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1. Invisible Advantage by Jonathan Low and Pam Cohen Kalafut
The traditional measures of business performance, the financial results that find their way into annual reports, are all lagging indicators. They tell you where the company was last year, but they no longer—in a world of constant change and seemingly infinite choices—provide a reliable guide to where a company will be a year from now, far less five or ten years down the road.
But leading indicators have proved difficult to define, and even more difficult to measure. This publication has frequently made the case that the best guide to the future performance of an organization is the quality of its relationships with key stakeholders. But we have also acknowledges the absence of any convincing methodology for measuring these relationships.
Now, along come Jonathan Low and Pam Cohen Kalafut of the Cap Gemini Ernst & Young Center for Business Innovation with a book that makes the case for a broader set of intangibles that drive corporate success, and some suggestions for managing and measuring those intangibles. Invisible Advantage: How Intangibles are Driving Business Performance won’t be the last word on the subject, but it does present a provocative and ultimately convincing thesis.
Low and Kalafut point to a dozen different intangibles that have a major impact on corporate performance: leadership, strategy, communications, brand, reputation, alliances and networks, technology, human capital, workplace culture, innovation, intellectual capital, and adaptability.
Public relations professionals have a direct involvement in managing communications, brand, and reputation, but they play an equally vital role in several other areas: effective communication is a key factor in leadership; reputation is important in attracting human capital and by extension intellectual capital; and employee communication is a primary contributor to building a healthy workplace culture. As intangibles become more important, the role of public relations within an organization will be greatly enhanced—and its practice more challenging.
Invisible Advantage offers considerable encouragement to the public relations industry, especially since its authors don’t come at the issue from a public relations perspective.
It’s easy to see how public relations will benefit from an increased emphasis on intangibles, since so many of the important intangible drivers of business success are dependent on the strength of an organization’s relationships with its key stakeholders.
But just as important, public relations and investor relations people need to start telling the story of their companies’ intangible assets, explaining to stakeholders—including shareholders—what the company is doing to manage invisible assets and why.
2. First Among Equals by David Maister and Patrick McKenna
For as long as anyone can remember, the public relations agency business has selected its managers the same way, by taking its most productive practitioners and promoting them to roles for which they have little training and—in many cases—even less aptitude.
All too often, the results are disastrous. Companies find they have lost a first rate practitioner—burdened with management responsibility and unable to devote the same time to client work—and gained a mediocre manager. As a result, countless talented professionals have resigned from senior positions at big agencies, citing a desire to get closer to the client once again, to focus on the things they do best.
Yet firms have been unable to find an alternative way of rewarding star performers, except to give them responsibility for a profit center.
The dilemma is addressed in a new book, First Among Equals, by David Maister (author of last year’s Practice What You Preach) and Patrick McKenna, a partner in Canadian consulting firm Edge International and author of Herding Cats. In a volume that ought to find its way into the library of every midsize public relations firm, the two examine how to select the right candidates to manage groups—focusing on character rather than competence—and then devote the remainder of the book to challenges specific to the professional service firm environment.
The authors insist that successful professional service firms require exceptional management—a point not always conceded by practitioners, some of whom disdain “professional” managers and suggest that if firms focus on creative product and client service, profitability will take care of itself. On the contrary, say Maister and McKenna, the challenge of managing groups is one of the most important facing professional service firms of all kinds today.
Maister’s previous book, Practice What You Preach (named the best book of 2001 by this newsletter), was based on research showing that “success in professional business can be shown to come from stricter adherence to a set of standards that other groups may also advocate but do not enforce. It was also found that the key to enforcement was the skilled manager, coach, or team leader.”
It follows, then, that identifying the right individuals to take on coaching and team leadership roles is a crucial challenge. It’s also a challenge that many public relations firms fail—in part because the skills that make people successful practitioners may not be the same skills that make good managers. When top practitioners take on a management role, they take on a new role that can be difficult for people used to deriving satisfaction from their own accomplishments.
In Practice What You Preach, Maister made a compelling argument that the most profitable professional service firms are those that have group managers dedicated to bringing out the best in those around them, and in First Among Equals he and McKenna argue that winning the trust of colleagues, and helping them win the trust of their clients, makes individual managers more valuable to their firms.
3. The Fall of Advertising and the Rise of PR by Al Ries and Laura Ries
Advertising is the wind,” say Al Ries and Laura Ries in their new book, The Fall of Advertising and the Rise of PR. “Public relations is the sun.”
They are drawing an analogy from one of Aesop’s fables, in which the wind and the sun argue over which is the most powerful. To settle the dispute, they decide to hold a competition to see which one of them can force a traveler to take off his coat. The harder the wind tries to blow the coat off, the more tightly the traveler pulls it about him, but as soon as the sun starts to shine the traveler removes it voluntarily.
The moral of the story: “The harder an advertisement tries to force its way into the mind, the less likely it will accomplish its objective.”
That’s just one reason advertising is destined to be replaced by public relations as the lead brand-building discipline, according to the authors, who also have fun lampooning what passes for creativity in the advertising industry, and lambasting companies that spend billions of dollars on ad campaigns for little or no tangible result.
It seems inevitable that this book will end up in every public relations agency’s library, and that maxims plucked from its pages will find their way into PR agency pitches—independent agency pitches anyway; those firms with advertising agency sisters might find it impolitic to borrow some of the authors’ more acerbic aphorisms.
I’m not revealing any great industry secret when I say that public relations people suffer from a serious inferiority complex when they compare themselves to their counterparts in advertising. Some of that can be traced to budget envy, but when PR people decry the fact that they can’t measure PR programs as effectively as ad people measure ad campaigns, it’s clear there’s something deeper else at work. (Ad campaigns are measured often in terms of reach and frequency, but hardly ever in terms of effectiveness, which is lucky for advertising people.)
The Death of Marketing makes its case primarily through anecdote, and some of the anecdotes are pretty convincing. In fact, Ries and Ries are generally strong when detailing the reasons why advertising is becoming less effective, backing up their stories with good, hard facts. The case they make for PR is not always so convincing.
Having said that, it isn’t often that someone not of the public relations industry takes the time to acknowledge the power of the practice.
4. The Civil Corporation by Simon Zadek
Most books about corporate social responsibility fall into one of two categories. The first category consists of books written by activists, most of which assume that business is incorrigibly irresponsible and must be reined in by external agency. The second category consists of books written by academics (or occasionally by eccentric entrepreneurs) who seem to believe that doing good is its own reward—a perspective that shareholders have yet to embrace.
In his book The Civil Corporation, Copenhagen Business School professor Simon Zadek acknowledges the skepticism about CSR in the business community, recalling a boardroom presentation to an insurance company during which “I was accused, only half in jest, of being either a communist or a Christian evangelist.”
The arguments he sets out in The Civil Corporation ought to dispel such misperceptions. Zadek eschews angry anti-business rants and lofty idealism, instead making a relentlessly pragmatic argument for greater community involvement and a promising blueprint for companies that want to adjust to recent and impending changes in the business environment.
Zadek tackles several issues that other books on the subject ignore or skate over in perfunctory manner: the somewhat tenuous relationship between social responsibility and financial performance; the issue of trust, and how difficult it is for companies to earn credibility even when they do the right thing; the challenge of measuring the impact of CSR activities in a way that resonates with senior management and with shareholders.
He also makes it clear that companies need to manage expectations, to focus on what they can do practically, given the overall context in which their business operates. Says Zadek, “Whether and how a corporation acts within its degrees of freedom must be the test of responsibility, and indeed the basis on which management decisions are framed. These are the fundamentals of a civil corporation. A corporation that is said to be civil is understood here as one that takes full advantage of opportunities for learning and action in building social and environmental objectives into its core business by effectively developing its internal values and competencies.”
Throughout The Civil Corporation, Zadek makes a compelling case that in the new knowledge economy, companies will ignore changing public expectations at their peril. And he provides a wealth of practical advice that ought to help companies overcome their own resistance to investing in CSR, and negotiate the minefield of activist and public opinion.
5. Private Business, Public Battleground by John Egan and Des Wilson
In 1992, BAA, the company that manages Britain’s airports (it was known as the British Airports Authority before its privatization in 1987) unveiled its vision for a fifth terminal at London’s Heathrow airport. Community reaction was swift and strong: objections were raised about increased noise, increased air and ground traffic, and possible environmental damage. Public hearings were held, and the company did not receive approvals for its expansion plan until five years and many compromises later.
In July 2000, the same company launched its strategy for expanding London’s other major airport at Gatwick. The strategy, developed in partnership with local councils, residents, and environmental groups, included 150 separate commitments—40 of them legally binding—to protect the local community from the impact of the proposed development. By the summer of 2001—barely a year later—the ten-year, £1 billion development was under way, with no public inquiry.
The middle third of Private Buisness, Public Battleground: The Case for 21st Century Stakeholder Companies is the story of what happened at BAA between 1992 and 2000, told by two of the men most responsible for the company’s transformation: chief executive officer John Egan and director of corporate and public affairs Des Wilson.
(It’s sandwiched between the story of how Egan and Wilson became converts to the stakeholder approach and a final third that provides valuable advice for other corporations interested in following the same path.)
According to Egan and Wilson, the contrast between BAA’s approach at Heathrow and its approach eight years later at Gatwick “is a classic illustration of the benefits to a business of a stakeholder approach. It won the company a license to grow its business; it saved time, money, and corporate stress; it achieved a business result in harmony with its neighbors; and it left almost everybody involved feeling good about the process and its end result.”
Egan and Wilson make it clear that the transformation to a stakeholder company is not easy. There are no short cuts.
But ultimately, Private Buisness, Public Battleground makes a compelling case that stakeholder companies will be more successful over the long haul than those that adopt a narrower focus. Stakeholder companies will have better intelligence about the business (and political) environment in which they operate; find it easier to recruit top talent; meet less resistance to their plans; and generate greater customer loyalty. At the end of the day, they will deliver better results to their shareholders than those companies that focus exclusively on their shareholder audience.
It’s very satisfying to see the business case for a stakeholder focus being made so forcefully, with such concrete examples of the payoff, and by a CEO, no less.
6. Who Says Elephants Can’t Dance by Lou Gerstner
The turnaround at IBM over the past decade is one of the most impressive in recent business history. After a stunning decline—from being named America’s Most Admired Corporation four years in a row during the 80s to being called a “dinosaur” by Fortune magazine—IBM bounced back under new chief executive Lou Gerstner to become a very different, but highly respected company.
In Who Says Elephants Can’t Dance, Gerstner tells the story of that turnaround, from the situation he found on arriving at IBM to developing a strategy, to executing against that strategy and restoring the company to its rightful place among the leaders of the technology world. It’s clear that communications—particularly internal communications—was a key.
His chief public relations executive, David Kalis, “inherited a shambles at IBM,” he says. “There were some talented people, but the communications department was staffed for the most part with well-meaning but untrained employees.” There was constant pressure to deal with the media in the early days of Gerstner’s tenure, but the real focus was on employee communications.
“No institutional transformation takes place, I believe, without a multi-year commitment by the CEO to put himself or herself constantly in front of employees and speak in plain, simple, compelling language that drives conviction and action throughout the organization. For me at IBM this meant, in some respects, seizing the microphone from the business unit heads, who often felt strongly about controlling communications with ‘their people.’”
There’s a whole section of the book—20 pages long—dealing with the importance of corporate culture, and the role of communication in creating it. Gerstner’s conclusion: “Culture isn’t just one aspect of the game—it is the game.
7. Building Public Trust by Samuel DiPiazza and Robert Eccles
DiPiazza, chief executive of PricewaterhouseCoopers, and Robert Eccles, president of Advisory Capital Partners, were thinking about new models of corporate governance long before the current crisis, so this slim volume seems surprisingly well thought-out compared to some of the other volumes that appeared in the wake of the year’s scandals.
The authors call for a three-tiered approach to corporate reporting, starting with a set of truly global generally accepted accounting principals; including standards for measuring and reporting industry specific information; and eventually expanding to provide company specific information on strategy, risk management practices, and performance measures.
It’s particularly encouraging that DiPiazza and Eccles, despite their accounting background, do not define governance narrowly in terms of financial information, or financial audiences. Indeed, the first element of public trust, they say, is “a spirit of transparency. Corporations have an obligation to provide willingly to shareholders and other stakeholders the information needed to make decisions.”
They call for the release of nonfinancial information including information on value drivers such as effective customer relationship management, development of human capital, and improvements in the innovation process—echoing some of the arguments made by Low and Kalafut in Invisible Advantage (see above.)
8. Corporate Reputation and Competitiveness by Gary Davies and others
Manchester Business School professor Gary Davies and three of his colleagues have made a valuable contribution to the academic study of corporate reputation in a new book that makes a strong case for using reputation management as a way of directing the long-term strategy of an organization.
The authors offer several tenets of reputation management: that reputations have value; that they can be managed and measured; that multiple stakeholders need to be considered; that reputation and financial performance are linked and that reputation drives financial performance; that reputation can be lost more easily than it can be created.
They also cover some familiar ground—media relations, crisis management, the importance of corporate identity—while building a case for a stronger link between reputation and business strategy.
Practitioners will probably be most interested by the introduction of what Davies calls the “corporate reputation chain,” an evaluative system that links employee and customer satisfaction measures to reputation, and of the “corporate personality scale,” which measures how employees and customers think about the organization.
There are lots of case histories (most of them from U.K. companies) and if the end product is a little too theoretical for most of those who work in the field, it makes an impressive addition to recent thinking on the subject.
9. The Rise of the Creative Class by Richard Florida
Even if the competition for talent is not as fierce now as it was when the economy was at its peak, most agencies recognize they still need to do whatever it takes to appeal to potential employees.
There is support for that view in a new book by Richard Florida, professor of regional economic development at the Heinz School of Public Policy and Management at Carnegie Mellon University. In The Rise of the Creative Class, Florida argues that a new social class has emerged in America over the past decade, one that makes up 30 percent of the population—in addition to people in the arts and music, the creative class includes those in science and technology and advertising and PR—and has the potential to transform American life the way the rise of the bourgeoisie transformed European society more than a century ago.
Florida’s research into the creative class has broad implications for public relations firms everywhere. For one thing, it suggests that location will continue to be vitally important, if not for the traditional reasons. If you buy the premise that public relations firms differentiate themselves on the basis of their people, then firms in regions that successfully attract the creative class will have a considerable advantage.
10. A New Brand World by Scott Bedbury
What makes Scott Bedbury’s A New Brand World stand out from the dozens of books written about brand building over the past couple of years is that it takes a holistic approach. “Brand building,” he says, “is much more than the responsibility of the marketing department or even the CEO. Building and supporting a great brand is everyone’s job, from the CEO on down.”
Bedbury, whose experience includes senior marketing positions at Nike and Starbucks, makes a compelling case that brand awareness, once the holy grail of marketing, is “fool’s gold,” pointing to the dot-com craze as ample evidence. Companies should instead be aiming for brand strength, which adds relevance and resonance to awareness.
To get there, he says, companies have to build emotional bonds with their customers (he cites Harley-Davidson as an example) and by managing not only advertising and other marketing materials but also the entire environment in which the brand operates. Says Bedbury, “Brand environmentalism means accepting the responsibility to protect your brand and present it in the best possible light whenever and wherever it may be found.”
He also emphasizes the importance of employees as brand stewards—an idea at the heart of the Starbucks story—and offers sound advice to those who would build great, lasting brands: laugh at yourself; have a heart; stand for something; become a more human employer; listen and watch.
This, not a better ad campaign, is the future of branding.
11. How to Manage Your Global Reputation by Michael Morley
This isn’t a new book, so it didn’t make our list of the top 10 for 2002, but it is an updated version of one of the better public relations books of the past decade, so it’s worth noting.
Edelman vice chairman Michael Morley has revised and updated How to Manage Your Global Reputation with some fresh case studies and a chapter on the Internet that examines is potential as both a source of new challenges and a medium through which corporations can communicate more directly with their key stakeholders.
An extremely practical book, and one of the few to look at public relations in an international context.
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