Knowing how to optimize business processes and technology only takes companies so far. Success in volatile environments requires learning how to apply data compassionately in response to new opportunities and risks.
Just about everyone has encountered automated telephone response systems and experienced the frustration of having to repeat voice commands multiple times before finally asking to speak to a service representative. It seems that many large companies have become so focused on optimizing their business processes and systems that they have become all too willing to forget about cultivating emotional connections with customers. But as global business environments become less predictable, there are serious risks in putting too much emphasis on process and systems. In order to detect and respond to shifting customer needs, companies need to show more, not less, empathy with their customers. Some companies have found an approach that achieves that — one that joins three important capabilities: the ability to optimize business processes and technology, the ability to foster emotional connections and the ability to use data empathically. We call this approach softscaling.
The empathic use of data enables companies to be, in effect, left-brained and right-brained simultaneously. The data provides the bridge that allows the rational (left side) to communicate with the emotional (right side). Consider what it does for Hero MotoCorp, a manufacturer of motorcycles and scooters, based in New Delhi, India, that until 2010 was partly owned by Honda Motor Company. Like other companies, Hero MotoCorp had a customer relationship management (CRM) system designed to track critical activities such as sales, service visits, spare part needs and other aspects of the customer experience. However, as effective as it was at monitoring the basic data, it didn’t show that the broad demographics of the market were shifting dramatically. Young women, who were entering India’s workforce in droves, were uncomfortable, even intimidated, about shopping for motor scooters. Some were concerned about how they would look astride a scooter. In response, the company designed a new product and a new program called “Just 4 Her,” with its own showrooms staffed by women. Female customers can view how they look on the scooter behind the privacy of a curtain. Hero MotoCorp uses technology to scale local decision rights, allowing it to optimize its business processes more effectively. Today, it is the world’s largest producer of two-wheelers.
The Leading Question
How can companies balance process optimization and customer empathy?
- Recognize that business process optimization is only one component of a more integrated and holistic approach to management.
- Analyze data and business intelligence to understand customer needs.
- Apply contextual insight to make more empathic decisions.
- Use technology to reinforce the company’s brand and personalize the customer’s connection with the company.
As companies attempt to react to more rapid and unpredictable changes in economic cycles, environmental conditions, business models and customer needs, they are under new pressure to develop flexible strategies that allow them to anticipate changes and respond effectively. These abilities are particularly important for businesses attempting to expand beyond their traditional customer bases and home markets, especially into volatile environments. Although our research was conducted in India, the core tenets of this strategy are equally applicable to companies in other emerging economies, as well as in sectors in developed markets that are experiencing rapid change in customer needs. (See “About the Research.”)
About the Research
This article is based on intensive field research in India over two years. The five companies in the study provided the research team with extensive access to senior executives and key customers and partners. Data for the case studies were collected in one- to two-hour interviews with 65 executives and business partners, using a structured interview guide developed by the researchers. Interviewees included the CEO/chairman and the vice presidents of marketing, finance, information technology, operations and human resources. At Hero MotoCorp, we visited the manufacturing plant to observe the motorcycle production process and several dealerships to understand how the retail channel operated. At Max Healthcare, we toured the hospital’s facilities. To obtain an understanding of how Bharti Airtel’s business partners and customers viewed the company, we conducted interviews with its institutional and individual customers and partners. In addition to primary data on companies, we collected detailed secondary data on company performance, news reports and other publicly available information. The interviews were recorded, transcribed and subsequently analyzed using qualitative methods. Finally, we shared our analysis with executives in the companies we studied as a validation check and in several workshops with executives experienced in managing in volatile environments around the world.
Softscaling for Exceptional Growth
Since 1991, India has seen a series of economic reforms that have spurred foreign investment, deregulation and privatization. Together, these growth policies have helped to expand the country’s middle class and increase demand for various products and services, including motorbikes, automobiles, telecommunications, home mortgages and health care. We set out to investigate how companies have responded in fast-changing environments with lots of uncertainty, including uncertain infrastructure in areas such as transportation and communications; political change; changing regulation; and fast-changing customer needs. We interviewed company executives, customers and supply-chain partners. After sorting through the various terms companies use to describe their activities, a distinct pattern emerged. Despite operating in different industries and using different terms, many of the successful companies we studied pursued very similar growth strategies.
The Softscaling Strategy
The Softscaling Strategy
Softscaling companies are adept at pursuing many different kinds of activities at once. In addition to optimizing business processes to obtain low-cost and high-reliability operations, they standardize and reuse processes and deploy technology with an eye toward cost. At the same time, they apply qualitative data and contextual insights to make decisions that are empathic. Companies pursuing rapid growth in volatile environments can develop their own version of softscaling.
Softscaling brings together the best features of optimization (for example, low-cost and reliable operations via Six Sigma metrics) and building emotional connections with customers through passion, commitment and concern. The five companies we examined (Hero MotoCorp, Bharti Airtel, Tata Motors, Housing Development Finance Corp. and Max Healthcare) have integrated optimization and emotion, using evidence-based empathy grounded in data analytics. (See “The Softscaling Strategy.”) This strategy has enabled companies to exploit opportunities to become market leaders in highly unstable, resource-constrained settings. Over the past five years, the companies we studied have grown between 35% to 40% annually, often with impressive profit margins. What’s more, they have seized opportunities to expand internationally. For example, Tata Motors has grown its revenues and generated impressive profits in part by acquiring the loss-plagued Jaguar and Land Rover brands and turning them around. Meanwhile, Airtel, India’s largest telecom company with more than 160 million subscribers domestically, has, through its acquisition of Zain Africa, initiated an expansion into more than 15 countries in Africa.
The Building Blocks of Softscaling
Successful softscaling is based on three core activities: nurturing emotional connections to achieve commitment and loyalty from employees, customers, suppliers and other business partners; optimizing business processes to achieve low-cost and reliable operational excellence; and combining data (captured by optimized processes and technology) with a deep understanding of local context to make empathic decisions. Being excellent at just one is not enough — it takes all three.
Nurturing Emotional Connections
Although the importance of emotion is often downplayed in Western management, most of the companies we looked at found it to be a key ingredient in success.1 Passion helps cement relationships and build commitment in ways that formal contracts don’t. For example, Max Healthcare, which operates 11 hospitals around New Delhi and has a staff of more than 1,500 physicians, established a consumer advisory group to represent the voice of customers and the community at large. The group has full access to the company’s facilities, allowing them to probe into every aspect of the system to see what works well and what needs improvement. Emotion plays into a company’s relationship with its customers, employees and value-chain partners such as dealers, suppliers, vendors and agents.
Connecting with customers. For Tata Motors’ plant workers and product engineers, meetings with truck drivers, taxi drivers and chauffeurs are a regular occurrence. Management calls them “naka visits” (“naka” means “street corner” or “checkpoint” in Hindi), and they are an integral part of how product engineers receive customer feedback and test new ideas. Workers hear about axles breaking on potholes, engines overheating and vehicles colliding with cows. They learn about customer expectations and product performance with an empathy and intimacy that can’t be replicated in a product development lab. Back in the lab, the production line or their offices, workers have a stronger emotional connection with customers.
Technology has helped Tata Motors scale its connections with customers — and the ubiquitous mobile phone provides the infrastructure.2 Each month, the company exchanges more than 4 million text messages with customers and dealers — everything from product complaints to reminders about service appointments to announcements about new models. Not only do these connections reinforce the company’s brand, they help “personalize” the customer’s connection with the company.
Connecting with employees. Companies nurture their bonds with employees in a variety of ways. At Tata Motors, this starts with the code of conduct, which every employee signs upon joining the company. To keep it up to date and to highlight its importance, the code of conduct is regularly reviewed by the board of directors’ audit committee.
Although some Indian companies have been criticized for being paternalistic, there can be a positive side to paternalism. The managers we interviewed spoke at length about their efforts to build a culture of “succeeding as a family.” In this environment, employees identify with the success of the company in much the same way as they would watch out for a family member.
One senior executive at Tata Motors was 13 when his father, an executive at the company, passed away in the early 1990s. The company provided his mother with a teaching job and paid for his and his siblings’ education until they entered the workforce. When he graduated from business school in India, Tata Motors offered him employment. He is now one of a handful of Tata Motors’ senior executives responsible for a major acquisition.
But the depth of the connection goes beyond ethical management and supporting employees.3 The companies we studied have also learned to honor the Indian culture’s tradition of debate and argument.4 Managers go to significant lengths to develop mechanisms, structures and processes that encourage open debate and the free flow of information, even in what is typically regarded as a hierarchical system. Open debate and argument do more than give employees a feeling of empowerment; the rich interactions they enable are essential to the companies’ ability to innovate. They also expose problems and opportunities that may be hidden or at least not recognized during the optimization processes. Having an open environment — and really meaning it — encourages people to challenge the status quo.
Another mechanism that builds emotional connections is skip-level meetings, where employees get to talk to their boss’s boss without the direct boss being present. These meetings open up lines of communication and reinforce desirable behavior, including transparency and documentation of HR decisions. Such meetings are particularly important in extremely hierarchical companies.
Building a culture in which workers are empowered requires considerable effort. For example, Tata Motors, management hosts “direct dialogue” sessions every six months with hundreds of plant workers at all five of its manufacturing facilities to discuss recent activities, successes and challenges. The last hour of each three-hour session is an open Q&A, where the understanding is that no question is forbidden. Company managers say that workers are a vital source of innovation.
Technology, of course, can greatly accelerate the flow of information in a company. But it can also interfere with effective communication. Recognizing the potential danger of too much reliance on email, Tata Motors gives employees cell phones and strongly encourages their use. “We always believe in picking up the phone. Talking to the people, or walking across and having a face-to-face conversation. Reading the feeling in their eyes and seeing their reaction — that’s when you can make the best decision,” says S.J. Tambe, vice president of human resources. Tata Motors also uses videoconferencing extensively to get as close to face-to-face interaction as possible.
Connecting with supply-chain partners. Companies also need to forge strong links with suppliers and distributors. But how do you build loyalty and a sense of interdependence with suppliers and dealers who also have relationships with your competitors? Tata Motors, for example, tries to deepen its supplier and dealer ties through vendor councils and dealer conferences. “Suppliers need a forum to air their grievances and issues,” says S.N. Ambardekar, head of the Pune plant. “We set up the vendor councils just to make sure we were responsive to their needs.” Dealer conferences provide a forum for developing personal relationships with the retail channel. Rather than featuring perfunctory presentations from executives, Tata’s dealer conferences provide a more robust view of its products and how they are made. Plant workers participate in small-group sessions, where they explain how they are improving the products, incorporating customer feedback and striving for quality. The result? Dealers feel more connected to the production process and better able to “talk up” the products.
Tata Motors’ CRM system not only captures customer transactions as they occur at the dealerships but also provides on-demand training for retail staff. Dealers “experience” what it’s like to drive the company’s vehicles — critical for effective sales. In addition to a sophisticated CRM system that keeps dealers up to date on product and parts delivery schedules, Hero MotoCorp, for its part, has a low-tech but profoundly powerful approach in building its connection with dealers: investing in the relationship between dealers and the company’s chairman. “I know more than 70% of the dealers by name,” says Brijmohan Munjal, Hero MotoCorp’s chairman. This is no small feat, given that the company has more than 500 dealerships spread across India. At annual dealer events in New Delhi, Munjal stands at the gate and shakes hands with all of Hero MotoCorp’s partners.
Optimizing Business Processes
Many companies have identified business process optimization as a strategy for growth.5 They seek to find the most efficient operating models, business processes and investment levels, and then manage the organization using a series of key performance indicators, incentives and other metrics. Unfortunately, optimization is often supported by pervasive and, at times, inflexible use of technology and automated business processes, including automated voice response systems. Although managers at many companies recognize the value of optimization, managers at softscaling companies view it as one component of a more integrated and holistic approach to management.
Tata Motors, for example, utilizes process excellence and Six Sigma principles to drive quality and reduce costs in its manufacturing activities. However, management is also extremely mindful of the fact that processes are only a means for getting tasks accomplished, not ends in themselves. Despite having standardized business processes, Tata responds to customer needs flexibly by combining an excellent process (optimization) with individual judgments based on direct customer contact (emotional attachment to the customer) and local decision rights. For instance, product engineers and salespeople interact with commercial-vehicle customers on a regular basis and are empowered to provide creative financing as needed. This blend of process, infrastructure and sophisticated use of technology permits what we call “informed empathy,” which allows companies to react flexibly to particular opportunities, risk and governance.
Tata is not alone. When Housing Development Finance Corp. (HDFC), a home mortgage company, was founded in Mumbai in 1977, it faced deep skepticism from all sides. At the time, housing finance was virtually nonexistent in India, and there were serious doubts that people would be willing to take on home loans. HDFC not only created a market, it helped it grow and expand. Today HDFC has a default rate of less than 1%, which is much lower than is typical for governments and banks worldwide.6 How does it accomplish this feat? Like most financial institutions that have a pan-India presence, HDFC has optimized its business processes. For example, loans are originated locally, but appraisals are done centrally. However, unlike other banks, where managers may be reassigned every three years (often before they are familiar with their customers and clients), HDFC believes in having managers remain in a community for as a long as possible — often for more than 20 years. As HDFC chairman Deepak Parekh explains, the manager’s job is not only to lend but to collect, and the long-term approach pays off. When a borrower is late on a payment, the local officer knows the reason (for example, a daughter’s wedding or a son starting medical school) and is empowered to “forgive” a late payment. The result: satisfied customers who work even harder to pay on time and honor the terms of the loan.
Once a core process is optimized, it’s common for companies to digitize and automate it — this is a familiar tool for growth companies globally.7 Softscaling companies are no exception. They leverage their digital platforms to fill in the gaps created by weak physical infrastructure to create a foundation for rapid expansion. However, rather than having their line managers make technology investments, they have a different approach to spending that’s rooted in a history of frugality. A 2009 survey of 1,221 companies globally8 found that Indian companies spent 23% less on IT than the average company globally while generating more than 10% more value. This profound orientation toward value significantly influences when and how much they invest in technology. And once the companies do invest in digitizing a business process (such as mortgage processing), they reuse it wherever possible. To encourage this reuse, they often move future decision rights for IT investments from line business leaders to the CIO, who becomes accountable for business impact and reuse.
An example of this ethos occurred recently at Tata Motors. Discovering that the technology of its recently acquired Jaguar Land Rover unit was outdated, management set out to update it — not by replacing it but through reuse. Starting with the Tata Motors’ existing SAP template, the company’s CIO brought a team of senior IT executives to Jaguar’s manufacturing facility in England, stripped out all of the old data and began to integrate the processes and reporting systems of the respective organizations. Tata Motors has integrated systems that provide digitization across the entire supply chain. All transactions are automated and linked to either the enterprise resource planning system or the CRM system, despite the fact that the company spends an industry low of just 1.2% of revenue on IT.
Linking Optimization and Emotion
As businesses become more and more digital, many leaders are realizing that managers need to become more data savvy. Data is becoming the lifeblood of organizations and can provide the critical link between optimization and emotion. Without great data distributed widely, it’s difficult if not impossible for a company to manage rapid growth and volatility. Over and over, we heard from managers about three key data areas: customer, performance and product. But it’s not just having the data that’s important — many companies have the data. It’s about using the data empathically by adding context. At telecom provider Airtel, for example, senior executives use a graph of three performance measures that they monitor virtually every day, showing events such as floods, strikes, communications outages, elections and festivals. To better interpret what the graphs are telling them, managers use contextual data from e-mails, text messages, planned conversations and meetings, reports and word of mouth.
Although Airtel asks its partners to handle many core business processes such as management of the telecommunications network, call center operations and retail distribution, the company retains ownership of customer and product usage data. Having this data enables it to excel at market and customer management, a key capability it insists on keeping in-house. Airtel also considers managing regulation a core competency that requires empathic use of data. Failure to pay sufficient attention to this area can lead to serious problems; in April 2010, Airtel was forced to pay lofty prices for broadband wireless spectrum.
Tata Motors’ use of business intelligence to understand customer needs displays the potential benefits of value-added exploitation of data. Excellent business processes generate clean, accurate data — indeed, the data generated by the company’s CRM system goes directly into the analytics. For example, the manager in charge of service for passenger vehicles monitors customer complaint data in the CRM system. When this initiative began, the customer satisfaction level was at 72%; within nine months, as management made increased efforts to relate to customer concerns, satisfaction level increased to 90%. More than 4 million text messages are exchanged between customers and dealers annually, covering everything from factory reminders for service to customer satisfaction polling — all managed automatically through the CRM. “We have an ‘information democracy,’” says CIO Jagdish Belwal. “Our managing director is a top user of analytics.”9
The empathic use of data enables companies to be left- and right-brained simultaneously. The data is the constant, the common ground that both left and right can agree on and work with. Take one of most important parts of HDFC’s business — assessing a property development project. HDFC field agents work closely with property developers who have housing projects. Before the field agents approve a building project for mortgages, they are required to check a long list of details including permits, financing, design, site readiness, roads and adjoining buildings. An engineer must visit the site and verify that all the details are accurate. Although HDFC recently created a mobile application for recording all the information and sending it back to the head office, the integrity of the data is paramount: No project can be approved without having the proper site information from the agent.
As business environments become increasingly tumultuous and volatile, building a strategy entirely around business process optimization is often too rigid and inflexible. We have seen many established Western companies, including Wal-Mart, sometimes struggle to apply their optimized models in unfamiliar markets.10 We have also seen examples of younger companies (including startups and franchises) falling short in their efforts to scale into large, multisite corporations. We believe that in most unpredictable business environments, successful growth will hinge on the combination of optimization, emotion and empathic use of data.