I by IMD Magazine - Preview Issue III

#03 September 2021

ETHICAL OIL

ASTRAZENECA

NATURE POSITIVE THE CASE FOR ZOOS

IMPACT VALUE

PEOPLE, PLANET, PROFIT

SUSTAINABLE ACTION

CEO DIALOGUE

FOLLOW THE STOICS

FUTURE OF FOOD AND FARMING

ZERO-CARBON SHIPPING

20 CHF

COBALT’S HUMAN COST

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[ Foreword ]

The time for action is now

W

Illustration: Jörn Kaspuhl, Coverphoto: Jennifer Latuperisa Andresen, Unsplash

e have wasted so much time. That was my feeling when I read the media coverage of the latest report by the Intergovernmental Panel on Climate Change.

Yes, climate models are better and our understanding of the human impact on the earth’s ecosystems is vastly improved. But for more than two decades we have known what Al Gore poignantly called an “Inconvenient Truth” – that we must decarbonize the global economy to avoid a climate disaster.

Against the backdrop of floods and burning forests, and fueled by the rapidly changing expectations of customers, employees and investors, many CEOs have moved the need to drastically cut emissions to the top of their agendas. It is hard not to be inspired by the groundbreaking innovations and bold commitments that firms such as Maersk, DSM or Lundin Energy have undertaken and that we are spotlighting in this issue. We have always known, or at least believed, that when business takes climate change seriously, real change is possible. The problem is that we have wasted so much time. Had concerted efforts begun at the turn of the millennium, had governments put in place then clear policy frameworks, our path to net zero could have been smooth and gradual, avoiding major dislocations. Now we must take much bolder action to transform industries and our way of life more quickly and on an ongoing basis, as Amanda Williams, Gail Whiteman and John Parker explain in this issue. And we must go beyond curbing emissions. As Business for Nature director Eva Zabey underscores in her contribution, setting measurable, science-based targets for restoring natural ecosystems must be part of the corporate sustainability agenda.

Leaders know that lamenting missed opportunities is not helpful. Instead, we must channel what Martin Luther King in a different context called the “fierce urgency of now”. With the US having rejoined the Paris Climate Accord and European governments announcing ambitious new climate goals in anticipation of COP 26 this November, the time for action is now. This includes IMD. Having previously launched a program on Winning Sustainability Strategies, we are introducing this fall our new Leading Sustainable Business Transformation under the leadership of my colleagues Knut Haanaes, James Henderson and Natalia Olynec. About a dozen IMD faculty will contribute, drawing on their own applied research and fresh insights from practice. In addition to helping senior executives transform their industries, we also want to ensure that the next generation of leaders has the leadership skills and tools for this moment. Therefore, with the help of the World Business Council on Sustainable Development (WBCSD), we are reimagining the IMD MBA curriculum and placing sustainability and responsible leadership at its core.

You will be inspired by this third issue of by I by IMD and the leaders featured in it, from Zurich Zoo’s young CEO Severin Dressen to DSM co-CEO Geraldine Matchett and Peter Bakker, the long-time WBCSD CEO. Sustainability is a leadership challenge. “You can't turn back the clock. But you can wind it up again,” alpinist and fitness pioneer Bonnie Prudden once said. Let’s not waste more time.

We don’t have it.

David Bach, Dean of Innovation at IMD

September 2021 • I by IMD 1

[ CONTENTS ] 04 [ In Good Company ]

The use of innovative software has massively disrupted the restaurant business, but that’s just for starters, writes Jerry Davis.

06 [ Conversation piece ]

Zurich Zoo, and others like it, have a vital role to play in animal conservation, its dynamic young director tells David Bach.

10 [ Sustainable action ]

The switch to electric cars is fueling demand for cobalt, a vital material in batteries. But there is a human cost that cannot be ignored.

52 28 [ Sustainable action ]

Even in adversity, the independent oil company Lundin emerged stronger after staying true to its sustainability principles.

30 [ Sustainable action ]

Everyone involved in the food supply chain needs to help farmers deal with the massive changes needed to preserve the ecosystem, says Geraldine Matchett of Royal DSM.

34 [ Sustainable action ]

Urgent action is needed to build a “nature positive” economy to stave off a potential $10 trillion disaster, warns Eva Zabey.

17 [ Sustainable action ]

Zero-carbon shipping is logistically difficult, but not impossible. Mads Peter Zacho, an expert in the sector, explains what needs to be done.

22 [ Sustainable action ]

Business leaders must get ready to face constant change and disruption if they are to meet the sustainable development targets set out by the United Nations.

27 [ In the mind's eye ]

17

George Kohlrieser explains the importance of personal sustainability and the way to achieve it.

2 I by IMD • September 2021

36 [ Sustainable action ]

Impact investment is a force for good, but we need a way of assessing its true cost and value, argue John Elkington and Sonja Haut.

41 [ CEO dialogue ]

In an exclusive I by IMD interview, AstraZeneca CEO Pascal Soriot says he has “zero regrets” over the difficulties surrounding the company’s COVID-19 vaccine.

45 [ Office life ]

Alyson Meister is at the Help Desk to offer advice

on returning to the office after the pandemic, and how to share your success with others.

46 [ Leadership ]

The ancient philosophy of the Stoics offers valuable lessons for today’s business leaders, writes Massimo Pigliucci.

Photos: Zoo Zürich, Goran Basic, Eelias, Unsplash, Illustration: Jörn Kaspuhl

06

48 [ The human factor ]

Choosing the “best” candidates does not always result in the best outcome, Chengwei Liu explains why random selection can reap a diversity bonus.

52 [ The leading edge ]

What makes an exceptional leader? Michael Watkins uses the principles of physics and psychology to come up with a definition, the Energetic Leadership Model.

10

55 [ Office life ]

Photos: Kin Li, Unsplash, Shutterstock, Michael Robinson Chavez/The Washington Post via Getty Images, Peter Strelitski, Simon Dawson/Bloomberg via Getty Images, Jan Kopriva, Unsplash

In the wake of the pandemic and the advent of homeworking, a handy flow diagram explains how to make the most of the “new normal”.

36

22

Have the courage of your convictions, even if you are proved wrong. Howard Yu shares the secrets of being a good forecaster.

28 34

41

66 [ Counterpoint ]

69 [ Preview ]

30 56 [ CEO dialogue ]

The transition from CEO to Chairman can be tricky.

Gilbert Achermann, a man who made just such a move, explains how to make a success of it in an exclusive I by IMD interview.

60 [ World view ]

The policies that will lead to a sustainable world are the same ones that make nations competitive, explains Arturo Bris.

62 [ The forecaster ]

The vaccination program against COVID-19 is a good thing, but making immunization compulsory may not be, writes Josef Joffe

Today’s leaders need to develop both sides of the brain to become “ambidextrous” in their short and long-term decision making, explain Misiek Piskorski and Ric Roi. Join us in the December issue of I by IMD to find out more about leadership progression in action.

September 2021 • I by IMD 3

[ In good company ]

Software is gobbling up the restaurant business, it’s a taste of things to come

The rise of GrubHub and Deliveroo is changing the way we eat, but it also heralds a radical shift in the way we understand the economy, writes Jerry Davis

“Over the next 10 years,” he added, “I expect many more industries to be disrupted by software, with new world-beating Silicon Valley companies doing the disruption in more cases than not.”

A decade later, Andreessen’s vision has come true. Information and communication technologies (ICTs) have transformed how companies raise capital, recruit and manage labor, engage their suppliers and distribution channels, and coordinate their internal activities. In the next 10 years, we may see the company itself evaporate in favor of software-based coordination, as the basic categories we use to understand the economy (for example, employee, firm, industry and nationality) fall apart.

We are starting to see this in perhaps the oldest industry of all: restaurants. Accelerated in part by the COVID-19 pandemic and the rise of app-based food delivery services, the restaurant industry may be a portent of a future without firms. The pervasive spread of the smartphone since 2007 has meant that much of our social life is intermediated by a screen. The pandemic greatly accelerated this shift, particularly during lockdowns, as much of the population went to work or attended school via Zoom, and shopped through Amazon, Doordash or Deliveroo. Those of us living in Silicon Valley grew accustomed to checking the air quality index and COVID-19 prev4 I by IMD • September 2021

alence rates before leaving the house.

Our knowledge of the world outside our door often came exclusively from apps.

This near-universal online intermediation was great news for a few Big Tech companies. By July 2021, the combined market values of Google, Amazon, Facebook, Amazon, and Microsoft made up one-third of the value of the S&P500, and a handful of billionaires galloped toward becoming trillionaires. But a homebound population is a disaster for restaurants. In the US, 100,000 restaurants closed in the first six months of the pandemic, and employment in the industry dropped by five million jobs — roughly the population of Denmark — in a single month. For an industry that has existed at least since the time of Pompeii, this was the equivalent of the meteor that killed off the dinosaurs.

Many restaurants pivoted to takeout, and employment bounced back, although not all the way back. In-person dining was still too risky for many customers, and the proliferation of app-based delivery services — GrubHub, UberEats and DoorDash, among others — meant that nearly any kind of cuisine was available at home. Indeed, every member of the household could have their favorite, averting the inevitable fights over what’s for dinner. But if customers only know the restaurant from its online menu, why not diversify and cook multiple menus from the same facility?

Online-only ordering gave brands an opportunity to try out new identities. Chuck E Cheese, a restaurant better known for its rodent-themed children’s birthday parties than its cuisine, appeared online as Pasqually’s Pizza & Wings, magically destigmatized via the Web. And if you’re only going to sell takeout, why hang on to pricey real estate at all?

Illustration: Jörn Kaspuhl

I

n August 2011, Marc Andreessen, venture capitalist and co-founder of Netscape, published a widely read essay in the Wall Street Journal titled, Why Software is Eating the World. He argued that we were “in the middle of a dramatic and broad technological and economic shift in which software companies are poised to take over large swathes of the economy”.

Why even hang on to employees? Without ambiance, a restaurant’s real value add is a distinctive recipe book and some special techniques to put the parts together, along with a brand. Much like Nike or Apple, a restaurant can be thought of as a design-focused brand that could contract out production.

This is where the CloudKitchens model comes in. CloudKitchens is Travis Kalanick’s rebound from Uber: a commissary kitchen that enables restaurant brands to launch without building their own physical business. Diners order the food online and it arrives on their porch; what happens in between can be a black box. The company website describes the model as “smart kitchens for delivery-only restaurants”. Just as Foxconn and other electronics manufacturing services work with many more-or-less competing OEMs (the ironically titled “Original equipment manufacturers”), a universal commissary kitchen can prepare and deliver meals on behalf of many diverse “restaurants”.

What can we expect from universal commissary kitchens in the future?

First, any given facility will host many different brands/restaurants (essentially, menus). To enable maximum interoperability, brands will rely on Ikea-like instructions on screens for the assembly of menu items. Competitive advantage will go to menu designers able to create readily assembled items that consumers want (cf. Cheesecake Factory). We will see increased standardization of jobs for easy matching with workers, and most likely an increased reliance on temps recruited via apps like Pared (a kind of Uber for kitchen staff).

‘Much like Nike or Apple, a restaurant can be thought of as a design-focused brand that could contract out production’

A logical endpoint of the evolution of this model is commissary kitchens producing diverse menus from global designers, staffed by temps who are recruited by the shift, and with delivery provided by “self-employed” vendors. (Doordash is also piloting a combination commissary kitchen/ delivery service, the culinary equivalent of Fulfillment by Amazon.)

Wall Street has already rendered a positive judgment on this future. Yum China Holdings, the US-based parent of real-world restaurant chains KFC and several others in China, had revenues of $8.3bn, $784m in profits, and over 400,000 employees in 2020. Doordash had $2.9bn in revenues, losses of $461m, and just 3,279 employees globally. Yum’s market capitalization is $26bn compared with $65bn for Doordash. It seems our culinary future is platform-based and employee-lite.

As diners eventually crept back into real-world dining establishments, they discovered that most restaurants had adapted to the pandemic by posting QR codes in lieu of paper menus. In many cases, the QR

code enabled diners to order and pay directly via their smartphones.

Waiters and waitresses were replaced by food-runners who brought orders from kitchen to table, bypassing the usual chit-chat (and the required tip). Vendors claimed that shifting from waiters and menus to QR codes could reduce labor costs by 30 to 50% and increase the turnover of tables — an attractive option for most restaurateurs. Of course, many or most staffers could be recruited through Pared and others.

But a QR code and a generic kitchen open up intriguing possibilities.

Why not shift the menu every night to a different pop-up? It could be Italian on Tuesday, Sichuan on Wednesday, Mexican on Thursday, kim-chi burritos on Friday, Thai on Saturday. Why not turn the physical space into an immobile, cuisine-agnostic food truck, advertising its menu on social media, just as actual food trucks do? In this scenario, a “menu” is just a palette of food-production algorithms that happens to light on different facilities (a commissary kitchen for delivery; a QR restaurant for dining in).

According to the CORE economics textbook, a firm is an “economic organization in which private owners of capital goods hire and direct labor to produce goods and services for sale on markets to make a profit”. By this definition, is a delivery-only restaurant a firm? The menu designers own the intellectual property (the brand and the food prep algo); the commissary kitchen owns the capital equipment; labor comes from nominally self-employed contractors (Does a recipe count as directing labor?). Much the same applies to QR facilities.

This same conundrum will apply more broadly as software eats ever more of the world. Manufacturing is headed in the direction pioneered by electronics: universal fabrication facilities capable of implementing local “recipes” sourced globally. We are already seeing a glimpse of this future on Amazon, where dozens of cryptic brands have adopted the following business model: find a product category where name-brands are still able to charge a premium, design a plausible knockoff (using free-lance designers available online), contract with a manufacturer to produce it, and use Fulfillment by Amazon to get it into the hands of consumers. The nominal industry of the product – web cams, air purifiers, cosmetics – matters little, and the “firm” can consist of a couple of people in a dorm room with a web connection, good skills at search engine optimization, and access to credit.

It is as if the NBA were being replaced by pickup basketball games across the landscape.

Software is indeed eating the world — and for dessert, it is eating the basic categories we use to understand the economy, like employees, firms, industries, and nationalities. Hang on for what comes next. ■

Jerry Davis is the Gilbert and Ruth Whitaker Professor of Business Administration and Professor of Sociology at the University of Michigan’s Ross School of Business. His new book is Taming Corporate Power in the 21st Century.

September 2021 • I by IMD 5

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