A Ceo Survival Kit
In the past 15 years, industry the world over has seen a major revolution. In
the ensuing shakeout, we have seen restructuring through waves of mergers and acquisitions, LBO's divestment and changes in ownership patterns. The world has seen widespread withdrawal of the State, massive privatisation and, finally, breaking down of trade barriers, while simultaneously new trade blocs have emerged. And in an era of more globally-linked industries, consolidation of companies has continued unabated. New forms of competitive alliances and virtual enterprise forms have heated up the battle between the giant Fortune 500 companies. Therefore, competition all over the world is going to increase, not die down. And Indian industry will be no exception to this trend.
Thanks to the emergence of new players and the removal of legal barriers to entry, top managements in many Indian industries are confronting once again or for the first time ever the reality of competition.
The entry of foreign competition means one thing: The already beleaguered Indian CEO has to recognise that if his company is to stand a lasting chance, his product or brand has to lead the fight for survival.
Managers with a long memory will recognise that for a long time, we used to feel the need to court and please the customer only during the disaster-led, monsoon-driven, periodic slowdowns in the economy. We can recall the knee-jerk reactions of top managements to mounting inventories, rising debtors and a cash crunch. Cutting back on advertising, R&D, training, travel and entertainment and other such activities were resorted to, amid growing depression, emotional and economic.
The most predictable and traditional response of the CEO to a recession, is a call to step up the marketing effort. This merely means in plain English, a harder sales push, to drive volumes up or at least defend them somehow. Company after company comes up against a blank wall of sales resistance and runs a familiar sequence, which is something like this: First the sales manager is blamed for a lack of foresight, a lack of leadership or complacency, or all three. Then, if he suggests a little easing of credit to the trade he is said to be taking the easy option". A suggestion to drop prices is greeted with derision. We don't need a sales-force, do we, if we have to reduce price, to compete?
The more ambitious managements offer incentives to all three sales-force, dealer and the ultimate buyer by variety of contests, discounts, prizes and concessions. If it is an industry-wide recession, this approach usually produces some immediate results, but soon two consequences are evident:
lEveryone tries the same, margins are eroded for all competing companies and those most in need of cash, suffer the most.
lA limit is soon reached where one can no longer buy future sales at a price.
It is at this point in the reaction sequence that the organisation divides into two major schools: One, usually led by the accountants, suggests urgent measures to cut interest and other overhead costs especially advertising and sales promotion, training, travel and other expenses which, they believe, are not directly related to business success. The second, led by the more commercially oriented and marketing or manufacturing people suggest biting the bullet for sometime and preparing for long-term, effective solutions. This starts with some in-depth probing of customer expectations, satisfactions and a thorough re-examination of the quality and superiority of the product in design itself. This is to be followed by a re-configuration of some key sub-processes such as gathering market intelligence, service quality, dealer-relations, sales-force capability, radical product redesign led by the customer voice, a direct factory to field two-way dialogue and so on. The demands of this approach are as
multi-prolonged as they are costly. Whether the cost-cutting school or the re-configuring school wins is largely a matter of organisational balance of power.
One frequent fallout of all significant downturns is the major setback to the prestige of marketing and the reputations of marketing professionals. Careers backslide, as some are replaced or have their powers taken away. This is tragic not only at a human or emotional level but because it implies that the organisation's leaders have once again refused to learn, yet again mistaken the symptom (drop in sales volume) for the real cause (a mismatch between market needs and the service/product basket the company is offering).
The true cause is the lack of market insight, a unique, perceptive and deep appreciation of the dynamic relationship between the product and the consumer. Beyond the functionality and the need it fulfills, every product, be it a bottle of shampoo or a refrigerator or a bag of fertilizer, has a certain complex relation to the end-user and his or her total life space the place, role and importance given to it at any specific time. This applies to industrial products too. The customer-population is a moving river, not Asiatic pool. As tastes and habits change, as general levels of affluence, education and exposure change, so do expectations and the importance placed on each aspect of life, be it personal grooming, food, nutrition, style, safety, education or whatever. A bicycle for Rs 1,200 or a refrigerator at Rs 12,000 are not the same thing to the suburban housewife and mother of two teenagers. This is obvious. What is not so clear is how this differs between two families in these socio-economic classes
across the country depending on more subtle factors such as whether they are first time buyers, whether they have one already, how they propose to use the bike or the refrigerator and so on.
Sensing the shifting scales of importance is critical if markets are not to waste resources on the wrong element of the product, its design, packaging or distribution. A product once carefully maintained asset for a lifetime may lose all charm and interest to the same class, say a decade later. Sewing machines, mixies, ceiling fans, mechanical watches, leisure clothes and footwear are excellent examples perhaps in most cities and among the relatively better of. All targeted marketing communication to the consumer must take into account changes in the demographics and social classes as well as values, customs and mores. At the aggregate level, what is happening in the country, in the world outside, and the extent to which the consumer is exposed to it, affects his/her perception of the urgency of any issue. Therefore, whether one is marketing an exercise machine, a dietary supplement or some kind of personal care product, the marketer must have an insight into the current state of the customers mind.
But what has marketing insight got to do with this? The real test is that, once decoded and described, its seems so self evident. One even wants to ask why did they not think of it before? The emergence of solid detergent bars in India ought to go down in the marketing text books as a clear case of marketing insight working a decade too late. When the power of a new chemical was married to a familiar, age-old product form, the new market opportunity was born. And along with it a business which is now worth several hundred crores. It is interesting that the second major insight that the customer was waiting for a cheap multi-purpose powder detergent led to the Nirma revolution.
What is most interesting, perhaps, is the sequel in the form of Wheel, launched by Unilever that has set yet another mark in this dynamic category. So much so that this smart MNC has adopted the stance of developing a localised, low-cost alternative in several other markets worldwide. Here we see the extension of marketing insight to an entire value chain.
New MNC entrants wanting to establish a foothold in the high-volume end of a market, often the more dependable and stable segment in the emerging economies, require entirely different set of organisational devices, structures and solutions. Every element of cost that does not add to perceived value has to be ruthlessly pared down. Uncomfortable, old fashioned value-analysis questions have to be asked. Is it necessary to have centrally air-conditioned offices, a chain of warehouses and expensive show-rooms to sell one's product? Do we need so many steps in the distribution chain? What value do retailers add that justifies their margin? If we delivered the product in bulk and in less attractive packaging but at cheaper prices, will more customers be turned off or attracted? The answer to many of these questions, of course, is: It depends. To clearly understand what it depends on, one requires the gift of marketing insight!
Market research at the best of times does not directly offer marketing insight, ready-made. It might throw up some unexpected findings but essentially, as we all know, research is only as good as the questions and intentions we start with. One needs to look at the world with a childs eye, so to speak and ask, What aspect of my business and cost structure would seem inexplicable to someone from a different culture or planet? Why? Can I be
sure that I am not taking it for granted? If I were to enter this business today, what would I do differently, and, more importantly, would I be in this category at all? Such questions help focus the corporate mindset. And when well understood by a wide cross-section of the people in the organisation, it also directs the power of the teams efforts like a laser beam, for maximum impact.
Questions that stimulate a different way of thinking are always uncomfortable to top management. They threaten to dispute the orderly flow of the business, cause dislocation and, worse, avoidable debate and cost. Yet every breakthrough in new products and systems was once labeled a crazy idea that wouldnt work. It is consumer insight that excites people engaged in a competitive business and directs their competitive innovation giving it a purpose as well as a measuring rod, without which R&D scientists can easily be led into interesting byways and alleys of enquiry. This can be seen at its best in service industries where the end user meets the provider of the benefit face to face in a daily transaction. Here the person himself is the service embodied, so to speak. Think of the examples of guest/customer relations staff in any competitive business: at a hotel, hospital, travel agency, airline, courier service, grocery retail outlet or bank. And you will see that in the absence of a competitive compulsion,
most businesses would be about as insightful or mindful of its customers as our telephones department is!
Those companies that have a special insight into what it takes to succeed in their particular product area have a chance to excel in delivering the right values, in a unique way, And they alone will succeed in tomorrows world. Such insight can produce significant improvements in organisational learning, by bringing in the voice of the customer not just as a provider of complaints and feedback but as a source of initiating thrusts and product ideas. In its absence, complacency and corporate hubris cloud the eyes and disaster follows. Companies that seek to profit from market insight must consciously encourage systematic explorations of the outer reaches and boundaries of the business as it stands. The well documented examples of those that failed to do so, have been in front of us for over a decade such as IBM, Westinghouse, General Motors, Kodak, AT&T, British Airways and Rolls Royce. Their managers are no different from you and me, only more than normally successful for a long while. So much so that they
remind one of the ancient proverb On those whom the Gods wish to destroy, they first confer 40 years of uninterrupted prosperity!
The erstwhile majors of the textile industry in India and the large, conservative, trading oriented, managing agencies and British firms in India make an impressive list of such darlings of the Gods. DCM, Binnys, Raleigh bicycles, API Shaw Wallace, Metal Box, Andrew Yule, Jessops, Dunlop, EID Parry, Calico, Sarabhais ... the most prominent names one but in dire straits during the past two decades. At least a few were brought to their knees by benign neglect, some bought out by a new management, restructured and revived. Many are dying a lingering death or still in turmoil. Others will have to shed the uncompetitive products and businesses, perhaps by selling out to their competition or erstwhile partners.This is no big setback if one looks at it the right way. The logic of the market dictates that only those with special values which the customer recognises sufficiently to pay the asking price, have a long-term future. Those quitting by selling out, will have the satisfaction of adding to the shareholder
wealth.
(The author is dean, executive education, Academy for Management Excellence (a division of Institute for Financial Management & Research), Chennai)