Firms of Endearment

The Attack of Capitalist Fundamentalists on Bill Gates

On Thursday, the richest man in the world made an impassioned plea at the annual World Economic Forum in Davos, Switzerland. He urges businesses the world over to adopt what he called creative capitalism as a way to sharply curtail abject poverty on a worldwide basis.

Gates was savaged on CNBC’s Kudlow & Company by an assortment of Wall Street cognoscenti. They accused Gates of forgetting his roots as one of the most accomplished capitalists in history and selling out to do-goodism.

A friend who saw Larry Kudlow and his incensed companions damn Gates emailed me, “In essence, they ridiculed tough CEOS who played “hardball” in building their companies and their assets, only to become evangelists for the importance of “doing good works” as part of the business platform, AFTER they’ve attained their market objectives. They see these CEOS as dangerous to the capitalistic values that made their companies great.”

While writing Firms of Endearment, my coauthor Raj Sisodia and I talked about controversy that could build around the book because it describes a new business operating paradigm. Old paradigms do not fade off in the sunset quietly. They die amid the shrieks and shouts and damnations of the old paradigms faithful.

We have all experienced the elevated temperature, quickening of breath, dryness of mouth, and quickening when someone has attacked one of our deeply held beliefs.

It all begins in our midbrain where sentinel posts are always on the alert to threat. Our beliefs are as much a part of us as our body parts. Our brain can react to assaults on our beliefs with as much a sense of dire jeopardy as to physical assaults. Just recall how violent people can in opposing others who disagree with them on moral, religious or political matters.

Philosopher Thomas S. Kuhn wrote brilliantly about scientists’ reactions to threats to their beliefs in The Structure of Scientific Revolutions. Published 45 years ago, it remains a best seller.

Kuhn pushed the word paradigm into mainstream conversations. He coupled it with the word shift, as in paradigm shift.

Kuhn rejected the common definition of paradigm as “an accepted model or pattern.” Instead, he argued that a paradigm is a bundle of cognitive processes directed towards the discovery of some truth.

For example, until relatively recently, the processes researchers used in studying intestinal ulcers assumed they resulted from stress. The processes they employed defined the processes directed toward the problem of ulcers. However, when research processes shifted away from behavioral contexts into the realm of microorganisms, it was discovered that up to 90 percent of intestinal ulcers are caused by the Helicobacter pylori bacteria.

As a paradigm gains support, its supporters begin erecting defenses against future threats to its existence. This, said Kuhn, is the main role of normal science – not to ferret out and prove the new, but to further define and protect the old. In other words, most science is devoted to preserving the status quo.

Back to the assault on Bill Gates’ idea that doing good while doing well in running a business is a good thing. Nobel economist Milton Friedman famously said in a New York Magazine article in 1971, “The only social responsibility of a business is to make lawfully profits for its owners.”

Gates, and growing numbers of other top executives including Whole Foods’ John Mackey, Starbucks’ Howard Shultz and now even Wal-Mart’s Lee Scott are saying that doing good whole doing well doesn’t mean shortchanging shareholders. In fact, Gates message was just the opposite.

Citing a book by renowned business guru C. K. Prahalad, The Fortune at the Bottom of the Pyramid. Eradicating Poverty Through Profits, Gates argued in Davos that lifting people out of poverty on a wholesale basis could be very good for shareholders. But such a process for building shareholder wealth is a new paradigm. So, Kudlow & Company, along with legions of defenders of the old Friedman-sanctioned paradigm to come, view Gates as having sold out to the dark side of human compassion.

However, the tides of a more compassionate exercise of capitalism are already too strong for what we call in Firms of Endearment “fundamentalist capitalist” to resist. Beat their gums as they may, Gates view will prevail.

DBW

Bill Gates Urges Companies to Adopt "Creative Capitalism"

I strongly recommend finding time to watch the speech Bill Gates' delivered yesterday at the 2008 Davos Economic Forum. His  topic was what he calls "creative capitalism".  You can view it on YouTube.  You can also pick up the speech directly from the Davos Economic Forum webcast, which will allow you to watch it in full screen mode.

Gate speech delivery time is a little over 25 minutes. It is followed by about 12 minutes of Q&A.

With Gates' high profile entrance into the sustainability game you can count on the corporate sustainability movement ratcheting up and increasing the pressure on companies to climb aboard the movement.

Every company needs a plan for integrating sustainability into its marketing. This is a new area of service that agents of marketing can offer to clients. It’s not just about bragging to customers on what a company is doing on behalf of two of the three P’s – People and Planet. The third P, of course, is Profit because a company can’t sustainability address People and Planet issues if it has not profits.

A fully integrated marketing mix should address corporate sustainability from the perspective of every core stakeholder group – society, partners (especially suppliers), investors, customers and employees. 

Why is it important to take a broader approach to managing marketing activities? Because, as we learned in our research for Firms of Endearment, a fully integrated, holistic marketing approach tends to get more from time, energy and financial investment than traditional single dimension customer-centered marketing.

We found that synergies that form from a more comprehensive approach to marketing can improve marketing productivity at a cost per dollar of revenue that is less than what single dimension marketing costs.

Back to Bill Gates: Watch his speech. He is talking about the social transformation of capitalism on a global scale. After watching the speech, think about what your company or your clients can do to connect with the biggest change in capitalistic theory since Adam Smith published Wealth of Nations in 1776.

DBW

Chrysler's Last CEO

The folks who just took over Chrysler have shown that they don’t understand Detroit’s problems. That makes them prone to making some big mistakes. They made a huge, and possibly fatal mistake in appointing Bob Nardelli CEO of the beleaguered company. Of all the marquis names they could have selected, none come to mind that are less suited to reversing Chrysler’s fortunes.

I’ve thought on occasion that some spark of cosmic insight prompted Jack Welsh to choose Jeff Immelt as his successor at GE over Bob Nardelli. In many ways, Nardelli was closer in style and corporate temperament than Immelt. But Welsh made his decision as though he knew that he was going to be the last 20^th century style hierarchically defined, command and control (HC&C) CEO that GE would ever have. He seemed to intuit that a different breed of leadership would be needed in the 21^st century to keep GE hearty, well out front and as productive in producing innovative solutions as it has ever been in its long life of over 120 years.

Washington Post op-ed columnist David Ignatius called Immelt “a symbol of a new CEO style that emphasizes a company's obligations to a range of stakeholders and interests including the global environment.” Nardelli is a symbol of the old CEO style. The only stakeholders in the worldview of most 2oth century CEOs were shareholders (and upper level management).

Nardelli failed at Home Depot not because of the sinful level of compensation he took – a quarter of a billion dollars for less than a handful of years at the helm. Some say that is the case. They say shareholders forced him out because of that. But the truth is, after a brief honeymoon period when slashed costs by centralizing everything he could and precipitated a mass exodus of the talent that built Home Depot into a great company, it became harder for Nardelli to prove his worth. All the low hanging fruit was picked. He had to find new ways of producing growth an profits. He now faced the challenge of answering, “what’s next?” But he had no viable “what next plan.” The board engineered his exit.

Detroit’s biggest problem is its culture. Always has been. But it’s a bigger problem now than ever. For generations the elite of the Big Three were part of a good ‘ol boy’s country club culture. Way down the ladder, workers were those worms that labor unions lived off of that had to be tolerated because someone had to build the cars.

Meanwhile, Toyota, Honda, and BMW – all three of which are “firms of endearment” – began a couple of decades ago studying external conditions like the emergence of new global markets, and rising oil prices and environmental concerns among legislators, regulators and consumers, Detroit ignored all that and continued producing super-sized vehicles like the Hummer, Explorer and Dodge Durango. Top management was obviously oblivious to the same reality that foreign car makers worked in but read differently.

Nardelli is a confrontational kind of manager. Shaped by military training, he relishes a hierarchically defined command and control position. But folks, I gotta tell you. The days when an HC&C management style was best for a large industrial company are over. Now, it’s about working with stakeholders like employees and their unions, not about working them over. Now, it’s about realizing that design engineers don’t have all the answers. Now, it’s time that the haughty cognoscenti of Detroit run out and buy some humble pie and let the scales fall from their eyes to see a different kind of world out their than it was in the days when jet age tail fins adorned the rear fenders of cars that were too ostentatious by half.

But none of this holds any meaning for Nardelli. So, there’s a strong likelihood that he will be Chrysler’s last CEO.

DBW

 

The Largest Movement in the World (That Almost No One Saw Coming)

Sometimes something happens that almost no one sees coming. The mainstreaming of the Internet was such an event. When MIT Media Lab founder Nicholas Negroponte was asked in 1994 why he had not foreseen the coming ubiquity of the Internet. He lamely responded, "The Internet for us was like air. It was there all the time - you wouldn't notice it existed unless it was missing."

Paul Hawken’s new book, Blessed Unrest describes another and potentially even greater event in terms of humankind's future: a massive social transformation of government and business quietly taking place beyond the awareness of most people. The stealthy nature of this event is hinted in the book’s subtitle, How the Largest Movement in the World Came into Being and Why No One Saw it Coming.

Hawken takes the reader on a journey through time, starting out many centuries ago, to show how we got to where we are today in terms of how we are dealing with major societal problems, such as the beleaguered state of our natural environments.

At times a reader might wonder why Hawken pauses in the journey he takes us on to talk about life centuries ago. However, in the end he pulls together threads harvested from multiple spools of thought into a beautifully fashioned literary tapestry depicting humankind’s present situation on this planet.

The explosion of interest by companies the world over in addressing many issues we’ve become accustomed to government taking a lead in seeking solutions to is staggering. These issues include environmental problems and a host of social causes ranging from severe poverty and education to health and medical challenges in Third World nations.

Of the world’s 100 largest economic entities, 63 are countries. The other 37 are companies. The combined annual turnover of the 10 largest companies in the world exceeds the GDP of most countries. At the present pace of corporate wealth building, it will not be long before capitalistic enterprises make up the majority of economic entities.

Like politicians and – yes, marketers – denizens of the corporate enterprise universe have not ranked very high in public polls that ask people about their levels of trust and respect for those in government and business who serve them. Marketers have been ranked just a notch above used car salesmen in some polls.

In a recent Gallop poll, 7 in 10 people said they did not trust CEOs of large companies, and nearly 8 in 10 believe that top executives will take improper actions to help themselves at the expense of their companies. In less than a year following 9/11, the number of Americans who see big corporations as an actual threat to America’s future doubled to 38%.

I see a different picture of the role of business enterprise in America’s – and indeed, the future of all humankind. We talk about this picture in Firms of Endearment, of which I am co-author. It seems obvious that people are hungry for a more optimistic image of business judging by the sales record of Firms of Endearment. Released just in February, it is already in its third printing and will soon be out in both Chinese and Italian versions.

Paul Hawken’s optimism about the path being taken toward a better world by a rapidly growing body of business enterprises is similar to our own. While Firms of Endearment gets down to the nitty-gritty of specific companies that take a broader view of their role in making the world a better place, Blessed Unrest works from a different perspective. It provides a 40,000 foot view of the greatest social transformation in the theory and practice of business since Adam Smith published Wealth of Nations in 1776. The view from 40,000 feet is truly breathtaking.

As he went to work on the book, Hawken estimated that there were some 100,000 organizations including NGOs (non-governmental eleemosynary organizations) as well as entities that operate more like profit-making enterprises but with a defined social purpose. Mohamed Yunus, founder of Grameen Bank that issues micro business loans to the poor in developing nations won the 2006 Nobel Peace Prize for his successful capitalistic approach to reducing severe poverty.

Hawken’s research revealed that the number of quasi-public and business entities dedicated to “saving the planet” and elevating life quality for people everywhere runs at least to a million, and perhaps to as much as 2 million organizations.

I do not agree with everything Hawken posits in Blessed Unrest but that doesn’t detract from my opinion that this is one of the most important reads I’ve had in my hands for sometime. Without the benefit of many insights Hawken delivers to us in Blessed Unrest you will be groping toward the future through a fog of misperceptions wafting up from old, outdated paradigms.

This is a critical fact: The future cannot be predicted by what has happened in the past. We have entered a discontinuous state in which is replacing a several centuries-old obsessive focus on the individual with a more holistic focus on human survival. As I see it, in this scenario, private organizations of every description in alliances with business enterprises – not government – represent the last best hope for our survival. You’ll understand better why that is when you read Blessed Unrest.

DBW (dbwolfe@idrm.com)

______________

On Sloppy Scholarship and Critical Thinking

Many years ago, Walt Kelly's Muppet-like cartoon character Pogo famously observed, "We have met the enemy, and he is us." Centuries before, Shakespeare expressed the same idea when he penned in Julius Caesar, "The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings."

We unquestionably live in times treacherous and challenging but of unprecedented opportunity. Just think, for example, how many millionaires and even billionaires have emerged from garages, basements and spare bedrooms over the past two decades.

Take Google co-founders Sergey Brin and Larry Page, for example. They launched Google in 1998, when both were 25 years old. Nine years later, each is worth overe $16 billion. Not that money is the measure of their worth in their's and in many other's mind.

Search engines had been around for some time: Archie was the first, coming on line in 1990. Then came InfoSeek, Lycos, Yahoo, Alta Vista, and others. So how did Google jump ahead of everyone else and become the most dominant Internet company on the planet? By not trying to improve on other models, but formulating their own.

Most companies pattern themselves and their products after others. Rather than applying critical thinking to an opportunity, they apply creative theme-and variation thinking to the way others have approached the same opportunity.

These are times that call for the kind of critical thinking approach employed by Page and Brin to create the Google juggernaut. What do I mean by "critical thinking?" I mean a cognitive mode that accepts no proposition without questioning its validity.  In a Cartesian sense, critical thinking presumes everything to be wrong until proven otherwise.

The trouble is today, is that in a hurry to get to a goal, we too often accept what others have claimed to be true without going through our own proof.

In workshops I conduct, I often use the aging of the population as a platform for showing how much we base our thinking about a matter on unchallenged, erroneous claims.

In a Fast Company article several years ago, Shoshana Zuboff, author of The Support Economy, wrote:

“Modern adulthood is a place with no maps. Until the late 20th century, there was no concept of midlife, because there just wasn't enough time in between climbing out of adolescence and dying.”

We've all heard how older people today are unlike any previous generation of older people, starting with how adults now live much longer. But the truth is, however, adults are not living much longer than they did a hundred years ago. People - including infants and children are living a lot longer, but not adults as a single category of people.

About 23 years of the total 30 years in life expectancy gains between 1900 and 2000 accrued to people under 18. 

Adult longevity increased relatively little during the 20th century. According to Social Security, a man reaching 65 today can expect to live only about 2.6 years longer than a man reaching 65 in 1940.

Perhaps more mind-catching, a person celebrating her 85th birthday today has barely a year greater life expectancy than her 85-year-old counterpart a century ago. In other words, the human life span (how long we can live) has not changed in modern times. It is the same as it was a thousand, two thousand, even 10,000 years ago. Our only gains have been in longevity – how long we do live. And since 1900, those gains have been relatively little for adults, especially after the age of 50.

Zuboff further said:

This new new adulthood is about becoming a truly unique individual who cannot be reduced to a role or a Rolodex, a net worth or a network -- a person who is more than the sum of his or her own parts, more than achievements and the expectations of others, more than titles, statuses, and all the glittering prizes.”

There is no “ new new adulthood.” Zuboff ignores what Maslow called self-actualization, Carl Jung called self-realization, and theologians and philosophers for centuries have described as a letting go of worldliness when youth is spent. Midlife was not, as Zuboff claims, a 20th century concept.

The term “midlife” may have been coined in the 20th century, but what it stands for has been around for millennia, spoken to in the annals of Vedic scriptures, classical Greece and notably in the works of the Roman stoic philosopher, Seneca.

If an esteemed Harvard Business School professor like Shoshanna Zuboff can get away with such sloppy scholarship, one wonders about the long-term costs to our society of continuing to “dumb down” entertainment, advertising, news presentations – and higher education. As time goes on, we seem less able to discriminate between truth and fancy, for opinion increasingly outweighs critical thinking in human affairs.

The next time you're involved in seeking out the truth for a major undertaking, try to identify the fundamental assumptions as to what is true that you and your colleagues have until now simply taken as givens. Invite everyone to do the same. Then raise questions about what might make those assumptions false. Following that, try thinking of new ways to approach the task at hand that do not depend on those assumptions. In other words, formulate new assumptions.

This exercise will start moving you outside the box. As you get there, it may become apparent to you that when most people think they are operating outside the box, they are really only looking outside the window of the box. Getting outside the box means casting off the shackles of unexamined claims.

DBW

 

 

   

“Modern adulthood is a place with no maps. Until the late 20th century, there was no concept of midlife, because there just wasn't enough time in between climbing out of adolescence and dying.”

We've all heard how older people today are unlike any previous generation of older people, starting with how adults now live much longer. But the truth is, however, adults are not living much longer than they did a hundred years ago. People - including infants and children are living a lot longer, but not adults as a single category of people.

About 23 years of the total 30 years in life expectancy gains between 1900 and 2000 accrued to people under 18. 

Adult longevity increased relatively little during the 20th century. According to Social Security, a man reaching 65 today can expect to live only about 2.6 years longer than a man reaching 65 in 1940.

Perhaps more mind-catching, a person celebrating her 85th birthday today has barely a year greater life expectancy than her 85-year-old counterpart a century ago. In other words, the human life span (how long we can live) has not changed in modern times. It is the same as it was a thousand, two thousand, even 10,000 years ago. Our only gains have been in longevity – how long we do live. And since 1900, those gains have been relatively little for adults, especially after the age of 50.

Zuboff further said:

This new new adulthood is about becoming a truly unique individual who cannot be reduced to a role or a Rolodex, a net worth or a network -- a person who is more than the sum of his or her own parts, more than achievements and the expectations of others, more than titles, statuses, and all the glittering prizes.”

There is no “ new new adulthood.” Zuboff ignores what Maslow called self-actualization, Carl Jung called self-realization, and theologians and philosophers for centuries have described as a letting go of worldliness when youth is spent. Midlife was not, as Zuboff claims, a 20th century concept.

The term “midlife” may have been coined in the 20th century, but what it stands for has been around for millennia, spoken to in the annals of Vedic scriptures, classical Greece and notably in the works of the Roman stoic philosopher, Seneca.

If an esteemed Harvard Business School professor like Shoshanna Zuboff can get away with such sloppy scholarship, one wonders about the long-term costs to our society of continuing to “dumb down” entertainment, advertising, news presentations – and higher education. As time goes on, we seem less able to discriminate between truth and fancy, for opinion increasingly outweighs critical thinking in human affairs.

The next time you're involved in seeking out the truth for a major undertaking, try to identify the fundamental assumptions as to what is true that you and your colleagues have until now simply taken as givens. Invite everyone to do the same. Then raise questions about what might make those assumptions false. Following that, try thinking of new ways to approach the task at hand that do not depend on those assumptions. In other words, formulate new assumptions.

This exercise will start moving you outside the box. As you get there, it may become apparent to you that when most people think they are operating outside the box, they are really only looking outside the window of the box. Getting outside the box means casting off the shackles of unexamined claims.

DBW

 

 

Creating a More Peaceful World through Capitalism

One of my colleagues, Jeff Cherry who is managing director of The Concinnity Group, a financial management firm inspired by the firms of endearment idea believes strongly that the stakeholder relationship management (SRM) business model followed by FoEs could change dramatically change matters in developing nations. The current issue of Fortune carries an article that supports Jeff's notion.

The article, “Why CEOs Love Rwanda,”  is about emerging business opportunities in Rwanda and how FoEs Costco, Google and Starbucks are helping the Rwanda government become a free market economy.

While many see military means as necessary to quell insurrection around the world, others believe that capitalism will work better and produce more durable solutions. The story in Rwanda strongly supports that idea. Yes, in the absence of hope, insurrectionists can take hold of a society as seems to be happening in Iraq. However, the whole idea of capitalism is about giving hope a realistic foundation and using it to fuel ambitions for a better life.

A Fortune article that ran last November, “Chasing the Base of the Pyramid” carries another story about business enterprise stepping out  to help needy nations more effectively than governmental intercession often  seems to be in these days. The article is about how household products giant SC Johnson & Sons – quite probably an FoE, though we’ve not yet determined that it – is helping to build stronger economies in some of the poorest countries on earth. It is not just about altruism, though. These are whole new markets.

Says the article:

SC Johnson's experiment will test a theory about doing business at what's called the "base of the pyramid". That's where the 4 billion poorest people live. At the top of the pyramid are the 600 million people earning more than $15,000 a year, where most big companies do business. In the middle are the 1.4 billion earning $1,500 to $15,000 a year.

In this era, which we call the Age of Transcendence in Firms of Endearment, companies everywhere are transcending business’s traditionally predominant self-focus with its “what’s in it for us kind of thinking.” More and more companies are addressing some of the thorniest social problems on earth starting with chronic abject poverty. Keeping shareholders happy, these companies have discovered that even in the poorest corners of the planet there is money to be made. A plus for these companies is enhanced reputations back home from helping the most needy of nations to improve the quality of their own citizens’ lives.

DBW

The Capitalist Fundamentalists Are Sharpening Their Swords

In Firms of Endearment we talk about “capitalist fundamentalists.” These are people who cannot get beyond the Milton Friedman famously espoused idea that the only social responsibility of a company “is to lawfully make profits for its owners.”

As we wrote the book, my co-author Raj Sisodia and I continuously reminded ourselves that to the degree the book was successful, it would attract the attention of capitalist fundamentalists bent on telling the world about how unpardonably flawed the book is.

Lo and behold, the first review at Amazon did just that, charging us with intellectual sloppiness. The reviewer’s position stimulated a number of responses challenging his position.

Today, I ran across another article that was inspired by the rants of another capitalist fundamentalist. Here it is in part, from CRO (for corporate responsibility officer) magazine:

Corporate responsibility and profitability can co-exist.

By Jay Whitehead

I was caught completely flabbergasted by American Prospect Editor Robert Kuttner’s editorial “Beware of Corporate Do-Gooding” this past Sunday in The Boston Globe. In a sophomoric search for attention, Kuttner wrote that any and all responsible behaviors by corporations should be waived off as cynical diversionary tactics of profit-hungry devils. “Whenever hugely profitable corporations mount a charm offensive, keep your hand on your wallet,” Kuttner wrote.

Read more …

DBW

Corporate Culture as a Predictor of Future Performance

We came out of our the experience of writing Firms of Endearment fully convinced that a company’s culture tends to be a better predictor of mid- and long-term future performance than its “numbers.”

When we asked UPS chairman & CEO Mike Eskew, “How much attention do you devote to keeping Jim Casey’s original people-centered vision alive 100 years after he founded the company?” He answered, “It’s something we spend a lot of time thinking about and working on.”

Southwest Airlines has a 96-member culture committee consisting of representatives of team members from all levels who are elected to the committee by their peers. Its job is to safeguard the culture that made Southwest the most successful airline in aviation history. It is in its 36^th year of consecutive profits – an amazing feat since more than half the airlines in existence at its founding are gone and more than half of those remaining have filed for bankruptcy one or more times.”

We found that the firms of endearment (FoE) nurse a jealous concern for company culture. The executive leadership of the internationally prominent industrial design firm IDEO believes “preserving culture is more important than pursuing money.” While that is not in keeping with Milton Friedman’s view of corporate priorities, that philosophy has served the shareholders of IDEO and other FoEs quite well.

Corporate culture is not just something used to cajole employees to do better. It is an integral part of an FoE’s brand essence. No one knows that better than Starbucks co-founder and chairman Howard Schultz. This was evident in the now famous leaked memo I posted here yesterday.

Schultz knows that the specialness that made Starbucks one of the world’s great brands in under two decades is being jeopardized by the patron gods of growth. His message is a clarion call for a return to Starbucks core essence. He made this clear in the penultimate paragraph in his memo:

I have said for 20 years that our success is not an entitlement and now it's proving to be a reality. Let's be smarter about how we are spending our time, money and resources. Let's get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others. We source and buy the highest quality coffee. We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and the 150,000 partners and their families who are relying on our stewardship.

A company without a well-defined culture – a culture that rises to the needs of all stakeholder groups
groups – does not have great prospects for a long life that richly rewards shareholders, according to our research. Howard Schultz has a profound understanding of this.

DBW

(This post also appeared in David Wolfe's Ageless Marketing blog.)

We came out of our the experience of writing Firms of Endearment fully convinced that a company’s culture tends to be a better predictor of mid- and long-term future performance than its “numbers.”

When we asked UPS chairman & CEO Mike Eskew, “How much attention do you devote to keeping Jim Casey’s original people-centered vision alive 100 years after he founded the company?” He answered, “It’s something we spend a lot of time thinking about and working on.”

Southwest Airlines has a 96-member culture committee consisting of representatives of team members from all levels who are elected to the committee by their peers. Its job is to safeguard the culture that made Southwest the most successful airline in aviation history. It is in its 36^th year of consecutive profits – an amazing feat since more than half the airlines in existence at its founding are gone and more than half of those remaining have filed for bankruptcy one or more times.”

We found that the firms of endearment (FoE) nurse a jealous concern for company culture. The executive leadership of the internationally prominent industrial design firm IDEO believes “preserving culture is more important than pursuing money.” While that is not in keeping with Milton Friedman’s view of corporate priorities, that philosophy has served the shareholders of IDEO and other FoEs quite well.

Corporate culture is not just something used to cajole employees to do better. It is an integral part of an FoE’s brand essence. No one knows that better than Starbucks co-founder and chairman Howard Schultz. This was evident in the now famous leaked memo I posted here yesterday.

Schultz knows that the specialness that made Starbucks one of the world’s great brands in under two decades is being jeopardized by the patron gods of growth. His message is a clarion call for a return to Starbucks core essence. He made this clear in the penultimate paragraph in his memo:

I have said for 20 years that our success is not an entitlement and now it's proving to be a reality. Let's be smarter about how we are spending our time, money and resources. Let's get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others. We source and buy the highest quality coffee. We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and the 150,000 partners and their families who are relying on our stewardship.

A company without a well-defined culture – a culture that rises to the needs of all stakeholder groups
groups – does not have great prospects for a long life that richly rewards shareholders, according to our research. Howard Schultz has a profound understanding of this.

Howard Schultz: Soul Search Time at Starbucks

A common characteristic of CEOs in firms of endearment is authenticity, candor and the humility to acknowledge error. In its January 24 edition The Wall Street Journal ran a story about a leaked memo from Starbucks CEO Howard Schultz to key executives that projected those three attributes. In the memo, Schultz expressed his growing concern that Starbucks was in danger of “commoditizing” the brand, a danger he admitted contributing to. Here is the memo in full:

From: Howard Schultz
Sent: Wednesday, February 14, 2007 10:39 AM Pacific Standard Time
To: Jim Donald
Cc: Anne Saunders; Dave Pace; Dorothy Kim; Gerry Lopez; Jim Alling; Ken Lombard; Martin Coles; Michael Casey; Michelle Gass; Paula Boggs; Sandra Taylor

Subject: The Commoditization of the Starbucks Experience

As you prepare for the FY 08 strategic planning process, I want to share some of my thoughts with you.

Over the past ten years, in order to achieve the growth, development, and scale necessary to go from less than 1,000 stores to 13,000 stores and beyond, we have had to make a series of decisions that, in retrospect, have lead to the watering down of the Starbucks experience, and, what some might call the commoditization of our brand.

Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces. For example, when we went to automatic espresso machines, we solved a major problem in terms of speed of service and efficiency. At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines. This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista. This, coupled with the need for fresh roasted coffee in every North America city and every international market, moved us toward the decision and the need for flavor locked packaging. Again, the right decision at the right time, and once again I believe we overlooked the cause and the affect of flavor lock in our stores. We achieved fresh roasted bagged coffee, but at what cost? The loss of aroma -- perhaps the most powerful non-verbal signal we had in our stores; the loss of our people scooping fresh coffee from the bins and grinding it fresh in front of the customer, and once again stripping the store of tradition and our heritage? Then we moved to store design. Clearly we have had to streamline store design to gain efficiencies of scale and to make sure we had the ROI on sales to investment ratios that would satisfy the financial side of our business. However, one of the results has been stores that no longer have the soul of the past and reflect a chain of stores vs. the warm feeling of a neighborhood store. Some people even call our stores sterile, cookie cutter, no longer reflecting the passion our partners feel about our coffee. In fact, I am not sure people today even know we are roasting coffee. You certainly can't get the message from being in our stores. The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don't have coffee grinders, French presses from Bodum, or even coffee filters.

Now that I have provided you with a list of some of the underlying issues that I believe we need to solve, let me say at the outset that we have all been part of these decisions. I take full responsibility myself, but we desperately need to look into the mirror and realize it's time to get back to the core and make the changes necessary to evoke the heritage, the tradition, and the passion that we all have for the true Starbucks experience. While the current state of affairs for the most part is self induced, that has lead to competitors of all kinds, small and large coffee companies, fast food operators, and mom and pops, to position themselves in a way that creates awareness, trial and loyalty of people who previously have been Starbucks customers. This must be eradicated.

I have said for 20 years that our success is not an entitlement and now it's proving to be a reality. Let's be smarter about how we are spending our time, money and resources. Let's get back to the core. Push for innovation and do the things necessary to once again differentiate Starbucks from all others. We source and buy the highest quality coffee. We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and the 150,000 partners and their families who are relying on our stewardship.

Finally, I would like to acknowledge all that you do for Starbucks. Without your passion and commitment, we would not be where we are today.

Onward…

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I will share thoughts about the Schultz memo that have arisen in my mind in the next post.

(This post also appears at http://agelessmarketing.typepad.com)

JetBlue Shows How an FoE Manages a Customer Crisis

Several people have asked me about how I think JetBlue has managed last week's weather-related fiasco that left thousands stranded and some passengers on the tarmac at New York’s JFK airport for 11 hours. JetBlue is one of the exemplars of stakeholder relationship management (SRM) cited in our book, Firms of Endearment.

Here’s what how I answered one person:

Neeleman has approached this crisis with candor, humility, empathy and convincing resolve to never have last week's disaster repeated. In my judgment, he has acted quintessentially as an FoE CEO.

Amazingly, the Street has apparently been charmed by Neeleman's down-to-earth manner in communicating with JetBlue customers. My money is still on JetBlue having a good year -- a 12%% - 15% rise over today's stock price by year-end despite the earning hit last week's events caused.

Earlier this week, The Washington Post carried a full-page letter addressed to JetBlue’s customers. It began, “We are sorry and embarrassed. But most of all we're deeply sorry." Later on the letter reads, "... JetBlue was founded on the premise of bringing humanity back to air travel... We know we failed to deliver on this promise last week." You can read the full apology here.

Compare Neeleman’s approach with that of Delta, which also had weather-related delays. MSNBC talk-show host Joe Scarborough sat in center seat on an Atlanta-bound flight from LaGuardia for nine hours. As reported in this week’s issue of Advertising Age, Scarborough complained that he had yet to get an apology from the company. “… instead, I’m getting spin from a company that’s refusing to take responsibility for one bad decision after another.

Meanwhile, David Neeleman has not only apologized profusely, he has drawn up and issued a Customers’ Bill of Rights which you can download from here. The Customer Bill of Rights is a classic FoE-type response to a major problem. JetBlue is now the first company that will compensate customers for protracted delays. In one of the most astonishing provisions, JetBlue will pay any passenger who gets bumped because of overbooking $1,000.

We are fully confident that JetBlue will be enthusiastically welcomed back into the hearts of many customers’ and cheered by those who never lost faith in JetBlue in the first place.

DBW

This article was also posted at Amazon.com  and at David Wolfe's Ageless Marketing blog.