The West and the Rest

This is a tale of two economies with interlocking features. One has excess supply; the other has gnawing demand. In the West, economic growth is slowed while emerging markets are busting at the seams. An explosion in the number of urban, middle class consumers and related factors is powering growth in emerging markets.

The World Bank estimates that, on average, emerging nations will grow by 4.7 percent – double that of developed countries — through 2025. That growth isn’t only evident in the so-called BRIC nations, but in Turkey, Indonesia, South Korea, and across the developing world. Some of the fast growing regions are in Sub-Saharan Africa.

In fact, growth in emerging markets would be even greater if it weren’t constrained by a lack of capital, infrastructure and technological capacity. Western companies have the resources and expertise to help bridge many of these gaps.

This is a propitious time for Western firms with a global agenda to enter emerging markets. They can tap these markets by creating new business models, innovative services, and value-added plays by leveraging their IT capability. Here are points that Western businesses ought to consider if emerging markets are on their agenda.

Ready or Not? 

It’s interesting to work with Western companies that see opportunities in foreign markets but haven’t yet devised a market entry strategy. My advice for clients considering emerging markets is to focus on the fundamentals of value-creation. My playbook calls for first conducting a market readiness study to measure the potential demand for the product or service and, on that basis, to help plot a sound market entry strategy.

Understanding customers is central to serving any new market. Customers in emerging markets — both B2C and B2B — often have different buying drivers, like less disposable income, than those in developed markets.  It’s smart to visit the region, meet directly with prospective customers, and ask plenty of questions.  It’s important to gain a rich understanding of the market — its economics, demographics and business climate.

Then comes another round of questions — this one for key stakeholders — including: How will demand be generated (by segment)? Who are the competitors and how will they respond? What are the market barriers — regulatory hurdles, corruption, and supply chain gaps? In short, what are the known risks and how can they be overcome?

Soft Landing

For organizations that have completed the discovery exercises, tested assumptions, and are convinced of the merits of serving the target market, I suggest that they explore several market entry scenarios to choose a strategy that fits their situation.

Some companies benefit from acquiring businesses in the target market while others prefer to form alliances with firms that can help them establish a beachhead. Either approach comes with advantages and disadvantages.

Alliance-building is an undervalued competency that can be nurtured. A skilled alliance officer can identify prospective partners, negotiate partnership deals and help keep alliances on track as the business evolves.

The ‘Ecosystem’

After establishing its beachhead, the market entrant should build a network of diverse, local suppliers. This local ‘ecosystem’ can be leveraged to support many of the company’s critical market penetration activities.

On a related note, I think it’s smart to use local talent and develop local skills wherever possible. That’s an effective way to demonstrate a longer-term commitment to the community. The high caliber of talent that I’ve encountered in emerging markets has been inspiring.

Western companies with a global agenda ought to evaluate whether serving emerging markets makes sense for their business. If so, there are benefits to seizing the opportunity before the inevitable onslaught of competitors joins the fray.

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As always, I’d appreciate your feedback.

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TALE OF TWO ECONOMIES – ENDNOTES.

Thanks, Alexandre Giesbrecht, for the image.

The section title ‘The West and the Rest’ refers to Fareed Zakaria’s “rise of the rest” thesis in The Post-American World (’08) (updated in ’11).

Despite it’s popularity, I don’t care for the term ‘BRIC’ because it includes oil-based Russia with the more diversified economies of Brazil, India and China.

Seven of the 10 fastest-growing nations over the next five years are in the Sub-Sahara, as charted in this Economist piece (1/11).

More on this subject:

In their 2010 book, Winning in Emerging Markets, Tarun Khanna and Krishna Palepu offer their framework for evaluating and entering emerging markets.

The International Finance Corporation (IFC) provides their annual Doing Business reports ranking countries by regulatory barriers. Year-to-year changes suggest regulatory reform trends. This is Doing Business 2012. 

The World Bank’s report, Global Development Horizons 2011—Multipolarity: The New Global Economy shows that emerging markets will drive global economic growth through 2025.

Related: Strategy +Business piece, Competing for the Global Middle Class (8/11)

Addenda:

The World Economic Forum’s Competitiveness Index (2011-2012)

HBR piece, New Business Models in Emerging Markets (1-2/11), i.e. targeting the middle market opportunities

McKinsey Global Institute (MGI) publications on the subject of economic integration

KPMG’s High Growth Magazine

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Using a longer lens

It’s been twenty years since the publication of Peter Schwartz’s insightful primer about scenario planning, The Art of the Long View. In the book, Schwartz makes a convincing case for using scenario planning in approaching strategic challenges of various kinds.

Schwartz, who led scenario planning efforts at Shell, Motorola, and Pacific Gas and Electric, concluded that the technique could be applied to handling the emergent complex threats that companies were confronting in the 90′s.

Since then, the world has grown radically more complex, more uncertain. Globalization and the Internet have woven together our institutions so that a crisis in one corner of the world can spread virally with far-reaching consequences.

Cascading consequences

We now live in a world where an unknown street vendor in an obscure Tunisian village sets himself on fire and a few weeks later the dictatorial regime in Egypt collapses. Those events triggered spiraling oil prices which boosted worldwide food and commodity prices with a cascade of far-reaching consequences.

While leaders can’t predict the next cataclysmic event, they must now contend with a wider range of plausible, discontinuous threats. Failure to do so can imperil their institutions.

In a world where traditional, linear thinking is inadequate, scenario planning is a platform for enabling problem solvers to explore the question: “Given what we know, and what we don’t know, what should we do now?”

That’s a significant question, but it’s not enough to simply ponder significant questions. Problem-solvers must also overcome the internal barriers – psychological as well as physical – which can paralyze organizations when the stakes are high. Scenario planning provides a context for examining assumptions and biases, and for avoiding the denial that ensues when facing existential threats.

Schwartz observes, “When decision-makers begin to look at the future, denial acts as an automatic shut-off valve: ‘I can’t consider that…’ A good scenario asks people to suspend their disbelief long enough to appreciate its impact.”

The Singapore Miracle

One of the more celebrated scenario planning cases is the Singapore story. That nation’s government first used the technique to help build its nascent entrepreneurial society in the 70’s and 80’s, and later to cope with a string of discontinuous shocks that threatened its economy including the Asian financial crisis of the 90’s.

Since then, Singapore has embedded the technique in its strategic planning efforts. Scenario thinking helped its leaders to recognize that in a region increasingly dominated by its giant neighbor, China, their nation must become an innovative technology hub. (Singapore’s mantra says it best: Anticipate change, stay relevant.) As a result, the government is investing $12 billion USD in technology R & D over five years — a 20% spending increase — to attract gifted engineers and entrepreneurs.

Lessons from the field

My own experience with scenario planning in a variety of settings has been overwhelmingly positive. It remains one of the more advanced tools in the strategic arsenal. My appreciation of the practice has only grown over time.

I’ve learned this: Convene the right problem-solvers under the right circumstances and they’ll reach a shared understanding, despite differences in perspective. Scenario planning helps organizations to recognize threats, opportunities and weak signals, and it often leads to practical solutions that everyone in the room can support.

When The Art of the Long View was published in ’91, scenario planning was deemed a novel technique for organizations facing rare and unusually complex issues. Today, most of our pressing challenges are laced with complexity — that’s our new reality.

If we’re going to prepare for what’s next, let’s bring in our sharpest minds and give them the tools to move the enterprise forward. I’m pleased to report that scenario planning is still the right tool for the job.

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As always, I’d appreciate hearing your views…

Want more info on this subject?

1. One of the more interesting critiques of Schwartz’s book is found in a video dialogue between Niall Ferguson and Schwartz
2. Here’s an insightful talk (video clip), The Singapore Miracle & Gov 2.0, by Peter Ho, Singapore’s former head of civil service, who explains his country’s work with scenario planning. Peter Schwartz is also featured
3. More on scenario planning is at Global Business Network (GBN), co-founded by Schwartz
4. Have a look at the World Economic Forum’s on-going scenario planning initiatives
5. Mats Lindgren’s ’09 book, Scenario Planning–The link between future and strategy
6. Bonus: An hour with Lee Kuan Yew, former PM-Singapore and author of ‘From Third World to First : The Singapore Story: 1965-2000′  on Charlie Rose (3/28/11)
7. Here’s a look at the Decision Support practice at my company, Osprey.

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As our society debates the need for more civil discourse, we’re underplaying the value of competing perspectives among our leaders. I’m a fan of rival leaders who can come together despite their differences to redefine their company’s mission.

For institutions grappling with deep change, there’s no better way to start than by assembling a coalition of leaders and entrusting them to set a new direction. When the stakes are high, a team of diverse, tough-minded leaders reaching a consensus can yield resoundingly productive results.

The process of reaching a consensus can often be unwieldy, even chaotic. But when stakeholders committed to a clear, common goal set aside their own narrow interests, breakthroughs do occur.

I’ve been called upon to participate in initiatives ranging from revamping an airline’s on-time performance to labor negotiations in which the company’s survival was in the balance.  I’ve learned that assembling the right people under the right circumstances can shift the thinking and reverse the course of a company.

Vision, purpose and a sense of urgency

One of the more brilliant minds on this subject is John P. Kotter of Harvard Business School. He coined the term ‘guiding coalition’ to refer to a cadre of leaders who share a common vision, clarity of purpose and an acute sense of urgency for taking action.

Why should a CEO assemble a guiding coalition when it’s much easier to merely impose change? Kotter thinks that one strong leader cannot make change happen alone. Instead, the chief executive ought to build a coalition of leaders who appreciate the enormity of the challenge and have the credibility to win over their harshest critics. A shared desire to transform the business can bind leaders who might otherwise compete uncompromisingly.

What can a team of rival leaders do that other practitioners can’t? Despite their differences, leaders as the stewards of the company bring a wider perspective and a longer lens view of the enterprise. They can arrive at a solution that is practical but which requires that the organization stretch to meet new demands. In the process, mutual commitment among the key players is strengthened.

In the clutch

It’s crucial to keep in mind that the conversation may, at times, get derailed. In pressure-filled situations, common ground seems to fade and intractable battles ensue.  Headstrong leaders can have a difficult time relinquishing their positions. In such moments, using a guiding coalition can seem like an incredibly bad idea.

However, under the tyranny of the clock and the pressure to produce, tough-minded leaders can demonstrate uncanny capacities for ingenuity, imagination and outright creativity. True leaders perform at their peak when the stakes are highest.

Witnessing a coalition of leaders fiercely committed to moving their enterprise forward is an unforgettable lesson in human nature.

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As always, I’d appreciate your thoughts on this subject…

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Want more information?

John P. Kotter’s  ’08 book, A Sense of Urgency, is an excellent study on finding opportunity in crisis.

Putting this notion in a historical context, Doris Kearns Goodwin’ s book, Team of Rivals, profiles Abe Lincoln and the five key players he picked for his cabinet — four of whom contended for the 1860 Republican presidential nomination which Lincoln won. (A prior post on leadership references the book.).

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Turning the page…

Another interesting year is rapidly winding down. This year, I had the chance to work with many gifted business and tech leaders, but it was particularly satisfying collaborating with innovators in developing regions — the Sub-Sahara, the Middle East and South Asia.

It’s time for Western multinational companies — especially those in the customer-facing sectors — to enter developing markets where consumer-led growth is robust but capital and resources are in short supply.

Many Westerners have misconceptions about working in emerging markets. For example, they assume that the transfer of knowledge flows only in one direction — from us to them. But our clients in developing regions bring a keen understanding of their markets and what’s needed to elevate their businesses. We typically learn as much from them as they do from us.

Innovation Hothouses

Some of the most interesting business and technology breakthroughs are now coming from developing markets which have become hothouses of disruptive innovation. Behold the $2,500 car, the $25 business hotel room and the $25 mobile handset that provides service for just 2.5 cents a minute.

Developing innovators are finding novel ways for using mobile phones to perform vital functions like transferring money, paying bills, monitoring elections, diagnosing and treating illnesses, and buying and selling food. Each of these breakthroughs was created by inventive, driven entrepreneurs and engineers to improve the lives of consumers in their markets.

Those who aspire to work with innovators in developing regions must recognize the unique challenges that they face.  While conditions are generally improving, operators are often grappling with government red tape, dodgy distribution networks and difficulty securing credit. They demonstrate in quotidian ways how to overcome the kinds of constraints that would crush many Western enterprises.

Price of Admission

To contribute to and benefit from opportunities in emerging regions demands the wise use of capital, talent and resources. Understanding the market and culture are essential. Patience and perseverance are crucial.

Working in these markets also obliges us to give a portion of our time and resources to lend a helping hand where it’s needed the most. Whether that means donating digital equipment to bridge information gaps or mentoring a new generation of leaders, each of us can have a lasting impact.

Serving developing markets isn’t for everyone. For those who are fiercely determined to make a meaningful contribution on a global stage, the rewards outweigh the inconveniences.

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Want more?

I suggest a book, Winning in Emerging Markets, by two Harvard professors, Tarun Khanna and Krishna Palepu. They write, “Companies with ambitious emerging market growth strategies have no choice but to engage deeply with these economies – but the complex nature of these markets has made success elusive.”

Also have a look at McKinsey On Africa — a continent on the move, a “box-set” of essays and interviews about the opportunities and challenges in Africa.

In prior posts I’ve looked at how mobile phones are being used in emerging markets including in this tribute to Professor C. K. Prahalad who died earlier this year. His sage advice resonates. “Focus on becoming part of global citizenry. In exchange for the opportunity to participate everywhere/anywhere in the world you have the obligation to do something productive, which will improve the world.”

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Out of the East

Asia’s growing influence in Africa is receiving worldwide attention. China’s investment in Africa will top $100 billion dollars this year making it the continent’s biggest trading partner. There are 800 Chinese companies with over 4 million Chinese people living and working there. China’s impact on Africa, as author Richard Dowden observed, is the biggest economic shift of the twenty-first century.

Now, the story of Asia’s push into Africa is being revised to highlight players from India. In June, Bharti Airtel, India’s largest mobile carrier – the 5^th largest telecom in the world – bought Kuwait-based Zain’s operations in 16 African countries for $10.7 billion in cash.

Bharti has been eager to grab a piece of Africa’s growing mobile market for some time. In 2009, it tried to buy MTN, Africa’s largest carrier, but the deal failed due to regulatory roadblocks. Undeterred, Bharti pivoted quickly setting its sights on Zain.  By June, Bharti bagged its African trophy, though some analysts thought it paid too much for Zain’s assets.

The Bharti Recipe

Bharti didn’t waste any time plotting its next moves. By September, the carrier had chosen IBM, a partner since 2004, to run its network and IT for its 2G and 3G services in a 10-year deal worth over $1.7 billion.  IBM will manage the company’s data centers, servers and desktop operations.

This week, Bharti announced its selection of two Indian outsourcing specialists, Tech Mahindra and Spanco, to run its back office and customer care operations in Africa.

With its coalition of outsourcing partners in place, Bharti aims to streamline its sub-Saharan operation and cut costs to service Africa’s low-income markets. The carrier hopes to grow its 36 million subscriber base to over 100 million by 2012.

That’s an ambitious plan considering that Bharti will only control the product development, brand management and marketing portions of its business. Bharti thinks that these are the only functions essential to differentiating its offerings.

Multinational carriers have been relying on “managed services” companies that specialize in providing technology and customer care. Bharti pioneered and refined the managed services strategy in India for nearly a decade. Their model is considered an industry prototype.

The African Factor

Bharti’s gambit in Africa is unique in several critical ways: Africa is Bharti’s first market beyond the Indian sub-continent. The African market is both large and amazingly diverse. The sheer scale and complexity of their African foray is raising a critical question among industry analysts: Can a company, even one as disciplined as Bharti, get its arms around such a diverse amalgam of people, cultures and processes?

Jai Menon, group director of IT at Bharti thinks it can. He told the Economic Times of India: “The system was built in India and did operate in geographies where the diversity is huge — be it culture, language, devices and affordability. It will be the same across Africa. This system will address the entire pyramid, and not just the top or bottom of the pyramid.”

It will be interesting to watch Bharti choreograph its operations while launching its brand across Africa’s disparate social, economic and political cultures.They’ve begun by hiring African personnel from other carriers to assume key roles. Bharti will need to recruit more African talent to build a business culture that can realize the company’s aspirations.

Bharti brings to Africa an uncanny knack for squeezing out costs. India has been a hothouse for cultivating their scalable, ultra low-cost model.  If we’ve learned anything, it’s that Africa will likely present new and unexpected challenges.  In any case, Indian companies, led by Bharti Airtel, are emerging as major players in Africa.

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As always, I’d appreciate your perspective.

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Want more info?

The Economic Times of India’s (Oct 26)  piece : “Bharti splits $500 mn Africa deal among IBM, Tech Mahindra and Spanco”.

Bharti Airtel & IBM described their plan for Africa in joint video press release .

Want more context?

Richard Dowden’s quote in the post’s opening paragraph is from his ’08 book, Africa – Altered States, Ordinary Miracles.  His section (Ch 17) “Asia in Africa – new colonists or old friends?” sketches Asia’s  long  history in Africa. He writes, “India is following China’s path. Though its rise is less dramatic.  In a few years time maybe every reference to China in this chapter would be followed by ‘ and India’.”

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A recent Ewing Marion Kauffman Foundation study revived the term “gazelle companies” to describe the young, rapidly-growing U.S.firms that are producing the majority of new jobs in the U.S.  The report recommends that policy-makers nurture Gazelles to stimulate job growth at a time when unemployment is high.

I’m interested in another class of companies—agile, well-run firms in emerging regions like the sub-Sahara. Like their Western counterparts, they’re creating a disproportionate number of jobs. But these young African companies are playing a more crucial role than gazelles do in driving market growth.

To belabor the metaphor, I call them Impalas, after the lean, swift gazelles indigenous to Africa. Impalas provide technology-enabled and outsourcing services to a growing number of multinational (MNC) service providers – mobiles, airlines and banks – in Johannesburg, Accra, and Nairobi, etc.  They share many of the characteristics of gazelles, but there are some notable differences.

Impalas make it possible for their MNC clients to devote more of their limited resources to building their core capabilities. For example, telecoms can concentrate on expanding their network infrastructures and building their brands while their resourceful Impala partners supply customer care and data services.

Business process outsourcers (BPOs) and large enterprises work together around the world—this practice is commonplace. Africa is different because it’s growing so rapidly. Only China’s consumer markets are growing more quickly.

Despite it’s rapid rise, the sub-Sahara’s growth trajectory is unsustainable because of  acute capability gaps in the region.  Companies are struggling to meet the needs of their customers. As African markets mature, Impalas are providing vital, high margin services like customer care, back-office support, and data analysis that require advanced technical and managerial talent.

Just as U.S. policymakers are advised to remove barriers to gazelles’ growth, African governments ought to lend a helping hand to Impalas which are creating jobs and raising standards of living for their citizens.

That’s been happening in economic hot spots like Botswana and Mauritius, but elsewhere on the continent, progressive economic policies are scarce.  Lack of access to capital and excessive regulatory burdens stifle young African companies.  Policymakers in Africa are missing a critical opportunity to move their economies forward at a time when the continent is poised for more growth.

There is an opportunity here for Western companies that can see and are willing to seize opportunities in Africa.  Partnering with Impalas on knowledge-exchange projects can be rewarding. Impalas benefit from acquiring tools and skills that Western companies have developed, and Western companies can become players in one of the most dynamic markets in the world.  Of course, it’s imperative to choose such opportunities wisely.

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As always, I’d love to find out what you think about this subject…

Image courtesy of Daryona

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The term ‘gazelle’  was coined by David Birch of Cognetics (c. 2001) to describe a class of companies that “run fast and jump high.”

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One of the best things about my work is what my colleagues and I call the “hat trick”.  In sports like cricket and hockey, a hat trick is accomplishing a feat three times in a contest.  I’ll explain what a hat trick is in my world and why it’s thrilling to pull one off.

Our mission is to help clients enable their customers to enjoy richer, more satisfying service experiences.

A hat trick is when we not only help clients to better meet the needs of their target customers, but also enable them to increase customer loyalty and revenue. We do all this while also cutting service costs — sometimes up to 20%.  Almost every assignment offers hat trick potential.

Generally, companies recognize the benefits of improving their customer touch points. But behind the touch points, and where we concentrate, is an elaborate ecosystem of people and information distributed across the company’s organizational, geographic, and technological boundaries.

Systems perspective

‘Service system’ refers to the dynamic interplay of people and information used to control customer touch points.  I’m convinced that the service system is a company’s most powerful value-creation engine. High performing companies know that fine tuning service systems to meet the needs of target customers pays big dividends.  We help them figure out how to do it quickly and efficiently.

Our systems perspective enables us to see a client’s business processes holistically rather than merely focusing on particular components.

Systems thinking has been around for a long time, but many companies are built around managing functions — a model of operations management that has its roots in the manufacturing era. Think of an auto plant where each functional unit adds a new component to the chassis as it moves along the assembly line in a linear fashion.

But today’s service processes don’t function like assembly lines. Instead, they operate concurrently and interdependently, transcending traditional organizational boundaries.  Processes must not only operate together cohesively, they must also continually improve the way they function together.

The systems paradigm is universally applicable regardless of the company’s business model or size. It applies just as well to Fed-Ex and Amazon.com as it does to a family restaurant, though the scale and complexity of enterprise-grade service systems are obviously greater than those of smaller businesses.

In larger organizations, processes within the service system are like islands linked by bridges which are seldom joined in ways that are as simple or as seamless as they can be.  In many cases, service systems include processes that are handled by partners that sit outside organizational and even geographical boundaries.  That’s why it’s critical to see, and help others to see, the whole picture.

Four questions

How do we begin? To understand the structure and relationship of processes within a service system, we ask four basic questions:

1. What is being done?
2. Why is it being done?
3. Who is doing it?
4. How is it being done?

After asking stakeholders these questions and probing, we produce a visual map of the service system to enable stakeholders to see patterns in the value creation chain.

By depicting service systems visually, we can identify sources of untapped value and also spot activities that add little or no value. When the stakeholders see how processes work within a larger system, they can more readily see how people and information interact to create value.

It’s fascinating to watch a room full of stakeholders seeing a map of their service system for the first time.  Most “process owners” find it instructive to see how they fit into the overall value-creation process. The mapping exercise helps everyone determine the direction and scope of changes that lead to creating more value — improving customer experiences while saving money.

No two problems are alike. But it’s nearly always possible to reduce complexity, and the savings can fund targeted service improvements.

In the end, the company becomes more competitive and profitable, their target customers enjoy a better experience and, of course, my team and I are thrilled. What’s not to love about a hat trick?

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As always, I’d appreciate learning your perspective on this subject.

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Want more info on this subject?

I recently re-read Peter Senge’s ’94 classic on systems thinking, The Fifth Discipline, and it’s remarkably applicable the challenges of our knowledge-based, global service economy.  It’s still one of the most influential books on the subject.

I’d also suggest a current (2010) book, Systems Thinking for Curious Managers, by Russ Ackoff (“the dean” of systems thinking).  I’d also recommend his insightful paper (PDF), On Why Few Organizations Adopt Systems Thinking.

Related:

I’d also suggest Roger Martin’s new book,  The Design of Business which cites case studies of design-oriented strategic transformations made at P&G, RIM, Cirque du Soldier, etc.

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To support his argument, he cites the case of PUR, a low-cost water purification system developed by Procter & Gamble. The product provides the obvious benefit of affordable clean water where the risks of drinking contaminated water are high. But curiously, PUR* achieved low market penetration rates in test markets.

Why would consumers reject a product as salient as PUR? The author contends that Western companies simply haven’t created demand among low income consumers. “Companies must create markets—new lifestyles—among poor consumers,” he insists. His prescription is that Western businesses need to do a better job “conditioning” low-income  people to be better consumers.  Really?

He argues that Western businesses ought to show people in emerging markets how enjoyable life would be if they were using products like PUR.  Companies, he says, ought to “make the idea of paying money for the products seem natural,” and “induce consumers to fit those goods into their long-held routines.”  Get a load of our stuff!

The fact is that consumers in developing markets usually know value when they see it. For example, businesses don’t have to create demand for mobile phones bought by the millions at the Bottom of the Pyramid—the fastest growing mobile market in the world. Consumers in developing markets can see how phones improve their lives.

Low-income consumers often buy mobile phones from street vendors, and they continually invent ways to squeeze more value from the devices than designers could have imagined. Customers use the devices to handle tasks like transferring money and finding markets for their goods that were never conceived by the phone’s developers or market researchers.

Jan Chipchase, a field researcher at Nokia who studies user behavior in developing markets observes that however cleverly products and go-to-market strategies are designed, “the street” figures out novel ways to distribute and use them.

So what does it take to sell products in developing markets? Listen to and carefully observe potential users. It makes sense to educate and inform emerging market consumers, but businesses have a lot to learn from them about creating value in their markets.

A more enlightened approach to serving the needs of potential consumers in emerging markets is to bring them into both the product design, communication and distribution processes.

I don’t mean to sound flip but next time a Western company comes up with a hot new product for the Bottom of the Pyramid, they should keep it out of the hands of marketing gurus. Instead,  they ought to consult vendors on on the street and figure out a way to share the revenue with them.  If street vendors can’t sell it, no one can.

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* P&G now sells PUR in developing markets at cost and is partnering with non-profit organizations to distribute the product through humanitarian relief networks.

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What do you think? As always, I’d love to hear your views…

Want more on this topic?

Check out INSEAD’s piece, Social Innovation — Creating Products for Those at the Bottom of the Pyramid. For a broader perspective, read C. K. Prahalad’s classic, The Fortune at the Bottom of the Pyramid.

My related posts include Mobile Growth in Emerging Markets and various posts on emerging markets.

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“The formula is simple and it’s reduced to four words every kid in the world knows: Tell me a story. It’s that easy.” -Don Hewitt

Last week, Don Hewitt, founder and long-time producer of 60 Minutes, died.  He’ll be remembered, among other things, as an impresario who created one of TV’s most successful programs.  There’s a potent lesson for all of us in his “storyline”.

Hewitt’s vision and instincts culminated in a new, highly successful form of entertainment known as the “news magazine”. As important as that accomplishment is, his greatest feat may be his proving that story-telling is the key to success, not only in TV, but in every medium.  We, in business, have much to learn from Hewitt’s dogged pursuit of the story.

Before 60 Minutes came along in 1968, few people in the news business recognized, let alone harnessed, the power of story-telling to register with the audience.  “Hard news” was treated as serious and important, and it was distinct from lighter, but more popular programs.

Hewitt, aiming for high ratings, wanted to present news-based information that also resonated with viewers.  Like Shakespeare and Chekov, he understood that the shortest distance to an audience’s heart is through telling stories, especially about people.

On Sunday, 60 Minutes devoted its entire program to remembering and appreciating the man whose singular focus was “making the story better”.  It was an informative, touching tribute.  That program offers an object lesson for any of us who want to carry our message to a wider audience.

Making the Story Better

For 36 years, Hewitt ran 60 Minutes like an independent fiefdom within CBS. Every correspondent had his or her own producers who competed with one another to find and present material that mattered to viewers.  Hewitt pushed, cajoled, and corralled his staff to uncover, organize and present evocative stories.  And they did.

The correspondents didn’t focus on the issues; instead, they featured the people swept up by the issues. The most effective pieces involved people telling their own stories.

My favorite segments spotlight people convicted of crimes they didn’t commit.  Rather than merely recount what happened, the correspondents interview the subjects from their jail cells. They also talk with their family members, associates and accusers.  Each individual tells the story from their perspective. Over the course of the segment, a “narrative arc” emerges, and we, the audience, empathize with the subject. Typically, we want these hapless people vindicated.

That’s precisely the effect that Hewitt was determined to get.  He believed that well-crafted stories inspire audiences to feel differently and intensely — one way or another — about the subject. Turns out his beliefs are grounded in science.

Hard-wired for Stories

Stories are powerful because we’re “hard-wired” to respond to them. Psychologist Jerome Bruner said that kids as young as two years old, “understand the stories that their families tell them, and they start to tell their own stories, and in particular start to tell stories to themselves as part of their first efforts to make sense of their lives.”

Brain imaging now shows that people are highly stimulated when they experience a story.  In fact, individuals construct mental simulations as they experience and find meaning in stories.

We flock to films, theater, and novels because we respond deeply to their storyline.  The most successful fiction and non-fiction writers know this. Their stories answer the questions, “What happens to the hero, and why?”

To our detriment, many of us in business don’t fully appreciate the power of story-telling. Even our better reports — exacting and accurate — lack a storyline and fall short of capturing the reader’s imagination. Hence, we often fail to motivate the reader to take the action we desire.  Wasn’t our aim to move the reader to action?

Lots of books and blogs exhort us to tell stories. But, the story of Hewitt’s single-minded pursuit of telling the good story and the effect it has on audiences is far more persuasive. His story illustrates that it’s not enough to merely inform the audience to resonate. We ought to tell them a good story…

As always, I’d love to hear your views. What’s your story about story-telling?

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Want more information about story-telling?

Take a look at Seth Godin’s piece for Ode Magazine, “How to Tell a Great Story”. Or, read the book, Made to Stick- Why Some Ideas Survive and Others Die… by Chip and Dan Heath.

Don Hewitt’s 2002 autobiography is Tell Me a Story.  It begins: “New Rochelle, New York, could have passed for a small town and did when George M. Cohan wrote about it and sang about it in the 1906 musical.”

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You never know with these things when you’re trying something new what can happen. This is all experimental. ~Richard Branson

Over the years, there have been surprisingly few breakthroughs in the airline customer experience - until recently. Sir Richard Branson’s venture into the U.S. market, Virgin America, (VX) is redefining air travel by providing passengers with a fresh, distinctive on-board experience. The carrier is less than two years old but it’s quickly becoming a template for what’s possible in the future.

The choices VX is making demonstrate a “customer experience mindset” that’s all too rare in the industry. It’s evident that the VX team devoted their attention to passenger comfort and convenience. Features “baked in” to the customer experience include seats with power-outlets and USB ports. Cabins in their new A320s have soft mood lighting.

Healthy, appetizing meals designed by star-chef Luke Mangan show that the company knows what their customers prefer.  Features like these aren’t found on any domestic airline, let alone a low-cost one.

Last week, VX announced that its fleet is 100% WiFi-equipped (Gogo). They only have 28 planes, but they can boast that they’re the world’s first airline to reach that coveted milestone.

What’s most impressive is VX’s touch-screen, interactive entertainment system. The platform, known as Red, enables passengers to watch movies and live TV, play games, chat on-line with other passengers, and sample or even download MP3s from a massive digital library. Passengers can also use Red to order and pay for food and beverages which they receive “on-demand”.  For the digitally-inclined traveler, this is the way to fly.

Given the prohibitive cost of installing systems like Red on their existing fleets, it’s doubtful that any of the major network carriers will soon match VX’s “at-seat” amenities. But, the toughest feature for VX’s rivals to co-opt is its “customer experience mindset”.  These advantages could give the carrier a strong lead in the service innovation race for years to come if it stays healthy during this slowdown.

The airline serves only a handful of markets (New York, Boston, DC and the West Coast).  But, they’re big league markets where VX is attracting a cadre of loyal, well-heeled fans.  As an industry guy, I’m tipping my hat to Sir Richard Branson and VX’s San Francisco-based team for rethinking the in-flight experience, and for executing it well.

What do you think?  Have you sampled Virgin America?  I appreciate your perspective.

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Want more on this subject?

Richard Branson (Reuters, 6-2-09): “It’s unlikely all the big U.S. airlines will survive.”

Read Red Orbit’s piece (10-16-08), “Virgin America Wins Best Domestic Airline in Conde Nast Traveler’s (’08) Readers’ Choice Awards”.

Check out SimpliFlying’s series on Richard Branson and Virgin America.

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Companies have begunb scrutinizing their value chains from the bottom up and the top down because none of our customers has the extra time or money to be wasted by underperforming partners or suppliers.   The smart  firms have already started this process in earnest. 

Organizations we work with are mustering the self-honesty and diligence to impose greater process discipline and rigor while, at the same time, becoming “turn-on-a-dime” adaptable.  To succeed in this low-demand cycle, businesses will have to focus on what matters most to their customers and relentlessly discard what’s leftover. 

With that in mind, our team this week looked at ways we can improve the quality of services we provide our clients. We convened a workshop in Chicago aimed at squeezing even more value out of our solution delivery model.   We asked ourselves, how can we build more capacity? How can we deliver targeted solutions to clients quickly while also eliminating complexity?  We’re always asking these questions but I can’t recall ever  approaching  them with more ferver and resourcefulness.   

Businesses everywhere are facing one of the most daunting questions of our age. Will institutions be barriers to helping their constituents succeed or will they be bridges to the future?  I think the latter is likely if we take the right approach.  According to our clients and partners, that’s What’s Next…

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Branson said, “I am delighted to announce Virgin’s first business in Russia – Virgin Connect. We have entered Russia with Virgin Connect because we believe the potential for growth in the Russian broadband market is extremely exciting. Virgin‘s fundamental business principle is: ‘Delivering an outstanding customer experience’.”  He added, “We will provide a fresh and human customer experience to Russians and believe that Trivon is the ideal partner to deliver this. Virgin Connect plans to gain a market share of 10% within 5 years in this promising market”.

Trivon, founded in ’04, has bought up several Russian communications operators. They grabbed up the 5.7-5.9GHz spectrum licence across Russia and also acquired a 5.9-6.4GHz spectrum in some regions to set the stage.

It’s a shrewd move. The venture wants to exploit a fragmented, underserved market which only has a 5% broadband penetration rate.  The Russian market still suffers from the legacy practices of their monopolistic, post-Soviet era culture.

The company didn’t provide details about its service model yet but judging by the Virgin Group’s progressive approach to consumer services in other verticals, they could reshape the services industry in a region that lags far behind the rest of the developing world.  I’m betting on Virgin’s succeeding and, in any case, this should be interesting.  Stay tuned…

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Both field generals – Lazaridis vs. Jobs – are brilliant strategists, but each has a unique vision and problem solving style reflected by their respective organizations and their products.

R.I.M. has long appealed to business users who demand relentless connectivity; the company shaped the category due to its combination of functionality, stability and security.  Those features were enough to give R.I.M. a critical mass of market share which has grown incrementally.

Then came the iPhone with its silky touchscreen and utter seamlessness.  It was a category killer from Day One. I’ve never met a user who wasn’t enthralled.  The user experience is the message.

What’s next is their battle for the hearts and minds of business users in the rarified 3G space.  Both companies will likely co-opt the best features of the other.  (Look for R.I.M. to come up with a niftier interface while upgrading its functionality and security in the 3G world.)

This battle couldn’t be more fascinating. I’m betting – and this is a very safe bet – that the real winner will be the consumer.

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Why this approach—why now? Simply put, we’re seeing corporate learning increasingly move away from a traditional skills training-passive learning approach to more of a performance engineering process, and for good reason.  Traditional training doesn’t build the capabilities that today’s market leading companies need to succeed.  Moreover, it doesn’t address the needs of sophisticated learners in the Knowledge Economy.

In contrast to conventional training, our efforts are directed at improving overall organizational capabilities while stressing frontline performance — connecting performance to the desired business impact. We’re aiming at driving performance improvement through all levels of the organization.

In addition to building the skills, knowledge and talents needed to improve performance now, we help clients anticipate the skills, the knowledge, the talents necessary as consumer demands shift over the 18-24 months.

The LH isn’t a training center, or a set of dedicated classrooms. It’s conceptual — a web-enabled learning environment that provides access to a wealth of knowledge resources–both internal and external. It entails on-line learning, peer collaborations, links to outside resources, and partnerships with academic institutions, all intended to deliver knowledge that is necessary at the moment the employee needs it.

The LH enables leaders to be able to emphasize the importance of learning to the success of the organization. It enables our clients to come together around a shared educational platform. This formal approach to on-going learning enables different units to come together which is one of those key business challenges that organizations are dealing with today – that is, trying to get different work groups to collaborate.

Technology is enables access to and connectivity with resources that couldn’t otherwise be reached in person. It also allows us to do things such as simulations — a lot of things that we can practice, which we would not be able to do in the operational environment, are enabled by technology.  This is aparamount in a world where workers are distributed across continents.

And we bring technologies that simulate the work setting. The result is there’s no demarcation between the learning environment and the work setting. So, when learners move from the LH Lab to their day-to-day jobs, it’s a seamless transition.

Learners come to the LH environment expecting not only to get particular knowledge or skills but they expect to enjoy a learning experience that contribute to their ability to effectively engage customers while also feeling more confident and therefore more satisfied workers.

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The forecast for airlines is gloomy and getting darker by the day. Network carriers in the U.S. are facing high costs for aircraft ownership, fuel, labor and maintenance. With rising fixed costs, no pricing power and negligible profit margins, reducing capacity to relieve pricing pressure seems to be mission imperative.  But network carriers are reluctant to reduce their inventories much further.

Due to their low credit ratings, airlines can’t borrow money at reasonable rates to invest in more fuel efficient planes and more efficient facilities.

All this means that the industry will have to consolidate – out of sheer necessity – despite the thorny challenges of integrating large, people-intensive organizations and fragmented legacy systems.

Can consolidation fix the ailing economics of the airline industry?

It’s too early to tell, but it probably won’t be enough.  In the end, new and innovative airline business models are needed to solve the industry’s deep, structural problems.

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He pointed out how the Southwest Airlines model is “disruptive” because their low-cost strategy targeted customers who had been using trains and buses and or those who used out of the way airports.

But, Christensen believes that low cost carriers have a limited shelf life, because the incumbents can ultimately match them on the cost side, whereas the incumbents can’t climb the value chain.

I wonder what comes next in the evolution of airline service models – few of which are working well in mature markets, particularly in the U.S. and Europe.  Carriers suffer from overcapacity during down cycles like this while customers receive less than stellar service.

Just when we figured there’s nothing new and interesting in the industry comes Virgin America’s innovative business model. Their planes feature custom-designed leather seats, mood-lighting, and the best in-flight entertainment (IFE) system in the industry with on-demand TV and movies, high end games, music and even online chats with other customers.

The IFE is a great example of how the airline got it right.  As a practical matter, customers can plug their devices into USB ports.  The real genius is that the system runs on twin Linux servers–meaning an “open source” platform that is equipped to handle a range of new software and harware add-ons down the road.  This innovation occurred because the company had the wisdom to recruit forward-thinking, Silicon valley engineers – not airline entertainment vendors – to design it.

And, the airline managed all of this using a surprisingly lean, yet scalable operations model.  By allocating costs on non-perishable components that customers value, Virgin has come up with an effective airline model that will alter the way we think about flying.

While the legacy carriers fight it out using conventional warfare, Virgin America is rolling out new, novel features that today’s high value customer desires.  That’s what’s next – along with more mergers among the majors.

P.S. [April 18, 2008], Notice Time magazine’s 4-17 article, “Richard Branson’s Flight Plan”.

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