Archive for February, 2010
Friday, February 26th, 2010
Over the past year, we have discussed everything from the housing industry to Starbucks coffee, thanks to insights from our expert faculty at Smeal. Thank you for your support and readership. We look forward to the year ahead and hope we continue facilitating discussion and producing content of interest to you.
Below is a recap of some of our most viewed posts, addressing several key issues that made the past year a challenging one for business.
Several car companies took a hard hit as the economy tanked and stock prices dropped, forcing them to close plants, layoff workers, and turn to the government for support. In early June, President Obama announced that General Motors filed for bankruptcy and gave Washington a 60 percent stake in the company. Smeal’s Terrence Guay provided a detailed analysis of GM’s history, highlighting the many places they went wrong, in his post, “What Happened to GM?”
The housing industry is slowly on its way to recovery after a volatile year. An unstable mortgage market and a suffering real estate market brought about decreased lending and mortgage defaults. In September, Smeal’s Brent Ambrose addressed the transformation of Fannie Mae and Freddie Mac in his post, “Breaking Up Fannie Mae and Freddie Mac.” In addition, Smeal’s Austin Jaffe outlined ten principles to help navigate the new real estate economy in his October post.
With the Obama administration came the appointment of various czars. One that made headlines was Kenneth Feinberg, the pay czar, proving that executive compensation was a hot topic in 2009 and Smeal’s Don Hambrick, Ed Ketz, and Tim Pollock had much to say about it. In May, Hambrick noted that an increase in CEO’s stock offerings could potentially lead to more risk-taking by the CEO. In his study, he suggests a better way to compensate CEOs. In addition, Ketz recommends giving shareholders more influence over corporate boards in his July post. Pollock goes as far as to say that it is going to take a cultural shift, not a pay czar, to rein in executive compensation.
Retailers had to adjust their strategies given the decrease in consumer confidence and lack of spending. In July, handbag retailer Coach, Inc. aimed to lower prices, while maintaining its luxury image. Smeal’s Lisa Bolton offered various strategies for marketers to position their luxury brands in a weakening economy. Starbucks went through the same dilemma as they adjusted pricing to portray the image of being both an affordable and premium brand. Smeal’s Jennifer Chang Coupland thought this might be a rather risky approach and outlined the reasons why in her August post.
Tags: Ambrose, Coach, Coupland, Executive Compensation, GM, Guay, Hambrick, Housing, Jaffe, Ketz, L. Bolton, Management, Marketing, Pay Czar, Pollock, Real Estate, Smeal, Starbucks
Posted in News | 2 Comments
Wednesday, February 24th, 2010
A recent article in the Wall Street Journal discusses an effort by Campbell Soup Co. to get consumers to buy more soup. Their iconic labels will now feature bigger, steamier bowls. And say goodbye to the spoon. “For two years, Campbell researchers studied microscopic changes in skin moisture, heart rate and other biometrics to see how consumers react to everything from pictures of bowls of soup to logo design,” says Ilan Brat, author of the article. This is all part of a new “neuromarketing” approach by Campbell’s to better understand their customer’s wants and needs.
Smeal’s Jennifer Chang Coupland takes an in-depth look at the Campbell’s brand and addresses why she thinks Campbell’s is remaining loyal to the branding of their three biggest sellers.
When Campbell’s tells consumers that “Soup is Good Food,” the company is not just selling a functional product (delicious, warm, “good” to eat). Campbell’s recognizes that it is marketing an intangible feeling like comfort, nostalgia, simplicity, or a hug. Traditionally, marketers use various techniques to gauge consumer emotions—some of them are purely psychological. For example, my colleague Jerry Olson’s work on the Zaltman Metaphor Elicitation Task (ZMET), Sidney Levy’s work on the thematic apperception test (TAT), and some of my research and others’ on other projective techniques attempt to find out what consumers “really” think about brands under the surface. What does Campbell’s mean besides something we ingest into our bodies? Metaphorically, what kind of person is Campbell’s? Man or woman, old or young, tall or short, fat or thin? Campbell’s was literally represented as chubby children years ago—wholesome, happy, inviting, and healthy.
Now the chubby children (viewed as lethargic today) are gone and replaced with visions of modern day “healthy” and “wholesome”—active, thinner people, and warm soup bowls with steam to invite and delight. The neuro research points to an important finding that the image on the label and the grouping of cans makes a huge difference in how people perceive the Campbell’s brand. Spoons are somehow too static and functional, perhaps reminiscent of the faux food when shopping for kitchen tables at Wolf’s. The fact that the Campbell’s cans all blend together on the grocery shelf is an equally important finding and consistent with my own research published in The Journal of Consumer Research on brand invisibility and camouflage. Brands often exist in “schools”, much like fish that lose their identifying marks when they swim together. The problem with the schooling of Campbell’s cans, however, is that they cease to stand out and either overwhelm or underwhelm the consumer as a result.
It does make sense that the three Campbell’s biggest sellers are retaining their old packaging. Campbell’s is a nostalgic brand whether you ask grandma, Andy Warhol (through his art), or the average consumer. To erase that nostalgia would be a mistake. Coca-Cola replaced its swirly, fancy lettering in the 1980s with a modern times new roman-looking “New Coke” that contributed to a huge backlash against the brand. Brands based on feelings of nostalgia, particularly American nostalgia, have a hard time moving beyond those emotions.
Wednesday, February 10th, 2010
The Obama administration has announced new sanctions on Iran’s Revolutionary Guard, specifically “targeting one person and four companies for penalties over their alleged involvement in producing and spreading weapons of mass destruction,” according to The Associated Press.
In testimony delivered last week before the U.S. House Foreign Affairs Committee’s Subcommittee on the Middle East and South Asia, Smeal’s Fariborz Ghadar cautioned against broad Iran sanctions and recommended a more nuanced approach that takes aim at entities of Iran’s Revolutionary Guard “while promoting information flows and economic activities with the private sector.” This strategy, Ghadar testified, will protect the Iranian public while targeting paramilitary interests.
Ghadar also offered nine recommendations for the media, the international community, and the U.S. government for dealing with Iran:
(1) Global media outlets should continue and expand broadcasts highlighting the mismanagement and corruption existing in the system. Ahmadinejad’s unexpected success in the previous election was successful because he was able to project himself as an honest, pious person in contrast to the rich and corrupt opponents. Even in the most recent election, during debates on Iran TV, Ahmadinejad continued his attack on the corrupt opponents. Except this time it was a stretch for the public to believe his hands are clean.
(2) The international community should broadcast Iran’s economic performance compared to neighboring countries. Mismanagement and corruption have hurt Iran’s economy and people. Iran and Turkey had comparable economies but in the past decade Iran, despite its oil and gas reserves and revenue, has seen its per capita income decline and its foreign and domestic investments evaporate. Iranians travel to Turkey without much difficulty and can see the relative improvement of Turks’ standard of living compared to their own. Iran’s economic performance is miserable relative not only to Turkey but also to neighbors south of the Persian Gulf and in the Caspian region. Azeris north of the border have improved their livelihood much more than Iranian Azeris. This is not due to sanctions but the Iranian regimes incompetence, corruption, nepotism, and disregard of meritocracy. (more…)
Monday, February 8th, 2010
A recent article (and accompanying photos) in The Wall Street Journal follows one 15-truck convoy as it attempts to distribute earthquake aid in Haiti, detailing the logistical nightmare facing aid workers there.
Below, Smeal’s Felisa Preciado, an expert in the supply chains of Latin American, explains how an already weak logistics infrastructure in Haiti was decimated by the earthquake, making it nearly impossible to get resources to where they’re needed in a timely fashion.
Christopher Rhoads’ “Convoy to Nowhere” article takes us along in a journey of widespread despair and utter frustration through a devastated Haiti. This convoy’s story, mingled with all the alike reports coming from that tropical island nation, brings to mind the rising needs of the Haitian people in face of the impossibility to effectively match supply and demand. So, what is the problem? Many have wondered. Why is it so difficult to distribute aid in Haiti? Are these predicaments a natural consequence of Haiti’s pre-earthquake impoverished infrastructure? How is Haiti different than other countries struck by tragedy in recent years?
The truth is that there are no simple answers or solutions. Haiti’s notoriety as the poorest country in the Western hemisphere makes it no surprise that their need for foreign aid dates to long before the deadly January 12 earthquake. In addition, prior to the disaster, their population of more than 9 million was dependent on a very limited logistical infrastructure. There are four airports with paved runways, but only one of those has, in its single runway, sufficient capacity (length) to handle large aircraft. Add to it that the overwhelming majority of the roadways are unpaved (nearly 75 percent according to the CIA Factbook), and the picture becomes clearer. It was a challenge to distribute anything even before the day tragedy struck. Furthermore, as an island, Haiti requires access to ocean freight, which only has through one outlet, Cap-Haitien. This port was completely devastated during the quake. All cranes and quays ended up underwater, excluding the access through their ports as an option for relief arrival, sorting, and distribution.
From the early stages, as aid poured in from all over the globe, it became evident that the airport, the most direct and only port of entry (other than border-crossing from neighboring Dominican Republic), was going to be a major bottleneck. A bottleneck resource limits your capacity, and limited it has been indeed. Slowly aid is coming through and out of the airport. Notwithstanding the badly damaged control tower, all aid agencies have tried their best to reach the needy with the help mainly of the United Nations and the U.S. military through the Port-au-Prince airport as the major hub and command center.
Another major aggravating factor is that the local infrastructure that traditionally is key after a natural disaster was not there. A supply chain needs not only roads and ports, but also manpower, equipment, facilities, and accurate and timely access to information.
All of these were already scarce, and the disaster took a major toll on the limited resources that were available. The reality is that, in fact, they were not only dealing with the aid delivery problem; there was the rescue problem and the healthcare delivery problem, as well.
Three supply chains with distinct purposes, yet very closely intertwined and interdependent. A challenge that requires collaboration, synchronization, and the involvement of the local authorities and other entities, which sadly for Haiti were already deficient, then rendered completely crippled by the fateful event. In consequence a domino effect has taken place: delays in getting the aid to people, people becoming hungrier and more desperate, security problems arising, then security problems delaying and even blocking the distribution of badly needed aid.
The problems seem overwhelming, but the resolve of people like Scott Lewis (in the Journal article) shows the best of our humanity. There are people working around the clock to repair the Cap-Haitien port. Many from the logistics community—from freight forwarders and third-party logistics providers to academics and members of related professional organizations—are donating their time and effort to help bring comfort to this battered country by developing effective distribution strategies. They work side by side with medical personnel, relief agencies, and the international community at large. They need help, and will continue to need help for a long time. In spite of all the obstacles logistical, or otherwise, we must not silence that which compels us to help in any way possible.
Friday, February 5th, 2010
A recent article in The Wall Street Journal headlined “Plan Would Soften White-Collar Fines” makes it sound as if the U.S. Sentencing Commission is getting soft on crime. “Corporations facing criminal prosecution could face reduced penalties if they meet standards for tackling white-collar crime at their companies, under changes proposed by the U.S. Sentencing Commission,” the Journal article reads.
However, according to Smeal’s Linda Treviño, this approach has been in existence for nearly 20 years and the commission is simply recommending some tweaks that will strengthen the existing sentencing guidelines for organizations:
In 1991, Congress passed the federal sentencing guidelines for organizations with the goal of encouraging corporations to prevent, identify, and report criminal behavior among their employees. To incentivize the corporations, the guidelines mitigate sentences for organizations that institute “effective compliance and ethics programs” containing seven vital elements. To qualify, the programs must (1) establish standards to prevent criminal conduct; (2) assign a high-level individual to oversee compliance; (3) exercise due care when assigning responsibilities to individuals; (4) communicate the standards and procedures to employee; (5) put in place effective monitoring, auditing, and reporting mechanisms; (6) enforce the standards through discipline; and (7) respond appropriately after a breach of the standards.
It’s because of these guidelines that so many corporations today have ethics and compliance programs and officers overseeing them. Professional organizations now serve these officers and whole industries have grown up around providing companies with support for development of codes of conduct, training and misconduct reporting, and investigation efforts. Unfortunately, research (mine and others) has shown that compliance programs really don’t change behavior unless the corporate culture changes to make ethical actions a focal point. Too many companies were complying with these guidelines in a “check the box”manner without really making ethics and integrity an integral part of their operations.
As a result, in 2004, the U.S. Sentencing Commission amended the guidelines to require an emphasis on creating a culture that supports ethics and compliance. The amendments also required that more responsibility for the program be assumed by boards and senior executives. These amendments led to important changes such as regular reports to the board about the ethics and compliance program.
Now, the commission is again proposing strengthening the guidelines. First, the new recommendations require compliance officers to have direct access to the board of directors. Although many compliance officers report directly to the CEO, some still report to chief legal counsels, who have an obvious conflict of interest when it comes to reporting criminal behavior at their firms. Giving compliance officers a direct line of communication with the board should give them more power and freedom to do their jobs effectively.
Second, the new recommendations would require that companies “quickly” report misconduct to authorities. Companies will not get credit if they wait until they’re about to be “caught.” They must quickly report the problem and cooperate with authorities. Companies will likely be scurrying to figure out just what “quickly” means because they don’t want to end up reporting behavior that is actually legal before they have had an opportunity to fully investigate.
Overall, if these changes are adopted, they should toughen the sentencing guidelines and, by extension, continue the trend toward strengthening corporate ethics programs around the country.
Tuesday, February 2nd, 2010
“President Obama’s proposals to tax and curb the activities of Wall Street have thrown an unpredictable element into the debate over financial regulatory reform,” The New York Times reports. “They also have touched off an intensive new round of lobbying and raised questions in Congress over whether his plan will add urgency or merely bog things down.”
Before we have “sensible, comprehensive financial reform” of the business community, I think a better place to begin is with Washington. Reform is vacuous unless it includes a reform of the reformers. It is clear that various senators and representatives were and are shills for Fannie Mae and Freddie Mac and other financial institutions. I don’t know how we reduce the money-and-power linkage between Wall Street and Constitution Avenue, but the folks on Constitution Avenue are hypocrites to regulate Wall Street on the one hand and accept donations and other perquisites with the other.
Also important is the misuse of the budget and financial reporting by Congress. Anybody who does not have the will power to balance a budget has no business in Washington. In today’s world, taxation with representation is no better than yesteryear’s taxation without representation, especially since so much of it is negotiated behind closed doors.
One suggestion—how about an audited set of consolidated financial statements for the U.S. government, including the reporting of all off-balance sheet liabilities? If this was done, I think the general public would be shocked to see the tens of trillions of dollars by which this country is indebted. And for which Congress is responsible—which is why this likely will never be done.