Starting a Dialog on Risk Management

Starting a Dialog on Risk Management

By: Brian Newton

Risk Management is a topic of deep concern for financial services companies. Assuming it is of less import for other companies, I believe, completely misses the boat.  In fact, Risk and Crisis Management are critical for all companies dealing with the public, especially in our litigious society and the absolute dollar cost of a failed event.  

Firms are in business to make money and as everyone knows, returns only go to those that take risks. (The risk-free returns currently available in short term Treasury securities – measured in small numbers of basis points – tend not to attract most firms.) So firms take risks. The question is, how should these risks be managed? And what tools can be used to manage risk? 

We first must identify the risks to which the firm is exposed. There are risks in all functional areas.  Does your firm rely on a wide ranging supply chain? If so, have you identified alternative suppliers from which you could source the required inputs in reasonable time, of sufficient quality and at a competitive price? Do you have a relationship with alternative suppliers? Could you open a new supply link in a timely way and still meet your deliver obligations? What would be the downside of having to delay deliveries to your clients? Would this result in lost customers, and thereby impact your expected revenues? What about developing a new to the world product? Does the financial and business risk potentially outweigh the reward of success? These are a few of the many questions to answer.

Identifying the risk is non-trivial. We must evaluate the risks in terms of both impact (positive and negative) and likelihood. A risk with little downside likely does not warrant direct management. However, awareness of such an occurrence may be well worth knowing as it may indicate the business environment is changing. And this may require a reassessment of all risks to which the firm is exposed as well as the firm’s overall business strategy. Best to know this as early as possible!

Here’s a framework we, at C-Level Partners, use to help companies define and manage business and functional risk.

Those risks with sufficient downside and potential knock-on impacts will require management of some type. This could entail allocation of resources to do precisely this, manage the risk. It could also entail laying off the risk via an insurance arrangement. Clearly this entails a cost, but depending on the nature of the risk, it may well be worth the cost. Oh yes, those resources to manage the risk aren’t free!

Other types of risk to which any firm is exposed include business disruption risk. It’s easy to contemplate this in the context of a natural disaster. Here in Southern California earthquakes are rare but highly disruptive events. Do you know what your firm needs to do to maintain its business activities should such an event occur? For this to be the case a firm must have a business continuity / disaster recovery plan in place. If so, this is a good indicator of awareness. However, is this plan current (reflective of current business activities) and has the plan been tested recently? A sports analogy is useful here: The best game plan in the world fails almost certainly when there has not been sufficient practice. There has never been a winning sports team that talked about what they were going to do but did not practice actually doing it. The same is true for disaster recovery plans.

One key element of managing unexpected events is communication. Depending on the nature of the event this could simply be internal communication. What happens when the delivery of a necessary input is delayed? The actions required should be known to those responsible for that production area. Ideally, these action plans are written down as the responsible people themselves may be out and their replacements need to have quick access to these instructions so as to prevent a negative outcome for the firm.

Another internal form of communication that is key and might be required and practiced is the Calling Tree. When something unexpected happens, the person first finding this out should know who in the management chain needs to be informed. This initial call in most cases will prompt by that manager a cascade of calls across the parts of the firm affected by the event. By doing this, all who need to know and need to adjust their activities will be informed in a timely manner, which itself should reduce the impact of the event. This calling tree puts into action people and resources to tackle the issue and manage the negative effects.

When external communication is required, with clients and possibly the public, it is very important to have a single person control the communication. The message for clients should be delivered by relationship managers that have received the approved message for their use. For general public announcements, ideally the senior manager responsible for all communication makes these announcements. Clarity and consistency of message are critical attributes of this communication.

We’ve just taken a quick look at risk management issues … and we’ve begun to see the complexities involved. Every firm’s business will be exposed to a variety of business risks to greater or lesser degrees. And the degree of exposure, i.e. risk impact, is a factor when devising the plan and when testing it. The test results themselves are useful information to be used in updating the plan as well as training the staff with business responsibilities.

To give you one perspective, the consulting side of one of the Big 4 accounting firms has a rule of thumb that firms should be spending about 2% of their revenues on managing risks. So if yours is a $50MM company, then $1MM is an approximate budget for risk management activities. Recall, this includes insurance premia, continuity planning and testing, and staff costs for those focused on these activities. 

Whether business risk management requires this level of expenditure depends on the firm. In many cases, good contingency plans, laid out when the risks are identified, might suffice to manage and control many business risks (realizing that the budget for this contingency planning is part of this 2% estimate). For example, a product manager working to commercialize a new to the world product may see that channel risk is very high. Therefore, his/her plans should include contingencies that may, in fact, include having multiple distribution channels from the start, even if it is less efficient.

If you have a different view, please let me know as I’m always interested in other’s views. Contact me at bnewton@clevelpartners.net or on (949) 445-1080 x301.

StreetSavvy Marketing Predictions for 2016

StreetSavvy Marketing Predictions for 2016

It’s that time again when just about everyone has predictions for the New Year. In November, Forbes contributor Kimberly Whitler posted predictions from the C-suite.   Adam Davidi, from the Guardian, posted predictions on branding based on conversations with “experts.”   I am sure we will see predictions from Forrester, Gartner and others as well.

We, at C-Level Partners, don’t want to be left out.  My colleague, Vince Ferraro, and I have been C-level executives in marketing and general management for many years. We now consult with companies on marketing and their go-to-market strategies.   We decided to look at “Big M” marketing, relating to predictions for how companies and brands go to market and how they interact with customers.  So without fanfare and any biased perspective, we share these predictions for Marketing for 2016. 

Let me be candid.  While most of these are predictions based on our work with clients, with start-ups and in talking with our marketing colleagues, there are also some “aspirational trends” that we hope come true for the profession as well as we believe they are important for marketing professionals and the businesses they manage.  Some of these trends overlap and leverage each other.   To us, that will represent the power of good marketing.  In no particular order, our top sweet 16 are:

1.       Cognitive Commerce has begun.  Marketers will use information on customers from their databases, the internet, and other sources to build stronger relationships, build predictive algorithms, personalize content, and deliver products and services to meet their specific needs.

2.       The distinction between offline and online will disappear as real time analytics will unite both camps.  Marketers will consider all (omni) marketing channels to optimize their marketing programs based on cost, effectiveness, ROI and the satisfaction quotient from building relationships with customers.

3.       Branding will be from the inside out.  Companies will not push the brand but the brand will be built on trust, engagement, referrals, authentic dialog, and transparency.

4.       Digital Marketing will cease to exist as a standalone part of marketing.  There isn't a need for separation anymore. World class marketers will know how to market in a digital world. Traditional and online marketing not only will coexist, but one will leverage the other and work better together.

5.       Advances in video broadcasting and continued growth in mobile devices will change TV marketing forever.   Marketers will use new technologies to enable a more immersive experience and TV and other broadcast video usage will expand on all screens - laptops, desktops, tablets, smartphones, HDTVs and even screens in cars,( i.e. telematics).

6.       Content will be created specifically with video channels in mind.  Further, there will continue to be a migration to mobile video which will become de rigor on a company’s website, in blogs, in training, and on Youtube.  Youtube channels for marketers will continue to expand.  In addition, the use of video podcasting and live streaming are also in a growth mode.  The world is clearly digital and going video and marketers will take advantage of that. 

7.       Personalization will grow as its ROI is measured and as customers come to expect to be treated as individuals.  We, at C-Level Partners, have written that there are now 7Ps of marketing and personalization is one of them.  Technology and marketing automation will enable this to happen.  This personalization will improve company branding and the ability to build stronger relationships with customers.

8.       Marketers will get back to basics.   Solid, well planned marketing will trump the sexy marketing in the past.  The CMO and business leaders will focus on marketing as a strategic investment to generate profitable revenue.

9.       The human touch will return to marketing.  How many of you love to listen to an automated customer service system saying that “your call is important to us…”  That’s bull!  Companies will realize that you are important and will show it by having more touch than tech or at least do a better job of integrating the two.  Being human will also apply to helping customers understand the value of the company’s products and determining what motivates buying behavior.  This is like getting back to the future… and I love it.

10.   Employee experience (EX) will be as important as customer experience (CX).  Engaged employees are critical because at the front line – in retail, sales and customer service- they ARE the brand, or at least a fair representation of it.   Engaged employees also feel part of the company, behave like owners, and will be promoters of the company's products and services.  According to our anecdotal evidence, only about 30% are engaged today.  Think Zappos, Starbucks, 1and1, and Jet for companies who provide both good EX and CX.

11.   Marketing and Data Science will be the new dynamic duo.   This will be key to understanding the customer persona from many angles - demographics, psychographics, sentiments, and buying behavior.  Vince and I, both being engineers, can relate and understand this dynamic.  We expect to see the CIO and CMO becoming BFF’s.  

12.   As a corollary to #11, data will be the new currency for the younger generation. Data will enable the ability to personalize the marketing message and make that message more meaningful and differentiated for a particular customer.   But it doesn’t only apply to the younger generation; big data will be used to help understand buying behavior of all customers and couple that information with the dynamics of profitable revenue growth for the corporation.   The new marketer will be, must be, a datahead or recruit the right people in his/her organization who have the skills to analyze the myriad of data available from business and marketing systems.

13.   Marketers will provide more original insights into business.  Marketers will not be mere curators of data and content.  The key word is original.  By having more insight into business, the CMO will be able to justify his/her seat at the executive table.  (This is a belief and expectation!)

14.   Customer success will be determined by a combination of satisfaction, retention, and referral.  We have always believed that the combination of the three components will yield the most loyal customers.   In conjunction with this, customers themselves, through social media, will become the company’s best sales people. Technology to help build customer engagement will continue to evolve and become more sophisticated.

15.   Marketing and selling will be in an omni-channel world.   Marketing execs will understand the buying persona of their customers and will use math and analytics to optimize the sales and distribution channels.  But the key here is that it will not be one channel vs. the other.  The marketer will blend online and offline, retail and wholesale, third party distribution and direct to ensure the buying experience matches the customer and to improve the profitability of the company.

16.   Chief Marketing Officers will evolve to become strategic businesspeople first and “marketing" executives second.  This is our wish and expectation; therefore, we took the liberty to include it as one of our predictions.  The CMO will be the linking pin from the outside world of the customer to the inside world of production, manufacturing and operations.  He/she will have a unique view on building and capturing valued.  In the past, we have not seen this from most of our traditional marketing colleagues as many have been focused on one area e.g. advertising, digital, brand, and product.  The new marketing executive will be a generalist, a businessperson with a focus on top and bottom line growth, steeped in data analytics, change management, and growth levers, coupled with creative and innovative bent.  We may be wrong about this one for 2016, but we believe it will eventually take root over time.

We would be interested in hearing your thoughts on your sweet 16 predictions for 2016.  Let’s keep the dialog going at www.clevelpartners.net.   And feel free to contact me at dfriedman@clevelpartners.net or Vince at vferraro@clevelpartners.net for a complimentary discussion on how we can help you achieve value creation and profitable revenue growth.

The New 7Ps of Marketing: Disregard at Your Own Risk!

I was reading an article in the recent Forbes online CMO Network by Kimberly Whitler entitled: What are the top predictions for marketers heading into 2016?   Ms. Whitler surveyed some experts, including CEOs, Presidents/GMs, CMOs, authors and executive recruiters.  In a different but recent article, Forbes CMO also ranked the top 50 CMOs.  To me, I would have rather heard their predictions.  

I always enjoy reading “predictions” because they keep me on my toes- maybe I missed something- and makes me challenge what I believe are the upcoming trends.  As a businessman and marketer I certainly don’t want to be caught short. 

Yet, I found the article very interesting and certain worthy of consideration.  I believe that each person is looking at the "elephant" from their unique vantage point.  And frankly, I am not sure they are predictions or wishful thinking based on the viewpoints of the interviewee. Nevertheless, they are certainly food for thought. 

From a holistic view, my prediction - or wishful thinking - is that marketers need to start with the customer and realize that marketing has become multi-channel and multi-dimensional.   The smart CMO must orchestrate the new marketing mix. That means they need to simplify messages sent to consumers through whatever channel is relevant to them i.e. digital, small screen, large screen, Point-of-Purchase.  And they need to determine which is most relevant for the target personas.   Moreover, the smart marketer should consider all the tools in his/her toolbox and select those tools that are most effective for getting the right message and INTERACTION with the customer.  

When I put this together, i find that the old model of 4P’s is antiquated.  I believe the new prediction is that good CMOs are now considering 7Ps in a holistic view: the original 4 (Product including product/service development, Price, Promotion, Placement (digital or traditional), and the new three consisting of Process (including customer engagement, referral and loyalty), People as brand messengers at point of purchase or via customer care, and Personalization (through technology and the internet).

The “traditional” 4Ps of marketing are well known.    In the day, marketing was about creating demand, and to a large degree it still is today.  But the focus was on selling a product to meet a need.   In general, promotion was based on advertising push.  The marketer’s mantra was to shout out the virtues of the product by mass advertising. To some who read the history books, the “soaps” on TV were called that because the consumer goods manufacturers such as Tide, All, and Fab were sponsoring and advertising on the TV shows aimed at the housewives and other stay at home folks. 

Pricing was simple.  Manufacturer’s set price and used a price point philosophy of good, better, best. Placement represented where the consumer could buy the product i.e. at the neighborhood store or a mass retailer or even door-to-door sales and home delivery. 

Because of technology such as the internet, and the movement away from a manufacturing to a service company, even the original 4 P’s have changed.

FROM                    TO

Product        à       Solution

Promotion    à       Information

Price            à       Value

Place           à       Access

Consumers and businesses want solutions to their problems and want to understand how the product/service will perform.  Due to the internet, both as catalogs of information and online reviews that are omnipresent through a myriad of sources, information has replaced pure promotion.   Certainly consumers and businesses want to find the right product at the right price, yet price by itself has been replaced by value with the value add sometimes being generated by service agreements and extended warranties.  And primarily due to the internet, place (distribution) has increased to a multi-channel access.  Think about the changes from the 1990s when e-commerce was first getting started to today.  Consumers and businesses now have electronic exchanges and other online venues from which to buy goods and services.   And now, coming full circle, we see Amazon opened its first brick and mortar store in Seattle.

Now let’s add the new three elements to the marketing mix.  First is the element of PEOPLE.    When I was head of marketing at US Cellular, we changed our brand and positioned our company using the tag line “the way people talked around here.”   Why did we do that?  In part, we recognized from our research in the late 90s and early 2000s that customers in our market wanted something more than what other cellcos offered.  We were not going to be the most technologically advanced (although our network and engineering were superb), nor were we going to cover the most customers in the country.  What our customers wanted was a relationship with our company, represented by our front line sales and customer service people.  They wanted a company they could trust.  At that point, we realized that people were the brand messengers and in our touchpoint marketing system, represented a way to affect the relationship and alter the buying habits of our consumers.  And it worked.  Our retention rate i.e. loyalty, was the best in the in the business.

The second new element is PROCESS. Many companies loathe the word process because they feel it is bureaucratic.  To me, process is the mechanism for repeatability. We want processes to help the customer in building its relationship with the company and also empower the employees to do their job to satisfy the customer.  Clearly, it is a tricky balance!   The processes today – mostly enabled by technology- relate to tools that help the company serve the customer.  

There is a dizzying array of tools that the marketer has to understand and use.  See Marketing Technology Landscape by Scott Brinker or some of the Lumascapes by Luma Partners.  Some of these tools include ways to mass customize a product or service to the customer needs.  Witness the new companies entering the market to build relationships with consumers and business buyers.  There are processes enabled by digital and web technologies that enable social engagement and the marketers use these new tools to build and maintain relationships with their customers.   This improves value through new services and interactive engagement in the eyes of the buyer. 

The final area is PERSONALIZATION. Several of the interviewees pointed out that understanding the customers’ persona is critical to segmentation.  Once you understand who they are, the company has to satisfy their unique requirements.  I have always been a fan of mass customization (read Joe Pines original work) or macro-niching as I use to call it 5 years before mass customization became vogue.   Personalization is easy today with technology.  You can see it when you buy a car.  Go into a BMW or Jaguar dealer in their store or online and the system will build the car for you.  Buy a house from Toll Brothers and you get a platform and options to tailor the house to your needs.   Go on the web and find a case for your smart phone and you can easily customize it with your school logo and colors.   Consumers want to feel special and that ensures a solid on-going relationship with their customers.

Marketing has changed and will continue to evolve over the next several years.  Clearly there will be a natural bonding between the CIO and CMO as marketing technology has become more important in defining the marketing mix.  While Ms. Whitler did not ask my prediction for 2016, I will share it with my readers.    I predict that marketing will be more about the customer and the great marketer will find the right combination of the 7 elements to build and sustain relationships with that customer.  At least I hope so. 

I would be glad to continue the dialog or share additional thought.  

Feel free to visit us on our web at www.clevelpartners.net or contact me at dfriedman@clevelpartnes.net.  

Following Willie's Canine Habits Could Make You a More Effective Human

Like many of us, I have always been a lover of dogs. My wife and kids tell me I prefer hanging out with dogs more than people. It is hard for me to argue. Each dog I have been close to has had a dominant personality trait that defined his or her character. Peggy, the dog I grew up with, was loyal. My first dog as an adult, Sandy, was a natural hunter, Charlie a cuddler, and Hank stubborn.

Two years ago this week, we lost Willie. Willie was a miniature dachshund, 12 pounds soaking wet. However, he was a “master of results.”

I didn’t just love Willie; I admired him. I admired him because he taught me that I could be a more effective human being by being more like him.

Here are Willie’s behaviors that I found admirable:

1.        Willie was unequivocal on his goals in life. First was food, second comfort, and third play. There was no fourth.
2.        Willie was focused. If he thought there was food to be eaten, he was laser focused on getting it. It didn’t matter if it was a breadcrumb or juicy slice of beef. His focus was complete. Needless to say, he oftentimes enjoyed food that was not meant for him.
3.     Willie was an avid explorer. He saw the neighborhood as a potential smorgasbord of worms, lizards, and other treats just lying on the ground.
4.      Willie knew his priorities and was single-minded in his pursuit of them. He was tireless in his quest for food. Only when he concluded there was no possibility of getting food would he seek comfort. He would play hard when he was well rested. 
5.     .Willie was purposeful.  Even when he played, he was serious. Retrieving a toy seemed to be more about getting in shape for his explorations than pure fun.
6.     Willie was fearless. He would take on much larger animals if he thought they threatened his circumstances.

Although I miss Willie, I feel good that he lived his life to its fullest. He knew what he wanted and never wavered in his priorities. For example, when we lived in Ohio, Willie did not like the cold weather – it made him uncomfortable. Consequently, he would sometimes take care of business in the house. He didn’t care that he would be punished because pleasing humans was not on his list of priorities. He knew the punishment of being confined to his crate was a consequence of his actions and just accepted it. He had no fear.

Imagine what more we could be accomplishing in our lives if we had Willie’s (1) clarity and priority on what’s important, (2) laser focus on achieving our goals, (3) courage to explore, and (4) conviction. If Willie could have talked, I’m sure he would have told us he lived the life he wanted to live and had no regrets.  

If you have stories about your favorite pet that can teach us humans something please share!

Some Thoughts on Thought Leadership

by:  Vince Ferraro, Managing Director, C-Level Partners.

This week I was I featured as one of 50 top marketing thought leaders in Brand Quarterly Magazine for 2015. (the complete list is at https://t.co/OvYoB48isa).   I am privileged to be part of such an illustrious list of talented and accomplished marketing professionals. All of the people mentioned are experts in their respective fields.

It got me thinking about what exactly is a thought leader and how you build authority, influence, trust, and credibility - attributes that most often go along with thought leadership? What makes a thought leader different from an expert, public figure or guru? What do they say, what do they do, how t do they act and how does that translate into thought leadership? My belief is that your combined experience, accomplishments, skills, consistency, and combination of other factors (over time) make you a thought leader. Many people can claim to be an expert in a specific area. That is an internal claim.  However, true thought leadership comes externally, from people who see and watch you. Thought leadership is bestowed by the people who give and individual or institution that status.

Marketing thought leader Jay Baer once said: "A thought leader is someone with proven expertise and experience who isn’t afraid to share it with the world without direct compensation.” This is partially true; however, I also like the list of quotations on thought leadership here.

Here’s my top 7 items that are useful to judge whether you are or can become a thought leader:

1.  Developing unique ways to look at a problem that were not considered previously.
2.  Not being afraid to look foolish for suggesting an idea. (think Isaac Newton and the apple)
3.  Challenging the prevailing wisdom and institutional theories.
4. Having internal emotional resilience in light of others vehemently disagreeing with your viewpoint. Be able to defend your positions.
5. The ability to take ideas, concepts, and explain them so even people outside your sphere understand what you are doing.
6. Be visible on as many credible interviews, podcasts, panels, speaking engagements, TV appearances you can get. Thought leaders are able to attract an audience.
7. Publish, Publish, And Publish! Get your ideas out there in the form of blog posts, guest posts, press releases, presentation slides, books, videos, and educational courses. Like academic intuitions, frequent and high quality content will get you noticed and respected.

There are no shortcuts to thought leadership. It comes from inside and outside your sphere of influence. What I can say this … writing and speaking are great pathways to thought leadership for you, your company or your brand. Produce content that challenges the status quo, is interesting, and thought provoking. Be willing to put your ideas and thought there and create a “smoothie” of new ideas, concepts, and theories. Though leaders are always pushing the envelope and challenging the status quo.

Whether we are a church volunteer, politician, business person, professional, company, or non-profit, thought leadership is derived from earning it.   Everyone has the ability to be a thought leader because everyone has a unique background and experiences that can be applied.  What is also interesting is that these unique diverse experiences collectively make for great teams that can conquer complex problems.  More to be said about this in the future.

If you want to continue the dialog, contact me at vferaro@clevelpartners.net.

The Regulation Conundrum Resolved

The misalignment in regulation: A conundrum resolved.

By Brian Newton

Do we need regulation? Is regulation good or bad? I feel the answer is usually “good” as long as customer needs are met and company initiatives are aligned. Additionally, the answer as to whether regulations are good or bad usually depends on the perspective of the constituent: government, consumer and company. Each likely has a different view. Regardless of the view, regulations exist and successful companies can and should deal with them using a solid business framework and by doing so we can realign business objectives with the regulation – more or less.

I will share a brief retrospective of one major regulation and then provide some thoughts and prescriptions for resolving the misalignment. Consider the Food, Drug and Cosmetic Act, under which over half of all items purchased in the US are regulated. (The following 2 paragraphs are drawn largely from the FDA website.)

The 1938 Food, Drug, and Cosmetic Act was a watershed in US food policy. Largely through the efforts of women’s groups which pioneered policies designed to protect the pocketbooks of consumers, food standards were enacted to ensure the ‘value expected’ by consumers.

The 1938 Act eliminated the ‘distinctive name proviso’ and required instead that the label of a food ‘bear its common or usual name’. The food would be misbranded if it represented itself as a standardized food unless it conformed to that standard. The law provided for three kinds of food standards: 1) standards or definitions of identity, 2) standards of quality, and 3) standards regulating the fill of container. Regulators had the authority to set standards ‘whenever in the judgment of the Secretary such action will promote honesty and fair dealing in the interests of consumers’.  That is a rule under which companies must operate.

The objective of the FDA is to ensure only quality products that are clearly described in their labels are available and consumers are thereby able to make informed decisions as to whether they want to purchase the product. In the case of drugs, labels also must describe any contraindications as well as possible side-effects so that the patient and healthcare professional are able to make an informed decision. What’s not to like about this?

Here’s the rub. Making quality products costs more. Whether it is high quality ingredients for foods, drugs, whatever, those ingredients cost more than lower quality ingredients. And properly labeling any product so that it is possible for the consumer to make an appropriate purchase decision, costs more than simply saying the product is, say, bread.

With real incomes declining in the US over the past 30+ years, the only way for companies to increase profits has been to reduce costs or provide less content for the same price (as long as the size was disclosed). Many more tasks have been automated and machines now perform those tasks. So labor costs have been reduced. Yet, if the size of the market is not increasing, other input costs must be reduced for profits to rise. One option: switch to lower quality inputs. Rather than all meat being used in dog food, one could include “meat by-products”. Since dogs, and many dog-owners, don’t read labels, the reduced cost of producing the dog food (without a commensurate price reduction) means higher profits for the producer. Other options exist that can grow the market through line extensions, new market development or broadening the eco-system. Yet many companies don’t consider these options for new routes to revenue and margin.

Okay, this is a simple example. However, it draws from an Econ 1 lecture by Prof. Richard Sutch at UC Berkeley for whom I was a teaching assistant. He was calling into question the use of price controls that Richard Nixon’s administration had imposed in the early 1970’s. His example was from a label of the cat food he had been using up until the price controls were imposed. Once the controls were in place, his cat stopped eating the food. (No, the cat really did not know about the regulations nor was he conversant in the rules, but the taste was different and this was a finicky cat.)  Eventually Prof. Sutch inspected the label. He found that new, lesser quality ingredients were now part of the cat food! Price increases may be limited and often result in a reduction in quality in order to increase profits. For human and pet food, as well as drugs, this is why the FDA exists – i.e., to ensure the foods and drugs provided for consumers (and their pets) in the US are of appropriate quality.

You may be wondering why I am writing this at all. After all consistently producing a quality product is exactly what a firm should do to build and maintain a strong reputation that consumers will recognize and value, and therefore purchase that firm’s products. So meeting the regulator’s requirements is simply good long-term business strategy. This begs the question: What’s missing?

Well, the management of many firms is often less interested in building and maintaining a firm’s reputation. Why would I say this? Firms’ managers, especially those in public companies, are compensated by short term bonus plans. If the firm increases profits, or more usually earnings per share (EPS), then senior management is paid a larger bonus. Ah yes, that old, very short-term, philosophy as emphasized by Wall Street. Indeed, it is not annual numbers but rather quarterly numbers that are the focus!

You know that regulations exist and given the explanation above, companies have to conform. Certainly they do. But let’s take a different view and let me offer some options that a company can implement to meet their business needs while aligning with the regulations.

1.   Strong leadership building a culture that keeps companies focused on doing the right things for customers.

2.   Company leaders can change the compensation structures to be more balanced between short term and long term goals.

3.   Keep customers happy, satisfied, and in the long run the company and consumers both win.

4.   Company leaders can set strategies to grow the market through line extensions, new market development or broadening the ecosystem.

5.   Understand the regulatory environment and see if there are ways to use the regulations to the company’s advantage. Sounds simple but often this is not easy to do. Companies must accept the fact that regulatory constraints exist and focus on those factors within their control.  In doing so, the companies must effectively manage their risks.

I don’t have the definitive answer to alignment yet these above prescriptions, among others, can be used to help companies focus on the right strategies and tactics. Let’s keep the dialog open and let me know if you have a contrary view. If your company or organization would like to discuss regulatory effects on your business and look at palatable options to engender change, please feel free to contact me at bnewton@clevelpartners.net.