‘Governing the Firm in Hard Times: The Role of Internal Marketing ’

1. 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

2. 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

3. 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

4. 1. Hard Times: ‘The Great Recession’

5. ‘The Great Recession’ • How did we get here? • Where are we going? • What are the risks? • What are the consequences?

6. Ants, Grasshoppers, Locusts Martin Wolf and Financial Times

7. 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

8. The Great Recession – Links in Pictures

9. The Great Recession – Links in Pictures

10. How did we get here? The Deep Decline

11. How did we get here? The Steep Rise in Unemployment

12. 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

13. Where are we going? Weak recovery, except in Emerging Countries

14. Where are we going? Catch-up Growth

15. 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?

16. 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

17. 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

18. 2. Governing the Firm

19. 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

20. Marketing – types of markets and stakeholders Product / service markets Financial markets Labour markets External stakeholders Customers Suppliers Internal stakeholders Owners, Investors Employees

21. How we view the firm Customers Owners Others Government, communities Managers Employees Suppliers

22. 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

23. My Focus is on Internal Marketingto Two Sets of Stakeholders 1. Employees 2. Owners, Investors, Lenders

24. 3. Governing the Firm:Employees

25. Marketing and Employees 1. Large groups 2. Small groups 3. Individuals

26. 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

27. 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)

28. 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)

29. Does it work / pay off? Evidence • Macro statistical • Micro mini case studies – 1 big, 1 small

30. 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

31. Micro Evidence – Case studies • McDonalds • Paul Ltd.

32. 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

33. The Case of McDonald’s in the UK • Established Corporate Reputation TeamWork on branding and employer / employee branding Work with Marketing, HR, Training, agencies • Your Viewpoint Surveyneed for engagement need 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.

34. 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 recessionSelf image of employer ↑

35. 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’

36. 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’

37. 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

38. 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 jobsEncourage cross boundary workingTeam working – ‘serve each other to better serve customers’ • Job applicants ↑Absenteeism and turnover ↓ • Successful expansion in UK

39. 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

40. 4. Governing the Firm:Owners, Investors, Lenders

41. Owners, investors, lenders • Always importantBut, 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

42. Owners and investors 1. Family Owners 2. Dispersed Owners / Institutions 3. Bank Owners 4. Venture Capital

43. Intermediaries – Fund managers and analysts 1. Fund Managers:Manage funds for large institutions 2. Analysts:‘Follow’ companies

44. Marketing to owners, investors etc. • New literature on ‘Investor Relations’Mainly Finance literatureBut 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?’

45. Marketing in an IPO Factsheets, pressreleases Roadshow materials Personal meetingspress conferences Accounts, reports,brochures Online IR

46. 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)

47. Does it work / pay off? Evidence • Macro statistical • Micro case studies – 1 big, 1 small

48. 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

49. 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

50. Micro Evidence – Case studies • Infosys • BTF