Wednesday, September 14, 2011

Lessons from Everything Everywhere

Everything Everywhere, the merged UK businesses of France Telecom (i.e. Orange) and Deutsche Telekom (i.e. T-Mobile) have installed a new boss, Olaf Swantee (above photo).

I can glean a few lessons that my Business students should pay heed to.

First, Swantee replaced Tom Alexander – the latter stepped down just a year after the company was formed. His parting words were very revealing: “It was time to evolve from the ‘1990s obsession’ with customer numbers and ‘reward loyalty, usage and tenure’ instead”.

I am saying it again, customer retention is more important than customer acquisition. This is not something new yet marketers don't give it the due respect. So too the other important marketing concepts like focussing on (1) creating customer satisfaction – delivering superior quality products and services, and (2) building brand equity – the sum of the intangible assets of a brand. [Factors that contribute to this can include name awareness, perceived quality, brand loyalty, the associations consumers have towards the brand, trademarks, packaging, and marketing channel presence].

But even as we recognize all of the above as important, most times, the single-minded focus is still on sales numbers! We give lip-service to the rest. And unhappily, we give a lot less attention to creating and maintaining relationships. I believe Tom Alexander was referring to this aspect of marketing that was somewhat neglected.

For those who don’t know, the growth in relationship marketing was fueled by the writings of management consultants. In 1993, Don Peppers and Martha Rogers published The One-to-One Future. Taking inspiration from mass customization manufacturing technologies and applying them to marketing communications, Peppers and Rogers encouraged a one-to-one focus on “share of customer” rather than the mass marketer’s “share of market.” This was based on the marketer’s ability to communicate a unique message to the customers based on the company’s knowledge of their interests. They claimed that this one-to-one interaction with customers would lead to improved lifetime value.

Frederick Reichheld further developed the importance of building customer commitment in his 1996 book The Loyalty Effect. He focused on the cost of customer defection and set the stage for the problem by claiming “many major corporations now lose and have to replace half their customers in five years [...]” (Reichheld 1). Using examples from financial service companies, advertising agencies, and manufacturing firms, Reichheld claimed that even small improvements in customer retention can as much as double company profits. This is because (a) it costs less to serve long-term customers, and (b) loyal customers will pay a price premium.

So, now you know why I consider relationship marketing to be important. To win customers and to keep them – marketers must forge one-to-one relationships with their customers. The problem is that this is not something that management can instruct as a SOP – it has to be free-willed, meaning, within the organization, our own people must individually and collectively embrace the vision and the values of the organization so that they embody this vision and values and that, in turn, they engage their customers in meaningful acts of studied spontaneity.

Second, based on a July 28, 2011 report in UK’s The Telegraph, the company seeks to make £73 million more of efficiency savings by the end of the year. Swantee then decided to cull his executive team and he did it on his first day at work! Finance director Richard Moat, chief commercial officer Andrew Ralston and chief change officer Linda Kennedy were among six senior managers who announced their resignations on September 01, 2011, as Swantee disclosed the management shake-up. I am assuming Swantee made a business decision that was in the company’s best interests and he left no room for personal sentiments. After all, Moat and Ralston were the architects of the merger between Orange and T-mobile that created Everything Everywhere.

We can debate about the merits of executive termination and whether Swantee had made a wise decision. I acknowledge that many companies are top-heavy and in trying times, it is important to dispose those whom we consider as surplus requirements. Most times, most senior managers are surplus, aren’t they? I remember when I was with HICT not too long ago – and when the crunch times hit us – the ordinary staff members were guillotined with pay cuts but the high-salaried senior mangers were spared. Good staff members became disgruntled and one by one, they left until the once-proud Klang-based college became almost an empty shell. This carried on for at least a year and leadership was sorely missed. [Footnote: HICT was a lost cause and so the HELP management decided to re-posiiton the college and it transformed into the HELP College of Arts and Technology].

I mentioned that senior managers are surplus only because they may know how to manage (or at least they think they do) but in essence, they don’t know how to lead. I am a firm believer that the best managers are leaders. I won’t even bother to argue that without leadership in organizations, we will inherit a disengaged workforce – one that is not motivated to succeed and one that is not sustainable at all in the long-term.

I recommend that we go back to basics. I suggest managers must not be afraid to step forward and face the leadership challenge. Kouzes & Posner (2007) talked about how leaders mobilize others to want to get extraordinary things done in organizations. In today’s demanding business environment that swells with crowded competition – it is not enough to just do things; we must do great things, even extraordinary things. And if managers are incapable, then they would fail as leaders. And when they do fail, they shouldn’t be warming the seats anymore! It will be time to get rid of them!

So, leadership is really about the practices leaders use to transform values into actions, visions into realities, obstacles into innovations, separateness into solidarity, and risks into rewards. It is about leadership that creates the climate in which people turn challenging opportunities into remarkable successes. When there is an absence of leadership, and the situation is made worse by a business that is bleeding – we know we have to embark on cost-cutting. When this happens, it makes sense to discard managers and we should start from the top! Caution: Cutting costs is to be done only as part of a turnaround blueprint – we should desist from doing it as an ad-hoc measure.

Anyway, Everything Everywhere is in a mature market and quickly finding themselves in deep shit. So the departure of a significant tranche of senior management may or may not exacerbate matters but whatever the case may be, I would plead that this was necessary. I also recognize that this will be particularly sensitive for the company, which is still smarting after being exposed for using a "traffic light" system to inform staff about redundancies. Last year the company informed thousands of staff about their potential redundancies by displaying red, yellow or blue lights at mass meetings to signify different risk levels of particular positions. Now, isn’t that stupid or what?

Now that I know this company a little better, I would claim that Swantee was right in doing what he did!

1 comment:

dolphin said...

Hi sir, these are the comments from the three of us. Wish to get some comment from sir too. ^^ Thank you sir.

Xhiang Ming
I would agree to what mr victor said that we should cut from the top as 1 manager's salary = can pay off my university bills.must cut must cut.take from a real life example, first line worker = the root that provides water for the leaves(manager) to grow.if we cut the roots the whole tree(company) will die.if we cut the leaves the tree still can grow new leaves.must cut must cut.In my opinion , all the local companies in malaysia are in deep shit(victor ong, 2011).Why? because i'm sacked during credit crunch and i only can afford cocoa crunch as breakfast at that moment.All the managers having big fish big meat and they somemore dare to give excuses that they buy fish and meat to help stimulate the economy.Bullshit!

Another example is, if a football club failed to score, the manager is the first one to be sacked.

Yi Hong
I do love the way of using "traffic light" system to inform staff about redundancies, for me, if I were one of the staffs who are redundant the potential in a particular company. I will, first, seek for another job before the company sacked me or I resigned myself. Second, I will join some program which is going to differentiate myself and other staff in the same company. Just like how a marketer does to increase their customer value and sales profit when he/she is introducing the same products or services that are also provided by other companies.
Another issue is I not really agree to sack the senior managers who are having the highest salaries in the company. Companies do have other better choices to improve themselves other than sack their employees, don’t they? Of course, I will not fight against if a company sack managers who are only a surplus [managers who may know to manage but do not know how to lead] to them. But what I think is, we may sometime less or not even notice on people who are always contribute to the company although they are one of the people who getting the highest salary. We may also sack them unconsciously with the purpose of increasing company’s profit.

firstly, from my point of view..retrenching those senior executives are a lil risky..because they are the ones who actually been working hard for so many years in that particular company and not forgetting the amount of experience they have...i tink after Moat, Ralson and Kennedy knows that Swantee is going to cut the top staffs, thats y they resign rite?? but yet, they become consultants for the company for a year later on (

my suggestion is, do not remove the top managers, instead Swantee can just reduce the salary and only fired those who are not proggressing or those who are just goyang kaki only...but Swantee actually bring in new staff who specialise in certain areas(thats a good strategy)

secondly, the use of traffic light..its good for all the workers to twll them that they are no longer needed in the company with their given, wat Yi Hong suggest is right----those staff will find new jobs or enhance more skills by going for courses/seminars/talks depending the work given to them....