be needed? In addition, is your team capable of implementing such a change?

You do not have to coin your own phrase, but if you can find a simple, clear concept at the core of your policy, and if you can get others to appreciate it, then you are on your way to forming nuggets of you of strategic wisdom. A winning, stupendous concept will keep a team positively focused and sustain it during the inescapable disappointments and trying times.

Posted in Management and Leadership

Five Criteria by Which Customers Judge Service Quality

Five Criteria by Which Customers Judge Service Quality

  1. Reliability: Consistency in performance dependability. Examples: accuracy in billing, keeping records correctly, performing the service at the designated time.
  2. Tangibles: Physical evidence of the service. Examples: physical features, appearance of personnel, tools used to provide the service.
  3. Responsiveness: employees’willingness or readiness to provide service. Examples: mailing the transaction slip immediately, calling back the customer quickly, giving prompt service.
  4. 'Raving Fans' by Ken Blanchard (ISBN 0688123163) Assurance: employees’ knowledge and ability to convey trust and confidence. Examples: Knowledge and skill of contact personnel, company name or reputation, personal trait or contact personnel
  5. Empathy: caring and individualized attention to customers. Examples: learning customers’ specific requirements, consideration for the customers.

Read this popular book: Raving Fans: A Revolutionary Approach to Customer Service by Ken Blanchard and Sheldon Bowles.

Posted in Business and Strategy