Peacock Nine Blog

Everthing Speaks McVolumes

Brands are not "positioned' in stone. Brands are organic not static, growing, shrinking, evolving all of the time. Contrary to common belief, the term "brand management" does not adequately describe how successful companies build brands. "Brand management" today is more synonymous with "cat herding" than with brand-building. Why? Because companies don't control the ultimate fate of their brand...key customers do.

What is a "key customer"? It is that individual who can directly influence the sustainable success of a business. By definition, "key customer" describes a group much larger than simply "those who consume/purchase a product or service"---the focus of most brand managers. "Key customers" consist of a company's employees, strategic partners, customers/consumers, influencers, analysts, and even investors.

A wonderful example of the organic nature of brands and the value of "key customers" is provided by this week's battle between two venerated and trusted brands, McDonald's and Merriam-Webster. In the world of brand-building, everything speaks. McDonald's may have spent millions launching its new tagline, but in the end of the day Webster's addition of "mcjob" (meaning "low paying, dead end work") into the official english lexicon could have long-term ramifications for the strength of McDonald's brand as it gradually erodes meaning for arguably McDonald's most valuable key customer franchise, its employees and franchisees.

"McJob" was first coined by the Washington Post in 1986 (OED), popularized by Douglas Coupland in his seminal work, Generation X, and has become part of the American lexicon. Webster didn't invent the word, "mcjob", it simply legitimized the term by adding it to the latest version of its dictionary. In doing so, Webster fulfills its brand promise of being a trusted authority on the evolution the English language. Unfortunately for McDonald's, one company's brand-building efforts can erode the brand of another. What is remarkable is that in the case of "mcjob" that brand erosion will occur to a brand that exists in an entirely different industry.

Rightfully so the new CEO of McDonald's is not taking the inclusion of "mcjob" in the dictionary lightly. Certainly recognizing that Merriam-Webster cannot delete the term "mcjob", he is making the best of a bad situation and publicly standing up for his valuable internal constituents--a stand that employees and franchisees will both respect and appreciate:

"It is a slap in the face to the twelve million people in the restaurant industry" --McDonald's Corporation CEO Jim Cantalupo (The Register)

In addition, a handful of McDonald's loyalists have attempted to rectify the situation on their own by posting new definitions for "mcjob" on on-line dictionaries:

A job that allows elderly people to reenter the workforce, trains more young people than the armed forces, provides steady income to families, and offers work to mentally and physically challenged people. A place where leadership and pride are encouraged and advancement opportunities are limitless. -Catherine 11/09/03

However, in the end of the day McDonald's is reaping what it has sewn from an organizational perspective. "Mcjob" is more than a simple definition in a dictionary, it is a commonly held perception among the public, McDonald's key customers and others. Trust, integrity, honesty, prestige--these are all attributes that corporations like McDonald's invest hundreds of millions of advertising dollars to add to the tapastry of meaning that is their brand. Merriam-Webster's most recent entry, may have pulled a thread from McDonald's tapastry, but McDonald's employment practices molded the perception in the first place. Words can mold meaning, and meaning can be an infinitely valuable asset for a corporation (just look at what Barista has done for Starbucks). However, brand-building is less about advertising and coining terms and more about an organization-wide understanding that "everything speaks" and in many cases actions speak louder than words.

Viva La Nueva Economy

In the halcyon days of the late 1990s, there was a great debate whether the boom-bust cycle that had characterized the economy for the previous 200 years still held true, and whether or not we had entered something called the “New Economy,” where we’d see growth on the horizon without threat of a recession for the foreseeable future.

The crux of the argument regarding the “New Economy” hinged on the fact that productivity—effectively, the amount produced by each worker—started to soar during the boom and bubble years of the late 1990s, averaging roughly 3% a year from 1995-2000, after having averaged a mere 1.5%-2% from 1950 to 1995. Those economists and pundits who disagreed with the proposition of the New Economy argued that the surge in productivity during the late 1990s was more cyclical than structural (e.g. temporary rather than permanent), and that boom periods have always characterized by growth in productivity rates. (During the booms in the mid-80s, or the mid-60s, for example, productivity had also spiked, only to decline and return to “normal” levels of 1.5% or so with the busts that inevitably followed.) In contrast, the pro-New Economy crowd argued that, thanks to the widespread adoption of IT, the internet, and other new technologies, the increase in productivity during the boom was structural, and therefore, its effect on the economy was permanent. While there were several persuasive arguments for the fact that the economy had truly changed (our personal favorite comes from James Surowiecki, in this Wired article published last summer ), the pro-new economy crowd was torpedoed by several incredibly weak arguments (anybody remember Dow 36,000, or the even more absurd Dow 100,000), and of course, the recession that we’ve been mired in for the last three years.

We’ve long believed that new technology, particularly when used correctly and efficiently, should have increased the overall productivity of the economy. (It’s difficult to imagine how it couldn’t—after all, think of how much more it’s possible to produce thanks to business software, and with the increased internal and external connectedness that technology and the internet provide a business of any size.) Although we’ve been quieter than usual on the subject for the last few years, we’re pleased to see that a number of a new economic studies published on the subject of the New Economy have emerged to validate at least our convictions.

This week’s Economist contains a terrific article (unfortunately, you’ll need a subscription to read the article online) describing how the expansion in productivity in the US during the late 1990s does indeed appear to have been more structural than cyclical. The US economy has actually experienced a surge in productivity this year—growing at an annual rate of about 4.1%, and leaping forward by a very impressive 6.8% over the last quarter. The Economist is quick to note that such increases in productivity almost always occur at the end of a recession (since businesses typically achieve the same level of production as they did with less workers and lower costs). Yet it argues that this surge is unique both in its size (4.1% is an unusually high rate of productivity growth when compared to the productivity numbers achieved at the end of other recessions), and is even more pronounced given the fact that this recession has been a lot more shallow than any other in the past (meaning that productivity should have grown less, since businesses have actually cut less than they have had to in other recessions). The most persuasive data for the existence of a new economy, however, lies with the fact that since 2000, productivity has actually increased from the already high rates of the late 1990s, climbing to 3.4% annually, from 2.5% during the boom years. As the Economist puts it: “[i]n other words, the latest figures suggest that the cyclical boost in the late 1990s was negligible: most of the spurt in productivity represented an increase in its long-term rate of growth.”

While it’s great to see the existence of the New Economy and the effects of technology adoption on overall productivity finally acknowledged—and acknowledged in a balanced, reasoned point-of-view—what we find really exciting is the following explanation for why productivity increased, rather than declining (as would ordinarily expected) during the bust of the last few years. Specifically, the Economist suggests that there’s actually a lag effect regarding technology’s impact on productivity. Making a comparison to Paul David, an Oxford economist who we’ll definitely be reading more of, the magazine suggests that the benefits of technology aren’t fully reaped until firms actually figure out how to use it. In short, as firms reorganize their organizations and business practices around technology, their productivity soars as they figure out how to use that technology more effectively. Whereas wireless technology or corporate intranets have existed for half-decade or more, for example, their impacts are only beginning to be felt now, as firms have figured out how to use them in truly effective ways (allowing real-time tracking of sales and inventories, for example, or sharing only relevant information internally).

To us, the most interesting aspect of the proposal that there’s an organizational component of technology-driven productivity growth is the fact that it suggests that an organization’s flexibility, adaptability, and its ability to learn are potentially powerful competitive advantages. For example, companies that are organized and built the right way can quickly maximize their return on investments in technology, and quickly develop a significant edge in productivity versus their competitors. This phenomenon might explain why no firm’s been able to come close to copying Amazon’s ability to utilize customer data and ecommerce effectively, for example, or alternatively, why no firm’s come anywhere close to rivaling Dell’s effectiveness in direct manufacturing. It may be that both Dell and Amazon’s internal structure and culture are designed and optimized in such a way that enables them to consistently stay at the front of the learning curve, and utilize technology more effectively than their rivals. In closing, if the hypothesis that there’s a “learning requirement” to productivity growth is true, the implication is that organizations must increasingly pay attention to their structure and culture if they are to generate rents over the long-term.

If The Are "Lovin It"...Will They Come?

Today we came across two articles that both speak to the power of internal branding. One, in the Wall Street Journal speaks to the value of Walmart's house band and the collective passion of its 4000 store managers. In short, Wallmart may be one of the most cost conscious companies in the world (ex. managers share hotel rooms) but when it comes to its customer-focused culture, it has realized that there is no better investement opportunity.
Additionally, an article in Advertising Age asks, "Are McDonald's Employees Really 'Lovin It'?". This brief article provdes great insight into the value of "internal branding". We believe it. Great companies are built form the inside out, not the outside in. And although the process isn't flashy, the likes of Fed Ex and UPS have proven that employees that "live the brand" are an invaluable source of sustainable competitive advantage.

Highlight: Share performance of companies with high employee trust levels outperformed companies with low trust levels by 186%.

The three key to success is (1.) determining a compelling focus for the company that MEANS something to both internal and external stakeholders (2.) aligning the employees attitudes and beliefs with this new focus first..and then manifesting this focus via external means (marketing, advertising, product development, services, policies) and (3.) MEASUREMENT putting internal and external measures in place that enable the leaders of a company to gauge whether or not they are "moving the needle". After all, nothing measured...nothing gained:

Highlight: Corporations on Fortune's Most Admired Companies list increased stock appreciation 50% over their peers after instituting employee measures.

Business leaders have to not only ask themselves if they understand where their external customers are "coming from" but they also must create a culture similarly values what their internal customers are "all about". And of course, these business leaders and their companies have to have the prescience to MEASURE their success via stakeholder-centric measures, rather than simple sales measures and employee retention rates.