The European Business Review March/April 2017 by EBR MEDIA

The European Business Review

Strategising for the Future ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

The Omnichannel Supply Chain ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

Crossing Cultural Barriers to Achieve Superior Team Results ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••

Leadership with a Smile – managing emotions as a tool of enacting leadership

March - April 2017

europeanbusinessreview.com

Software AG CEO

Karl-Heinz Streibich

Germany's Mr. Industrie 4.0 We don't need Silicon Valley empowering communication globally

The European Business Review

empowering communication globally

MARCH - APRIL 2017

Who Needs Silicon Valley? Made in Digital Germany is Europe’s Big Hope Karl-Heinz Streibich, CEO of Software AG p.14

Strategy

Strategising for the Future Joan E. Ricart and Carlos Rey

Cover Story 14

39 44

Who Needs Silicon Valley? Made in Digital Germany is Europe’s Big Hope Karl-Heinz Streibich, CEO of Software AG

Manufacturing

Cyber Security

Smart Manufacturing Seeram Ramakrishna, Chen-Khong Tham and Teo Kie Leong The EU Now Regulates Internet Services. But What Does That Mean, Exactly? Martin Schallbruch Creating an Omnichannel Supply Chain for Branded Manufacturers: The Untapped Potential for Growth Michael Hu and Sunil Chopra

Mapping and Strategising Across Business Ecosystems Hervé Legenvre and Isabelle Herbet

Innovation

The Chief Innovation Officer Should be in Charge of New Territories. Not More. Not Less. Albert Meige

Leadership

Leadership with a Smile Marian Iszatt-White

Workplace

The Three Traits that are a Magic Formula for Workplace Success James A. Runde Crossing Cultural Barriers to Achieve Superior Team Results Interview with Bhaskar Pant

Negotiation 66

Supply Chain

Is Your Innovation Strategy Ready to Meet the 21st Century? Tamara Bekefi and Marc J. Epstein

How High-End Disruption Completes the Disruptive Innovation Model Juan Pablo Vazquez Sampere

IT Negotiators: What's your approach? William Baber and Arto Ojala

Gender

The Value of Gender-Based Leadership Melissa Greenwell Minding the Gap: Women and Angel Investing Susan Coleman and Alicia Robb

Executive Health 79

Re-Design Your Feed: Taking a Deeper Look at Environment for Behaviour Change: Part I Steven MacGregor

Production & Design: Angela Lamcaster Print Strategy: Stefan Newhart Production Accounts: Lynn Moses Editors: Elenora Elroy, David Lean Managing Editor Europe & Americas: Yetunde Olupitan Group Managing Editor: Jane Liu Editor in Chief: The European Business Review Publishing Oscar Daniel READERS PLEASE NOTE: The views expressed in articles are the authors' and not necessarily those of The European Business Review. Authors may have consulting or other business relationships with the companies they discuss. The European Business Review: 3 - 7 Sunnyhill Road, London SW16 2UG, Tel +44 (0)20 3598 5088, Fax +44 (0)20 7000 1252, info@europeanbusinessreview.com, www.europeanbusinessreview.com No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without written permission. Copyright © 2017 EBR Media Ltd. All rights reserved. ISSN 1754-5501

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From the Editors A New World Order with Industry 4.0

he Internet of things has invaded indivi-dual space and now live in our pockets in the shape of that little computer gadget we call the mobile phone. The gadgets in our personal space can now talk with each other without any human interface. Our TV, music digitised is streamed through cloud via our mobile to all manner of devices in our homes. Our lights, heating etc., are controlled by our little friendly robot, our phones. Our health, our sleep, our exercise routine, indeed our day are monitored through a collection of data on the apps living inside our own personal computer, our phones and our smart watches. The Internet of things has now marched into our industries, and the digitisation of the manufacturing process, construction industry, utility firms, logistics operations, banking operations, health services are on the move. Initiatives such as the EU 7th Framework, Industrie 4.0, the German initiative and many more are taking industry and manufacturing to a new world order known as Industry 4.0 also known as the 4th Industrial Revolution. The essence of Industry 4.0 is the Smart Factory – an intelligent factory operated by cyberphysical systems, smart industrial robots and sensors gathering, sending and deciphering information in the cloud and connected to its environment with the aid of the internet of all things. Karl-Heinz Streibich in our cover article, ‘Who needs Silicon Valley, Made in Digital Germany is Europe’s Big Hope’, discusses the huge opportunity and potential that Industry 4.0 can bring to the German manufacturing sector.

However in this fully digitised, networked and interconnected world, systems become more vulnerable to cyber threats and attacks. Where a part of a system is vulnerable and attacked, there may be a reverberating effect across an entire production or service line. There have been efforts both at the state level and in the private sector to develop security protocols and software to counter cyber threats. Martin Schallbruch in his article, ‘The EU Now Regulates Internet Services’, explores the 2016 EU Security of Network Directive and comments on the adequacy of a regulatory regime in a world of fast moving digitisation. Security risks to data, intellectual property by cyber-espionage, cyber-terrorism between state actors and non-state actors are real and present. There is a need therefore to build security layers to counter the vulnerability of the system. Smart factory, therefore calls for smart thinking and smart security responses if our new industrial revolution is to bring in rewards not regrets.

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Strategy

STRATEGISING FOR THE FUTURE BY JOAN E. RICART AND CARLOS REY

In this article the authors discuss how organisations can better strategise for the future by integrating and balancing the three logical approaches to strategy: analytical, institutional and systemic.

n the current context of increasing global hypercompetition and market turmoil, strategy is becoming more and more prominent. Where formally strategic planning was conducted every 3, 5 or even 10 years, today it is reviewed almost annually, and in some cases strategy may even suffer major revisions within a year. As we suggested in a previous article, in practice, three logical approaches to strategy are commonly used.1 The first is analytical logic, based on estimations of the various business variables and establishing causal relations between them. It is based on explicit information (from both the environment and internal resources and capabilities) and is developed deliberately through the conscious analysis of the situation. In general, analytical logic regards the company’s activity

as an economic-competitive reality that can be analysed and predicted. The second is institutional logic, which is based on the development and preservation of the principles and values that govern the company’s activities and stakeholder relationships. It is generally expressed through “statements”, such as the company’s credo, mission, vision, values, purpose, etc., but this statement is only a symbolic representation of the institutional perspective’s true scope. It is primarily developed at a pre-conscious or even subconscious level and is generated through the socialisation and internalisation of beliefs regarding the general principles of the company. And the third is systemic logic, which, through experience and intuition, focuses on the holistic understanding of the business, without being bound by the barriers of quantifiable data or by the characteristics of the organisational identity. It is developed through a profound knowledge of reality that allows the establishment of hypotheses regarding the fundamental aspects of the

3 Logical Approaches to Strategy

Analytical logic

Institutional logic

Systemic logic

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Strategy

market and the company itself. The raw material of the systemic perspective is a mixture of conscious and unconscious knowledge, and is usually presented in a broad or non-specific manner in the form of ideas, models or reality maps. Relevance of Strategic Logics Since the birth of the strategy discipline in the mid-twentieth century,2 the relevance of these three types of logic has evolved in the world of strategy, mainly due to the progressive increase of two factors: uncertainty and malleability (Figure 1 below). Uncertainty is the difficulty in predicting the behaviour of business variables (demand, cost, raw materials, etc.) and malleability is the ability to change the “rules” by establishing new products or business models that challenge incumbent businesses. During the decades of the 60’s and 70’s – characterised by relatively stable environments (low uncertainty and malleability) – analytical logic was the backbone of strategic theory. In fact, most of the leading strategic models of that time and many later developments (SWOT analysis, Porter’s five forces

analysis, the BCG matrix, decision trees, scenario planning, PEST analysis, resources and capabilities)3 and even some recent developments (such as the Balanced Scorecard) focus on analytical logic. Currently, the majority of strategy manuals are based on strategic analysis. In the 80’s, after the oil crisis and the increased market volatility and uncertainty, institutional logic gained interest in the world of strategy. This boom was driven by the belief that the most successful companies in the world, such as HP, J&J, Disney and GM considered excellent4 and visionary5 at that time – had managed to weather the crises and uncertainties by following principles that stood firm for decades and were the real backbone of their strategy. From then onwards until present day, the first “obligatory” step in practically any strategy exercise is defining the vision, mission and values of a company, which clearly shows that institutional logic has become increasingly relevant. More recently, increased malleability of the markets driven by new technology (e.g. IoT, Big Data, social media, internet platforms,

Figure 1. Strategic logics framework

+ Institutional Uncertainty Analytical

Systemic

Malleability

The European Business Review March - April 2017

artificial intelligence) and the apparent loss of competitiveness or failure of many excellent companies has drawn attention to systemic logic to explain why disruptive businesses are able to beat incumbent giants. In seeking to imitate these disruptors, or as means of preventing disruption, increased malleability has sparked the emergence of new strategic tools based on systemic logic, such as blue ocean strategy,6 lean startup,7 dynamic capabilities,8 and, more recently, representations of business models.9 A trend that is booming today as a means to stimulate disruption and innovation. Why the Future Requires Integrated Logic In order to deal with this progressive increase in uncertainty and malleability, some authors10 propose a contingent solution where different ways of making strategies are used, depending on the environment encountered. Following this principle, we would say that analytical logic is appropriate for stable environments, institutional logic for uncertain environments and systemic logic for malleable environments. The reality, however, is somewhat more complex and, although this contingent approach may be useful in the shortterm, in the medium and long run it has considerable limitations. This is mainly due to two factors. The first is that it is increasingly difficult to consider an environment as stable. Either brought on by social (wars, political changes, migration), economic (crisis, globalisation, concentration, speculation, displacement of the economic axis) or technological factors (social networks, the internet of things, big data) our current reality is characterised by constant change. The second is that uncertainty and malleability have joint drivers and high correlation. Increased malleability leads to uncertainty in the markets, and in turn, increased

uncertainty spurs the creativity of companies to seek new ways to survive by reinventing themselves through new business models. Due to these factors, realistically, the future for companies today is most likely the quadrant of high malleability and uncertainty. Here it becomes more and more necessary to develop what we call integrated logics (see Figure 2 below), a way of doing strategy in which the three types of logic are simultaneously combined in a balanced way. Hence, in the medium or long term, all companies and institutions will need to integrate logics. This form of strategic thinking is not new at all. Prominent scholars, like Henry Mintzberg, have extensively argued the benefits of integrating logics,11 and the biographies of great strategists in history provide abundant insights into how they skillfully handled different types of logic. We could, for example, consider the lessons that D. Yoffie and M.A. Cusumano derived from the study of Bill Gates, Andy Grove and Steve Jobs.12 The masterful way in which they build their strategies is a good example of how the three logics guide their strategic decision-making. Obsession with detail and quick handling of information. Strong principles that orient and focus the strategies, and the ability to see the bigger picture and create new game-changing rules. What is remarkable about these great strategists, and difficult to

The first steps to integrating logics is to ensure that all three logics are adequately represented in strategy teams, and to make sure that, especially the people who are leading the strategy are able to handle the three logics.

Figure 2. Integrated logics

+ Institutional

Integrated Logics

Analytical

Systemic

Uncertainty

Malleability

achieve, is the way in which they integrate the three logics simultaneously, creating consistent strategies over time. But now, what is new today, is that this ability to “jump” from one type of logic to another – something exceptional in the past times – is becoming an imperative for all companies. Progressively, what used to be an extraordinary trait of great minds is now becoming a necessary condition for survival. A reality that arises a new question to managers: how to learn the ability to integrate the different logics in making strategic choices? Help with Integrating Logics Ever since we started investigating the influence of logics on strategy development, we have sought ways to encourage integrated logics thinking in management. The first step is to acknowledge the benefits of integrating logics and understand the crucial role of each of them. But this understanding is usually not enough, as change needs to overcome the inertia, and more difficult than changing reasoning, it is the way of reasoning that needs to be changed. As facilitators of change, until now we have seen that it can be of great help to apply three fundamental tips:

Create balanced teams. One of the first things we noticed was that although we all can potentially use the three logics, people tend to show propensity for one of the types of logic. This can be clearly seen in the different functions of a company. For example, entrepreneurs often have a greater ability in systemic logic, financial departments tend to use analytical logic, institutional logic usually prevails in the areas of HR and CSR, and in general management there is typically a greater ability to integrate logics. But beyond the role in the company, either due to issues related to personality or temperament, studies, the career path or type of companies they have worked for, people are often inclined towards a certain type of logic. Thus, the first steps to integrating logics is to ensure that all three logics are adequately represented in strategy teams, and to make sure that, especially the people who are leading the strategy – be it the CEO, the strategy director or external consultants – are able to handle the three logics. This search for balance is important

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Strategy

to prevent the domination of one of the logics in a team, or the absence of any of them.

Use models and tools from different logics. The second important issue in the integration of logics refers to the tools and models used in the process of strategy generation. Strategy tools generally focus on one or two types of logic, but rarely on all three types. The BCG matrix, for example, is used to study the business portfolio from an analytical perspective, but it provides little information about the mission or values of the company, or the shelf life of the business models analysed. The same applies for Osterwalder’s Business Model Canvas, as it focuses on systemic and analytical logic, and hardly refers to the principles and values of the company. And in the common methodologies to define the mission and values, the connection with the business model remains neglected or at best implicit. Therefore, to promote integration, the tools used should represent a balance of the different logics. If all the tools are geared toward a certain type of logic, by mere design, you run the risk of hindering the integration of logics. As a general rule, in the process of strategic planning, it is good to have at least one specific tool or process for each of the logics. Then, periodically, this toolkit should be updated with new tools and models of the three types.

Develop your own integrated-tools. During our research on logics integration, we have encountered many managers that seem to “tune” existing strategic tools and create new frames that help them to integrate logics. These are, for example, the use of the SWOT analysis to analyse the mission and values, the porter five forces integrated with a business model representation, scorecards that measure the performance of corporate principles, or alterations of the original Osterwalder’s business model canvas that incorporate new areas related to the mission of the organisation. The result of this way of “tuning” existing models and tools is what we call integrated-tools, which are combinations of existing models of different logics, forming new tools that guide and stimulate integrated strategic thinking. As an example, we present below an integrated tool of a company that combines a low cost business model with a strong culture based on customer service (Figure 3 on the next page). This tool is based on the design model of Casadesus-Ricart,13 extended to the representation of the corporate mission and values, combined with the balanced scorecard. As a result of this integration, we obtain a tool that enables us to see to what extent the various business model hypotheses are consistent and reinforced by the institutional principles of the company. Simultaneously, through scorecard

The European Business Review March - April 2017

indicators, we can see the degree in which these hypotheses and principles fit the reality of the numbers. In turn, as it is a dynamic tool (using indicators that are constantly evolving), it facilitates and stimulates the periodic reflection of both business models and institutional principles. Conclusion When strategising, we face an environment that is rich in drivers of change: new technologies, globalisation, market deregulation, demographic movements, political changes. But we must not forget that these factors do not directly affect the markets. The true actors of the transformation are the companies and entrepreneurs that – through interrelationship and competition – react to change, either by adapting or taking advantage of the opportunities that arise. It is the response to change that, based on the various types of logic to which we have been referring, offers alternative courses of experimentation and innovation. Each of the three logics presented plays a fundamental role in this transformation process. Institutional logic drives consistency in the way companies react to change, helping them keep focus and harmony in their decisions, and facilitating the necessary motivation and the reasons, to start new courses of action. Systemic logic boosts change, creating new business models and challenging the traditional perspective on the value generation and value capture. And analytical logic reminds us that reality is stubborn and that above all hypotheses and new theories, there are simple and concrete rules that every business must follow in order to ensure its success and survival. Consistently integrating these three logics is not an easy task, because contrary to what one might think, each logic may offer different solutions, which can even be contradictory. Concentrating on a single logic may seem attractive as it allows strategists to reduce conflict and gives them an apparent sense of security in which “everything fits”. But as a consequence of this myopia we fail to cope with the progressive increase of market uncertainty and malleability that require the effort and persistence in combining the three strategic logics. In this paper we have presented some ideas to help management overcome the tendency to strategise in a way that is too simple or too intuitive, and face the difficult task of reasoning and filtering the strategy through the different logics. In short, as we have tried to show throughout this article, strategising for the future is about establishing a course of action, which allows the company to navigate between the different logics that ultimately dictate the transformation and evolution of the markets. Leading this process is just one step, but it is an important step for the success of organisations.

Figure 3. An integrated-tool based on business model representation Volume turnover MM$

Low price reputation

Real 270

Object. 265

High volumes

Customer survey

Real 7,6

Object. 8

Customer Loyalty

Service culture Real 5,2%

EBIT

Object. 4,7%

% Unit cost improvement

Real 8,5%

Object. 9%

Economies of scale

Low prices Gross Yield per employee MM$

Real 0,5

Long-term relationships

Object. 0,52

Cost consciousness

Outsourcing

Corporate values (institutional) % Cost reduction purchases

Business model (systemic) Scorecard (analytical)

Strategising for the future is about establishing a course of action, which allows the company to navigate between the different logics that ultimately dictate the transformation and evolution of the markets.

Low costs % total costs/sales

Real 75%

About the Authors Joan E. Ricart is the Carl Schrøder Professor of Strategic Management. He has been Chairman of the Strategic Management Department at the IESE Business School for 23 years. He is a Fellow of the SMS and EURAM and he was the Founding president of the European Academy of Management (EURAM) and President of the Strategic Management Society (SMS). He has published several books and articles in leading journals such as Strategic Management Journal, Harvard Business Review, Journal of International Business Studies, Econometrica and Quarterly Journal of Economics. Carlos Rey is Professor of Strategic Management and Director of the Chair Management by Missions and Corporate Governance at Universitat Internacional de Catalunya (UIC). He is Business Strategy and Change Management Consultant for companies such as Coca-Cola, Sony, Repsol or Bristol Myers Squib. Formerly, he developed managing positions in different countries (India, Mexico, United Kingdom, Germany & Spain). He is

Real 4%

Object. 4,3%

Supplier negotiations Object. 75%

co-author of Management by Missions, published in six languages, and several articles of strategy, leadership and change management. References 1. C.Rey & J.E. Ricart. “The practice of strategy”. The European Business Review (July-august,2015) pp. 38-42. 2. Ghemawat, P. (2002). Competition and business strategy in historical perspective. Business History Review, 76(01), 37-74. 3. Grant, R. M. (2015). Contemporary Strategy Analysis 9ed. John Wiley & Sons. 4. Peters T. & Waterman R. (1982), “In search of Excellence”. Harper & Row, New York. 5. Collins, J.C. and Porras, J.I. (1996), “Build to last”. Century, London. 6. Kim, W. C., & Mauborgne, R. (2005). Blue ocean strategy: from theory to practice. California Management Review, 47(3), 105-121. 7. Ries, E. (2011). The lean startup: How today's entrepreneurs use continuous innovation to create radically successful businesses. Crown Books. 8. Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509-533. 9. R. Casadesus-Masanell and J. E. Ricart (2011), “How to Design a Winning Business Model,” Harvard Business Review. January, pp. 100-107. 10. Reeves, M., Love, C., & Tillmanns, P. (2012). Your strategy needs a strategy. Harvard Business Review, 90(9), 76-83. 11. Mintzberg H., Ahlstrand B., Lampel J. (1998), Strategy Safari: A Guided Tour Through The Wilds of Strategic Management, The Free Press. Chaffe E.E., “Three models of strategy”, Academy of Management Journal, vol. 10, no. 1 (1985), pp. 89-98. 12. David B. Yoffie, Michael A. Cusumano (2015). Strategy Rules: Five Timeless Lessons from Bill Gates, Andy Grove, and Steve Jobs. Harper Business. 13. R. Casadesus-Masanell and J. E. Ricart (2011), “How to Design a Winning Business Model,” Harvard Business Review. January, pp. 100-107. / R. Casadesus-Masanell and J. E. Ricart (2010), “From Strategy to Business Models and Onto Tactics,” Long Range Planning, 43, 2-3, pp. 195-215.

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Cover Story

Made in Digital Germany is Europe’s Big Hope

The industrial and manufacturing landscape of 2025 will be massively different from today and every single “traditional” company has to digitally innovate if it is to survive. German and European manufacturing must coinnovate with the German software industry to preserve its place in the world, says KarlHeinz Streibich, CEO of Software AG.

s it time to be dramatic? Yes, it truly is. As the shock waves of digitalisation increasingly impact every enterprise and the entire global economy I don’t think one can be over dramatic. I use terms such as paranoia, total disruption and the necessity for a strategy for the unknown to describe the issues and challenges haunting today’s executive boards – as they enter a battle for survival that is no longer on the horizon but only one or two mouse clicks away. Just consider this, half of the Fortune 500 companies from the year 2000 have disappeared: digital Darwinism is indeed in action we are already in the maelstrom. But this fallout is nothing compared to the “tsunami” (yes, I have used that too) that will engulf today’s manufacturers over the next decade. The industrial and manufacturing landscape of 2025 will be massively different from today and every single “traditional” company has to digitally innovate, innovate, innovate if it is to survive. The case for immediate action and speed could not be overstated. In highly industrialised Germany, which

The European Business Review March - April 2017

accounts for almost 50% of Europe’s manufacturing capabilities, the threat from new competitors embracing the innovation capabilities of Industry 4.0, the most relevant aspect of digitalisation to Europe, could not be greater. Why? According to McKinsey, Germany is operating at 10 percent of its digital potential compared to 12 percent for Europe as a whole and 18 percent for the USA. Germany, Europe’s manufacturing engine, is still running on a rapidly outdating source of power. The rest of Europe is not far ahead either. It is this innocuous term “digital potential” that is the industrial battleground of the 21st century. According to the German Government itself the day is coming when digital devices, tools and of course software will account for 50-60 percent of the value of a car. And it’s source of power? The battery alone will account for 20 percent of the vehicle’s value. Ownership of this digitalisation layer must stay in Germany and Europe. We cannot afford to outsource the future of manufacturing innovation, the source of profit and the continent’s wealth, to faster moving competitors and faster moving economies, and focus solely on better wing mirrors or gear boxes. However, the assets needed to both counter this threat and turn it into the sort of opportunity that comes along once in a generation, if you are lucky, couldn’t be closer. It is in our own backyard. In Germany’s case, large manufacturers, the countries abundance of world leading SMEs (that wonderful Mittelstand), Germany’s

INDUSTRY

4.0

Industry 4.0 refers to the fourth industrial revolution. After mechanisation (Industry 1.0), mass production (Industry 2.0) and automation (Industry 3.0), now the “internet of things and services” is becoming an integral part of manufacturing.

Silicon Valley is an asset that the world is trying to copy. But why copy when you can play to your own strengths, play to your own national strengths? â&#x20AC;&#x201C;

Karl-Heinz Streibich Germany's Mr. Industrie 4.0, CEO of Software AG www.europeanbusinessreview.com

Cover Story

Diversity in approach, diversity in thinking, diversity in innovation are all fundamental to providing enterprise unique, innovative Industry 4.0 capabilities. world renowned industrial apprenticeship and master engineering educational system; allied with Germany’s software industry are assets that are almost impossible to replicate. I use the word asset judiciously. Silicon Valley is an asset that the world is trying to copy: Silicon Plateau, Silicon Gulf, Silicon Bog and Silicon Glen, to name only a few are all attempts to copy the American model. But why copy when you can play to your own strengths, play to your own national strengths? And in Europe we are lucky we have many diverse national strengths, in itself a foundation for collaboration and growth. In Germany we already have an industrial cluster, now, today. An industrial cluster that would take decades of investment by any economy that would want to match it. We have “Standort Deutschland” (business location Germany), the most highly developed industrial base in the world. It is this we must build on! To do this, every single manufacturing enterprise must go digital. Digital services are the future of manufacturing (and every other industry too may I add): future innovation, future revenue, future profit will all depend on software and the digital services it provides. German and European manufacturing must co-innovate with the German software industry to preserve its place in the world. The good news is that this joint software development, co-innovation model demanded by Industry 4.0, the integration of industry and IT, is a living breathing business process already. Ask Bosch, ask Schwering & Hasse, ask Octo in Italy, but more urgently, ask those who are not yet developing their digital service layer how long they think they will survive, this model must be extended across the European Union. This co-innovation approach also plays to

The European Business Review March - April 2017

Europe’s strengths. I have said repeatedly that the US approach of one-size-fits-all software development is redundant and the Industrial Internet has buried it. Today, the software industry can no longer stand alone, outside the industries it has previously served – it must become an integral part of the industries themselves. It is, after all, the primary source of future revenue for each and every industrial sector. The primary source of future growth for the continent. Germany’s and Europe’s varieties in traditions and experiences are its strength. Diversity in approach, diversity in thinking, diversity in innovation are all fundamental to providing enterprise unique, innovative Industry 4.0 capabilities. I am also sure Europe’s diversity and openness will be increasingly appealing to the global talent pool, independent from religion, geographic location or any other diversity aspects. Let’s build on this great opportunity; the “war for talent” is also happening now. But time is of the essence, now is the time for execution, and not for endless discussions about risks and “why nots” or waiting and seeing. Now is the time for action and speed. That Europe owes building this future, now, to our children and grandchildren is also dramatic, but not an exaggeration. About the Author Karl-Heinz Streibich has been Chief Executive

Officer of Software AG since October 2003. In this role he is also responsible for the following functions: Global Human Resources, Global Legal, Global Information Services (IT), Corporate Communications, Global Processes, Audits & Quality and Corporate Office. Throughout his career, Karl-Heinz Streibich held various management positions in Information and Communication Technology. He is a member of the Supervisory Board (Aufsichtsrat) at Deutsche Telekom AG, Dürr AG, Deutsche Messe AG and holds several honorary positions including Member of the Presidency of the German IT Association BITKOM., Co-Chairman of the Platform “Digital administration and public IT” within the framework of the German Chancellor’s IT summit and he is a co-founder of the German Software Cluster of Excellence.

Germany’s large manufacturers, world leading SMEs, industrial apprenticeship and master engineering educational system, allied with its software industry are assets that are almost impossible to replicate.

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Manufacturing

Smart Manufacturing BY SEERAM RAMAKRISHNA, CHEN-KHONG THAM AND TEO KIE LEONG

Manufacturing is vital to a country’s economic growth and ability to innovate. Manufacturing is changing from large monolithic production floors to geographically distributed, internet-connected, medium scale, smart factories. Engineering education needs to be updated in order to train engineers with the needed knowledge and skills.

anufacturing accounts for a quarter of worldwide employment. Employees of this sector earn higher than the median income of a country.1 Manufacturing contributes up to 20% of Gross Domestic Product, GDP of countries. Moreover it has a multiplier effect on business services jobs. Manufacturing is vital to a country’s economic growth and ability to innovate. Hence countries such as Singapore, China, USA, Germany, India, UK, Korea, and Japan have embarked on substantially funded national programs to strengthen manufacturing. Singapore’s $19 billion Research, Innovation and Enterprise plan known as RIE2020 has a major emphasis on Advanced Manufacturing and Engineering, AME. Automation and robots have been part of manufacturing innovation. Digital Manufacturing The terms “digital manufacturing” or “smart manufacturing” or “intelligent manufacturing” refer to communication and computing technologies which enable all players in the value chain of products at the supply chain, enterprise and shop floor levels to be digitally connected and data analytics-driven, thus achieving intelligent coordination for demand and supply matching, faster time to market, mass customisation

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and cost benefits. Engineers are developing Manufacturing Control Tower (MCT) for this purpose. Maintenance of machinery is an area of focus. For example, General Electric (GE), reported that at one of its plants, the use of Predix software platform connected to sensors led to the detection of gas leakage and preventive measures led to savings of $350,000 per year. Another example, consider cutter tool wear in a CNC milling machine. After each cut, photos from a high fidelity stereomicroscope can be taken to measure the wear of the cutting tool. Measurements from sensors such as vibration sensor and force dynamometer are sampled using data acquisition cards and the data are stored on computers. After data acquisition, the sensor readings are used for feature extraction and selection. These selected features can be used to train and cross-validate advanced neural network (NN) or Hidden Markov Model (HMM) models of the tool wear, e.g. via an offline computing platform away from the machine. When the models are trained and cross-validated, they can be used for: (a) diagnostics where the degree of tool wear in the current time step can be determined from the model given the current and past sensor readings, and (b) prognostics so that the tool wear is predicted. These predictions enable maintenance to be scheduled when necessary, thus reducing downtime while increasing reliability. Smart Sensors and Processors Success of digital manufacturing is contingent on the availability of robust, power efficient and cost effective smart sensors and processors, and wireless networking interfaces. For

this purpose nanotechnology and 3D Printing enabled next generation flexible sensors, electronic skins, and self-powered and disposable sensors are being developed. More over the smart manufacturing requires a variety of processors from small low end cores for sensors and actuators to more compact and power efficient for robots and intelligent devices to highest performance cores for servers. Various processors could be grouped into two blocks: the powerful but complex and expensive Intel processors, and the low cost and low-end ARM cores. At the very low end side of processors a multitude of non-compatible devices exists usually focused on certain specific tasks. Intel processors have been combined with specialised graphics processors GPUs and FPGAs to increase both processing performance and power efficiency. ARM processor cores are combined with a number of accelerator units to reach acceptable overall performance. Yet, they lag in meeting the demands of smart manufacturing. Other requirements include easy connectivity and integration with overall system, cost, size and cooling budget. An even more demanding requirement is the homogenous software system so as to interact intelligently and lower the risk of failure. This requires a processor architecture which scales from small low end cores to very powerful high end processors. Such an architecture requires rethinking of traditional processor architecture from scratch. For example, Hyperion-Core, a tech start-up is proposing polymorphous architectures.2 They are based on a data-processing array capable of emulating FPGA and GPU like data processing. They also process efficiently emerging Artificial Intelligence Algorithms while fully compatible with different programming environments and codes. Such developments are leading towards a single processor platform and a single open source software platform for the complex manufacturing system. Internet of Things (IoT) or Industrial Internet of Things (IIoT) Based on the aforementioned technology advances it is feasible to digitally connect many physical objects and equipment in what has come to be known as the Internet of Things

The benefits of IoT have far-reaching implications for manufacturing as they have the potential to make manufacturing more agile and responsive, reduce equipment downtime and achieve greater efficiencies in operations leading to reduced costs. (IoT). The pervasive connectivity provides many benefits such as information sharing and coordination leading to new functions and services that were previously not feasible, as well as greater equipment reliability since their status can be queried on a regular basis. These benefits have far-reaching implications for manufacturing as they have the potential to make manufacturing more agile and responsive, reduce equipment downtime and achieve greater efficiencies in operations leading to reduced costs. They also enable better matching of demand and supply, and can potentially increase revenue as well. Engineering companies as well as aerospace companies are betting on IoT. It is estimated that more than 50 billion machines will be connected by 2020. Data Analytics in the Cloud Smart manufacturing depends on the ability to perform real-time analytics on large data gathered at various points in the value chain. Under the umbrella of Apache Software Foundation, the open source community has developed many techniques and tools for big data analytics such as Hadoop for MapReduce operations and Spark for in-memory large scale data processing. Closely related to data analytics, machine learning libraries such as Mahout and MLlib have been developed for these platforms. While these tools and features can be deployed on clusters of computers on premise, popular cloud service providers such as Amazon Web Services (AWS), Microsoft Azure and Google Cloud Platform have incorporated many of these tools and features and made them easier to use for big data analytics in a fee-based subscription manner. They also provide facilities, e.g. AWS IoT, Azure IoT Suite and Google IoT Solutions, to receive data streams via IoT gateways using a protocol

Smart manufacturing depends on the ability to perform real-time analytics on large data gathered at various points in the value chain.

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Manufacturing

like MQTT and performing simple operations like alerting and visualisizing on real-time dashboards. However, these platforms do not yet support complex data analytics and machine learning operations like clustering, regression and classification. GEâ&#x20AC;&#x2122;s Predix platform is interfaced with Microsoft Azure could. An issue is the delay or latency associated with transmitting voluminous sensor data streams to be stored and processed on the cloud, and for any necessary action to be transmitted back to the place where the machine is located or where the physical process is taking place. Efforts are being made to develop edge analytics technologies to process sensor data streams and construct advanced models in situ where machines are located, while being connected to the cloud, thus reaping the benefits of cloud computing without its concomitant shortcomings. Materials Informatics Manufacturing innovations are critically dependent on the availability of suitable materials and data on invertible structure-processing-property-performance-life cycle linkages of materials. The material development cycle generally exceeds the product development cycle. Hence, there is a need to accelerate the materials innovation. This is a major challenge considering the hundreds of thousands of materials and processes, and millions of materials information and data on microstructure, composition, properties, and functional, environmental, and economic performance. The emerging field of Materials Informatics computationally mines and analyses large ensembles of experimental and modelling datasets efficiently and delivers core materials knowledge in user friendly way via web based platforms to the designers so as to accelerate materials, products and manufacturing innovations.3 Zero-Waste Manufacturing Zero-waste manufacturing involves designing products and processes such that no trash is sent to landfills or incinerators. One approach is to redesign products and materials selection suitable for reuse. Another approach is to conserve and recover resources from the used products, and use them in the manufacturing of new products. An emerging trend is remanufacturing or reconditioning. Closed-cycle manufacturing or circular economy is aimed at enhanced product life span, more efficient use of resources, and

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elimination of waste and pollution during the manufacturing process as well as life of the product. Life Cycle Engineering, LCE approach aims at waste prevention as opposed to the end-of-life waste management. It is a whole system approach that aims to change the way resources flow during the full life cycle of the product thus resulting in zero waste. In the future a web enabled collaboration platform can be envisioned via which data and knowledge about whether a particular waste is recyclable or transformable into a useful resource, can be shared among the manufacturing companies, recyclers, and product designers. Using such web based platforms the manufacturing wastes or by-products are physically exchanged between different companies from within and across industries, thereby waste-to-resource matching is dynamically facilitated. Moreover decisions can be made based on the economic and environmental viability of the exchanges. Challenges for this development include codifying the vast and growing amount of tacit knowledge on a multitude of manufacturing wastes and resources. Industrial Symbiosis devised by International Synergies Limited, UK is one such example. 3D Printing or Additive Manufacturing Recently popular 3D printing method involves direct making of products by layer-by-layer disposition of materials using digital data from a 3D model. It has been promoted as a zero waste manufacturing method as opposed to conventional subtraction ways of manufacturing which generate waste. It is particularly suitable for customised manufacturing of low volume products. Further efforts are necessary in terms of materials options, manufacturing speed, and engineering performance so that this method could be applied to high volume, engineering products. Cyber Security for Smart Manufacturing The aforementioned complex, integrated system increases the security requirements of the manufacturing companies by adding both, more points of attack and more data points available for the attacker. Advanced Internet security tools use artificial intelligence for detecting behavioural patterns of malware and viruses and for isolating and terminating threats. As the manufacturing systems grow, the future networks require built-in intelligence for detecting intruders and autonomously fighting back with adequate measures.

International Standards Smart manufacturing is contingent on the collection, analysis, and secure exchange of quality data. International standards are necessary for this purpose. They are in nascent stage given the newness of smart manufacturing. For example, ISO/IEC 27000 standard information security management system is for general purpose enterprise system. It is difficult to fulfill all the necessary requirements of manufacturing control systems. ISO28000 is related to the security aspects of supply chain. It needs to be adopted to the manufacturing supply chains. Standards organisations need to cooperate and put efforts to study gaps and areas of smart manufacturing where specialised committees may contribute additional needed standards. Conclusion Manufacturing is changing from large monolithic production floors to geographically distributed, internet-connected, medium scale, smart factories. Benefits of smart manufacturing include improved productivity, cost savings, product customisation to the markets, resources efficiency, and mitigating manufacturing’s negative environmental impact. According to the United Nations Environment Program (UNEP), manufacturing is responsible for 20% of global CO2 emissions. Engineering education is not keeping pace with the technology advances in manufacturing. The curriculum needs to be updated in order to train engineers with knowledge and skills related to sensors, data analytics, algorithms, IoT, machine learning, artificial intelligence, and smart manufacturing. About the Authors Dr Seeram Ramakrishna, FREng, is a Professor of Mechanical Engineering at the National University of Singapore (NUS). He chairs the Future of Manufacturing technical committee at the Institution of Engineers Singapore. He co-leads Smart Manufacturing Expert Group, SPRING, Singapore Government. He is a Highly Cited Researcher in Materials Science (www.highlycited.com). Thomson Reuters identified him among the World’s Most Influential

Benefits of smart manufacturing include improved productivity, cost savings, product customisation to the markets, resources efficiency, and mitigating manufacturing’s negative environmental impact. Scientific Minds; he has co-authored around 1,000 articles which attracted around 62,000 citations and 116 H-index. He mentors three start-up companies and his research has been translated into marketed products. He authored the book entitled The Changing Face of Innovation. Chen-Khong Tham is an Associate Professor at the Department of Electrical and Computer Engineering (ECE) of the National University of Singapore (NUS). His current research focuses on cyber-physical systems, advanced sensing, edge analytics and mobile cloud computing. He had served as Principal Scientist and Department Head of the Networking Protocols Dept, and Programme Manager of the Digital Services Programme, at A*STAR Institute for Infocomm Research (I2R) Singapore, and Programme Manager of a multi-institution research programme on UWB-enabled Sentient Computing (UWB-SC). He obtained his PhD and MA degrees in Electrical and Information Sciences Engineering from the University of Cambridge, United Kingdom. He is a Senior Member of the IEEE. Teo Kie Leong is currently the Vice-Dean (Research & Technology) of the Faculty of Engineering and Professor in the Department of Electrical & Computer Engineering (ECE) at the National University of Singapore (NUS). His current research interest is in the area of Spintronics with a focus on the synthesis and fabrication of novel magnetic materials for STTRAM applications. References

1. “Revitalizing American Manufacturing”, National Economic Council, October 2016. 2. www.hyperion-core.com 3. Seeram Ramakrishna et al, Materials Informatics, Journal Materials Today, 2017.

20% Manufacturing is responsible for 20% of global CO2 emissions.

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Cyber Security

THE EU NOW REGULATES INTERNET SERVICES. BUT WHAT DOES THAT MEAN, EXACTLY? BY MARTIN SCHALLBRUCH

Internet access has become crucial to the functioning of our most important systems. The Directive on security of network and information systems (NIS Directive) is the first EU-level effort to enhance cybersecurity measures. What are these requirements? Are they enough for ensuring the availability and security of systems critical to the ways we live today?

nline and ready when you are – that is a promise realised by most of the Internet-driven world, where our offices, our homes, and even our bodies are just one mouse click or one finger swipe away from the latest financial news and the temperature of the oven roast. Energy, sanitation and water supply, food, transport, financial networks, governments – Internet access has become crucial to the functioning of our most important systems. So what would happen to this world if all access disappeared? We have at least one approximate real-life example. At approximately 4:37 p.m. PST on August 16, 2013, Google went dark – Gmail, YouTube, Google Drive, and the rest. It was just a four-minute failure but,

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unsurprisingly, Google’s system-wide outage did not affect its users alone. According to analytics firm GoSquared, in fact, Google’s downtime reduced web traffic worldwide by a whopping 40 percent. Increasingly, the question is raised as to whether the Internet is a critical infrastructure – one of high importance for society’s ability to function in general and one to be protected in particular. While this question cannot be discussed for the Internet as a whole, of course – with all of its connected networks, systems, and services – the European Union is now rightly asserting that there are a core set of components whose reliability and security is vital to the functioning of our societies and economies. Moreover, in recognition of this fact, the EU moved in 2016 to require that certain enterprise operators of critical IT infrastructure and providers of digital services meet standards that secure these services against threats – whether an innocent service disruption or a malicious cyberattack. To whom are these requirements directed? What are these requirements? And are these requirements enough for ensuring the availability and security of systems critical to the ways we live today?

Which internet services are affected? On July, 6, 2016, the European Union adopted its directive on security of network and information systems, Directive (EU) 2016/1148. The NIS Directive sets common cybersecurity requirements for operators of critical infrastructures and, for the first time, providers of certain digital services – effectively regulating certain enterprises specifically to increase IT security outcomes generally. EU Member States must transpose the Directive’s laws, regulations, and administrative provisions into their national laws by May 2018. The reason for the creation of the Directive is simple enough to understand: certain private IT infrastructures and services have become so critical to the functioning of the public welfare that their security means security for us all. The development of the NIS Directive was not without its challenges. While there was a longstanding agreement among Member States on which traditional infrastructures could be deemed critical, such as energy supply or the healthcare system, there were different views on the criticality of Internet services. The EU avoided a sweeping claim that all Internet infrastructures could be labeled critical. Instead, a political compromise was reached to put a small group of services under the scope of the Directive. Moreover, the inclusion of security requirements for digital services was also especially controversial – rejected by the Commission at first reading, proclaimed vital by Member States in its next round, and ultimately included in a scaled-back form. The resulting complex regulatory system of the NIS Directive encompasses both: • Essential infrastructure services: Internet exchange points (IXP), the nodes to which independent networks are connected; DNS service providers, who are responsible for converting domain names (e.g., http://www.european businessreview.com) into the IP addresses necessary for the technical management of Internet traffic; and top-level domain (TLD) registries, which manage the domain names at the top level (e.g., .com, .de, .eu). • Digital services, as defined by the Directive: online marketplaces that specifically enable third parties to close contracts for services

or products on their platforms (e.g., eBay, Amazon, Apple App Store); online search engines (internal site search excluded); and cloud computing services in its broadest sense (e.g., Amazon Web Services but also Flickr and Slack). Moreover, the definition of “cloud computing” is so comprehensive and blurred that increasingly more services could fall within this category as IT virtualisation continues. However, the NIS Directive does not cover all digital infrastructures and services. Somewhat troubling, the Directive does not include: • Telecommunications: While radio and television services are already subject to the Audiovisual Media Services Directive (AVMD), the AVMD does not contain IT security requirements. Of course, where media services are provided via the cloud, they may then be subject to EU IT security regulation. This may soon change under both the EU’s forthcoming revision of the AVMD and the World Intellectual Property Organization’s latest deliberations on the development of the Broadcasters’ Treaty. • Trust services: While named by the Commission as “key enablers for secure crossborder electronic transactions”, trust services were excluded from the NIS Directive in deference to the eIDAS Regulation adopted July 2014, which already defines independent security requirements for providers of such services.

The EU avoided a sweeping claim that all Internet infrastructures could be labeled critical. Instead, a political compromise was reached to put a small group of services under the scope of the Directive.

According to analytics firm GoSquared, Google’s 4 minute downtime reduced web traffic worldwide by a whopping 40 percent.

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Cyber Security

What must internet service providers do? Like the Telecom Framework Directive on which it is based, the NIS Directive’s security requirements demand that providers of essential digital infrastructures and certain digital services must 1. take measures to secure technical and organisational IT, 2. report safety incidents of significant impact, and 3. permit monitoring or face sanctions and penalties for compliance violations. Security Measures The aforementioned service providers are expected to take risk-averse IT security measures that ensure the service’s availability, confidentiality, integrity, and authenticity. Moreover, these protection measures must be appropriate and proportionate to their need, in addition to taking into account state-of-the-art methods. Because “state of the art” leaves considerable room for interpretation, the Commission is anticipated to clarify it within the implementing act expected by August of this year. The European Union Agency for Network and Information Security (ENISA) also has published guidelines based on the Directive. Reporting Obligations Under the NIS Directive, service providers must immediately report security incidents with a significant impact on the provision of their services. Factors such as duration, number of affected persons, and geographical spread are part of the assessment, where incidents such as a service breakdown, theft of user data, or transaction manipulation have occurred. In the case of essential infrastructure services, the explicit obligation to cooperate with IT security authorities and data protection supervision is regulated by the Directive; reporting requirements for digital services are left to the national laws. In both cases and under certain circumstances, the appropriate national authorities may even inform the public of reported incidents. Notably, reporting attacks on the confidentiality of certain essential infrastructure services is limited to significant impairment

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of service availability. For example, the detection of spying of traffic on an Internet node would not have to be reported.

In the case of essential infrastructure services, the explicit obligation to cooperate with IT security authorities and data protection supervision is regulated by the Directive.

Monitoring Measures Providers of digital services do not have to present their online marketplaces, online search engines, or cloud services for identification and supervision; rather, supervision is carried out only as post-incident monitoring. If the competent authority submits evidence that a provider fails to comply with regulatory requirements, it may act, request information, or make arrangements for remedies. In this respect, the NIS Directive places the responsibility of monitoring for deficiencies on service users, an authority (e.g., data protection authority) or – somewhat naively – on the service providers themselves. Only then does the investigative body question whether the service is in compliance with the security measures of the Directive. How end users would obtain evidence to support their security-failure claims without the backing or intervention of a competent authority is hard to imagine. Providers of essential infrastructure services, on the other hand, are placed under greater scrutiny from the start. The Directive provides for significantly stronger monitoring measures, empowering competent authorities to constantly evaluate whether these service providers are in compliance. Providers must provide both information and proof – by safety audits, for example. Conclusion and Outlook Cooperation and consistency in cybersecurity – can this become the reality of the European Union under the NIS Directive? Is it enough to secure our digital world? On the one hand, the Directive is the first EU-level effort to enhance cybersecurity measures, building on previous political initiatives that sought to merely define cybercrime or to call for legislative action. The Directive is therefore likely to increase the IT security level of many digital services that have become vital to our societies. On the other hand, its implementation presents major challenges for Member States and the digital economy.

One, the Directive lacks a convincing understanding of the “architecture” of the digital world. The terms, definitions, and demarcations of essential infrastructure services and digital services, as well as the relationship to telecommunications and trust services, are not well understood. Two, the Directive’s security requirements are not harmonised across the provider types or even across previously enacted regulations. With increasing virtualisation and convergence of these types, as well as the provision of mixed services, providers will find it difficult to meet the similar but not identical requirements. Moreover, adhering to the requirements of the NIS Directive is complicated by the similar requirements of the General Data Protection Regulation. Also passed in 2016, it focuses on the storage, processing, and movement of personal data; requires a set of technical data security measures; and is also applicable to providers of essential infrastructure services and digital services. Lastly, the NIS Directive does not address one of the main problems of IT security: the lack of quality of hardware and software. While the rejection of a provision to address this was rationalised by claims that hardware and software suppliers are already subject to product liability, this is not a convincing argument. Between small to medium enterprises and global players, the security maturity of companies differs too widely. Overall, the complex nature of cyber threats, the low-level technical knowledge of regulatory bodies, and the high speed of digitalisation makes efforts to secure essential IT infrastructures and digital services of vital importance to the security of all other systems. While market innovation must be given room, it must be

The Directive is likely to increase the IT security level of many digital services that have become vital to our societies. On the other hand, its implementation presents major challenges for Member States and the digital economy. nevertheless balanced by public regulation and business initiatives that recognise that the functioning of the internal market and the potential for Europe’s digital growth will rise and fall on cybersecurity. In the longer term, work will be needed at national and EU levels to translate the ideal of strong cybersecurity into well-integrated and harmonised requirements for hardware, software, telecommunication, trust services, and important digital services. Excerpted and adapted from “Die EU-Richtlinie über Netz- und Informationssicherheit: Anforderungen an digitale Dienste”. For the full German paper, which includes an analysis of the related cybersecurity initiatives undertaken by Germany prior to and after the adoption of the Directive, visit Computer und Recht at https://www.degruyter.com/view/j/cr.2016.32. issue-10/cr-2016-1011/cr-2016-1011.xml. About the Author Martin Schallbruch is the Senior Researcher for Cyber Innovation and Cyber Regulation at the Digital Society Institute of ESMT Berlin. As a Director-General for Cybersecurity in the German Federal Ministry of the Interior, he was responsible for the German position in the EU legislation process on network and information security.

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Supply Chain

Creating an Omnichannel Supply Chain for Branded Manufacturers: The Untapped Potential for Growth BY MICHAEL HU & SUNIL CHOPRA

In today’s omnichannel world, the distinction between brands and retailers is of little interest to consumers. They will buy from whoever is best able to “deliver the goods.” Branded manufacturers can take advantage of this unprecedented opportunity to get closer to the consumer, if they manage to acquire the requisite fulfillment and supply chain capabilities. The Untapped Potential of Branded Manufacturers Consumers today are spoiled for choice. No matter where they live they have at their fingertips a vast assortment of products, a stunning array of delivery options, and a never-ending parade of novelties, exclusive products, and special offers. The consumer journey is becoming truly frictionless, thanks to advances in digital commerce technologies and disruptive innovations from the likes of Amazon and Alibaba, which continue to push the frontier to enable consumers to buy what they want, how they want it. What’s more, consumers don’t care who gives them what they’re looking for. Can a retailer deliver the goods? Fine. Is it easier to find and

buy what they want from a branded manufacturer? That’s fine too. And, in fact, the lines between retailers and brands are becoming increasingly blurred. Retailers are mimicking branded manufacturers, offering exclusive SKUs and innovative products under their own brand. Amazon, IKEA, and Sainsbury, for example, are investing significantly to expand their private label business. In contraposition, brands are establishing frictionless direct-to-consumer fulfillment options. In many countries across Europe and Asia, online Samsung stores offer products for direct home delivery. Direct-toconsumer is the fastest growing sales channel at L’Oréal and other traditional beauty manufacturers. In the past, retailers tried to discourage – and even thwart – direct sales by branded manufacturers. Today, however, some retailers are actually renting out space where brands can set up a showroom to feature their long-tail SKUs. This tactic, besides allowing retailers to take advantage of surplus space on the sales floor, also enables them to benefit from the brands’ halo effect. Presently, branded manufacturers’ omnichannel sales – that is, sales fulfilled by

The consumer journey is becoming truly frictionless, thanks to advances in digital commerce technologies and disruptive innovations which continue to push the frontier to enable consumers to buy what they want, how they want it. 26

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the manufacturer, regardless of whether the customer makes the purchase at a third-party retailer, a manufacturer-owned store, or online – typically account for between 5 and 8 percent of total revenue. We believe brands can increase that percentage to between 15 and 25 percent over the next three to five years. Such a shift will not only improve brands’ operating margins, but it will also create greater stickiness with end customers and increase their market power. Our work helping more than a dozen brands across different sectors such as CPG, Beauty, apparel, and consumer electronics to achieve their full growth omnichannel potential has taught us they must follow a systematic threestep approach to transform their underlying fulfillment capabilities and supply chain: • Define a clear, segmented fulfillment promise. • Redefine the role of the store, regardless of whether it is an owned store or a rented space at a retail partner. • Evolve the right supply chain partnerships.

Define a Clear, Segmented Consumer Promise A first step to designing a winning supply chain is to define the consumer promise along five dimensions of fulfillment: choice, speed, convenience, service, and reliability. Omnichannel leaders, particularly retailers, do this well (see figure 1). Mass retailers that sell commoditised products and have relatively low basket sizes – Amazon, for example – tend to focus on a broad assortment, convenience, and speed. In contrast, specialty retailers such as Sephora – where basket sizes often exceed $75 and products are differentiated – usually focus on high customer service and a broad, personalised assortment, whereas speed tends to be less important. Following the lead set by retailers, when brands define their consumer promise they should consider factors such as how differentiated their products are, how much information the consumer needs to make a choice, and what the average basket size will be. Luxury fashion or

FIGURE 1. Customer promise for e-commerce leaders Distribution centre variables Customer centre care variables

Omnichannel fulfillment strategy focus

Convenience Delivery and pickup

· Broad assortment and exclusives · Customer centric service experience

Delivery change Returns Replenishment model Service Order tracking Interaction quality IVR Language Personalised service Order management system Cross selling

Capability Hours of operation Choice Assortment Order personalisation Order modification

Reliability On Time in Full First contact resolution

A first step to designing a winning supply chain is to define the consumer promise along five dimensions of fulfillment: choice, speed, convenience, service, and reliability.

Speed Order to delivery Speed to answer

· Free shipping and returns · Customer care convenient tracking · Order to delivery · Replenishment model · Target endless aisle assortment · Large store footprint for customer convenience · Large assortment in marketplace · Free shipping and returns (700+ stores) · Efficient customer service

Note: IVR is intelligent voice recognition. Source: A.T. Kearney

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Supply Chain

beauty brands, for example, offer expensive, differentiated products. Therefore, their customers will likely be more interested in service (for example, call centers staffed by skilled, well-trained agents) and choice (say, an exclusive assortment, coupled with personalised gift-wrapping or engraving) than in speed and convenience. In contrast, brands that sell higher-volume, less differentiated commodity products such as consumables and mass consumer electronics will probably want to excel in speed and convenience, as shopper behaviours have been shaped by Amazon’s offer of fast, inexpensive delivery and hassle-free returns. Whatever consumer promise the brand settles upon will largely dictate the supply chain it needs.

Owned stores provide a brand with nearly complete freedom to choose locations and design its own store concept and space. 28

Redefine the Role of the Store The second step is to redefine the role of the store in fulfilling the consumer promise. Roughly speaking, the store can serve two strategic roles (see figure 2 above): • The store can be a consumer experience hub where the brand displays its products, lets customers touch and feel them, and offers advice. In the case of relatively expensive fast-moving products for which consumers also value speed – for example, high-end smartphones – consumer experience hubs also stock inventory for sale to walk-in customers. Apple Stores, with their Genius Bar, are a prime example of a consumer experience hub. So are Bonobos Guideshops, staffed by onsite style advisers. • Alternatively, the store can be an inventory and fulfillment hub – a staging area, if you will – to cover local demand. The primary role of such a store has been to carry inventory that customers can purchase when they walk in. These stores can also serve as pickup locations for click-and-collect customers and accept returns of online orders. In

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some instances, personnel at fulfillment hub stores may also pick, pack, and ship orders. Mass retailers Walmart, Debenhams, and Quelle’s are working hard to convert their store network into scalable fulfillment nodes. The capabilities and processes needed to deliver a world-class in-store consumer experience are radically different from those required in a fulfillment-focused store. In a consumer experience hub, sales associates must be knowledgeable and consumer-oriented, technology must be focused on facilitating the sale, and a deep assortment must be attractively displayed. Stores meant to provide same-day/next-day fulfillment of online orders, in contrast, require a broad range of traditional warehouse and distribution center capabilities adapted to a store environment, including efficient backroom and shelf order picking, integrated order management systems, assortments skewed to fast-moving items (to satisfy in-store pickup and local shipping), and operationally savvy store managers. It is crucial, then, to understand the role of each store along the experience-fulfillment spectrum to ensure that the proper blend of store operational capabilities, processes, and incentives is in place. Equally important is the strategy to scale up the store network. Owned stores are one option. Owned stores provide a brand with nearly complete freedom to choose locations and design its own store concept and space. The trade-off, however, is that building an owned-store network is a slow, capital-intensive process. Another option is to partner with retailers, taking advantage of the fact that retailers with large, physical store footprints are shifting their strategy. In the future, many high-traffic locations

will likely become inventory-light consumer experience and showrooming hubs displaying a broad assortment of items available for same day/next day home delivery, while low-traffic locations will either be closed or converted into “dark-store” fulfillment centers. As future retailer showrooms carry less inventory, floor space will be freed up and retailers may be open to establishing branded storeswithin-stores for synergistic showrooming. For example, a shopper might be able to walk into a Debenhams’s store, examine and order a suit at a Hugo Boss digital showroom, arrange for delivery to a Debenhams’s closer to home, and have it altered by Debenhams’s in-house tailoring staff at the time of pickup. In the case of lower-traffic fulfillment center stores, retailers could potentially lease them to brands for joint use. For example, Walmart could convert select suburban superstores into shared warehouses to stage inventory for local delivery, powered by an easy-to-use order management system. Brands could then lease the “Walmart platform” to scale up a same-day/next-day delivery option across the country. Evolve the Right Supply Chain Partnerships Omnichannel fulfillment is a complex orchestration of capabilities that span a broad spectrum: eaches picking, warehousing, store operations, customer service, financial services, and lastmile delivery, to name just a few. Fortunately for brand manufacturers, a robust third-party omnichannel fulfillment vendors market is available to provide them with the capabilities they need to quickly get started (see figure 3). Such vendors fall into two broad categories: • End-to-end generalists typically have experience providing the full suite of turnkey fulfillment operations. Their capabilities are usually best-in-class in one or more functions, but not across the entire fulfillment spectrum. • Best-of-breed specialists focus on a particular subset of fulfillment services such as distribution center fulfillment or customer care. Nearly all best-of-breed vendors have more scale and experience in their areas

of specialisation than their end-to-end counterparts. Our experience suggests that companies should evolve their omnichannel fulfillment along the make-versus-buy continuum – beginning with end-to-end outsourcing, continuing with best-of-breed partnerships, and ending with in-house management – as they climb the scale and experience curve. Yet often that is not the case. Some make the mistake of investing heavily in-house from the outset and miss out on the opportunity to learn from external vendor capabilities. For example, a leading US retailer built its own large online fulfillment center to anticipate significant e-commerce growth with a three- to four-day lead time. Because of its limited experience with online operations, the retailer created a high-throughput facility with limited flexibility. When actual growth fell short of forecast, that lack of flexibility prevented the retailer from modifying the layout to improve its order cycle time. Others make the mistake of leaving their operations outsourced for too long to a turnkey, end-to-end vendor instead of transitioning to best-of-breed operators. To illustrate, a well-established US fashion brand, despite having grown its online sales to more than $300 million, continues to use the same end-to-end fulfillment provider for its warehousing, store fulfillment,

Omnichannel fulfillment is a complex orchestration of capabilities that span a broad spectrum.

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Supply Chain

experience. In addition, brands need to periodically conduct rigorous sourcing events to ensure they are benefiting from the latest advances in fulfillment practices. This is particularly important in last-mile delivery and customer care, where technological advances are rapidly changing the art of the possible.

customer service, and integrated order management operations. As its omnichannel business has grown, the fashion brand has failed to achieve the expected cost savings from increased scale, in part because its turnkey partner lacks the ability to provide world-class service and efficiency in every part of its operations. To sustain best-in-class omnichannel performance, a brand’s omnichannel supply chain partnership model must evolve over time. The model must adapt to accommodate new strategic directions (such as entering a new product category or a new geographic market) and to reflect the brand’s own growing capabilities. In the first instance, brands need to build a dedicated omnichannel supply chain team. This team will be the nucleus of a centralised, coordinated function to define and sustain in-house operations and to help shape the upstream business and commercial strategy. Eventually, brands will want to establish strong capabilities to internally oversee the underlying order management, inventory, and CRM systems – as these technologies are the main enablers of flexible, efficient operations that deliver a seamless consumer

Keeping Up with the Consumer In today’s omnichannel world, the distinction between brands and retailers is of little interest to consumers. They will buy from whoever is best able to “deliver the goods.” Branded manufacturers can take advantage of this unprecedented opportunity to get closer to the consumer, if they manage to acquire the requisite fulfillment and supply chain capabilities. The stakes have never been greater. About the Authors Michael Hu is a Principal in the Operations Practice at A.T. Kearney. His area of expertise is helping global consumer and retail clients in areas of omnichannel and eCommerce operations, supply chain transformation, and digital transformation. Sunil Chopra is the IBM Distinguished Professor of Operations Management at the Kellogg School of Management. He has co-authored two books and several academic articles that have appeared in top journals. His book on Supply Chain Management was awarded the best book of the year by the Institute of Industrial Engineers (IIE). His recent research has focused on risk management and omni-channel distribution in supply chains.

To sustain best-in-class omnichannel performance, a brand’s omnichannel supply chain partnership model must evolve over time. The model must adapt to accommodate new strategic directions and to reflect the brand’s own growing capabilities. 30

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Supply Chain

Mapping and Strategising Across

Business Ecosystems BY HERVĂ&#x2030; LEGENVRE AND ISABELLE HERBET

Business ecosystems are the new unit of analysis for strategic thinking; they offer fertile grounds for innovation. This article discusses how managers can map, analyse and take advantage of business ecosystems. It is illustrated by a nice case study inspired by the work done at Groupe Seb, a leader in Small Domestic Appliances and Cookware industry.

usiness strategies should be established based on how a business ecosystem is likely to evolve, not on what we think we can excel at. Mapping and analysing ecosystems is about identifying, testing and selecting options to create and capture value. It is about forming new hypotheses and defining how they can be tested and implemented. To achieve The word ecosystem was used in 1935 by Sir this, a new approach first Arthur George Tansley, is needed that will (an English botanist and help to navigate a pioneer in the science the complexity and of ecology) in an article entitled â&#x20AC;&#x153;The Use and uncertainties of the Abuse of Vegetational business ecosystem Concepts and Termsâ&#x20AC;?. landscape. With the ongoing transformation of the business landscape, many industry boundaries have drifted, blurred and changed. New players emerge while other business activities are unbundled. Value chains are continuously sliced and reshaped. Radical innovation and

experimentation are led by communities of small disruptive players while cost competitiveness has to be built on the back of existing and emerging champions that leverage scale effect. In between, collaborations with integrators and technology leaders can remain essential to succeed. In this context, thinking in terms of industry and value The idea of business ecosystems chains can be misleading; the busioriginates in the work of James ness landscape is best described as Moore (1993) Business ecosystems surround, permeate and transa continuously changing ecosystem form markets and organisations. where some relationships and collab- They have the ability to coordinate oration need to be abandoned while innovation across complementary contributions. others need to be strengthened, initiated or nourished. Evidence for this is plentiful. The automotive industry has to re-invent itself with the develMapping and opment of self-driving car technologies and the rise of mobility services. For many years the analysing key players tended to work within closed circles. ecosystems is But now they turn to new players to access about identifying, technology and capabilities that are new to the testing and industry. In other industries such as banking selecting options or logistics, startups are challenging estab- to create and lished players without disrupting the industry. capture value. It This leads established and emerging players to is about forming simultaneously compete and collaborate. Utility companies need to co-create smart technolo- new hypotheses gies with industrial science leaders in order to and defining how offer new business models and services. In the they can be tested current economic and business environment, and implemented.

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Supply Chain

companies have to reconfigure their ecosystem of clients, suppliers and partners to transform their value proposition, their business models and secure new competitive advantages. Navigating a business ecosystem requires new frameworks, tools and checklist to map where the key players are and to take effective decisions. Executives and professionals have to confront a few fundamental questions. They need to define how they can strive for success in the future. They have to foresee against whom they might compete. And they should explore with whom they will build the needed partnerships and alliances. A great value proposition needs the right business model to deliver its full potential, scale up and capture profit. A great value proposition and a great business model can only flourish if a fertile ecosystem exists. Winning in times of change calls for a certain level of alignment between these three strategic lenses. Since the late 1970â&#x20AC;&#x2122;s, Traditional Strategy Frameworks have been widely used across business functions. Strategy teams look for entry barriers and attractive positions within an industry. Marketing teams identify where competition comes from and the most profitable market segments. Procurement teams see where they can best leverage competition across suppliers and where they might have to face risks of dependency. However, to go further and address the full business ecosystem we have identified 4 key requirements that should help us to enrich the traditional analysis: 1. Adopting a broad perspective while diving when necessary: Focusing on the main lines of tension with customers, suppliers and competitors should not prevent us from zooming out and looking at

LIST KEY TRENDS. Thinking in terms of trends before mapping ecosystems is very valuable. It helps to anticipate forthcoming transformations.

A GREAT VALUE PROPOSITION NEEDS THE RIGHT BUSINESS MODEL TO DELIVER ITS FULL POTENTIAL, SCALE UP AND CAPTURE PROFIT. A GREAT VALUE PROPOSITION AND A GREAT BUSINESS MODEL CAN ONLY FLOURISH IF A FERTILE ECOSYSTEM EXISTS. 32

The European Business Review March - April 2017

the broader perspective to see where opportunities and threats are forming. When the broad view is secured, it is possible to look at more specific sections of the ecosystem. 2. Thinking collaboration: We need to move beyond looking mainly at who competes with whom and dedicate similar levels of attention to who collaborates with whom across the full ecosystem. 3. Being future-oriented: Analysing the current business game is useful but limited. Looking ahead to anticipate forthcoming transformations and to keep options open is of equal importance. 4. Searching for new sources of competitive advantages: Looking at how existing entry barriers currently canalise profit in certain directions, should be complemented by understanding how new business models, technology, data, patents or other specific business advantages could change the rules of the game in the future. Mapping and strategising across ecosystems do not always require lengthy analyses. This needs a structured and systematic approach that can be used to sense and frame opportunities. It is best used as an iterative process that can be extended and refined over time. It should not be approached as a solitary, short and dense analysis that is quickly set aside. While the templates proposed here are a good basis for communication and decision making, the real value is in the quality of the interactions established to gather all the useful pieces of information together. In some instance, one person is able to access the key people who hold the relevant information to sketch a first set of hypotheses that can be enriched, challenged and tested. In other instances, multifunctional or even consortium teams might be needed. In such cases, the value includes the enriched perspective and mutual understanding gained by all players. The rest of this article offers a six step process that managers can use to map, analyse and take advantage of business ecosystems. It is illustrated by a case study on blenders. It is inspired by the work carried out at Groupe Seb, a leader in Small Domestic Appliances and Cookware industry. The case is meant to

illustrate the use of the six steps process. It is not meant to describe accurately how Groupe Seb approaches its business ecosystem. The key steps proposed: (see Figure 1 on right)

Define the scope To start on the right foot, you need to clearly define the scope. This can include expressing specific business segments, market segments, and type of transformation you will investigate. In any case it is essential to state the orientation you want to base your ecosystem analysis on. The SEB group is a/the leader in Small Domestic Appliances and Cookware industry. It has multiple brands and each brand has a specific positioning. One of the products present in more than one of the brands is a blender. A blender is used for food preparation; it mixes things together by liquidising, chopping or pureeing ingredients. The major components of a blender include: the motor, the electronic components (PCBA), the glass Jar, blades and material housing. In order to understand how the supplier network and the wider ecosystem could support the different product segments and brands, it is essential to understand and focus on how the brands try to differentiate from each other. • KRUPS values: Precision(high cooking performance) – Reliability (Robust design) - Passion • MOULINEX values: Intuitive (easy to use and clean) – Performing solutions (multi-function) – liberate desire It was also decided that the focus should be on the European Market as markets dynamics differ throughout the world.

List key trends Thinking in terms of trends before mapping ecosystems is very valuable. It helps to anticipate forthcoming transformations. It ensures that important future players that are not yet on the Radar are more likely to be identified. Beginning with megatrends is a nice starting point. Many companies have already looked at the impact of the megatrends on the business as part of their strategic planning process. Then it can be useful to survey the business trends that can affect the company and its ecosystem. A simple but useful checklist consists of expected changes in terms of economic conditions, customer needs, market evolutions and technology development. Finally evolution if the political, legal or environmental context can be considered. Cross functional work interviews can be used to ensure that important trends are identified. They should be precise enough to foresee their possible implication for the company and its ecosystem. For Groupe SEB and the analysis of the blender

FIGURE 1. Key steps for Mapping and Strategising Across Business Ecosystems Define the scope

Identify Ecosystem Players

Analyse the dynamic

01 02

List key trends

Map the Ecosystem

Develop the next steps

ecosystem, the following trends were identified: • The European market is mature and therefore the growth potential is low • Omni channel retailing (connection between stores, e-commerce, Apps and Social Media) is becoming pervasive across Europe • Cooking is becoming a valued life experience. TV series such as MasterChef play an important role in driving this change • Couples and individuals have active lives. They value everything that is fast, efficient and easy for daily cooking. However they enjoy being more sophisticated, elaborated for occasional cooking (friends, family…) • Touchscreens are increasingly used for high end domestic appliances • New technology (electronics, sensors and actuators) are being integrated in the final product • Healthy food as well as simple, nice and tasty cooking is more and more valued by consumers. This includes smoothies and whole-fruit juice. • There is a growing tendency to offer connected products to consumers • European standards & norms are strict about material & safety

For each trend, identify relevant players or clusters of players The next step consists of identifying the players or cluster of players that could be relevant to include in the ecosystem. Existing partners, suppliers or distributors are easy to identify. The trends can help identify the ones that are

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THE EVOLUTION OF AN ECOSYSTEM RESULTS FROM THE KNITTING OF COLLABORATION AND COMPETITION FORCES OVER TIME. taking a rising role or that could play a role in the ecosystem in the future. For Groupe SEB, existing important players for blenders include, traditional distributors, specialist retailers, motor suppliers, the electronic components (PCBA) suppliers, the glass Jar suppliers, blade suppliers and material housing suppliers. From the trends a number of players who will play a more significant role in the future were identified. They include: • Online distributors and Social Media players as part of the Omni channel trend • Nutritionists due to the healthy food trends • Ergonomists due to the ease of use and safety imperatives • Technology suppliers further down the value chain (touchscreen, electronics, sensors, actuators) • Connected technology startups due to the connected product trend After a quick check it was identified that new material suppliers who were traditionally seen as suppliers of suppliers should also be taken into consideration in the analysis as their importance was growing.

Map players within the ecosystem When most players have been identified, the ecosystem can be mapped. Four groups of players can be identified: (1) customers, (2) existing

value chain players, (3) potential or rising members of the value chain, (4) influencers. They can be displayed on a map as presented underneath. Existing value chain players can include players that are not directly in contact with the company studied. The supplier of a supplier can be considered as part of the ecosystem. It is not necessary to be exhaustive. Only key players in relation with the scope and ambition of the ecosystem analysis should be considered. We mention both potential and rising players in the third group as when ecosystems change, fast clear cuts cannot easily be made. Influencers are typically organisations, institutions and groups of people who can influence the evolution of the ecosystem without being part of the overall supply chain. They influence on decisions, enable or hinder changes without having a strong economic stake in the process. Standardisation bodies, economic development organisations

and non-profit making organisations figure often as influencers. Here, in terms of influencers, two new players were identified: Standard Bodies and Social Regulation Bodies.

Analyse the dynamics across the ecosystem At this stage, we have adopted a forward looking perspective and identified all the key players within the ecosystem. To analyse the potential evolution and the dynamic of the ecosystem it is important to identify on the one hand: Who competes with whom today? Who could compete with whom in the future? And on the other hand who collaborates with whom today? Who could collaborate with whom tomorrow? The evolution of an ecosystem results from the knitting of collaboration and competition forces over time. Here a number of questions can be used to support such an analysis.

FIGURE 2. Map of the Blender Ecosystem – Group SEB Us / Customers

Current Value Chain members

Traditional Distributors

Glass jar supplier

Electronic integrators

Groupe Seb

Blades Suppliers

Designer Housing Material

On line Channels

Specialist Retailer

Tier 2 Electronic Suppliers

Motor Supplier

Rising & New players Ergonomists

Influencers

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Technical standards bodies

Tier 2 Material suppliers

Nutritionist

Connected technology startups

Social regulation bodies

FIGURE 3. Dynamics across the Blender Ecosystem - Groupe Seb Today Who competes with whom? On what?

Tomorrow Who will compete with whom? On what?

Different brands of blender

Blender provider

2016

2020

Today Who collaborates with whom? On what? Glass jar supplier Designer

Tomorrow Who will collaborate with whom? On what? Glass jar supplier

Seb Seb

Electronic integrators Tier 2 Electronic suppliers

A first level of questions include: • Across the ecosystem, who competes with whom? Today? Tomorrow? • Across the ecosystem, who collaborates with whom? Today? Tomorrow? Second level questions to deepen the analysis can include: • Which players have similar agendas or interests? • Which players have conflicting agendas or interests? • Who is attractive to whom as a partner? • Who could own specific data, patent, assets or other special business advantages that will be critical in the future? For the analysis of the Blender ecosystem, we present some of the main areas of competition and collaboration. What appeared here are opportunities to widen existing collaboration to new players (see Figure 3 above).

Connected service

Establish some recommendations Building on the previous analysis, some recommendation should be developed. This can include a diversity of action or even a set of “what if ” scenarios. However classic

Designer

Nutritionist Seb Seb

Connected Technology startups

key actions can be classified in three broad areas and include: 1. Scouting and intelligence • Performing Scouting activities to gain further market and technology intelligence or to find new partners • Monitoring of specific evolutions and development within the ecosystem • Taking an active role in knowledge exchange hosted by clusters or other networks 2. Early exchange of information • Establishing accelerators and innovation center to engage new players in exploratory activities • Encourage key people to start exchanging with specific ecosystem players • Establishing early exchanges with specific key players within the ecosystem. 3. Managing a portfolio of collaborations • Establishing new collaborations with one or more ecosystem players • Reducing progressively the level of collaboration with some ecosystem players • Strengthening existing collaborations For the Blender Ecosystem, the conclusion was that it would be fruitful to encourage

Electronic integrators Tier 2 Electronic suppliers

Some recommendation should be developed. This can include a diversity of action or even a set of “what if” scenarios.

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Supply Chain

As existing value chains are sliced, diced and experience significant transformation; mapping and strategising across business ecosystems becomes a critical capability companies need to master.

collaborations amongst: • Motor and blades suppliers, and nutritionists • Designer and glass jar supplier, and ergonomists • Housing material and Tier 2 material suppliers • PCBA supplier, Electronics suppliers and some start-ups which are working on connected technologies Each brand would be expected to take the lead in specific areas while sharing information as progress materialises. The focus included the development of a strong relationship with key motor manufacturers in order to develop high performance motors while leveraging the market power of the company to source cost effective motors with variable power or speed. In order to contribute to improve the cooking performance, it was decided to initiate with a transversal team – including participation from purchasing, marketing and R&D – some technical workshops with motor suppliers, blades suppliers and nutritionist partners. The idea was to run some “design thinking” workshops with all the players in the same room. At the same time, the team decided to gain market intelligence related to technologies from other industries. As the glass jar has a big impact on the design, R&D and Purchasing decided to work together to facilitate the collaboration between the Designer and the glass jar manufacturer.

R&D and marketing decided to work upstream and prepare a middle-long term (5 years) roadmap defining in which direction do we want to go in terms of Cooking Performance and share with the members of the future collaboration before the organisation of workshops with players from the ecosystem. It was also decided to identify some startups working on connected technologies and to initiate a co-development with PCBA suppliers, key tier 2 components and a start-up. Finally through Market Intelligence, it was also decided that the company should identify new material with new performances, new aesthetic, and decoration or painting process. Conclusions As existing value chains are sliced, diced and experience significant transformation; mapping and strategising across business ecosystems becomes a critical capability companies need to master. The process outlined above is a proven starting point to progress in this direction. Each step is essential but most importantly this needs to be turned into a continuous collaborative process. The following diagram outlines how ecosystem mapping integrates with other strategic lenses such as the business model canvas and the value proposition designer (Alexander Osterwalder, 2014) (see Figure 5 on right).

FIGURE 4. Some key actions suggested for the Blender ecosystem Continue to monitor some players Technical standards bodies Connected technology startups

Motor Supplier (high performance) Connected technology in other industries

Business intelligence

Early involvement with some players

The European Business Review March - April 2017

Partner with some players

Seb Nutritionist

Motor Supplier

Blades suppliers

Workshops

Connected technology startups

Electronic integrators Tier 2 Electronic suppliers

Co-development

Combining the three views provides a truly holistic view of how a business can co-evolve with its environment. This also outlines that Ecosystem mapping can benefit from being used in conjunction with other business tools. How this methodology was developed Over the past 5 years, one of the co-authors has taught a course on the topic of innovation and entrepreneurship. Participants were executives and a high potential population working in procurement departments of large and middle-sized companies. The course led them through the use of innovation frameworks to sense, seize and realise business opportunities. If many existing tools and frameworks were readily applicable by the participants, it quickly appeared that the traditional ways of looking at the supply market needed to be significantly expanded. Participants required new techniques to snorkel and dive across business ecosystems to anticipate forthcoming changes and spot new opportunities ahead of others. As the need for new tools and frameworks was recognised, a multiyear action learning initiative was quickly on its way. The methodology was enriched over time and evolved into a solid methodological flow that has been applied with great learning to many business contexts. Participants of the course used and tested it individually as well as in small groups to study a diversity of industry challenges. This methodology owes a lot to the many people who embarked on this learning Journey. Their challenges, questions and suggestions nourished the development of the methodology. They used, bent and sometimes changed it according to their needs. The second author was keen to use and experiment with the methodology within her own company environment. The blender ecosystem appeared as a very interesting case that was rich, easy to understand and illustrative of the key methodological issues. The co-author was keen to refine her early work and contribute to the development of a case to be used for dissemination of the methodology to a wider public and for educational purposes. The case presented in this paper has been adapted

FIGURE 5. Integration with other methodology based on Alexander Osterwalder, 2014

Fit

+ Value Proposition

Ecosystem Mapping

Business Model Canvas

from real business challenges and relevant experiences. However, it has been simplified to first avoid any confidentiality concerns and secondly to offer pedagogical value. About the Authors Hervé Legenvre is Professor and Global Executive MBA Director at the EIPM, a Training Institute for Purchasing and Supply Management. He manages educational programmes for global clients, conducts researches and teaches in the fields of innovation, and sustainability across the value chain. Hervé holds a PhD from Université Paris Sud. Isabelle Herbet is Asia Purchasing Director for raw material, components and subassemblies for Groupe SEB, and specialist in Cookware and Small Electrical Appliances. She seeks to bring a Sustainable Competitive Advantage for the Group, managing Purchasing centers, Purchasing Performance & Operation and Category Management in Asia to drive Value creation to serve the Business.

Customer Segment

Value Proposition Designer

References

• Alexander Osterwalder, 2014. Value Proposition Design: How to Create Products and Services Customers Want (Strategyzer). 1 Edition. Wiley. • J. Moore, “Predators and Prey: The New Ecology of Competition”, Harvard Business Review, vol.71, no.3, 1993

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The Aargau Services team f.l.t.r. Josef Küffner, Monika Ulrich, Annelise Alig Anderhalden, Ellen Hildebrand, Antonietta Lomoro, Florian Gautschi

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1. Cost advantages Below-average tax rate, moderate wages and low real estate and property prices. 2. Perfectly developed in the heart of Europe The canton of Aargau is situated in the strongest Swiss economic region, in between Zurich, Basel, Bern and Lucerne. 3. Concentrated high-tech know-how In Aargau, there are highly qualified specialists in the high-tech industries of energy, electrical engineering, life sciences, medical technology, plastics, ICT and mechanical engineering. 4. High quality of life Anyone who appreciates nature experiences and cultural highlights feels at home in Aargau. You can find an outstanding educational system, innumerable leisure activities and many local recreational areas for the whole family.

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Aargau Services – we pave the way for you Would you also like to benefit from the locational advantages of Aargau? We would be pleased to support you. With regard to establishing a company, we can advise you on issues regarding tax law and labor law, legal forms, work permits and social security. We will arrange contacts for you with authorities, experts, research institutions, banks, associations and companies. We will find suitable real estate and properties for you. We will inform you about economic and location issues, as well as forms of financial support in Aargau. Contact us – we will be pleased to assist you!

Innovation

Is Your Innovation Strategy Ready to Meet the 21st Century? BY TAMARA BEKEFI AND MARC J. EPSTEIN

We are living in the midst of great change. The impacts of climate change, social issues, and technology are altering the way we live and work. Water scarcity, greater competition for basic inputs resulting from shifting weather patterns, and a growing population will impact business in far-reaching ways. E-commerce, telecommuting, and new technologies with positive environmental and social impacts are creating new business models and beating the competition.

ompanies must future-proof themselves for the 21st century by fundamentally rethinking the definition of sustainability and its role in the corporation. This is no longer a fringe issue. It is core to business and will spell success for companies that craft innovation strategies catalysed by sustainability. Those that choose to ignore it are doomed to failure in the years to come. 3M, the American conglomerate best known for Post-It notes and Scotch tape, is positioning sustainability at the core of strategy. Known as a model for managing innovation and eco-efficiency – the company has slashed its toxic releases by 99% and greenhouse gas emissions by 72% – 3M

is now actively imagining what the world will look like in 2050 and embedding sustainability in its innovation. The world’s most highly reflectivity mirror film that, paired with a regular fluorescent bulb, illuminates building interiors from sunlight is among its latest products. 3M Glass Bubbles, very small but tough glass microspheres with hollow insides to make polymers, are making cars and aircrafts lighter and significantly more fuel-efficient. Tremendous opportunity is available to companies that create value for both business and society by redefining sustainability, refocusing innovation, and bringing the two together to propel corporate strategy into the 21st century. Those that ignore it do so at their peril. Our World is Changing, Will Your Company Survive? Our population is growing – with 7.6 billion people on earth today our numbers are rapidly expanding. We consume natural resources faster than they can be replenished, and the emissions mainly responsible for climate change keep increasing. World energy consumption is estimated to rise dramatically in the next three decades and we continue to be plagued by social and governance issues like child labour, global

Tremendous opportunity is available to companies that create value for both business and society by redefining sustainability, refocusing innovation, and bringing the two together to propel corporate strategy into the 21st century. www.europeanbusinessreview.com

Innovation

To help foster creative innovation within the company, 3M held a sustainability power pitch that challenged employees to pitch their best idea for a sustainable product to a panel of judges and fellow employees. The employee with the winning idea nabbed a research grant to bring the product to life. Photo courtesy: 3M

terrorism, bribery and corruption, and global health issues. All of these are impacting business. Competition for water, lower yield crops, and higher basic materials costs are not just social and environmental issues. They are core business issues that will be central to strategy, growth, innovation, and profitability. Companies have tried to address these issues through sustainability practices targeting the ways business impacts social and environmental issues. They concentrate on minimising their impact by becoming better and more efficient at doing what the company has always done and then reporting on it. Current corporate efforts are focused on risk management, reporting, and/or operational efficiency. While these are very important, they are insufficient to cope with the challenges of the coming decade. 20th Century Sustainability Practice Risk management-focused sustainability is often led by the legal or regulatory group and concentrates on the legal and regulatory measures companies take to avoid exposures and fines resulting from social, political, and environmental issues. It also includes activities undertaken to meet legal and regulatory expectations. Usually led by communications professionals, reporting-focused sustainability emphasises communications products, public relations, and stakeholder management. Efforts to use resources more effectively through operational efficiency usually result in both

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increased efficiency and cost savings for companies. Using data to better understand energy and water use, materials management, and worker behaviour has improved companies’ abilities to run the business, produce goods, and supply customers while reducing costs. The Innovation Paradox While having accomplished many noble goals, 20th century sustainability practices are crowding out the possibility of sustainability-focused breakthrough innovation and with it, the opportunity for increased profitability and benefits to society. This is because 20th century sustainability practices are suffering from the innovation paradox. The innovation paradox happens when the aggressive pursuit of operational excellence and incremental innovation crowds out the possibility of creating what we really want – breakthrough innovation. Today’s narrow focus on the incremental improvement of a company’s footprint and cumbersome reporting practices are distracting talented employees from seeing the bigger picture. Without a broader view, achieving breakthrough innovation is impossible. Yet breakthrough, sustainability-focused innovation is what will save companies in the 21st century. The current approach to corporate strategy – imagining that the forces shaping today’s markets will be comparable going forward – will not work for the future we are moving towards. Assuming that a company’s past strengths will carry on into the future without making sustainability central to strategy is

very risky. With major changes looming on the horizon, it is no longer about saving 5% or 10% more cost. It is now about staying in business. What Now? So what is the solution? Corporate leaders must integrate a sustainability lens into innovation by thinking more broadly about how the world is changing and how one’s company can get killed. iPhones fundamentally changed the way we capture memories and Kodak never saw it coming. One result of digital photography is the dramatic decrease in photo-printing chemical use, and with it their negative impacts on the environment. Likewise, Amazon forever changed the way we shop but very few companies were paying attention. By reducing a consumer’s need to drive around from store to store Amazon is affecting how we live, our environmental impact, and upending everything in the producerconsumer relationship. It is conceivable that in the near future going shopping will mean going to a showroom only to try on items that are purchased online or 3-D printed in a local warehouse. Delivery will likely be by drone. This will eliminate the need for stores to stock shelves in multiple locations, will reduce overproduction, and will change the footprint of every store in the mall. Beyond the companies that produce and sell things, delivery companies, real estate, and urban planning will be impacted. And while this may sound like a science fiction movie, it isn’t so far off. Companies like the hipster eyeglass purveyor Warby Parker and millennial menswear retailer Bonobos are already testing the showroom concept, while Amazon has been working on a drone delivery system since 2013. Business models are changing and sustainability is at the core. Companies ought to be thinking about much broader changes in society and social and environmental issues and putting those at the core of innovation strategy. Nissan, the Japanese automaker, is doing that by convening a Future Lab to understand how transportation is changing. This group is trying to anticipate what transportation needs will look like in a future with global megacities, smart technologies, and the sharing economy. Nissan’s Future Lab looks decades ahead, beyond products, to examine the future of mobility in a wider sense and identifies potential issues and opportunities for the business. One result is the Scoot

Companies like the hipster eyeglass purveyor Warby Parker and millennial menswear retailer Bonobos are already testing the showroom concept, while Amazon has been working on a drone delivery system since 2013.

EXHIBIT 1. The 21st Century Company

Redefine Sustainability

+ Integrate sustainability into strategy

21st Century Company

+ Generates sustainability-focused innovation

Quad, a 100% electric, two-seater compact vehicle with a top speed of 25 mph designed for city driving. Prototypes are being tested in San Francisco in partnership with Scoot Networks, allowing drivers to rent Scoot Quads on an hourly basis for use around town. The first step to ensuring a company’s survival in the 21st century is to fundamentally rethink the definition of sustainability and its role in the company. The next steps are to integrate sustainability into strategy and generate 21st century sustainability-focused innovation. The result will be the 21st century company. This new, 21st century company model is illustrated in Exhibit 1 (see Exhibit 1 above). Sustainability – Redefined A 21st century re-definition of sustainability is absolutely critical to saving companies and saving the world. And they are inextricably linked. Expanding sustainability from its current focus on a company’s footprint should include: • How companies impact environmental and social issues, • The impacts of social and environmental issues on business, and • The effect of new technologies and business models that are reaping sustainability results for business and society and killing companies that can no longer compete. A few companies are already benefiting from this new thinking. Tesla has upended the car industry, completely changing what happens under the hood and winning the market – the Tesla Model S, a zero emissions vehicle, is Consumer Reports’ most highly rated car ever tested. GE

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Innovation

has generated more than $200 billion in revenue from its Ecomagination innovation products, while Philips’ LED light bulb is its lighting division’s core technology. Putting sustainability in its rightful place, at the core of the company where it becomes the basis for sustainability-focused breakthrough innovation, is critical for the 21st century company. Integrating Sustainability into Strategy To produce sustainability-focused breakthrough innovation, companies need to incorporate sustainability into strategy. This will happen when sustainability practices move from the current focus on risk management, reporting, and operational efficiency to include: • Sustainability-focused products and services, • Measurement and accountability, and • Increased profitability. Sustainability-focused products and services: Companies that have included sustainability in product and services design, production, use, and end-of-life will thrive in the 21st century. Instead of producing greener or more socially conscious versions of already-existing products in increasingly efficient ways, winning companies will view sustainability more broadly and include it in innovation strategy. Many leading companies understand that ignoring sustainability will be the death knell of their business so are integrating it into innovation to win the market now and future-proof their businesses. Tetra-Pak, the Swedish multinational food packaging and processing company, examined its supply chain and realised it has to source from renewable materials to survive. In 2015 the company unveiled TetraRex Bio-based package, the world’s first fully renewable liquid food carton package produced from nothing but renewable, recyclable, and traceable packaging and bio-based plastic derived from sugarcane. Unilever, the AngloDutch multinational consumer goods company, has also been generating revenue from sustainability-focused innovation. Its Sustainable Living Brand – products that have measurable positive sustainability impacts that includes Unilever’s five biggest global brands – grew 30% faster than the rest of the business and delivered half of the company’s growth in 2015. Measurement and internal, external accountability: Almost all large companies publish corporate sustainability reports. Most are externally focused and not used much for internal business decision-making. This has to change. 21st century sustainability measurement and accountability will expand beyond today’s practice so it is useful for internal decision-making and a variety of stakeholders, including investors. Financial professionals will have an important role to play because of the needed emphasis on metrics for capital

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investment, project budgeting, and investors who are increasingly seeking data for corporate valuations. Increased profitability: Companies will expand their focus from cost minimisation through operational efficiency to revenue generation from sustainability-focused breakthrough innovation. Companies like Nike are seizing this opportunity. Its FlyKnit technology uses one thread instead of multiple pieces of material to create shoe uppers and has transformed sneaker manufacturing, making Nike’s net income soar by 40%. Generating Sustainability-focused Innovation: But How? Devising ways to minimise both their company’s and their consumers’ footprint while maximising their handprint (the positive environmental and social impact we each can have) requires leadership and some changes to current corporate practices. A four-step path, illustrated in Exhibit 2 (see Exhibit 2 below), will lead companies’ sustainability-focused innovation and longterm value creation, saving both companies and society. Make the business case: Making the business case to gain CEO support for sustainability-driven innovation is critical. Convening personnel from across corporate divisions, creating the latitude for experimentation, and funding research and prototypes requires leadership. It is helpful to provide detailed and business-specific analysis of issues likely to impact the business – like shifting environmental and social conditions, demographic changes, and new technologies. So is the financial executives’ input on connecting sustainability-driven innovation to medium and long-term growth and profitability. Establish an innovation lab: Create a “company-within-the-company” with a different management and budget model than traditional business units to achieve

EXHIBIT 2. Four Steps to 21st Century Sustainability focused Innovation Make the business case & win CEO approval

Establish an innovation lab

Integrate

Measure & Report on outcomes

sustainability-focused 21st century breakthrough innovation. This group is tasked with understanding company-related sustainability issues – the way our future will look, the way people will live, move, and work in the next century – and asked to envision innovative products and services that will create new markets or upset existing ones. This hybrid team should consist of sustainability, strategy, innovation, accounting and finance, R&D, operations, legal/regulatory, packaging, materials management, and supply chain. By putting sustainability issues at the core, being given creative latitude, resources, and an extended timeline this group can be the inventors of products and technologies leading to business breakthroughs and societal well-being. Integrate: Integrating new ideas and transforming them to fit existing business models is critical, but doing it can be challenging. Some companies may let the innovation evolve into a separate division, while others may allow innovation to take over an existing division. Yet others may embed mini innovation labs into existing business units and alter corporate approaches to sustainability and innovation altogether, like Nike’s Considered Design Unit. Considered Design is a think tank, tool box, internal consultancy, competitive catalyst, and an antenna to the outside world tasked with providing inspiration, education, and the tools to drive sustainability best practices deep into Nike’s product creation units and processes. Regardless of the method, integrating breakthrough innovations is not dissimilar to integrating a new acquisition, which is firmly in the wheelhouse of established companies. Measure & Report: Measuring and reporting metrics for sustainability-focused innovation products and services must be developed with an emphasis on their usefulness for internal business

decision-making, external investor evaluation, and other stakeholders’ assessment. Financial executives have an important role to play. To survive and thrive in a future filled with social and environmental changes and technologies that are reshaping almost everything in our daily lives, companies have to re-define sustainability and re-position it at the core of corporate strategy. The result will be breakthrough sustainability-focused innovation and game-changing products and services. Our changing world means business cannot continue as usual – companies that do not adapt, innovate, and transform themselves using sustainability as a springboard will die. Is your corporate strategy ready to meet the 21st century? About the Authors Tamara Bekefi is the principal of Daedalus Strategic Advising, a sustainability-focused consulting firm that helps companies achieve competitive advantage through strategic innovation, risk management, and reporting. Author of numerous papers, articles, and white papers, Tamara has lectured at leading corporate forums and universities. She was formerly a Research Fellow at Harvard’s Center for Business & Government. Marc J. Epstein has held positions as Distinguished Research Professor of Management at Jones Graduate School of Business at Rice University and professor at Stanford Business School, Harvard Business School, and INSEAD. He has written or co-written nearly twenty books and more than two hundred papers, and has worked extensively with leading global companies on innovation and sustainability.

To survive and thrive in a future filled with social and environmental changes and technologies that are reshaping almost everything in our daily lives, companies have to re-define sustainability and re-position it at the core of corporate strategy.

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Innovation

THE CHIEF INNOVATION OFFICER

Should be in Charge of New Territories. Not More. Not Less. BY ALBERT MEIGE

The role of the CINO (Chief Innovation Officer) is to redefine what is possible for the company.

An analysis with Google Trends on “Chief Innovation Officer” shows an increasing interest starting in 2010. The term was actually coined and described by Miller and Morris in 1998, but it seems to have only received interest in the past 4-5 years or so. While the Chief Innovation Officer’s function is becoming increasingly strategic, its description is still in its infancy and varies among companies. In the following we will see why the perimeter of the Chief Innovation Officer should be new territories. Not more. Not less. This article is based on our book Innovation Intelligence (2015), written after interviewing dozens of Chief Innovation Officers and other C-level functions of large companies. Chief Innovation Officer: A Role in its Infancy The Chief Innovation Officer (CINO) and his team explore new territories by leveraging

CEO CINO + Innovation Lab

Etc.

Marketing

Production

R&D

Disruptive innovation Imagine core-business death Optimize learning

Extend core-business by increments Optimize PNL

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{ Innovation Intelligence {

Ideation & Experiment

innovation intelligence, ideation, and experimentation. [source: Innovation Intelligence] The challenge for large companies is to be agile despite their size. A company is designed to have the best P&L. Therefore it is very good at incremental innovation. However, most of the time it sucks at disruptive innovation. The role of the CINO (Chief Innovation Officer) is to redefine what is possible for the company. The role of the CINO is to drive innovation across the whole company, across the silos, across the functions, across the business units, across the geographical areas, and possibly beyond the company’s traditional borders. Ultimately, the CINO must ensure that innovation delivers business results. Because the CINO function is still emerging and every sector, company, and country is different, we do not pretend to provide here a detailed, comprehensive overview of all the functions of a Chief Innovation Officer. The following should not be taken as the grand truth on what a CINO should do in a company but rather as a common basis for the CINO role in most mature companies:

focus on business value: the purpose of the CINO is to identify disruptive threats and opportunities based on emerging trends.

Innovation is business oriented, and so is the CINO. The CINO ensures that innovation initiatives are designed for business value creation. An innovation project should not be undertaken just because it is fashionable (nanotechnologies, drones, 3-D printing, and so forth). To ensure that innovation is focused on business value, the

On the contrary, evaluating the performance of disruptive innovation, although it is driven by business, cannot be done with the traditional indicators. Once the common language has been agreed upon, another job of the CINO is communication. By communication, we mean both internal and external. Internal communication shapes the company culture. It is the only way to make the residents of the business silos aware that innovation can happen everywhere in the company. External communication can be a means to develop the innovative spirit of the company in such a way that it attracts creative talents and partners from horizons far away from the core business.

organize and leverage innovation-driven intelligence: based on innovation-driven intelligence, the CINO determines the company’s innovation strategy and aggressively manages the innovation portfolio. Knowledge is the CINO’s main

CINO is in charge of defining and monitoring the metrics of innovation performance.

defining language and changing culture: the first function of the CINO is to develop a culture of innovation in the company.

To be able to create such a culture, the first key is language. A common language for innovation must be defined across the entire company. A shared language is essential, because it prevents potential conflicts, such as an employee asking, “What is the role the CINO? We already have a CTO.” In addition, once there is agreement on the definition of innovation (specifically, disruptive innovation), determining how to evaluate its performance becomes easier. Core-business innovation is generally a matter of executing the standard processes of the company, and adequate metrics already exist for measuring its performance.

key. The issue is that encyclopedic knowledge is no longer possible. The good old days of the Age of Enlightenment are over. Proliferating and dispersed, knowledge represents a real – unsolved – challenge for CINOs. An unsolved challenge, because the volume of information is enormous, and because this information is not only technological but rather begins with the unstated dreams of people. Creating an integrated synthesis of the required knowledge is the CINO’s key challenge. And yet, the CINO must also anticipate and build a long-term strategic vision for the company. Moreover, based on the knowledge and vision, the CINO must take actions. Intelligence is not a new task. All companies have teams dedicated to technology watching, market analysis, trend analysis, and so forth. The main issue with this current approach is that traditional companies are built in silos, and these individual intelligence tasks are performed by various teams that hardly communicate with one another. Moreover, the people performing these tasks may not have a good understanding of what really matters for the company. Most importantly, these tasks are not synchronized, coordinated, or synthesized to focus on innovation. Intelligencedriven innovation should be concerned with both established knowledge on technologies, markets, and trends and new knowledge generated by the CINO who aims most of his or her actions to transforming assumptions into knowledge. You want to know more about innovation-driven intelligence? Shoot me an email.

fostering idea generation and rapid experimentation: ideas must be tested by rapid, small-scale experimentation that are used to convert assumptions into knowledge, from both a technical and business standpoint. Chief Innovation Officers are

not themselves responsible for idea generation, but they are in charge of setting up an environment that fosters idea recognition and rapid experimentation. Such an environment includes

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Innovation

was the original risk or uncertainty reduced? These are the types of questions that should be asked about a CINO’s performance.

bridging the gap between the innovators and the rest of the company: one the most difficult parts of the innovation process. New territories are explored by the CINO

leveraging innovation-focused intelligence, ideation, and experimentation. Once a new viable business opportunity has been identified (the CINO having transformed assumptions into new knowledge) and proven both technologically feasible and desirable for users, the project should be transferred to a business unit. The question is how to transfer? The answer is not obvious. Should the project be hosted by an existing business unit? Should an ad hoc business unit be created? Should it be spun off? The choice of approach depends on the situation.

the physical place but also the people, tools, and resources (see our upcoming articles on Innovation Labs). The innovation environment inside a company does not depend only on process and tools, but also – perhaps mainly – on people. Therefore, the CINO must cultivate the right talents. A CINO’s team tends to become increasingly multidisciplinary over time, incorporating not only engineers but also marketers, designers, and sociologists, among others. Managing learning is essential. The metrics to evaluate the Chief Innovation Officer’s performance should reflect this notion of creating new knowledge. What did the organization learn? How? How much? How fast? By how much

THE INNOVATION ENVIRONMENT INSIDE A COMPANY DOES NOT DEPEND ONLY ON PROCESS AND TOOLS, BUT ALSO – PERHAPS MAINLY – ON PEOPLE. 46

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Chief Innovation Officer: Multidisciplinary and Closer to the CEO Various studies show that the innovation function is rising in the hierarchy and is getting closer from strategy. Trend #1 from just a few to thousands of CINOs. At the beginning of the 2000s, there were just a few dozen CINOs in the world. There are probably thousands today, in early 2015. The European Institute for Creative Strategies and Innovation, headed by Marc Giget, conducted an extensive survey of more than five hundred CINOs around the world to gain an understanding of how the function has evolved over the past few years. As of today, half of the large companies surveyed have established a CINO function. The role of the CINO is not yet uniform across companies and is still evolving. Trend #2 the CINO and his team are becoming more and more cross-functional. The general trend we have observed is that the role (and the team) of the Chief Innovation Officer is becoming more and more multidisciplinary. These teams are transitioning from being a sample of the company to being a sample of the world. Trend #3 the CINO is getting closer to the CEO. Proximity to the CEO allows the CINO to take a holistic approach across the organization. To be effective, the CINO needs strong support and a clear mandate from the CEO. Because the CINO’s role is to explore new territories, he or she must be able to be challenge silo residents and business as usual. Chief Innovation Officer: A Unicorn? Because most traditional CEOs cannot assume the function of a Chief of Innovation, the CINO, with the CEO’s mandate, is a person who can apply multiple skills to a broad range of knowledge, knowledge of not only technology but also markets, finance, and so forth. The ideal CINO will know how to seek input from others, both within and outside

All three Illustrations in this article: Courtesy of Frédéric Duriez

the company. The CINO is convinced that innovation is a necessity. He or she believes in innovation and is not risk-averse. The CINO is not necessarily a creative person or an innovator. Although many CINOs have a technological bias (although a growing proportion of CINOs are coming from digital, management, and strategy), the ideal CINO combines traits which are very seldom embodied in a single person: Trait #1 business understanding. The CINO has a good business understanding, which enables him or her to combine long-term strategic planning and short-term tactical operations. The CINO must have a thorough understanding of the company’s competitive position. Trait #2 technological wisdom. The CINO must have a sufficient level of understanding of

technologies as enablers of new products and services. Although not necessarily a specialist, he or she should be able to listen to and challenge technical people. Trait #3 communicative leadership. The CINO must bridge the gaps among other C-level executives at the speed of light. The CINO is not the only leader but rather is able to bring other functions on board and invite them to contribute to in-house cross-fertilization. Even if the CINO is a born leader and a genius in communication, this requires the support of the CEO. Trait #4 client-centric experimentation. Since innovations must be tested as quickly as possible on users or clients. The CINO has therefore a strong taste for experimentation. He should have a natural empathy for the final user problems and be able to focus all his experimentation on this point. Trait #5 ability to connect small worlds. The CINO must be able to bridge disparate areas of knowledge. To do that, the CINO must have a large active network comprised of small worlds and be able to connect the dots. Steve Jobs had probably all of these qualities, but he was also a very difficult person to work with. What do you think the role of the CINO should be? This article was first published on Open Your Innovation on 10 March 2016. About the Author Albert Meige has been an entrepreneur since his teenage years, when he began by selling magic! He is now the founder and CEO of Presans, a global digital platform of experts. He is also the Director of the Executive MBA of the Institut Mines-Télécom. He is an expert for the Harvard Business Review France. Trained as a Telecom Engineer, he also holds an MBA from HEC Paris business school and a PhD in Physics from the Australian National University. In 2008, the French École Polytechnique awarded him its Innovation Prize. He has authored several books including Innovation Intelligence (2015), as well as over a dozen peer-reviewed academic publications and also holds two patents.

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Innovation

HOW HIGH-END DISRUPTION COMPLETES THE DISRUPTIVE INNOVATION MODEL BY JUAN PABLO VAZQUEZ SAMPERE

Why don’t we have an integrated mechanism of entrepreneurship to consistently make new companies successful? Turns out that the Disruption experienced in the 20th century (cars, planes, …) was fundamentally different from today’s Disruption (Airbnb, etc.). This article explains how the three types of Disruption help create predictable successful startups. How High-End Disruption Completes the Disruptive Innovation Model Let’s face it, innovation is hard. A recent Nielsen study pointed out that between 2012 and 2016, out of 20,000 new products evaluated, only 92 (0.46%) had sales of more than $50 million in year one and sustained sales in year two.1 Launching new companies is even more challenging, most startups cease operations after five years and most of the ones that are left standing find themselves stuck and have to make great efforts to make ends meet.2 At the same time, we need an explanation for companies such as Tesla, Airbnb, Infosys, Samsung, Sony, Dell, Apple, and many others that are so successful. And we need more than an explanation, we need a prescription, a recipe for creating successful companies. Pundits might think that this is all very new, that this is why there is no prescription yet. But in reality, entrepreneurship is an old phenomenon and it turns out that it’s precisely when and how it was conceived that makes it so challenging – and surprisingly, this is the main reason that is confounding so many business school professors. Let me put it this way; the people that were born in the late 1890s and onwards witnessed the greatest technological

revolution ever – much more impactful than today’s. Hundreds of radical innovations revolutionised entire industries, think about cars, penicillin, electricity, airplanes, mechanised factories, chemical synthesis, radial tires and a very long etcetera. We take these innovations for granted today but there was a time where these radical technologies disrupted entire industries. For example, when Michelin introduced the radial tire in the US they took over all other the other tire manufacturers but Goodyear – who had to undergo a near death experience and needed decades to recover. Industry after industry new companies with new technologies were taking over and disrupting very powerful companies that just a decade ago seemed invincible, and these companies fought as hard as they could before they vanish. Business schools professors started to investigate, in particular, Joseph Alois Schumpeter, that in 1934 wrote that the state is the key to industrial prosperity,3 would change his mind and would name “entrepreneurs” those individuals that introduce radical technologies and create industrial revolutions that rejuvenate and restructure, often quite dramatically, entire 4 industries. But Schumpeter also noted that entrepreneurs were rare. He observed

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Innovation

that more often than not entrepreneurs would fail, and most importantly, that the mechanism that describes when the entrepreneur will fail or not was unclear. He left us with a question: “how does the mechanism of entrepreneurship work?” This is the main question in entrepreneurship, and it has been formally under study for decades. Still today there is no unified explanation of the entrepreneurial mechanism – that will come with the introduction of Disruptive Innovation.

Business school professors started equating entrepreneurship success with the ability of superior technologies to “capture” an established firm’s premium customers, leaving them with no option but to disappear. As noted, the term entrepreneurship was created to describe what was being observed. How new radical technologies took over industries, as a result, business school professors started equating entrepreneurship success with the ability of superior technologies to “capture” an established firm’s premium customers, leaving them with no option but to disappear (remember that this was very observable back then). In this process the entrepreneur would make money rather quickly because premium customers are very profitable, so the new company will recoup the initial investment in a reasonable amount of time. That’s what was observed when electricity took over candles. When planes took over transatlantic cruise lines or, more recently, when the first iPhone disrupted regular mobile phones. Over time, this idea became commonly accepted, even today, most business schools don’t approve business plans that do not include a superior technology. For many business schools it seems to be a self-evident truth that because the new technology is so much better it will be unequivocally accepted in the market. For instance, a few years ago, entrepreneurs created new advertising agencies that using the internet would let customers select the target audience for their ads, premium customers (big companies with big advertising budgets that advertised in mainstream media) would get much more

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granular data on how well did they spend their budget, this was much more precise than what TVs or radio stations were willing to offer. All these companies failed, and most of them came from very prominent business schools, and all their business plans (with no exception) had an Internal Rate of Return of at least 40%. But what if entrepreneurship doesn’t only happen “like an H-bomb” where the new company takes all established firms out of business in a short period of time? In the late 1970s a new trend started to become more noticeable, it had always been there, but for the first time a few business school professors started noticing that new or inferior technologies could also enter a market by targeting other customers that were not necessarily the premium ones. And that by targeting low value customers, that were at the bottom of the market, and improving from that position, they could also change the industry and disrupt established firms.5 Then, in 1992, Clayton Christensen formalised this process by introducing to the world the theory of Disruptive Innovation,6 a new approach to entrepreneurship, not incompatible with the established one, but certainly different. A new approach that challenged the conventional wisdom by claiming that if companies start at the bottom of the market and focus on making money, instead of trying to recoup the investment fast by targeting premium customers, that over time these new firms will take over established

firms without a fight – mostly because established firms will be motivated to flee and relinquish their position. Note that this happened at the end of a century that had witnessed the greatest technological revolution of all time. It was a new depiction of the entrepreneurial mechanism that was very much at odds with business school professors’ conventional wisdom of new radical technologies taking over by leveraging on premium customers. Needless to say, professors were outraged. Reactions didn’t take long. Business school professors started writing dozens of articles and even an entire issue of a well renowned scientific journal7 claiming that Disruptive Innovation was incorrect because it didn’t fit what they believed was the “right” way to understand the entrepreneurial process. Then they were even more outraged when Disruptive Innovation gained so much widespread popularity between managers and CEOs, because of its ability to explain what is going on. Criticisms intensified. Over time, Christensen and his colleagues and former students continued improving the theory (no theory is born complete) to continue accommodating unexplained phenomena. Then something unexpected happened, an historian (yes, an historian) read Christensen’s first book on Disruption8 and overlooking more than a decade of improvements wrote a harsh critique in a manager’s journal (normally theories are discussed in specialised academic journals), this was subsequently followed by another business school professor that conducted an empirical study that, again, largely overlooked 20 years of research on Disruptive Innovation.9 As said no theories are born complete. When Disruptive Innovation was presented to the world it described how new technologies that

made products more affordable and simple and that were initially targeted at low margin consumers would become successful.8 This phenomenon was dubbed Low-End Disruption and was exemplified in a variety of nonrelated industries such as fast food restaurants, mechanical excavators, the steel industry and more recently Dell Computer. A few years later the theory improved with the introduction of New-Market Disruption.10 Which are startups that again use new technologies but that target adjacent markets that are populated with non-consumers (people that cannot consume because of price, time, access or skills). For instance, Google in the search engine market helped many medium size businesses to advertise in a mainstream channel for the first time, ING-Direct helped people manage their savings for customers that were not attractive for retail banks or the famous Airbnb that found growth nearby the hotel industry. These are all poster child cases of New – Market Disruptions. But in today’s Disruptive Innovation model companies such as Tesla, Uber or Chobani are identified as non-disruptive.11 These companies target premium customers, were very expensive to fund, target exclusively premium customers and are putting established firms in trouble. In Disruptive Innovation parlance, we say that they fit Disruption but that they are not Disruptive, which is observable because established firms, instead of not presenting a fight, have been quite responsive to these new entrants. The two types of Disruptive Innovation identified are both based on having established firms “not react” to the new ones because they don’t perceive them as a threat. But a third type of Disruptive Innovation is starting to emerge. High-End Disruption is based on the idea that established firms will “react” but that

NO THEORIES ARE BORN COMPLETE. WHEN DISRUPTIVE INNOVATION WAS PRESENTED TO THE WORLD IT DESCRIBED HOW NEW TECHNOLOGIES THAT MADE PRODUCTS MORE AFFORDABLE AND SIMPLE AND THAT WERE INITIALLY TARGETED AT LOW MARGIN CONSUMERS WOULD BECOME SUCCESSFUL. www.europeanbusinessreview.com

Innovation

High-End Disruption is based on the idea that established firms will “react” but that their response won’t be effective because the new company has deliberately placed itself in a position that the established firms can’t reach. their response won’t be effective because the new company has deliberately placed itself in a position that the established firms can’t reach.12 It turns out that this is precisely the answer to Schumpeter’s initial question and the main area of research in entrepreneurship. For instance, consider Skype in the national calls market (e.g., inside the US), Skype tried to capture customers by trying to disrupt the phone line, what did established firms do? They made bundles between fixed-lines and internet access so customers would pay a flat rate for national calls. But now consider Skype for international calls, this was a much more profitable market than national calls market for operators, but here they could not collude (colluding is illegal, but keep in mind that there is a very long record of established firms doing everything and anything to survive) like in the national market to block Skype. They reacted in both cases but in the national market they had “reach” so they kept the market, and in the second they had to watch how a newcomer was taking over one of their most profitable markets – in the very same fashion that Schumpeter described. Another example is Uber, the company is only banned in countries where the national taxi lobby has deep ties with the government, the weaker the taxi lobby the more leeway Uber has enjoyed in that particular country. Since Schumpeter’s time, the word “Disruption” inherited a strong connotation of something to be revolutionary, and even though it is not what Christensen defined, the latest improvement to the theory of Disruptive Innovation, High-End Disruption, can bring business school professors much closer to an

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integrated model of entrepreneurship that lowers the failure rate of launching new firms. By understanding the three types of established firm’s response to a new firm and uncovering in detail the mechanism of how these three types of Disruptive Innovation work entrepreneurship can become a predictable and reliable process – not a bad alternative considering that last century’s technological revolution came with great increases in job creation, something that is clearly not happening this time. About the Author Dr. Juan Pablo Vazquez Sampere is Professor of Business Administration at EADA Business School in Barcelona. He is specialised in Disruptive Innovation and Entrepreneurship. References 1. C. M. Christensen, T. Hall, K. Dillon, and D. S. Duncan, “Know Your Customers’ ‘Jobs to Be Done,’” Harv. Bus. Rev., vol. 94, no. 9, pp. 54–62, 2016. 2. S. A. Shane, The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By, 1st Ed. New Haven: Yale University Press, 2010. 3. J. A. Schumpeter and R. Opie, The Theory of Economic Development; An Inquiry Into Profits, Capital, Credit, Interest, and the Business Cycle. Cambridge, Mass.,: Harvard University Press, 1934. 4. J. A. Schumpeter, Capitalism, Socialism, and Democracy. New York: Harper & Brothers, 1942. 5. K. B. Clark, “Knowledge, Problem Solving, and Innovation in the Evolutionary Firm,” Unpublished working paper. Harvard Business School., 1989. 6. C. M. Christensen, “The Innovator’s Challenge: Understanding the Influence of Market Environment on Processes of Technology Development in the Rigid Disk Drive Industry,” Thesis, Unpublished Ph.D. dissertation. Harvard University., 1992. 7. E. Danneels, “Dialogue on the Effects of Disruptive Technology on Firms and Industries,” J. Prod. Innov. Manag., vol. 23, no. 1, pp. 2–4, 2006. 8. C. M. Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston, Mass.: Harvard Business School Press, 1997. 9.A. A. King and B. Baatartogtokh, “How Useful is the Theory of Disruptive Innovation?,” MIT Sloan Manag. Rev., vol. 57, no. 1, pp. 77–90, 2015. 10.C. M. Christensen and M. E. Raynor, The Innovator’s Solution: Creating and Sustaining Successful Growth. Boston, Mass.: Harvard Business School Press, 2003. 11.S. D. Anthony, “When Can You Sustain and Win?,” Strateg. Innov., vol. 4, no. January-February, pp. 6–9, 2006. 12.J. P. Vazquez Sampere, “Uncovering the High End Disruption Mechanism: When the Traditional Start Up Wins,” in Global Perspectives on Technological Innovation, Management and Policy, 1st. Ed., R. Bing, Ed. Volume 1. Pennsylvania State University at Harrisburg: Information Age Publishing, 2012, p. 516 pages.

Leadership

Leadership with a Smile

Managing Our Emotions as a Tool of Enacting Leadership BY MARIAN ISZATT-WHITE

Practicing leaders often have to manage their emotions as part of enacting their leadership role: whilst we all do this as part of our everyday lives, for leaders it can be an important “tool of the trade”. So how do they perform the “emotional labour” this entails and still feel authentic as leaders? More than just “Service with a Smile” We are all familiar with the kind of fake “service with a smile” which is a common feature of many of our commercial interactions today. The McDonald’s server, the airline cabin crew and the hospital nurse are all required to show particular emotions and suppress others as a routine part of their work. But the need to abide by professional “display rules” – and to use their emotions as a tool of getting the job done – is also an inseparable part of the work of professional managers and organisational leaders. Motivating staff, disciplining under-performers, appearing confident in times of uncertainty and change, and controlling personal feelings which would otherwise intrude upon our professional persona are all part of the everyday lives of those of us who occupy such roles. And whereas the “emotional labour”1 of service workers is often formulaic and relatively superficial – a series of brief encounters – for leaders it is likely to be far more complex and to require a greater degree of judgement and engagement. The more ongoing relations, the wider variety of desired outcomes,

and the more complex nature of leadership work per se, all contribute to making professional emotional labour a much more challenging beast than its service sector counterpart.2 “To Thine Own Self be True...”3 At the same time, we are hearing constantly of the need for leaders and managers to be “authentic” as the antidote to the numerous examples of individual unethical behaviour and corporate scandal which are constantly being presented to us by the media. Authentic leaders are said to be “transparent about their intentions and [to] strive to maintain a seamless link between espoused values, behaviours and actions”.4 This raises the question of how individual leaders and managers “square the circle” between the need to perform emotional labour as a routine part of their jobs, and the requirement to both feel and appear authentic. So how do practicing leaders experience the potential tensions arising from these very different demands of their leadership roles? And what strategies can we all employ for keeping an authentic sense of self when called upon to perform emotional labour in the enactment of our own leadership and management roles? Much of my research in the last 10 years has involved asking a range of leaders – middle and senior managers, public and private sector, male and female – exactly these questions. Their answers have been most enlightening – and often surprising.

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Be aware of how important your emotions are and how much they can affect other people. The most dangerous thing is being unaware.

Squaring the Circle Between Emotional Labour and Authentic Leadership There was an easy acceptance by the leaders I studied of the “display rules” that their roles required. Ted, an administrative director in Higher Education said: “It’s a bit like being an actor, you try and present an appearance you don’t necessarily have to feel it. If you are in a situation where you think it’s going to be of value to raise your voice … then do that but you don’t have to feel it.” Another senior manager in the public sector, Julie, said that for her it was “A balance between role playing and the real me … so generally speaking if I am concerned or angry about something … I control how that is demonstrated by me, I don’t necessarily control the fact that I am angry or concerned.” All of the managers I interviewed had been required to make redundancies or handle disciplinary issues, with both situations being viewed as a challenging but accepted part of their role. Even when faced with a male colleague breaking down in tears, Roger – a senior manager in the petrochemicals sector – stated “It is my job, I have assessed it, it is a right and fair decision and this has to be the outcome” Whilst managers often can’t alter redundancy decisions, the way such decisions are communicated and the degree of support given to staff are within the manager’s direct control. It is here they can allow their values to be authentically expressed. Terry, a national sales manager, summarises it as follows: “I’ve had to make people redundant and I didn’t look forward to it but I managed to separate personal feelings of ‘I wish I didn’t have to do this’ from a professional responsibility, explaining the reasons why and keeping focussed on those commercial reasons and trying to show a degree of sensitivity rather than just being completely detached emotionally. My instincts would be to have got[ten] more emotionally involved but if I had done so it probably wouldn’t have helped the individual.” Disciplinary conversations are also an accepted part of the managers’ role. Roger stated “(I feel) uncomfortable because I don’t like confrontation but at the same time I don’t shy away from it because I recognise it is part of the job.” Nina, an IT

The European Business Review March - April 2017

manager, talking about the need to confront an underperforming member of staff, makes it clear, “if I didn’t do anything as her manager then I was not being effective in my position”. However this is an area where increased management experience eases the challenge. Nina states, “I think initially I absolutely hated them. At first I felt I just wanted to run away from it because I did not want that conflict.” But she goes onto say: “I don’t think there is any point in shying away from them because if you do, things just get worse and worse” so you just have to be “confident with the knowledge and evidence you are taking into that situation”. It is not only in the management of colleagues where emotional labour is expended: many leaders cited stressors from outside of the organisation too. For example Rebecca, a director of a management consultancy, talked about the need to consciously control emotions in front of clients and maintain the professional mask: “whatever you think, if the client is talking utter rubbish, you just stay pan faced, so I am quite consciously in control of my emotions at work”. Similarly, Steven, from a multinational IT consultancy, described his frustration and the emotional labour expended when clients change their minds about what they want. He says, “It’s frustrating but you are not able to express that frustration … If you stand up and say ‘I am not going to do it because you are changing your mind way too often’ it is not going to look good for our company. Emotions have no place in those dealings … I hold back comments I want to make.” Losing Professional Control A number of leaders told stories of when their managerial mask had slipped and they displayed unprofessional, yet genuine emotion. Nina talked about a meeting with her Chief Executive when she presented her business plan to him: “He absolutely slated it, saying it will never work, but I had got buy-in from everybody and people had fed into it and I just cried. I was trying to look out of the window and blink and I just couldn’t stop the tears ... I was devastated that I had cried instead of talking to him professionally.”

Whilst examples of managers losing emotional control serve to emphasise that – like the rest of us – they are only human and it is interesting to note that in most cases this “unprofessional” display of authentic emotion had a positive effect on future working relationships. Nina reported that, “Since then our relationship has been miles better in that it has been a lot more open. I don’t think he realised what pressure we were under to deliver and he has put himself there saying ‘I should have done this, should have been more supportive in that way’ … In hindsight, even though I was distraught at the time, it had a real positive effect on our relationship.” Strategies for Coping with Emotional Labour The practicing managers I spoke to had plenty of advice to offer about how to successfully manage the emotional labour required to be an effective leader. Rebecca advised “don’t shy away from things”, on the basis that avoiding situations causes more emotional labour than facing difficulties. It was also seen as beneficial to be able to take the observers role and analyse the reasons behind a situation. Curtis, who runs his own business, told me: “Every time emotions come into play in the workspace, take a bit of time to reflect on how your emotions have affected yourself and other people and whether you are happy with that effect. So not necessarily trying to control yourself or immediately change, because that’s a really hard thing to do, but almost to be aware of how important your emotions are and how much they can affect other people. The most dangerous thing is being unaware.” “Planning and preparation is everything” was an advice given by most leaders in facing difficult meetings and conversations. Gordon, an experienced manager in a large city council, put it as follows: “You have to do a lot of preparation – you have to make sure that you know what the points are that you want to say – you have to make sure that you have an idea of what sort of resolution you want out of it … and then when you actually go into the meeting you have to be a very, very good listener because a lot of conflict management is about giving the other person a chance to express what they have to say and their feelings.” It was predictable that all the managers I spoke to talked about the need to have people with whom they

All managers talked about the value and benefit of having a “circle of trust” where issues could be discussed and support given.

could discuss difficult situations. Some discussed issues with their partners whilst some purposely did not, maintaining the separation between work and home life. However, all talked about the value and benefit of having a “circle of trust” where issues could be discussed and support given. Peter, an experienced manager in a large multi-national, advised “Find a friend or a colleague who you know has a similar value system or who you can let off steam to. Or who you think will at least give you an objective response to ‘why am I feeling like this’ or ‘need to remember this, that or other’.” Many managers used exercise as their chosen way of letting off steam in the fasce of high requirements to perform emotional labour. More often than not the exercise was outdoors and involved nature. Dennis, a director in the public sector, made the connection between exercise and successfully handling the strains of emotional labour explicit: “If I know I am going to be going to a challenging meeting I tend to go to the gym first or go for a swim and I would get rid of my testosterone and I find myself so much calmer.” This is a strategy we could all usefully try! About the Author Dr. Marian Iszatt-White is Director of Doctoral Programmes at Lancaster University Management School and a lecturer in Leadership and Management. Her research centres around the accomplishment of leadership as a day-to-day practice and she is the Editor of Leadership as emotional labour: Management and the ‘managed heart’ (Routledge, 2012 – recently reissued in paperback). She has also co-authored a leadership textbook (Leadership – published by OUP in 2014, second edition due out March 2017) aimed at countering the Western bias in much of the leadership literature. References

1. Hochschild, A. (1983) The Managed Heart: Commercialization of Human Feeling. Berkeley, CA: University of California Press. 2. Iszatt-White, M. (editor) (2012) Leadership as Emotional Labour: Management and the ‘Managed Heart’. Routledge. (Reissued in paperback September 2016). 3. Laertes, Act 1, Scene 3, Shakespeare’s Hamlet. 4. Luthans, F and Avolio, BJ (2003) Authentic leadership: A positive development approach. In K.S. Cameron, J.E. Dutton and R.E. Quinn (eds) Positive Organisational Scholarship: Foundations of a New Discipline. San Francisco: Berrett-Koehler. (pp 241-261).

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Workplace

THE THREE TRAITS THAT ARE

A MAGIC FORMULA FOR WORKPLACE SUCCESS BY JAMES A. RUNDE

The Magic Formula of Ability, Opportunity, and Courage result in countless examples of successful careers. These three attributes can make such a big difference in the performance of employees. Why are Ability, Opportunity and Courage the deciding factors in career success?

eople will tell you there is no Magic Formula for success in the workplace. I disagree. In my 40-year banking career, I have seen the Magic Formula of Ability, Opportunity, and Courage result in countless examples of successful careers. These three attributes can make such a big difference in the performance of employees that firms like Deutsche Bank are now screening potential hires for it. Why are Ability, Opportunity and Courage the deciding factors in career success? ABILITY In today’s fast-paced and turbulent world of professional services, it is no longer enough to work long hours and demonstrate proficiency in your respective field. To get ahead as an

investment banker, lawyer, consultant, or accountant in today’s competitive world, you must find a way to succeed on teams and on projects while also distinguishing yourself as an individual. Emotional intelligence is the ability to monitor your own and other people’s emotions, to distinguish between different emotions and label them appropriately, and to use this information to guide your thinking and behaviour. According to a study by American Express,1 EQ is the single biggest predictor of performance in the workplace and the strongest driver of leadership2 and personal excellence. EQ can help you to understand the corporate culture and its unwritten rules, relate to bosses, colleagues, and clients, and become a top-level performer – even in the first year on the job. OPPORTUNITY Employment opportunities come to you through your immediate boss and your network. If you master the parameters of your current job, then your boss should identify opportunities that will allow you to grow your skill set and motivate you to progress. A good boss will help you to map a career growth

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Workplace

plan and provide opportunities for you to step up. These new opportunities will allow you to expand your skill set, confidence, and competencies. This could mean increased exposure to clients, more responsibility on an engagement, an opportunity to lead a team, and so on. Networking is an approach that can broaden the number of people you know, the number of people who know you and the number of opportunities you are presented during your career. People who network are more likely to advance by better connecting the dots to a successful career. Networking is the key to developing relationships, differentiating yourself internally and expanding your career opportunities. If you have a solid network, then you will find out when a new opportunity is about to arise and you can check a new job offer with people in your network to make sure that you are making a wise decision. Networking was crucial to me as a junior person in professional services, and it is just as critical to me today. Networking can benefit you at every point in your career and can lead to finding sponsors who can change your career trajectory. COURAGE “Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen.” – Winston Churchill, United Kingdom Prime Minister Mentors and sponsors can give you courage to succeed in your career. Mentors are willing to use their experience to help you navigate through your organisation and to provide advice and guidance for your career. They can help you determine and articulate your strengths – what you do well and what differentiates you from others at your level. Mentors can tell you how others in your organisation perceive you. They can see opportunities for you that you cannot see for yourself. Unlike a mentor, a sponsor will take a risk on you, has the power or authority to put you in a higher position, and is there for you when you need someone to back you up. A sponsor will connect you to important players and assignments that will open new doors for you and help guide you through your career. Even the best mentors cannot assist you if you do not have the courage to tell them your concerns and fears. Telling anyone you feel

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The right mentor can help you discover your inner strength and provide you the extra dose of confidence you need to make the right decision, move forward, or face reality rather than live in denial. confused or inadequate requires enough humility to show your vulnerability. The right mentor can help you discover your inner strength and provide you the extra dose of confidence you need to make the right decision, move forward, or face reality rather than live in denial. Do you remember the lion in The Wizard of Oz, who went to see the great and powerful wizard? The lion thought he lacked courage, but his real problem was that he did not believe in himself. The wizard, acting as a mentor, gave the lion a medal marked “courage”, which was just the confidence boost the lion needed. Acknowledge your concerns and fears when talking with your mentor. Be open to discussing those issues with your mentor and listen to the advice your mentor gives you. I have seen this Magic Formula transform the careers of those who have believed and applied it. Here is an example. A client was promoting its investor relations (IR) director to CFO, and therefore the IR job was going to be open. The assistant treasurer of the client, a woman named Kelly, called me to say that the IR job opening was not yet announced and asked for my advice. Kelly was well qualified for the IR position. Specifically, she worked at the client company for seven years in various positions and had a wellrounded understanding of the company; she had strong analytical and quantitative skills; she was adept with financial data; she was a highly regarded team player with an extensive network; she was discreet and knew how to handle confidential information; she was an excellent communicator; and she had a strong academic record. When Kelly called me to ask my advice, I mentioned the Magic Formula to her and I said she clearly had the Ability and her network and reputation were giving her the Opportunity to raise her hand and apply for the job.

Kelly agreed, but said she was not sure she could handle the IR job with its exposure to the CEO and rigorous financial analyses required. I told Kelly that I knew the IR job looked like a big leap for her, but I was confident she would do an excellent job in that role and that I was happy to call her CEO to endorse her. I also gave Kelly the following advice: • Make an appointment to see your boss so you have her attention. • Do not ask for her permission to apply for the IR job, but tell your boss that you are interested in maintaining a good relationship with her and you want her to be the first person that hears about your interest in the IR spot. • Tell the boss that the IR job is about to open up, you are interested in moving up in the company and you are confident your skills are a good fit for the IR position, partly because your boss has helped you expand your professional abilities. • Assure your boss you have a replacement for your current job in mind and that you will finish all your existing tasks in good order. • Ask the boss for her support in securing the IR position. Kelly thought about my advice and said my

encouragement was all she needed to conquer her fear. She was going ahead on her own to express an interest in the IR position. Kelly got the IR job by proving that she had the Ability and experience to do the job, learning about the Opportunity through her network before it became common knowledge and having the Courage to raise her hand for the promotion. It might seem hard to believe that a Magic Formulas exists, but I am confident that this one will help you move up in your career. Give it a try!

It might seem hard to believe that a Magic Formulas exists, but I am confident that this one will help you move up in your career. Give it a try!

About the Author James A. Runde is the author of UNEQUALED: Tips for Building a Successful Career Through Emotional Intelligence. He has worked at Morgan Stanley for over 40 years, the longest-serving investment banker at a single institution in the United States. References

1. http://millennialbranding.com/2013/gen-workplace-expectations-study/ 2. https://hbr.org/2015/04/how-emotional-intelligence-became-a-keyleadership-skill

THE MAGIC FORMULA FOR WORKPLACE SUCCESS

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Trusted and respected, while flexible and innovative. Mastering the right balance. For over 30 years, Global Bank of Commerce, Antiguaâ&#x20AC;&#x2122;s oldest institution providing international financial services, has offered its clients the perfect balance of world class banking, security and convenience. Antigua is an independent and sovereign jurisdiction since 1981, and is well positioned as a safe haven for the more discriminating investor, who may also qualify to obtain citizenship via a regulated process. Contact us and learn how we can support your financial goals, today and tomorrow. Global Commerce Centre Old Parham Road P.O. Box W1803 St. Johnâ&#x20AC;&#x2122;s, Antigua, West Indies Tel: (268) 480-2240 Fax: (268) 462-1831 email: customer.service@gbc.ag www.globalbankofcommerce.com

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CROSSING CULTURAL BARRIERS TO ACHIEVE SUPERIOR TEAM RESULTS INTERVIEW WITH BHASKAR PANT EXECUTIVE DIRECTOR, MIT PROFESSIONAL EDUCATION

Culturally diverse teams produce more creative, innovative group results, compared to those in more culturally homogenous groups. In this interview with Bhaskar Pant, the Executive Director of MIT Professional Education, he shares with our readers how to communicate and manage their culturally diverse teams towards success. Different cultures can lead to misunderstandings when communicating and managing colleagues from different countries. As the Executive Director of MIT Professional Education, what are your recommendations on how a leader can communicate effectively to his/her team in a multinational workplace? What is the biggest challenge in getting this right? Let me speak here also as a lecturer in the field of â&#x20AC;&#x153;intercultural communication in global businessâ&#x20AC;?, who has taught seminars and courses on the subject to quite a diverse set of students and professionals at MIT, at Harvard and at universities outside the US. Assuming the team leader is already aware that cultural differences may be playing a role in communication between and among members in his/her team, the first and most important thing a leader should

BHASKAR PANT Executive Director MIT Professional Education

Bhaskar Pant is the Executive Director of MIT Professional Education, where he oversees MIT education programs designed for working professionals around the world. He has taught courses and seminars on intercultural communication for over a decade to students and professionals around the globe, including engineering students at MIT and management students at the Harvard University Extension School. Previously, Mr. Pant served in senior management positions for media, media technology and education organisations such as Time Warner/ CNN (in India), Sony Corporation (in Japan and the US) and the Educational Testing Service (in Singapore).

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Workplace

do is to get to know team members from their individual cultural framework perspective. Are they more individualist or group-oriented in their approach to work? Are they more task or relationship-oriented? Do they come from a very hierarchical background? These are some of the indicators that will inform a leader on the type of communication approach to take with each of the members, and extrapolate that to the whole team to facilitate a more effective interaction and decision-making process. Often leaders and supervisors do not invest the time needed to discover what drives individuals from a cultural point of view; they focus almost entirely on the employees’ work backgrounds and technical skills. This leads to an imbalance in relationships and less than optimum productivity from teams. Time can be interpreted in different ways by different cultures. How does one’s culture affect their perception of time? What are the steps for one to understand the culture of time? Anthropologist Edward Hall divided up the world into two broad cultures – “High context” (where the emphasis is more on what is around the communication) and “Low context” (where the emphasis is on words and the communication itself). The low context cultures, particularly those in the west, think of time as a limited resource not to be wasted. Punctuality and planning are super important to them. Those in high context cultures, particularly in Latin America, the Middle East and Asia, view time, perhaps even more spiritually, as “limitless”; they view success as defined not so much by whether you accomplish things in a defined timeframe, but by whether you achieve favourable outcomes in relationships while accomplishing a task – a particularly hard concept to understand for so many in the west, who are guided doggedly by time and deadlines, and are more transaction-driven. It’s not that those in high context cultures do not take deadlines seriously; they do so, however, in the context of furthering or enhancing relationships for the long term.

The European Business Review March - April 2017

Those in high context cultures, particularly in Latin America, the Middle East and Asia, view time, perhaps even more spiritually, as “limitless”; they view success as defined not so much by whether you accomplish things in a defined timeframe, but by whether you achieve favourable outcomes in relationships while accomplishing a task

You’ve mentioned in your article “Different Cultures See Deadlines Differently” that deadlines often cause misunderstandings in a multinational workplace. How do these misunderstandings affect business relations? How can a leader emulate the importance of understanding different time cultures for his team to work comfortably productive? Picking up from my response above, when certain team members let deadlines slip, it can have trust ramifications within the team and possible contractual ramifications on the outside for missing deadlines. To forestall such negative consequences, a team leader must ensure that there is group buy-in to timelines ahead of the initiation of any project; that those from “higher context” backgrounds are sensitised to the possible negative impact on relationships with their colleagues, superiors and/or clients that can result if time commitments are not kept. Over a period of time, the importance of meeting deadlines becomes embedded in the ethos of multicultural teams operating in “low context” business environments. In today’s globalising world, digital communication is common in business relations. What are the possible difficulties that leaders may encounter in dealing with digital communication across cultural barriers? How can leaders overcome these difficulties? While the internet can be viewed as the “great equaliser” from an access point of view, giving one the ability to reach someone across the globe just as rapidly as someone in the next cubicle, it also poses substantial risks in terms of the phraseology and tone used in electronic communication with those from another culture. There is often an assumption made that there exists a common lexicon for digital communication across the globe, when in fact, even if English is the shared language of communication, cultural factors impact elements such as expressions, vocabulary and formality used in a message. These are factors that would be at play also

in an in-person interaction, except in digital communication, one would not have the luxury of being able to read body language or hear voices. And with the recent explosion in tweeting and texting, the brevity of words and/or abbreviations used in digital messages, tend to accentuate even further language and cultural differences – and therefore the risk of miscommunication. This is particularly true when you are communicating with those from the 50+ age generation who may not be as familiar with the latest “twitter vocabulary” deployed by those in younger age groups. In my view, the solution is always to err on the more conservative, formal side of language use when e-mailing across cultures, particularly when you are communicating with someone for the first time, and to use “International English”, i.e. English void of regional expressions or slang, as much as possible. This approach can change once you get to know more about your counterpart’s communication style. What management skills can you suggest for leaders and their multinational team to make their workplace more productive and inclusive? Showing by results the value and power of diversity in teams in a multinational workplace, is a must for a modern-day leader, particularly at a time when divisive forces seem to be operating more strongly, particularly in the political arena. Overcoming language and cultural differences in a multicultural team is never easy, but once team members get over the initial obstacles through a determined, leader-inspired effort, the collective power and strength of diversity is unleashed. When encountering cultural differences, a good attribute would be not to jump to any quick conclusions, but to allow time to listen and draw out what is behind a perspective or behaviour that you may view as different from yours…a process that may seem too labourious at the outset, but one that ultimately leads to better understanding and cohesiveness in a group. Research bears out consistently that on the average, culturally diverse teams produce more creative,

“CULTURALLY DIVERSE TEAMS PRODUCE MORE CREATIVE, INNOVATIVE GROUP RESULTS, COMPARED TO THOSE IN MORE CULTURALLY HOMOGENOUS GROUPS.” innovative group results, compared to those in more culturally homogenous groups. To bring about appreciation of cultural diversity and its strength, a leader should encourage frequent, informal employee get-togethers where people feel safe to talk about their cultural backgrounds, the challenges they face and/or have overcome when dealing with those from cultures different from theirs – all toward enhancing intercultural empathy and inclusiveness among team members. How can business leaders ensure that every culture can be heard and accommodated in a multinational workplace? Lead by example, and cite personal difficulties that the leader himself or herself may have experienced in accepting certain cultural differences earlier on, and the positive results that came about due to a subsequent “open mind” approach. Citing personal and others’ success stories are a strong influencer in encouraging diversity and inclusion in a team or workplace. How can one achieve true intercultural competence in a multinational workplace? Firstly, one must confront the reality that achieving true intercultural competence in a workplace is not an easy task; people have pre-conceived notions and stereotypes in their heads that cannot be changed overnight. It requires a concerted effort over a period of time on the part of the leadership of an organisation that is willing to speak of and

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Workplace

â&#x20AC;&#x153; Understanding broad areas of discontent in a diverse

and divided nation, and then promising to address those using the simplest possible non-political language, got through to a lot of people, given the messenger was charismatic, highly successful in business, and non-political.â&#x20AC;? show by example the virtues of intercultural competence in a highly-globalised business world. Committing to and holding frequent training workshops where members of the leadership team would showcase examples of the success of intercultural competence in terms of increase in creativity, productivity and business results, would breed greater tolerance and empathy among employees and encourage them to adapt more readily to a multicultural workplace. While these workshops would cater to existing employees, making intercultural training a core part of new employee induction would be one of the most productive investments an organisation could make today. I would recommend also that annual employee rewards and recognition events include those who have crossed cultural barriers and achieved superior team and business results.

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From a communication perspective, what are your thoughts on the recent victory of Donald Trump in the 2016 US election? Understanding broad areas of discontent in a diverse and divided nation, and then promising to address those using the simplest possible non-political language, got through to a lot of people, given the messenger was charismatic, highly successful in business, and non-political. Whether 140 character messages on social media are the most effective way to communicate with the nation and the world for a US president, only time will tell. For now, long form, more nuanced and more substantive communication seems to face an uphill battle, at least on the political scene. How do you think harnessing the skills and attitude of a business leader would help a politician in leading not just the private sector but also the rest of the nation? Business leaders are measured by their success, almost on a day to day basis; therefore, they tend to be highly resultsoriented, problem-solving-oriented â&#x20AC;&#x201C; traits that are useful in both the business and political worlds. Business leaders also have to negotiate within their companies, with clients and other diverse set of stakeholders that can influence the efficacy of outcomes; how well you negotiate is a trait that is certainly tested in politics on a daily basis, and the outcomes there have the potential of affecting many more lives than would be the case generally in the business world.

British Columbia, Canada District of Kitimat I Economic Development Rose Klukas I 250.632.8921 I rklukas@kitimat.ca I www.kitimat.ca

Negotiation

IT NEGOTIATORS: WHAT'S YOUR APPROACH? BY WILL BABER AND ARTO OJALA

IT and software industries appear to be collaborative in projects in house and among organisations as they plan and negotiate for mutual benefit. How can skilled, aware negotiators better match up their thinking to avoid communication and process failures?

ollaboration is a fact of life throughout the IT industry especially in the development of large scale communication systems and software applications. Collaboration arises through successful negotiations that clarify the path for close work among employees, freelancers, outsourced services and other parties in completing projects and satisfying stakeholders. The importance of negotiation to the well being of the IT industry led the authors to investigate the expectations and approaches that negotiators in this industry have in mind as they negotiate. The literature on the IT industry shows how important negotiation is, but has not looked into the thinking that might impact communication and the success or failure of a negotiation. To what extent is it possible for negotiators’ thinking about negotiation to match or conflict? We chose to investigate negotiation thinking in two different cultures in order to help highlight differences and similarities and identify a range of styles. We can assume that practices of

The European Business Review March - April 2017

Collaboration arises through successful negotiations that clarify the path for close work among employees, freelancers, outsourced services and other parties in completing projects and satisfying stakeholders.

negotiation participants vary in different cultures because cultures are demonstrably different and because previous research has shown that negotiation styles are associated with cultures. Further, research on negotiation has shown that successful and smooth communication leads to better results for the parties. The cultures we chose are geographically distant: Finland in Northern Europe and Japan in North East Asia. Finland and Japan differ in their philosophical backgrounds, one Protestant and Rationalist and the other steeped Confucian and Buddhist traditions. Additionally they have various differences described in the literature such as attitudes towards power, gender equality, and individualism.1 At the same time, the two countries have similarly aging populations, reputations for advanced use and implementation of technology, and high ethnic homogeneity. But how to look into what people are thinking? The study of Cognitive Psychology provides a way to do that. Humans think in terms of associations, categorisations and expectations.2 A cluster of such thoughts is referred to as a schema. People have schemata for things as well as processes. A schema for a thing like a table might be simple: the first thoughts to mind might include “flat top, legs, work, meals…”. A more complex schema may exist for an idea like “my parents’ kitchen table” which might include

a flood of childhood memories. A simple process schema might be the script you expect when answering your phone during the work day: you check who is calling and answer in a familiar or formal way as appropriate. Negotiating a deal with a business partner is a more complicated process and numerous schemata are possible. The complex of processes and expectations around creating a business agreement varies among people. To identify the possible schemata, we searched literature about negotiation and interviewed IT business managers. In the end we identified eleven schemata for negotiation from literature and interviews.3 Some are mutually exclusive, some can exist together, some are more about the start of the process or more about the final goals. (see Table 1 below) Our survey targeted IT managers as those most likely to engage in some kind of negotiations and deal making. We asked their years of experience, their management level in the company, how frequently they are involved in negotiations, and the position they take in negotiations. The position refers to how they participate in negotiations, for example as team members, leaders, decision makers, or observers. Some interesting findings came out of this survey. Remarkably, the two most competitive schemata, Win/Lose and Play to Win, were not selected even once by the survey participants. This result appears to confirm that in both cultures this industry leans towards collaboration and away from competitiveness. Finnish and Japanese IT managers were also roughly in agreement about four schemata that they did mostly use. These common approaches include employing a multistep process to get satisfying results, making a pitch to a decision maker who was not present, determining end to end business

logic, and exploring information to find win/win solutions. • The multistep process for satisfaction does not identify the specific process, but shows that these negotiators are interested in satisfying counterparties and stakeholders, rather than in making one sided gains. Negotiators of this sort are likely to take a thorough approach to communicating and discovering information. • The thinking behind comprehensive understanding of the business logic in a deal suggests caution about strategic alliances and how they add up over the long term. These negotiators seem to care about the position of their business and organisation in the broader value network. They may be very sensitive to relationships with other suppliers and clients beyond those parties represented at the negotiating table. • Exploring information for win/win patterns speaks for itself, these negotiators are not employing quick hacks to gain value. Their willingness to explore information also suggests flexibility and opportunism that may help to complete deals. • The fourth commonly selected schema, pitching to a superior who is not in the conversation, shows sensitivity to how decisions are made and how the final decision makers must be addressed and handled. In addition to the four approaches mentioned above, about half of the managers from each background preferred to show fairness in the process of negotiation. Fairness is a culturally inflected practice, what is fair in one place, may not seem fair to other people. These negotiators should communicate not only that they want to show fairness, they should also discuss how to show it. In the end, the survey identified much common thinking among negotiators from

Table 1. Negotiation Thinking

1. Win/Lose 2. Employ a multistep process to get satisfying results 3. Explore/Solve Win/Win Cooperate 4. Pitch to absent boss 5. Determine if there is suitable end to end business logic in the situation 6. Trading incremental concession 7. Get the deal and move on 8. Secure an ally, develop the relationship 9. Negotiate only if the other party has empathic fit with you 10. Fairness: An expected sequence of events for determining and adjusting to perceived fairness among the negotiation parties 11. Play to win, win for the sake of winning

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Negotiation

Fairness is a culturally inflected practice, what is fair in one place, may not seem fair to other people.

these backgrounds to support cooperation and communication. Two schemata were very common among Finns but absent or almost absent among the Japanese. No Japanese participants chose trading incremental concessions, or quid pro quo, whereas more than half the Finns chose this. Even if not all Finns chose it as a business negotiation approach, perhaps most Europeans would recognise this as a default bargaining behaviour, incremental compromise. Similarly lopsided was the choice of getting the deal and moving on which almost half the Finns seemed to like but only one Japanese negotiator selected. It seems from the research that there is a lot of potential for thinking to match up in this industry even across distant borders, but also some for opportunities for mismatch. Having some idea about which approaches might or might not be in play, business negotiators can look carefully when interacting to see if they are on the same page or not. Similar thinking does not mean it will be recognised automatically by all sides. Negotiators must discuss and look for signals from counterparts in order to react appropriately. But what kind of negotiators seem to have the most flexibility and the most tools at hand? The research suggests that it is not age that makes a broadly skilled negotiator. Instead the individual’s rank in the workplace correlates mildly with an increased number of schemata. Additionally, the frequency with which a person engages in negotiation correlates somewhat with having more schemata at hand. However the strongest connection appears between schemata and a person’s position in negotiation; team leaders and final decision makers have more schemata available to them than team members or support staff. It may be that practice and decision making authority build up choices or that those with more choices available to them rise higher in decision making position. In this day and age, technology dominates the issues of business management but IT business people must constantly refine and develop their person to person skills for interacting, communicating and negotiating. Identifying and using approaches that allow better communication

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and interaction with the existing and potential partners may lead to better outcomes, greater satisfaction in deal making, and lower transaction cost in the long term as successes lead to new beneficial deals. The IT communities investigated here show a fairly sophisticated, though not always overlapping comprehension of how to build value and alliances and work together. Smart managers in the IT world will seek to understand their own thinking and that of their counterparts. For more detail, see the authors’ academic writing on this topic: Baber, W. W., & Ojala, A. (2015). Cognitive Negotiation Schemata in the IT Industries of Japan and Finland. Journal of International Technology and Information Management, 24(3), 6.

About the Authors Will Baber has combined education with business throughout his career. His work has included economic development in the State of Maryland, language services in the Washington, DC area, supporting business starters in Japan, and teaching business students in Japan and Europe. Currently he is at Kyoto University teaching and researching negotiation and other topics as an Associate Professor in the Graduate School of Management. He is lead author of the 2015 textbook Practical Business Negotiation. Arto Ojala is working as a University Lecturer in the Department of Computer Science and Information Systems at the University ofJyväskylä, Finland. He is also Adjunct Professor in Software Business at the Tampere University of Technology. His articles have been published in Information Systems Journal, Journal of Systems and Software, IEEE Software, IT Professional among others. Ojala has a PhD in economics from the University of Jyväskylä. References 1. G. Hofstede, J. G. Hofstede, and M. Minkov, Cultures and Organizations: Software of the mind, 2nd ed. New York , NY: McGraw-Hill, 2005. 2. M. Kamppinen, “The Cognitive Schema,” in Consciousness, Cognitive Schemata, and Relativism: Multidisciplinary Explorations in Cognitive Science, M. Kamppinen, Ed. Dordrecht: Springer Netherlands, 1993, pp. 143–162. 3. W. W. Baber and A. Ojala, “Cognitive Negotiation Schemata in the IT Industries of Japan and Finland,” J. Int. Technol. Inf. Manag., vol. 24, no. 3, pp. 87–104, 2015.

Gender

THE VALUE OF GENDER-BASED LEADERSHIP BY MELISSA GREENWELL

If a roomful of men can draw on their experiences and insights to help a business succeed, a roomful of men and women drawing from a deeper pool can achieve even more. Given the growing evidence about the business value of gender-balanced leadership, businesses have to wonder how much more successful they could be with this balance in the management ranks.

Where a third of the managers are women, average returns increased to more than

25%

n today’s ultracompetitive global economy, even high-performing companies can’t afford to rest on their laurels. Corporate heavyweights spend hundreds of billions of dollars on research and development each year, fine-tuning products and nurturing innovations they hope will give them an edge in the marketplace. Yet most still overlook a far simpler and more affordable investment in human capital that’s been proven to make a difference: getting more women onto their leadership teams and governing boards. Companies can and do thrive with men firmly in control, but given the growing evidence about the business value of gender-balanced leadership, you have to wonder how much more successful they could be with this additional resource in the management ranks. What are firms missing when women are left out of key decisions? What is the real cost of maintaining these men’s clubs? Is it worth the price? Following the Numbers The boardroom gender gap has spurred various initiatives, along with plenty of research to support what is common sense: If a roomful of men can draw on their experiences and insights

to help a business succeed, a roomful of men and women drawing from a deeper pool can achieve even more. In a 2010 study, a group of professors from Carnegie Mellon University and the MIT Center for Collective Intelligence found that a group’s gender mix is among the factors affecting shared aptitude: The more women a group has, the better it performs on tasks such as brainstorming, decision-making, and problem-solving. By measuring the ability of groups to perform a wide range of tasks, they determined that it was not the intelligence of group members that affected performance but the correlation to the social sensitivity of the groups, which affected turn taking in conversation, and the proportion of females in the groups. They refer to the measurement of this type of group intelligence as the c factor, or collective intelligence. Credit Suisse Research Institute’s 2012 Gender Diversity and Corporate Performance report presents findings that show better financial performance and stock market valuations among companies with gender-balanced boards. While researchers caution that they don’t yet have enough information to conclusively prove cause and effect, the data is striking: • Since 2005, publicly traded companies with more than one woman on their boards have seen stock market returns of a compound 3.7 percent a year higher than those with no female representation. • Firms with a higher proportion of women on the board have higher valuations, better returns on equity, and higher payout ratios. • In every sector, from telecommunications to

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Gender

utilities, companies with no gender balance on the board have lower-than-average market capitalisation; those with three or more female board members exceed the average. In 2014, Credit Suisse Research Institute expanded research to include data on women in senior management. It paints a similar picture: Firms with women in 15 percent or more of their top jobs consistently outperform those with under 10 percent. And as the leadership team becomes more balanced, results improve, according to Credit Suisse, which surveyed 3,000 companies across forty countries and all major sectors: • Since 2009, companies with a three-to-one male-female management mix have averaged annualised returns of nearly 23 percent. • Where a third of the managers are women, average returns increased to more than 25 percent. • When the numbers are balanced – a far smaller sample size – annualised returns exceed 28 percent. Credit Suisse acknowledges that quantitative research alone is not sufficient to determine whether women are making companies better or if the most successful companies simply recognise the advantages of female participation. Still, gender balance on corporate boards has become a point of emphasis among regulators worldwide. Several countries have set mandatory quotas (with incentives and penalties) or voluntary targets with mixed results, though the quota approach seems to be gaining traction faster. For example, as Aaron Dhir notes in Challenging Boardroom Homogeneity – • Norway leads all countries, with 40.5 percent female representation on corporate boards; there must be four women and four men on a board that has nine directors. • Spain requires companies reporting financial results to have 40 percent representation of both genders on their boards; the country gives what they call a corporate equality mark to companies that achieve gender-balance targets, which they can use in promotional materials and commercial activities. • Companies in the Netherlands must disclose the reasons for not achieving

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gender balance in their annual reports and identify actions they will take going forward to achieve the targets. In the United States, the Securities and Exchange Commission (SEC) requires public companies to disclose how they approach diversity when identifying nominees for board positions, but gender is not specifically addressed. In December 2009, the SEC voted four to one to approve amendments to its proxy disclosure, including Item 407(c)(2)(vi): “Describe the nominating committee’s process for identifying and evaluating nominees for director, including nominees recommended by security holders, and any differences in the manner in which the nominating committee evaluates nominees for director based on whether the nominee is recommended by a security holder, and whether, and if so how, the nominating committee (or the board) considers diversity in identifying nominees for director. If the nominating committee (or the board) has a policy with regard to the consideration of diversity in identifying director nominees, describe how this policy is implemented, as well as how the nominating committee (or the board) assesses the effectiveness of its policy.” While the SEC may be attempting to get United States corporate boards to consider diversity when selecting directors, there is no requirement to have a policy in place and no defined objectives or set criteria for what a policy must contain. With such vague accountability, the United States will struggle to move the needle in gender balance as opposed to countries with more defined targets and implementation requirements. More Evidence Advocates for gender-balanced corporate leadership say having more women in positions of authority would help companies better engage with constituents – internal and external – and develop a more robust pipeline of future female leaders by increasing the number of role models. Although evidence supporting that assertion tends to be more qualitative than quantitative, it is equally compelling. Dhir’s Challenging Boardroom Homogeneity discusses how a board’s

Norway leads all countries, with 40.5 percent female representation on corporate boards; there must be four women and four men on a board that has nine directors.

MONEY ON THE TABLE: How to Increase Profits Through GenderBalanced Leadership (Greenleaf Book Group, January 2017) by Melissa Greenwell

culture and behaviours change in ways that improves their overall effectiveness when more women are part of the entity. These include the following: • Enhanced dialogue • Better decision-making, including the value of dissent • More effective risk mitigation and crisis management, with better balance between risk-welcoming and risk-aversion behaviour • Higher quality monitoring of and guidance to management • More orderly and systematic board work • Positive changes in the behaviour of men A 2013 Canadian research study published in the International Journal of Business Governance and Ethics concludes that female board members are “significantly better” at making decisions than male counterparts because they – • Rely more on complex moral reasoning skills, which involves acknowledging and considering the rights of others in the pursuit of fairness • Use a cooperative, consensus-building approach to problem-solving On the other hand, in this study, male executives scored higher than females in the use of normative reasoning, which suggests men may prefer to make decisions using rules, regulations, and traditional ways of doing business or getting along. As the study suggests, female directors may be more apt to suggest changes in thought processes that impact decision-making. Change is hard. Could this be one of the reasons why maledominated boards still exist? “Having input from board members with different backgrounds typically means more creativity, fresh ideas, and better outcomes,” stated United States Secretary of Commerce Penny Pritzker during the 2014 Global Conference on

Although 72 percent of responding executives agree there’s a link between gender balance and business success, just 28 percent see achieving that balance as a top priority. Women in the Boardroom. She speaks from experience: During twenty-seven years in the private sector, Pritzker founded five companies, sat on corporate boards, and helped lead businesses. She said, “Too often, I have entered the boardroom or the corporate dining room and realized that I was the only woman there. That must change – and it must change right away.” Additional balance can also enhance corporate culture and reputation, Pritzker said, given the “positive correlation” to better oversight and governance as well as greater corporate social responsibility. “Diversity in corporate leadership is not solely a women’s issue. It is an issue of economic competitiveness. And the presence of more women in the boardroom and in the corporate suite is critical to companies’ creativity, performance, and ability to thrive in the twenty-first century.” Consulting firm Deloitte began addressing its gender gap in 1993 with its Initiative for the Retention and Advancement of Women, known internally as WIN. At the time, just 97 of the firm’s partners, principals, and directors were women, representing a mere 7 percent of the total. By 2009, that number exceeded 1,100 – 23 percent of the management team. There are organisations that don’t need further convincing, such as global personal-care products maker Kimberly-Clark Corporation, which created its Unleash Your Power

Initiative in 2009, when only 2 of the 9 corporate officers who reported to the CEO were women, despite the company’s predominantly female customer base. By 2013, five of the nine executives were women, and annual revenues and profits had increased. Fueling the Urgency A McKinsey & Company Women Matter report shows that although 72 percent of responding executives agree there’s a link between gender balance and business success, just 28 percent see achieving that balance as a top priority. This disconnect seems critical. Women play an increasingly crucial role in the global economy, controlling more than 80 percent of United States consumer spending, for example, and representing about half of all shareholders. Developing talent is becoming more important for businesses as old, industrial-age models continue to give way to a knowledge-based economy. Today, more than 85 percent of corporate value creation is tied to intangible assets such as people, brand, and intellectual property, assert Cathleen Benko and Molly Anderson in their 2013 book, The Corporate Lattice: Achieving High Performance in the Changing World of Work. It’s a stark contrast from the days when most value came from hard assets. At the current rate of change, most readers of this book at the time of publication will be dead before gender balance hits 50 percent. Change is happening, but way too slowly. Consider this: 16 percent of board seats were held by women in 2011, compared to 19 percent in 2014, when more focus was directed toward this challenge. At this rate, it will take another decade to reach 25 percent and more than thirty years to come near 50 percent. The idea that

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Gender

our social values will drive us toward gender balance is not working. What will it take? Time to Act Though it’s human nature, not bad intentions, to surround ourselves with those most like us, we need to break out of that comfort zone to leverage the competitive advantage of gender balance. The cloning effect that continues to occur by hiring and promoting people who are just like us (whoever we are) is bad for business. It creates dominant groups of people who are closed off and get little to no exposure to the thought processes of people who are wired differently or have different perspectives based on their life experiences and cultures. Is it easy to move away from what is known and comfortable? No. Will it take longer to find people outside of your usual networks? Yes. Will bringing people who think differently into the fold make your life more difficult because they will challenge and ask questions you didn’t already think of ? Yes. Will you get to better outcomes both in the short and long term? Yes! Because men hold most positions of power, men supply the critical mass needed to drive this change. Business leaders must decide now to – • Be motivated to take action • Recognise the strengths women bring to the table • Realise what they’re missing by not having balanced thought leadership • Hire with balance in mind

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Though it’s human nature, not bad intentions, to surround ourselves with those most like us, we need to break out of that comfort zone to leverage the competitive advantage of gender balance. • Take a closer look at female talent around them • Develop and promote more women into leadership roles • Understand how women in leadership roles will help build a stronger business and a better bottom line • Do what’s needed to get and keep more women in leadership Adapted from Money on the Table: How to Increase Profits Through Gender-Balanced Leadership (Greenleaf Book Group Press) by Melissa Greenwell. Copyright (c) 2016 by Melissa Greenwell. All rights reserved. This book is available at all bookstores and online booksellers. About the Author Melissa Greenwell is the author of MONEY ON THE TABLE: How to Increase Profits Through Gender-Balanced Leadership (Greenleaf Book Group, January 2017). She is Executive Vice President and Chief Operating Officer of national retailer The Finish Line, Inc. You can learn more at www.melissa-greenwell.com

Gender

Minding the Gap:

Women and Angel Investing BY SUSAN COLEMAN AND ALICIA ROBB

In spite of the impressive growth of womenowned firms in the United States in the recent years, they are still considered in the minority. In this article, the authors explore the opportunity, challengers, and the solution on closing the gender gap in angel investing. The Opportunity Women-owned firms have made great strides in recent years. The US Census Bureau estimated that there were 9.9 million women-owned firms in the United States in 2012 representing 36% of all firms, a dramatic increase over 28.7% just five years earlier. In fact, the number of womenowned firms grew by 27% from 2007 to 2012, compared with a growth rate of 2% for firms overall (Survey of Business Owners, 2012; Ibid, 2007). These numbers suggest that a growing number of women are choosing entrepreneurship as career path and as a means for putting their talents, creativity, and initiative to work.

and collectively, women employ only 7.5% of all employees. This is an important consideration in an economy that is still feeling the effects of the “Great Recession” and the ensuing focus on job creation. Similarly, research that we have conducted ourselves using the Kauffman Firm Survey confirms that women are less likely to launch growth-oriented firms, the kind that create a substantial number of jobs (Coleman & Robb, 2016b). This persistent gender gap in entrepreneurial activity prompted the Kauffman Foundation’s Lesa Mitchell to write: With nearly half of the workforce and more than half of our college students now being women, their lag in building high-growth firms has become a major economic deficit. The nation has fewer jobs – and less strength in emerging industries – than it could if women’s entrepreneurship were on a par with men’s. Women capable of starting growth companies may well be our greatest under-utilised economic resource. (Mitchell, 2011, p. 2).

The Challenge In spite of these impressive statistics, however, women-owned firms are still in the minority, and there are roughly two male entrepreneurs for every woman entrepreneur in the United States (Survey of Business Owners, 2012). Similarly, for those women who do pursue the entrepreneurial path, the vast majority launch small rather than growth-oriented firms. The same 2012 US Census data reveals that fewer than 20% of women-owned firms have any employees aside from the entrepreneur herself,

Findings from Prior Research We all know that women are just as smart, creative, and hard-working as men, so what’s holding them back from launching growth-oriented firms? A considerable amount of our research has focused on the financing strategies of women entrepreneurs (Coleman & Robb, 2009; Ibid., 2012; Ibid, 2016a) and has consistently documented the fact that women, on average, raise smaller amounts of financial capital than men and are more reliant on internal rather than external sources. This is

The US Census Bureau estimated that there were 9.9 million women-owned firms in the United States in 2012 representing 36% of all firms, a dramatic increase over 28.7% just five years earlier.

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Gender

particularly true in the case of the external equity financing as provided by venture capitalists and angel investors. Although internal sources of financing in the form of personal savings, funds from family and friends, and personal debt, often in the form of credit cards, may be sufficient for the launch of smaller, lifestyle firms, these sources cannot typically furnish sufficient financial capital for growth-oriented firms. Several explanations have been offered for the dramatic difference in equity financing between women- and men-owned firms. One of the most compelling of these is that the current gender imbalance in equity investors serves as a major contributor to the gender imbalance in equity capital recipients. This argument was first put forth by the Diana Project team (Brush et al., 2001) who highlighted the gender gap in venture capital investing, observing that only 5% of VC funding went to women-led firms in 1999. In that initial report, Brush and her colleagues challenged a number of “myths” including the myth that women do not want to grow their businesses and the myth that they do not actively seek equity investors. Alternatively, these researchers identified the heavily male-dominated nature of the VC industry as a structural barrier between women entrepreneurs and access to equity capital. Brush and her colleagues developed this theme more fully in a second major Diana Project report published in 2004 (Brush et al., 2004), noting that women represented only 9% of management track VCs in 2000. This presents a particular problem for growth-oriented women entrepreneurs, because their networks are less likely to intersect with males who represent the other 91% of VC decision-makers. In light of that, one of the Diana team’s conclusions was that increasing the number of women venture capitalists would also increase opportunities for women entrepreneurs to connect with potential sources of VC funding. Building on this theme a somewhat later study Becker-Blease and Sohl (2007) focused on angel investing to find evidence of “homiphily” or the tendency of likes to be attracted to likes. Thus, women entrepreneurs would

The European Business Review March - April 2017

Several explanations have been offered for the dramatic difference in equity financing between women- and men-owned firms. One of the most compelling of these is that the current gender imbalance in equity investors serves as a major contributor to the gender imbalance in equity capital recipients. be somewhat more likely to receive funding from women angels, while male entrepreneurs would be more likely to receive funding from male investors. Given the relatively small number of women angel investors, this finding has an indirect if not a direct effect on the supply of angel capital available to growth-oriented women entrepreneurs. In a study of British angel investors done at approximately the same time, researchers Harrison and Mason (2007) found that male investors had stronger networks than female investors, an important distinction, since networks are a major source of deal flow. One of the major findings from the Harrison and Mason study, however, was the relative invisibility of women angel investors due to their small numbers. As in the case of the Diana Project findings, Harrison and Mason concluded that this gender imbalance in angel investors may serve as a type of structural disadvantage for women seeking capital from that source. This gender disparity in angel investing was a bit of a puzzle for us in light of the fact that over 40% of the top wealth holders in the United States are women. Why aren’t women who have the financial means to do so investing? In an attempt to answer this question we conducted further research which identified five primary factors that cause women to shy away from angel investing: 1) they don’t know about angel investing; 2) they don’t encounter other angel investors in their networks; 3) they don’t see investment opportunities; 4) they don’t feel prepared; and 5) they are risk averse when it comes to making that first large investment in a company. These responses are consistent with prior research on the impact of knowledge (human capital), networks (social capital), confidence (self-efficacy) and attitudes toward

risk in investing behaviour. Studies have shown that women are less likely to have previous entrepreneurial experience than men, and that they are less likely to have education and experience in the STEM disciplines, the birthplace of many growth-oriented ventures (Marlow & McAdam, 2012; Ranga & Etzkowitz, 2010). In light of that, one would anticipate that women investors are less familiar with the entrepreneurial process and with specific industries such as high tech and bioscience that tend to be characterised by rapid growth. In terms of social capital, prior research suggests that social capital is just as important for investors as it is for entrepreneurs in the sense that strong investor networks can provide access to better deal flow. Thus, if women are positioned outside the established angel and VC networks, they may have fewer opportunities to invest. Gender differences in self-confidence or â&#x20AC;&#x153;self-efficacyâ&#x20AC;? have been the focus on a fairly considerable amount of research. These studies suggest that women tend to have less confidence in tasks that are typically associated with men such as math, quantitative analysis, and finance (Amatucci & Crawley,

2011; Kirkwood, 2009). Lower levels of self-confidence, in turn, often translate into higher levels of risk aversion when it comes to investing behavior. Importantly however, the effect of gender on risk taking is weakened significantly when researchers control for knowledge of financial markets and investments. This finding suggests that providing women with knowledge and information about the investing process and investment alternatives can increase their self-confidence as investors while also encouraging them to consider riskier types of investments. The Solution Armed with these research findings as well as research we conducted ourselves in the course of writing our book, The Next Wave: Financing Womenâ&#x20AC;&#x2122;s Growth-Oriented Firms (Coleman & Robb, 2016a), we resolved to address the gender gap in equity investing through our own entrepreneurial initiative, Next Wave Ventures, launched by Alicia in the summer of 2015 (http://nextwave.ventures). Under the Next Wave umbrella, our first initiative, the Rising Tide Program, was created with the goal of mobilising women who have both the financial means and the desire to become angel investors. To achieve this goal, Alicia recruited a core group of nine experienced women angel investors. These lead investors convened for a Rising Tide Launch event in Palo Alto, California, in September 2015. An additional group of 90 aspiring women investors were recruited in the summer and fall of 2015 through a combination of means including the Next Wave website, social media,

We resolved to address the gender gap in equity investing through our own entrepreneurial initiative, Next Wave Ventures, launched by Alicia in the summer of 2015 (http://nextwave. ventures).

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Gender

One of our most valuable “lessons learned” from the first Rising Tide cohort is the importance of education for aspiring women investors and the creation of networks that will allow them to share their knowledge, expertise, and investing opportunities.

The Rising Tide Foundation will work toward developing a global network of women investors and entrepreneurs as well as the men that support them.

and the personal networks of the managing partners, Alicia and Trish Costello, of Portfolia, and the lead investors who were all active investors in various angel groups across the country. All participants in the fund were accredited investors.1 A parallel program was launched in Europe with nine lead investors from nine different countries and more than 80 women from more than 20 countries. Training for the Rising Tide investors began in January 2016 and covered the nuts and bolts of angel investing, i.e. creating an investment philosophy, screening markets, models, and teams, due diligence, term sheets, and adding value as an investor. Training activities and materials were designed by Next Wave founder Alicia Robb in cooperation with Brigitte Baumann (Go Beyond Investing)2, and Marianne Hudson (Angel Capital Association). Training was provided through a combination of online and in-person meetings and workshops. In addition, all sessions were recorded and placed online where training participants could access them. A Rising Tide Investors’ Summit was held in San Diego in October 2016 to allow Rising Tide participants to meet in person, share their experiences, and provide feedback on both this initial training program and next steps. Similar in person meetings were held in Europe over the course of the year with the last one being held in Zagreb, Croatia, in November 2016. What Happened? By the conclusion of the training period (December 2016), the Rising Tide US Fund invested in a total of ten entrepreneurial firms, nine of which had women on the founding team and six had a female CEO. Throughout this process, Susan’s role has been to pre- and

The European Business Review March - April 2017

post-test Rising Tide participants and to conduct interviews to identify strengths and weaknesses in the training program so that it can be refined and improved for future cohorts. Preliminary results from these evaluations indicate that the majority of participants shared goals of: 1. Increasing their knowledge and skills in evaluating entrepreneurial firms for investment, 2. Gaining confidence in their ability to make good investment choices, 3. Accessing high quality deal flow, 4. Developing a network of peers and mentors to help them evaluate investment opportunities going forward, 5. Contributing to the development of a stronger ecosystem to support growth-oriented women entrepreneurs. Post-test surveys and interviews reveal that all of the goals were at least partially, if not fully, met. Further, thoughtful comments from our participants on their experience with Rising Tide #1 have provided valuable insights into ways in which we can improve our training programs going forward. In terms of “value added”, the majority of participants describe Rising Tide as a “remarkable experience” and opportunity to meet and network with “awesome women”. In this sense, the power of the network we are creating has become evident, even at this early stage of the Next Wave Initiative. In fact, the response of participants to a program of this type that provides a sense of community and shared purpose combined with educational and investing opportunities has been far more enthusiastic than we ever anticipated. Their repeated inquiries into “What Comes Next?” before we had even finished this first program tipped us off that we were onto something. Next Steps As we look forward to a new year and a whole new set of entrepreneurial opportunities, the Next Wave Initiative, like the firms we have invested in, is pursuing a path of growth and diversification. New programs are being launched in several countries in 2017. This is a direct response to requests and interest on the part of members of our first Rising Tide cohort and women from around the world who want to participate in the network. One of our most valuable “lessons learned”

from the first Rising Tide cohort is the importance of education for aspiring women investors and the creation of networks that will allow them to share their knowledge, expertise, and investing opportunities. In light of that, Alicia created the Rising Tide Foundation, which will serve as the focal point for the development of training activities and programs for future cohorts, both domestically and abroad. The Foundation will also work toward developing a global network of women investors and entrepreneurs as well as the men that support them. It is an exciting time for growth-oriented entrepreneurs and investors, and we are thrilled to have a role in helping to close the gender gap in angel investing! About the Authors Dr. Susan Coleman is the Ansley Chair of Finance at the University of Hartford’s Barney School of Business, teaching courses in entrepreneurial and corporate finance at the undergraduate and graduate levels. The success of her co-authored book A Rising Tide: Financing Strategies for Women-Owned Firms (Stanford University Press, 2012) led to a follow-up book, The Next Wave: Financing Women’s Growth-Oriented Firms (2016) which examines the experience of women entrepreneurs in high growth sectors. Dr. Alicia Robb is a Senior Fellow with the Ewing Marion Kauffman Foundation. She has previously worked with the Office of Economic Research in the Small Business Administration and the Federal Reserve Board of Governors. She is Founder and CEO of Next Wave Ventures, an active angel investor and mentor to startups, on the Advisory Board for Global Entrepreneurship Week and the Deming Center Venture Fund. Endnotes 1. The Securities and Exchange defines an “accredited investor” as someone who has earned income exceeding $200,000 ($300,000 with spouse) in each of the prior two years, or has a net worth of over $1 million either alone or with a spouse, excluding the value of the person’s primary residence (http:///www.investor.gov). 2. The Rising Tide Europe Fund and training program

were also conducted in 2016 in partnership with Go Beyond Investing. References • 2007 Survey of Business Owners. U.S. Census Bureau. • 2012 Survey of Business Owners. U.S. Census Bureau. • Amatucci, F. M. and Crawley, D. C. 2011. Financial selfefficacy among women entrepreneurs. International Journal of Gender and Entrepreneurship, 3(1), 23-37. • Becker-Blease, John R. and Jeffrey E. Sohl (2007). Do Women-Owned Businesses Have Equal Access to Angel Capital? Journal of Business Venturing 22 (4), 503-521. • Brush, Candida, Nancy Carter, Elizabeth Gatewood, Patricia Greene, and Myra Hart (2001). The Diana Project: Women Business Owners and Equity Capital: The Myths Dispelled. Kansas City, Missouri: Kauffman Center for Entrepreneurial Leadership. • Ibid. (2004). Gatekeepers of Venture Growth: A Diana Project Report on the Role and Participation of Women in the Venture Capital Industry. Kansas City: Missouri: Kauffman Center for Entrepreneurial Leadership. • Coleman, Susan and Alicia M. Robb (2009). A Comparison of New Firm Financing by Gender: Evidence from the Kauffman Firm Survey Data. Small Business Economics 33, 397-411. • Coleman, Susan and Alicia M. Robb (2012). A Rising Tide: Financing Strategies for Women-Owned Firms. Stanford, California: Stanford University Press. • Coleman, Susan and Alicia M. Robb (2016a). The Next Wave: Financing Women’s Growth-Oriented Firms. Stanford, California: Stanford University Press. • Coleman, Susan and Alicia Robb (2016b). Financing High-Growth Women-Owned Enterprises: Evidence from the United States in Díaz-García, C., Brush, C., Gatewood, E. and Welter, F. (eds), Women’s Entrepreneurship in Global and Local Contexts, Cheltenham, UK and Northampton, MA, USA: Edward Elgar Publishing. • Harrison, Richard T. and Colin M. Mason (2007). Does Gender Matter? Women Business Angels and the Supply of Entrepreneurial Finance. Entrepreneurship Theory and Practice 31 (3), 445-472. • Kirkwood, J. (2009). Is a Lack of Self-Confidence Hindering Women Entrepreneurs? International Journal of Gender and Entrepreneurship 1 (2), 118-133. • Marlow, Susan and Maura McAdam (2012). Analyzing the Influence of Gender Upon High-Technology Venturing Within the Context of Business Incubation. Entrepreneurship Theory and Practice 36 (4), 655-676. • Mitchell, Lesa (2011, September). Overcoming the Gender Gap: Women Entrepreneurs as Economic Drivers. Kansas City, MO: Ewing Marion Kauffman Foundation. Retrieved at http://www.kauffman.org on 8/22/16. • Ranga, M. and H. Etzkowitz (2010). Athena in the World of Techne: The Gender Dimension of Technology, Innovation, and Entrepreneurship. Journal of Technology Management and Innovation 5(1), 1-12.

THE NEXT WAVE: Financing Women’s Growth-Oriented Firms(Stanford University Press, 2016) by Susan Coleman and Alicia Robb

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Executive Health

RE-DESIGN YOUR FEED Taking a Deeper Look at Environment for Behaviour Change: Part I BY STEVEN MACGREGOR

n the year 1929, and nearing the end of his second, ill-fated, term as President of Argentina, Hipólito Irigoyen began to receive filtered news from his closest aides. The Great Depression was having a devastating impact throughout Latin America and the country was sliding inexorably into crisis. Highlighting only good news and passing over some of the more negative events in presidential communication, no matter how slight that actually was, was exaggerated greatly, leading to one of Argentina’s most popular myths: that a special newspaper was printed for Irigoyen that included only good news. El Diario de Irigoyen or Irigoyen’s Daily, is a well-known phrase in Argentina to this day, and used when people want to push back against the “sugar-coated” version of events. Parallels with today are unmistakable. Putting aside recent reports that President Trump only likes to receive good news and that his aides have their own special way of communicating to him, never mind the growing controversy around fake news, we are each surrounded by our own version of El Diario de Irigoyen. Let me explain. Having long known of the legend of Irigoyen, I first started reflecting on the parallels with today during a visit to, of all places, Buenos Aires last September. My fellow keynote speaker at a major multinational marketing event

was a designer from Facebook. The focus of his talk was on the concept of feed. Everything was feed; all design decisions, client engagement for selling ads, user attraction, audio and video habits…all related to feed. And it’s true of all social media channels. The feed is what promotes use and those (often hundreds) of repeat visits during the week. More time spent on the feed means more revenue to the leading tech companies. At the core of our work on executive health and leadership is behaviour, and our behaviour is greatly affected by and through this feed. It is part of our social environment. Persuasive psychology principles are used to grab your attention and keep it. The alarming thing is that several dozen designers living in California and working at just a few companies are impacting the lives of over a billion people around the planet. And spending increasing amounts of time scrolling through our feeds on different channels isn’t the best thing for our health, wellbeing and performance. Think about your own habits in the past year or two and how any changes in behaviour, and specifically spending increasing amounts of time with your feed, have made you feel. And there is another element of feed that affects our behaviour. We design our own feed (though heavily influenced by those several dozen designers.) We connect with

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Executive Health

friends and colleagues, we like and follow companies and public figures who we admire. And the source of this attraction and connection often stems from some similarity that we see in them – we may hold the same values or opinions, come from the same place or work for the same company. Maybe we like the same music, support the same football team or believe in the same causes or politics. Our feed is giving us a world view that is anything but worldly. It is segmented and we are blindsided to the opinions, values, preferences and affiliations of those who we don’t connect with. We need not look any further than the recent surprise election of Donald Trump to show how our customised feeds lead us to believe one set of events will unfold. The New York Times in the final days of the election campaign were predicting that the probability of a Clinton win stood at over 90%. So how may we push back against our own Diario de Irigoyen and re-design our feed? Start with breaking out of autopilot and try a simple exercise. Take a look at the feed of another person, maybe your partner or (if they let you!) your children. Perhaps even a close colleague at work. Instantly, it will give you a slightly broader view that also seems more vibrant due to its differences. Perhaps you can also follow or at least check-in with accounts and people you would normally stay well clear of due to your differences. I am fully aware of my own bad habits in this space. Spending increasing amounts of time on my own feeds, without necessarily gaining insight and knowledge, I am committed to re-designing my own feed during the month of February. Social media and my mobile device is part of the issue and I have done several things over the years and again recently to take back control, from eliminating e-mail on my phone (if I am working from the Barcelona office for an extended period having access to e-mail on other machines is more than enough) to moving any feed-based apps out of my home screen and into different folders to cut down on those impulse checks. I am also reflecting on my face-to-face and phone conversations. Most of my client discussions, though enriching, follow the same path, and I’m hoping that talking to people outside my usual network will broaden my perspective and also help

The European Business Review March - April 2017

Our feed is giving us a world view that is anything but worldly. It is segmented and we are blindsided to the opinions, values, preferences and affiliations of those who we don’t connect with.

re-design my feed. In our client work we often encourage people to join a new club, in that being held accountable by new people will help make habits stick. Forming new relationships, perhaps something we do less and less as we get older, helps change our views and perspectives. Even listening to those who you vehemently disagree with is, I believe, a healthy exercise. I have therefore decided to open up my own diary to try and have different conversations and re-design my own feed. Each Wednesday afternoon I will hold up to a maximum of 12 fifteen-minute conversations with anyone who wants to connect. I have no idea how this will go, or whether I’ll get one request or 100. In any case, if you want to connect with me, you can do so at the following link: thelabcn.com/ redesigning-my-feed Matters didn’t improve for President Irigoyen. He survived an assassination attempt in late 1929 and was eventually overthrown by a military coup in 1930. Later placed under house arrest he died in 1933. A sad end for a man who made a difference in the country, especially during his first Presidential term of 1916-1922. Now almost 90 years after the birth of the legend of El Diario de Irigoyen ask yourself if you are limited by creating your own “Irigoyen Daily”. Try re-designing your own feed and I’ll see you next month for part II in a deeper look at environment for behaviour change. About the Author Founder of The Leadership Academy of Barcelona [LAB] and author of Sustaining Executive Performance (Pearson 2015) Dr. MacGregor has delivered over 1000 sessions the past 5 years in executive health and behavior change for clients including Telefónica, Danone, IESE, IMD, and the BBC. He holds a PhD in Engineering Design Management and has been a visiting researcher at Stanford and Carnegie-Mellon. His executive education teaching is informed by academic interest in sustainability and design and he is an article reviewer for, among others, Industry and Innovation, Journal of Engineering Design, and the International Journal of Design Creativity and Innovation.

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