2017/06/23

How a Yoga Guru Is Mastering the Consumer Goods Market in India

Baba RamdevCan an Indian yoga master and spiritual guru pose a threat to established multinationals in the fast moving consumer goods (FMCG) market in the country? Baba Ramdev, a 51-year-old politically networked saffron-robed yoga expert and astute businessman, certainly believes so. Patanjali Ayurved, the company he front-ends, recently posted revenues of Rs.10,561 crore ($1.6 billion at Rs64.34 to a dollar) for the financial year 2017 (April 1, 2016 to March 31, 2017). That’s double of what it posted last year. What’s more, while most FMCG firms in the country grew around 8% to 12% annually over the past five years, Patanjali has grown over 20 times; in 2012, it reported a turnover of Rs.446 crore ($69 million).


Positioned on the plank of ayurveda and the goodness of natural ingredients, Patanjali prides itself on being a home-grown brand that offers its products around 15% to 30% cheaper than competition and ploughs back its profits into nation-building activities such as education and supporting farmers. It is the fastest growing FMCG firm in the country and has one of the widest product portfolios. In January this year, a study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and market research firm TechSci Research, said: “Patanjali Ayurved has turned out to be the most disruptive force in the Indian FMCG market.”
At a recent press conference in New Delhi, Ramdev and Acharya Balkrishna, CEO of Patanjali and a close friend of the yoga guru, declared the company’s 2017 results. Incidentally, Patanjali is an unlisted firm with no obligation to disclose its numbers. Balkrishna owns around 95% while the rest is held by a small group of individuals. Ramdev himself apparently has no stake in the firm. Addressing the media, Ramdev and Balkrishna said that profits have grown 100% since last year. They are now looking to double the turnover to Rs.20,000 crore ($3.1 billion) in the current year and aiming to cross Rs.1 trillion ($15.5 billion) over the next five years.
Towards meeting these targets, the company has planned various steps. These include investing Rs.5,000 crore ($777 million) in new manufacturing facilities, rolling out new products and increasing the distribution and retail network. Patanjali’s retail presence includes a mix of exclusive franchise outlets, modern trade, neighborhood stores and online. So far, the company has invested mainly through internal accruals. It is now looking to raise bank loans.
Ramdev has always been very vocal that he is fighting against the “economic colonization” of the domestic market; Patanjali advertisements talk of “rescuing India from economic slavery and loot of foreign companies” and appeal for “boycott” of foreign firms. At the press conference in New Delhi, he said: “So far, FMCG has meant MNCs in India; we have broken that monopoly.” In a direct reference to the American oral care giant Colgate-Palmolive, he added: “We don’t know when Colgate will close its ‘gate’ … they have already de-grown.”
Ramdev was referring to the impact Dant Kanti, Patanjali’s toothpaste, has had on Colgate-Palmolive. He claims it has a market share of 14%; industry analysts say it could be anywhere between 4% and 14% depending on the sampling universe. The American firm derives nearly 75% of its India revenues from toothpaste and is the leader in this category in the country. In a presentation to investors, the company said that its market share in India dropped from 57.4% in 2015 to 55.6% in 2016. Several brokerages have flagged competition from Patanjali as a threat to MNC giants in the toothpaste segment. For instance, in January, broking house Prabhudas Lilladher said in a report on Colgate-Palmolive: “We believe that toothpaste is perhaps one of the few categories where Patanjali has been able to create a strong niche and has right to win.”
The Patanjali Effect
That Colgate-Palmolive is taking cognizance of Patanjali is evident from some recent measures. For instance, while earlier the company, which has been in India for the past 80 years, had herbal variants with neem and clove, last year it launched an India-specific toothpaste called Cibaca Vedshakti. Positioned as “packed with the goodness of natural ingredients to help keep dental problems away,” it includes lemon, cloves, eucalyptus, basil, camphor and thymol. Cibaca Vedshakti is priced lower than Patanjali’s Dant Kanti. In an investors call in 2016, Bina Thompson, senior vice president, Colgate-Palmolive, said: “In India, consumers believe strongly in natural ingredients.”
“So far, FMCG has meant MNCs in India; we have broken that monopoly.”–Baba Ramdev
Earlier this year, Hindustan Unilever (HUL), the Indian subsidiary of Unilever, the Anglo-Dutch consumer goods giant, launched around 20 products including toothpastes, shampoos and skin creams under its relaunched brand Lever Ayush. These products have been co-created with Arya Vaidya Pharmacy, a leading Ayurveda institute. Interestingly, while Ayush was launched as a premium brand in 2001, the relaunched Lever Ayush is positioned as a mass brand with products priced between Rs.30 and Rs.130 (less than $2). HUL has also rolled out natural variants under brands like Tresemme and Fair & Lovely in India and is reported to be bringing in a new brand called Citra, an organic skin care line from Indonesia.
In an investors call in October last year, acknowledging Patanjali’s growing presence, Andrew Stephen, head of investor relations at Unilever, said there were a “couple of great examples” in India in the herbal segment that “everybody is looking forward to with great interest.” Talking to business daily Economic Times in December last year, Sandeep Kohli, executive director-personal care, HUL, said: “Ayurveda is a growing trend …. Lever Ayush is designed to attract and retain consumers with authentic ayurveda-based offerings.”
Indian firms with strong ayurvedic offerings are also reworking their portfolios. At Dabur India, for instance, ayurvedic products currently contribute around 60% of the company’s domestic sales. Dabur plans to increase this to 75% by 2020. “In India, herbal and ayurveda will be the dominant themes for us. There is a realization that there is a bigger opportunity for us in ayurveda than we thought,” Sunil Duggal, CEO of Dabur India told business daily Business Standard last yearIn an earlier interview with Economic Times, Duggal had said: [Ramdev] is someone no one has dealt with before and therefore there are no existing analogies which can match him. So, we have to deal with [Patanjali] differently.”
Abneesh Roy, senior vice president at Edelweiss Financial Services, notes: “Because of Patanjali, ayurveda is becoming core to the strategy of all other companies.” Ankur Bisen, senior vice president-retail at consultancy firm Technopak Advisors, agrees. “Take for instance, [Indian] companies like Dabur, Emami and Hamdard. They have been selling ‘Indian’ products like red tooth powder, chyawanprash (an ayurvedic formulation that helps build immunity), etc., for decades. But they took the route of multinationals to position these products as modern products or underplayed these products in the market. Patanjali’s success has made them re-think the approach.” S. Ramesh Kumar, professor of marketing at the Indian Institute of Management Bangalore (IIMB), adds: “MNCs and others will be forced to introduce lower- priced offerings.”
“Patanjali Ayurved is a rising star that came in from literally nowhere and put the fright into long entrenched competitors across the FMCG space,” says Harish Bijoor, brand-strategy specialist & founder, Harish Bijoor Consults. According to Bijoor, Patanjali has trifurcated the FMCG segment in India. “The first: MNC competition. The second: Indian MNCs fighting the [global] MNCs, vertical to vertical. The third: Baba-cool companies of the type represented by Patanjali Ayurved and the likes of Sri Sri Ravi Shankar, Baba Ram Rahim and a whole tribe of gurus who also happen to make FMCG.”
Racing Ahead
At present, Patanjali’s portfolio comprises more than 500 products across food, personal care, home care and health care. Cow ghee (clarified butter) is its highest selling product with sales of Rs.1,467 crore ($227 million), followed by toothpaste (Rs.940 crore/$146 million) and shampoo (Rs.825 crore /$128 million). Other key products include bathing soap (Rs.574 crore /$89 million), mustard oil (Rs.522 crore/$81 million), wheat flour (Rs.407 crore/$63 million) and honey (Rs.335 crore/$52 million). It even has noodles in its product collection. The company claims to have 15% market share in shampoo, 14% in toothpaste and 50% in honey. Currently, the bulk of Patanjali’s products are manufactured at its facilities in Haridwar, which is around 130 miles from New Delhi; the rest are from third-party manufacturers.
India’s branded FMCG segment is estimated to be more than $65 billion at present and, according to a study by the Confederation of Indian Industry and Boston Consulting Group, it is expected to grow to $220billion-$240 billion by 2025. Media reports say that Patanjali, which began as a small pharmacy in 1997 and ventured into FMCG In 2006, is now the second largest FMCG player in India after HUL, which clocked Rs.30,782 crore ($4.7 billion) for the trailing four quarters. (India accounts for around 8% of Unilever’s sales and is the biggest among emerging markets). Patanjali is reportedly ahead of giants like Nestle India (Rs.9,159 crore/$1.4 billion), Colgate-Palmolive (Rs.4,010 crore / $622 million), GSK Consumer Healthcare (Rs.3,784 crore/$587 million) and P&G Hygiene and Healthcare (Rs.2,388 crore/$370 million). It is also giving old and established Indian firms a run for their money. ITC’s non-cigarette FMCG business clocked Rs.10,337 crore ($1.6 billion) for the trailing four quarters, Godrej Consumer Group Rs.9,134 crore ($1.4 billion) and Dabur Rs.7,690 crore ($1.1 billion).
Edelweiss’ Roy feels it would be more accurate to put Patanjali among the top three or four FMCG players in India since firms like P&G also have unlisted entities in the country which should be taken into account. At the same time, he adds: “Patanjali is easily the most successful FMCG company in India in the past many years. It is … giving well entrenched companies a run for their money. By next year, it should become the second largest FMCG company in the country.”

Bijoor thinks that further doubling turnover in one year is “a stupendous task,” but he adds that “with all the plans in place and considering the fact that Patanjali products are distributed in only 6% of retail outlets nationally today, the potential exists.” However, Bijoor notes, it’s important to recognize the fact that the brand is still “largely regional and suffers from poor distribution.”
“Because of Patanjali, ayurveda is becoming core to the strategy of all other companies.”–Abneesh Roy
A.K. Prabhakar, head of research at financial services firm IDBI Capital, feels that Patanjali’s $3.1billion target for FY 2018 is unrealistic. In an interview with Business Standard, he pointed out that other firms are resorting to aggressive pricing to take on Patanjali. “I believe 20% to 25% growth is a more realistic and achievable target.”
 A Dream Run
So what is the magic behind Patanjali’s phenomenal growth so far? Experts cite three key factors. Ramdev’s personal brand equity, Patanjali’s disruptive pricing, and the company’s positioning of the goodness of ayurveda and natural ingredients.
 Take Ramdev himself. Indians, by and large, have always had a leaning towards spiritual gurus. Ramdev, with his friendly demeanor, seems to have a special connection with them. His yoga camps, televised yoga sessions and free health consultations are all extremely popular. Ramdev is also highly politically networked and seen to be particularly close to the Bharatiya Janata Party headed by Prime Minister Narendra Modi. He has strong nationalistic leanings and is vocal about them. One of Ramdev’s pet agendas is repatriation of black money. Another is to drive foreign companies out of India. All these along with his business acumen (Ramdev is closely involved in all critical aspects like new product development and pricing), and many a controversy (he claims homosexuality is a disease and that he has a cure for it), make for a potent combination. The brand ambassador of Patanjali, Ramdev, is a brand by himself.
An October 2015 Edelweiss report co-authored by Roy says: “For the consumers, Baba Ramdev remains the face of Patanjali and its products. Baba Ramdev, during his yoga sessions, showcases the Patanjali products. After the session, he makes the attendees aware of the benefits of using Patanjali products. Till date, close to 70 million people have come in contact with Baba Ramdev through his yoga camps and it is believed that this can increase to 200 million going ahead. This highlights the potential reach that the Patanjali brands can have without much mainstream advertising. Also, being associated with Baba Ramdev helps in creating a perception among consumers that being ayurvedic, Patanjali products are healthy.”
“Ramdev’s widespread popularity, propelled by televised yoga camps, has provided the brand push for Patanjali,” says Devangshu Dutta, chief executive of consulting firm Third Eyesight. Pointing out that over the years Patanjali has successfully built the momentum to “displace previous ayurvedic market leaders in the consumer’s mind and create a credible alternative to multinational brands,” Dutta adds that Patanjali’s “Indianness” is a challenge to multinationals, while its sheer size and penetration is a challenge for other Indian companies. “A flat management structure enables rapid decision-making that allows the business to be extremely flexible and aggressive when it needs to be.”
 On the controversies surrounding Ramdev, Dutta notes that worldwide, successful brands are built more on public relations than on advertising, and controversy is a very strong driver of PR. “In that sense, the Patanjali group has had rich dividends from its approach to PR. Starting from the image of a swami in saffron robes propagating consumer products to using food safety concerns around market leaders’ products to their advantage and openly taking a swadeshi [nationalistic] stand against multinational brands, the Patanjali group’s PR voice is strong and clear. Whether this will remain so as the business grows is something only time will tell.” (In 2015, when Nestle’s Maggi noodle brand was embroiled in controversy over high levels of lead and MSG, Patanjali quickly launched instant noodles to plug the demand gap.)
 Another strong plank of Patanjali is good quality at disruptive pricing. Most Patanjali products are priced around 15% to 30% lower than competition. In a media interview, Balkrishna said: “We buy raw material directly from farmers and we work on a single channel right from the farmer to the end consumer and that is the real reason why our quality and costs are under control.” Other factors that contribute to Patanjali’s competitive pricing include lower overheads (salaries and administrative costs, for instance, are much lower than those of regular corporates), lower distribution margins and lower advertising and promotional spending.
Interestingly, while its advertising costs are lower than others (according to Balkrishna the company’s ad-spend is less than 3% of turnover), Patanjali is among the top advertisers in the country. Balkrishna attributes this to tough negotiations. “Differentiated advertising” has been a “pivotal factor” propelling Patanjali into the limelight, notes Edelweiss’ Roy. He points out that Patanjali ads highlight the pricing difference with competitors, educate on the benefits of the product, emphasize that Patanjali is an Indian firm and claim that unlike MNCs, Patanjali is extremely involved in charity and nation building. “From our survey it has emerged that these advertisements create a buzz among the target audience and encourage trials,” says Roy.
IIMB’s Kumar points out that with its positioning of “value for money,” Patanjali would be successful in several categories “due to the simple reason that the penetration of brands in most categories is still low in an emerging economy.” Bisen of Technopak Advisors feels one reason for Patanjali’s success is “the subtle shift in consumer lifestyle and needs that manifested in a latent demand that other companies missed out.” Another reason is the “package of wellness, nationalism and natural synced with the social and political narrative” of the country. Bisen adds: “Positioning the quality, purity and natural promise at value pricing created a strong demand pull. This pull was aptly serviced through an ecosystem of distribution that supported fast proliferation in the market. No other FMCG major earlier used exclusive brand outlets for their product range.”
 Sustaining Momentum
Going forward, does Patanjali have the potential to make a big dent in the performance of other players? It’s a mixed bag, says Bisen. Pointing out that it is easier to grow in a few categories and reach scale, he says: “In the FMCG space, if the initial idea is a success, the challenge comes in replicating the idea to other categories, managing growth and managing category extensions. Also, the leading FMCG majors have all spent significant time now to appreciate Patanjali as a key competition and have developed strong counter-offensives. Therefore, the initial years of easy march may now hit some [roadblocks].”  Potential threats for Patanjali, Bisen notes, include “spreading itself too thin, [a] change in the social and political narrative that dilutes the nationalism theme, and strong response from competition.”
“MNCs and others will be forced to introduce lower-priced offerings.”–S. Ramesh Kumar
Another headwind could come from the new goods and services tax (GST), whose objective is to replace all taxes levied by the federal government and the states with one central tax. At present, ayurvedic products are taxed only 5%, but under GST the levy will go up to 12%. This could impact Patanjali’s pricing significantly.
 Patanjali needs to be “totally paranoid” about quality as it expands, says Bijoor. “If Patanjali messes up on quality as it expands, it will pay the price. That price will be a quick glass-ceiling for its volumes.” IIMB’s Kumar suggests the biggest challenge for Patanjali is to scale up and make the products available across the country. “This involves several aspects of sourcing, manufacturing and distribution.”
 An October 2016 Edelweiss report observes that distribution remains an area of improvement for Patanjali. It notes that according to a survey it conducted, while 35% users believe that availability of Patanjali products is a problem, 49% of non-users have not used Patanjali due to non-availability. The report adds that buying Patanjali products from kirana (neighborhood “mom and pop”) stores is still small at around 26%, while for most other consumer goods companies this is 70% to 80%.
However, a January 2017 Edelweiss report seems more optimistic. It states: “Patanjali has over 5,000 retail outlets and its products are available through around 1 million shops. By FY18, it plans to scale up its shop portfolio to over 3 million. Apart from this its products have strong presence across modern trade. Once it has 3 million outlets, its penetration will be comparable to the likes of Britannia, Colgate, Dabur, etc., though below HUL’s network of over 7 million shops.”
Patanjali watchers also say that any major impact that Patanjali makes on global multinationals is likely to be restricted to India.
New Battle Fronts
In the meanwhile, Ramdev wants to open other battle fronts. To challenge restaurant chains such as McDonald’s, KFC and Subway, Patanjali plans to enter this segment. “We are working on the business plan and branding,” Ramdev told press reporters, adding that the company is working to put together around 400 vegetarian recipes. “When we get these recipes together, all these multinationals serving chicken or mutton will have a hard time countering us.” Patanjali is also planning to enter the apparel business with jeans and sportswear and compete with firms like Levi’s, Nike and Adidas.
Not everyone is enthused about these proposed expansions. Says Bisen: “I am wary of category extension beyond FMCG so early in the journey, when the market potential in FMCG itself is huge. Dairy, processed food and condiments are all exciting spaces. If I had private capital to allocate, I would focus on consolidating my position in the chosen space.”
A sharp critic when it comes to Patanjali’s “greed” to spread across categories, Bijoor says: “There is a line it must draw for itself. Using ayurveda is a good thing to do. But stop where ayurveda stops, and stop where ayurveda looks ludicrous.” He cautions that Ramdev and Balkrishna must not dissipate attention at this stage. “Width is important, but depth in those areas where you have achieved early and big success is a must. Never compromise on that.”
“To my mind, the Patanjali brand is rooted intrinsically in well-being, so growth in food seems a natural outcome to me but not packaged, fast-food and snacks,” says Dutta. “Similarly, there are areas of apparel, such as yoga-wear, which would be a natural extension, but jeans would seem to challenge the integrity of the brand.” At the same time, he points out that most brands these days “don’t care to create or maintain a core ethos” and most consumers have “only a passing, superficial engagement” with them. In such an environment “more tangible and immediate factors, such as the price and availability” play an important role. Dutta notes: “Currently, the Patanjali Group is following economic logic, the way any business would – identifying areas in which it can create significant turnover and margin using its brand name and goodwill.”




‘The End of Loyalty’: Shock and Awe for Many American Workers

end-of-loyalty

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Rick Wartzman discusses his new book: The End of Loyalty, The Rise and Fall of Good Jobs in America.
the-end-of-loyaltyThe previous generation of American workers had a different relationship with their employers than the workers today. Many skilled-labor employees stayed with one company for the long haul, earning solid wages, good benefits and a pension in exchange for loyalty and hard work. But those days are long gone, notes Rick Wartzman. The reduction in salaries, retirement, health care and other perks has prompted a breakdown in the relationship between employee and employer, a problem that Wartzman focuses on in his book, The End of Loyalty: The Rise and Fall of Good Jobs in America. Wartzman, a Pultizer Prize-winning former journalist who is a senior adviser at the Drucker Institute, joined Knowledge@Wharton to talk about the new state of the American worker on the Knowledge@Wharton show, which airs on SiriusXM channel 111.
An edited transcript of the conversation follows.
Knowledge@Wharton: Do you expect that this relationship between employee and employer is going to continue to have this divide?
Rick Wartzman: There are a lot of pressures that we’ve seen building over the last 30, 40 years, and I don’t see them abating anytime soon. Everything from the pressures of automation and technology, globalization and the decline of unions. We now have less than 7% of the private-sector workforce in America that is part of organized labor, which served as a great counterbalance to corporate power through the 1940s, 1950s and 1960s. That’s no longer there. Also, there’s this incredible pressure to maximize shareholder value, pressure from Wall Street that has explicitly put stockholders above all other stakeholders, including workers. I don’t see any of that changing anytime soon, unfortunately.
Knowledge@Wharton: When did this shift kick into gear?
Wartzman: You can see it really kick into gear in the early to mid-’70s. There were some big shocks to the U.S. economy that exposed a lot of fundamental weakness that had built up in previous decades. That left a lot of companies scrambling and their workers in a much worse-off place. A lot of the downsizing that followed those things never reversed. So, that was the big shock.
What surprised me in doing the research in my book — and my narrative arc goes from the end of World War II up until today — was how these pressures actually started building much earlier than I imagined. The social contract, as I describe it — job security, pay, health care benefits provided by companies, good pensions — those things were still sort of improving and on the upswing through the 1950s and 1960s. But by the late 1950s, the early seeds of the unraveling of the social contact were already being planted.
“Corporate culture is a kind of reflection of our national culture and societal norms.”
Knowledge@Wharton: Is it partly that as the generations have changed, so have the expectations?
Wartzman: I think very much. One of the other things that really jumped out at me in doing the research was how much cultural norms have shifted in America, and in turn how much corporate cultural norms have shifted. Corporate culture is a kind of reflection of our national culture and societal norms. You had a generation that came through the Great Depression and World War II and there was definitely much more of a “we” mindset, we’re all in this together. I think there’s much more of an individualistic, “I” mindset that began to set in by the 1970s, 1980s and prevails today. That’s certainly part of what’s going on here.
Knowledge@Wharton: What impact did the recent recession play on the narrative that you’re bringing forward in the book?
Wartzman: Again, it sort of exacerbated a lot of the anxiety that workers had. One of the phenomenon that we have seen is that for the last three recessions, you’ve had this so-called jobless recovery. What used to happen is that there would economic ups and downs, normal fluctuations in the business cycle. When businesses would lay people off, they would typically bring them back to their factory jobs when business recovered. In fact, it wasn’t until the mid 1980s that the Department of Labor began to even track what it called displaced workers.
Beginning in the 1980s you began to see massive downsizing that really picked up in the 1990s. And then each recession becomes something where employers are not looking to bring folks back after the economy recovers. They restructure in the interim and realize, we can do more with fewer hands. And those jobs often never come back.
Knowledge@Wharton: Then is the goal now of both business and government to try to avoid recession?
Wartzman: Maybe. I’m not an economist. I’d leave that to brighter minds at Wharton and elsewhere. What I can tell you as a historian is there have been times where people in Washington, particularly, think that they’ve licked the business cycle. They’ve figured out how to conquer recession and through the levers of fiscal and monetary policy make it so that recession won’t ever come again. And it always comes again, or at least it always has come again. I’m skeptical that we’ll ever be able to reverse that. History just suggests otherwise.
Knowledge@Wharton: In the book, you look at these issues surrounding the labor force and jobs through the eyes of four well-known legacy brands over the last 70 years: General Motors, General Electric, Kodak and Coca-Cola. Why those four?
Wartzman: I picked those four companies for a couple of reasons. One is my book starts in 1943, shortly after the founding of an organization called the Committee for Economic Development. The CED is still around today. It’s part of The Conference Board now. But it was a leading business voice, along with the National Association of Manufacturers and the U.S Chamber of Commerce, back in the 1940s. But it was a much more moderate voice in terms of its politics and ideological orientation than some of the other more hard-line business groups. At the end of World War II, the leaders of the CED set out a vision for what America should look like in the post-war economy and society.
“We have moved from a blue-collar society to a knowledge society, a knowledge economy.”
Those four companies were all instrumental in the founding of the CED. Just as a narrative device, it was a great place to begin with these titans of industry who led the companies back then. I have them begin the book and lay out their vision for what America should look like.
Knowledge@Wharton: Let’s start with Kodak. If you go back 40, 50 years, it was as powerful and strong a company as there was in the United States. Their attempt to transition to the digital economy failed. Is that the biggest element that really impacted Kodak?
Wartzman: It was, ultimately. Kodak is credited with inventing the digital camera but could never quite wean itself off film. I talked to a number of former executives there who said that the fat profit margin of film was like a narcotic. The money was just too much coming in from film while they had that business, until it was no more. Suddenly, they looked up and it was no more.
Historically, the interesting thing about Kodak is that it’s one of the companies that was never unionized. They practiced what was termed “welfare capitalism,” and their notion was to lavish great pay and great perks on their very large workforce at the time. This was done with a variety of impulses in mind. One was because there really was this ethic that I described earlier where employers wanted to give more to their employees. They felt a measure of loyalty to them and expected loyalty in return. There was also an attempt to keep unions at bay. Kodak wanted to do this by making it so that there was no need for a union. We pay our people great and give them great benefits. Who needs these organized labor folks around?
Knowledge@Wharton: Give us the story from the Coca-Cola perspective.
Wartzman: Coke is interesting. It is headquartered in Atlanta, Georgia. It’s essentially a giant advertising agency branding firm. In terms of workers, the real action occurs at the bottling plant level. There has been union activity over the years, mostly with the teamsters. The real pivot point in the book for Coca-Cola comes under the leadership of Roberto Goizueta, who ran the company from about 1980 to the late 1990s when he died. He was hailed as a great CEO and certainly did an incredible amount to lift the value of Coca-Cola’s share price. But I use him as a way to focus on this pivot, which again I see is really key in this whole story to how we have gone to put maximizing shareholder value above all else, including maximizing investment in our workforce.
Knowledge@Wharton: GM is one of the remaining legacy brands in this country, even though it went through the recession and then the ignition switch recall. Give us the perspective of GM in this.
Wartzman: GM in some ways was really the paradigm American company and the world leader as a corporation for a long time, certainly through the 20th century. It had incredible benefits. It had incredible pay, largely at the frontline level through the power of the United Auto Workers. I really use them to talk about the importance of unions, of organized labor in the rise of the social contact between employer and employee.
It’s important to note not only at companies like GM that were heavily unionized, but when the American workforce was 25%, 35% percent unionized in the private sector, there was a tremendous spillover effect. It wasn’t only unionized workers who benefited, but it was also workers at companies that weren’t organized and white-collar labor as well. They were all lifted up by the tremendous power and this collective voice and countervailing force to corporate power that unions had.
Knowledge@Wharton: It almost makes you wonder if the auto industry is going to be the last of the unionized industries in the United States.
“Each recession becomes something where employers are not looking to bring folks back after the economy recovers.”
Wartzman: Yes, absolutely. Although there have been big shifts, certainly at GM and elsewhere. They moved to a two-tier wage structure. Even unionized workers at GM found themselves in a position that they had never been in before, which was that even full-time auto workers were in some cases struggling to make ends meet. Those used to be tremendous jobs, and they still are relatively good jobs compared to many in the service sector, but they certainly aren’t the jobs that they once were.
Knowledge@Wharton: Should General Motors take the most strong view of what happened to Kodak in terms of the shift to the digital world? There seems to be opportunity for the auto industry to be more automated through robotics and such
Wartzman: Absolutely. GM, like most major companies, has certainly done a lot to automate over the years. Its workforce has shrunk considerably. It once had 700,000 employees. It was a giant, giant company. It is a small fraction of that today in terms of its employment, and that’s for a variety of reasons including all the financial troubles it had. But certainly automation is a big piece of that, and that was already happening well before its bankruptcy.
Where I think you are seeing a shift at GM, if you talk to executives there now they would describe themselves as a mobility company. Ford does this, too. They just had a shakeup there in this regard. But GM would say, “We’re a mobility company,” and they’re certainly looking to autonomous vehicles, for example, as a big part of their future. I believe they owned a chunk of Lyft now, so they’re trying to move with the times.
I looked at all four of these companies, took a deep dive over this long, 75-year historical arc, and you had two of them — Coca-Cola and General Electric — that have done quite well over a long period of time. And you had two that out-and-out struggled with Kodak and GM, although GM has come back some. It doesn’t matter whether they were the huge successes over this time in GE and Coke, or the ones that really hit hard times and hit bankruptcy in terms of Kodak and GM, the story for their workforce is pretty much the same. It doesn’t matter whether they were riding high or riding low.
Knowledge@Wharton: GE went from a company that had such a big retail element in terms of lighting to looking at energy and other opportunities. That’s as big a shift as any of these companies have made.
Wartzman: One of the things I greatly admire about GE is its ability to reinvent itself over a long period of time. It seems like every leader, every CEO has been able to do a really excellent job of this. Some have pushed on it harder than others in terms of disrupting themselves, but certainly Jeff Immelt [who just announced plans to retire] is doing a lot in terms of becoming much more of a digital company centered around the internet of things. He’s clearly an admirer of what’s going on in Silicon Valley and has based a bunch of operations there to draw on digital technology and be part of that world. You have to admire them for that.
What GE represents in the book is another shift, and that is they have more workers abroad now than they do in the U.S. I’m not condemning these companies for any of this. It makes sense why GE is serving so many people abroad. That’s where its customers are. It isn’t going there, in most cases, just to chase cheap labor. It’s going there because that’s where its markets are. I totally get that. I’m not saying we shouldn’t automate or advance technology. That’s how we move forward as a society, how we increase productivity, which is a key to raising living standards over time for everybody. I’m not saying that they’re the wrong direction to move in, but there is a cost that comes with it, and we’ve certainly seen that in terms of the rising anxiety and anger of a lot of working folks.
Knowledge@Wharton: One of the men before Jeff Immelt was CEO Jack Welch. What role did he play in this process?
Wartzman: He was a huge figure in this kind of national narrative. I got to spend some time with Jack Welch, which was quite a treat. He was the one who really shook up a hidebound, bureaucratic General Electric and made it much more nimble. There were some great things that came with that. He really empowered workers, including those down on the front lines, to offer up their ideas, and he made GE much more a meritocracy. He also shed a lot of bodies in the process. By one count, as many as 170,000 jobs were lost under his time as GE’s leader, and that earned him the moniker Neutron Jack because supposedly just the buildings were left standing after he was done.
Knowledge@Wharton: In general, when you think about the relationship between employee and employer? Are employees more savvy about watching out for the pitfalls than they were 30 or 40 years ago?
Wartzman: I think there’s a deep split on that question. One of the other things that you’ve seen in the big trends over this 70-year arc is that we have moved very steadily from a blue-collar world. Even though only about 30% of the U.S. workforce had factory or blue-collar jobs back in the 1950s, that was still kind of the ethos in America, if you will. We were oriented in that direction. It was a big part of the culture. The magic of those jobs for folks was that you could get one of those jobs and have a path to the middle class with relatively little education and few skills. That doesn’t work anymore.
We have moved from a blue-collar society to a knowledge society, a knowledge economy. So we have this incredible divide. If you go to school, if you get a degree, chances are you’re going to be OK. There are a lot of questions now about whether a college degree pays off, and a lot of young people are carrying a lot of debt. Those are real issues. But by and large, all the evidence shows that if you’re college educated you’re going to do fine in this knowledge economy.
But you have to remember that more than half of adults in America don’t have any post-secondary degree, not a college degree, not a community college degree, not a technical certificate of any kind. The real question is what happens to them? What do they do in this knowledge economy? I don’t see that they have many choices. I don’t think they can say, “Well, my factory’s about to close, I’m going to move over here.” Move over where?

Are You a Self-aware Leader?

emotional-intelligence
EurichcoverMost corporate executives think they know themselves inside and out, just like they know every detail about their business structure. But research shows that most people — from CEOs to regular Joes — are surprisingly not self-aware. Organizational psychologist Tasha Eurich believes that becoming more self-aware can lead to greater success  personally and professionally. With that goal in mind, she wrote Insight: The Power of Self-Awareness in a Self-Deluded World. She bases her book partly on interviews with successful corporate leaders who have great stories to tell from their own journeys of self-awareness. Eurich talked with Knowledge@Wharton about her book on the  Knowledge@Wharton show, which airs on SiriusXM channel 111
An edited transcript of the conversation appears below.
Knowledge@Wharton: A big part of self-awareness is how we come across to the other people in our lives, correct?
Tasha Eurich: I’ve spent the last three years digging in to the topic of self-awareness. What we found is that it’s made up of two types of knowledge. One is what people normally think of, which is that introspective awareness, seeing ourselves clearly, knowing what we value, what we aspire to do. But equally importantly and frequently neglected is the idea that we should also know how other people see us. What I found is there are quite a few people who possess one of those types of knowledge, but not the other. That’s really where it gets in their way. What we’ve learned through our research is that people who have both types of self-knowledge and balance them are the ones who are the most successful at work and in life.
My research has shown that 95% of people think they’re self-aware, but the real number is closer to 10% to 15%. I always joke that on a good day, 80% of us are lying to ourselves about whether we’re lying to ourselves. It can be problematic. A lot of times, the people who have the most room to improve are the least likely to know.
Knowledge@Wharton: Is this is making our society even more delusional than ever?
Eurich: I think so. There are many societal forces that are converging on us whether we want them to or not — social media, the self-esteem movement, as well as our natural tendencies to see ourselves through rose-colored glasses.
“I always joke that on a good day, 80% of us are lying to ourselves about whether we’re lying to ourselves.”
Knowledge@Wharton: There is this want and need by some people to know what other people think about them. For many, it’s an obsession.
Eurich: It is. There are some people with those two types of self-awareness who are so focused on how other people see them that they’re actually not acting in their own best interests. They don’t even know what they want out of life, for example. That’s just another reason that we have to balance both of those types of self-awareness.
Knowledge@Wharton: There’s really no difference [regarding self-awareness] in terms of the importance of work over life. You’re trying to make yourself a more well-rounded person in both of those categories.
Eurich: The benefits of self-awareness don’t extend just to work. It helps us make smarter decisions. It helps us form better relationships. It’s helps us be more successful in our careers. People who are self-aware are much better leaders. They also lead more profitable companies. Those benefits just reinforce in both our work and our personal lives.
Knowledge@Wharton: You talked with some CEOs and people in the C-suite from various companies. Alan Mulally [former president and CEO] of Ford was one of them. Tell us about him and what he recognized?
Eurich: Alan Mulally was just wonderful to work with. He’s very passionate about the topic of self-awareness. Maybe the best way I can explain what an impact it’s had in his life was, flash back to 25-year-old first-time manager Alan who had his very first employee abruptly quit because he was just a terrible manager in some ways. That served as a wake up call to him about how important it was to know himself, to know how he’s seen. Starting in the mid-2000s, he took Ford from $17 billion of losses to $20 billion in profit five years later.
Knowledge@Wharton: That’s interesting because CEOs today want to be connected with as many people in the organization as they can. It’s not just sitting up in the suite anymore.
Eurich: If Alan Mulally were here, he would agree. He talks about self-awareness, team awareness and organizational awareness. It’s each of those three systems. To have awareness of what’s happening in the organization, you have to be out there. He was famous for eating lunch in the employee cafeteria, for responding to almost every email he got from employees. You have to look at it as part of the greater system if you want to get the greatest benefits.
Knowledge@Wharton: Can self-awareness be a top-down philosophy?
Eurich: Absolutely. The team or the organization’s level of self-awareness in some ways is completely dependent on the leader. You can’t have a self-aware organization if the most visible and influential leader is, for lack of a better word, delusional. It has to start there, but it also doesn’t end there. There’s a lot of work that leaders have to do to instill that culture just beyond their own behavior.
Knowledge@Wharton: What was the greatest thing that Alan got out of it?
Eurich: His vision definitely involved money and the financial returns and shareholders, but it was so much greater. It was to be a true service to the customers and a good corporate citizen to the communities that they worked in. It was a broader goal, and that’s what I think is a great example of somebody who knows what drives them and what they value. If you look past or include the financial aspects but have a greater purpose to what you’re doing, it’s infectious to other people.
Knowledge@Wharton: You also talked with Ed Catmull, president of Pixar and Walt Disney Animation Studios. Disney is considered to be very hard-running but gives back to the community. Pixar is a different part of the entertainment industry, but the bottom goal is the same, correct?
Eurich: It is. When Disney acquired Pixar and Ed Catmull had joint responsibility to lead Disney Animation and Pixar, he started to institute a lot of the beneficial cultural elements they saw at Pixar over at Disney. And they started to see the same benefits. There’s one example I give in the book about how in all the years that Pixar has been in business they have never had a single leak to the press. That’s such a great example of what happens when a leader has that organizational awareness, but also has a dialogue. In addition to hearing things from their employees, they trust them with the truth. In doing so, they have created a powerful culture where people keep information to themselves.
“You can’t have a self-aware organization if the most visible and influential leader is, for lack of a better word, delusional.”
Knowledge@Wharton: Is some of that the personal connection he has with his employees at Pixar, compared with sitting down in an auditorium and talking with the lot of them?
Eurich: It’s all of the above. He is so committed to having that time that there’s an example he talks about in his book, Creativity, Inc., where they closed Pixar for an entire day to have what they called Notes Day. It was an opportunity for people to help solve problems, to convey information that might not been known by senior management. He thinks big, but he also operates on a one-on-one level. It’s not uncommon for him to be in the lunchroom sitting with folks and just having lunch and chatting.
Knowledge@Wharton: Can people improve their self-awareness?
Eurich: They can. Even though many of us have more work to do than we think, I see this as a positive message for that very reason. There are a lot of myths surrounding what it takes to become more self-aware, and that’s largely why I’m so passionate about this. I want to help people bust those myths, to spend their time wisely. The benefits we can get are just unbelievably powerful, both at work and at home.
Knowledge@Wharton: What’s the biggest myth?
Eurich: There are so many, but one example I found shocking was that the act of analyzing or reflecting on ourselves does not always produce insight about ourselves. Sometimes we get so wrapped up in this deep psychological excavation of our innermost workings and motives that it actually confuses us. It takes us away from the greater issues, and it negatively impacts our mood and well-being. One way to combat that is instead of going deep, going wide. Look at the themes and patterns between the events in your life. If you’re trying to figure out your ideal work environment, think about your last three or four jobs and what you liked about them, what you didn’t. You’re not doing that deep Freudian excavation, but you’re looking for those patterns, which can be so much more informative.
Knowledge@Wharton: In an office setting, there are times when people don’t feel like they can be forthright and honest with their manager. That is part of the problem that develops with helping people be more self-aware, correct?
Eurich: It’s true. One of the things I tell people is that other people’s self-awareness journey is not yours to own. If someone is saying, “Gosh, my boss is so not self-aware; I don’t even know what to do” — it can do more harm than good if you decide to take that on. But if we flip the coin and you are the leader that we’re talking about, there’s a lot of things you can do to instill a culture of truth-telling.
There’s a lot of ways you can get feedback in a confidential way. Many people are familiar with the 360 process where it’s a numeric, anonymous survey by which you get the results. But what I’ve found is there have to be certain building blocks in place before leaders can say, “Why don’t you just tell me the truth about how you see me,” because not only will people feel uncomfortable doing that, they might just sugarcoat everything.
Knowledge@Wharton: Having this understanding about one’s self and being able to discuss these things in the corporate culture makes for a better overall operation.
Eurich: When Alan Mulally was telling me about Ford’s turnaround and his journey, he told me the single moment that was the most important part of that process was when his executive team started being comfortable telling him the truth. In that case, it was the truth about what was going on in the business. Mulally had a weekly meeting that he called the Business Process Review where his team would come in and give him reports on all these metrics. They were losing $17 billion, and everyone came in with green metrics week after week. He was able to instill that culture of truth-telling. It wasn’t easy. It wasn’t overnight. But when they got there, that’s when the turnaround had begun.
Knowledge@Wharton: You also talk about the fact that people who are self-aware probably do things differently than the norm. In the case of Alan Mulally, it changed him.
Eurich: One surprising characteristic of self-aware leaders is humility. One of the ways to build trust with your team is to be vulnerable and not give the impression that you’re perfect, to engage them with questions that rely on their expertise and leverage that. There are a lot of traits, but I think that is one that I really saw in Alan Mulally that helped him instill that culture of self-awareness.
Knowledge@Wharton: Who are some other executives that have figured this out?
“Sometimes we get so wrapped up in this deep psychological excavation of our innermost workings and motives that it actually confuses us.”
Eurich: There were quite a few examples from the startup community. There’s one leader I’m thinking of in particular whose name is Levi King. He leads a company called Nav, and I think it’s his eighth successful startup. He has a journey very similar to Alan Mulally’s, where he started off with a pretty rude awakening about what his leadership style was to other people.
But one interesting thing that he talked about is just because you get feedback about something you’re doing poorly as a leader doesn’t always mean that you have to or can or should change it. One thing he talks about is how his journey was to learn that he’s just not a great communicator. He read so many books about brain science and communication, and he concluded that he wasn’t going to make a dramatic improvement. What he did instead was be honest about it, tell his employees what his intentions were and that he really was trying his best. I think that’s such a great example of why it’s never as simple as it seems. Sometimes we get feedback and the knee-jerk reaction is to try to change our personality. But that’s not the only option we have.
Knowledge@Wharton: Are more organizations aware of why these elements are important to the culture and success of the business?
Eurich: I’m a little conflicted on that. What I see in a lot of companies are platitudes about self-awareness. What I mean by that is people just parroting, “Oh, self-awareness is so important.” You go into their organization and talk to their team and they say, “I can’t tell the truth to anyone or I’ll be fired.”
It’s a lack of consistency between what is said about the importance of self-awareness and what is actually seen and done. That’s where it just goes back to that individual-level statistic. Most people think they’re self-aware so they can brag about how important it is, but what they’re missing is how much work they usually have to do in that area.
Knowledge@Wharton: What is the most common reaction when they find out they’re not as self-aware as they think?
Eurich: In my job as an executive coach to the Fortune 500 world, I am often hired to tell very senior, very powerful people the truth when everyone else is afraid to or they don’t want to. I’ve seen every reaction in the book. I’ve seen silence. People have literally run away from the conference room I’ve been in with them. I’ve seen crying. I’ve seen anger. But the important thing about this, and what I’ve learned from studying highly self-aware people, is we have to see that as part of the journey. It’s a moment that is scary, but that ultimately is giving us an immense amount of power.
Knowledge@Wharton: Does it matter whether you’re talking about a CEO or a mid-level manager?
Eurich: The research shows that the more powerful you are, the more senior you are, and even the older you are as a manager, the less self-aware you’re likely to be, which I found shocking. But people who are in senior leadership roles are more removed from the day to day. They have more visible roles.
You look at someone like Oscar Munoz of United Airlines, where one single misstep can spell disaster. Frankly, they have people that are less likely to tell them the truth. Even though it’s true that at every level of an organization there’s a lot of work to do, it seems from the research that the higher up you get, the more of an issue it might be.