Jessie Paul on Services Marketing For a FlatWorld

Saturday, January 31, 2009

Davonomics - Rise of a New World Order

Having braved a 3-hour train-ride with two changes in the snow, I arrived in Davos. Mood isn’t quite as perky as it used to be at the world’s biggest conference, but a fair number of CEOs have made it here, perhaps flying commercial for the first time in 30 years. There is definitely a drop in the number of limos, and a significant rise in security. The current economic crisis has broadened geographic representation with countries like Azerbaijan, Armenia getting time in the spotlight, and Vladimir Putin and Wen Jibao ably positioning their countries. (Traveling with an entourage of 100+ does tend to amplify the presence.)

We hosted our annual Wipro-CII Bollywood music party last night. Amitabh Bachchan was in Davos with his wife, Jaya, to collect his Crystal Award from WEF and stayed at the same hotel and was invited to join the party. But while very gracious to fans asking for a photo or autograph, he decided not to join in. So we ended up with the slightly surreal situation of a roaring party with 250 people of all countries dancing to Bollywood numbers, while one of its biggest stars sat in the hotel lobby (the only spot with wireless access) and conscientiously cleared his email! Only in Davos.

The Chairman of Wipro is addressing the audience today on the global economic outlook. I was researching material that showed the linkage between economic wealth and geopolitical power when my friend Lan Lakshminarayan gave me a nifty framework “economics follows demography, and geo-politics follows economics”. So rather than just focus on the recent financial meltdown as just another recession, we could view it as a cross-border economic shift which could alter the world’s political and economic balance on the same scale as Industrialization, Rise of Britain as a colonizing sea-power, Germany’s land-based expansionism, America’s emergence as the sole global power, and the Bretton-Woods agreement.

Why do demographics matter? Historically ‘younger’ nations have been more dynamic and have created wealth at an accelerated pace, and today roughly one third of the 76 million people added to the world each year are in India – 22% and China – 11% (UN figures). Automation and productivity improvements have helped reduce the direct linkage somewhat, but the cost of supporting the aging population with a smaller base of workers tends to offset those gains. Also, governments will push more of their responsibilities (eg healthcare, transportation, security) and associated costs towards private enterprises and increase the cost of doing business in those countries. So we can assume that there will be a disruptive shift in riches towards those countries that maintain their populations at the replacement level either organically (birth-rates) or inorganically (immigration).

Economic growth rarely takes place without geo-political shifts. Growing economies embark on expansion to gain access to raw materials and ensure free flow of their goods and services (Similar to the vertical integration adopted by companies to secure their supply chains). For example, energy security is a key objective for many growing economies and they focus on securing adequate supplies and then safeguarding its transit. In the past, a country – or business enterprises like the East India Company or the South Sea Company – would have simply “annexed” the required territory for its pipelines or ships. But today, similar to the recent business trend of economic partnerships substituting absolute ownership, countries increasingly exercise soft power and economic clout to gain their strategic ends, rather than the military option. For example, China uses ASEAN as its platform for building a free trade zone, from which politically strong trading partners like US and India are excluded. China even offers IMF-style funding assistance to ASEAN members. Both China and India are actively investing in places as disparate as Bhutan and Africa.

This competition for resources, and the desire for prestige, will cause changes in the geo-political map. While America will continue as an economic powerhouse despite the current dip, the financial meltdown has reduced America’s premier status as the chief economist to the globe. China is currently larger than India in terms of output and trade, but the gap is expected to narrow over the coming five to 20 years. The bilateral relationship of India with China and of both these emerging ‘superstates” with the US, Japan, France, Germany and other economic powers will shape both geopolitics and economics in the years to come.

For business, there is an additional dimension to consider. And that is the transforming power of ubiquitous technology in enabling a world where the nature of work is increasingly services-oriented and digital, and where work can be done anywhere. The current economic cycle and the accompanying focus on reducing travel and increasing flexibility to ramp-up and ramp-down, could accelerate trends such as
· work-from-home which would cause a decline in the growth of mega-cities
· increasing use of teleconferencing/telepresence as a substitute for business travel
· temporary virtual aggregation of individuals on a project-basis eg crowdsourcing leading to a decline in full time employment

To summarize, when we come out of the current recessionary cycle, the world will look different politically, economically and technologically, and those who plan for those changes now, will not just survive but thrive.

And who knows? Maybe ten years from now, the axis will have shifted so far that WEF will up itself from its icy, inconvenient home and relocate to the equally picturesque town of Madikeri, Karnataka. It’s just as well connected!

Sunday, January 11, 2009

Superstar CEOs - a statistical perspective

Why? Why would a much-felicitated, award-winning, philanthropic, super-rich, founder-CEO do this? This is the question many ask themselves as they track the unfolding saga of Satyam's founder, Mr Ramalinga Raju who confessed this week to overstating revenues by a billion dollars.

But is there a marketing angle to this? No, no, not the overstating revenues bit, but in creating an environment where CEOs become superstars, and think they can get away with playing by rules which are, umm, different. In an excellent piece of empirical research, Mr Malmendier and Mr Tate of UC, Berkeley argue that the consequence of media-induced superstar status for CEOs is actually negative for shareholders.

Here's how it works - the CEO performs really well for a few years, and then starts to win awards given out by the media and becomes famous. He or she then starts to devote more time to activities like authoring books, playing golf, and sitting on other company boards. (This is also accompanied by an above-average increase in non-cash compensation to reflect his "star" status.) Then, because of all these distractions - which could also as per the research include increased loans from the company to the CEO, payments to his favorite charity, sponsorship of sports - the CEO doesn't devote as much time to the company as he used to. Now, to meet analyst expectations, he starts resorting to earnings management. This usually stretches to a max of 5 years after which the company starts underperforming. The important caveat however is that all of these tendencies are far more likely in companies with poor governance.

Intuitively it seems to make sense, and the authors put up an impressive mass of data to support their thesis - even golf handicaps of the top CEOs and how it increases after winning an award! The data is from the US. But the celebrity culture is taking root across the world, so it seems pretty likely that this should hold true globally though perhaps with weaker linkages in less celeb-influenced cultures.

So, should marketers stop pitching CEOs for awards? No, but it is important that the company has governance mechanisms in place to ensure that the superstar CEO doesn't have too many "star moments" and continues to work for the shareholders.

There are also those who blame the media for hyping up CEOs. This research shows that the reputable awards (which are mostly owned by media firms) do their research pretty well based on public data and the CEOs do tend to outperform their peers in the years prior to winning their major award. (Though the performance could be due to luck rather than excellence.) It is only the CEOs post-award performance that varies, and that is correlated to the presence of good corporate governance controls.

So why is a celeb-culture wrong in business but ok in other industries like films or music? The key difference is that a CEO is made a celeb by the media and the marketing team (through ads and editorial) not by the actual beneficiaries ie the shareholders or clients. This is unlike films or music where the audience has to like the product and buy it for the creator to be a celebrity. The media plays a supportive role in managing their perceptions. And when the celeb has one star moment too many - like Britney or Lindsey - the audience can drop them without any financial pain.

What can companies do to ensure that they are benefited by a celebrity CEO (and not taken for a ride)?

1. Diffuse the "star" status across a number of top management roles so that the company gets the benefit of the star-power without being dependent on any one star (and thus open to rent-seeking behaviour)

2. Create a special cadre of non-operational 'evangelists' who can be given star status without impacting the performance of the company

3. Have strict governance mechanisms in place to ensure that CEO commitment does not decline and that company resources are not diverted to the CEO's hobbies

4. Task marketing with making a clear distinction between external activities that promote the company's strategy vs those that only promote the CEO, and fund accordingly.

5. A sharp fall in the CEO's shareholding should trigger an alert to the Board that he is perhaps not as committed to the firm as before. Another empirical study suggests that a management holding of 0-5% and >25% are best for the firm.

In short, media and marketers have a role to play in restraining the rise of the celeb-CEO culture, and companies need to have a strong oversight mechanism to check the celebrity CEO.
Thanks to Dom Dada, Flick'r for the photo.

Sunday, January 04, 2009

Moving away from "my" media to "our" media

I helped create my first commercial website back in 1998. (To see what the Infosys site looked like in 2000 visit the web archive project ) For most of the next 10 years at various firms a lot of my online efforts have been centered around driving traffic to the company website. The techniques varied and got more sophisticated - we started using professional SEO, paid for adwords, signed up for distribution networks like Techtarget. But essentially it was all towards driving traffic to "our " website.

Quite a bit like the old sandwich-board chappies drawing customers to a main-street shop. It wasn't till last year that this old model finally looks a bit frayed. 2009 might be the year when businesses will be expected to provide customers with ALL the information they need, where they are, and not expect to entice them elsewhere, to a corporate portal. So if your potential customers are on Facebook, Youtube, or LinkedIn or any other online hangout, you may need to start - and perhaps even close -the conversation there. Some like Youtube allow businesses to do this legitimately and easily - you can buy yourself a channel. Others, like Facebook are still experimenting with various models to demarcate commercial vs personal.

Marketers have of course been using ads in popular hangouts to get attention and get potential customers to visit their sites. The difference is that now the ads have to be infotainment and the potential customer may not want to leave their hangout and may just want to transact with you where they are. For a generation brought up with paypal and ebay and amazon the concept of visiting a corporate website to close a transaction may seem sooo old economy.

So essentially there is a shift from "owning" your prime online property - your corporate website - to "renting" it from a new media firm. And you will have multiple such leased sites - at all the popular hangouts. Today, for most marketers these "rental" properties are still intended to direct traffic back to your "own" website. But I am not sure that will continue to be feasible. And, while it is great to become your own broadcast channel and leverage the ready audience proferred by these hangouts, the rents will rise as these hangouts overtake traditional media in reach. So what can marketers do to build their own "rent-free" properties in a world that is increasingly congregating in a few hubs?

As part of Wipro's efforts to expand on the new medium and present content in an interesting manner, we posted a "Holiday Story of SOA and Penguins" on youtube. It is a pilot and it still needs some editing so it wasn't promoted - but we still got over 1400 hits in a week. Sure, a corporate website picks up that many hits in a minute - but that is from folks who were already interested in your firm, whereas this video is targeting those hanging out on Youtube, with an interest in SOA (or perhaps penguins). This story got picked up by Financial Chronicle too. So for a limited spend - just the animation cost - we got pretty good airplay. But that brings me to my original concern. How do I ensure that I have a powerful channel of my own that does not rely on aggregators like Youtube? Ideas welcome!

Thank you for reading this blog. I wish you all a 2009 filled with peace, joy, and true recognition of the power of marketing!