CIM April 2011
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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. A further brief introduction. Academic background University – Oxford, LSE, King’s College London

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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


A further brief introduction

  • Academic backgroundUniversity – Oxford, LSE, King’s College London

  • Practical experienceGovernment – DTI / BIS, UKCESConsultancy e.g. Unilever, P&G

  • My areas of specialismHuman Resource ManagementCorporate GovernanceBut, … provide a Marketing spin


Outline

  • Hard Times – ‘The Great Recession’

  • Governing the Firm – relationship to Marketing

  • Governing the Firm: Employees

    4. Governing the Firm: Owners, Investors, Lenders

    5. Conclusions


1. Hard Times: ‘The Great Recession’


‘The Great Recession’

  • How did we get here?

  • Where are we going?

  • What are the risks?

  • What are the consequences?


Ants, Grasshoppers, Locusts

Martin Wolf and Financial Times


How did we get here?

  • Ants industrious and save – some countriese.g. China, Japan, Germanytrade surpluses and foreign exchange reserves

  • Grasshoppers spend – some countries and householdse.g. US, UK, Spain→ big global imbalances

  • Locusts – make money out of intermediating between the two, take risksinnovate 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


The Great Recession – Links in Pictures


The Great Recession – Links in Pictures


How did we get here?

The Deep Decline


How did we get here?

The Steep Rise in Unemployment


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


Where are we going?

Weak recovery, except in Emerging Countries


Where are we going?

Catch-up Growth


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 competitivenessand something to sell to someone

  • Two-tier Europe and break up of Eurozone?


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


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 ↓ risksto ↑ trust / reputation / performance


2. Governing the Firm


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


Marketing – types of markets and stakeholders

Product / service markets

Financial markets

Labour markets

External stakeholdersCustomersSuppliers

Internal stakeholdersOwners, InvestorsEmployees


How we view the firm

Customers

Owners

Others

Government, communities

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


My Focus is on Internal Marketingto Two Sets of Stakeholders

1. Employees

2. Owners, Investors, Lenders


3. Governing the Firm:Employees


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 employeesGetting ‘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


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)


The Employee → Product / Service Marketing → Profit Chain

Employee satisfaction and loyalty. Employee brand

Employees feel able to produce results for customers

Internal marketing and empowerment

Customer satisfaction and loyalty

Profits and growth

Product / service value

Adapted from Heskett et al.(1994)


Does it work / pay off? Evidence

  • Macrostatistical

  • Micromini case studies – 1 big, 1 small


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


Micro Evidence – Case studies

  • McDonalds

  • Paul Ltd.


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 producinga poor service and product


The Case of McDonald’s in the UK

  • Established Corporate Reputation TeamWork on branding and employer / employee brandingWork with Marketing, HR, Training, agencies

  • Your Viewpoint Surveyneed for engagementneed to work for a socially responsible employer

  • Lancaster University analysise.g. restaurants with more mix of employees (50+), 20% higher customer satisfactione.g. restaurants with higher commitment scores, higher customer orientation (20%)e.g. restaurants with highest commitment scores, make 25% more sales.


The Case of McDonald’s in the UK

  • Recruitment campaignincluding 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 recessionSelf image of employer ↑


The Case of McDonald’s in the UK

  • Enters Sunday Times ‘25 Best Companies to Work For’ as number 22.

  • At same timeinvested in refurbishmentintroduced new menusintroduced free wi-fi

  • Sales ↑New restaurants opened in motorway services

  • The old ‘McJob label is out-of-date, lazy, and snobbish’


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 aboutgood business practice… andI do a better job’

  • ‘Not bad for a McJob’


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 brandwhich became marketing / consumer brand


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 managementNewsletter and ‘speak out’3-way communication – top-down, bottom-up, horizontal

  • Tried to create bigger jobsEncourage cross boundary workingTeam working – ‘serve each other to better serve customers’

  • Job applicants ↑Absenteeism and turnover ↓

  • Successful expansion in UK


Care Home

  • Competitive market – private and public

  • Attract staffto 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


4. Governing the Firm:Owners, Investors, Lenders


Owners, investors, lenders

  • Always importantBut, more important in Hard times - money tight Investors demand higher return

  • New ownersmore demandingless patient

  • Firms having to think more aboutstart-up financeon-going financegoing publicmaintaining share pricebond issue


Owners and investors

1. Family Owners

2. Dispersed Owners / Institutions

3. Bank Owners

4. Venture Capital


Intermediaries – Fund managers and analysts

1. Fund Managers:Manage funds for large institutions

2. Analysts:‘Follow’ companies


Marketing to owners, investors etc.

  • New literature on ‘Investor Relations’Mainly Finance literatureBut some on ‘Investor Marketing’

  • Need to market yourself to raise financestart-upexpansionInitial Public Offering (IPO)new share issue or bond issuesmaintain share price

  • Providers of capital / investors have buying decisions‘Why buy a share?’‘Why hold onto a share?’


Marketing in an IPO

Factsheets, pressreleases

Roadshow materials

Personal meetingspress conferences

Accounts, reports,brochures

Online IR


The Owner / Investor → Product / Service Marketing → Profit Chain

These prepared to supply capital, stick with firm

Marketing to owners / investors

Help in hard times; new investment for future

Investor satisfaction and loyalty

Profits and growth

Product / service value

Adapted from Heskett et al.(1994)


Does it work / pay off? Evidence

  • Macrostatistical

  • Microcase studies – 1 big, 1 small


Macro-evidence

  • Meta-analysis for UK Department for Trade & Industry

  • Provision of good information to investors – quantity, quality, timelyEngagement

  • 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


Macro-evidence

  • Firms which provide more information / better engagedReduce the so-called ‘lemons’ problem – purchasers know where they areReduce 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


Micro Evidence – Case studies

  • Infosys

  • BTF


Micro-evidence – the Case of Infosys

  • India’s largest software companyEstablished 1981, with $1,000Now 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


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 customersespecially foreign customersespecially given negative image of India

  • Signal high quality


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 HRmost desirable place to work and great employeestrained its talent

  • Results□ Confidence in company□ Able to raise finance□ Positive growth for company in India and overseas□ Positive externalities on Indian software industry


Micro-evidence – the case of BTF

  • Small Australian biotech companyFounded by two professors

  • 1st financial marketing: raise capital from university + development agency

  • Grew … but needed more capital

  • Considered banksConsidered IPO

  • But then approached a group of venture capital companies

Hirshorn et al. 2011


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 firmsSold itself to a French company


5. Conclusions


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


Conclusions

  • Information provision is keyEngagement 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 conflictsConflict can be productive

  • Will not get rid of risks, but will reduce


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?


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


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