Archive for the ‘Nike’ Tag

5 Steps to Digital Transformation

Most companies want to better leverage digital technologies — social, mobile and cloud services — to deliver an enhanced customer experience, enable new business models and drive greater operating efficiencies.  They also dread falling behind their bolder, more agile competitors. Yet, most leaders are unclear as how better to use the technology they have or decide which new tools to adopt. How can these laggards prudently catch up?

It is well documented how transformational leaders like Starbucks, Nike, Cisco and Apple have employed digital enablement — organizationally and technologically — to generate new revenues, extend market leadership, and reduce cost by streamlining processes and practices.  Unfortunately, these firms are the exception not the rule.

MIT Sloan Management Review and Capgemini Consulting conducted a survey in 2013 of 1,559 executives and managers spread across a wide range of industries. The survey looked at the state of digital transformation, and the barriers and enablers that are impacting this journey.  To be clear, we are talking about embracing breakthroughWeb 3.0 technologies such as cloud computingcrowdsourcing3D printing andlocation-based analytics, not more common applications like e-commerce or server virtualization.

The study’s key conclusion is sobering but hopeful. Despite the promise (or hype) of a digitally enabled business, most companies have been tentative in fully adopting new technologies and supporting them with organizational changes.  Fortunately, the study also highlights some best practices that point a way forward to fully exploiting potential of digital technology. Some of the study’s key finding are:

  • There is a digital imperative. A convincing 78% of respondents said achieving digital transformation will become critical to their organizations within the next two years.
  • However, words do not match with reality.  Only 38% of respondents said digital transformation was a high priority on their CEOs’ agendas.
  • Awareness of the intent-action gap is a good first step. A strong 63% of the executives acknowledge the pace of technology change in their organization is too slow.
  • Firms that were considered digitally savvy typically outperformed companies that lagged in technological implementation.

There are worrisome but often benign causes for this lethargy.  The study and our research point to many factors, including:

Lack of urgency: Firms with no ‘burning platform,’ competing management priorities or who focus inordinately on short-term results will be less willing to put sufficient focus and resources behind digital initiatives.

Pessimistic culture: Many organizations are naturally risk averse, have management systems that don’t handle technology issues well or display a ‘not invented here’ mindset to technological adoption.

Low digital awareness among leaders: A digital divide exists in many companies between junior or middle managers who understand the potential of digital technology and those leaders who make strategic and financial decisions.

These barriers must be overcome. Entire industries (e.g., travel, music, retailing) have been disrupted by digital pure-plays and/or seen their margins shrink significantly.  Acknowledging the issue is no longer enough; organizations must get in the game.  Here are five best-practice recommendations we have made to a variety of clients:

Raise digital literacy. To begin with, all cross-functional leaders need to understand key digital trends, what their competition (current and emerging) is doing and what are some best practices from outside their industry.  Nike looked beyond the apparel industry to the wireless, controls and sensor industries when launching its Nike+ offering.

Focus the impact. Technology should not be adopted because it is cool and flashy. It must support the core mission and priorities of the firm — not create new ones.  When Starbucks made its digital transition, it added services that would enhance the customer experience (free wi-fi) and streamline operations (add digital payments to speed up the order/payment process).

Organize for success. Companies can take many steps to support transformation, including mandating digital representation on cross-functional teams, forming digital ‘centres of excellence’ and giving enterprise-level authority for digital investments. When media firm Gannett and Columbia University wanted to accelerate its adoption of digital technologies, it created a new chief digital officer position with a mandate to spur technological adoption and relentlessly evangelize the vision.

Re-tune practices. Make digital literacy part of key practices like recruiting, research and training.  Create and connect digital transformation metrics to reporting, incentives and the performance management system.  One of our clients in the IT sector requires their planning activities and templates to include a digital lens.

Walk, don’t run. Big bang technology adoption rarely works.  Pick an operational, service or marketing pain point and investigate how digital technology can help solve the problem or improve performance.  Pilot something.  If it works well, scale quickly.  If it doesn’t meet expectations, kill quickly, inculcate the lessons and move on to something else.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Gamification 101

Over the past year, our firm has received more calls on Gamification than any other new business topic.  Two client questions stand out: What is Gamification? And, what problems does it solve? When answering, I begin with a tale of two employees, Mary and Greg.

Mary is one of thousands of disengaged employees working in a typical call centre.  Her year-old job is lonely and repetitive with little autonomy or creativity. Mary’s daily tasks have become so routine and measured that she vacillates between boredom and fear. Although she is supposed to receive quarterly performance reviews, her boss spends most of his time recruiting and fighting fires. Senior management regularly mandates her department to implement process redesign and change initiatives, many of which are divorced from what really goes on in her job. Most likely, Mary is monitoring online job postings, a prudent strategy given that the COO regularly muses openly about outsourcing her function.  The chances of Mary staying another 12 months are only 50%.

Ten months ago, Greg was fortunate to get a call centre job call in a firm employing gamification principles and technologies. Greg can’t wait to start his day by logging into his firm’s “gamified” workflow management system.  The first thing he sees is an Avatar — a virtual and personalized representation of himself.  His Avatar acts on his behalf, taking customer calls, going to meetings with other Avatars and updating his skills. Information about his team’s progress is fed to Greg in real time, including critical customer issues and company social outings.  Instead of the usual call centre metrics, Greg competes with his colleagues for badges and ranks.  Moreover, he accumulates a virtual currency (that can be exchanged for special perks) when he distributes best practices and assists co-workers with problem solving.  A combination of game-enabled fun, friendly competition and subtle peer pressure has helped Greg become a fully engaged employee.  Not surprisingly, he has developed new leadership, communication and collaboration skills that put him on track for a promotion.

The first story is illustrative of many companies.  The second tale is fictitious but will soon be commonplace. Firms as diverse as Adobe, Whole Foods, Nike, Microsoft and Duane Reade are using games to transform routine and mundane tasks into more useful, fun and financially rewarding activities. The business outcomes are compelling: improved consumer loyalty, increased employee engagement and higher levels of collaboration & information flows.

Gamification is hot.  According to a 2011 Gartner Report, more than 70% of Global 2000 organizations will have at least one gamified application by 2014. Even if you square root these numbers, Gamification is destined to be the next big thing.

Gamification defined
The most common definition is the use of on and offline game principles, techniques and technologies in an organizational context to improve business results. At their core, Gamification programs use stories, missions, incentives, and real-time feedback to change a person’s behavior over the long term. Stories can be anything that captivates and catalyzes a person’s interest over an extended period. Incentives can range from simple leaderboards, ranks and badges to the creation of virtual currencies that can be traded.

Problems solved
Gamification has been used in a variety of applications, including:

  • Improving operational productivity – Microsoft uses team-based competition and leaderboards to more quickly and thoroughly find software bugs.
  • Driving consumer awareness and engagement – Duane Reade uses location-based, competitive gaming to build awareness of their stores and merchandise selection.
  • Deepening product usage – Adobe has gamified their Photoshop tutorial to improve a trial user’s knowledge of core functionality.
  • Facilitating employee learning and participation – Deloitte uses Gamification to better address employee concerns and manage performance in areas like training, document creation and community engagement.
  • Increasing employee engagement – One of our pharma clients used a game to better align around corporate goals, teach workflows and promote cross department collaboration.
  • Triggering lifestyle changes – The Nike+ game promotes exercise by allowing people to track their results and compete against their friends and others.

Four pillars
Winning Gamification strategies artfully combine four elements:

  1. Business strategy – Powerful Gamification programs are tightly coupled to core business strategies and metrics
  2. Motivational science – Successful games leverage key precepts of behavioral and social psychology such as the importance of continuous feedback, competition and public recognition.
  3. Video game learnings – Popular video games have been shown to increase brain endorphins, which lead to higher levels of blissful happiness.
  4. Collaborative technology – A variety of companies like Bunchball and Salesforce.com have deployed enterprise-level Gamification platforms that can run different games

Both consumers and employees just want to have fun. Indulging them is becoming a sure path to business results (when the Gamification program is properly designed).  Ensuring this happens will be the subject of the next Gamification column.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Gamification: games businesses play

Game playing is moving out of the animated world of video games and into mainstream business. Gamification – the use of games to address business problems or opportunities – is an innovative form of consumer and employee engagement  that translates online game design elements into non-game settings.  A recent phenomena, gamification is being used by innovative organizations to: 1) increase consumer participation with a brand; 2) drive faster adoption of a new application or tool and;  3) foster process alignment. The premise is that games can help change and sustain new behaviours among your target audience, thereby generating real business value.   Games are particularly helpful with tasks people find a hassle, boring or psychologically challenging, such as following routines, shopping, completing surveys or reading websites.

Gamification improves engagement by leveraging a person’s psychological nature to play games, interact with others, and seek extrinsic rewards.  The more entertaining, competitive and rewarding the game is, the more likely people will participate in a desired behaviour and for longer periods of time.  Numerous studies have shown that extrinsic motivators (e.g., leader boards, badges  and virtual currencies) are effective drivers of participation, at least in the short term.  To be fair, it has yet to be proven whether extrinsic motivators (versus intrinsic motivators like personal will and desire) are sufficient to trigger long term behavioural change.

Game playing is common to every demographic and socio-economic group as it addresses fundamental human desires for things like rewards, status, achievement, competition, self expression, and altruism. Not surprisingly, Gamification can produce benefits across the  entire organization.  Marketers look to games to increase consumer participation with their brand or social media presence;  players are more likely to return to a site and engage in desirous online behaviour like completing tasks, visiting different web pages or shopping.  Other functional groups can use games as a means to catalyze employee action in areas like improving project execution, completing corporate education programs and maintaining employee health regimes

Gamification in action

Knowledge@Wharton, a publication of Wharton Business School, has noted some well-known examples of innovative gamification programs:

A Nike program, Nike Plus, allows runners to keep track of their runs using a small accelerometer in their sneakers.  The runner can plug the device into their computer and track results against their friends via leader boards.

The USA cable network uses a rewards system to fuel an ardent fan base for some of their shows like “Psych.”   Viewers on the channel’s special “Club Psych” website are awarded points for their active engagement with the site.

In an effort to cut its high fuel expenses, software firm SAP uses point-based games to incentivize employees to carpool.

Given the newness of gamification strategies and the inevitable customization needed for each company, published best practices and ROI numbers are not always accessible.  However, we have discovered some learnings that would benefit organizations looking to dip their toe into game-playing:

Great games are more than the sum of their parts

Just because something has an interesting game element doesn’t make it a good, complete game. Truly successful games are designed around a business need, are compelling to play and really focus on something fundamental that people genuinely want to do. Because game design is often based on widely held but sometimes faulty assumptions – for example, money motivates people the most –  managers must be careful not to introduce bias.

Start small and test

Like any other tool or methodology, games can be misused and manipulated (i.e. people cheat), producing unintended consequences or results.  The best approach is to do little experiments,  test different variables and measure the right metrics, both quantitatively and qualitatively.

Get the right business owners

For optimal strategic focus and game design, games should be “owned” by the business unit or department that has the pressing business issue.  Regardless of the of the game being run, it is well advised in the planning stage to engage a team or outside firm with solid functional expertise, experience in human psychology,  and expert game design skills.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

The critical role of IT in driving sustainability

In previous columns, I have written about how companies such as Nike, Walmart and SAP are using sustainability strategies like Product Life Cycle Analysis, green product development and the reframing of environmental standards to deliver on their sustainability goals. Now, we turn our attention to the important but often overlooked role of Information Technologies (IT) in supporting green business strategies.  In the past, many companies have been reluctant to consider IT for a host of reasons including the presence of significant legacy assets; the mission-critical nature of many IT systems and; the lack of a strong consumer impetus. 

IT systems and their accompanying data centers are a major source of carbon emissions, toxic waste as well as being a major consumer of energy. According to a study by A.T. Kearney, a consultancy, corporate IT departments creates as much as 1 million tons of obsolete electronic equipment each year and produces 600 million tons of carbon dioxide (CO2) emissions worldwide per year. For perspective, these emissions are equivalent to the annual CO2 output from almost 320 million small cars. As well, some data centers are so big that they consume as much energy and water as a small city.

With Internet-based services growing at healthy double-digits per year, IT’s environmental impact will continue to increase rapidly unless management does something to rein it in.  If most organizations are going to meet their aggressive sustainability goals, they will have to take a hard look at their IT operations. 

Where should they start looking?

Powering down

Energy usage is a key area to tackle first. According to the Interactive Data Group, a typical IT department in 1996 spent 17 cents of every dollar to power and cool a new server. A decade later, the rate jumped to 48 cents per dollar.  The firm predicts that number will grow to over 70 cents by 2012.

When considering ways to reduce power consumption, an obvious place to look is the data center.  A number of steps can be taken here including monitoring and improving HVAC efficiency; switching to more efficient blade server and virtualization architectures and; choosing cooler climates to build new data centers.

The front office is another fertile source of energy savings.  Every firm can benefit from quick wins such as installing power measurement and management software and introducing policies that require PC users to shift to low-power or shut-off state when not using their machines.  When Bendigo Bank in Australia mandated employees turn off unused desktop computers, monitors and printers that used to run constantly, they saved more than $300,000 a year in electricity.

Buy greener

Better purchasing governance is an important tool to reduce a firm’s environmental impact.  For example, managers could stipulate that new equipment purchases must bring the highest energy efficiency ratings as well come from companies that feature prominently in sustainability indexes and standards. Moreover, buyers might also look for products manufactured from recyclable materials and that generate minimum amounts of hazardous waste and carbon emissions.  Finally, in order to reduce the purchase of unnecessary assets, policies should be enacted that prevent buyers from over-buying equipment just because someone wants the latest technology.  One way to ensure this happens is by extending the life cycle of IT equipment.

Improve reporting

Some companies are using IT to improve sustainability reporting across the entire value chain.  Dow Chemical’s IT group, for example, acts as a green watchdog, tracking emissions, performance and vendor activity.   Dow is using this data to calculate a net environmental balance across a product’s entire life cycle to help them better understand how materials are consumed in manufacturing. These insights can identify environmental and cost savings throughout their operations as well as their vendor inputs.  Finally, improved tracking and reporting will enable companies to better meet customer sustainability programs like Wal Mart’s Sustainability Index as well as provide key environmental data to consumers.

Greening IT will be crucial to helping many organizations achieve their aggressive sustainability targets. Managers can ill afford to ignore this under-developed area.  

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Making sustainability live in your organization

Most executives I speak with acknowledge sustainability’s strategic imperative. A few of them have understood the transformational impact of sustainability and have moved boldly to realign their operations and cultures in order to reap significant business value. This value creation includes tangible outcomes such as improved brand image and supply chain efficiencies as well as intangible benefits like enhanced employee morale and greater appeal to new recruits.   While the majority of organizations have similar ambitious goals, many are unclear how to turn intent into results.

Recently, MIT’s Sloan Management Review looked at how companies were responding to the emergence of sustainability as a mainstream business driver. The study found that most organizations fall into one of two groups: a select group of embracers and the masses of cautious adopters.  Embracers such as GE, Unilever, Walmart, P&G and SAP recognized early that they can leverage sustainability strategically to outflank competition, drive brand differentiation and revitalize supply chains. To bring this vision into action, the embracers quickly integrated sustainability strategies and practices into the core of their business and organizational models. The results have been impressive:  enhanced corporate reputations, significant supply chain savings, higher product margins and a lower environmental footprint .  

On the other hand, the cautious adopters have been more reactive and timid.  They see sustainability as important but within the context of efficiency gains and risk management.  In their planning, sustainability is pursued as a series of tactical initiatives executed within their current organizational model.  In most cases, results have been modest with little appreciable change in competitive position.  Not surprisingly, cautious adopters will be challenged to overtake the embracers as long as they continue to treat sustainability in such an incremental fashion.

Interestingly, capital spending was not a barrier to action.  Despite recent economic and political uncertainty, 60% of surveyed firms reported increasing their 2010 sustainability investments.  What then is holding back most companies?

To drive sustainability, executives need to change the way they do business.  The implementation strategies of embracers offer a number of lessons, including: 

Move early even if there is incomplete information

Brian Walker, CEO of sustainability-leader Herman Miller furniture believes that many sustainability decisions “can’t be reduced simply to a formula or financial return…it requires a bit of instinct, a gut feeling of where you want to go.” In most industries, there are sufficient best practices and case studies to help firms move forward with plans that improve sustainability competitiveness.

Balance a long term vision with concrete short term wins

While long term success favours the ambitious, the reality in most organizations is that short term project wins are needed to generate operational experience and catalyze change.  One IT CEO I worked with refused to implement a large scale sustainability initiative until the firm had garnered sufficient learnings from a couple of pilot programs. 

Integrate sustainability into the organizational structure and operations

Sustainability must be woven into the fabric of the organization and not siloed within a specific department.  For example, GE and Nike translated their bold sustainability mandate directly into their operating units, practices and cultures.  Santiago Gowland, Unilever’s VP of Brand and Corporate Responsibility, says that his company views sustainability as a key business growth lever, treated at the same level as HR, Marketing and Supply Chain Management. For Unilever, sustainability is a new way of doing business.

Leverage top down and bottom up commitment

While getting a strong mandate from the Executive Team and Board is crucial, much of the early effort and ideas must come from the lower ranks.  One firm I worked with gained environmental leadership in their industry mainly through the efforts of a highly motivated, cross functional volunteer committee of low and middle level employees.

Make sustainability integral to key product, service and supply chain decisions

Inputting sustainability criteria into decision making and operational analysis is essential for developing a business case and gaining external compliance.  Companies like SAP and Walmart have driven sustainability savings and compliance using tools like Product Life Cycle Analysis, which look for opportunities to reduce environmental impact while generating significant cost savings.

Successfully deploying sustainability strategies requires more than lip service.  As well as putting their money where their mouths are, practical executives will seek to embed sustainability practices and beliefs within their companies.

For more information on services and work, please visit the Quanta Consulting Inc. web site.

Two More Best Practices in Sustainability: Wal Mart and Rio Tinto

Earlier, we explored two companies, GE and Nike, that are considered ‘best in class’ when it comes to generating financial and environmental value from sustainability initiatives.  Below are two other leading firms in this area, according to research from MIT’s Sloan Management Review.

Wal Mart

Background

The World’s largest retailer of 7800 stores (and growing) has been at the forefront of implementing sustainability initiatives. Initially, Wal Mart focused on internal programs like greening their roofs and moving to more energy-efficient light systems.  Lately, the firm has turned its focus to greening its supply chain and encouraging it suppliers to follow its sustainability lead.

Some Key Strategies

In 2005, Wal Mart set ambitious goals of producing zero waste, using only renewable energy and selling only environmentally sustainable products.  They backed up these goals with one of the most comprehensive sustainability plans at the time.  As part of this plan, Wal Mart has pushed [sic] most of its large suppliers to switch to more green-friendly products and to track their environmental footprint.   In addition, Wal Mart is undertaking a wide-ranging product lifecycle analysis of its supply chain to identify areas with significant environmental and cost savings potential. For example, to hit its zero waste target the company is implementing a number of programs that improve inventory management, increase donations, and ramp up recycling.  Finally, Wal Mart is participating in a consortium along with academics, retailers, NGOs, suppliers, and the government in order to build a global database of product information.  This data will be used to develop an index for consumers to evaluate products based on environmental impact.  A centerpiece of this plan is the creation of a Sustainability Index which requires each supplier to rate their products based on sustainability criteria.

Results

Wal Mart’s efforts have yielded important savings.  For example, at Wal Mart’s behest Unilever switched to concentrated detergents in 2006 order to save packaging and reduce its carbon footprint. According to the firm, the packaging change has saved well over 80M pounds of plastic resin, 430M gallons of water, and 125M pounds of cardboard.   Importantly, Unilever’s packaging decision triggered a category shift to concentrated formats driving further savings.  For the future, Wal-Mart is aiming to turn its Sustainability Index into a global standard that measures and communicates the green footprint of a product, thereby becoming “a tool for sustainable consumption.”

Rio Tinto

Background

Rio Tinto is a big mining entity with a big environmental footprint.  For new projects, the company needs to win the backing of local communities, governments, and NGOs in order to reduce political, economic and brand risks and to deliver steady returns. 

Some Key Strategies

About a decade ago, Rio Tinto came up with the concept of working within countries and communities in order to operate in an environmentally respectful fashion. At the time, the company was developing a mine in Madagascar that was a source of contention.  The Madagascar government as well as NGOs were worried about threats to biodiversity and the local communit, given that the site was one of the last pristine regions on the island and a home to aboriginal people.  A plan was developed to protect the environment and create economic opportunities in the communities surrounding the project, including setting standards and goals for the company to meet. Key components of this plan include:  policies to protect biodiversity and water quality around mine locations; plans for the time mining operations would be over in order to prevent the emergence of “ghost towns” and; goals for greenhouse-gas emissions and energy use.

Results

As a result of this initiative, Rio Tinto has obtained what it calls a “social license to operate” in Madagascar thereby increasing overall corporate revenues and profits and improving their corporate reputation.  As well, the company also helped form the International Council on Mining & Metals, which encourages sustainable practices across the mining sector.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Two Best Practices in Sustainability: GE and Nike

Sustainability as a key business driver is quickly moving into maturity.  According to MIT’s Sloan Management Review published in 2009 , there are now a number of firm’s whose strategies and tactics could now be considered best practice. Two of them are summarized below.

General Electric

Background

Early on, GE figured out that there was a compelling business and sustainability case for companies who could reduce their energy and water use, waste, and carbon emissions. Instead of seeing sustainability only as an internal cost, GE saw a large and profitable business opportunity in helping companies move along the sustainability path.

However, GE’s vision was not only externally-focused.   They also wanted to make their operations, culture and practices more sustainable.  The question was:  how do you align the entire company around a sustainability vision and then create a new business in an early-stage sustainability market?

Some Key Moves

In 2005, GE set up Ecomagination as a separate business unit to identify and deliver market-leading environmental solutions which would drive market leadership. Ecomagination was given aggressive top and bottom line goals and was prioritized and resourced accordingly.

GE also saw this initiative as a means to catalyze internal sustainability programs and to ensure management buy-in and compliance.  For example, managers began to be measured on how much energy savings they had achieved.  As well, GE began engaging employees to see where energy savings could be found. Ecoimagination sold and validated these solutions within the GE universe;  later these ideas were turned into products and solutions that were marketed to customers.

GE also proactively sought to influence environmental policies and regulations around climate change through its involvement with nongovernmental organizations and government bodies.  For example, GE pressed for a cap-and-trade carbon emissions system to in order to help clarify policies and regulations around climate change measures.

Results

In 2008, GE generated sustainability sales of $17 billion, up 21 percent from a year earlier.  The Company is aiming for $25 billion in sustainability revenues by 2010.  According to GE’s 2009 sustainability report, the Company has saved $100 million from their energy management measures and cut its greenhouse-gas intensity—a measure of emissions against output—by 41 percent.

Nike

Background

Nike was stung in the 1990s by a public campaign against its Asian labor practices.  To improve its image, the firm embarked on a long process of reinventing its operations around socially responsible production and to meet broad sustainability metrics by 2020.  A key question was:  how could Nike move beyond “compliance” and maximize sustainability by integrating new goals and principles into its business model?

Some Key Moves

Nike formed a senior, multi-functional team who was tasked with driving compliance around stringent social responsibility and environmental standards.  The team’s mission was to review and overhaul its entire design process, product line-up and supply chain.

To galvanize attention, management set aggressive 2020 goals around zero waste, zero toxic materials, closed loop systems as well as sustainable growth and profitability. To monitor progress, Nike created an in-house index to measure product design against these goals.

New, sustainability-inspired design and production strategies were implemented.  For example, Nike reinvented its design process to cut waste and material usage while substituting more sustainable materials and processes. Furthermore, the Company brought its supply chain partners into its effort because it knew it could not achieve its goals without their counsel and involvement.

Results

Under the new design and production methods, Nike’s lead product line – the Considered line of footwear and apparel – delivered:  a 67 percent reduction in waste, a 37 percent cut in energy use, and a dramatic 80 percent drop in solvent use as compared to other Nike products. Nike aims to convert all athletic shoes to Considered line standards by 2011, all clothing by 2015, and all equipment like balls, gloves, and backpacks by 2020.

 For more information on our services and work, please visit the Quanta Consulting Inc. web site.

The Impact of Social Pressure on Financial Performance

Most executives across every industry will acknowledge that social pressure can negatively impact financial performance.  If you are doubter consider the cases of Nike and Walmart, who saw their corporate reputations tarnished and revenues impacted due to aggressive social pressure stemming from child labour practices within their Asian supplier networks.  As a result of these and other cases, many companies have implemented a series of strategies under the umbrella of Corporate Social Responsibility.  For most companies, CSR initiatives have been deployed to safeguard corporate reputations (and shareholder value) by pre-empting and mitigating the effects of anticipated and unexpected social and political pressures.  Examples of this pressure could include product boycotts, over-zealous regulatory enforcement, internet smear campaigns, public protests and statements to the press.

Despite the flurry of activity and funding, most executives do not understand how and why social pressures impact financial and brand performance.  A new, award-winning study published at the Stanford Graduate School of Business sheds some unique light on this topic.  The authors looked at how political and social forces impacted business performance and corporate strategy in 2,010 companies over the 1996 to 2004 period.   The research yielded some interesting conclusions:

First, there is no clear link between social pressure and social performance. Greater social pressure often leads to better social performance among companies.  On the other hand, the researchers also found the reverse is true — better social performance can lead to greater social pressure. Why?  Activists and NGOs often target firms precisely because they are responsive to social pressure.

Second, in the short-term, greater social pressure is associated with lower financial performance. Social pressure can hurt a company’s reputation, brand equity, revenue, cost structure (though higher compliance and PR spending) and morale. Initially, social pressure tends to boost corporate social performance while hurting financial performance.  Longer term and with strategic and consistent CSR initiatives, many firms can leverage superior social performance into share price increases and higher brand premiums as a result of greater demand from socially-responsible investors or differentiated market positioning. 

Third, financial and social performance are largely unrelated, except in certain industries. Within the consumer good sector, financial performance is positively associated with social performance, since consumers can directly reward a company’s socially positive behavior by purchasing its products or paying a brand premium. Among industrial companies, the opposite is true — financial performance is negatively associated with social performance. This traces to the fact that responsible behavior is often expensive, and there are no masses of consumers to directly reward an industrial company.

Fourth, “private politics” matter more than “public politics.”  The research showed that the negative financial impact of social pressure was due almost entirely to the actions of “private politics” — activists and non-governmental actors  — versus the actions of “public politics,”  those stemming from government actions 

This research is an important first step in drawing an explicit link between social pressure, CSR and financial performance.  However, more integrated research is needed to help companies understand CSR best practices that enhance shareholder value as well as determining the ROI of specific initiatives.

For more information on our services and work, please visit the Quanta Consulting Inc. web site.

Microsoft: What’s in Store for their Company Store?

Microsoft, following other major brands like Apple, Nike and Ralph Lauren recently launched their first company store in Phoenix Arizona to showcase their latest Xbox, PCs and Zunes.  The Microsoft move is widely seen as a bit of catch-up with rival Apple, which at the end of 2008 operated some 247 retail stores around the world. Considering Microsoft’s product dominance, what took them so long to get into retail?

There are many good reasons for manufacturers to display its wares within their own retail environment. For example, a company can create the best merchandising and brand experience for their products and services. As well, companies can use retail space to build a footprint in underdeveloped markets or learn more about their consumers.  Despite these benefits and Apple’s trailblazing, Microsoft may have delayed retail expansion out of concern for triggering major channel conflicts with its retailers (or, cynically, to cope with an onslaught of walk-in users with buggy software). 

On the other hand, perhaps Microsoft uncovered what a Wharton School of Business and INSEAD study recently concluded.   Namely, that operating company stores in the same market as your retail channel does not saturate markets, create inefficiencies or promote channel conflict.  In fact, the opposite is the case:  the rising tide of a company store lifts all retail boats.

The researchers used a series of mathematical models to simulate and analyze the marketing and price-setting behaviors of independent and manufacturer-owned retailers.  The model showed that when company stores and independent retailers compete in the same market, manufacturers typically set relatively high prices for goods in their own stores. Higher price points creates room for independents to reduce discounting (versus when company stores aren’t present) thereby improving their margins. Additionally, the presence of company stores can induce independents to increase their marketing efforts resulting in greater support for the manufacturer’s brand and overall brand sales in the market.

Given these conclusions, do company stores end up putting the manufacturer brands at a disadvantage?  Not according to the research.  Independent retailers end up charging more for a given product when competing against a company store than they would if competing only against other independents. Having higher pricing is crucial for the manufacturer to preempt channel conflict and to support its premium brand positioning.  Furthermore, the research shows that independent retailers will undertake greater marketing effort when competing against a company store since they can benefit from significant “effort spillover” from the manufacturer’s store – the phenomenon of one retailer’s marketing and product education efforts helping to create a sale for another.

As for Microsoft, the question remains whether their stores will mirror the success of Apple or the failure of Gateway, a computer company that gave retail a try during the 1990s and closed its 188 retail shops in 2004.  A major reason for Gateway’s failure was its inability to create any in-store or brand sizzle for their discount PCs-in-the-box.  Microsoft’s first store is not lacking in “experiential” impact but many things can still go wrong.

Microsoft rarely undertakes an initiative without considerable research and investment.  Look for them to make an impressive retail debut, although achieving Apple or Nike standards may require a 2.0 launch.

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