In How Companies Win, Rick Kash, vice chair of Nielsen along with its chief executive officer David Calhoun explain how successful companies have switched to a new demand driven strategy. The book used examples from companies such as The Hershey Company, Best Buy, IBM, Hewlett Packard and McDonalds. Kash previously was Chairman and Founder of The Cambridge Group, a part of Nielsen and one of the world’s most preeminent growth strategy firms. Prior to founding The Cambridge Group, Kash co-founded Nielsen’s micro-marketing supermarket and mass merchandiser information system used by more than 90% of Consumer Packaged Goods marketers.
Nielsen has a unique view of different sectors ranging from manufacturing, retail, and media within 105 countries all around the world. The book highlights that today’s best companies recognize that demand is the most precious commodity in the economy. Kash speaks to Arabic Knowledge at Wharton on how to manage global expansion, demand-driven business strategies, Chinese competition and how Groupon is poised to revolutionize e-commerce as Amazon did. The Arab Spring, he adds, is part of "the demand revolution and that is about people."
An edited transcript of the conversation follows.
Arabic Knowledge at Wharton: Your book highlights the oversupply of products and services, how has the business landscape changed in what you describe as a demand driven economy?
Rick Kash: For the past 300 years the world’s supply and demand was equilibrium. In the past 40 years that’s been accelerating, and there are three factors: Technology, globalization, and the efficiency or productivity of people. You have technology by itself and then you have technology that people use that makes them more efficient. There is some total of those three that means the world is producing vastly more than it can consume. The way in which companies will win in the future is very different than the way they’ve won in the past. Our book is trying to get people to be aware of the fact that they have to rethink their business models and business thesis because when they wrote these plans three and four years ago, they didn’t comprehend fully the growth for example of social media or mobile phone technology. Business is changing everyday and demand is in the hands of the consumer as opposed to going into a store and having to buy what they have, you can go anywhere and find what you demand.
Arabic Knowledge at Wharton: Are companies with an older generation of leaders struggling to embrace a consumer that is learning about and demanding products in a different form?
Kash: Nothing causes business leaders to pay attention like the change in business results. When you’re not as successful as you’ve been in the past, you’ll ask what’s changed, and how can I adjust? That’s precisely what is happening in large corporations today. It is the change in their results that brings home that necessity is the mother of reinvention. An example is companies who thought that the internet was going to be an interesting way for people to get information but not necessarily a way in which to conduct business or commercial applications have now learned from companies like Amazon and the ability of companies like Groupon to influence commerce and business, they now are rapidly moving. The largest to the smallest companies in the world now recognize that the Internet is a channel of doing business and they must participate and participate well or suffer the dire consequences. I think the single event that most made this evident was [Amazon’s 2010] purchase of Diapers.com. Suddenly, if you can ship diapers, you can ship laundry detergent and any number of things such as televisions. There is not a company in the world today that isn’t focused on moving as rapidly as they can to participate in the emerging economy, which is the Internet.
Arabic Knowledge at Wharton: You’re based in Chicago where Groupon was founded. How do online companies deal with consumer fatigue when so many group buying sites have sprung up?
Kash: Groupon is moving very rapidly away from being just the coupon company, they are now in travel and in a period of six months they have become one of the largest travel bookers in the United States. They are also now not just doing coupons or local businesses but they recently did a program with Sam’s Clubs, Sports Authority and General Mills. They are broadening quite dramatically the basis upon which their simply making offers. By virtue of what I read from Groupon, they are gathering data, and it’s not simply the ability of Groupon to go and see if a person wants to take a coupon; they have 130 million names around the world and they’re beginning to determine consumer patterns.
Arabic Knowledge at Wharton: You add precision to the traditional "four Ps of business" — product, promotion, place and price. Is Groupon using that tool well?
Kash: They use that tool exceptionally well. Adam Smith taught us there are three flavors of demand: Current, latent and emerging. Innovation is really uncovering latent demand. The difference between latent and current demand is what you and I see everyday when people are advertising and you go to the store and buy it and it’s the commerce that’s going on. Latent demand is the demand that’s right below the surface, people have it but no one expresses it yet. Apple’s tablet is latent demand and so what I believe the Groupons of the world are doing is gathering this information, and they’re going to be able to do analytics and know in advance what the latent demand is so its’ what they can be selling. I believe what Groupon will do to e-commerce in their way is what Amazon did to e-commerce in its way.
Arabic Knowledge at Wharton: Does individualized analytics take away randomness from the online consumer experience?
Kash: It’s a question of how you apply the analytics. What they are doing is satisfying your current demand: You bought this before and you may buy it again. The real message of analytics and the real opportunity is to look at the pattern and to be able to econometrically determine, based on that pattern, what else you might buy. I believe everybody on the Internet is going to get better at that and certainly retailers are getting better at that, there is a reason why a company like Macy’s is thriving.
Arabic Knowledge at Wharton: You mentioned Hershey shifting to a demand driver model, has that impacted its global growth decisions?
Kash: I believe that what John P. Bilbrey, CEO of Hershey, would say is if you understand demand and you understand demand by what we call demand profit pools of consumers, you can take that business model anywhere in the world. Now the demand for chocolate in China may be different than the demand in the U.S., Mexico, or Vietnam. The critical business factor is to understand the demand of the consumers on whom you make the most profit and then to align your supply or create new supply so you better satisfy the demand of the people in that country. The demand work done in the U.S. has influenced the way Hershey will expand globally and the business model that they’ll take with them.
Arabic Knowledge at Wharton: Your book highlights McDonald’s changing how they define success from the number of new restaurants open to understanding what customers want and improving its menu. Do you think they might revert back to their old definition now that they’ve successfully revamped the menu?
Kash: McDonald’s is a remarkable company because they have a view of their business and one of the best interviews I’ve ever done is with their CEO Jim Skinner which is highlighted in the book. Here’s a company that does tens of billions of dollars of business all around the world, and he says, ‘Rick you want to know how I really think about McDonald’s’, you know their first hamburger was 15 cents, ‘the way I think about McDonald’s is we’re a 15 cent hamburger adjusted for inflation.’ McDonald’s is on a path of understanding that there is latent demand that they can service within each restaurant. Think about beverages which is part of their US strategy and their ability to say we can get people to come back in the beginning of the morning and to come back during the middle of the afternoon to get beverages like a cup of coffee or their new concoctions of coffee and some of their cooler drinks. Many of the McDonald’s in America are open 24 hours so they are constantly thinking of a business unit called bricks and mortar and how do they attract people to come their more often. So I see zero chance that they’re going revert, they are one of the best-run companies in the last half-century.
Arabic Knowledge at Wharton: Starbucks shut down a number of stores a few years ago and have managed to regain profits. Do you see their success as similar to McDonald’s in terms of their business strategy?
Kash: What’s common is that they both had reduced the amount of money they had invested in training and then increased the amount they invest in training so that their customer experience was better. Howard Schultz changed the menu that they were delivering, as did McDonald’s, he kept many things and changed many things. Both of them adjusted to the changing demand of the consumers who were most profitable for the company. And now as you see Howard Schultz is making a major effort to make Starbucks available in retail. If you can’t get to the store, you can get the Starbucks experience at home. It’s brilliant.
Arabic Knowledge at Wharton: Why is that companies like McDonald’s and Starbucks can embrace the changes needed to make them successful but others can’t?
Kash: Some companies are locked into a business model and they’ll say this worked before and if we just do more of it, if we work harder, it’ll work again. Other companies stop and say much has changed in the world and the way in which business in done. The adaptive and evolutionally company is the company that wins. Just look at the Internet. AOL (American Online) should have been the leader, they were first and they had this remarkable merger with Time Warner. Companies have to continue to evolve.
Arabic Knowledge at Wharton: Is the Arab Spring an example of a demand revolution?
Kash: When I was in India and China recently I described the demand revolution. What I believe is going on in the Middle East is a manifestation of the demand revolution. Let me put it into context for you. There have been two great revolutions in the last several hundred years. The first were the industrial revolutions, and they were about the ability to use machinery. The second was the technology driven by computers and chips that was also about machines and equipment. The third revolution is the demand revolution, and that is about people.
The reason that there is a demand revolution is because there is a whole generation of people now who have grown up with the ability to step to a keyboard and get exactly what they demand because they demand it. So you can go to a keyboard and get any piece of information on the history of the world, go to your car and get to a route, you can demand to change the time and place. Time because you can record television programs with your TiVo, and change place through Skype. We are a generation of human beings who have the ability to demand things and get them. What’s happened in the Arab Spring is precisely an expression of that. They were repressed for decades, and suddenly through the advent of Twitter and Facebook, many other people shared their demands, and suddenly you have a revolution. The Arab Spring, some people write about it geopolitically, that it is acting out against repressive governments. They’ve been there for years; the fundamental change is people’s willingness to link together and share their aspirations for demand and to act as a group. That’s a demand revolution.
Arabic Knolwedge@Wharton: There are major tech companies such as Google and Facebook growing in the MENA region, what opportunities do you see for them?
Kash: I think the major tech companies have enormous opportunity. First of all, I think they will help to bring stability. The opportunity for Facebook, Groupon and all the other companies is that they provide stability and inspiration for the people in the Middle East. The Middle East looks on Facebook and at the other parts of the world and says, ‘That’s what we hunger for — stability, fairness and economic opportunity’. So the opportunity isn’t just commercial for these enterprises, it is also sociological. I believe that as the economies grow in these countries, whether it be Africa, Asia, or Middle East, the opportunities are boundless and extraordinary.
Arabic Knowledge at Wharton: More broadly, what advise do you have for companies in various sectors beyond tech wanting to grow in the MENA region?
Kash: I think that the lesson for the companies who are successful globally is the recognition that they have to adjust to the demand of the markets in which they are entering. They bring their business models but the three factors that you need to have internationally are an openness to understand the demand for your product or services in the new market your entering, the willingness to change so that you adjust to meet the demand of the market you’re entering and not trying to take the demand from the U.S. or where you’ve been successful in the past. And three is to make the appropriate adjustments so that you understand not only the demand in your category but also the people in the country in which you’re entering so it’s those three factors.
It’s easier for technology companies, if you’re running a retail business, it’s much more difficult because you have bricks and mortar and thousands of employees. Technology companies have it easier but the pattern is still the same.
Arabic Knowledge at Wharton: There are now more Kentucky Fried Chicken restaurants in China than in America. What advice would you offer as they manage their global growth?
Kash: They have found that the Chinese palate is obviously one that appreciates and purchases in large numbers the products that they offer. I have seen lots of companies, that have thought, ‘Oh my goodness, this country is growing, let’s bring our product there.’ The fact that a country is growing doesn’t mean their food businesses will appreciate the taste of what your company markets so successfully elsewhere in the world. I suspect KFC’s success is good management and secondly, people really like the taste of fried chicken in China. They may not like it elsewhere in the world where fried food is not consistent with what people like to eat.
Arabic Knowledge at Wharton: Does success come down to acquiring the right local companies, or how you build a global team that can operate in many markets?
Kash: There are two different levels, acquiring the right local team whether you acquire them or build them is coincidental. The important thing is getting the right local team that is able to say to home company (as an example) 2/3 of what you do is right, you have to adjust by 1/3. You have to get the right local knowledge I’ve seen it work both ways. The important thing is getting the right people, not just the local team but the best possible people who therefore make up the best possible local team who therefore give you the best possible way to make your business successful in their market, and the ability to influence the thinking of the home company. What business requires today on your theme of expansion are three things: Flexibility, the ability to adjust to local markets, and the ability to know how to allocate your resources so that you get a greater return. There are places in the world where you get differential returns based upon the rate of growth and other factors so all brick companies are not going to grow at the same rates for all categories.
Arabic Knowledge at Wharton: How do you see competition from China and emerging markets impacting traditional Fortune 500 companies that used to be the only real players?
Kash: Everybody is reaching out everywhere, whether it’s going to be through joint ventures or through acquisitions, you can be sure that we’ll see more cross relationships and I don’t know what the ownership is going to be. One doesn’t need to necessarily own a company to get the benefits of the knowledge, skills, experience and assets of the company.
We will compete and competition is good, competition should make companies better. Adam Smith taught us there are only two parts to business: there is supply and demand. In the old world where supply was equal to demand, you could first create supply and go in search of the demand to absorb the supply you created. In a world like where you just mentioned were Ali Baba and Google will be competing the winner is going to be who best understands the demand of the people whom they want to use their services and how do they align their supply which is their product, their services, their customer service so that they better satisfy demand than their competitor. Business is simple you’ve got to be able to answer the question, what do I know about the demand of my most profitable customer that my competitors don’t know. If you know that, you win.