Distinguished scholar and visionary

The distinguished business scholar, C. K. Prahalad, died unexpectedly last week of a lung ailment at the age of 69. His contributions to the pursuit of business strategy and innovation are unparalleled.  He’s had an enormous influence on my work and that of my peers.

Dr. Prahalad was more than a celebrated management guru, he was a visionary.  He redefined the way that a growing number of global businesses deal with developing markets, and he helped to shape a new economic paradigm.

The Indian-born Prahalad received his doctorate from Harvard and taught at the University of Michigan’s Ross School of Business, but he never strayed far from contemplating the social and economic issues that affected his native India.

A recurring theme in his work concerned the centrality of the customer in today’s global, interconnected marketplace. He urged business leaders to “co-create” or develop products in tandem with their customers.

During the much of his career, his focus was on corporate strategy at multinational enterprises. Among his  notable works were “The Core Competence of the Corporation” (Harvard Business Review, May-June, 1990), and a 1994 book,  Competing for the Future, both of which which he co-wrote with Gary Hamel.

The Bottom of the Pyramid

However, C. K. Prahalad is best known for his 2004 book, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits.  In that work, he argued that businesses stand to reap benefits from serving the world’s poorest people or those at “Bottom of the Pyramid” (BoP) who live on $2 or less per day and who comprise a majority of the world’s population.

“Four billion poor can be the engine of the next round of global trade and prosperity,” he wrote.  “If we stop thinking of the poor as victims or as a burden and start recognizing them as resilient and creative entrepreneurs and value-conscious consumers, a whole new world of opportunity will open up.”

His view of serving consumers in emerging markets, or “inclusive capitalism”, was eye-opening for many business leaders who had long ignored the needs of the poor and, in so doing, missed important opportunities.

Accessible and affordable products

Dr. Prahalad identified several obstacles in serving BoP consumers. For example, he observed that poor consumers typically have unpredictable income streams and they subsist on daily wages. They tend to buy only when they have money on hand, and only what they need that day.

Accordingly, he pointed out that single-serve packaging, for items like shampoo, condiments, tea and coffee, and aspirin, is well suited to this population, noting that a single-serve revolution is sweeping BoP markets.

In order to make products accessible and affordable for BoP consumers, Dr. Prahalad challenged business leaders to re-think traditional value chains by determining which components can be outsourced and which need to be “centralized” to minimize costs while maintaining quality.

Dr. Prahalad also recognized that emerging markets are “laboratories” for innovation.  He argued that reverse or “trickle up” innovation — goods and services made in and for developing markets — can transform industries in developed markets.

Examples  of “trickle-up” innovations include micro-lending, mobile-banking (“M-banking”), low-cost mobile phones, low cost hotels, and even car manufacturing where Tata Motors’ Nano – a car made for Indian consumers that sells for $2,000 USD – is slated to be sold in developed markets.

Lessons learned

Western businesses have only begun serving BoP markets, but a growing number of us are learning from consumers and entrepreneurs in developing markets about how to restructure our own business models.  The lessons we’re learning about lean manufacturing and virtual distribution chains from BoP markets are already transforming global markets.

The most profound change that we in the West have in serving BoP consumers is one of attitude. As we drop our assumptions and learn to better understand the needs of low income consumers, we’ll be able to tap the full measure of opportunities that Dr. Prahalad envisaged.

C.K. Prahalad spoke poignantly about how much the developed world can gain from serving and ultimately raising the living standards of people at the base of the Pyramid. He’s inspired my colleagues and me to see both developing markets and consumers through sharper, more accurate lenses, and we owe him an inestimable debt of gratitude.  He’ll be sorely missed.

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As always I’d appreciate your perspective.

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Want more information about Dr. Prahalad? Here is the Times Of India’s eulogy.

This is an ’07 video clip featuring his discussion of  “the good and not-so-good” news about globalization’s impact on the Bottom of the Pyramid.

This video features an interview with Dr. Prahalad via Thinkers50 which named him “the most influential business thinker in the world” in 2009.  Here is his keynote address to the Acumen Fund Fellows Class of 2009.

I  recommend Dr. Prahalad’s ’08 book, New Age of Innovation, co-written with M. S. Krishnan.

Finally, here are assorted posts on this blog referring to Dr. Prahalad and emerging markets opportunities and issues.

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Let me be clear. It’s crucial to satisfy customers’ needs and preferences. It’s also vital to know how customers perceive your offering so you can pinpoint areas that need attention. But, C-SAT misses a critical piece of the puzzle. It doesn’t indicate customers’ intention to remain loyal to your brand. If they’re defecting, it doesn’t tell you why.

Studies show that customers can be reasonably satisfied with your offerings yet still switch away from your brand. In fact, they may be extolling your brand’s virtues even as they’re signing up with your rival. If they do intend to stay, C-SAT won’t tell you if they’re inclined to buy again. And, you can’t know if they’d prefer to get your service through a different channel. At best, C-SAT is a barometer of how customers perceive your brand based on their prior experiences with it.

Is Net Promoter Score the answer?

A newer metric, Net Promoter Score (NPS), is gaining steam. NPS is based on asking customers: “How likely is it that you’d recommend our brand to a friend?”  Depending on their answers, respondents are classified as “Promoters,” “Passives,” or “Detractors”.  But is NPS is any more predictive of customer behavior than C-SAT?

The answer is a resounding “maybe”. Whereas C-SAT tries to gauge the customers’ perceptions of experience, NPS measures their enthusiasm for your offering.  NPS takes aim at attitude which does tend to be more predictive of  behavior. But neither metric identifies the unique drivers that motivate customers to remain loyal and buy again so that you can take steps to influence their behavior.

Where these kinds of metrics create problems is that they give organizations a false sense of insightfulness.  Unfortunately, at a lot of companies, NPS has become the new C-SAT — a surrogate for customer insight. Like C-SAT, it’s relatively easy to collect and track over time. But many organizations are merely substituting a newer, shinier metric for the traditional, time-worn measure of service performance.  These businesses are being ill-served.

So, what’s the fix?

There’s no substitute for getting to know the people you serve. Enlightened companies engage in frank conversations  with a fair cross section of their customer base. They engage the people they’re serving as well as those they want to serve.  They talk with defectors as well as loyal customers. They ask purposeful, specific questions to understand customers’ attitude toward their offerings. And they listen intently.

Talking directly with customers is a golden opportunity if you make the most of it. Use every channel to foster genuine, two-way communications. Solicit and collect feedback before, during, and after the service experience. Make it easy for customers to respond. Ask specific questions and listen from the standpoint of  discovering new information.

Here’s a caveat: Recognize the limitations of customer feedback. For example, many people can’t readily explain their intentions, and many are prone to misrepresenting their perceptions. But these constraints don’t deter skillful  practioners from probing customers to learn what drives their loyalty and intention to repurchase.

Get involved.

Don’t rely solely on your customer-facing reps to gather feedback. Too many managers think they know what’s going on by perusing weekly feedback summaries. It’s vital to get personally involved, and to encourage your peers up and down the line to join you.

Surveys have their place if they’re well-crafted. Asking specific, purposeful questions in the proper sequence is key.  Comparing different surveys, using advanced techniques like conjoint analysis, can provide a dimension of information not available  through any single questionnaire. If you don’t have the know-how to do this, get sound 3^rd party advice.

Can you handle the truth? Engage in purposeful inquiry to uncover actionable insights — not to reinforce what you want to hear. Done properly, you’ll be amazed at what your customers know about your business that can guide you. My litmus test for inquiry is simple: If I’m not consistently discovering new things, I’m not doing it effectively or sufficiently.

Building relationships isn’t about achieving C-SAT or NPS scores. Talking with customers takes time and skill.  Purposeful inquiry requires more effort than tabulating survey scores. It’s worth it. If you’re genuinely interested in what drives your customers but rely solely on C-SAT or NPS scores as your basis for knowing, you’re probably paying a stiff penalty. Can you afford it?

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Want more on this subject?

My company, Osprey, specializes in helping global firms gain deeper insights about the people they serve. Our focus is on identifying loyalty and repurchase drivers. To read case studies or to get more info, please get in touch.  Let’s talk about your particular challenges and opportunities.

Suggested Reading:

Why Satisfied Customers Defect (’08 article) from Harvard Business Publishing.

Predictably Irrational: The Hidden Forces That Shape Our Decisions (’08 book) from HarperCollins.

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It is with the heart that one sees rightly; what is essential  is invisible to the eye. ~Antoine De Saint-Exupery, The Little Prince

Business stories about “empathy” are springing up again. BusinessWeek ran one (Empathy = Growth) last week.  Fast Company covers the subject periodically. Authors are urging readers to consider the merits of empathy despite the need to cut operating costs as demand for services declines. It makes sense for businesses to re-evaluate their customer relationships in this environment. I think empathy remains widely misunderstood and its role is undervalued in the business community.

Simply put, empathy is rooted in the capacity to see the world through the eyes of another person.  Empathy enables a provider of service to recognize the buyer’s feelings, needs, and wants in order to fulfill these drivers through various means.

I’m interested in a broad spectrum of “relational competencies,” including empathy, and how they are used in business. Skillful practitioners use these competencies to show their understanding, respect and appreciation for others.  These skills include self-awareness and various social competencies that enable the practitioner to listen to and validate customers which forms the basis of relationships.

I admit to a strong bias on this subject that stems from my work and research in this area: I’m convinced that an organization’s relational skills — meaning its collective capacity to engage customers — can be improved, and that it pays to do so.

Success depends on the company’s cultural climate among other factors. Leadership is essential. Organizations need robust, efficient service systems and analytical tools for gauging their performance. Traditional service training programs have been disappointing.  But research shows that effective learning solutions are helpful if they are properly designed, delivered and supported.

Why do so many companies struggle with this? Many suffer from a form of relational deficit disorder. They’re not facile with the “people” part of the business. They describe relational competencies as “soft skills,” implying that they aren’t essential — a message that undermines their relationship-building efforts.

Smart companies know better.  They recognize the link between relational skillfulness and customer retention, net promoter index, spend rates and other relationship metrics. They’re explicit and concrete about relational skills as a criterion for hiring, rewards and advancement.

Since its early days, Southwest Airlines’ approach has been “Hire for Attitude, Train for Skill”. The motto is now old hat. But the first time I heard that, it hit me like a sledgehammer:  Here was a company — a rival at the time — that could distill its talent management strategy in six words.

It’s no surprise that Southwest has flourished through every business cycle. During lean times, they grow stronger  than their rivals. They’ve run a tight ship, no doubt about it, but they do know how to relate to people. What’s amazing is that they operate 3,400 flights a day, yet they don’t let the noise of running an operation get in the way of serving the customer.  Their culture is “casual” and even “whimsical,” but there’s no doubt that it’s about the people.

It sounds cliché but forging stronger relationships is a winning strategy, and it works across industries and markets. It’s as true for the Belgian bank as it is for the UAE mobile operator, or the Singaporean airport. It applies to the South African resort, the British retailer, and the U.S. airline.  Relating to people is at the heart of what we do whether we sell handcrafted rugs in an Uzbeki bazaar or design luxury cars in a German high rise.

Observing service encounters around the world convinces me that people everywhere crave understanding, respect, and appreciation.  How people demonstrate that varies from place to place, but the need for feeling valued is deep-seated and universal.  If your company’s culture and infrastructure don’t support delivering your offerings with relational competency on a consistent basis, there’s work to be done.

Engaging people is necessary but not sufficient to delivering an exceptional customer experience.  Companies must deliver their products and services efficiently. Firms like Southwest Airlines that can balance relational competency with process rigor and execution have a powerful advantage over their rivals.

As more companies bring customers into the product and service design process, relational skills will become more coveted.  Collaboration with customers requires that we relate to people more skillfully.  The challenge in working with people shoulder-to-shoulder or across the globe is to understand and relate to them as we pursue common goals.  Tapping the power of collaboration requires high-level relational skillfulness.

As the world grows smaller, our ability to capacity to relate to others becomes a strategic advantage. Psychologist Daniel Goleman wrote, “The ever-pressing need to serve customers and clients well and to work smoothly and creatively with an ever more diverse range of people makes empathic capabilities all the more essential.”

Some organizations have a lot to learn about relational competency. What are the business implications? How can these skills be developed to retain customers and influence their behavior? No two companies face the same challenges and opportunities.  Firms are well served to re-evaluate their approach to relationships as demand for services declines.

As businesses focus on surviving in lean cycles, they tend to cut spending in areas that impact the customer — that’s understandable. The smart ones manage to find a balance between restructuring costs and building relational mastery. I’m betting on them to win.

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Want more on this subject?

For my money, the “go-to” resource on this subject remains Daniel Goleman. His ’98 book, Working with Emotional Intelligence (which followed his ground breaking work, Emotional Intelligence) looks at the skills people need to relate to others in the work place.  Goleman explains that emotional competencies are crucial to building successful relationships.  He supports his recommendations with findings from cognitive and behavioral research.  Goleman was among the first social scientists to discuss the correlation between emotional intelligence and success in the workplace.

Goleman offers an Emotional Competence Framework upon which his recommendations are based. His model is divided into two sections, personal competence and social competence is found below.

PERSONAL COMPETENCE

How we manage ourselves

Self awareness

Knowing one’s internal states, preferences, resources, and intuitions

• Emotional awareness: Recognizing one’s emotions and their effects
• Accurate self-assessment: Knowing one’s strengths and limits
• Self-confidence: A strong sense of one’s self worth and capabilities.

Self-regulation

Managing one’s internal states, impulses and resources

• Self-Control: Keeping disruptive emotions and impulses in check
• Trustworthiness: maintaining standards of honesty and integrity
• Conscientiousness: Taking responsibility for personal performance
• Adaptability: Flexibility in handling change

Innovation:  being comfortable with novel ideas, approaches, and new information

Motivation

Emotional tendencies that guide or facilitate reaching goals

• Achievement drive: striving to improve or meet the standard of excellence
• Commitment: Aligning with the goals of the group or organization
• Initiative: Readiness to act on opportunities
• Optimism: Persistence in pursuing goals despite obstacles and setbacks

SOCIAL COMPETENCE

These competencies determine how we handle relationships.

Empathy

Awareness of others’ feelings, needs, and concerns

• Understanding others: Sensing others’ feelings and perspectives, and taking an active interest in their concerns
• Developing others: Sensing others’ development needs and bolstering their abilities
• Service orientation: Anticipating, recognizing, and meeting customers’ needs
• Leveraging diversity: Cultivating opportunities through different kinds of people
• Political awareness: Reading a group’s emotional currents and power relationships

Social skills

Adeptness in inducing desirable responses in others

• Influence: Wielding effective tactics for persuasion
• Communication: Listening openly and sending convincing messages
• Conflict management: Negotiating and resolving disagreements
• Leadership: Inspiring and guiding individuals and groups
• Change catalyst: Initiating or managing change
• Building bonds: Nurturing instrumental relationships
• Collaboration and cooperation: Working with others toward shared goals
• Team capabilities: creating group synergy in pursuing collective goals

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In my lifetime, conditions have grown immeasurably better, freer and more prosperous for a majority of humanity, yet hand-wringing about the miserable remains the reflex mode for most coverage of planet earth.

Nowhere more so than in Africa, from which I’d just returned when the e-mail landed. During a short stay in Ghana, which will hold free elections in December, Vodafone had bought a majority stake in Ghana Telecom for $900 million (entering a fiercely competitive mobile-phone market) and I’d heard much about 6 percent annual growth, spreading broadband and new high-end cacao ventures.

Accra, the capital, is buzzing. Russian hedge funds are investing. New construction abounds. Technology enables people in the capital to text money transfers via mobile phone to poor relatives in the bush.

I think most of Cohen’s points are well taken. He doesn’t mention the discovery of oil off Ghana’s coast and the country’s fiber projects or the investments being made by multinationals in the country’s business infrastructure.  The business climate in the region is improving, albeit in successive approximations.  The country’s services sector — chiefly teleco and financial services — are contributing to Ghana’s high annual growth rate.  Inflation is a growing concern, but so far it’s been manageable.  The process leading up to this December’s election should be interesting.  So far so good.

It’s also true that Africa’s success stories aren’t newsworthy to many news consumers.  We mostly hear about war, corruption, disease and rampant poverty.  On this point, I recommend Charlayne Hunter Gault’s “New News Out of Africa: Uncovering Africa’s Renaissance,” — it’s  chiefly about South Africa, but pertinent to the problem of media coverage across the continent.

If Ghana’s political environment remains stable and forward-looking, the country will be in a position to contribute even more of its stalwart intellectual capital to a “globalized” resource (R=G) community in the coming years.  So, even if the global media is fixated on the region’s challenges, the numbers will support a different story.  So look for Ghana and other gazelle nations of the sub-Sahara to lead the way.

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