At the end of 2008, when the global financial crisis was at its worst, several Nobel Prize-winning economists came together for an event during which they stressed the importance of establishing tools for solving not just financial and economic problems, but corporate strategic issues as well. As a result of this meeting, Felix Cuesta, a management professor at the University of Alcalá de Henares in Madrid and the Instituto de Empresa (IE) business school, wrote a book titled The Hopefulness Generator, which focuses on ways of dealing with management issues in periods of crisis. In an interview with Universia Knowledge at Wharton, Cuesta discusses his book and emphasizes the importance of building customer loyalty as a key strategy for realizing long-term benefits.
Universia Knowledge at Wharton: How did the idea for this book develop?
Félix Cuesta: The idea for this book came during a flight from Venice to Madrid, after I attended the annual meeting of Nobel Prize-winning economists in Trieste [Italy] in December 2008. There, I was invited to give a lecture about how to overcome a crisis — in my case, from the perspective of corporate management.
For two days, I had the opportunity to listen, chat and reflect about the crisis and its possible solutions with five Nobel Prize winners in economics, including Robert Solow, Robert Mundell, Edward Prescott, James Mirrlees and Eric Maskin, as well as with management gurus such as Edward de Bono and Professor Chan Kim.
Among other conclusions, one idea that stayed with everyone is that this crisis was not like any we had ever known. This crisis was much deeper, a lot like a perfect storm because there were three sorts of crises – financial, economic and strategic. And while the financial and economic crises could be solved, the strategic crisis that derived from the paradigm shift could not. So you have to understand it and act accordingly. You have to adapt yourself structurally in order to be able to live and coexist within the new world that has been created.
On the other hand, overcoming this situation involves a commitment by individuals, since all of us are going to have a lot of problems, and we will need a great deal of hopefulness so we can pull ourselves through.
With those thoughts in mind, I decided that I had to launch a message about hopefulness so that all of us see work as something that has intrinsic value, something that produces value for oneself and for others around us — while making it clear that no matter how long the crisis lasts, more opportunities for success will appear, but only those people who are hopeful can see them and capture them.
UKnowledge at Wharton: At a time when sales are falling, and there are job cutbacks, how can you create excitement in a company?
Cuesta: In the first place, I believe that it is very important to explain the global situation clearly — this paradigm shift that I referred to earlier — so that people understand what the truth of the situation is, with its dark side but also its bright side, and from there begin to construct the present and the future of the company, creating a new plan for the business.
It is important to be very transparent in communicating what is happening. It means getting people to understand that not everyone can be involved in the new business plan that is going to benefit from the great opportunities that exist, which are available for those who want to take advantage of them. [It means] affirming with words and deeds that the corporation in question wants to be one of the companies that is going to take advantage of the situation.
So there will be a portion of the people who work in the company who get involved in the company’s new business plan, without any need for being "recycled" [i.e., trained for a new job] as well as others who are "recycled." Still others will need to be brought in because their skills don’t exist within the company. Unfortunately, some people still won’t be able to get involved in the new plan, so [the company] will have to do without them, but the company will have to do that the right way. It will need to help those people continue to live in a dignified way [after they are let go], whether it is by enacting policies for a "spinoff" (that is to say, facilitating the creation of a new division outside the company) or through "outplacement" processes that provide these workers with services for finding new jobs that are fairly compensated.
This entire process – which involves everyone, and is to some extent the responsibility of future workers – must generate a fundamental sense of hopefulness. You have to make people feel they are important and are part of the solution, so they are capable of assuming their roles inside the new corporate structure or project, with total assurance that they will be helping their colleagues who are no longer there, so that the company will be able to fulfill its commitments that go beyond what is strictly required by law.
That is to say, the people who incorporate themselves into the new plans of the business – and who are to play a part in creating it — must be hopeful about it. At the same time, they must contribute to its business results, and they should help the company fully comply with their efforts to help those who cannot continue [to work for the company].
UKnowledge at Wharton: In your book, you talk about the importance of relying on our current customers. Should we give priority to those customers even if it means that we get lower fees or commissions?
Cuesta: What we have to do is to work well enough so that we can achieve a high degree of customer satisfaction. That way, you won’t have any problem keeping things where they are.
But we can still go a bit further, relying on their satisfaction — certainly spontaneously but especially if you stimulate it – so that the customer will recommend [your products and services]. So that he will have a positive influence on other customers who, thanks to his influence, will become new customers of your company — generating revenue on a scale that would surprise many who measure it. That way, your company will be very amply compensated for any supposed decline in your fees or commissions.
In addition, many studies warn that selling to current customers is much cheaper – some say 10 times cheaper while others say 20 times cheaper – [than winning over new customers.] That’s because you need to use fewer resources [to retain old customers than acquire new ones], and your costs remain lower, so almost surely your profits are higher. Don’t forget that companies live from their profits, not from their revenues, even if [revenues] lead to [profits], discounting for expenses.
In conclusion, you have to strengthen your ties with customers by providing them with excellent service that produces satisfaction. Even if this seems to lower your revenues [over the short run], it can mean, first of all, increasing your profits. In addition, it will also lead to higher revenues as your satisfied customers influence other potential customers to become your [new] customers.
UKnowledge at Wharton: In addition to providing attention to your customers, do you need to enact initiatives aimed specifically at your own employees?
Cuesta: Customer attention is always provided by your employees, except in cases where attention is given by technological means. In order for service to be provided at a high enough level to achieve customer satisfaction, it is critical for your employees to comply with these conditions:
· First, they must have enough technical knowledge to be able to respond rapidly and effectively to customers.
· Second, you need to delegate enough power to them so they can resolve their customers’ most common problems in real time.
· Third, and most fundamentally, your employees must have the right attitude so they can provide your customers with the [level of] service they deserve.
· Lastly, you need to make your employees loyal, so that they can make your customers loyal.
UKnowledge at Wharton: Among the arguments in your book, you stress the need to see new business opportunities. How can you broaden your area of activity at a time when expenses are being cut?
Cuesta: Starting with the clear notion that the most important asset of a corporation in the twenty-first century is its customer base, this means taking advantage of those opportunities that our own customers are offering us.
The question should be how to take advantage of these opportunities by getting the maximum possible profit. To do that, the first thing you need to do is to analyze if the opportunity exists only because of current circumstances or if, on the contrary, it reflects a [longer-lasting] trend.
If the opportunity only reflects current conditions, you have to look right away for a partner who can satisfy the needs of your customers, under your control, in such a way that you retain your customer, also under your control, while the partner acts the way you would act yourself. This kind of case requires practically no investment on your part. Your profit is a percentage of the total business, and you keep your customers satisfied without any interference [from your partner or anyone else].
If the opportunity you find is sparked by a trend, there are two alternatives: The first alternative is to establish your company on the basis of business models involving collaboration (i.e., virtual business, networking, etc.). The second alternative is to maintain your traditional model, while restructuring it to take advantage of these new business opportunities — while remaining hopeful about the future and present so you can overcome your problems. In any case, it is important to distinguish between expenses and investments.
UKnowledge at Wharton: Nowadays, many companies need to focus on achieving agreements with those institutions that are their creditors, which demand that they reduce their costs. What should firms do to handle that sort of situation?
Cuesta: In the first place, when outsiders demand that you cut your expenses, that is a bad sign for management because it means you need to establish managerial teams that are credible, and then listen and demonstrate [to others] … that reducing your costs above a determined level can lead to a reduction in your quality, service and so forth.
So instead of acting the way people have acted since the beginning of the 1990s — reducing fixed costs — companies must change the structure of their costs, by converting, as much as possible, their fixed costs into variable costs, in such a way that there is always a differential between revenues and expenses.
UKnowledge at Wharton: Do you favor the sort of decision-making in which you pose a problem or ask people for their ideas about a particular problem?
Cuesta: Companies need to learn to act in advance [of problems], rather continuously react [to problems after they occur]. There isn’t enough time to do that because of the velocity at which events take place these days; it no longer makes sense to act the way people have acted in the past.
Companies must recognize that their natural situation [nowadays] is permanent crisis. The only thing [to remember] is that there are three types of crises: a strategic crisis, a crisis of results and a crisis of liquidity.
A strategic crisis is something we are always immersed in. It’s the environment in which we have to act now because if we don’t act, we’ll get into a crisis of results, and ultimately if we don’t manage a crisis of results, we’ll wind up in a crisis of liquidity and then the bankruptcy of the corporation.
UKnowledge at Wharton: Do you believe it is easier to generate hopefulness in great multinationals or in small family-owned companies?
Cuesta: In my experience, big multinationals can deploy a series of tools to motivate people and generate hopefulness far beyond what small family-owned companies can do. These extend from [measures involving employees’] professional careers to [specific business] events.
In contrast, small family-owned businesses invest less in elements of this sort, and the professional careers of those who do not belong to the family [that owns the company] are always restricted.
UKnowledge at Wharton: Finally, what main ideas would you like to leave the reader of your book with?
Cuesta: I would like everyone to remember that success is within the reach of everyone; it has been democratized. Its primary pillar is the hopefulness about achieving it; the second is the discovery of opportunities, often in ordinary situations. The third pillar is providing support for customers to reach exceptional results.