Companies must strike a balance between automation and brand experience – The Globe and Mail

Kal Juman, principal of Industry Labs and business sales consultant; Imran Abdool, president of Blue Krystal Technologies and Business Insights, and lecturer on finance, economics, and strategy at the University of Windsor; Richard Douglas-Chin, associate professor, English Literature, University of Windsor

In their continual quest to cut costs, boost revenue and maximize shareholders value, todays corporate bosses have made automation their standard modus operandi.

However, what is often good at the individual firm level is problematic at the societal one: automation has meant bigger bottom lines for shareholders at the expense of less-skilled workers becoming unemployed or underemployed. With the rise of populist politicians in America and Europe, companies would be well-placed to rethink their level of automation going forward.

There are two important aspects to increased automation: brand experience and long-term strategic planning. Automation affects brand experience through reduced or even eliminated interaction with the customer. Almost everyone has heard an anecdotal story of a frustrating experience with a self-service or self-checkout counter. Automation has touched all industries; even law and finance have now seen their consumer-interaction significantly eroded. At the corporate level, increased automation represents a trade-off between brand experience and cost savings. The challenge for companies is to find the optimal level in this trade-off, but the difficulty arises in comparing a tangible quantity (cost savings) with an intangible one (brand experience).

The iconic retailer Sears has had ailing brand experience for years preceding its current financial decline. During Sears profitable years the company hastily paid out excess cash to shareholders rather than reinvesting in Sears in-store experience. In decades past, Sears had a unique brand experience. Now, Craftsman has been sold off from the larger Sears Holding Corp. and the fate of Kenmore is questionable too. Without a unique brand experience, Sears bricks-and-mortar stores cannot compete on price point and convenience with online retailers such as Amazon. Sears failed to utilize its vast inventory, cataloging and corporate resources for a first-mover advantage in online retailing before Alibaba and Amazon.

Conversely, when brand experience is successful, a premium can be charged for that success. For example, Apple is famed for its achievement in developing its brand and its ensuing customer experience. Walk into any Apple store and compare first-hand this experience with another technology retailer. One of Apples star products, the iPhone at its most basic functional level is no different from similar products, but the Apple experience always commands a price premium.

Being cognizant of the trade-off between automation and brand experience not only benefits corporate shareholders but our broader society as well. Two futures can exist in the relationship between corporations and their workers: one where corporations have higher profits and less employment or one where employment and corporate profits rise in tandem. A company can boost innovation, profits and employment by combining risk-taking with empathy for consumers and workers.

It can be argued that a companys present stock price captures the markets perceptions of automation benefiting a company this is a standard assumption of modern stock pricing in which the current price is based on all available information. However, it can also be argued that market perceptions can and have been significantly wrong e.g., the dot-com bubble, the recent subprime crisis and behavioural finance research. Therefore, current financial markets may be overvaluing automation.

With regard to strategic planning, its no secret that investors and financiers are short-term rather than long-term oriented. Wall Streets culture, as well as the high speed of Internet communication, promote bonuses reflecting short-term performance demarcated by quarterly or annual time frames. The recent incident involving a United Airlines (UA) flight and the forceful removal of one of its passengers demonstrates how quickly capital markets react to perceived company performance: immediately after this story broke, UA stock was down 4 per cent in the next mornings trading reflecting the speed of capital markets and also consumers swift negative judgment on UAs brand experience.

Perhaps it is time for a novel approach: link corporate bonuses to a long-term performance horizon. Specifically, CEOs shouldnt leave with a golden parachute or be able to cash out stock at current prices. Instead, there should be a time delay of five to 10 years before cashing out a significant portion of their stock thereby aligning their incentive with long-term corporate (and incidentally societal) good.

This trend is already beginning: the number of IPOs in America has fallen significantly over time. Private capital markets are seen as longer-term oriented than their public counterparts. Company founders and stakeholders are beginning to express their preference for this type of governance and financing. They are recognizing that automation can be a substitute or a complement, and with proper planning the latter is quite profitable.

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Companies must strike a balance between automation and brand experience - The Globe and Mail