Dialogue Issue 9 September 2015 by LID Business Media

SEP/NOV 2015 | dialoguereview.com

WILLIAM A COHEN 42

The three Drucker lessons you need to learn JOSEPH DIVANNA 28

Africa: the new cutting edge of banking innovation LIZ MELLON 16

How crowdfunding became a passion play

Break the bank How disruptors are pushing the traditional financial services sector to the edge PAGE 14 THE GUT DELUSION Why instinct leads you astray 44

BACK TO AGILE How IT strategy lost meaning 50

WORLD WIDE WEB Tips for managing global teams 70

TURBO TALK The communication explosion 65

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SEP/NOV 2015

DIGEST BANKING – REFORM OR DIE 16 Where do you go when the banks won’t lend? 22 Global banking power 24 Unblock the shared economy 28 Fail fast and prosper

34 Defining the bank of the future

REGULARS 7 Editor’s letter

78 Country focus

Ben Walker on how markets reformed the banks

Greece: Trouble in paradise

8 Spark

80 Reviews

What you need to know this quarter

Books, discovery paths and TED talks recommended for you

13 Up front Michael Canning on how to boost your organization’s energy

86 Last word Karina Robinson on unlocking female talent

38 The interview Liz Mellon meets the team from Baker Hughes

Dialogue | Sep/Nov 2015

BEYOND THE WRITTEN WORD AUTHORS WHO ARE EXPERTS

LID Speakers are proven leaders in current business thinking. Our experienced authors will help you create an engaging and thought-provoking event.

A speakers bureau that is backed up by the expertise of an established business book publisher.

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SEP/NOV 2015

IN DEPTH 41 LEADERSHIP & PEOPLE

41 The leadership column – Dave Ulrich 42 Leadership lessons from the master 44 The gut delusion

49 TECH & INNOVATION

49 The technology column – Andrew Millard 50 How to regain the art of agile 52 Sensemaking, brick by brick

57 FINANCE & ACCOUNTANCY

57 The finance column – Phil Young 58 The euro isn’t working 60 Make way for Professor Google

65 MARKETING & SALES

65 The marketing column – Andy Law 66 Embrace the relationship economy

69 STRATEGY & OPERATIONS

69 The strategy column – Subir Chowdhury 70 Arms around the world 74 How China became China Inc

Dialogue | Sep/Nov 2015

CONTRIBUTORS

SEP/NOV 2015

PROFESSOR MICHAEL MAINELLI Professor Michael Mainelli is executive chairman of Z/Yen Group, the City of London’s leading commercial think-tank, and principal advisor to Long Finance, a decade-old initiative asking “when would we know our financial system is working?”. His latest book, The Price of Fish: A New Approach to Wicked Economics and Better Decisions, written with Ian Harris, won the Finance, Investment & Economics Gold Prize at the 2012 Independent Publisher Book Awards.

JOSEPH DIVANNA Joe DiVanna is an independent author, consultant and global public speaker, chief executive of Maris Strategies, a strategy consultancy and think tank for business and financial services. He is a by-fellow at Churchill College, University of Cambridge. He has more than 35 years of business and banking experience.

WILLIAM A. COHEN Former US Air Force general Dr Bill Cohen is president of the California Institute of Advanced Management, a graduate school licensed by the State of California to award the MBA in Executive Management and Entrepreneurship. He holds an MBA from the University of Chicago and an MA in Management and PhD in Executive Management from the Peter Drucker and Masatoshi Ito Graduate School of Management at Claremont Graduate University. His books on business and management have been published in 23 languages.

PHILIP YOUNG Philip Young PhD has more than 35 years of experience as an MBA professor and as a corporate education consultant and instructor. He has taught in more than 30 countries around the world in development programmes for a wide variety of global companies in such industries as technology, communications, manufacturing, consulting services, banking, and fast-moving consumer goods. He has co-authored both trade and textbooks in economics. He is co-founder of www.finance-challenge.com

JO CAUSON Jo joined the Institute of Customer Service as chief executive in 2009. Under her leadership membership numbers have doubled – a figure that includes 17% of the FTSE 350 and household names across the private, public and voluntary sectors. She has also overseen a 60% increase in revenue, having demonstrated a clear link between employee engagement, customer service and organizational performance. Jo is a regular commentator in the media, focusing on the impact that customer service has on service delivery and the bottom line.

SUBIR CHOWDHURY Subir Chowdhury is a world expert on quality management methodology. Bangladeshi-born, he is now the chairman and chief executive of ASI Consulting Group in Michigan. He is a member of the Thinkers 50 league of global thought-leaders. Subir’s work has led him to a raft of awards, and gained him worldwide media recognition. Publications such as the New York Times and Business Week have hailed him as a leading evangelist for quality in business.

Dialogue | Sep/Nov 2015

EDITOR’S LETTER

Ben Walker EDITOR

How the disruptors changed the banks Maybe governments weren’t the great reformers after all. In the aftermath of the global financial crisis of 2008, many Western administrations promised to change the banking sector forever. Never again could so much be risked by so few. Yet to many minds, the regulation that emerged was overly complex, limiting and obstructive (see Last Word, Dialogue, page 86). Rather than governments, it has been markets themselves that have forced banks to make meaningful reforms, by challenging existing players with disruptive technologies and new ideas. In this issue of Dialogue, we focus on how the traditional banking sector must reform – or face extinction (pages 14-37). As part of that, we have a fantastic exclusive from Santander, the Spanish lender that is leading the charge towards complete digitization (page 34). Meanwhile, on page 16, you’ll find the human stories behind the crowdfunding explosion. It’s incredible how quickly the business landscape shifts when ordinary people – sometimes with extraordinary ideas – become a source of finance and support for new projects. Elsewhere in the Focus pages, you can read up on how a “rogue” entrant into the finance sector – the now infamous bitcoin – has created a sharing technology that may soon be adopted by the wider industry. If you hadn’t heard of Blockchain – you have now (page 24). And don’t leave the section without reading Joseph DiVanna’s thought-provoking piece on how to fail fast (page 28). You might be surprised about the geography of innovation. It is Africa that has become a heartland of change. Outside the Focus section, there’s the sharp writing you’ve come to expect from Dialogue. This includes Liz Mellon’s excellent guide to managing global teams (page 70). There is an art and a craft to managing globally – keep Liz’s article by your side and you won’t go far wrong. Would you like to get a handle on the age-old tension between data and instinct? You can read my investigation into why your gut may be leading you astray on page 44. If you are an owner-manager in a growing business your gut instincts may be causing you to miss out on good opportunities and follow up poor ones. We’ve an insightful piece too from Jo Causon, chief executive of the Institute of Customer Service (page 66). This is reading for profit: it’s a two-page primer on how the relationship economy works, and why only exemplary customer service will see you gain the trust you need to succeed. Finally, you may have noticed the photograph and name at the top of this page have changed. It’s an honour to accept the Dialogue editorship at this key stage in the journal’s development. This is an exciting time for the title, as we rapidly grow our readership and extend our global reach. Enjoy the issue.

Dialogue | Sep/Nov 2015

@brjwalker ben.walker@lidpublishing.com

WHAT YOU NEED TO KNOW

TALENT LOST TO AGEISM

BLAIR’S JOURNEY

Keily Blair has won the Future Leader Award from London-based business group Women in the City. Blair, senior associate with law firm Morrison Foerster, is an emerging expert in the fields of anti-bribery and corruption. Women in the City founder and chief executive Gwen Rhys said: “Keily’s determination to be a visible and authentic leader who stands for diversity and integrity – as well as actively engaging with a variety of groups and initiatives – is what sets her apart from the crowd.” On winning the award, Blair said: “I am honoured and grateful to receive this award, which I will use as a platform to inspire future generations of women in the City of London.”

DAVOS FOR WOMEN

Companies are losing out on vast quantities of talent because of ageism in the workplace. Research from the Institute of Leadership and Management reveals that the over-50s are seen to lack leadership potential – despite their often having greater experience and skills than younger workers. Over-50s score higher than younger groups on occupation-specific knowledge and skills, and understanding of customers, the report said. “There is an inequality in Britain’s workforce that is contributing to a large and worrying leadership skills gap,” said Kate Cooper, head of applied research and policy at the institute. “We see that over-50s are typically not being given equal opportunity to apply their much-needed occupational skills, knowledge and customer focus within a leadership role. This is because older workers are wrongly assumed to lack the desire to learn and progress into more senior positions, when in fact we found they are just as keen, if not keener, than their younger colleagues to grow and develop.”

Economic summit for female executives Global Female Leaders takes place in Berlin in April 2016. The event is designed for leaders, visionaries and decision makers from all sectors. If you are a chief executive or chair in a senior leadership role, an entrepreneur, a high-potential professional looking to advance your career, or a leader interested in broadening your horizons, you should attend. Sign up here: www.globalfemaleleaders.com/sign-up/

THINKERS 50

Liz Mellon, chair of the Dialogue editorial board, is a leading candidate for the 2015 Thinkers 50, the league of the world’s best management, leadership and business thinkers. Dr Mellon, executive director of global corporate education body Duke Corporate Education, has 25 years’ experience designing and developing leadership development programmes. She is author of The Strategy of Execution: A Five Step Guide for Turning Vision into Action. The Thinkers 50 rankings for 2015 will be announced on 9 November.

DRUCKER DATE

Managers and leaders from across the globe should sign up for this year’s Drucker Forum, staged in Vienna, Austria, on 5-6 November 2015. The Forum will focus on managing in the digital age, and will feature leading experts including Henry Mintzberg, Cleghorn professor of management studies at McGill University, Tom Davenport, professor in management and information technology at Babson College, and Tammy Erickson, adjunct professor at London Business School and chief executive of Tammy Erickson Associates. Sign up here: www.druckerforum.org/registration/

HITACHI STRENGTHENS HEALTHCARE Hitachi, Hitachi Medical, and Hitachi Aloka Medical have announced that Hitachi Medical and Hitachi Aloka Medical are establishing a new manufacturing subsidiary by combining their manufacturing divisions. The reorganization aims to strengthen Hitachi’s healthcare business and accelerate its growth. “Hitachi considers that its healthcare business will grow significantly by providing new solutions that combine its technologies and expertise with IT in addition to its existing businesses, such as medical imaging systems and cancer therapy systems,” a spokesperson said.

MINING DATA

Business leaders looking for new ways to capture, protect and monetize data should attend a key event hosted by the CFO Alliance in October. The New Jersey event will see key lessons on the importance of information governance and identifying the key facets of a company’s information – among other topics. For information, and to sign up, visit thecfoalliance.org/events/executives-sharestrategies-of-how-to-capture-protect-andmonetize-data-new-jersey Monument, Punta del Este, Uruguay

Delegates at the Drucker Forum 2014 gala dinner

TECH AND TELECOMS AT RISK The telecoms, property and tech sector are at the highest risk of non-compliance with global accounting standard IFRS 15, according to a report from leading accountancy recruiter GAAPweb. All firms will have to comply with IFRS 15 by 1 January 2017. Despite this, researchers from Gaap Web discovered that 36% of respondents were unaware of any change to the way revenue will be recognized. Of those respondents that were aware, almost three-quarters did not expect the change to have a major impact on their business. Howard Bentwood, managing partner at Cedar, a senior finance recruitment firm and partner in the research, said: “The results of this report further highlight the need for companies to better understand the enormity of the impact that IFRS 15 will have on their finance functions.”

AMBA HEADS TO URUGUAY

Leaders from top academic institutions in Latin America and beyond are heading to Punta del Este, Uruguay, 30 September - 2 October. AMBA’s 12th Latin America Conference for Deans and Directors conference will give participants the opportunity to discuss key developments and themes in the MBA industry in Latin America and worldwide. Delegates can participate in interactive sessions, discover new strategies and techniques and share knowledge and insight with other leaders from the world of business education.

LEADERS ARE THE GREATEST LEVERS FOR WINNING IN AN UNPREDICTABLE WORLD...

In today’s volatile, unpredictable world, our traditional pillars of organizational stability — strategy, business models, and capabilities — are being continually challenged. We believe there is great opportunity inherent in this volatility, but organizations are at risk of losing their way if they hang on to old models of success. Optimizing internal strengths and executing a good strategy is no longer enough. To succeed, organizations have to be more agile, adaptive and able to accelerate. In this environment, leaders are the greatest levers to see and seize these new opportunities and create organizations that can thrive. Leaders need to be ready to step up to a new role — one that embraces different ways of perceiving the world, making sense of it and catalyzing action.

...WE GET LEADERS READY FOR WHAT’S NEXT

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5 I 6 Nov. ViEnna I

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SPEAKERS INCLUDE

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Claiming our Humanity – Managing in the Digital age

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Rachel Botsman Founder of the Collaborative Lab and author Charles Edouard Bouée CEO Roland Berger Strategy Consultants Robin Chase Entrepreneur, Founder & former CEO of Zipcar, co-founder Veniam Tom Davenport Distinguished Professor in Management and Information Technology at Babson College Claudio Fernández-Aráoz Senior adviser at Egon Zehnder and author Charles Handy Social Philosopher Jim Keane President and CEO of Steelcase Inc. James Manyika Director, McKinsey Global Institute Henry Mintzberg Cleghorn Professor of Management Studies at McGill University Dambisa Moyo Global economist and author Kevin Roberts Executive Chairman, Saatchi & Saatchi, and Head Coach Publicis Groupe Zhang Ruimin CEO Haier Group Gillian Tett US Managing editor and columnist, Financial Times Sherry Turkle Professor of the Social Studies of Science and Technology at MIT; Director of MIT Initiative on Technology and Self

w w w. d r u c ke r fo r u m . o r g

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UP FRONT

The next energy crisis: amplifiers needed The best leaders know how to boost their organization’s energy levels. That’s the way to make good companies great, writes Michael Canning

Michael Canning CEO, Duke Corporate Education

t doesn’t take a physicist to remind us of the power – and, sometimes, beauty – inherent in a force of nature. While most of us are unconsciously aware of, and act in accordance with, forces of nature, for leaders there is one on which we need to focus and mobilize: the power of energy. Because energy is “the fuel that makes great organizations run” (Dutton, 2003), a company’s energy is linked to performance. High performance teams and exciting, innovative organizations thrive on and emit their own energy.

Great leaders inspire employees to stretch to deliver results The Law of Conservation of Energy tells us that energy transfers from one object to another, sometimes transforming that object. Some leaders possess innate ability to leverage and transfer positive energy by multiplying it exponentially through others. Their energy is contagious, they are magnets, attracting talent, projecting their own positive energy, and multiplying it in their people. Their energy comes from an ability to lock into a greater sense of purpose and vision for their organizations, beyond profitability and revenue targets. These leaders inspire their teams to strive for a better future and create a sense of urgency that mobilizes and focuses energy. Smart companies align personal passion with corporate purpose. As leadership expert Simon Sinek said: “If you hire people who believe what you believe, they will work for you with blood, sweat, and tears”. This is only effective if leaders bring the organization’s purpose to life through others.

Dialogue | Sep/Nov 2015

Liz Wiseman, president of leadership research and development centre The Wiseman Group, first referred to leaders who amplify the capabilities of people around them as “intelligence multipliers”. These great leaders inspire employees to stretch to deliver results that surpass expectations. Instead of relying on themselves and diminishing the ability of others, multipliers see an abundance of intelligent people who can figure it out. Here are a few tips for becoming an amplifier of energy: 1. Turn up the volume. The leader’s role is to mobilize and focus the energy of the organization. Connecting people to the bigger picture of success creates context and meaning for their work and a legitimate sense of urgency brings focus and direction. 2. Step back to go forward. Author Dan Pink points out that motivation increases when people have a sense of autonomy. Making space for others to lead and create is essential. Stepping back is not walking away, it just means helping others to shine. 3. Personify peak performance and surround yourself with others who do too. To mobilize energy and elevate performance, embody the love of peak performance (Bruch & Vogel, 2008). It is not the words, but the authentic actions in all aspects of your life. Surround yourself with leaders who are genuine and infectious about peak performance and gain energy by connecting with others. This infuses the team and, over time, the entire network. Leaders who do these things know how to tap into and manage the energy of their organizations. Now is the time to become an amplifier, mobilizing, focusing and dialing up the energy to create excitement, foster connection and engagement, and elevate performance.

FOCUS WHERE DO YOU GO WHEN THE BANKS WON’T LEND?

GLOBAL TEXT BANKING POWER

UNBLOCK THE SHARED ECONOMY

FAIL FAST AND PROSPER

DEFINING THE BANK OF THE FUTURE

Dialogue | Sep/Nov 20

FOCUS

CROWDED

OUT

The business landscape is shifting, pushing traditional banking to the cliff’s edge. To claw back to safety, banks must find new ways to meet customers’ needs. The alternative to reform is extinction.

Dialogue | Sep/Nov 2015

FOCUS WHERE DO YOU GO WHEN THE BANKS WON’T LEND?

GLOBAL TEXT BANKING POWER

UNBLOCK THE SHARED ECONOMY

FAIL FAST AND PROSPER

DEFINING THE BANK OF THE FUTURE

Where do you go when the banks won’t lend? Crowdfunding is more than a disruptive innovation. It’s a passion and a new way of doing business, writes Liz Mellon ILLUSTRATION: NICK LOWNDES

Dialogue | Sep/Nov 2015

WHAT IS CROWDFUNDING? It’s a means of raising funding from “friends, family and fools”, as it has been described. You explain your idea to as many people as you can, set up a website for donations and see how far you can get. Crowdfunding can support commercial ventures or social enterprises. You can do it yourself or employ a crowdfunding agency, which may operate on an all-ornothing basis – either you raise the full amount you seek and they charge you a fee, or they return all donations and cancel their fee if they fail to raise the full amount. You can offer subscribers rewards for different levels of contribution (see box, below). And it’s not just about raising money. The best crowdfunders also use the online community they create around their propositions to garner ideas and to test market and co-design goods and services. They also seem to have in common a strong set of values based on open access to funding, empowerment and making dreams come true. In a recent interview, Renaud Laplanche, founder and chief executive of Lending Club, explained how his lending organization aims to transform banking through offering cheaper, peer-to-peer loans. “What Lending Club is actually doing is transforming the banking system,” Laplanche was quoted as saying. “We plan to develop all types of credit products [where] … the consumer loans market is in the trillions of dollars. The operating expense ratio for banks is between 5-7%. Ours is below 2% and trending lower every quarter. We have this 5% cost advantage that we can pass on to our customers, so it is really hard to see how banks could compete.” When asked by the interviewer: “What is to stop JP Morgan Chase from cutting you out through doing all this themselves?” Laplanche replied: “There are three factors. There is the physical infrastructure – the branches. It would be really hard for JP Morgan Chase to close 5,000 branches overnight. Furthermore, Lending Club runs our entire operation on a nimble server farm

in Nevada, a setup that has the same piece of code running on every single machine. Our platform was purpose-built. It does exactly what it was designed to do and nothing else. In contrast, the banks all run on disparate systems that came with the mergers of other banks, many built 25 years ago. Getting all these legacy systems to a place where they could run like ours, getting them to use technology that was developed in the past two years like we do, this is almost impossible. “The third and most important aspect is really cultural. The kinds of people who come to work at Lending Club are those who say, ‘I want to transform the banking industry. I want to create something new and innovative.’ With a very different talent pool you end up with a very different outcome.” When I started out on the interviews reported here, I thought this article would be a straightforward story of competition like Lending Club – crowdfunding as an alternative to a bank loan. What I discovered is that crowdfunders have common values and a lot of passion around community, idea generation, and access to, and democratization of, funding. There are certainly places where crowdfunding and bank loans overlap. The banks seem keen enough to offer loans to high potential businesses and can even use crowdfunding intelligence to hedge their bets in the right direction. But crowdfunding has a different ethos and building a relationship with the crowd using your personal reputation currency is a big part of the difference.

Crowdfunders have common values based on open access funding and empowerment

FUNDING FEES Crowdfunders are often offered bonuses based on the scale of their contribution. An example is the crowdfunding effort, by social enterprise Fearless Futures (see graphic, page 18), to raise money for a Summer Leadership Institute for girls. It offered donors rewards, according to how much they gave.

Dialogue | Sep/Nov 2015

WHAT DID CROWDFUNDING EVER DO FOR US? The businesswoman “Why do banks insist on seeing a five-year business forecast? Even with all the evidence in front of them, they couldn’t predict the crash of 2008.” Madi Sharma is a serial entrepreneur and member of the European Economic Social Committee, where she campaigns for entrepreneurs and social enterprise. She has the energy of five people packed into one and was once criticized by a former employer for being “overenthusiastic”. She has no time for banks. “As a newly divorced, single parent in my twenties I couldn’t even get a bank account,”

she tells Dialogue. Sharma had left an abusive organizations power crowd-based solutions RISING marriage: “I had no experience, no skills, through providing services, conferences and REWARDS online communities, also hosting two major no money and no confidence. I started at my kitchen table with four samosas conferences a year to inspire and connect and ended up making 10,000 prodpeople, as well as a series of one-day ucts a week, employing 35 long-term summits on two or three topics releunemployed staff in two factories in vant to the crowd economy. Nekaj , E ADG regeneration areas. I was backed by ES B himself seems to live a life powered R S U FUT ANK F TH D LESS my parents and a “white knight” by web 2.0 – his extensive travel O R A T E U N AF UT-O MEDIA A O mentor who never even looked at my is made possible through renting H L AS OCIA AME ON business plan.” fantastic, well-priced accommoON S N R E YOU WEBSIT Then, eight years after being dation through Airbnb. To him, this R I THE named Asian Businesswoman of the is just one of the tangibles of a shared Year, Sharma lost it all. She was allocated economy. “The crowd economy is very a business advisor through a governpowerful – it creates online communiment scheme, who turned out to be a fraudties, global citizenship and releases human ster and her company went bankrupt. potential,” he tells Dialogue. Social media Undeterred, she started again and now allows us to put the best of ourselves runs a network of eight companies forward to the world – I can rent great scattered around the world. She uses places on Airbnb because of my US L the proceeds from these commercial reputation currency. The future will P VE ABO UTURES entities to fund social enterprise and be very different, it will be driven by THE F S S ARLE BAND to teach entrepreneurs. stuff coming to you – we won’t have A FE T S WRI “Being excluded by a bank through to go out searching any longer.” not being allowed a bank account Like many entrepreneurs, Nekaj pushes people into the black economy, has bootstrapped Crowdsourcing Week, the cash economy,” she says. “Why do building it organically, but in October he banks insist on seeing a five-year busiintends to take his own medicine. ‘We will ness forecast? Even with all the evidence launch our own equity crowdfunding in front of them, they couldn’t predict campaign to sell shares,” he says. “We the crash of 2008. If I were the minister want to harness the passion of those for banking, I’d make bank managers with similar beliefs – we’d like to get meet entrepreneurs, analyze the 100 or so investors. It’s not just about US L P OVE HE B T A facts, consider their determination the money though – money comes N EO THE OP PLAC ” H S E and back them based on gut feel, not last on the list of things to be gained. E K A “FR ER WOR M business plans.” We want our investors and our M SU crowd of stakeholders to help us to do The expert things and get involved in our processes. “Banks will continue to play a role, but only the good ones – for the rest, it’s already too late.” Epi Ludvik Nekaj is founder and chief executive of Crowdsourcing Week, established in New York, US, in 2011. He has since moved the headquarters to Singapore. As described on the website, crowdsourcing is the practice of aligning many individuals to work towards a common goal. It employs collaboration for problem solving, funding, innovation and efficiency and is powered by new technologies, social media and web 2.0. Crowdsourcing Week was founded to support the transition towards a more open and collaborative economy. It helps

£25

£40

£100

Dialogue | Sep/Nov 2015

Power corrupts humans – harnessing the crowd allows for more distributed power and creates more opportunities. My contributors say ‘thank you for doing this’ not ‘what a great company you have created’. You become the conduit and outlet for ideas that people want to see happen. “The internet is changing our world with the finance sector seeing some of the biggest effects. Hundreds of millions of people are becoming peer lenders and bankers – now everyone can invest, even with small amounts. Banks will continue to play a role, but only the good ones – for the rest, it’s already too late.”

The tech pioneer

The good news is that crowdfunding is levelling the playing field for women

“With banks you get money. We get amazing ideas from everywhere. We are looking at a gravity-based light that you literally bounce to generate light. In developing countries, it will replace kerosene lamps.” Anastasia Emmanuel is UK director of technology and design with Indiegogo, the firstever crowdfunding platform launched in 2008. It specializes in raising funds through reward systems (see graphic, page 18), a method that it created, and not through equity funding. One of Indiegogo’s three founders, Danae

Dialogue | Sep/Nov 2015

Ringelmann, started out working for the bank JP Morgan, but left because she considered it broken. At the same time as working there, she was helping theatre producers to raise money on the side and she saw a successful play that investors failed to back because it didn’t have the right profile. It just didn’t make sense to her. Ringelmann met her other two co-founders at Berkeley and they bootstrapped the company for its first two years. It now employs 120 people, all of whom own shares, has run 300,000 campaigns in 224 countries on an open platform (so that launches can be made in the fundraisers’ own countries) and works in four different languages. As many as 10,000 campaigns are active at any one time. Indiegogo takes a fee for every campaign, charging 4% against an industry average of 5%. However, it doesn’t take fees on donation-based or personal causes, such as fundraising for an operation. A campaign can take from four weeks to a year to prepare and an average of two to three months to launch. Campaigns can run for 60 days. Emmanuel aspires to democratize access to funding and to get rid of the gatekeepers. “Crowdfunding has barely scratched the surface,” she says. “We get amazing ideas from everywhere and we offer genuine empowerment to bring aspirations to life. We are looking at a gravity-based light that you literally bounce to generate light – in developing countries, it will replace kerosene lamps with all their accompanying dangers.” Anastasia was hired over a glass of wine – the company looks for its employees to have

TRUST

TRUST/MESSAGE NEXUS IN CROWDFUNDING

MESSAGE

Projects are likely to be funded when trust is high and the message is clear. If either trust is low or the message unclear, crowdfunding is unlikely. Source: Crowdfunding Intelligence by Chris Buckingham

FACE attributes (the acronym standing for fearlessness, authenticity, collaboration and empowerment). “If you go to a bank you get money,” adds Emmanuel. “If you crowdfund you get advice, feedback, a way of gauging demand and engaging potential customers ahead of launching your product or service. You raise brand awareness and gain PR via social media – your reputation has to be visible to the crowd if you are to succeed. And of course, you get money as well. The crowd is motivated by getting unique access to a product or service ahead of time.”

The guru “Whether you obtain funding depends upon how good your reputation is, and how clear your message.” Chris Buckingham is a lecturer at the University of Winchester, researches at the University of Southampton and consults through an organization called minivation. He is author of Crowdfunding Intelligence, a guidebook for raising investment funds on the internet. “What differentiates crowdfunding is getting endorsement and consent from the crowd – it’s really important,” Buckingham explains. “It’s a unique world of pretailing, e-tailing and retailing.

At its heart it’s a social strategy and fundraisers are looking to gain the trust of the crowd. The creative industry generally finds raising loans from banks either too challenging, or the loan terms offered too stringent, so crowdfunding makes a lot of sense for them.” Again, there is the same emphasis on what the crowd can offer in addition to finance. Do banks compete with crowdfunding? “There are algorithms that can identify winning ideas and allow banks to step in to offer loans to likely successes,” says Buckingham. “Entrepreneurs looking for equity investment are probably indifferent to where they raise capital – and banks might even offer them better interest rates.” So it seems that banks are able to use crowdfunding intelligence as a way to step into the safe part of the market, where their returns are all but guaranteed. Other peer-lending organizations, such as Zopa, offer another form of lending; they make loans, dictate the rates and mask the identity of the borrower – the opposite ethos to crowdfunding. Buckingham offers a simple method for potential crowdfunders to assess their likely chances of success. “Essentially, whether you obtain funding depends upon how good your reputation is (can the crowd trust you and your values?) and how clear your message is (does the crowd understand what you are trying to achieve?).” (See graphic, above.)

Dialogue | Sep/Nov 2015

The mother “You can’t change huge institutions such as banks overnight. That’s their weakness.” Babou Olengha-Aaby founded Mums Mean Business (now The Next Billion) after the birth of her daughter, when she had time during sleepless nights to plan a business. She found a new sense of purpose and empowerment, feeling that, as a mum, she could achieve anything. “Banks only lend to those who can afford it,” she says. “You can’t change huge institutions such as banks overnight. That’s their weakness. As an industry, we have to pioneer the change we want to see, be a disruptive force that inspires a change of mindset from the banks in order to democratize the financial system. “Crowdfunding invites everyone to participate by harnessing the power of the crowd and the shared economy for the greater good. Banks and venture capitalists can be part of this revolution if they choose. I would go so far as to say that they may soon run out of choice, as crowdfunding is set to overtake global venture capital funding by 2016, according to a recent report by Massolution.”

Dialogue | Sep/Nov 2015

Olengha-Aaby believes there is a multiplier effect from investing in women; female-run businesses start with significantly less funding, grow slowly, and (if they survive the valley of death during the first two years) fail less often, offer higher returns and invest back into family and community: “Women own only 1% of the world’s property, but banks lend against assets, so more often than not the request is rejected, even though a bank is often women’s first choice for funding,” she says. “As a next step, many women use their own credit cards to fund their businesses. And finally, they seek to raise funds from friends and family. “The good news is that crowdfunding is levelling the playing field for women, particularly in reward-based crowdfunding, where women dominate both as backers and as project-owners. Reward-based funding is also a great way for a female entrepreneur to validate her business model, gain traction and grow into equity funding. This method offers scale in a way that microfinance just doesn’t.” l Liz Mellon reviews Crowdfunding Intelligence by Chris Buckingham, p82

FOCUS WHERE DO YOU GO WHEN THE BANKS WON’T LEND?

GLOBAL BANKING POWER

UNBLOCK THE SHARED ECONOMY

Global banking power

FAIL FAST AND PROSPER

DEFINING THE BANK OF THE FUTURE

The banking industry dominates the world. But a series of misdemeanours and dwindling public fondness for the sector poses a threat, as does the march of disruptive financial services that circumnavigate traditional banks

CHINESE DOMINATION

BANKS BIGGER THAN THE EU

8,000 financial institutions in the EU command...

The world’s four biggest public companies are all Chinese banks. For the first time in 2015, Chinese institutions occupied the top four slots. Source: Forbes Global 2000, 2015

€46tn in assets that is equivalent to...

370% of EU GDP

...just 0.1% of all banks in the EU...

...but 15 European mega banks

43%

...comprise of total EU banking assets... ...which is equivalent to

150% of EU GDP (Source: One-Europe)

Rank

Company

Country

Sales

Profits

Assets

Market Value

ICBC

China

$166.8bn

$44.8bn

$3,322bn

$278.3bn

China Construction Bank

China

$130.5bn

$37bn

$2,698.9bn

$212.9bn

Agricultural Bank of China

China

$129.2bn

$29.1bn

$2,574.8bn

$189.9bn

Bank of China

China

$120.3bn

$27.5bn

$2,458.3bn

$199.1bn

Berkshire Hathaway

United States

$194.7bn

$19.9bn

$534.6bn

$354.8bn

Dialogue | Sep/Nov 2015

FINE MESS This May, £5.7bn in fines was levied on six global banks for attempting to rig the Forex market. The six banks allegedly created a cartel by using an exclusive internet chatroom to collude and manipulate the benchmark exchange rate in order to increase their profits. The United States’ Federal Bureau of Investigation described the activity as “criminality on a grand scale”.

$2.32bn Barclays

FINES LEVIED IN MAY 2015 BY VALUE

$1.27bn Citi

$0.89bn JP Morgan

$0.67bn RBS

$0.34bn UBS

$0.21bn Bank of America

“If you ain’t cheating, you ain’t trying” the words of one trader in the cartel chatroom, according to the New York Department of Financial Services.

Source: Financial Times Figures have been rounded

REFORM OR DIE

#1 Rank of banking in risk of disruption league according to Generation Y (the largest generation ever in the US) 1. Banking 2. Household goods 3. Discount retail 4. Mobile telephony 5. Personal computing

73% would be more interested in a new offering in financial services from Google, Amazon, Apple, PayPal or Square than from their own bank

Entrants into the industry threaten the hegemony of traditional multinational banks. Generation Y (born 1981-2000) are sceptical that they will even need traditional banks in the medium term.

68%

70%

say that in five say that in five years, the way years, the way we access our we pay for things will be totally money will be different    totally different

71%

would rather go to the dentist than listen to what banks are saying

33%

believe they won’t need a bank at all

FIVE DISRUPTIVE TECHNOLOGIES THAT THREATEN THE BANKING MODEL 1. BETTERMENT – uses algorithms to offer investment advice rather than expensive human advisors 2. TRANSFERWISE – peer-to-peer currency exchange business that frees consumers from banks’ handling fees 3. ZOPA – peer-to-peer lender that connects borrower with private lenders seeking higher interest on their savings 4. COINBASE – digital wallet that converts bitcoins 5. KICKSTARTER – wellestablished crowdfunding

Source: Millennial Disruption Index

Dialogue | Sep/Nov 2015

FOCUS WHERE DO YOU GO WHEN THE BANKS WON’T LEND?

GLOBAL TEXT BANKING POWER

UNBLOCK THE SHARED ECONOMY

Unblock the shared economy

FAIL FAST AND PROSPER

DEFINING THE BANK OF THE FUTURE

Growing trust in mutual distributed ledgers – such as the Blockchain technology underlying Bitcoin – will change financial services for the better, writes Professor Michael Mainelli ILLUSTRATION: NICK LOWNDES

Dialogue | Sep/Nov 2015

TO UNDERSTAND THE excitement over Bitcoin currency, we need to understand money. To understand money, we need to understand communities. An anthropologist might say that communities form when people are indebted to one another. If people meet on the street and leave without obligation to one another, they do not form a community. Small communities tend to hold everything in common. They are completely and mutually indebted. Slightly larger communities need other mechanisms to record indebtedness. “Brother John, in our community you attend church on Sunday and you missed it. We’ve put a small mark against you.” If your community is large and your forms of indebtedness more complex, you can trade indebtedness. I owe you a chicken. You give my indebtedness to someone else to repay one of your debts. He or she claims a chicken from me. In larger communities this indebtedness can be complex and heterogeneous. We can trade indebtedness of chickens for indebtedness of shoes, help with house-building, favours owed, or slights to status. Money is a technology that communities use to trade debts across space and time. The ultimate backing of money is its ability to extinguish debts in future. The depth and distribution of debt obligations are what give money value.

Unshackled from government Many cryptocurrency proponents claim that AltCoins – Bitcoins and similar cryptocurrencies – liberate monies from governments. Nations have a monopoly on the use of force in a geographical area. To be a nation, you must defend the integrity of your national boundary. This allows you to impose taxation within your borders. By forcing citizens to meet taxation obligations, governments create an incentive, a need, for them to trade. Governments create and vary the supply of their currencies – fiat currencies – so setting the trading landscape within their borders. Is a nation a community? Governments back their currencies through their monopoly of force on tax payment, creating a semi-coerced community of taxpayers. If you don’t believe there is coercion, call your tax office and say you’d like to stop paying your taxes for a bit. The money in our pockets is valuable because people with whom we wish to trade need to extinguish tax debts, which will be enforced, or know people with tax debts looming. Unlike the fiat currencies – created and administered by national governments - Bitcoin set a maximum fixed supply of 21 million coins. This fixed supply means that Bitcoin is possibly best compared with mining and extraction of precious metals, particularly gold. Gold has a fixed earthly

While monkeys may not create monetary systems, they understand money

Money versus currency If money is a way of trading debt, what is currency? Monetary technology typically uses self-referential token systems. These tokens of indebtedness are social desires and values frozen at a point in time. The value of the tokens depends on the future persistence of the community and its values. Anthropologists analyze money as a social technology akin to music or telephones. While primates may not create monetary systems, they understand money. Capuchin and tamarin monkeys at Yale grasped the idea of tokens so well they stopped saving and started raiding, gambling and prostituting themselves. Currency is anything that can be used as a token to record and transmit money around the community. Money is a ledger entry; currencies are physical tokens. The US publisher Kay Ingram once said: “Women prefer men who have something tender about them – especially legal tender.” So is a man who has all the money in the world the most attractive? No, because if you have all the money in the world, your money has no value. The more you distribute money, the more value it has, because more people are able to trade.

Dialogue | Sep/Nov 2015

A BRIEF HISTORY OF BITCOIN This is the decade of Bitcoin. The decentralized peer-to-peer digital cryptocurrency launched on 1 January, 2009. Bitcoin and other cryptocurrencies – also called AltCoins – gained significant momentum in 2013 with Bitcoin’s sharp price rise. It reached an all-time high on 29 November that year, peaking at US$1,125. The rollercoaster ride continued. Bitcoin market capitalization dropped from a high of US$13.9 billion on 4 December 2013 to around US$3.3 billion during the first half of 2015 (see infographic, page 27). High prices and volatility attracted speculation, as well as proliferation of competitive and complementary cryptocurrencies. While there are more than 600 AltCoins, Bitcoin remains the preponderant cryptocurrency. The market capitalization of the top 600 cryptocurrencies is in the region of US$4bn, so Bitcoin is more than 80% of the capitalization.

SHADY SHIPPER AND THE STRANGE MYTH OF THE TRUSTED REGISTRAR Part 1: Validating the ledger Shady Shipper: “I’d like to register my vessel. Here’s a photo I took on the island this morning of my supertanker berthed at the port terminal.” Scrupulous Registrar: “We need your purchase certificate, IMO ship registration number, tonnage certificate, load line certificate …” Shady Shipper: “Here’s $10,000.” Scrupulous registrar: “That will do nicely, Sir.”

Part 2: Safeguarding the ledger Shady Shipper: “I’d like to sell

supply but is mined according to price and demand. Imagine Bitcoin as a chemical element like gold, albeit a virtual one. A community may decide to use this virtual element for trading debts. So far, many of the allegations for or against AltCoins focus on what type of community is perceived to be trading debts – a Silk Road of Breaking Bad-style narcotic transactions; quixotic libertarians damning profligate governments; or hard-pressed traders in a tight credit environment? An AltCoin moves from being a virtual element that could be a currency to real money once it has a community. When a government accepts an AltCoin for tax (unlikely) or creates its own AltCoin and accepts it for tax (more likely), AltCoins become RealCoins.

Boring old ledgers A ledger is a book, file, or other record of financial transactions. The Sumerians used clay cuneiform tablets to record transactions. Medieval folk used split tally sticks. In England, when tally sticks were retired in 1834, the destruction of so many tallies got out of control and burned down the Houses of Parliament. Today, the implementation of choice for a ledger is a database, found in all modern accounting systems. So far, so boring. When many parties interact and need to keep track of complex sets of transactions they have traditionally found creating a centralized ledger helpful. A centralized transaction ledger needs a trusted third party who makes the entries (validates); prevents double counting or double spending (safeguards); and holds the transaction histories (preserves). Centralized ledgers are found in registries (land, shipping, tax), exchanges (stocks, bonds), or libraries (index and borrowing records) and so on. But while a third party may be trusted, it doesn’t mean they are trustworthy (see Shady Shipper box, above). Mutual distributed ledgers allow groups of

my vessel once to Otto and once to Maria.” Sanctimonious Registrar: “But that’s not possible.” Shady Shipper: “Here’s $10,000.” Sanctimonious Registrar: “That will do nicely, Sir.”

Part 3: Preserving the ledger Shady Shipper: “I have to go to court and need you to change your historical records for me to show that only Maria owns the ship.” Shady Registrar: “That could cost you…” Shady Shipper: “Here’s $10,000.” Shady Registrar: “That will do nicely, Sir.”

people to validate, record, and track transactions across a network of decentralized computer systems. The ledger itself is a distributed data structure held in part, or in its entirety, by each participating computer system. The computer systems follow a common protocol to add new transactions. The protocol is distributed using peer-to-peer application architecture. Peers are equally privileged participants in the protocol. Mutual distributed ledgers are not new – concurrent and distributed databases have been a research area since at least the 1970s. But growing confidence has led numerous firms, particularly in financial services, to announce interest in using them: Nasdaq, BNY Mellon, UBS, USAA, IBM, Samsung, and others. Mutual distributed ledgers can be implemented in a number of ways, the most common being: l public versus private – is reading the ledger open to all or just to defined members of a limited community? l permissioned versus permissionless – are only people with permission allowed to add transactions? l proof-of-stake, proof-of-work, consensus or identity mechanisms – how are new transactions authorized? l true peer-to-peer or merely decentralized – are all nodes equal/performing the same tasks? Bitcoin relies on a database of all Bitcoins ever traded. This database is called Blockchain, a public transaction record of integrity without central authority. Bitcoin “mining” is a groundbreaking way of concurrently validating new transactions with no central authority, Blockchain is a groundbreaking way of providing pervasive and persistent data storage. Blockchain technology offers everyone the opportunity to participate in secure contracts over time, but without being able to avoid a record of what was agreed at that time.

Dialogue | Sep/Nov 2015

Distributed ledgers The Blockchain is just one type of public, permissionless, proof-of-work, peer-to-peer distributed ledger. Distributed ledgers are probably the future of financial services. Consider this statement from the Bank of England (2014 Quarterly Bulletin Q3): “Although the monetary aspects of digital currencies have attracted considerable attention, the distributed ledger underlying their payment systems is a significant innovation. The potential impact of the distributed ledger may be much broader than on payment systems alone. The majority of financial assets — such as loans, bonds, stocks and derivatives — now exist only in electronic form, meaning that the financial system itself is already simply a set of digital records.” Collaborative economies or shared economies are all the rage, so why would ledgers be any different? Economists study the visible hands of planning, the invisible hands of markets, the translucent hands of decision makers, the helping hands of volunteers, and the grabbing hands of governments – and now the sharing hands of sharing economies. People are sharing cars (Uber, Lyft, RelayRides), homes (Airbnb, Onefinestay), oddjobs (TaskRabbit, Mechanical Turk), office space (Liquidspace, ShareDesk). In financial services, we have people sharing consumer insurance (Friendsurance, Guevara), consumer lending (Lending Club, Zopa), corporate lending (Funding Circle, ThinCats), and crowdfunding (Kickstarter, IndieGoGo). One insurer has identified sharing economies as collaborators to sell temporary insurance cover for personal cars used as taxis and homes used as hotels. In his 1494 treatise on double entry, Fra Luca Pacioli said “frequent audit maintains friendship”. Long-term success of a sharing economy stems from making sure the pie is fairly shared. Without large numbers of people believing the commercials deals struck are fair, the sharing economy fails to develop the trust it needs to thrive.

HIGHS AND LOWS Bitcoin market capitalization US$13.9 billion

Q4 2013

Dialogue | Sep/Nov 2015

US$3.3 billion

Q2 2015

The dominant AltCoin

80% proportion of total market capitalization of top 600 cryptocurrencies commanded by Bitcoin

Regulators are exploring how to regulate the shared economy. The state of New York is considering a BitLicense. The English Channel Islands are mooting standards for distributed ledgers. The persistence and pervasiveness of distributed ledgers make them ideal for providing a regulator with a full transaction record for both oversight and recovery in the case of a systemically important financial institution failing, or for account portability and competition.

The trust factor If love of money is the root of evil, study of money must be the source of madness. Trust is another maddening, self-referential, elusive concept aligned with money. Financial services exist because of our mistrust of others in transactions. Sharing economies need financial services operations at the core. Well-run banks should have lots to teach sharing economies. However, a centralized third-party banking approach now finds itself competing with a mutual distributed ledger. So what does the future hold? To mimic another metaphor, it’s probably the “temple of financial services” or the “souk of the shared economies”. In the temple, the high priests of the Blockchain maximalists and the banking traditionalists wage a schismatic war over “the one true coin”. In the souk there is an explosion of vibrant stalls, a frenzy of small shopkeepers engaged in animated discussions about a myriad of ways of trading. Meanwhile, governments try to make taxing the church or the market less slippery. While my heart is with the souk, my head recognizes there may be room for both. A sensible union would be a few, competing, “Blockchain-type” services encircling the globe providing end-of-day validation and recording of transactions, while thousands of mutual distributed ledgers do the work of serving thousands of shared economies. Concepts of trust arise in many philosophical puzzles. Mutual distributed ledgers look like becoming the system of trust in shared economies. If mutual distributed ledgers displace trusted third parties, they will change the systems outside them, most notably today’s financial services. l Professor Michael Mainelli is executive chairman of Z/Yen Group, the City of London’s leading commercial think tank, and principal advisor to Long Finance, a decade-old initiative asking “when would we know our financial system is working?” FURTHER READING See Dialogue’s digital edition for additional content on how to use mutually-distributed ledgers.

FOCUS WHERE DO YOU GO WHEN THE BANKS WON’T LEND?

GLOBAL TEXT BANKING POWER

UNBLOCK THE SHARED ECONOMY

Fail fast and prosper

FAIL FAST AND PROSPER

DEFINING THE BANK OF THE FUTURE

Emerging economies are better at banking innovation – so be like them. If something doesn’t work, move on, says Joseph DiVanna ILLUSTRATION: NICK LOWNDES

Dialogue | Sep/Nov 2015

“WE BOUGHT THE latest technology, ergo we are innovators.” The rise in technological expectations has led senior executives to develop a new lexicon. Words like innovation and invention have become interchangeable. In chief executive speak, innovation translates to organizational progress, human capital retention, increased revenues, lower costs, improved service quality, greater market share. Invention is the creation of something new. For the most part, technological invention represents something we could not do in the past, or something we used to do which has become too expensive due to labour costs. But innovation is not invention. And technology isn’t innovation either. If we buy more technology, do we automatically gain market differentiation and economies of scale? If this were true, two companies equipped with the same technological capabilities would provide the exact same level of performance. Innovation surrounds how you apply technology to enhance your value proposition to customers. Investors equate innovation with long-term capital appreciation. Some employees equate it with extra work. Others cannot wait to get their hands on the latest gadget or system. Language surrounding innovation has become as complex and charged as the underlying layers of interconnected, intermixed and interoperated technology it represents. You might say that while the language is tangled, the concepts are simple. Technological

invention is no more about innovation than the invention of the light bulb was about propelling humankind into the 20th century. To understand how to accelerate innovation, we must look at the gaps between inventing and applying, implementing and executing. Only then can we say technology has led to true innovation.

Our ability to implement has dramatically improved – now we only fail 80% of the time!

From banking invention to innovation

In 1936, banks invented “the Incassomat” or “robot cashier”, a machine to facilitate deposit making and withdrawals, to improve record keeping and reduce human errors in transactions. Soon, banks piloting it realized the cost of operating it was too high compared with the benefits of error correction. The next generation of automated teller machines (ATMs) debuted in the 1960s, to reduce operating costs by eliminating bank tellers. ATMs were available during banking hours, but required buttons and pin codes, which, to computer-illiterate customers, seemed like a barrier between them and other humans. Finally, in the 1990s, banks realized ATMs could represent the bank’s services outside of normal hours and beyond the confines of the branch; customers had become familiar with computer technology and wanted convenience. The ATM invention became an innovation when the focus shifted from achieving cost-savings for banks to providing added value for customers; it

WHICH IS THE GREATEST HURDLE TO INNOVATION IN AFRICA? 32.8%

27.5% 20

16.8%

17.6%

5.3% 0 Lack of risk taking by senior managers

Management scaling back technology investments based on world events

Lack of collaboration Lack of customer Increased cost of with government knowledge in building educating customers agencies and other product offerings and customer service financial institutions representations Source: Maris Strategies Ltd, 2014 Global Banking Survey

Dialogue | Sep/Nov 2015

Innovation is a state of mind. In an informal settlement near Johannesburg, a man takes a discarded two-litre plastic beverage bottle and carefully cuts off the bottom. Next he takes a two-foot long length of rope and ties a large knot in the centre. Then, holding the bottle upside down, he feeds the loose ends of the rope through the bottle and out the neck so the knot stays inside the container. He now lays the bottle down on its side. He takes a brick and smashes the bottle until it is flat. Like magic, a pair of shoes is created. They last for two or three weeks, and customers buy them repeatedly. The “shoe” salesman has identified a market need, invented a technology, discovered a consumer and built a business.

subsequently changed the nature of banking. For senior executives, technological innovation should advance top-line growth, improve bottom-line performance or significantly alter the quality of customer service. If it does none of these in a timely way, the technology is probably adding more cost than value. Innovation is a process capable of developing the right formula for value creation using technological capabilities in conjunction with human beings.

Avoid innovation myths To establish a strategic innovation agenda let’s first examine the myths: l The lion’s share of technological innovation comes from developed economies l The main goal of a new technological solution is to do everything the old system did l We are only innovating to keep up with the competitors l Technology is adopted because it’s cool l All customers want the same solutions and the latest technology When companies fail it’s because they have misunderstood how to apply technological solutions to their customer’s value proposition. For example, in banking, it is assumed that everyone wants online banking. But do all customers want the same online banking? Is the value proposition for wealthy customers the same for the middle class or working poor? Does implementation of online banking merely replicate

The innovation is to make banking invisible, to make it a utility

what we used to do manually at a branch? Is this type of implementation really innovation – or simply automation? Business transformation through technological innovation should question the premise of what is being delivered to customers. In online banking, innovation is not facilitating banking transactions but making banking invisible, a mechanism to make banking a utility. To use online banking innovatively is to remove customers from individual transactions and provide them with tools to understand their cash flow in the context of longterm goals and objectives. Customers run their budgets serviced by their banks informing them of unanticipated events, enabling them to run their finances by managing exceptions against their plans. Instead of seeing technology-driven innovation as a new business model or opportunity, it is often seen as a disruption to the normal course of business. Managers lament it. “It’s another IT project in a series of projects that may or may not ever reach full implementation,” they often say. “It is interrupting my business.” But implementing technological solutions is the new business. Few businesses today can survive without offering customers access to their products and services via technological channels.

Innovation is a new business process If innovation is a business process in its own right, we need to ask who is managing it across the functional silos of the organization. Studies in the 20th century reported that up to 90% of all strategies – most technology-driven – failed to reach implementation (see infographic, page 33). Studies in the 21st century indicate that our ability to implement has improved; now we only fail 80% of the time! Organizations tend to kill innovation through failing to integrate new solutions to legacy systems and existing management structures. This is why non-traditional start-up competitors (often in non-developed markets) are more agile at moving into a market quickly

Dialogue | Sep/Nov 2015

to attract a large number of customers. A lack of infrastructure, absence of legacy systems and a common theme of necessity as the mother of invention are driving emerging market innovation.

Africa –an innovation leader The Southern African banking market is a hotbed of innovation. Banks have radically altered their implementation process and, in a highly competitive market, demonstrate their technological prowess as they innovate along seven key themes: 1. Financial inclusion of lower income populations 2. Expansion into new geographies 3. Adaptation of cost-base to react to new regulations 4. Improving quality of services to customers 5. Expanding lending to small businesses 6. Streamlining operations to reduce cost base 7. Devising new value added fee-based income streams Banks in Sub-Saharan Africa realize the mantra is: “reform the bank or die”. The market is witnessing a quantum change due to new competition, new regulations and tech-savvy customers. Banks cannot afford to lag behind. New market entrants focus on technologyled specialized financial services, such as lending to small businesses or to the working poor. Since lending operations do not receive customer deposits, they do not need deposit protection or full banking licences. They do not carry the same reporting requirements, overheads and customer service representation as their big-bank counterparts. This new competitive phenomenon can be seen across the banks’ product portfolio. Larger banks in Africa are suffering from death by a thousand cuts, as competition slowly erodes their value proposition to customers. What is different about the approach to banking innovation in Africa is a redefinition of the very meaning of “innovation”. The senior team in one of the major banks in South Africa has hit upon the right idea: make innovation everyone’s job. It has moved away from innovation originating from a special team or the technology group, creating instead a process that makes everyone responsible and answerable. To compete, banks must focus on a process of rapidly implementing innovations, rather than on technologies as an end in themselves. This is working by reducing the roadblocks created by bureaucracy, facilitating organizational change, orchestrating integration with existing systems, creating the right incentives and, above all, motivating people to make it happen. They are creating a business process managed by senior executives to shepherd innovation from idea to

Dialogue | Sep/Nov 2015

implementation. Banks in Africa have discovered that continual innovation is their business; they just happen to be in the banking industry.

It’s easier from the periphery During the past five years, innovation in businesses and governments in emerging markets has accelerated to a rate that has surpassed their counterparts in so-called developed nations. This is due to three key factors. First, in the aftermath of the global financial crisis, organizations in industrialized nations reduced purchases of technology, thus falling behind. Emerging nations with little or no technological infrastructure could “leapfrog” ahead because they did not have to incorporate large investments in legacy systems. And they experienced higher acceptance of innovations ushered in by a highly technologically savvy young population (in much of Africa more than half the population is younger than 25). In 2014, bankers in 16 African nations were asked to identify their greatest hurdles to innovation in their markets (see infographic, page 29). A lack of risk taking by senior managers topped the chart, as senior managers identified the high cost of career suicide when projects fail. This sentiment is amplified against the backdrop of a major banking crisis, regulatory reforms and economic instability. Yet by being ingenious, and devoid of laggard legacy systems, African bankers have been able to lead the way in an effort to innovate.

Fail fast, fail often, be first to market Innovation in African banking was never about buying the latest technology. Rather, as African bankers have discovered, innovation is about

RISK AND REWARD

70%

typical failure rate for banking innovations

400% to 1,000% typical performance against KPIs for surviving products

032_CWB ad.indd 2

29/07/2015 12:45

BUILT TO

FAIL

90%

approximate failure rate of innovations in the 20th century

80%

approximate failure rate of innovations in the 21st century

taking risks and applying technologies in new ways. A lack of risk taking acts as a dampener when it comes to capitalizing on innovation. Across Africa, bankers have seen electronic payments, eMoney, peer-to-peer lending and other technologicallybased solutions flourish with banks participating after non-banks have made significant inroads into their markets. Simple innovation, such as making all your credit and debit cards inactive and turning them on and off via SMS messaging to the bank, is becoming commonplace. These effectively outsource fraud management to customers, reducing costs while giving the customer control of their bank access. African banks are taking a more determined role in advancing the technological capabilities of their institutions by a controlled series of innovation projects designed to add value using technology in new ways. Innovation here requires rethinking the value proposition, business processes and overall approach to serving their customers. Rethinking is defined as taking a controlled set of risks through active experimentation. Financial institutions in emerging markets are also developing products that cater to small groups of people or a single market segment for a specific length of time (micro-campaigns); for example, offering a credit card for young people in the high-tech sector for three to four months. By setting key performance indicators (KPIs) for the product (uptake, volume, return on investment), implementation can be assessed frequently. If the

Dialogue | Sep/Nov 2015

product is not performing, they can kill it and offer customers a migration path to another product. This is known as “fail fast”. In the past, organizations launched new products every seven to eight weeks and hoped for the best. Performance was secondary; they were copying competitors by launching products. Now, micro-products with micro-campaigns go from idea to launch in five working days and are evaluated daily against KPIs during the 90-day trial period. This process innovation, combined with product innovation, has altered the bank’s behaviour and understanding of, and appetite for, risk. The fail rate can be as high as 70%, but products that resonate with the market consistently outperform KPIs by up to 1,000%. Creating the right motivation and incentives to reward failure provides the environment for success.

How to build an innovative team How do senior teams “infect” the organization with an understanding that innovation is everyone’s job? Here is what should be on their agenda: l The senior team must create the right environment for innovation l Innovation is not about technology but delivering value in new ways l The jump from invention to innovation often requires investing in educating employees l Employees must learn to “fail fast”, understanding when to take corrective action if the KPIs of an innovation indicate it will not deliver l Innovation requires investments during “good times” and “bad times” and effective timing

Innovate or die Organizations often embrace innovation during good times when profits are rising. It feels risky and counterintuitive, yet during downturns, organizations must continue to innovate to meet customer needs. This is not simply about spending on technology, but seizing the opportunity to rethink business processes, re-evaluate the customer base and re-qualify suppliers. One lesson from emerging markets is that necessity breeds innovation, but also requires a new way of thinking. Innovation is a business process in its own right within organizations, and is everyone’s job. The process must be defined and requires commitment from management, which creates the environment, motivation and inspiration to ignite the spirit of innovation. l Joe DiVanna is an independent author, consultant and global public speaker, CEO of Maris Strategies Ltd and a By-Fellow at Churchill College, University of Cambridge.

FOCUS WHERE DO YOU GO WHEN THE BANKS WON’T LEND?

GLOBAL TEXT BANKING POWER

UNBLOCK THE SHARED ECONOMY

Defining the bank of the future

FAIL FAST AND PROSPER

DEFINING THE BANK OF THE FUTURE

The banking industry has yet to understand the digital economy fully. But with careful strategy, it can join the digital revolution, writes José Maria Fuster Van Bendegem ILLUSTRATION: NICK LOWNDES

Dialogue | Sep/Nov 2015

WHAT SHOULD THE bank of the future look like? Let’s remove ourselves from today’s banking system and instead imagine where we will stand within a decade. We will be in a world where social changes that are beginning to emerge today will be in full force. Today’s so-called “millennial generation” and its values will have a substantial influence in all areas of the economy. With this to come, it is imperative that all the large banks, which currently dominate the financial landscape, consider the bank of the future. While yet to be built, we already know some of its characteristics: l It must have a global reach. This will require a new political and legal framework, providing consumers with unique services that don’t exist today. It will also contribute to global economic development, facilitating the global economic flow of the digital economy l It will be customer-focused, having had to overcome the traditional product silos model of management l There will be extensive use of technology. The chief technology officer will be a key figure within the company l It will be run through digital processes with minimal friction. These will operate with significantly lower costs, benefitting from a model of decreasing costs based on scale l It will provide new, personalized, services to clients based on the intelligent use of data l It will require a team of people that combines business and technology knowledge in order to cover all the key roles. All of its employees will need to be “digital natives” l It will consider data to be a valuable asset, instead of a necessary cost. Data management will be a key function l It will implement progressive models of open organization, where collaboration outside the doors of the bank will be the norm, not the exception l It will have a culture that rewards entrepreneurship and innovation; always looking to satisfy the needs of clients l Its marketing will be based in data; therefore, the “data scientist” will play a fundamental role l The customer experience will be at the centre of all proposals The bank of the future will clearly be a digital bank, but what do we really mean when we refer to the digital bank?

1. BANKS STARTED TO DIGITIZE IN THE 1970S You could argue that banks have been digitizing since the 1970s, when they began to mechanize/automate banking processes using digital computers. Since then, the process of the banks’ digital mechanization has improved at a steady and uninterrupted rate. Banks have become increasingly efficient, while providing services that are more sophisticated and convenient for their customers, such as paying by card, ATMs, telephone banking, internet banking, electronic transfers and international payments via SWIFT. This mechanization process has improved banks’ efficiency ratios, as well as effectively managing large transaction volumes.

2. WHAT IS THE DIGITAL ECONOMY? We are already well immersed in the “disruptive” phenomenon. This disruption is produced by the maturity and convergence of five families of technological innovation that are having a profound impact on the economy and society. Two fundamental concepts are at the heart of the transformation: Metcalfe’s Law, which states that the value of a telecommunications network is proportional to the square of the number of connected users of the system; and the concept of audience established by mass media that, assuming a given share of users, looks to increase their attention shares.

The chief technology officer will be a key figure within the bank of the future

Dialogue | Sep/Nov 2015

The five families to which we are referring are: l The internet has enhanced the connectivity of the networks of global communication, creating a network effect at a global scale. The network effect is a consequence of Metcalfe’s Law l Mobile devices such as smartphones enable the increase of both the number of people connected to networks, as well as time of connection. Furthermore, the size of these networks will rapidly expand in the coming years thanks to the all types of things being connected – cars, wearables, electrodomestic items – in the so-called “internet of things”. This opens up new horizons for the growth of the internet, and even greater network value, thanks to Metcalfe’s Law l The cloud has made possible the management of a growing volume of content with decreasing marginal costs, accessible through the internet

All types of things can be stored, including data, voice, music, videos and documentaries. The higher the quality and quantity of the content, the higher the number of people connected to the network, as well as the time of connection l Social technology has led to significant improvements in how people interact with one another throughout the world, thanks to the internet, including the sharing of personal experiences plus the sharing of available content in the network. These technologies are beginning to change the way in which we connect and keep in touch – again increasing the number of connected users, as well as the time of connection. The complexity of the relationship models between people is reflected in the proliferation of social networks, Facebook, YouTube, Instagram, Twitter and LinkedIn being the most notable. Initiatives such as Internet.org by Facebook seeks to further extend the internet to everyone in the world, facilitating access to the so-called “unconnected” l Big data can process and manage huge amounts of organized and unorganized data in very efficient ways, using management techniques based on memory data and distributed processing. This technology produces highly advanced intelligence about all the phenomena that occur in the network, making it possible to create better experiences for the user, such as personalized marketing models that suit the needs of network users The combination of these five technologies is altering traditional economic models, creating new models that have to keep in mind the network effect. According to the traditional model, these companies are losing money, but, in reality, they are investing in a new core asset that is data, creating new ecosystems based on the combination of value of data and the network effect. Those companies that manage to exploit the network effect benefit from very high future growth and high stock market values. These highvalue entrants are known as unicorns, among which are Facebook, Uber, Dropbox, Airbnb and Palantir.

Multichannel/omnichannel Traditional banks have tried to tackle the issue of the digital economy by a process of digital transformation. Although traditional banks have been investing in mechanization since the 1970s, they haven’t altered the fundamental process of customer relations based on branch networks or specialized managers. You might say that the bank was mechanized from the inside out. Many internal processes have been mechanized, but the front-office system still uses both managers and officers to meet customers. The arrival of multichannel services complicates things further, because the more channels a business offers, the more complex that business is to manage. Banks now have multiple ways of transacting and interacting with their customers – branches, ATMs, call centres, smartphone apps and the internet. The so-called omnichannel concept has improved the customer experience by offering multiple channels, but it hasn’t altered the fundamental relationship model of branches and branch managers. The traditional bank’s digital transformation looks to change the role of branches and managers. It offers customers a service based on the omnichannel concept – providing the customer with a consistent experience across all channels, where they can choose their preferred device at their own convenience. This digital transformation process faces the following difficulties: l end-to-end digitalization of key processes l changing the service model l changing the customer relationship model l changing the organization and its management structure l managing a culture change in customers and employees l changing value propositions Each of these poses a gigantic problem to change management: trying to define highly complex transition models, where you have to make old and new models exist together in an economically viable manner.

Rather than adapting traditional models, digital banks can be created from scratch

3. SO WHAT IS THE DIGITAL BANK? When we talk about digital banks today, we are, in fact, asking what we expect banks to be like in the digital economy that we have just outlined.

The 100% digital bank Rather than adapting traditional models, digital banks could be created from scratch. Many banking groups and investors have investigated launching entirely digital banks. Why? Because managing the transition process from a traditional bank is the most complicated thing to solve because of its economic impact on the company, and starting afresh with a purely digital model might avoid many of the problems

Dialogue | Sep/Nov 2015

associated with the conversion. A number of interesting initiatives exist in the world of creating digital banks. These digital banks are born incorporating a combination of the following core principles: l customer orientation l heavily weighted to digital channels l “vocation” of high-quality service l offering innovative products and services l much simpler and more efficient processes l a digital culture in its equipment/staff Yet digital-only banks also face challenges of their own. A key problem is that they command much higher maintenance costs to keep their advanced technology running. In the same way, we see that some of these banks – more advanced than the “traditionals” – have not managed to attract a critical mass of customers. Because of their lack of clients – and therefore lack of revenue – they are unable to keep up with the technological investment that is required to keep up to date in the hyper-competitive digital economy environment.

Fintech In order to solve these problems, the financial services sector has come up with a huge number of initiatives seeking to combine disruption, scale and economic viability. This forms the basis of the phenomenon known as “fintech”. According to the consultant Oliver Wyman, the investment of venture capitalists into fintech companies reached $23.5bn between 2013 and 2014. This high investment has been focused on consumer loans, payments, small business loans

and investment management. As a result, there has been progress in improving processes as well as bettering the user experience and the use of data, but the value propositions are too simple. Few have succeeded economically, and not many have produced the disruption that they have been looking for. In spite of everything, innovative companies have been founded, such as Lending Club, Ripple (and its vision of using ultra-efficient Blockchain payment technology), eToro (an interesting social network for investing), and so on. However, very few fintech firms have become true unicorns. Perhaps this isn’t the way to solve the problem of creating a digital bank.

So how do you construct the bank of the future? On 15 June, 2015, at MoneyConf in Belfast – one of the most important events in the fintech world – I gave a presentation where we launched the so-called Fintech 2.0 Manifesto. The fundamental idea presented looks to combine the best of the three previous models, trying to draw up a new strategic model of digital banking. In this model, we laid out the following: 1. Create a new technological framework that makes the digital transformation of traditional banks possible by using a front-to-back approach, starting from the customer 2. Create a new digital bank from scratch that combines that framework with a deep and wide-ranging collaboration with the entrepreneurial sector in the fintech world, encouraging innovation 3. Create a new organizational management model that is fit for the digital age, and avoids the friction and bureaucracy associated with traditional banking Banking is the only essential sector that still hasn’t thoroughly been incorporated into the digital economy. Banks of the future will be digital, but as the digital transformation of existing banks will be insufficient, we will be spending the next few years helping to build a strong and dynamic cooperation between banks and the fintech industry. Banks must collaborate and combine their efforts of digital transformation. They must have a clear understanding of the digital economy and the role of technology. And they must harness the power and ideas of the fintech industry. Only then will they become the banks of the future. l José Maria Fuster Van Bendegem is corporate director for innovation at Santander.

Dialogue | Sep/Nov 2015

THE INTERVIEW

IN SEARCH OF

BIG THINKERS

Baker Hughes needed employees who thought company-wide, not just about their region or division. Here’s how the company achieved it. Liz Mellon reports

magine you work for Baker Hughes in Angola or Argentina. How well do you understand the whole business, let alone your peers in other countries? Baker Hughes (BH) is the combination of many companies that have developed and introduced technology and services for the oil and gas industry. Its combined history dates back to the early 1900s. In 2010, BH undertook a major reorganization to integrate individual divisions into an operating company working on enterprise-wide solutions. A new matrix structure was to be underpinned by a single global

I confronted a more senior colleague about his behaviour – something I would never have done previously

culture and way of working. For this, the company leaders had to think and act differently. Top-down leadership in “my” region or function is pretty straightforward. Working out how to collaborate with colleagues to achieve sales of global products and services takes more self-insight, collaboration and influence.

A new leadership mindset In 2013, BH launched a series of leadership development initiatives as part of its leadership development framework, starting with the top 150 leaders and cascading throughout the organization. For the top levels, it partnered

Dialogue | Sep/Nov 2015

THE INTERVIEW

with world-class educators like Duke Corporate Education (CE); further down in the framework, programmes were taught by BH trainers. Thousands of employees have been engaged. Some key aspects of the education were to create leaders who could think more holistically and make decisions based on the needs of the entire company; drive game-changing strategies in collaboration; share ideas, knowledge and insight across the business; thrive on ambiguity; and take calculated risks and make continuous improvements based on experience. To be asked to think and act so differently can feel challenging to leaders who are, in essence, being asked to learn a new way of operating. And there was certainly scepticism about the need for executive education to help them, as BH director of leadership development Annette Law explains. “One executive said to me ‘I did not want to come to this class – what can you teach me?’ – but they were turned around after the first week of the first module,” she reveals. “Why? Because we challenged them to think differently. It was less about teaching new content than validating what they already knew and helping them to apply it in a different way, to deal with today’s problems. And we also encouraged them to apply their learning to the challenges faced

BAKER HUGHES Baker Hughes is a leading supplier of oilfield services, products, technology and systems to the worldwide oil and natural gas industry. The company’s 49,000 employees today work in more than 80 countries helping customers find, evaluate, drill, produce, transport and process hydrocarbon resources. It is the third largest integrated oilfield services company in the world, after giants Schlumberger and Halliburton.

Dialogue | Sep/Nov 2015

One executive said to me ‘I did NOT want to come to this class – what can you teach me?’ They were turned around after the first week of the first module one level up – we’ve seen very positive results from the participants who went through the programmes.” Director of talent management Francesco Turchetti says the project required employees to develop – and embrace – a whole new mindset. “We challenged our leaders to undertake a personal transformation,” he says. “We asked them to learn to take ownership and hold accountability for the whole company, not just their part of it. Quarterly interventions played out across 18 months strengthened their interdependence and their personal bonds. They feel they can now reach out quickly into their global network for support.” BH adopted world-class executive education techniques such as experiential exercises and deep conversations about strategy and purpose, consistently led by the chief executive and the 12-strong executive committee (a Baker’s dozen!). Do they believe it worked?

Success story There is concrete data demonstrating success. Strategic projects led by executive committee members and other senior leaders have achieved real business results. Employees have been surveyed to make sure the strategy has been cascaded right down the business so that everyone can align behind it. And participants at each level coach and mentor participants enrolled in programmes conducted at the next level down. There’s more. At the start of the leadership development initiative, nobody could have predicted

late-2014’s dramatic downturn in the oil and gas business. “Everyone talks about VUCA – volatility, uncertainty, complexity and ambiguity,” says Law. “With the downturn in our industry, we are in the VUCA. There is ambiguity and uncertainty everywhere. Our people still need to lead even as we face these difficult times. The call to great leaders is here and now – and they are standing up and answering that call.”

How do the leaders feel? Lynn Frostman, senior director of chemicals, innovation and technology at Baker Hughes, attended the Global Leadership Program run by Duke CE, led by managing director Craig Clawson. Did it make a difference? “It is the most impactful training process I have been through,” she says. “It was really well done and well-tailored to our issues and challenges, so that it felt relevant. For me, there has been a personal impact – I have grown in confidence. We have introduced a new corporate value at Baker Hughes – courage. “One thing I got was confidence in my ability to lead through good and bad times and to have more impactful conversations. I confronted a senior colleague about his behaviour, which could have a counterproductive effect on colleagues at times – something I would never have done previously. I planned it ahead of time and, to his credit, he listened. In meetings now, I can see him catching his breath and rephrasing how he says something. I have courage – I have found my voice.”

Kable Government Computing 2015 15th October 2015, London, UK

The only event to offer delegates free access to Kable Analysts, alongside senior civil servants. Want clear advice on how to meet the new government’s digital priorities? Kable Government Computing 2015 is back this October and will be offering delegates the forum in which to learn more about the changes impacting the public sector and how technology can transform services. Our 2015 programme will include sessions on:

Priorities for digital transformation Innovation in procurement Steps toward Government as a Platform Maximising Collaboration Disruptive technology

Gain clarity on government budgets and what they want to achieve under renewed pressure to deliver more public services with fewer resources; gain practical, evidence-based guidance on procuring and integrating the latest technologies in everyday operations and share experience with your public sector counterparts. Visit the website for more information and to register your place using reference code MK-HJAD

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06/08/2015 14:51

THE LEADERSHIP COLUMN

True grit – and how to get it Successful leaders are passionate and focus resolutely on growth. Psychologists call it grit, writes Dave Ulrich

Dave Ulrich is Rensis Likert Professor of Business at the University of Michigan and Partner at The RBL Group

e learn to win. Learning underlies organizational agility, predicts leadership success, and improves individual productivity. How do we improve our capacity to learn? Learning has two dimensions: personal energy and passion and an ability to demonstrate a growth mindset. Psychologists call this virtuous combination “grit”, concluding that grit is a better predictor of long-term personal, educational, and leadership success than intellect (IQ), emotion (EQ), or sociability (SQ). When presenting to large groups, I like to ask: “Raise your hand if you are glad that IQ is not the biggest predictor of your personal or professional success. If you did not understand the question, raise your hand!” Here’s my list of how to enhance grit (from research, experience, and observations.)

Grit needs to be directed with realistic expectations 1. Set realistic expectations. Sometimes, we try to achieve the unachievable. Grit needs to be directed with realistic expectations. 2. Take a risk. Challenge yourself to do new things. Habits and routines are 70% to 80% of our lives, but experimenting with new routines allows us to grow. See change as opportunity not threat. 3. Persist in the face of setbacks. When trying something new, it often won’t work and it is very easy to blame and rationalize. Face mistakes, run into them and honestly evaluate what worked and what did not work. 4. Relish success, share credit and focus on why. Take the Velcro and Teflon test: great

Dialogue | Sep/Nov 2015

leaders take more than their fair share of blame and less than their fair share of credit. Grit may come from being “Velcro” in failure, taking responsibility, not blaming others, then being “Teflon” in success, sharing credit. 5. See effort as the path to mastery. Without graft, success is a fluke. For long-term learning and growth, we must have sustained effort and a passion for the outcome we want to achieve. 6. Learn from criticism. Criticism is a gift of improvement. We learn by asking others what they think and how things might have worked. You can hear criticism and choose whether or not to act upon it. 7. Build on your strengths. Focus on what is right and build on it. Sometimes a mistake becomes an unhealthy obsession. 8. Find lessons and inspiration in the success of others. Finding joy in others’ success allows us to learn; we can observe how they work and adapt this to our circumstance. 9. Surround yourself with friends who are learning and growing. Our friends become a mirror of who we are. Look at your closest friends to determine how you are likely to be seen. If we chose friends who learn and grow, we are likely to mimic their behaviour. We learn through imitation and those we are closest to are those we imitate. 10. Start small. I like the learning mantra: • Think big: have big ideas, work on principles, have grand aspirations • Test small: start with little things, fold the future into the present, experiment, try, start, chunk big tasks into small behaviours • Fail fast: recognize what is not working, be open to criticism (see feature, page 28) • Learn always: reflect, renew, and improve.

LEADERSHIP & PEOPLE

LEADERSHIP LESSONS FROM THE MASTER Peter Drucker tailored his management advice to specific situations. But some of his teachings can be applied more widely, says William A Cohen ILLUSTRATION: LEONA PEARSON

’ve heard the question many times: “What was Drucker’s most valuable contribution?” It’s the poser with which journalists interviewing me about my books nearly always open. With Peter Drucker having provided so many insights, so many wonderful ideas, so much ethical and moral guidance that might have saved organizations – or even countries – from financial ruin, I found this difficult to answer. For several years my

response was along the lines of: “It all depends”. I pointed out that Drucker’s “most valuable contribution” was situational: it depended primarily on the challenge you were facing. My approach didn’t go down too well with the press. As a rule, reporters don’t much like equivocation. They prefer clear answers in primary colours over nuance. Nevertheless, I avoided naming a single Drucker contribution that would cover all instances,

because I couldn’t think of any. However after one interview, I rethought the question and decided I could do a lot better with my response. I reviewed various Drucker prescriptions for a variety of problem areas, especially for consultants. Was there a thread of commonality in his recommendations and solutions that might lead to a universal and most valuable contribution? It turned out that there was.

Dialogue | Sep/Nov 2015

LEADERSHIP & PEOPLE

1. The Krav Maga principle: Train lightly, fight hard In combat, everyone knows that you should train the way you fight. Hungarian Jew Imre Lichtenfeld learned the hard way that what everyone knows can be wrong. In 1935, Lichtenfeld visited what was then Palestine with other Jewish athletes to participate as a wrestler in the Maccabiah Games, a sports event similar to the Olympics. He had trained strenuously en route to the Games, wrestling as if it were the actual competition. One practice match was so intense that he broke a rib. He won that practice match but – after all his training and preparation – the broken rib prevented him from taking part in the real wrestling matches at the Games. In effect, he had traded a sparring win for the chance of a medal. This mishap led to his abandoning what everyone knew about combat arts. Lichtenfeld adopted instead what is now known as the fundamental Krav Maga principle, when he founded a new, more deadly, martial art. Krav Maga is a self-defence system developed by Lichtenfeld, brought to Israel when he escaped Europe during World War II. Krav Maga is Hebrew for “close combat”. It is brutal and, if practised for real, can cause permanent injury or death to an opponent. But the principle is, above all, not to get hurt while in training, but to save your energy and your body for the real thing. In business, as in combat. l Don’t over-prepare l Conserve your energy for when you really need it l Don’t practise so much you fail to focus on simple, killer blows 2. Don’t be like Lisa: think customer A young Steven Jobs claimed the Lisa computer would be successful because it was vastly superior technologically to its competitors. The Lisa had an advanced system-protected memory, multitasking, a sophisticated operating system, a built-in screensaver, an advanced calculator, support for up to 2MB of RAM, expansion slots, a numeric keypad, data corruption

Dialogue | Sep/Nov 2015

protection, a larger and higher resolution screen display and more. It would be years before many of those features were implemented in other computers. Jobs was wrong. These features resulted in Lisa’s high price (about $22,000 in today’s money) and buyers opted for the technologically inferior IBM at less than a third of Lisa’s cost. When we face a marketing challenge, Drucker advises us to think it through to determine what the customer considers value and to

Our task as leaders is to analyze assumptions believed by a majority ensure marketers haven’t substituted their own definition of value for that of their customers or prospects. This is a valuable insight. If you consult the list of failed products, you will find this at the core of many marketing problems. l Align your output to customer demands l Don’t define value yourself, let your customers do that l Recognize the role of price – better products aren’t always better sellers 3. The marathon tortoise: how strategy beats speed The 544-mile Sydney-to-Melbourne Ultra Marathon in Australia was regarded as the toughest in the world, taking up to seven days to complete, with rest stops permitted. Most athletes ran all day and rested at night. In 1983, an unknown 61-yearold potato farmer called Cliff Young entered the race. Many thought he would be lucky to finish. But Young calculated that he could walk the distance, since the rules allowed him – but did not require him – to rest overnight. So he didn’t. Result: he

won, shaving off almost a day from an athlete half his age who finished in second place. l Clever strategists often trump fast movers l Approaching challenges in unorthodox ways can bring success l Respect your opponents: they may not be as weak as you think

The power to think differently What was Drucker’s most valuable contribution? He taught us not to listen to what “everybody knows,” but to think it through and develop our own methods of success. Applying this requires critical analysis, because while “what everyone knows is usually wrong” may be true, sometimes what everyone knows is actually true. So the problem is in how the consultant can know when common knowledge is true and when it is not. The first thing to understand is that what everyone knows – common knowledge – is simply an assumption. This is the core to good management thinking: our task as leaders is to analyze an assumption believed by a majority. An assumption is any belief, idea, hunch, or thought that you, a group of people, or experts, internal or external, have about any subject. We use these assumptions to guide our actions and decision making. This is sometimes complicated by the fact that, frequently, these assumptions are implicit and unstated. Psychologists tell us assumptions are useful because, if true, they provide a sort of shorthand way of thinking and decision making. However, decision making can be disastrous if we accept assumptions as fact without analysis. l William A Cohen PhD is president of the California Institute of Advanced Management l This feature is based on a forthcoming book to be published by LID – Drucker on Consulting

LEADERSHIP & PEOPLE

THE GUT

DELUSION WHY YOU NEED TO CHALLENGE YOUR INSTINCTS

WATCH An interview with David Molian from Cranfiled School of Management

Dialogue | Sep/Nov 2015

LEADERSHIP & PEOPLE

Research shows that the most successful people don’t let instinct lead them astray, writes Ben Walker

NUMBER POWER

ILLUSTRATION: CAMERON LAW

ou’ve probably heard about the antiques dealers who can spot a perfect fake just by setting eyes on it. Any reader of Blink, the seminal book by Malcolm Gladwell, will remember how doctors can identify, in seconds, the guy with a life-threatening condition in a hospital queue. And, if you think you are happily married, you and your spouse need only spend a few minutes with Professor John Gottman for him to predict, with 90% accuracy, whether you’ll still be together in 15 years. Gladwell’s theory is that experts think without thinking – that their instincts are often more reliable than analysis of empirical data. But new research suggests that those who don’t allow their instincts to dominate them, and consult hard data, make better decisions. When Redshift Research surveyed chief financial officers (CFOs) in the UK, it found that half of them relied upon gut instinct to help them make decisions. Much of this was down to circumstance – a dearth of empirical evidence coming into their companies, or the inability of their teams to analyze it properly, meant their gut was all they had. “In the absence of any data, many had little choice but to go with their instinct,” says Malcolm Fox, vice president of product marketing at Epicor, the Texan software company that commissioned the research. But instinct only got the CFOs so far. The research revealed that CFOs who based their decisions on empirical evidence, rather than relying purely on their gut, made more money. “The simple truth is that decision makers who were on top of the numbers were more profitable,” says Fox. “Gut instinct has its role but it’s

Dialogue | Sep/Nov 2015

much better used in concert with the data rather than instead of it.” The Redshift study and Gladwell’s findings aren’t mutually exclusive. Gladwell suggested that experts acting on instinct were in fact instantaneously calling on the empirical data their brains had stored from thousands of previous experiences. Leaders in their field had a knack of separating the instructive elements of their experiences from the stuff that didn’t matter so much, enabling them to make good decisions with relatively little new information.

Those who don’t allow instincts to dominate them and consult hard data make better decisions As Redshift found, instinct can be a useful tool, but it ought not be the primary driver of a decision. “Lots of the CFOs we surveyed thought that instinct and intuition played a key role in their decision making,” says Fox. “But the most effective of them used this to guide them around the data – rather than fill in the gaps where they lacked any information at all.” David Molian, director of the business growth and development programme at the Cranfield School of Management, is a world expert on the performance of owner-managers in growing businesses. Along with psychologists from France’s University of Toulouse, Molian examined the relationship between

72% proportion of CFOs globally who saw a profit rise when relying on empirical evidence and hard data Source: Epicor

owner-managers’ confidence in their own judgment and their sales and profit. He discovered an interesting pattern: owner-managers who were very confident in their own instincts tended to exhibit poorer business performance. By contrast, those owner-managers who had less faith in their own instincts tended to have greater business success. “Ownermanagers with less confidence in their own judgment were much more likely to consult the data and take advice,” Molian tells Dialogue. “In business, it pays to look at the evidence before you leap.” Gut instinct can help when an owner-manager is in their comfort zone – trading in areas they know well, with well-established companies and long-standing clients. Growing businesses are different – here science is more successful than art. “Because their businesses were growing, the owner-managers we spoke to were probably likely to be venturing into new areas beyond their own knowledge,” says Molian. “The message is not to ignore your gut instinct but – particularly if you are entering into new territory – to validate it with data and the advice of others.” This golden data mining is harder than the headlines about big data might have you believe. If this is the data age, it still doesn’t feel like it to

LEADERSHIP & PEOPLE

Perhaps those who let their instinct challenge the data are approaching business the wrong way round many CFOs: well under half (43%) told Redshift that they had “good visibility” of financial information. In certain industries – such as engineering and manufacturing – financial IT systems were so basic and/or out-of-date that instincts were pretty much the only game in town. All industries seem to suffer from data Luddism

Entrepreneurs often score their formative successes by carving an opportunity from a problem they have encountered. Peer-to-peer foreign exchange sprung from entrepreneurs becoming sick of paying commission and accepting poor rates. Smartphone taxi service Uber came as a response to the user experience that hiring a cab was often laborious and expensive. In many cases, entrepreneurs use empirical evidence from themselves and a close group of peers then rely on instinct to get their businesses off the ground. Their instincts lead to success, thus they come to rely upon them. As Redshift Research and David Molian, at the Cranfield School of Management, found, this can lead to trouble. The most successful entrepreneurs hire people who can challenge their instincts and test them. Often, the advice of others leads entrepreneurs to go against their own instincts and – because of that – achieve more success. The entrepreneur should keep a team of external advisers who are capable of challenging the entrepreneur, Molian advises. “One of the biggest problems in a business is a lack of accountability for the owner-manager,” says

– 70% of CFOs remain shackled to Excel spreadsheets despite the raft of specialist business systems and data applications available. “Companies need to make data analysis easier, to encourage more CFOs to become involved,” says Fox. He suggests that CFOs investigate enterprise resource planning software, which collect,

Molian. “Especially if he is the managing director and the major shareholder. At Cranfield, we hold owner-managers to account. And when they leave the programme, we exhort them to find a way of continuing to find other people who will hold them account.” This can be a challenge: one of the problems many successful people have is listening to others’ instincts rather than their own. “My instincts got where I am,” their subconscious says. “Why should I go against them?” Back at Cranfield, Molian counters this reaction by putting owner-managers in front of their peers – other owner-managers. “The first thing we do is expose them to peer group entrepreneurs who will challenge them anyway. Owner-managers tend to be feisty people who will say what they think.”

manage and interpret company data from a wide range of company functions.

The analysis problem A 2014 report from the Economist Intelligence Unit (EIU) found that Fox’s point was key: access to raw data wasn’t the problem so much as access to authoritative analysis of it. In the absence of reliable and simple ways to interpret information, leaders resorted to doing things collaboratively, involving more people in decisions to share the risk. There was little evidence that this improved the quality of decisions: respondents to the EIU were divided as to whether outcomes were better or worse when a collegiate approach was taken. And instincts still mattered a great deal to

l Take management training that forces you to challenge your preconceptions l Expose yourself to the opinions of peers from other businesses l Hire people who are prepared to counter your instincts with hard facts

Dialogue | Sep/Nov 2015

LEADERSHIP & PEOPLE

DATA DEFICIT 49%

proportion of CFOs who said increasing profits was their top business objective

54%

proportion of CFOs who said that their decisions are often made opportunistically to exploit situations as they arise

70%

proportion of CFOs who still rely on Excel spreadsheets to access their data Source: Epicor

EIU respondents: nearly three-quarters of respondents said they trusted their own intuition when it came to taking decisions, even among those who told the EIU they always analysed the data before making a call. These apparently paradoxical findings may betray a greater truth: if the data failed to match leaders’ instincts, they allowed their gut to override the evidence (see infographic, data or gut). The EIU researchers discovered that experimentation with the data was crucial: companies that were willing to risk “failure” on trials performed better in the long run. This may have helped leaders “overcome” their gut instinct – which could at times lead them astray, causing them to miss out on opportunities or avoid mistakes. Dan Humble, director of insights and research at Alliance Boots, told EIU researchers that he too would reanalyze the data were his gut to disagree. If the data contradicted his intuition, it could be sign that something had gone wrong with the collection or delivery of the data. “You’d want to check that the information is correct,” he tells the EIU. “It might be that your perspective isn’t wide enough, and you need some more data about the market, for example, to understand the context of your own data.” Perhaps those who let their instinct

challenge the data are approaching business the wrong way round. Data is king. But your instinct can be a useful tool for challenging it, Humble adds. Instinct can act as a warning that your data is weak, haphazardly collected, or badly analyzed. But if it’s been properly checked and tested then it may just be that your instincts are plain wrong. “If you’re confident the data is right and you’ve understood how it fits in, you’ve got to act on it,” says Humble. Back at Cranfield, Molian emphasizes that our instincts are limited in power. They are likely to guide us well in fields we already know well rather than new ventures and areas of business expansion. “Relying wholly on gut instinct may give you a decent start in business,” says Molian. “But it’s unlikely to sustain you for the long haul, especially if you have ambitions beyond what you are already doing.” FURTHER READING BOOK: The hour between dog and wolf, John Coates, Fourth Estate BLOG: Balancing data with gut feel, David Molian, Cranfield School of Management FEATURE: Taking smarter decisions, Dialogue (Jun-Aug, p71)

DATA OR GUT? LEADERS SAY THEY TRUST THE DATA. BUT IF THEIR GUT DISAGREES, THEY ARE RARELY WILLING TO ACT ON IT HOW DO YOU MAKE DECISIONS? 32% collaborative

10% intuitive

17% empirical

42% data-driven

Dialogue | Sep/Nov 2015

WHEN TAKING A DECISION, IF THE AVAILABLE DATA IS NOT BACKED BY YOUR GUT FEELING, WHAT WOULD YOU DO? 10% go with the data

57% reanalyze the data

3% ignore the data

30% collect more data

Source: EIU

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Contact us for more information North America andrew.mueller@lidpublishing.com Europe and South America jeanne.bracken@lideditorial.com UK and rest of the world niki.mullin@lidpublishing.com

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10/11/2014 29/07/2015 14:50 12:47

THE TECH COLUMN

The carbon fibre effect Tech investment grows your business and builds your talent – case proven, says Andrew Millard

Andrew Millard is senior director of international marketing at Citrix

irst they pursued the home workers, because, when employees were away from their desks, managers felt they couldn’t control them. Then they came for the tech guys, because they spoke a language few managers could understand. Those misguided prejudices are thankfully dying out. And so they should: it’s proven that remote working and tech investment boost your business. The factors work hand in hand. When we, at software company Citrix, teamed up with British market research company YouGov, we found a clear correlation between technological investment and business growth. A survey of British businesses with fewer than 250 employees found that the firms that had grown by 50% or more over the past two years were four times more likely to have substantially increased expenditure on technology in 2014, compared with 2013, than those firms that remained static or contracted.

Clients are benefiting from the remote-working revolution To grow, many of the companies surveyed had to advance from the domestic sphere to the global one. Almost four in ten of the highgrowth businesses surveyed had recruited talent from abroad. Many of these employees relocated, but many did not: more than one in five of the high-growth firms took on staff who worked remotely from their own country. This is a major, important shift: ten years ago, it was rare for companies to hire overseas staff without the latter agreeing to move to the country of employment. Now it is relatively common, and disproportionately so among high-growth firms.

Dialogue | Sep/Nov 2015

Greater computing power, and better software, means that recruiting talent from abroad to work remotely overseas is no longer a recipe for drift. The opposite is true: companies set up for remote working report greater efficiencies: fewer distractions, no commutes. Staff work longer hours, but shorter days. Well over half the respondents to the YouGov survey said it was the digitization of business process that made this dream a reality. Clients are also benefiting from the remote -working revolution: almost half of the highgrowth firms surveyed reported that technological investment had allowed staff to collaborate effectively with customers without having to travel. Consider the case of Simon Morton, managing director and founder of Eyeful Presentations, a global consultancy based in the English Midlands. Flying across the world to events was time-consuming, energy-sapping – and very expensive. Simon now uses remote-working software to market advanced presentations live online without physically being present. The result? His company is more efficient than it was, and the time-saving gives him greater capacity for new business. “We have reduced travel dramatically even though we serve more customers than ever,” he says. “We can collaborate with clients worldwide as if we were next door.” If managers once had to get used to workers not being in the same office, they now have to embrace the fact that many are not even in the same country. Where managing directors might once have wasted hours on board planes, they now use this time to grow their firms. It has long been said that technology makes the world smaller. Chief executives now know that, in business, it makes it grow.

TECH & INNOVATION

HOW TO REGAIN

THE ART OF AGILE

The word agile has been hijacked. Reclaim its meaning and reap the rewards, writes Jerry Stubbs

our thesaurus isn’t faulty: agile is not a synonym for efficient. Fifteen years ago, agile was the word that summed up a revolution. It marked an end to the IT crowd’s old ways, where software guys did stuff other people didn’t understand and their clients just had to wait for it to work. Agile disrupted an entire industry by urging everybody concerned to take a more progressive, collaborative and transparent approach with their colleagues and clients. Suddenly

ILLUSTRATION: SIMON BRADER

software development was about partnership – not “us and them”. Fast-forward to the present day and the term agile has been hijacked. It is often wrongly used to mean any product or business process that is more efficient, or just better, than the last project or product: “Check out the more agile version of GoogleMaps.” In fact, Google’s development of its maps app isn’t much to do with agile. The update is just superior. Big difference. The trouble with misusing language is that you lose meanings. Lose meanings, lose clarity. Lose clarity, lose focus. So muddy has the

OLD RULES FOR NEW TIMES: THE AGILE MANIFESTO l Individuals and interactions preferred to processes and tools l Working software preferred to lengthy documentation l Customer collaboration preferred to negotiating contracts l Responding to change preferred to sticking rigidly to a plan

Dialogue | Sep/Nov 2015

TECH & INNOVATION

THE MYTHS MYTH 1: Process isn’t agile

Agile is often wrongly used to mean any product or business process that is more efficient or just better meaning of agile become that many senior decision-makers no longer have much idea what agile is and how it – in its proper form – can benefit their company. The loss is felt by both supplier and client. The industry needs to reclaim the word agile – and fast. And it needs to start spreading the true word to its clients. Newcomers to the sector should read up on the Agile Manifesto – a bible for millennial IT professionals wary of alienating their own clients from software development. The manifesto is perceived as being covered in virtual dust: a tome no longer fit for an age in which few can find time to talk. But like so many ageing key texts, business rejects it at its peril. The core beliefs within the manifesto – namely interaction; collaboration; and responsiveness to change – are still relevant to projects

Dialogue | Sep/Nov 2015

The myth stems from the fact that overly detailed process documents are rarely workable in today’s fast-moving world of software development. But it is false to say that agile teams do not have a process. In fact, process is still crucial – but wise and agile development teams reject canned processes in favour of evolving their own.

MYTH 2: Planning isn’t agile Much of the IT industry has rapidly developed a myth that the very concept of planning projects is somehow un-agile. The idea seems to be that truly agile teams don’t plan – they just act. This is nonsense. Agile teams are always planning – but they are willing and able to adapt their plans at short notice when the brief or the situation changes. Flexibility is the key to success. Agile teams are constantly looking ahead. Un-agile teams make a plan and refuse to change it as circumstances alter.

MYTH 3: Discipline isn’t agile When did agile come to mean disorganized? Chaos and lastminute decision making are recipes for failure, not success. Agile teams break down their projects into manageable chunks and are rigorous about timekeeping. When every small stage of a project is completed in a timely and disciplined fashion, adapting to new circumstances – becoming agile – is easier.

today and remain key to the success of companies. Sadly, as it has lost its meaning, agile has become surrounded by myths. There are three myths (see column, left) that persist – and which lead to weakened project management and poorer products.

Back to agile As agile has lost its meaning, a paradox has emerged. There is an expectation that everything can become “agile” coupled with the fact that leaders rarely entrust their teams with the autonomy needed for agility to occur. The ability to self-organize in supportive environments leads to agility; command and control and micro-management leads to the exact opposite. Setting teams free to interact directly, and quickly, with internal and external clients and other teams, is key. To do this, we need to find or train customer-facing software teams, and reject the industry jargon and siloed ways of working that continue to set IT apart from the business and from operations. Agility still matters. By applying principles carefully carved 15 years ago, the modern age will prepare teams to grapple the next major technology challenge. It’s time to relearn what agile means, and to regain it. l Jerry Stubbs is head of agile at software quality testing specialist SQS

TECH & INNOVATION

SENSEMAKING

BRICK BY

Companies like Lego and Cisco have found that to understand customers, you must become business anthropologists, write Julie Okada, Fritz Gugelmann and Jennifer Giroux

Dialogue | Sep/Nov 2015

TECH & INNOVATION

n 2014, Duke Corporate Education began a journey with one of its long-time clients, Cisco. Working with a group of Cisco’s high potential future leaders, we uncovered the following three questions with which they were grappling: l How do you initiate a mindset shift among an organization’s leaders? l To navigate and respond to a volatile, uncertain, complex and ambiguous (VUCA) world, how do you expose leaders to a new way of seeing the world? l What tools and behaviours – if made a habit – can ingrain this mindset in a leader? Working with ReD Associates, we designed an experience to help them learn sensemaking as a practice to embed in their leadership toolkit, to support these leaders in dealing more effectively with an uncertain and increasingly complex world.

The context In The World Is Flat: A Brief History of the Twenty-First Century, the awardwinning New York Times columnist and author Thomas L. Friedman noted that the rate of change is much different than in the past. “Whenever civilization has gone through one of these disruptive, dislocating technical revolutions – like Gutenberg’s introduction of the printing press – the whole world has changed in profound

ways,” he writes. “But there is something about the flattening of the world that is going to be qualitatively different from other such profound changes – the speed and breadth with which it is taking hold.

Only when we observe our customers will we learn what they really want, rather than what we think they want “This flattening process is happening at warp speed and directly or indirectly touching a lot more people on the planet at once… businesses, institutions and nation states are now facing these inevitable, even predictable, changes but lack the leadership, flexibility and imagination to adapt – not because they are not smart or aware, but because the speed of change is simply overwhelming them.” The acronym VUCA was first coined by the military in the late 1990s, ten years before Friedman wrote his

Lego used sensemaking to get back in touch with the meaning of play for children

Dialogue | Sep/Nov 2015

book. It has since been adopted as a strategic descriptor by business. Let’s remind ourselves about the detail of its meaning: l V = volatility: the nature and dynamics of change and the nature and speed of change forces and change catalysts l U = uncertainty: the lack of predictability, the prospect for surprise and awareness and understanding of issues and events l C = complexity: the multiplicity of forces, confounding issues and the chaos and confusion that surround an organization l A = ambiguity: the haziness of reality, the potential for misreading situations and mixed meanings causing confusion between causes and their effects The consensus is that we are living in a world in which change at warp speed is affecting more people than ever before. Leaders need both foresight and insight to deal with these highly challenging circumstances. How can they manage this?

An anthropologist walks into a bar A Harvard Business Review article by the founders of ReD Associates (Christian Madsbjerg and Mikkel B. Rasmussen, March 2014) advocates sensemaking. Their article explains that sensemaking is at the opposite end of the spectrum from big data (see Dialogue, May 2014), in that it is a non-linear process of observation based on anthropology – watching how people experience life. Detailed observation gives us the gift of another’s perspective. For example, only when we observe our customers will we learn what they really want, rather than what we think they want. Ross School of Business professor emeritus of organizational behaviour and psychology Karl Weick introduced sensemaking in the 1990s as an important skill for organizations to cultivate. Sensemaking is learning how meaning shapes our lives and organizations use it to try to discern changes in the marketplace or in

TECH & INNOVATION

their customers’ needs. For example, Lego used sensemaking to get back in touch with the meaning of play for children. As Lego built its understanding of play, it reversed many of its assumptions and rebuilt its business, reversing years of decline and losses. How is sensemaking different from market research? While its applications can vary, sensemaking generates most insight in unfamiliar contexts: new markets, new customers, or new problems that the organization hasn’t seen before. Conventional business metrics and managerial tactics are less effective in these circumstances, because the underlying data and patterns aren’t there. Instead, sensemaking uses the tools of social science to find underlying meaning in the lives of customers, which shapes how they view a company’s offerings. Often, the problem we think we’re addressing looks vastly different when we ask questions the way anthropologists and sociologists do, and without assuming we already know what’s going on.

Beat your bias Organizations face the challenge of equipping people to navigate not only today’s world, but tomorrow’s. They aspire to give their leaders the tools needed to manage growth in a constantly changing world. They need to create clarity and direction by making sense of a turbulent environment where threats and opportunities alike may come packaged as weak, hard-to-read signals and where the pace of change is overwhelming. The “sensemaking in a VUCA World

approach” asks leaders not only to be aware of their biases and assumptions, but also to challenge them, perhaps even to set them aside entirely. In a world that is unpredictable, we are all prone to rely on our familiar, known ways of thinking and acting. But today, where being open to the unknown and unexpected is necessary to thrive, this is suboptimal.

Being out of context is critical and gets participants thinking creatively

Leaders need to learn how to ask the right questions. The way a problem or opportunity is framed shapes the nature of the insights generated: which data we decide to gather, how we interpret them, the conclusions we draw. For example, Lego assumed that children wanted games that required short attention spans, yet sensemaking revealed that children wanted to escape for longer periods from their overly orchestrated lives. Our biases and assumptions restrict the types of questions leaders ask and, in so doing, limit the solutions that are possible. Sensemaking demands curiosity, and practise cultivates this. It

uses data gathering methods such as keen observation and semi-structured interviewing. These methods collect data often overlooked in business and answer not only “what?” questions but also “why?” and “how?” Using an iterative process to find patterns, sensemaking generates insights that may otherwise go uncovered.

Working with Cisco We started out by teaching sensemaking in a workshop format. We then helped the participants practise with the newly acquired tools. We deliberately chose fieldwork that was disconnected from their organizational realities and daily business challenges so participants would fully immerse themselves in the sensemaking process. The experience itself spread the participants across the neighbourhoods of Miami. Their task was to study developments in local infrastructure – and work out how these affected the varying communities of the city. The participants were engaged first-hand in fieldwork, pattern recognition and insight generation, which provided a visceral introduction to using the tools. The participants had to reframe their conventional approach to business problems from the outset. After the experience, facilitators helped the participants recognize patterns in the data they had uncovered and turn these into meaningful insights. Once the tools were learned, we ran a similar experience but one where the challenge was highly relevant to a specific business unit in Cisco. So, after the Miami experience, the participants used the same tools to understand the source of the

Dialogue | Sep/Nov 2015

TECH & INNOVATION

Cisco’s sensemaking workshop involved practical fieldwork in the city of Miami

company strategy and the context within which people work. They then married the two sets of insights so the strategy was more meaningful for the people who charged with executing it. Really simple application can reap concrete business results, and gain valuable employee insights. For example, interviews to get a better sense of how employees felt about working at the company uncovered that corporate logo merchandise was selling faster than it had been in several years. This demonstrated that positive sentiment was on the rise – and helped Cisco assess the health of its company. This two-stage approach to application is critical. It embeds sensemaking practices and shifts executives’ mindsets. Being out of context is critical and gets participants thinking creatively. Had we gone straight to the company context, it would have brought participants’ preconceptions

Dialogue | Sep/Nov 2015

and usual approaches into play immediately. “Business as usual” clouds people’s perspective. Coming back after practice in an unknown setting, and only then applying observations in context, is critical. Translating the experience into something meaningful requires time set aside for thinking and processing. It helps executives adopt new ways of thinking and broaden the data they observe. They rely less on data from spreadsheets and are less likely to look for the “one right answer”. Sensemaking opens up options. Executives who have learned the process ask more and different questions. Alberto Roman of Cisco is interested in sensemaking as an executive tool. “We talk often about making decisions faster and I wanted to investigate the various aspects of it,” he says. “If we were able to look at the different dimension of decision making, in this

case investigating qualitative data in a different way, then decision makers would have the necessary signals not only to make better decisions faster for today, but also to forecast and prepare for possible future scenarios. It gets us out of talking just numbers. It gets us using our right brain, thinking creatively about the current situation, listening differently and asking questions in a different way. We don’t follow a set course, but let the conversation take us.” Asking fundamental questions – naïve questions almost – allows you to put yourself in someone else’s position, whether customers, employees or other stakeholders. Understanding the world through their eyes can help you see signals and patterns more clearly. It dispels preconceived notions or default thinking. That’s why sensemaking works. l Julie Okada is Duke Corporate Education project director. l Fritz Gugelmann is director of the Global Educator Network at Duke Corporate Education. l Jennifer Giroux is a management consultant with ReD Associates. FURTHER READING The Collapse of Sensemaking in Organizations: The Mann Gulch Disaster Administrative Science Quarterly,Dec 1993, Vol 38:4, pp628-652.

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29/07/2015 12:48

THE FINANCE COLUMN

Get real: global capitalism is almost limitless Anxiety about the Chinese purchase of US chipmaker Micron flies in the face of economic realities, writes Phil Young

Phil Young MBA professor and corporate education consultant/instructor and member of the Duke CE Global Faculty Network

singhua, a Chinese state-owned holding company, recently made the headlines when it announced plans to buy US chip maker Micron Technology Inc for around $23 billion. Several analysts expressed doubts that this deal would go through, due to the low bid price and possible regulatory and security concerns. Whenever there is a huge imbalance in trade and payment accounts between two countries, it is inevitable that the country in surplus will seek to use mounting reserves in ways beyond parking them in the government securities of the deficit nation. But I wonder whether there are things that money can’t buy.

The Tsinghua-Micron deal raises possible national security concerns In the 1980s, when Japan was in the surplus position now held by China, there were major investments in US-owned assets, especially in real estate. One of the best known Japanese investments in the US was Mitsubishi Estate’s 1989 purchase of majority ownership in the Rockefeller Center. Incidentally, it sold its share back to Rockefeller Center Properties only six years later. Of course, in the post-war era of the 1950s and 1960s, it was the US playing the role of moneybags to the world. US businesses made huge international investments, particularly in Europe. We now see parallels to these patterns of capital flow in China’s investments in US-owned assets. When China started accumulating huge dollar reserves at the start of this millennium, it began to use them in the same way that

Dialogue | Sep/Nov 2015

Japan had done several decades previously, by buying US government securities. But the Chinese government and private investors wanted higher returns, perhaps even some risk diversification (although the US is not quite in the same boat as Greece; see country focus, page 78). So, like Japan, it started buying real estate and business assets as well as making capital investments in plant and equipment in the US for its own businesses operations. The Tsinghua-Micron deal raises possible national security concerns, however. It seems that Micron Technologies is the only US company that makes dynamic random access memory chips used in personal computers. It also makes DRAM chips for mobile phones. “The US needs to have a DRAM company,” an investment analyst and former Micron employee was quoted as saying, though his explanation for why was not cited. Unless concrete national security impediments are identified – and assuming Tsinghua’s offer is acceptable to Micron shareholders – the deal is likely to go through. After all, there are already two-way US and Chinese investments in the semiconductor industry. Bloomberg news reported that, last September, Intel paid $1.5 billion for a stake in Tsinghua. In May, Tsinghua announced that it would buy a majority of Hewlett-Packard’s Chinese networking gear unit. Lawyers on behalf of the sale will make good use of this precedent when arguing the case for the Micron acquisition. A more serious roadblock to Tsinghua’s purchase of Micron would be its low bid, or the late entry into the deal of a rival company such as Intel. In this era of global capitalism, it is hard to stop the flow of money, wherever it comes from and whatever direction it takes.

FINANCE & ACCOUNTANCY

THE EURO ISN’T WORKING Many nations would be better off out of the single currency, says Lars Christensen

The euro project has effectively pegged a range of economies to a pan-Europe deutschmark

No such happy news for the Eurozone nations – their debt as a proportion of GDP has skyrocketed since 2008 and carried on into the stratosphere: there is little hope or prospect of it returning to earth any time soon. Still need convincing? Look at the picture in absolute terms. The eurorefusers have seen just a 10% increase in their national debt as a proportion of GDP since the pre-crisis days of

Graph 1: Eurotrash: How pegged nations slumped since the crisis Real GDP %-change 2007-2015 30 25 20

European floaters

Euro countries and euro ‘peggers’ Estonia Denmark Slovenia Spain Latvia Finland Portugal Cyprus Italy Greece

10 5 0 -5 -10 -15

Turkey Romania Poland Lithuania Malta Slovak Republic Switzerland Luxembourg Sweden Bulgaria Norway Germany United Kingdom Belgium Czech Republic Austria Iceland France Hungary Ireland Netherlands

he Greek economic crisis is only the start of it. The euro is the currency that is eating itself and all under it. The monster is romping through the old continent, strangling nations large and small. The euro is killing the Europe it was meant to unite. The evidence couldn’t be clearer. The nations that chose to remain outside the single currency are doing better than the European average; those within the euro, worse (see graphs). Let’s start with GDP (see graph 1). Among the 21 countries that are either in the euro, or have exchange rates fixed to the euro (Bulgaria and Denmark), nearly half have lower real GDP levels than they enjoyed before the 2008 global financial crisis. By contrast, all of those European nations outside the euro, with free-floating exchange rates, have higher real GDP than they recorded in 2007. The case against the euro doesn’t end here. Consider the story of public debt since 2008. The euro-free floater nations have started to get public debt, as a proportion of GDP, under control, with it actually falling by the end of 2011 (see graph 2).

-20 -25 Source: IMF, 2015 is IMF forecast

Dialogue | Sep/Nov 2015

FINANCE & ACCOUNTANCY

Dialogue | Sep/Nov 2015

Graph 2: Back on track: how the floaters turned things around Public debt (percentage of GDP), Index, 2007 = zero 30

20 Floaters Euro countries and ‘peggers’ 15

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: IMF

Graph 3: Debt explosion: How the Eurozone piled further into the red Gross public debt (percentage of GDP) - change 2007-2014 (percentage points) 100

Euro countries and euro ‘peggers’

80 60

European floaters Turkey Switzerland Norway

40 20 0 -20

Ireland Greece Spain Portugal Slovenia Iceland Cyrrus United Kingdom Italy France Latvia Romania Netherlands Finland Slovak Republic Austria Lithuania Belgium Luxembourg Debmark Czech Republic Hungary Germany Bulgaria Estonia Malta Poland Sweden

2007. Compare this with countries in the euro. They have seen a 25% spike over the same period. What’s behind this malaise? The simple realties of economics. Eurozone nations with large current account deficits, such as the Greeks, have had a key economic tool wrested from them by the euro. Had they been outside the mechanism, they would surely, by now, have a dramatically weaker currency, making their exports cheaper and thus pulling foreign money into their economy. Strangled by the suffocating euro, there is no such option open to them. Instead, they are faced with the much less attractive prospect of internal devaluation – lower prices and lower wage growth – and the only way to achieve that is through a deep, bloody recession, the human cost of which would be huge. There is simply no way that – with the necessary tools at their disposal – Greek GDP would have dropped 30% under the drachma, as it has done under the euro. The human cost of the euro is staggeringly large. There are 23 million Europeans currently unemployed. Would this have been the case had the euro project never got off the ground? Across the continent, the euro has brought misery and disunity. The rise of extremism is a consequence of the stranglehold it has on nation-states: far-right political party Golden Dawn (and far-left Syriza) in Greece, and left-wing Podemos in Spain, are its beneficiaries, as are anti-immigrant sentiment and protectionist ideas. Almost every nation has suffered at the hands of the single currency. Even those outside the euro have been damaged, due to the reduction in wealth of their trading partners within the eurozone. Those wanting to defend the single currency will examine the graphs above and opposite for a glimmer of hope. They will no doubt point to Germany as an example of a nation that has thrived under the single currency, or at least mitigated the worst of its effects. To an extent they would be right.

The exception to the euro rule is Germany. This is unsurprising – the euro was developed by the French and Germans to serve the needs of France and Germany, two of the richest, strongest nations in the EU. France, while still among the world’s most wealthy countries, has faded somewhat since the euro-pioneers began their flawed project, so now the single currency favours only the Germans. The euro project has effectively pegged a diverse range of economies to a glorified, expanded, pan-Europe deutschmark, run by Germany, for Germany, and to the benefit only of Germany. And in doing so it is wreaking exactly the damage its critics said it would do.

Source: IMF

l Lars Christensen is a Danish economist specializing in international economy, emerging markets and monetary policy. He has more than 20 years’ experience in government and banking and is the founder and owner of Markets and Money Advisory. He is senior fellow at London’s Adam Smith Institute.

Do you disagree with Lars? Let us know. Dialogue is keen to hear from writers and experts who want to defend the single currency. All article ideas considered. Tweet the editor @brjwalker

FINANCE & ACCOUNTANCY

MAKE WAY FOR

PROFESSOR GOOGLE Stop using the internet as an appendage to classroom learning â&#x20AC;&#x201C; and integrate it into every finance lesson, writes Phil Young ILLUSTRATION: ELLY WALTON

Dialogue | Sep/Nov 2015

FINANCE & ACCOUNTANCY

he internet and digitization have changed even the way we buy a tube of toothpaste. They have revolutionized the way we keep up with the lives of our friends and family. Most people I know would not feel comfortable if they walked out of their homes without their smartphone. The march of digital has transformed the way businesses operate around the world (see Dialogue, December 2014, page 28). But one place that has managed to remain relatively unaffected by this sea change in technology is the classroom in institutions of higher learning. Granted, there are many examples of the use of digital in higher education. There are instructor-led online courses, self-directed “eLearning” courses, corporate webinars, and free courses offered on YouTube by professors from top universities or internet sites such as Kahn Academy.

Dialogue | Sep/Nov 2015

I am simply proposing that instructors start to incorporate the use of the internet during their classroom time But they are generally used as substitutes for, or supplements to, the traditional classroom. Indeed, these technology-based alternatives are often labelled “virtual” classrooms in contrast to physical, face-to-face classrooms. Technology has also been used extensively to digitize and repackage teaching material. Those of us of a certain age might recall

walking out of the campus bookstore during the first week of the semester with 43lbs of textbooks in our bags. Today’s students can now conveniently download all their course material, including only selected chapters of textbooks, in neat files of PDF documents. Yet the way these materials are used in the classroom has hardly changed. When I talk about integrating digital technology into the classroom, I am not talking about anything radically new. I am simply proposing that instructors start to incorporate the use of the internet during their classroom time. And by this, I don’t mean the occasional insertion of a YouTube clip in a PowerPoint slide show. I mean allowing students to use their smartphones or tablets and laptops in real time to access the internet for information relevant to the class discussion. This is exactly the opposite of current practice. Many instructors discourage or prohibit the use of any electronic device during class,

FINANCE & ACCOUNTANCY

amid concerns that this would dilute a student’s full attention to what is going on in class or distract others in the class – including the instructor. Instructors may also be concerned that students would try to google the answers to the questions posed in the class discussion. Yet I can offer two good personal examples in which the internet has been an effective addition to classroom discussions. One is the discussion of business cases and the second is in the analysis of financial data.

Harnessing the internet in business cases Two business cases that I often use in my classes are Amazon, Apple, Facebook and Google (Harvard Business School, 2012) and Nokia and the New Mobile Ecosystem (INSTEAD, 2012). But with each passing year – or even month – it becomes more difficult to rely on the information about these companies solely up to the point when the case studies were written. Therefore, I instruct my students to prepare to discuss these companies and their situations using the information in the business case. But then,

Financial information on hundreds of companies is only a few clicks away in class, after some discussion of the published case, I ask them to use the internet to search out key events that have occurred since the time the case was written. This keeps the material fresh. Of course, students can do this anyway during their pre-class preparation, but they usually use their limited time to concentrate on the assigned case material. I also find that the class discussion itself motivates them to want to find out more about what happened after the case was written. By giving them “on-demand” access to current information, they start to contribute even more to the class discussion. Everyone, including me, learns a lot this way.

Harnessing the internet in financial data The second example involves the real-time use of the internet when I teach courses or seminars in finance, particularly for corporate education programmes. Financial ratio analysis is an important topic of study in an introductory finance course. In the old days, instructors in academic finance courses, as well as non-academic courses, were comfortable with using the financial information in a textbook – which was already at least a year old by the time the book was published. The textbook examples drew on one or two company annual reports. If instructors wanted to supplement this information, they might ask their students to pick one or two companies or they themselves might provide to their students hard copies of the financial reports of a few companies. But now, with the availability of financial data on the internet, financial information on hundreds of companies is only a few clicks away. There are many sites that provide financial statements and ratios of publicly traded companies such as

The learning pyramid and internet use

Interspersed with internet searches

Internet searches to update case study discussion In-class analysis of current financial ratios for a wide variety of companies Sharing information found on the internet and explaining its significance to peers

AVERAGE RETENTION RATE 5%

LECTURE READING AUDIO-VISUAL

L NA O TI E DI SIV A S TR PA

10% 20%

DEMONSTRATION

30%

DISCUSSION GROUP

50%

PRACTISE BY DOING TEACH OTHERS/IMMEDIATE USE

TI AC

75% 90%

Dialogue | Sep/Nov 2015

FINANCE & ACCOUNTANCY

www.finance-challenge.com, which I helped to develop in the interest of achieving a more dynamic teaching environment. As noted, I have found that using the internet to access key financial data during the class is a particularly effective way to bring financial ratios to life. The way I used to teach this subject was to have my students peruse the annual reports that I had selected for them, find the relevant information, and then use this information to compute a list of key ratios that depict the overall financial health of the companies. But once I opened up the class to the use of the internet, I was able to expand the scope and details of the class exercises in a wide variety of ways. Here are two examples: 1. The quiz show approach I ask the class a series of questions pertaining to the business operations of well-known companies. Here’s an example quiz: ●● Who has the higher profit margin: Whole Foods or Walmart? Why? ●● Apple iPhones comprise 20% of the global market for cell phones but over 90% of its operating profit. Why? ●● Using the DuPont model as a reference, how do you think McDonald’s makes its money: from its net profit margin or its total asset turnover? Explain. Students or executive participants go to their devices to find the answer on the internet and the discussion continues with their newfound facts and figures. 2. The A versus B approach I ask the class to select two or three competitors (for example, Toyota versus General Motors, Coca-Cola versus PepsiCo, Amazon versus Walmart). I then ask them to surmise the absolute and relative magnitudes of their standard financial ratios, such as gross profit margin, net profit margin, total asset turnover. Their answers or “educated guesses” reflect their understanding of the companies’ business models and

Dialogue | Sep/Nov 2015

competitive positions in their markets. They search out the answers on the internet. Depending on the class time allowed, I ask selected students to lead the discussion regarding their findings.

From classroom to home Once students see the immediate application of various financial metrics in these classroom exercises, they become even more motivated to continue to use these readily available internet resources on their own outside of class. Somehow, the energy level of the class increases when everyone hunts as a group for the relevant data and various individuals start to find the answers for themselves, using the speed and convenience of the internet. In the learning process, the sharing of the information found on the internet can be just as important as the discovery of the answer itself. Perhaps this is an offshoot of the sharing culture spawned by social media. But, in any case, by sharing what they have found, students, in effect, become somewhat like teachers. And we all recall the old axiom that the best way to learn something is to teach it. (Also see the “learning pyramid using internet access in classroom activities”, page 62.) I’m not saying that students should enjoy an unfettered use of their devices during the class. But for certain class activities, such as those that I have described, I believe that access to the internet is a real aid to the learning process. In the learning pyramid opposite, I try to summarize how I believe that the selected classroom use of the internet helps students to retain what they have learned. I trust that readers will not misinterpret my main argument. I do not think that Professor Google will take over the classroom anytime in the near future. For me, the ultimate learning app is still a good teacher. But, when used judiciously, the internet can be an amazing classroom teaching assistant.

GET IN TOUCH The march of technology in business education The internet is threatening to disintermediate many industries; business schools and providers of executive education are no exception. Do you consider Phil Young’s predictions for the integration of technology into classrooms to be too modest? How many professors will be able to embrace and harness technology, rather than clinging to their position as the harbingers of knowledge? Tweet the editor your views @brjwalker

l Phil Young PhD has been an active member of the Duke CE Global Faculty Network for the past 12 years. He has more than 35 years of experience as an MBA professor and as a corporate education consultant and instructor. He has taught in development programmes for a wide variety of global companies in over 30 countries around the world. He has co-authored textbooks in trade and economics. Among his various consulting and entrepreneurial pursuits, he is co-founder of www. finance-challenge.com

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27/07/2015 11:59:45

THE MARKETING COLUMN

How we learned to speak without speaking The digital transformation has been blamed for making humans worse communicators. The opposite is true, argues Andy Law

Andy Law Director at Parity Group and executive chairman of SuperCommunications

lbert Mehrabian’s 1971 book Silent Messages gave birth to the notion that only 7% of all communication is verbal. This factoid wasn’t a literal reading of his research – Mehrabian’s theory tested only people’s responses to single words. But the legend lingered on. While scientists, psychologists and journalists bickered over what Mehrabian’s research really meant, the study was superseded by societal change. Today, the proportion of communication that is verbal is much lower than 7%. The march of digital into the business world has seen to that. Our communication is converted to transmitted data at a faster, and more substantial, rate than ever before.

We communicate widely when we are alone, asleep or even dead We humans are big data packages, able to store, within ourselves, a phenomenal quantity of information. Biologist Yevgeniy Grigoryev calculates the amount to be 150 zettabytes – equivalent to 75 billion fully loaded 16GB iPads. Not only can we store vast quantities of data through digital transformation, we have become expert at analyzing, broadcasting and receiving it at an astonishing rate. The scale of data interactions is growing rapidly. Some of these we know about. Others we don’t. I shrug off claims that the digitization of our lives has damaged communication, because the opposite is true. Our communication is exponentially more sophisticated than it was even ten years ago. We should give ourselves some credit: this is not a simple transmission. Our data is received, transmitted, processed,

Dialogue | Sep/Nov 2015

reprocessed, filtered, connected, reconnected, aggregated, matched and stored at a speed that should take the breath away (but doesn’t because we have become used to it). Motives for our data donation vary, minute by minute, but however we transact it, our data connects and reconnects with other data: what we watch, where we go, what we buy, who we talk to and what we search for becomes shared and stored information. So human-to-human contact, connection and correspondence are now as much about data-to-data flow as flesh-to-flesh handshakes or eye contact. In fact, our data is propelled forward, analyzed, attended to and responded to so quickly, efficiently and effectively that we are communicating even when we think we are not. That is the very definition of advanced communication. We communicate widely when alone, asleep or even dead. Our digital afterlife raises many issues, not least ethical ones. And we can manipulate our data. Digital cosmetic surgery allows us to be whoever we want to be, and we can have multiple personalities. Our data transmissions push us further up the evolutionary scale. We marvel at dolphins’ pulsed sounds and whistles forming a sonic language; the communications system of ants, using pheromones, touch and sound. But these wonders pale into insignificance when compared to how we humans now connect and communicate. We have become superior beings through the melding of three earthly inventions: software automation, machine-to-machine technology and the internet. We should stop talking about the death of human communication and appreciate how, through digitization, we have given it a wonderful new life.

MARKETING & SALES

Only companies that grasp the new dynamic between business and customers will succeed in the modern world, writes Jo Causon

magine you walk into a shop and see a beautiful suit that is half price and in your size. As you take it off the peg you encounter the surly glare of a bored shop assistant. Instead of helping you take the suit to the changing room, she frowns at you. You walk there yourself. The suit looks great, so you march past the assistant and buy it. The retailer made its sale, but will you return? Probably not. The bargain was a one-off. You make the – probably correct – assumption that the dire customer service will endure.

Trust builds business The secret to successful business is trust. And only with the very highest standards of customer service do organizations build the levels of trust to ensure they build a loyal customer base that returns week in, week out, sale or no sale (see graphic, right). In days gone by, the Western world was built on the transaction economy – the only key factors in a sale were product quality and price.

THE TRUST PREMIUM Customers who give a nine or ten score for customer satisfaction...

Today’s world is based on a relationship economy. Companies that build a rapport with customers, thrive. Those that rely on supply and demand, suffer. In the relationship economy, anything less than very high levels of satisfaction across the whole customer experience renders relationships brittle. And when relationships are brittle, long-term business performance is vulnerable.

Hard data

...are more than twice as likely to give the highest ratings for trust compared to those who give an eight out of ten score

The Institute of Customer Service’s latest UK Customer Satisfaction Index (UKCSI) reveals that standards of customer satisfaction in the UK have stabilized following two years of decline. The data shows that some new market entrants exhibit very high levels of customer service. Meanwhile well-established brands can demonstrate sudden, damaging, collapses in standards through mismanagement, poor recruitment and training or other forms of negligence. There is little evidence that companies somehow have to “learn” great customer service through years of experience.

Dialogue | Sep/Nov 2015

MARKETING & SALES

Complaint handling is key What is the key to customer service excellence? No company gets everything right first time, every time. While organizations should, of course, strive to reduce errors – and, therefore, complaints – data reveals it is the way they deal with complaints that is the key determinant of satisfaction levels. Customers are more likely to forgive the error itself than excuse lousy service once that error has occurred. Humans beings know that other human beings make mistakes. But long waits on robotic answering machines, unsympathetic attitudes from customer service teams, and the serial passing on of complaints and queries are where customer satisfaction goes to die.

SERVICE BUILDS SHARE Food retail companies with UK Customer Satisfaction Index (UKCSI) scores above the average tended to grow their market share, while those with below average scores tended to see it contract

+0.2%

–0.2%

average annual change in market share for food sector companies whose UKCSI was at least one point above the sector average

average annual change in market share for food sector companies whose UKCSI was at least one point below the sector average

POSITIVITY BREEDS SATISFACTION The way customer service teams initially react to a complaint is a strong determinant of customer satisfaction with the handling of that complaint % EXPERIENCING THIS SATISFACTION WITH TYPE OF REACTION WHEN COMPLAINT HANDLING REPORTING THEIR PROBLEM (OUT OF TEN) Apologized

30.4%

6.2

Seemed uninterested

29.1%

3.0

Made excuses

24.5%

2.7

Listened carefully/ wanted to fully understand the problem

22.0%

7.0

Told you what would happen next

19.7%

6.6

Were sympathetic

19.1%

7.1

Dealt with it immediately

18.0%

8.1

Dismissed it

18.0%

2.6

Passed you on to someone else

16.5%

3.3

Told you how long it would take to resolve

12.6%

6.7

Took responsibility

12.5%

7.6

Took too long to reply

11.6%

2.5

Acknowledged your complaint in writing

11.5%

6.1

Replied quickly

4.2%

7.7

Dialogue | Sep/Nov 2015

The future The good news for those firms underperforming at customer service is that standards can be radically improved through good management and a focus on developing teams. There is a strong link between employee engagement and customer satisfaction: when staff are enthusiastic about their work and working conditions, customer service standards rise. Companies such as John Lewis exhibit some of the highest levels of staff satisfaction and employee engagement in the UK. It is no surprise that they also exhibit the highest levels of customer satisfaction. This golden triangle of employee engagement, customer satisfaction and healthy bottom lines is at the heart of the new business landscape. The relationship economy is here to stay. No longer are price cuts designed to make customers feel richer sufficient for firms to succeed. Wise companies know that they also have to make their customers feel treasured. l Jo Causon is chief executive of the Institute of Customer Service.

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THE STRATEGY COLUMN

Economists should stop diagnosing and start prescribing Analysts must offer practical advice and encourage citizens to make quality their personal responsibility, writes Subir Chowdhury

Subir Chowdhury Chairman and chief executive at ASI Consulting Group, Michigan, and a member of the Thinkers50 league of global thought leaders

lobal economists with an interest in the development of nations are fond of telling us what’s going wrong. Many are equally keen to tell us what is going right. This is fine as far as it goes: analysis of quality is important in any nation, and economists are generally skilled at it. What they are less effective at is creating strategies to make the bad things good. Poorly executed programmes, illconceived products and badly managed organizations all create waste. This wastage plays a key part in slowing the recovery of the US, delaying the emergence of the Indian subcontinent and East Asia, and hindering the stability of the troubled Eurozone. There is both a business cost and a human cost to failure and waste.

Quality should run through every strand of an organization

WATCH Subir Chowdhury’s Big Idea for the Thinker’s 50, 2013

Dialogue | Sep/Nov 2015

There are significant differences between running a company and a whole nation. When businesses fail to embrace quality, customers complain and sales drop. If there are no changes, poor quality will lead to even more lost sales and the business may ultimately fail. However, companies can reorganize, reinvent, reinvest, and recover. Governments have few such luxuries. What happens when quality fails in government? The effects are invasive and long-lasting. When government leaders fail to deliver quality, economies falter, institutions fail, and people’s futures are compromised or ruined altogether. The country can rebuild – many major economies have done so before – but no one can make up for personal suffering.

Think of the long recession we have just had to endure. Do you want to experience another one? I would rather not. Policymakers around the world are basing their strategies on the advice of economists. Yet too few of these economists offer much more than a snapshot. There is a wealth of diagnosis and a dearth of prescription. Without turning their hands to coming up with solutions, economists are leaving political leaders with inadequate tools for the job. During my career, I have witnessed wastefulness in organizations, born of bad policy. I now encounter the same malaise in national governments. Economists who would rather describe a situation than offer advice on how to improve it are part of the problem. A fresh approach – where economists couple their analysis with clear strategies for growth – would make them part of the solution. Where might they start? I have a suggestion. In order for quality to become the norm rather than the exception in national governance, we might try to instil, in citizens, the need to make awareness of quality their personal business. This would comprise each and every member of the public making quality their individual responsibility. This might mean taking radical steps. People recoil in shock when I say that bringing quality into organizations often starts with abolishing the quality department. The danger of having a single department devoted to quality is that members of an organization think it is someone else’s job. Quality should be something that runs through every strand of an organization, and every person within it. Economists might start by taking that point and promoting it; perhaps, then, governments will begin to listen.

STRATEGY & OPERATIONS

ARMS AROUND THE WORLD: HOW TO BUILD A GLOBAL TEAM Leading international teams is a challenge. You need to know the rules, writes Liz Mellon ILLUSTRATION: BEN CHALLENOR

t was David Maister who came up with a clever equation about trust. In his 2000 book The Trusted Advisor he combined the economist’s view – trust is about delivering the goods – with the social scientist viewpoint – trust is about knowing and liking someone. Hence he ended up with this:

TRUST =

CREDIBILITY + RELIABILITY + INTIMACY SELF INTEREST

The biggest challenge with a global team is intimacy, or lack thereof. We human beings are still pretty basic creatures, despite our designer clothes and fast cars. We are still happier spending time with people like ourselves and continue to find diversity a challenge. Left to ourselves, we group with like-minded people

Left to ourselves we group with like-minded people who share our world view who share our world view. And it is face-to-face contact that allows us – quite literally – to size up another human being and decide if we can trust them. Both of these issues are disastrous news for the global team, because trust is such an important foundation for effective team working.

Diversity, we know, encourages innovation and increases group intelligence, but we need lots of faceto-face time to learn to admire and benefit from diversity and to grow accustomed to working with others unlike ourselves. And face-to-face time is scarce in global teams, whose members are, by definition, globally distributed. As clever as modern teleconferencing may be, we still can’t really see the whites of our team members’ eyes and work out if we are willing to trust them. But let’s be clear: credibility and reliability also take a hit. My personal approach to work may be extremely credible in my home market, but can appear strange to a team member from a different culture halfway around the world. And reliability is also a diverse concept. To an American, on-time delivery means the date and time you promised; southern Europeans, Indians and Emirati adopt

Dialogue | Sep/Nov 2015

STRATEGY & OPERATIONS

Dialogue | Sep/Nov 2015

STRATEGY & OPERATIONS

colleagues and reducing or removing the opportunity for getting to know and understand them better. Intimacy takes a tumble. Meanwhile, other team members around the world are adopting the same strategy and, before you know it, the team has doubled in size. Convening team meetings becomes harder, because there are twice as many people to align, and accountability becomes fudged. Keep your team lean: between five and nine members is about right.

2. Minimize time zones

a more relaxed interpretation. So what’s to be done? Here are seven tips for participating in, or managing, an effective global team.

1. Keep your team lean The challenge of working on a global team is exacerbated by distance and different time zones. The more members the team has, the more difficult it becomes to manage. And it’s easy to proliferate. If I don’t quite understand the nature of a request (highly likely, as it will feel “foreign”), I may ask someone’s advice locally. Next, I invite them to a team meeting, which makes me feel more comfortable because someone like me is supporting me. This leads to muting the phone, passing asides about the content of the call or the “strange” (unfamiliar) accents or attitudes being expressed. I feel more comfortable, but I am distancing myself from my remote

One of the biggest challenges of global working is getting team members together at a time that suits everyone. Try to limit team membership to people who are within a reasonable range of time zones, if at all possible. Time differences of 11 or 12 hours time are much harder to negotiate than eight hours or less. However, if you must have France and Australia on the same team, share the misery equitably. It shouldn’t always be the same team members who are getting up early or staying up late. Distribute meetings around the clock so that it feels fair. I recall one team call where some poor soul was so exhausted they fell asleep during it. They proceeded to snore loudly down the phone. The team leader attempted to find out who it was in order to wake them up, but nothing roused our sleeper and the call had to be abandoned.

3. Get to know one another People are not work robots with deadlines and key performance indicators. The attitude to sharing personal

information varies by personality as well as by nationality, with some individuals keen to get straight to work after perfunctory niceties, and others keen to spend longer on socializing before working. Get in touch with your social side! Intimacy is only built through sharing information, such as your family background, a big anniversary or birthday looming, how you spend your time outside work and your individual aspirations. Everyone will have their personal boundaries but, subject to these, deliberately spend time getting to know one another. Set aside a portion of each meeting to catch up as human beings, acknowledge or celebrate birthdays and promotions and commiserate on life’s disappointments. Most people are pretty defensive about sharing failures or disasters, but try and include those as well. A team looks after its members in good times and in bad.

4. Understand cultural differences Take a straightforward, high-level model that works, such as Geert Hofstede’s 1980 research Motivation, Leadership and Organization: Do American Theories Apply Abroad? Don’t worry that it’s old, cultures haven’t evolved that much in centuries, let alone decades. These fundamental differences matter. For example, the UK is an individualistic nation, meaning your British team member is likely to be happy to suggest solutions without reference to team members. Your collectiveminded Indian colleague, on the other hand, will not only wish to have careful and respectful conversation around ideas before they are finalized but, on important issues, will quite likely have spent some time in contact with individual team members before the team conversation. Hierarchical nationalities, like the Chinese, will defer to authority, so if you want their ideas, as team leader, say what you think at the end of the conversation, not at the beginning. If you express your views early, they are likely to concur and follow them

Dialogue | Sep/Nov 2015

STRATEGY & OPERATIONS

– and you will lose the opportunity to gain their insights. Don’t worry about your US colleagues because, in contrast, they will be happy to disagree with you in front of everyone. Your German team member will want to know what the rules are, while your African teammate will be happy to circumnavigate the rules to make the idea work – or to make up new rules that fit the special circumstance. Finally, some team members, like your Spanish friend, will want to spend time on team interaction and social chitchat, which will probably drive the Dutch on the team crazy with impatience. At least 50% of human behaviour is linked to cultural differences. It’s not something we have a choice over, so take it into account. Create a set of heuristics around agreed methods of interacting to which you can refer if discussion gets sticky.

5. Over-communicate We think four to seven times faster than we speak, so it is hard to concentrate fully on what someone is saying. A word or a phrase strikes a chord and we are off into our memories, which are evoked by the association. The best negotiators spell out what they mean before they say it and the same rule works well for global teams. For example, say “I’d like to make a suggestion” or “I need to ask a question” or “I would like to propose a solution”. This kind of signposting helps, especially when language barriers and different intonation make communication more obscure. This is also important for trust. Credibility (your expertise or experience) and reliability (you deliver what you promised, when you agreed) are more difficult to observe at a distance. Spell them out. For example, “you recall the report I promised you for today, here it is”. If you think you have delivered, but your team members

Dialogue | Sep/Nov 2015

People are not robots with deadlines and key performance indicators don’t recognize it, precious trust starts leaking out of the team. Obviously, never, ever hit “send” on that latenight, over-tired email. It will come back to burn you the following day.

6. Have tough conversations At first, we don’t notice when something is going wrong on the team and, by the time we spot a problem, it may feel too big to tackle. Next, we ignore it and hope it will go away. When that

doesn’t work, we start to make hints, but the likelihood is that nobody picks them up because they are too subtle. By now the problem is so big that it has to be someone’s fault, so we look around to assign blame. There is usually someone on the team who is so different from us that we have never got to know them that well – so there’s our choice of blame-carrier. The blame game turns into scapegoating – we start having conversations behind the person’s back and he or she may even end up leaving the team. Unfortunately, they don’t take the problem with them. The problem is a team one, attributable to team dynamics, rarely to an individual. From the outset, establish strong team rules of engagement, including how to raise difficult issues. You could, for example, choose an artefact – like a red flag – that you announce you are about to wave when you have something challenging to say. Use regular, quick and easy team surveys, such as Survey Monkey, to track how team members are feeling about the team, its productivity, motivation levels and their place in it. Don’t make these surveys rote – really discuss and use the results to enable your team to improve. The more often you have “real” conversations about things that matter, the easier they become and the more team members can rely on each other.

7. Have fun You can learn so much from being part of a global team if you open your mind and heart to new ways of thinking and acting. The global team rarely meets. But members can become adept at forming new teams with minimal face-to-face human contact. This is a great skill to acquire. If you get the chance to meet, even in smaller subgroups of the whole team, take it. It will greatly enhance the team’s effectiveness and is a great use of resources. What an opportunity!

STRATEGY & OPERATIONS

HOW CHINA BECAME

CHINA INC The Communist Party is here to stay, but the expansion of the new Chinese empire is more likely to be mercantilist than territorial, writes Alastair Campbell

aking predictions about China’s future is in fashion. Since Xi Jinping (XJP) took the helm as General Secretary of the Chinese Communist Party (CCP) and chairman of the Central Military Commission in November 2012, there has been lively debate among

China-watchers about the country’s likely trajectory over the next decade. There is a widely held assumption that XJP will seek a second term in 2017. Other predictions have varied. Some forecast the party’s collapse; others suggest China’s early achievement of economic parity with the US. There are too many internal and external variables for detailed predictions. To interpret what is happening, we need to drop our Western prism and look at the world from a Chinese perspective. China represents an unprecedented experiment in governance. It is, as Zhang Weiwei says in The China Wave, “the only country in history which has amalgamated the world’s longest continuous civilization with a huge modern state”. It is best to comprehend China as the Chinese themselves view it: the “Middle Kingdom” rather than just another emerging nation in the “Far East”.

The Chinese Communist Party, government and military share “a single-minded mission to strengthen China comprehensively and become a major world power”, says David Shambaugh in the Washington Quarterly. How has this manifested itself under XJP’s leadership? Let’s look at two big issues: security and politics and power.

The security challenge China has unique security challenges. No previous major power has faced the twin challenges of defending a continental land border and an extensive littoral zone. Its land borders alone extend to 22,147kms, from Russia to the north through central and south Asia, through to the Mekong region to the south. It shares land frontiers with 14 countries. China has taken proactive steps to secure its Eurasian land borders by a

Dialogue | Sep/Nov 2015

STRATEGY & OPERATIONS

series of alliances with the countries of central Asia. It has also cooperated with the Russians, via the creation of the Shanghai 5 in 1996 and the Shanghai Cooperation Organization in 2001. Yet China’s sea borders extend to 14,500kms – double the length of India’s – so the country rightly feels exposed. To develop an effective coastal naval defence force, and secure key shipping routes, China has tried to reinforce claims to island territory in the South China Sea, where it is actively constructing dwellings and airstrips on some of the many atolls and islets. China maintains that it is simply reasserting long-established territorial claims and only the Philippines has taken its case to international arbitration. But China’s Asian neighbours, particularly Japan, view these measures as aggressive and predatory. The Japanese reaction, after numerous incidents, has reduced in intensity under Prime Minister Shinzo Abe, who has chosen to rekindle the US relationship as the tried-and-tested formula to guarantee Japan’s security. But, unsurprisingly, China sees this as further evidence of a US “containment” policy – and has shown no inclination to back down over a single inch of disputed territory. Conflict is certainly possible in this tense theatre. But it is more likely to arise from an accident than from a willingness to engage in physical confrontation. The major event in the security

THE NEW CHINA – KEY POINTS l Chinese Communist Party is here to stay l General Secretary Xi is effectively head of a multinational corporation l Mercantile expansion is the key goal l Will target 50 million overseas Chinese as global workforce l Security remains key challenge in porous areas such as Hong Kong

Dialogue | Sep/Nov 2015

sphere, which caught the attention of the world’s media last year, was the Umbrella Movement started in Hong Kong. Tens of thousands demonstrated under the symbol of the umbrella, representing defiance and resistance. The central business district and the commercial area of Mong Kok were under unprecedented occupation for three torrid months from September to December. The government initially reacted with ill-considered force, deploying tear gas to disperse the crowds, resulting in widespread anger and sympathy for the demonstrators from the public – and a PR disaster for the already deeply unpopular Hong Kong chief executive CY Leung.

No concessions Under instruction from Beijing, there was no further serious engagement – apart from one round of televised dialogue – and the demonstrations soon showed divided leadership. Eventually, legal means were deployed to move the demonstrators from the occupied zones. To the satisfaction of Beijing, no concessions were made, just vague promises by the administration to listen to the popular concerns that the movement had so dramatically highlighted. While the debate on the electoral process for the choice of chief executive continues in the press and learned journals, the student

protagonists have vanished from the public arena and returned to school. The most palpable result has been a new focus on security – and the explicitly declared expectation that Hong Kong citizens accept that the former British territory is now an integral part of China, and is subject to the same responsibilities in respect of defence and security. After all, the Joint Declaration of 1984 never recognized Hong Kong as an independent nation, but a city separated from China through the wrongful seizure of the territory by the British in the 19th century. The Chinese government has always considered Hong Kong’s population as citizens of the Chinese nation. As a result of the demonstrations, however, Beijing now considers Hong Kong a security liability, a territory open to foreign activists and agents, and will redouble efforts to impose controls, irrespective of the cherished “two systems” espoused in the Joint Declaration – the 1980s principles for reunification were based on “one China, two systems”, so that distinct Chinese regions such as Hong Kong could retain their capitalist framework. China knows that Hong Kong is not viewed as another Crimea, there will be no Falkland scenario. Yet much hot air emanates from the British parliament about the desirability of universal suffrage. “It would be a strange disregard of national interest and security for China to accept any

The widely trumpeted forecast that the Chinese Communist Party would wither away in the face of political reforms has proven alarmingly wrong

STRATEGY & OPERATIONS

THE CHINESE DIASPORA OVERSEAS CHINESE POPULATION:

LIQUID ASSETS:

$2 TRILLION MORE THAN 50M nomination procedure for the chief executive which did not ensure a majority of nominators sympathetic to China,” argues Professor Tony Carty. It should come as no surprise therefore that China recently urged the Hong Kong government to speed up enacting a security law to parallel that of the mainland. This complements the provision under the Basic Law that allows national laws to be applied to Hong Kong during a state of emergency.

Politics and power On the political front, it is indicative of the circles of resistance XJP faced that it took until July 2013 for him to bag his first senior tiger, with the arraignment of security chief Zhou Yonkang on charges of serious discipline violations. In December 2013, Zhou was stripped of his party membership, rendering him liable to prosecution in the courts. This victory gives XJP full control of China’s security apparatus, thus strengthening his grip on power. The next step is to place the loyal acolytes from his elitist princeling group in key appointments throughout the administration. He has two years to complete the process before the party congress in late 2017. To help smooth the way, his loyal comrade-in-arms

ANNUAL ECONOMIC OUTPUT:

$600BN Source: Asia America Research Institute 2004

Wang Qishan will pursue the anticorruption campaign to clear the stables of all potential opposition and undermine the factions that have been a feature of Chinese politics since the revolution resistance to his policies. This programme has the additional benefit of winning public support by attacking a deeply unpopular officialdom, whose systemic corruption is well appreciated by ordinary citizens. The result is that XJP’s new power is unprecedented and resides not simply in his party, government and military roles, but in the newly constituted five “leading groups”, all of which he chairs. These groups are where political and economic policy is now formulated and handed down to the administrative organs of government to implement. “The widely trumpeted Western forecast, repeated by successive leaders over the past 65 years, that the Chinese Communist Party would wither away in the face of political reforms and yield to a multi-party democratic system has proven alarmingly wrong,” says Michael Pillsbury at the Hudson Institute. “We should dismantle comfortable assumptions and false realities and study China anew, recognizing that its communist rulers are determined not to fade into history.”

The civilization state In addition to these major changes in structure and reporting lines, XJP has embarked on an ambitious programme to redefine China as a “civilization state” rather than a simple nation state and to undertake a comparison with other major civilizations across time. This reassessment of China’s historical importance has become a central pillar of Chinese policy and communications. Historians have been commissioned to write books on the subject, the communications machines of the State Council Information Office, the Foreign Ministry and the Han Ban (OCLCI) are putting out the same messages about the revival of Chinese civilization. So how precisely is a civilization state defined and what does this spell for China’s international relations? As every Chinese schoolchild learns in their first history lessons, China “is a 3,000-year-old civilization state”. At a time when “Euro-American” civilization seems to have entered a period of introspective malaise and dysfunctional democracies, China argues it is simply reaffirming the equal validity of Chinese civilization as an alternative. This model has different traditions of governance and values rooted in a traditional oligarchic/meritocratic

Dialogue | Sep/Nov 2015

STRATEGY & OPERATIONS

system, and one that has a much longer and sustained pedigree than Western or other counterparts. The Chinese can point to evidence: a much higher level of sustained growth and benefits delivered since 1949 to a third of the world’s population. “The significance of the re-emergence and ascendancy of the Middle Kingdom can no longer be ignored,” says Eric Li, director of CEIBS and Crown Fellow of the Aspen Institute. “More than one billion people of a dismembered state have risen from abject poverty to make up the second-largest economy in the world. And it has happened without a single election.” This explains the confidence with which the party affirms the validity of its one-party meritocratic system based on selection rather than election. How does this play out in China’s external relations? Should we anticipate an expansionary China in the next phase of evolution? I believe we should, but perhaps not in the way Western powers extended their empires historically. China seeks to extend its influence in more subtle ways than force of arms or occupation of land. This reflects an essential difference between China and other civilization states. The Chinese concept of civilization is rooted in the conviction of ethnic superiority, a race-nation ruled by Han Chinese – glossing over the historic assimilation of many diverse ethnic groups living between the Gobi desert and the South China Sea – in contrast to the “multi-ethnic immigration-based model” of Western societies. Rather than open its doors to foreign skilled immigration, China will leverage one additional channel unique to itself to pursue the acquisition of Western knowledge, skills and technology: the Chinese diaspora.

Dialogue | Sep/Nov 2015

The diaspora consists of more than 50 million overseas Chinese in 160 countries, with an estimated $2 trillion of liquid assets and annual economic output of $600bn (see infographic, page 76). The power and potential of this external “bamboo network” is fully appreciated by the new leadership in Beijing, and represents a key resource in the process of China’s modernization and technological empowerment. So we should expect a more intelligent and pragmatic approach to China’s expansion. The leadership has a strong sense of history and knows that empires tend to overextend them-

The leadership has a strong sense of history

selves, are costly and difficult to sustain, and progressively exhaust the original creative force that inspired them. It is more balanced and Confucian to adopt the pragmatic goal of becoming the strongest, smartest, most prosperous nation on the planet, by acquiring, by every means available, the intellectual and natural resources available in less enlightened jurisdictions. Look at where the “one belt, one road” strategy is mooted to end up: the maritime route ends in the new $10bn port in Bagamoyo Tanzania, which will outclass other facilities on the east coast of the continent. Who is slated to design and build it? Who will be the

primary beneficiary of commodities and raw materials shipped through this new mega-hub? China Inc. These factors add up to a clear conclusion. It is likely the New Chinese Empire will be built on more of a mercantilist than territorial model, one that serves to deliver the resources and technology to strengthen and extend China’s power and influence beyond the boundaries of a greatly enhanced and strengthened Great Wall.

The impact on business What does this mean for Western chief executive with substantial China commitments? If you want your business to survive and prosper in this new economic order, you should start to look at China rather like a mega corporation. XJP chairs “China Inc”. Its top management team is responsible for policy decisions, consists of the CCP Central Committee, and his five newly formed leading groups. These are the teams driving China’s five-year plan and “go-global” strategy and this is the level at which the C-Suite needs to engage, in order to understand their priorities and aspirations. The traditional focus on one-way investment and traditional exports are history, as are old networks of relationships. These relationships will have rapidly declining value, as XJP’s new team progressively takes the reins of power. So the key new challenge is to start viewing the world through the eyes of a rapidly globalizing China Inc. and to access and engage the new decision makers, who will help you to identify partnership opportunities with Chinese enterprises to exploit global markets. l Alastair Campbell is director of Asian Capital Partners Group

COUNTRY FOCUS: GREECE

TROUBLE IN PARADISE GREECE POPULATION:

11,000,000

CAPITAL:

ATHENS

n a perfect location in southern Europe, caressed by the azure waters of the Aegean and Ionian Seas, Greece ought to be paradise on Earth. Yet this nation – the modern incarnation of an ancient civilization – is now a byword for international debt, economic crisis and human misery. Brinkmanship by international leaders led, in the summer, to a last-minute third bailout package that allowed Greece’s banks to reopen and reduced the immediate pressure on the country to leave the Eurozone. But the future is uncertain for Greece – with many critics saying it should be ejected from the single currency before any more damage is done. At the time of writing, Greece remained in the Eurozone. But it remains a nation on the brink.

THE SLUMP IN HAPPINESS MAJOR LANGUAGE: ...AREA: 50,949 SQ MI

GREEK

Life satisfaction in Greece has plummeted since the crisis Change in life satisfaction from 2007 to 2014

17.5%

CHILE

15.1%

SLOVAKIA 9.4%

GERMANY

8.7%

ICELAND MEXICO

MAJOR RELIGIONS:

AUSTRALIA UNITED KINGDOM

LIFE EXPECTANCY:

78 YEARS

84 YEARS

-1.5% -4.0%

CHRISTIANITY (EASTERN ORTHODOX)

US$25,700

FRANCE UNITED STATES

-4.8%

IRELAND

-4.8%

JAPAN

-7.1%

GNI PER CAPITA:

3.1%

-9.1%

SPAIN ITALY GREECE

-27.3% SOURCE: ONS

Dialogue | Sep/Nov 2015

YOUR

THE MYTH OF SLOTH The Greeks work longer hours than many of their competitor nations Hours worked a year per working age adult (2013) GERMANY 2013

GREECE 2013

1388

2037

hours/worker

YOUR DIALOGUE

SOCIAL SCENE

hours/worker

UNITED STATES 2013

Women in the City @WomenintheCity Jul 23

1788

NETHERLANDS GERMANY NORWAY DENMARK FRANCE SLOVENIA BELGIUM SWITZERLAND SWEDEN AUSTRIA LUXEMBOURG SPAIN FINLAND UNITED KINGDOM AUSTRALIA ICELAND CANADA PORTUGAL JAPAN ITALY NEW ZEALAND SLOVAK REPUBLIC OECD TOTAL CZECH REPUBLIC UNITED STATES IRELAND TURKEY ISRAEL ESTONIA HUNGARY POLAND RUSSIA CHILE GREECE MEXICO

hours/worker

SOURCE: GREECE.GREEKREPORTER.COM

SHADOW ECONOMY The government is failing to bring in enough revenue – not least because the untaxed, unregulated economy is the highest in the EU

Become a media partner with #WIC and support diversity and change in the workplace like @DialogueTweets #FLAward2015 Emolument @EmolumentTM Jul 14

Interesting @DialogueTweets piece about #banking regulation reducing wealth-making opportunities … via @ BlessingWhite Susan Camberis @susancamberis Jul 8

“Global Teams. Global Systems.” Use systems thinking to improve team performance. @HalellyAzulay @DialogueTweets

25 20 15

DIALOGUE IS BROUGHT TO YOU BY..

10 5

SWITZERLAND

UNITED STATES

NEW ZEALAND

JAPAN

AUSTRIA

NETHERLANDS

CANADA

UNITED KINGDOM

IRELAND

AUSTRALIA

AVERAGE

DENMARK

FRANCE

GERMANY

FINLAND

SWEDEN

NORWAY

BELGIUM

PORTUGAL

ITALY

SPAIN

GREECE

SHADOW ECONOMY AS A PERCENTAGE OF TOTAL ECONOMY | SOURCE: IAW TÜBINGEN

Greece is seen as a poor place to do business – and is getting worse 0-49.9 Repressed

50-59.9 Mostly Unfree

60-69.9 Moderately Unfree

COUNTRY SCORE OVER TIME 70 65

Greece World Average

Regional Average Free Economies

45 2011 2012 2013 2014 2015

80-100 Free

2015 SCORE COMPARISON

70-79.9 Mostly Free

EDITORIAL BOARD Dr Liz Mellon

EDITORIAL Ben Walker

CHAIRMAN

EDITOR

Tom Albanese

Laura Hawkins

CHIEF EXECUTIVE, VENDANTA RESOURCES

ART DIRECTOR

Michael Canning

CHIEF SUB EDITOR

CHIEF EXECUTIVE, DUKE CORPORATE EDUCATION

Irene Dorner FORMER PRESIDENT AND CHIEF EXECUTIVE, HSBC US

LAND OF THE UNFREE

Professor Pedro Nueno PRESIDENT, CHINA EUROPE INTERNATIONAL BUSINESS SCHOOL

60.4 67.0 84.6 0 20 40 60 80 100

SOURCE: 2015 INDEX OF ECONOMIC FREEDOM

Sarah Wild Miro Iliev SOCIAL MEDIA EXECUTIVE

Tasneem Mahmoud EDITORIAL ASSISTANT

MANAGEMENT Martin Liu PUBLISHER

Niki Mullin

Karina Robinson

BUSINESS DEVELOPMENT MANAGER

FOUNDING PRINCIPAL, ROBINSON HAMBRO

niki.mullin@lidpublishing.com

Ben Walker

MARKETING AND COMMUNICATIONS MANAGER

EDITOR

54.0

SEP/NOV 2015

Amrita Brard

DISCLAIMER Copyright 2015 by Duke Corporate Education and LID Publishing Ltd. All rights reserved. Material may not be reproduced without permission of the publisher. While we take care to ensure that editorial is accurate, independent, objective and relevant for the readers, Dialogue accepts no liability for reader dissatisfaction rising from the content of this publication. The opinions expressed or advice given are the views of individual authors and do not necessarily represent the views of Dialogue. This journal is also supported by Knowledge Partners, including Duke Corporate Education as Lead Knowledge partner. Whenever an author is related to a Knowledge Partner it will be noted as such. Dialogue takes every effort to credit photographers but we cannot guarantee every published use of an image will have the contributor’s name. If you believe we have omitted a credit for your image, please email the editor. ISSN: 2053-4361 Printed by Pensord, www.pensord.co.uk LID PUBLISHING Published in the United Kingdom by LID Publishing, 1 Mercer Street, London WC2.

Dialogue | Sep/Nov 2015

REVIEWS

BOOKS AND APPS

UNDER THE SPOTLIGHT

In association with:

blue bottlebiz

A wonderful tale of success, through the eyes of the successful Professor Sir Cary Cooper reviews Alastair Campbell’s Winners exclusively for Dialogue

Many years ago, I interviewed entrepreneurs and leaders for a book and found many had experienced serious adverse life events in childhood, such as losing a parent. Dealing with these became their driving force for success. They saw taking control of events as an effective coping strategy. Being resilient to setbacks, learning from failure, is fundamental, in the long term, to being a winner. As basketball legend Michael Jordan says in Alastair Campbell’s book, Winners and How they Succeed: “I’ve lost over 300 games. Twenty six times, I’ve been trusted to take the game-winning shot and missed. I’ve failed over and over again in my life. And that is why I succeed.” I commend Campbell’s book to anyone interested in the anatomy of success. But it is not just about what it takes to win in business, sport or politics, it upholds a key tenet of Confucius’s philosophy: “Our greatest honour is not in never failing, but in rising every time we fall.” Written by ex-political strategist and journalist Alastair Campbell, who was, at one time, the former Labour Prime Minister Tony Blair’s right-hand man, it is a wonderful read: fluid, punchy, more psychological than you might expect. It draws on quotes from eminent leaders from different disciplines (for example, German Chancellor Angela Merkel, competitive sailor Ben Ainslie and Huffington Post Media Group president Arianna Huffington) and from iconic leaders such as Nelson Mandela. Campbell begins with The Holy Trinity, exploring the issues of strategy, leadership and teamship. For each, he uses personalities as case studies: football manager Jose Mourinho is the strategist, American Vogue editor-in-chief

Anna Wintour, the leader, and the team player is Edi Rama, Prime Minister of Albania. Part two, It’s All in the Mind, explores the importance of the “right mindset” and the power of visualizing what you want to achieve and how to get there. Campbell chooses boxer Lloyd Mayweather as his case study of the mind of an unbeaten winner. Part three is about standing out from the crowd. Here, the author emphasizes boldness, innovation and use of data. I liked Arianna Huffington’s definition: “innovation is never seeing yourself as the finished product”. Fourth comes Changing Setbacks into Advantages, looking at crisis management and resilience. For me this was the most powerful part of the book because it’s how you manage setbacks that determines your success in the long run. As jockey and author AP McCoy said: “You need fear and doubt to drive you on. Without them, you end up living in the past and being happy with what you achieved.” This book is more profound than its title might imply – and a “must read” for anyone in a leadership role. Winners and How They Succeed Alastair Campbell Hutchinson £20 Professor Sir Cary Cooper CBE is the 50th Anniversary professor of organizational psychology and health at Manchester Business School, University of Manchester. He is co-author of Solving the Strategy Delusion

Dialogue | Sep/Nov 2015

REVIEWS

DISCOVERY PATH: BANKING REFORM Where will the banking sector end up? Subject to crisis, bailout and recovery, the banking sector is on a reformist trajectory, but its journey has only just begun. The object of this discovery path is to enlighten readers about the sources of innovation and disruption at an exciting time. Put together by Christian Smythe, head of content and partner strategy at Blue Bottle Biz, the path includes key reading on the global financial crisis that

EMERGING BANKING SYSTEMS by Paola Bongini, Stefano Chiarlone, and Giovanni Ferri CHAPTER 1: EMERGING BANKING SYSTEMS Emerging Banking Systems is an analysis of the key players (China, India, Brazil, Russia, Turkey, Indonesia, North Africa) of the unprecedented international economic integration of the past 25 years. This chapter looks at what has been done to regulate these countries’ banking systems and what further steps are necessary.

GLOBALIZATION AND THE REFORM OF THE INTERNATIONAL BANKING AND MONETARY SYSTEM by Otto Hieronymi CHAPTER 3: THE GLOBAL FINANCIAL CRISIS, CENTRAL BANKING AND THE REFORM OF THE INTERNATIONAL MONETARY AND FINANCIAL SYSTEM This is a look back at the financial crisis of 2008, its origins, the rescue plan, an analysis of the economic and political issues, and new reforms for international financial institutions.

THE NEW FINANCIAL DEAL: UNDERSTANDING THE DODD-FRANK ACT AND ITS (UNINTENDED) CONSEQUENCES

triggered the race for reform, an exploration of the Chinese banking reform experience at the turn of the millennium, and an in-depth look at emerging banking systems that are changing the industry. Those who need or want to know the detail and trends within this fascinating sector should head for the discovery path at: bluebottlebiz.com/book/bankingreform/

they were drafted by the same people who designed the bailouts of 2008, and it shows. In Chapter 5, David Skell explains the framework of the new regulations and partnership between the federal government and the largest financial institutions.

FRONTIERS OF BANKS IN A GLOBAL ECONOMY by Philip Molyneux and Eleuterio Vallelado CHAPTER 7: MIGRANTS AND FINANCIAL SERVICES: WHICH OPPORTUNITIES FOR FINANCIAL INNOVATION? This chapter examines how banks are developing new services to meet the financial needs of migrants and how they have innovated to better serve this new market segment.

BANKING REFORMS AND MONETARY POLICY IN THE PEOPLE’S REPUBLIC OF CHINA by Yong Guo CHAPTER 3: BANKING REFORMS IN 1993-7: CONTROLLING INTEREST RATES Beginning in 1993, the People’s Republic of China undertook a series of reforms designed to modernize their banking and financial systems and implement a sound and credible monetary policy. This chapter outlines the reforms and analyzes the effectiveness of monetary policy during this period.

by David Skell CHAPTER 5: BANKING REFORM: BREAKING UP WAS TOO HARD TO DO The Dodd-Frank Act, which US President Obama signed into law in July 2010, created a new set of rules for the instruments and the institutions of contemporary finance. Although the reforms were desperately needed,

Dialogue | Sep/Nov 2015

SEE MORE AT:

WWW.BLUEBOTTLEBIZ.COM

REVIEWS

BACKBOTTLE BLUE TO THE FUTURE BIZ’S TOP FIVE READS IN 2015

Managing for Quality and Performance Excellence James R. Evans, William M. Lindsay Cengage Learning

Focusing on the fundamental principles of total quality and emphasizing highperformance management practices, such as those reflected in the Baldrige Criteria, this text gives current examples from leading organizations worldwide.

Never grasped crowdfunding? You will now This A-Z of the new frontier of finance will help you understand and attract crowdfunding, writes Liz Mellon

The New Rules of Green Marketing Jacquelyn Ottman

Berrett-Koehler Publishers

Today’s green marketers promote better health, performance, taste and costeffectiveness. This emphasis is critical to winning over mainstream consumers and Ottman provides practical strategies for a value-based green marketing strategy.

Strategic Thinking Simon Wootton Kogan Page

Strategic Thinking takes readers through the logical stages in strategic planning and leadership. Supported by online material, it provides a step-by-step guide to formulating strategies and predicting changes.

Strategic Management Gareth Jones, Charles W. L. Hill Cengage Learning

Presenting the complexities of strategic management through latest scholarship and hands-on applications, this text puts an emphasis on the changing global economy and its role in strategic management. The high-quality case study programme contains 31 cases covering small, medium, and large companies of varying backgrounds.

The 8 Dimensions of Leadership Jeffrey Sugerman Berrett-Koehler Publishers

Once you have identified your primary leadership dimension via its third-generation DiSC® online personality assessment, this book helps you understand the psychological drivers, motivations, and “blind spots” characteristic of your style. It details lessons leaders can learn from other styles.

Who borrows from a crowd, rather than from a bank? For some, it’s about believing in the crowd as a greater source of innovation than a bank manager. For others, it’s about the democratization of capital and equal access to funding for ideas, without the judgment and bureaucracy a bank imposes. Others still are outside the banking system (for reasons of poverty, former bankruptcy, dislike of the system) and turn to the crowd as the only viable means of raising capital. Buckingham’s book is the A-Z explaining this world. Crowdfunding can support commercial ventures or social enterprises. There are five different routes to funding: donation, reward, equity, interest or mixed. The author lays out examples of project finance paths to walk the reader through each and explains the advantages and disadvantages. For example, should you choose the equity path to raise funds, if you give away too great a percentage of the equity to investors at the stage of the initial offer, you may later find yourself prevented from gaining venture capital funding to scale up, because there will be insufficient equity left to attract funding. Buckingham’s book is careful to explore the dark side of crowdfunding. Suppose you share your idea with the crowd to get further input and advice and someone steals your idea and launches it instead? How do you avoid getting into a muddle over tax? Buckingham looks at nine different ways to campaign for funds depending on how much you can persuade the crowd to trust you and how clearly you can communicate your message. The book goes right down to how to write a campaign, citing research on the best phrases to garner a positive reaction. If you go to a bank you get money. If you crowdfund you also gain advice, feedback, a way of gauging demand and engaging customers ahead of launching your product or service, as well as money. Buckingham’s book gives the reader the best advice on successful crowdfunding while avoiding the downsides. Crowdfunding Intelligence Chris Buckingham LID Publishing £19.99

Dialogue | Sep/Nov 2015

REVIEWS

The final nail in the coffin for the strategy myth

APPS FOR LEADERS: REALTIMEBOARD

Read this book before you embark on strategy change, writes Ben Walker

There’s a passage early in Solving the Strategy Delusion where a monkey is the master of its own downfall. A YouTube video shows an African tribesman setting a trap. He places a nut inside a tiny hole, and hides in the bush. The monkey grabs the nut but, in making a fist, can’t extract its paw, or the nut, from the hole. Were the monkey to let go of the nut, it’d be free to go. But it won’t, so the tribesman ambles over and captures it. Authors Marc Stigter and Professor Cary Cooper propose that this video serves as a warning to companies so fixated with what they perceive to have gained and built, they are unable to let go, rendering them incapable of changing or venturing into gainful territories. Strategy has become a vague ambition superseded by tactics and short-termism; 70% to 90% of strategic change initiatives fail. Cost-cutting strategies are an example of the malaise. Stigter and Cooper highlight the late Steve Jobs, who was willing to pursue expansion in a recessionary market. Jobs’ successful strategy is given by the authors as an example of “D-optioning” – selecting an unobvious, winning approach to a classic dilemma. Perhaps the greatest thing about this book is its mental interactivity. Consider this test: you are driving alone in a two-seater sports car on a cold day. At an uncovered bus stop, you see a) an old lady who looks like she may die from the chill, b) your best friend, who once saved your life, c) the partner of your dreams. When Cooper’s audiences are asked what they would do, a third tend to rush the old lady to hospital. A dutiful group give their saviour a lift. A libidinous 33% try their luck with the heart-throb. The best answer is the D-option: hand your keys to your friend and have her drive the old lady to hospital. You catch the bus with your romantic target, who has just seen you give up your car to help an elderly citizen. Read the book: you might find you think of D-options more readily once you do. Solving the Strategy Delusion Cary Cooper Palgrave Macmillan £29.99

Dialogue | Sep/Nov 2015

How many meetings and innovation sessions have you sat in where the only certainty is the use of the flipchart, sticky notes or whiteboard? The discussion is useful and the outputs often inspirational and practical. What if you could replicate that in real time using your smartphone, tablet or ultrabook PC? With Realtimeboard (realtimeboard.com) you can. The software includes an array of useful features: text can be typed up and placed on the virtual whiteboard; sticky notes can be added and moved around. And the marvellous “business model canvas” and “lean development canvas” templates included make this a congregating app – it’s a huddling platform and an innovator’s delight. You create a board; invite others to it and – if possible – in live, real time, people add to your whiteboard backdrop, virtually. The platform can replace the noisy chaos of a product-planning day, launch strategy or business-plan build. Although it is not yet a native app, this Chrome app still works on smart devices using the Chrome browser. Once signed up, you can connect to your team and invite others to join your brainstorming session. You can avoid complex email chains or the hassle of diary scheduling to get you all in the same conference room. It’s a great product – get ready to kiss goodbye to flipcharts scrunched in the filing cabinet. Instead, keep an online record of great ideas and suggestions to form an integral part of your project approach. Realtimeboard captures the key data via the virtual, collaborative whiteboard – helping you bring an end to the high expectation but low realization of traditional whiteboard sessions. l Perry Timms is an independent HR/OD practitioner,

writer and speaker, and is CIPD adviser on social media & engagement. Follow him on twitter @PerryTimms

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06/02/2015 29/07/2015 10:47 12:49

REVIEWS

BUSINESS CLASSICS REVISITED

Eating the Big Fish: How Challenger Brands Can Compete Against Brand Leaders Adam Morgan

CLICK HERE TO WATCH

Adweek Media

This book’s fundamental point is that most marketing books are written about brand leaders, but most marketing people don’t work on brand leaders. Challenger brands need to behave differently to compete with the big boys. It proposes eight credos: 1. Break with your immediate past Forget everything you think you know. Too many companies keep referring back to the past. 2. Build a lighthouse identity Don’t just reflect what consumers say they want, or base your approach on what your competition does. 3. Assume thought leadership of the category If you haven’t got the funds to swamp an audience with your message, come up with an inspiring idea they will all talk about. 4. Create symbols of re-evaluation Do the unexpected to get noticed. Appear in unusual places and say unusual things. 5. Sacrifice Work out what you are not going to do. Doing one thing well may be most effective. 6. Over-commitment Karate experts aim two feet below the brick to break it. It takes more effort but guarantees results. This is the attitude challenger brands require. 7. Use publicity to enter popular culture Attach your brand to something that resonates in popular culture and make it stick. 8. Become ideas-centred, not consumer-centred Constantly re-invent what you are doing. Successful challenger brands are not static. This advice concentrates on the practical things that pretty much any marketer can do. If there is a pitfall, it is that it is too easy for people to grab the gist of the argument without actually realizing what they are saying and without the actions to follow it up. Kevin Duncan is a business author, speaker and trainer. His greatesthitsblog.com summarizes over 250 important books. Contact: kevinduncanexpertadvice@gmail.com

Dialogue | Sep/Nov 2015

GET YOURSELF A BRAND NEW SENSE Think we are stuck with the senses we are born with? Think again, says Ben Walker The neuroscientist David Eagleman knows you can replace one sense with another. A sensory vest can be used to translate sounds into touch – so the profoundly deaf can learn to ‘hear’ words spoken to them through a series of impulses on their body. Other technologies allow the blind to ‘hear’ visions through specially designed glasses. So, if we can substitute senses for people that lack one, can we add senses for those that have all five? In this amazing TedTalk, Eagleman proves we can. Using the vest, subjects were fed data from the internet as a series of pulses. After receiving the information this way, they are asked a question. They have absolutely no idea or understanding of the nature of the data they are being sent from the internet – it is merely a series of pulses sent to the sensory vest. Unbeknown to the guy being tested, it’s stock market data, and the questions he is answering are buying and selling decisions. He gets sensory feedback telling him how good his decisions were. Eagleman, who spends the talk getting live feedback via his vest from Twitter on the talk itself, says the possibilities of the technology are limitless. Perhaps one day you could feel the overall health of your business via a series of data being fed to you as sensory pulses? Makes you think – or feel. Watch the video at: bit.ly/tedsense

THE LAST WORD

HOW TO UNLOCK YOUR

FEMALE TALENT Karina Robinson Founding partner, Robinson Hambro, and former senior editor of The Banker

he focus on recruiting more non-executive women to boards has caused the spotlight to move inexorably towards the dearth of female executive directors. Take FTSE-100 companies: only 8.6% of board members are women. Retaining and encouraging female talent within companies is crucial. It’s been proven that diverse boards make for more successful companies. Dame Fiona Woolf, 686th Lord Mayor of the City of London, instituted the Power of Diversity programme in her 2013/14 term, a strategy followed by subsequent Lord Mayors. So what does she advise? I have outlined a few of her practical steps to supporting the rise of women in an organization.

1. Think of it as talent development I ran a survey that found that quality of supervision and personal development were the top factors that would keep people in a job, but very few of us have been trained in on-thejob talent development. We should teach managers how to develop skills and create an environment in which everyone learns from on-the-job experience. Transparency about work

allocation will help deal with unconscious bias, such as the assumption that a woman with a family would not want to get involved in a big deal.

2. Motivate the keepers of the talent pipeline Many of the keepers of the executive talent pipeline are mid-level managers, busy doing the work, generating income, looking for new business and trying to go home at night. They may not realize they are responsible for talent development and will benefit from it. They need to be motivated to value and invest time in talent development. It is crucial they understand the business costs of replacing someone.

3. What gets measured gets done I have only come across a few organizations that measure individual performance in talent development and reward it. Income generation and new business acquisition as performance indicators are easier to measure and reward. My company, Robinson Hambro, is working with business schools and firms to find ways to monitor and reward talent management and development looking at outcomes. One way is to measure the number of people who leave a manager each year and understand why, using exit interviews. Another is to count the number of promotions and lateral transfers.

4. Commitment to culture change A survey for the Power of Diversity programme found that 84% of employees felt senior leaders were doing the right thing to create diversity and inclusion but only 27% felt under pressure to act on it at their level. Think of a diversity drive as a campaign: led from the top but full of excitement in the big middle.

5. Develop support for all rising talent My motto is “get lucky and say ‘yes’!” Everyone wants women to succeed and we will be supported. We all need support when we take on something new, however senior we are, and we can be smarter at asking for it and giving it. It is not a sign of weakness.

6. Recruit and promote on transferable skills, not just experience Some people recruit and promote square pegs to square holes based on the classic “previous experience” boxes. I have always hired on the basis of intellectual capacity, motivation and transferable skills. I was seldom able to find people with directly relevant experience and turn them into international electricity lawyers, so an excited engineer working in South Africa who spoke Russian was a good answer. Women can do this too; we should not worry about moving from a square hole to a round one.

Dialogue | Sep/Nov 2015

LEAD THE CHANGE THROUGH INNOVATION 3 tracks and 34 sessions to choose from! 26 speakers including:

Dialogue readers: Claim ÂŁ150 off your registration this month - use code DIA150

FIND OUT MORE: www.hrct15.com

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