Firms of Endearment

Japan's Incredible Shrinking Markets and the Wal-Mart Mission for a Better World

Two articles in today's Washington Post and the New York Times stood out for me as worthy of readers' attention.

The Washington Post article, "For Japan, a Long, Slow Slide," begins, "As the United States fret noisily about a recession, Japan is quietly enduring a far more fundamental economic slide, one that seems irreversible." That, about the economy that observers were predicting as late as the ending years of the 1980s would overtake the U.S. economy by 2000.

In 1994, Japan' share of the world's economy was a staggering 18 percent. By 2006, it had fallen to less than 10 percent.

What happened to the Japanese Miracle and why should we care, anyhow? As the cited article points out, the combination of Japan's aging population (the world's oldest) and population shrinkage caused by five decades of annual births insufficient in number to replace the population  is translates into steadily declining consumer demand. We should be concerned about Japan's deteriorating economy because it presages a similar scenario for most of the world's developed nations that also are aging and facing population shrinkage.

While women in the U.S. like Japan and nearly all other developed nations are not having enough babies to replace the population and is also experiencing a boom in the aged population, immigration for all its current controversy in the 2008 elections will help keep the economy growing, even if at much less robust pace over the next decade than we've seen since the Great Depression.

In the weweks ahead, I will continue posting articles to the "Surviving and Thriving in Challenging Times" thread that I've been weaving. There will be companies that will do quite well in the years ahead despite the end of the salad days for the U.S. economy. Most of these companies will have leapt ahead of their competitors in developing specific nontraditional business models and strategies better suited to the lean times ahead.

The New York Times article, "Wal-Mart: The New Washington," describes how Wal-Mart has embarked on a huge turnaround away from its niggardly past when it used its buying power to mercilessly crush anything and everything in its take-no-prisoners economic imperialism that spun on for decades Now, Wal-Mart wants to use its unparalleled economic power to make the world a better place. And it is doing that by taking on big social issues as though it were a government, according to New York Times columnist Michael Barabaro

Importantly, Wal-Mart's new leaf is not just a PR gambit. It is a new strategic approach to doing business that Bill Gates urged companies to take up at the Davos World Economic Forum two weeks ago. All of a sudden, it seems, hard-nosed capitalists are learning that new wealth creation opportunities in doing good while doing well are virtually limitless.

(To access the cited articles you will need to register with respective papers, but the articles are available for no cost.)

DBW

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