Tag Archives: technology

Who Controls Your Brand?

social media compain
Image by Laurel Papworth laurelpapworth.com and Gary Hayespersonalizemedia.com

The old order is being turned on its head; companies used to being in control of their customers and their brand are now finding customers are wresting control from them and that they need to adapt or face obscurity.

The enabler behind this is, of course, social media. Customers are now able and willing to discuss their experiences with friends and followers around the world, and companies ignore them at their peril. And yet, it seems to be more common for companies to ignore what is being said on Twitter, on Facebook, on LinkedIn, on YouTube, and on all the other social platforms around the world.

Even though some two thirds of Fortune 500 companies have a Twitter account, and more than half have Facebook and YouTube accounts, they’re just not listening – reports indicate that 43% of all companies have never responded to a single Tweet, while only a quarter of companies respond to a comment posted on their Facebook page.

All this does is reinforce the view that companies are not interested in their customers. Better to have no presence at all than a presence where you don’t respond (the same goes for “customer-service” telephone lines and email addresses!).

However, the fact of the matter is that nowadays you HAVE to listen to what your customers are saying and you MUST respond. That’s the best way to turn customers into brand advocates – and isn’t that what every business wants? What’s more, it’s worth remembering that your products and services are only as good as your customers think they are and that they’re prepared to pay for; it’s much better to know they’re unhappy sooner than later, so you can fix the problem.

Word of mouth has always been the strongest way for businesses to grow – or shrink – and all that social media is doing is enabling this process to operate more quickly, and a lot more widely.

Companies that have embraced this – think Zappos and Starbucks (or Threadless, the T-shirt company that went from startup in 2000 to $30M in revenue last year) – are rewriting the rules for customer service, marketing and the way they’re perceived. Ask Comcast, who went from ignoring social media to an advocate and transformed the company’s image.

While the positive impact is clear and quick to see, the negative impact on companies that do it wrong will take longer to be really apparent – they suffer a slow, steady decline in brand image with all that follows from this – so the good news is there’s still time to adapt, but they shouldn’t wait too much longer.

As Jeff Bezos said, “Your brand is what people say about you when you’re not in the room.” If you’re not in the social media room, you’ll never know – and what you don’t know, you can’t fix.

By embracing social media, having conversations with your customers and other stakeholders, you will greatly strengthen your brand and your company.

Enhanced by Zemanta

The End of Cash?

Image representing iPhone as depicted in Crunc...
Image via CrunchBase

It’s interesting to see the number of recently introduced products coming to market which are designed to, in effect, remove the need for cash.

One that has garnered particular attention recently is, of course, Square. This comprises a small application that resides on your iPhone (or iPad, iPod Touch) or Android phone, together with a little reader that plugs straight into the audio input jack of the phone and turns it into a personal credit card payment machine that will allow the user to accept credit card payments from anyone for a small fee (typically 2.75% + 15c). With no costs for set-up, application or card reader this is sure to change the game for those tens of millions of small businesses, traders and professionals that have, until now, fallen outside the electronic payment net because they are too small for the card companies to serve cost-effectively.

But Square is not alone – Obopay allows anyone with a  mobile phone to set up an Obopay account and, for just 25-50c (plus 1.5% if you’re using a credit card to fund your account) send money – in other words, make a payment – to anyone else with a mobile phone, whether or not that person already has an Obopay account. Again, there are no setup costs.

And then there’s Intuit with its GoPayment service that also enables credit card payments from a mobile phone – this time with a Bluetooth reader – at a cost of 1.7% + 30c per transaction, although this service does have a monthly service cost of $12.95 attached to it (I wonder for how long, though, given the competition above).

Doubtless there are many others, too, either in stealth mode at present or on the drawing board.

What’s more, these systems allow you to build purchase histories by customers, offer loyalty programs and great levels of service more simply than the straightforward cash systems did – so even the smallest businesses can step up their marketing at little or no cost.

At present, all these products only work for you if you’re a US-resident/business, but it’s only a (hopefully short) matter of time before they go global and the way of transferring value changes forever from cash to electrons. No more looking for change, worrying about how the currency in a new country you’re visiting works, being concerned whether anybody’s watching as you withdraw a large amount of cash from an auto-teller…. And, of course, if you’re a small business, no more concerns about having the right change for those large notes that auto-tellers like to give, about the value sitting in your till, or being worried when taking your cash to deposit it.

It’s going to be interesting to see how society changes over the next generation as we move from cash altogether. Will the nationalistic bonds to a currency (and the resulting issues of payments from/to different countries and with travel) be removed, and could we find a common global currency?

And, of course, we’re seeing the continued drive for the mobile phone to be less a telephone and more a personal digital assistant in every way – clock, alarm, calendar, address book, diary, music player, radio, newspaper, camera, voice recorder and now, wallet. As an aside, it’s interesting to see how many of the Generation Ys don’t wear watches – their phones tell them the time. Has the watch industry got an answer to this, its potentially biggest threat?

We’re at a very interesting point in the 5000 year evolution of money as we know it. Will it disappear completely as a physical object in the next 20 years?

Reblog this post [with Zemanta]

Living Your Brand – do companies really care about their Brand?

Goldman Sachs Tower in Jersey City
Image via Wikipedia

2010 certainly seems to be going down as the year when the proverbial corporate skeletons are coming out of the cupboard:

  • Toyota – which had built its brand on reliable, safe vehicles – recalls many millions of cars all around the world in an apparently ongoing saga, with new recalls being announced almost monthly;
  • Goldman Sachs – viewed by many as the pre-eminent merchant bank – being sued for fraud by the SEC and now under investigation by the UK regulators, too;
  • Many airlines – especially those using words like “Favourite” and “5 Star” in their advertising – simply refusing to abide by their legal obligations, in terms of Regulation 261/2004, to provide accommodation and refreshments for their stranded passengers during the volcanic eruption in Iceland.

And this is just a sample of the more recent headline-grabbing issues.

Are they really “Too big to fail” – or just too big to care?

I suspect they believe the latter, not recognising the truth in the old adage that “Pride comes before a fall.” Remember, almost none of the largest and then most successful companies in, say, 1900, are still in any position of strength today – in fact most have disappeared altogether.

These corporates need to get back to basics, to remember that it is their customers that pay their salaries and to start treating their customers as the company’s most precious resource, rather than as a necessary irritant. Simply repeating a marketing mantra branding themselves as the pre-eminent company in their field doesn’t make it true…

The fact is that branding is a lot more than just a logo with a catchy by-line – a company’s brand is everything to do with that company, and the logo is just something to recognise it by as we’re visual creatures. Branding is about customer service, branding is about the way customers interact with the company in all ways, branding’s about staff training, branding includes corporate governance and social responsibility, branding is about all the materials that company produces – from marketing through packaging to the products themselves – in fact, branding is about everything to do with a company.

And this is where so many companies are falling down: they’ve lost sight of everything but the short-term pursuit of the bottom line. And I use “short-term” advisedly – as without attention to all aspects of their corporate brand, those companies will lose customers and start to fail.

Just look at the consumer backlash against many banks that they perceive to have been complicit in the economic downturn. Imagine how consumers who have been poorly treated will feel about giving more of their hard-earned money to those airlines that left them high and dry. Will former Toyota buyers be as happy to buy another Toyota?

Companies need to start refocusing on their entire brand, they need to recognise the power of instant communication for their customers and embrace it to make a positive difference, and they need to once again really put their customers first instead of just saying they do.

What do you think – do companies no longer care about their brand in pursuit of profits? Have you joined the growing ranks of disgruntled consumers and, if so, which are the brands you love to hate?

Related articles by Zemanta

Reblog this post [with Zemanta]

Twitter – The “Next Big Thing” for Business

Image representing Twitter as depicted in Crun...
Image via CrunchBase

With Twitter set to pass the magic 100 Million user mark later this month, or early May, and the company having been valued at around a Billion Dollars last year, it’s moved from the realms of novelty. So, should business sit up and take note; is it the “Next Big Thing” as a business tool?

Speaking with business leaders and marketers, one gets mixed responses – the enthusiastic advocates on the one hand, and those that hope it will fade away as it can potentially damage their company, they believe, on the other.

There’s no question that any public forum can be used by people to disparage, or worse, a company, but is that a reason to abstain from that forum, or should one take the opportunity to embrace it and counter any adverse remarks? After all, unhappy customers that are turned around tend to become the most loyal advocates…

Others look at Twitter and ask whether 140 characters is really enough for any sort of meaningful dialogue with customers and dismiss it on this basis. But in our information-overloaded world, is brevity not a blessing?

Properly used, there is no question in my mind that Twitter really can become a significant business tool:

  • Customer service – probably the first Twitter application area to be embraced, companies like Southwest Airlines, Staples and Zappos have found it invaluable to track unhappy customers, respond quickly and show a great service ethos.
  • Sales leads – of course, great customer service leads to sales, but many more companies, like Dell, Sony and Starbucks are using Twitter to promote products; in fact an article last month reported Sony measuring over £1 Million in sales directly attributable to its Vaio Twitter account.
  • Promotions – an extension of the sales leads application is using Twitter for promoting special offers to followers. As the integration of GPS technology with phones increases, these could even be location and time specific, making them highly targeted.
  • Product feedback – companies are often accused of making products that customers don’t need, or of not including “obvious” features. Twitter can give a window for listening to the needs and views of a very wide customer base.
  • Order tracking – an area I’ve yet to see, but one I think is an obvious one: imagine being able to Direct Tweet to a courier company and get an automated response as to where your special delivery is in the system…

In fact, the possibilities are endless – limited only by imagination. With Twitter, companies have access to an incredible mass direct marketing tool without the dangers of being considered spammers – people would simply unfollow those they consider annoying – and one which can provide real-time, real-person feedback on an incredibly wide range of issues.

Twitter, I firmly believe, is poised to be the “Next Big Thing” for business, and companies that ignore it do so at their peril.

Reblog this post [with Zemanta]

Does “The Cloud” Make Sense for Business?

HANOVER, GERMANY - MARCH 01:  Illuminated plas...
Image by Getty Images via Daylife

The interest in Cloud Computing has grown exponentially in the past few months with a quick Google search on “The Cloud” and on “Cloud Computing” yielding over 25 million articles between the two phrases.

Suddenly, it seems, this is the panacea for all that ails in the technology space – or is it?

There is certainly a good deal of ongoing investment in giant data farms – although the cost of power required to run, and cool, these massive installations is now causing serious concern. I’ve seen estimates of up to 100MW for a giant server farm under development, with 50MW farms apparently not being unusual. Consequently we’re seeing imaginative schemes to overcome this in advanced stages of investigation – ranging from hydroelectric schemes in particularly cold countries with good water, like Iceland and Finland, to Scottish tidal power, to some companies even investigating building sea-platforms that use wave energy for power and sea water for cooling.

However, there is equally a slow but steady increase in governments wanting to monitor data traffic – apparently for security reasons, although I suspect there may be oversight by the fiscal authorities, too. Even Australia is talking about Internet filtering…

All of this is adding greatly to the conversation, of course, with equally strong lobbies on both sides of the debate – much around whether Cloud Computing is taking us back to the old “mainframe and dumb terminal” computing days or whether it’s taking us forward to an more secure, cost-effective era, albeit with the possibility of less flexibility with systems and information.

In my view, though, the issue of whether to adopt a Cloud architecture or not comes down to individual companies and applications – and for the purposes of this discussion, I mean a public Cloud architecture, rather than one owned by the end-user company.

To my mind, the companies that should strongly look at this approach are the SMEs (Small and Medium Enterprises). The reasons here are straightforward economics – few will have the staff or the capital resources to have a fully secure IT infrastructure, complete with Disaster Recovery. This means multiple servers in multiple locations, interconnected by very high speed links and a significant IT team managing it all, with a strong security system. By adopting Cloud architecture for most applications – including that most critical one of all for most businesses, email – the issues of security, availability, backup and full disaster recovery are outsourced to the experts and the SME gets on with running its business. That’s not to say you dispense with PCs – they will still have a strong place in many areas, from detailed individual analysis of data to creative writing, design, etc.

For large corporates, though, the issue is different. They have large IT teams. They have multiple locations, many servers and, generally, already have high-speed connections between them all. Therefore, ensuring adequate levels of security and availability while having a proper backup regimen and a full set of disaster recovery plans for each location, should be routine and already in place. For these organisations, Cloud Computing makes little sense – except, perhaps, for some specialist applications that are not available in another form.

And, of course, if all the world’s large corporates had all their corporate systems in a few locations, what a tempting terrorist target that would make – SPECTRE, of James Bond fame, would seem tame by comparison with the havoc that could be wrought in such a scenario.

So, to answer the question about whether “The Cloud” makes sense for business, my view is that for most SMEs, certainly. For large corporates, probably not. What do you think?

Reblog this post [with Zemanta]

How Can the Print Media Survive?

As we approach the end of 2009, this question becomes all the more relevant. With a full year of advertising revenues down, subscriptions and renewals declining and staff being laid off to cut costs, there have to be questions as to how the publishing industry can survive.

One thing is certain – the business model of old will have to change. Thanks to technology, people today are relying on instant news – yesterday’s news (as found in the printed newspaper) or last week’s news (as found in weekly magazines) is no longer a saleable commodity, and if the public don’t want to read it, advertisers won’t pay to advertise in it.

Of course, Rupert Murdoch’s recent comments about charging for access to his news online and preventing Google from finding his stories have further fuelled speculation as to the future of the printed word.

However, far from fearing the new technologies, publishers should be embracing them – after all, do the new technologies not extend the potential reach of any publication or broadcast platform to the entire globe?

What’s needed, and what people are looking for, in this info-saturated world is not just more information, but more useful, focused and targeted information. Instead of newspapers all trying to produce the same news for the same geographic audience, focus. That’s how Wall Street Journal and Financial Times, for example, have been able to charge for much of their content – they focus on the news that businessmen need now. If a publisher can provide knowledge, as opposed to just information, people will pay for it.

Just as general broadcast TV has given way to cable/satellite subscription services, providing more focused channel selections, so should publishers look to provide focused services that people will pay for. What’s more, such focused audiences provide a richer platform for advertisers.

I’m not for one moment suggesting that printing is dead – at least not for the foreseeable future. Like just about everyone else I speak with, there’s something about being able to read the printed word on paper that is far too appealing to me. A combination of convenience, feel, smell, I suppose. What I am suggesting is that publishers need to use technology to complement their print editions.

Knowledge has a shelf-life, and can be printed for future reference purposes (witness my stacks of magazines – National Geographic, Fast Company, Fortune, Plane & Pilot, Travel & Leisure, etc.). News, or information, is immediate and best consumed quickly – and this is where the electron should play its part (whether Internet or Broadcast). But, again, there’s no reason electronic media should not drive its audience to print, and vice-versa. I see them as, ideally, complementary rather than simply competing.

News media, rather than cutting journalists, should seek out the best they can find and encourage them to provide knowledge as well as information. Magazines should give tantalizing glimpses of what they offer to an online audience, while encouraging them to subscribe to the printed word (after all, for example, aren’t the images in a National Geographic magazine so much better than those online?). Broadcast media should encourage audiences to seek out more information than they can cover in the broadcast, driving audiences online and to print for this knowledge. And, of course, printed media should not be shy of encouraging readers to enrich their knowledge through broadcast segments, internet updates and the like.

We talk about mankind’s knowledge increasing at an exponential rate, but I suspect that much of this is just the same bits of information being repeated over and over again. We have the tools for a much richer information and knowledge environment and we should use them.

Reblog this post [with Zemanta]

Social Networking in Business – Good or Bad?

One of the most vigorously debated issues today is the place of Social Networking in the workplace:
• Should companies be using Social Networking in their marketing mix?
• Should staff be allowed access to Social Networking while at work?

Much of the debate stems from a lack of understanding of what Social Networking is all about and how it should be used, or not used. Many people, in fact, still equate Social Networking with inane information about where somebody is currently sitting doing some introspective navel-gazing, whereas it can – and should – be a highly effective medium for raising the profile of the business, encouraging interaction with all stakeholders and generally enhancing its position in the market.

A great example here is Twitter. While there has been much attention given to an August study from Pear Analytics suggesting that only 8.7% of all Tweets pass along value, the fact is that this misses the point of what a tool like Twitter can really be used for in a business marketing environment. It could, for example, be a wonderful way for customers to get quick status updates on service issues (Direct Tweet the Job Number to your Service Dept) or to see where a shipment is (Direct Tweet a Waybill Number to your Shipping Dept). What about having special-interest customers following a particular product group in your company for news on that product and, possibly, special offers? In fact, the uses for this sort of interaction are limited only by imagination…

Facebook, too, is not simply a tool to show who was drinking too much at the last party. Rather, in the right hands it becomes a great way to promote your business to a wide audience and to gain a set of “Fans” who, by their very presence, are opt-in customers for your marketing efforts. This can be a direct, company page where you share information on your company (or simply a specific product group within your company) and encourage feedback from your “Fans” or can be a more subliminal way of getting your company noticed through making available information of more general use such as the (very topical for this article) Social Media for Small Business set of guides published by Dell.

Of course, if you’re going to open yourself up for public feedback with systems like Twitter and Facebook, it’s essential that you have somebody monitoring your name/page and responding to the inevitable negative comments that will crop up from time to time – thereby turning negatives into easily-seen positives.

Then there are tools like LinkedIn – a great way to find people for your business and to manage your own business profile for those looking at potentially working with you (yes, prospective employees do research your company to see what is out there!).

By tying all of this together with your own Social Networking platform of customers, etc., you can promote your business, conduct online training or product releases, run polls to test issues, manage events and generally make your customers feel part of “your family.” What’s more, you no longer have to contend with outdated mailing lists as your “fans”/customers keep their information updated for you…

So – in answer to the question as to whether companies should be using Social Networking in their marketing mix, an emphatic YES. The secret is to define your objectives and utilise the appropriate tools, remembering, too, that these will evolve and change over time.

And as for the second part of the question – whether employees should have access to Social Networking sites – if this is a part of your marketing mix, your employees need to be a part of it, too. Where there is evidence of individual abuse, as will happen (just as it does with the telephone, coffee breaks, etc., etc.), action against those individuals can be taken – it’s just a question of the right level of monitoring and control, particularly as the lines between work time and leisure time blur in this connected world.

Reblog this post [with Zemanta]

Keep it Simple, Stupid

What is it about the human race that while we all apparently prefer ‘a simple life’ we delight in adding layers of complexity to everything?

Much to nobody’s surprise, I imagine, a recent McKinsey article, “Consumer Electronics Gets Back to Basics” showed that something like 2/3rds of consumers valued simplicity and price over a more comprehensive set of features. And yet, product after product is designed to have more features than its predecessor – generally at an incrementally higher price or, at best, the same price.

Just look at today’s ‘bloatware’ as an example. Remember the days when Bill Gates declared that “640KB ought to be enough for anybody” referring to the, then, new PC’s maximum memory capacity? Nowadays, you’re lucky to get away with less than three thousand times that much (2GB)! And yet, how many of us use more than 10% of the features available in today’s ‘productivity suites?’ I don’t, and many consider me a ‘power user.’

Oh, and don’t believe that the complexity is simply as a result of more capacity – people have been calling for simpler PCs for decades. In a Newsweek interview back in 1995, Oracle Chairman Larry Ellison said that the PC was too complicated and difficult to use then, predicting the PC would soon be replaced by simpler desktop devices – the ‘network computer,’ a no-frills computer/terminal that performs basic chores easily and simply and sells for less than $500. Perhaps Oracle’s recent purchase of Sun Microsystems will enable him to move us all in that direction some 15 years later: Sun already sells this type of device – they call it a Sun Ray.

The big surprise for many vendors last year was the Netbook. Initiated by Asus, this basic notebook PC really set the proverbial cat among the pigeons. The form factor was first tried in the mid 90s with a notable lack of success (it was called the sub-notebook in those days), so there was a healthy dose of scepticism when it was announced last year. Acer, as the first major multinational vendor to see the opportunity, quickly produced its own line of netbooks and gained enormous market-share as a result: seeing a significant increase in unit sales last year, just as the downturn was biting most companies. Here was a classic case of people wanting simplicity – what a pity, then, that the software was not also available in ‘Lite’ versions, meaning that many early adopters of netbooks ended up returning to the larger, more powerful machines that could handle the software workload.

But it’s not just in PCs that simplicity is the watchword. A couple of years ago a start-up company, Pure Digital Technologies, introduced a simple, one-button solid state video camera that runs on a couple of AA batteries. This device, the Flip, quickly grabbed 14% of the US video camera market surpassing all but the long-time market leader in sales. It’s a wonderful little camera and perfect for recording those ‘moments’ of life – I know, I got one soon after launch and swear by it. Interesting, then, that Cisco acquired the company a few months ago – is simplicity to be Cisco’s driver now?

This desire for simplicity is evident in many other areas of life, too – look at how people are embracing simpler airline and hotel offerings: companies offering easy-to-use services that do what’s needed at a reasonable price. The same goes for other products, like the success of Tide Basic laundry detergent.
And here’s the key – to succeed, products and services must be well-made, practical, offer the set of basic features that people need (read: market research is critical) and be seen as offering great value. Properly done, this can be achieved at increased margins to the over-featured products we’ve become used to, so increasing shareholder satisfaction along with customer satisfaction.

As the saying goes, “Keep it Simple, Stupid.”

Isn’t this what we all want?

Reblog this post [with Zemanta]

Bad Processes Kill Business

While I argued last week that oversight of business is necessary to move us to a longer-term approach to growth, too much oversight is even worse for a business.

I’ve come across countless examples in my own, IT, industry where companies seem to try very hard to prevent sales, rather than make them – all as a result of too much oversight. Let me illustrate this with an excellent example.

The company in question, let’s call it ABSC (A Big Software Company) is a very significant multinational software vendor, with offerings targeted at a range of companies, from the very largest down to a mid-size level – and it is this mid-size level where the powers-that-be are expecting significant growth. The only problem is that their processes and procedures effectively kill sales in this market and make them extremely difficult in their traditional high-end one, too.

Let’s assume that an end-user, we’ll call it Widgets Inc., wants to purchase a 100-user system from this company after being sold on the concept by a Reseller of ABSC – in line with ABSC’s policies that all SMB sales go through the channel. The outline of the process is as follows:

  • Reseller calls ABSC and requests a quote (they cannot yet provide a quote to Widgets Inc. as there are no official price lists).
  • The Account Manager for Reseller at ABSC in turn requests a quote from ABSC EMEA HQ as even he has no pricelists. The turnaround time for this quote is typically 2-5 working days (not helped by different working days in different countries).
  • The Account Manager receives the quote from ABSC’s EMEA HQ and emails it to Reseller who can then provide an official quote to Widgets Inc.
  • Widgets Inc., accepts the quote and asks to place the order. Because Widgets Inc., is a new customer (as are most SMBs!), Reseller has to supply Account Manager with extremely comprehensive information on Widgets Inc., in order that this can be properly recorded on the ABSC systems for, amongst other things, credit purposes (even though ABSC is not providing Widgets Inc., with credit as that is up to the Reseller).
  • Account Manager enters all the data and applies for the software licenses. This approval process generally takes some 10 working days to go through the various internal levels in EMEA HQ (although 4-6 weeks is not unusual). Eventually, approval for the sale is granted and Reseller can download the software licenses. Total turnaround time from when the customer firsts wants to buy until delivery is some 4 weeks on average, and up to 2 months if there are any problems.

Apparently, the rate of lost/cancelled sales as a result of this tedious process is very high – customers simply go with their #2 option for the solution, where that solution can be provided more quickly.

Of course, what should happen is that Widgets Inc. expresses interest, Reseller gives immediate quote from its own pricelist, Widgets Inc. agrees and places order on Reseller who places this on Account Manager at ABSC and is then given the licenses within a day (after checks are made that Widgets Inc. is not prohibited by US Law from accessing the software).

Unfortunately, though, this streamlined approach to business is the exception rather than the rule in our industry. ABSC is, admittedly, an extreme example (although absolutely factual), but most IT vendors have degrees of this sort of inefficiency built-in. We might sell software and/or hardware to make [other] companies more efficient, but our own processes leave a great deal to be desired instead of showing the way.

Isn’t it time the customers started expecting the vendors to practice what they preach? It would not only allow them to get what they want, when they actually want it, but should reduce prices, too, as the sort of process described above is extremely expensive in terms of manpower and, therefore, cost.

The Perils of ‘Quarteritis’

FT ringing the Closing Bell at the NYSE

FT ringing the Closing Bell at the NYSE (Photo credit: Financial Times photos)

It appears that one potentially good thing to emerge from the global economic meltdown is a return to sensible business planning and cycles.

One of the scourges of many businesses – this started in the US and spread out from there – is ‘Quarteritis.’ Not strictly speaking a disease, but something that has probably resulted in a lot more suffering than most diseases, ‘Quarteritis’ is about an overarching focus on ensuring each quarter’s financial results are significantly better than those of the quarters that went before.

While we all want to be part of, and invest in, businesses that have good growth, the fact is that business, like most things in life, moves in cycles and the best long-term businesses are those that plan for the long-term, not just the next quarter. A short-term focus leads to rash decisions, decisions that might be good to “save this quarter” but disastrous in the medium term.

To illustrate: in the IT industry two popular results of this are distributors being forced to take huge amounts of excess inventory in a quarter (“channel stuffing”), or new distributors/resellers appointed suddenly to get a new stock order into the current cycle.

Both of these have similar results over succeeding quarters – reduced profitability for all concerned, stretched payment terms, credit limit issues meaning needed products cannot be ordered and, potentially, delays in releasing new products while excess inventory is moved out of the channel.

By taking the longer-term approach to ensuring that all parties in the channel can grow profitably, vendors may not grow as quickly in the short-term but will ensure happier customers – at all levels in the supply chain – and so more loyalty and a more sustainable growth well into the future.

Wasn’t it this short-term focus – albeit in the financial markets this time – that ultimately caused the current crash? Executives and others were induced by means of massive bonuses to find ways to grow well above the market average and so started giving mortgages to those that could never afford them, and repackaging these as “high quality” loans. Frankly, this would have been considered fraudulent in many places – it’s certainly ethically very bad anywhere – and it was only a matter of time before implosion happened.

However, those involved had already taken their money and run… Isn’t it this short-term bonus-driven culture that’s behind the trend to shorter and shorter tenure by CEOs of public companies? Can CEOs really be effective when they’re only in place for a few years?

It’s time we started looking at the longer term sustainability of business, and rewarding people in ways that encourage this and I, for one, am pleased to see a number of governments leaning in this direction. Authorities and shareholders should claw back bonuses paid for fraudulent practice, especially when taxpayers have to bail out the companies as a result. CEOs, and other officers, should be rewarded, and lauded, for long tenure and sustained growth.

Business needs to get back to a solid footing and good practice – we should support those that are trying to move in this direction.

Amazon

Amazon (Photo credit: topgold)

This blog piece was first published in Sep 2009, so it’s good to see that there’s growing acceptance of the need to look longer-term as this video from INSEAD clearly points out – Prof. Javier Gimeno talking about how “short-termism” undermines a company’s long-term competitiveness.