Corporate Culture and Leadership: A View from the Corner Office

corporate culture and leadershipCorporate culture and leadership are important no matter what size your company is. Mike Sheehan, CEO of the ad agency Hill Holiday shares his insights into corporate culture and leadership in an interview with Adam Bryant. Below is an excerpt from that interview which appeared in the Wall Street Journal.

“I think there are two kinds of cultures, and then you can subdivide them after that. One is based on a foundation of insecurity, fear and chaos, and one is based on a firm platform where people come to work and they’re worried about the work itself. They’re not worried about things that surround the work and are not important. I’ve tried to make Hill Holliday that kind of environment, where people come to work and they’re not worried about their peers shooting them. If leadership doesn’t provide a forum for that kind of behavior, it dies quickly. People forget about it and they just focus on doing their job.

You don’t want a conflict-free zone, but you want the conflicts to be about the work itself. Sometimes you have to dig a little bit and talk to people, but if you find out the conflict is about the work, then that’s good, because it’s healthy. I think that in a lot of workplaces it’s the opposite — people have to come to a consensus on the work, and so all the conflicts are political.

That’s one thing that the founder, Jack, instilled in the culture. It’s not a democracy. You’ve got to make tough decisions and then you’ve got to move on. “The enemy’s out there,” he would say. “The enemy’s not in these four walls.”

What kind of culture does your company have and what are you doing to create it?  To many CEOs leave their culture to chance. That’s why corporate culture and leadership are linked together. Make sure you have the culture you want. To learn more about corporate culture and leadership read the entire article by going to:

http://www.nytimes.com

The New Global Economy Sends Mixed Signals

The NewGlobal EconomyThe New Global Economy continues to send mixed and perplexing signals making it difficult for business leaders to chart clear paths. Is now the time to re-trench again or accelerate growth? The answer is a resounding “It depends.”

Here are just a few highlights from the New Global Economy that makes navigating businesses now so challenging:

  • According to Zillow 15.7 home owners in the US were underwater on their mortgages at the end of March.  90% of these home owners are making their monthly mortgage even though there is little hope on the horizon that their equity will ever become positive.
  • Sales of new homes 3.3% in April according to the Commerce Department. Also the price of both new and existing homes increased. This gives hope that the housing market may be moving upward after the collapse in 2006.
  • As Germany’s economy stumbles the euro hit two-year lows the week of May 21. Many investors are concerned that countries like Spain may join Greece on the economic crisis watch.
  • The US economy is plugging along on a less than robust two and a quarter percent.
  • Unemployment for the “Lost Generation” (job seekers under 25) remains at 16% which is more than double the national rate. For many in this group pursuing the American Dream is becoming quickly diminishing mirage. Only half of recent grads are working full-time. Furthermore the starting salary of graduates from 2009-2011 are $3000 less than they were before the recession.
  • Hewlett-Packard plans to cut 27,000 jobs or 8% of their workforce in an effort to jump-start their growth.
  • America’s midsized companies are less optimistic than they were a year ago, according to a survey by Deloitte, LLC. The reason for their outlook was tied to slower economic growth, uncertainty in an election year, financial trouble in Europe and rising health care.
  • China announced new rules that will impact the four largest foreign auditing firms. Under the guideline the firms must limit the number of foreign-certified partners in China to a max of 40%. By 2017 the cap will be 20% but all senior partners must be Chinese.

What do these facts have to do with your business? Everything and maybe nothing.  In the New Global Economy unrelated trends can both signal and camouflage trends that can impact your business. What’s important is for business leaders to keep their eyes on the horizon looking for a trend that can lift your business to new heights or crash it on the rocks of the New Global Economy.

If you’re a business owner or executive and your primary focus is managing the day-to-day activities of your business watch out you’re about to get blindsided. In the New Global Economy be sure to devote time each day to monitor trends that are or can drive your business. What trends are you monitoring for your business? How quickly can you respond should a trend emerge that can impact your business’s success?

Is the American Dream Dead or Just on Life Support?

The American Dream is different for every person. To some it’s the opportunity to own their own home; to others it’s to work hard, save and live their golden years in comfort; to others it’s the opportunity to start a business and use it to build security and wealth for themselves and their families. So how is the American Dream working for you. For many today the American Dream is still very much alive to others its dead or at least on life support. Just consider the following:

Home ownership-One of the cornerstones of the American Dream

  • 11 million homeowners are upside down on their mortgage and have little hope on the horizon that their situation will change.
  • The value of the average American home has decreased 23.7% since the peak of May 2007 according to Zillow.
  • Foreclosures activity will increase this year as RealtyTrac expects 1 million homes to be repossessed by banks versus 804,000 in 2011.

Jobs Creation/Unemployment

  • Although 1 million jobs have been created in the last six months we’ve only replaced 43% of the 8.3 jobs that were lost in the Great Recession
  • Civilian labor participation is 63.6% which is the lowest since 1981. This means that in addition to high unemployment many people who can work are choosing not to for many reasons including: Baby Boomers retiring rather than continuing to work at unsatisfying jobs, second earners who find little incentive to rejoining the work force, student who stay in college because of limited employment opportunities and people on public assistance programs (food stamps, Medicare etc) who can’t afford to give up the benefits they receive if they become employed.
  • Although the Bureau of Labor Statistics’ unemployment rate is moving down towards 8% much of the improvement is created by workers who are still unemployed but aren’t counted anymore. Up to 500,000 workers have run out of benefits and have given up on looking for work so they are no longer considered “unemployed” by the Bureau of Labor statistics. If we added all people who are actually unemployed with people who are working part-time but who want full time work the number would be 16-20%. Adding people who have accepted jobs that pay less than the ones they lost about 1 in 4 Americans have been impacted by the New Economy.

Debt Crisis

  • The United States now owes more than it produces. Our national debt is $15.5 trillion and our GDP is $15 trillion. Unfortunately there is no plan in place to address this issue and probably won’t be addressed until after the November elections. Given how the two parties have behaved in the past there is little evidence to support that a viable long term solution will be worked out any time soon.
  • Taxes are needed to run government programs and reduce the debt. However only 50% of Americans pay taxes. This means that the half who does pay taxes must carry the full burden.
  • Export sales are slumping. After a two good years of selling American products to a global market exports are softening due to economic problems in Europe and a deceleration in economic growth in India and China. With this decline in global demand our ability to grow our export business is limited.

The American Spirit-We as Americans have always faced adversity with optimism and a belief in our collective ability to surmount any challenge. This is part of our DNA. Two Gallop statistics suggest that our spirit is still strong but may be wavering a little.

  • 53% describe themselves a s thriving (This is the silver lining and reason for optimism)but 44% say they are struggling (This means close to half of Americans have been impacted by the New Economy)
  • Last year 65% of those polled by Gallop said they made enough to live comfortably but that figure dropped to 60% this year. That’s a trend that is going in the wrong direction.

So what’s the solution for resurrecting the American Dream?

I’ll give you a clue. It won’t come from Washington, it won’t have government strings attached to it and it won’t happen without innovation, courage and hard work.

The simple and unavoidable truth is that job creation is the fuel for the nation’s economic growth. When more people have jobs, more consumers have money to spend — and consumer spending drives about 70% of the economy. Economic growth is the driver of the American Dream.

This means that the road to recovery and restoration of the American Dream must be paved with an entrepreneurial spirit and the growth of small businesses! Why small businesses and not corporate giants?

  • Large corporations tend to be slow to adapt in a changing marketplace (Sears, Black Berry, Kodak, and Boarders Etc).
  • Large corporations are often driven by quarterly results and investors looking for short term profits.
  • Many corporate CEOs are charged with maintaining the status quo rather than igniting the passion that originally drove the business to success.
  • Many of our current economic problems can be traced to corporate leaders who were corrupted by power and greed (AIG, MF Global etc)

Although current data from Intuit and ADP shows small businesses are adding jobs at a faster rate than larger companies, many experts still project the end of 2013 before small business employment reaches where it was in 2007. This of course is dependent on the global economy remaining relatively stable during that period of time.

What has to happen to accelerate small business growth?

According to a recent survey by the National Federation of Independent Business (here):

“The two principal impediments to current small-business growth are business uncertainty and weak sales… The single most important indicator that would renew small-business owner confidence in business conditions is increased sales in their businesses.”

So how do small businesses increase sales and gain confidence?

Based on the research I’ve done for my book “Leadership in the New Economy”, there are two ways business leaders look at these challenges.

  • The first and easiest way is to say it’s a demand issue. These businesses feel that business will improve when the economy picks up. Unfortunately, those who are waiting for demand to “knock on their door “are struggling (and will continue to do so IMHO).
  • The second way is to look at these challenges as marketing and business operations issues. I’ve found that businesses who are thriving now are effectively market themselves and adding greater value for their customers.

If you own a small business don’t wait for the economy to carry you. Have the courage and conviction in your own business to market yourself more effectively and find ways to create more value for your customers. Create a customer experience that not only creates customer satisfaction but inspires loyalty as well. Improve your business operations by engaging your employees in ways that taps into their knowledge and passion for your business.

Leadership matters more now than any time in our nation’s history. I’m not just talking about the leaders we elect I’m talking about the leaders who will lead the small business revolution that will restore the American Dream for generations to come. To borrow form Shakespeare, the question is no longer “to be or not to be” the question for American small business owners is, “To become a leader or be forgotten.”

If you’re interested in learning how to increase sales and profits in your marketplace get FREE access to the Growth Positioning Survey by clicking here. You’ll get a strategic snapshot of your business that maps out what you need to do to grow your business.

Customer Experience Management in the New Economy

How would you rate your customer experience management? If you have a customer experience that satisfies but doesn’t WOW you’re in BIG trouble.

Customer experience is defined as the sum of all experiences a customer has with a you and your business over the duration of the business relationship. This means every touch impacts that experience positively or negatively. Your customer experience management reflects your ability to deliver an experience that sets you apart in the eyes of your customers serves to increase how much they spend with you and, optimally, inspire loyalty to your brand.

Creating  a superior customer experience requires you to first understand the customer’s point of view. Only by standing in the customer’s shoes can a company appreciate the full impact of the day-to-day customer experience that the company delivers.

In the New Economy products are becoming commoditized, price differentiation is no longer sustainable and customers are demanding more. To compete, companies are focusing on delivering superior customer experiences. A study of over 860 corporate executives revealed that companies that have increased their investment in customer experience management over the past three years report higher customer referral rates and customer satisfaction (Strativity Group, 2009).

Many experts feel that the customer experience has emerged as the single most important aspect in achieving success for companies across all industries.

As evidenced by the number of business casualties over the past few years most companies talk about becoming customer focused, but few actually do it. Doing customer satisfaction surveys is one thing, changing the company’s culture based on what was learned from the surveys in something totally different.

Some companies have learned that being customer focused can give them a competitive advantage. Customers choose Disney World and Zappos because of their experience with them.

Let’s clarify the difference between companies that aim for customer satisfaction and those that seek to WOW their customers:

  • Because most, if not all, of the “bad” companies are out of business customer satisfaction is the minimal requirement to keep your doors open. Customer-focused companies strive to delight their customers.
  •  Most companies ask their customers about their needs. Customer-focused companies understand their customers’ needs so well that they can anticipate them and even surface unrecognized needs.
  •  Most organizations strive to meet their customers’ expectations. Customer-focused companies deliver more than what the customer imagined.
  •  Most organizations try to keep complaints to a minimum. Customer-focused companies encourage feedback from their customers so that they can learn from it.

A great example of creating a customer-focused culture is Zappos. A review of their number-one core value below speaks volumes about how they operate.

Deliver WOW through service, is Zappos’ founding principle. It’s not something written down and forgotten. It’s part of who Zappos is and every employee is immersed in it starting on day one.

Zappos lives their founding principle and it has served them well. How does your customer experience management stack up? Ask yourself this question:
DOES YOUR CUSTOMER EXPERIENCE MAKE SURE THAT EVERY CUSTOMER TOUCH REINFORCES YOUR UNIQUE SELLING PROPOSITION AND ENDEARS CUSTOMERS TO YOUR ORGANIZATION WHILE TRANSFORMING PROSPECTS TO CUSTOMERS, CUSTOMERS INTO LOYAL CUSTOMERS AND LOYAL CUSTOMERS INTO RAVING FANS?

If you didn’t answer with a resounding “YES” then you need to take a hard look at every customer touch and improve your customer experience management or pay the price for not doing so.

To learn how well your business is positioned to succeed in the New Economy take the Growth Positioning Survey now.

Business Growth Strategies That Can Ruin Your Company

Business owners, CEOs and presidents are always looking for business growth strategies. The key to success is to grow,grow grow! In the old economy mistakes made while growing were more forgiving so even poor business growth strategiebusiness growth strategiess often were  rewarded. However, things are different in the New Economy. A poorly designed or poorly executed growth strategy can be terribly costly.

One of the biggest mistakes with business growth strategies is growing beyond your company’s means because it’s like going on vacation without cash or credit cards. Neither will turn out to be a pleasant experience. This may sound like common sense but common sense isn’t always common practice. One of the top reasons for small business failure is lack of capital. And if following this principal was universally applied in larger businesses, why did we have to bail out the auto industry and the banking industry? In fact, of the 150+ major businesses that failed in 2008 and 2009 most were due to bankruptcy. (Wikipedia)

Some companies struggle because their eyes are bigger than their wallets. For example, a $5 million tech firm had enjoyed steady double-digit sales and profit growth selling non-core technology to small businesses.  In late 2011 the company jumped at the chance to bid on a large project for a mid-sized business for their core technology. They were ecstatic when they were awarded the business and high fives were given all around. However the euphoria quickly turned to angst when the CEO realized the project would consume most of their resources and cash flow for the next 6-9 months. Although the project would eventually be profitable the company had to take extreme measures to survive the implementation, including laying off personnel and putting a halt on new business development. The long-term viability of the company is still in doubt.

Spending and committing resources as if the road will always be straight and narrow is inviting disaster. Cash must be managed as the precious resource that it is instead of the endless supply people thought existed before the start of the Great Recession. At that time, much growth was fueled by the desire to grow and the availability of money. In the New Economy credit and cash have tightened up and demand has fallen off in many markets. This means unless you have money to burn don’t pursue business growth strategies in a market that doesn’t have demand or you can’t uniquely and effectively service. At least not right now.

Bob Hamilton Group President for ITW put several initiatives in place that helped his organization recover rapidly from the downturn they experienced in 2009. Among the actions taken, ITW:

  • Restructured several businesses to get their cost structures in line with the marketplace.
  • Assessed their various global markets and put resources where they saw growth and put growth plans on hold where markets were stagnant.
  • Improved working capital by managing receivables and inventory.
  • Implemented programs to increase cash flow.

These actions helped ITW implement business growth strategies in targeted markets and realize a 15% growth rate.

Do you have the financial resources to support your growth initiatives without putting the company at risk? Find out how your company’s growth strategies stack up by taking the Growth Positioning Survey FREE.

 

 

 

 

 

How to Retain Customers in the New Economy

Learning how to retain customers is essential for surviving in the New Economy. Without customers you have no bushow to retain customersiness so caring for them and nurturing relationships with them seems like an obvious strategy. Think again. Poor customer service is the number one reason customers stop doing business with their current supplier/provider. In fact according to a Harris Interactive study 86% of consumers stop doing business with a company due to poor customer service.

Companies spend huge amount of their budget attracting customers to their business only to lose them due to the customer experience they deliver. Trying to grow your business without a solid customer service program in place is like trying to fill a bucket with water that has gaping holes in it. Unless you fill the holes you’ll never fill the bucket.

What holes should you fill first? It depends on your business but to a Right Now study the top three customer service problems were:

  • 73% Rude staff
  • 55% Issues weren’t resolve in a timely manner
  • 51% untrained staff

Also according to the US Small Business Administration 68% of customers stops doing business with a company due to indifference. This means if you want to drive your customers away in droves you should ignore them,treat them rudely, serve them with uninformed staff and make them wait for issues to be resolved.  This is an obvious recipe for disaster.

Most businesses know that it costs 5 to 6 times as much to get a new customer as it does to keep an existing one and that existing customers are more profitable than new customers. So why don’t more companies do a better job learning how to retain customers? Lack of focus, training and follow up are the likely culprits. Many businesses seem to be saying, “I don’t have time to take care of my existing customers because I too busy chasing new ones!” If this is you or your business, STOP IT!!!

If you want to survive in the challenging times we live in you must fill the four biggest holes in your customer retention bucket. Put these simple, proven and powerful strategies in place starting today.

1. Pay attention to your customer. Don’t ignore them or take them for granted. Use whatever means available to you to cultivate a relationship with each and every customer.

2. Don’t hire rude employees and fire the ones who are. Companies like Zappos and Southwest Airlines take great care to hire people who are wired to give great service. If they are rude to anyone during the interviewing process they are rejected.

3. Train your people to effectively address your customers’ issues. Investing in the training of your front line staff is like making direct deposits in your customer relationships.

4. Resolve issues quickly, effectively and personally. Everybody makes a mistake. Admit it, resolve it and move on. 92% of customers who leave due to poor service would come back if they get and apology, receive a discount or get an invitation to observe improvement in customer service.

Implementing effective strategies in these four areas will give you a fighting chance to survive in a competitive marketplace.

If you want to thrive in the New Economy then you’ll need to up your customer service game and learn how to retain customers at whole new level. According to Peppers and Rogers Group 81% of the companies who excel in delivering customer experience are outperforming their competition. Customer  service excellence is a formidable competitive advantage. How does your company’s customer experience delivery stack up with your competitors?

To learn how well your company’s customer service initiative are contributing to your success take the Growth Positioning Survey.

How to Retain Customers When They Complain

how to retain customersEvery successful business must learn how to retain customers when they’re unhappy because your product or service failed their expectations. In business customers complain every day. Whenever an airline flight is canceled, a package lost, a meal served cold, a product delivered without all its parts, or a deadline missed, customers are apt to complain. When problems like these occur, the customer is rarely angered by the mistake itself. In most cases, it is the way the problem is handled that makes or breaks the customer relationships. There are two basic approaches for handling complaints: the compa­ny-focused approach and the customer-focused approach.

Company-Focused. This approach has employees justify the company’s position and defend why the mistake happened.  It usually involves the following:

  • Proving you are right and the customer is wrong
  • Showing it is the customer’s fault, not yours
  • Avoiding personal responsibility
  • Telling the customer you can’t or won’t do anything

Taking this approach makes customers feel they have to “jump through hoops” to get rectified what should not have happened in the first place.

Customer-Focused. This approach attempts to make complaints “hassle-free.”  This means providing quick, effective, hassle-free recovery to the customer; you take the heat, not the customer. It also means that if you are ever going to recover, you must get the full benefit of recov­ery. Use recovery as a positive strategy.  Ensure that customer issues get the type of responsive­ness that will turn unpleasant expe­ri­ences into positive ones. Keep in mind that 92% of customers who leave because of poor service would return if they receive an apology, a discount or proof that service has improved.

How to retain customers when they complain is an essential “Moment of Truth”  in the customer relationship. Handle it poorly and you not only lose a customer but the potential customers who are told about the poor service experience. Handle the complaint well and you can not only salvage the relationship but solidify as well.  To handle it well and maintain the relationship make sure that you follow these steps:

  • Say you are sorry.
  • Listen emphatically to the customer’s con­cerns.
  • Hear him or her out. Let the cus­tom­er vent emotions. Circumventing or minimiz­ing the importance of emotion only invites com­plications. Letting off steam may be the beginning of a rational discus­sion.
  • Clarify the problem. Use your questioning skills to properly define the nature and cause of the problem.
  • Take total responsibility for “making it right.”
  • Solve the problem without blaming some­one else. Address the problem with an appropri­ate course of action. Offer a solu­tion based on the nature of the problem and your comp­any’s ability to rectify it. Be careful not to over-promise what you can do to correct the situation. If you drop the ball again, you may not get another chance to carry it.
  • Regain customer confidence in the product or service. This can only be done with ac­tions not empty words and promises. When the solution is implemented, make sure that the customer is satisfied and sees the value of your company’s efforts.

Customers have many options in the New Economy. Drop the ball on them and most will just leave without saying a word. When customers do complain its an opportunity to learn new ways of how to retain customers. View complaints as specific suggestions of how to expand on how you satisfy or exceed your customers expectations.

Complaints will happen. How you handle each one will be your signature for managing the customer experience.

To discover ways in which you can improve your customers’ experience take the Growth Positioning Survey.

 

Corporate Culture and Leadership in the New Economy

Corporate culture and leadership are essential in the New Economy. Why? Because in turbulent times it’s imperative that organizations have a clear sense of direction and purpose. Not having everyone on the same page results in chronic organizational dysfunctionAligning Vision, Values, Mission and Culture in the New Economy where employees and departments are working at cross purposes by pursuing conflicting goals. Remember every misalignment squanders your company’s ITEAM *(Information, Time, Energy, Attention and Motivation) and drains your profits. (*Mike Jay, B-Coach)

Many companies may have a written mission, vision and values statement but most fail to formally develop their cultures. Because leaders put off the heavy work of erecting the scaffolding of values, policies, shared beliefs, rewards, rituals, and visual elements that form culture, a void is created. In that void, culture happens spontaneously, organically and usually chaotically. Culture becomes an aggregation of random decisions made by different people in particular circumstances. The notion is that if the people are good, decent and competent, chances are, the culture be good, decent and competent as well. This approach is a recipe for disaster. As the leader your biggest responsibility is creating a culture that is scalable and sustainable. With or without direction nature and nurture will combine to form organizational DNA that informs your people of “how we do things”. This message grows more visible and pervasive over time.

Many successful entrepreneurs aren’t content to leave their corporate culture and leadership to chance. From the beginning they select people, implement policies and clarify what’s important at every step of the way. Because they want a culture that can sustain itself these leaders believe in culture by design.

“If you don’t define the culture and you don’t work on it and you don’t progress it even when it’s 2-3 people, it’ll define itself. And it’ll define itself really quick, and it may not be the one that you like.” -Matthew Porter, CEO Contegix

Large organizations with well-developed cultures often neglect them resulting in the culture changing into something at odds with the organization’s vision and stated values.

A good example of corporate culture and leadership that went awry is AIG. According to Corporate Culture: The Ultimate Strategic Asset*, AIG’s failure during the global financial crisis of 2008-09 in part can be attributed to misaligned values and a changed culture. AIG had as a core competency managing risks and a culture where anyone could challenge a trade. Under Joseph Cassano, the financial products group sold hundreds of billions of credit protection in the form of CDs without having to put up any real money as collateral. As sales grew the group took on more and more risk. Under Cassano’s leadership the culture evolved into one in which transactions couldn’t be criticized. When, in the financial crisis of 2008, investment banks sought insurance money for their collapsing derivatives, AIG could not deliver and received a bail-out from the taxpayers. A culture of growth at any cost overshadowed the old culture of managing risk and the rest as they say is history. (*Corporate Culture: The Ultimate Strategic Asset, Eric Flamholtz and Yvinne Randle,Stanford University Press 2011)

Many successful organizations like FedEx, IBM, Amgen and Disney have “woken up” to find that their corporate culture and leadership weren’t aligned with their vision. This “Ah Ha moment” forced leaders to impose a cultural re-alignment. This was a painful process (IBM laid off 60% of its workforce).

When you look at your company’s corporate culture and leadership what do you see? Are your company’s Culture, Mission, Vision and Values aligned so everybody in the organization understands and acts congruently with them? Take the Growth Positioning Survey and discover where your company stands.

Say Goodbye to the Status Quo

It’s time to say goodbye to the status quo. In the New Economy you can’t afford to lead by looking in the rear view mirror, holding on to the status quo and doing more of what you’ve always done. (How did that work for Kodak, RIM, and Hostess to name a few?)  Instead stay focused on your vision and the road ahead.  As a CEO or business owner you must leave the state of denial and wake up to the fact that it’s not gosay goodye to the status quoing to be business as usual…even if it may seem like it now. Shift happens and things can change in a hurry. First Solar, the solar energy panel manufacturer, was racking up record sales and profits over the past several years and was even named the fastest-growing tech company by Forbes in February of 2011. However, before the end of the year the company’s financial foundation was shaken with softening demand and cheap competition forcing dramatically lower prices and profits and the CEO being forced out so that new leadership could be brought in to deal with the new marketplace.

Experience is the best teacher but the cost is often prohibitive. You can crash your company on the rocks of the New Economy or you can learn from the CEOs who’ve gone before you. Now is the time to develop a new mindset and start looking at the marketplace and your business with new eyes and listening for different signals so that you don’t get lulled into a trance by short periods of the “familiar”.

As a CEO you must learn to become comfortable with these three answers to almost any question you may ask:

  • I don’t know
  • It depends
  • We’ll need to test that

Instead of feeling compelled to have your people give you definitive answers that indicate certainty, embrace the opportunity that exists in the unknown. Instead of accepting compliant answers to complex issues, create dialogue by gaining facts about what’s really happening. Surround yourself with people who will tell you the truth. Develop the discipline of constantly testing, challenging and validating your assumptions as you move forward.

By challenging the status quo instead of trying to preserve it you create a dynamic organization that is better attuned to compete in a fast changing marketplace.

In what ways are you constructively challenging the status quo so that you can learn, adapt and grow?

The Five Key Drivers of the New Economy

In order to effectively embrace the New Economy you must understand the Five Key Drivers that are responsible for the “cthe five drivers of the new economyonstant white water” in which businesses must now operate. Knowing how these drivers impact your business and your customers is essential for developing and implementing business strategies.

1.    The Economy has Become Customer-Centric. Customers today are more informed and have more options available to them for getting their wants and needs met. They are no longer content to be passive in the buying process. Instead they are aggressively seeking alternatives, comparing offers and holding out for the best price.

Customers are also engaging vendors/stores later in the buying process because they are doing the education themselves. Big box stores like Best Buy are seeing transactions per customer drop due to strategic shopping (customers do their research and enter the store with the sole intent of buying the one product and then leaving). Businesses are seeing this as well based on Marketing Sherpa’s estimate that eight out of 10 B2B sales are now initiated by the buyer finding the seller.*

-*How to Find New Customers: The Definitive Guide to Driving Demand for Your Company’s Products and Services, Jeff Ogden

Once a guest or a prospective guest picks a destination they can go on-line and find a thousand different options for how to travel there… So, we have to be very, very tight and do a very careful job of defining value, because people have tremendous shopping power at their hands. So, we have to be very good at communicating and finding ways of communicating the value in our trips.”

-Edward Piegza, President of Classic Journeys, a 5 time winner in Travel and Leisure Magazine’s World’s Best Tour Operator

2. Globalization.No matter how you look at it we are in a globally-connected marketplace. From finances, to technology, to market demand… we are connected. When China sneezes everyone gets a cold.We, in the United States, can’t pretend that the rest of the world doesn’t exist.
Even a small business in the Midwest that doesn’t import or export anything is no longer exempt from being impacted by the global marketplace. This is because someone in that business’s value chain or customer base is being impacted by a company abroad.

What does growing corn and soy beans in Minnesota have to do with a global economy? Nothing unless you were a farmer with funds being manage by MF Global.

Dean Tofteland a Minnesota farmer who missed his deadline to buy seed for the spring’s soy and corn crops is a good example of how the global economy can impact almost anyone.  Tofteland missed his deadline because he lost $200,000 that was being held in an account managed by MF Global.  MF Global is the firm that was run by former New Jersey Governor Jon Corzine until it collapsed on October 31 after making bad bets on European debt.

Because Tofteland missed the early-buyer deadline he couldn’t take advantage of the $5,000 discount and may have to buy seed with borrowed money. Tofteland is not alone as farmers across the country have yet to recover up to a third of their money invested with MF Global. The ripple effect is that many of these farmers will see the cost of doing business going up, profits being threatened and prices increasing. All of this was caused by the unintended consequences of investing in European debt.*(Reuters)

3. Business Volatility.Change is now a constant. As markets and customers become less predictable businesses must vigilantly monitor the landscape. Trends start quickly and can escalate overnight bringing with it either great threats or opportunities. This often leads to shorter life cycles of products and services. With shorter life cycles market leadership is short lived, as is the opportunity to fully leverage the profit potential of the leadership position. Being the market leader in the past, meant years of market domination (think about IBM, Kodak, Nokia, Sears and Polaroid). In the New Economy market leadership is often measured in months. How quickly and effectively a trend is recognized and acted upon is the key to success.
Market leadership is not a destination. It’s a race that must be won every day!

4.  Technological Velocity. Trying to keep up to speed with the advances in technology is similar to trying to drink from a fire hose. The volume and speed of innovations in technology are simply becoming overwhelming.  One of the biggest dilemmas with technology is that it represents a double-edge sword. Although advancements in technology bring about greater efficiency and productivity, they also eliminate jobs and put constant stress on organizations to continually adapt and assimilate new systems and processes.

To highlight this trend consider the following:

  • Just a few years ago a website was considered a luxury for many businesses. Now it’s essential for survival.
  • Cyber Monday didn’t exist before 2005 and now retailers do over $1 billion in online sales on that day.
  • Digital advertising wasn’t a serious vehicle for most businesses 10 years ago. Now it exceeds $30 billion and captures 1/5 of advertising money spent in the US.
  • Worldwide there are 88,000,000,000 searches a month done on Google and 46% of the searches are for products and services.
  • Facebook has 800,000,000 active users. This population would make it the third largest country in the world.
  • There are 6.6 billion mobile phones for a worldwide population of 7 billion.
  • Last year’s mobile data traffic was three times the size of the entire Internet in 2000.* (Cisco Visual Network Index: Global Mobile Data Traffic Forecast Update, 2010)
  • The computing power of a smart phone is equal to that of mainframe computers from the 1980s.

Armed with this technology customers want information available to them at anytime and anywhere. If one company won’t provide it there are dozens more who will.

Technology is changing every aspect of our lives both at work and at home. Let me share a real-life example that highlights this concept. I was eating breakfast at a McDonald’s reading the newspaper when I noticed a 5-year-old girl giggling and pointing at me to her father. The father quickly apologized by saying, “I’m sorry about my daughter, it’s just that she has never seen anyone reading a newspaper. I always get my news on my phone.” The young father was in his twenties and had never relied on the newspaper for getting news so his daughter had never seen it.

To succeed companies must incorporate technology strategically into their organization so that they are better equipped to function in a changing marketplace. One of the biggest challenges leaders have with technology is determining which technology will actually move the business forward. Select the right technology and the company leap frogs ahead of the competition. Guess wrong and the company is saddled with obsolete gadgets that become obstacles to doing business.

5. Emotions Rule. Financial markets from Wall Street to main street and beyond are driven by fundamentals and psychology (i.e. emotions). Most financial experts feel that the fundamentals for continued economic growth across the board are lacking.  There’s just too much debt coupled with tightening credit and a stagnant job market necessary to drive sustained demand.

Steve Hennigan, President and CEO of San Antonio Credit Union explains our current market situation this way, “… we’ve been in a growing money and credit system for 70 years; it’s never seen a contraction. And what most people don’t understand about capitalism is that our capitalist society today is built on money and credit and that the money and credit system is not a finite system. It’s actually an expandable and contractible system just like your lungs. So we’ve actually been expanding the money and credit system, which is their lifeblood of the velocity of money, and I should say of credit and business and commerce. We’ve been expanding and in that expansion mode for 70 years. And so we’ve hit a peak, and it now requires a contraction.”

With the fundamentals breaking down (financial, housing, investment, retail, etc.) markets are being kept afloat by three basic emotions:  Hope, Greed and Fear. People buy when they have hope that the “recovery” has arrived or is just around the corner. They also purchase when they feel they can beat the system (the dot com bubble, housing bubble, etc.) which is greed. Finally, they withhold purchasing when they fear that they might take a loss or make a poor purchase decision.

These three emotions impact individual consumers, businesses and governments alike. In the New Economy everyone’s emotions are more exposed, excitable and vulnerable. That’s why there is so much volatility and disparity in how these emotions express themselves in the marketplace.

Recent Gallup research captures the emotional disparity that exists in the US. The index showed:

  • 44% say they are struggling and 3.7% are suffering, while 53% are thriving
  • 49% of US say their finances are worse off than a year ago and yet 56% predict that their finances will improve in the coming year. (Gallup)

An example of emotions driving volatility in a stock happened when CIT, a key lender in the retail industry, announced that it would no longer supply credit to suppliers shipping goods to Sears’s stores. Sears stock fell 6% before recovering at the end of the day. Although CIT finances less than 5% of Sears’s inventory their announcement sent fear into the marketplace that could create a domino effect on Sears’s business. Other finance companies may be driven to raise their rates to protect themselves from the perceived risk that Sears won’t be able to pay their bills. If this occurs Sears will have to pay more to stock their shelves and reduce the amount of capital needed to grow their business.  This chain of events is a likely possibility even though the fundamentals indicate that Sears has the liquidity to fund its inventory.

Leaders need to understand that emotions are impacting markets far more than any time since The Great Depression. Ignoring this key principle can lead to negative and possibly devastating consequences.

The five key drivers of the New Economy are gaining steam and will continue their influence on businesses of all kinds and sizes. Monitoring them and assessing how they impact your market, your customers and your company helps you take proactive steps and to course correct when needed.

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