by Cindy Barnes
First, people are getting richer. ‘We are reaching a tipping point, where over the next several years the global middle class will expand dramatically. This is one of the most important features of today’s global economic landscape’ (Kharas, 2011). Why is this important? Because the richer people are, the more they want differentiation in products and services.
India and China have the fastest-growing middle classes. China is on the verge of becoming a middle-class nation. By 2030 over 70 per cent of China’s population could be middle class, consuming nearly US $10 trillion in goods and services. These individuals have an enormous impact on the global marketplace. In 2013, the Chinese bought more new Rolls-Royce cars than any other nation. Since then the Chinese economy has been hit and this growth is declining, but China is still Rolls-Royce’s fourth-biggest global market after the United States, the Middle East and Europe (Kharas, 2011).
Second, there are more people on the planet. On the one hand, this growth means there are more consumers for companies’ products and services. On the other, there are also more people competing for the same natural resources – water, power and raw materials. Everything manufactured ultimately originates from natural resources, which are finite. Yet many businesses and individuals behave as though resources are infinite. These behaviours are unsustainable. As humankind degrades the planet and extracts more resources, our ecologies become dangerously unbalanced and approach a point of no return. There will be more and more commercial consequences around this issue as time progresses.
As scarcity increases, so does cost. At some point, the resources upon which everyone depends will be more expensive or simply no longer available. Governments are trying to tackle these problems but cannot do so alone. They need the help and the co-operation of businesses and consumers. Companies need to be prepared to protect those resources to ensure they remain plentiful, or find alternative sources. Successful companies will do both and, more and more, consumers will demand it. Various global surveys are showing that millennials (born circa 1980–99) support sustainability actions. Millennials are fast becoming a powerful commercial voice as they move into middle age and can afford to pay to support their ethical stance.
Finally, businesses are changing. Some international companies have grown larger than their home country. Growing beyond continental borders, they are now truly global forces. Economically, these organizations can influence local economies and wield as much power as some governments. In fact, the largest businesses have higher revenues than many countries and their economic power and influence is greater than all but the largest countries. For example, at the end of 2015, Wal-Mart’s revenues matched the gross domestic product (GDP) of Poland.
How did this shift of economic power happen?
Deregulation and the easing of trade barriers between countries has enabled much of this business growth. Thanks to technology and the globalization and deregulation of financial services, the costs associated with international trade have fallen: the formation of the European Union (EU) has helped speed up the process within Europe, while the growth of processing power and cloud computing have enabled ways of working that make physical location less relevant to employees and customers alike.
This new paradigm has changed the way businesses behave. For more and more businesses the focus has shifted to short-term returns and bottom-line numbers, and in most cases, to the detriment of other ‘stakeholders’ in the business. Traditionally, a business served its customers and many also tried to make a positive impact on their communities and employees. Of course, all companies also needed to ‘serve’ their investors, but tried to do so in a balanced way so that all stakeholders are served.
* * *
CASE STUDY
National Vehicle Distribution (NVD) is an automotive transportation and logistics company based in Ireland. Its customers include manufacturers and dealers in many countries. In an effort to drive down costs, automotive manufacturers have implemented highly regimented purchasing processes, driving ever downward the amount their supply chain can charge. For example, in order to achieve the ‘best price’ per activity, many manufacturers send out separate tenders for each stage of the delivery process: transporting from factory to port; ship transport; customs clearance; delivery and storage at an intermediate destination plus repair to any damaged goods; and finally, delivery to dealer. But is this the best approach?
Although the apparent ‘cost’ at each step has been forced down, these manufacturers have created other costs and issues by working this way. Different companies perform each step in the delivery of new cars to dealers, so it is difficult to follow any car on its journey or know where or which company might have caused damage during the transport. In later chapters, we will go on to explore how NVD has dealt with the challenges of a marketplace in which its large customers now have a ‘broken’ procurement process that does not support the changing needs of their businesses.
* * *
NVD’s large customers had reached an impasse. Prices had reached rock bottom, so there were little or no further savings to be made from a cost-obsessed logistics model. However there were great benefits to be gained if the various steps could be joined up. Unfortunately, in most countries, each step was being managed by many different, often small businesses that were not in a position to link up. Furthermore, a ‘logistics solution’ to solve this problem could not be purchased using the traditional procurement processes.
Many businesses will need to learn how to change the way they buy such a solution – the automotive industry is just a well-documented example. Other large businesses face similar issues. These companies have painted themselves into a corner. Change must come from within so that they have a mechanism to procure appropriately, by focusing on ‘value’ to the business rather than cost.
I’m not a commodity, I’m an individual
Today, in many large corporations, employees have become more commoditized – treated as numbers with a high churn. Companies worry less about the loss of any one individual as long as the overall numbers are met. As long as the company’s buying targets are met and staff numbers are adequate, then executives tend to be satisfied. This attitude has set the scene for a major change in employee attitudes and loyalty. The Edelman 2015 State of Employee Engagement study (Snyder, 2015) showed that:
Employee engagement is still widely perceived as falling under the domain of ‘HR issues’ versus being a driver of business performance. Almost 50 per cent of organizations fail to measure employees’ engagement with the customer or the brand.
There is a distinct lack of strategy, with only 55 per cent of organizations having an explicit employee engagement strategy. Among those that do have a strategy, 86 per cent of senior leaders are familiar with it and only 65 per cent of people managers and 38 per cent of employees are aware of it.
Engagement is hugely overreported. Half of respondents reported engagement scores above 70 per cent in recent surveys; however, many rely on generic questions that are easy to answer positively versus more discerning, tailored questions that drive action planning and change.
Organizations do not consistently act on engagement survey data. Only slightly more than half the companies studied say employees believe senior leaders will listen to their opinions and even fewer (42 per cent) believe that positive change will happen as a result.
Leadership behaviours and communications effectiveness are the two areas that organizations are focusing on to improve engagement (74 per cent and 70 per cent, respectively).
Today, more and more employees are cynical and distrusting, and question why they should be loyal to a brand or business that does not care about them. There is a direct correlation between happy employees and happy customers.
Customers feel commoditized too. In the name of cost reduction, many businesses (and governments) have streamlined their organizational process to maximize efficiency, but in doing so have cut off much human-to-human contact. Phones are answered b
y computerized systems that ask the customer to do all the work once done by a customer service department: ‘Press 1 if you want to buy something, press 2 for service management…’ Not all customer issues are merely ‘transactional’ activities like this, which (eventually) solve a problem. Unhappy customers, frustrated customers and angry customers all need to feel they are being listened to by another human being. Will people be loyal to a machine? Both customers and employees feel disempowered and at the mercy of the system as there is no one to listen to complaints or respond to non-standard issues. There is no human connection.
Do businesses care?
This is a good question. Many businesses espouse values that ‘put the customer first’ but then enact behaviours and systems that do not support these values. While many call centres do use real people to make contact, often the discussions are so scripted that the call-centre staff can actually do very little. The responsibility given to people working in these types of call centres is so limited that a customer might as well be speaking to a machine. The scripts used by the staff take away their ability to be human. They remove the relationship and the two-way intimacy of genuine human engagement. As many of us will have experienced, this situation can lead to strong negative emotions: while the transaction may ultimately have been successful, the experience was poor.
Does this bad feeling really impact the bottom line? The short answer is: not immediately, but yes, eventually it does. More importantly, the same technology and business setting that has enabled these efficiencies and disenfranchised customers has opened the door to innovative, new market entrants and ‘disruptors’. These new businesses pose another threat to the apparently successful, large business.
With the internet of things (IoT), companies can evolve from product businesses to service businesses that are capable of effecting real economic and social change. The issue for established companies, however, is not merely being able to change what they do by moving to digitally enabled products and services – there is a huge behavioural change needed with existing staff, and the key front-line customer interface of those staff is the salespeople.
The best-known examples of these new innovators are Netflix, Airbnb and Uber. The latter two use technology to act as a platform to bring together suppliers and potential customers. In the case of Uber, individual car owners become taxi drivers, providing a reliable and more cost-effective service than many traditional taxi businesses can provide. Airbnb offers homeowners the ability to rent out their rooms or whole residences to individuals seeking accommodation. Airbnb acts like a travel agent for clean, inexpensive hotel rooms at a much lower cost than traditional hotels. Each of these businesses uses technology to facilitate a peer-to-peer (P2P) connection between customer and supplier.
This P2P business model puts people in touch with other people who would otherwise never have found each other, and the business takes a payment for these services. While Airbnb and Uber targeted mainstream customers, Netflix initially targeted customers who were early adopters with niche interests. Its strategy was to grow the business out from this targeted elite. Then, when the infrastructure was ready to support a wider audience, a shift occured when the rise of streaming video enabled Netflix to capture the much larger mainstream market.
Today even large, traditional businesses are beginning to look over their shoulders. Executives ask: ‘Is there a disruptor in my business sector? How can we defend ourselves?’ The short answer is: provided your business has happy customers, most will not leave you. But, give them a reason to shift… And the reality is that most businesses are not adapting well. The short-term focus on bottom-line results typically means that in an attempt to maintain profits they employ tactical efforts such as rebranding exercises, which try to convince customers that things have changed (when they haven’t) or internal cost-cutting programmes. Often these exercises satisfy a short-term objective but prove costly and detrimental in the long term. Consider these examples:
Penny-wise and pound foolish
Recently, a global electronics manufacturer decided to reduce costs in factories that contain highly specialized production facilities. In this instance, the move was not to dig the business out of dire financial straits, but an attempt to meet shareholder expectation and maintain the share price. In this sector, skilled workers are a scarce resource, especially in some of the smaller countries where the production facilities were sited. To maximize cost savings, the company put together an equation that prioritized redundancies on the basis of length of service and age. Older, more experienced staff were encouraged to leave while younger, inexperienced workers were encouraged to stay. This approach cut costs but had long-term consequences.
Most of the jobs that the experienced workers had done were still necessary, but the less experienced employees could not do them. The result? Now this organization will need to look to an external service provider to supply these skills at a much higher cost. In some cases, the company may end up using the same individuals it made redundant. In the longer term, the costs to the company will be much greater – it is just that these costs will appear on a different column in the balance sheet, so results will look better in shareholder reports.
Shareholders may or may not be fooled. But customers and employees have become disenfranchised and disillusioned by these business behaviours. People increasingly realize that they cannot count on a company to consider their best interests, but must look after themselves.
Technology has changed the way customers buy
Whether for personal use or in business, people use the web to research purchases, investigating both consumer reports and other customer feedback before buying. So although most large corporations are still opaque and behave in an old-fashioned manner, exercising power and control where they can, the web enables many individuals to see through the smokescreen. This trend towards the ‘informed consumer’ is growing stronger as millennials increase in influence.
This generation has some unique characteristics. First and foremost, millennials are connected. This is the generation that grew up with social media, mobile technology and computers in schools. They are tech-savvy and know how to use technology to find answers and to connect with others. They are also team-oriented, preferring to work co-operatively with others, even when others might be halfway around the world.
Millennials have also grown up under the spectre of resource scarcity and climate change. They realize that unless something is done, they may experience ecological catastrophe within their own lifetimes. They also understand that humankind’s well-being depends on its relationship with the natural world and other species.
Social and environmental focus is stronger and more global in this group of people, as is the desire for transparency in behaviours and actions. This perspective drives many of the career choices that the millennial generation makes. Finally, for them, work–life balance plays a big role in career choice. Work gets personal.
According to the 2016 Cone Communications Employee Engagement Study, two-thirds of US employees feel that their work and personal life are becoming increasingly blended and nearly all (93 per cent) want to work for a company that cares about them as individuals. The study reveals an increased expectation for companies to provide not only basic benefits but also an environment that allows employees to bring their passions for social and environmental issues to the workplace. Mature millennials (27–35) and young generation X (36–44) rose to the top in the survey as highly engaged employees in today’s workforce. These segments are prioritizing involvement in social and environmental issues with much more enthusiasm than the average American. Two-thirds say they will not work for a company that does not have strong corporate social responsibility commitments (versus 51 per cent US average); and once hired, they are more likely to be loyal (83 per cent versus 70 per cent US average) when they feel they can make a positive impact on issues at work. Retention among this highly sought-after employee base is extremely important for bu
sinesses (Sustainable Brands, 2016).
Millennials want different things from their employers and from brands than the generations that preceded them. Most are very influenced by peer opinion and tend to be far less influenced than their parents by corporate advertising. They will buy from businesses they believe are authentic: in other words, businesses that honestly espouse and live their corporate values (which should match the values embraced by this generation). Corporate transparency, rather than opacity, and belief-driven organizations rank as ‘highly important’ for these buyers. Ethical trading and environmentally friendly processes and products are also a big attraction. With this generation, consumers are taking back their power in the purchasing equation.
How are most big corporations responding?
Most large businesses are organized around being in control – control of the business, their employees, suppliers, the customer and, if they could get away with it, the marketplace. To exercise this control with customers, companies must exert their influence early in the customer buying cycle before a buyer even understands exactly what he or she needs or wants. Traditionally, in the consumer marketplace, advertising played this role. But this ‘consumer advertising’ may be becoming an outdated tactic: today’s millennials are not strongly influenced by advertising.
Savvy buying is also moving into the business-to-business (B2B) marketplace. Organizations such as the Corporate Executive Board and Forrester are looking at this area closely. Studies have shown that customers tend to be 60–80 per cent through a purchasing process before contacting a prospective supplier. This situation causes problems with traditional tactical marketing and sales practices because it is very difficult to shift a customer’s mindset so late in the buying process. At this late stage, a business competes predominantly on price and service. In a survey, 74 per cent of business buyers said they conduct more than half of their research online before making an offline purchase (Wizdo, 2015). This buyer dynamic changes the role of B2B sales and marketing in a fundamental way.