Michael Hong Interviews Emory Professor Jagdish Sheth
In one week, I’ll participate in A.T. Kearney’s Digital Business Forum, a unique invitation-only event where leaders in digital innovation have the opportunity to discuss and debate the future of business. Leading up to the event, I’ve worked to secure the participation of a diverse variety of technology startups, this in order to introduce into the dialogues that will occur discussion about the potential disruptive impact these startups will have on existing industry and business models.
Simultaneous to my work on the event, I became familiar with the writings of Jagdish Sheth, the renowned Charles H. Kellstadt Professor of Marketing at Emory University and prolific author of books on topics of importance to executives who wish to create radically new rules of business. It seemed timely to try and reach out to him to learn more about his unique insights into how business has changed in the digital age and how the legacy processes companies so rigidly follow can be a part of their undoing.
As background, Sheth has authored more than 40 books and 400 academic papers and received more than 31 awards including the top four from the American Marketing Association. He’s been widely quoted and interviewed by The Wall Street Journal, The New York Times, Fortune, and Financial Times, and has been a guest on radio and television including CNN, Lou Dobbs, and more. Sheth has applied his visionary insights in his role as strategic advisor to some of the largest and most influential companies including AT&T, Motorola, 3M, Whirlpool, GE, Lucent Technologies, Nortel, and Ford.
I was fortunate enough to interview Professor Sheth by phone recently; an excerpt of what we discussed follows.
Based on your work with many of the world’s most respected companies, how do you see companies reimagining their business models to respond to and take advantage of new digital technologies?
Jagdish Sheth (JS): Digital technology is turning business upside down. It is more disruptive than any other technology has been—including the telephone and television. It is as important, if not more, as electricity or running water.
I think it will have a huge transformative effect on corporate performance. It’ll redefine corporate culture and will definitely redefine and re-engineer business processes—whether it’s order-taking or the supply chain, for example. And it is going to change how to implement customer-centricity.
In the recent past and today, the Chief Information Officer has primarily managed the enterprise resource planning (ERP) based infrastructure including platforms like SAP and Oracle. However, 40 percent of a company’s budget now goes to marketing, largely through cloud computing and on mobile platforms. And, the software appropriate for smart phones is very different than that meant for laptops or desktops.
So there has been significant discontinuity, and the CIO unfortunately has not kept up with it. I’ve seen the effect on the marketing side, too, where the Chief Marketing Officer did not anticipate the impact of mobile phones. I was advisor to the Bell system when they were commercializing the cellular telephone. We had well-known outside consultants, and their forecast (in 1984) was that there would be no more than 954,000 cell-phone users by the year 2000. But, in reality, it is close to 4 billion today. Nobody knew that the cell phone would leapfrog PCs, especially in countries such as China and India, as the primary device and having e-commerce as Apps rather than going through a browser.
Emerging markets continue to be home to much of digital innovation. We can learn from e-commerce platforms like Alibaba and Flipkart because they’re starting with mobile phones in countries such as China and India.
Marketing is disrupted by digital technology there are no boundaries in the digital world. In the past, marketing knowledge was organized around location, such as the laws of retail gravitation we all still say it is “location, location, location” in retailing. All traditional media are still based on local reach. However, today in the world of streaming, we can reach an audience anywhere in the world.
So, location-centric marketing laws, media expenditures, and retail store locations are becoming somewhat obsolete. Take word-of-mouth, which used to happen only in places like the barbershop or a diner. Today, the Internet and social media are making user experiences reach all over the world instantly. We focused on diffusion of innovation theories where opinion leaders influence the masses. Today, we must focus on democratization of innovations.
Control has shifted from the marketer to the user. The future is not with the people who buy, but people who use the product or service. It’s all about user experience. You have to learn how to influence the user and not just the buyer.
Why do you think some companies are seemingly more successful than others at reimagining customer experiences and harnessing these new ways of thinking and working?
JS: I did research on why good companies fail. The most common finding is that all good companies fail if they are either unable or unwilling to change when external drivers such as technology, globalization and non-traditional competition has disrupted the industry.
So the incumbent is at a disadvantage, and somebody who starts fresh, without the “curse of incumbency,” as I call it, can do very well. Take Amazon, for example, versus a brick-and-mortar retailer like Wal-Mart. The latter may not be able to catch up to Amazon because it is has a legacy-oriented IT architecture. This is clearly true in the banking and financial services industries. Think about AirBandB and Uber and how they gained advantage over the incumbents.
Secondly, incumbent companies may be locked into their invested capital. They have factories or supply-chain arrangements that are based on traditional industrial-age models, and now the digital age transforms things. To write those assets on the books is very difficult if not impossible. The classic example is Kodak when film based photography changed to digital photography. What was a competency becomes a trap. I also find that some of these companies are also in a state of denial, especially about competition from emerging market multinationals.
In the late seventies, I remember that automobile companies such as General Motors ignored Japanese competition consisting of small cars such as Datsun 210, Honda Civic, and Toyota Corolla. They believed Japanese cars would never catch up with them. Today, Toyota is the number one car maker in the world.
This denial of new reality in the cell phone industry is remarkable. The pioneer, Motorola, lost to Nokia who lost to Samsung and it may lose the market to new entrants such as Xiaomi, LeNovo and Huawei Technologies.
How can an organization get its people and its institution to shift the way they think and work to transform to these new models?
JS: The hardest change is not the culture but the processes, followed by reorganization.
In your book, Firms of Endearment, you talk about the age of transcendence and how people are looking for a higher purpose—how they have changing expectations for the markets and the workplace itself. How would you say innovation and digital technology might facilitate this “changing soul of capitalism”?
JS: First, it brings back capitalism’s original mission, which was to serve society as an institution. Corporations used to be organized to stay forever with predictable succession planning. After the massive restructuring in the 1980s, everything was driven by shareholder value as the sole objective of the corporation. We got detoured into the belief that “the business of business is business.”
In the 80s, the stock market collapsed and the debt-to-equity ratio exceeded beyond credit ratings. The conglomerates became out of favor. The break-up value was more than the conglomerate value. We invented concepts of “re-engineering the corporation” and downsizing, right sizing and outsourcing became the norm. Everything was about survival and ensuring that there are no hostile takeovers by private equity companies. Private equity companies, such as KKR and Berkshire Hathaway, invested in the conglomerate companies. It turned into a 25- to 30-year detour. Since the collapse of 2008, that approach has been questioned. Social media has amplified the issue; word gets out much faster now.
So, today the business of business is more than business. I learned that by working for companies in small-town headquarters like Whirlpool in Benton Harbor, Michigan. They did not relocate to large cities to raise capital. Once you go to New York to be close to investors, you basically are investor and analyst driven—you end up living in a “gated community” and in the process put other stakeholders such as employees and the community as secondary priority.
Whirlpool was a family-owned company. Even though it was a listed company, the family lived in the small town. Church worship on Sunday is a great equalizer; neighbors are also your subordinate managers and their children go to the same school as yours, so you become more egalitarian and more stakeholder-oriented. I have seen this at Kohler in Wisconsin, Kimberly-Clark before they moved from Wisconsin and several other great companies in Minneapolis-St. Paul and now in Seattle and the Silicon Valley.
Also, today we are all a fish in a digital fishbowl. There is no separation between personal and my professional life. Everything is recorded now. Therefore, your behavior—which, by the way, in that small-town community was dictated by social norms—is now on the Internet and just one Google search away. Today, if I want to know what I did yesterday, I can just do a Google search on me! This is compounded by social media. Today, if just one incident is illuminated in the digital economy, it can pull a leader down no matter where he or she is.
Most important is the motivation of the young talent that is graduating from universities today. They are not as interested in life-long careers, so retention is a continuous challenge. It used to be that if the boss said you had to work late, you did. This was the era of job security. Then we entered an era where companies believed that if bosses showed more compassion for their employees, they would be more productive. We began to shift from autocratic (Theory X) to more humanistic (Theory Y) where we cared for the employee’s personal well-being.
Today, the word “boss” has a negative connotation in the minds of young people. Instead, you’re to become a coach and a mentor. So we have to learn that new leadership is more similar to what happens on a basketball court, where coaches practice tough love. They care a lot for their players and know how to unlock their potential. It is the players who are the stars and not their coaches.
Today’s young people want to be empowered, whether they’re competent or not. In Singapore, after extensive interviews, you recruit a talented young person and within 24 hours he says he are leaving. In exit interviews, they simply say I don’t like it there.
They don’t need unions or government as a safety net because their parents are their safety net. Therefore they are just searching for something in their life, to provide meaning and purpose. The only way you can bond with them is giving them purpose. I’ve mentored several CEOs who are actually lonely inside. They have worked very hard for success and have made a lot of money. But they have never balanced their work with purpose, so they eventually say, “Who am I? What have I done?”
With so many social-media outlets now, and people connecting more in that way, it can accentuate the gulf for those who don’t have it in their life.
JS: Absolutely. And the CEO now has to keep in mind the parent-child relationship, where the parent cannot be the child’s buddy. CEOs are struggling with their role. I find symphony conductors are a very good model. The symphony has just one conductor, but he or she can manage 90 musicians with different instruments and personalities to unite them in perfect harmony. The conductor has absolute power but a good conductor also knows the psychology of each of player and how to motivate them in the right way.
The above is just an excerpt of my interview with Emory University’s Professor Jagdish Sheth. To learn more about the valuable and visionary insights of this brilliant and personable thought leader, I recommend reading Firms of Endearment and The Self-Destructive Habits of Good Companies…And How to Break Them. You can also visit his website to learn more about his entire range of work.