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Delivering on the Expectations of the 21st Century Consumer
Alan Gershenhorn,

April 13, 2014 - CASE Deliver Conference - Houston, TX: Alan Gershenhorn, the chief sales, marketing and strategy officer for UPS, talks about the challenges of business and higher education in the age of disruption. Alan also outlines that trade along with logistics can raise the remaining "last billion" out of poverty as well as impact global hunger.

So aside from your kind invitation, why am I here?

  • I'm in the business of delivery and logistics.   
  • You're in the business of higher education.

But actually we have many things in common.

For one, we are both trying to find our balance in an age of unparalleled disruption.

  • We live in an era of unprecedented risks.
  • But these same risks create unimaginable opportunity.

For example, in my business we look at the incredible rise of the global middle class.

Over the past 20 years, as communism fell and capitalism flourished, global poverty in the developing world fell by half.

But even as we celebrate the market opportunity of emerging economies, we also have to consider the risks created when the needs of this growing global middle class run up against the limitations of a planet that has only so many resources to give.

We all find ourselves in various states of disruption in what we do, how we work and how we think.

The cause of these disruptions is what I'd like to discuss today.

So UPS and higher education face a similar challenge:

Meeting the expectations of the 21st century consumer.

And to borrow the title of this conference, we're finding better ways to deliver.

Now, I did not come here with a slate of education solutions.

But I do have some ideas, observations, and lessons learned from my business that I'd like to share.

Over the course of history, we've experienced a series of disruptions that have changed the directions and possibilities of mankind.

Over time there have been disruptions in the world's infrastructure, in industry, in transportation, and, of course, in communications.

So why is this period of disruption any different from those in the past?

Two reasons.

One, there has never been a time in history when more breakthroughs were rattling the paradigms more profoundly and in more ways.

And with unprecedented speed.

It seems like every aspect of the human endeavor is being overtaken by technology.

We used to think of technology as an industry.

Now, it is the substructure of our lives.

And very soon, it will be integrated into our bodies.

  • Imagine a day when we have embedded chips that provide more memory, and better recall, for our brains.

We used to think in terms of being online or off-line.

Almost everyone in here is online with their smartphone, or tablet, or possibly both.

Which means that if I begin to bore you, you always have Angry Birds.

Now, I admit that the pace of disruption is hard to wrap your head around. 
It is for me.

Just think about energy.

Only 5 or 6 years ago, we were fretting over the year the world would run out of oil.

And that we were hostage to parts of the world that didn't like us very much.

Thanks to a Texas A&M grad named George Mitchell, fracking, a term few of us had ever heard five years ago, is disrupting both energy projections and geopolitics.

Who would have imagined there is now enough economically recoverable natural gas in this country alone, to last us 100 years?

Or that the US will be energy independent in the next 15 years?
What’s next?

What other areas will we look back at 10 years from now, and say,"Why didn't we see that coming?"

Some are already on our radar, nano-technology, 3-D printing, big data, the cloud, and brilliant machines.

Imagine the day when you get a message from your medical service in the middle of the night hat a chip in your body sent an alert that you are just about to have a stroke.

I have no doubt that somewhere in a garage, or in a dorm room, somebody is working on innovations like this and many others that will change our lives one day.

The second reason it's different this time is where the power of information technology meets the expectations of the individual.

That's where disruption hits home for all of us.

This time, disruption has brought a massive shift in control.

There was a long period of history, when information could only move as fast as a man on horseback.

Then came the telegraph.

And in the last century, television.

Television enabled us to experience the world in a whole new way.

But you still had to depend on one of the only 3 networks to show it to us.

It was Henry Ford who said, "... it's the customer who pays the wages."

Of course, it was also Henry Ford who said, "The customer can have any color Model T they want as long as its black."

That somewhat contradictory pairing held for a century.

Customers were important.    

But the providers were in control.

Now, power has moved from the center to the edge.

Consumers, including students, hold the high ground, and they’re never giving it back.

As a result, the new consumer commandments are simple.

Thou shalt deliver: what we want, where we want it, how we want it, and when we want it."

GMI, a market survey company, broke those expectations down.

Consumers want quality in both the product and service.

That's the baseline.

But they also want us to:

Listen to their opinions, minimize our environmental impact, make our offerings unique and 'fess up to our mistakes.

Oh, and they also want us to keep all of this simple.

In the 1800s, an advertising guru named St. Elmo Lewis came up with a concept known as the purchase funnel.

Consumers followed a progression, from awareness, to interest, to desire, to action gradually stripping away the options.

That theory held up remarkably well for more than a century.

Consumers in the 1990s bought the same way they did in the 1890s.

Recent research argues that St. Elmo's funnel has been blown up by the sheer volume of information.

Consumers are in a state of options overload and marketing inundation.

But they still want to control the experience

Having control means traveling down whatever channels they choose.

It is ironic how succinctly R.H. Macy captured today’s demands well over a century ago, "Be everywhere, do everything, and never fail to astonish the customer."  

More recently, the CEO of Proctor & Gamble, A.G. Lafley put it even more simply, "We have to learn to let go."

Of course, in brands, as in love, letting go is not always easy to do.

And consumer marketing today is no place for people with control issues.

It’s not easy in a business like mine, which is built on calibration and control.

It’s not easy in an endeavor like yours, which has created an education system that is the envy of the world.

But for both our businesses, embracing that consumers are calling the shots is the price of growth.

Actually, it's the price of survival.

To complicate matters, we’re all subject to the dangerous comforts of what Clayton Christensen described in his seminal book, The Innovator's Dilemma. 

Christensen argued that many leading companies can fall into the trap of spending so much effort protecting their current monopoly that they allow upstarts to leap-frog them and win the future.

So whether you’re UPS or UTEP or UCLA, it's easy to become wedded to a business model
that has worked so well for so long.

It's easy to take comfort in profits or success, while market share and relevance slip away.

It's hard to tear into the certainties that built your business.

Now, UPS has a rooting interest in the excellence of the higher education system.

We hire more than 36,000 of your graduates every year.

And I don't have solutions. But I do have some observations.

There is a lot of chatter about the demise of the university as we know it.

But let's keep a couple things in mind.

The four-year university structure is one of the most stable institutions on the planet.

It’s outlived many governments and all but a few commercial institutions.

But as we all know, success can breed complacency.

In a more recent book, The Innovative University, Clayton Christensen makes the point that change is difficult in academia.

Why, because the structure of universities is so deeply ingrained in their identities and has been so stable for decades, or even centuries.

In recent years, however, a number of universities have announced fundamental reorganizations,streamlining their operations and aligning their costs with the realities of state budget cuts.

And there are schools that are going even further, with some innovative new approaches.

  • BYU Idaho is operating year round, serving 50 percent more students, while saving 20 percent on the cost per student.
  • Carnegie Mellon allows students to both create classes and teach them.
  • Harvard's Innovation lab allows any of its students who has an idea for a new business to work with faculty members and local entrepreneurs to grow their venture.
  • To help fulfill the demand for workers with training in science, technology, engineering and math, Drexel University and Montgomery County College launched a partnership to give students a more affordable way to develop this knowledge.

Disruption may happen slowly. But it's inevitable.

And if history has taught us anything, times of disruption are also times of opportunity.

Online education is a textbook example of technological disruption:

  • A rapid series of enabling breakthroughs.
  • Wide-ranging applications, big changes to the bottom line and a shake-up in the status quo.

It follows a familiar disruptive pattern.

  • First serving a few, because the process was expensive and inaccessible.
  • Then gaining increasing momentum as the process becomes simple, affordable and convenient.

All of that comes together in what is, to someone on the outside looking in, an interesting question:

Is distance learning an adjunct to bricks and mortar or is it the future?

I realize that projections for distance learning differ by type of institution.

And that growth rates have slowed a bit.

But the impact will be significant.

There is fundamental change afoot when universities like Harvard, MIT, Stanford and Yale partner with start-ups like Coursera, Udacity and Ed-X to create a new learning model.

They are offering "MOOCs" which, as you know, is shorthand for Massive Open Online Courses.

Some of these online courses have as many as 160,000 students or just a little more than my freshmen lecture halls.

Now, it remains to be seen whether MOOCs are altruism, a pathway to paid course credits, or the beginnings of a sustainable new platform.

But they are certainly raising questions, including the value of even having a formal degree.

Steve Jobs didn't have one. Neither did Mark Zuckerberg or Bill Gates or the founder of UPS, Jim Casey, for that matter.

Things seem to have worked out okay for them.

While few share their intellectual incandescence, there are questions about the wisdom of coming out saddled with debt.

And then joining an organization that has to train you in what they really want you to do.

Whether in specialized fields like programming or in professions like corporate law, where the nation's leading firms say that they must spend the first two years teaching newly minted law school grads how to actually practice law.

So, should you jump right into the world of work, and let the company give you the skills and pay while you do it?

If your passion is running a restaurant, is it better to spend your time in college?

Or start out as an assistant manager at McDonald's and attend McDonald's University?

Now, there are certainly more arguments for a degree than there are against it.

I'd rather my dentist not be self-taught.

But it's telling that the question is being raised to the level of serious discussion.

Let's shift to a different customer. 

Companies like mine, the employers who hire your product.

What are our expectations?

Let's assume that having the smarts to do a job is a given.

Beyond that, we need collaboration skills and a team mindset.

People who see collaboration as the best way to get the job done.

We need people with the curiosity and confidence to work across different cultures.

We need critical thinkers.

People who could not just pass a test on what's in the manual but also have the ability to think beyond it.

In a computer science major, for example, along with the mastery of the ones and zeroes, it might help to have a working knowledge of psychology and sociology.

One of our biggest needs, and the most consistent shortcoming we see in new graduates, is communication.

In a world where people are Tweeting in 140 characters or less, we may be losing our ability to make a persuasive case with a complex argument.

Former Disney Chairman Michael Eisner once said that, being able to make a persuasive argument is worth an additional 80 I.Q. points.

I'll add, having a strong point of view doesn't mean much unless you can organize it logically and express it forcefully.

As someone who wins or loses on the talent we develop.

That is the number one improvement I would like to see in people joining our company.

Amid all the moving parts in the transformation of higher education, one thing is clear, technology and choice have joined forces to disrupt a century of campus-based learning.

So higher education's future depends on remaking itself around the new realities of enabling technologies and empowered consumers.

I wouldn't ordinarily speak with such confidence about somebody else's industry.

But I have seen the same realities transform the businesses of one of UPS's biggest customer groups, the retail industry.

We’ve all seen the high price of underestimating disruption.

  • Blockbuster didn't see the threat from Netflix.
  • Newspapers didn't see the risks to their classified-ads business from Craigslist
  • The Post Office didn't fully see the threat from e-mail.

Next up on the endangered list, credit cards with PayPal, taxis with Uber and hotel rooms with AirBnB.

All of us are vulnerable to ideas that make the consumer’s or student's world cheaper, faster, better, more convenient and more flexible.

Where retail disruption becomes our disruption is not in what consumers choose to buy, but how they choose to buy.

I don't need to go into a lot of detail about the speed and breadth of the growth of digital shopping.

We've hit a tipping point, where e-commerce growth will be driven entirely by smartphones and tablets.

Goldman Sachs predicts that by 2018, mobile e-commerce sales will equal what total e-commerce sales were in 2013, $638 billion worldwide.

Those figures get the attention of an industry mainly created around getting consumers to travel to their locations and to pick from goods the retailers decided to display.

And it gets the attention of a company positioned to get those online goods where they’re supposed to go and to return them.

E-commerce has disrupted the retailer’s world, which means it has disrupted our world.

But UPS is accustomed to disruption.  It’s in our DNA.

We were founded in 1907 as a messenger service, starting with two teenagers, a bicycle and $100 they borrowed.

The adoption of the telephone disrupted the need for couriers to hand-deliver messages.

So we needed to re-invent ourselves.

At the time, most people living in cities didn't own cars, so retailers had their own fleets of model T trucks.

They delivered your purchases to your home after you shopped for them in the retail store.

We convinced major retail department stores like Lord & Taylor to sell their fleets and allow us to be their delivery agents.

It was early outsourcing and the birth of consolidated pick up, sorting and delivery.

So, in the early 1900s during the growth of the retail era, we began our focus on packages.

We added new cities, interstate service, started our own airline, built a global communications network and put technology in the hands of drivers.

We responded to globalization with worldwide logistics and supply chain services. Today, the UPS footprint stretches across more than 220 countries and territories.

The point of that quick history is that the move into e-commerce is another action taken in the continuum of disruptions that started with boys on bicycles.

And our investment to be ahead of customer and consumer needs.

This next step is to help our retail customers adapt to the new reality of borderless retail.

  • some consumers want to wander through stores.
  • some want to pick from catalogues.
  • and some want the speed and convenience of online shopping.

Our role is to help retailers create omni-channel capability.

Supporting the need for retailers to be there when, where and how consumers want to connect.

  • That means giving them the ability to ship direct from a store.
  • Or ship an item from another store if one is out of stock.
  • It means taking the complications out of returns.
  • It means services that smooth the complications of cross-border e-commerce.

It means recreating retail as a showroom, where your measurements can be taken in 3-D and your order arrives the next day.

We also realized that to satisfy the growing demands of consumers, we needed to build a stronger relationship with the end-consumer and in turn, make our direct customers, the retailers, look better.

One way was to put delivery control in their hands, literally.

Even with all our technology and services, consumers were still on our schedule.

So we launched a new service called UPS My Choice.

After a consumer signs up, he or she receives a "day before" and a "morning of" delivery alert via email or text.

Or via the UPS android or iphone app for every UPS package coming to their home.

  • It provides consumers with an estimated delivery window.
  • It allows them to authorize release online.
  • And, you let them know where to leave their package.
  • Consumers can also redirect the package to a neighbor or a UPS Store or any other address or reschedule delivery to another day if they are on vacation or won’t be home.

UPS My Choice provides many other options.

That means that we now delivery on their schedule. Or your schedule.

We've signed up more than 8 million households so far, with roughly 5 million of those in just the last 12 months.

It’s pointing us to a new age of consumer flexibility, convenience and control.

For anyone in the business of serving consumers.

Adapting to the disruptions of technology and choice is very much a work in progress.

So the world of 2020 is starting to come into focus.

The embrace of digital technology will be total.

Companies will mine consumer data and use social media as their primary consumer connection, creating a two-way conversation with their customers.

The monologue will become a dialogue in all things.

Social media’s impact on sales and learning will surge and will incorporate new technologies like augmented reality.

That will enable consumers and students to benefit from a richer virtual experience and then share those experiences on-line.

Supply chains will be completely transformed.

  • Retailers will offer more home deliveries, which minimizes the level of inventories they hold and reduces the amount of working capital they need.
  • Flagship stores will be critical in creating excitement.

In higher education, technology will enable a higher degree of interactivity.

Imagine student's hearing a lecture, via hologram, from Kofi Annan on Monday and Ray Kurzweil on Tuesday and the Dalai Lama on Wednesday.

So whether it’s retailing, logistics or higher learning, it's an omni-channel world with high expectations, no borders, and fewer barriers to entry.

By 2020, we will look back at companies, colleges, and even entire industries and systems and see that there were winners and losers.

The business winners won't win purely on manufacturing or on quality, or service, or technological advantage, or even on the strength of their IT.

The education winners won’t win purely on the published works of their educators or on the newness of their facilities, or the success of their football teams.

For businesses and universities, it will require innovation combined with commitment and execution.

Coming together in a single reality:

  • In my business, it's the consumer's world.
  • In higher education, it's the student's world.

And all of us here work for them.

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