VOICES OF INFLUENCE

Finding the right perspective often constitutes the most difficult part of any mission. When we revisited the past three years, we realized that the themes aren't any different than at any other time — people want a sense of security (in everything from their finances to their homes) and optimism about the future. To look ahead, we gathered the right voices to look back at the Lessons Learned. Our Voices of Influence are John Costello, executive vice president, marketing/merchandising for The Home Depot Inc.; Dr. Gene Huang, chief economist of FedEx Corp. and Ray Kotcher, Ketchum's senior partner and chief executive officer. While the themes will be recognizable, what were the specific lessons learned and what do they tell us for the future? Read on to find out.

JOHN COSTELLO

Before joining The Home Depot in November 2002, its executive vice president, marketing/merchandising, had been chief global marketing officer of Yahoo! and, from 1993 to 1998, chief marketing officer of Sears. Advertising Age recently ranked him among the 50 most influential people in marketing.

On Lessons Learned:

...stay true to your brand

During the past three years, we stayed true to our core brand proposition of providing customers with a broad assortment of the products they want, great value and expertise to get the job done. But we also recognized opportunities to build on these core principles and evolve our business to meet a changing consumer environment. It is important to stay true to those foundational elements of your brand, but not become locked in the past so much that you lose touch with the marketplace or how the times have changed.

On the importance of listening to customers:

...listen to your customer and lead with the best solution

Consumers today are more time-pressed than ever, so we have invested significantly in new technology in our stores to improve the quality and speed of the shopping experience. Our new self-checkout systems, cordless scan guns and touch-screen cashier stations exemplify technological innovations aimed directly at improving the customer experience. In just about a year since its introduction, nearly one-third of our customers opt for self-checkout.

Another great example is our new Color Solutions paint center. We sell about 100 million gallons of paint a year and last February, we transformed the way people shop for this product. Research told us the customer wanted more inspiration, more options and better ways to select paint. So in each of our stores, we introduced about 30 percent more color to our palette. We enlarged paint chips and created an interactive kiosk in our stores and online that enables customers to match any color and then experiment with multiple options for that color in a virtual room of their choice. So, the lesson is to listen to your customer and lead with the best solution.

On the marketing challenges during the past three years:

..."Segment, Surround and Stand Out"

For marketers, it has become an increasing challenge to compete for the attention of time-pressed consumers. The marketing environment is more fragmented and cluttered than ever. I have found in the past and in today's climate that the key is to be distinctive — "Segment, Surround and Stand Out."

On meeting the challenges at The Home Depot:

...the home has become more of a sanctuary

Despite an uncertain economy, a sweeping business transformation in our company, the threat of terrorism and a war, The Home Depot has remained focused and is delivering strong results. This reflects two factors. First, in just about three years, our CEO Bob Nardelli will have invested $10 billion back into the business in the form of store modernization, technology, training and merchandising initiatives. The strategy he invested in is paying off as witnessed in the third quarter when sales increased by seven percent and we raised our earnings estimate for the year.

Second, the home has become more of a sanctuary than ever before. People are focusing on their home lives and how to improve them — not only from an investment standpoint, but in terms of their quality of life.

On marketing success:

...do even more, even faster

Successful marketers today must understand their customers better than ever before and integrate multiple marketing disciplines in proportions that make sense to their brand, product or service. We spend a lot of time researching our customers and crafting a strategy that enhances our brand and builds traffic, loyalty and profitable revenue growth.

Our "surround" strategy taken together combines print, broadcast and Web advertising with direct mail, direct-response television, public relations, in-store clinics and high profile sponsorships. Together, this mix helps drive traffic and sales and supports the fundamental tenets of our brand. We also add new tools to the mix. For instance, The Home Depot introduced its first holiday catalog this year in an effort to help customers select unique, practical gifts.

The excitement of retail marketing is that it constantly evolves as customers evolve. The key: be customer-centric, stay in touch with customer trends, and find those points of differentiation that allow your products, services and brand attributes to rise above the competition. There is so much opportunity ahead for The Home Depot. We're making great progress, but I'd always like to do even more, even faster. Fortunately, I have a terrific team that is constantly moving ahead to leverage our brand leadership.

On the role of integrated marketing:

There is no question that we are driving integration at every level — and that goes beyond the marketing elements I described earlier to include associate training and merchandising. I am fortunate to head up both the marketing and merchandising functions at The Home Depot. We are working hard to integrate our marketing and merchandising efforts to present a coordinated offering to consumers.

And even more important is the impact of our 300,000 associates in over 1,600 stores. All the marketing and the best merchandise in the world will not replace the store employee who has to know his or her products and convert the customer interaction into a sale. We will invest in millions of hours of learning this year to help our store associates deliver on the marketing and merchandising promise. That, to me, is the ultimate integration.

On lessons learned the past three years that made him a better manager:

...anything is possible

At the end of the day, it is all about the people with whom you work. I am fortunate to have a strong team of dedicated merchandising and marketing professionals that help me and The Home Depot make better decisions each day. If the team understands the vision and has the resources it needs, anything is possible.

DR. GENE HUANG

Recognized by BusinessWeek as the "Most Accurate Forecaster for 2002," FedEx Corp.'s chief economist and managing director is responsible for forecasting global economic and financial conditions. He has worked with Eaton Corp., General Motors Corp. and Japan's ICSEAD and holds a law degree.

The Backdrop:

The jolts of the past three years have included a recession that developed soon after the new century began, followed by what Dr. Huang terms a "twin-adjustments situation." This structural correction traditionally occurs after technology is freshly infused to balance production capacity; this, in turn, sparks an overabundance of business inventories. Weak economic conditions persisted into 2003 and, while signs of a recovery emerge, other indicators are still murky about the strength of an upturn.

On how the 2002–2003 economic slowdown worldwide differed from previous business slowdowns:

...dichotomy between the consumer and the business sectors

The challenge of the 2000–2003 period to business planners and policy makers has been profound. For two decades, the economy hasn't experienced a "twin adjustments" situation, which has occurred during the early phase of every tech-infusion period in modern history — from the internal combustion engine and electricity to the radio and the pharmaceutical revolution. We need to realign our early expectations of new technology breakthroughs with reality to better understand them. That's because this shift in expectation normally causes a collapse in capital spending, excess capacity and a deflated equity market.

Countering the latest recession was the strongest combination of monetary and fiscal stimulus in modern history. Consequently, the consumer sector has been supported throughout the downturn. Continued income growth combined with historically low interest rates has led to record sales in consumer durables, including automobile and housing. This situation differs from the other nine recessions since World War II ended in 1945.

On the business side, however, weak utilization created a deflationary environment that pushed up inflation-adjusted borrowing costs. What sets the latest cyclical adjustment apart from others is the dichotomy between the consumer and the business sectors.

On where we stand today:

...debates on timing and direction of rebound

In modern history, the "twin adjustments" situation usually occurs every two-to-three decades. Consequently, most business planners and executives don't have first-hand experience of such an operating environment. Debates not only have centered on the timing of a rebound, but also on the direction of change. Now, eight quarters after the end of the 2001 recession, a general market consensus on sustained recovery finally seems to have emerged.

On the economic lessons gleaned from this period:

...yes, I said growth

If we can learn from history, the economy — structurally speaking — is entering a period of multi-year growth with the post-bubble adjustment being completed. Yes, I said growth. The IT revolution is real. Its potential on different sectors isn't yet transparent, but its positive impact is clear. This should set a tone and backdrop for forward-thinking business planners.

Loosely speaking, when an economy operates below its potential, the confidence of its three participants — the government, business and the consumer — plays a significant role. If all of them expect something bad to happen and adjust their behaviors accordingly, bad things will happen; and vice versa. It is always good to look at things with a positive entry point.

On which global regions benefited and which didn't:

Globally, following the U.S. lead, Europe and Asia are playing catch-up in the IT infusion process. Europe is strengthening its IT production capacity while Asia is strengthening its IT consumption capacity. Europe still remains mainly an IT consumer while Asia continues as an IT producer. This creates opportunities for U.S. IT-related capital goods exports to Europe and intra-regional trade in Asia and Europe.

On changes companies might make in their operations, based on lessons learned these past three years:

...marry IT and 'back to basics'

Short-term tactics matter but, in the end, a company with the best combination of product quality (including suitability), service quality and cost efficiency eventually stands out as the clear beneficiary of economic and business evolution.

The marriage between the law of back-to-basics and information technology is a solid one. A modern company needs to have a "real" understanding of what the IT revolution means to its business operations in cost structure, logistics network building, supply chain management, business integration and alliances across countries and industries.

On the impact on business in particular and, specifically, on FedEx:

The offering of services normally can be adjusted to reflect the evolution in the economy. In this sense, we are truly blessed. In the past few years, global manufacturing integration and offshore production intensified, leading to a surge of trade related to foreign direct-investment activities. To a large extent, the strengthening of the global supply chain and global alliance has lifted structural productivity and reduced inventory-to-sales ratios in an equilibrium sense.

FedEx did not invent supply chain management. That, I think, was started either with some Roman generals or Sun Tze in his Art of War. However, FedEx did pioneer express shipping and the technology and transportation infrastructure that permits supply chain management on a global scale. The hub-and-spoke system — the centerpiece of logistics optimization — now is used widely by passenger airlines and the trucking industry. And unlike manufacturing companies, services companies like FedEx are not subject to a single product's life cycle.

On the lasting effect of the lessons learned from tempestuous times:

...expect long-lasting tech growth

We must realize that we remain in the early stage of an IT revolution and have just completed the adjustment phase. Typically, this occurs five-to-seven years after a massive tech-infusion process begins. That process usually lasts over two decades. We should expect to see, for an extended period of time, a long-lasting deepening of technology without major shocks like the 2000–2003 adjustment. In general, leaner logistical networks, an enhanced sense of efficiency and productivity will translate directly into improved bottom lines for the business sector.

RAY KOTCHER

At the agency nearly 20 years, Ketchum's senior partner and CEO writes and speaks widely on public relations and serves on the board of The Institute for Public Relations and as a member of the Arthur W. Page Society. In the past eighteen months, he has visited Ketchum's offices around the world, where he spent a lot of time talking with clients, local officials and Ketchum senior managers about the effects of the tumultuous world events and the lessons emerging from them.

On the challenges of the past three years:

I've visited most of our global offices in the past eighteen months and talked to many people. Frankly, the world and the world of business have changed for good, and will continue to change — guarantees no longer exist. Intense competitive pressures persist. Accountability has intensified. ROI is key. That explains why during the recession clients were reluctant to do anything that didn't deliver proven results. They wanted programs and ideas that could guarantee a return on their investment. In the U.S., particularly, they were more interested in getting back to basic public relations tactics — news bureaus, media tours, etc. However, since coming out of the recession, a change has occurred. With increasing pressure to kick their businesses in gear, clients are once again more interested in big ideas that will spark results— and they'll entertain those ideas from any source. In other words, they want day-to-day execution plus big ideas.

On the lessons learned from this period:

...innovation and creativity are back

In times like the present, when more companies are seeing conditions improving somewhat, they are interested in market innovations that build on already accepted principles. We simply must keep innovating to remain fresh and relevant. Public relations, for instance, always has used influencers to reach target audiences and help drive behavior. Often, the influencer was a member of the media or someone in the government. Today, that isn't enough. So we developed and introduced — and already it is generating a great deal of interest — a seven-step process that enables us to identify, measure and manage influencers and do it in a defined and logical way.

Not only is there an openness to innovation, but creativity is back at the forefront. Moving today's markets is more difficult than ever, so clients are looking beyond the expected, the traditional. The marketplace is looking for things to be done with a twist. Still, you must get the execution right as well as usher market-moving ideas to the market.

On the importance of rigor and discipline:

...creativity is planned

When you consider creativity, people often believe that creativity is borne out of crisis. Actually, most creativity is planned. It comes out of a well-executed brainstorm, it comes from following a process. The same is true in public relations. Just about three years ago, we introduced the Ketchum Planning Process. It provided the agency with a certain discipline for what we do. Everything from beginning a relationship with a client, developing and executing a program to delivering the results. It gave us a common language around the world. It works because of our collaborative culture and environment, and it brings our client service and our process to the next level. So while clients during this period were looking for more focus on the basics of exceptional service, we put the rigor of our planning process to work, letting us give greater focus to the service we provide them.

And while clients are looking out for costs, they also seek maximum value. They want to know — indeed, they expect to learn — how we specifically measure our value to them. We have spent a great deal of time the past several years exploring and developing a set of tools that show clients specifically what they are getting for their PR dollars. This is critical in today's highly competitive marketplace, a world in which you never take a relationship or customer for granted. You must prove your value every single day.

On what we owe our employees during tumultuous times:

...continue to invest in them

We realized, as did many companies, the value of remaining focused on our employees during this time. We weren't perfect at it, to be sure. But we understand that continuing training and a commitment to your brand are what enables a company to come out of tough times — it's what we counsel our clients and what we continue to learn ourselves. Sure, we all must watch costs. Cost consciousness is important, but you can never take your eye off of building the top line — and your people represent the way to do that.

On the challenges for public relations:

...bring value to earn a seat at the table

I've heard many people say that now is the time for PR to get its seat at the table. What I've learned is that regardless of your profession, you're always striving to pull up a seat at the table, and the way you do that is by providing leadership and value. Clients really don't care where they get the idea, the strategy or the direction — it's that they get what is needed to bring the business forward. Bringing value and providing leadership in good times and in bad are the means of getting to and staying at the table.

On the value of relationships:

These past three years have reminded us of the importance of relationships — those with our clients, our colleagues and the public relations industry.

On the lessons learned:

We understand, as we enter our 81st year as an agency, that building a great agency takes time, dedication, shared vision and that intangible quality we call passion. We've learned in these past few years that managing a global enterprise is a difficult and demanding challenge complete with growing pains. Public relations is as much a business as it is an art and craft. The past few years have forced us to run our business as a business. They have enabled us to understand our clients' worlds better.

On the questions that confront each of us throughout our careers:

...there are three important ones

I've certainly realized recently that while the world changes, the questions facing each of us who deliver professional services aren't that different than those we ponder throughout our careers. David Drobis, our Chairman Emeritus who retired on Dec. 31 after 36 years at Ketchum, articulated those questions with his colleagues. They are:

1. How are you going to apply your passion to help clients meet their business goals?
2. How will you balance the work you do at the office, for clients, with the work that needs to be done in our industry?
3. What will you do to embrace the focal point of our business — relationships?

Dave, of course, was known not only for his great client service, but also for being involved in the industry. At the end of the day, he realized, it comes down to being passionate about the work you do. His focus was often on building strong, meaningful relationships — that's a definite lesson I've learned.