Esperanza Huerta and TerryAnn Glandon
The University of Texas at El Paso

Fraud committed by company employees is a growing concern among business owners and regulatory entities, given the steady increase in both the number and the scale of cases.¹

To counteract this trend, companies can introduce technological solutions to detect fraud. For example, there are information systems that identify suspicious patterns of financial transactions that can be due to fraud.

Detecting fraud when committed serves to punish fraudsters and communicate to the rest of the employees that such crime will be prosecuted, but with a fraud already committed, the damage is done and the possibility of repairing the harm is reduced. It is more efficient and less costly to prevent fraud, to detect it before it happens. If one could identify the employee who is planning to commit a fraud, what measures would management take? It sounds like science fiction, not to mention the ethical implications of doing so.

However, there are non-invasive ways to infer what is on a person’s mind. Our communications reflect what we think and feel. The written word, on paper or in electronic form, endures and reveals our intentions and reasoning. Electronic communications (texts and e-mails) have been entered into evidence in trials. For example, in the Enron trials, the prosecution used as evidence e-mails exchanged by the auditors and senior managers to show that they had knowledge of the accounting strategies that were employed². Recently, the e-mail message that Fabrice Tourré (former employee of Goldman Sachs) sent to his girlfriend, in which he said that the mortgage market was about to collapse, was presented as evidence that he made misleading recommendations to investors.³

If e-mails express what we think, then they could be examined to identify employees who are planning to commit fraud. This way, the e-mails would serve not as evidence after the fraud, but as an indicator that a possibility exists that fraud may be committed and actions could be taken to prevent it. This is the aim of new information systems to prevent frauds that are already on the market. These systems analyze thousands of employee e-mails to detect clues about potential fraud.

What does a potential fraudster state in his or her communications that can give him away? It is unlikely that an employee would send an e-mail that says: “I am going to defraud the company.” Experts know that fraud is a complex phenomenon involving the convergence of many factors that set the conditions so that fraud can be committed. Fraud occurs when three elements – known as the “fraud triangle”- are present: motivation, opportunity and rationalization.

Motivation refers to a real or perceived need to commit fraud. Besides the obvious goal of obtaining money, a fraudster may commit fraud because of the psychological need to be admired or to always be a winner. Opportunity refers to the real possibility to commit fraud, with or without help of another person or employee. Rationalization is the mental process that the fraudster follows to justify an action that is unethical. For example, an employee may rationalize that what he or she takes wrongfully from the company is not actually theft, but a way to make up for how poorly paid he or she is.

The systems conduct a linguistic analysis of the e-mails, seeking subtle clues that indicate rationalization, motives or collusion. For example, an employee can constantly express his or her dissatisfaction with the company, which can be a form of rationalization. The employee may also talk about a money problem that calls for an immediate solution, or he or she carries on personal associations with employees who are responsible for areas which perform tasks that are separated by internal controls.

The linguistic analysis that systems carry out is much more than a keyword search as they have to take into account the context in which the words are used and discern sarcasm or jokes. After analyzing the e-mail messages, the system yields a report on those authors of messages that point to potential fraud. Based on the report, management should determine if the analysis is on target and what to do if it is suspected that fraud might take place.

Systems that analyze emails to detect potential fraud are a step forward in the prevention of fraud. However, they also pose many challenges for companies. Next we will consider five decisions that management must make before using these systems. As with all management decisions, there are no right or wrong answers. The business person should assess the advantages and disadvantages of each option and decide what is most appropriate for his company.

Privacy of electronic mail

Management should make sure that the use of these systems is not illegal in the country where it wants to utilize them. In some countries, like the United States, there are specific laws that state that communications by way of the company’s e-mail system belong to the company, and employees, as such, have no privacy rights. In Mexico there is no law that specifically provides that the company owns electronic communications that employees send by internal mail, but the general consensus is that if the communication is done with company resources, it is subject to scrutiny.

Disclosing the use of the system

Management must decide if it will tell employees that it is using a system that analyses e-mail. Any decision can create a negative work atmosphere. If the use of the systems is revealed, employees may perceive top management as a big brother who wants to observe and control them. If the system is not announced, employees who find out will resent that they were not informed.

Responsibility inside or outside of the company

Management must decide whether the e-mail analysis system should be controlled by an internal department or whether to hire a third party. This decision is similar to any outsourcing decision where the cost of each option is weighed. For example, the costs of hardware and software should be considered, as well as the hiring of qualified personnel. A risk is taken with these systems when a third party is allowed access to the company’s private communications. The company’s decisions and business operations are carried via e-mail; a leak of this information can have huge negative consequences.

Continuous or specific evaluation

Management must decide if the e-mail analysis should be done consistently, at a specific time or with a specific frequency. A continuous analysis is costly, but it increases the chances of detecting the possibility of fraud being committed – in time to prevent it. An analysis at a given moment or during a specific period of time is cheaper, but it can detect potential fraud too late.

Following up on reports

Management should establish a procedure when potential fraud is identified. Who will be responsible for monitoring? What resources will be used for monitoring? A system needs to be put in place to assess the risk of fraud and to respond quickly to prevent it.

Uncertainty in reports

When using these systems, it is important to understand that there is a margin of error in the detection of potential fraudsters given that linguistic interpretation is very subjective. Besides, the presence in the messages of expressions that reflect motivation or rationalization does not mean that it is certain that fraud will be committed. There are employees who may feel constantly unhappy with the company, but who would not commit a fraud. Conversely, employees who never express dissatisfaction or elements of rationalization can commit fraud.

The reports generated by these systems do not indicate with full certainty that there is some possibility that a fraud will be committed. Management must make decisions based on reports that reflect ambiguous situations: the message is suspicious and may imply fraud, but not necessarily. When evaluating a report, management must determine whether there is sufficient evidence to commit resources to a follow-up investigation. To the contrary, management may consider the evidence is not enough and not follow it.

Whatever decision management makes based on reports bearing uncertain results has implications for the allocation of resources to follow up the case and to detect fraud. For this reason, we conducted a study to determine the effect that this uncertainty has on management decisions. In our next article we will describe the results we obtained and the implications for business management.?

References

1. ACFE. 2010 Report to the Nations on Occupational Fraud and Abuse, 2010, cited 20 de julio de 2011, , accessed at ACFE.

2. Hunter, P., Email meets Enron to bring lawyers down on big corporations. Computer Fraud and Security, 2007. 2007(5): 18-20.

3. Baer, J., C. Bray, y J. Eaglesham, ‘Fab’ Trader Liable in Fraud — Jury Finds Ex-Goldman Aide Tourre Misled Participants in Mortgage Security, Wall Street Journal, 2013.

By: Antonio Lloret

For companies to maintain a level of competitiveness that allows them to subsist, sustainability must be an integral part of their business strategy. These two aspects -competitiveness and sustainability- are key to success, hence the importance of using natural, economic and social resources efficiently and being able to adapt to consumer demands for sustainable goods and services. But instead of viewing these as limitations, companies should see these as strategic opportunities to create value.

Competitiveness, understood as the efficient allocation of resources (capital, work, technology) and the proper use of natural and social capital, is a prerequisite to the implementation of sustainable actions that enable a company to generate internal and external economic value, while the term “sustainability” presupposes rational use of natural, social and economic resources by companies. Thus, sustainability is about meeting the needs of the present generation without sacrificing the capacity of future generations to meet theirs.

In a strictly corporate sense, sustainability means the company incorporates environmental and social considerations into its commercial operations, strategic planning and frequent interactions with agents of interest. Sustainable practices, however, are the approaches, technologies and strategies the company implements to ensure resources are put to more efficient use, reduce waste and control environmental risks. Such practices can also include the design and manufacture of ecological products, reducing the environmental impact of the supply chain and working with the local community to minimize the environmental consequences of the company’s operations – all while creating economic value.

But how can a company achieve these goals? At what point can we say a company is sustainable and competitive at the same time? What specific actions can it take? A good starting point is to understand how a company creates value and what the benefits of sustainable actions are. According to the competitive advantage model (Porter, 1985), a company that proactively seeks to improve its industry position can create a competitive advantage by employing a differentiation, focus or low-cost strategy.

A differentiation strategy is one where the company seeks to offer a unique product for which the consumer is willing to pay a premium or one where the consumer obtains an added benefit, not necessarily monetary, that makes him or her prefer that company’s products.

A low-cost approach employs aggressive price strategies designed to shore up profits by selling at average industry prices or below the industry average to gain market share.

Finally, a company that opts for a focus strategy concentrates on a narrow market segment and will use either a cost leadership strategy or a differentiation strategy or a combination of both to get ahead in its focus market.

These competitive advantage strategies can be linked to the three pillars of sustainability – economic, environmental and social-, which, rather than being mutually exclusive, are complementary. Figure 1 is commonly used to illustrate the concept of sustainability and its components. At point “S”, where these three pillars intersect, it is possible to speak of sustainability. In the case of companies, this means their strategies are aligned with all three components to a degree that allows them to honor their social and environmental commitments, while still creating economic value.

 Figure 1. Sustainability Diagram. Source: Adams (2006).

From a sustainability perspective, the strategic actions a company can take to differentiate itself are mainly associated with its reputation and brands; its capacity to innovate and adapt to the changing preferences of today’s consumer to produce sustainable product designs that have a lower environmental impact; and willingness on the part of consumers to pay more for goods with sustainable attributes. On the cost strategy side we find more efficient production processes, greater employee productivity, a reduction in the cost of capital as a consequence of fewer run-ins with environmental regulators and innovation that puts cleaner, more efficient technology at the company’s disposal.

Table 1 lists some sustainable actions liked to the aforementioned generic strategies and their implications.

Table 1: Sustainable Actions Adapted to Generic Competitive Advantage Strategies. Adaptation of the Blackburn Model (2007).

Clearly some of these value-adding actions, such as maintaining a good reputation and reducing risks and contingencies, are actions the company would carry out anyway during the course of its daily operations and cannot necessarily be attributed to sustainable actions.

We could argue that if the company has already taken actions such as these, its sustainability or competitiveness is not up for debate and as such, it should have no difficulty communicating the sustainable actions it takes internally and externally, in light of dynamic market conditions, current regulations, the demands of agents of interest and increasing consumer preference for sustainable goods and services.

To understand how a company’s actions can be linked to sustainability with a view to maintaining competitiveness, we took it upon ourselves to compile a list of the best business practices implemented by some of the world’s leading companies, broken down by sector and categorized according to the economic, environmental and social components of sustainability. In Mexico, these include companies like Nissan de México, Bimbo, FEMSA, Grupo Modelo, Cemex, Casas Geo, Met-Mex Peñoles and Petróleos Mexicanos, all of which take specific sustainable actions.

Conclusions

The proper alignment of a company’s strategy with the components of sustainability stems from a vision in which it is possible to link competitiveness with sustainability. In fact, strictly speaking, we shouldn’t see one as separate from the other, since a company’s survival depends largely on long-term sustainable actions that take into account economic, environmental and social factors. ?

References

Adams, W.M. (2006), “The Future of Sustainability: Re-thinking Environment and Development in the Twenty-First Century,” Report of the IUCN Renowned Thinkers Meeting, 29-31 January, 2006.

Blackburn, W. R. (2007), The Sustainability Handbook. London: Earthscan.

Lloret, A. (2009) Competitividad y Sustentabilidad: Las dos caras de una moneda que genera valor. Mexico: Dirección Estratégica, August 2009.

Porter, M. E. (1985), Competitive Advantage, New York, The Free Press, pp. 11-15.

Mexican enterprises make a Samson-like effort to get off the ground, expand and sometimes just stay afloat in today’s complex, highly competitive and constantly changing economic environment. The risks of failure are high and, unfortunately, ever present. Offsetting them requires ongoing investment in material resources and human capital, plus readily available and adequate sources of financing.

According to the pecking order theory, management will first turn to internal sources of financing to cover the company’s operational and expansion requirements, calling on external sources only when the former run dry. Of these external sources of financing, the option that implies the lowest risk, such as debt instruments, is favored, leaving equity financing as a last resort.

In Mexico, shareholders put up most of the start-up capital, with the cash flows generated by the company supporting its subsequent operation and expansion. Even so, daily operations and, most of all, expansion depend largely on external sources of financing, with bank loans playing a predominant role. But what happens to these funds once they reach the company’s coffers? Are they used properly and in accordance with the commitments undertaken with the bank? When does bank financing herald the beginning of the end for a company

What is the Purpose of Credit?

Simply put, savings and loans are mechanisms that modify the consumption patterns of individuals and corporations. You save so you can consume the same or more in the future and you ask for credit so you can consume more today. An individual applies for a loan so he or she can consume today instead of later and is willing to pay a price (in the form of interest) in order to do so, while a company will need external financing when it wants to expand its operations or when its operating cycles are out of synch. The funds requested should have a specific purpose, create economic value for the company and its owners, and guarantee repayment of the principal and interest.

Bank loans should invigorate a company, much like the effect of vitamins on the human body. When credit doesn’t fulfill these functions and is used to finance activities that don’t add value to the company, it has the complete opposite effect and becomes toxic.

Why Does Credit Become Toxic?

Companies generally have a new generation of financiers at hand who are just as -if not more- capable of assessing a financial problem and its associated risks than bank executives. When the decision to apply for a loan is made, the assumption is that it is clear what use these funds will be put to and the value they will add to the business.

Even when company executives have a notion of how and where the funds will be applied, often they are surprisingly unfamiliar with the nature of the banking business, how bankers reason and the proper management of external sources of financing. A lack of understanding of the various stages in the lending process increases the chances of loan application errors and can result in the poor management of the funds received. The main repercussion will be that the benefits the company expects to reap from the bank loan will gradually fade and, in some cases, disappear altogether. In the final consequence, the loan becomes so toxic it can jeopardize both the borrower and the lender.

It’s a story we’ve heard all too often: the money isn’t used for the purpose it was requested; the company doesn’t generate additional cash to pay off the loan and stops making payments; when it stops making payments, its debts increase, eventually leading to bankruptcy if these get out of control. A badly requested and badly managed credit line can do a lot of harm to both the company that receives it and the bank that extends it, because it puts the depositors’ resources at risk.

Figure 1. Consequences of Poor Loan Management

Negotiation and Information Problems

Banks are responsible for safeguarding the savings members of the public entrust them with. Their core mission is to transform disperse, liquid assets into financing for productive projects or consumer credit. A banking system can only fulfill this mission by ensuring the money it lends is repaid in accordance with established terms and conditions, and by minimizing risks. These can be reduced or, at the very least, controlled when they are correctly assessed, when the bank has adequate bad-loan reserves and understands the economic environment the loan applicant operates in. The purpose of individual or portfolio credit analysis and risk management is to ensure only those loan applications that entail reasonably acceptable risk are accepted.

The key to good lending is to reduce information asymmetries between the company and the bank, i.e. the bank should know the company as well as the executive requesting the loan does. The purpose of the information the company furnishes the bank with, along with the interviews the bank conducts and its visits to the company, is to minimize these asymmetries and enable the bank to make the best possible decision.

Notwithstanding, corporations usually limit themselves to meeting the bank’s “requirements”. From a corporate standpoint, banks merely want them to fill out application forms, provide supporting documents and clarify certain aspects of the company’s business, generally accounting-related issues. During interviews with the bank executive or when the latter visits the company to gather additional information, this sense of superficiality persists – the bank executive simply asks the company to fill out the necessary questionnaires without requesting further details that would provide a more complete picture of the business and its inherent risks, while the company executive makes no more of an effort to clarify the difficulties of the business, its risks and, more importantly, how these can be offset or reduced.

If company management is not clear about its financing needs and fails to provide a detailed analysis of past performance and growth prospects, then it will be the bank that takes the lead in negotiations. Furthermore, the bank will hold on to this controlling position not just during negotiations, but in defining the credit products it makes available to the company and the terms and conditions of any loans extended.

Companies tend to interact with banks on a very basic level; instead of availing themselves of diagnostic tools to determine their financial needs, they limit themselves to providing strictly the information requested of them, passively accepting the process in which banks are viewed as a “black box” that has to be fed with data, documents and precise answers to specific questions. How banks process this information and reach a decision remains a mystery. In fact, banks are often held to speak a language of their own and possess a mentality that is incompatible the company’s. In making these assumptions, corporations limit their own capacity and ability to negotiate with banks.

To make matters worse, companies are rarely familiar with the full range of products banks offer and which of these is best suited to their needs. And instead of analyzing loan repayment terms and conditions, they are more likely to accommodate themselves to the characteristics of the loan offered them. In other words, it is the bank that calls the shots.

Consequently, the biggest mistake a company can make is to limit the amount and quality of the information it furnishes the bank with. Failing to explain in detail how the business works and provide supporting documentation is counterproductive because the less information the bank has at its disposal, the fewer elements it has to base its decision on, which only serves to limit the company’s negotiating leverage. Conversely, when a company discloses detailed information on its business, this transparency and the in-depth knowledge and understanding it affords bolsters the trust of decision-makers at the bank. Over and beyond the actual loan application, companies would do well to show their enthusiasm by compiling structured reports that convey confidence in their future and the projected benefits of the loan, which, in turn, guarantee its timely repayment.

Other Common Mistakes

• The company accepts loans it doesn’t need. The finance executive encourages management to utilize these available funds and they are incorporated into the company’s assets with no productive purpose in sight. The funds end up being diverted to other ends, such as speculation, lie idle in the form of cash reserves, are tied up in inventory reserves or are used to upgrade equipment in the absence of a clear-cut expansion plan. The main problem with failing to use the money productively and not having an established source of cash generation is that it increases the likelihood the company will not recover the cost of the loan (interest) and, in a worst-case scenario, fail to cover principal payments.
• The company requests or accepts a credit line knowing it does not have the capacity to repay it. Sooner or later, this will come to light when solvency issues begin to arise and if the funds weren’t channeled into productive investments, this will only exacerbate the situation.
• The company does not have a comprehensive understanding of its financing needs. The focus is placed on specific short or long term goals, without taking into account incidentals or day-to-day fluctuations in operating cash flows that have a direct impact on loan payment capacity. Worse still, possible changes in the company’s economic environment and their potential impact on cash flows are overlooked.

• No analysis is conducted to ensure the terms and conditions of the loan coincide with the characteristics of the company’s business as regards: amount, availability, term, method and source of repayment, cost-benefit of the loan, level of commitment and whether or not the guarantees put up are proportional to the funds received. More often than not, cheaper financing alternatives are not even considered, all of which translates into liquidity and profitability problems, reducing the company’s room for maneuver on the operating front.
• The company either lacks or ignores financial controls. Consequently, it has no way of knowing whether the loan was put to productive use and generated value or if it was merely eaten up as expenses.
• In terms of credit management, the company fails to update the bank on its performance, results or changes in its business strategies. It is important to banks to keep tabs on the companies they lend to and the latter should not underestimate the benefits of keeping lines of communication open and maintaining a fresh relationship with their bank, as this will play out in their favor when requesting an extension or a new loan.
• Apathy in the face of arrears. Instead of approaching the bank before falling behind with loan payments to explain the cause and restructure their debts, companies generally wait until it’s too late and the cost of late payment and interest charges have become unmanageable. The mistake here is sitting back and letting the bank conduct a superficial investigation and propose solutions that aren’t always in the company’s best interests.
• Companies sometimes forget that bank loans are the main source of information credit bureaus rely on.

Conclusions

Businesses need bank financing to expand and when these funds are invested in profitable projects whose economic benefits outweigh the cost of the loan, it is not just the company and its owners that stand to gain, but society at large. It is the responsibility of corporate borrowers to reduce information asymmetries with their lenders and use the credit lines extended them responsibly and seriously because at the end of the day, these resources belong to us all. ?

References

Clayman M.R., Fridson M.S. y Troughton G.H. (2008), Corporate Finance: A practical Approach, CFA Institute.

Abrahams C y Zhang M, (2009), Credit Risk Assessment: The new lending system for borrowers, lenders and investors, Wiley.

We all need to convince others to follow our proposal. Sales agents try to persuade buyers to choose the brand they’re promoting; advertisers try to increase the consumption of a product; politicians seek to win votes; and directors try to motivate their employees to turn their vision of the company into reality.

This means that persuasion is a subject of great use and utility. It is the reason why social psychology and communication sciences study it and have developed a series of techniques to make persuasive messages more effective. However, on many occasions, the ethical use of this tool has not been taken into consideration. In this context, the following paper is intended to identify the differences between manipulation and ethical persuasion, and invite readers to avoid the first idea and make use of the second.

General Persuasion and Ethical Persuasion

We must begin by defining the concept of persuasion. According to Collins (2009, p.4), persuasion consists of “an intentional and internalized change in attitudes, beliefs or behavior, derived from a communication where the receiver perceives some degree of freedom of choice.” For example, Cablevision, with its television commercials, tries to convince Internet users to discontinue the services provided by Telmex and change to Yoo, offering a series of arguments, such as speed and cost. In this way, it intends to change the consumer’s idea that its Internet service is faster than that offered by Telmex, so that the user changes his opinion and drops one provider for another. Their slogan is “Change Now.”

Analyzing the concept of persuasion as explained above, we discover that there is no ethical consideration. Rather, what is spoken of is effective and ineffective persuasion, depending on whether the objective is achieved or not. Gadner (2004, p. 212) expresses this practical concept of the art of persuasion in the following way: “It depends on us to choose the use we give [to the techniques of persuasion], whether we use them in a selfish and destructive manner, or in a generous way that seeks to improve people’s lives.” Therefore, the techniques proposed by communication theorists are neither good nor bad; their ethical value depends on the purpose for which they were used. In other words, the end justifies the means.

On the other hand, there are several authors (Messina 2007, Reardon 1991), who emphatically emphasize that persuasion should be applied with ethical standards. For example, Baker and Martinson (2001) propose that five principals must be met for persuasion to be considered ethical:

1. Truthfulness of the message: tell the truth without deforming the information..
2. Authenticity of the persuader: be genuine and act in accordance with your beliefs.
3. Respect for the receivers: they should be treated as the end result and not as the means for getting there; they should not be used for personal gain, or the benefit of the company.
4. Fairness in making the persuasive message attractive: avoid only talking about the positive aspects of the proposal, especially with a vulnerable audience, such as children and people with little education. Their limitations for understanding the costs and potential damage to them must be taken into account. Otherwise, the persuasion would be abusive and manipulative.
5. Social Responsibility: It is important to consider the effects of persuasive communication in the community and society as a whole. It is unethical to try to achieve a sales objective or increase company profits at the expense of the common good.

In summary, we can say that for persuasion to be ethical, one must respect the dignity of the receiver, allowing him to make a voluntary, informed, rational and thoughtful choice.

Ethical concepts are fine in theory, but in practice they can be difficult to apply. To make this easier, Table 1 compares the factors that Gadner (2004) proposes to achieve effective persuasion to those that must be applied to convert persuasion into ethical use.

Table 1: Differences between Effective Persuasion and Ethical Persuasion

If we look at the big lies propagated by some pseudo-entrepreneurs or business managers, we see that while they were effective in their attempts to persuade, they were unethical. One example is the fraud perpetrated by the private investment firm Stanford Financial Group. It offered investors the promise of high-interest returns far above the average of the financial instruments available in the Mexican Market (it outlined very well the benefits of its proposal), but omitted to say that the institution was not registered in the Mexican SEC Commission and if it had losses they were not protected by any institution. Their proposal was deceptive and manipulative. The investors ended up losing their money and didn’t find a way of recovering it. The director, a real scoundrel, will have no chances of doing business again in Mexico and other countries in the world. With so much deception and manipulation in the business world, it would seem as though human beings have some mischievous little devil that leads them to want to abuse others, to quickly acquire wealth or power. But human wisdom seeks to counteract this little imp through the use of laws and regulatory institutions.

In contrast to the Stanford Financial Group, we find brokers of many Mexican brokerage firms who want to convince potential clients to invest in their institution. Of course, they base their proposal on solid arguments, supported by statistics of comparative returns on their investments with respect to those of the competition. When talking with a customer, they show enthusiasm about their products and clearly explain the benefits they will receive, avoiding deception and, above all, respecting the person’s freedom. Through the use of ethical persuasion, the client will trust and have confidence in the institution and with the executive, which will allow him to continue doing business with them, instead of the competition. In the long range, ethical persuasion yields a good return.

How To Protect Yourself from Unethical Persuasion

While the persuader should behave in an ethically responsible way, the receiver must also do his part by protecting himself from abusive and deceptive persuasion. To achieve this, Pratkanis and Aronson (2001) have suggested the following measures:

• Understand how persuasion works and how you can become a victim of propaganda. For example, we can develop the habit of analyzing advertisements that promote miracle products (such as those that get rid of wrinkles in 60 seconds) and ask ourselves if realistically the product can do everything the ad promises.
• Monitoring our emotions. If you feel as though your emotions have been played with, step back and analyze the situation. For example, if you begin feeling afraid or guilty if you don’t contract a service, analyze whether or not you really need it.
• Explore the motivations and credibility of the communication source. Ask if the communicator is an expert and if he is trustworthy. For example, it is obvious that a sales agent wants to make a sale and receive a commission, so we should question whether he truly wants to help us select a product that serves ours needs, especially if the competition sells it.

• Think rationally about the proposal that is being made. Be the devil’s advocate and think about reasons why you should not do what is being asked of you. For example, if you are going to buy a house, a real estate agent will tell you all the good things about a house, and it is up to you to find out all its defects.
• Analyze the complete range of alternatives before making a decision. Do a marketing study before buying a product or service. For example, if you have decided to buy a laptop, go to several stores and study the different models to compare prices and the features they offer.
• Don’t base your evaluation on what the persuader says, but on what he does. For example, if Televisa says that the mass media has a social responsibility and we see that the company supports campaigns like the Teletón, we can believe what they are saying.
• If the proposal is too attractive to be true, be aware because it may be misleading. If the investors at Stanford Financial Group had taken into account this recommendation, perhaps they would not have lost their money.

Conclusions

Human beings want other people to do what they ask, whether they are entrepreneurs, advertisers, managers or politicians. To achieve this, they can apply principles and tactics of effective persuasion, without being concerned with deception or manipulation. At first, unethical persuaders may achieve their objective, but when the receivers become aware of the abuse, trust will be broken and it will be nearly impossible to restore it. In the business world, trust is fundamental. If a business manager or director speaks truthfully, is authentic, and respects the dignity of his clients and his employees, they will trust him and long-standing relations can be established. Ethical persuasion has its costs, but the investment is well worth it. ?

BIBLIOGRAPHY

• Baker S. and Martinson D.L. (2001). “The TAREAS Test: Five Principles for Ethical Persuasion”. Journal of Mass Media Ethics16, No. 2 & 3: pp. 148-175.

• Collins S.D. (2009). Persuasion. Managerial Communication Series. USA: South-Western Cengage  Learning.
• Gardner H. (2004). Changing Minds. Boston, Massachusetts: Harvard Business School Press.
• Messina A. (2007). “Public Relations, the Public Interest and Persuasion: an Ethical Approach”. Journal of Communication Management. Vol. 11, No. 1: pp. 29-52.
• Pratkanis A. R. y Aronson E. (2001). Age of Propaganda. The Everyday Use and Abuse of Persuasion.  New York: Henry Holt and Company.
• Reardon K.K. (1991). La Persuasión en la Comunicación: Teoría y Contexto. México: Paidos.

The etymology of words can provide important knowledge and convey an experience directly from both the external and internal world. Human beings use language to understand, interpret and even transform the world (González, 1996). The concept and the term “responsibility” is not modern and appears for the first time in the English and French languages in the year 1787. The first usage of the term was political, in expressions such as “government responsibility” or “responsibility of the government” to express the nature by which the constitutional government acted under the control of the citizens. (Abbagnano, 1989). Social responsibility means the action of responding to society through the consequences of our acts in the exercise of freedom. Corporate social responsibility (CSR) is the specific response of a company to society – including both the positive and negative impact of its activities – which contributes to sustainable development. Today there are conflicting positions regarding the regulation and content of CSR reports demanded of the companies. This paper briefly describes the various reporting guidelines used throughout the world and their outlook.

Corporate Social Responsibility

To comply with the definition of CSR mentioned above, companies must increase their willingness to go beyond the implementation of a corporate government scheme, that is, the secular principle of exclusively protecting the owner (here, the shareholder). In contrast, corporate social responsibility seeks to use private property to achieve a social benefit, which both legal and corporate cultures regard with extreme suspicion. (Arjona, 2010).

This dilemma responds to the question of whether a company exists for the sole purpose of generating profits or if the adoption of socially responsible practices is a strategy that helps to generate value and, therefore, long-term sustainability.

There are many critics of capitalism who oppose its selfish principles. However, as stated by the philosopher André Comte-Sponville: “Capitalism is neither moral nor immoral, it is simply, amoral.” Capitalism seeks efficiency and effectiveness in the use of resources, and the practices of social responsibility do not go against this: doing the right thing does not have to be a non-profitable or non-competitive exercise.

In this regard, CSR has been the subject of several investigations in the last decades. In a review of the literature on the topic by Margolis and Walsh in 2001, they found 86 studies whose objective was to analyze the effects of CSR (independent variable) on the financial performance of companies. Most of the results (53 percent) pointed toward a positive relationship between CSR and financial performance. In contrast, only 5 percent of the investigations found a negative relationship between these variables; 24 percent, no relationship; and 18 percent, a mixed result.

Several authors have devoted themselves to studying the existence of a causal relationship between CSR and financial performance. Some argue that CSR improves financial performance by strengthening the reputation of the brand and benefitting its stakeholders. Others argue that companies with an outstanding financial performance have idle funds that can be devoted to sustainable practices. There is also the vicious circle theory, which establishes that CSR is both the cause and the consequence of a good financial performance, considering everything else constant.

In Mexico, there is not yet enough information about CSR and its relation to the competitiveness of companies. Some studies, such as the one conducted by Husted and Salazar, analyzed the practices of CSR of 52 firms in Mexico, as well as their ability to create competitive advantages. They found that of the total number of companies surveyed, 86 percent was involved in social action, with the area of health considered to be of greatest importance, followed by poverty relief programs and sports. They also reported that only 36 percent of the companies in their study actually measured the results of their activities, and that the Internet and the newspaper were the means utilized the most to publicize their social programs.

In most studies, the main problem has been how to measure Corporate Social Performance (CSP). There are various models, but the two most common are:

1. Corporate Reputation Index – This consists of evaluating the companies using certain attributes of the same to obtain a ranking. Fortune magazine publishes a yearly evaluation of more than 300 companies in 40 industries in the United States. This index has been a source of much criticism, because the attributes tend to be defined in abstract terms imposed by the researchers, leaving room for the personal interpretations of the evaluators. In addition, this is not a specific index for CSP, but for management in general.

1. Content Analysis – It assesses the extent to which CSP activities of the companies are published in various documents, especially in their annual report. The advantage of this technique is that once you choose the variables (subjectively), the process is more objective. However, it presents some limitations, as the analysis of content only indicates what companies say they are doing, which may differ from what they are actually doing.

Neither model represents very precise measurements for estimating the CSP, but so far these are the best tools we have.

In addition to the effort to measure the CSP and its possible correlation with the company’s financial results, there is also strong pressure internationally on the topic of socially responsible consumption, and training and education of CSP. The greatest promoters in this area have been the demands and expectations of the stakeholders, voluntary standards and international law. Today, new areas demanding accountability in reaching a holistic approach in CSP, include:

• Geopolitics – geographical breakdown of the markets, investments in countries in conflict, treaties with non-democratic countries.
• Environment – waste, emissions, recycling, water and energy consumption.
• Human and labor rights - child labor, forced labor, rate of absenteeism, discrimination.
• Animal rights – animal experimentation, organic food, sustainable fishing.
• Unethical practices – corruption, smuggling, bribery, fraud, money laundering.

To help companies measure their achievements and report on the progress in each one of the areas mentioned above, a series of global and national standards have been developed. The major standards used are described below:

1. The GRI is a Global Reporting Initiative that emerged, on the one hand, from the United Nations Environment Program, and on the other, from the Coalition for Environmentally Responsible Economies. Its purpose is to ensure the quality, rigor and utility of sustainability reporting, which can be verified externally (Soní, 2010). The GRI launched the guidelines for sustainability reporting, which includes three elements of CSP – economic, environmental and social performance. According to a survey conducted by KPMG, 80 percent of the 250 companies of the Global Fortune publish information on environmental, social and corporate governance issues; 70 percent of the companies presenting sustainability reporting around the world use the guidelines of the GRI (KPMG, 2008).
2. The Global Compact is a voluntary international alliance founded by the United Nations at the Economic Forum in Davos, in 1999. This initiative seeks to promote the idea that the involvement of companies in social and environmental practices benefits both business and society in the long term. This pact is composed of 10 universally accepted principles in the areas of human rights, labor conditions, environment and anti-corruption. In 2007, the Global Compact, in partnership with the GRI, published a guide that incorporated the 10 principles of the Global Compact with the GRI guidelines. This alliance between the two initiatives is very important from the point of view of comparability. It should be emphasized that the two initiatives are complementary; however, the Global Compact does not oblige, but only recommends, the use of the GRI (Global Pact, 2007).
3. The World Business Council for Sustainable Development (WBCSD) was founded in 1995. It is an association of 200 international companies from more than 35 countries and 20 industrial sectors that share a commitment to economic growth, ecological balance and social progress. The WBCSD supports the communication of the efforts and accomplishments through the guidance of the GRI. It has also developed a set of eco-efficient indicators, which combine economic and ecological aspects. The objective of these indicators is that they be flexible and general, so that they can be used for measuring, reporting and interpreting the level of eco-efficiency achieved by companies in different sectors (Soní, 2010)..

1. In 2004, the Mexican Institute of Standardization and Certification (IMNC) published the Mexican standard of social responsibility..This rule establishes procedures for the implementation and follow-up of CSR practices in public and private companies. The guidelines included in this document were used as a basis for generating the international standard ISO 26000, which is an international standard in development, elaborated by the International Organization for Standardization that will provide guidance and recommendations for implementing CSR operational practices. It is hoped that what was published in September 2010 will be for voluntary use and will not be certifiable. It includes aspects of corporative governance, transparency, human rights, labor practices, consumer protection, environment and community involvement. (Soní, 2010)..

So far, 918 companies in the world report under the GRI guidelines. There are 207 member organizations of the SBCSD, of which 90 are using the GRI methodology. However, it still lacks the use of one standard, which will enable the integration of different perspectives in a single report (Soní, 2010).

On the other hand, in addition to the previously mentioned reports, there is a sustainability index, which in September 2011 celebrated its 10 years of existence. It has taken a decade of changes for companies to be convinced that a socially responsible management ends up creating value in the long term. The recent summit in Copenhagen and the Sustainable Economy Law exemplify the importance of this new management model in the political and economic agenda (De Cubas & Sepúlveda, 2010). The Dow Jones Sustainability Index (DJSI) is the first global index that analyzes the financial performance of the top 10 percent of the 2,500 companies listed on the Dow Jones global index in terms of sustainability. This index was developed in collaboration with Dow Jones Indexes organizations from the United States; the Stoxx Limited, from Europe; and the Group SAM (Sustainable Asset Management), a Swiss company and pioneer in responsible investment. (Soní, 2010).

Conclusions

The international experts in the field of Corporate Social Responsibility who met last March in Palma de Mallorca agreed in their demand for a certain degree of compulsion or regulation in the social responsibility reports that companies produce (Servimedia,es, 2010). We can end this paper by emphasizing that the human capacity for selflessness, rising above merely practical or pragmatic ends, is in effect an eminent expression of freedom. The danger inherent in so much reporting is that it can provoke what Nicol calls “reasons beyond our control,” that is, complying solely for pragmatic purposes to ensure the survival of the species, which is not the same as the existence of the human community (González, 1996). Responsibility is not mere causality, it is the possibility of foreseeing the effects of our own behavior and if necessary changing it to prevent a negative outcome. (Abbagnano, 1989). ?

Bibliography

Abbagnano, N. (1989), Diccionario de Filosofía (2a Edición en Español, 7a Reimpresión ed.). México: Fondo de Cultura Económica.

AliaRSE. (s.f.). AliaRSE. Recuperado el 25 de Marzo de 2010, de AliaRSE Alianza por la Responsabilidad Social Empresarial en México: http://www.aliarse.org.mx

Arjona, C. (21 de Marzo de 2010). La responsabilidad que interesa. (http://www.elpais.es, Ed.) El País – Nacional, p. 34.

Carazo Madrid, J. (22 de Marzo de 2010). Un encuentro para configurar la futura RSC europea. (C. N. Días, Ed.) Cinco Días, p. 18.

De Cubas, L., y Sepúlveda, R. (7 de Febrero de 2010). Las grandes empresas incorporan la RSC a sus estrategia de negocio. ABC, p. 8.

Elkington, J. (1998). Cannibals with Forks: The Triple Bottom Line of 21st Century Business. Estados Unidos: New Society Publishers.

Gaos, J. (1982). Fragmentos de Heráclito. México: Enrique Hülsz Piccone.

González, J. (1996). El ethos, destino del hombre. México: FCE, FFyL, UNAM.

Husted, Bryan William y Salazar, José de Jesús (2005). Un estudio exploratorio sobre la estrategia social de empresas grandes ubicadas en México. Nuevo León: Instituto Tecnológico y de Estudios Superiores de Monterrey.

KPMG. (2008). International Survey of Corporate Responsibility Reporting. Reino Unido.

Margolis, Joshua y James Walsh. (2001). People and Profits: The Search for a Link Between a Company´s Social and Financial Performance. Estados Unidos: Lawrence, Erlbaum Associates.

Pacto Global. (2007). Making the Connection. The GRI Guidelines and the UNGC Communication on Progress. Estados Unidos.

Servimedia.es. (26 de MARZO de 2010). Servimedia España Noticias. Recuperado el 29 de MARZO de 2010, de http://www.servimedia.es/Noticias/Seccion.aspx?seccion=24

Soní, G. (2010). Aplicación de Prácticas de Responsabilidad Social: Una perspectiva corporativa en México. México: ITAM Tesis.

It is widely known that in Mexico and elsewhere in Latin America, small and mid-sized businesses play a significant role in economic activity (Kantis & Ishida, 2002) and social dynamics. According to the National Institute of Statistics and Geography (INEGI, 2007), in Mexico 95.5 percent of manufacturing, retailing and service organizations are micro-sized businesses, while 3.5 and 0.8 percent are small and mid-sized companies, respectively. These employ 30.8 percent of all the workers in the country. Just 0.2 percent of the companies are large firms. At the same time, it is estimated that nine out of every ten organizations in Mexico are family owned, and only one in three of them is passed down to the next generation (Belausteguigoitia, 2004).

Given that, in theory, there are reasons that family-owned small and mid-sized businesses do not survive (Maza Pereda, 1997)–which range from problems in the business climate or external problems (market, financing, taxes); structural or internal issues (poor administration and planning, inefficient resource management and poor control systems); to family problems–it is an essential to determine how entrepreneurs themselves perceive the problems they face and their relative importance. It is also useful to hear what proposals they suggest for resolving these difficulties.

The Data

In order to identify the main practical problems that the new small and mid-sized businesses faces in Mexico, we took a sample of 126 new companies, meaning those with an average life of 10 years, 36 percent of which were family-owned (Delgado, et.al, 2006; Domenge, 2008). We found that, on average, three family members work in each company, out of an average total of 21 employees. The breakdown of family-owned businesses incorporated in this study by economic activity was 29 percent manufacturing, 31 percent retailing and 40 percent services.

Perceived Problems in New Family-Owned Small and Mid-sized Businesses

To identify the difficulties that new family-owned businesses face, we asked an executive in each company to rate the areas of greatest internal, external or family conflict in the company. The problem areas are shown, by order of perceived importance, in table 1.

Table 1. Internal problems identified in new family-owned small and mid-sized businesses

The internal problems identified coincide with the scheme laid out by Maza Pereda (1997), which can be identified, effectively, as poor administration and planning, inefficient resource management and poor control systems.

Apart from the abovementioned internal problems, we find issues with family order and succession, commented on by Belausteguigoitia (2004): lack of family members’ commitment to the company, confusion of family and business matters, lack of personal development and career plans for family members, lack of professionalism and planning.

With respect to problems in the external business climate, Table 2 shows the main problems perceived by entrepreneurs in the new family-owned small and mid-sized businesses

Table 2. External Problems Identified in New Family-Owned Small and Mid-sized Businesses

Recommendations

The main recommendations offered by executives of the new family-owned small and mid-sized businesses are shown below. These can be divided into internal, external and family, according to the scheme introduced above.

Recommendations on internal management of the small and mid-sized business

• Design and follow an explicit strategy to guide or direct the company.
• Obtain consulting, support and a network of assistance between entrepreneurs and strategic contacts.
• Possess and cultivate a business culture of tenacity and self confidence.
• Increase ethics in the company.
• Increase savings for investment and to be prepared to share ownership in exchange for capital.
• Pursue efficient operations and lower costs.
• Know your market and offer quality products.

Recommendations on factors in the business climate for small and mid-sized businesses

• Create or expand business networks and consider alliances.
• Reduce red tape, costs and times.Effectively promote support and consultancy programs aimed at new family-owned small and mid-sized businesses.
• Produce financial costs.
• Create tax incentives to support the new small and mid-sized businesses.
• Improve accessibility to financing for small and mid-sized businesses and risk sharing with the entrepreneur.

Recommendations associated with the family dimensions of the company

• Encourage the commitment of the family members to the company.
• Properly separate business and family issues (treat the company as a company and family as family).Objectively consider family candidates for entry into the company, admitting only those who are capable of contributing significant value.
• Prepare life and career plans for family members that work (or intend to work) in the company, focused on their personal development and that of the organization.Create and develop governance bodies that facilitate decision-making in the family organization and encourage greater professionalism.
• Regularly prepare scenarios that enable the company to predict results (can we continue working together or should we think about splitting?).
• Properly plan and execute succession

The new family-owned small and mid-sized business in Mexico faces a tremendous number of internal, external and family challenges. The internal and family problems can be mitigated through appropriate training, both of the company’s directors and its employees in general. The external challenges, on the other hand, can be reduced if entrepreneurs and the government work together on defining and establishing laws and policies aimed at systematically overcoming these obstacles.?

References.

Belausteguigoitia Rius, Imanol. (2004). Empresas Familiares: Su dinámica, equilibrio y consolidación. México: McGraw-Hill.

Delgado Arredondo, Laura Paulina; Ramírez Figueroa, Cynthia Guadalupe y Anaya Gutiérrez, Ingrid Patricia. (2006). Factores financieros de éxito y fracaso involucrados en la creación de empresas. Tesis profesional. México: ITAM.

Domenge, Rogerio. (2008). Éxito y fracaso en México: PyMEs. Contaduría Pública. 37:434. México: Instituto Mexicano de Contadores Públicos.

INEGI. (2007). Micro, Pequeña, Mediana y Gran Empresa. Estratificación de los Establecimientos. Censos Económicos 2004. México: INEGI.

Kantis, Hugo e Ishida, Masahiko. (2002). Empresarialidad: este de Asia y América Latina. Empresarialidad en economías emergentes. Banco Interamericano de Desarrollo, BID. División de Micro, Pequeña y Mediana Empresa.

Maza Pereda, Antonio. (1997). Reflexión sobre las causas de mortandad de la micro y pequeña empresa. Compilado por Leonel Corona Treviño. (1997). Pequeña y Mediana Empresa: del diagnóstico a las políticas. México: UNAM.

Los autores son profesores-investigadores del Departamento académico de administración y contabilidad del ITAM. Belausteguigoitia es, además, director del Centro para el desarrollo de la empresa familiar del ITAM.

By: Matthew G. Whitehouse

The concept of brand positioning, as well as its impact on the sale of products and services, has been a recurring theme in a large number of articles on marketing. However, the increasingly powerful presence of the Internet social networks and their impact on consumers’ purchase decisions has affected the positioning of both the brands and the companies themselves in an accelerated manner.

These are some of the basic principals of brand positioning:

• Positioning is in the mind of the consumer. It is related to the image and opinion he has of a brand or product. It may be an erroneous value judgment, but in marketing “perception is reality.” There is the idea that positioning is always a good thing, but a poor brand image or opinion means the positioning has been negative. However, the consumer knows (or thinks he knows) what each brand represents.
• Positioning directly influences the purchase decision. If it is negative, the sales opportunities are lower. A better positioning in the “scale of customer value ” can increase the probability of sale, if it is within his purchasing possibilities.
• Positioning is achieved through advertising, the consumers’ experience with the product or service, as well as the recommendations and comments from third parties.
• Positive positioning takes time to build, but it can be destroyed in an instant.
• Positioning is key in differentiating a product or service from another, especially when there is little real difference between what is being offered by the company and its competitors.
• Positioning means that the consumer knows the brand, its attributes and even the price range and where it is sold.
• Positioning is subjective, and may change with time
• Positioning applies to both brands and products as well as to people, companies and institutions. Consumers have a positive opinion of brands such as Bic or Bimbo because they know what they represent and they have a good image.

But what happens with the positioning of a brand or company – even a person – when, in a matter of minutes thanks to the electronic media, opinions about products are published, regardless of whether those who comment actually know anything about what they are talking about? In addition, through these means, it is possible to create discussions and forums with very different points of view.

It is impossible to control what is said on the Internet, so it is easy to damage the brand image (positioning), even with no valid reason. But it is also possible to “spread the word” in a positive manner with respect to a brand. There is such a bombardment of information that the consumer may have a difficult time making a decision or taking a position on any topic.

While working on a project for a well-known brand, we found surprising comments on the Internet. Some people shared their experience with the product, and their comments, both positive and negative, were accepted as valid, affecting the image and sale of the product.

This leads us to ask the following questions: Does the electronic social media make brands more vulnerable? How do you keep abreast of what is said about a brand and the consequences of what is disseminated through the social network? How can you take advantage of this new form of communication and interaction to strengthen brand positioning? How can we correct bad or incorrect information, which affects the purchase decision?

On the other hand, we must not forget that even though Internet social networks are becoming increasingly popular, not everyone has access to them. It has been reported that people over 40 tend to use this form of communication less, while low-income people lack the possibilities for accessing this media or do so infrequently.

Positive positioning becomes a competitive advantage and a factor of differentiation that also helps in the sale of products and services. This also applies to B2B. Considering the importance of positioning in the purchase decision process, it is essential to conduct periodic studies on consumers’ perception of a brand, as it may change from one moment to another.

Qualitative studies can provide us with specific information about consumer preferences and prospects in order to make better marketing decisions and possibly reverse negative positioning. Another simple way to obtain information about brand positioning is to navigate the different social networks and search for what is said about the brand, including directly asking for opinions about the product or service in question. This applies both to large companies as well as small ones and even to individuals because these brief surveys do not involve a large investment.

I have met a wide range of entrepreneurs who assume they know their brand or company positioning and rely on it to make decisions, which they later discover are not quite right or can even be destructive. I suggest that you conduct a small marketing study of your own brands on the Internet. Write down what you think customers are saying about your brand. Then, use search engines, like Google and networks like Twitter, to find out what is being said about the name of your brand or company. You might be in for some big surprises.  ?

Implementing Customer Relationship Management (CRM) as a business strategy is a major decision that implies making changes to corporate culture, the attitude and way a company operates, and that affects everything from its processes and people to its goals and responsibilities.

CRM seeks to improve a company’s performance by optimizing its relations with its market segment(s), which, in turn, requires knowing, understanding and anticipating the needs of existing and prospective customers. However, implementing such a business strategy demands time, know-how, experience, risks and costs. Not only should the customer be at the core of all the company’s strategies, but a personal and personalized relationship should be sought with each. This is the business model, which is defined as “a representation of a firm’s underlying core logic and strategic choices for creating and capturing value within a value network.” (Shafer, et al., 2005).

The key element of CRM is the value proposition the company develops for the customer, which is the result of an external (customer) and internal analysis (that takes into account the company’s limitations and capacities). The value proposition establishes the set of features the goods or services the company is going to offer to one or more types of customer will have and crystallizes the value, benefits, costs and risks it represents for customers. The value proposition should “communicate what the company expects to do better or different than its competitors for its customers” (Kaplan & Norton). It is the overall concept that attracts the customer and that aims to convince the latter to purchase the company’s goods or services.

External and internal factors (see Figure 1) come into play in the identification and creation of a value proposition. Demand, as an external force, is based on an understanding of the customer’s needs, gained via in-depth, regular and systematic analysis (Bligh & Turk) that asks questions such as: Who are my customers? What do they want? What do they need? What do they hold to be most valuable?, while seeking to make the products and/or services offered as personalized as possible by means of messages and offers.

Figure 1

Building a Value Proposition

From an internal perspective, the goal is to offer a value proposition based as much on an understanding of the customer as on the company’s resources and capacities. Some questions that need to be asked in this context are: What is the value proposition? How will it be offered? What resources and capacities are required? How will capacities -processes and roles- be deployed and crystallized? (Bligh & Turk).

Kaplan & Norton identify four main types of value proposition, which will have direct implications on the design of process and during the implementation phase, depending on specific goals for each customer type:

1. 1.Low total cost, which hinges on “attractive prices, excellent and consistent quality for the attributes offered, good selection -variety-, short production times and easy purchases” (an assembly plant, for example, would fit this bill).
2. 1.Product leadership and innovation, being the first to market with new functional or performance features and high prices. The expectation is that customers will attach valor to these specific features and will be willing to pay their high price tag (for example, technology firms).
3. 1.Complete customer solutions, where the customer feels the company meets his specific needs and understands him completely. Supply is designed by taking it into account directly. What is important here is not so much innovation, technology or price, but that the company offers a “complete package” that properly meets the customer’s specific needs (consulting firms or advertising agencies are good examples).
4. 1.System lock-in, where the customer will come up against high costs if he tries to go elsewhere. This type of value proposition is generally employed by companies that have few competitors and in industries with high entry barriers (such as the Apple system).

The successful implementation of CRM, as an integral system, should take into account a series of activities (Figure 1), which will vary according to the four types of value proposition discussed. Below are some of the problems commonly encountered when implementing CRM and suggestions as to how to correct situations that may hinder or limit its success:

Problem: The company is unfamiliar with the customer and his needs.

Design, build and use a simple, direct information system that facilitates an understanding of the customer by systematically and periodically identifying his needs. Two main types of activity can be discerned in such a system:

• Compilation of periodic, systematic information, which is generally obtained by formal methods, such as surveys, interviews and focus groups. There are, however, methods that are traditionally deemed informal, but that allow for the collection of useful data. These include simply observing the customer; engaging in valuable conversation with him with a view to obtaining “quality” qualitative information for decision-making purposes; asking informal, but explicit questions; and trying out new ideas on customers to “test” their level of acceptation.
• Analysis of previously collected information using methods, statistical techniques and models (analytics, for example) that lead to better knowledge of the customer and that enable the company to segment and evaluate its customers. The goal is to avoid getting lost in technicalities and focus the analysis on practical information that will help with decision making.

Problem: The company doesn’t offer products/services of value to the customer.

Design a simple, easily identifiable value proposition for the customer that adequately meets his needs. The value proposition should take into consideration both the customer’s previously identified needs and the company’s limitations in terms of capacities and resources. The customer’s consumer experience (goods or services) will be based on the value proposition and made up of a series of processes that crystallize it.

Problem:The company lacks information on new and past customers.

Design, build and use customer information cards to help identify new customers and follow up on regular ones efficiently and effectively. This will require a system in which information can be inputted and consulted with ease, to ensure it is used and kept updated. Any commercial software package should be sufficient to maintain this card index system, while its level of sophistication will depend on the company’s needs, resources and capacities. The idea is to keep a systematized record of each customer’s activities that requires a minimum of technology and/or training.

Problem: The company treats all customers the same, regardless of their differences.

Clearly identify the different types of customer your company serves. This is a practical measure that will allow you to personalize the value proposition for each category, avoid generalizations and offer special processes or propositions for each type of customer. For example, you could take into account different levels of customer discernment, satisfaction, conducts, professional profiles or economic strata, to name just a few. There are many ways of classifying customers, but the new unit of measurement is “customer lifetime value”.

Problem:The company lacks “fresh”, systematic information on its customers that could be useful in redesigning the value proposition.

Conduct a study that explicitly measures employees’ and managers’ capacity to relate to and obtain information, with a view to assigning them certain types of customer, times, moments in the process and actions conducive to the collection of the information needed to better monitor the customer and detect changes in his needs or behavior patterns. This information will serve as a basis for redesigning the company’s value proposition.

Delegating responsibility for company-customer relations solely to the PR director can be exceedingly inefficient and ineffective, as can a lack of realistic information on which to base the value proposition. Instead, the PR director should conduct a capacity study of employees and managers and delegate accordingly.

Generally speaking, it’s a good idea to actively involve employees who come into direct contact with the customer -so-called front office employees- instead of waiting until the last phase in the process, when, say, they are paying their bill. This is because customers are more likely to be short on time and concentration at this phase, or may simply be eager to leave.

Some examples of this type of situation include:

• In clothes stores, when the customer is choosing or trying on clothes, the sales assistant could ask questions that don’t appear to be part of a formal market research study.
• In a restaurant, the waiter, chef or barman could strike up an informal conversation when the customer orders his meal or drink, while he is eating or enjoying his favorite drink at the bar.
• In a hotel, choose a moment when the customer is at his most relaxed and has more time to spare. This could be at the beach or in the pool area, but not when he is paying his bill and heading for the airport. The hotel manager could intentionally create such a situation, for example, by organizing a dinner with important customers.
• In a bank, while the customer is standing in line or being attended to in person by an executive.

Conclusions.

Problems with implementing CRM can be attributed to one or more causes: lack of understanding of the global concept CRM and its derived strategies represent; lack of clear goals and the means by which these will be achieved at each phase in the process; more direct operating or practical limitations stemming from failure to properly manage the CRM process; a lack of commitment; or inadequate training of the people involved.

Only by identifying and clarifying the causes of deficient CRM implementation can the problem be corrected or solved. Tackling some of the main problems encountered during the implementation phase can serve as a basis for a diagnosis or, at the very least, a better understanding of the situation, thereby enabling the company to come up with a series of corrective actions that result in a successful CRM system.?

References

Bligh, P. y Turk, D. (2004). CRM Unplugged: Releasing CRM´s Strategic Value. Estados Unidos, John Wiley & Sons, Inc.

Brown, S. y Gulycz, M. (2002). Creating a CRM vision: Tips to optimize CRM performance. Estados Unidos, John Wiley & Sons.

Kaplan, R. y Norton, D. (2004). Strategy Maps. Harvard Business School, 82(2).

Shafer, S., Linder, J. y Smith, H. (2005). “The Power of Business Models”, en Readings in Crafting and Executing Strategy. Business Horizons, 48(3).

Woodcock, N. y Williams, D. (2003). Improving marketing effectiveness. CMAT.

By: Jorge Corona
Q Solutions

Today market research has been transformed into a confusing maze that forces us to become more precise in designing qualitative methodologies. It seems that we increasingly need more theoretical tools to be able to better understand the consumer’s mind, although this may not necessarily be true.

While analyzing the consumer’s perception of brands (needs to see himself reflected in them), the complexity of qualitative research methodology is not only evident in communication and psychology, but also in anthropology, sociology and even neurology. The objective is to seduce the heart and mind of the consumer.

The evolution in the understanding of the consumer has been extraordinary in recent years. Various tools have facilitated this objective, but efforts to understand the complexity even of the same methodologies often cause our objectives to be lost in the search for marketing insights.

Simplicity, Everything Else is Incidental

Consumer motivations have a clear and specific origin. The essence of this feeling is expressed in a spontaneous gesture, a phrase or a corporal response at the start of the investigation. These signs are a reflection of consumer opinion in relation to the brand and on which they must propose much of the hypothesis of the research. Simplicity of the processes helps guarantee the certainty of the objectives. “Know the consumer” is the essence of all research; we must return to this concept to generate strategies that break down paradigms and become protagonists in this shift toward true innovation.

Simplicity means returning to the roots of qualitative analysis, understanding the consumer:

• Their key emotional concepts: the first feelings they show (words or gestures)..
• Their key rational concepts: true reactions toward the brand (modern, old, fun, etc.).
• Their limitations: what they do not feel they are getting from the brand.
• Their needs: what they clearly ask for in a brand/product.
• Motivations: the feeling or emotion behind the brand.

Often, in market research, the abundance of clichés gets in the way while one tries to extract truths that simply do not exist for the consumer. In a focus group, this makes it difficult to understand the results of consumer opinions and expectations of the brand.

Sometimes preconceived ideas of the planners of the brand make it difficult for them to take into consideration what consumers have actually expressed. They must go back to a simple study, a maze of concepts that do not necessarily achieve the objectives of the brand. We need to reflect on how we can recover our capacity to wonder at the simplicity that represents the objective of market research: “listen and understand the consumer.” Precise questioning directed at the search for simplicity while investigating a problem reveals what is most important for the consumer without the need of mixing the original variants.

New Methodologies in Search of Simplicity

Semiotics has gained vital importance in market research; with its correct application we can turn our brand into a live entity capable of generating concepts and trends.

Today we must rethink the idea that culture is a maze of connotations created by the consumer because it is almost imperative to understand their context from a symbolic dimension.

Through signs, semiotics sets the framework of reference within which consumers conduct their lifestyle. Therefore, any object or attitude may be charged with a particular meaning, becoming a sign to interpret.

Semiotic methodology allows you to identify these signs, providing meaning through something as simple as a gesture, a bracelet or intonation, a brand or the answer to a question. In this way, semiotics deals with the possibility of simplifying everyday life of consumers, reaching a deep understanding of their context and motivations. Semiotics applied to market research analyzes the simpler and more intimate details of consumers’ reality in search of meanings that are expressed voluntarily or involuntarily.

Practical Example

Among the concept evaluation projects for the design of a communication platform, the ideas involved in the product include the presentation of benefits, features and an emotional “hook” that links the consumer to the product.

For example, in the case of personal-care products, consumers generally purchase a brand for no more than three specific reasons: price, prestige and perception of a positive result. This information is the result of the simplicity of the first investigations.

When concepts are presented, sometimes there is an attempt to discover a new rational for consumption, forgetting the reasons expressed initially by the consumer. For example, if we talk about a shampoo against hair fallout, we can assume that the only thing the consumer wants is to avoid hair fallout – any additional benefits the product may offer will be of little significance.

From experience we know that within a focus group consumers begin to feel pressure when questioned about the same topic repeatedly, and that this begins to distort the dimension of certainty in their comments. At the end of the day, you have a lot of rich and marvelous information to analyze that does not necessarily cover basic consumer needs. Or these needs are developed from the reconstruction of the concepts: an ideal product but in real life is far removed from their buying motivations.

Taking It With You

Understanding the consumer requires more than mere inquiry. It means listening to simple opinions and capturing spontaneous feelings – these discrete expressions that may reveal what motivates consumer choice in different brands and products. We often lose sight of the roots and process of the investigation, while the consumer on his own may change his opinion during a session. To avoid this detachment, we must get closer to the consumer: listen to what seems to be important to him, but also what does not seem to be important. The latter will most likely become so. Today simplicity is synonymous with innovation – something the different brands should consider to avoid confusing consumers with too much information.

This simplicity must be reflected in all aspects when launching or improving a product or service, in order to achieve a better marketing position and greater consumer retention. A simple proposal will generate simple consumer feedback.?

References:

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