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February 28, 2005
Co-Creating and the growing power of 'average person like me'
The most profound finding in the Edelman Trust Barometer 2005 - out annual study of 1500 opinion leaders in eight countries - is the rise of the "Average Person Like Me" as a trusted spokesperson. The average person now ranks as high as academics and physicians as a trusted source of information about a company. Nearly 60% of Americans and a comparable percentage of Brazilians, Brits, Canadians, Chinese, French, Germans and Japanese look to their peers for knowledge and advice, up from 20% only two years ago. What's going on here? Part of this trend must be attributed to lack of trust in traditional figures of authority and institutions, such as business, government and the media. Some of this trust void is being filled by alternative institutions such as non-governmental organizations (NGOs). But it is also manifested in a greater reliance on those close to you, who form a personal web of trust that supplements what you read, see or hear in the media, or through official company channels and in advertising.
The Internet has made is easy to reach out to your friends, family and colleagues at work. But it has also allows those with similar interests anywhere in the world to link up in chat rooms. This type of horizontal communication with like minded souls is powerful. Pam Talbot, Edelman's president of US operations, told a story last Thursday night about a music aficionado who heard a new song from a band he had loved in the 90s, but the melody was just too familiar. So he took out one of the group's early CDs, overlaid the new song against one of the tracks, and VOILA, he had an almost identical set of notes. He reported this online to a few of his friends, who spread the word virally, with the end result that the band apologized for reuse of old material.
This change in communications paradigm is leading smart marketers to embrace the concept of co-creation of brand. The traditional description of a brand is delivering on a promise of quality, service or benefit. Today, there is another requirement--forging of a close relationship with the end user. How can this dialogue be started, then reinforced over time? Here are two examples, one a product launch, the other a crisis situation, both involving Microsoft products.
Halo 2 had a phenomenal first day of sales, with over $125 million of the new video game sold around the world, outdrawing even the largest of feature films such as "Titanic." But the marketing process began 18 months ago, as Microsoft dared to show its beta version to gaming enthusiasts, who were then allowed to discuss the product (good and bad) on-line. As the product developers incorporated the critiques into the follow-on versions, the gamers felt vested in its success. The buzz on-line began to be picked up in mainstream media, establishing a powerful platform of credibility for the launch.
XBOX announced a voluntary power cord replacement for the 14 million consoles worldwide. The company understood that consumers would turn to search engines on hearing the news, many of them parents. Paid search engine placements were used to direct people to the official XBOX site to receive a replacement cord. There were over 136,000 search-generated impressions and 27,000 visitors to the XBOX site. I am sure that there was significant peer to peer chat among parents.
Business should embrace the "paradox of transparency" (term coined by Shell public affairs executives). Rather than hold back knowledge of a product's benefits and risks, be open with your stakeholders, engage them in conversation and allow them to contribute to the solution. Sure, there is risk of competitive response but is that worse than the consumer outcry that can undermine the eventual acceptance of a product concept? The days of buying consumer approval simply through mass advertising are over. Today the runway for successful brand take off is effective public relations, which provides the strong base of credibility on which advertising can build. The average person like me is demanding a seat at the table, the true democratization of the purchasing process. Smart companies will recognize that ceding control is a central aspect in earning trust.
Posted by Edelman at 9:01 AM
Comments
Thanks for the update on your research - definitely a trend which is growing, and which the Internet only helps.
A technical point - at least in IE on my Windows XP system the title of this post has ‘ instead of the " and " which should probably be in the title (probably because "smart quotes" were turned on when you wrote this originally)
I would also like to extend an invitation for you (or someone from Edelman) to join us at MeshForum (http://www.meshforum.org) May 1-4 in Chicago. We have a panel planned on the role networks play in sales. Speakers on that panel will include experts on "word-of-mouth" marketing and entrepreneurs launching businesses around sales and networks. Edelman's contribution to the conversation would be appreciated.
thanks for the great blog,
Shannon
Posted by: Shannon Clark at February 28, 2005 11:14 AM
In my view growth in healthcare costs at rates greater than the rest of the economy will continue to cause more people to become uninsured - the gap that universal coverage would fill. But a one-time jump in transfers from the rest of the economy to healthcare that would accompany a political move to universal coverage would not, by itself, change the system structures that create these dynamics solution.
Posted by: Andrew Spark at February 13, 2006 2:04 AM
There was one point of irony in your survey that begs comment: on p. 9, the top graph shows that the most used and "most credible" sources of information come from the industry sectors that are the "least trusted" in 4/5 global regions (p. 9, bottom chart). I don't get it. Respondents trust information from scalleywags? I guess your research proves that the survey respondents WERE born yesterday.
Posted by: Dave Buerger at April 4, 2008 11:56 AM
Dave,
As you point out, credibility as a news source is no longer the sole purview of traditional broadcast media. Today’s sophisticated and media savvy audiences look to many sources and spokespeople before deciding how much they trust information about a company. In the recent 2008 Edelman Trust Barometer (http://www.edelman.com/trust/2008/TrustBarometer08_FINAL.pdf), the most credible sources of information about a company are “experts” such as business magazines or analyst reports, supplemented by “getting the scoop” from news sources and conversations with your friends or peers.
In a world where company reputations can move as quickly as stock prices, it is important to distinguish between high usage of news sources like TV or radio (Trust report pg 9) to get business information and whether people fundamentally trust media itself as an institution (bottom graph pg 9). Across the 18 countries surveyed in Edelman’s Trust Barometer, there are real cultural differences in how much people trust the institution of media (or government or religion) to do the right thing from skepticism in Europe to greater optimism about the media’s role in developing countries. To use an analogy, I might trust a friend or co-worker to give me the inside story on a company even if I have doubts about their personal behavior outside the office.
One consistent trend in our Trust survey is that the traditional media model is being challenged and evolving to more personal and participatory expressions such as this dialog. In that world, the most trusted spokesperson remains an average person like you which is as personal as media gets.
Thanks for your comments,
Richard
Posted by: Richard Edelman at April 7, 2008 2:08 PM
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February 18, 2005
Trust the One You're With
Three stories caught my eye this week. The first is Citigroup's effort to change its corporate culture in the wake of scandals in the private bank in Japan and on the trading desk in London. The second is the revelation that a fraud ring has penetrated the computer system of consumer credit information house Choice Point, leaving up to 100,000 people vulnerable to identity theft. The third is the continuing controversy at my alma mater, Harvard University, whose president, Larry Summers, is being hammered over off the record comments made about the paucity of senior female scientists in academia (he suggested there may be genetic disadvantages for women at play) with a possible non-confidence vote scheduled next week by the faculty.
Citigroup is requiring all 300,000 of its global staff to go to the movies on the week of March 1 to view a 25 minute film, The Story of Citigroup. This will be followed by employee meetings in each market, where according to the Financial Times, "there will be a discussion of resonsibilities staff owe to clients, its franchise and to each other." Coincident with this education campaign will be a reordering of incentive compensation to "pay for the right values." Can this company change its cowboy self-image and hell for leather culture? It seems to me that there will have to be a general acceptance of a simple fact: there is less tolerance today for companies operating at the edge of public acceptability on matters of ethics. This initiative, imposed by top management, will succeed only if it is complemented by a horizontal, peer to peer communications effort as mid-level Citi employees share their experiences in getting bonuses for achieving non-financial goals such as client satisfaction or giving back to the local community.
The theft of consumer information, namely credit reports and social security numbers, is an important warning to technology companies and to those companies that will become part of the ubiquitous computing universe in the next five years. Understand that Forrester Research expects that there will be 14 billion appliances hooked up to the Internet by 2010. These will include refrigerators, television sets, vacuum cleaners, etc. Privacy is going to be the most pressing issue for companies seeking to participate in the revolution. How comfortable will consumers be with business having easy access to eating habits, TV viewing behavior or other parts of daily life? If the business community is smart, it will get moving on a code of conduct which governs use of this information. Business will have to work closely with consumer advocates and non-governmental organizations to socialize these rules in order to generate credibility prior to introduction. Europe will be the most difficult region to gain consumer acceptance of this new world of ubiquitous computing according to experts at a lunch at the World Economic Forum in January.
The Harvard controversy pains me deeply. I have three daughters and an accomplished wife. In fact, my eldest will be going to Harvard in the fall. I also know Larry Summers, not well but well enough. He is a decent man, a serious intellectual, a person who loves a debate and does not shy away from tough decisions. His remarks, as he has acknowledged, were inappropriate, even more so because his position is so important in the world of education. I believe it was a fundamental mistake to delay the release of his remarks, because it has provided his opponents with a completely new "news cycle". Great chief executives have recovered from initial missteps by apologizing for their errors (he has done that), laying out a specific series of markers by which they can be judged, then meeting these goals. Summers has important ideas, including undergraduates spending a year abroad and assuring that undergraduate education is truly well rounded with serious science requirements for those in liberal arts and vice versa (small personal confession--I left Harvard a science ignoramus with one course in my freshman year on ecology, in which I received my one and only C). Summers will survive this firestorm and will earn trust from his key constituencies by consulting them on future plans, establishing the goals, then meeting them.
The lesson from these three quite diverse cases must be the necessity of soft power (phrase coined by Prof. Joseph Nye, and yes he is at Harvard's Kennedy School). Trust in institutions is just as important as hard power aspects such as compensation, stock price or efficient operations. Without it, we will not be able to make fundamental change, whether in the structure of undergraduate education at Harvard or in the spread of ubiquitous computing.
Posted by Edelman at 4:04 PM
Comments
Yesterday's Harvard faculty vote to censure Larry Summers came as a surprise, even to its proponents.
You certainly must be equally surprised.
The vote speaks to systemic problems in Summers' high-handed sytle far more than the hot-button female/science issue that sparked this firestorm. We had a peak of this problem when the conflict with Cornell West flared. At the time, many might have concluded that this was conflict for which West held equal blame. Now we know that Summers has cultivated much enmity which has all come home to burn.
Do you think the fire can still be controlled or is it time to call in the fire inspectors?
Posted by: Dorian Dale at March 17, 2005 9:28 AM
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February 14, 2005
Come Together Right Now
Sunday's New York Times article by Tim O'Brien, titled "Spinning Frenzy: P.R.'s Bad Press," is a wake-up call for the PR industry. He suggests that the Armstrong Williams imbroglio is the result of the confluence of several trends, including industry consolidation, the boom in alternative media sources, and the continued tension between the two schools of thought in PR (the Edward Bernays school of "manipulation" versus the Arthur Page school of "transparency").
Let's be very clear about one point. We at Edelman do not seek competitive advantage from the Armstrong Williams case, nor should any PR firm. It may be true that independent firms are under less pressure for short term profits but private ownership is no panacea. Several of the professional services firms that were exposed as complicit in scandals in 2002-3, such as Arthur Andersen, were private partnerships.
Industry leaders such as my father, Daniel Edelman, Howard Rubenstein and Jack O'Dwyer, have earned the right to critique current practitioners through their devotion to ethical practice and their long service to the PR business. But there is no returning to the days of the 60s and 70s before the roll-up of much of the PR business into global communications holding companies. We also can't go back to the halcyon days of the past because of technology--Eason Jordan resignation at CNN is another example of the accountability and transparency pressures exerted by blogs.
The real question must be where to go from here.
My response is Come Together Right Now (thank you McCartney or Lennon). We will hang together or hang separately (thank you Ben Franklin). We need to agree as an industry on a serious code of conduct. This famously centrifugal industry should stop for a moment and consider the alternative, which is a continued series of ethical violations leading to lack of public trust causing us to lose our ability to practice.
Here are a few elements of such a code of conduct:
1) No Pay for Play--No payment to a journalist for placement
2) Transparency on Source of Funding or Financial Interest of Spokesperson--This should apply to relationships with traditional media and especially in on-line media.
3) Enforcement--Wrong-doing should be exposed and there should be a forum for adjudication. If ethical violations are confirmed, then there must be consequences.
4) Education--We must bring these issues to important schools teaching public relations, such as Syracuse, Boston University, USC and Northwestern. Cases should be developed to allow students to understand the gravity of these matters. A similar commitment to education of our own staffs must be undertaken around the world.
5) It is implicit but we should state: no bill padding--no hours shall be charged to clients that have not been worked by firm personnel.
I know that the Council of PR Firms intends to issue guidelines for ethical practice in corporate/public affairs and marketing. I would suggest that the Public Relations Society of America, the Arthur Page Society, and the International PR Association do the same. At some point over the summer, these documents could be harmonized into a global directive on ethical practice of public relations. The long cherished idea of self regulation is no longer sufficient given the huge changes in the environment for PR. We need to offer guidance, rules of the road, then enforcement with teeth for those who violate those rules. I echo PRSA President Judy Phair's closing comment in Tim O'Brien's article, "It's an opportunity for people in the industry to stand up and say, here's the right way to do things...we need to map out a new course of action."
Posted by Edelman at 9:05 AM
Comments
It's interesting to me that we've seen the same issue ("transparency") surface this past week in three different professions involving public trust, information and communications. I would propose that your guidelines for ethical behavior are as relevant and as necessary in the advertising profession and journalism as they are in public relations.
Eason Jordan was "outed" by a tidal wave of furious blogging pumped up more by (the WEF's or CNN's) game playing and refusal to release a videotape of what was actually said than by the reports and excuses related to Jordan's actual statement. At the same time, we're seeing O&M stand trial for misleading billing practices on the ONDCP account. Ad Age has come out with a good story on this event and a realistic editorial position. I've blogged about it in my Brand Central Station blog, as well.
Add to all of this the cast of characters ranging from Jason Blair to F-H's alleged over billing with the city of Los Angeles this year and none of us come out unscathed.
I would urge the PR professional associations to work with the advertising trades (AAAA's and AAF) and the ANA to help develop some professional standards on ethical practice. Then take those standards one step further and work with organizations like the ICCO who already have practice standards in place for European firms.
In short, I think your sense of urgency is well-placed and your intentions are honorable. If there is any more I can do to help, please let me know.
Mike Bawden
Brand Central Station
Posted by: Mike Bawden at February 14, 2005 6:12 PM
Mike,
As usual a good point. There are problems in advertising and media. I do believe we should focus on our own glass house in PR first. We cannot have any more Armstrong Williams pay for play by PR firms The Fleishman issue could have happened to any PR firm--a couple of executives out of control.
We have such a plethora of governing bodies in PR IPRA PRSA Arthur Page. We need to come together to get best ideas of each Perhaps you could represent the newer breed of PR in blogsphere.
Posted by: Richard Edelman at February 15, 2005 1:37 PM
Richard
Ethical conduct and public company ownership have nothing to do with each other. The linkage is just wrong. And as a CEO of a privately-held PR firm, I am just as focused on profits -- maybe even more so -- than my friends who run units at Omnicom, IPG and the like. In fact, I think that clients want to work with firms who make money and are successful businesses in their own right. My belief is that clients pay for value so making money is not the issue if the value is delivered at the highest levels.
What really troubles me about the Times story is, with the exception of your quote on the need for training, the industry continues to duck for cover on the subject of creating standards of ethical behavior. You mention the Council and its work on developing standards? If it's true, it's long overdue, dont you think?
Elliot Sloane
CEO
Sloane & Company
Posted by: Elliot Sloane at February 16, 2005 2:27 PM
I applaud your harsh critique of, and alruistic goals for, your own industry.
As "Vaspers the Grate" I try to do the same for the web design and blog communities.
I am waging all out war against comment spammers, sleazy "sponsored links", and lack of credible resource links in blogs.
Sleazy sponsored links and commercial comment spam leads users to dubious sites (online casinos, alleged pharmacies, debt consolidation scams, etc.) or detrimental sites (spyware-attaching, Trojans, etc.).
Some bloggers seem to be clueless about measures that can easily be taken to prevent, diminish, and delete comment spam.
I am disgusted and disheartened to see so many lazy, negligent bloggers allow dubious commericial URL-embedded comment spam to sit in their comment threads...even weeks after I've alerted the bloggers to the problem.
Your proposed points for a industry standard of enforced ethics are an important step in the right direction. Let's see who steps up to the plate.
Posted by: Steven Streight aka Vaspers the Grate at February 18, 2005 3:33 AM
Although I am not well known in PR circles, I was reading a post from Andy Lark In the first week of February regarding the formation of a PROTS(Public Relations Online Transparency System).
He related the construction of a JOTS for journalists as a means of helping people within the field of journalism avoid the sort of blunders that Armstrong Williams and Ketchum committed.
I immediately began a blog just for the purpose of fleshing out a system by which current practitioners of PR and future practitioners could determine when to disclose and when to be discreet.
It is my sincere hope that the more seasoned and experienced PR practitioners who understand the value of creating a set of guidelines regarding the disclosure/discretion balancing act will participate.
As I mentioned at the top of this post, I am not well known as a PR Professional, however, I want to understand this issue as well as possible. And create a record of what has been determined as a "best practice" when it comes to transparency in PR Practice.
Posted by: Dwight Stickler at February 19, 2005 1:57 AM
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February 8, 2005
Intersecting Circles
I read with interest an article in last Wednesday's Wall Street Journal by Alan Murray. He challenges the wisdom of a chief executive officer attending the World Economic Forum in Davos. He contends that A.G. Lafley of Procter & Gamble in staying at home to make the deal to buy Gillette is serving his shareholders better than Carly Fiorina of H-P, who spent four days at Davos. Murray acknowledges later in his piece that a CEO like Hank McKinnell of Pfizer, in a highly regulated industry that is under fire from consumer activists, might be able to justify his presence at the WEF.
Our recently released Edelman Trust Barometer offers some insight as to why chief executives need to take advantage of the intersecting circles at meetings like the World Economic Forum, instead of simply performing for Wall Street.
First, business as an institution is at parity in "trust to do the right thing" with government in most of the eight markets we surveyed. Business as an institution lags behind non-governmental organizations (NGOs) in most of those same eight markets, revealing a trust void for corporations. Business needs to borrow credibility from independent groups such as NGOs in order to be persuasive.
Second, chief executives are among the least trusted spokespeople, ranking ahead only of entertainers, PR people and lawyers. By contrast, those with professional credentials such as academics and doctors, financial analysts and accountants are far ahead on trust. In most markets, the third most credible spokesperson is "average person like myself." This shows the power of peer to peer communication. Employees and friends/family are also critical sources of credible information about a company. The smart business will utilize the CEO but not in isolation. The days of the icon chief executive are past--the best CEO is now head coach.
Third, almost nobody believes something the first time he or she sees or hears about it. There is the need for message repetition--people are grazing among media vehicles, some traditional, others less so, working their personal webs of trust to find the truth. And trust needs to be earned through stories in media, preferred 9 to 1 as trusted sources of information over paid product or corporate advertising.
Fourth, country of origin matters significantly in attitudes toward a corporation. In fact, American companies suffer from a trust discount in Europe and Canada. For instance, McDonalds is trusted by 58% of US opinion leaders, while only 19% of those in UK trust the company. Japanese companies have a similar problem in China. The solutions include use of local spokespeople, involvement in the local community, philanthropy and listening to local consumers.
Trust is a composite, a coat of many colors, to be earned each day by business offering great products and services, engaged in dialogue with all key stakeholders, willing to listen and learn as part of a lasting relationship.
Posted by Edelman at 2:36 PM
Comments
Agh! You had me up until "C:/Perl/site/lib/..."
Please re-post this last entry. You're definitely on to something, Richard.
I, for one, find tremendous energy from the international business meetings I attend and help direct. Other points of view help me spot my own blind spots and to find ways to overcome the natural biases of clients, partners and journalists no matter which country they call home.
Please tell us more!
Best,
Mike Bawden
Brand Central Station
Posted by: Mike Bawden at February 8, 2005 4:25 PM
In the previous posting, several people commented that transparency is necessary for trust to develop and increase. However, I belive that before transparency there needs to be respect.
Respect is what allows one to communicate with transparency and then increase trust.
As you have shown with the Edelman Trust Barometer, those with professional credentials such as doctors, lawyers and financial analysts are far ahead on the trust scale. In my opinion, respect is frequently tied to those who have earned the credentials. Hence, why we as a public trust those professionals.
CEO's earn their positions too and should be respected for their hard work. Yet, with the recent scandals you've mentioned in previous posts, it is the few individuals who have lost the respect of the public for the entire group.
I believe that when CEOs utilize conferences such as the World Economic Forum to network with NGOs, credential professionals and the "average person" it is a step in gaining respect.
Only then, after respect is established with all groups, can CEOs, countries or the average person communicate with complete transparency and trust.
On the other hand, we don't live in a perfect world. I don't believe complete respect, transparency or trust will occur, but it doesn't mean we can't try.
Best regards,
Cathy Schieberl
Average Person
Posted by: Cathy Schieberl at February 11, 2005 1:42 PM
With regard to the rise of public trust in NGOs in the US in the latest Trust Barometer, it seems to me that there will be a natural tendency for people to trust NGOs over businesses. Or maybe it's not "natural," and just reveals my own, personal bias. Here's my take:
Philanthropic gestures, corporate social responsibility and triple-bottom-lines notwithstanding, a business's primary focus is to make money. This will mostly be perceived as self-interest, and it should be. Successful businesses grow, and make more money than they made before. The corporate scandals of the past few years have been corporate scandals, not non-profit scandals, because the corporate leaders involved have benefited themselves by redirecting profit -- the lifeblood of business.
NGO's do not focus on making money. They exist as a counterweight to the forward push of business, to redress the social, environmental or health problems that are often side effects of business (and/or government). By nature, a measure of the success of an NGO is minimal self-interest. A scandal scenario for an NGO, in fact, might consist of a situation in which one of them actually made money. If they are ultimately successful in their stated goals, they really should become smaller, or cease to exist.
The natural disconnection between NGOs and financial self-interest, and the natural involvement of business with the same would make me (for one) tend to trust an NGO to "do the right thing" before I'd trust a company to do so.
This assumes that "doing the right thing" implies an ethical consideration, not simply making a better product or service: while I might trust them to fill a niche, I would not count Coca-Cola's making of a new softdrink as "doing the right thing."
Somehow, I feel like I'm stating the obvious. If not, I'd love to hear an opposite opinion.
Posted by: Jim Markowich at February 14, 2005 11:17 PM
Jim,
I do believe that companies will do the right thing most of the time
Because it is in their business interest to do so
Note the repercussions today of Exxon Valdez now almost 20 years ago
More than ever the brand and corporate image are inextricably linked
Posted by: Richard Edelman at February 15, 2005 1:35 PM
Complications occur when we try to apply the corporate, profit-driven, self-interest model to the production and distribution of what are known as public goods and services and apply the civil society non-profit model to the production and distribution of other goods and services.
However, both types of organisations, governments themselves and all individuals have a common responsibility to respect and not hurt each other and to care for their physical, social and cultural environments for succeeding generations. Acknowledgement of this would provide a reasonable basis for regulation by democratic governments on behalf of us all. Being fallible, we all need some rules but having separate rules for individuals and each type of organisation just leads to obfuscation and avoidance.
Posted by: Graham Douglas at February 15, 2005 7:05 PM
Repercussions for Exxon? It has grown to be the largest company in the WORLD. Seems like it has bounced back just fine. Many scandal-ridden companies do: Odwalla, Pepsi, Ford, Tylenol, etc.
Posted by: Jim Smith at February 25, 2005 4:09 PM
Jim,
You may be right about Exxon Mobil's growth rate despite its hard line position on environnental issues. But I think they continue to move toward a more communicative position. Note their funding of a research grant at Stanford University to study global warming
and commitment to pursue other research in this area. Now they want to meet with certain NGOs at least...a start in my view.
Posted by: Richard Edelman at February 28, 2005 4:22 PM
Jim,
here is my hope....perhaps delusional but nonetheless. I believe that business now recognizes that it must do the right thing the first time. Not only because it is right but because it is smart..for employees, for customers, for regulators. The competitive advantage to be gained from more environmentally sound solution is serious. You can save money...you can benefit the community at large.
All the while motivating your key constituency the employees of the firm.
Posted by: Richard Edelman at February 28, 2005 4:24 PM
Cathy,
Sorry it took me so long to come back to you The World Economic Forum has become a much more open place Now NGOs are inside negotiating with CEOs inside of outside throwing rocks And the Forum makes much more of the content available to the public As you say, transparency is key to trust...so is lack of control on content
Posted by: Richard Edelman at March 1, 2005 11:08 AM
I allways find a necessary information in your blog. Thank you.
Posted by: Robert at August 1, 2005 4:21 AM
Robert,
Thanks for writing. And keep reading.
Richard
Posted by: Richard Edelman at August 1, 2005 10:01 AM
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February 1, 2005
News from Davos
I just returned from the World Economic Forum's annual meeting in Davos, Switzerland. I will try to give you a quick sense of the tone of the meeting, then a specific report on each of the sessions I attended.
In past years, I have told you that it was the year of technology (1999), the year of America ascendant (2000), the year of Europe (2001), the reaction to 9/11(2002), the US-EU collision on Iraq (2003) and the implications of the rise of China (2004). The theme for this year officially was Taking Responsibility for Tough Choices, including such issues as climate change, equitable globalization, global governance (unilateral vs. bilateral), US leadership and weapons of mass destruction. In my view, the 2005 meeting reflected a profound and growing divide between two philosophical schools, the free marketers and the institutional or governmental camp, the American approach versus the European view, with other parts of the world choosing sides depending on the issue. There is agreement on the problems, not on the path to solution. One commentator noted that "America is moving toward its own reality, based on its own values." Meanwhile French President Chirac proposed a tax on financial transactions and airline tickets to fund the universal free treatment of AIDS patients, under the auspices of a World Economic and Social Governance Council, a new multilateral body which will be utterly unacceptable to the US. So my theme for 2005 is Common Problems, Divergent Paths.
Here are specific reports on each session attended:
World Economy--Generally positive outlook for 2005, but not nearly as strong as 2004. US economy still the world's engine, but China and India are new forces. US growth at around 3%, Europe at about 1.5%, China at 9%. Major concerns about US twin deficits (fiscal and trade) but no easy solutions, as currency devaluation will not fix 1.5 to 1 imbalance of imports versus exports. Interest rates will rise 100-200 basis points this year. Special opportunities in Brazil, Mexico, Russia, Turkey, though not in surrounding regions. One major question is success of next trade round, scheduled for this fall--will industrialized countries allow deregulation of agriculture--as economic growth in less developed countries depends on trade and globalization.
Transatlantic Relations--We have the development of a parallel reality. The boundary between religion and politics in the US is blurring, while the EU grows increasingly secular. The Bush Administration is a reflection of profound changes in US society, with growth of suburbs/exurbs, creeping patriotism since 9/11,conviction in free markets, and desire to preserve option of individual military or political action. Europe is particularly disenchanted with American values of consumerism, excessive hours of work, lack of social conscience and social contract. There was criticism that Europeans are acting like haughty smarter big brother to American younger brother, always knowing better, while US wants to show off its strength and prowess. The US is not putting its point of view across in Europe. Europeans do not know the middle of the US at all, staying only in NY, Boston, SF and LA. There is a real chance to bridge the gulf through common economic interests, using business to mend the rift, pushing politicians to reconcile. We should also recognize that much more joins us than divides us, including democracy, free markets, and a civil society, with common enemies of terrorism and poverty.
Terrorism--We have not found the key to breaking the replacement cycle for terrorism. Progress has been made in fight against Al Queda, as 3/4 of leadership has been killed or captured. But this is not a war, where you win through tactical attrition--it calls for a counter insurgency which is 75% political reform and economic development, only 25% military success. One big goal must be the elimination of sources of tension, such as corruption or poor education. Muslims believe they are under siege by the West, with most terrorists actually coming from middle class or affluent families. We need to be sensitive to the transition to democracy, the challenge of modernization in the region. Human rights must be part of a positive vision, including guarantee of rule of law in trying suspected terrorists, for reasons of principle and effectiveness. If a suspect is captured combatants, then he can be held without trial until the end of the war but those not picked up on a battlefield cannot be designated as combatants.
Corporate Governance--Lord Browne of BP noted that while people accept the role of business, they are demanding better behavior. The best solution is to find a point of mutual advantage for all stakeholders, talking to all in a transparent way. Companies can inspire trust by explaining what they are doing, with true value created by conversation. There should be value based decisions taken by companies on matters of public policy. CEO pay must be linked to performance and the CEO must be a coach, not a rock star.
The Future of Media--The news hole is shrinking. TV is providing news with more feature and entertainment value to keep audiences. The key dilemma is what is interesting versus what is important. Stories like the tsunami in Asia need to be told through real people, not simply recitation of facts. The "what's happening today" type of news is now a commodity so the news business is taking a point of view and pursuing an agenda. The new consumer of news is going to the outlet that serves up his opinion. There was severe criticism of the rush to publish, using the CBS News failure on the story on President Bush's service in the National Guard as the example. Media companies have implemented tough codes of conduct in the wake of recent scandals (BBC, USA Today, NY Times) so that multiple sources will be required before a story goes on air or into print.
Ubiquitous Computing--There are now 750 million devices connected to the Internet, with 14 billion to be connected by 2010. Some of the newer applications include refrigerators, washing machines, and cars. The periphery of the network is being extended, according to Forrester Research, with the physical world tied to the digital world. There will be item level tagging in all stores, health care companies using sensors to measure vital signs of patients. We are moving to a totally transparent society or in the most negative context, a surveillance society. The key question is whether consumers will trade off privacy for benefits such as health. There will need to be data security assurance and real consumer benefit, not simply lower price, to gain acceptance of this trade off. Some technology companies such as Amazon are beyond collaborative filtering--consumer reaction to specific promotions is already judged in real time.
Regaining Momentum in Pharmaceuticals--The key challenge is to square perceived social value of health with market value. We need to educate our consumers in order to persuade the politicians. We need to charge a price to suit the income of consumers by market (tiered pricing model), a classic economic model, because the poor will never be able to pay sufficiently to create a return on investment in R&D. There will need to be a subsidized market for categories like malaria drugs, with tax credits or other techniques. Research will be getting more efficient, as new drug discovery tools such as modelling will yield a higher probability of success. We will continue to go where the science takes us, focusing on both acute and chronic disease. We will fund more fundamental research at universities and look to new groups such as GAVI to do venture funding. There will be more research undertaken in Asia, particularly in India, where R&D is 1/7 as expensive.
Obesity--There is positive momentum in industry for new product development of lower fat, lower calories products. The key is persuading consumers to accept higher prices for higher quality but smaller quantity products. The industry needs to attract young consumers to better for you products with convenient distribution in schools, convincing spokespeople (athletes or rock stars) and reaching them where they are (on-line, TV, video games). The problem is becoming more severe in less developed countries, with India forecast to have 20 million diabetes sufferers by 2010 and real obesity in children in Beijing and Shanghai. The new emphasis for the World Health Organization will be total calorie count instead of nutrient content, because it is a simple statistic and can be tied easily to energy balance/exercise. Access to sports facilities is urgent--in Brazil, streets are now blocked off after school so kids can play football/soccer. There should be a change in how health ministers are evaluated, moving from treatment to prevention paradigm. Business must take the lead in changing product mix, while moving consumers to a better lifestyle, with government and NGOs providing a regulatory climate conducive to change.
Please contact me directly with any questions. I would be glad to respond.
Posted by Edelman at 3:39 PM
Comments
Thanks for the comprehensive summary. For those of us who weren't there, the WEF has made videos of many of the sessions available online at: http://clients.world-television.com/worldeconomicforum_annualmeeting2005/
I thought many of your readers might be interested. I know I hope to catch a few of the panels when I have time later this week.
I'm curious - from your summary a lot of the focus appears to have been the US vs. the world - is this the case? How much discussion was there around other relationships - developing world vs. rest of the world, Africa & the EU, India and China etc? Also any discussions about "metanational" corporations - i.e. corporations which increasingly exist seperately and independantly of country - and see themselves internally as working around products often not for local, geographically centered concerns (i.e. the international company who may have team members on a project in a dozen countries, or which only has limited "country" specific organizations and mostly only for legal not functional reasons?")
thanks!
Shannon
Shannon Clark
Founder, MeshForum
"Connecting Networks"
May 1-3, 2005 Chicago
www.meshforum.org
Posted by: Shannon Clark at February 1, 2005 5:28 PM
Richard,
I think Ive just about read the most comprehensive world business forecast to date. Very well summarized. Reading through the summaries of all the sessions you attended, while the problems are common and paths divergent, I see a very strong singular requirement. Sort of golden thread running through each and every topic. And that is the need for transparency in communication. Any which way you slice it and dice it the solutions seem to permeate through dissemination of knowledge and awareness in a manner that fosters trust and accountability. The more times I re-read your blog, I more I am convinced that Professional Services firms such as yours have their hands full dealing with every one of the world-impacting issues that you speak about. The burning questions are "Are we ready or will we be overwhelmed? How do you brace yourself to take on more without diluting your core competencies?"
Sri Alathur
Posted by: Sri Alathur at February 2, 2005 4:36 PM
Sri,
We have to be ready. We need to fill this void or another professional service entity like management consultants will do it. Bearing Point just hired one of our bright people to compete in corporate reputation--are the accountants and lawyers far behind when they hire former Clinton types like Lanny Davis . We will do it for sure
Posted by: Richard Edelman at February 3, 2005 8:37 AM
Richard,
Thanks for the excellent article.
Have been working on the issues for some decades now. People may be interested in my approach to help resolve them : INTEGRATIVE IMPROVEMENT: Sustainable Development as if People and Their Physical, Social and Cultural Environments Matter. It is applicable to all individuals and organisations.
There is an introductory article at http://topics.developmentgateway.org/poverty/rc/ItemDetail.do?itemId=1030222 and more at my website www.integrative-thinking.com .
Kind regards,
Graham Douglas
4 Cintra Street
Ipswich, Australia 4305
Phone 617 3282 9762
Posted by: Graham Douglas at February 4, 2005 2:27 AM
I was particularly interested in the point you highlighted regarding organizations engaging in transparent communication / dialogue. Trust, accountability, cooperation, collaboration and commitment are all components of 'positive' organization-public relationships necessary for an organization's existance. Transparency is a key relational element as it instils a level of trust that is crucial, especially for organizations that have experienced crises and need to rebuild their reputations. Transparency is necessary in order for publics to trust that ethical communication and decision-making is taking place within the organization. Transparency increases trust, co-operation and collaboration because it makes accountability apparent.
However, transparency is often viewed as a 'quick fix' solution that makes accountability abundantly clear by providing a scapegoat and thus exonerating an organization from its crimes or misdeeds. Coercive pressure to be transparent can lead to an adverse affect on the decision-making process. Unsavory or difficult decisions may be put off or not even made for fear of the media and the ensuing public outcry when in reality those decisions might be better for the survival of the organization and the community in the long-term.
Public relations consultancies must move from the tactical to strategic arena and advise decision makers on the implications of their decisions and the resulting impact upon important organizational relationships. If not, then this void will be filled by management consultants (as this is already happening...).
Posted by: Julia Jahansoozi at February 5, 2005 3:07 PM
Julia,
Thanks for your note. I agree PR firms must pick up their game or else face incursion by management consultants. We are already doing so. We are consulting on nutrition and obesity issues for food companies We are forging partnerships between NGOs and corporates (Chiquita and Rain Forest Alliance). We are determined not to miss this opportunity for PR.
Posted by: Richard Edelman at February 15, 2005 1:40 PM
Graham,
Thanks for your note. Given the rapid development of China and now India, we have no choice but to look at sustainable development and to review ways to reduce US consumption of power. Note that US is 4% of population but 25% of energy use. This is not sustainable to say the least.
Posted by: Richard Edelman at February 15, 2005 1:42 PM