4

READY THE ORGANIZATION FOR A SHIFT

Benjamin Franklin once said that by failing to prepare, you are preparing to fail. We agree. The question we ask in this chapter is how do you prepare to be nimble, to shift and change when the circumstances call for it.

A 2010 article in Psychology Today stated:

Preparing would be straightforward if we knew what we were preparing for. In physics, the Heisenberg Uncertainty Principle describes how it is impossible to simultaneously know the exact position and momentum of a particle, arguing that there is a fundamental limit on what can be known about a particle at any given moment. Companies often try to prepare for the future by looking at time in a very linear way, often ignoring that one little change, a single event, can alter what happens dramatically. It’s necessary to become comfortable with a bit of ambiguity—which is a point we’ll discuss further in Chapter 5 with one of our interviewees, futurist Amy Webb.

The stories in this chapter highlight some of the aspects of the preparation (or lack thereof) that will either allow the firm to shift when someday its chance comes or fail because it failed to prepare. We begin with a company that has taught us so much about innovative approaches to ensure that they are prepared to maintain relevance over the many years it has been a public icon.

AMERICAN EXPRESS:
Still Shifting After All Those Years

Founded as an express delivery service, American Express didn’t launch its first American Express Card until 1958, when it was already 108 years old. Suffice it to say, American Express has had a lot of experience shifting and refocusing its efforts over the years. From transporting valuable freight across the country, to developing the first traveler’s checks, to working with the United States Immigration Department to provide the official currency exchange service, to being a resource for soldiers away from home and their families back home starting with the outbreak of World War I, the company has established itself as dedicated to the needs of its customers.

We have each had the pleasure of working with American Express during our careers and called upon its former chief marketing officer, John Hayes, for his thoughts on what it takes to prepare for such a shift and how this understanding manifested itself in terms of company initiatives and return on investment. In his twenty-one years at American Express, Hayes not only created a number of iconic brand advertising and marketing campaigns, but played a key role in major product innovations.

He began our conversation by talking about the fact that although the business has changed across these many years, there are three basic tenets that have not: trust, security, and service. “American Express started in freight forwarding, hence the ‘express’ name,” he began. “You weren’t going to give us your valuables to [ship over] many miles if you didn’t trust that your valuables would get where you wanted them to be. Then, security and service emerged as offshoots of trust. We were—and continue to be—a service business. These three things have been the focus throughout our 166-year history,” he said. “I’m a big believer that the customer experience has been the most important branding tool we have. It is the principles-based approach we instill in our employees. We don’t stifle their ability to serve the customer by giving them lots of rules. Our employees understand the brand and they operationalize it every day in their interactions with the customers.”

Knowing that its focus is now and always has been the three fundamental tenets of its business, the next question for Hayes was, How do you shift? How do you remain relevant? To make service relevant, he told us, is a matter of operationalizing and executing it and identifying ways to reinforce that American Express is truly service-minded. “We know the value of being purposeful in today’s world. And what we recognized was that small businesses are a very important part of our customer base, and we value them immensely. A number of them were asking why they should accept the American Express Card, given that it cost them more money. We realized we needed to double down and demonstrate our commitment to these small businesses. Delving into the situation,” Hayes said, “we came to understand that among their biggest challenges was promoting their businesses. And, not just their businesses, but others in the community. The quality of the community was dependent on the quality of the businesses. We understood the interconnections. We started to see we had the opportunity as a national brand to promote small businesses in a way individual small businesses could never match. It was a fairly junior person in our organization who suggested we ‘own’ Saturday, much like after Thanksgiving you have Black Friday and Cyber Monday. It was the thinking that led to Small Business Saturday. ‘Stay in your community and shop on Main Street.’ The results have been astounding. We’ve been able to actually shift the U.S. economy for the day.”

The reaction American Express received has been tremendous. As Hayes explained, the company wanted to see small businesses thrive. Its view was to prompt people to shop locally, even if they didn’t use the American Express Card. Demonstrating its understanding of the “ecosystem” of a community, the buyers and the sellers, helped solidify its position as being relevant to people’s lives. It’s a position that goes back to an earlier point we made in this book, of asking “why” people are doing what they’re doing. What is motivating people to behave as they do? You have to understand the “whys,” because if you don’t, then you can’t understand what they’re thinking. To be able to shift with authority and credibility, you’ve got to be externally focused, customer focused, and determine how it will impact your business in the future.

As Hayes said about the continual and necessary changes in business initiatives at American Express, people want to trust. They want to be secure. They want to be well served. Those things don’t change. But the way people see the value of these things does change. It changes generationally (think millennials), and it changes when events happen that change everyone’s perspective. This means it is essential to be in touch with not just what happens with your business, but what happens in the world. Getting out from behind your desk and talking to consumers is certainly one way to do this, but American Express has been wildly inventive in deriving ways to tap into the general zeitgeist. An example is the company’s research enterprise: Artists-in-Residence.

“I gave myself a challenge,” Hayes explained. “I have to get the greatest minds in the world thinking about American Express. I want really intelligent people who are part of the popular culture, who understand popular culture, who understand what ‘today’ means and how it will affect what people want tomorrow. I want people like Bono, like Ellen DeGeneres, Tina Fey, Jane Rosenthal, Robert De Niro, and Martin Scorsese, to help me understand the world from multiple perspectives and definitely from a different perspective than, perhaps, a formal research person. I hired them as my eyes and ears. I got them truly engaged in thinking about our business. These were not consultants being paid to tell me how to make money in the next few quarters. Rather, they were giving me advanced radar. Helping the company see around corners. My objective was, ‘How do I engage the most interesting minds in popular culture to help me understand the world as it applies to American Express and keep us ahead of everyone else in the business by giving our customers things of value to them?’”

Being able to extrapolate what you see today into what consumers will want and need tomorrow is the challenge every organization wrestles with. By looking outside the traditional research parameters, American Express has been able to tap into the early-warning signals of consumer sentiment that many companies miss. Early-warning signals that may eventually become pain points, as many marketers call them. Situations that cause consumers to, if not run the other way, wince in frustration. The thing is, if you build your newest offer based on what’s happening today, by the time you put it into market, the ball will have moved.

HERTZ:
Research as Waze

Upon arriving in San Francisco to help his son Josh settle into his freshman year at Stanford University, Allen headed to the airport’s offsite car rental location. With great impatience, Josh asked, “Why are we wasting all this time? Why can’t you just get an Uber?” Allen admittedly was just hardwired to rent a car, even being aware that there may be faster, often more convenient ways to get from point A to point B, this being the age of Uber, Lyft, and Sidecar.

The relevance of rental cars in today’s marketplace stimulated our conversation with Stuart Benzal, the former vice president of customer experience at Hertz. How does a company like Hertz, so critically affected by the dynamics of the sharing economy, maintain its relevance when consumer behavior in this arena has been changing in such a seismic manner? Benzal responded, “We don’t look at our competitors and say, ‘Oh, the customer picked another car rental company.’ It’s not that we don’t care about Avis or National, it’s that we do not look at ourselves as a car rental company. We look at how we solve a transportation problem for the consumer. We look at the situation more broadly—mobility on-demand,” he said. “We’re looking at it beyond A to B. . . . The reason you flew to San Francisco was to close a business deal. How can we be part of the business traveler solution? Or you’re going to wine country. What can we do to make your experience more pleasurable? Whether it’s a solution having to do with a family visit, or a vacation, or getting a business deal done, we keep the lens broad. What can we do to make the process of mobility on-demand less painful? We look at the pain points and how to mitigate them.”

If any “mobility on-demand” company has the depth of familiarity to do this, Hertz does. Almost 100 years old, Hertz was founded by Walter Jacobs in Chicago as Rent-A-Car, Inc. Jacobs expanded the company from a dozen Model Ts to a fleet of 600 cars by 1923, when he sold the company to John D. Hertz, who renamed it Hertz Drive-ur-Self System and made it a subsidiary of his other business, the Yellow Truck and Coach Manufacturing Company.

Like all long-run successful businesses, Hertz solved a problem. In this case, getting around when you don’t have a car. As travel grew in scale and scope, both for business and leisure purposes, Hertz expanded to solve the new issues that cropped up. For example, it opened up the nation’s first airport rental counter at Chicago Midway Airport to make it easier for travelers to pick up their cars. In 1972, Hertz introduced the # 1 Club, a computerized data system that made inputting customer information more efficient so that customers could get from counter to car more quickly. More recently, Hertz invested in the on-demand valet service, Luxe, which takes the worry out of finding parking in an unfamiliar city.

“For us, it’s complexity reduction,” Benzal said. “It’s looking at the common travel anxieties cited by customers—making it to the airport on time, trying to find the rental counter, getting home as quickly as possible. We look at the pain points to figure out how we can stay a step ahead on relieving them. The only way to do this right is to spend time with customers, not in a focus group asking a bunch of questions, but taking part in the actual journey during which you can get the level of granularity required. Like taking the ride from midtown Manhattan to LaGuardia on a rainy afternoon. If you ask a simple question, you’re only going to get a simple answer.

“We’re looking for how people are talking and referencing things, the words they use, yes, but also the passion behind the words,” Benzal said. “There’s an emotion we hear. So, they might say, ‘Yeah, Hertz is great. They’re at every airport I go to, and they’re open twenty-four hours. But it’s very different from the tonality you hear when they talk about Uber or Zipcar and, that alone is very indicative of what’s going on. They think of Hertz as a good transactional brand, but they don’t talk about it with the same passion they use for Uber. It’s similar to our social media monitoring. We’re actually looking for how people are referencing the category, and whether one company or another has picked up on some pain point and is delivering on it. You can’t look at an algorithm. You need the tonality of the conversations, the inflections within the context.”

Benzal and his customer experience team at Hertz are on to this, which is why they don’t just take a laser-beam approach to understanding what’s happening with their customers at the airport counter or knowing whether a car is clean. They zoom out to look at the context of a traveler’s situation and then they zoom in to alleviate, to the degree possible, the specific pain points so as to improve the customer’s overall experience. For those familiar with the app, Hertz takes a “Waze” approach, looking at any barriers in the road ahead and the potential routes out and around them. “It’s no longer feasible to say this is the way we’ve always done business. . . . We have to ask, ‘How can we do this differently? How do we do this better?’. . . When Hertz put NeverLost in their cars in the 1980s, no one had ever seen in-car navigation.”

Hertz faces huge challenges in its category as technology and consumer habits impact its business model. However, its history of innovation has helped it make impressive inroads in the past. “What can we offer that customers would really value, or make it easier, or make them want to choose you?” said Benzal. “You can’t win on table stakes. You need to always be looking for the differentiators. Having that mindset will make it work.”

FACEBOOK:
Shifting Gears Comes Naturally

It’s pretty amazing to think that Facebook, now virtually baked into many of our daily lives, didn’t exist a mere thirteen years ago. For those few of you out there who may not know its history, Facebook is a social networking service founded in 2004 by Mark Zuckerberg and three of his Harvard University classmates, Eduardo Saverin, Dustin Moskovitz, and Chris Hughes, dedicated to the simple proposition of keeping people connected. From connecting a few hundred students on a college campus to connecting one billion users worldwide in 2012, jumping to over 1.8 billion by 2016, Facebook continues to find new ways to keep people connected—and it has paid off. In 2016, Facebook was on pace to reach $27 billion in revenue, defying the slow-down in growth that usually comes with increasing size. Facebook’s top-line growth rate is double any other U.S. company with a revenue of $20 billion or more, excluding those growing through acquisitions, according to data from Standard & Poor’s Capital IQ.

Facebook’s built-in ability to shift and to stay ever-relevant inspired us to have a conversation with Gary Briggs, a seasoned technology marketing executive who was tapped by the company in 2013 to be its first-ever chief marketing officer. While Facebook definitely—and definitively—falls into the category of young, spry companies, there are factors that contribute to its ongoing success that can be adopted by even the most iconic legacy organizations, technology or otherwise.

“We’re one percent done,” said Briggs at the beginning of our conversation. “It’s a saying that we adopted right after we went public in 2012, to make sure people stayed focused. It’s an attitude that allows us to stay ahead in an extremely volatile industry. Mark [Zuckerberg] truly believes that his biggest risk is someone else out there in a dorm room or a garage. He keeps an eagle eye on what’s happening out there, [which was] part of why he decided to buy Instagram. He’s obsessively worried, but in a healthy way. He’s totally convinced that if Facebook stops moving for one second, it will die. He can’t put it on autopilot. He’s perfectly aware of the fact that it was among the fastest-growing companies in history and could just as easily become the fastest-disappearing company in history,” said Briggs. “An interesting phenomenon, if you take a look, is that over the course of history, the Facebook logo has gotten progressively smaller on the website page. That’s because as they build out the platform more and more, [and] embrace their mission to connect consumers, it’s a signal that what’s important is the user’s experience, not the logo.

“That said, there are three basic cultural elements at the core of how we operate,” Briggs said. “The first one is that we have a central mission and a clear sense of purpose. Everyone understands Mark’s view, and everyone is hardwired to this view. We can operate quickly and autonomously because we each know where we’re going, we each know our role in getting us there, and we’re all aware of ‘why’ we’re doing what we do. We’re pretty singular about this: the concept of having a connected world—giving people the power to share and making the world more open and connected.”

Briggs discussed the fact that while “purpose-driven” has become a rallying cry by many companies, it’s very often a case of talking the talk without walking the walk. As more and more companies come to the realization that consumers judge brands not just on what they make but on what they are, it’s a company whose employees can answer the question, “Why are we here?” that will be most powerful.

That there is no ambiguity in direction is the second core element that enables the company to shift as needed. There is, as Briggs told us, a set of “built-in GPS coordinates. You’re not going to make a change that’s going to be ‘off-brand,’ as they say, or something not right for Facebook. Our ability to move fast is because whether we should, or shouldn’t, do something is pretty clear.” When Zuckerberg envisioned the company, he had a strong sense of the social impact he wanted it to have on the world. “His ‘why’—giving people the power to share and making the world more connected and open,” as Briggs said, continues to drive the company and everyone in it.

We also spoke to David Kirkpatrick, author of The Facebook Effect: The Inside Story of a Company That Is Connecting the World. Kirkpatrick’s 2010 book chronicles the history of the company since its inception and documents its global impact. Zuckerberg, he writes, is as much an ideologue as an engineer. He saw, and continues to see, Facebook primarily as a social movement dedicated to keeping people connected. And he practices what he preaches about open communication.

As Briggs told us, this consistency of purpose is validated day in and day out, in the very way the company operates, with openness—which happens to be the third of the company’s core cultural elements that give it an edge. “Mark doesn’t care about the hierarchy of who’s in the room,” Briggs said. “It’s just the nature of the place. Information flows freely. The ability for anyone in the organization to ask a question with the response being ‘thank you for asking a hard question’ is stunningly awesome. There’s no matrix here. Information is shared so fluidly, it makes it easier for the company to see changes coming and importantly act on these changes without ambiguity. We can seize the opportunity that a changing landscape puts up, and deliver on it.”

Asking Kirkpatrick about Facebook’s being able to shift so quickly, about seeing what’s coming down the road faster than the competition, he commented that it is due to a couple of factors. In addition to consistency of purpose and open communication, he cited the company’s ability to leverage its enormous compilation of data so effectively and efficiently. “A majority of companies collect data like they’re collecting stamps,” he said. “What makes Facebook unique in this regard is its ability to assess the data, to analyze it expeditiously, and critically, to understand it and act on it.” It was this sixth sense about what consumers were going to want that led it to its 2014 purchase of WhatsApp, bolstering its already-strong position in a crowded messaging market. Similar to text messaging, WhatsApp allows people to connect via their cell phone numbers but without racking up texting fees, because the app sends the actual messages over mobile broadband. This makes it particularly effective for communicating with people overseas.

Facebook’s transactions, such as WhatsApp and Instagram, are focused on the goal of assembling an offering that is going to make customers’ lives appreciably better than anyone else’s offering will. This is a general principle and is especially true in the financial services industry and, more specifically, in the insurance industry. How really different can one insurance product be from another? That is why the human element, demonstrating a genuine understanding of the customer, or client, has become the differentiating factor in those that lead in this category.

NEW YORK LIFE:
Mutuality Does Mean a Lot

Not too many people know what a mutual company is. At least, we didn’t until we started talking to New York Life. As New York Life’s website states, mutuality means that the company operates for the benefit of its policy owners: “Mutuality means we are collectively and entirely owned by our clients, not outside investors. And since we don’t have to appease Wall Street, the bulls and the bears, our exclusive focus—every decision we make—is in the best interest of our policy holders. We’ve stood by our clients since 1845. And we’ve paid dividends every year since 1854.”

To make decisions that are “in the best interest of the policy holders,” New York Life needs to understand those interests. That is how the company sets itself apart in a relatively commoditized category. Rather than setting analysts loose on big data (which it has lots of) and the sophisticated analysts to parse those data, New York Life’s real secret for success can be found at Little League games, in supermarket aisles, at dog parks, sidewalk sales, and farmers’ markets, and wherever else friends and neighbors gather in the 120 communities in which the insurer has offices. Or, as Kelli Parsons, the company’s former senior vice president and chief communications and marketing officer, put it, “We do a better job of gaining insights about our clients’ needs from our advisers out in the communities because they are boots on the ground every day. They know a lot about what people care about. They have a real sense of what’s going on. When people are thinking about their life as a whole, the needs, the challenges, and the opportunities,” she said, “having someone who really cares about you, assessing the long term [and] dealing with these complex financial issues, we just believe that human guidance is still very much in style.”

While the people at New York Life are certainly experts at numbers and the myriad actuarial details of their industry, this is not their day-today focus. Rather, their focus is staying in touch with what’s on consumers’ minds, gaining an understanding of their clients’ lives. They know how to “zoom out” in order to determine where and how a particular product might fit into people’s lives. This ability to understand the context, to get to the heart of what makes people tick, has allowed New York Life to be as effective as it has been.

“People say, ‘I hate big finance, but I really like my local adviser,’” Parsons told us. “Ours is a relationship-based business from day one. If anything is changing . . . , and where we need to make subtle shifts, is in how we nurture these relationships, especially with millennials who are so technology and social media oriented. The more research we’ve done, both qualitative and quantitative, the more we’ve come to understand that while we need to communicate with millennials differently, to utilize new tools and technology, at their core millennials want to make good decisions when it comes to their finances. This is partly because they came of age in difficult times, and in many cases saw their parents lose their jobs, their life savings, even their homes. That said, they’ve also grown up in a world where asking friends for advice is routine behavior. As a company, we equip our agents with all the resources they need to engage in the meaningful conversations that will help clients make good decisions for themselves.”

When asked about the notion of being ready to shift to stay relevant and about the “advanced radar” the company uses to ensure it stays relevant, Parsons told us that it was “as simple as taking the time to listen to what their clients really care about and what’s going to make a difference in their lives. It’s what our agents do best,” she said. “It’s kind of interesting to think that in a world that is so fast-paced and complex, [being able] to have a conversation with a client that doesn’t start with a particular product, but starts with a desire to gain a deeper understanding of needs, aspirations, and dreams, about where you want to be twenty years from now, is the most beneficial tool we have to gauge the future market.”

Life insurance is, without question, an emotional sale. You buy it to protect the people you love in the future, while giving yourself present peace of mind. One success factor in the insurance business is being able to connect with people at the right time in their lives with just the right product to give them this peace of mind. As Parsons said, “We believe deeply in the value of conversation, especially when one is making a complex financial decision. The more complex, the more value there is in having an expert talk it through with you to help you make the right decision.” As rapidly as the world is changing, the human element, staying in touch one-to-one with what people want and need, cannot be underestimated as a research tool. It’s the differentiating factor for New York Life. However, understanding the wants and needs to people is not limited to customers, as the next story shows.

DELTA:
Climbing in Employee Satisfaction, and Otherwise

There is no getting around the fact that the bigger an organization, the harder it will be to shift. If a business is incredibly complex, dependent on multiple moving parts, not to mention variables absolutely out of its control, it only exacerbates the challenge. The airline industry, where the conceptually simple task of getting passengers from point A to point B can be disrupted by an unexpected thunderstorm, exemplifies this idea.

Delta is rooted in “southern hospitality,” warmth and friendliness being inherent traits. Its roots took hold in Macon, Georgia, in 1924, where the airline began life as a commercial crop-dusting operation, the Huff Deland Dusters. C. E. Woolman bought the airline in 1928 and renamed it Delta Air Service, for the Mississippi Delta region it served. Delta expanded throughout the years, the result of mergers with Chicago and Southern Airlines in 1953, Northeast Airlines in 1972, and the acquisition of Pan Am in 1991, which officially made Delta a global carrier.

After decades of growth, inclusive of additional mergers and innovative service offerings, there were a series of events that began to severely test Delta’s culture of southern charm and hospitality. For example, the September 11, 2001, terrorist attacks rocked the airline industry and sent Delta into financial turmoil. Over the next few years, plagued by rising fuel prices, a global recession, increasing airport security difficulties, a defeated hostile takeover by US Airways, and acknowledged management missteps, the company lost billions of dollars. Ed Bastian, a senior vice president in 2004, had urged his bosses to file for bankruptcy to save the airline from liquidation. When they wouldn’t listen, he left the company, returning six months later to help guide Delta through bankruptcy, eventually taking on the role of president. Bastian became the company’s CEO in 2015, a year in which the company turned an astounding $5.9 billion profit while the airline moved over 180 million passengers from point A to point B, across 327 cities in 57 countries.

Huge investments in aircraft as well as improvements in basic infrastructure and technology laid the foundation for a strategic shift. Each and every step was undertaken to try to ensure that the customer experience was as stress-free and friendly as possible. For example, the installation of large flat-screen monitors in the gate areas where passengers could see the weather at their destinations, assess their upgrade potential, and watch for delays in departure time made Delta a friendlier airline. While these monitors may have seemed to be simple fixes, they alleviated a lot of anxiety for the gate agents behind the desks, who were then free to deal with triage issues rather than answering questions about weather, upgrades, and delays.

Technology, infrastructure, and airplane upgrades were all necessary, but according to Bastian, the most important factor in shifting the company from negative to positive territory, in every regard, was a heavy investment in employee satisfaction. “We’ve focused on improving the quality of what we deliver to our customers,” he told us, “the product and the service reliability. It’s been a long journey and what we are delivering today is head and shoulders above any other airline today. But that’s because we concluded ten years back that there was a direct linkage between this and our employees. I’d say that at Delta, the most important thing is to have happy employees. . . . There’s a saying that goes back to our founder—‘Caring is not something that the airline industry historically has seen a lot of. The better job we do taking care of our employees, the better job they’ll be able to do to take care of our customers.’ It’s a simple premise, but it’s in the DNA of Delta’s history.”

Bastian explained that in its efforts to bolster the company’s culture, Delta has launched several new initiatives, including what it calls its Development Series—informal outreach events during which management mixes and mingles with employees to hear about their experiences on the front lines and listens to suggestions for improvement. These events were started immediately after the bankruptcy period, when the company was in its most serious financial predicament. “When you’re in a difficult financial condition, it’s easy for employees to believe it was their fault—they’re making too much money, or they’re not productive enough—when, in reality, it’s the management’s fault. It was important to bring our people together to apologize, to let them know management owned the issue,” Bastian said.

This transparent declaration of responsibility, the confession of poor oversight that resulted in pay cuts and lost jobs, went a long way in helping to reignite the passion and the connection between the management team and the employee base, which carries over to this day. The company is committed to a culture of transparency and to the assurance that management will always have its employees’ backs. It was this personal engagement immediately following Delta’s nadir that Bastian said was a critical catalyst in its transition: “We communicate to our employees that we know they are expected to make decisions that have a direct impact on safety and reliability and service. We want them to know we have confidence in their ability to do a great job, and to do what it takes to serve these customers. Empowerment is a big part of our turnaround success.”

So, too, he determined, is sharing in the profits, making it clear—in a tangible way—that there is a direct link between what the employees do every day and the financial rewards due to their efforts. At the same time Delta provided employees arenas in which to voice their opinions, it put together a very impressive profit-sharing arrangement. In 2015, it shared $1.5 billion in profits with its team. It was the largest profit-sharing activity ever. Not in the industry, but in corporate America. As a result of this broad-based universal program, 80,000 employees received a 21 percent bonus for their hard work.

That the employees feel part of the solution is evident in the fact that, as of late August 2016, Delta had fewer cancellations than ever in its mainline operations. Employees getting rewarded for the results of their work (as measured by on-time and completion rates) not only shows up in Delta’s internal metrics, but in the company’s Net Promoter Scores, an index that measures the willingness of customers to recommend a company’s product or service to others.

We also spoke to Roy Bostock, a former member of Delta’s Board of Directors and, in the spirit of transparency, Allen’s former boss when he was in the ad agency business. “Delta’s overall goal was to create a preference for the brand and enable it to be perceived above and beyond a commodity product,” Bostock said. “Management set out to achieve operational excellence, which can be measured in a lot of different ways. Just looking at technical operations, it’s mind-boggling what happens. You go from dispatchers dealing with delays at LAX, having to ensure planes get positioned faster. You’ve got the whole mechanical side of it, managing spare parts and inventory, the luggage, the food and drink management. At every touch point along the way you want to deliver a better experience, a more convenient experience, a very enjoyable experience, even accounting for the TSA [security] lines. Instead of saying ‘it’s not my problem,’ every employee sees it as their responsibility to achieve operational excellence, a customer-orientation.”

While on the board, Bostock had the opportunity to go down and talk to the employees on the tarmac, the people in technical operations, the pilots and flight attendants, the agents at the ticket counters, and the staff at the airport clubs. They all talked about the “Delta brand,” and that they were there to serve the customer, to make the customer experience a great one. As a result, Bostock said that even when there are problems with air traffic control or weather issues, customers are more willing to give Delta the benefit of the doubt because they know that they’re putting their best effort into making things right. “People say things like, ‘You know, I got stuck for several hours. It was a weather delay. It was unavoidable, they closed the airport. But the Delta people got it right proactively. I’d rather fly Delta because people take care of me.’”

“The people take care of me” is the moral of the story. The culture at Delta is grounded in creating the best possible experience for its customers. The company takes care of its people so the people take care of the company . . . by taking care of its customers. This grounding stems from its roots in southern hospitality, a history of friendliness and welcome, but it’s not as simple as that. Building and sustaining a positive culture takes lots of ongoing work. The view of the people at Delta is that this work is never done. Its popular “Keep Climbing” campaign is indicative of this aspirational goal to always find ways to improve.

“Our transformation is largely the story of people,” Bastian said at the close of our conversation. “I tell people that while you see airplanes and exotic destinations and fancy airports, that’s not the important thing. The important ingredient here is the people. Our success is going to be continued to be defined by the ability of our people to differentiate themselves from the competition. It’s the only thing that can’t be replicated. It’s the people, the culture, and the values we share, and that’s why we lean so heavily into that.”

SONY:
Going Back to Where It Plays Best

Going back to go forward, reigniting the culture of innovation that sparked its initial success, is the story line for Sony Corporation, the iconic consumer electronics firm that is starting to reclaim some of its former glory after years of steadily declining sales and reputation.

For most readers over the age of forty, Sony transformed the way we listen to music with the invention of the Walkman in 1979. What many don’t know is that it was created for one of the company’s cofounders, Masaru Ibuka, so he could listen to his beloved operas during the long flights from Japan to the United States. Sony also transformed the way we filmed our kids’ birthday parties, weddings, and graduations with its video camcorders. It launched what was among the first and best CD players in 1982. Sony Trinitron color television sets were of such high quality that the company received an Emmy award for their development. Sony was also the first Japanese company to offer shares of its stock in the United States. As a bit more background, Sony made a big move—into Hollywood entertainment—in 1989 with its $3.4 billion purchase of Columbia Pictures, renaming it Sony Pictures Entertainment in 1991. And, of course, there is that PlayStation, one of Sony’s biggest success stories, which we’ll get back to shortly.

So, the question: After all of these breakthroughs, after being the first-mover with many products and possessing the ingenious thinking and sixth sense to know what consumers would want before it was invented, how did Sony lose its initial traction? Innovation had defined its character and its culture. It was bringing new products to the market while other companies had prototypes still in the lab. Such an innovative culture differentiated it for a long time. Its culture nurtured experimentation. More than this, it was one of the first Asian brands to recognize the importance of branding.

What happened? The simple answer is too much happened. Sony was unable to manage consistency across its increasing portfolio of products and services in the face of growing competition from other companies that proved to be more agile and more focused. It could not relevantly differentiate the totality of its offerings. They began putting the Sony name on more and more products that were missing the Sony “magic.” The uncontrolled diversification, its toe-dipping into too many areas, caused it to lose its focus on innovation. Where once it had created the playing field and set the rules, its resources were fast draining and, as a culture, it was becoming complacent. With complacency, Sony began to lose relevance with the very audience it had called its own for so many years. The magic was, if not gone, fast eroding.

The good news, and the reason for this story, is that Sony has shifted to embark on a journey to rejuvenation. We spoke with Hideyuki Furumi, the company’s executive vice president, Global Sales and Marketing, for Sony Mobile Communications, Inc., to get some commentary on its progress.

“We are going back to our past,” he began our conversation. “We needed to step back and say we can’t make everything. We can’t be a department store. We have to go back and focus on things for which we can truly apply the ‘Sony DNA.’” Sony’s DNA as captured in the writings of one of its founders, Masaru Ibuka, was to “deliver moving experiences to consumers through innovation and challenge”

Furumi went on, saying, “We can’t focus on 100 product lines, but a few product lines that are relevantly different. Play where we can play best. The most critical factor for us is that the definition of our business had become unclear, especially for our internal people. They were losing their confidence.”

Since its inception, Sony had always been about trying new challenges. Its culture was built on the spirit of innovation. As it became far too diversified, its employees began to lose touch with what the brand stood for. Furumi told us that to re-instill this lost confidence in its employees, the company was paring down its product lines and concentrating on a few “hero products.” They are going back to the founding principles of concentrating their energy, not to mention their resources, on selective products that best exemplify who they are and what they stand for and delivering consumer “wow” through innovation. In the United States market, for instance, up until about five years ago, Sony was still in everything from inexpensive clock radios to televisions of every size and price point. They have now winnowed down their offerings and are focusing on the parts of their portfolio where they can truly deliver moving consumer experiences.

“We are focusing on the areas that are most important to drive our business, and our image,” said Furumi. “Our character had become too generic, which was reflected not just in financial factors, but in the expectations of our people. We realized we needed to make a painful transformation in order to make ourselves healthier. We needed to streamline, and find ways to communicate openly across functional areas. Our internal silos are diminishing, and that’s a good thing. Accountability has become clearer, and our new CEO [Kazuo Hirai] is bringing about a culture of positive thinking. We celebrate even small wins. Our employees’ achievements have become much more visible compared to the past.”

Furumi went on to say that if you don’t have a workforce that is positive and motivated, there is no way you can dig out of a challenge. Becoming more celebratory about successes, even small ones, will help build internal momentum and accelerate change. “By becoming much more selective in the fields in which we play is helping us gain back the confidence of our employees. It goes hand in hand with optimal performance. To excite consumers, our employees need to be emotionally driven. Our people are our greatest asset. They are what will allow us to win in this fiercely competitive market.”

That Sony is beginning to win—or win back—in some key areas became evident with the positive marketplace buzz surrounding the newest Sony product, the PlayStation VR (PSVR) game console, which is expected to give other developers in the space a run for their money. The company is among the category leaders in virtual reality. The VR market is expected to rapidly grow, enabling users to do more than just play games. It allows users to enjoy watching sports at home with the sensation that they’re right in the stadium, as well as enjoy traveling “virtually” to exotic places around the globe. VR technologies are also used to improve the efficiency of business operations, from construction to healthcare. Another of Sony’s star performers isn’t a gadget or device like a Walkman or PlayStation. Instead it’s a chip found in almost every high-end camera and smartphone, including Apple iPhones. The company that invented the compact disc has, so far, captured almost a third of the $7.6 billion market for low-power sensors that help produce our crisp photographs.

That Sony is beginning to once again distinguish itself by making distinguished products, gauging the market, and beating its competitors to the punch is becoming not a virtual reality, but a real-time reality. Using its founder’s principles allowed Sony to reenergize employees and focus the organization on fewer products. This allowed Sony to prepare for a shift as it could better focus resources on products for which it could deliver innovation that made consumers go “wow.”

Lessons Learned

The successes and failures of the companies described in the stories in this chapter provide several lessons about how companies, in general, can lay the groundwork for upcoming shifts.

Lesson #1. Have clarity of purpose. Some of our stories shed light on how company purposes should be framed. Facebook’s purpose is to connect the world; Hertz’s purpose is to make things easier for the business traveler or more pleasurable for the leisure traveler. These are very different from getting more Facebook members or renting more cars. People do not buy products; they buy benefits. When Joel goes to the hardware store to buy a Black & Decker drill, he is not buying a drill; he is buying the holes in the wall. When Allen goes to Ralph Lauren to buy a tie, he is not buying a tie; he is buying a look. Peter Drucker, a late great management guru, once wrote that “business enterprises . . . are organs of society. They do not exist for their own sake, but to fulfill a specific social purpose and to satisfy a specific need of a society, a community, or individuals.”² When one looks at the objectives of a business as fulfilling a social purpose, it becomes easier to recognize the need and opportunity to shift. It allows Hertz to examine the possibility of parking services and perhaps other concierge activities.

The specific social purpose is often found in the founder’s mentality. Authors Zook and Allen found that almost 90 percent of the time, the root causes of trouble in companies that failed to keep pace were internal. The distance between the people at the top and what’s happening on the front lines increases and proliferating processes and bureaucratic practices fill that distance. Even in the best of companies, if these processes are not managed properly, the ability to innovate and grow is stifled. Getting around what Zook and Allen call “choke points” requires a founder’s mentality; the return to speed, focus, and connection to consumers, and the insurgent’s clarity of purpose.

As such, when companies lose sight of their purpose, they lose their focus. Sony had to return to its founder’s words to refocus only on products in which the company could innovate and deliver what Sony CEO and President Kazuo Hirai describes as the Japanese concept of kando (the ability to stimulate an emotional response in people).

Lesson #2. Understand the ecosystem. When a company embraces its social purpose (i.e., the founder’s mentality), the boundaries of the business go way beyond the products and services the company currently offers. At American Express, the Artists-in-Residence program exemplifies how a shift-ready business strives to understand the ecosystem it operates in. This means it’s essential to be in touch with not just what happens with your business, but what happens in the world.

Everyone talks about keeping an eye on their business landscapes. But the difference in how one company does it versus another can be likened to the difference between golf and tennis. Astute businesses act more like a golfer than a tennis player. A tennis player is faced with a fixed court with a net, baselines, service lines, sidelines, and a service box. Within that fixed court, the player tries to exploit the weakness of the opponent or the competition. The shift-ready organization focuses much less on the competition. Suzy Deering, chief marketing officer of eBay, told us during our discussion about the company’s shift to rebrand itself after its split from PayPal. “I want to keep an eye on my competitor, don’t get me wrong,” she said. “But too focused on my competitor, then I’m missing the real point. I’d rather spend time with my eyes dead-set at my customer and what their needs are—anticipate their needs and how to best deliver on those needs. We don’t talk in terms of a campaign, we talk in terms of the customer experience.”

In contrast to the fixed tennis court, a golf course is made up of many variables: It’s an ecosystem of wind and trees, sand traps, and water hazards that differ not only from course to course, but from hole to hole within a single course. The golfer must analyze the course, the wind, the topography, and keep his or her eye on the ball, not the competition. The golfer must navigate the entire ecosystem. American Express has been playing golf for over 160 years as illustrated by John Hayes’s comments on understanding the interconnections between businesses, consumers, and communities in discussing American Express’s approach to small businesses.

What many of those who fall behind their competition don’t grasp is that the marketplace is changing so fast that if they don’t zoom out, see all the forces that shape the customer experience from as many angles as possible, they’re going to miss some critical cues. The smartest organizations, the American Expresses of the world, are always in anticipatory mode, always in touch with not just what customers are doing today or what they did yesterday, but trying to figure out “why” they are behaving in a particular manner. The best companies can extrapolate the implications of what might happen next in order to meet a particular customer need before anyone else does.

Going back to what Bob Pittman told us in Chapter 1, you have to get to the core of what your brand stands for and then determine its relationship to your customer. I’ve learned that before you do anything, you must understand the relationship to the customer. I’ve worked in television, in real estate, in theme park companies, with the Internet and digital companies. What ties them together is ‘who’s the consumer and what are they doing?’ They will tell me what matters. They will find it. They will evaluate it. They will decide if it’s good or bad, not me.

“What you realize when you look at consumers is that, more often than not, they value convenience. Something is going to make their life better and easier in some significant way,” Pittman said. “It’s about looking at what people are looking for and what they want to do. For example, you get a lot of kids not getting their driver’s licenses the minute they turn old enough to do it. Why? Because there are too many other ways, more convenient ways to get around than driving your own car. It’s critical to get an understanding of what role your product plays in consumers’ lives.”

Clayton Christensen writes and consults on how new products and services displace established competitors. In his book Competing Against Luck: The Story of Innovation and Customer Choice, he writes that consumers hire products to do a certain job. It’s the firm’s job to figure out what that job is. In one consulting assignment for a fast-food chain, Professor Christensen’s colleagues spent a day observing and interviewing customers and found that a number of them came in alone and purchased milkshakes to take along on their daily commutes. “Their surveys suggested that people weren’t just looking to buy a beverage; they wanted something to keep them occupied during their drive. Milkshakes are easy to hold and consume and last a long time.”³ What Christensen determined was that milkshakes don’t just compete with other beverages, but with everything else people do on a long commute, from eating a bagel to listening to audiobooks. The “job” of the milkshake was to mitigate stress for commuters by keeping them occupied. As a result of its research, the consulting team suggested changes to the fast-food chain that would increase sales of milkshakes and make the purchase process easier for commuters in a rush.

Lesson #3. Bathe with your customers. To completely understand what role or roles your brand or products play in your customers’ lives and therefore appreciate the scope of the potential shifts you might have the opportunity to make, you must become intimate with your customer. You must bathe with them to understand how they live. You can actually live with them as New York Life does, or you can bathe yourself in the data you have about them as Facebook does.

Gary Briggs told us, “[Facebook’s] move into live video—making video a core component to each of our apps—came out of one of our typical Friday all-hands-on question and answer sessions. In addition to being open and mission-driven, we’re also very data-driven. As a result, we’re able to read pretty quickly the impact of not just attitudes, but behavior.” The company’s ability to read and react to behavior is what led Facebook to make some major acquisitions. We have already discussed WhatsApp. Facebook’s realization that many of their users were posting photos on the site led to the purchase of Instagram, the popular photo-sharing application, in 2012.

Lesson #4. Be constantly looking out for the next big thing. This book was written under the major premise that one thing we can be sure of is change. With that in mind, it is impossible to imagine how an offering designed for a specific ecosystem, either existing or anticipated, will be optimal for a different evolved one. Under that belief, it becomes imperative that we constantly look for the next big thing. Facebook’s saying “we’re one percent done” embodies this notion. As Hertz’s Stuart Benzal told us, “You can’t win on table stakes. You need to always be looking for the differentiators. Having that mindset will make it work.” Chapter 6 tells the story of Hasbro’s path to a successful shift. There we will learn that the real game changers in enabling Hasbro to make significant gains are the brand blueprints they characterize as “ever-evolving documents.”

Joey Bergstein, chief marketing officer of Seventh Generation, Inc., the country’s number-one “green brand” and market leader in nontoxic and renewable household cleaning products, told us, “It’s a marathon. We do continuous research on our users, but with a focus more on consumers who have not yet made the move to natural, green products. People who are aware of Seventh Generation, but not buying it. We want to understand why they’re not buying it. ‘Does it work? Is there a benefit for my family?’ Consumers today want performance and sustain-ability. While there are a lot of people who say they prefer to buy green things, what they actually do is different. There’s a gap and we need to understand the barriers.”

Lesson #5. Culture matters. At the outset, we define what we mean by culture: Culture is the sum total of the vision, values, norms, systems, symbols, language, assumptions, beliefs, and habits that shape an individual’s choices and behavior within an organization. The company’s purpose is among these. According to Francis Frei and Anne Morriss on a Harvard Business Review blog, “Culture guides discretionary behavior, and it picks up where the employee handbook leaves off. Culture tells us how to respond to an unprecedented service request. Employees make hundreds of decisions on their own every day, and culture is our guide. Culture tells us what to do when the CEO isn’t in the room, which is of course most of the time.”⁴

As Professor James L. Heskett wrote in his latest book, The Culture Cycle,⁵ effective culture can account for 20 to 30 percent of the differential in corporate performance when compared with “culturally unremarkable” competitors. Certainly, the culture at Delta Air Lines, centered around southern hospitality, allowed it to deliver superior value in the form of customer service.

People have to feel that what they do genuinely matters and, more so, they have to be provided with the tools and resources to fulfill their roles in a satisfying way. Far easier said than done, especially when a company is in shift-prep mode. People who share values are people who are excited to be part of the pursuit of a common goal. Last and absolutely not least, a strong company culture is based on trust, both from the top down and the bottom up. Nothing good can come about without trust. (Just for the record, employees don’t bring culture with them when they get hired. A company hires employees they feel would be a good fit with the corporate culture.)

In our experience, effective cultures require lines of communication that are open and honest—again, top down and bottom up. Silos have to come down, matrixes disassembled. Literal and even figurative walls stifle innovation, fresh ideas, and collaboration. Transparency is critical. Everyone needs to see what’s happening and understand their role in making it happen. Again, the organization’s purpose needs to be clear.

One of the first things Steve Jobs did after his return to Apple was to oversee the creation of a still-celebrated advertising campaign for the company titled “Think Different.” These ads, featuring an assortment of iconic, idiosyncratic, and incredibly innovative personalities, including Albert Einstein, Bob Dylan, Martin Luther King, Jr., Amelia Earhart, Jim Henson, Martha Graham, and Pablo Picasso, were meant as a signal for the general public, for sure, but also for the people in the organization, that Apple was back in business. At the time the campaign was created in 1997, Apple had about ninety days of operating capital left. It was a campaign that still resonates decades later and that, at least emotionally, put Apple back on the map and sowed the seeds for its future success.

Jobs obviously knew the cost cutting and the brilliant advertising invoking its brilliant culture would only carry the organization so far. It was the result of its truly thinking different that put Apple back on the map in a more tangible way: the launch of the original iMac, the first new product released after Jobs’s return as CEO. Although seemingly simple, it was surprising what a difference a little color could make. Adding color to this nifty desktop computer became an instant success and it was an indicator of the things to come from Apple—products that were as beautiful to look at as they were simple to use. With an ad campaign and an iconic product, Jobs ignited a culture of innovation that continues today.

Don’t confuse a common purpose with homogeneity of perspective. Cultures that welcome diverse points of view are healthy cultures. Needless to say, organizations that foster diversity in their workplace, in general, are much healthier for it. How can you possibly serve a rapidly changing marketplace if your organization is either of the homogenous or command-and-control variety? In preparing for a shift, organizations must look at things through multiple lenses.

In addition, people need to be heard, not stifled under layers of management. This level of freedom and empowerment not only engenders confidence, but generates creativity. When Steve Jobs designed the headquarters of Pixar studios, for example, he oversaw the creation of areas where people would have to bump into each other, share ideas, visualize story lines, light-years ahead of what any other animation studios were doing. Years before this, AT&T Bell Laboratories worked in much the same way. An open campus—an open forum—where people could and would bump into each other and just naturally start chatting about their latest technological breakthroughs. These interactions become part of the culture.

Joel practices this philosophy in his management of the Ph.D. program at NYU Stern as it shifts ever closer to the upper echelon of business school doctoral programs. He emphasizes a culture of “cultivating colleagues” in a common environment. Better doctoral research and dissertation ideas emerge when students and faculty have greater contact. Students and faculty have greater contact when they are seated close together, attend the same events, and eat together. As Joel often says, “Lunch matters.”

Howard Stevenson, professor emeritus at Harvard University, has gone so far as to say, “Maintaining an effective culture is so important that it, in fact, trumps even strategy.”⁶ Others use similar phrases (the idea has also been stated as “Culture eats strategy for breakfast,” apocryphally attributed to management guru Peter Drucker). In either case, it means that powerful companies often use culture as competitive advantage. It isn’t the enemy of strategy or performance, but an equal player in the game, not to be underestimated or overlooked.

The bottom line on culture, and what those companies gearing up for a shift must keep in mind, is that better moods equal better performance. The workplace should not be something people dread, but something they look forward to. While the work may be challenging and even stressful, the culture, in and of itself, should help mitigate this stress and not add to it. You want your employees as gratified as possible, not just because it makes them more productive, but because how they feel and behave will have a direct impact on the customers (as we saw with Delta Air Lines).

In The Amazing Spider-Man 2, Peter Parker, Spider-Man’s mild-mannered alter-ego, says, “I like to think Spider-Man gives people hope.” This is exactly what CEO Peter Cuneo gave Marvel Entertainment, the company responsible for the Spider-Man movies, when it was coming out of bankruptcy in 1999 and its stock price hovered precipitously at 96 cents per share. As a result of his efforts, the company was later sold to Walt Disney for $4.3 billion with a share price of $54. When asked whether this feat was the result of focusing on the hard numbers or the softer issues, he replied, “You have to do both. You want to understand the business and the language of the business, the numbers, the financials, of course. But, in turnarounds you often find that the culture is completely wrong. The company may or may not be bankrupt financially, but the culture is bankrupt. It’s one where the organization is used to losing, failing, and underperforming. You have to change that. You have to give the organization pride.”