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4 keys to improve Europe’s security and defense Interview with European Defense Agency Chief Executive Jorge Domecq
The multipolar century
Interview with Harvard Business School Dean Nitin Nohria
Openness and competitiveness can and should coexist Which countries are pro-growth and inclusive?
Economic performance and peace are mutually reinforcing
Are we perceiving more polarization than there actually is? IESE’s Kate Barasz tests our cognitive biases 34
“I’m optimistic that the inherent creativity of business leaders can generate answers to many of today’s most pressing economic and political challenges.”
Are our inferences about Trump supporters accurate? The more extreme the position, the more we may jump to conclusions.
“Europe must assume greater responsibility for its own security and defense. (We need to) engage with European industry, at all levels, to support innovation.”
THE BIG PICTURE Alternative ways to fund your business
SMART PICKS The truth of fiction
Remembering James G. March
HACK How not to lose your head in a bidding war
Flexibility for the sandwich generation
What kind of corporate venturing is right for you?
Opening the black box of artificial intelligence
In first person with IBM’s Marta Martinez
Search funds gain ground outside the U.S.
How we took our business global
The case of Kids & Us
Today’s leaders recommend how to get ready for tomorrow
Critical qualities necessary for the future
Buildings for education must be flexible
Designing workspaces that work
“The more information AI receives, the more it learns. Feed it poorly, and the system learns poorly. This makes it all the more important to know how the system is taught, in an ethical way.” Marta Martinez Alonso
KNOW How prepared is your business to make the most of AI?
The brains behind your choices
Rethinking the funnel for the omnichannel age
The 5+1 behaviors of innovation
By Javier Zamora and Pedro Herrera
By Elena Reutskaja
By Guillermo D’Andrea
By Paddy Miller and Thomas Wedell-Wedellsborg
54 FULL STOP 58
Chef Joan Roca reveals his recipe for success
Antonio Argandoña Editorial Director of IESE Business School Insight AArgandona@iese.edu
Efficient, imaginative & supportive I
f life is a journey, then uncertainty is our traveling companion. And its reach, today more than ever, is global. Uncertainty touches all sectors, in all countries, and just about every aspect of our business lives.
But we can’t afford to let uncertainty stop us. The stakes are high – and not just concerning next quarter’s results. In many cases, it is the very survival of our com-
panies and the livelihoods of the people who depend on them that are at stake. Yet, the solution to many of the problems currently facing the world is in our hands. Today’s socioeconomic problems are not so much the fault of globalization, politics or technology as a failure of leadership. As our main report makes clear, a better brand of leadership could help us manage uncertainty better. It requires making a few course corrections: clarifying your company’s purpose and mission; surrounding yourself with diverse team members who aren’t afraid to tell you what they really think; thinking about people’s potential, not their cost, and developing their capabilities; working as a team, always remembering that you form part of a wider community; and rounding it all out with a healthy dose of optimism. Another sound piece of advice comes from the late, great professor James G. March: before you can truly know any situation, you first have to know yourself and have clear ideas of your own. Customers, suppliers, business partners and leaders will constantly confound us: why do they do the things they do? The answer to that requires keeping an open mind – a willingness to understand the logic of what, from your point of view, may appear to lack any logic. Helping business people to break free of preconceived ideas and gain fresh perspectives on their challenges was the life’s work of IESE professor Paddy Miller, who passed away in September 2018. In loving tribute to him, we republish one of his classic articles, in which he advised us on how to help our employees not only to think differently but also to change their behaviors for the sake of innovation. To face the challenges that arise from working in an uncertain environment, we have to take new actions. Actions that are efficient but, above all, imaginative and supportive of people and communities.
The future starts now Watches that calculate calories, mechanical arms that cook for you or robots that teach you languages. Yes, the future is here and Gas Natural Fenosa is starting to write its own with more energy than ever. As a new company. More flexible, more agile and more attentive.
Gas Natural Fenosa is now Naturgy.
The big idea of the 20th century is under fire in the 21st. How to respond with foresight, intelligence and, above all, empathy.
oday is the slowest day of the rest
demand that are driving this turbulence. All
of your life. That’s the maxim that
around the world we see widening inequality,
Nokia board chair Risto Siilasmaa
soaring public debt, tightening liquidity and
lives by. “You probably thought
threats of an all-out global trade war. The Unit-
that the pace of change has never
ed States under President Trump seems bent on
been as fast as it is today,” he told a crowd gath-
upending the status quo by withdrawing from or
ered in New York City for IESE’s Global Alumni
renegotiating international trade deals, imposing
Reunion. “But you’re thinking about it the wrong
tariffs and adopting protectionist stances in pur-
way. Change will never be as slow as it is today.
suit of an unapologetically nationalist agenda.
If you think about it this way, you have more of a feeling that, ‘I need to act right now, and if I don’t
In this report, we draw upon the research of IESE
act today, it’ll be more difficult tomorrow.’ That’s
professors and the real-life experiences of three
the only way to navigate in this world.”
top executives from leading companies around the
Taking decisive action is key to surviving today’s geopolitical turbulence
world to suggest some of the ways that business people can act fast – but also coolly and wisely – in a world that is changing, as Siilasmaa puts it, “in more complicated and unpredictable directions.”
Building, developing, learning
What gets you out of bed in the morning? For Laxman Narasimhan, CEO of PepsiCo Latin America and Europe Sub-Saharan Africa, it’s the story of a Guatemalan farmer who he says told him, “I want to thank you for the fact that you help us grow potatoes here and you buy from us. What this does for me is that it prevents my son and his children from trying to migrate elsewhere. He can stay here and make a living.”
Siilasmaa should know. He joined Nokia in 2008 when the company was at its peak and by 2012
Narasimhan adds, “When you hear stories like
“the press was speculating about the timing of our
that, you realize the privilege of the platform you
bankruptcy. Not if, but when.”
have as a business leader. You can make a big difference in the lives of others.”
“It’s easy to say that Nokia was caught by surprise, but that’s not true,” Siilasmaa insists, noting
Guatemala serves as PepsiCo’s regional hub,
that Nokia “was very early with all the technolo-
where roughly half of the 6,000-plus people that
gies that ended up disrupting us. We can’t say we
PepsiCo employs in Central America are based.
didn’t foresee all this. We did; we just didn’t act.”
As PepsiCo’s Daniel Moisan told a Guatemalan newspaper recently, “You always have to think
Taking decisive action is one of the keys to surviv-
about the long term.” If you only manage thinking
ing today’s geopolitical turbulence. And it’s not just
about what may be expedient in the short term,
technological innovation and shifting consumer
“in the end that may take you to a place you don’t
10 | IESE Business School Insight | Winter 2018
What effect will Brexit have on investment?
want to go. With the long term, there’s no conflict between the social agenda and the business agenda. We have to think more about what’s coming, about what’s best for the future.”
While it may take a few years for the real impact of Brexit to reveal its true
Such thinking reveals an alternative way of tack-
effect, indicators so far predict that
ling perceived global problems. You can either re-
the attractiveness of the U.K. for ven-
treat, or you can follow Narasimhan’s stated mot-
ture capital and private equity inves-
to of “building, developing and learning,” which
tors is going to take a hit. Assuming
he explains means embracing new opportunities;
U.K. GDP growth of 1 percent below
recognizing the impact of your actions on others
what it would be without Brexit, a 20
and taking that responsibility seriously; and im-
percent haircut on U.K. capital market
proving yourself by, for example, learning anoth-
depth, and a 2 percent increase in
er language, such as Spanish, as Narasimhan has
U.K. unemployment compared with
committed himself to doing. In short, “it’s the ex-
what it would be without Brexit, the
perience of being out there and observing what’s
U.K. drops four positions from second
happening in the world.”
place, according to IESE’s ranking. Admittedly, the U.K. could adopt
Beware the globaloney
In observing, make sure you get your facts right.
measures to improve investment
This is a point that IESE’s Pankaj Ghemawat has
conditions between now and the
repeatedly stressed. “Don’t let the debate about
official withdrawal date of March 29,
globalization turn into guesswork. Study the data,”
2019. Still, a future loss of position
he writes. “Much of the rhetoric around globaliza-
tion has been hyperbolic, so the reactions we are now seeing need to be put into proper perspec-
4 5 6 7 8 9 10
tive. Before jumping on the bandwagon and pulling up the drawbridge, business leaders should make sure they have an accurate picture of what’s actually happening in the world today.”
In his article “Globalization Under Fire: How
Should Leaders Respond?” Ghemawat presents
convincing evidence that many of the claims on
which leaders are basing some drastic decisions –
from restricting immigration to repatriating busi-
ness activities – are simply unfounded, or what
he calls “globaloney.” The ills of globalization were never as bad as some people made them out to
2018 Venture Capital and Private Equity Country Attractiveness Index prepared by Alexander Groh, Karsten Lieser, Markus Biesinger and IESE professor Heinrich Liechtenstein.
be. And certain immutable “laws of globalization,” such as two countries sharing a common culture, language or border, will continue to be decisive
Winter 2018 | IESE Business School Insight | 11
Many of the claims on which leaders are basing some drastic decisions are unfounded
However, Ghemawat adds, “Closing borders does nothing to prepare a country to deal with automation and technological progress, which are the bigger threats to jobs than globalization. My research suggests that more international openness, connectedness and integration, coupled with domestic policies that remedy the side effects, would lead to more prosperity and well-being overall.”
A blend of global and local On a practical, managerial level, much of what we
factors that condition international business ac-
see and discuss as globalization isn’t, strictly speak-
tivity, regardless of the politics of the day.
ing. “A lot of what we see today is really a blend of global and local,” says PepsiCo’s Narasimhan. “At the
Citing data he helped collect for the last DHL
end of the day, we are local players in 200 countries
Global Connectedness Index (www.dhl.com/gci),
around the world. So, we need that local face. We
Ghemawat writes: “It seems odd to blame global-
need to be Nigerian in Nigeria, Kenyan in Kenya,
ization for the high levels of inequality in the U.S.
Peruvian in Peru, Brazilian in Brazil. We really have
economy. Compare the U.S. with the Netherlands,
to find a way for us to ensure that we represent not
the most globally connected country according to
just global but also local, which requires getting very
our index. The Netherlands has a trade-to-GDP
deep in terms of what we need in that country.”
ratio six times that of the U.S., yet the Dutch still manage to preserve a more reasonable income
In this regard, Narasimhan seems to be describing
distribution. What’s going on? I’d say that domes-
one of three time-tested strategies identified by
tic policy is the primary driver of distributional
Ghemawat for a global company to boost revenue
outcomes within countries. And even if globaliza-
and market share: adaptation of your products and
tion were to blame, it doesn’t follow that protec-
services to local tastes and needs. (Aggregation and
tionism would be a better or less expensive solu-
arbitrage are two other strategies.)
tion to address economic inequality.” “In order for us to compete in a place like China,”
This is not to say that income inequality isn’t real
Narasimhan explains, “first we have great Chinese
or that business leaders don’t have to pay atten-
talent that powers our business, but also local part-
tion to the anger that’s feeding anti-globalization
ners who help us work through local ecosystems to
sentiment. “A large swath of the population in ad-
be relevant in the many Chinese sub-geographies
vanced economies fears getting left behind. At the
beyond Shanghai and Beijing. Consumers do like
same time, corporate profits are running at historic
strong global brands that communicate quality but
highs. Clearly there are some distributional issues
you can’t just be a ‘global’ global brand. Some of our
that need to be fixed. This requires policy changes
advertising is extremely Chinese and appeals to the
related to government safety nets, the minimum
Chinese consumer in ways that are very relevant to
wage, taxation and job retraining programs.”
their culture and how they live.”
12 | IESE Business School Insight | Winter 2018
A global strategy framework According to Pankaj Ghemawat, the right strategy is often a mix of three strategies, depending on industry conditions, competitive factors, firm capabilities and organizational structure.
according to local requirements or
scope by creating regional or global
national or regional markets; e.g.,
efficiencies; e.g., standardizing a
leveraging lower labor costs or
portion of the value proposition, or
better tax incentives in one country
grouping together development and
versus another, as is done through
outsourcing or offshoring.
Create value by changing your offer
Achieve economies of scale or
Exploit the differences between
Winter 2018 | IESE Business School Insight | 13
Managing in the midst of global uncertainty
In addition to being a paranoid optimist, Risto Siilasmaa offers these tips for managing in today’s climate. 1. BEWARE OF THE TOXICITY OF SUCCESS
2. TRY TO MEASURE IT
Metrics and KPIs create a common vocabulary, so you can talk about the issues openly.
Be careful if you start to focus on secondary topics rather than the core of your competitiveness. What are your greatest assets? What are your customers thinking? Spending less time on those topics should be a red flag.
3.THINK LONG TERM
Don’t fall into the trap of just putting out fires. Stop to think, what does this mean? What are the actual big things that I should be worried about?
4. ALWAYS HAVE ALTERNATIVES
If you only have one plan, nobody wants to give you bad news about it, because then you’ll have nothing left. But if you have five plans, it’s only one of five.
14 | IESE Business School Insight | Winter 2018
5. DON’T BE CAPTIVE TO ROLES
Can the CEO be challenged? It’s so important to be able to challenge everybody, with respect, in a trusting environment.
“You’ve got to find that appropriate balance (be-
Ever since the ’80s when companies began adopt-
tween local and global),” he stresses. “This is certain-
ing lean approaches to inventory management to
ly one of the big things we’re keeping our eye on.”
boost efficiency and reduce waste, a just-in-time logic has taken hold across many areas of man-
As the Executive Board member responsible for
agement. At times this logic may manifest itself in
SAP’s Global Customer Operations in Europe, Af-
less helpful ways: a short-term bias in manageri-
rica, Middle East and China, Adaire Fox-Martin
al decision-making, quarterly capitalism, reduced
describes how SAP structures things both locally
CEO tenures, and the reduction or elimination of
and globally. “It’s important that each geography
country-level managers, and with that, the loss of
predominantly features local talent. The team
invaluable local market insights. Consequently,
must reflect the community they serve. That team
today’s geopolitical climate – where global supply
needs to take an element of corporate strategy
chains and freedom of movement are suddenly be-
and then decide how to localize the corporate pri-
ing disrupted – may come as a shock to the system.
orities in a locally relevant context.” To minimize the fallout, traditional strategic planBut it’s not just what happens at the local level:
ning is not enough, Rosenberg says. All too often,
“People also want to understand what their peers
strategy development is reduced to an annual ex-
across geographies are doing to streamline busi-
ercise dictated by urgent operational concerns.
ness, digitalize a process or transform customer
Or it might get outsourced to a consulting firm,
whose recommendations are treated as additional “food for thought” on top of a strategic direc-
This is where the cross-pollination or aggregation
tion already decided. Frequently missing is any
of know-how “really adds value for everybody,”
profound reflection on management’s and the
Fox-Martin believes. “The global sharing process
board’s assumptions about the current state and
and the thought leadership that we bring in speak
future direction of the world.
to what our customers would like to learn from us. We always do it in a context of the jurisdiction
As such, Rosenberg recommends scenario plan-
in which we operate. Even though global, for SAP
ning – not to be confused with forecasting. “Fore-
deep local relevancy is imperative.”
casting can be an outstanding tool for projecting
demand in relatively stable environments,” he says. “But when it comes to strategic planning,
Having this deep (local) and wide (global) expertise
forecasting is woefully lacking. For proof, look no
is vital for detecting signals in the market that might
further than the failure of the business communi-
have major ramifications for your business. IESE’s
ty to foresee Brexit or Trump’s election.”
Mike Rosenberg has written extensively about this aspect in his book, Strategy and Geopolitics: Under-
Siilasmaa describes how scenario planning helped
standing Global Complexity in a Turbulent World.
the board bring Nokia back from the brink of
Winter 2018 | IESE Business School Insight | 15
Deep (local) and wide (global) expertise is vital for detecting signals in the market that might have major ramifications
bankruptcy: “On the old board, if we saw the future as a dark, unknown landscape, we’d look for one well-lit path and that would become the official plan. But when that plan failed time after time, we realized that the well-lit path was the one not to follow – we’d have to go outside the path. With scenario planning, we identified various ways that we could go forward; the dark landscape was crisscrossed by several paths. And even if we didn’t walk down any of those paths exactly, we could go close to some of them and see what the terrain was like.
“The global sharing process and the thought leadership that we bring in speak to what our customers would like to learn from us. We always do it in a context of the jurisdiction in which we operate. Even though global, for SAP deep local relevancy is imperative.” Adaire Fox-Martin
SAP Executive Board member responsible for
Global Customer Operations in Europe, Africa, Middle East and China credit :
16 | IESE Business School Insight | Winter 2018
Global talent by numbers Culturally intelligent leaders
It meant thinking and talking about the worst outcomes, and preparing for them.” He calls this “paranoid optimism” – which forms part of the title of his new book on Transforming Nokia: The Power of Paranoid Optimism to Lead Through Colossal Change. In it, he details the company’s remarkable reinvention as a leading player in the global wireless market. “Paranoia actually creates a reason to be optimistic,” he explains. “Whenever you’re making a major decision, you should always appoint a Red Team or a Cassandra who has the right to say negative things and the duty to find the holes in the logic. It’s a good practice. At the same time, because you’re taking actions to preempt and prevent the worst outcomes, you can be optimistic that you’ll achieve some good outcomes.” Doing this is also a good means of making sure
AXA surveyed employers in eight countries on the need for a globally mobile workforce. The conclusion? More, not less, globally proficient talent is needed.
“To build and manage global supply chains capable of weathering even the most turbulent geopolitical storms, companies need to take big steps in their people management,” says Rosenberg. In particular, it’s about recruiting, training and developing people with different backgrounds, not just those with the requisite business skills but also people
with liberal arts backgrounds, versed in history, po-
saw it as important
Ghemawat writes: “Firms should strive to cultivate
35% saw it as critical
litical science or Asian and Middle Eastern studies, for example.
a cosmopolitan corporate culture that can serve as connective tissue across a far-flung corporation. Partly it’s about formal culture-building activities, but it’s also about how you recruit, assemble teams, manage diversity internally, support specific initiatives and side projects, and encourage mobility (not just in terms of jobs, but traveling, living and working abroad). Education is a lever for boosting
that bad news reaches the right ears. One of the
cosmopolitanism both at the corporate and the
problems at Nokia, he explains, “was that bad news
societal levels. Multiple studies have shown that
didn’t flow to the top. People were afraid to deliver bad news. The top management didn’t know where the fires were burning or whether there were any fires at all. And the board definitely didn’t know.” Siilasmaa adheres to this new twist on an old re-
The desire to work abroad has fallen from 64% in 2014 to 57% in 2018, according to a Boston Consulting Group survey of 366,000 workers in 197 countries.
levels of nationalism and suspicion of outsiders are higher the lower the levels of education in a country. Given this, it makes sense to delve into educational content that can support a more cosmopolitan outlook.”
frain: “No news is bad news, bad news is good
The more divided the world becomes, the more we
news, and good news is no news.” He unpacks what
need culturally and emotionally intelligent busi-
this means: “No news is the worst kind: you’re shut
ness leaders able to build bridges of understand-
out. And bad news is actually good news, so when
ing. B. Sebastian Reiche, head of the Managing
somebody comes to you with bad news, be careful that you don’t let your frustrations show, because next time that person may think twice before telling you. Instead say, ‘Thank you for coming to me. Now we can think about what to do.’ And if you’re
decline in those willing to go abroad
People in Organizations Department at IESE, has researched and written about the need for more culturally sensitive leaders able to navigate the complexities of our increasingly polarized world.
doing things right and getting good results, that
SAP’s Fox-Martin is a good example. Original-
really shouldn’t be news at all.”
ly from Dublin, she began her career in London
Winter 2018 | IESE Business School Insight | 17
before moving to Australia. She worked for nearly
your customer’s shoes, but in the shoes of your
two decades in Asia before moving to Germany in
customer’s customer, and understand how that
2017 to take up her current role. “These cross-cul-
person is experiencing the business. And then,
tural experiences give you a completely different
based on that experience, bring insights into
lens,” she says.
your conversations with the customer as a way of helping them achieve a better outcome. That,
“There might be things that you don’t like about
I believe, will become a differentiating element
country A, B or C, but it’s important to focus on
the positive elements of each society. I’ve always adopted a position of being very observant, lis-
All of this requires more executive education and
tening more than I would speak and trying to
training, not just on specific cultures and languag-
understand the nuances. Because if there’s an im-
es, but increasingly to “help people become more
plementation of a strategy that you want to drive
conscious about their own cultural identities,” says
globally, you have to be culturally aware and a lot
Reiche. In research conducted with IESE colleague
more sensitive to understanding the local ele-
Yih-teen Lee et al., he suggested that cross-cultur-
ments that are essential to making that strategy
al training could include “modules that help peo-
effective in given markets.”
ple make sense of ‘who they are culturally,’ seeing alternative ways in which identity can be experi-
The more divided the world becomes, the more we need culturally and emotionally intelligent business leaders able to build bridges of understanding
enced, and understanding the impact of context and upbringing on their own identity development, so that individuals can develop and display desirable identity patterns in multicultural teams and in global work more broadly.” Issues of identity have moved to the fore, something that the political scientist Francis Fukuyama discusses in his latest book Identity: The Demand for Dignity and the Politics of Resentment. “For the most part, 20th century politics was defined by economic issues. Politics today, however, is defined less by economic or ideological concerns than by questions of identity,” he writes in Foreign Affairs. “All over the world, political leaders have mobilized followers around the idea that their dignity has been affronted and must be restored. (This) resentment over indignities has become a
Leading in the world today, perhaps more than
powerful force… Identity politics is no longer a
ever, requires a high degree of empathy. “I
minor phenomenon… Instead, identity politics
think an empathetic approach is essential,” says
has become a master concept that explains much
Fox-Martin, “to be able to put yourself, not just in
of what is going on in global affairs.”
18 | IESE Business School Insight | Winter 2018
Given these undercurrents, it’s paramount that executives are sensitized to the delicate dynamics inherent in multicultural teams and global work environments. Reiche stresses this point in Readings and Cases in International Human Resource Management: “One of the greatest problems is the lack of a global perspective on the part of a firm’s managerial cadre. As a member of one culture, the manager tends to see life from that perspective, to judge events from that perspective, and to make decisions based on that perspective. In an increasingly global business environment, such a perspective breeds failure.” What’s needed are more leaders prepared to take a cooperative rather than me-first approach to help rebuild the foundations of society. In this effort, global businesses should take the lead. This is a point that Klaus Schwab, founder and executive chairman of the World Economic Forum, made at Davos 2018. The world is experiencing a social crisis “every bit as threatening to the health of our future as the financial crisis was a decade ago,” he
Where will you be in five years? PepsiCo’s Laxman Narasimhan says the answer to this question greatly depends on the people you bring with you, paying attention to these five keys:
1. Unrelenting curiosity
Not just being curious enough to
detect patterns across countries, but unrelenting in going beneath the surface to find the deeper reality.
Knowing which of the 10 plates you’re spinning to let drop, and when inaction is, in fact, action.
Particularly the way the new genera-
stated. “If the system is broken and the social con-
tion of workers express themselves,
tract is failing, business leaders around the world
including nonverbal forms.
must play a leading role in repairing them.” Schwab issued this rallying cry: “Over the past de-
Not just between work/life but
cade, the concerted international effort to deliv-
increasingly between performance
er quantitative easing to our economies has been
successful in rescuing us from the worst excesses (of the global financial crisis). This time, to create a shared future in a fractured world, we must focus
Recognizing “the beauty of strength”
on the qualitative impact of our decisions. What we
that comes from leading in turbulent
truly and urgently need is a new social contract that
provides real ‘qualitative easing’ for all those who have been left behind. We have it in our power to
address the perils of a fractured world, but we will succeed only if we join our forces and work together – as joint stakeholders in our global society.”
Winter 2018 | IESE Business School Insight | 19
What’s needed are more leaders prepared to take a cooperative rather than me-first approach to help rebuild the foundations of society As Reiche has written in his blog on cross-cultural
Read the executive dossier “Globalization Backlash: How to Stay Grounded” in IESE Insight Issue 35, Fourth Quarter 2017, containing the articles “Globalization Under Fire: How Should Leaders Respond?” by Pankaj Ghemawat, “3 Keys to Shockproof Your Global Supply Chain” by Mike Rosenberg, and “Tips for Nurturing Global Leadership Talent” by B. Sebastian Reiche. Available from www.iesepublishing.com.
management and global leadership, the backlash
we’re experiencing today is not so much a fail-
“Navigating Between Home, Host and
ure of globalization as a failure of leadership – of
Global: Consequences of Multicultur-
failing to bring people along with us as our busi-
al Team Members’ Identity Config-
nesses change and evolve with the times. Business
urations” by Yih-Teen Lee, Aline D.
leaders must do better.
Masuda, Xin Fu and B. Sebastian
Reiche. Academy of Management It seems obvious that closing borders is not a re-
Discoveries 4, no. 2 (2018): 180-201.
cannot be rolled back, it’s just as obvious that it
Readings and Cases in Internation-
does need a course correction. “Hence, leaders
al Human Resource Management:
need to work together to distribute the benefits of
Sixth Edition, edited by B. Sebastian
globalization more equally and deal more explic-
Reiche, Günter K. Stahl, Mark E. Men-
itly with the costs of globalization,” Reiche says.
denhall and Gary R. Oddou (Rout-
“It starts by regaining people’s trust, restoring a
ledge/Taylor & Francis, 2017).
positive outlook and creating a future vision that Transforming Nokia: The Power of Paranoid Optimism to Lead Through Colossal Change by Risto Siilasmaa (McGraw-Hill, 2019). www.paranoid-optimist.com.
20 | IESE Business School Insight | Winter 2018
alistic, long-term solution. Yet, while globalization
Winter 2018 | IESE Business School Insight | 21
Dean of Harvard Business School since 2010. Co-author or co-editor of 16 books, including the Handbook of Leadership Theory and Practice with Rakesh Khurana.
The 21 century will be a multipolar century st
eople have said that the 19th century was the European century, the 20th century was the American century and the 21st century will be the Asian century. Harvard Business School Dean Nitin Nohria doesn’t buy into that. He
thinks the 21st century will be “a multipolar century.” Here he comments on globalization’s accomplishments and short-
comings, and calls upon business leaders to focus their energies on coming up with entrepreneurial solutions that offer hope and a future to those who feel left behind. What do you mean by a “multipolar” world? It is a world in which multiple economic powers will end up being simultaneously important. This is very different from a world in which the Western economies used to dominate. How do we get ready for a world like that? First and foremost, we all need to have intellectual humility. If we only focus on American or European management practices, we aren’t preparing ourselves for innovation that is coming from China, India, Brazil, Africa, and other parts of the world that are fast emerging on the global stage. We need to be much better at sensing and embracing innovation that can occur anywhere in this changing world.
Quim Roser Winter 2018 | IESE Business School Insight | 23
The global economic crisis and the rise of technology and automation have opened up fault lines in the success story of globalization. Is erecting barriers to protect your own labor the answer to the problems of inequality we’re experiencing? I don’t think that encouraging protectionism will help. The
behind by globalization. Moreover, they now are facing a
forces of technology and globalization are too strong and
future with AI and machine learning that looks even worse.
too beneficial to be disrupted in this manner. We need to re-
We have to find a way of presenting these individuals with a
member the lessons from economic theory and economic
more hopeful picture.
history that trade barriers will only make things worse. We will have to ask, “Do we have a responsibility to provide You can’t protect workers from global competition without
a living wage for our employees?” Because in the absence of
making the nation as a whole worse off. If someone else is
holding our feet to the fire and saying, “We’re going to pro-
going to be more productive or cost competitive, there’s no
vide a living wage,” it’s easier to say, “I’m just going to shift
reason for anyone to pay higher prices for products that are
production offshore. I’m going to have a call center and do all
made (and can be bought) much more cheaply than if they
my manufacturing outside of Europe or the United States.”
were made locally. The real problem is that we haven’t seen
We have to be more imaginative than that.
sufficient productivity growth in the advanced economies. That is the issue we should be trying to address.
What do you mean by imaginative? Think of Henry Ford. He created the assembly line at Ford
But if labor keeps getting a declining share of the total
Motor Company. He also raised the minimum wage of his
pie of economic opportunity, won’t we end up with a se-
company’s workers significantly. He did so voluntarily and
ries of political concerns that will actually constrain the
then found a way to make sure that the wage increase was
license that business needs to operate?
sustainable by matching it with growing productivity and the
Many are beginning to ask this very important question.
rising demand for cars.
We can’t ignore those who at one point enjoyed growing prosperity but now feel they have stagnated and been left
That’s entrepreneurship. We tend to think of entrepreneurship as creating a new company, but entrepreneurship also is creating a new business model or a new management practice.
“The societal problems we’re facing today require creativity and imagination”
What might such an innovation look like today? I’m not sure, but we have to find a business model that allows us to increase productivity so that we can grow wages for labor in the advanced economies – particularly labor that has low and middle skills. So, what is it we can do? We need to start analyzing jobs not in terms of starting salaries but in terms of their advancement potential. Much of what we’re teaching today may get people placed in jobs but doesn’t allow them to make upward progress. We need to start creating jobs and helping people develop the relevant skills over time that provide greater prospects for upward mobility. We also need to start asking how we can help people who feel stuck today feel more hopeful. We must help the people who
24 | IESE Business School Insight | Winter 2018
“We must help the people who feel left behind find a path toward a future in which they can see a rising tide for themselves”
Southwire operating in one of the industrial towns in the heartland of the United States. It has actively partnered with a local community college to develop the skills of the local workforce – to make these individuals more employable in its own plants and in other companies. Southwire’s investment in reskilling the workforce in its local economy (rather than just moving to another location) has led to an economic revival that makes everyone in the region feel more hopeful. We have begun to study and write cases on many other such examples of local economic revitalization. We’re trying to determine to what extent these case studies are generalizable. Are partnerships between community colleges and companies a way to regenerate middle skills, or is this a limited solution? How many other parts of the Unit-
feel left behind find a path toward a future in which they can
ed States might this work in? What models might work in
see a rising tide for themselves.
This is the dark side of the globalization story. Not every-
We need to scan the world to see what experiments compa-
one has perceived the benefits. Is this something that
nies are running. I’m optimistic that the inherent creativity
our political leaders understand?
of business leaders – and the role of business schools in tap-
No, I don’t think so, otherwise we wouldn’t have been sur-
ping into that creativity to study and spread it – can gener-
prised by recent election results in so many different coun-
ate answers to many of today’s most pressing economic and
tries. In all these countries, there is a significant group of
people who feel that globalization made them worse off and less hopeful about their futures. Now that group has started to
What’s your recommendation for business leaders?
exercise its political voice – and not just in the United States.
Business leaders need to recognize that they have a real stake
We’re seeing similar reactions with Brexit, in recent European
in solving the thorniest social problems. They can no longer
elections, in Brazil, and even in some Asian countries.
leave these problems to governments or civic organizations. Indeed, they must take the lead to actively partner with other
It’s not enough to point to the aggregate benefits of global-
institutions to help solve these social problems.
ization – to the hundreds of millions of people around the world whose standard of living has been raised in the last
The societal problems we’re facing today require creativity
three decades. That means nothing to the individual who no
and imagination; they’re neither unsolvable nor someone
longer has a job and has seen his or her once thriving com-
else’s responsibility. We must view them as part of our jobs
munity devastated. Now these individuals are exercising
and apply our utmost energies to overcoming them.
their political voice in every part of the world and we had better pay attention. Do you see any signs of hope? Yes, the most hopeful signs come from innovative leaders and their companies. For example, there’s a company called
From “Pressing Issues in Today’s World,” one of a series of events organized to commemorate the 60th anniversary of IESE, in which Nitin Nohria, IESE Dean Franz Heukamp and Núria Mas, head of the Economics Department at IESE, discussed the role of companies and top executives in facing challenges such as globalization and inequality.
Winter 2018 | IESE Business School Insight | 25
WEF: Openness must be “Openness must be compleme complemented by inclusion WORLD ECONOMIC FORUM
To promote innovation, market efficiency and economic growth, the WEF cites key indicators of openness – including low tariffs, a lack of trade barriers and the ease of hiring foreign labor. Yet, high tariffs, trade barriers and restrictions on foreign labor are currently being adopted by some governments to tackle the adverse effects of globalization – often, ironically, in the name of national competitiveness. The WEF acknowledges that globalization has coincided with growing income inequality within some countries, but argues that one doesn’t necessitate the other. Openness and competitiveness can and should coexist with strategic measures to make sure certain workers are not left behind.
The WEF Global Competitiveness Report 2018 and The Inclusive Development Index 2018. IESE’s International Center for Competitiveness provides input on the situation in Spain for preparation of the annual report in collaboration with the World Economic Forum.
Global Competitiveness Index 2018.
71.2 71.0 0
26 | IESE Business School Insight | Winter 2018
The WEF report insists there’s “no inherent trade-off between
ented by inclusion”
competitiveness and inclusion... it is possible to be pro-growth and inclusive at the same time.” With that in mind, the WEF launched a
new metric, the Inclusive Development Index, to measure countries’ progress on sustained economic inclusion.
Inclusive Development Index 2018.
Although 16th in global competitiveness, Norway is the best performing advanced economy in terms of making broad-based progress in living standards.
Australia, 14th in global competitiveness but 9th in inclusion, is the only non-European economy in the top 10 for inclusion.
The most globally competitive economy, the United States, and the United Kingdom don’t even make the top 10 for inclusion.
6.05 Switzerland, the
Netherlands, Sweden and Denmark make the top 10 in both rankings, for competitiveness and inclusion.
Small European economies dominate the inclusion index.
UK wealth inequality has been increasing over the past five years.
Cross-border terrorism and tensions in the East, not to mention the United Statesâ€™ changing priorities and growing isolationism, have put regional defense issues higher on the European agenda. â€œEurope must assume greater responsibility for its own security and defense,â€? Jorge Domecq asserts. Here are four action items to build a stronger European defense.
1. Integrate and collaborate
“The current fragmentation of the European defense indus-
try and market is a big problem,” Domecq says. For example, while the U.S. military has just one type of frigate warship, one type of main battle tank and one type of armored vehicle, European armed forces use a large number of different frigates, tanks and armored vehicles. “We (in Europe) spent a little more than a third of what the U.S. spent (in 2017), but, according to some estimates, on the ground, we’re only capable of deploying about 15 percent of what the U.S. can deploy,” Domecq explains. Which is why the issue of more cooperation in Europe “is an existential issue,” in Domecq’s view. “If Europe wants to be a global actor going forward, we have to have greater defense integration.” Nevertheless, Domecq clarifies that he is totally against industrial consolidation in Europe by decree. “It will never work,” he says. Success happens “when member states come together, agree on capability priorities and military requirements, and then turn to the industry to develop them.” For a positive example of this kind of collaboration, Domecq cites the Meteor missile. “At present, there is one European company involving six countries with missile
European Defense Agency Chief Executive since 2015. Previously, he served as Ambassador of Spain to the Philippines and director of the Private Office of the NATO Secretary General, among other roles.
defense technologies. That has ensured that Europe has a third of the global share of the business of building missiles. If they hadn’t cooperated, we’d be out of business.” Now, as a further means to deepen defense cooperation, 25 EU member states have signed up to the Permanent Structured Cooperation (PESCO). Only Denmark, Malta and the United Kingdom have decided to opt out. Launched in December 2017, PESCO is a key step forward because of the binding nature of the commitments made by the partici-
“In defense, we spend too much on personnel and too little on innovation”
pating countries to align and synchronize defense plans and
missile collaborations. By contrast, there have been “no new
maximize the effectiveness of spending. Countries enter
major collaborative defense programs in the last decade.”
into PESCO projects and the attached commitments voluntarily but, “like in a marriage,” with an ambition to respect the
The result is “lower investment levels and fewer collaborative
commitments and make it a success.
projects.” Meanwhile, European armed forces spend almost
2. Keep pace with technology
“New emergent technologies will change how we organize defense and its industry,” says Domecq, citing these examples:
50 percent of their budgets on personnel. “In short, we spend too much on personnel and too little on innovation.”
4. Open up to nontraditional players
In many cases, SMEs and nontraditional defense companies
• Artificial intelligence will be incorporated into both mil-
“are the source of new innovative research and cutting-edge
itary and commercial unmanned and autonomous sys-
technologies.” This makes it “more urgent than ever to draw on
tems, which could, in the future, make them capable of
and attract SMEs and nontraditional defense companies into
undertaking tasks and missions on their own.
the industrial base,” says Domecq.
• Big data can help with simulation designs and results. • 3D printing will revolutionize the way we produce tools
However, there’s hard work ahead. For defense, Domecq ex-
and parts as well as how we organize logistics by provid-
plains, when you’re in a warfare environment, you can’t af-
ing parts on site and on demand.
ford to have a faulty switch: “It has to work.” That can mean
3. Invest more in innovation
onerous trials and lead-times that go against the usual frenetic rhythm of startups. Moreover, will the same companies
“Research and technology (R&T) are key for any modern de-
on the cutting edge today still be around to help with updates
fense,” says Domecq, noting that this requires investment and
and support in 20 years’ time? Another issue is the global na-
prioritization. A surprising fact is that, while overall defense
ture of today’s supply chains, where some links in the chain
spending is increasing, total defense-related R&T expenditure
might not comply with all security requirements.
fell by 22 percent from 2006 to 2016. (Meanwhile, total R&D spending is down 6.5 percent over the same time period.)
“Innovation can bring a lot, but there are many questions to be answered,” he says. What the European Defense Agency
Looping back to his earlier point about collaboration, Domecq
needs to do, in his view, is “engage with European industry,
laments that “in 2015, not even 8 percent of Europe’s defense
at all levels, to support innovation.”
R&T was spent collaboratively. This is the lowest figure in a decade.” (On a positive note: in 2016, Spain spent almost a
At this crossroads, Domecq believes that “if we can make Eu-
third of its defense R&T in collaborative projects.)
ropean cooperation the norm, based on agreed priorities, sufficient funding and innovative technologies, then there will be
It wasn’t always this way. The decades from the 1960s to the
a real step-change toward a European defense union.”
1990s saw various countries collaborating in many programs, including the Panavia Tornado and Eurofighter Typhoon combat aircraft as well as several successful helicopter and 30 | IESE Business School Insight | Winter 2018
Based on remarks made by Jorge Domecq during a visit to IESE’s Barcelona campus in 2018.
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Good for business
Economic performance and peace are mutually reinforcing: better economic performance assists in building peace, and vice versa.
The global state of peace The 2018 Global Peace Index (GPI) shows the world is less peaceful today than at any time in the last decade. For a country to move up the ranking, there must have been improvements across a broad range of pillars, whereas a fall could be triggered by just a few factors,
80. BURKINA FASO
87. MACEDONIA (FYR) 2058
CZECH REPUBLIC 1381
125. SOUTH AFRICA
129. SAUDI ARABIA
32 | IESE Business School Insight | Winter 2018
such as political unrest. Low peace countries are not necessarily places to avoid, provided they are making improvements on the pillars supporting peace. Of 163 countries ranked, we highlight 10 countries from each block, to give a snapshot of the global state of peace.
150. NORTH KOREA
source: Business & Peace 2018 and Global Peace Index 2018, shared as part of the IESE Global Leadership Series “Peace: A Macroeconomic Driver,” featuring Steve Killelea, entrepreneur and founder of the Institute for Economics and Peace. Go to http://visionofhumanity.org/ indexes/global-peace-index/
Peace by numbers
Pillars of peace
71 92 IMPROVEMENTS
A robust business environment springs from a background set of eight interconnected conditions.
countries were more peaceful in 2018 than in 2017
countries were less peaceful in 2018 than in 2017
0.27 OVERALL AVERAGE CHANGE (%)
GPI deteriorated 0.27 percent, the fourth successive year of deterioration
1. Well-functioning government
5. High levels of human capital
2. Equitable distribution of resources
6. Acceptance of the rights of others
3. Free flow of information
7. Low levels of corruption
4. Good relations with neighbors
8. Sound business environment
Effects of peace on business More peace increases efficiency on both the supply and the demand sides. Increased trust in governance and third-party arbitration is one of the main effects on the supply side. That means greater participation of businesses and labor, and improved logistical efficiency due to reduced corruption. On the demand side, more
peace translates into reduced frequency and impact of unexpected events, and greater incentive for investing and purchasing. Thatâ€™s important because, looking back over the past 70 years, per capita GDP growth was around three times higher in highly peaceful countries versus those with very low levels of peace.
Long-term growth trend for low and high peace countries
VERY HIGH HIGH LOW VERY LOW
As the graph shows, very high peace countries have sustained higher growth, with fewer and smaller fluctuations over the long term. GDP PER CAPITA GROWTH (%)
15.0 10.0 5.0 0.0 -5.0 -10.0 -15.0
Average per capita GDP growth (%)
2.8 2.0 1.6 1.0
Assistant Professor of Marketing at IESE. Visiting Assistant Professor at Harvard Business School.
Are we perceiving more polarization than there actually is?
hen Donald J. Trump was elected president of the United States, many people fixated on what could have motivated voters to choose him. Was it the promise to build a border wall to keep Mexicans out? Mass deportations of undocumented migrant workers? A ban on Muslims entering the country? Voters must have been swayed by his extreme views on immigration, people speculated, and therefore all Trump supporters must be racist xenophobes, they surmised. Is this generalized inference about Trump supporters accurate? Or, putting political leanings aside, might we be seeing a more basic cognitive heuristic at work? This is essentially what prompted a study by IESE’s Kate Barasz – working with Tami Kim (Darden School of Business at the University of Virginia in Charlottesville, U.S.A.) and Ioannis Evangelidis (Bocconi University in Milan, Italy) – to test cognitive biases in both political and nonpolitical contexts. In psychology, heuristics are those simple, efficient rules we tend to lean on in order to help us form judgments and make decisions regarding complex matters. Research has found that these sorts of mental crutches can produce erroneous inferences and influence broader beliefs, which makes understanding them important. For their paper, Barasz et al. designed seven studies to learn more about what they call the “value-weight heuristic” – that is, a tendency to overweight more extreme positions to arrive at quick judgments. In their first study, they looked at the assumptions that supporters of Hillary Clinton made about Trump voters, and vice versa, and considered their accuracy, just five days after the presidential election. Using Amazon’s Mechanical Turk crowdsourcing site to screen participants, 300 Clinton and Trump voters were asked about their reasons for voting and their assumptions about why others voted the way they did. The results offered initial evidence of a value-weight heuristic and its possible consequences. So, Clinton voters tended to believe that Trump’s extreme immigration policy was important in his supporters’ decision to cast their votes, yet Trump voters themselves put more weight on his economic policies, a less extreme issue. Winter 2018 | IESE Business School Insight | 35
Ask yourself… What business positions or people have I
What’s more, Clinton voters who surmised that Trump vot-
dismissed for their apparent “extremity”?
ers put more weight on immigration viewed Trump voters less favorably overall.
Might I have made erroneous inferences about them?
Consider: if someone believes in the border wall and a Muslim ban, they may well have voted for Trump. But it’s weaker,
What additional research could I
logically speaking, to assume that if they voted for Trump, they
do to gain a deeper understanding?
must support his extreme views on immigration. This is essentially turning the tables on cause and effect. Trump voters may, in fact, care more about his infrastructure spending promises. Yet, when extreme views are in the mix, here the co-authors
the availability of jobs, family ties or other factors are less
find evidence that people have inferential blind spots.
important in Florida moves? They find, once again, a tenden-
From political climate to actual climate
cy to conflate value and weight, supporting their main finding that a value-weight heuristic is at play.
To remove politics from the equation, Barasz et al. turned to a more neutral topic: the weather. Their second study asked
Five other studies, involving more than 2,000 participants,
more than 200 participants about the climate in Fort Lauder-
corroborated the main finding that, whether it’s a political
dale, Florida, and Fort Worth, Texas, and how important that
stance or the weather, the more extreme the feature, the eas-
weather was to a hypothetical person’s decision to move there.
ier it is – and the more confident and likely we, as human beings, are – to assume we know what motivated that choice.
As expected, participants who considered the weather more extreme in either location were also likely to give it more
Why is this important? For one thing, political polarization
weight in someone’s decision to move there. Does that mean
seems to be growing, not just in the United States but all around the world. How we come to perceive others’ attitudes – and what we believe they prioritize – may contribute to our
If people infer an entire group is singularly motivated by an especially extreme or divisive policy issue, perceptions of political polarization are only likely to grow
observations of further polarization. This research suggests that the value-weight heuristic may be especially relevant and consequential where extremity, such as intense policy stances and conspicuous platform issues, can distort observers’ perceptions, regardless of party affiliation. That can render observers insensitive to other factors – in addition to or instead of – that could have motivated their choices. In sum, if people infer an entire group is singularly motivated by an especially extreme or divisive policy issue, perceptions of political polarization are only likely to grow. And the more that happens, the less likely it becomes to really understand where the other side is coming from. Making people aware of their inference blind spots or over-inference tendencies could actually help reduce political polarization. Now wouldn’t that be nice?
source: The paper “I Know Why You Voted for Trump: (Over) Inferring Motives Based on Choice,” by Kate Barasz, Tami Kim and Ioannis Evangelidis, is forthcoming in the journal Cognition.
36 | IESE Business School Insight | Winter 2018
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THE BIG PICTURE Crowdfunding
A new perspective
Crowdfunding Crowd-based funding is among the fastest growing segments in the financial industry. Which funding alternatives are available? And might one be right for you?
How it works
Crowd-based funding is among the fastest growing segments in the financial industry. Which funding alternatives are available? And might one be right for you?
How it works Entrepreneur
Donors or investors
Seeks funds from the crowd to finance a project, cause or venture.
Usually a platform that provides information about funding opportunities and facilitates the contact between parties.
Provide small sums of money to collectively support their chosen project, cause or venture.
Seeks from the crowd to Types offunds crowdfunding finance a project, cause or venture. DONATION-BASED
Usually a platform that provides information about funding opportunities and facilitates the contact between parties. LENDING-BASED
Donors or investors Provide small sums of money to collectively support their chosen project, cause or venture. EQUITY-BASED
Types of crowdfunding Individuals give loans, not donations, with the expectation of the Individuals make charitable
Individuals give with the expectation of getting something in return, usually in the form of REWARD-BASED goods or services rather than money. Examples: Individuals give with the Indiegogo, RocketHub, expectation of getting Kickstarter. something in return, usually in the form of goods or services rather than money. Examples: Indiegogo, RocketHub, Kickstarter.
Peer-to-Peer (P2P): (P2B): Individuals give loans, not donations, withPeer-to-Business the expectation of the Platforms match lenders and to lend to loan being paid back, with interest, whichEnables can thenpeople be re-loaned. borrowers, often for the established Potentially the most disruptive for supplanting the rolebusinesses of banks. or purpose of setting up a evenare to two co-invest with Examples: Kiva, Ripio Credit Network. There main kinds: microenterprise, depending government funds. on their preferences: Peer-to-Peer (P2P): Peer-to-Business (P2B): Platforms match lenders and Enables people to lend to borrowers, often for the established businesses or purpose of setting up a even to co-invest with microenterprise, depending government funds. Active: Lenders want on their preferences: detailed information on the borrower so they can pick who they want to invest in. Active: Lenders want Passive: Lenders detailed information indicate the levelon of risk the borrower so they they are willing to can assume pick whoand they want are to invest in. an enterprise allocated
accordingly. Passive: Lenders indicate the level of risk they are willing to assume and are allocated an enterprise accordingly.
38 | IESE Business School Insight | Winter 2018
loan being paid back, with interest, which can then be re-loaned. Potentially the most disruptive for supplanting the role of banks. LENDING-BASED Examples: Kiva, Ripio Credit Network. There are two main kinds:
donations to support a good cause, with no DONATION-BASED expectation of receiving anything in return. Examples: GiveForward, Individuals make charitable FirstGiving, GoFundMe. donations to support a good cause, with no expectation of receiving anything in return. Examples: GiveForward, FirstGiving, GoFundMe.
Individuals invest in a project in return for a stake in the business, similar to EQUITY-BASED the way stock or venture capital works. Examples: AngelList, EarlyShares, Individuals invest in a Crowdcube. project in return for a stake in the business, similar to the way stock or venture capital works. Examples: AngelList, EarlyShares, Crowdcube. INITIAL COIN OFFERING (ICO) Individuals purchase shares of an enterprise in the form of a virtual currency like INITIAL COIN to gain bitcoin or ethereum OFFERING (ICO) access to deeper, more liquid secondary markets. Individuals purchase shares of an enterprise in the form of a virtual currency like bitcoin or ethereum to gain access to deeper, more liquid secondary markets.
Traditional banking vs. crowdfunding Different factors work in each one’s favor. Strong point
Transaction value worldwide Current and predicted funds raised through crowdfunding.
Extra liquidity in market Trust Advanced technology
Regulated Established legal status Security Privacy protections
Strong distribution networks Independent from existing network operators Emerging market contexts Helps unbanked poor
Success factors for crowdlending For borrowers
Borrowers are more likely to win financing when:
1. They’re in the same geographic region as the lender.
2. They’re women.
Default rates are lower when loans:
Support education, housing or personal use.
3. Their funding needs are
humanitarian (related to health, education, housing or personal use).
For non-humanitarian enterprises, borrowers are more likely to win financing: • the less they ask for. • the faster they repay it (shorter terms, regular intervals). • the better their reputation and the lower their credit risk.
Involve one person rather than a group of borrowers.
sources: “Crowdfunding Entrepreneurial or Humanitarian Needs? The Influence of Signals and Biases on Decisions” by M. Moleskis, I. Alegre and M.A. Canela. “Crowdfunding Success: The Case of Kiva.org” by M. Moleskis and M.A. Canela. “Could Crowdfunding Be Right for Your Business?” by Christian Eufinger. Statista (accessed Dec. 2018).
HACK How not to lose your head in a bidding war How much would you bid for a $20 bill if you faced competition in the auction and both the winning and losing bids had to be paid out in full? In this simulation of a real-life business scenario – like a patent race or corporate merger involving sunk costs and a bidding war – losing hurts, too. How to avoid a competitive escalation? The $20 auction game, involving 1,229 participants, revealed the following:
• Pre-setting a bidding limit, or agreeing beforehand when to exit, is simply not enough to prevent an escalation. • Managers may be experienced, but if their experiences lacked escalation, it won’t help.
• Managers with direct experience of competitive escalations fare better. • Learning from others with direct experience of competitive escalations also improves results.
There’s a hot/cold empathy gap that prevents people from anticipating how they’ll react in a hot situation when they’re feeling calm, cool and collected. Put simply, what you don’t know can hurt you. This is why past experience and vicarious learning are so important, so you can face the competition prepared.
“Competitive Escalation and Interventions,” by IESE’s Sebastian Hafenbrädl with Jan K. Woike, appears in the Journal of Behavioral Decision Making.
40 | IESE Business School Insight | Winter 2018
Flexibility for the sandwich generation
Work like everyone is watching
How family-supportive is your organizational culture? Personalized
toring? New research shows
work arrangements could be the answer for members of the so-
high-status workers may devote
called “sandwich generation” – middle-aged employees who find
less effort to tasks that aren’t
themselves caught between taking care of children as well as aging
visible to others. Give them an
parents. But to what extent do supervisors’ own caregiving respon-
audience, however, and they
sibilities influence them in letting their subordinates strike “idio-
put in more effort, leading
syncratic deals” or “i-deals”? Does having a similarly sandwiched
to better team performance.
supervisor help? Not always, according to a recent study.
Doing the work out in the open
Are you the type of manager who thinks your star hires don’t need constant moni-
rather than behind closed doors raises expectations – and with it, effort levels. So, it’s not just working in a team that can make people work harder but the visibility of that work that’s key, especially for certain high-status workers.
Caring for parents Supervisors who took care of aging family members were more likely to grant i-deals to employees.
Caring for kids Supervisors with children under age 14 were not as predisposed to grant i-deals to employees.
Remember: granting some degree of workplace flexibility doesn’t just help employees have an easier time of it at home. Research shows that satisfaction with work-life balance affects everything from turnover to productivity. For sandwiched workers, i-deals can boost commitment to and motivation levels at work, helping to retain talent. And that’s something all supervisors, regardless of personal circumstances, can appreciate. “Handle With Care: The Mediating Role of Schedule I-deals in the Relationship Between Supervisors’ Own Caregiving Responsibilities and Employee Outcomes,” by IESE’s Mireia Las Heras et al., appears in the Human Resource Management Journal.
“Only When Others Are Watching: The Contingent Efforts of High Status Group Members,” by IESE’s Sebastien Brion et al., is forthcoming in Management Science.
What kind of corporate venturing is right for you?
Corporate venturing sees large companies partnering with startups for mutual benefit. To be successful, big-firm managers must consider what’s in it for the startup, considering their objectives and culture, and offering them a clear and, in some cases, tailored value proposition, to keep their interest and commitment. There are various options out there. Which one of these might be right for you?
scouting mission. Go out and meet with startups, inventors or university researchers in search of innovations that align with your company’s strategy, offering potentially valuable networking opportunities along the way. hackathon. Hold a workshop for software developers to come up with tech solutions to a specific innovation challenge within a restricted time frame. sharing resources. Get closer to the startup ecosystem by networking with other ventures to find areas of mutual interest. challenge prize. Run a contest to incentivize innovators to propose solutions to a specific issue that taps into the latest tech trends. accelerator. Support startups via a highly structured program of mentoring, training and providing workspace and resources, including money, to give startups a rapid-fire boost in just a few months, sometimes in exchange for equity.
incubator. Like an accelerator, but here focus on providing viability and commercialization to a promising innovation. excubator. Use an external venture builder to get a minimum viable product (MVP) outside the regular structure of the corporation. corporate venture capital.
Steer equity investment toward startups that are of strategic interest beyond financial returns – to access new distribution channels or know-how. strategic partnership. Form an alliance with a startup to define, develop and pilot innovative solutions together. venture client.
Offer to purchase the first unit of a startup’s product, service or technology when the startup is not yet mature enough to be a client.
Purchase the startup outright to get its commercially ready products, complementary technology and/or capabilities.
M. Julia Prats and Josemaria Siota from IESE’s Entrepreneurship and Innovation Center interviewed the innovation directors of 44 companies for their report Open Innovation: Building, Scaling and Consolidating Your Firm’s Corporate Venturing Unit. 42 | IESE Business School Insight | Winter 2018
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+IESE Marta Martinez Alonso
General Manager of IBM Spain, Portugal, Greece and Israel. Member of the Alumni Executive Committee that oversees the IESE Alumni Association.
Opening the black box of artificial
44 | IESE Business School Insight | Winter 2018
IESE & me
n 2004, IBM launched the Blue Gene/L, a supercomputer that soon became the fastest in the world. Marta Martinez, with more than 10 years’ experience at Hewlett-Packard, had recently joined IBM Spain. Since that time, IBM has quit the hardware business
THE BASIS OF BUSINESS… …is the person. You can learn from cases and from how others have managed change or risk. But the personal element and the role of values will always be there. If that base is not solid, many plans can go awry.
to focus on artificial intelligence (AI) and cloud computing.
Translating these disruptive technologies into valuable services and strategies for companies is a core task for Martinez, who was appointed general manager of IBM for Spain, Portugal, Greece and Israel in 2013. With time, she says, you gain experience and, above all, perspective. For this mathematician who now finds herself in a senior executive role, the impact of technology on business and society has never been greater. It changes everything, she says, from your business offering to your customer approach.
Today, everyone’s talking about digital transformation, big data and AI. How are companies responding? All companies are realizing that technology can contribute much more to the business than before, but there’s still a long way to go. Our studies show that only 20 percent of com-
panies are making the necessary shifts. Some pilot projects are being carried out with AI, cloud computing, and so on,
LEARNING AND WORKING TOGETHER Networking, collaborating and listening to others are essential for improvement, exposing us to different points of view. It’s important to open up the debate, get people to speak their minds, and listen to your colleagues and teams. Business is not a problem with one clear solution. I’m a mathematician, and it’s not that easy. It’s not a theorem to prove. The conclusions you come to can be as diverse as there are points of view.
but when it comes to strategy, much more work is needed. Unlike startups that can launch straight on the cloud, medium- and large-sized companies have legacies that make their transformation more complex. These companies need to be clear about where they’re going and how to get there.
intelligence Winter 2018 | IESE Business School Insight | 45
In first person
What about for non-tech, non-digital companies? Digital transformation is not an end in itself but a means to achieve what you couldn’t do before, both internally and externally. This is not something that only concerns the IT department, but overarches the company as a whole. And it’s not just a question of technology – it’s also about culture. You can bring in new talent but you also have to work with the people you have already. For digital transformation to succeed, the corporate culture is fundamental.
How do you reconcile the need for innovation with sticking to a mission?
To what extent do you need to understand AI to be able work with it? Technological know-how is important. You need profession-
It’s one thing to have a corporate vision – which you still need
als who know how to program with new languages and who
– but the level of detail in the execution of that vision is an-
know how to create and implement AI projects. This is an
other thing entirely. Before, a strategic plan used to be very
important area in high demand.
long term, outlining the major milestones to hit over the next five to 10 years. Today, with technology, you have to be agile, to
Apart from specific skills necessary to work with the technol-
be able to change things on the go. To capture a new market,
ogy, keep in mind that it’s the information – the data – that’s
to reach a new type of customer or to internationalize your
core to the current technological transformation. So, more
operations, you need to keep your strategy and part of the ex-
than knowing about technology, you have to know how to
ecution somewhat general, while continuing to work on other,
evaluate the information, whether it’s for marketing or for
less ambitious projects, so you can monitor and respond to
HR purposes, for example. You don’t need to be a tech whiz,
changes more easily. Projects that used to involve a lot of time and money now take months, rather than years, cost a lot less, and show returns much sooner. It’s what we call getting a minimum viable product (MVP). The moment I have something to show, I show it. I launch these small projects and spark change, both among employees and customers. It’s not about achieving some grand transformation, but rather about making small, incremental changes. I plan more or less where I want to go, but I’m ready to adapt along the way. That’s the flexibility that technology allows. 46 | IESE Business School Insight | Winter 2018
“Digital transformation is not an end in itself but a means to achieve what you couldn’t do before”
but you do need to understand that information is becoming increasingly relevant and ask yourself what you can do with it. This is key, and perhaps the greatest change for the entire organization to grasp. Regarding those highly sought-after employees you mention, how do you retain talent in this context? There are two important factors. First, employees must see that they have a clear career path in which they’ll have a say in which countries they’ll work in and what kind of projects they’ll be assigned. The second issue relates to the company’s wider impact, in terms of undertaking projects that leave a
going?) as well as to the corporate one (what am I involved in?).
intelligence to a greater or lesser degree. But the first step is being aware of, and fully appreciating, the value of information.
So they can identify with certain shared values?
So, what does the future hold? And how can we prepare
ourselves for it?
positive mark on society. As such, you have to let employees contribute on two levels: to the personal project (where am I
Both the speed and the impact of current technological How do you distinguish between what’s relevant and
changes are tremendous. There are many issues at stake.
what you can do without? How do you know whether it’s
Most of the public discourse has been around how em-
time to bet on AI?
ployment and privacy are being affected. But ethics and
The new technologies allow you to do many things that were
transparency are also crucial – something that we at IBM
previously impossible, but the level of complexity is high.
How can we take advantage of them as a company of any kind, from any sector?
AI should not be an impenetrable black box nor something magical. We want people to know what and how informa-
What matters is understanding that the company should
tion is used. The more information AI receives, the more it
be extremely information-focused. The digital world gains
learns. Feed it poorly, and the system learns poorly, with bi-
strength because data start to be important, because the vol-
ases. As business people, we must never forget that, of all the
ume of information we have, both structured and unstruc-
information that exists in the world, 80 percent of it is in the
tured, is relevant. If information starts to be core for your
hands of companies like ours. And that is the information
company, then you need the right technological architecture
we will use to train our systems. This makes it all the more
important to know how the system is taught, in a transparent and an ethical way.
Making sure data are secure, orderly and accessible may seem trivial, but it’s not a simple undertaking. First, you need a system in which the information is really well organized. From there, you can add all the layers of intelligence you want. You can apply advanced AI or analytical
article by :
Jose Carlos Sánchez
Winter 2018 | IESE Business School Insight | 47
Search funds – matching seasoned investors with young entrepreneurs – may be little known outside the United States, but they are fast growing internationally. Munich-based investor Jürgen Rilling and U.S.-based entrepreneur Jean-Paul Destarac discuss how their partnership works. The investor
What are the challenges? Being in Munich while Jean-Paul is
How did you get started?
in the U.S. makes the role somewhat
I studied mechanical engineering at
more challenging than if it were a Eu-
the Technical University of Munich and
ropean search fund. I’m always avail-
then worked for Roland Berger before
able for him, but we do have to deal
doing an MBA at IESE. After gradua-
with different time zones.
tion, I worked for the optical company Rodenstock. After two years, I decided
What do you look for?
I wanted to buy my own company. I
Typically, we invest in companies that
launched a self-funded search and, to-
have some kind of succession problem
gether with a partner, bought Grundig
and run the risk of a lack of growth due
Business Systems, in the area of digital
to changing ownership. This is where
speech processing and recognition.
search funds can play a big role, ensur-
How did you get into search funds?
and creating employment. Obviously,
In 2010, I started investing inde-
as an investor, I’m interested in the re-
pendently, beginning with startups.
turn, but there’s also the motivation of
And I was an early adopter when it
creating employment. Of five search-
comes to European search funds. Since
fund acquired companies, we’ve dou-
ing that a company can keep expanding
2015, IESE has hosted an International
bled the overall workforce. I think that
Search Fund Conference. It was at that
does a lot of good.
conference that I met Jean-Paul. Our
Owner & CEO, Mirablau Private Equity & Venture Capital Investments. Advisory Board Member, IESE International Search Fund Center.
paths continued to cross and we built
Why are you doing this?
up a good relationship over the years.
Search fund investors typically enjoy working with young talent. I’m com-
How does the relationship work?
ing into contact with people so much
My role is to give Jean-Paul the support
brighter than me. But being a little bit
he needs to find a business to acquire.
older and more experienced, Jean-Paul
Once he has found something, he comes
accepts me as a sparring partner. I feel
to me for coaching. Since I have an in-
I learn as much from the searchers as
dustrial background, it helps for when
they learn from me. They’re sharp and
things get a little too heavy for him.
it helps me develop myself.
What do you get out of it? I find it’s a way to put myself in the
What did you do before IESE?
front seat of a company, at a very
After studying economics and sociolo-
young age, supported by a very suc-
gy, I worked for Merrill Lynch in Dallas
cessful and experienced group of in-
and the LVMH group in Europe. Then, I
vestors and operators who want me to
spent three years in New York working
succeed. That’s incredibly exciting! I
for Stelac, a multi-family office.
also like the mentorship approach: investors don’t just give you money, they
How did you end up going to the In-
give you their time, which for me is like
ternational Search Fund Conference
doing another master’s degree.
at IESE before you were even at IESE? I met an IESE graduate who was running a search fund and told me about the
4 stages of search funds 1. Fundraising: a group of investors pool their capital to back a searcher. 2. Search and acquisition: locating and taking over a business. 3. Operations: searchers lead and grow the business. 4. Exit: the searcher and investor achieve liquidity.
conference. It sounded so interesting that I bought a plane ticket to Spain. I met Jürgen there and we stayed in touch.
* The time between acquisition and exit is 4-10 years
How does the search-fund process work? There are three different ways we’re trying to find a business: the first is through brokers; second, a proprietary outreach system, where we look at an industry that we like and home in on businesses; and third, through networking with lawyers, contacts, advisers and friends. How do you focus your search? Right now, I’m interested in healthcare, one reason being that my father is a doctor. I think it’s easier to be a busi-
ness owner in an industry you have some connection with. What do you look for in an investor?
Someone you click with. Also, someone who is able to go see the businesses with you. I think most search-fund investors like to be actively involved, not in the sense of “I want to see every single thing you’re doing,” but, “I want to know how best to support you.”
Managing Director, NexuPartners. Founder, IESE Search Fund Club.
IESE leads in global search fund research Through their partnership and joint research activities,
is strongly aligned with IESE’s mission,” says Eddy Zakes,
IESE and Stanford University have become pioneers in
director of IESE’s Entrepreneurship and Innovation Center.
tracking the investment area known as search funds. At the International Search Fund Conference held at IESE “While search funds began in the United States, they are
in October 2018, IESE and Stanford released the results of
clearly gaining momentum elsewhere, and IESE is com-
their latest study on search funds outside North America.
mitted to advancing the model internationally, especially as search funds’ capacity for making a positive social impact
INTERNATIONAL PRESENCE Search funds are steadily gaining ground outside the United States. Of the 83 international search funds formed as of December 31, 2017, the vast majority were based in Latin America and Europe, and a quarter of them had appeared in the last year alone.
Here are some highlights...
40 in Latin
35 in Europe
Dom. Rep.: 2
Portugal: 1 Switzerland: 1
3 in the Middle East Israel: 2 UAE: 1 3 in Asia India: 2 Indonesia: 1
2 in Africa Kenya: 1 Morocco: 1
INTERNATIONAL SEARCHER PROFILE
have an MBA
raised their search fund within 2 years of graduation
Median salary in Europe
Director of IESE’s Entrepreneurship and Innovation Center, which houses the International Search Fund Center, a hub for investors and entrepreneurs.
PERFORMANCE As an asset class, international search funds have achieved:
Median salary in Latin America
IRR: 33.3% article by :
50 | IESE Business School Insight | Winter 2018
Median purchase price for international acquisition
Some care only about numbers. We care about much more. At IESE Business School we invest time, passion, ideas and effort in something greater than numbers: People. The Financial Times knows this, ranking us #1 in Executive Education worldwide for 4 years in a row. What they don’t know is that since 1958 our real #1 is you.
www.iese.edu Barcelona · Madrid · Munich · New York · São Paulo
How we did it
HOW WE TOOK OUR BUSINESS GLOBAL
How do you ensure that fast growth doesn’t
Quim Serracanta and Natalia Per-
arnau founded Kids & Us to teach
Put simply, you have to establish a code of best
English to children using a special
practices and then make sure it’s being followed.
learning methodology they had de-
In our case, we carry out regular inspections, sim-
veloped. Inspired by the natural process that chil-
ilar to follow-up sales and marketing, to check
dren’s brains go through in the first years of life
quality via online teacher audits, mystery shop-
for mother tongue acquisition, their method im-
ping, satisfaction surveys and ongoing training.
itates that process for the acquisition of a second
We also offer variable compensation to reward
or third language. As their methodology caught on
franchises that follow the methodology rigorous-
in Barcelona-area schools, they began to license
ly. You also have to make sure that fast growth
it wider. Eventually they decided to franchise the
doesn’t undermine the product’s value. In this,
business, so they could maintain tighter control
master franchisees can be very useful.
over the teaching methods, branding and business growth.
What’s required? To become a master franchisee, you must first
Licensing vs. franchising: why the latter?
run your own center, so you know the model in-
Licensing to third parties may be easier and more
side-out. Next, you must have extensive knowledge
convenient, but it can be harder to control the
of the network of centers in your country. Then you
application and evaluate the results. Franchising
are in a position to act as an intermediary between
gives you more control over business processes
the head office and other franchises, ensuring that
without having to overextend your resources by
the methodology is being applied correctly and
opening centers yourself. Instead, you can focus
consistently across the whole network. A master
on continuing to develop your product or service.
franchisee must also have the financial ability to
You can also bring it to market more quickly.
set up the first franchises in a country, as well as
52 | IESE Business School Insight | Winter 2018
ifteen years ago, the married couple
Kids & Us
With nearly 400 franchises in eight countries, Kids & Us is proof of how a homegrown business can take off globally. But why has it been successful in some countries more than others? Quim Serracanta and Natalia Perarnau explain the bumpy road of internationalizing a business.
the business expertise to manage them. They must
crack China – the premier league for centers like
build a strong team capable of managing all as-
ours – we simply couldn’t do it. The legal frame-
pects of the business. This is something we learned
work is extremely restrictive, making it harder to
the hard way in Portugal.
operate as a foreign company, particularly one dedicated to teaching children. When we finally
Is there room for improvisation?
found a master franchisee willing to partner with
We provide manuals on corporate image, sales,
us and make a big investment, we were told we
operations, services, finances and people devel-
had to live in China for a minimum of two years,
opment. We used to offer them as suggestions, but
which we weren’t in a position to do.
now they form part of the contract. That said, we encourage each franchisee to use their own initia-
Cultural perceptions matter, too. For example, in
tive, but it’s important to weigh up the time and
Italy we struggled because the notion of teaching
effort involved. Head office must respond to the
English to children from an early age wasn’t so
needs of all the different centers and keep them
ingrained. Even in other countries with a simi-
from venturing too far into uncharted territory.
lar culture and educational system to Spain’s,
The masters are free to set pricing, but we insist
such as Mexico, the results weren’t as good as we
that, although cheaper prices may seem to sell bet-
thought they would be. In Belgium, on the other
ter, they don’t always attract more customers. Even
hand, parents had a similar mentality to learn-
if they did, the profit margins are likely to be small-
ing English as we did in Spain, and we achieved
er, and that can cause difficulties down the road.
spectacular results there. Above all, choose your master franchisees wisely, as they
What other factors are key?
hold the key.
You can’t underestimate the huge personal sacrifice that international expansion sometimes demands. When we tried to
article by :
Natalia Perarnau & Quim Serracanta
Co-founded Kids & Us after becoming parents in 2000 and getting interested in linguistics. Today, their daughter is proficient in English – as are the kids who began the process with her.
TODAYâ€™S LEADERS RECOMMEND HOW TO GET READY FOR TOMORROW
A lot has changed since business schools first launched programs 100 years ago to train managers primarily concerned with engineering problems. Today’s leaders have vastly different outlooks and aspirations. They’re more globally minded, their concerns are increasingly tech-related, and they greatly value mentoring and teamwork. Here we talk to three up-and-coming leaders about the critical qualities necessary for the future.
Ana Fitzgibbons, Ricardo Hellmund and Nicholas Wells, pictured with their Driving Leadership Potential classmates on IESE’s New York City campus. www.iese.edu/dlp
Multi Family Office Adviser. Miami, Florida
How is technology affecting your field? nicholas:
I began my career at the tail end of the finan-
cial crisis. There was a pivot after the crisis, and a good portion of my classmates ended up working in the tech-
Corporate Communications Strategist. Norwalk, Connecticut
nology sector. The financial industry has recovered since then, but the jobs today are different from back then. Fintech is changing the industry and, in our case, allowing us to contain costs. The general expectation is that we’ll be able to accomplish a lot more with a lot less.
Head of Investment Risk, Americas. New York City
Fintech is already reshaping some financial ser-
vices for the better, but perhaps less so in certain niches of wealth management. In this space, client portfolios can be extremely complex, so personalized relationships remain key. In our case, we use technology to enhance how we analyze client portfolios, gather market and in-
Future-proof leaders are...
vestment information, and improve client communication and services.
States, France, Germany and Singapore, and speak
job measurable, allowing me to define clearer goals and
multiple languages. How do such global experiences
giving me a structure to work against and a numerical
shape the way you lead and interact?
framework that senior stakeholders understand.
Between you, you’ve lived in Venezuela, the United
They help me appreciate and respect people’s dif-
ferent values, working styles and ways of interpreting things. But more than that, I believe international exposure equips you to manage differences better in team settings. ana:
We’re all basically mash-ups of our life experienc-
es. I think mine have made me less risk-averse and more open to change. They’ve also instilled a “go for it” attitude and greater self-confidence.
56 | IESE Business School Insight | Winter 2018
People perceive communications as a soft skill, but
it’s actually quite analytical. Technology has made my
Engaged & team-oriented
What are the challenges you see that leaders aren’t
Few people dedicate enough time to communica-
tion issues. As leaders, we need to become much more passionate about “employee engagement.” By this, I don’t just mean getting everyone to get along. It’s more about strategic alignment. It’s hard to bring people on a journey, or give them a vision of something, if you, as a leader, aren’t articulating it. Whether you’re launching a campaign or initiating corporate change, you need to know how to bring people along with you.
Humble, passionate, adaptable, empathic, curious
What are the top leadership qualities managers need to stay relevant?
People tend to work independently and try to
resolve issues on their own, but as projects scale up, you
have to rely on teams. You can’t have one person doing
humble allows us to recognize we’re imperfect by nature
everything. For me, leadership is about hiring good peo-
and always have something to learn. The second thing
Humility is the first quality I would stress. Being
ple, trusting them, and giving them the freedom to do
I would tell people is “find your passion” because that’s
where you’ll find the most success. It might take a while to find and it might change over the years, so you have
Mentored & supported
What’s the role of mentorship in shaping career paths today? ricardo:
to be flexible. You have to adapt: that’s another key. You always need a Plan B since things rarely work exactly the way you initially envisioned them. ana:
Sometimes mentors offer a listening ear or
constructive criticism. Other times they introduce you to
people who are able to help you at inflection points in
to learn. As managers become more senior, there’s this
your career. When mentoring others, the first thing I tell
sense that they should know everything already. That’s
them is, “I don’t have all the answers!” If they come to me
simply not true. Learning should be constant and contin-
The most important quality is continuing
with an issue that’s not my strong suit, we work together
uous, especially in today’s economy. Things are changing
to find someone with more expertise. I also urge them to
faster than ever, so you have to keep up with the latest
be proactive and seek out multiple mentors, since there’s
developments or you’ll be left behind.
no such thing as a perfect mentor and their needs will change over time. ana:
article by :
A mentor should be supportive, always pushing you
to do your best and make the tough choices. nicholas:
My mentor and I meet regularly for lunch. He
gives me insights and tips on career progression. He really pushes me to challenge myself in my current job, to question my future outlook, and think about how to get there. Winter 2018 | IESE Business School Insight | 57
Buildings for education must be flexible
rchitecture of passion and subtlety, not of the past nor of the future but of its time. This is how the celebrated French architect Jean Nouvel characterized the work of Josep Ribas Sr. in the foreword to a book on
the Barcelona-based architecture agency, Ribas & Ribas.
The same could be said of Josep Ribas Jr., who today carries on his late father’s vision with the help of his sister, Inmaculada, and niece, Adriana (pictured, right). All three generations have had personal and professional ties to IESE, designing its buildings and taking its Executive Education programs, from Ribas Sr. earning a PADE in 1974 to Adriana earning an Executive MBA in 2017. Ribas Sr. said the light of his native Ibiza inspired his work. He set up his own firm after graduating with a degree in architecture in 1957. With Josep Lluis Sert, he designed the emblematic Miró art museum in Barcelona. Ribas Jr. started out in his father’s firm, becoming a partner in 1987. Inmaculada joined in 1994. And in 2010, a year before Ribas Sr. passed away, Adriana became the newest addition.
58 | IESE Business School Insight | Winter 2018
Ribas & Ribas
Together, they have executed a wide variety of projects – from a village church in the Pyrenees to Columbus Tower, one of Barcelona’s first high-rises. Ribas & Ribas has designed everything from office buildings and hotels to homes and schools, including several for IESE Business School in Barcelona. The family firm’s relationship with IESE began under former dean Carles Cavalle. Their first project was to build the south campus library. That was followed by a succession of other projects, not only on the south campus but also the stunning north campus and, most recently, the new H building for research and doctoral students, which opened in 2018. The year 2019 marks 30 years of Ribas & Ribas collaborating with IESE.
One art, infinite uses
Striking the right balance between form and function is the hallmark of any good design, as Ribas Jr. explains: “In the
case of an educational institution such as IESE, it’s vital to create spaces that are multifunctional. They have to be more
flexible than other buildings, because there’s more movement in them.”
The building plot marks the boundaries, but the rest is up to the imagination.
The relationship that people have with a building also changes over time. Today, environmental considerations are increasingly important, along with having dedicated spaces for rest and interaction.
“Architecture, deep down, is sculpture with content,” says Ribas Jr. “You adapt from there, not without difficulties, always taking into account urban and functional parameters, the location, and aesthetics.”
“Such things were not so valued before,” says Adriana, “but now elements like having lots of natural light are key. It makes the space more pleasant, which enhances workers’
Following the light
“Architecture ends up permeating your entire life. You talk
well-being.” Today, you have to pay equal attention to the
about it over lunch and dinner. You spend your weekends
building’s interior and exterior, she adds.
visiting projects.” For Ribas Jr., family tradition inevitably plays a role in this. But vocation also plays a part, as it did for
This holistic approach to architecture is evidenced in the
Adriana, who decided to pursue architecture even though
Ronda de Dalt Funeral Home that Ribas & Ribas designed for
everyone told her not to. “We hope the saga continues.”
the Altima group. “It’s a bright, modern building designed to be as uplifting as possible, given the circumstances. We
As for Ribas Jr., he dreams of building an airport as well as a
designed every element, inside and out, right down to the
church, admitting that he’s working on an idea for a modern
furniture, so that every bit makes sense,” says Ribas Jr. He
chapel in Ibiza, but he refuses to disclose any details. Adriana
highlights it as a special work, though he’s quick to add that
is thinking about the future of architecture, in which func-
picking just one is as impossible as choosing a favorite child.
tional spaces for people must be thoughtfully integrated into the surrounding environment. Between them, they’re keeping
“All our projects are important,” says Adriana. “We treat
the Ribas family trademark of passion and subtlety alive.
each one as something unique, whether it’s for Real Madrid (soccer club) or a family home.” Breathing life and light into buildings as grand-scale as stadiums and skyscrapers or as simple and functional as a home or an office, architecture is perhaps the most versatile of art forms.
article by :
Winter 2018 | IESE Business School Insight | 59
Food for thought
SMART PICKS 4 classics worth reading
Based on lectures by James G. March, compiled in the book On Leadership.
Othello William Shakespeare Apart from enduring themes of love, jealousy
The truth of fiction Fiction can give us a good dose of reality. So believed James G. March, a professor at Stanford University for almost 50 years, who died on September 27, 2018, at the age of 90, one month after the death of his wife of 71 years. In addition to pioneering new theories on organizational behavior, March was known for taking an interdisciplinary approach that blended humanities with business research, and he frequently drew lessons for leadership from literature. Despite starting his classes with the warning, “I am not now, nor have I ever been, relevant,” he was, in fact, a highly relevant scholar, penning such management must-reads as Organizations (1958) and A Behavioral Theory of the Firm (1963), considered among the most influential management books of the 20th century.
and betrayal, March saw in Othello the leader torn between his private life and public duty. Iago represents the dark side of ambition and the lengths to which some people are prepared to go to get ahead. To what extent are leaders “manipulated to serve as instruments to settle other people’s scores”?
Don Quixote Miguel de Cervantes March saw the deluded knight as a celebration of “imagination, commitment
photo of james g . march courtesy of :
Stanford Graduate School of Business
60 | IESE Business School Insight | Winter 2018
and joy. He reminds us of how
FROM MY DESK ambiguous reality is and how it can be subject to numerous interpretations.” Where Don Quixote went wrong was in focusing only on himself at others’ expense. He
By Josep M. Rosanas Professor Emeritus of Accounting and Control
had the best of intentions but his actions had adverse consequences. A reality check for leaders.
War and Peace Leo Tolstoy For those who believe in stability and order, there’s nothing like war to remind us that the only constant is change. People deal with adversity in different ways. Tolstoy’s view of history as “a flood of events that nobody can immediately judge to be significant or not … that does not follow any defined structure, but arises from the complex interaction of countless insignificant events” will be familiar to leaders in VUCA times.
Saint Joan George Bernard Shaw This play about Joan of Arc exemplifies the problem of genius – those nonconformist types who are driven by a compelling vision. They may be on the right path, but they’ll upset the establishment and threaten the powers that be. Institutions need geniuses – but go too far and the institution will abandon them. There’s a fine line between genius and heresy.
Do I know who I am? For James G. March, Don Quixote has a lot to teach us about decision-making. In situations of ambiguity and change, our identities need to be factored into our decision criteria. According to March, rational decision-makers tend to follow the logic of consequences, weighing the alternatives and considering the consequences of each alternative. The problem is, we aren’t capable of evaluating all of the possible alternatives rigorously enough, or even saying a priori what we actually want. Yet we still strive to make the “right” decisions. But there is another logic – that of appropriateness. When Don Quixote declared, “I know who I am,” he was essentially affirming this logic of acting in accordance with his character. Applying this logic to your business life means answering three types of questions, as March explained. The first is about recognition: what kind of situation is this? The second is about identity: what kind of person am I, and what kind of organization is this? The third addresses the rules to follow: what should a person like me, working for an organization like this, do when faced with a situation such as this? Using a logic based on identity can be an efficient decision-making shortcut. However, we must remain alert to how our natural tendencies can lead us in familiar directions, when an entirely different course of action might be called for. This is another caveat that March took from Quixote when making decisions: the need to strike a balance between the exploration of new things and the exploitation of what we already know. Winter 2018 | IESE Business School Insight | 61
Even the bravest heroes need an ally to succeed Meet our Alumni Career Advisors and Coaches
More information: firstname.lastname@example.org
By J. Zamora and P. Herrera
By E. Reutskaja
By G. Dâ€™Andrea
By P. Miller and T. Wedell-Wedellsborg
How prepared is your business to make the most of AI?
The brains behind your choices
Rethinking the funnel for the omnichannel age
The 5+1 behaviors of innovation
To make the most of AI, you need to know the basics: what data do you need, and do you have the right people in place?
How prepared is your business to make the most of AI? By Javier Zamora and Pedro Herrera
How prepared is your business to make the most of AI?
rtificial intelligence (AI), once the sole preserve of dystopian novels and sci-fi movies, is now a hot topic among business leaders wondering how it might trans-
form or impact their business models. But what does “artificial intelligence” mean? The late John McCarthy, credited with coining the term in the 1950s, defined AI as “the science and engineering of making intelligent machines, especially intelligent computer programs.” But what is intelligence? And can it be separated from human intelligence? McCarthy’s contemporary, Marvin Minsky, believed this was extremely difficult, partly because “words we use to describe our minds (like ‘consciousness,’ ‘learning’ or ‘memory’) are suitcase-like jumbles of different ideas formed long ago, before ‘computer science’ appeared” and which are inextricably linked to human beings. For our purposes, we will use psychologist Howard Gardner’s definition of intelligence as “the ability to solve problems, or to create products,
make machines use language, form abstractions
that are valued within one or more cultural set-
and concepts, solve kinds of problems now re-
tings.” This definition expresses how AI can help
served for humans, and improve themselves.”
organizations create new value propositions, as we will explain in this article.
A brief history of AI
During AI’s formative years, researchers focused on developing “expert systems” – computer programs that took data and information and then
In 1950, the English mathematician Alan Turing
made if-then inferences, similar to human reason-
first devised a method of inquiry – known as the
ing processes, to do basic problem-solving. While
Turing Test – for gauging whether or not a com-
expert systems form the basis of some applications
puter was capable of thinking like a human being.
used today – for prediction, diagnosis or monitor-
The official beginnings of AI as a discipline didn’t
ing – they still relied on trained programmers to
arrive until six years later, however, when a select
encode the rules. And given the infinite number of
group of scientists and academics, including Mc-
real-life scenarios that could arise, it became vir-
Carthy, Minsky and Nobel laureate Herbert Simon,
tually impossible to program a system that would
gathered at Dartmouth College in Hanover, New
work in every possible scenario. By the 1980s, re-
Hampshire, over the course of a summer to ad-
sults had fallen so short of expectations that the
vance a research agenda on artificial intelligence.
period became known as an “AI winter,” as funding
Among their lofty ambitions was “to find how to
and interest in the field dried up.
66 | IESE Business SchooI Insight | Winter 2018
Where to start?
Subsequent evolutions and technological improvements, both in computing capacity and learning algorithms, have brought us to the current situation. We are seeing an important resurgence of AI, based mainly on “statistical learning,” that is, learning from data obtained through observation. Vitally, this alleviates the impossibility of anticipating everything that could happen when modeling a scenario and the changes that could occur over time, and makes it easier to model solutions to a problem.
Artificial neural networks try to mimic the brain’s plasticity
Like any technological solution, AI must be aligned with your overall strategy. Ask yourself these basic questions:
How does AI help me deal with the problem I want to solve?
Do I have the necessary data to train the AI system?
Do I understand the limitations of current AI systems when it comes to incorporating their results into decision-making?
What new capabilities does the company need in order to interpret the results of AI?
Most of the AI systems used by companies today are based on statistical learning – or what is called “machine learning.” Like any automatic learning
new action it carries out – facilitates continuous
process, machine learning tries to learn from ex-
learning. Artificial neural networks try to mim-
perience – the data – to model, predict or control
ic these two features of the human brain. Most
something using computational, mathematical
interesting is their ability to engage in parallel
based algorithms. These systems are useful for
computing and “backpropagation” (the backward
classifying input data, such as recognizing and cat-
propagation of errors). When differences are
egorizing images, or making predictions like how
detected between the result obtained and the
much money a customer will spend over time or
expected result, the system is able to adjust itself
the likelihood that he or she will stop being a cus-
and modify the approach it takes next time.
tomer. Still, because their use is limited to the problem for which they were designed and trained,
Machine learning algorithms based on neural net-
these systems are known as “narrow” or “weak” AI.
works have evolved to the point of being able to perform very complex learning processes. This is
More recently, machine learning algorithms have
called “deep learning,” and it allows for applica-
come closer to imitating the functioning of the
tions such as visual or speech recognition. With
human brain. The neuronal interconnectivity of
ever more advanced algorithms, like convolution-
the brain allows us to solve complex problems,
al neural networks, deep learning allows you to
while the brain’s plasticity – the endless process
resolve highly complex, multidimensional prob-
of training and adaptation it undergoes with each
lems involving very large volumes of data. Winter 2018 | IESE Business School Insight | 67
How prepared is your business to make the most of AI?
Despite these advances, current machine learning and AI tools in general still have limitations when it comes to reasoning or abstract thought – what would be considered “strong” AI. Getting the machines to be able to solve complex problems and act with plasticity in a fully automated way is extremely complex and, without doubt, AI’s greatest challenge. The consensus is that for AI to surpass human intelligence – a moment known as “singularity” – new ideas are needed to overcome the restraints holding back perception, learning, reasoning and abstraction, on the path toward true “strong” AI. Ray Kurzweil, director of engineering at Google, predicts this will occur in the next 30 years – but people have been saying “within 30 years” for the last 30 years.
The boost of digital density
AI is wholly dependent on the ability to store and process large volumes of data efficiently. Without the confluence of the following factors, the recent advancement of machine learning tools would have been unthinkable. customers by type. Such big data is very useful in increase of computational capacity.
training machine learning systems.
the exponential function of Moore’s Law, it has algorithms.
New programming tech-
become easier and cheaper to develop the high-
ly sophisticated and complex computing needed
niques that distribute processing work across dif-
to run machine learning systems. In addition, the
ferent nodes or computing units offer constantly
use of graphics processing units (GPUs) instead of
scalable performance and make it easier to train
central processing units (CPUs) is better suited to
complex models with many variables and many
the distributed computing of neural networks.
layers of neurons (deep learning). The quantity of learning data needed for AI models can be signifi-
digitization of the physical world.
cant both in terms of depth (the number of events
tion in technology costs also led to a surge in the
under analysis) and dimensions (the number of
quantity of data being produced by organizations,
variables that can a priori determine a result).
people and objects through the internet of things. This is what is known as “digital density.” Think of
all the data generated just for an online purchase.
tized access to AI applications, some of which are
We can know who buys what, at what time, and how
now driven by large user communities, such as
they paid for it; what they looked at before buying,
OpenAI or scikit-learn. Others are being developed
how many times they checked back before buying,
by companies that want to create large user ecosys-
and numerous other variables that can feed pre-
tems, such as Google’s TensorFlow or Microsoft’s
diction models of purchasing behavior and classify
68 | IESE Business SchooI Insight | Winter 2018
This has significantly democra-
Speaking the language of data
language, distributor, etc.). The training data can
As a manager, you need a basic understanding
also come from public access databases, such as
of the concepts behind machine learning so that
ImageNet, which contains more than 14 million
you can communicate effectively with the experts
images, each with a description to train image rec-
who implement AI projects in your organization.
Here are the essentials: training data. These are the values obtained from
supervised vs. unsupervised learning.
plain the relationship between input and output
past cases or those that are happening in real
variables, we use supervised models. If, on the
time. They will differ depending on the variables
other hand, we want to detect patterns of behav-
selected. In fact, the selection of variables will de-
ior using an available set of variables, we use un-
termine how good a set of data is and is key to
obtaining an efficient automatic learning system. Most companies employ supervised learning proImagine you want to develop a prediction system
cesses that respond to a specific business prob-
for how much someone might like a particular
lem. For example, in an email app, a supervised
movie based on the films he or she has already
model can classify emails that are junk or not in-
enjoyed. The training data would be the previ-
teresting, and separate them from the rest. The
ously viewed films, sorted by the degree of satis-
model is fed further information by the users
faction they produced. Each film would contain a
themselves whenever they correct a wrongly clas-
series of description variables (genre, length, year,
sified email. Winter 2018 | IESE Business School Insight | 69
How prepared is your business to make the most of AI?
In innovation processes, unsupervised models are
it requires training data.
usually used that do not respond to any concrete
ing techniques essentially involve training a model
objective, such as detecting groups of similar cus-
with data. Although there are learning systems that
tomers to improve personalization in the design
generate their own training data, such as AlfaGo
of new products for different segments.
Zero (an AI program that taught itself to play the an-
cient Chinese game of Go), they are limited in their learning by reinforcement.
This technique is
scope and not suitable for most business situations.
similar to supervised learning but with one major difference: the algorithm uses a reward or punish-
Managers often wonder how much information
ment system. It is often used when there are few
they need to train a model. That usually depends
training data or when the data are generated by
on the particularities of the case and the complex-
interacting with the environment. A case in point
ity of the algorithm they want to use. Working with
would be to program a machine to learn a game
large volumes of data does not guarantee good re-
to the point that it can obtain the maximum score
sults. Also important are the selection of variables
without explicitly teaching it the rules.
and the quality and reliability of the training data.
An altogether better question to ask is what problem you can solve with the data available prediction vs. classification.
An altogether better question to ask is what problem you can solve with the data available. If you have little information, it’s better to use algorithms that are “resistant” to learning with few data, which logically tend to be less reliable. The key is to use common sense. For example, to build a model that forecasts the future weekly demand of certain products, you need not only the historical weekly sales data for each product but also the time series of variables such as holidays, weather, macroeconomic indicators or the sales channel. it’s not very plastic.
Even an AI system trained
correctly with past data may fail in the present
ing processes differ according to the type of vari-
if circumstances change. For example, a regu-
able you want to obtain. When the variable is a
lar customer may stop buying your products if a
characteristic, it is called a classification model;
competitor offers a better service at a lower price.
when you want to predict a number or value, it is
AI systems still have limited capacity to adapt to
called a prediction or regression model. The latest
circumstances like that, due to their lack of cere-
advances in machine learning have significantly
reduced the cost of prediction and classification, leading to new value propositions.
The limits of AI
it can be overfitted.
All supervised learning pro-
cesses allow you to measure the degree of reliability of a resulting model, by comparing the predic-
Knowing the real possibilities of machine learning
tion with past reality. The more the two coincide,
helps not only to spot promising investment op-
the more a model can be trusted. To gauge a mod-
portunities, but also to carefully manage expecta-
el’s reliability, data can be subdivided into sever-
tions about AI-related projects, thereby mitigating
al groups according to the stated purpose, such
the disappointment the results can often produce.
as training, validation or testing. But total confi-
Here are some of the limits of AI:
dence today does not guarantee total reliability
70 | IESE Business SchooI Insight | Winter 2018
Is AI right for me? Use this example, shown here for a customer service process, to make a similar evaluation for your own business problem.
Are the data structured?
Can the automation be done easily, using predefined rules?
Can we use data structuring techniques?
Are the data digitized?
Is it feasible to digitize the data?
Don’t use AI, opt for simple automation
Can we do a learning algorithm test, using previous results to give an acceptable margin of error?
It’s possible to apply AI
It’s not possible to apply AI
tomorrow. Many models suffer from “overfitting,”
combination: (1) automation, to eliminate manu-
whereby your model becomes too well-adapted to
al processes; (2) anticipation, to predict events; (3)
the random “noise” of your specific training data,
coordination, to participate in heterogeneous plat-
leading to misleading insights or faulty predic-
forms or ecosystems; and (4) customization, to bet-
tions that fail to take account of the variance in
ter meet customer needs.
new, real-world circumstances.
The importance of ends
Before adopting machine learning in your company, you must determine whether it plays an im-
Merely employing AI technologies, such as machine
portant role in any of these four interactions. This
learning, does not make a company an AI organiza-
analysis should be carried out during an initial
tion, just as having a website does not make you an
learning phase. Next comes the implementation
online business. What matters is not so much the
phase, in which the new value proposition – to re-
technology per se as its impact on the business mod-
place or improve existing processes, reduce costs
el and how it can enable the organization to achieve
or generate new revenue – is put into action. Then
a particular goal. Clearly, machine learning – like the
comes the discovery phase, in which other value
internet of things, big data, mobility and the cloud
propositions are explored through a process of
– should be treated as another manifestation of our
increasingly digitally dense world, one that allows organizations to redefine their value propositions
During the learning phase, you must define the
and, by extension, their business models.
new value proposition and decide which processes to make more efficient with the applica-
New value propositions can use technology for four
tion of machine learning. To do this, you must
main types of interactions, which can be used in
answer these questions: (1) what processes can Winter 2018 | IESE Business School Insight | 71
How prepared is your business to make the most of AI?
What roles do I need? To implement machine learning, you’ll need people in these positions.
Data engineer Data requirements
Model integrator Models
be improved or replaced by new ones? (2) what
can take years to grasp the subtleties of every
training data sets do you need? (3) how can you
business area and the different opportunities
measure whether these techniques are being
AI can provide to each.
• Communication barriers. It is important to know how to explain the possibilities and limita-
The next step is to build a minimum viable prod-
tions of AI in simple terms and at the same time
uct to learn from metrics and validate the origi-
interpret the real needs of business associates.
nal hypothesis, iterating throughout the process.
• Access to data. Most of the training data will
Normally, at this stage, you should use super-
consist of the information generated by the
vised learning methods to obtain prediction and
company’s different applications. Accessing
these data requires detailed technical knowl-
What talent do I need?
edge of how and where to obtain them.
Just as you evaluate the suitability of AI, you must
To improve your chances of success, we recom-
also evaluate your organization’s readiness and
mend developing the following roles and profiles
ability to undertake AI projects. In recent years,
within your organization:
the role of data scientist has gained importance but faces several challenges.
A key figure, the business
translator must interpret business challenges, • Lack of knowledge specific to your business.
opportunities and areas of improvement, and
A data scientist hired by a large company may
translate them into actionable proposals that can
have a broad knowledge of the sector, but it
be addressed through AI learning. The business
72 | IESE Business SchooI Insight | Winter 2018
translator is also responsible for communicating the results to each relevant business area and serving as an interpreter for lay users, using visuals to show how AI is being used and suggesting possible new uses. data scientist.
This post requires training in ap-
plied mathematics as well as sound knowledge of programming languages and database management. The ideal profile should have strong practical and creative skills, especially when it comes to
Javier Zamora is a senior lecturer in the Department of Information Systems at IESE. He earned a PhD in electrical engineering from Columbia University and co-founded InQBarna, a company specialized in developing mobile apps.
Pedro Herrera is director of NovaQuality, a tech consultancy. He holds a degree in economics and business studies from the University of AlcalĂĄ, Madrid, and an Executive Education diploma (PADE) from IESE.
selecting the data sets. data engineer. This person provides the data scien-
tist with access to the necessary training data. This work is usually easier when the company has a centralized repository of information. Even so, the task of combing through the myriad business concepts, features and data points can be daunting. The data engineer also needs to have a clear understanding of the regulatory requirements for personal data processing, for which he or she will need to work closely with the companyâ€™s data protection officer. model integrator.
Supervised learning process-
First, you need to prepare your technological infra-
es generate models with rules that allow you to
structures to systematically and appropriately cap-
tweak the input variables in order to obtain the
ture and store data in a central repository. Second,
desired output. If we adopt standard formats for
you must rethink your strategy and make sure data
these models, we can include them in transaction-
are being used to inform your value proposition.
al applications, such as enterprise resource planning (ERP), and thus apply machine learning to any
Finally, you must work on data governance. This
process in the company. This responsibility falls to
will require new profiles and knowledge to under-
the model integrator, who must have an in-depth
stand the implications and scope of data manage-
knowledge of both the model and the companyâ€™s
ment. In this way, you will be able to generate a
applications. He or she must oversee this pro-
virtuous circle and get the most out of AI.
cess of integration, as well as upgrade the model through a process of continuous learning.
Data, your most precious resource
AI algorithms are already available to most companies. Soon they will become an abundant commodity, as has already happened with other information systems. This is why data are the most precious resource of all. This has several implications. Winter 2018 | IESE Business School Insight | 73
The brains behind your choices A By Elena Reutskaja
famous study in a California gro-
(ACC) and the stratium – objectively proving not
cery store, by Sheena Iyengar and
just that choice overload exists but which parts of
Mark Lepper from Columbia and
the brain are responsible for it.
Stanford, found that too many jam offerings tended to result in
customers leaving the store without buying any-
The neuroscience of choice
Volunteers were put into large magnetic reso-
thing. More specifically, a table offering 24 jams re-
nance imaging (MRI) machines and presented with
sulted in many shoppers stopping for samples, but
images of scenic landscapes (mountains, lakes,
only 3 percent decided to buy. Meanwhile, a table
beaches, etc.). They were told they could choose
of just six jams resulted in fewer tastings, but 30
one image to emblazon onto a mug, T-shirt, bag
percent of those tasters decided to buy. The jam
or other piece of merchandise. The choices were
study forms part of a sizeable body of academic re-
presented in sets of six, 12 or 24 images.
search that supports the idea of choice overload – when having too many options becomes debilitat-
While volunteers were deciding which imag-
ing. Yet some refute that this phenomenon exists.
es to choose, we monitored their brain activity. We found that activity in some cerebral regions
To help settle the debate, I embarked on research
– mainly sensor and motor regions of the brain
with Rosemarie Nagel, of Pompeu Fabra University,
– reflected the cost of choice. Activity in those re-
and Axel Lindner, Richard A. Andersen and Colin
gions increased with the number of choices: low-
F. Camerer, of the California Institute of Technolo-
est activity for six alternatives and highest for 24
gy (Caltech), to try to understand what happens in
choices. In other words, we could show the neu-
the brain when people choose from sets contain-
rological basis for more choice becoming more
ing different numbers of options. Unlike behavioral
costly for decision makers.
studies, in which participants might think they’re being nice by telling us what they think we want to
Scans of blood flowing in the brain also revealed
hear, we sought an objective, biological measure
significant neurological activity in two regions: the
that participants could not control: observing their
ACC, where the potential costs and benefits of de-
actual brain activity. In doing so, we discovered bi-
cisions are weighed, and the striatum, where value
ological markers of choice overload in two specific
tends to be determined. This activity, we believe,
parts of the brain – the anterior cingulate cortex
represents the choice overload.
Choice is good but too much choice can be paralyzing. By using MRI machines, we can actually see when too much choice overloads the brain. The ideal number of options to present to a consumer may be fewer than marketers think.
The brains behind your choices
In those two key regions, we found brain activity tended to be highest when our test shoppers had 12 options to select from. Brain activity was lower when there were only six images – but also, interestingly, when there were 24 options. When presented with 24 images, the average brain in our study appeared to shut down – there was a marked decrease in ac-
Elena Reutskaja, associate professor of Marketing at IESE, uses brain-imaging, eyetracking and other techniques to study consumer behavior and decision-making. In 2017, this former fencing champion from Belarus was selected as one of the Best 40 Under 40 Professors by the B-school website Poets & Quants.
tivity in the regions that reflect value, reward or net benefits from the choice process. This indicates that medium-sized choice sets seem to be more valuable for decision makers: they experience all the benefits
bad, because we miss the feelings of freedom and
of choice without becoming overwhelmed.
control that come from the act of choosing. If we only have a couple of options, the outcome – the
As a control, we eliminated the cost of choice from
product selected – may not match our preferences.
the decision process by telling volunteers that a computer would choose the best images for them.
Ideally, we would find the golden middle. Think of
In this case, we saw no drop in ACC or striatum
it as an inverted U: the net benefits of choice ramp
activity, even when browsing larger choice sets.
up as long as they outweigh the costs, but there
In search of the golden middle
The idea that less can be more, and vice versa, is
comes a point when the effort, time and stress involved in making a choice becomes too much, and the net benefits start to decline.
important at a time when we’ve never had more choices. Faced with too many choices, potential
Our golden middle would be somewhere between
customers can feel stressed out and may later re-
8 and 15 items. Depending on certain variables such
gret their choice. Having too few choices is also
as culture, gender, age, expertise and product type, that number could be higher or lower. For example, older patients may be able to evaluate a greater number of hospitals, but the same group might be overwhelmed by four options of new apps. For good choice architecture, managers should look at how best to present their business offerings so that customers feel they have adequate choice, experience freedom and control, and are able to match their preferences, without feeling overwhelmed by the whole process. So, dresses could be organized by colors or, like restaurant listings, in similar categories. Such things help customers choose better. And by better I mean that people can choose what they really want. Remember: it’s your responsibility as choice architect to make the process as friendly and desirable for your customers as possible. source:
Reutskaja, E., A. Lindner, R. Nagel, R.A. Andersen and C.F. Camerer. “Choice overload reduces neural signatures of choice set value in dorsal striatum and anterior cingulate cortex.” Nature Human Behaviour (2018).
76 | IESE Business SchooI Insight | Winter 2018
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Lupe Cruz illustrations :
Whatâ€™s the best way to reach todayâ€™s constantly connected consumers? An omnichannel model is now essential to respond to shifting consumer patterns. As successful firms like Zara, Mango, Uniqlo, Apple and Amazon show, the keys to survival in this new age are unforgettable customer experiences and efficiency.
Rethinking the funnel for the omnichannel age By Guillermo D’Andrea
n little more than a decade, smartphones
advantage of this sweeping digital transformation.
have radically reconfigured how we social-
In this article, I highlight some defining traits of
ize, engage politically, stay informed, study
the future consumer and suggest how brands and
and consume entertainment, providing a
businesses ought to be adapting to them.
big boost to many sectors and putting at
risk those that don’t keep up with the times. Peo-
ple born after 1995 have never known a world without internet connectivity and mobile devices,
The new consumer
Consumer patterns are shifting at a dizzying pace. Here are the hallmarks of the new consumer:
though we are all, to some extent, part of what’s being called the Mobile Generation.
In most places, even in
the remotest corners of the world, consumers This technological revolution has already left a
own a smart device with full 24/7 access to news
trail of corporate corpses in its wake, including
such household names as Kodak. Newspapers have been forced to redefine their business mod-
In 2015, Apple launched the Apple Watch, which
els, and bookstores and music stores are increas-
quickly became the first-ever mass-consumed
ingly becoming a rarity. Television broadcasters
wearable device. If recent trends are any indica-
have also had to reconsider their business mod-
tion, the wearable revolution is almost upon us.
els, having been forced to shift from terrestrial to
According to Forbes, the number of wearables
cable and now live streaming.
shipped could double by the year 2021.
How does all this affect consumers? And how can
More and more market players are joining the
brands and businesses adapt to these changes?
revolution. Levi’s has designed a jacket with Goo-
Over the past few years, I have conducted several
gle tech woven into it, and Callaway has intro-
studies whose findings point to a number of strat-
duced smart sunglasses to its range of premium
egies that would enable companies to take full
products for golfers.
Rethinking the funnel for the omnichannel age
Evolution of the consumer journey
Traditional consumer journey: funnel-shaped
Both journeys start as consumers search for products by exploring different options. Now, rather than ending with the purchase, consumers go on to share opinions about their experience online.
The more companies automate,
consumption, splashing out on flashy goods or ex-
the more free time they open up for consumers.
more free time.
pensive status symbols to display their new acquisi-
While automation at check-ins/checkouts or call
tive power. However, in many advanced economies,
centers may still be relatively new to us, factories,
particularly among millennials, the trend is toward
warehouses and distribution centers are near fully
socially meaningful consumption, personal im-
automated, with robotics increasingly supplant-
provement or wellness. People prefer to spend their
ing the human workforce. The hours freed from
hard-earned cash on an evening class or an art exhi-
work affords more hours for other activities.
bition. It’s substance over style that matters.
Cars are another area undergoing automation,
The new consumer journey
transforming the hours we spend behind the
It’s not just the consumer that’s changing; so, too,
wheel. Uber has agreed to buy 24,000 self-driving
is the sales channel. Today’s consumers begin
cars from Volvo, while numerous other carmakers
their search for products with an unclear need to
are integrating Amazon’s Alexa virtual assistant,
satisfy. The need gradually becomes more defined
which can order your shopping and have it waiting
as they gather more information about the differ-
for you by the time you get home.
ent options available along their way to the purchase. Most of this journey is digital.
It is becoming less and less
useful to memorize dates, events and other en-
Traditionally, the consumer decision journey has
cyclopedic information. More relevant is know-
been presented in the shape of a funnel, in which
ing the right questions to ask and interacting well
the options narrow the closer you get to the point
with other people. For this reason, education sys-
of purchase. Now, that journey looks rather differ-
tems are increasingly focusing on teaching stu-
ent. As soon as you express an interest and start
dents critical thinking and social intelligence.
weighing up your options, rather than narrowing down, the choice sets open up and go extremely
As people gain more dis-
wide, as new windows pop up or you consult dif-
posable income, they may engage in conspicuous
ferent sources on different screens. The journey
80 | IESE Business SchooI Insight | Winter 2018
New consumer journey: fish-shaped
only closes with the purchase. However, it opens
customers who, with each passing day, are aban-
up again as you share opinions, swap stories, offer
doning traditional channels.
advice or give ratings about your experience online. For this reason, the market research agency Kantar has presented the new consumer journey not as a funnel but as a fish (see above).
Tips for the omnichannel era
Where does this leave traditional stores and brands? Above all, what can they do to keep up with this rapidly changing environment?
From retailers’ point of view, they can connect with consumers through multiple points of con-
strengthen your capabilities.
tact, including email, physical and electronic
tions must encourage their teams to develop bet-
catalogs, websites, call centers, social networks,
ter analytical capabilities to understand customer
television, computers, mobile phones, tablets
interests and needs, optimize their store capital
and home deliveries. Although the physical store
and adjust their stock to meet demand – all while
remains one of the key points of contact, its im-
offering an attractive, friendly experience that
portance is diminishing. As markets continue to
complements the digital channel offerings.
adapt to technology, visiting a physical establishment will become a voluntary rather than manda-
tory choice. As such, stores will have to become
is one way of growing exponentially. But more
Working through networks
much more attractive places for customers to jus-
than leveraging a network, companies should try
tify a visit instead of buying online.
to transform themselves into open, flexible, interactive organizations – or what the Canadian tech
This multiplicity of contact points – called omni-
entrepreneur Salim Ismail termed “exponential
channel – represents a revolution in the consum-
organizations.” Traditional companies have limited
er journey that is forcing retailers to offer a fully
resources and tend to grow linearly. Exponential
integrated consumer experience so as not to be
organizations, on the other hand, aren’t asset heavy
left out of the game. Joining them are the manu-
but operate according to a principle of abundance.
facturers of branded products that need to reach
So, rather than investing in hotel rooms, Airbnb Winter 2018 | IESE Business School Insight | 81
Rethinking the funnel for the omnichannel age
Stores will have to become much more attractive places for customers to justify a visit instead of buying online
Stores are also incorporating technologies that drastically improve the customer experience. Can’t find the exact size or color you were looking for? Just place your order on a large-screen touchpad, as Kiabi and Mango are offering in their stores. Want to see how that garment looks on you in another color without changing clothes again? Uniqlo has a “magic mirror” that lets their customers do just that, by modifying the reflection using special display technology. Zara’s new flagship store in London combines several of these features. The store is essentially a showroom where customers try on clothes but buy them online. If the order is placed before 2 o’clock, it will be available to pick up the same day at the store of the customer’s choosing.
taps the abundant supply of homes for tourist accommodation. By tapping into such abundance,
It is this kind of multichannel versatility that con-
exponential organizations are disrupting, disinter-
sumers ultimately want. In a world of empowered
mediating and transforming business models, sec-
consumers, stores need to provide high-quality,
tors and industries.
positive service experiences at every stage of the decision journey, from the initial online search to
make the shopping experience unforgettable
the final physical purchase. It’s no longer a ques-
In this customer-
tion of “What can I sell you?” but rather “How can
all the right reasons).
centric environment, the quality of the shopping
I help you achieve your goal today?”
experience becomes all the more important. Consumers often start their journey online but
accompany customers on their journey.
finish offline with a store visit. This visit needs
digital tools make it possible for brands to accom-
to be as engaging and convenient as possible;
pany customers throughout the entire decision
otherwise, customers will just order the product
journey, from when a need first appears, through
from the comfort of their own home. To make cus-
the various phases of exploring, finding and pur-
tomers feel at home, the retail setting must be as
chasing the product, to finally complementing the
stimulating and inspiring as going to the theater, a
purchase with related products.
people-focused space for experimentation, observation and learning.
A physical presence is no longer enough. Customers expect virtual, round-the-clock attention. And
Ultimately, the final purchase must become the
the focus should be on the customer’s needs, not
defining memory of the experience. To that end,
just on scoring a sale.
stores have begun to complement their usual offering with social activities, such as group classes, art
It is the shopping experience, not the product per
exhibitions, cultural talks or a party with friends.
se, that really matters. “What can I buy?” becomes
82 | IESE Business SchooI Insight | Winter 2018
“What can I achieve?” In this new paradigm, businesses that are more empathic – drilling down into their customers’ interests and needs, and doing everything they can to satisfy them – will be better positioned to shift from a B2C to a C2B model. By doing so, they will reap huge competitive advantages and sustainability benefits. prioritize efficiency.
Guillermo D’Andrea is a professor of business administration at IAE Business School in Argentina, where he specializes in services marketing and international marketing. He has been a visiting professor at Harvard, Babson and Darden, as well as at IESE, where he teaches on the Focused Program “Retail for Retailers: Keys to Success in an Omnichannel Business.”
All of the above requires a
substantial financial commitment. Price transparency and employees working fewer hours will squeeze revenues and margins. In such an environment, efficiency becomes key. It’s no coincidence that Zara, H&M, Uniqlo, Starbucks, Ikea and Walmart are global leaders for their disci-
and behavior, making it possible to offer a more
plined approach to process efficiencies that like-
tailored customer experience.
wise generate value for customers. Another key component in the efficiency equaAs such, comprehensive, flexible planning is an ob-
tion is logistics. From the agile design of Zara’s
ligation, not an optional extra. The goal should be
“fast fashion” operations to the sophisticated
three-pronged: optimize inventory management;
processes of online behemoths like Amazon or
cover growing operating costs; and improve cash
Alibaba, logistics plays a pivotal role in on-time
flows. With regard to stocks, make the most of hot
delivery for customers, the optimal movement of
sellers and “hook” products, enhance low-turnover
inventories, cost reductions, and the maximiza-
products, and use low-margin, low-volume prod-
tion of turnover and cash flow. By fine-tuning and
ucts to introduce new features that make the store
streamlining your logistics, you can offer more at-
visit more attractive for customers.
tractive prices while at the same time providing a better overall shopping experience. It’s arguably
Encourage continuous improvement, such as reg-
the most important factor behind the spectacular
ularly exchanging best practices, empowering in-
growth of distribution firms.
dividual stores, and aligning the firm’s operations with its logistics, supply and brand strategies. In-
In short, we are witnessing the formation of a rad-
stead of trying to play hard ball or squeeze suppli-
ically different consumer reality, brimming with
ers and manufacturers, retailers will have to work
opportunities, threats and challenges for both
much more closely with them to generate a supe-
retailers and distributors alike. The good news is
rior shopping experience.
that, for some time now, the markets have been signaling the way with greater clarity. They also
Companies need to strengthen their “retail brain”
provide the necessary tools – namely technolog-
– the IT systems that help managers track what’s
ical ones – to ensure that we all join the sprint
happening in their stores and anticipate future
from the same starting line. In that sense, the fu-
demand. Thanks to artificial intelligence, it’s now
ture of retail is already here.
possible to see beyond the store’s walls and incorporate data from online and offline channels being used by customers. The end result is a more nuanced understanding of customers’ interests
source: D’Andrea, G. “Rethinking the Funnel for the Omnichannel Age.” IESE Insight Review, no. 36 (2018): 53-58.
Winter 2018 | IESE Business School Insight | 83
How can leaders make innovation happen in their business? Itâ€™s not so much about getting people to think differently as it is about getting them to behave differently. To do that, practice these five key behaviors, plus one more: leveraging personal motivation.
The 5+1 behaviors of innovatio By Paddy Miller and Thomas Wedell-Wedellsborg
on illustrations :
David C. Herreros
The 5+1 behaviors of innovation
We are pleased to reprint this article as a tribute to Paddy Miller, an indelible presence in IESE classrooms around the globe for 35 years, whose ideas on innovation, leadership and organizational change made him an inspirational professor, charismatic speaker and much sought-after leadership consultant. He passed away on September 14, 2018, at the age of 71.
company used various methods, from suggestion boxes to workshops, to collect their ideas. No limits were set on their creativity; quite the contrary, their motto was “there’s no such thing as a bad idea.” When Felix Previdoli became head of R&D, he noticed something was wrong. While the “everything goes” philosophy generated a stream of interesting ideas, hardly any were game-changing. So he tried something different: instead of asking people for whatever ideas they could come up with, he specified the kinds of ideas he wanted to see.
An opportunity presented itself to test the new approach. For decades, Lonza had reaped healthy profits from a product we’ll call Thiamin. But now, art of your role as manager is to
foreign competitors with lower labor costs were
be an innovation architect. Like a
threatening to price Thiamin out of the market.
real architect, this implies shaping
Thiamin plants might have to close down unless
the physical environment in which
they could find a way to lower their costs. To that
people work, but it goes beyond
end, Previdoli invited proposals from the compa-
that to include all the factors that influence peo-
ny’s personnel, stipulating that the ideas must fo-
ple’s behavior at work – the systems and struc-
cus on improving the Thiamin manufacturing pro-
tures, processes and places, strategies and poli-
cess and delivering at least 30 percent cost savings.
cies, shared habits and routines. Such a highly focused brief paid off. Within In researching and writing our book, Innovation as
weeks, Previdoli and his team were testing the
Usual, we discovered some key factors behind inno-
most promising idea. The trial results exceeded
vation – what we call the 5+1 behaviors of innovation.
expectations: productivity doubled and the man-
Use these behaviors as a diagnostic tool to identify
ufacturing cost of Thiamin was slashed by 75 per-
the biggest behavioral bottlenecks to innovation in
cent. The operation was saved and shareholders
your own firm and then work on fixing them.
This shows the power of focus. It shows the differ-
Contrary to what many managers believe, focus
ence leaders can make when they act as innovation
tends to trump creative freedom as a foundation of
architects, directing the search for innovation and
business innovation. Innovators succeed when their
setting clear, limiting goals for their people.
leaders give them a clear, limiting focus, directed at something that can create value for the company.
People don’t often get good ideas when they’re isoConsider Lonza, a life sciences supplier. Recog-
lated in their offices. New insights tend to come
nizing employees were a source of creativity, the
from outside. They’re a bit like a puzzle whose
86 | IESE Business SchooI Insight | Winter 2018
pieces are distributed across vast terrains and they get put together in novel ways – what University of California professor Andrew Hargadon calls “recombinant innovation.” To expose people to these building blocks of innovation, leaders must help their people connect to outside input. Your customers are one such source but not the only one. People can also find new ideas by connecting with colleagues from other departments or even with domains indirectly related to their business. A memorable example of this was when a major broadcaster adopted a no-smoking policy. Suddenly, various divisions that normally had little contact with each other were brought together daily as the
Innovators succeed when their leaders give them a clear, limiting focus, directed at something that can create value for the company
smokers gathered outside and exchanged information on their own business areas. The no-smoking policy inadvertently spawned a creative space for exchanging ideas. One random interaction led to the development of a technology that eventually be-
within certain limits and with no need for docu-
came a major new source of revenue.
mentation, created a strong sense of loyalty.
Stories like this abound. Often, it’s merely a ques-
However, this free rein was balanced with com-
tion of rearranging office spaces. Innovation ar-
munication. Every three months, regional manag-
chitects must constantly seek similar, structurally
ers would spend three days in an offsite meeting,
supported ways to help their people connect to
helping each other solve problems and sharing
best practices. This not only fostered cross-fer-
Ideas aren’t born perfect. At their inception, most are flawed and need serious tweaking. Unfortunately, most people feel uncomfortable with the notion of prototyping. As such, it’s up to innovation architects to help people test and challenge their ideas, exposing them to frequent feedback, and promoting a culture of constant learning and experimentation.
tilization but also ensured that managers weren’t wasting their time on risky experiments, effectively balancing their freedom with a healthy level of sanity-checking. And it worked. Toledo delivered consistent annual growth rates of 15 to 20 percent. His region went from representing 10 percent to representing 22.7 percent of global sales in just two years. By promoting a mix of responsible experimenta-
We saw this in action when we shadowed Heinrich Toledo (not his real name), the regional manager of a European conglomerate. Because he worked with many different country managers, he enforced a policy of rapid, constant experimentation. His willingness to let his country managers experiment with pretty much any idea,
tion and frequent feedback sessions, innovation architects must help people tweak their ideas and work on bringing them to life rapidly.
Given that most ideas start out bad, companies must master the discipline of filtering them, selecting Winter 2018 | IESE Business School Insight | 87
The 5+1 behaviors of innovation
which to invest in and which to discard. The selec-
The 10-hour group was led by an extremely
tion process, though, comes with pitfalls. Research
goal-oriented manager. Under his leadership, the
has revealed the cognitive biases that people suf-
group had speed-filtered the list, rapidly discard-
fer from when evaluating new ideas, making them
ing everything but the top 25 ideas. They discussed
prone to bad judgment calls. For this reason, com-
these in depth, and then force-ranked them into a
panies must strive to optimize their filtering pro-
final list of 10 recommendations. The leader of the
cesses, creating strong support systems that can
other group, by contrast, wanted to achieve con-
help the gatekeepers make better calls.
sensus and believed that all ideas merited the same level of attention. He asked his group to analyze
People don’t often get good ideas when they’re isolated in their offices
each idea through a longer process of follow-up interviews, research and meetings. From this experiment, the head of the business unit realized it was necessary to approach the gatekeeping process more systematically. However, he also felt that using only the most efficient approach would risk missing out on long-term opportunities. Eventually, he created two different gatekeeping processes: a primary one that was fast and aimed at quick wins; and a secondary one that was more meticulous, aimed at exploring less obvious ideas that might have hidden potential. In this way, the business unit dramatically shortened
Choosing who to appoint as your gatekeepers and
the time to turn quick-win ideas into results, while
how they work together will have a crucial bearing
also protecting the more vulnerable long-term
on the success, or otherwise, of your company’s
ideas against overzealous gatekeepers.
ability to filter ideas. The business unit head of a large auto-parts manufacturer learned this when he held a contest to generate ideas internally. As an
Many innovators don’t like to play office politics,
experiment, the ideas were divided into two batch-
preferring to place their faith in the perceived
es. The job of evaluating them was assigned to not
soundness of their ideas. However, many great
one but two different groups of gatekeepers.
ideas have been killed by organizational forces. It’s key to understand that politics, like power, is
Within 10 man-hours, one group had completed
not just a negative force; when used right, it can
its filtering work and recommended how to im-
move ideas toward fruition. It’s the job of the
plement the top ideas. The second group took
leader to create the political space for innovation,
more than 100 man-hours to evaluate the same
paving the way for people to succeed. We call this
ideas and still hadn’t completed their filtering
process. To his surprise, the business unit head found that the quality of each group’s recom-
We saw this dynamic at work when Jordan Co-
mendations was largely similar. Why had it taken
hen, an HR manager at Pfizer, launched pfizer-
the two teams such a different amount of time to
Works. Cohen had noticed many gifted workers
filter the ideas? The primary difference was the
were spending too much time on menial tasks
like vetting spreadsheets or creating PowerPoints.
88 | IESE Business SchooI Insight | Winter 2018
The 5+1 Framework What are your bottlenecks to innovation? Use this tool to identify and fix them.
BOTTLENECKS • Innovation is pursued at random • Innovating in “wrong” or non-essential areas
• Unoriginal ideas lifted from the latest thing someone read • Employees don’t understand their customers
• People polish ideas for ages before testing them out • Ideas prove unworkable only after heavy investment was made
HOW TO FIX IT • Link the pursuit of innovation to business objectives • Direct people’s creative efforts to areas that make a difference
• Facilitate regular contact with people from other departments or unrelated business areas • Exploit existing points of contact with customers to learn more about them
• Use testing as a learning tool, not just for go / no-go decisions • Allow new ideas to change course – don’t force fuzzy ideas into ambitious five-year plans
• No clear system for filtering ideas • Suggestion boxes are “idea graveyards”
• Link the selection criteria to strategic aims • Review and adjust existing gatekeeping practices
• Good ideas are killed by organizational forces or turf wars • Long-range ideas are killed off before they’ve had a proper chance
• People lose steam and give up • Employees don’t own innovation – it’s someone else’s job
• Help employees navigate office politics – map who’s key and who to avoid • Connect innovators to higher-up sponsors with resources
• Examine the rewards or punishments for people who try to innovate versus those who don’t • Ask people to innovate in areas they’re personally passionate about (obviously in keeping with overall business aims)
Winter 2018 | IESE Business School Insight | 89
The 5+1 behaviors of innovation
Given that most ideas start out bad, companies must master the discipline of filtering them, selecting which to invest in and which to discard
90 | IESE Business SchooI Insight | Winter 2018
He came up with the idea of outsourcing those jobs so that Pfizerâ€™s most valuable employees could dedicate more time to high-impact work. After running a pilot, he faced the challenge of winning senior management support in order to roll out the initiative across the organization. Cohen turned to a mentor, David Kreutter, who helped him navigate the organizational terrain, providing advice on how best to position the initiative internally and helping him secure a meeting with the vice chairman. Through deft political maneuvering, the project gained traction. The idea for pfizerWorks was Cohenâ€™s, but without the
support and air cover that Kreutter provided, it would have taken far longer for pfizerWorks to get off the ground and may well have gotten lost. Likewise, innovation architects must help their people
Paddy Miller was a highly popular professor in the Managing People in Organizations Department at IESE. He was the author of two books, Mission Critical Leadership and Innovation as Usual.
navigate the politics of innovation.
Ultimately, creativity is a choice. Your job as a leader is to facilitate people’s choice of the previous five behaviors, and encourage them to persist in the
Thomas Wedell-Wedellsborg is an entrepreneur, management consultant, speaker and co-author of Innovation as Usual.
face of adversity until these behaviors become an ingrained part of what they do. This entails leveraging the power of personal motivation, combining individual interests and reward systems in a way that drives people to persevere. An interesting case is the subsidiary of a European company which for a number of years had been underperforming. Enter a new country manager we’ll call Marc Granger. The business was fighting battles on several fronts: growth was down; employee satisfaction was at an all-time low; employee turnover was double the industry average. Granger’s approach was to give people more free-
Granger, like many other managers we encoun-
dom. Employees, not management, decided the
tered in our research, understood an essential truth
office layout. People could set their own work
about business innovation: it’s not whether people
hours, so long as they delivered results. Most im-
have the ability to be creative (most do, to varying
portant, projects would not be chosen by man-
degrees); what’s important is that they choose to
agement. While everybody had to pick something,
use that ability.
each employee was free to choose the project that appealed to them most. The only requirement
How easy do you make it for potential innovators
was that it supported the overall aim of making
in your company to choose the creative path? Are
the subsidiary a better, more innovative place to
innovators within the firm fairly rewarded? Are
work. In essence, Granger was tapping into one of
failed innovators not treated badly? So long as
the most potent sources of persistence: people’s
people aren’t made to go through hell, they might
personal interests and priorities.
just embrace innovation as usual.
In just a few years, the subsidiary was transformed from one of the worst performing into one of the most profitable. Employee morale improved so
Miller, P. and T. Wedell-Wedellsborg. “Clearing the Path to Innovation.” IESE Insight Review, no. 16 (2013): 52-59.
dramatically that the company was eventually voted the best place to work in the country. In fact, other European subsidiaries were inspired to adopt a similar approach, with equally strong results. Winter 2018 | IESE Business School Insight | 91
92 | IESE Business School Insight | Winter 2018
Joan Roca, the celebrated chef of the three-Michelin-starred restaurant El Celler de Can Roca, reveals the ingredients necessary for achieving world-class innovation.
hen Joan Roca decided to
to achieving breakthrough innovation, what is the
open a restaurant with his
recipe for success?
brothers, Josep and Jordi, he didn’t have any grand ambitions. Growing up in his
Keep calm and carry on
Restaurant kitchens have the reputation of be-
parents’ modest bistro, Can Roca, it just seemed
ing highly charged atmospheres, where profani-
a natural thing for him to do. The brothers knew
ties are shouted along with the orders, as food is
they didn’t want to just take over their parents’
quickly plated and dishes fly off the counter. Not
business, but they didn’t want to stray too far from
so at El Celler. “We’ve never been like that,” says
home, either. They opened El Celler de Can Roca,
Roca. “There has always been a calm atmosphere.”
a small place next door, in their working-class
This, he believes, is more conducive to the con-
neighborhood on the outskirts of Girona, the me-
centrated effort needed for creation.
dieval city in the Catalonia region of northeastern Spain. This was in 1986, long before the area be-
Keeping calm may have something to do with the
came a mecca for foodies and a film location for
training sessions the team holds every Tuesday,
Game of Thrones. Roca can’t even recall the exact
when the restaurant closes its doors at lunch-
day the restaurant opened. “All I can remember is
time so they can receive coaching from a spe-
that it was late summer,” he says. “It was small and
cialist in the psychology of high-performance
cramped, and we used our mother’s crockery. At
teams. While closing at lunchtime means losing
the time, a restaurant guide named us ‘the shab-
the business of 50 paying customers – represent-
biest gourmet restaurant in Spain’.”
ing more than 40,000 euros in lost revenue every month – the benefits of these sessions are price-
In 1995, this “shabby” restaurant earned
less, as he explains. “You have to understand that your customers are
that Restaurant magazine included it in
internal as well as external. So, all staff, including
its prestigious ranking of the World’s
us, the bosses, are present. We talk to the team
50 Best Restaurants, in fifth place. It
but, more important, we listen to what they have
climbed to fourth in 2010, and came
to say. We create an environment where any issue
second in 2011 and 2012, before finally
can be aired and addressed. We think together as
claiming the No. 1 spot in 2013 and
a team. In this way, we protect ourselves from our
again in 2015.
How did a restaurant with such in-
Running a large restaurant, as El Celler has be-
auspicious beginnings become the
come, is not the same as running a small family
best in the world? When it comes
bistro: “When you’re a small restaurant, with four
photos courtesy of :
2002 and its third in 2009, the same year
El Celler de Can Roca
its first Michelin star. Its second came in
The recipe for success
or five employees, you can deal with issues as they
constantly question things in order to find new
arise. But when you have more than 75 people
ways to transform products and get the presenta-
working for you, you need to take some time out,
have a breather. Sometimes it’s best to take two steps back before charging forward again, with a
El Celler dedicates thousands of hours to experi-
clearer mind and a freshened team.”
mental research. In 2014, for example, 12,000 hours
Thoughtful use of space
of research resulted in the introduction of 58 new dishes. This creative know-how has made El Celler an
In addition to all the preparation, organization and
attractive partner for businesses in other fields. Cor-
training, Roca says “it’s important to think carefully
porate sponsorships, which the Rocas have agreed
about the use of space – in the kitchen, the flow
to sparingly, have led to several mutually enriching
of people and materials – to make sure that every-
experiences. BBVA, for instance, invited members of
thing is in the right place, so that your team can
the restaurant team to visit places where the global
perform at its best.”
bank has operations and where there is a rich culinary tradition – from Hong Kong and Turkey to Latin
“When you know nothing and so you’re forced to listen, it’s very healthy”
America and the southern United States. “We did three summer tours, traveling the world, cooking with local people, looking for and finding inspiration,” says Roca. “We grew as individuals and forged stronger ties with each other, which helped make the whole team more cohesive. Traveling is one of those things that make you realize you still have a lot to learn.” Going to a market in Bogota or Bangkok and discovering fruit you have never seen before is “an amazing learning experience,” he says. The same goes for reading and speaking with local cooks and producers, “with people who know more about the land and the ingredients than you do.”
This is not as obvious as it seems: “In many restaurants, the kitchen is tucked away in a remote corner
“When you know nothing and so you’re forced to lis-
or in a basement, because some architect consid-
ten, it’s very healthy. And this feeling of acknowledged
ered it inappropriate from the point of view of the
ignorance – at a time when people are calling you
customers. But that placement is not so good for
No. 1 in the world – is a powerful driver of personal
actual cooking.” This is one of the great changes that
growth. It serves as a tool to ‘attack’ your success, and
French nouvelle cuisine brought about. “The chef de-
helps keep you active and alive.”
cided where and how the kitchen should be built, because it was his home.”
Creativity as a discipline
Besides researching, devising and preparing new dishes, restaurants such as El Celler have also trans-
Another key ingredient for innovation is creativi-
formed the way food is consumed. It’s no longer the
ty, which Roca associates with nonconformity. “It’s
customer who chooses from the menu, but rather
not just about cooking well. We encourage teams to
it’s the menu’s creators who guide the customer.
94 | IESE Business School Insight | Winter 2018
Six star ingredients
The success of each dish is underpinned by these key elements. Passion for what you do
an architect takes basic materials and
key issue. Say we’re working on a
When starting out, “it wasn’t easy,”
builds structures that have to be both
new dish containing peas. By the time
says Roca, “but it was fun! We were
useful and beautiful – that make you
the dish is ready, and we’ve decided
eager to work and enjoy ourselves,
feel good. If everything is united, things
how it’s going to be and what kind
doing what we love.” That spirit is
flow that much better.”
of platter we’re going to serve it on,
Seeing through multiple lenses
signed and -made, the pea season in
what keeps them going, to keep “adding new touches to a project that continues to excite and enthrall us to this day.”
Work, work and more work
The path toward innovation starts from a multidisciplinary dialogue
involving creative professionals from a host of fields: designers, botanists,
which may have to be custom-dethe local region may already be over.”
Staying true to your roots
“We’re still in the exact same place
“We work a lot. Yesterday I was here
chemists, artists. “We try to ensure
where we were born and grew up.
until 4 a.m. when the last customer
there are as many lenses as possible.
There’s a deep connection with
left.” Success comes only after years
Through this rich dialogue, we look
our roots that has prevented us
of “just working hard to constantly
for new ways and new formulas to
from moving, despite the numerous
improve, learn new things, perfect
improve the customer experience.”
offers we’ve received.” Roca sees
your craft – like slowly chipping away at stone.”
Timing is everything
those who have compromised their authenticity by straying too far from
The amount of time that can elapse
their roots: “When you go to a famous
between the conception and prepa-
restaurant and you notice that not a
Spaces are key for creativity. Roca
ration of a new dish can last anywhere from a month to a year. “The
single customer is from the area, you
draws parallels with architecture: “Just as we make dishes from ingredients,
seasonal nature of the product is a
can’t help feeling this is not real.”
Winter 2018 | IESE Business School Insight | 95
The recipe for success
“The customer comes with an open mind, an adventurous spirit, and puts his or her trust in us”
“This is one of the great changes,” says Roca. “Restaurants like ours are fortunate because the customer comes with an open mind, an adventurous spirit, and puts his or her trust in us.” This freedom has enabled the kitchen to progress. Without it, “we wouldn’t have come so far in terms of creativity, because we’d be restricted by what each customer orders on any given day. This eases product flows, since we already know what we’re going to offer. It’s more sustainable and less wasteful.” Of course, this only works once you’ve achieved a certain status and people come looking for an experience – and one that Roca doesn’t consider inordinately expensive, since “the effort, the product and the human team behind it are extraordinary.” The price of a meal with wine pairings ranges between 250 and 300 euros per person, somewhat
To preserve their freedom, the Roca family has
less than in other world-class restaurants such
embarked on a series of associated ventures: Es-
as Osteria Francescana in Modena, Italy, or Elev-
pai Mas Marroch, Rocambolesc and, opening in
en Madison Park in New York City. Although they
2019, Casa Cacao. These allow the family to gener-
could easily charge more, Roca insists on keeping
ate additional income through catering, ice cream
it within the realms of possibility for local people.
and chocolate ventures. They also publish best-selling cookbooks and have developed popular online cooking courses, or MOOCs. The latter is a demonstration of how they have been able to take “what we have always done and what we have always been committed to” and leveraged new technologies to share that knowledge more broadly. For Roca, opening up knowledge to others is crucial for two reasons: “It spurs your colleagues to evolve, but it is also a way of establishing your authorship and turning your accomplishments and knowledge into a shared heritage.” As innovators collaborate, like many of the great chefs in Spain have done in recent years, that is how a field makes a collective progression.
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96 | IESE Business School Insight | Winter 2018
We manage our customersâ€™ hard work and dreams by taking care of their finances.