Strategy and Public Policy

Economic Policies and Institutional Context: A Critique of Jeffery Sachs and Paul Collier

2012-01-24T09:58:00.008+01:00

By Olu Akanmu

Professor Jeffery Sachs, the progressive and well respected development economist from the Columbia University wrote an Op-ed in the New York Times on January 10th defending the removal of oil subsidy by the Nigeria government. His arguments were the familiar usual, that oil subsidy benefits the rich more than the poor and that the subsidy when removed would be used in targeted investments that serve the poor and more meaningful social investments. For Sachs, the current Nigeria government is one of the best things that could ever happen to the country. According to him, “President Jonathan is giving Nigeria a chance to cast off the instability, poverty and corruption that have long plagued the country”. Professor Sachs visited Abuja, met the Nigeria government and was obviously impressed by the claimed intention for the oil subsidy removal. He must have felt the compelling need to do policy advocacy for Nigeria’s much misunderstood government.

Another well respected development economist, Professor Paul Collier of the Oxford University Center for Study of African Economics writing in the Financial Times few days later on January 15th, virtually lambasted the protesters on the streets of Nigeria. To him, if they have been more economically literate, they should be jubilating and celebrating the Nigeria government. He pushed the same arguments as Professor Sachs on the need to remove oil subsidy. Collier believes that the oil subsidy when removed could be used to give bursaries to poor people to attend school! He cautioned that it is entirely possible that populist rhetoric could be used to seduce people into fighting against their own true interest.

The economic arguments adduced by Sachs and Collier are very sound and are difficult to fault. They however wrongly assume that sound economic policy and intentions automatically translate to sound economic actions. Economics does not exist in the abstract. It exists within the institutional context of politics. The implementation of economic policies cannot be devoid of its institutional context. A better appreciation of Nigeria Political Economy would have made Sachs and Collier to appreciate that this “Jonathan’s oil subsidy removal” is not the first time Nigeria would be having a sound economic policy. Why has previous government’s good policy intentions not translated to sound economic actions? What guarantees that when governments make promises to the people that it will follow through on its commitments? How would or how could people trust that their elected government will do what it claims it would do? These are more than economic questions. They are political questions. They are questions of governance of society, of trust between government and the people. They are questions of whether society has strong institutional mechanisms that help the people to hold their government to their commitments. They are questions of whether society has strong institutions that guarantees that governments will be accountable to the people. And in particular, in a democracy that government will truly rule on behalf of the people and not on behalf of itself. If Sachs and Collier have situated their sound economic policy suggestions within Nigeria’s weak institutional political context, they would have better appreciated the skepticism and the protests of the Nigerian people to oil subsidy removal.

Professor Sachs wrote in his essay “when Nigeria won relief on its external debt in the mid-2000s, the savings on debt service were actually redirected to meaningful social investments in states and local governments...” He opined that we can therefore trust that this would happen again with the oil subsidy removal. As a Nigerian, I wonder where those so called investments from debt reliefs are. I can’t see them and many Nigerians cannot. What we can see is the fact that billions of dollars of Nigeria’s the Excess Crude Account, a future savings for our children, have been depleted with no improvement in infrastructure, school or education to show for it in all tiers of our government. What we can see are expensive governments, expensive legislature in which public cost per legislator in nearly 2 million dollars per annum. Why would this time then be different? Why should we trust government if it has not previously won our trust? Economic history has shown that where there are wide social and income inequality and people do not trust government, people tend to prefer short-term, immediate income redistribution programs even if it will hurt long-term economic growth, since they do not believe that the benefit of economic growth will reach them. Unlike Collier claimed in his essay that the masses are economically illiterate, the masses are actually rational beings! This is the challenge of our fiscal reform and providing a broader context to understand why people were on the streets and will not support what seems like a good economic policy.

The oil subsidy protests are watershed moments for Nigeria. We have had a most rigorous public policy discourse. The gains must be consolidated via the building of strong political and social institutions that will ensure that government will be more accountable and will deliver on their commitments to the people. Civil society must keep up the pressure for a more transparent government. We must strengthen the institution of a free press as an alternate public parliament to debate public policy. Civil society activism should not just be for human right activists. Our town unions, religious, trade and professional associations should become more active in how they are governed at state, local and Federal levels. More civil organizations should use the Freedom of Information Act to demand a higher level of transparency of public expenditure from our governments. States who do not pass their own version of Freedom of Information Act should be publicly shamed. Peaceful protest as a legitimate democratic right of the people must continued to be formally protected.

We must also strengthen our electoral institutions to ensure free and fair elections. When there are no free and fair elections, governments have no incentives to be accountable to the people as they know they cannot be voted out of power. Political parties as the foundation of our electoral process must become more democratic to reflect the true will of their rank and file and offer the electorate real electoral and ideological options. We must also reform electoral campaign financing to limit the influence of money or at least compel political parties and contestants to public declare their size and source of funding. If we can develop the institutional mechanisms that will limit corruption in our elections, we will significantly limit corruption in our governments.

We must also strengthen the rule of law and the institutions of law enforcement. Unless crime can be punished, there will be no incentive to avoid committing it. We should consider separating the office of the Attorney General from the Justice Minister. The office of the Attorney General should be non-political, independent of the executive, with a fixed tenure that ensures it cannot be removed by a sitting President. Such Attorney General working with the Financial Crime Commission would be better able to prosecute high level politicians who have committed economic treason and bring them to justice. Even Collier in his essay implicitly recognized this, adducing reasons why Germany is the best managed economy in Europe. Quoting Collier “Germans are locked into sound decision making by a combination of legal rules, dedicated institutions and a critical mass of ordinary citizens who understood why the rule and institutions mattered and so defended them”. It is those rules and the strong institutions that can enforce them that are missing in Nigeria. That was why the people were on the streets.

Olu Akanmu is an executive in the financial service industry. He publishes a blog on Strategy and Public Policy on http://olusfile.blogspot.com .

Of Monetary Activism and Fiscal Impotence

2011-11-30T16:24:00.008+01:00

By Olu Akanmu

Recent economic events call for deep national introspection on our economic management. These include the recent release on national economic performance by the National Bureau of Statistics (NBS), in between two MPC meetings; the push by government to withdraw so called “oil subsidy” and the attendant resistance by the population to this government move. It also includes the admission by the Finance Minister that she could only deliver a paltry 5% reduction in national recurrent expenditure from 74% to 69% over four years. According to the NBS, headline inflation rose to 10.5% in October. This is despite the policy activism of the monetary authorities to keep inflation at bay. Over the last one year in particular, the monetary authority has launched a series of liquidity contractionary moves that has seen MPR jump from 6.25% in January to 12% in October, and the Cash Reserve Ratio for banks doubling from 4% to 8%. Credit growth especially to the real sector and to consumers which had shrunk as a result of the loan default crisis of 2008/2009 has not also been significant as to impact seriously on investment and consumer expenditure. Banks are still not seriously lending despite the off-loading of their bad loans to AMCON and the stabilization of the financial system through the injection of capital into distressed banks. Bankers are not confident to lend. Business is not confident to invest. Consumers are not confident to spend.

While our GDP continues to grow at above 7%, we see the first signs that national economic growth rate might be tapering off, as growth rate year on year actually declined from 7.8% to 7.4%. Our economic managers have traditionally undeservedly thumped their chest that they are responsible for our economic growth. The fact is that as a nation, Nigeria has been very lucky. Global geo-politics, the war in Iraq and the possibilities of another in Iran, coupled with rise of China has meant that global demand for oil was increasing at a rate faster than it could be supplied. This has led to the rise in global oil prices, a windfall for oil producing nations with such natural factor endowments like Nigeria. The impact on growth rates on economies like Nigeria where oil accounts for 14% of our GDP has been huge. Nigeria has also been lucky by another natural factor, sheer good weather in the last decade which has helped our agricultural output. This along with the increase in cultivation of our huge mass of previously uncultivated arable land has seen agriculture output and contribution to GDP growing to more than 40%, outstripping even the oil sector. The increase in cultivation of previously uncultivated land however has little to do with government policy. It is an un-intended consequence of our poor economic management that has seen unemployment standing at more than 23%, with many school leavers driven to subsistence agriculture just to make ends meet. According the National Bureau of Statistics, another 1.8 million joined the unemployment queue in the last six months bringing the total number of unemployed in Nigeria to 15 million by June this year.

Nothing illustrates our poor economic management than the mass of unemployed youth, massive misery and poverty in a country who people otherwise should be living with basic comfort. Our GDP growth numbers averaging 7% annually over the last ten years have not translated to jobs and economic prosperity for our young people. The social consequences are becoming manifest even beyond crime. There is now a clear correlation between terrorism and unemployment. Yobe and Borno states, the capital base of Boko Haram have the highest unemployment rates in Nigeria at about 60%. Social conflicts and skirmishes are clearly highly correlated to social pressure to survive and the frustrations of young energetic people to get a decent living.

Despite aggressive monetary tightening, inflationary pressure has not abated, with core inflation remaining firmly above 11% last quarter. The naira is under pressure. A potential global economic contraction driven by crisis in the Eurozone could depress oil demand and oil prices, putting further pressure on the naira with attendant imported inflationary pressure. The fact is that we are seeing the limits of monetary activism especially when it is not complemented by sound fiscal economic management. Our monetary authorities might have attempted to be too heroic perhaps out of patriotic passion. Unfortunately, they may be judged by the promises which their grand heroic postures have engendered as those who have the tool box and the tools to fix our economic ailments. Until recently, we virtually forgot that we had a Finance Ministry (and even a Presidential Economic team) as our Reserve bank became a combined fisco-monetary authority.

Is there however any hope that the fiscal side of our economic management will wake up and become more potent? The admission by the Finance Minister that the current economic management team can only reduce recurrent expenditure by 5% from 74% to 69% over 4 years leaves much to be desired. Essentially, the Federal and state governments will continue to consume virtually all the money they make leaving very little for investments in infrastructure, power, roads and education that will drive long term economic growth. Government spending priority continues to be misplaced. The revelation that government intends to build a new house for the Vice President at a cost of N7b is unfortunate. The N7b at non-inflated cost, could probably fix tens of kilometers on the dreaded Ore-Benin Expressway with huge impact on our economic life. Such symbolic gestures are important. It will show that the government recognizes the need for sacrifice, for prudence in economic management and it is willing to start with itself. President Jonathan lost a huge symbolic opportunity to communicate commitment to economic prudence by continuing with our traditional bloated ministerial cabinet and huge retinue of Special Assistants. The fact is that the structure of government and its civil service are too large for prudent economic management, especially at this time. The National Assembly has further compounded the problem with its own huge cost as one of the most expensive but unproductive parliaments in the world. These are the root of the “Collect and Consume” mantra of the governments at all levels that have seen our recurrent expenditure growing to nearly 75% of national budget. A wise Joseph advised the biblical Pharaoh that the nation should save in its season of fat cows for the coming season of lean cows. Even the ancients understand the principles of economic cycles, of building strong national reserves to absorb economic shocks and uncertainties. In Nigeria however, we are not only consuming everything in our season of fat cows, of high oil prices, we are even borrowing after depleting our national reserves.

The Federal government has not been able to win the debate on the removal of so called “oil subsidy” because the people believe that it has no moral basis to ask them to make sacrifice. The people believe that oil subsidy is a corrupt artificial creation of our governments driven by a perverse incentive not to make our refineries work. The people do not trust that the state will spend wisely and honestly the subsidy when withdrawn for infrastructure development. If people must make economic sacrifice in form of taxes (which is what the oil subsidy withdrawal is), the government must have the moral credibility to ask them to do so. This seems to be the greatest challenge of government and its attempt at fiscal reforms. Reprioritizing national economic spend will be painful in the short term. Rationalizing the bureaucracy at federal and state levels , cutting excess fat in government including the national assembly, fighting corruption and entrenched interests such that improves the quality of government spend call for a courageous leadership that is credible, that will lead a national painful structural economic and political adjustment. The government unfortunately, seems to have spent a lot of its political capital and goodwill in the brief period after the election. As we write this essay, the government has just completed its first six months in office with very little to show in fiscal policy development and achievement. It can use the remaining forty-two months to make a difference. It can however only do so if it stays committed to the values of good governance, zero tolerance for corruption and executive prudence such that gives it the moral credibility to ask the people to make the desired economic sacrifice.

Olu Akanmu is an executive in the financial service industry. He publishes a blog on Strategy and Public Policy on http://olusfile.blogspot.com

Murdochs, Market Power and Society

2011-07-18T23:43:00.005+01:00

By Olu Akanmu

There has been widespread condemnation of the phone hacking scandal of News of the World, one of the papers in the stable of Rupert Murdoch, the world’s biggest media mogul who controls leading newspaper titles in the UK such as the Times, the Sun and Sky news and significant interest in the BSkyB cable network. It is a clear breach of professional journalistic ethics to hack into the phones of private citizens, corrupt police officers to get privilege information about private citizens, some of whom were grieving their lost ones in murder cases. If these allegations are true, News of the World brand of journalism crossed the boundary of investigative journalism to criminal behavior. The International Press Institute (IPI) and the Newspaper Proprietors Association of Nigeria (NPAN) have condemned the journalistic practice of News of the World calling it a failure of law enforcement and not a failure of press freedom. While endorsing the British government judicial inquiries into the affair, they caution that it should not be used for revenge and the undermining of the long robust British tradition of press freedom which could cause a ripple effect globally as many countries hold Britain and its democratic institution of free press as a standard for their own society.

We agree with IPI and NPAN. We however wish to state that this Murdoch saga as it is unfolding is wider than the subject of press freedom. It also bothers on the subject of how public good and the efficient functioning of markets to deliver such public goods such the free flow of information, can be potentially compromised by special commercial interest when they wield significant market power. As all democracies join the British to debate the lessons of the unfolding Murdoch/ News of the World saga, it is critical that we situate the lessons within such broader context. The British with their eyes open, watched Murdoch’s News Corporation over years build a media empire that ended up controlling about 30% of the British Media Market. Rupert Murdoch became the media Capone courted by the right and left of the British political establishment from Margaret Thatcher to Tony Blair and David Cameron. They had no choice. Such was the combined market power of his newspapers that any politician will ignore him and his interest at their peril. Alastair Campbell, Tony Blair’s celebrated Director of Communication reflecting on this saga wrote in the Financial Times “that for all of us, at times, media support was something we courted at the expense of positions of principle on media issues”. He could just have added that they, the political establishment on the right and left compromised public good on the altar of political expediency. So powerful was the combined market power of Mr. Murdoch’s media titles that they could seemingly get away with anything, with such impunity because the institutions of society such as the parliament and the police could not discipline them. What now seemingly look like a political backlash on Mr. Murdoch is actually an attempt by the politicians to free themselves of the subservience they have subjugated themselves to for many years.

We do not care about the politicians, their subservience and their political games. We however do care, when the institution of free press, a key pillar of society’s democratic tradition becomes captured by private commercial interest, wielding its power to determine the information that society knows and how it should know it. This private commercial interest in the media, with significant market power can even determine what the truth for society should be, which is usually is own selfish version of truth. The institution of free press must remain unfettered if democracy is to function properly. The press as an institution must be protected from being captured by the government in the liberal traditions of great democracies. The press is the modern day equivalent of the public square, the “forum” in Rome where plebeians, who may not sit in the Senate, can hold their own discussions, express their feelings and pass their own resolutions which the nobles in the Senate must note, if they would avoid strife in society. To this end, press freedom is written into liberal democratic constitutions to provide another check and balance on the powers of the executive, the legislature and the judiciary. Hence, the press is called the fourth estate of the realm. What the founders and philosophers of liberal democracy might not have however envisaged is the evolution of capitalism and the media as a special industry, where private commercial interests could become so powerful as to capture the press and makes it un-free. In essence, while they were trying to protect the institution of free press from being captured by government from the front-door, what we have today in Britain is the capture of the press by private commercial interest from the back door, a la Mr. Murdoch’s Newscorporation.

What is the solution to this problem? How do we protect the market economy and at the same time protect the press from being captured by governments and private commercial interests? We do not support the current under-current in Britain to introduce stronger legislations to regulate the press. We support free and self regulation of the press. The British politicians must not use the current phone-hacking scandal to reverse the gains of the centuries of tradition of free press in the United Kingdom and gag press freedom. The press must however recognize that freedom is a privilege that comes with an obligation to be more responsible, to practice ethically and uphold highest tenets of professional behaviour. The press both in Britain and Nigeria must therefore do a new soul searching with a view to raising its ethical and moral standards, to win stronger public confidence as the true public square for the free expression of all opinions in a democratic society.

To prevent the press from being captured by private commercial interest with a significant market power, as we have in Britain today, Competition Policy laws and regulations will need to be strengthened. It is the weakness of the British Competition Policy and regulations that have led to a situation where one private commercial interest (Mr. Murdoch’s Newscorporation) controls about 30 percent of the British media market. It should be noted that we do not even have a Competition Policy in Nigeria. If a United Kingdom, with a Competition Policy and regulation could end up with a Mr. Murdoch phenomenon, there is probably a long-term risk to press freedom in Nigeria from private commercial interests when the media industry gets consolidated in the future due to the imperative of scale and size efficiencies.

Nigeria needs to enact a Competition Policy that will ensure that key industry markets such as media, telecommunications, financial services and power function well guarding against the emergence of players with significant market power who could use such powers to stifle competition and the efficient functioning of markets. The only exception to such Competition policy and regulation would be when national companies need to build scale and size from home to compete abroad. We will like to state that the concept of significant market power should not necessarily be about whether market players can influence prices by stifling competition. As in the case of the British media market, the concept of significant market power should also be about whether market players are powerful enough to thwart or stifle the delivery of public good, in their own interest, which in this case is the free flow of information in a democratic society. The unfolding events in the British media hold important lessons for our own democracy and our market economy. We should all watch it closely.

Reflections on Corporate Governance

2011-06-22T18:45:00.006+01:00

By Olu Akanmu

Usually, discussions on corporate governance can become too abstract and technical beyond the reach of the ordinary investor and the larger society. It is critical that the language of corporate governance be understood by the ordinary investor who may not necessarily have a finance degree. In this essay, we identify eleven simple issues that determine the quality of corporate governance of a company. We define corporate governance as activities and organization processes that ensure that the organization is governed, directed and managed in the larger interest of shareholders as owners of the company, who have delegated the governance of their investments, in trust to corporation managers and board directors as their agents. Below, in our view are the eleven issues that determine to what extent an organization is governed well.

1. A functioning board that represents or reflects the interests of shareholders in truth and in spirit. A board may exist. It does not however mean that it functions. Functioning of a board goes beyond its periodical sittings. A functioning board will be such that sets policies and defines the larger purpose of the business, approves strategic directions and hold executives accountable for performance. Board members must not own their seats to the benevolence of the executives they are meant to govern, if they would exercise objective judgments in the discharge of their fiduciary duties.

2. The Board must represent real shareholders. Subject to independent directors who will bring other kind of values to the board, the board should consist of individuals who have something fundamental to lose if the company does not do well. In fact, board members should have a bigger stake in the success of the firm than an ordinary investor because of the quantum of their personal investments or that of the institution that they represent.

3. There should be on the board independent directors who have no filial, business or other types of relationships with executives of the firm, that could compromise their judgment or the objective discharge of their fiduciary responsibility. Independent directors must be truly independent. They must not have any pecuniary interest directly or indirectly in their relation to the corporation beyond their sitting allowances, which must be reasonable so as not to compromise the objective discharge of their duties.

4. The degree of transparency in the organization, in its day to day governance, its systems and decision making processes. A culture of organization transparency is critical to sound ethical practice and corporate governance. Low level of organization transparency is usually the umbrella that hides abuse of power and unethical managerial behavior.

5. The degree of candour between the executives of a firm and its staff is usually a good signal of quality of corporate governance. Where staff as internal stakeholders cannot express themselves with candour, it might signal excessive power concentration at the top of the organization which can be potentially abused by leaders of the organization. It leads to the next point. Candour between staff and executives of firms is also a critical ingredient that builds an internal culture of organization transparency. Because, people can ask and feel free to ask, nothing un-towards can be hidden in the organization, ensuring a high degree of corporate governance.

6. Power Concentration and Imperialness. Absolute power corrupts absolutely. It is not for nothing that great democracies have a system of checks and balances. The organization should have a system of check and balances that ensures that power is not concentrated in few people. While a firm should not be run like a democracy, it should also not be run like an imperial kingdom. Imperialness of power leads to abuse of power. So many good men with good intentions have found themselves corrupted by power and end up abusing their office because the organization is not run by a system of checks and balances against excessive power concentration.

7. Is there an open and well implemented conflict of interest policy that ensures that interests of managers, executives and directors are disclosed where they enter into relationships with the company? This will be to ascertain that such business is fair to the firm, the larger shareholders and that such business interests are not in conflict with the fiduciary responsibilities of directors and in the case of mangers, that such interest are not in conflict with their duty as agents of shareholders.

8. Open disclosure of compensation policies and practices. Is the compensation of managers and executives of the firm in tandem with the short and long term value they have created for the company? An important development today is the need to ensure that a significant portion of executive compensation is deferred relative to maturity of their risk decisions especially in financial services. The quality of a loan decision cannot be ascertained fully in its early years. Managers should not be fully paid bonuses on profitability on loans created in early years because the quality of their risk decisions on such business assets may not be fully known until later years.

9. Does the organization have a whistle-blowing policy that encourages the confidential reporting of unethical practice or misconduct among employees, suppliers and customers in their business dealings with the company? Are there clear hierarchies of whistle blowing up to the board level, usually an independent board ethics or audit committee to report such malpractices or misconduct? Are there sufficient safeguard to protect whistleblowers from victimization? The perceived integrity, objectivity ad independence of the reporting hierarchy for whistle-blowing up to the board level is critical for whistle-blowing to work.

10. Activist external regulation and monitoring. It is true that businesses should not be over-regulated. It is also true, especially given recent experiences that without an activist regulator that monitors compliance of business to specified rules of engagement by society, business may not always behave responsibly. While the organization deploys its governance process as described above, an activist regulatory environment can further compel companies to stick to high levels of corporate governance. An activist regulatory environment may also be important where extant laws are lagging behind ethical or governance challenges of corporations, or the institutions to enforce such extant laws are weak leading to potential impunity behavior by companies.

11. Strong market institutions that protect shareholder democracy and reward good corporate governance. It is critical that we build strong market institutions that will reward companies that are governed well through a lower investment risk rating, lower cost of capital and higher valuation. The trend is already emerging on the Nigeria stock exchange. For this trend to become consolidated, we must ensure that we reduce information asymmetries in financial markets, get information that is true and factual to flow more freely among companies, shareholders and potential investors. Improvement in standards of financial reporting through the adoption of the IFRS system will go a long way in correcting information asymmetries in our financial markets.

Olu Akanmu is an executive in the financial service industry and an active public speaker. He has a unique diversity of experience at senior levels in the consumer goods, manufacturing, health-care, social development, telecommunications and financial service industries. He publishes a blog on Strategy and Public Policy on http://olusfile.blogspot.com . He can be reached on olu.akanmu@yahoo.com

Leadership, Social Transformation and Institutions

2011-05-16T18:56:00.005+01:00

Speech delivered by Olu Akanmu, as Chair’s Opening Remarks at the Second Graduation Ceremony of African Centre for Leadership, Strategy & Development (Centre LSD), Abuja on 14th May 2011

The Honourable Minister of Information and Communication, the Special Assistant to the President on Millennium Development Goal, key note Speaker and Chairman of the Nigeria Electricity Regulatory Commission, the Executive Director and Board Members of Centre LSD, distinguished ladies and gentlemen.

I congratulate the African Centre for Leadership, Strategy & Development on the second graduation ceremony of its leadership program. I also congratulate graduates of the program. I have been privileged to see the curriculum and content of the course you have done. I make bold to say that it compares well with the best of leadership courses in civil society and in business anywhere in the world. While I congratulate you, I will like you to note that leaders are not made in the classroom. Leaders are made in the real world of action. Leaders are made in the world of life challenges and battles. Leaders are made in the world of conflicts and consensus. Leaders are made in the world of visions and divisions; the world in which you will have to apply the theory that you have learnt to make a difference in society. While an Engineering student could attend an engineering course, and conclude on graduation, that I am now an Engineer, a leadership student cannot on graduation say that I am now a leader. The best he or she could say is that I am now prepared for leadership. Leadership is “lifelong learning in action”. I repeat leadership is “lifelong learning in action”. It is a discipline that educators call “Action learning” or learning in practice. We however, know that there is no great practice without great theory. By participating in this program, you now have the theory to practice leadership, to accelerate your leadership learning on the journey of life.

Yet, you will not all lead the same way in spite of the fact that you have been on the same program. Each one of you must evolve his or her own authentic leadership style, which is a function of your leadership theory, your unique personality trait and your personal moral and value system. In your quest to lead, you will, in your life journey have to discover yourself. You will have to discover your greater life purpose for which you have been endowed with, your personality traits and unique natural gifts. You will be confronted with making tough leadership choices based on your moral and value system. In Nigeria, the crisis of leadership is the absence of sound moral and value system at the individual level of leadership which makes leaders in public and private sector make wrong leadership choices. I am sure that the distinguished key note speaker today, Dr Sam Amadi, will do justice to this subject.

Leadership is all about making a positive difference for the greater good of all, for our family, our community and our country. This is my very simple definition of leadership. If we apply this definition to Nigeria, we will conclude that we have had a “serial failure of leadership” since independence. Yes, we have had occasional successes, but those successes have been small oasis in an expansive desert of leadership failure.

We see a country so blessed in natural resources that cannot translate its blessings to prosperity for its people. We see a country so blessed in human talents yet cannot educate its children to liberate the fullest of their potential to contribute to their society. We see a country that produces oil, yet does not have oil to fuel its cars. We see a country with abundant sunshine that yet remains in darkness. The imperative of national transformation or transformational leadership which is the theme of this program cannot be over-emphasized.

Leadership in Nigeria in public and private sector has lost public trust. In our polity, the electorate believes largely that the elected largely act for themselves, in their own self interest. Our politicians are not statesmen. In the private sector, we see the betrayal of public trust by business leaders when they cook the books and produce accounting reports that do not reflect the true health of their business, making the gullible public invest in their corporations, only for those shares to be worthless in the shortest possible time. Personal and corporate integrity in leadership is low. Trust in leadership is little. How then can a leadership that is not trusted galvanize the people and mobilize them to use their entire GOD–given potential for the progress and transformation of their society? I am sure that our key note speaker will address this subject.

Finally, distinguished ladies and gentlemen; great societies cannot exist without strong institutions that ensure that individual rational economic agents have the incentives to do the right thing and act in the right way. In politics for example, a strong electoral institution, free and fair participatory democracy ensures that politicians who have acted only in their self-interest are voted out in the next electoral cycle. The judicial and law enforcement institutions also ensure that those who commit crime or steal public funds gets caught, prosecuted and punished, as an incentive or deterrent against corruption. In the private sector, our regulatory and market institutions would also ensure that our corporations are governed well for the greater good of shareholders who owned the companies and the larger society. This is unlike our recent experience where corporations have been largely governed for the good of corporation managers alone. In Nigeria, one would have to ponder “why is it that our institutions have not worked?” Why have our institutions remained perpetually weak and allow our economic players to consistently do the wrong things and keep acting with impunity? Could it be that our leaders deliberately create or weaken our institutions to allow their continuous impunity? If that’s what our leaders want, what must we as followers do to frustrate their attempt to weaken our institutions? What must we collectively do to build strong social, political and economic institutions? I believe these are the challenges of transformational leadership for Nigeria, which our distinguished key note speaker will address.

Ladies and gentlemen, I congratulate African Centre for Leadership, Strategy & Development, the graduating students and all of us who have come to rejoice with them.

Thank you.

Graduate Employment and Employability Challenges in Nigeria

2011-01-19T11:23:00.008+01:00

By Olu Akanmu

Being Abridged Text of Presentation Given at the Association of Commonwealth Universities/ British Council Regional Policy Dialogue on Graduate Employability in Africa in Accra, Ghana on the 18th of January, 2011. This paper was also presented at the British Council Global Higher Education Conference in Hong- Kong, on the 12th of March, 2011.

Nigeria has a serious challenge. Many graduates of its higher institutions cannot find work. Despite an average economic growth rate of about seven percent per annum over the last seven years, a good performance by global standards, wage employment is estimated to have declined by about thirty percent according to a recent World Bank Publication titled Putting Nigeria to Work. Nigeria has a serious jobless growth problem. Its strong economic performance over the last decade has not translated to jobs and real life opportunities for its many of its youths. Three out of ten graduates of higher education cannot find work. Being highly educated does not increase the chance of finding a job. Many graduates of higher education who find work are not usually gainfully employed. They are forced to accept marginal jobs that do not use their qualification in sales, agriculture and manual labour according to the British Council sponsored Nigeria-Next Generation Report. For those who are lucky to find jobs, employers are concerned about their skills and fit with their job requirements. Standards have fallen in higher education due to years of poor funding, leading to a growing preference for overseas university education. Nigeria is one of the biggest markets for British Higher Education because many upper- middle class families see it as a way to give their children a head-start in life. This however has serious social equity implications as not more than ten percent of Nigerian families can afford to send their children abroad. There is an increasing correlation between employability of graduates and their social class. If education is bridge to liberating the potential of young people and bridging the social divide by offering everyone a chance to climb the social ladder, higher education in Nigeria may be failing.

Employers want their graduate recruits to be competent technically in their chosen field. They also want them to come of school well equipped with complementary life skills such as problem solving, reflective and critical thinking, interpersonal and teaming skills, effective communication, character, integrity and high level of personal ethics, self esteem, self –discipline, organizing skills and abilities to translate ideas to action. The problem, typical of higher education in many countries is that these life skills are rarely thought as part of higher education curriculum. Yet as soft as they are, they are no less important in making a success out of school as the specific technical skills in a graduate’s chosen field.

There are two critical policy issues to address in putting the Nigerian graduate to work. The first is how to increase the employment generation capacity of the economy, create jobs that will absorb thousands of higher education graduates and reverse the current pattern of Nigeria’s jobless economic growth. It is estimated that Nigeria needs to create twenty-four million jobs over the next ten years to half current unemployment level of thirty percent. The second policy issue to address is how higher education institutions will produce graduates that are employable for the jobs created. How would Nigeria’s higher education institutions improve standards to produce graduates with the minimum sufficient technical skills in their chosen field? This is critical given the historical underfunding of higher education in Nigeria in the last two decades. Nigeria in the 1990s spent significantly more of its resources in the regional peace keeping mission in West Africa known as ECOMOG than on its Universities. Her national spending priorities will need to be re-ordered to allocate more resources to human capacity development which has a high leverage on its social and economic development. In addition, Nigeria’s higher education policy must also address how its institutions will develop the complementary curriculum that addresses the life skill requirements its graduates and prepare them better for their post-graduate life journey? The disconnect between post graduate employment reality and higher education curriculum in specific field and general terms will need to be addressed.

A three way cooperation of the Nigerian government, business and higher education institutions is required to solve these policy issues and put the Nigerian graduate to work. The Nigeria government should adopt a new economic and industrial policy that promotes employment intensive industries with strong potential national competitiveness. Nigeria is typically known for its oil. The oil industry is however more capital intensive than employment intensive. It contributes 40% of Nigeria’s GDP but employs less than 5% of the Nigeria’s population. Industries such as light manufacturing, construction, ICT, wholesale and retail, meat and poultry, oil palm and cocoa along with their value chains have very high employment potential. They need to become the focus of Nigeria’s industrial policy to ensure that its economic growth numbers have real meaning in jobs and life opportunities for Nigeria youths and higher education graduates. The constraints which has held these industries at its infancy such as physical infrastructure particularly power and transport, access to finance, bureaucratic investment environment and dearth of technical skills and manpower to operate these industries on the desired scale will need to be removed. Nigeria needs to develop a more formal technical and vocational education system that will produce graduates with the technical and vocational skills needed to operate the employment intensive industries and its value chains and thereby put more of its graduates and youths to gainful work. Anyone who has ever set up a factory or a construction project in Nigeria knows that they have to import a platoon of Indian, Israeli, Chinese or German technicians to run the project. We are producing too many liberal arts, science and theoretical engineering graduates in our universities whose employability potential is very limited. Technical and vocational education must be given its own prestige and made attractive to young people. Polytechnic higher education must be re-sharpened rather than blur the difference with Universities. We must establish more standardized technical colleges that will produce competent technicians that will work the factories of the new focused employment intensive industries and the small businesses that support them. Business must play a complementary role to government to achieve this. The new Dangote Technical Academy from one of Nigeria’s industrial conglomerate is a shining example.

The historical underfunding which has led to a crisis of standards in higher education must be reversed. Nigeria will be spending about twelve billion dollars to bail out its banks and the financial system, five times the size of the federal budget on education. The government correctly recognizes that the financial system is a public good whose ill-being has serious social consequences and externalities beyond the private interest of its banks’ shareholders. The government needs to apply the same the public good concept to its higher education sector and its funding crisis because there are significant externalities in social benefits in the well-being of the education sector beyond the private interest of individual students and their families.

Putting the Nigerian graduate to gainful work also implies that its higher education institutions should partner with business to develop employability content in higher education curriculum and provide formal life skills training for students. They should use more life case analysis in teaching that brings the real work problems to life. Entrepreneurial studies should be made compulsory because many may find themselves self-employed after school. Formal careers services and employability performance tracking working through a formal Alumni network will also be critical along with the exchange of best practices locally and internationally.

With a declining birth-rate and a relatively young population, Nigeria can potentially reap bountiful demographic dividend through its young people if it educates them and put them to gainful work. Doing otherwise with a mass army of educated, unemployed and unemployable youth population would engender high levels crime and threaten social cohesion. As we approach the elections, the shallowness of economic debate among our political parties on how to tackle our onerous problem of jobless economic growth is lamentable. Civil society must put this issue back in the centre of our polity. Putting the Nigerian graduate and its army of young people to gainful work is a task that must be done.

Olu Akanmu
January, 2010

Funding Higher Education

2010-12-19T22:31:00.006+01:00

By Olu Akanmu

There has been very significant outrage at the announcement by the Federal government that six additional federal universities will take off from next academic session. The paltry N10billion naira voted for their take off raises fundamental question about the quality of education that these universities will deliver. If the federal government has not been able to fund existing twenty-five universities properly, why should it start an additional six universities? It does not suggest that quality and standard are important to government. Patriotic concerns have been expressed that it is time to recognize that the current fee regime of the universities is too small to complement the paltry funding that they receive from the government. That the Nigeria state should not own a Nigerian youth, university education but a good secondary foundation education. That university fees need to be significantly higher perhaps at near commercial level for sustainability and standard of the university system. This may be complemented by endowment from rich and charitable individuals and a student loan program where students could borrow to pay the near-commercial high school fees. We respond to this school of thought in this essay.

The problem of our higher education and its larger social impact are complex hence the solution to the problem will be non-linear. Education is a public good whose larger social and economic benefits are bigger than what can be typically harnessed by private capital in investment returns. This creates a pricing problem in that prices may be either too high as to serve only the markets where capital can get its return, leaving a large section of society un-served with dire social consequences; or too low as to serve everyone but priced below the optimal level for private capital returns, which implies there will be little or no investment. This is the market failure problem that recognizes that while the markets may be best in allocating society’s resources efficiently, it has significant limitations in the case of public goods like education, national security and public health. When the state is endowed with abundant resources, it could intervene to correct the limitations of markets by providing public goods exclusively for society as we have tried to do in Nigeria. Given however, the current resource limitations of the Nigeria state, what we need is a structured, tiered and segmented partnership with private capital in the provision of our public goods such as our university education.

Firstly, we need to license more private universities and create structures that allow them to charge market prices for the market segments that can afford to pay such commercial prices. We should create incentives for the acceleration of private investments including tax incentives that will encourage the provision of world class infrastructures and standards in our private universities. There is a significant middle-class market that educates their wards in private secondary schools at costs that are fifty times higher than the highest fees in our public universities. That market should be served by the private universities and should free the public universities to serve the market segments that cannot afford to pay commercial prices. The public universities will serve as a social safety net for the larger section of the population that cannot afford commercial prices for education. It will provide for them university education as a public good whose opportunity cost would have been a half-educated population that could contribute very little to the well-being of the modern society. Then, we should have very tough regulation of standards by the National University Commission on curriculum, teaching qualification, facilities and minimum pass requirements including the unapologetic closure of departments that fall below such prescribed standards.

How would the public universities charging non-market prices be funded? We should re-set our national priorities to fund programs that have deep and spiral impact on society. The billions of dollars we have spent on ECOMOG operations since our first intervention in Liberia could have made a difference in the standard of our university education. Incidentally, there is a correlation between the decline of our university standards from the 1990s and our first ECOMOG adventure. We should also rationalize the structure of our governments at federal and state level and rationalize our executive and legislative bureaucracy with their bloated recurrent expenditures. We must also tackle corruption more vigorously. A key reason why society is unable to fund the provision of public goods is that society’s resources are looted heavily by the corruption menace. We can increase the efficiency of expenditure on public goods by at least thirty percent if we eliminate wastages and over-invoicing due to corruption in government. A student loan program learning from the American system could be useful but may be constrained by the limitation of our financial system with its very low financial inclusion where less than ten percent of our population has access to serious credit. We can also impose a one percent tax on foreign education remittances to support university education in Nigeria. A parent remitting USD20, 000 for her ward’s school fees will contribute a token USD200 to our university system and its public good. Because, many of us middle class people have been privileged by society, we should have such moral and legal responsibility to contribute to public good. Educational endowment from the rich could also be a good funding source as we have in the US, but this is a function of the depth of the moral fiber of the rich and their sense of duty to society. This is an area where our rich and those of the advanced societies are different. In a society where the rich do not even pay their legitimate taxes, it is not clear how much could be mobilized from them in serious charitable endowment to fund public goods like education. Rather we should strengthen our tax and tax collection systems to ensure that wealthy individuals fulfill their legitimate tax obligations ensuring that we spend a good portion of the increased tax revenue to fund our education sector.

In the last one year, we have spent a good part of state resources to bail-out our banks and the larger financial system. This is because our government is correctly operating with a paradigm that the financial system is a public good whose ill-being has serious social consequences and externalities beyond the private interest of our banks’ shareholders. We should also apply the same the public good concept to our higher education sector and its crisis. That there are significant externalities in social benefits in the well-being of our education sector beyond the private interest of individual students and their families. We must however do this within the context of good fiscal discipline; rationalize government fats and wastages ensuring that we do not create a ballooning public debt in the process.

Let’s Rebuild the Fallen Walls - Reflections on the Decay of Public Secondary School Education in Nigeria

2010-12-19T22:08:00.005+01:00

By Olu Akanmu

Keynote Speech by Olu Akanmu at the Lagelu Grammar School Old Boys Association, 50th Anniversary Fund Raising Dinner. January 13, 2008

Brothers, Seniors and Contemporaries. We have come to celebrate the 50th anniversary of our institution, our secondary school on whose foundations we have built what have made us to be called success. While it is on one hand a celebration, it also represents the highlighting of the decay of our institution, a metaphor for the decay of our nation and its institutional fabrics.

Lagelu Grammar School, with its serene academic environment, its beautiful and tall Casuarina trees, that made the sky felt so near. Those Casuarina trees that constantly told us as students; that the sky could be reached and not an impossible summit. Lagelu was the hallowed temple for the moulding of leaders of tomorrow, whose catchments area was largely among the indigenes of Ibadan; who were its founding fathers.

Today, the walls of the hallowed temple of our institution, nay our nation is fallen. The Casuarina trees are gone. The environment is no longer serene. The glasses of the windows of the beautiful hall, a rock solid architectural masterpiece, are now made of wooden planks. There are neither more encyclopedia in the library nor chemicals in the laboratory. Lagelu, that was the pride of the nation in French subject in the late 70s, winning prizes even in West Africa, no longer offer French to its students. The wide expanse of school land of a thousand acres is gone. They have been taken over by the police barracks and several schools claiming to be offsprings of the Lagelu mother school, but who are nothing but pretenders to the heritage. The boarding house where we learnt discipline and toughness is also gone. It was the place where we were toughened by cutting the stubborn grass of our slanting football field.

As we have said, the institutional decay of our school, is a metaphor for the decay of our nation and its institutional fabrics. It represents the decay of our communities, of our government, and the ethical values that should have made us a strong nation. The nature of our societal institutions today is the outcome of our collective efforts as leaders and followers.

Our institutions have decayed, not because we lack resources, for we are a blessed nation. Our institutions have decayed because we have enthroned the values of graft over service. Our institutions have decayed because we have worshiped material over knowledge. Our institutions have decayed because we have let enlightened self-interest entrenched itself over the interest of the larger community.

Our school took its name from Lagelu, the founder of the ancient city of Ibadan. Ibadan the ancient city of our birth, that is rich in history of the triumph of community values over enlightened self interest. We remember the famous story of Efunsetan Aniwura, the Iyalode of Ibadan, her wickedness, her oppression of the citizenry; and her eventual defeat by the collective will of the people.

Brothers, Seniors and Contemporaries. The fact is that if Efunsetan were to be alive today in many parts of our nation, she would be a political party Chairman or member of board of trustee of the political party of her choice. Such is the decadence of our political institution today.

Yet, we must not loose hope, for we can see some silver lining in the dark clouds. Our leaders and their stewardship are being questioned for the first time in the law courts. Enlightened self interest may push back but the larger community interest is resisting well through the institution of our vibrant press, a real blessing of our democratic experiment.

Enlightened self interest perpetuates itself over our larger community interest when the institutions for expression of our community interest are either weak or non-existent. We see this in our democracy and its faulty electoral process. Even the President acknowledged that what we had in April was not an election to be proud of and has set up a committee on electoral reforms. While we re-build the political process and its institutional framework to which our political parties are core; it is critical that we strengthen alternative social institutions outside the political process. These social institutions provide alternative platforms for the expression of our larger community interests. These alternative social institutions include our NGOs, our town unions and Parapos and our old boys associations such as that of Lagelu Grammar School. They must however not just be elitist groups that flaunt the success of its members and promote only their self-interest. If they do so, they will be guilty of the sins of the politicians. They must be associations that are truly non-partisan, associations that champion our larger community interest; who put pressure on the political process to reform it, to be truly democratic.

And back to matters of our beloveth school. Our different generations, who have passed through Lagelu Grammar School, have been very privileged. We have had the privilege of sound education of the highest academic and moral standards. To this privilege that we had, comes an obligation to give back to the institution that has shaped our lives. We must rebuild the fallen walls of the hallowed temple of our beloveth school. Albert Einstein said and I quote

“Everyday, I remind myself that my inner and outer life are based on the labours of other men, living and dead, and that I must exert myself in order to give in the same measure as I have received and am still receiving”.

A generation had the vision and founded the school and gave us a privilege education. We who have received from the school must give back as much as we have received. Our generation must ensure that the baton does not fall from our hands. That even if the baton has fallen, it must be picked up again and we must begin a new race to connect the school back to the glory of the past.

There are several programs and endowments that have been proposed by the national body. Lets us give generously to support them. Let’s also ensure that as we build new infrastructure in the school, that those infrastructures are maintained and sustained. Let’s have a tripartite governance structure for the school of those who have genuine vested interest in its highest standards. These are the teachers, the parents and the old boys association. As we rebuild our old school and improve its standards, we are in our little, but no small way building back the nation and its standards. It is therefore a privilege and sacred duty for which we must be proud, proud to serve and proud to give.

Brothers, Seniors and Contemporaries. Thank you for listening.

Speech by Olu Akanmu at the Lagelu Grammar School Old Boys Association, 50th Anniversary Fund Raising Dinner. January 13, 2008

Managerial Compensation and Risk Incentives in the Financial System

2010-11-26T18:04:00.005+01:00

By Olu Akanmu

Given our recent experience and the need to rebuild public trust in the financial system, we will need to reshape the values of managers of businesses in public corporations to which we have endowed our privileged trust, as customers, shareholders, government and the larger public. One of the most important lessons that managers need to re-learn is that an organization does not just exist to make profit for its shareholders alone. That a good company is that which has a social purpose for which making profit is the by-product of fulfilling that larger social purpose. Therefore, a good company is not that which posts bumper profits that managers celebrate but harms the larger interest of other stakeholders such as customers, the government and general public welfare. A good company is that which is able to optimize the interest of all its stake-holding groups of customers, shareholders, the state and the larger public. It provides great products and services that improve the quality of life of Nigerians, return good profit to shareholders while contributing to national economic development. A good company will not significantly externalize the cost of its business. When a company makes huge profit by destroying the environment, and gets away with it, because social institutions are weak to make it pay for it, it is externalizing its cost and betraying public trust. As we have seen all across the world, when managers of financial institutions take excessive risks, which endanger the financial system and have to be bailed out by their governments and state resources, they are externalizing the cost of their firm’s profit. In Nigeria for example, the opportunity cost of the money used to bail out our banks are the roads, schools, hospitals, power and public infrastructure that have to be forgone because public resources had to be diverted to save the financial system. Society has trusted too much. The fact is that firms will most always externalize their cost unless there are social institutions such as regulations and the tax system that prevent them from externalizing their cost or make them pay for it, when they do so. That is why we support the policy of the European Union that banks need to be taxed specially to build a pool of funds which shall fund the cost of future bail-out of the financial system when the need arises again.

The argument above however presupposes that if the interest of managers and the larger public interest are not always fully aligned, that at least managers are acting as true agents of their principal (their shareholders) and their interests are both aligned. This is not always so. Our compensation policy especially the big annual profit bonuses, tend to reward managers excessively for the short term over the long term. This tend to create a classic moral-hazard problem where managers take investment decisions with excessive long term risk, which may not crystallize in the early years when they cash in on their short term profit and profit bonuses. When these risks eventually crystallize in the future, the managers have moved on, leaving the firm, its shareholders and future managers to manage the consequences of fallen profit and collapsed share prices. This phenomenon has new lingo and acronym in behavioural finance called IBGYBG meaning I’ll Be Gone, You ‘ll Be Gone. Essentially, our compensation policy creates a perverse incentive that encourages a risk behavior that transfers the negative consequence of managerial risk decisions to someone else in the future while the manager appropriates the reward in the short term. When the reward of a risk could be appropriated by the risk taker, and the consequence of the risk is for someone else, there is a tendency by the risk taker to take excessive and sometimes unreasonable risk. This is the moral hazard problem in risk management. It plays heavily in the nature of our managerial compensation where rewards are heavily weighed in favour of annual profit bonuses and virtually nothing in long term share prices of corporations. With the benefit of hindsight, looking back at the downstream oil and gas businesses and the margin loans transactions of our banks in the period of financial industry exuberance, we could see clearly the IBGYBG syndrome manifesting strongly among our managers. We could see the way the perverse incentive and compensation of the industry for short term rewards, immediate profits and annual bonuses made our managers underplay or even ignore the long term consequences of their transaction risks. This will need to change to align managerial interest better with that of shareholders and strengthen public trust in corporations. Compensation of managers must carry a significant long term portion related to the future share prices and values of their firms, as a function of the long term impact of their managerial decisions.

We like to say however that we have no issue with size of the compensation of the manager as long as it is a function of the shareholder value created and it contains a significant long term portion that ties the compensation to the long term consequence of managerial risk decision. We recognize that there are short term pressures for talents in organizations that tend to encourage short term managerial rewards such as strong annual bonuses to keep valuable staff from competition. Given our recent experience and the need to rebuild trust in financial system, ensuring a better alignment of managerial interest with shareholders, our compensation policy must balance the need to keep our talents and the need to ensure that those talents kept and their executives are actually working for their shareholders in the long term.

Olu Akanmu
Novermber 2010

Professions, Profits and Public Morality

2010-09-29T17:11:00.008+01:00

Speech delivered by Olu Akanmu as Keynote Address
at the 13th Annual Conference of the
Nigeria Association of Industrial Pharmacists

This conference is happening as the echoes of our democratic transition and election gets louder and louder. It is happening in a particular period of serious economic challenge for our businesses defined by weak demand and low consumer purchasing power, poor utilization of capacities in our factories, and constrained access to credit for the real sector. It is happening in this period of the emasculation of many small businesses, with slowed or stagnant inventory turn-over in our retail shops. It is happening in this period of decayed public infrastructure which increases the cost of doing business while reducing the competitiveness of our meager manufactured exports. It is a tough time for business in Nigeria. It is a tough time for the manufacturing sector in particular for which the pharmaceutical industry is one. The loud echoes of our democratic transition cannot obscure the cries of our business for economic survival.

In seasons like this, where markets have shrunk significantly thereby increasing competitive pressures, where industries are witnessing signs of premature aging occasioned by the contraction of customer demand, with bankers on the back of business owners to pay down previously availed loans, the challenges are tough and there is a tendency to be desperate, to find short-cuts to survival, to seek NOT to play by fair and legitimate rules in the quest for survival or success. At the employee levels, wages have been rationalized and the social and dependant burden on wages have significantly increased. These social and survival pressures on employees may even drive tendencies to seek short-cut to survival and even cheat.

Yet evidence abound that not playing by fair and legitimate rules while it may lead to success in the short term or even for some time, cannot guarantee and sustain success for individuals and organizations. The lessons of the banking industry in the recent times teach us that the only way to guarantee sustainable and enduring success for business is to compete fairly and succeed ethically, to build organizations that have the cultures , controls and governance that guarantee transparency and executive accountability to their board, the shareholders and the larger public. If however, the cost of not playing by the rules, the cost of unethical conduct is limited only to the organization that so practices such and so competes, perhaps the society could have walked away easily with a sense that the guilty has been punished. It is however not so. The cost of not playing by the rules is not limited to the organizations that practice such. These organizations infringe enormous cost on society as a result of their actions. We see in the in the financial service industry, globally and in Nigeria, huge costs to tax -payers in the bailing out of banks and other financial institutions such as the insurance companies that insure the risks of the financial system. In the petroleum and chemical industries, we see huge cost of environmental pollution to society when those organizations elect to succeed at all cost and sacrifice societal interest on the altar of their corporate success. In the pharmaceutical industry, we see the cost of un-fair or unethical play manifested in the social cost of fake or adulterated medicines, with increased health care cost when sub-standard doses of drugs such as antibiotics are administered leading to resistance of infectious diseases.

Given recent events in the industries earlier described, it is pertinent to ask, what is legitimate profit? And when is the making of profit legitimate? We must also ask an even more critical question whether all legitimate profits are ethical. Or essentially, when is profit unethical even when it is legitimate? While it is easy to look at the law and answer the question of legitimacy of profit as that which is made without violating the governing law of society, it is more difficult to answer the question of whether there could conflict between legitimacy and social ethic, whether a legitimate profit could be unethical. The fact is that there are instances where the law lags behind the ethical standards that society requires. We see this clearly in the behavior of leading global financial institutions like Goldman Sachs and the role they played in the global financial crisis, where Goldman for example sold mortgage financial derivatives to its clients and at the same time created counter-product to bet against the financial product it sold, that it would fail. When the financial derivate product it sold failed, Goldman clients lost huge money, some of them even went bankrupt but Goldman Sachs made billions of dollars on the basis of its successful bet. Goldman in the US congress hearing, when it was accused of profiting from the financial misfortune of society, claimed that it did not break the law. It did not matter. Its actions and corporate behavior were unethical. This is similarly illustrated in the tobacco industry that claims to provide employment of for thousands of Nigeria through its factory and agriculture extension program. It does its business within the law. The social cost of tobacco to the larger society in cancer and other pulmonary diseases however raises fundamental question about the ethic of the tobacco industry beyond whether it does its business within the governing laws of society.

What then is an ethical business or an ethical way of doing business? I will define an ethical business as that which fulfills a defined social purpose in improving societal or community well-being, does not externalize the cost of its success in social cost to society, competes fairly and transparently on the merits of its organization assets and will not provide incentives to its external stakeholders that perverts their fair and objective judgment of its services relative to alternatives available. An ethical company will also be transparent to its employees, its shareholders and its critical external stakeholders. Using this definition, we can begin to examine and query the ethical depth of our organizations and the particular role we play within it. When we forget the larger reason for being of our organization and our profession, and we seek to win contract or prescription commitment at all cost, including providing incentives or inducement that compromises the objective examination of our products by customers, we are not practicing ethically. When we do not disclose fully the side effects of medicines to aid their objective choice by prescribers, we are not practicing ethically. Ethical breaches by professionals are very serious because they enjoy sacred and privileged trust from society that they will discharge their service at a minimum standard far above what can be received from anyone else. That is why we call them professionals while pretenders to the profession who cannot deliver the minimum standard expected by society are known as quacks. It therefore beholds on us as pharmacists, that the encounter of a patient with us must be clearly different from that of a non-professional. We owe this as an obligation to society flowing out of its privileged trust to us as professionals. When therefore, we fall short of professional standards, when the quality and standard of service delivery between a pharmacist and a non-professional are similar, when we do such, we breach society’s sacred trust and compromise the ethical foundation of our relationship with the larger society.

It is time to raise our standards, to the lofty heights of the dreams of our founding fathers, compromised not by the current economic and infrastructure challenges that we face but exalted by our checkered history as one of the oldest organized professional bodies in Nigeria. Let us publicly sanction those who practice below the standards society expects us, with the full arm of the law on their back, including suspension and expulsion from practice depending on the gravity of breach of professional trust. Let our regulators and the government agencies responsible for the importation, inspection and control of drug quality, co-ordinate and co-operate better. Let them raise their standards, which seem to have fallen in recent times according to the Pharmaceutical Society to ensure that never again would we ever see a Nigeria child die because of fake or sub-standard drug; as we recall the killer Paracetamol incidence of 2008. Let our criminal justice system and particularly our courts also dispense justice and punish those found guilty of these heinous crimes, and do so on time for justice delayed is justice denied. It is important that ethical infractions be sanctioned by professional bodies and the institutions of the larger society; for when there are no sanctions, ethical conduct becomes a mere sermonizing that we can elect to comply with only when it is convenient for us. Sanctions on ethical breaches are therefore critical to raising ethical standards among professionals who are privileged to enjoy society’s scared trust. We must also ensure that regulations and the laws concerning drug handling and distribution are enforced. That only those who are qualified and trained as pharmacists should be drug inspectors and that they must be led also by those who are trained in the chemistry, production and pharmacology of drugs. This is the law of the Nigeria state, and even the Nigeria state must comply with its own laws. For when we implement the law below the standards set by the law itself, we set aside the intent of the law, the reason for its legislation; we open a breach in execution of statutes, which would be exploited by those who seek to do business unethically.

The debased nature of ethics in business in our nation is manifested by the pervasive corruption in the public and private sector. Corruption compromises the efficient functioning of markets in its critical role of allocating resources to where they would be best utilized. With corruption, resources are allocated wrongly and sub-optimally, leading to very low social returns on investments. You only need to see the decayed nature of our public infrastructure despite previous years of massive investments to realize the cost of corruption to our society. Corruption essentially holds the market hostage, removes its freedom and hand-cuffs its un-seen hand as famously described by Adam Smith. Now that the Halliburton case is court, we expect that the case would be tried and brought to conclusion soonest. We expect the same of the Siemens case and other high profile cases. The way these cases are prosecuted will tell the international community and indeed ourselves as a nation, the level of our commitment to ethics in governance and morality in public affairs. Our national politics, the conduct of our elected politicians, the standards of morality and ethics by which we hold them significantly influence the conduct of other actors in the public and economic space. You will recall that when “settlement” became a lingo of our politics, it sooner became a lingo of our business. We must therefore demand higher standards of public morality and ethical conduct from our elected officials. We must ensure that we strengthen our democratic institutions such particularly our electoral process to ensure that our votes count and that every vote will be counted. This will make our elected officials accountable to the electorate, as we can truly vote them out, when they do not deliver conduct themselves below our consensus and standard of public morality. We must also strengthen our political parties to ensure internal democracy while ensuring that our people have alternative oppositions that are as equally strong as parties in government, to make our elections less predictable, to put incumbents on their toes and the opposition on their heels. We must strengthen our judicial institutions to ensure their independence to dispense justice without fair or favour while ensuring that only those who know the sacred nature of the duty and society’s trust of the bench, sit in judgment in our courts. The signals in the electoral process suggest that we are beginning to make progress. Let us therefore all register to vote, and vote this time around knowing that our votes will count and that the elections will reflect the true will of our people. When we reform our politics, and force higher standards of public morality on our elected officials, the multiplier effect on society in the acceptable level of ethical and moral conduct will be very significant.

We must also promote more open and transparent societies in both the public and private sectors. Ethics and public morality standards correlate strongly with the level of institutional and societal transparency. We therefore call on the national assembly to pass the Freedom of Information Bill to guarantee unfettered access of Nigerians to information concerning their state, the expenditure of state resources and the conduct of public officials. Because governments at its three tiers are the biggest spenders on pharmaceuticals in Nigeria, we must put in place higher levels of transparency in our public contract and procurement system. Contracts and procurement intentions and information must be widely available, advertised in the newspapers where possible, standards of prequalification of suppliers must be transparent as the prequalification itself. Tenders must be competitive, open and transparent. There must be separation of authority to pre-qualify suppliers, authority to award contracts and the authority to receive contracts and authority to pay for contract delivered. Then the procurement system must be regularly subjected to transparent third-party audits to ensure that what we wanted to buy is what we bought and that we paid fair prices for what we bought.

We must apply similar standards to contracts and procurements in the private sector. We must promote higher levels of transparency in the private sector to drive up ethical standards, and ensure internal and external stakeholder trust. We must build organizations with transparent internal processes where employees as internal stakeholders, can engage and question their management with candour on the business of the organization. When organizations are transparent internally, their transparent culture would be such that they will not have a problem in being transparent to their external stakeholders particularly their shareholders. These are the ethics and public morality lessons from Enron and the global financial institutions on the ethical breach of trust which they suffered in recent past. We must ensure higher standards of transparency and disclosure in our corporate financial reports. Corporate financial reports must reflect the true state and financial health of our corporations so that our shareholders and investing public, take their investment and risk decisions based on facts they can trust and not from flawed information. Managerial and executive “conflict of interest” must also be fully disclosed to ensure that managers and executives can truly perform their duties as true agents of their shareholders and keep the trust of the owners of the business.

We must also rediscover the real purpose of business which is to make enduring contribution to societal well-being, where business makes profit only as by-product of fulfilling this larger purpose. When we pursue profit and loose sight of the real and larger purpose of business, we sacrifice the greater good of society on the selfish altar of business interest. We compromise ourselves ethically and lower our standards of public morality. We must re-educate ourselves that the most successful business is not the one that made the biggest profit, but that which achieved good profits with an enduring contribution to societal well-being. We need to reform the character and content of management education in our business schools to increase the ethical content of its curriculum, to produce managers who know finance as well as fidelity, managers who know strategy as well as character. The recent global financial crisis where we witnessed some of the most irresponsible behavior by managers on Wall Street, who are largely Harvard, Wharton and Stanford graduates have thought us that there is fundamental gap of ethics and character in management education.

A discourse on public morality and ethics cannot be complete without discussing the role of religion. Religion is a foundation subject of ethics and public morality. Religion teaches us about good and evil, virtue and vice; and right and wrong. Religion teaches us about the ultimate triumph of good. It influences society significantly in its consensus on standards of ethics and public morality. We are a religious nation that actively seek divine intervention and help even when it may not be justified. You only need to see the Super Eagles on the pitch praying before their matches even when they have not adequately prepared to appreciate our national religious passion. Given societal decay and our falling moral standards, religion must play a more active role in re-shaping our values and public morality standards. We need to hear the voice of morality and ethical conduct much more loudly from our pulpits and minarets. The voice of morality, ethics and virtue must not be drowned by the voice of prosperity, success and breakthrough. Religion must teach, unlike the popular axiom, that the end does not always justify the means, that the end does not always justify the means. That, how we succeed as managers and business people, is no less important than our success itself. That virtue and success are not mutually exclusive, that profits and morality are not mutually incompatible. That if anything, virtue is a guarantee of enduring success, that morality and good business ethic is a guarantee of enduring profit. Was it not the Holy Book that says that “A false balance is an abomination to the LORD but a just weight is HIS delight” and that “wealth gotten by vanity shall be diminished but he that gathereth by labour shall increase”.

We need to change society, change our nation to a higher level of social ethics and moral standards. We do not have the singular illusion that it is would be easy. It is tough to be honest when falsehood is a norm. It is tough to be virtuous when vices are normal. It is tough to be straight when crookedness is celebrated. Yet, we must hold firmly to the WORD that says that the crooked path shall be made straight. Like Elijah or Elias in the Holy Books, it could sometimes feel lonely to do business ethically. We could feel like Elijah, tired and worn out, that everyone, except us, has sold out and bowed to Baal. Yet Elijah was wrong. He did not know until he was told that there were others like him, seven thousand others, who have not bowed to Baal. For everyone, man or woman, that does his or her business ethically, please know that there are seven thousand others like you. To change our society, these seven thousand and one people must find themselves. They must build ethical networks and alliance for change. If the good ones among us network together and form this alliance for change, we can make change happen and conquer the Ahabs and the Jezebels of our nation.

We see a new nation, a city on a hill, where the bright light of righteousness shines like the Sun. A city where prosperity flowers, where merit thrives and excellence flows like an unending river. And her beautiful children singing the forgotten stanza of its national anthem, that “in love and honesty to grow, and living just and true, great lofty heights attain, to build a nation where peace and justice shall reign”.

GOD bless our Nation. GOD bless Nigeria.

Thank you.

Olu Akanmu delivered this Speech as keynote address at the 13th Annual Conference of the Nigeria Association of Industrial Pharmacists on September 22nd, 2010

Rebuilding Trust in the Financial System

2010-06-21T10:01:00.012+01:00

By Olu Akanmu

“…Markets rely on rules and laws, but those rules and laws in turn depend on truth and trust. Conceal the truth or erode trust and the game becomes so unreliable that no one will want to play. The market will empty and share prices will collapse, as ordinary people find other places to put their money-into their houses, maybe, or under their beds…”
-Charles Handy

The financial service industry needs to rebuild trust. Without trust, the industry cannot stand. When a Goldman Sachs would sell financial derivatives products to its clients, and create a counter product to bet against them on the basis that they would fail and made billions of dollars, on the basis of its successful bet, something has fundamentally gone wrong with banking. The engagement of the US Congress with Goldman Sachs executives was very revealing. The Goldman executives tried to show that they did not break the law, that what they did was legally permissible. It does not matter. It is unethical. Goldman Sachs clients who bought the financial derivatives products that it sold trusted it. Goldman, by betting against its own product did not believe in what it sold. By making billions of dollars on its successful bet that the product it sold would fail, it betrayed trust. At home in Nigeria, we are also dealing with trust issues. The audited reports of many of our financial services institutions have had to be reviewed with the effect of a night and day difference in the reported health of those institutions between 2008 and 2009. Yet, the public took its investments decisions on these institutions based on their previously reported financial health. Many have lost money. Many were ordinary retail investors participating in the stock market for the first time. These are our own “Main Street” people. Their investments, sometimes life savings have been eroded. They remember the banker or the stock broker who visited them in their offices and homes and sold the bank’s shares to them. He had the figures and the facts, well presented. He is a banker, their brother, their sister or even their church member. Why should they not trust him? They are disappointed. They have turned away from the market and lost confidence in it. It is however not about banking alone. If the same auditors work for the banks and other non-financial service companies , we should reasonably expect that there would be issues in the audited financials of the manufacturing and other sectors, if they are subjected to same rigorous test. The issues of the financial service industry might therefore be a reflection of a more general pervasive but not yet very visible problem of big business. Yet, it is critical that our financial services industry regain public trust. Their financial intermediation role in the market is critical to the efficient allocation of capital to where it would be best utilized, a critical function for economic growth. Organizations and individuals are the players in the financial markets. To trust the market, we must trust the organizations that play in it. It is in the self-interest of these organizations to get the public to trust them again, so that they can play their role and fulfill their reason for being. What therefore, do business organizations and financial market players need to do, to get the public to trust them again?

First, we need a new regime of transparency in business organizations. Transparency is a critical foundation of trust. Companies must commit to transparency with its external publics especially its shareholders. To do this however, the companies would first need to be transparent to themselves. According to Warren Bennis and James O’Toole, Professors of Leadership and Business Ethic s “..No organization can be honest with the public if it is not honest with itself..”. Internal transparency is therefore a prerequisite for external transparency. Information that is true on the business and its performance must flow more freely among managers and employees of companies. Free information flow pre-supposes that the processes that generate the information themselves are transparent. Access and control of information tend to be seen wrongly as a privilege of power. And sometimes, the restriction of information flow is excused on the basis of protecting critical information from leaking to competitors. This concern however has to be balanced with the imperative of organizational transparency ensuring that employees as critical internal stakeholders know the business, its financial performance and can question their leaders with candor on the performance issues of the company. This will engender trust between the organization, its leaders and its staff. And if the leaders of a company can be transparent to its staff by information and by internal process, they will have little problem in being transparent to its shareholders and the general public as they would have first built a culture of transparency internally. Of course, we do recognize that leadership commitment alone is not sufficient to make internal transparency happen. The governance structure of the organization is critical, a functioning board, that enforces by policy and by its policy audit processes, transparent processes and information flow as part of larger commitment to external transparency to the shareholders and the larger public. In addition, we will like to recommend the evolution of a new set of players in the financial markets which we call Transparency Auditing and Rating Organizations (TAROs). Just as countries are rated on the basis of their Transparency and social governance by organizations like the Transparency International, companies could be rated by the TAROs on the basis of their internal transparency and corporate governance. The TAROs will fuse the model of the Credit Risk Rating agencies like Standard and Poor, with country transparency audit model of the Transparency International. We expect that good companies will submit themselves for Transparency audit and bad companies will not. We expect that the market will factor this formal independent transparency audit into the risk rating of the company and the determination of the cost of capital to the company. Essentially, transparent companies will be rewarded by lower cost of capital and better share prices.

Secondly, to rebuild public trust in business, we need an overhaul of our auditing standards and corporate financial reporting. This is obvious. The Nigeria Accounting Standards Board and the Institute of Chartered Accountants of Nigeria (ICAN) have a responsibility to make this happen. In their seminal work on the subject of Corporate Financial Reporting and Public Trust, Samuel DiPiazza, Global CEO, of PricewaterhouseCoopers and Robert Eccles said as follows “..Information is the lifeblood of the capital markets. Investors risk their hard earned capital in the markets in great measure based on the information they receive from their target companies…When information comes from companies, investors need confidence that it is complete, accurate and trustworthy..Investors understand that in free capital market, the opportunity for gain comes with the possibility of loss. But investors have the right to expect that the benefit or consequences will result from the decisions they make, not from flawed information….”. Financial reporting and auditing can no longer be done with a subtle hint of Caveat Emptor. To the extent that the lay public, our Main Street, is participating more actively in financial markets as it gets more deepened, they need to trust financial reports, and they need to get it increasingly in the formats that make meaning to them. If the auditing and accounting profession will keep public trust and fulfill its social purpose of an independent attester of the financial health of public companies, it must increasingly think and act this way. It is apparent that given the wide disparities in the financials reports of banks between 2008 and 2009 and similar events in Cadbury some few years ago, that our national auditing standards may not be sufficient to un-earth and report the true financial health of our corporations. We also need specific industry standards that allow transparent and objective comparison of companies on their performance ensuring that measurements are standardized among players in the same sectors. For example, who is the second largest telecom company in Nigeria? It depends on who you ask, on what you measure and how you measure it. If the second and third telecos in Nigeria were to come to the market, unless such industry standards are defined, it will be difficult to compare them objectively for investment decisions. The issues apply to other industry sectors as well. Good transparent companies would however go beyond industry standards disclosure requirements. Good companies will un-opaquely disclose their strategic plans, corporate governance, risk management practices, shareholding structures and compensation policies. They will show why they are the best parent of the businesses they manage and if they are not, what they are doing to ensuring so. These three practices, adoption of higher auditing standards than we have today, industry specific standards in financial reporting and company specific disclosures on policies, plan, shareholding structures and business practices, will improve the integrity of financial reporting and engender better public trust in our corporations. This will also correct information asymmetry in the financial market s ensuring that information flow more freely among market players, making the market more efficient in its role of allocating capital and resources to where it would get the best returns.

Thirdly, the larger Nigerian society and investment community must change its lottery (kalokalo) paradigm of the investment market. While there will always be short term arbitrage opportunities in markets due to information asymmetries that some investors could exploit for short-term gains that are akin to playing lotteries, the larger society cannot be investing with a kalokalo paradigm that excludes business and market fundamentals. That is a key lesson of our financial markets in the last five years. Unreasonable kalokalo expectation returns of investors from companies tend to compel the managers of those companies to look for kalokalo profit that has little bearing with their business fundamentals. And when they do not meet the unreasonable profit which they have promised the market, they tend to look for short-cuts to cover the gap. If they succeed the first time, the kalokalo investor expectation gets even stronger fueling a stronger kalokalo profit promise and even more dangerous short-cutting by company managers. Intuitively, we (investors and company managers) recognized that we should not trust each other, but everyone tried to be smart in the market- game in their little space, as if they could cocooned out the larger market fundamentals from their space. Eventually, the complex interactions of our several games created a market-burst that blew in everyone’s face. To correct this and rebuild trust between investors and company managers, three set of players in the corporate reporting supply chain will need to play some critical roles. As discussed earlier, independent auditors need to raise their standards to report what is truly reflective of the financial health of corporations. Secondly, the third party Analyst community will need to be more rigorous and more clearly separate itself from the stock brokers to ensure independence and objectivity. The third party analyst community in Nigeria, seem not to have an independent defined structure outside the stock broking professional community. They need to raise their standards, self- regulate themselves and take public accountability for the integrity of the advice they give the investment community. Our third party analyst tend to use valuation models that relate stock values only to their peers in the same or similar sector within the Nigeria market. If a peer stock is therefore overvalued due to poor market information, market manipulation or distorted information by company public relations, the valuation model overvalues the stock and issue a strong unreasonable buy advice to the investing public. Such models as we typically use, do not recognize the increasing stronger integration of our market with global financial markets as short-term capital flows moves freely in and out of the Nigeria market. Our analyst community must do more to access international data and use models that value stocks relative to their peers in similar sectors and similar country and risk markets. That is the difference in the quality of market analysis by a J.P. Morgan on the Nigeria stock market and that which you get from your local stock broker. Then we will need to raise the standard of financial journalism and investment information distribution. Efficient market hypothesis is based on the assumption that investors are rational and that information is available for buyers and sellers to price assets objectively and optimally. When there are information asymmetries, when information are not widely available or they are distorted by public relations activity of companies, the market cannot be efficient; assets will be priced wrongly and everyone will loose. Financial journalism therefore has a social and historic role to play in the efficient functioning of our markets and the rebuilding of public trust.

Fourthly, we will need to reshape the values of managers of businesses in public corporations to which we have endowed a privileged trust, as customers, shareholders, government and the larger public. One of the most important lessons that managers need to re-learn is that an organization does not just exist to make profit for its shareholders alone. A good company is that which has a social purpose for which making profit is the by-product of fulfilling that larger social purpose. Therefore, a good company is not that which posts bumper profits that managers celebrate but harms the larger interest of other stakeholders such as customers, the government and general public welfare. A good company is that which is able to optimize the interest of all its stake-holding groups of customers, shareholders, the state and the larger public. It provides great products and services that improve the quality of life of Nigerians, return good profit to shareholders while contributing to national economic development. A good company will not significantly externalize the cost of its business. When a company makes huge profit by destroying the environment, and gets away with it, because social institutions are weak to make it pay for it, it is externalizing its cost and betraying public trust. As we have seen all across the world, when managers of financial institutions take excessive risks, which endanger the financial system and have to be bailed out by their governments and state resources, they are externalizing the cost of their firm’s profit. Society has however trusted too much. The fact is that firms will most always externalize their cost unless there are social institutions such as regulations and the tax system that prevents them from externalizing their cost or make them pay for it, when they do so. That is why we support the new policy being pushed by the US authorities and President Sarkozy of France that banks need to be taxed specially to build a pool of funds which shall fund the cost of future bail-out of the financial system when the need arises again.

The argument above however presupposes that if the interest of managers and the larger public interest are not fully aligned, that at least managers are true agents of their principal (their shareholders) and their interests are fully aligned. This is not always so. Our compensation policy especially the big annual profit bonuses, tend to reward managers excessively for the short term over the long term. This tend to create a classic moral-hazard problem where managers take investment decisions with excessive long term risk, which may not crystallize in the early years when they cash in on their short term profit and profit bonuses. When these risks eventually crystallize in the future, the managers have moved on, leaving the firm, its shareholders and future managers to manage the consequences of fallen profit and collapsed share prices. Essentially, our compensation policy, encourages a risk behavior that allows the transfer of the consequence of managerial risk decisions to someone else in the future. When the reward of a risk could be appropriated by the risk taker, and the consequence of the risk is for someone else, there is a tendency by the risk taker to take excessive and sometimes unreasonable risk. This is the moral hazard problem in risk management. It plays heavily in the nature of our managerial compensation where rewards are heavily weighed in favour of annual profit bonuses and virtually nothing in long term share prices of corporations. This will need to change to align managerial interest better with that of shareholders and strengthen public trust in corporations. Compensation of managers must carry a significant long term portion related to the future share prices and values of their firms, as a function of the long term impact of their managerial decisions.

As we have discussed earlier, a transparent organization and a culture of candour between the managers of a firm and its employee is critical to building organizations that will win public trust. When an organization is transparent with itself, it will have no problem being transparent with its publics. To build a culture of candour however, leaders and managers will have become more tolerant of dissent. This is a big challenge given big “Oga” nature of our organizations that has its roots in our typical African gerontocracy. A boss is like an elder in the family. He is male, older, therefore much wiser and always right. He, as an elder sits in managerial council of elders, with older and wiser people like him, where like the African secret cults of elders, they meet in secret, agree in secret and only communicate their decisions even without rationale, to ordinary young plebians (their staff) to implement. The young plebians must not question the decisions of the elders because they do not know what the elders know, or are not wise enough. The elders (the managers) can therefore do anything and get away with it. Once, in a while, there could be some young people sitting in the council of elders, because of their specials skill or valor. These young people acquire the character of the secret cult of the elders and behave like them. It is not therefore a question of age but of our typical African gerontocratic management culture. To build transparency, we must create new “open societies” in our organizations with a new type of elder who while being a leader, can be openly questioned by her followers, a leader who will tolerate dissent as a necessary ingredient of widening perspectives in solving organization problems. Essentially, we will need to have organizations where managers are more openly accountable for their decisions to their internal stakeholders. Related to the above, is that leaders must take responsibility for promoting strong ethical behavior in their organizations. As Peter Drucker said “..the spirit of an organization is created from the top”. Leaders are the biggest influence on their organizations. They create the spirit of the enterprise, its values and its behavior. What they do, or do not, is most critical in building organization culture. The character and behavior of managers in organizations are shaped by two things, what the leaders do or how they behave, and secondly by what the leaders reward or sanction. Leaders must act as important ethical role models for their organizations. They must reward not only result or performance but also the process and the behavior exhibited in delivering performance. Leaders have a responsibility to ensure that there are strong consequences for ethical infractions in their organizations. Unless, they do this, ethical behavior becomes a mere sermonizing that can be ignored or adopted only when convenient by managers.

We should not conclude the discussion on shaping the character and values of managers without discussing education of managers and the challenge of public trust. This subject has received wide attention and soul-searching among leading international business schools. There is an acceptance by the business schools that if the gentlemen who nearly brought down the financial system by some of the most irresponsible behavior were Harvard , Wharton and Stanford graduates, there is something fundamental that they did not learn in business schools. Watching some of the younger Goldman Sachs executives defend themselves in the US Congress recently, you can’t but notice that the attitude is “it is about me, if it is profitable and it is legal, it does not matter what happens after, I take my profit”. While ethics is thought in business schools, its method and its content will need to be reviewed and reformed. Writing on this subject in the Harvard Business Review, Joel Podolny, a former Professor at the Harvard Business School said as follows “ I am angry about the inattention to ethics and value based leadership in business schools. We didn’t need the current melt-down to tell us that; the Enron and the WorldCom scandals proved it more than seven years ago”. We need the same type of open and public soul searching by our business schools especially the Lagos Business School (LBS) that produces the cream of our managerial leadership. The problem in teaching ethics and developing a robust ethics curriculum and content for MBAs is that the subject of ethical inquiry is philosophical, a humanities discipline with strong roots in philosophy, history, literature, religion and psychology, and not a quantitative science that lends itself to mathematical and statistical models of such as calculus, regression models and chi squares, the tools of some of the most prestigious academic disciplines in business schools. Charles Handy, the father of British Management education and one the founders of the London Business School observed in his memoirs that MBAs should rather be called Master of Business Analysis because of the heavy bias of towards analysis rather than critical thinking and moral reasoning in business education. Both Handy and Podolny observed that the analysis in typical business school case studies do not prepare managers to make moral choices when faced with ethical dilemmas after graduation. Charles Handy tells the story of his attempt to introduce the study of the Greek literature classic, the Sophocles Antigone in the curriculum of the London Business School in its early years. Antigone had to choose between the order of her uncle Creon, the victorious ruler of Thebes who had killed her brother Polyneices in battle and ordered his body not to be buried in humiliation for crows and vultures to pick at, outside the city walls. Yet by her duty to her religion, Antigone knows that it is a sacrilege to the Gods to leave a man unburied. Souls of bodies that are not buried will be condemned to perpetual hell and will be forever chased by the Furies. Yet to bury her brother, will be to disobey the order of the king and duty to the state. The consequence of disobedience of the order of the King was execution. Antigone’s conscience and duty to her state were in conflict. Antigone chose her conscience, buried her brother and committed suicide. Charles Handy wanted to use this Sophocles tragedy to teach his business students in the 1960s, the subject of ethical conflict and moral reasoning. In his memoirs, he noted that he had to drop the course from the London Business School curriculum as the course was un-popular, resisted as not being critically relevant by the students and the companies who sponsored them. Several decades later in 2006, writing in his memoirs, he regretted not being stubborn enough and bowing to the will of the business school education market at that time. Enron and Worldcom scandals had showed that the absence of such subjects in business education curriculum has produced generations of managers, loyal only to their bonuses with very little social conscience.

It is time to rebuild the broken wall of trust between business and society. The cracks are big and like a piece of broken china, they will be difficult to repair. Yet we must not despair. This broken china of public trust must be fixed because there are no options. The trust that the society gives business is the privileged charter on which business exits and does its business. If there is a one sentence summary of the lessons of the past three years for our big business, it is that the pursuit of profit cannot be a substitute for morality and social conscience. Business must no longer act as if profit and morality are mutually exclusive. Business and its civil organizations must adopt a new focused agenda of rebuilding public trust. There has been very little to suggest that this subject is receiving the right level of attention among the civil organizations of business and its professional associations. After the initial brouhaha of last year, our professional and business civil organizations are back to business as usual, with the annual traditional change and display of medals on the necks their different Presidents. As we have seen in the United States, our business, its civil and professional associations need to engage the public openly on what they are doing to reform themselves given that the larger society is the critical stakeholder in this dialogue of trust. Our business professional associations have traditionally acted like trade unions set up largely to protect their trade and the interest of their members. It is time now for them to act more altruistically in the in the interest of the larger society and fix this broken china of public trust. And as business does this, our larger society must reform itself. Our business are largely a reflection of who we are and the values that we celebrate. We must re-commit to stronger ethical values and public morality. We must commit to the values of a more open society and strengthen the civil and democratic institutions that enable such open and transparent society to thrive. It is an historic task for our generation that we must not fail.

Olu Akanmu
June 2010

Reflections on the “Responsible Manager”

2010-03-22T16:14:00.005+01:00

By Olu Akanmu

Management guru C.K Prahalad published a short article titled “The Responsible Manager” on page 36 of the January-February , 2010 edition of the Harvard Business Review. The article is a “Collectors item”. It is short and easy to read. I recommend it strongly. Prahalad says that over the last 33 years, he has ended his MBA and executive education courses by sharing his perspectives on how managers can be “responsible”. He says he has had no reason to change the note year after year. The subject of the “responsible manager” has never been more relevant than now, when corporations and its managers have lost public trust. Many corporations in Nigeria over the last three years have destroyed shareholder value, measured by the massive collapse of share prices on the Nigeria Stock Exchange. Managers are not “trusted” anymore by their shareholders and even their subordinates. The level of cynicism among employees towards their managers and their leaders have perhaps never been this high. If managers can’t be trusted, if they are perceived not to be “responsible”, they do not have a moral basis to lead their people and their organizations. They are definitely sub-optimizing performance because they cannot mobilize fully, the collective energy and the heart and soul of their people.
Prahalad identifies in his article, eleven ways that managers could become ‘responsible”. These are as follows.

1) Understand the importance of non-conformity. Leadership is about change, hope and the future. Leaders have to venture into uncharted territories and must be able to handle intellectual solitude and ambiguity.
2) Display a commitment to learning and develop yourself
3) Put personal performance in perspective. Humility in success and courage in failure are the hallmarks of a good leader.
4) Invest in developing other people. Be unstinting in helping your colleagues realize their full potential.
5) Learn to relate to those who are less fortunate. Good leaders are inclusive, even though that is not easy.
6) Be concerned about due process. People seek fairness not favours. They often don’t mind if decisions don’t go their way as long as the process is fair and transparent.
7) Realize the importance of loyalty to the organization, profession, community, society and above all the family.
8) Assume responsibility for outcomes as well as for the process and people will work with you. How you achieve results will shape the kind of person you are.
9) Remember you are part of a privileged few. That is your strength and also the cross you carry. Balance achievement with compassion and learning with understanding.
10) Expect to be judged by what you do and how well you do it-not by what you say you want to do. The bias for action must be balanced by empathy and caring for other people.
11) Be conscious of the part you play. Be concerned about the poor and the disabled; accept human weakness, laugh at yourself and avoid the temptation to play GOD. Leadership is about self-awareness, recognizing your failing, and developing modesty, humility and humanity.

I like to add a 12th one which I learnt from Steve Covey’s “7 Habbits of Highly Effective People”
12) Have a “mentality of abundance” in your relationships with your colleagues. This will help you to professionally put the organization and the greater good of all above your self-interest. The world is full of boundless opportunities and platforms to create and make a difference. There are no ultimate platforms or positions. You only need to be creative to see another one to stand and make the difference that you seek.

These are indeed humbling times that call for deep introspection for professional managers. We are learning even more clearly that technical competence enough do not make great managers. Values and good personal ethics are fundamental. Perhaps, Prahalad’s 8th point above is most critical for our managers in Nigeria today. The result that we get cannot be divorced from the process of getting the result. The appreciation of this will make our managers more ethical and make our organizations reward both results and behavior. For so long, we have rewarded results and performance with little attention to behavior. A dominating management paradigm among Nigeria managers in the recent times has been “Effort is nothing; result is everything”. This is echoed in every business review session with the most brutal sentiments that has become the culture of our high performance service industry. This paradigm over time tended to have become “Behaviour is nothing, result is everything”. Anything, any method tended to be good enough if it produces result especially in the race to win and annihilate competition. We have made bad behavior thrive. And organizations where bad behavior thrives are ultimately weak and can never realize its full corporate potential. And if corporations are social institutions endowed with privileged obligations to society, managers have a responsibility to manage them much better by behaving better. Our managers must therefore become more” responsible”.

C.K. Prahalad died on the 16th of April, this year in San Diego, United States at the age of 68. The global business community and its thought leaders will miss him. It is said that if there was a Nobel Prize in management, C.K. Prahalad would have won one. He was the co-author of the famous Strategy classic “Competing for the Future” where with Gary Hamel; he developed the theory of the Core Competence of the Corporation. They showed that the key to future industry leadership is to develop an independent view of tomorrow’s opportunities and develop unique un-generic capabilities to exploit them. Every sentence in “Competing for the Future” is a management quote. There are not many books like it. Perhaps, Prahalad’s most controversial book was the “The Fortune at the Bottom of the Pyramid” published in 2006. In this classic, Prahalad advocated that the business world especially the Multi-national Corporations will be irresponsible if it continues to serve only 30% of world population with the assumption that the rest of the 70% of world population cannot be profitably served. In a period where growth has become flat or even declined in the first world, if the expectations and trajectory of growth seen in business over the last three decades are to be maintained, the business world must take a more critical look at the opportunities in the huge underserved populations in developing countries with a view to finding the radical business model that will unlock the potentials of these four billion people. He pointed to emerging and entrepreneurial businesses in the third world that, through a combination of innovative technologies, some of which were borrowed from the first world but adapted cost effectively to developing country consumer context, through innovative value engineering, are serving the third world markets profitably. These businesses along with building scale that compensates for the low margin of third world consumer, affordable packaging units, low cost distribution channel that improve access to product and services to previously underserved segments and strong consumer education, have unlocked and profit potentials of market segments that were previously ignored by the MNCs. Example of these companies include the Bharti in the telecom industry who are very profitable at half the price charged to telecom consumers in other markets. Tata of India has also developed a low price car at less than USD 3000, opening up a new car segment for the global auto industry. ICICI of India became the biggest retail banking franchise in India, outgunning the international banks on the basis of this business model. Unilever India has adapted its business model to this emerging market context, to maintain its leadership of the consumer goods industry in India, leveraging its India experience across several emerging markets. These companies are not only making profit in these previously ignored markets but they are impacting positively on the quality of life of their people. The business world will forever remember this altruistic wake-up call from Professor Prahalad. May his soul rest in peace.

Olu Akanmu
March 2010.

15 Changing Contexts of Marketing Today

2010-03-19T14:02:00.008+01:00

This presentation has been given on two major occassions. First, at the 35th Association of Advertising Agencies of Nigeria (AAAN) Conference in July, 2008. It was later presented as keynote address at the launch of Global Marketing Network (GMN) in Nigeria in October, the same year. While one or two historical facts might have changed, the presentation remains very seminal for marketing practitioners today and likely to remain so for years to come. Please, find the link below

www.gmnhome.com/documents/GMN%20Compatibility%20Mode.pdf

On Gulder, Brand Equity and Extension

2009-06-13T13:56:00.010+01:00

By Olu Akanmu

The news that Nigeria Breweries (Heinekens subsidiary in Nigeria) is withdrawing GulderMax, an extension of the Gulder Brand from the market offers some important lessons on brand equity and line extension. The M2 Magazine, a Nigeria leading marketing management weekly recently broke the news and did some analysis on the subject, essentially concluding and applying the Al Ries principle that brand extensions typically are bound to fail. It opined that the GulderMax saga is validation of the Al Ries principle. While one will agree with this principle to a large extent, it is also important to note that the principle remains one of the most controversial among marketing practitioners. The history of marketing is full of many extensions that had succeeded as well as those that have failed. The GulderMax saga provides us an opportunity to look at these issues again. Without traveling far away from home in Nigeria, we have in the same alcoholic beverage industry, the successful extension of Guinness Foreign Extra Stout to Guinness Extra Smooth by Guinness (Diageo Nigeria). Guinness Extra Smooth is a lighter stout to reach those who would have found the Guinness FES too strong and rough and will typically drink a good premium beer. GulderMax was a stronger, higher alcohol, darker beer to reach typical stout drinkers who want a stronger, and rougher alcoholic beverage and will consider a typical beer too light and less macho. Why was the Guinness Extra Smooth Extension successful and GulderMax was otherwise? The two extensions from the arch rivals in the brewery industry in Nigeria offer some important context analysis for brand extensions and potential success. I distill the contextual issues in five lessons below.

Lesson 1: Only Strong Brands Can Successfully Extend Themselves. You cannot give to an extension what you don’t have as a mother brand.
The Gulder brand of today is much different from the Gulder that we used to know ten years ago. A lot has happened to Gulder in the last ten years that questions the “ultimateness” of its brand claim. The “ultimateness” of Gulder seems to have been more questioned internally within Nigeria Breweries than from its corporate competitors. Nothing expresses this more than a recent “Heineken” billboard with the big single –minded copy “Chairman”. Take out the entire Heineken picture and replace with Gulder, on that billboard, it could have been the Gulder billboard of 1990. Gulder used to be the “Chairman”, and other brands like Star were the members of the board. Gulder was the hero, the leader, the premium, the “Ultimate”. It is no longer so with Gulder. Even before Heineken in the early 2000s, the “Star” beer carried a coup d’état against the “Chairman” by launching a new premium international bottle before Gulder. The Star brand consolidated its coup d’état by putting itself in a limousine belonging to the Chairman and rode into the city like a SuperStar. It was good for Star but it was not good for Gulder.
In essence, the “ultimateness” of Gulder had become questionable and its extrinsic (lifestyle) character has become amorphous. Its equity had become diluted and weak, yet it sought to extend itself. The result with the benefit of hindsight is largely predictable. An extension out of a weak Gulder is unlikely to be strong.

Lesson 2: If you want to determine the Strength of a Brand and its potential to extend, look at the strength of the brands in the category you want to extend to. Compounding the GulderMax challenge was the fact that it sought to take on the very strong “Authentic” Guinness Stout in its territory. It did not matter if GulderMax was attacking the outside flanks of the Stout category. The Guinness Stout fortress was too strong. Guinness launched the 1759 campaign. It first campaigned its authenticity in huge capital letters on billboards that it has been the original stout since 1759. It followed with a contemporary lifestyle expression of the modern stout drinker who is not the old stereotype physical macho stout drinker, but a young corporate executive meeting his friends for drinks at the bar, after work at six o clock. The launch of the Guinness Extra Smooth, the lighter stout extension, was part of the Guinness defensive game. The fortress built against GulderMax by a strong Guinness range of brands was just too strong.

Lesson 3: Depending on the defining character of brand, it will look like it is easier to extend down, (though with significant risk of equity dilution of the mother brand,) than to extend up. Which one is easier to do, a cheaper form of Peak Milk to target the low premium milk market or Cowbell Gold extending upwards from the low premium milk category? If “high-ness” is the defining character of beer, it will look like it is easier to extend into lighter beer than to stronger beer. That seems to be one of the differences between the Guinness move and the Gulder move. Toyota in creating the Lexus range recognized that “quality” at the topmost end of the car market is expressed differently as Luxury which Toyota cannot express. It did not go into the luxury category as an extension but launched a different brand. If the value proposition is distinctively different, a new brand to express the new value proposition single-mindedly may be better than a brand extension. This brand will however need a lot of investment. This perhaps is the role of the Legend Stout in the Nigeria Breweries portfolio.

Lesson 4: For products and categories where the purchases are done on an emotional level, a clear expression of extrinsic character of a brand is critical to unlocking the value of its intrinsic character. While Gulder has done a lot to show its strong intrinsic character as a quality beer through a series of its “Extra-Matured/ Great beer” campaigns, it might not have fully harnessed the benefit of this intrinsic quality because it is not linked to a resonating extrinsic character and claim with its target market. The extrinsic character of Gulder has become amorphous. The man of style, the modern cosmopolitan hero is no longer very visible in its brand identity. It is this modern cosmopolitan man that knows and buys the great ultimate beer, and drink it as badge to who he is. Without the clear visibility of this modern cosmopolitan hero, the intrinsic quality claim of Gulder might just have been standing on its own.

Lesson 5: International alignments of brand portfolio may sometimes compel the change of roles of brands within the company portfolio, sending pearl attackers to the mid-field and sometimes the side-lines. This may not always be visible to those outside the company.
The “Chairman” today is not even Star anymore. It is Heinekens. It is the right thing for Heinekens as a global corporation to ensure that its country and local market portfolio conform to its global portfolio. Without this, its marketing spend at the global level will be largely sub-optimized. The Gulder Ultimateness might have been a victim of the Heineken global portfolio strategy. It is nothing to be sentimental about. Heinekens did the same with Amstel when it took over from it as the sponsor beer for UEFA Champions league. Amstel’s portfolio role became re-defined. This is what Gulder is perhaps going through today. For Heinekens and its Nigeria subsidiary, the Nigeria Breweries, as long as they ensure that beer drinkers who seek premium quality and Ultimateness, (even if they leave Gulder ), go for Heinekens, and even pay a higher premium for its international stature, their cash machine will keep ringing louder and louder.

Olu Akanmu
June 2009

N.B. Please, post your comments on the blog to share with others. Also, send article and e mail links to marketing practitioners

Let us De-Commoditize Our Industries

2009-05-02T14:29:00.016+01:00

By Olu Akanmu

Professor Michael Porter of the Harvard Business School was recently in Nigeria to speak to Nigeria CEOs at a BusinessDay CEO forum. One of the theme of his presentation was the need for CEOs to lead their business to deliver unique value proposition to their customers, to compete differently from rivals and understand the difference between Operational Excllence and Strategy, even in this recessionary economy. Quoting Porter, "the worst error in Strategy is to compete with rivals on the same dimensions". This article below, a lecture delivered at the Lagos Business School SMP 25 Alumni Re-Union in December 2006, gives a deeper Nigerian flavour to some of the theme of Professor Porter's lecture. Another article " Be Different or Die" also on this blog is also strongly recommended.

I congratulate you, the SMP Silver Class on your Re-union. It is important to always come together to strengthen our bonds of friendship, our shared values and our collective commitment to business excellence. Speaking to your President yesterday, I could see why you have been described as one of the most exciting groups in the LBS Alumni. You group is defined by its diversity, its passion and its balance mix of fun and business which you are demonstrating today.

As senior managers we are actively involved in debates that shape the destiny of our organizations. Our primary responsibility collectively as managers is to build sustained wealth of our shareholders. I like to speak to you on something critical that we need to do, if we would create and not destroy shareholder wealth. I will like to speak to you today on the “the need to de-commoditize our industries”. Commodity businesses are like selling cashew and groundnuts. Everybody’s product is fundamentally the same. Unless, there is a large unmet demand, with very few players, everybody competes on price. Prices keep falling rapidly. When competition gets intense, there is price war, no-one makes really good profit, some players loose their shirts, they close down and shareholder wealth is destroyed. Many of our industries today are beginning to share the character of cashew and groundnut industries. We all produce the same type of things, in the same way, for the same people, in the same places with perhaps the same instruments. Driven by competition forces, many industries are becoming commoditized with looming price wars and constrained profitability.

I will like to quote from an earlier lecture I gave at the launch of Nigeria Marketing Memoirs, titled “ Be Different or Die ( Please, see article on this blog)
“…Competition across industries today has never been more intense in our land. The Nigeria economy has become more liberalized and markets are opening up. The international credit rating of the Nigeria economy by Fitch and Standard and Poor, that puts us in the same class as leading world emerging economies like Brazil and Turkey makes Nigeria, a good destination for foreign direct investment. Democracy has been good for Nigeria and we pray for a smooth and orderly democratic transition. Multinational companies that abandoned Nigeria in the days of military rule have come back fully. Others that were on the ground, that practically kept their investment at a minimum to prepare to divest on the long run, have upscaled their investments. What is interesting about this is that leading firms in the same industry are upscaling their investments at the same time creating a level of intra-industry or intra-category competition on a scale that has never been seen. We see this especially in the manufacturing sector, in industries like food and beverages and the breweries.

On the other hand, we see competition pressures driven up by the forces of deregulation and re-regulation. Monopoly powers which protected the in efficiencies of incumbent players are breaking down as we have seen in telecommunications, and we will see in other utility industries. Deregulation in financial services is leading to the convergence of playing fields of insurance and traditional banking that has been hitherto separated. We now hear words like “bancassurance”, a lingo which had not existed in the Nigeria financial services vocabulary. And re-regulation as a result of the Soludo Solution in financial services has created new competitive situation of well resourced industry armies, consolidated firms with consolidated arsenals pointing towards each other.

Digital technology which we call digitalization has also been a key driver of the new competitive pressure. It is creating substitute products with new economics that is forcing down prices in industries. In telecommunications, we can see the now established presence of international calling card business using new internet technologies that have forced down international calling rates from as much as N120 five years ago to about N15 today. Digital technology is creating convergence in industries that we will traditional consider as very distant from each other. A payment services nexus is emerging between the financial services and telecommunications industries. The two industries can bring different assets in market power and competencies to compete or co-operate in the emerging nexus.

Our simple story is that the combination of the three dimensional forces of Democracy, Deregulation and Digitalization which we call 3D forces is fundamentally changing the structure of many industries with potential seismic effects. This combination creates new challenges as well as opportunities. Old paradigm are turned on their heads. Rules of the game are changed. The defining paradigm of this new competitive situation is the rise of the power of the customer to new levels across industries. The customer is the beneficiary of the new competitive situation. The customer now has got real and many choices. He has also become more sophisticated. He is more widely traveled compared to the past. He is exposed to international media through satellite television, movies and DVDs. He knows the standards of advance markets and demands that his products perform to the same standards. He understands the economics of his relationship with your business at an amazing level. He is also becoming organized along with his peers in associations to protect their interests. We are witnessing a new phenomenon of organized customer power, something that we are not used to in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. The customer may no longer be much atomized. The organized association of customers supported by Customer rights advocacy movements, challenges traditional marketing practice in Nigeria.

As we have said earlier, our collective response to these new competitive situation has been largely to copy each other. We are all running after the same customers, offering them the same things, in the same way. Players are essentially copying each other with the result that customers can no longer see differences in offerings and services among players. There is a growing commoditization of industries especially in the service sector, a situation where we all run after the same customers, with the same offerings, in the same way. Price has become the only point of difference, which in itself is not a sustainable difference as players drop prices easily to match each other. Price wars are now on the increase, disguised as lotteries and promotions across industries. Even the banks are now doing lotteries. Industry value and profitability are being destroyed as a result of businesses not being able to deliver relevant, unique and tangible differentiation to customers. The consequences for re-investment and growth are serious if businesses cannot make good returns on their investments. Public savings mobilized into the stock market at an un-precendented level in the last two years may be threatened and even destroyed. The worst situation for savings and investments in Nigeria is for the public to loose confidence in the capital market because businesses have failed to give them good economic returns on their investments. It will take many years to rebuild public confidence in the capital market…..”

Businesses needs to return to the fundamental essence of strategy which is to elect to serve unique customer groups in a unique way with unique offerings based on the firm’s unique capabilities and competencies. As senior managers in our businesses, who feel the heat of commoditization of price wars in our operating unit, akin to bayonet to bayonet street fighting and blood letting, we will need to re-pose the question to our leaders “ How would we deliver unique values to our customers in ways that cannot be easily matched by others?” This perhaps today may be the biggest question of business in Nigeria.
While this question looks simple, it is a real tough and hard one. The most usual stereotype answers usually sounds like “We will serve the customers better” (Emphasis better). There is however a fundamental difference between the words “ better” and “unique”. As I searched this morning my various dictionaries, I could not find where either of these words were used as synonyms for each other. Key synonyms for better were “improved, enhance” while the key synonyms for unique were “sole, one of its kind, matchless, distinctive, irreplaceable”. In essence, doing things better is not necessarily doing them uniquely. This is one of the biggest lessons for Nigeria businesses especially in the service sector that better is not necessarily unique. Using the business jargon, better is operational excellence, uniqueness is strategy. Operational excellence is therefore not strategy.
Many of us in the same industries are becoming operationally excellent in the same way but not necessarily becoming unique. Our investments in operational excellence may therefore not be paying off, effectively on our bottom-line as we may not be able to charge significant price-premium, ensure good profit and create sustained shareholder value.

As senior managers, let us therefore engage our business leaders and the boards of corporate organizations that operational excellence is not the same thing as strategy. That efficiency in serving the wrong markets is just a good as inefficiency on the long run. That even when organizations serve the right markets efficiently and they do so in ways that do not deliver unique values and offerings to their customers, their efficiency will not be effective on their bottom line. They will only become efficient, perpetual price -cutters who destroy economic value and the wealth of their shareholders.

Yet Brothers and sisters, being unique is easier said than done. It is tough these days to find and sustain uniqueness in a world where we all go the same LBS, we have access to the same technologies and recruit the same type of people. There will be two critical sources of building uniqueness in the coming period. They are

a) Building organizational capability to unlock and find unique customer insights on which unique products and services could be built. There are structured methods and processes of doing these. Organizations will need to develop and find them.
b) Learning and institutionalization of organization memory: As we all try the same things at least at the beginning, organizations who learn best from their experience and their environment and have developed a structured way of using such learning to build organization memory to serve their elected markets uniquely, are likely to see on the long run what others do not see.

The combination of organizational capability to unlock unique customer insights in a structured learning process will help in building the necessary proprietary assets on which unique service capability could be built. By so doing, we will be de-commoditizing our industries, reduce the tendency for price wars which destroy economic value and shareholder wealth.
I thank you for listening.

Olu Akanmu. December 2006

Recession: It is not the time to abandon Strategy

2009-02-22T16:51:00.007+01:00

By Olu Akanmu

As we move to the end of the last quarter of the year, it is clear to many businesses now that they have to do belt tightening. In first month of the year, we saw the stock market decline by as much as 30% and the naira depreciating significantly against the dollar. While declining asset prices as we discussed in “ Marketing Tasks and Issues in 2009” (See December 2008 posting) will impact consumer confidence, the depreciating naira relative to the dollar will result in significant input cost which may not necessarily be absorbable by consumers whose real household income may decline as a result of imported inflation and declining employment. Federal Allocation to states has significantly declined as a result of declining oil prices even in the first quarter of the year. The impact on household income in many states, where government is the biggest employer and economic spender, will be significant in the coming months.

The natural reaction of many businesses to the new economic challenge is to focus on the pursuit efficiency and the control of cost. After-all, if revenue projections are uncertain, the control of cost to maintain descent profit will be critical. The danger however is that what seemingly started as a tactical response to short term environmental challenge can assume a life of its own, consume the psyche of the organization and become the strategy of the business. Strategy is the art of long view. This recession or economic slow-down will probably last two or three years. A going-concern must have a view beyond three years even in an unpredictable emerging economy like Nigeria. While cost management and control, essentially the pursuit of operational excellence will be critical, building the capability to compete and deliver unique propositions to customers is a ball that must not be dropped. It takes nine months to have a baby. If firms, abandon or postpone their strategic initiatives at this time, till after the economic slow-down, they will probably not have the unique capability to exploit the new opportunities which will be re-presented to business at the economic turn to a new cycle of growth in the next two or three years. In essence, the choices that they make now, how they delicately balance cost management and strategic pursuit, will determine if they will be champions in the next economic turn.

This delicate balance might however be tough for some firms especially those who are vulnerable today because they have previously not built unique capabilities to compete and render differentiated services to their customers. Such firms will be most affected by the coming price wars because the commodity nature of their offerings provides little resilience to aggressive competition dictated y the contraction of markets or its slow-down. Such firms will have to battle for survival, to have today and think of tomorrow only if they survive to get there. The lesson however for other firms, is that to avoid the situations described above, they must never lose sight of building unique advantages and capabilities to deliver unique and differentiated products and services. Ultimately, even in an economic down-turn, previously built unique capabilities may be the greatest buffer to the kind of market shocks that we witness today. A theme that runs through many of our previously published articles, some of which could be found on this site (Please, see: Be Different or Die, Some Lessons for Nigeria CEOs) is that operational excellence is not strategy. That, it is critical for firms to recognize this, and not to substitute the pursuit of organizational effectiveness for strategy, which is the art of building unique capabilities to deliver unique product and services to customers.

How should the delicate balance of cost management and strategic pursuit be managed at these times? The first thing is to dimension the organization to determine what is core to its advantage today and its competitiveness tomorrow. All others outside that core can be classified as “nice to have” where outsourcing or other options could be pursued. Secondly, the organization must strive to deliver strategy effectively. In essence, it must do the unique things that it has elected to do, to be different, effectively at optimal prices and optimal quality. While operational excellence is not a substitute for strategy, it is a critical complement to deliver and execute strategy. Business opportunities are time-bound and exist typically as strategic windows, which draws and eventually closes. The timely pursuit and delivery of strategic initiatives, the execution of programs, the translation of strategy to real market advantage and business revenue is critical to these times. Thirdly, organizations must determine the minimum investment intensity or capability maintenance investment levels necessary to maintain its long term competitiveness. Investments below these levels are likely to be a waste and the firm, if it cannot maintain this minimum investment intensity should consider exiting such business and generate cash and resources to keep investments above the minimum intensity required in other businesses.

A discussion on recession and strategy cannot be complete without the subject of leadership. In normal times, organizations need strong leadership. In period of economic downturn, leadership is even more critical as organizations battle for survival. Recession represents a crisis to organizations. It is like war. Like nations in war that need strong leadership, organizations need the strongest of leadership in recessions. The heart and soul of the people must be engaged to win and pull through the difficult times. Leaders must make this happen. They must lead with the highest level of integrity and be a force of example of hard work and sacrifice to the organization rank and file. A good army has generals, colonels, majors and lieutenants. War is never won by competent generals and incompetent lieutenants. In recession times, leaders must invest heavily in leadership competency development several levels below them. Every leader must be trained on how they can engage the heart and soul of people in their unit in alignment with the transformational battle plan of the organization, its tactical trade-offs and its strategic choices. And because resources are very scarce in this period, leadership training must be linked clearly with financial literacy. Every leader must understand how value is created or destroyed in the organization. Cost rationalization and resource optimization will therefore not just be a decree from the top but something that is understood by those who need to execute it. Stronger financial literacy in the leadership cadre will also build a new behavior where leaders align their resources more strongly around value creating activities that support institutional sustainability.

In conclusion, times like this do not make strategy irrelevant. Firms must keep their long view, recognizing that the economy moves in cycles and that this slump shall turn upwards in the coming years. While they do cost management today, they must do so without damaging their long term capability to compete and take advantage of the next economic upturn. The clever balance of cost management and control with dogged pursuit of strategic initiatives for long term competitiveness is the art that firms will need at these times.

Olu Akanmu
February 2009

Marketing Tasks and Issues in 2009

2008-12-09T15:42:00.004+01:00

By Olu Akanmu

As we approach the year 2009, marketing practitioners are expected to develop their business plans or fine tune their roll-over plans into next year. 2008 has been a very eventful year with the global economic melt-down. What started as a seemingly remote mortgage crisis in far-away America eventually touched many parts of the world. For us in Nigeria, because of our relative weaker integration into the global financial system compared to Europe and the Asia, it took significant time before we saw the first ripples of the global economic tsunami. While the global economic melt-down was going on seemingly from afar, our economy witnessed strong internal shocks occasioned by the collapse of asset (stock) prices. The collapse of asset prices in 2008 was the result of our internal economic contradictions, inflated asset prices that have very little bearing to business and economic fundamentals, investor greed, herd behaviour and sentiments that assume that economic cycles of booms and slumps do not exist in Nigeria, that asset prices will forever keep going up and weak regulatory frameworks that magnifies the previous factors.

Asset price bubbles in stocks and properties in 2007 and 2008 fueled strong business and consumer confidence. Consumer spending was high especially in the middle class driven by the expectation of increasing asset prices and household income. With the global economic melt down, oil prices have crashed from as near 150 dollars to about 50 dollars. This will have significant effect on government income, investment and expenditure in 2009, and impact on the flow of money to households and ultimately consumer spending. Some analysts have opined that the Nigeria stock market tends to lag behind the global stock market by one year. In essence, their opinion is that the collapse of global asset prices in 2008 will come fully to the fore from next year in Nigeria. Essentially, while unlike in Europe, we may not witness a total recession, 2009 is definitely a year of economic slow down. This coupled with the collapse of asset prices and a significant drop in consumer confidence to spend, will impact business revenue and market growth trajectories in 2009.

What does this mean for us as marketing and strategy practitioners?

a) Consumers are likely to be far more rational in their purchases next year as a result of un-expanding wallets and household income.
b) Luxury goods sector may witness significant decline. Many middle class people have traded up their consumption as a result of expectation of accelerating income driven by asset prices. There is likely to be a visible slow down in this sector.
c) Businesses that are yet to connect to consumer credit financing and networks may be unable to absorb the shocks of drops in consumer confidence and spending. The increasing availability of consumer credits will give products and services that have tapped into this service, a cushion to the drop in consumer confidence. Please, see my presentation on “15 Changing Context of Marketing Today” at the launch of Global Marketing Network in Nigeria.
d) A shrinking or a slowing-down market implies a more intense competition in 2009. In an era of increasing commoditization of products and services, we may witness new price wars as businesses try to out-compete each other. Yet this will not provide the succor that many businesses will require. Only products and services with real and tangible differentiation will pull through and survive the coming price wars in 2009. Please, refer to article Be Different or Die on this blog http://olusfile.blogspot.com/2008/11/be-different-or-die_9843.html
e) Rationalized marketing budget by mid-year: With intense competition and gaps between revenue targets and performance, it is likely that many businesses will rationalize their marketing budgets by mid-year. This will put even more pressure on marketing practitioners as their promotional arsenals are cut or scaled-back. Marketers who do not understand how their marketing investments add value and the return that such investments deliver are likely to be confused. If you use to do five things before and now have to do two, unless you know the real leverage and returns on the five things you do, you may not take the right decisions on three things you need to rationalize.

These are some perspectives on next year marketing issues? What are your views? Please, share your view with marketing colleagues by posting your comments below.

Olu Akanmu
December 2008

Marketing and the Promise of the Nigeria Nation

2008-11-21T01:39:00.003+01:00

Marketing and Vision 2020: The Promise of the Nigeria Nation

Discussion at the National Marketing Forum of the Nigeria Institute of Marketing

by Olu Akanmu

Brothers, Sisters and Compatriots.

Overnight, thousands of miles away in America, we watched a presidential candidate delivered and impassioned speech to his nation which he titled the American Promise. About this time last week, in the Far East, in the city of Beijing, we watched the Chinese deliver a major experiential marketing program of the Olympics, and its closing ceremony with the objective of reinforcing the equity of the Chinese brand in business and politics. And bigger for the Chinese, is the promise of China for the Chinese people; that China under its current leaders can restore the ancient hegemony of the Chinese nation in global affairs, make the Chinaman very proud and renew a new sense of patriotism, pride and national identity.

America is a brand with a clear promise to its people as a major constituent. The American brand promise is freedom and opportunity to be whatever you want to be with your GOD given potential. It is the promise which pulls the people of other nations, including our own Nigerian brothers and sisters to emigrate and be part of the American dream. You will notice in the early part of my presentation it, the common language that politics and marketing share,, “ Nation as a brand, the Promise of a nation to its people just like brand promise to customers, national identity or brand identity with a clear brand or national essence”.

Brothers, Sisters and Compatriots. What is it, about the nation such that we cannot clearly articulate a Nigeria dream that truly resonates and endures with the mass of our people? What is the promise of the Nigeria nation to its people, to its business and to its children? We do not have a clear elite consensus, on the Nigeria dream; neither do we have a popular consensus on the promise of Nigeria. Yet, if there is a vision of a national eldorado, a top 20 nation by year 2020, that vision needs to be sanctified by a clear elite and popular consensus on the Nigeria promise. That promise must guide the behaviour of our leaders and the ethics of our nation. That is what great brands do, they behave in a certain way, guided by a clear brand, or national essence which is sacrosanct, which endures over time and every constituent of the brand; politicians, businessmen and workers understands their role in delivery the national brand promise.

It will look to me that our polity including the Vision 2020 program can use more professional marketing expertise, to design a structured and coordinated program of mobilizing our people, our resources and energy towards the dream of a prosperous and democratic nation. Such methods are what Professor Ogwo has brilliantly enumerated in his lecture. The leaders of Nigeria, in politics and business must as professional brand managers understand the promise of the Nigeria nation, its value proposition to its people, the basis for which they have as free citizens submitted themselves to be governed by the Nigeria state. Our leaders as true brand managers must defend, protect and live the values of the Nigeria brand, a Nigeria nation and its promise that guarantees opportunity to prosper and liberty for its citizens. The expression of the freewill of our citizens is critical to choose and elect their leaders just as customers in an efficient market can choose their products with freewill. Free choice and purchase of products and services are the foundations of good markets. Free choice, democracy and liberty are also foundation of a good nation. We must therefore work to strengthen our democratic institutions and the civil society to become genuine and credible platform for the expression of the freewill of the Nigeria people. This will be critical to achieving the Vision2020 objective and the marketing community can clearly play a role in making the dream a reality.

Olu Akanmu
National Marketing Forum
National Institute of Marketing
August 29, 2008

Be Different or Die

2008-11-21T01:31:00.002+01:00

Keynote Address by Olu Akanmu, at the book launch of “Nigeria Marketing Memoirs” authored by Mike Awoyinfa and Dimgba Igwe. (May 16, 2006)

The authors that we celebrate today have painted the past of marketing in a memoir; I want to paint the present of marketing in my presentation. The book is a great one, it has been well reviewed. It is a chronicle of the exploits of Kings of Marketing on the shores of Nigeria. It is a chronicle, for the learning of the new generation of marketers, to build on the standards of the past, to celebrate the successes of our elders and to learn from their challenges. It is to this new generation, these new practitioners of marketing who are writing their own history that I wish to direct my epistle. I will be speaking to you today on the contemporary challenges of marketing in Nigeria.

Competition across industries today has never been more intense in our land. The Nigeria economy has become more liberalized and markets are opening up. The international credit rating of the Nigeria economy by Fitch and Standard and Poor, that puts us in the same class as leading world emerging economies like Brazil and Turkey makes Nigeria, a good destination for foreign direct investment. Democracy has been good for Nigeria. Multinational companies that abandoned Nigeria in the days of military rule have come back. Others that were on the ground, that practically kept their investment at a minimum to prepare to divest on the long run, have upscaled their investments. What is interesting about this is that leading firms in the same industry are upscaling their investments at the same time creating a level of intra-industry or intra-category competition on a scale that has never been seen. We see this especially in industries like food and beverages, breweries and the telecommunications.

On the other hand, we see competition pressures driven up by the forces of deregulation and re-regulation. Monopoly powers which protected the in efficiencies of incumbent players are breaking down as we have seen in telecommunications, and we will see in other utility industries. Deregulation in financial services is leading to the convergence of playing fields of insurance and traditional banking that has been hitherto separated. And re-regulation as a result of the Soludo Solution in financial services has created new competitive situation of well resourced industry armies, consolidated firms with consolidated arsenals pointing towards each other. The marketing communications industry and the larger marketing profession has been one of the beneficiaries of this new competitive situation. The collective ad industry is estimated to have gone up by more than 250% over the last five years.

Digital technology which we call digitalization has also been a key driver of the new competitive pressure. It is creating substitute products with new economics that is forcing down prices in industries. In telecommunications, we can see the now established presence of international calling card business using new internet technologies that have forced down international calling rates from as much as N120 five years ago to about N15 today. Digital technology is creating convergence in industries that we will traditional consider as very distant from each other. A payment services nexus is emerging between the financial services and telecommunications industries. The two industries can bring different assets in market power and competencies to compete or co-operate in the emerging nexus.

Our simple story as we have pointed out at different marketing fora is that “the combined forces of Democracy, Deregulation and Digitaization which we call 3D forces are fundamentally changing the structure of many industries with potential seismic effects”. This presents a new level of challenge to marketing practitioners. This challenge goes beyond simple brand marketing which would be sufficient in stable industries. The challenge calls for harnessing the best traditions of brand marketing but elevating it to a new strategic level.

The defining paradigm of this new competitive situation is the rise of the power of the customer to new levels across industries. The customer is the beneficiary of the new competitive situation. The customer now has got real and many choices. He has also become more sophisticated. He is more widely traveled compared to the past. He is exposed to international media through satellite television, movies and DVDs. He knows the standards of advance markets and demands that his products perform to the same standards. He understands the economics of his relationship with your business at an amazing level. He is also becoming organized along with his peers in associations to protect their interests. We are witnessing a new phenomenon of organized customer power, something that we are not used to, in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. The customer may no longer be much atomized. The organized association of customers supported by Customer rights advocacy movements will challenge traditional marketing practice in Nigeria.

How has the business community and the new generation of marketers approached this new competitive challenge? In many industries, players have largely responded in the same way. We are all running after the same customers, offering them the same things, in the same way. Players are essentially copying each other with the result that customers can no longer see differences in offerings and services among players. There is a growing commoditization of industries especially in the service sector, a situation where we all run after the same customers, with the same offerings, in the same way. Price has become the only point of difference, which in itself is not a sustainable difference as players drop prices easily to match each other. Price wars are now on the increase, disguised as lotteries and promotions across industries. Even the banks are now doing lotteries. Industry value and profitability are being destroyed as a result of businesses not being able to deliver relevant, unique and tangible differentiation to customers. The consequences for re-investment and growth are serious if businesses cannot make good returns on their investments. Public savings mobilized into the stock market at an un-precendented level in the last two years may be threatened and even destroyed. The worst situation for savings and investments in Nigeria is for the public to loose confidence in the capital market because businesses have failed to give them good economic returns on their investments. It will take many years to rebuild public confidence in the capital market.

Businesses needs to return to the fundamental essence of strategy which is to elect to serve unique customer groups in a unique way with unique offerings based on the firm’s unique capabilities and competencies. Marketing has to lead the way in making this happen. The new generation of marketers must raise the level of conversations in their business to a strategic level around this fundamental essence of strategy. New generation marketers must leverage their knowledge of markets and customers to influence their organization policy level and their boards. Traditional front-end marketing skills will not be sufficient. The knowledge of back end operations including people and technology issues will be critical to engage the business on how to build unique capabilities that will deliver unique offerings to elected markets. We must engage our business leaders and the boards of corporate organizations that operational excellence is not the same thing as strategy. Many organizations today are confusing the two. They think that just by running an efficient, operational excellent organization, they will win in the market place. However, efficiency in serving the wrong markets is just a good as inefficiency on the long run. Even when organizations serve the right markets efficiently and they do so in ways that do not deliver unique values and offerings to their customers, their efficiency will not be effective on their bottom line. They will only become efficient, perpetual price -cutters who destroy economic value and the wealth of their shareholders.

If the power of customers is on the ascendancy, businesses will also need to have more dialogue with their customers. We will need to engage them at rational and emotional levels. Involving customers in products and service design could be a tool to building strong competitive edge. We will need to change our interaction with customers from mere transactions to relationships. Leading players in financial services have keyed into this and are seeing the effects on their bottom lines. Traditional marketing is product and transaction driven. New marketing is service and relationship driven. The emerging consumerism, organized customer-power and customer-rights movements provide one of the best opportunities in our history for businesses to differentiate themselves. Businesses can tap into the rising customer power phenomenon to differentiate themselves as “Customer Champions”. The customer-champion position is one of the best positions to own in any industry especially those witnessing unleashing of new competitive forces. The true merger of interests of the customer and the customer-champion firm will be such that the emerging customer right movements and advocacy groups will champion the interest of the customer-champion firm. When customers are the advocates of a firm, the market leadership of that firm is inevitable.

In conclusion, our simple story is that in the larger public interest, we need to de-commoditize our industries. We need to fight the commoditization tendency that could kill many businesses and destroy economic value. We need to raise a new slogan in the business community “Be Different or Die, Be Different or Die, Be Different or Die”. It is the task of this new generation such that when our own chronicle is written, we would not have failed the challenges of our time.

This is my epistle. Thank you for listening.

Olu Akanmu can be reached on olu.akanmu@yahoo.com

What is a good business idea?

2008-11-21T01:25:00.003+01:00

By Olu Akanmu

Ideas come like a flash in our mind. We see opportunities, we ponder on it and wonder whether the opportunity is real. We are essentially going through the process of asking this key fundamental question of entrepreneurship—“What is a good business idea?”. Essentially, a good business idea (in its most ideal form), it’s a business where there is good return on investment with positive cash flows. The elements of a good business idea are as follows.

There is a true need for a service in the market, and that need is not being fulfilled by anyone. Sometimes, it is not a clear as the above. Existing supplier/ players could currently fulfill a service-need in the market. A good business idea in this context could be a new way to fulfill that need either in better way, more efficiently or at a lower cost to the customer. A more efficient way could imply the customer will get more value through the new business idea for the same amount of investment she would have made under the current situation.

A good business idea as described above is not a wishful thinking. It is grounded in reality. An organization or individual who can fulfill a market need in a unique way must have unique capability. In essence, the organization must have something that is not common, something that others within the boundary of that market do not have. This uniqueness must be such that it can be translated to deliver a unique value to the customer by enabling the customer to fulfill an unfulfilled need or fulfill an existing need better, more efficiently or at a lower cost.

A good business idea must be executable, at least by the conceiver of the idea. Sometimes, there are significant hurdles to cross to execute an idea. This may include finance, government regulation, technology etc. In many instances, the true value of the idea can only be realized when a significant hurdle is overcome. Such hurdles tend to protect the existing incumbent players, protect their inefficiencies and poor customer-value delivery. Overcoming such hurdles may need a lot of courage, doggedness and commitment. Such attributes are the stuff great entrepreneurs are made of.

It is important to recognize that sometimes a good idea may not be executable by the original conceiver because he lacks the capability to do so. This might be due to issues like capital, knowledge or technology. Good business ideas should not be killed because one cannot execute it. The opportunities to partner with others who could bring complementary capabilities to execute the idea in a fair commercial arrangement should be explored.

A good business idea also tends to be such that only the conceiver, when it is brought to live, can do it for a long time. Essentially, if I can fulfill an unfulfilled need in the market, and everyone can quickly copy it, then the idea will loose its uniqueness and ultimately its potential to deliver unique value to the customer. A good business idea must therefore have the potential to be protected, or I must be able to build barriers to entry around the business. This protection may include capital (I can raise money than anyone), technology (I have a unique technology that cannot be copied), legal (intellectual property, copyrights, contracts, regulations), knowledge (I know what others do not know, or what it will take them a long time to know), relationships (I have critical relationships that others cannot build). It is important to recognize the limits of legal protection in places like Nigeria where the institutions that can help enforce property rights are weak and under-developed.

A good business idea must also be expressible in a simple statement to a defined customer. It is amazing how many businesses fail this test. This sometimes called unique value proposition. It is essentially, a statement like “ I am X. You want something like this. I can do it for you in better (more for your spend) or do it for you cheaper (so that you spend far less). And this is why… I am the only one who can do it for you like this at least around here”. Communication is key bedrock of marketing. If it cannot be easily communicated or understood by the customer, it is probably not a good business idea.

The strength of a good business idea must also be measurable. In its simplest form, it must be measurable in the context of how many people could potentially buy the product, the likely cost of producing the service or idea, the price ranges that people will be willing to pay, the revenue stream and profits. Essentially, a good business idea must be expressible in financial terms or in a financial statement. This exercise must however be done without a delusion. It must be grounded in reality of your capability, competition, and customer purchase power and value appreciation.

As simple as the above sounds, they are not easy tests for business ideas to pass. Hence, a good business idea is not common. If it were so, success will be common. This is however not to say that one should be discouraged. Good business idea tends to come out of an iteration, trials, perfection and improvement of other ideas. The chances of getting a good business idea also tend to increase the more options, one could conceive and articulate. Hence, don’t stop trying. The next idea you have may just be the winning one.

Olu Akanmu, July 2006 .

Some Lessons for Nigeria CEOs

2008-11-21T01:09:00.003+01:00

By Olu Akanmu

This article was written in March, 2005 and was published by leading Nigeria newspapers. It remains relevant today for leaders of business in Nigeria and elsewhere.

On the 7th of February, this year, highly celebrated CEO of Hewlett Packard (HP), Carly Fiorina was asked to step down by her board. While the event in the US, looks remote for us in Nigeria, it holds important lessons for corporate leadership and management anywhere in the world. As we enter a new period of mega-corporations and mega banks in Nigeria, where public savings are being mobilized as investments on a scale without precedents, it is imperative that corporations run well, grow shareholder wealth and continue to win public trust. Boards and CEOs can learn important lessons from the six-year leadership of Carly Fiorina at HP.

Carly Fiorina had been invited to revamp a non-performing HP stifled by a consensus management culture, which stifled the efficient execution of business programs. This culture also sidelined performance management and created a bureaucratic monster. She had arrived from Lucent with excellent track records. Five and a half years after her appointment, HP’s stocks were worth less than its value in 1999. The human cost of achieving the non-performance has been very high. Tens of thousands of HP's employee had been laid off. Organization morale declined to its lowest level. The best of HP’s engineers and management had to find pastures in other places. There are four important management lessons to learn from the saga.

One is that operational excellence is not strategy. Carly was a cost-cutter, very excellent in slashing corporate fats. She slashed more than $3 billion dollars cost in the merger with Compaq. This did not however increased HP and Compaq shareholder value on a sustained basis. Costs can only be cut for a limited time. A program of how markets can be uniquely exploited, better than rival firms, must replace it. It is important to be operational excellent. A business should however be operationally excellent in the right things. Those “right things” are the elements of strategy where an organization elects to compete and win in certain markets because it can exploit those markets uniquely based on its unique capabilities better than its rivals. It is different from competing like others, a me-too, or worst still, a commodity where there are many players serving the same markets in the same way. HP’s leadership did not deploy a clear strategy of how it could compete uniquely in the markets it elected to serve. It tried to be like IBM in the enterprise solution market without the depth of the relationships and enterprise experience of IBM. The direct low-cost efficient model of Dell could not be matched by HP in the personal computer business, a function of its successful legacy system in its printing business which supports the use of indirect channels. Analysts have said that HP tried to be everything to everyone and in the end could not stake a clear business position on which it could build lasting advantage.

When corporate leadership fails to define a clear strategy, they can become obsessively focused on cutting cost largely out of desperation. They turn cost-cutting into a mission. They forget that it cannot sustain corporate performance in the long term especially if the business in not competing in its right markets based on it unique capabilities. And if a business does not have a unique capability that can help it to exploit certain markets better than its rivals, it is the task of corporate leadership to focus on building that unique capability in the shortest possible time. Cost-cutting focus could have been justified in HP in the first two years. It could however not be justified as the mission of the business over the five years that saw thousands of HP workers being retrenched. The board of HP allowed the leadership of HP to visit its sins of lack of clear competitive strategy on HP workers by making them the victim of its (board) failure to manage its CEO. This is the second lesson of the HP saga. That corporate board must dispassionately manage their CEOs around the issues of strategy and its execution. Executive leadership must define its corporate strategy based on which markets it has elected to participate with a clear view of how it will exploit those markets better than its rivals. This should be tied to a clear program of “how” this will be done with measurable performance milestones at corporate and operational levels. It is not clear if the HP’s board has managed Carly Fiorina this way. The HP board shares in the responsibility of the destruction of wealth of HP’s shareholders.

Learning from the above, corporate boards in Nigeria must become more than association of mega-rich shareholders. The shareholders must combine their mega-financial interests with an ability to critique and engage its executive management on deeper issues of strategy and implementation. It they don’t, they could be easily bamboozled (at their peril) by smooth talking executives who are masters of persuasive rhetoric, good politicians but with very little to show in results.

The third lesson of the HP saga is that change management must be people focused. Carly Fiorina had great and noble intentions. She introduced a performance management system without the critical element of inspiring the commitment of HP employees. Performance management is not a simple mechanical issue of decreeing targets, rewards and bonuses. The modern organization of today is more sophisticated than the days of Frederick Taylor, who postulated that organizations could be largely run like a machine. Machine organizations could look like they are performing for a short while. In the long run, the complexities of the internal and external environment, which demands employee initiatives beyond the exercise of command and control, create “zombie” organizations where the collective brain of the organization is narrowed to that of the CEO alone. And the CEO cannot be wiser than a rival firm where thousands of smart employees are engaged in a collective dialogue on how to out-compete its rivals.

How do leaders inspire the commitment of employees to the change agenda? They must engage them in a constructive dialogue using facts and figures of corporate performance. Leaders should demand from employees what it has first demanded of itself. They must be accessible and have the right level of emotional intelligence for tough dialogues, know when leadership must show it listens and when to be decisive and firm. Leadership with the right level of emotional intelligence recognizes that it is people that get things done. Leaders must build that emotional connection with employees, celebrate and praise, create organization rituals that reinforce the desired culture and participate actively in these rituals. Yet, they must correct issues without getting personal or demeaning the self-esteem of individuals around them. It is doubtful if Carly Fiorina managed this way. To say the least, she was hated by HP staff. A leader does not need to be loved. She must however not be hated. Hated leaders cannot inspire the organizations of today, where employees have to use their heart and soul to out-compete rivals on a long sustainable performance.

The fourth lesson of the HP saga is best illustrated by the African proverb that says that if one puts too many firewood in the cooking fire at the same time, the fire will not burn well. HP has been described as the broadest technology firm in modern history competing in virtually everything from PCs to enterprise solutions, software, printers and consumer electronics. One of the critiques of HP under Fiorina’s leadership is that she took on too many things at the same time. A cardinal rule of successful strategy execution is understanding the capacity to execute and limiting programs to that execution capacity. HP might have been stretched too thinly over many markets, competing with giants like Dell, IBM, Canon and Sony. The array of management programs needed to win and compete in these markets could largely overwhelm any corporate leadership.

Corporate leaders in Nigeria can learn a lot from this HP saga. We need businesses in Nigeria that are efficient in doing things well but are also pursuing the right strategy by doing the right things. The tendency to be all things to everyone in the emerging financial service industry will be very high. There will be too many resources flying around that the industry managers may not be conventionally used to. Yet, this can on the medium to long term destroy shareholder value and public trust in capital markets. Leaders of the emerging financial service industry must therefore define clear non me-too competitive strategy that will lead to sustained wealth creation. The emerging firms must appoint strong corporate boards that can engage their executive teams on deep strategy dialogues and hold them accountable for its implementation. Leadership with strong people orientation, in which performance management is a sub-set will largely outperform its rivals. And of course, execution of strategy will be critical, that leadership capacity to make performance happen and win in the market place.

Olu Akanmu
March 2005

The Challenges Of Marketing in Nigeria

2008-11-21T01:03:00.006+01:00

By Olu Akanmu (June 2004)

The practice of marketing in Nigeria is entering a new era of challenges that has no precedent in the history of the current generation. The objective context of the marketing programs of business organizations with regards to the environment of such program is witnessing fundamental shifts necessitating a rethink of the way we do marketing. It implies a return to the basics of successful traditions of marketing practice while raising the marketing game to new and higher level of strategy. The combined forces of Democracy, Deregulation and Digitalization which I call the (3D forces) on the business environment is changing the economic structure of many industries with potential seismic effects. Marketing as one of the leading functions of business cannot insulate itself from these potential seismic effects. It must adapt (and where possible take advantage) of the 3D forces to fulfill its mission in business organizations to win in the market place.

Democracy

Five years of democracy and political stability has led to increased level of “Business Confidence” in Nigeria. Business Confidence is a macroeconomic index that measures the level of confidence of people to invest and spend based on their sentiment and perception of the “conducive-ness” of the business environment. Foreign Direct Investment (FDIs) is increasing led by the huge investments in the telecom sector. The manufacturing has also witnessed new FDIs through Nigeria Breweries, Guinness and companies like Nestle. Empirical evidence suggests that national capital stashed away in savings in foreign countries are beginning to return to Nigeria in the form of private investments. The capital market is growing rapidly occasioned by the new level of business confidence and the increased savings level of the middle class.

The economy grew by more than 10% last year, a feat unprecedented in the last decade. There is now a more structured approach to macroeconomic management. While the gains of economic growth and the spiral effects of FDIs might not have yet trickled to the bottom of the economic ladder, empirical evidence suggest clearly that the middle class is growing with increasing prosperity. A dipstick index of the increasing economic prosperity of the middle class is the number of new cars on the road especially on Lagos 3rd mainland bridge every morning.

We are witnessing the entry of new firms into Nigeria competing in existing industries and sometimes opening up new industry niches and categories. The entry mode of these firms rage from licensing, agency relationships and sometimes full business entry. Some firms that divested in the days of military rule are returning. In the manufacturing sector, some of the old multinationals have who divested, returned to significantly increase equity in their local subsidiary and take their full control. Intra and inter industry category competition is on the increase.

A higher level of marketing and business excellence is now expected of the Nigeria managers. During the days of military rule, the local subsidiaries of international firms were virtually abandoned by their international headquarters as they scaled down on their investments. The quality of human capital and professional excellence declined in many sectors. Marketing standards and practice fell in Nigeria from the lofty levels of the past. This trend is now reversing as we witness new investments in development of marketing talents in many industries. International exposure and secondments of marketing talents is on the increase. There is an increasing change of leadership and generational shifts with returnee secondments, Nigeria repatriates or expatriate Marketing Directors who are expected to bring world-class practice to their companies. The driver of this trend is recognition by the international firms that they virtually increased the level of their investments in Nigeria, at the same time and at nearly the same scale as their rivals. This implies a higher level of competition that demands a higher level of marketing excellence if the firms are to achieve their expected returns on investment.

Deregulation

The momentum of deregulation that started towards the end of military rule has picked up significantly under the democratic dispensation. We are witnessing fundamental changes in the economic structure of old regulated industries in telecommunications, energy and financial services. Monopoly power is falling with its attendant inefficiencies. Regulatory barriers, which protected old monopolies, are crumbling. New entrepreneurial players are entering the old protected industries fundamentally changing the rule of the industry game. In the financial services sector, deregulation and regulatory reforms is leading to the convergence of the old banking and insurance industries with a new dispensation of universal banking. Insurance industry practitioners will have to rethink the rule of success under the new emerging convergence. It is interesting that the biggest forays into the converged service fields between insurance and banking is being led by the new generation banks steeled in the art of taking advantage of deregulation, learnt in their own industries.

Deregulation has increased the bargaining power of customers as new entrepreneurial players enter old protected industries. Customers are having many choices of services to fulfill the same need. Deregulation is leading to a new level of competition with the customer as the ultimate beneficiary. We are witnessing a new phenomenon of organized customer power, something that we are not used to, in marketing practice in Nigeria. The GSM boycott of 2003 is a new development of organized customer bargaining power and the emergence of “Consumerism” as a new marketing factor. Consumer rights movement and advocacy groups are emerging, a feature of more advance economies. There will be many manifestations of organized customer power. It may take the forms of unions or outright industry customer associations. The customer may no longer be very atomized. The organized association of customers supported by Customer rights advocacy movements will change traditional marketing thoughts and practice especially in newly deregulated industries.

Digitalization

Digitalization or digital technology’s most profound effect will be in the convergence of industries and categories. Industry practitioners are aware of the emerging convergence and overplay of telecommunications, financial service and entertainment industries. This global trend may have a unique manifestation in Nigeria occasioned by our peculiar social development and infrastructure challenges. The understanding of the unique manifestation of this convergence can provide real advantages for industry players. Competitive radar screen will have to be widened to include non-traditional competitors who will use the power of technology to enter other industries.

Network industries are emerging requiring the co-operation of many specialized players to deliver service, especially in telecommunications and financial service industry. Network industries turn the rule of traditional marketing on its head. Traditional marketing is competitive and sometimes adversarial. It has little space for co-operative strategies, which are critical in network industries. The emerging Automated Teller Machine (ATM) Services of Banks is a good example. The value of a network is a function of its size. The more ATM places that a bankcard could be used, the better its value. Yet no single bank can open branches with ATMs in virtually every corner where the ATM service could be required. Banks therefore need to ensure the inter-connect of their individual ATM cards. In essence, this ensures that all ATM machines and locations are available to all bankcards irrespective of the bank that issued the card. This increases the value of ATMs to customers.

In order to achieve the above, banks must co-operate to interconnect their systems while competing to acquire customers for ATM card issuance. Essentially, the banks must compete and co-operate, a new strategy trend that has been described as “Co-opetition”. Co-operative skills in marketing are perhaps more difficult to develop compared to traditional adversarial competitive marketing. System interconnection implies the need for agreements on standards, the trading-off of individual interest in legacy systems for the collective bigger wins and the control of institutional egos.

Co-opetition strategies are also emerging in the insurance and banking industries in the new dispensation of universal banking. Co-opetiton strategies requires recognizing the limits of ones ability, clear organizational objective and goals, understanding the goal and interest of other players, searching for win-win solutions that grows the cake and makes it bigger to divide.

Players in the energy industries going through seismic shifting deregulation will also need to master co-opetition strategies. The breadth of competencies required to deliver service makes it imperative that they must co-operate and compete. The power sector will be particularly interesting in the coming years. The dynamics of competition, co-operation, regulation and reforms will test traditional strategy thoughts.

Strategic Business Positioning

The new intense nature of competition occasioned by the 3D forces makes it imperative for businesses to define for themselves clear industry positioning strategies. There is always a strong tendency on the part of firms in many industries to compete in the same way, target the same customers with the same offerings, deliver them in the same way and ultimately price their service in the same way. This “commoditization” tendency ultimately leads to price war, driving prices down along with industry profitability. Commoditization tendency also implies that firms make no strategic choice of customer segments to serve (and which ones they will not) based on their unique differentiating assets. The financial service industry provides a good example of many firms that compete in the same way by chasing the same type of customers with the same type offerings. Yet, there are other firms in the same industry who are pursuing clear differentiating and positioning strategies, clear choice of market segments to serve while developing supportive organizational capability and competency programs. On the long term, most of the firms with commodity competitive strategies are likely to be consolidated and swallowed by players with scale economy advantages. Many of the small commodity players will run out of competitive gas, as they witness declining profit and ultimately destroy economic value.

It is imperative that new entrants in deregulated industries differentiate themselves from incumbents with large assets who are likely to play a pricing game. Incumbents are also likely to use their market power to dictate the competition rules. New entrants must however enter the industry with a view to change such rules, as the existing industry competition rules will always sustain the leadership of incumbents. If new entrants must change the rules of competition to their advantage, they must build new types of differentiating assets that allows them to stake strong claims to unique market positions and serve their choice of customer segments uniquely.

Incumbents on their part must recognize that industry rules are changing and reform to adapt to them. This is however easier said than done. There is usually an initial “stickiness” of the economic power of incumbents even when the objective conditions of their market power are rapidly dissolving. This tends to make incumbents arrogant and blind to the new reality of the rise of customer power and new competition. This reinforces the tendency of incumbent players to compete as if industry conditions will remain static. If incumbents are to maintain their leadership in deregulated markets, they must lead their industry in changing the rules of competition, reform their competitive strategies, sometimes cannibalize their existing products by new customer-oriented services. The rule is “attack yourself before someone else does”, divide the cake but keep them in the house. If the history of deregulated industries all over the world is anything to go by, this is difficult for incumbents to do.

Is The Rise Of Customer Power A Threat To Business?

The defining paradigm of the new dispensation of the convergence of the 3D forces is the rise of customer power in many industries. Organizations that are not customer-centric may perceive the new ascendancy of customer power as a threat. Yet, the emerging consumerism, organized customer-power and customer-rights movements provide one of the best opportunities in our history for businesses to differentiate themselves. Businesses can tap into the rising customer power phenomenon to differentiate themselves as “Customer Champions”. The customer-champion position is one of the best positions to own in any industry especially those witnessing unleashing of new competitive forces. Many organizations shall however claim to be customer champions. The true customer champions are however those organizations that truly serve and champion customer interest. They are those who make the right business trade-offs in favour of the customer. Customers will truly know the organizations that champion their interest. They will easily discern between reality and advertising claim.

The true merger of interests of the customer and the customer-champion firm will be such that the emerging customer right movements and advocacy groups will champion the interest of the customer-champion firm. When customers are the advocates of a firm, the market leadership of that firm is inevitable.

Customer Relationship Management

Many service businesses, as a result of the new ascendancy of customer-power, shall adopt some form of Customer Relationship Management Program (CRM). CRM shall become very fashionable pushed by hard selling IT and management consultants. Yet, this shall not constitute competitive edge for many firms as such CRM programs become industry generics. The experience of IT development and adoption in the service industry is showing that technology on its own may be necessary for competitive edge. It is however not a sufficient condition. A business must define for itself clear differentiation and positioning strategy aligned to its choice of customer segments and how it wants to serve them uniquely. CRM program is effective only if it is a tool of this well-defined business strategy.

CRM program is a business asset. It is however the total and unique configuration of all assets and resources of a firm, aligned to a defined differentiation strategy that truly builds sustainable competitive advantage. These assets and resources include people, knowledge and organization culture, finance, systems and processes among others. Unique organization culture aligned to serve the customer in unique and better ways could be far more critical than generic CRM programs. Organizations will not become customer-centric just because they have CRM programs. Building a true “Customer-Champion” culture supported by good CRM program can be a most powerful strategy under the new dispensation of the ascendancy of customer power.

Managing Inter-Category Competition

Inter-category competition has increased. Competition is no longer between soft drinks, or between beer brands. There is a new type of competition between soft drinks, beer, cigarettes and re-charge cards. Share of pocket analysis is now as critical as share of market analysis. This type of inter-category competition is not what we are traditionally used to in Nigeria marketing practice. Competitive radar screen and marketing planning must today factor-in developments in other industries and categories.

If brands are to survive this new type of inter-category competition, they must build strong emotional market positions that are bigger than their rational categories. In essence, brand-marketing programs must address questions such as “ How do we make soft drinks bigger than refreshment?” How do we make beer bigger than “highness?” Brands must find ways to tap into higher timeless emotional and self-expressive human values to build the necessary resilience against share-of-pocket competition from other categories.

Media Clutter

The convergence of the 3D forces with new investments and increased competition implies that there are now more advertisers than we have previously known. Telecommunications have taken over from soft drinks as the leading category in share of media voice. Demand for media space is accelerating. The demand is however not backed by a commensurate growth in media supply. The economics of supply and demand of media space is therefore leading to accelerating media-space inflation. Media clutter is now very high. It is becoming increasingly difficult for brand messages to penetrate the competitive noise and clutter of media. Media compliance levels are falling especially on radio. Every one wants the radio drive-time belt with limited media space. Most of such scheduled radio ads are aired after 9am when the target audience delivery target can no longer be achieved.

Breaking through media clutter with brand messages require a return to the basics of advertising message strategy. Advertising messages must tell the consumer very clearly what is in it for him that he cannot get somewhere else. It must be driven by an alignment of what is unique about the brand and relevant consumer insight or motivation for choice within the category. Simplicity is the hallmark of great creative strategy. The customer does not have to do complicated and abstract thinking to understand advertising messages. Brand messages must be delivered with clear consumer benefits in simple and easy comprehensible creative executions.

A higher level of excellence in media planning is required. Media buying must become more scientific, based on audience delivery metrics and effectiveness. It is not just about buying cheap. It is also about buying into the right critical audience belts. Scientific media planning technologies are now available in Nigeria. Its quality however needs to be seriously improved to the standards of the first world. This requires an industry-wide co-operation of all stakeholders including the media organizations.

As media gets saturated and cluttered, strategically relevant sponsorships can provide real edge in brand communications. Sponsorships is however not a charity. It must be such that generates positive associations for the brand and support its intended market position.

Experiential Marketing

The fast food category provides a very good case study of the need to move from the marketing of tangibles to experience under the new dispensation. The combination of increasing middle class prosperity and changing work-lifestyles is driving the growth of the fast food category. Foreign brands are entering the market to wrestle market share from local entrenched players. Product parity is increasing. Brand and service differentiation can no longer be achieved at the rational level of snacks; chicken and pizza as there are growing number of players offering such products. Brand differentiation has to move in this category from products to the “experience of eating”.

Fast food category brands must explore opportunities to differentiate on the basis of emotional experience of family, love, friendship, success, fun and many more. The eating ambience must deliver unique emotional experience beyond the products they sell. The experience of eating must be transferred to the branded food packs when taken-away. When the meal is taken outside the restaurant, in an office or home, the food pack must make the customer feel his location as a virtual extension of the unique eating experience of the restaurant.

The paradigm shift in the coffee category marketing internationally provides important lessons for fast food industry players. Brands like Starbucks have emerged from no-where with an experiential service proposition that overturned competition rules in coffee marketing. Coffee has become bigger than the rational benefit of “mental alertness”. Coffee today means friendship. Customers express the same emotion when they say “let’s do coffee in the afternoon” as when they say “lets have beer together in the evening”.

The re-nascent big screen cinema industry also provides opportunity for experiential brand differentiation. The motivation to go to the movies is beyond the movie itself. It is the experience of friendship, of being together, and the experience of family. The big screen movie experience is a bonding opportunity between friends and the rekindling of family feelings. The emerging national big screen cinema brands must understand this on time, and build a truly differentiated and sustainable experiential brand. It is inevitable in the near to medium term, that foreign brands will enter this category to exploit the increasing prosperity of the middle class. These foreign brands will be able to source better content and achieve rational differentiation, dissolving quickly the brand equity of the national brands. The national brands as we have seen in the fast food category, must therefore begin at their inception to connect higher emotional values of family, fun and friendship to differentiate. The earlier they start, the stronger their potential to own and lock those emotional segments from the inevitable entrant international brands.

All service businesses should explore experiential marketing differentiation opportunities especially in categories witnessing increasing product parity.

Conclusion

The convergence of the 3D forces of democracy, deregulation and digitalization is leading to profound changes in economic structure of industries. The convergence is creating a new type of competition that our generation is not used to. The new type of competition stretches some of the traditional principles of competitive marketing. The defining paradigm of this new competition is the rise of organized customer power. This organized customer power implies the need for a new type of dialogue between the firm and the customer, compared to the little or no dialogue of the past.

The new ascendancy of customer power provides new industry leadership opportunities for true customer champions. Businesses that align their interest with that of the customer will find a most un-usual partnership in the organized customer advocacy groups who will also champion the firm’s interest. The new dispensation provides opportunity for a new type of partnership between the customer-champion firm and the customer. This partnership will provide strong competitive edge that will eventually lead to industry leadership for the true customer-champions.

Post script

Since the lecture was delivered in June, this year, there has been major regulatory development in financial services industry. The banking sector is going through major consolidation driven by the N25 billion minimum capitalization rules. The financial services industry especially banking may be entering a new period in which resource advantage, as a basis of competition would be seriously eroded. The landscape could be filled with several financial institutions with good capital (resource) to play. Resource advantage gaps could be significantly narrowed. Building market-based competitive advantage based superior service offering driven by superior market-insights would be critical in the coming future. The learning capability of the organization, how it processes that learning to develop superior market insight that informs its service offerings may be the most critical competitive advantage in the emerging future in financial services.

Olu Akanmu, delivered this lecture at 1ST Brandwagon bi-monthly lecture series. June, 2004. Olu Akanmu can be reached on olu.akanmu@yahoo.com

Focused versus Diversification Strategies in Emerging Markets

2008-11-20T21:49:00.006+01:00

By Olu Akanmu

Which one creates better shareholder value: Conglomerate diversified companies or focused corporations? Strategy scholars have converged that focused companies tend to create better shareholder value than diversified conglomerates. Two Harvard Professors, Tarun Khanna and Krishna Palepu in their article titled " Why Focus Strategies May Be Wrong for Emerging Markets" in the Harvard Business Review, July-August 1997 posited however that there is an emerging market context and exemption to the "focused companies create better shareholder value theory". The first commentary below is my critique of the Khanna and Palepu's article also published in the Harvard Business Review, November-December, 1997, page 178. The second article that follows titled "Critique of the Korean Chaebol Business Model in Nigeira" was inspired by developments in the Nigeria market in 2006. It pursues the same theme as the HBR 1997 Commentary, that even if Korean and Indian Conglomerates were successful in the 1960s to 1980s, it cannot be exactly replicated in Nigeria as a success and development formula becasue the global economic context has fundamentally changed. Please, read on.

Article 1:

Olu Akanmu, Strategies Focusing on Emerging Markets; Harvard Business Review, November-December, 1997, page 178

Khanna and Palepu’s article is an interesting contribution to business strategy in emerging markets. There is however a real danger that advocating diversification in emerging markets might be taken out of context. Many of the conglomerates discussed in the article owe their success to government protectionism, which insulated the companies from international competition (at the time). Those conglomerates have been able to maximize profit not because they were efficient but because their customers did not have access to goods from abroad that offered better value for money.

Today, as national barriers to trade are broken down, the basis for successes of these highly diversified conglomerates in emerging markets can only be short-lived. The licensing and partnership agreements between these conglomerates and foreign companies are a transitional step towards the full scale entry of the foreign companies into emerging markets. Even if the conglomerates acquire technology from such agreements, their national markets are probably too small to offer the economies of scale they will need to compete with companies from abroad.

Conglomerates in emerging markets should therefore move abroad to exploit the competencies they have successfully developed in their core business. While doing so, they will need to re-structure their portfolios to eliminate businesses unable to sustain long-term competitive advantage against new entrants from abroad. That will also help them raise the cash they’ll need to accelerate their entry into foreign markets through acquisitions of fully owned subsidiaries.

That is the trend in South Africa where, for example, the highly diversified conglomerate Anglo American Corporation divested certain businesses to focus on its core mining business while actively pursing related opportunities abroad. Gencor also restructured its business and later divided into two separate companies, Gencor and Billiton, who stock will be sold not in South Africa but on the London Stock Exchange.

Conglomerates in emerging markets should work actively to promote ethical business practices, build local managerial capabilities, and lobby their governments to establish the regulatory and supportive institutions that the conglomerates have thus far been providing themselves. A most dramatic expression of this in South Africa, was the acceptance by the Chief Executive of the (then) diversified South African Breweries (SAB) to head the national police force and bring his managerial know-how to bear on strengthening the crime prevention system.

Rather than celebrate the achievements of the past, the conglomerates in emerging markets should look forward and restructure to create as sustained competitive advantage.

Article 2:

Critique of the Korean Chaebol Business Model in Nigeria

by Olu Akanmu (January, 31, 2006)

Transcorp is a public subject. It was midwifed by the Nigeria state while being a private institution. It has very privileged access to government. Its reason-for-being is noble. It is a timely empowerment vehicle for Nigeria businessmen and women in their own country. National competitiveness in the global economy has to be supported by a private sector that has the capacity to create sustained economic wealth for the Nigeria people. Size is a competitive factor even in national markets where local players have to compete with players from abroad. A Nigeria mega-corporation is therefore an idea whose time has come.

Transcorp seeks to replicate the economic model of the Korean chaebols which are also known as business conglomerates. It intends to play in fields as diverse as hotels, oil and gas, power, information technology, industrial park and agro-allied businesses. If Transcorp will succeed on its mission however, it is important that it recognises that the global context of the evolution of the chaebol business model has changed in the last decade. The global economy in the 1960s when the chaebol phenomenon took-off was far less liberalized and integrated than today. National protectionist barriers at the time insulated local players from international competition. Markets were far less efficient in many emerging economies. These emerging economies were quite backward and sometimes primitive characterized by the absence or weakness of market institutions and intermediaries that ensures the efficient allocation of factor resources like capital and labour. Local consumers were also un-sophisticated in their taste and preferences due to little exposure to goods and services from abroad.

The emergence of business conglomerates pursuing diversification strategies in unrelated businesses, in the emerging economies in the 1960s to 1980s were largely as a result of extreme market imperfections. Policy distortions, entrepreneurial scarcity, extreme information asymmetries in markets, absence of specialized intermediaries in capital, labour and product markets that enable markets to function efficiently were the characters of these countries. Business conglomerates attempted to fill these institutional voids by creating internal parallel markets in their organisations that substituted for well-functioning markets for capital, managerial talents and products. In doing so, they also naturally exploited theses voids and market asymmetries to create diverse businesses. They move capital and managerial talents around their diverse unrelated businesses and sell products and services among their subsidiaries. Artificial institutions cannot however substitute for well functioning markets. The internal markets of these conglomerates in themselves were also inefficient. Such markets were characterized by high internal transfer prices, high transaction costs, lack of transparencies and poor accounting practices. In the last ten years, as market institutions in emerging economies got stronger, and economic policies got more liberalized, businesses that pursue more focused strategies and take advantage of the strengthening market institutions rather than their own artificial internal markets have performed far better than the conglomerates or chaebols. This pattern has been repeated across many emerging markets in South Korea, India, Chile and South Africa.

The South Korean chaebols took advantage of every opportunity without regard to economic synergies among their businesses. Over time, they found it difficult to compete with more focused national and international players who have built deeper competencies in specific industries. Daewoo and Ssangyong for example, could not compete with focused international players in automobiles. The over-stretched nature of Daewoo eventually led to its bankruptcy. Samsung on the hand fared better because of its semblance of focus, earlier than its peers on the electronic industry. Other Korean chaebols have had to restructure since the 1990s to become more focused in related industries where they enjoy economic synergies and have built core-competencies. Also in India, as a result of a similar context, companies like the Tata group have had to grapple with the challenge of wealth creation. While Tata’s information technology business has performed poorly, focused Indian players like Infosys, the Wipro Group and Satyam have returned strong business performance. Infosys and the Wipro Group have even become strong international players in information technology. Ranbaxy also became a strong trans-national pharmaceutical/ chemical powerhouse by pursuing focused strategies based on its core-competencies. And in South Africa, Anglo-America had to unbundle its huge empire which used to transcend mining, breweries, financial services, media and consumer goods to become more focused on its core business.

The chaebols with the active protection of the Korean state, using highly debt -leveraged balance sheets, were encouraged to expand arbitrarily into industries as diverse as shipping, automobiles, electronic and steel. It did not matter in the 1970s and 1980s whether those corporations were efficiently using resources to create wealth in the diverse fields where they play. Their markets were protected. The chaebols enjoyed special favours from government and had access to foreign loans through special vehicles channelled or guaranteed by the Korean government. With such resources, the chaebols could purchase foreign technology and exploit the comparative advantage of South Korea in labour costs to play strongly in the export markets. Hyundai for example started its automobile business with engines developed by the Mitsubishi Corporation in Japan. The capital appetite of the chaebols could however not be supported by the low level of savings in South Korea as typical of many emerging market economies. Foreign loans had to fill the wide gap between the local savings and the huge investment rate fuelled by the chaebols. Koreans debts began to mount such that with the emerging markets economic crises of the 1990s, South Korea economy was badly exposed. The weakeness of the ‘Jack of all Trade’ business model of the chaebols became clearly manifest as many of them could not repay their debts. If they have stopped creating wealth due to an outdated business model, how could they have paid their creditors? The chaebols and their huge debts through their over-leveraged balanced sheets nearly brought down the Korean economy. Transcorp’s corporate strategy must therefore recognise the new global context of a liberalized economic world that does not provide hiding places for sub-optimal resource utilization among emerging economy players. To win, even in the emerging markets, you have to be the best at what you do.

Like the chaebols, Transcorp may also have privileged access to commercial loans. The cross-membership of its board with that of some leading financial institutions suggests so. The close relationship of the Korean chaebols, the government and the financial institutions created a situation of overinvestment and credit expansion without the typical discretion that should have been exercised by the lending institutions. The consequences for Korean economy were serious. Bad loan portfolio and poor asset quality spiralled in the banking sector. What are the implications of the cross membership of the board of Transcorp and some of the leading financial institutions to which Transcorp may turn to borrow funds? Would those financial institutions some of which are publicly-owned exercise rational economic judgements on Transcorp’s loan applications? These questions will have important structural implications for the Nigeria economy as Transcorp grows bigger in the future.

While the Transcorp idea will always be laudable, government must recognise that other Nigeria mega-corporations are emerging in natural ways in the oil, energy, and telecommunications industries. Government must pay attention to these emerging potential mega-companies as much as it pays to Transcorp. It must provide incentives to encourage their competitiveness without granting them unfair privileges. National companies that will travel far outside our shores are those who have learnt to compete well with international players at home. Whatever is good for Transcorp must be good for Ooando, Globacom, Zenon, or Zinox. One of the positive lessons from South Korea is that strong domestic rivalry is critical to developing strong competitiveness by local firms. Competitive advantage rarely comes out of easy life. It is a product of business pressure, market challenges and sometimes competitive adversity. National corporations, even when favoured collectively must be encouraged to compete strongly with themselves. Such competitive rivalry drives innovation and improvement within the firms and helps them to develop the muscle to play on the global stage. There was not one particularly favoured chaebol but as many that could muster the minimum capacity to play on the big stage were encouraged by the Korean government. There were at least three major chaebols competing in every strategic industry. Samsung, Daewoo and Goldstar competed in electronics while Hyundai, Daewoo, Ssangyong and Kia competed in automobiles. Of course, it will be critical to ensure that the emerging Transcorp and Transcorp-like organizations do not get too small as to loose the minimum size needed to play seriously in the highly capital-intensive strategic industries. A competition policy is long over-due that will provide a framework for managing the complex issues of firms’ size, national competitiveness, passages/ incentives to local firms and fair competition.

Our mega-corporation development model must also ensure that small and medium size businesses can co-exist with the mega players in a balanced business ecosystem. Big size can be a disadvantage in certain parts of an industry value chain. Where smaller players have economic advantages, they must be able to co-exist in co-opetition with the Trancorps. The South Korean chaebols had sometimes over-integrated across their industry value-chain into areas where smaller players could have created value more efficiently. Some of them have had to deploy predatory tactics to drive out the small and medium size players creating an unbalanced and sub-optimal business ecosystem. This has become an issue for South Korea in crossing its next threshold of international competitiveness. Strong supportive firms in the value chain and distribution channel which will complement and enhance the value creation of Transcorp and its peers should be therefore encouraged. Given the typical emerging economy scenario in Nigeria, where market intermediaries and institutions may evolve too slowly creating voids within the value chain, Transcorp may have to become a pro-active value-chain organizer as part of its competitive strategy.

Our national competitiveness program must include a program to strengthen Nigeria factor endowments which a Transcorp could exploit to build international competitive advantage. Simultaneously, with the development program of the cheabols, the South Korean state invested significantly in developing its human resource base especially in the areas of technical education. There has to be an organic framework to link the Transcorp program to a national capacity building program in science and technology. What role, for example will the National University Commission play in re-directing resources to the educational areas that will provide the skilled pipeline for strategic industries that will be the focus of Transcorp and its peers? Will there be need for industry specific technical institutions? How will these institutions be funded? What incentives such as tax breaks would be given to private firms to encourage training and development of Nigerians in priority areas targeted for national competitiveness? The Nigerian population is a strong factor endowment if we can convert our raw quantity to good quality. Our population provides a natural fit for utility industries such as telecommunications, power and water where scale is critical to competitiveness and organisation learning. Government policy in these industries should encourage national players who can compete with foreign firms at home and ultimately expand into Africa with the lessons learnt in the home market.

The Transcorp initiative is very commendable. Nigeria needs its own mega corporations, now. Strong and big business firms are critical to economic growth and national competitiveness. Our mega-corporation development strategy must however fit the current context of Nigeria of a global, more integrated and liberalized economy. Government should consider a complementary mega-corporation model of encouraging mergers or joint ventures of Nigerian firms in the same industries. Why should Ooando and Zenon not bid together for the Port Harcourt refinery and win, rather than both of them loose to a foreign firm? Can we replicate such models in other strategic industries? Transcorp itself, while it may objectively start as a business in diverse industries, it must as early as possible make long term choices of focus on few related industries. It may play wide in the short term by exploiting diverse market asymmetries using its political and social capital. It must however consider this as a short term strategy like buying stocks to sell as quickly at it appreciates, rather than keeping for a long term. It will need to build hard-core superior competencies in focused markets, if it will deliver on the dreams of its founding fathers.

Economics of the Nigeria Media Industry

2008-11-20T14:32:00.001+01:00

By Olu Akanmu

The media value chain can be simply described as starting from content creation and generation. Content creation may be news or entertainment such as drama, movies, sports and many others. Content is relayed on a vehicle, a pipe that conveys it to its desired audience. This pipe or vehicle is the television, the radio station or the newspaper which the layman describes as media. At the end of the value chain is the consumer of the content usually pre-determined audiences of various economic, lifestyle or demographic profiles which require the content for information and entertainment. The consumer of media content could either pay for what he consumes such as in satellite television and newspapers. The payment could also be done on her behalf by advertisers who pay for advertising spots inserted into the media to reach the consumer. Examples of this will include terrestrial television and radio in Nigeria whose income is largely derived from advertising revenue. However, there is a middle road characterized by the print medium (newspapers) whose income is a combination of daily title sales and advertising revenue. In this case, one can say that advertisers’ money is largely subsidizing the price of the titles of newspapers. Newspapers in Nigeria will probably cost three or four times their prices if not for the subsidy of advertisers. And how would terrestrial television have survived in Nigeria if not for the advertisers who keep them going, ensuring that they can bring to our cherished consumers the information and entertainment they so much desire. If therefore anyone has blamed advertisers in recent past for too-much advertising, it is important to remind them that without advertising, there would have been no news or entertainment on television, radio and the newspapers. The media would never have had the resources required to generate the content that our audiences require. We must however not forget the government in the value chain especially in the media it owns, where it plays the role of content generator and provider of subsidy through its subventions to its stations.

While data is not available, empirical evidence suggests that more than two-thirds of media revenue in Nigeria comes from advertising. The economics of demand and supply for advertising space in media such as television, radio and print is therefore critical to the health of the media and entertainment industry. The Nigeria economy is now on the part of enviable growth, thanks to the economic policies of the current government. Foreign direct investment is growing as multinationals invest anew to upgrade their operations and strengthen their firm’s competitiveness. The fact that all of the multinationals are doing this at the same time implies that intra-category competition has never been tougher than the present moment in the Nigeria market. At the same time, the forces of deregulation are breaking down monopoly power in sectors like telecommunications unleashing news waves of competition. These developments have accelerated the demand for advertising media-space. We only need to compare the number of advertising pages in newspapers today compared to five years ago. Sometimes, the newspapers even run-out of pages and they have to print extra pages as inserts just to carry more advertising. In essence, media space supply has not grown in tandem with demand. This large asymmetry in the supply and demand of media space has led to the highest level of media-inflation ever seen in Nigeria. Media inflation has been sometimes as high as 80% year on year in some high-demand media vehicles. Interventions on the demand side by advertisers through their associations and their buying agencies might have moderated the tide. This however has been difficult to control as the fundamental economics of the media industry keeps driving prices up until at least it reaches equilibrium prices. Some media owners have said that media in Nigeria has been under-priced relative to the prices overseas, that the industry is largely today witnessing an appropriate market correction. While we empathize with them, it is important to note that media prices are a reflection of the value of the consumer who consumes the content from media. The wealthier the consumer, the more revenue they can generate for advertisers and the more they will be willing to pay to reach them. The wealth of the Nigeria consumer cannot be compared to those of Europe and the America, hence media prices in Nigeria have remained relatively low compared to the first world.

Other issues that affect media prices in Nigeria include the un-even information flow in the media market between suppliers and buyers. This reflects the lack of sophistication of the media market where audience delivery information is not usually available to determine the true value of media properties. Suppliers have taken advantage of this by largely playing buyers (advertisers) against each other ensuring that they overbid the value of the property. The telecom industry has been particularly affected by this through the aggressive competition among the players and the view that the control of media is critical to market competitiveness. Media space competition does not know industry sectors. Telecoms players compete with soft drinks, breweries and other fast moving consumer goods. As telecom players drove up prices, other players have had to follow. This situation has presented a new challenge of marketing and media management efficiencies to advertisers as their budgets have not grown in tandem with media inflation.

The very low level of media segmentation in Nigeria also creates a situation where everyone (advertiser) on the demand side chases after the same media space. Most media stations have the same type of content for the same type of audiences and broadcast to these audiences at the same time across their stations. Hence, all advertisers have to place ads in the same stations, at the same time to reach their different audiences. For example, advertisers of products for children, youths, men and women place most of their ads around the drive time belt on the same radio stations. Such low level of segmentation creates over-priced media bands and under-priced media bands in low demand periods. This affects asset-utilization and creates market inefficiencies in the media industry. Media stations needs to become more segmented in their overall focus and programming. We are seeing the emergence of this trend in the evolution and success of new sports FM stations that have elected to focus on the male demographic audience of a particular lifestyle. In the print-medium, we have seen the emergence of youth focused magazines leveraging the hip-hop music genre to develop an enduring business. Are there other consumer demographics or lifestyle segments that other stations/medium could focus-on and create a market uniqueness, serve these audiences better than anyone and deliver them effectively and un-cluttered to advertisers at a premium? Such questions will help the media players build the competitive advantage necessary to win on sustainable basis.

Evidences suggest that media-inflation trend will continue in the short to medium term. The unified licensing regime in telecommunications will further drive-up demand for media space by telecom players. More players will come to the market, some with a war-chest funded by the new finances which they have raised. One of the telecom players recently raised a one –billion dollar financing, the effect of which we shall see in its market drive and demand for media space. Competition forces in the financial service sector, as a result of bank consolidation will also generate new demand for media space as many banks seek opportunity to strengthen their consumer franchise. In markets like South Africa, the financial service sector is one of the biggest advertising spenders. The Standard Bank of South Africa dominates the sponsorship of cricket while the English Premier League is sponsored by the Barclays Bank. Such trends from the financial service sector are eventually going to happen on the Nigeria soil.

We are yet to see an earth-shaking development on the supply side of the media industry. We are yet to see the entry of new players in television or radio on a scale that can increase supply, give broader choices to audiences and advertisers and impact on the economics of the media. New print-titles especially in magazines are springing up, largely a copy of themselves, targeting the same audiences with the same type of content. Such titles have therefore not made fundamental differences. The outdoor medium is also getting saturated as new roads are not being built. Every supplier has had to find space on the current roads leading to sometimes ugly media clutter on our skylines. For outdoors in particular, this is good news for outdoor medium owners. Outdoor media inflation especially in the un-conventional spaces like wall-drapes have sky-rocketed as advertisers outbid themselves for the limited number of spaces available.

A critical character of the television and radio sectors of the media industry in Nigeria is its fragmented nature. There are about eighty terrestrial television stations and ninety radio stations in Nigeria. South Africa, a bigger economy than Nigeria has only four terrestrial television stations. Most of the television and radio stations in Nigeria are not economically viable even with subventions from those who are government owned. Most of them are too small to deliver the minimum critical mass of audience that will make them attractive to advertisers on a sustained basis. This is apart from the huge transaction costs and market inefficiencies of buying media in such a fragmented industry. They also lack the resources to generate or buy good content to attract audiences. And they cannot get those resources without advertising. They are therefore locked in a vicious cycle of economic quagmire. Some level of industry consolidation may be inevitable in the Nigeria electronic media sector. We see emerging trends in this direction with the evolution of partnerships and program networks among different stations. The need for stronger market efficiencies would however drive industry consolidation in the medium term.

How can we make the media industry and market more efficient? Markets are efficient when information on goods and services flow freely among buyers and sellers. Such information helps to determine the true value of goods and links the right buyers to the right sellers while ensuring fair economic prices. It is critical that buyers and sellers in the Nigeria media industry work together to improve the quality of audience-rating information used to determine the true value of media properties and spaces. Some newspapers could do far better if their media-space prices reflect the true market-value of the audience they deliver rather than the standard industry association rates. By so doing, they will become more attractive to advertisers who would then be able to spread their media-spend across more newspaper houses. The fact that media spend is concentrated in four newspaper houses in Nigeria implies the need for a new pricing regime in the newspaper industry. We need a collective industry effort to increase the sophistication, gathering, accuracy, robustness, recency and dissemination of audience delivery and rating information. Pending the eventual consolidation of the small media players, we will need to encourage media networks to reduce transaction costs. The media industry does not need a regulatory intervention such as the Soludo solution. Market forces are likely to be sufficient to force the necessary consolidation. The regulator however has a role to play through suasion and encouragement of consolidation among media players. We must also strengthen contract enforcement in the industry. If the media market will be efficient, we must change from using the law of the jungle of “might is right” to the rule of law. Media contracts must be executed by media owners in its true spirit, carried at the time designated, and in the right form. The rights of sponsors of media programs as prescribed by law must be respected. The ambushing, in whatever form of sponsored properties without the consent of the sponsors must stop. All players, big and small must respect the law and not abuse their market power. Buyers of media spaces must also honour their contracts by paying the media houses as at when due. The Nigeria media has all the potentials to be a robust and strong industry. It only requires the collective efforts of all industry players working together to create an economic value chain that is truly efficient.

Olu Akanmu
October 2006

How to Attack a Market Leader

2008-11-19T21:12:00.002+01:00

By Olu Akanmu

In many instances, we would be launching a new product in markets with existing players or incumbents. Some of these players and their products are already so well known that the task of launching new products into those markets could look daunting. Marketing has many things in common with military strategy. In fact, marketing borrowed a lot of its art from the military. Hence, you find marketers and the military use common words such as campaign, strategy, attacking a position, defending a market. We will discuss how to attack a market leader and win. We will discuss certain rules of successful military or marketing attack.

Know your strength and weakness relative to the market leader or incumbent:
Assess very honestly what you have in your product or your organization or your service that is superior to a market leader. Also, assess your fighting power in a war. Do you have as much resources as the existing players? Existing players will probably have more sales force, more retail outlets and perhaps bigger marketing budget. You must however have one thing that the market leader does not have, that the customers want. If you have this, you are on the way to building a strong attacking strategy.

Do not fight head-on with a market leader unless you have at least three times its resources.
This is one of the most important marketing and military lessons in history. That the defender always has an advantage unless you have at least three times his resources. Remember that the existing players are well known in the market and have built relationships with distributors and customers. The market and customers will always give them benefit of doubt over you. It is the simple rule of the “devil you know is better than the angel you don’t know”. If you want to attack the market leader head-on by claiming that you also do what he does better, you will need to be far better ( three times better) to move the existing players customers. That leads us to the critical rule 3

Successful market attack must exploit the weakness of the market leader.
There is no perfect product. Assume that there are three major benefits that customers in a market want. Usually, the market leader or existing player will be satisfying two of the needs well and will tend to satisfy the third need averagely. This is the way the world is. It is impossible to be tall and short at the same time. If you look closely at the strength of a market leader, you will find a weakness in that strength.

Build your own strength on the weakness of this market leader.
Do not attack him on the areas where his products are already good by claiming you can do what he is good at, better. While this looks like common sense, it is not the way to go. Instead, find the weakness in the strength of the leader; find the things that he couldn’t do well because of what he is doing well. If your market leader product is satisfying the need of tall customers well, design your own product to fit the short customers. As long as there are enough short customers in the market for you to have good business, you are marching on.

Concentrate your resources on attacking the leader’s weakness.
If you have found a solution to the weakness of the market leader, concentrate your resources on attacking the market leader at this position. If because, the market leader is satisfying the need of tall customers, he cannot satisfy the need of short customer well, let all your promotion, leaflets, salesmen and posters just keep shouting “The product that fits the short customer and his need perfectly” In military warfare, resource concentration on the weak point of the enemy is critical to securing beach-head or fresh ground when you land your troops from the sea. It is the same in marketing. If the enemy resources is concentrated in the North (i.e. its sales outlets, sales force etc, attack from the South, and concentrate all your resources there).

Sometimes you may have to attack a niche or a limited area of the market especially if you are small player and you don’t have resources. Niches are areas that the big incumbent players consider (economically) too small for their big size. A small player can find a comfortable home in such areas and do good business provided he can satisfy the need of the niche and the market leader cannot. This is sometimes called flank attack in military strategy. Find a flank that the enemy poorly defends and attack there.

Expand from the ground you have secured using the same rules as above: A war consists of many battles. It is not a one-time battle. So, be realistic. Get a beach-head first. Find a weak and poorly contested territory, attack there and establish your product. Then expand from here but following the same rules as above. No frontal attack. Keep looking for new weaknesses in the market leader’s strength. Look for other poorly defended flanks. Attack them. Concentrate your resources there. Win. Secure your ground and move to the next battle.

Olu Akanmu
June 2006

Marketing Tool: Segmentation

2008-11-19T18:51:00.002+01:00

By Olu Akanmu

Have you ever seen a shoe whose size fits all persons? How smart do free size dresses look on those who wear it? Wouldn’t you prefer a dress that is tailored to fit you and people who have the same physical profile as you? This is segmentation. Any marketing program that does not recognise that customers are different and have different profiles will always be sub-optimal, in-efficient and loose to smarter competition that taps into the segmentation principle.

Market segmentation is the art of dividing our customer base into groups based on their unique profiles. Such unique profiles must however be relevant to the business or product you want to sell. For example, being a Christian or a Muslim may not be relevant in the purchase of detergents. What is relevant is likely to be age, gender and income group. Market segmentation allows us to develop products, services that better fulfils the need of the customers. It also allows us to develop more targeted and efficient promotions program because we know media that the target customer group consumes. We will also know how to speak to them in ways that makes them bond with our service. Perhaps, the overall beauty of segmentation in this environment is that it also allows the service you develop to be price- relevant to the customers you are reaching. You will not be developing or marketing an expensive product for someone who cannot afford it.

So, let us define clearly what is a good market segmentation?

a) Homogeneity: A good market segment will have a unique profile, or consist of customers who are similar enough to be targeted or served in the same way. This may be income groups, gender, age, occupation, and lifestyle. A very powerful segmentation factor today especially in service business, is behaviour of customers or the way they use the service or product. Such segmentation helps to see unique customer insights that enable service improvement, design of strategies to increase customer usage, and profitability.
b) Quantifiable: A market segment must be quantifiable. You must be able to say at least roughly the size of the unique customer group. If you don’t know the size of the group relative to others, how would you allocate your marketing resources to the segments efficiently?
c) Relevant to the product or service: As discussed above with religion, we must ensure that the segmentation factors used are relevant to the business. There is a bank in Nigeria whose billboard says it is environmental friendly as its own unique selling proposition. Yet, environmental friendliness has not been found to be a reason for choice of bank or banking service!.
d) Actionable: Related to the above is that the segment must be actionable for marketing program. You must ask that if I divide my customer base this way, does it enable me to develop more relevant product and services; does it give me unique customer insights for service improvement and promotions?
e) Large enough to make the marketing program efficient: As no segmentation is a problem, there is also the risk of over-segmentation. A market segment must be large enough as to make your marketing program efficient. Over segmentation leads to having customer segment base that are too small and fragmented, such that you will have too many products, too many distribution channels, too many promotions etc. This becomes very costly to the business and defeats the whole purpose of segmentation.

Segmentation can sometimes be an art. You may need to experiment with several ways to slice your customer base to discover a uniqueness or pattern that is not readily obvious to your competitors. There is something intuitive about a good segmentation that gives you a competitive edge. You can feel it. You see something unique about customers. You see new opportunities to improve your service to meet customer needs. You see new pricing and promotion strategies. You see a good business.

So, try it today. Slice your customer base to discover unique customer groups with unique motivations and needs. Test your different slicing models whether they are truly homogenous, quantifiable, relevant to your product, actionable for a marketing program and large enough to make your marketing program efficient. And you will be having a new powerful competitive tool on your hand. Best wishes.

Olu Akanmu
January 2006

Developing a Good Marketing Plan

2008-11-19T17:54:00.001+01:00

By Olu Akanmu (August 2005)

A good product does not sell itself. This is a funny logic that runs against the basic human intuition. A good product sells itself only when backed by a solid well thought out marketing plan. What is then a marketing plan?

A marketing plan in simple terms is that program or plan that lays out how a product or service will be adopted by its best target market to produce the desired revenue and profit for the firm. In essence, it is finding those who will use the product or service, how they will use it, where they will use it and sometime when they will use it and by so doing generate revenue for the owner of the product. If marketing planning is however that simple, everyone will be a great marketer; or rather every product should be selling. This does not usually happen. This is because; there are methods for developing a good marketing plan. This is what we shall discuss. Hopefully, you will be able to apply it to your own business.

The steps to follow in developing a good marketing plan are as follows

a) Analyze the business environment of the product or service: Consider the economy, social environment and government policy. Does it have any impact on your business? We will illustrate the marketing planning principle with the example of a common business a small eatery. If the economy is growing, there is more disposable income in circulation. If your eatery is to be located in an industrial estate, are the industries in your location on the positive side of government policy? If the industries grow, there will be more workers who have more money to spend, implying a good business for your eatery. Is your eatery located in a place where population will continue to grow or decline? Apapa Central Business District in Lagos for example has witnessed significant decline of commerce due to the degeneration of the environment, and the decline of some manufacturing industries that used to be located there. Abuja is witnessing massive population surge of people who have no comfortable place to stay and have to eat out. This is good for eatery business.

The economy, social and government policy are larger environmental issues. Come nearer home to the immediate environment of your service. In your defined location, where your customers are likely to be coming from, how many eateries are available? In essence, consider competition and your customers. Are there too many eateries or are there too few for the number of people who may want to eat out. Consider, the size of the market and competition in that market. Do not define your competition too narrowly. Remember that any alternative the customer perceives to product is a competitor. For example, buses are an alternative to railways. Railways are not a monopoly in the real sense.

You may want to consider the level of service provided by current competitors. Do customers have to travel far to get service? Do they have to queue for long? Is the environment comfortable? In essence, you are analyzing the market for opportunity gaps.

b) Analyze the strength and weakness of your product. No product is perfect. A good product must however have more strength than weaknesses relative to its competitors. Please, note that the analysis is done from a customer perspective, comparing your product to the alternatives available. It implies that it is not good enough to be exactly like an existing competitor. You need to be different in a relevant way to the customer.

c) Analyze your opportunities and threats: What are the market gaps you have spotted in your environment analysis? Are there customers who are not currently satisfied with existing services? How many are they? Can you product satisfy these customers? Is the number of customers growing more than those who can supply them? What issues in the environment threaten your business plan? Will government policy change? Will the FCT Ministry enforce the new town planning law? Will there be entry of new competitors with similar or substitute products?

d) Define your objectives: What do you want to achieve in a planning period, usually one year? Put a clear number on it. If you can measure clearly what you intend to achieve, you will never know whether you have been successfully or whether you could have been more successful. Objectives can be revenue, market share, tones or volumes of product that you want to sell in the year.

e) Spell out clearly the risks that you cannot control. There are things that we may never know, control or plan for. Yet, we need to plan sometimes with the best of optimism. A marketing plan for agricultural services may need to spell out good weather as a risk and assume that there will be good rain. That becomes an assumption of the plan. If it turns out, that there is drought, the plan will need to be quickly reviewed as the foundation assumptions of the plan no longer holds.

f) Define your target market. From your analysis, which part of the market do you think will be most waoed by your product? Remember that everybody cannot love your product, but certain sections of the market will love it more than others because your product is more closely aligned to their needs than others. Find out these group or market segment? Is it big enough commercially to give you your revenue objectives? If not, you may have to define your target a little more broadly and adjust your product or service mix to appeal to a wider customer group or segment.

g) Define your marketing strategy. Your marketing strategy has a typical four leg…(Product, Price, Promotion and Place). The classic 4Ps of Marketing. The marketing strategy is about how to take advantage of your strength, minimize the impact of your weakness, and capitalize on your opportunities and ward-off your threats. (from the steps c and d). The tools to do these are the 4Ps of product, price, promotion and place.

a. Product: What is the strength of your product? Is it something you can take advantage of, to differentiate your service in positive way for the customer. Remember that differentiated service tend to command better prices and higher revenue. And if your product does not have any differentiation, can you build one into it as a product plan? How your eatery be different from others. You business will not prosper just by being like others. You have to be different.
b. Price: How will you price your product? Do you want to price a little above your competitors to signal to the market that your product is superior. Many entrepreneurs miss this important signaling opportunity. It is not all the time that low price sells. You can also price below your competitor to achieve quick market penetration. You must however be careful not to communicate the impression of an inferior product with your low price. Always have your target market in mind. A good pricing strategy for a product targeting a different market from yours may not be a good pricing strategy for your product.
c. Promotion: How will your target market know about your product? Are you going to advertise, send out salesmen, print flyers, banners etc? How do you want the target market to see your product/ service? Is it the eatery with a clean environment or the eatery for family outing? You may even consider the eatery for fast service? The way in which you want the market to see your product must be backed by tangible product offering to ensure that your advertising claim is not hollow.
d. Place or Distribution: How will the target market get or access your product or service? Where will you locate and in how many places? For tangible products, are you going to appoint middlemen or distributors? How will you structure your margins reward your distributors, keep them motivated while leaving for yourself sufficient margin for profitability.

h) Develop a Calendar of Action: A marketing plan is an academic exercise if it does not have a clear calendar of program and actions based on the marketing strategy discussed above. Every strategy should be extended to a clear actionable initiative of what is to be done, when it is to be done, how to do it, where to do it and who to do it.

i) Put together a budget and expenditure plan: What do you intend to spend? All your action must be contained within your budget. Develop and expenditure plans by period, month and quarter.

j) Performance Review: Do a periodic (monthly or quarterly review of your performance based on the plan? Are you on target or above target? What are the performance gaps and why? What do you need to do to close the gaps? And if you are above target, did you under-estimate your market potential in the first instance? Would you consider an upward review of your target because of this new reality?

BEST OF LUCK!

Olu Akanmu
August 2005