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CIM April 2011
‘Governing the Firm in Hard Times:
The Role of Internal Marketing’
Professor Howard Gospel
King’s College University of London and Said Business School Oxford
1
A further brief introduction
•
Academic background
University – Oxford, LSE, King’s College London
•
Practical experience
Government – DTI / BIS, UKCES
Consultancy e.g. Unilever, P&G
•
My areas of specialism
Human Resource Management
Corporate Governance
But, … provide a Marketing spin
2
Outline
1.
Hard Times – ‘The Great Recession’
2.
Governing the Firm – relationship to Marketing
3.
Governing the Firm: Employees
4.
Governing the Firm: Owners, Investors, Lenders
5.
Conclusions
3
1. Hard Times:
‘The Great Recession’
4
‘The Great Recession’
• How did we get here?
• Where are we going?
• What are the risks?
• What are the consequences?
5
Ants, Grasshoppers, Locusts
Martin Wolf and Financial Times
6
How did we get here?
•
Ants industrious and save – some countries
e.g. China, Japan, Germany
trade surpluses and foreign exchange reserves
•
Grasshoppers spend – some countries and households
e.g. US, UK, Spain
→ big global imbalances
•
Locusts – make money out of intermediating between the two,
take risks
innovate financially e.g. sub-prime, derivatives
… but can leave ruin behind
•
= background to crisis of private debt / credit crunch, and asset
market collapse
•
which has spilt over into public debt crisis – expenditures rise,
taxes fall, spotlight effect on some weaker countries
7
The Great Recession – Links in Pictures
The Great Recession – Links in Pictures
How did we get here?
The Deep Decline
ECONOMIC PERFORMANCE IN THE GREAT RECESSION
102.0
100.0
98.0
96.0
94.0
92.0
90.0
Q1 08
Q2 08
Q3 08
US
Q4 08
Japan
Q1 09
Germany
Q2 09
Q3 09
France
Q4 09
Italy
Q1 10
Q2 10
UK
10
How did we get here?
The Steep Rise in Unemployment
RISE IN UNEMPLOYMENT RATE 2007-2010
Source: IMF WEO October 2010
6.0
5.1
5.0
4.0
3.0
2.5
2.5
1.9
2.0
1.5
1.3
1.0
0.0
-1.0
-1.3
-2.0
United States
Italy
United Kingdom
Canada
France
Japan
Germany
11
Where are we going?
•
Rescue very expensive
□ bail-outs
□ unprecedented monetary policy
•
It largely worked…
□ world trade has recovered
□ especially in emerging markets, Asia
•
But … big problems remain
□ recovery fragile, especially in Europe
□ fiscal hangover e.g. UK
□ big challenge of returning to stable growth
□ new shocks / ‘black swans’ – natural disasters,
revolution, war
12
Where are we going?
Weak recovery, except in Emerging Countries
GROWTH OF WORLD ECONOMY
10
Source: IMF WEO October
2010
8
6
4
2
0
-2
Advanced economies
Emerging and developing economies
20
14
20
12
20
10
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
-4
World
13
Where are we going?
Catch-up Growth
GDP PER HEAD RELATIVE TO US (2009 EK $s)
100.0%
10.0%
19
50
19
53
19
56
19
59
19
62
19
65
19
68
19
71
19
74
19
77
19
80
19
83
19
86
19
89
19
92
19
95
19
98
20
01
20
04
20
07
1.0%
Japan
South Korea
China
India
Brazil
14
Continuing risks
•
Continuing external imbalances
→ protectionism? especially in US
•
Internal rebalancing.
Fiscal austerity e.g. UK
•
Deflation as in Japan?
Or inflation more likely in US and UK?
•
Commodity prices?
•
Sovereign defaults?
Greece, Ireland, Portugal. Spain?
But these countries need greater competitiveness
and something to sell to someone
•
Two-tier Europe and break up of Eurozone?
15
Consequences: The world has changed
•
Greater risk
•
End of cheap money / high leverage
for countries, firms, and household
•
End of long era of Western dominance
•
End of the NICE years (non-inflationary constant
expansion)?
Into the NASTY years (nightmare austerity and
stagflationary years)?
•
Greater product and service market competition
16
The world has changed: How are firms to react?
• Cut back OR invest in anticipation of a solid recovery?
• Find new markets
• Lower costs / improve productivity / flexibility
• Innovate in terms of better goods and services
• Get more out of internal resources ….
• … better internal governance ….
to ↓ risks
to ↑ trust / reputation / performance
17
2. Governing the Firm
18
How we view the firm?
The firm is a nexus of contracts, explicit and implicit,
located within certain markets – product, financial, labour
The governance of the firm concerns the relationships
between these stakeholders
Information is key to the relationship.
Marketing links stakeholders together
19
Marketing – types of markets and stakeholders
1. Product / service markets
2. Financial markets
3. Labour markets
1. External stakeholders
Customers
Suppliers
2. Internal stakeholders
Owners, Investors
Employees
20
How we view the firm
Customers
Owners
Government,
communities
Others
Managers
Employees
Suppliers
My Focus is on Internal Marketing
•
Internal stakeholders
•
Use of marketing within the organisation to align
interest of internal stakeholders with those of the firm
and with external stakeholders
•
The organisation is an internal market with its own
suppliers and buyers
•
‘If internal stakeholders aren’t sold, don’t buy in, …
then customers won’t either’
•
Multiple-stakeholder marketing
Berry 1981, 1983: Rafiq and Ahmed, 2000; Varey and Lewis 2006
22
My Focus is on Internal Marketing
to Two Sets of Stakeholders
1. Employees
2. Owners, Investors,
Lenders
3. Governing the Firm:
Employees
24
Marketing and Employees
1. Large groups
2. Small groups
3. Individuals
Marketing and Employees
•
Marketing the firm to present and potential
employees viz. attract and retain, get best out of
•
Stage 1. ‘Employer Branding’
Selling the firm to employees
Getting ‘buy-in’
To serve each other and to serve the customer
•
Premise: ‘You need satisfied employees to have
satisfied customers’
Theory: staff satisfaction → staff motivation →
customer orientation → customer satisfaction →
better performance
Berry 1981, 1983: Varey and Lewis 2006; Edwards 2005
26
Employees marketing the firm on…
•
Stage 2. ‘Employee branding’
•
Using image and competence of employees to sell
product or service
•
Empowering employees to sell product or service
•
‘All staff are front-line staff’
•
‘Walking talking brands’
•
Of course, given Hard Times,
e.g. lay-offs, pay cuts,
all this may be different
Adapted from Edwards (2005, 010)
27
The Employee → Product / Service
Marketing → Profit Chain
Internal
marketing and
empowerment
Employees
feel able to
produce
results for
customers
Employee
satisfaction and
loyalty.
Employee brand
Adapted from Heskett et al.(1994)
Product
/ service
value
Customer
satisfaction
and loyalty
Profits
and
growth
Does it work / pay off? Evidence
•
Macro
statistical
•
Micro
mini case studies – 1 big, 1 small
29
Macro Evidence
•
My study – 1,000 + firms. Data on information provided to employees
on financial matters, investment plans, marketing plans, tasks, …
•
High variance
•
Determinants
□ Size*
□ Listed *
□ Management sophistication **
□ Shared values ***
□ Direct participation ***
□ Path dependence ***
•
Outcomes
□ + effect on employee commitment *
□ + effect on quality *
□ + effect on financial performance *
•
Financial performance not a predictor, but an outcome
Peccei, Bewley, Gospel, Willman 2005, 2008, 2010
30
Micro Evidence – Case studies
•
McDonalds
•
Paul Ltd.
31
The Case of McDonald’s in the UK
• ‘Brand that went bad’
Got a bad reputation in terms of product, service,
jobs.
• McJob: ‘an unstimulating
low-paid job, with few
prospects’ OED
• … and producing
a poor service and product
32
The Case of McDonald’s in the UK
• Established Corporate Reputation Team
Work on branding and employer / employee branding
Work with Marketing, HR, Training, agencies
• Your Viewpoint Survey
need for engagement
need to work for a socially responsible employer
• Lancaster University analysis
e.g. restaurants with more mix of employees (50+), 20% higher
customer satisfaction
e.g. restaurants with higher commitment scores, higher
customer orientation (20%)
e.g. restaurants with highest commitment scores, make 25%
more sales.
33
The Case of McDonald’s in the UK
• Recruitment campaign
including more older workers
• Offer bundle of practices
□ Basic skills training
□ Apprenticeship programme – 6,000 staff.
□ Foundation Degree: 2-year. Talent management for
restaurant managers and beyond – MMU accredited
□ Can log on in staffroom and at home
• Job applications ↑
Pride in working for company ↑
Absenteeism and Turnover ↓ – not just becos of recession
Self image of employer ↑
34
The Case of McDonald’s in the UK
• Enters Sunday Times ‘25 Best Companies to Work For’
as number 22.
• At same time
invested in refurbishment
introduced new menus
introduced free wi-fi
• Sales ↑
New restaurants opened in motorway services
• The old ‘McJob label is out-of-date, lazy, and snobbish’
35
The Case of McDonald’s
• ‘I’m loving it’
• ‘I used to come in to work
hard and to get the job done.
Now I understand more about
good business practice… and
I do a better job’
• ‘Not bad for a McJob’
36
The Case of Paul Ltd
• French, family-owned bakery company.
• Moved into UK; later into US, Asian countries.
• Developed employer brand – French food, sandwiches,
patisserie and bread, French language
• Developed employer brand
which became marketing / consumer brand
37
The Case of Paul Ltd
•
•
•
•
•
•
Advertises on web e.g. Gumtree, YouTube, Facebook
Offer package
□ 12 days on-the-job training
□ Advancement through the Paul Academy
□ Career path – specialisms, team leader, shop manager etc.
□ Recognition e.g. celebrations, pins
□ Pay for experience scales and bonuses
‘Breakfasts’ and ‘supper clubs’ with higher management
Newsletter and ‘speak out’
3-way communication – top-down, bottom-up, horizontal
Tried to create bigger jobs
Encourage cross boundary working
Team working – ‘serve each other to better serve customers’
Job applicants ↑
Absenteeism and turnover ↓
Successful expansion in UK
38
Care Home
• Competitive market – private and public
• Attract staff
to poorly paid and difficult jobs
• Attract residents and state commissioning
• Stress training and HR systems
• Fear of complaints → new complaints procedure to identify
training needs and improve standard of care
• Show quality of care to residents and their families
• Trained staff an important part of this.
• Used in their advertising
39
4. Governing the Firm:
Owners, Investors, Lenders
40
Owners, investors, lenders
•
Always important
But, more important in
Hard times - money tight
Investors demand higher return
•
New owners
more demanding
less patient
•
Firms having to think more about
start-up finance
on-going finance
going public
maintaining share price
bond issue
41
Owners and investors
1. Family Owners
2. Dispersed
Owners /
Institutions
3. Bank Owners
4. Venture Capital
42
Intermediaries – Fund managers and analysts
1. Fund Managers:
Manage funds for
large institutions
2. Analysts:
‘Follow’
companies
43
Marketing to owners, investors etc.
•
New literature on ‘Investor Relations’
Mainly Finance literature
But some on ‘Investor Marketing’
•
Need to market yourself to raise finance
start-up
expansion
Initial Public Offering (IPO)
new share issue or bond issues
maintain share price
•
Providers of capital / investors have buying decisions
‘Why buy a share?’
‘Why hold onto a share?’
Marketing in an IPO
Factsheets, press
releases
Roadshow materials
Personal meetings
press conferences
Online IR
Accounts, reports,
brochures
The Owner / Investor → Product / Service
Marketing → Profit Chain
Marketing to
owners /
investors
These
prepared to
supply
capital, stick
with firm
Help in hard
times; new
investment for
future
Adapted from Heskett et al.(1994)
Product
/ service
value
Investor
satisfaction
and loyalty
Profits
and
growth
Does it work / pay off? Evidence
•
Macro
statistical
•
Micro
case studies – 1 big, 1 small
47
Macro-evidence
•
Meta-analysis for UK Department for Trade & Industry
•
Provision of good information to investors – quantity,
quality, timely
Engagement
•
Firms provide more information where
□ bigger *
□ need to raise capital **
□ more widespread share dispersion **
□ more institutional shareholders **
□ more independent directors, with more expertise **
□ perform better / worse
Filatotchev, Gospel, and Jackson 2007
48
Macro-evidence
•
Firms which provide more information / better engaged
Reduce the so-called ‘lemons’ problem – purchasers know
where they are
Reduce uncertainty
•
As a result
□ Easier to raise capital **
□ Lower cost of borrowing capital (equity and debt) **
□ Reduces volatility in share price **
□ Attracts institutional investors **
□ Reduces under-pricing in IPOs **
•
But also costs – administrative, proprietary
•
But benefits outweigh costs
49
Micro Evidence – Case studies
•
Infosys
•
BTF
50
Micro-evidence – the Case of Infosys
•
India’s largest software company
Established 1981, with $1,000
Now employs 122,000
•
India a bit of a backwater in terms of marketing,
corporate governance, and information provision.
•
Infosys set out to do it differently
Khanna and Palepu, 2004
51
Micro-evidence – The case of Infosys
• Given increasing opening up of economy and competiton
• Set out to market itself
• Felt some need to raise capital, in India and overseas
• Felt need to attract top talent
• To gain credibility with customers
especially foreign customers
especially given negative image of India
• Signal high quality
52
Micro-evidence – The case of Infosys
•
How did it do it?
□ Good corporate governance e.g. board, directors
□ Listed in Bombay (1993) and NY (1999)
□ Provided more and better information than required
‘when in doubt disclose’
‘becos you tell us in good and bad time, we trust you’
□ Recruited top talent – branded its HR
most desirable place to work and great employees
trained its talent
•
Results
□ Confidence in company
□ Able to raise finance
□ Positive growth for company in India and overseas
□ Positive externalities on Indian software industry
53
Micro-evidence – the case of BTF
•
Small Australian biotech company
Founded by two professors
•
1st financial marketing: raise capital from university +
development agency
•
Grew … but needed more capital
•
Considered banks
Considered IPO
•
But then approached a group of venture capital companies
Hirshorn et al. 2011
54
Micro-evidence – The case of BTF
• 2nd marketing: had to market itself – factsheets,
reports, ‘roadshow’
• ‘Beauty contest’
• Aim to raise highest sum of money but giving away
least in terms of ownership and control.
• Successful – innovation and growth
• 3rd stage approach to venture capitalists again
• 4th stage: became subject of interest by other firms
Sold itself to a French company
55
5. Conclusions
56
Conclusions
•
Hard Times: we live in a new and tougher world
□ less cheap money
□ NICE to NASTY?
□ increased competition
□ other changes e.g. demographics
•
Firms will look to multiple strategies
□ new markets, new products,
□ low road – cost cuttng,
□ high road – investment
□ get more out of internal resources
•
Greater emphasis on marketing to external and internal
□ benefits
□ costs
57
Conclusions
•
Information provision is key
Engagement is key
•
Honest, not manipulative
‘Substance not spin’
•
Long-term relational exchanges, not transactional ,
with stakeholders wherever possible.
•
Not shareholder value, but shared value for
employees, customers, shareholder
•
Will not get rid of conflicts
Conflict can be productive
•
Will not get rid of risks, but will reduce
58
Conclusions
•
Danger of breach of formal and informal contracts
•
In Hard Times e.g. lay-offs, pay cuts, cuts in
dividends, …. all this make it more difficult.
•
Fit, ‘bundles’ of practices, holistic approach.
•
Remember always: internal marketing to meet needs
of external customers
•
Pay-offs, but not all do….
Why?
59
CIM April 2011
‘Governing the Firm in Hard Times:
The Role of Internal Marketing’
Professor Howard Gospel
King’s College University of London and Said Business School Oxford
60