IESE Business School INSIGHT No. 154

154

Where ideas and people meet

Countdown to 2030

The new responsibilities of business for people, the planet and our future prosperity

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EDITOR’S NOTE

Antonio Argandoña Editorial Director of IESE Business School Insight AArgandona@iese.edu

N

What’s your resolution? o one ever said leading was easy, much less leading with ethics in today’s complex world. But the latter is very important. It’s the difference between being a technically good executive and a good executive in the fullest sense, one who knows not only how to do things but how

to do the right things.

Admittedly, this is made harder when there’s so little time for reflection and per-

verse incentives abound, leading people to act in ways they shouldn’t because they get paid to do things they shouldn’t. There’s a lot of inertia, and if it works to keep doing things the same old way, that creates a success trap. There are human errors and, just as inevitably, the human tendency to deny or cover up those errors.

In this context, frameworks such as the United Nations’ Sustainable Development Goals (SDGs) help us to find our way.

Cover Photograph © Mandy Barker

This magazine is full of stories of people who are trying to

“Lost at Sea” was

deep sense of purpose and responsibility. As we face 2020,

created by artist

we stand at an inflection point: 10 years to achieve as many

Mandy Barker for

of the 17 SDGs as possible; 10 years to create the better world

the IKEA Art Event

that governments and businesses around the world collec-

lead their organizations in the right direction, acting with a 154 IESE Business School Insight | 154

2019

Where ideas and people meet

Countdown to 2030

The new responsibilities of business for people, the planet and our future prosperity

2016. The visually

tively agreed to aspire to. As you read these stories, consid-

beautiful image is

er what your own company is doing. Are you doing enough?

entirely made up of

What leadership qualities do you need to develop in order to

plastic debris recov-

do even more?

ered from beaches on six continents, highlighting the disturbing world of plastic waste

In doing this reflection ourselves, we have made sure that

hidden under our seas. By drawing in the

the paper in this magazine comes from recycled material or

viewer through aesthetic attraction, the art-

controlled wood certified by the Forest Stewardship Council

ist aims to provoke an emotional response,

(FSC). The mailing wrapper is a polyethylene film made from

making us question how and why these ev-

biomaterials, which the supplier assures is completely safe

eryday objects have ended up in the ocean,

and emits no substance harmful to the environment.

and hopefully leading us to positive action in tackling a problem of global concern.

It’s all part of being consistent in what we say and do – one of seven key leadership traits we highlight, along with being inspiring. We trust that this issue of IESE Business School Insight will serve to inspire you!

Contents #154

REPORT

Countdown to 2030

The new responsibilities of business for people, the planet and our future prosperity One word: plastics As the tide turns against single-use plastics, know where your business stands

18

6

7 LEADERSHIP QUALITIES FOR THE GOALS Check your personal readiness: which qualities are you lacking?

24

We’ll always do things because we believe they’re right Juvencio Maeztu, Deputy CEO and CFO of Ingka Group, describes what IKEA is doing to meet the goals 26

Goals made easier

It’s time for everyone to step up Lise Kingo, CEO of the U.N. Global Compact, recommends

what more companies can do to meet the goals by 2030

20

Do your projects create social, environmental and economic value? Use this framework to find out

“Above all, you need to determine which of the goals you’re going to tackle as a company” Lise Kingo

“Making true progress on sustainable development will entail multistakeholder partnerships” Joan E. Ricart and Pascual Berrone

30

“The old way has an expiry date. Either you focus on making a positive contribution to the world or you’re gone” Juvencio Maeztu

THE BIG PICTURE

SMART PICKS

Handling feedback

The pursuit of happiness

Tips for giving and receiving feedback better

32

HACK

“Happy new year,” we say. But what does it take for it to be so? Consider what these experts say

52

KNOW

5 tips to knock an M&A disaster on its head

34

The effect of worldview on relational mobility

35

Decide ethically, and justice will follow

35

When morals meet models

56

Don’t fool yourself

64

Wonderful decisions

68

By Daniel Beunza

By Pedro Nueno

+IESE The more you learn, the greater your impact Cristina Ventura, a catalyst for innovation

38

By Roberto García-Castro and Miguel A. Ariño

Driving transformation Gaby-Luise Wüst on Audi’s growth in China

42

All work and…play Entrepreneur Luis Pallares loves the underexplored opportunities

44

Walk the talk A coffee a day keeps the poachers away

48

“I learned the biggest lessons when I left my comfort zone” Steffen Sauer

FULL STOP

Innovative spirit Leadership lessons from Gaudí’s Sagrada Familia

76

Staff #154

Editorial Director Emeritus

Design, Infographics and Layout

Antonio Argandoña

Prodigioso Volcán

Editorial Board

Marketing

Fabrizio Ferraro, Strategic Management

Susanna Arasa

Carlos García Pont, Marketing Beatriz Muñoz-Seca, Production,

Advertising

Technology and Operations Management

M&N Consulting - Antonio Moré. Tel.: 93 544 12 34

Sebastian Reiche, Managing People in Organizations Joan E. Ricart, Strategic Management

Printing

Carles Vergara, Financial Management

QP Print

Managing Director

Published by

Gemma Golobardes

IESE Business School — University of Navarra Legal Deposit: B 24325-2018 — ISSN 2604-5907

Editors Marta Comín, Emily McBride, Jordi Navarrete, Roger Perelló, Cintra Scott, Philip Seager Audited circulation: 44,998 Editorial Contributors

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The opinions expressed in the articles published in this magazine are solely those of the authors. Articles may only be reproduced with prior written permission of IESE Business School, University of Navarra, and the original source must be cited.

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Count to

down 2030

Meeting the Sustainable Development Goals. Are you ready?

REPORT

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I

n August 2019, the Business Roundtable rep-

Climate Action Summit upon her arrival in New

resenting top U.S. companies released a head-

York. “We are in the beginning of a mass extinction.

line-grabbing “Statement on the Purpose of a

And all you can talk about is money and fairytales of

Corporation” signed by 181 CEOs. In a signif-

eternal economic growth. How dare you!”

icant about-face from previous statements

issued since 1997, the signatories affirmed that a

Perhaps sensing the tide of public opinion was turn-

corporation exists to create value for all stakehold-

ing against them, the CEOs appeared to be scram-

ers, not just shareholders, and they committed to

bling to position themselves in the “woke” camp,

leading their companies based on this logic from

and critics dismissed their statement as PR. Others

now on. Investing in people through fair pay, edu-

were less cynical, welcoming their statement with

cation and training; dealing fairly and ethically with

cautious optimism. Everyone agreed that for the

suppliers; protecting the environment; embracing

statement to amount to more than nice words, we’d

sustainable business practices: these were to be

need to see business leaders really starting to put

companies’ animating purpose going forward.

their money where their mouth is.

The announcement got a mixed reception. At the

Time is of the essence. The 2030 Agenda for Sus-

time, teen climate activist Greta Thunberg was

tainable Development is 10 years away and there

crossing the Atlantic in a zero-emissions, solar-pow-

are legitimate fears that it won’t come anywhere

ered boat to deliver a stinging rebuke to leaders for

near to being met unless the business communi-

their lack of action on environmental sustainability.

ty wakes up and begins to act with more urgency.

“People are suffering. People are dying. Entire eco-

Certainly, the countdown has begun.

systems are collapsing,” she told the United Nations

We need to see business leaders really starting to put their money where their mouth is

Growing pressure

How did we get here? Back in the 1990s, the United Nations initiated a series of conferences that brought member states together to define the most urgent priorities for the 21st century. This led to the development of eight Millennium Development Goals (MDGs), which all member states were meant to achieve by 2015. The MDGs were aimed at lifting up developing countries, doing things like eradicating extreme poverty and hunger, reducing infant mortality rates and improving access to education. Almost from the start, the U.N. recognized that this would require a concerted effort by everyone – not just governments but companies too – so it established the Global Compact in 2000 specifically to enlist the help of the business community in advancing the goals. By 2004, the U.N. Global Compact had agreed a list of Ten Principles, grouped under four broad headings: human rights, labor, the environment and anti-corruption (see

8 | IESE Business School Insight | no. 154

Which goal is your company taking action on?

20%

Sized to show which goals companies have prioritized to date.

28%

50% %

48%

66%

61%

32%

34%

25

60

%

47% 39%

13% 48% 39%

Top 5 goals that IESE alumni are pursuing, according to a poll conducted during IESE’s Global Alumni Reunion 2019.

40% 21%

source: U.N. Global Compact Progress Report 2019, based on 1,584 respondents representing 40 industries and 107 countries

no. 154 | IESE Business School Insight | 9

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Countdown to 2030

Your company must have its purpose clear.

This purpose needs to act as the lodestar for the organization, lending legitimacy to all its activities

More and more firms are embracing the agenda. For example, Inditex – the parent company of Zara, whose fast-fashion business model is viewed by some as inherently unsustainable – recently announced that all its garments would be made from sustainable fabrics by 2025 and that the energy its distribution centers, offices and stores consumed would shift to renewables. And Schneider Electric, which sponsors a Chair of Sustainability and Business Strategy at IESE, has committed to become carbon neutral by 2025 and achieve net-zero operational emissions by 2030.

“Sustainability issues are an increasingly visible part of the business landscape,” says Mike Rosenberg, who has been studying and teaching sustainability for more than 20 years. “There has been a clear spike in awareness and public commitment, and I think we might finally be seeing a tipping point in the response of business.”

Pressure is building from multiple sources. “Increasingly consumers are asking more from

the Lise Kingo interview for more on this). These

brands, with millennials, in particular, saving their

were meant to set a minimum standard for com-

dollars for those with responsible business practic-

panies’ actions around the world. By 2015, admira-

es,” says Rosenberg.

ble progress on the MDGs had been made and the Ten Principles were becoming broadly accepted.

In his classes at IESE, Rosenberg gets diverse

To keep this momentum going, another 15-year

groups of students to weigh up the SDGs and try

plan was launched, the current Sustainable Devel-

to figure out which ones they would implement in

opment Goals (SDGs). These consisted of 17 goals,

their part of the planet, and why. “They study the

along with 230-plus allied indicators, broader in

link between business strategy and sustainability,

scope but similarly trying to get public and private

and build wikis on their chosen topics. One of my

stakeholders worldwide to work together to build

favorite ideas that they came up with was to use

“an inclusive, sustainable and resilient future for

satellite technology to measure the achievement

people and the planet,” in the words of the U.N.

of the SDGs using direct measurement of the planet from outer space.”

IESE Dean Franz Heukamp believes the shift toward sustainability is a positive development and

Some of these visionary students go on to be-

the SDGs represent one of the most practical

come socially engaged employees and business

frameworks for thinking about the issue. “They’re

leaders, trained to think strategically about sus-

resonating with more businesses, investors and

tainability, and they change their companies

people in society,” he notes.

from within. Rosenberg mentions a former MBA

10 | IESE Business School Insight | no. 154

student who went on to head up Responsible

To stay on track, your company first needs to have

Retailing for a major multinational – a role that

its purpose clear. “One of the most effective means

didn’t exist before but was now considered a key

of building strong relationships with stakeholders is

pillar of the company’s growth strategy. “Some

to have a relevant purpose shared by all members of

members of this generation are combining their

your organization and which gives meaning to their

passion and energy for sustainability with busi-

daily work,” says Nuria Chinchilla. This assumes that

ness fundamentals like never before,” he says. “To

leaders have dedicated time and resources at three

stay competitive in the labor market, companies

levels: 1) to reflect deeply on what their purpose is;

have to embrace these values.” He cites recent

2) to communicate it well, both to employees and

pledges by Silicon Valley tech firms to become

to other leaders; and 3) to adapt their management

carbon neutral as evidence of them recogniz-

systems accordingly, with good feedback mecha-

ing they need to boost their brand proposition

nisms and measurement instruments in place. This

among 20- and 30-year-olds.

purpose needs to act as the lodestar for the organization, lending legitimacy to all its activities.

The pressure is also coming from investors.

Rosenberg’s Strategy Department colleague,

For too long, companies haven’t had a clearly de-

Fabrizio Ferraro, has been studying responsi-

fined stance on sustainability. Their purpose was to

ble investing for over a decade. He points to the

make as much money as possible, without sparing

staggering growth of a sector that is going main-

much, if any, thought for the social consequences.

stream: “There are now more than 2,000 signa-

As Rosenberg remarks in his book, Strategy and

tories to the U.N.-sponsored Principles for Re-

Sustainability, for decades many companies simply

sponsible Investment, with almost $90 trillion in

refused to accept that a problem existed, or if they

assets under management. This form of invest-

were aware, they chose to cover it up, employing cri-

ing integrates Environmental, Social and Gov-

sis managers and PR professionals to put the best

ernance (ESG) criteria and increasingly uses the

possible spin on their activities rather than engaging

SDGs as its guide. These shareholders, through

in any serious reflection or redesign of their prod-

their investment decisions and engagement ac-

ucts, services or operations. But those represent

tivities, are forcing corporations to confront ESG

reactive responses, when what is urgently needed

issues directly at the board level. And their ef-

are more proactive strategies – in particular, a deep, broad engagement with these issues by senior management, if not a full-scale transformation or renewal of the firm itself, one that treats the SDGs not as boxes to tick but as opportunities for reinvention.

forts are starting to pay off. The Climate Action 100+ coalition of investors, for instance, recently convinced Royal Dutch Shell to set stricter carbon-output targets and commit to halve its net carbon footprint by 2050.”

Purposeful leadership

So how do we get from where we are now to where we’d like to be? For Antonio Argandoña, the SDGs provide “a useful framework to help us move forward, giving us reference points to check our progress, so we don’t find ourselves in the position a year from now of having to start all over again.”

There’s no one-size-fits-all approach, Rosenberg insists. Each company needs to look at its own situation in terms of its customers, employees, shareholders and relationships with governments and interest groups to determine what the right level of response might be. This could range from making sure that your company is fully compliant – what he calls “taking the low road” – to realigning your business purpose and then

no. 154 | IESE Business School Insight | 11

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Countdown to 2030

A great transformer of society The Grand Chancellor of the University of Navarra, Monsignor Fernando Ocáriz, presents this positive vision of the company.

Companies are, above all, communities of peo-

nourishes people and transforms them, as the

ple. And those people show up to work every

enterprise interacts with society and endeavors

day for the usual reasons: to earn a living and

to generate prosperity for all.

support their families; to acquire new skills and knowledge; to enjoy career opportunities and

For this, we are prepared to devote our time,

experience personal satisfaction.

effort, attention, knowledge and enthusiasm, beyond the salary or benefits in the employment

But people also seek and need relationships with

contract. Indeed, the greatest opportunity a

others, since we are inherently social beings.

company can provide is for each and every one

Companies should be an expression of that, too,

of us to transform ourselves.

meeting not just people’s material needs but our spiritual ones as well. Through work we make

Too utopian? Certainly, our daily news confronts

friends and help others; we feel useful and con-

us with the negatives: fraud, layoffs and market

tribute to a common project. And in the process

manipulations; work that is inhumane and incom-

of serving others, we get to know ourselves

patible with family needs; technology that worsens

better, grow and become more complete human

inequality and threatens people’s future prospects.

beings, for the betterment of society as a whole.

Yet such realities should spur us to make an urgent Satisfying the needs of other people is an ob-

course correction away from the lopsided focus

vious part of every company’s mission, namely

on economic dimensions, efficiency and market

through its provision of goods and services. But

share, and put our focus back on people. Ultimate-

satisfying the social dimension is no less im-

ly, transforming the world comes down to how we

portant. Companies need a purpose or goal that

transform the people inside our companies.

source:

From a speech delivered by Monsignor Fernando Ocáriz on July 5, 2019, when he inaugurated a conference on business and social responsibility to mark IESE’s 60th anniversary

12 | IESE Business School Insight | no. 154

proudly “showing and telling” the world about your achievements with respect to the goals.

But make sure “show and tell” is not just for show.

“When sustainability is intertwined with the strategy of an organization, then we should expect to see that reflected, not just in the annual report, but in everything,” adds Joan Fontrodona, holder of the CaixaBank Chair of Corporate Social Responsibility and director of the Center for Business in Society.

So, if we conceive of a company as a community of people, serving other people, in a society made up of people, then all other considerations – capital, facilities, technology and legal realities – become subordinate to that, and the story we “show and tell” about our company’s progress will begin to look rather different.

Using the right indicators and metrics appropriate to your goal is important, but even more so if you decide to adopt the strategic option that Rosenberg refers to as “pay for principle.” This is where your company may be willing to sacrifice some financial performance for the sake of a compelling, socially responsible agenda. In some cases, shareholders might support a company doing things that are difficult or even impossible to justify purely from a bottom-line perspective, but this still entails being able to put a number on it, for the sake of transparency.

Lead by example, going above and beyond baseline compliance.

Always act with integrity and a social commitment Leaders must also cultivate a hybrid mindset, able to blend different logics. Ferraro sees this job of orchestrating the pluralistic demands of multiple stakeholders as increasingly part of the CEO agenda. He highlights the unlikely collaboration

This necessitates a specific management style,

between Dow Chemical and The Nature Conser-

as Fontrodona describes. Managers must cou-

vancy. Not that long ago, a partnership between

rageously lead by example, going above and be-

a chemical company, seen as polluting the envi-

yond baseline compliance. Their leadership will

ronment, and an NGO, responsible for protecting

be characterized by integrity (always behaving in a

it, would have been unthinkable. But as he notes,

responsible manner with stakeholders) as well as a

“Rather than pitting conservation goals against fi-

social commitment (getting involved in activities

nancial ones (as would have been done in the past),

that improve society as a whole) and in particular

the chemical giant and the environmental NGO

a commitment to the local community in which

collaborated on finding operational solutions

the business is based and has influence.

that jointly addressed business concerns and the

no. 154 | IESE Business School Insight | 13

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Countdown to 2030

Sustainability = better performance

90

%

% 80

of the studies showed that stock price performance was positively influenced by good sustainability practices.

of the studies showed that sound sustainability standards lowered the cost of capital.

ESG & financial performance

19 Up to

%

The University of Oxford and Arabesque Asset Management analyzed 200 academic studies to determine if sustainability business practices and economic performance were linked…

88

%

of the studies showed that Environmental, Social and Governance (ESG) practices resulted in better operational performance.

In certain industries, the top performers in ESG topics (such as ensuring a responsible environmental footprint or promoting equal opportunity) reported…

12.4 Higher margins by up to

higher market valuation premiums

source:

percentage points

Boston Consulting Group study of five industries: consumer packaged goods, biopharmaceuticals, oil and gas, retail and business banking, and technology

protection of the natural environment.” In short,

a bit slow to pick up and run with the sustainability

CEOs are learning how to reconcile the pursuit of

agenda is that the arguments haven’t always been

sustainability goals with profitability, and to work

convincingly framed in business terms. And when

in partnership even with strange bedfellows.

the subject is raised, the language has tended to

Finding common ground

be combative rather than constructive in tone. To make headway on the goals, companies and their

Both Ferraro and Rosenberg have long argued that

shareholders and investors need to change the way

part of the reason why the private sector has been

they talk to each other and find common ground.

14 | IESE Business School Insight | no. 154

It’s worth reflecting on the way we talk about the SDGs in our own companies. Framing everything as a business problem isn’t enough In his research on shareholder engagement, Ferra-

be more effective at producing the real, lasting

ro studied the early history of engagement on cli-

social change that sustainability advocates seek.

mate change, specifically how the Interfaith Center on Corporate Responsibility (ICCR) – a coalition of institutional investors who advocate for ESG

Righteous indignation

That said, there are other key factors that could move

concerns – engaged with U.S. carmakers on the

the SDGs up the corporate agenda: executives’ ca-

issue of global warming in the 1990s. With Ford,

pacity to tap moral convictions and their suscepti-

one of the keys to successful engagement was the

bility to “system justification.” According to research

active reframing of the issue from climate policy

by Sebastian Hafenbrädl, those who see the world

(which could be dismissed as a matter for public

as just and fair, who believe that everyone gets what

policymakers, not a business concern) toward cli-

they deserve and deserve what they get, tend to be

mate risk, a concept more likely to resonate with

numb to social and environmental problems. So, no

executives. Risk is something that demands man-

matter how sound the business case may be for sup-

agerial attention. Through this, Ford became one

porting the SDGs, if that business case is predicated

of the early carmakers to break ties with the cli-

on a “fair market” ideology, then its effectiveness as

mate-change-denying lobby, launching a first-of-

a driver of change is neutralized.

its-kind climate risk report and focusing on making more environmentally friendly cars.

“Framing everything as a business problem isn’t enough. To make authentic improvements in what

As such, it’s worth reflecting on the way we talk

are essentially moral and ethical problems, they

about the SDGs in our own companies. It’s not just

need to be recognized as such,” says Hafenbrädl.

semantics: the language we use, and our strategic

“Most people are quite capable of moral reasoning

use of dialogue vs. in-your-face activism, genuine-

in their personal lives. Our research suggests that

ly does influence managerial receptivity, attention

if executives were able to access their moral emo-

and adoption. Naming-and-shaming activism can

tions and intuitions and use their capacity for moral

lead to boardroom standoffs and showdowns,

reasoning at work, they would engage more strong-

whereas making a persuasive business case may

ly, and more substantially, in socially responsible

no. 154 | IESE Business School Insight | 15

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Countdown to 2030

activities than if they just analyzed every decision

Today, Interface is well on track to meet the bold

in terms of the business case. And this applies even

Mission Zero vision that Anderson set in motion be-

for executives who strongly believe in the business

fore his death in 2011, to fully eliminate the negative

case for corporate social responsibility.”

impacts of its manufacturing processes by 2020.

The late Ray Anderson, founder of the carpet maker

Transforming society

Interface, is a case in point. In the documentary The

As we head toward 2030, companies have an im-

Corporation, he recounts his personal journey from

portant window of opportunity before them. Over

apathetic executive to champion of sustainable

the next decade, it will be up to you and your com-

manufacturing, owing to a moral awakening. “For 21

pany’s leaders to decide the role you want to play

years I never gave a thought to what we were taking

in this ambitious effort.

from the earth or doing to the earth in the making of our products.” It was when he was asked to present

“At IESE, we’ve been talking about the purpose

his vision to a task force on the environmental im-

of the company and its social responsibilities

pact of their operations that he began to read up on

since our school was founded in 1958,” says An-

the matter, and his conscience was pricked. “I was

tonio Argandoña. “While the Business Roundta-

amazed to learn just how much stuff the earth has to

ble statement may not, in itself, be revolution-

produce through our extraction process to produce

ary, it can help spark a revolution. How? If all

a dollar of revenue for our company. When I learned,

those signatory companies truly began to be-

I was flabbergasted.” It was biologist E.O. Wilson’s

have as their declaration says – upholding the

phrase “the death of birth,” referring to species ex-

needs of their customers, employees, suppliers

tinction, that Anderson said felt like the “point of a

and local community stakeholders in addition

spear into my chest” which was “an epiphanal expe-

to their shareholders – then that will foster a

rience – a total change of mindset for myself and a

new culture and new habits in terms of the way

change of paradigm (for my business).”

business is done. That is how virtue is developed. And the more that people behave with

Later, he addressed civic and business leaders as

virtue, the more that others follow their exam-

“fellow plunderers.” In a provocative speech, he

ple, giving rise to even more virtue. In this way,

said: “There is not an industrial company on earth,

companies can become moral transformers of

not an institution of any kind, that is sustainable. I

society. May it be so.”

stand convicted. But not by our civilization’s definition. By our civilization’s definition, I’m a cap-

As you reflect on your own progress toward 2030,

tain of industry, a kind of modern-day hero. But

let these final words from Greta Thunberg echo in

really, the first Industrial Revolution was flawed, it

your ears: “How dare you pretend that this can be

is not working, it is unsustainable, it is the mistake.

solved with business-as-usual. The eyes of all fu-

And we must move on to another, better industri-

ture generations are upon you. We will not let you

al revolution and get it right this time.” He painted

get away with this. Right here, right now is where

a picture of an organization of people committed

we draw the line. The world is waking up. And

to a purpose of doing no harm.

change is coming, whether you like it or not.”

IESE is a signatory of the Principles for Responsible Management Education and the U.N. Global Compact, dedicated to supporting the Sustainable Development Goals through management education, research and thought leadership globally. IESE runs various initiatives to promote social responsibility and sustainable development in business, including its research centers and chairs (notably the Center for Business in Society, the Fuel Freedom Chair for Energy and Social Development, and the Schneider Electric Sustainability and Business Strategy Chair) as well as regularly organizing Energy Prospectives seminars with the Naturgy Foundation.

16 | IESE Business School Insight | no. 154

Positive impact achieved so far

Companies reporting significant or somewhat positive impact on the goal to date.

1. No poverty

2. Zero hunger

3. Good health and well-being

57%

45%

78%

4. Quality education

5. Gender equality

69%

80%

6. Clean water and sanitation

7. Affordable and clean energy

8. Decent work and economic growth

52%

9. Industry, innovation and infrastructure

60%

87%

74%

10. Reduced inequalities

11. Sustainable cities and communities

60%

12. Responsible consumption and production

72%

13. Climate action

14. Life below water

15. Life on land

61%

28%

41%

16. Peace, justice and strong institutions

17. Partnerships for the goals

68%

50%

64%

source: U.N. Global Compact Progress Report 2019, based on 1,584 respondents representing 40 industries and 107 countries

no. 154 | IESE Business School Insight | 17

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Countdown to 2030

One word:

plastics

“I want to say one word to you, just one word: plastics.” The businessman who uttered this immortal line in the classic movie The Graduate turns out to have been right in predicting the growth area of the future, as global plastic production since 1967 has grown exponentially. However, his other prediction that “There’s a great future in plastics” is looking less certain these days – a point that today’s generation of graduates would do well to contemplate. When it comes to the business of plastics, to quote the film again: “Think about it. Will you think about it?”

million tons

By 2025

10x 1.8

of plastics enter the world’s oceans each year

this amount

if we don’t change our ways

trillion

pieces of floating plastic in the Pacific trash vortex

Plastics in the ocean come from...

20% - 40% sea-based sources

In Europe

In million tons 400

420

300 200 100

The problem

8

The rise of global plastic production

<

5

0 1950

2020

source: Geyer, Jambeck & Law (2017)

mm pieces

Microplastics have been found in drinking water, soil, fish, even tea bags

60% - 80% land-based sources

26

million tons

of plastic waste generated every year

<

30%

is recycled

What worries Europeans most about plastics?

74% health 87% impact their

18 | IESE Business School Insight | no. 154

the environmental

94%

agree plastic packaging should be drastically reduced and products designed to ease recycling

The EU initiative

The main offenders

Already a world leader on data protection, the EU adopted the Single-Use Plastics Directive in May 2019, with rolling deadlines of between 2 and 5 years for member states to implement its rules to:

1 2 3 4 5 6

BAN

80% waters comes from plastics of marine litter in EU

70% a few main sources

plastic items for which alternatives exist

of that comes from

REDUCE

10 single-use plastics 43% Top found on European beaches

consumption of food and drink containers

EXTEND

producer responsibility to include clean-up

REQUIRE

90% of plastic bottles to be collected through deposit refund schemes

LABEL

products on plastic content and how they should be disposed

Cigarette butts

Beverage containers

Cutlery, plates, straws and stirrers

Bags

Balloons and balloon sticks

Snack packages

Food containers

Cotton swabs

Cups and lids

Sanitary items and wet wipes

EDUCATE

consumers on waste and recycling

Business action plan Know how it affects your industry

By 2030 Avoid

3.4

of CO² emissions

€

22

million tons

billion

in environmental damage

Save consumers

€

6.5

billion

If you’re a producer of single-use plastics, know where you stand. Some plastic products, such as cotton swabs, straws, plates and cutlery, will be banned outright.

Spot opportunities Some plastics will have to be phased out, but others may be more in demand. Additives that change certain plastic properties could be a business opportunity.

New recycling technologies will also be necessary.

See the bright side Green companies are growing, and European regulation is likely to make the region a hotspot for sustainable product development and – as with General Data Protection Regulation – a reference point for the world.

REPORT

S

Countdown to 2030

ustainability: we talk a lot about it but what is actually being done?

Lise Kingo left her private sector job at Novo Nordisk, where she championed the cause, to help

lead the charge with the United Nations. Here she discusses where the U.N.’s 17 Sustainable Development Goals (SDGs) stand today and what more companies can do to put them into practice.

Is the world on track to meet the goals?

There has been good progress but not the kind needed to meet the goals by 2030. The two biggest gaps are in terms of climate action and gender equality. Another area where progress is lagging is young people: close to a third don’t have a job or any kind of education. Also, when it comes to workers in the global supply chain, there are real issues on human rights and living wages.

So, the world still faces huge challenges. But it’s good to see that almost 10,000 companies around the world, large and small, have joined the U.N. Global Compact, the largest corporate sustainability initiative in the world, and 81% of them tell us they have taken action on the SDGs. What else are companies saying?

We just published a study with Accenture in which we asked

the Ten Principles of the U.N. Global Compact and the SDGs

more than 1,000 CEOs to assess the state of sustainability

are very much setting the direction for the future of their

and share how they were adopting the global goals. While

firms. We recommend that the principles and goals be in-

99% of the largest companies believe that sustainability is

tegrated in the whole corporate strategy; in the company’s

critical to their future success, just 21% think business is

articles of association; in its purpose, vision, mission and val-

doing enough. They cite “absence of market pull” and the

ues statements; and in its governance, including the board

trade-off between cost pressures and long-term strategic

agenda, board competencies and board responsibilities.

investment as the main barriers to overcome.

What else do you recommend?

How important is CEO involvement?

One best practice we’re seeing is companies taking a small se-

It’s a prerequisite. Among participating companies, we find

lection of goals they find most relevant to their business and

that the vast majority have CEOs who are personally involved

then anchoring their strategy in them, building targets into

and see this as a strategic business innovation agenda, where

their balanced scorecards and rolling them out across their

20 | IESE Business School Insight | no. 154

U.N. Global Compact/Joel Sheakoski credit :

Lise Kingo

CEO and Executive Director of the United Nations Global Compact, which urges companies to adopt a principles-based approach to doing business in support of achieving the Sustainable Development Goals by 2030.

Itâ&#x20AC;&#x2122;s time for everyone to step up

REPORT

Countdown to 2030

operations. This ensures that business strategies, investments and management systems are operating under the same set of principles and

Ten Principles of the U.N. Global Compact Sustainability starts with a company’s value system. These principles will lay the foundation for success.

HUMAN RIGHTS 1. Support and respect the protection of internationally proclaimed human rights.

2. Make sure your business is not complicit in human rights abuses.

LABOR 3. Uphold freedom of association and recognize collective bargaining rights.

4. Eliminate all forms of forced labor.

5. Abolish child labor.

6. Eliminate employment and occupation discrimination.

ENVIRONMENT 7. Take a precautionary approach to environmental challenges.

8. Promote greater environmental responsibility.

9. Encourage the development and diffusion of environmentally friendly technologies.

ANTI-CORRUPTION 10. Fight corruption in all its forms, including extortion and bribery.

working toward the same set of goals.

What’s your advice for those taking their first steps?

We operate more than 60 Global Compact Local Networks in over 160 countries under the motto of “Making Global Goals Local Business.” So, a good way to start is to contact your local network and find out how to participate in local activities and events. There are a number of easy-to-use tools on our website (www. unglobalcompact.org), including the Blueprint for Business Leadership on the SDGs. Above all, you need to determine which of the goals you are going to tackle as a company and how to integrate them into your business. And if you want to work on a particular issue, such as climate action or gender equality, we can offer specific guidance as well.

Is adopting the goals feasible for smaller firms?

There are great examples of small companies adopting the goals. I think adopting a responsible approach is more of a mindset issue than a resource issue. Developing the company into a purpose-driven organization to create a better world is simply a choice that has nothing to do with size.

Small companies may do an easier version, perhaps picking fewer goals but really using them as unique selling points and boosting engagement.

Many of the companies taking some of the most innovative measures in sustainable food or sustainable fashion, for example, are small startups that have wholeheartedly embraced the sustainability agenda. Indeed, smaller companies are sometimes able to be more innovative than larger ones when it comes to these issues. When companies become too big, it can be harder for them to integrate or embed these concepts into their existing systems and to do it in a proper way that is credible.

Which global trends concern you personally?

The No. 1 trend that worries me right now is the geopolitical instability that we are seeing in many forms, like trade wars.

22 | IESE Business School Insight | no. 154

“Above all, you need to determine which of the goals you’re going to tackle as a company”

And it’s not just me: 63% of the CEOs we surveyed are also

culture of integrity, based on the conviction that your long-

significantly worried about how this instability will affect

term success depends on upholding certain fundamental

their ability to run their business successfully. Many CEOs

responsibilities to people and to the planet. It can’t just be a

know they should be doing more – 71% believe that with in-

few colorful items in an annual report; it has to be genuinely

creased commitment and action, businesses can play a cru-

embedded into your business or it won’t work.

cial role – but, like I said before, only 21% feel they’re doing enough. So this mix of a serious geopolitical situation and

Ultimately, it comes down to a choice. You can choose to do

companies not being sufficiently ambitious is problematic.

very little and just make it look like you’re doing the right thing, but risk it being seen as window dressing. Or you can

What do you say to critics who suggest that companies

choose to take it seriously and give it 100%. It’s the same

are only doing this for PR?

with everything in life, right? With less than 4,000 days to

From day one, we’ve been absolutely clear that the goals must

go until the 2030 target, it’s time for everyone to step up.

be anchored in principles. This means that all your strategies, operations, policies and procedures must be rooted in a

interview by:

Larisa Tatge

no. 154 | IESE Business School Insight | 23

7 REPORT

Countdown to 2030

LEADERSHIP QUALITIES FOR THE GOALS

Making progress on the Sustainable Development Goals (SDGs) requires these special qualities in a leader.

Ask yourself these questions and make necessary improvements in any areas where you see yourself lacking.

1

source:

Based on the U.N. Global Compact’s “Blueprint for Business Leadership on the SDGs” (2017) and complemented with original research by Phu Nguyen Thien, Anneloes Raes and Yih-teen Lee, done in collaboration with leaders of the United Nations Development Program (UNDP) who participated in a senior leadership development program customized for them at IESE (2019)

24 | IESE Business School Insight | no. 154

Intentional

Are the SDGs an integral, deliberate part of your company ’s strategy, incorporated into your long-term business goals?

From the means of value creation to how you manage your people and supply chains, are the Ten Principles and your chosen SDG s driving your company from the highest levels?

3

Consistent

Is support for the SDGs recognized across all organization al functions?

Is ethical behavior em bedded in your senior management tea ms?

Is there consistency and alignment between what your com pany says – through its public voi ce, advocacy and communications – and what it does throughout its bus iness, with regard to the SDGs?

2

Ambitious

Are the targets you set sufficiently ambitious and based on accepted scientific thresholds?

Is your company challenging existing practices to transform how business is done?

4

Accountable

ive Collaborat

Do you hold yourself accountable for the impact your company has on people and the planet?

ships with ing partner Are you forg rnments, ve esses, go other busin ns, y organizatio civil societ d local investors an academia, es? communiti

Are there risk management proc esses and systems in place to prevent adve rse impacts, with mechanisms to remedy any grievances?

making ed decisionIs there shar the so s tnership in those par d? ne w -o being co actions are

Are you transparent with stakehol ders and acting lawfully in accordance with international norms, even if these are not lega lly mandated in the country where you do business ?

3 steps for leadership on the goals As the business environment changes, your leadership must evolve accordingly by repeatedly going through these three steps:

ACT

Take time and contextspecific action that is intentional, ambitious, consistent, collaborative, accountable, resilient and inspiring (as described on these pages).

PRIORITIZE

Prioritize the action you want to take on the 2030 Agenda. â&#x20AC;&#x153;Principled prioritizationâ&#x20AC;? means that you will always uphold the Ten Principles of the U.N. Global Compact, even if more expedient market opportunities might present themselves.

5

6

Resilient

Are you able to stay cal m and determined when fac ing challenges and setbacks in the pur suit of ambitious SDGs?

Have you developed eff ective mechanisms for coping with frustrations and difficulties when imm ediate results are not yet visible?

LEARN

Share what you learn along the way, both internally and externally, so that other actors can benefit from your experience.

Continuously monitor and assess your impact. As you learn, you may want to expand your action on the 2030 Agenda, which brings you back to Step 1.

Inspiring

7

vel Are you motivated by a higher-le ugh thro rs othe g vatin moti and ose purp s?

SDG your shared pursuit of the

Do you articulate your vision and as well mission clearly to guide yourself ired to insp are le peop that as others, so es for selv them of ion vers best give the le? who ctive colle the of good the

REPORT

Countdown to 2030

We’ll always do things because we believe they’re right

J

uvencio Maeztu calls himself “an aspirant.”

of the company, then those dilemmas go away. Talking with

Despite a long track record of managing re-

colleagues around the world, I find more and more have

tail operations and finances for IKEA since

reached that point in their thinking. Now the question is:

2001 in Spain, Portugal, the U.K. and India,

how can we make sustainability happen in a faster way?

Maeztu happily admits that he still has a lot

to learn. There’s no shame in saying so, he says, “because it

How is IKEA answering that question?

gives you much more confidence and energy about learn-

It helps that our mission has always been “to create a better ev-

ing. And we all need to embrace learning.” Having earned

eryday life for the many people,” which is more relevant than

an MBA at IESE and now sitting on IESE’s International Ad-

ever. To that we’ve added a People & Planet Positive agenda with

visory Board, Maeztu is currently on a learning curve along

specific goals to transform our entire business. This is what I

with many other CEOs around the world as they collectively

mean by anchoring the SDGs in your core values. It’s also a pro-

apply the U.N. Sustainable Development Goals (SDGs) to

cess of responding to the values of society, and determining

their businesses. Here he shares what he has learned so far.

your company’s role in that society. I look at my children: their generation is leading the way on sustainability issues. That puts

How seriously do you think companies are taking the

a big responsibility on companies like ours to welcome new

Sustainable Development Goals?

generations and allow them to influence our future direction.

Companies used to view sustainability as a dilemma: if we do this, it won’t be good for our P&L or it might compromise

So, consumers and employees are driving this agenda…

customer preference. But when we stop treating sustain-

It’s the coming together of our values and vision with the

ability as an activity and instead anchor it in the core values

demands of society and new generations. As they make

Juvencio Maeztu

Deputy CEO and CFO of Ingka Group, which manages IKEA operations.

credit :

Roger Rovira

these demands, we have a responsibility to provide solutions and integrate them into our business model. So, when IKEA makes products, it’s about the design, the quality, the functionality, the price – and the sustainability. We have to consider all these dimensions. And when we do this, the outcome is a sustainable business model that can help the people and the planet.

How do you ensure sustainability stays core, and avoid mission drift?

Three ways. The first has to do with the company culture you build and the expectations you set, starting with the people you hire. We’re obsessed with recruiting by values, not curriculum. If you hire people who already share the same values of wanting to build a better world, then everything else becomes easier. In this regard, we find the blind CV is a good technique to find people – not profiles but people.

Second, as I said before, sustainability has to be embedded in the business model, in the strategy, in the operations, in all planning, across all layers. You can’t have a business plan

no. 154 | IESE Business School Insight | 27

REPORT

Countdown to 2030

and then a few CSR activities on the side. Finally, you have

Third is having humility and willpower. Why this com-

to report. As the saying goes, what gets measured matters.

bination? Because when going through transformation,

And after you measure, you have to follow up.

you’ll have to act fast in the face of a lot of unknowns.

You need to be humble enough to accept what you don’t

How should companies approach reporting?

know, and then super determined to go through with it.

Reporting is not just to fulfill some statutory obligation; it’s

It would be very dangerous if you felt you had to have all

to show how you’re doing with regard to your mission. We

the answers or if you spent limited time trying to find the

don’t issue a financial report and then a sustainability one.

perfect solution.

Because all our KPIs are measured with sustainability, we combine numbers and stories in one document. I would stress that the main objective of reporting is not to justify things externally (though, obviously, subjecting your performance to public scrutiny is a good thing) but to challenge your colleagues and those working inside the organization to keep moving the company forward in its mission.

What’s your advice to companies trying to transform themselves to become more sustainable?

First, transformation doesn’t have to mean a 180-degree change. For us, transformation is about deciding what will never change, which for IKEA is about having a deep, genuine interest in the way you live at home. We’ll never touch that. And we’ll always do things because we believe they’re right. Then, it has to make business sense. But notice the sequence: you start with your values and doing what’s right, and after that you consider how.

Second, have a transformation agenda. Ours is called “10 Jobs in 3 Years.” It’s about identifying 10 jobs that represent strategic choices where transformation has to happen.

What new roles do we need in our stores to position IKEA as People & Planet Positive?

How do we need to transform – not improve but transform – the way that IKEA is today to what it will need to be in the next three years? We could have said “10 jobs in 10 years” but then it just becomes an ambition. Three years forces actionable strategies.

That’s how transformation happens. credit :

28 | IESE Business School Insight | no. 154

Roger Rovira

The circular model is one of your goals. How does a retailer make that work?

It goes back to values. Take one of our business principles: quality. The higher the quality of a product, the longer it’s going to last, and the less need there will be to buy a replacement. Does that mean we should stop investing in quality? Of course not. We invest in quality, despite the apparent tradeoff, because it’s the right thing to do according to our values.

In designing with circular principles, if we do something in plastic, it has to be recycled plastic, or if we do something with wood, it has to be FSC certified. It can also be recycled at the end of its life and sent back into the supply chain. In India, we started a project to turn food into compost, which was given to female entrepreneurs who grew vegetables, which were then used in IKEA stores. We’re doing things like that to really close the loop.

We’re also testing services to give a second life to IKEA products. Through a sharing platform, people can list, sell, buy or rent secondhand IKEA furniture or obtain spare IKEA parts. In 2018, we repackaged more than 8 million pieces of furniture and redistributed more than a million spare parts to consumers.

From the way the product is made to the end of its life and everywhere in between, we’re exploring many activities. And the bottom line is, this doesn’t compromise your turnover. In the end, by being more relevant to many more consumers, revenues will grow.

What would you say to a businessper-

People & Planet Positive IKEA has prioritized these three focus areas in its sustainability strategy: 1. Healthy & sustainable living Inspire and enable more than 1 billion people to live a better everyday life within the limits of the planet by 2030.

• Creating a movement in society

around better everyday living.

• Inspiring and enabling people to live healthier, more sustainable lives.

• Promoting circular and sustainable consumption.

2. Circular & climate positive Become climate positive and regenerate resources while growing the IKEA business by 2030.

• Becoming a circular business.

• Becoming climate positive.

• Regenerating resources, protecting

ecosystems and improving biodiversity.

3. Fair & equal Create a positive social impact for everyone across the IKEA value chain by 2030.

• Providing and supporting decent and

meaningful work across the IKEA value chain.

• Being an inclusive business, providing opportunities for the many.

• Promoting equality.

son who might respond with: “But you could make even more money doing it the old way”?

I’d say the old way has an expiry date. Either you focus on making a positive contribution to the world or you’re gone.

no. 154 | IESE Business School Insight | 29

REPORT

Countdown to 2030

Goals made

EASIER Joan E. Ricart and Pascual Berrone

credit :

Quim Roser

are professors of Strategic Management at IESE where Ricart holds the Carl Schroeder Chair of Strategic Management and Berrone holds the Schneider Electric Sustainability & Business Strategy Chair. They co-direct the IESE Cities in Motion platform on smart and sustainable cities.

T

he magnitude and ambition of the U.N. Sustainable Development Goals (SDGs) mean that no single entity can go it alone; achieving the 17 goals requires a joint effort. In fact, SDG 17 calls for “partnerships for the goals,” recognizing that making true progress on sustainable development will entail multistakeholder partnerships in general and effective public-private partnerships (PPPs) in particular.

PPPs are long-term collaborative relationships, by design,

How transferrable are the results to other geographies?

making them natural vehicles for delivering on the goals.

Capacity building is key: offering training and education,

They leverage the resources and competencies of the private

and then transmitting the know-how and lessons learned

sector – a willingness to take risks, assume upfront costs,

to other stakeholders.

connect markets and create jobs – and then bring them to bear on the provision of a public service or good. And the

inclusiveness.

value they create is not just economic but social and en-

velopment equitable and inclusive, starting from the design

“No one left behind.” Is the growth and de-

vironmental. This “blended value” approach is inherently

to the building to the operation of the project? Can it be

aligned with the essence of the SDGs.

accessed by all individuals, especially the most vulnerable?

Does it promote women’s empowerment?

Despite these apparent advantages, there is limited research on how PPPs can advance economic, social and en-

economic impact.

vironmental goals in parallel. And what work has been done

pact, it’s not just how much money was saved. Rather, it’s how

In measuring the project’s economic im-

tends to focus on the economic dimension only. We wanted

many local jobs were created – decent jobs, with long-term

a different model to assess PPPs’ contribution to the SDGs

employment prospects and the potential to reduce inequali-

beyond the notion of value for money. So, we developed an

ties. Is there technological upgrading and technological trans-

evaluation model that we call EASIER, a mnemonic device

fer, fostering research and innovation, and helping left-behind areas to catch up? Does the project promote more sustainable,

for these six dimensions:

ecological patterns of consumption and production? engagement of stakeholders.

Does the project count on

the participation of all relevant stakeholders (e.g., suppli-

resilience and environment.

How well does the project meet

ers, local community groups, unions, ecologists)? Involving

the needs of the present without compromising future gener-

stakeholders, particularly at the outset of a project, can be

ations? Is there capacity in the system to respond to and re-

a decisive factor in its success. This implies not just mak-

cover quickly from disaster? Does it seek to preserve the nat-

ing information public, but actively seeking stakeholder

ural environment and take action to combat climate change?

input through surveys, public hearings or web forums, and then incorporating their values and preferences

Our EASIER model offers a simple yet holistic diagnostic tool to assess projects, particularly during their design phase. It’s

in subsequent decision-making.

timely and relevant, as the United Nations is studying how access.

Does the project increase access to ser-

people-first PPPs can be used as powerful tools to achieve

vices in the interest of diverse populations? The

the targets and goals of the 2030 Agenda for Sustainable De-

more people who can benefit, the greater the

velopment. Although fulfillment of the goals may seem chal-

impact on well-being, social justice and equality.

lenging, by paying attention to the six dimensions we highlight, the job should be a whole lot easier.

scalability and replicability.

Can the

project be enlarged or expanded to meet growing demand, without significant social or environmental costs?

read more: “EASIER: an evaluation model for publicprivate partnerships contributing to the sustainable development goals” by Pascual Berrone, Joan E. Ricart et al. is published in Sustainability

no. 154 | IESE Business School Insight | 31

THE BIG PICTURE Handling feedback

A new perspective

Annual performance appraisals shouldn’t be a time of dread.

Self-knowledge is key for your personal and professional development, and feedback is a great way to know thyself more. Look to it as an opportunity – both in giving and receiving feedback – with these tips.

It’s never too late to resolve to handle feedback better.

Discover your hidden strengths

1

HIGH

My behavior, as rated by me

LOW

My behavior, as rated by others

By comparing your self-perceptions with the way others see you, 360o feedback – a system for assessing habitual behaviors observed by multiple sources – can allow you to discover your blind spots as well as your hidden strengths.

Remember: how you perform does not define who you are.

LOW

HIGH

Hidden strengths

Strengths

(underestimating myself)

Areas to improve

2

Assume your evaluator has positive intentions.

Blind spots

(overestimating myself)

3

Regard it as an opportunity for improvement.

32 | IESE Business School Insight | no. no.154 154

4

Recognize your biases.

5

Ask for the basis of a critique.

6

Take time to digest comments before responding.

When receiving feedback

An underutilized tool…

…but less feared than most think

When asked about the prior six months, only:

20%

23% of employees report that their manager has provided them with any meaningful feedback.

of employees report having spoken with their manager about the steps they can take to reach their goals.

of professionals believe that negative feedback, if delivered appropriately, is effective at improving performance.

92%

source: The State of the American Workplace (Gallup, 2017)

source:

Zenger/Folkman, HBR.org

More feedback, please How to get your colleagues to tell you what they really think:

1

Make it clear that you want to receive feedback.

5

Try informal get-togethers to touch base.

When offering feedback

1

Choose an appropriate setting.

2

2

Thank people who offer it.

6

Show that you are serious: ask questions, listen, take notes.

Be respectful.

3

Be specific and avoid judging the person.

3

Establish regular avenues for feedback.

7

Link the evaluated behavior with its impact on the organization.

source:

Seek as much specific information as possible.

8

Steer clear of issues unrelated to professional performance.

Communicate results.

4

4

5

Focus only on aspects that are directly relevant to performance.

6

Don’t surprise: any deficiencies should have been discussed periodically.

Based on technical notes written by IESE professor Alberto Ribera as well as other authors

HACK 5 tips to knock an M&A disaster on its head Most mergers destroy value for shareholders.

So, what is it about bad M&A deals that seem to blindside management teams time and again? That’s the multibillion-dollar question at the heart of Nuno Fernandes’ book, The Value Killers, which offers these five tips to prevent merger mayhem from springing up and taking you by surprise.

2

1

DON’T RELY ON INVESTMENT BANKS FOR VALUATION Because investment banks receive much larger fees when M&A deals are closed, they’re on the side of the deal, rather than on the company’s side.

Companies should develop valuations inhouse or look to unbiased third-party advisers.

34 | IESE Business School Insight | no. 154

4

AVOID “STRATEGIC” DEALS Too often the word “strategic” is distracting and empty, with no financial meaning.

Always ask: why merge, why choose this company, and why now?

3

LINK THE BEFORE AND AFTER Whenever possible, put the people making promises about merger synergies in charge of putting those synergies into place. Continuity – with at least some of the same team members working on pre- and post-merger integration – is key to success.

THINK LIKE A FINANCIAL INVESTOR As an investor, would you buy shares of a company at any price? Keep a reasonable number in mind for your acquisition target, set a cap and stick to it, because overpaying is the single biggest predictor of a merger disaster.

5

MOVE QUICKLY AND TRANSPARENTLY Merger uncertainty can take a toll on employees and customers. Thus, even bad news is better than no news. Start work on integration challenges while awaiting regulatory approval, and try to answer questions even before the final answer is known.

Worldview affects your moves

How easy or hard is it to make (or lose) friends where you live and work? The degree to which relationships are fluid (+) or fixed (-) in a given society is measured as “relational mobility.”

A culture’s “relational mobility” score has been linked to people’s thinking styles and worldviews.

So, the next time clashes arise at work, rather than dance around the subject, consider the extent to which cultural factors like this may be at play, and take the lead on managing these dynamics.

Lower relational mobility

Higher relational mobility More individualism, with internal or personal controls, and more analytical thinking. (As seen in the Americas and Western Europe, i.e., places where subsistence was traditionally tied to herding, hunting and other migratory activities.)

More collectivism, with external controls, and more holistic thinking, placed in a broader context. (As seen in East Asia, North Africa and the Middle East, i.e., places where subsistence was tied to collaborative farming and stationary activities.)

“Relational mobility and cultural differences in analytic and holistic thinking” by Alvaro San Martin et al. appears in the Journal of Personality and Social Psychology: Attitudes and Social Cognition

Decide ethically, and justice will follow One might assume that ethical leaders are those

treated. More than any specific action, what

who follow all the rules and apply them in a

sometimes counts more is that employees per-

consistent manner, so everyone is treated fairly.

ceive the boss as behaving in an ethical manner,

But that isn’t always possible. When taking disci-

so when a hard call has to be made, they trust

plinary action or resolving disputes, “justice” in

that it has been done for the best.

one case might be applied differently in another, especially when some actions might collide with a

Promoting ethical leadership has positive spill-

higher priority for management or involve inordi-

over effects in creating a sense of workplace

nate amounts of time or money.

harmony. Ethical leaders are also freed up to act without having their every move analyzed.

Adhering to traditional rules of justice isn’t the only way to ensure that employees feel fairly

“Ethical leadership as a substitute for justice enactment: an informationprocessing perspective” by Tobias Dennerlein et al. appears in the Journal of Applied Psychology

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+IESE

Cristina Ventura

Chief Catalyst Officer at The Lane Crawford Joyce Group, Asiaâ&#x20AC;&#x2122;s preeminent luxury lifestyle group, based in Hong Kong. An avid traveler, certified yoga and meditation instructor and reiki master, she associates success with believing in something bigger than oneself.

THE MORE YOU LEARN, THE GREATER YOUR IMPACT

C

ristina Ventura’s career can be summed up in one word: evolution. Having worked for Louis Vuitton Moët Hennessy (LVMH), Gucci, Prada and Apple Asia-Pacific, in markets

d.school, allowing us to bring design-thinking workshops to

spanning Europe and Asia, the Barcelona

our industry and community in Hong Kong.

native embraces transformation in every facet of her life and work. Now, as Chief Catalyst Officer at The Lane Crawford

Second, my role is about connecting with talent and creat-

Joyce Group, her job is to inject fresh knowledge and in-

ing ecosystems. Over the past three years, we’ve built up a

sights, connect internal stakeholders with diverse networks,

global community of over 6,000 experts whom we can col-

and find new ways of investing and partnering, including

laborate with. This ensures that we stay close to our cus-

through The Cage program, as she explains in this interview.

tomer and stay focused on enhancing their experience.

How does a Chief Catalyst Officer differ from a Chief

The third aspect to my role is social responsibility through

Innovation Officer?

LUXARITY.com, a social initiative whose vision is to inspire

A CIO is mainly focused on technology, whereas a Chief

conscious living for all.

Catalyst Officer goes beyond that to discover new ways of working, new business models and investments in startups.

So, it’s not only about intellectual growth but spiritual growth, too, to reach your maximum potential. The more

My role has three parts. First is igniting curiosity in internal

you learn about yourself, your purpose and your role in so-

teams, continuous learning and challenging the status quo.

ciety, the more you can lead evolution in a human way and

One example is a partnership we launched with Stanford

deliver change and impact. no. 154 | IESE Business School Insight | 39

+IESE

Agent of change

How did working at Apple prepare you for this role?

Apple was a remarkable experience. I was the youngest among 50 leaders, mostly men, and I was leading the biggest locations in the world with the fastest growth. Every month, I had to go to California to share the challenges we faced and bring back new ways of working. I had to learn how to adapt practices from headquarters and make sure they were applied with local nuances.

Apple had a policy that leaders had to interview every single new member, which meant meeting thousands of people.

This experience taught me how to hire by values. I realized that academic or industry background needs to be integrated with “culture fit.” This meant looking at their personality, their empathy and their ability to think critically and be solution-driven. I believe the best hire is the person who has the background, in terms of knowledge and intellect, but also a lot of humanity and empathy, in terms of understanding the culture and values.

The way we measured success was by retention. The team was strong because we focused on their purpose, happiness, fulfillment, growth and well-being. We had this strong

“The future of a business is about leading with responsibility, not responding. Build your power from the inside out, and co-create business success together”

sense of community, an aligned way of working, and we were transparent in our communication. We said absolutely everything; there were no taboos. This was unique in Asia where it’s more about politeness. We ended up with some of

Leadership means being Triple A Aware of the changes and your personal impact and responsibilities.

Authentic in expressing who you really are and never losing your roots and values.

Aligned so everything you think, say, feel and do is in harmony with your values, the values of the company and the community you’re in.

the highest retention rates in the world, around 90%. This is massive in retail, which is normally below 50%.

Tell us more about The Cage...

The Cage is a 12-week ignition and development program created to support early-stage technology startups that enhance customer experience in the luxury and lifestyle retail industry.

We see hundreds of companies, but we only select a few each year. Once we select, we commit to them, letting them take up residence in our Hong Kong headquarters, giving them access to our retail platforms for prototyping their ideas, and allowing them to leverage our industry connections.

How do you sell corporate entrepreneurship?

By working closely with internal teams. I talk with the presidents of the company, C-level teams and key stakeholders about what’s happening in the industry and learn what their challenges and pain points are. By identifying these individual needs, we can then find the best startups with solutions to their challenges.

40 | IESE Business School Insight | no. 154

In what other areas are you committed to change?

Sustainability. The fashion industry is the second biggest polluter in the world, so the way we organize our production and distribution makes a difference. Our social enterprise, LUXARITY (luxury + circularity), engages our top customers, designers and celebrity networks to donate luxury items that they don’t use anymore in exchange for loyalty points. Then, we curate all these pre-loved items and, using blockchain technology, we’re able to create a clear line of traceability. This means anyone who acquires the item will know exactly where it came from, its authenticity and the impact made by the benefits of the sale. We use the proceeds to invest in new projects – including grants to nonprofits and design schools – that focus on responsible consumption. This initiative addresses U.N. Sustainable Development Goal 3 (Good Health & Well-Being), 4 (Quality Education) and 12 (Responsible Consumption & Production).

How do you find doing business in Asia?

When I first arrived, I made a lot of mistakes. I just brought what

do just about anything with it – not just connect with people,

I had learned in Europe and copied and pasted it to Asia. Of

but pay for goods, sell online, even buy a luxury car. Any new

course, that didn’t work. From then on, I’ve focused on being

brand wanting to enter the Chinese market needs to under-

humble, open to change, listening to and learning from local

stand such things.

customs, and being agile enough to improve and adapt. Wherever I go, I spend the first few days or even months just listening

What other trends are worth noting?

and understanding before starting anything big, to learn about

In Asia, as elsewhere, there’s a growing appetite for experi-

each culture at its core. This can come from conversations with

ences, for connecting to the human. This is why I’ve loved

locals as much as with senior decision-makers. It’s about listen-

doing programs at Harvard, Stanford, Insead and IESE. The

ing first and getting feedback to localize the idea, then bringing

Global Executive MBA is teaching me so much about the hu-

change while simultaneously respecting tradition.

man side of doing business. It’s all about having self-knowledge and self-awareness, and then working together with

What’s different about the Asian retail environment?

others to maximize the best version of yourself, taking re-

The profile has changed enormously over the 15 years I’ve been

sponsibility and creating positive impact. I see this as a trend

here. The Asian consumer is very tech savvy, much more so

for leadership: how can we be conscious leaders and cata-

than any other consumer in the world. For example, the Chi-

lysts, as part of a bigger ecosystem? That’s why we created

nese messaging app, WeChat, is a unique, multipurpose plat-

SiliconBali.io, to connect leaders with the purpose of being

form with messaging, social media, mobile payments, chat-

Catalysts for Impact.

bots and an enterprise platform, all bundled into one. You can no. 154 | IESE Business School Insight | 41

+IESE

Auto

Gaby-Luise Wüst

President, Audi China.

Executive Vice President of Sales & Marketing, Volkswagen Group China.

Vice President of Sales China, Audi AG.

DRIVING

transformation 42 | IESE Business School Insight | no. 154

W

ith 1 in 3 Audi sales current-

Why should young people want to work for a

ly in China, the Asian giant

car manufacturer today?

represents a top market for

I think it’s an exciting time to join the automotive

the German car manufac-

industry – to be part of transforming it from what

turer. Audi foresees 40% of

it was traditionally to the new age. We need new

its sales there by 2025, thanks to younger buyers

skills and progressive mindsets. That, combined

and successfully meeting the demand for electric

with a strong company brand, a strong industrial

cars, digitalization and technological innovations

base and strong processes, will help bring us to

such as autonomous vehicles. Gaby-Luise Wüst

the next phase of our transformation. For young

has witnessed this growth firsthand, working

talent, there are so many opportunities, not only

in and for the region with BMW Group, Nissan

in China, but on a worldwide scale, to develop in

Group and, since 2018, with Audi AG in Ingol-

so many aspects. We really welcome new talent.

stadt. Since July 2019, she has been President of Audi China in Beijing. Here she talks about man-

We don’t yet see a strong representation of

aging the future, as the automotive sector shifts

Chinese nationals in the industry. Do you think

gear worldwide.

that will change?

The Chinese market is a big contributor to our per-

What’s the key difference between Chinese

formance, so it’s important that we have Chinese tal-

and European automotive markets?

ent on board. We put a special focus on offering op-

The most obvious one is our customers. The average

portunities for Chinese talent to work in our group

Chinese customer is about 15 years younger than a

and develop their career paths with us. A lot of our

European customer, making their requirements and

top managers are Chinese and they’re playing a big

expectations very different when it comes to connec-

role in our Ingolstadt headquarters. It’s only a mat-

tivity, for example – the seamless integration of their

ter of time before we see a Chinese board member.

devices into their cars. And it’s up to us, as a manu-

Definitely, to succeed in China, it’s important to have

facturer, to respond to their requirements and even

local talent. That’s a competitive edge.

exceed their expectations.

credit :

Quim Roser

How would you summarize your management How do you see the new energy vehicle (NEV)

philosophy?

market in China evolving?

I go by these four. First, be able to organize the

The Chinese government really helped to develop the

actions necessary to get problems solved. Sec-

NEV market very fast. Five years ago, the market was

ond, be able to identify potential, whether peo-

zero and now there are an estimated 1.3 million NEVs.

ple or opportunities, and then materialize that

That rapid growth was fueled by subsidies and incen-

potential. Third, especially in large corporations,

tives. Now that the government has reduced or can-

be able to convince all the stakeholders and get

celled those subsidies, we’re seeing a sharp decline.

them on board. For that, it’s important to have a purpose that you’re able to communicate clear-

That said, we’re confident that any decline will only be

ly, and you’re able to express complex matters

short term and the market will recover. For one thing,

in simple terms, to convince other people and

the government is investing heavily in infrastructure.

get them on board. Finally, and maybe the most

So, even if the financial subsidies have been reduced,

important, be able to form and mobilize teams

there are still a lot of incentives, especially in cities: for

– to really get people into the team – in order to

example, it’s much easier to register your car and get a

support the cultural transformation.

license plate in a city if you have an NEV. As such, we firmly believe that the NEV market will grow further.

By 2025, NEVs are projected to account for 25%-28%

of the premium market in China.

interview by:

IESE Prof. Marc Sachon, chair of IESE AUTO, the 34th edition of which was held at IESE Barcelona on October 29-30 on the theme of “Diversity: Technology, Ecosystems & People.”

no. 154 | IESE Business School Insight | 43

+IESE

Entrepreneurship

All work and…play

J

ust a few months after formally setting up his company, Plyzer Technologies, in 2016, Barcelona-born Luis Pallares managed to get it listed in the United States – thanks to an agreement with a Canadian colleague who controlled a company

looking for a radically new direction. Since then, having man-

Luis Pallares’ company, Plyzer Technologies, aims to put AI at the service of decision-makers. A simplicity and love of play can be felt throughout this venture.

aged to secure 4 million euros in startup financing from both sides of the Atlantic, Pallares, as the new company’s founder and CEO, has been dividing his time between Barcelona (where

He’s a prolific reader, devouring at least five periodicals a day

his team works) and Toronto (the official headquarters). It’s not

and subscribing to more than 10 business, economics and tech

the conventional route to go, but then, little that Pallares has

magazines. He maintains close ties with tech labs and univer-

done in his life and career has been conventional. He is an en-

sities. Above all, he loves “listening to other people, learning

trepreneur who frequently pushes the boundaries.

from their experiences and points of view.” This is key, he says, to his ability to identify new, underexplored opportunities.

By his own admission, Pallares, while bright, was not a model student. When he got expelled from high school in Barce-

Vive la différence

lona, his mother sent him to finish his studies in the United

Back in the late ’90s, Pallares set up the first digital radio in

States. He did better there, making it into the Massachusetts

Spain. He tried – and failed – to push streaming and podcast-

Institute of Technology (MIT) – but halfway through his com-

ing, which at the time was a nascent field. No matter: the expe-

puter science degree, he dropped out.

rience taught him that sometimes innovation leads to failure.

This doesn’t mean he isn’t educated – far from it. For him,

“When you enter a field with no competitors, you probably

“there’s nothing more important – only education allows you

arrived too early,” he reflects. Now, he approaches his inno-

to understand what’s happening in the world.” Indeed, he

vation challenges this way: “Instead of always trying to be the

has since gone back and done various other programs at MIT

first to do something, it’s much better to be the first to do

and recently completed the Advanced Management Program

something differently.”

(AMP) at IESE. This is what he has done with Plyzer Technologies. The company has developed proprietary software that uses artificial intelligence (AI) and machine learning to monitor the 44 | IESE Business School Insight | no. 154

Luis Pallares

credit :

Quim Roser

Founder and CEO of Plyzer Technologies.

Having run in the North Pole Marathon, he says the book Lifelong Kindergarten: Cultivating Creativity through Projects, Passion, Peers and Play sums up his philosophy of life.

no. 154 | IESE Business School Insight | 45

+IESE

Entrepreneurship

prices of online products and deliver all sorts of real-time information and market trends on pricing, delivery and other important data useful for product managers, advertisers, corporate customers and consumers.

Although business intelligence has been around for ages, “many of these tools have a very steep learning curve and can take up endless hours of your time. They’re designed for technicians, not for

Pallares ran in “the coolest marathon on earth” Distance: 42.195 km/26.2 miles Temperature: -25 C /-13 F Conditions: winds of up to 60 kph/37 mph Finishing position: 5th Time: 6:21:15

those who make day-to-day decisions. I’ve tried to simplify the process,” he explains.

lot of value, because just having an idea and executing it is an achievement to be proud of, in and

And in simplification lies the difference. “Whenever I failed to explain a project in the simplest of terms, it usually flopped.” His new litmus test: “If a 5-year-old can understand your business, then it probably has a chance at succeeding.”

of itself. That, too, is success.”

Worth the effort

In 2010, Pallares experienced another sort of success when he ran the North Pole Marathon. As if running a regular marathon weren’t enough of an

Yet even the flops hold value. “It’s great if you

endurance test, he had the added risk of hypo-

make money but, for me, success can also be

thermia and spatial disorientation from the bliz-

measured by how much you learned. There are

zard-like conditions. “There were times when I

two parts to success: first, having an idea and ex-

couldn’t see anything around me and I thought I

ecuting it; and then, when it’s done well and it’s

was lost. My body was shaking for two hours after I

working, selling the business. That first part has a

crossed the finish line.”

CREDIT: www.npmarathon.com

“Focus on your goal and embrace the effort that must go into achieving it” 46 | IESE Business School Insight | no. 154

“I try to make sure that anyone who has a dream can fulfill it”

Fulfilling dreams

As someone who is pursuing his own dreams, Pallares wants to create workplaces where others can pursue theirs. In running a transatlantic tech company, he is vying for talent against big players like Google, Apple and Facebook. To attract top talent, he builds on employee networks and tries to offer something different, to foster a climate where people will want to work. “I try to make sure that anyone

The key to not giving up, he says, is to “focus on

who has a dream can fulfill it with us. Some employ-

your goal and embrace the effort that must go into

ees, like me, have other things going on in their lives

achieving it.” He kept that same attitude when he was

but few opportunities to pursue them. I encourage

diagnosed with cancer two years ago. And he puts

employees to explore their ideas and see how they

things into perspective: “No matter what I’m going

might fit with our strategy, with a view to possibly

through, I always consider myself lucky. There’s al-

implementing them and even creating spin-offs.”

ways someone worse off, so I can’t complain.”

The company also hires PhD candidates, giving That grateful spirit has made him want to give back

them the necessary resources to investigate com-

to society. “I want to create companies that help

mon areas of interest. “We make it possible for them

others – and not just by creating jobs. For example,

to make as many mistakes as they need to, in order

I’d like to provide more AI tools for the healthcare

to get their articles published in academic journals,

sector. My wife (a former professional rower) and

so that in two, three or four years’ time, they can ap-

I are creating a rowing foundation to help people

ply to the best universities in the world. This, in turn,

with limited means who are suffering from an ill-

allows us to maintain good relations with those in-

ness to overcome it through sport.”

stitutions, thus creating a virtuous circle.”

+IESE

My experience

WALK THE TALK

Walking with rangers in Kenya inspired Steffen Sauer to set up a business that supports rangers and reforestation to protect African wildlife.

Steffen Sauer

Co-founder of Ulinzi Conservation Coffee.

Process Excellence Lead at Lilium. Formerly Head of Manufacturing Footprint for ZF Group.

A

n eye-opening trip to Kenya in 2018 changed

experience,” he says. He would help the rangers find and

Steffen Sauer’s life. The German executive

dismantle animal snares and destroy kilns used to burn

volunteered to live and work alongside rang-

trees for charcoal. “We even caught an illegal logger.”

ers as they patrolled Kenya’s wilderness in search of illegal poaching and logging. Ken-

The hot, sweaty, dangerous business of being a ranger im-

ya’s elephant population and forests are under threat from

pacted him, as the rangers showed him their scars from be-

black-market trade in bush meat, ivory and timber.

ing attacked by a wild animal or by a local with a machete.

And those were the lucky ones who had lived to tell the tale.

“Witnessing the beauty of wildlife and the rangers fighting

“It took me some time to digest all of that.” Even more dis-

for it every day while being exposed to so many threats and

turbing for him to learn was that few of these rangers had

challenges really made me think,” he recalls.

any health, life or disability insurance or received any PTSD counselling triggered by a colleague’s death in the line of

Little could he have imagined, as he watched the

duty. They lacked basic supplies like boots, tents and GPS

sunrise over his camp, that in a year’s time he would

devices, and needed more training.

launch a social enterprise, and the hot drink in his hand would be a Kenyan coffee whose purchase would go toward wildlife conservation in the country he had grown to love.

Getting his hands dirty

Brewing up a new business

This started Sauer thinking: “How could I generate a sustainable source of funding for the foundation? What product could I sell that’s linked to Kenya and/or the purpose of wildlife conservation? What’s something that people need, want

“Leave your comfort zone.” That’s one of Sauer’s mot-

or do on a daily base that I could link to Kenya and/or the

tos. And it’s something he has done throughout his

purpose?” His answer: coffee.

career. Working for the German automotive supplier ZF Group, he jumped at the chance and moved to

Sauer, who had just completed a Program for Management

China when a role came up as Head of Production for

Development (PMD) at IESE, decided to follow two of his

the Asia-Pacific region. “If you get a chance to work

other mottos: “Be the change you want to see in the world”

abroad, do it,” he says. “It will totally change you. You’ll develop a completely new skillset, collect lots of new impressions, and meet people along the way who will leave a mark on you or become your friends.”

After three years in Asia, he returned to Germany and got in touch with Raabia Hawa, a Kenyan conservationist who runs the Ulinzi Africa Foundation, a nonprofit focused on ranger welfare and wildlife protection. Sauer explains, “At that point, I wanted to get more involved than just sitting on my couch watching nature documentaries and donating to organizations at Christmastime.”

He signed up for one of her initiatives, Walk With Rangers, which involved two weeks of doing exact-

“I wanted to get more involved than just sitting on my couch and donating at Christmastime”

ly what the name suggests. “It was a mind-blowing

no. 154 | IESE Business School Insight | 49

+IESE

My experience

in Kenya through local partners, the Ulinzi Africa Foundation (www. walkwithrangers.org) and Seedballs Kenya

(www.seedballskenya.com).

“Everyone involved gets a fair share – I believe that’s the only way to do it,” he says. and “Follow the gold and money will follow.” Regarding the

Besides Raabia Hawa, Sauer’s own brother, who did an MBA

first point, he took a sabbatical from his job to set up Ulinzi

at IESE, also became a partner: “Tobias was already curi-

Conservation Coffee (www.ulinzi-conservation-coffee.com).

ous about my trips. He liked the idea so much he joined the

And with regard to the second, he says: “What do you want

team.” And he convinced an IESE PMD classmate, Kai Grad-

to do in life? I believe it’s important to work for a purpose, to

ert, to join him on a return trip to Kenya this past summer

contribute to something bigger, to chase a dream (the gold).

to experience Walk With Rangers for himself.

If you start with that, money will follow.”

Though it’s still early days, he’s optimistic about the future: The idea is to sell fair-trade coffee products – enabling a larger

“Things may not work out how we want them to be, but it’s all

share of the sales price to reach the coffee farmer, contribut-

about how we react, adapt, learn, stand up and do it again, but

ing to the development and living conditions of the producers’

next time better.”

business, while supporting wildlife and reforestation activities His final advice for those contemplating their New Year’s resolutions: “It’s so easy to stick with what you know, but if you stay too long where you feel comfortable, you won’t achieve any further development. As soon as you feel too comfortable, you need to change something. Keep moving forward. I learned the biggest lessons when I left my comfort zone. Always go for the choice that scares you most.”

Once again, he’s heeding his own advice: after eight years with ZF Group, and amidst the launch of his new coffee venture, he recently joined Lilium, the German startup building a flying electric taxi. For Sauer, things are literally starting to take off.

Raabia Hawa and Steffen Sauer (bottom left) pictured with the rangers

50 | IESE Business School Insight | no. 154

Amplify Your Impact.

Be a part of the IESE Scholarship Program In the last academic year, 480 students were able to live the IESE experience with the support of an IESE Scholarship. The Alumni Association regularly contributes to the IESE Scholarship Program, but you can help us achieve much more. Donate to the Scholarship Program and amplify our impact.

Go to

giving.iese.edu/scholarships and be part of our project.

Food for thought

SMART PICKS Jonathan Haidt Haidt’s book, The Happiness Hypothesis, is a search for modern truths in the ancient wisdom shared by several of the world’s civilizations – from China, India, Greece, and so on.

Through the HappinessHypothesis. com website, many of the book’s best ideas can be explored online, such as “the felicity of virtue,” echoing Aristotle’s belief that “a good life is one where you develop your strengths” and “realize your potential.”

The pursuit of happiness For centuries, philosophers have been reflecting on what happiness means and how to achieve it. Today’s authors, many of whom hail from the field of positive psychology, borrow from the classical idea that happiness should not be pursued as an end in itself. Instead, happiness comes from having a purpose that gives meaning to your life and improves the lives around you. The lesson applies to the personal as well as professional realms. Consider what these experts have to say.

52 | IESE Business School Insight | no. 154

Daniel Gilbert Professor of psychology at Harvard, Gilbert is the author of Stumbling on Happiness, in which he explains why people fail to see what will make them truly happy. In “The surprising science of happiness,” a TED talk that has attracted more than 18 million views, Gilbert refers to a study of lottery winners and others who become paraplegic. One year later, the happiness levels of the two groups were similar: the winners were not as happy as they expected, while the latter group was not as unhappy.

FROM MY DESK

By Santiago Álvarez de Mon

Martin Seligman The author of Authentic Happiness says happiness lies in knowing your strengths and virtues and in making sense of both good and bad times. He directs the Positive Psychology Center at the University of Pennsylvania, where he has developed various questionnaires to measure happiness and signature strengths. You can find them at www.authentichappiness.org.

Angela Duckworth The author of the book Grit: The Power

Professor of Managing People in Organizations and holder of the José Felipe Bertrán Chair of Governance and Leadership in Public Administration

The happiness paradox Are you happy? Universal question, personal answer. The more we obsess about it, the more it eludes us. The French philosopher Gilles Lipovetsky wrote about this in his book Paradoxical Happiness. In our “hyperconsumption society,” as he called it, we are driven to expect instant gratification, always, effortlessly and by all means – and yet “none of this has opened the doors to the joy of living.”

Happiness is as much a matter of interpretation as it is a fact. The attitude we adopt in the face of adversity is crucial. Helen Keller, deaf and blind since she was 19 months old, had this to say: “Most people measure their happiness in terms of physical pleasure and material possession… If happiness is to be so measured, I who cannot hear or see have every reason to sit in a corner with folded hands and weep.” But she didn’t do that. In spite of her deprivations, she embraced an optimism “so deep that it is a faith, so thoughtful that it becomes a philosophy of life.”

of Passion and Perseverance, and the wildly popular TED talk of the same name, insists that, beyond being smart and talented, “grit” is a key determinant of success in achieving long-term goals.

And being “grittier” can make us happier while pursuing meaningful goals.

Tal Ben-Shahar “Give yourself permission to be human,” the former professor of psychology at Harvard and co-founder of the Happiness Studies Academy told IESE’s Global Alumni Reunion 2019. The key to happiness is not to suppress painful emotions: “The first step to happiness is

The human adventure of living requires moving in two directions. First, inward, exploring our inner world, untying personal knots, and keeping our insecure, envious egos at bay, until, through training in solitude and silence, we unveil the best version of ourselves. From that cultivated personal epicenter, our heart widens and projects us outward. Then, the idea of serving the community arises. In thinking of others, life makes sense, and we caress the face of happiness.

I’ll finish with what the Slovenian artist and Jesuit theologian, Marko Ivan Rupnik, told me when I asked him if he was happy: “I’d say I’m a cheerful person who feels a confluence of peace and energy inside… If (happiness) means having serenity; a sense of harmony that satiates or satisfies; a certainty that, no matter what happens, I’m at least taking the right steps – then, yes, I am deeply happy.” His body language agreed.

allowing in unhappiness.” So, embrace the full range of emotions: happiness flows from being human.

Helen Keller (pictured right) with her teacher, Anne Sullivan

Focused Program

Value Creation Through Effective Boards

Looking for a way to improve your boardroom effectiveness?

This joint IESE and Harvard Business School program is designed for board members in both public and private sector companies from a broad range of industries.  We invite you to join us if you are looking for strategies to boost your contribution as a board member and to promote overall boardroom effectiveness.

Barcelona May 18-21, 2020 More information: www.iese.edu/boards Yolanda Serra: infogm@iese.edu Managing Director International Open Programs EMEA

KNOW

By Daniel Beunza

By Pedro Nueno

By Roberto García-Castro and Miguel A. Ariño

When morals meet models

Don’t fool yourself

Wonderful decisions

Page 56

Page 64

Page 68

When

morals meet

Has our reliance on financial models gone too far?

In the post-crisis order, more and more people are taking ethics in banking seriously. Here is how managers can take back control.

By Daniel Beunza

illustrations :

Raul Arias

W

hether it’s toxic derivatives, NINJA loans or fake Libor submissions, the ever growing list of Wall Street’s misdeeds has fueled financial

reform debates. One thing is clear: if financial re-

form is to make real progress, morality needs to be brought back into finance. Yet, if presenting bank employees with a brand-new set of values – like being given a new corporate uniform to wear – is unlikely to alter their actions, what type of reform might avoid a repetition of the problems that led to the last crisis?

One solution is to employ more algorithmic risk-management models to constrain bankers’ ability to engage in unethical behavior. However, as I contend in my book – Taking the floor, based on a 16-year field study of a trading floor on Wall Street – relying on complex models to remedy the crisis of ethics on Wall Street poses many risks.

At worst, models aimed at improving the ethical function of banks may actually give rise to moral disengagement, leading to even more immoral conduct. But it doesn’t have to be that way, provided that banks and their regulators follow the steps outlined in this article.

Moral malaise

After decades of entrusting the elimination of financial misconduct to the exclusive care of the legal system, regulators on both sides of the Atlantic now seem to favor an approach that targets banking ethics. While some may not be pleased with

A shift of focus this shift (see sidebar), the fact that people are now taking ethics seriously is a reflection of just how deeply the fallout of the last crisis has shaken the intellectual foundations of the financial industry.

For this latest effort not to end up as yet another well-intended but ineffective measure, there must be an accurate diagnosis of the underlying issues that fueled the crisis in the first place.

Some have pointed to banks and credit rating agencies working in silos. Others have blamed a trading culture obsessed with short-term gains.

While both of these factors played a role, there is another cause, often overlooked: the sweeping organizational, technological and regulatory changes that radically reconfigured Wall Street, starting in the mid-’80s. These changes include: the disappearance of investment banking partnerships, in which partners were jointly liable and thus had skin in the game; the repeal of the 1933 Glass-Steagall Act, which for over half a century had separated commercial and investment banking units in the United States; and the proliferation of new financial models.

The latter are of key significance: they frame choice, reduce uncertainty and, in many cases, make calculation possible. But, apart from helping market operators calculate the value of financial products, some models end up changing the market and, in some cases, corroborate the theory that inspired the tool in the first place. For example, one study on the Black-Scholes equation (which governs the price evolution of stock options) showed that although the predictions of the

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 has been described as the most significant change to financial regulation in the United States since the 1930s. Yet it has as many detractors as it does champions. Opponents object to its rigidity while even proponents fault it for its limited effectiveness, pointing to the continued problem of too-big-to-fail banks.

In the U.S., the initial response to the 2008 crisis was structural reform, based on laws, rules and prohibitions. By 2014, the head of the Federal Reserve Bank of New York, William Dudley, was focusing his gaze elsewhere, stating that “improving culture in the financial services industry is an imperative.” A similar shift has taken place in the U.K. A 2011 report by the Independent Commission on Banking recommended structural reforms aimed at ring-fencing the retail and investment arms of British banks. By 2015, the emphasis had turned to culture, culminating in the creation of the Banking Standards Board to “raise standards of behavior and competence across the (financial) industry.”

They all talk about culture but morality in the financial industry is what many are thinking. When pressed to specify what he meant by culture, Dudley himself admitted “it’s really about ethics and conduct.”

Despite such shifts, no one is under any illusion that change will be easy. Thomas J. Curry, Comptroller of the Currency of the United States, captured the mood of many bankers when he said: “I’ve had some bank executives and directors say, ‘I’m not a damn sociologist’.”

Admittedly, culture is a vague concept, making practical, actionable implications hard to pin down.

Yet, people on both sides of the debate acknowledge that moral, not just legal, standards do contribute to a healthy financial system.

no. 154 | IESE Business School Insight | 59

KNOW

When morals meet models

formula were inaccurate when first developed in 1973, once the formula was adopted by financial exchanges and Wall Street banks, option prices changed in line with the modelâ&#x20AC;&#x2122;s predictions. This is known as performativity, in which the tools ef-

that many financial institutions didnâ&#x20AC;&#x2122;t have time

fectively shape the economy rather than just ob-

to make the organizational and cultural changes

serve its functioning.

needed to integrate the new practices.

A quantitative revolution

Some contend that the models allow for more

The proliferation of financial models like the

rational decision-making and enable traders to

Black-Scholes equation, coupled with the cre-

confront their own biases. Others argue that the

ation of new asset classes and the widespread

introduction of complex models, which were mis-

adoption of financial technology such as trading

understood by bankers or their clients, contribut-

terminals and trading algorithms, have amount-

ed to systemic risk in the 2008 crisis.

ed to nothing short of a quantitative revolution.

And as with many revolutions, this one has a

This complex interplay was the focus of my field

dark side: not only did the changes have unin-

study. Based on interviews with industry prac-

tended consequences, they occurred so quickly

titioners and my own observations, I found that the widespread use of models radically transforms the way a setting like a trading floor functions. When fully diffused, they can dramatically alter strategy, managerial discourse, customer relations, product design and the degree to which ethical norms are enforced, self-enforced and interpreted. Taken to their logical conclusion, they can reshape the very nature of the organization, with these negative consequences:

60 | IESE Business SchooI Insight | no. 154

transaction-based banking.

The widespread

use of models by banks for the purpose of corporate strategy and risk management can shift their focus away from their relations with the clients that they lend money to and toward transaction-based banking, where banks treat each lending transaction as a single deal. erosion of managerial authority.

In the rela-

tionships between managers and traders, the use of models for risk management can erode mana-

The reliance on models can shift the focus away from the clients that banks are meant to serve

gerial authority as well as generate perceptions of injustice when those models fail. Such perceptions

a deal (in this case, the traders) is privy to more

may invite retaliation and reckless risk-taking on

information than the other. This gives traders a

the part of traders. To compound matters, exces-

competitive advantage and allows them to cap-

sive dependence on financial models can lead to a

ture most of the value they generate. In fact, it’s so

managerial focus that not only permits the erosion

easy to make money this way that traders are in-

of its own authority but celebrates rationality and

centivized to develop even more needlessly com-

self-interest rather than responsibility to protect

plex models with which to confound their clients.

the customers’ interests.

Taken together, these can impair self-sanctioninformation asymmetry.

In dealings between

ing behavior, leading to moral disengagement.

traders and a bank’s customers, models often cre-

In extreme cases, the self-regulatory function of

ate information asymmetries – when one side of

individual managers and workers ceases to apply no. 154 | IESE Business School Insight | 61

When morals meet models

KNOW

obligations. In the area of strategy formulation, banks prioritize trading in capital markets, where

Models, when used correctly, need not create moral disengagement

customers are treated as counterparties or economic adversaries. In the case of divisional managers, their reliance on models for risk management prevents them from exercising their own managerial judgment and intervention.

Taking back control

That said, models, when used correctly, need not create moral disengagement. The previously mentioned consequences can be avoided or mitigated by adopting these strategies and practices:

altogether, freeing them from self-sanction and

avoid instruments prone to abuse. At the level of

the guilt that accompanies behaviors that would

strategy, banks should avoid asset classes or finan-

normally violate their ethical standards. I refer

cial instruments that create information asymme-

to this process as model-based moral disengage-

tries between them and their corporate custom-

ment, and it manifests in different forms at dif-

ers, which invite abuse. One example is the use of

ferent levels of a bank.

At the top, senior executives start to treat market actors as both rational and self-interested, which, in turn, allows them to justify a narrow legal definition of responsibility and eschew broader moral

Taking back control Strategy: avoid businesses that create opportunities for abuse.

CEO

MANAGER

Discourse: avoid celebrations of rationality and caveat emptor; instead, use symbols that promote collaboration and responsibility.

MANAGER

TRADER

TRADER

TRADER

BACK-OFFICE OFFICIAL

BACK-OFFICE OFFICIAL

BACK-OFFICE OFFICIAL

62 | IESE Business School Insight | no. 154

Control: avoid model-based management; stress importance of middle managers, personal engagement, judgment and moral intuition.

Structure: use internal labor markets while limiting employee rotation across teams.

The author Daniel Beunza is an associate professor of management at Cass Business School, City University of London. Having previously taught at Columbia University, the London School of Economics and Copenhagen Business School, he explores in his work the ways in which social relations and technology shape financial value. He edits the blog Socializing Finance.

over-the-counter derivatives such as interest-rate

stands in stark contrast to governing at a distance.

swaps, where banks structure a made-to-measure

Instead of relying on cost data and remote mon-

contract with the customer that may be difficult

itoring and measurement technology, proximate

for the customer to understand.

control relies on vicinity in supervision, including face-to-face evaluations, personal judgment, the

promote ethics from the top down.

When it

use of intuition and interpersonal trust.

comes to discourse, managers should underscore the importance of organizational norms over fi-

This is not to say that all financial models (equa-

nancial returns. They should also avoid celebra-

tions, visualizations, trading terminals) should be

tions of rationality and caveat emptor (let the

spurned â&#x20AC;&#x201C; so long as they are being used to eval-

buyer beware). Instead, they should promote col-

uate external objects, such as a stock or bond, and

laboration, compliance with the law and respect

they are complementing, not substituting, the role

for back-office employees. These norms can be

of management. Where models fail are when orga-

reinforced in offsite meetings, through internal

nizations turn the models inward on themselves.

labor markets or by middle managers. But the primary enforcement vehicle should be in the

In their quest to make tomorrowâ&#x20AC;&#x2122;s financial sys-

day-to-day, one-on-one interactions between line

tem safer, regulators and central bankers are quite

managers and employees.

right to target culture. However, shaping banking culture in modern, quantitative financial markets

exercise proximate control.

The enforcement

calls for a sound, detailed understanding of how

of organizational norms requires limiting the use

models and morals come together. And that is

of models for the purpose of control, as models

where proximate control becomes paramount.

constitute a rival, often incompatible source of authority. I refer to this as proximate control, which encompasses a broad set of choices in the areas of strategy, discourse, structure and supervision. This

read more:

Taking the floor: models, morals and management in a Wall Street trading room by Daniel Beunza (Princeton University Press, 2019).

no. 154 | IESE Business School Insight | 63

Donâ&#x20AC;&#x2122;t fool yourself Six blind spots that can harm your business

By Pedro Nueno

Javier Tascon illustrations :

H

ow did Nokia go from global market lead-

2. always going for the external hire

er to being absorbed by Microsoft in only a

Before going for an external hire, make sure you’re not over-

few short years? One reason was a workplace

looking hidden internal talent. It’s generally a good idea to

culture in which nobody wanted to be the

promote from within, as it helps motivate and retain talent

bearer of bad news. It just goes to show that

over time. Provide professional training and development:

nobody is immune to self-deception. Whether overestimat-

this incentivizes people to work better. Recognize the value

ing your own abilities or underestimating the competition,

that your employees bring to your company, and give them

self-deception causes real damage, not only in poor results,

responsibility and compensation accordingly.

but to your image, making others less interested in collaborating with you and supporting your projects. So, take off the

3. having a distorted view of your company

blindfold and manage more effectively by paying attention

The affection that you have for your company may cause you

to these six blind spots:

to overvalue it. You may be too tolerant of certain behaviors.

Or you may fail to face up to certain challenges with the nec-

1. thinking you know it all

essary business mindset and speed. You need to be able to do

If the people around you perceive you as humble, they’re more

things better than, or at least as well as, your competitors. This

likely to speak frankly to you. But if they regard you as proud

can be measured by market share and profitability. Monitor

or they’re afraid of hurting your feelings, they’ll probably keep

how these variables evolve and make contingency plans to re-

their mouths shut. This is a serious problem, particularly if you

act quickly to scenarios that put the future of your company at

end up being the last to know anything. The more years you

risk. When you can no longer see a way forward or you lack the

spend in post, the more you need trusted advisers around you

capacity (of talent, resources or knowledge) to improve, then it

telling you when it’s time to take a step back from the brink.

may be time to sell while some value remains.

no. 154 | IESE Business School Insight | 65

KNOW

Don’t fool yourself

The author

4. taking your eye off the competition

A corollary of overvaluing your company is underestimating the competition. To avoid this, keep close tabs on what’s going on “out there.” Go to trade shows, conferences and industry meetings, and get to know as many people as possible from similar companies and from larger firms that might someday impact you. Have a global focus: even if your company wishes to remain small, collaborating with bigger players through alliances or business clusters is unavoidable on some level.

5. not thinking your strategy through

A lack of coherence between strategy, operations and resources is a familiar problem. You might plan to expand internationally, but if you don’t have the right people in place, or you’re unwilling to invest what’s required, then your plan is just wishful thinking. When setting strategic objectives, be realistic: make sure you have key leaders to implement the strategy in each relevant market; motivate and support those leaders; and give them the resources they need.

6. forgetting to make the numbers add up

Don’t lose sight of your balance sheet: operating without being aware of the current state of your company’s finances is the worst kind of delusional. And don’t give in to the temptation of lowering your prices just to hold on to a few customers. It makes little sense to try to gain market leadership by losing money. While you may be able to get away with some delusions for a while, this is one that you need to face fast.

Remember, going through life with your eyes open is the best way to avoid walking off a cliff. source: Cheating yourself in business (Autoengaño y empresa) by Pedro Nueno (Plataforma Editorial, 2019)

66 | IESE Business School Insight | no. 154

Pedro Nueno is professor emeritus of Entrepreneurship at IESE, and founder and honorary president of the China Europe International Business School (CEIBS).

He has written numerous books on corporate turnarounds, innovation and entrepreneurship.

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WONDERFUL DECISIONS Keep your balance with these diagnostic tools and ensure your organization’s quality stays on target.

By Roberto García-Castro and Miguel A. Ariño

illustrations :

Ajubel

KNOW

Wonderful decisions

O

ne of the hardest things for com-

ness represents an organization’s ability to achieve

panies to do is to make good,

the minimum necessary cash flow to pay its em-

sound decisions on a consis-

ployees, suppliers and creditors, it’s the most tan-

tent, long-term basis. As many

gible parameter for managers to grasp. Yet, it can’t

as two-thirds of corporate de-

be the only one. Let’s look at each in turn.

cision-makers rely on failure-prone tactics, research has shown. This may explain why roughly

effectiveness.

4 out of 5 corporate mergers fail to deliver their

effective, it must generate some profits, as that

anticipated revenue synergies, and why around

determines the extent to which it can actually

80% of startups don’t make it to their second year.

achieve any of its goals. And there’s no shortage

Certainly, for a company to be

of profitable companies. In its heyday, GenerOne of the main reasons why companies are prone

al Electric was a well-known example. People

to bad decision-making is their blind obsession

lauded the management effectiveness of Jack

with short-term results. When you get down to it,

Welch, who during his two decades as chairman

the basic purpose of any company is to deliver a

and CEO saw GE multiply its profits sixfold. He

product or service that meets a customer’s need.

stripped away the company’s organizational lay-

But to do that, it needs to have not just the neces-

ers and demanded that it be No. 1 or 2 in the in-

sary minimum effectiveness to survive in the short

dustries in which it operated. Between 1981 and

term but also the maximum possible attractive-

2001, GE went from bureaucratic behemoth to

ness and unity to guarantee future longevity.

one of the world’s most productive, profitable and admired companies.

To make “wonderful decisions” – the title of a book we’ve written on the subject – companies first need

Yet there can be such a thing as being “too ef-

to strike the right balance between effectiveness, at-

fective.” Welch once said that the proof of his

tractiveness and unity. The reason they fail in that

effectiveness as CEO for two decades would be

endeavor is often because of a lack of discipline. To

measured by the company’s performance in the

regain their footing, managers need to hone three

two decades after he stepped down – for which

key abilities: their strategic ability (to enhance effec-

the facts speak for themselves. GE’s profitabil-

tiveness), their executive ability (to generate attrac-

ity declined and it was forced to sell off major

tiveness) and their leadership ability (as the basis for unity). A deficit in any one of these three should set off alarm bells, signaling that urgent action is required before organizational quality begins to suffer.

Parameters of quality

Effectiveness, attractiveness and unity are all decisive factors in organizational quality. However, it’s the first factor – effectiveness – that usually gets the most managerial attention. Because effective-

70 | IESE Business SchooI Insight | no. 154

To make wonderful decisions, firms need to balance effectiveness, attractiveness and unity

competitive landscapes, thereby improving the company’s chances of longevity.

One policy you hear about is “20% time,” in which employees are encouraged to spend 20% of their work time experimenting on outside projects. This is supposed to make them more motivated and productive, leading to more innovation. However, as before, you can have too much of a good thing.

Google has reportedly abandoned the policy, as the reality for employees felt more like “120% time.” unity.

How closely employees iden-

tify with organizational goals determines the third parameter: uniacquisitions made under Welch. In hindsight,

ty. And that identification is based not on how

maximizing effectiveness (profit-making) at the

much the person is paid or the learning oppor-

expense of attractiveness or unity can lead to a

tunities they’re offered, but on the belief that

deterioration in organizational quality and the

the organization’s goals are worth striving for.

gradual loss of competitive advantage.

As countless experiments have shown, human

attractiveness.

This parameter relates to the

over, as research by Lea Cassar finds, “a proso-

satisfaction that organizational members derive

cial mission to the job increases agents’ effort,”

from belonging to the organization. There are

and in certain circumstances “the benefits of

beings prefer work that is meaningful. More-

a number of ways that companies can increase

the job mission” can be “a substitute for mon-

their attractiveness. Some involve extrinsic ben-

etary incentives.” This gives mission-oriented

efits (a salary, a raise) but it’s worth emphasizing

firms a competitive edge over companies with

that financial remuneration is only one compo-

a mere profit-maximization objective, since the

nent that contributes to employee satisfaction.

former can economize on monetary incentives

There are also intrinsic motivations related to

while still getting maximum employee effort

the nature of the job itself: the tasks performed,

and commitment.

new professional challenges, knowledge and skills acquired through training and develop-

The “transcendent” nature of unity may not be as

ment. Attractive companies are those that not

tangible or as measurable as the other parameters,

only recruit highly skilled individuals but also

but it is one of the first things people notice upon

invest in developing them professionally. This

arriving in a new workplace. It can be gleaned from

makes them better prepared to adapt to new

the way people interact with each other, from the

no. 154 | IESE Business School Insight | 71

KNOW

Wonderful decisions

cooperative (or competitive) atmosphere that per-

One reason is the prevalence of biases. Cognitive,

vades the workplace, and from the pleasure (or dis-

intertemporal and interpersonal biases push us in

pleasure) workers express about their work. Firms

directions that make it harder to be effective, at-

with a strong sense of unity tend to prioritize val-

tractive and united at the same time. These biases

ues in recruitment; refrain from making layoffs;

are an inescapable part of being human and often

pursue organic growth; and distribute the fruits

arise from a good impulse: to navigate complex-

of everyone’s labor fairly through employee-wide

ity, we seek to reduce it to simpler forms, using

profit-sharing schemes, for instance.

mental shortcuts. Unfortunately, these shortcuts

But unity can’t be forced. If a company fails to

evaluating gains and losses using different crite-

provide a clear mission worth striving for, then

ria, exhibiting preference reversals (i.e., preferring

employees will cease to identify with the firm,

A to B and then, simply because of the order in

resulting in widespread employee alienation. Ac-

which they appear, favoring B to A), making differ-

cording to a Global Workplace Report by Gallup,

ent choices depending on the wording of a prob-

a staggering 85% of employees in large compa-

lem, and wrongly assigning our own motives to

nies are not engaged, or are actively disengaged,

other people’s decisions. Perhaps the worst bias

at work. Such companies will struggle.

of all is favoring immediate, short-term results at

frequently come with blind spots. These include:

Going off-target

If delivering on effectiveness, attractiveness and

the expense of long-term sustainability.

Another reason things go amiss is the narrow defini-

unity is so (apparently) simple, why do so many

tion used to measure value creation, which is almost

companies miss the mark?

always reduced to net income – that is, the value

72 | IESE Business SchooI Insight | no. 154

appropriated by shareholders. Not only does this

get skilled employees to identify with a company’s

ignore the value captured by the firm’s employees,

mission. Southwest is fiercely loyal to its workers.

customers and suppliers, it also piles huge pressure

In the wake of the September 11, 2001, terrorist

on managers to prioritize short-term, market-driv-

attacks, when other U.S. air carriers were slashing

en incentives, which can end up destroying organi-

jobs in response to falling demand for air travel,

zational unity and attractiveness.

Southwest opted not to lay off a single worker.

A third reason is that excelling at each of the three parameters requires huge reserves of discipline.

Mastering one or two of them isn’t enough. Unity, in particular, requires a deft combination of bias-free decision-making, virtue, moral character, rationality and imagination in order to come up with creative solutions to complex dilemmas.

One company that places a very high premium on organizational unity is Southwest Airlines, whose motto of “hire for attitude, train for skill” captures a basic truth about recruitment: it’s easier to train employees who believe in the company’s goals and are willing to learn and develop, than it is to

To navigate complexity, we use mental shortcuts, but these shortcuts come with blind spots no. 154 | IESE Business School Insight | 73

Wonderful decisions

KNOW

Excellent executives don’t just help employees learn; they also allocate them to where their skillsets and competencies will be put to best use Instead, it temporarily reduced working hours,

Without an effective strategy, the purpose and

restrained salaries and took a short-term hit to

mission of a firm are merely good intentions.

profits. As a result of Southwest’s decision not to make any redundancies, staff unity grew and em-

execution.

If strategizing is about achieving re-

ployee productivity soared. Southwest made the

sults, executing is about learning how to make

strongest recovery from 9/11 in comparison with

them sustainable. And the best way to do that is

any of the other U.S. carriers.

to identify, recruit and train employees who are intrinsically motivated to perform their tasks and

This case underscores another important point

develop professionally.

about discipline: knowing what not to do is as important as knowing what to do. While other

There is, of course, a trade-off between strat-

airlines would like to emulate Southwest, few

egizing and executing. While positive learning

have the discipline not to fly to the biggest air-

usually increases a firm’s effectiveness in the

ports, not to lay off workers during a downturn,

future, it implies forfeiting at least part of its

not to grow via mergers and acquisitions, and

short-term earnings and profits. On the other

not to increase their financial leverage during

hand, if a firm seeks always to maximize extrin-

the good times.

sic results, it will be unable to offer attractive

Three core abilities

learning opportunities to the many employees it will need to safeguard its future.

Now let’s take a closer look at the three core abilities required to run an organization that is at

once effective, attractive and united:

Excellent executives don’t just help employees learn; they also allocate them to the teams and departments where their skillsets and compe-

strategy.

This is the ability to formulate strate-

tencies will be put to best use. This process, on a

gies that give the firm a competitive edge. Strategic

large enough scale, helps to reinforce the firm’s

managers must scan the business landscape for

distinctive competence.

opportunities, size up their competitors, position the firm advantageously, and deploy the firm’s

leadership.

resources and capabilities toward the business

one main purpose: to instill the organization’s goals

opportunities with the highest expected returns.

and values in its members, which is essential for

74 | IESE Business School Insight | no. 154

The final discipline, leadership, has

The authors

achieving unity. It is done not by offering extrinsic benefits (monetary gain) or intrinsic benefits (professional development opportunities) but by tapping into employees’ transcendent motivations and getting them to identify with the company’s mission.

Roberto García-Castro and Miguel A. Ariño are professors in the Department of Managerial Decision Sciences at IESE and co-authors of the book Wonderful Decisions (2019).

At companies renowned for their high degree of unity, such as Wegmans Food Markets, Southwest Airlines and SAS Institute, employees wholeheartedly identify with the firm’s purpose and are fully committed to meeting customers’

trigger some remedial action. The following di-

real needs. All of these firms have a passion for

agnostic questions may prove useful in gauging

what they do. They also have low rates of person-

the quality of your own organization:

nel turnover, in some cases less than 5% a year, and a no-layoff policy; they use financial incen-

• Does your firm solve a real need of someone?

tives sparingly and promote people from within.

• Does your firm provide learning opportunities that are attractive to someone?

Of the three managerial disciplines, leadership is the easiest to understand as it doesn’t require the formulation of sophisticated strategies or the development of advanced technologies or complex learning processes. But it is the hardest to implement. Leaders must lead by example and they must command the respect of both their

• Is your firm really effective or are there other, more productive ways of working?

• Are incentives consistent with the firm’s purpose and do they support cooperation among employees and other stakeholders?

• Does your firm have clear boundaries (what not to do)?

peers as well as the general workforce. That respect has to be earned, and that can take time.

It’s the role of the strategist, the executive and,

But it can be lost in the blink of an eye.

especially, the leader to act as the guardians of

Check your health

ercise is to achieve sustainable competitive ad-

these parameters. The ultimate goal of this ex-

The three parameters of effectiveness, attrac-

vantage by developing an effective competitive

tiveness and unity should serve as a diagnostic

strategy, a distinctive competence and an organi-

tool. In the same way that a physician monitors

zational mission that unites the whole organiza-

the levels of glucose or cholesterol in a patient’s

tion. And it starts by making the most wonderful

body, if you, as a manager, note that the balance

decision of all: choosing to do things right over

is off in any of the three parameters, that should

choosing what’s expedient.

no. 154 | IESE Business School Insight | 75

FULL STOP

all photos :

© Fundació Junta Constructora del Temple de la Sagrada Família

Innovative spirit Lessons in leadership from the Sagrada Familia, Barcelona’s emblematic basilica, built by the famous architect Antoni Gaudí.

“T

he tree outside my

Nearly 140 years and counting in the making, the

window is

great

Sagrada Familia demonstrates how visionary lead-

teacher,” the architect

ership can prioritize the truly important over the

Antoni

a

Gaudí

once

distracting noise of short-term results and ego. By

Indeed,

step-

taking a cue from Gaudí and seeking the extraor-

ping into the temple of the Sagrada Familia,

dinary in the ordinary, executives may be inspired

said.

his most famous and perennially unfinished work, is like stepping into a forest. Pillars rise

like trees, separating into overlapping branches that hold up the ceiling. It’s a revolutionary

in ways they never thought possible before.

An inspiring vision

Gaudí was a man with a vision, and one who un-

structure in architecture, and yet the structures

derstood that the vision must be clearly commu-

can be found in nature.

nicated to be effective.

Nature is everywhere in the Sagrada Familia, both in

A master craftsman who worked among master

decorative elements – sculpted lizards, birds and

craftsmen, Gaudí created drawings and extensive

ivy on the façade, turtles supporting columns,

plaster models of his planned church, and then al-

clusters of fruit atop towers – and, crucial-

lowed his colleagues – ironworkers, stoneworkers,

ly, in its structure. There is the internal forest,

ceramicists, many of them lifelong collaborators –

but also the spiral staircases that echo the form

to work out the details without constant oversight.

of mollusks and innovative elements such as catenary arches. For Gaudí, the new was to be found in

Another effect of this clearly communicated vi-

the timeless and in our everyday surroundings that

sion was that when many of these drawings and

we see so often we sometimes fail to see them at all.

models were lost in a fire after the architect’s

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Innovative spirit cr

ed

it:

Sh

utt

ers

to c

k

death, those assistants and collaborators were able to recall much of the plan and communicate it to the next generation of architects.

And what was this vision? The church is immense, with 18 spires, some of them colorfully enameled.

It’s also richly detailed: façades crammed with natural and religious motifs, spiral staircases, a forest-like interior and stained glass refracting different primary colors onto the cool white walls as the day progresses. With such an awesome vision, Gaudí wanted to both dazzle and humble the visitor, for them to “see what is there and what is not there.”

The inescapable fact of money

The practicalities of turning such a vision into reality were daunting.

If the master craftsman was, on the one hand, a dreamer, he was also, on the other, a realist.

The Sagrada Familia required vast sums of money to build. As an expiatory temple, it would need to rely on individual alms rather than institutional grants for funding. Many of Gaudí’s iconic works were funded by an industrial entrepreneur and wealthy patron named Eusebi Güell. However, the Sagrada Familia represented a much bigger undertaking, requiring a great deal more money than any

lion’s share of the funds came from thousands of

of his previously funded projects. It would also take

individual donations, truly making it a work by

a great deal more time, measured not just in years

and for the masses who had been moved to buy

but generations.

into Gaudí’s vision.

Gaudí accepted this reality of innovation: just

Building a legacy

having a great idea wasn’t enough; he also need-

Work on the Sagrada Familia was done in stops

ed to convince others of its greatness and inspire

and starts. Gaudí didn’t see this as a bad thing. In-

them to contribute, both now and long into the

deed, “it is necessary to alternate between reflec-

future. He was a tireless fundraiser, even pouring

tion and action, which complete and moderate

his own earnings into realizing his dream. Yet the

each other,” he said.

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Executive reflections Actual comments from IESE program participants on what they took away from the Sagrada Familia experience.

“A vision is something between an intangible dream and a concrete objective” “Knowing you

might not be the one to see the project through to the end really helps to concentrate minds on what’s important”

“I shouldn’t complain about a lack of resources, but optimize the use of what I have”

“I’m reminded to share my vision in an understandable way and align everyone to a common goal”

Slow periods in the building were used to take

For Gaudí, it was clear to him that the Sagrada Fa-

stock, to dream and design new solutions, and for

milia was not a moneymaker but a legacy project,

Gaudí to develop his skills in new directions, as he

a work he would never live to see realized. When

worked on many other projects at the same time.

he died in 1926, hit by a tram while walking to

Later, from 1914 until his death, he devoted his

Mass, he had built the Nativity Façade and erect-

time exclusively to building the Sagrada Familia.

ed four towers, only one of which was complete.

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Innovative spirit

After dedicating a lifetime to a project, a lesser person might feel frustrated not to see its completion. Yet Gaudí’s big-picture vision accepted, even welcomed, that possibility. “There is no reason to regret that I cannot finish the church,” he said.

“I will grow old and pass away … but its life must depend on the generations it is handed down to.”

Words to live by, in any profession.

IESE professors Yih-teen Lee and Alberto Ribera present a case study on Gaudí and lead a tour of the Sagrada Familia, followed by a discussion, during Executive Education programs at IESE Barcelona. article by:

Emily McBride

Lead like Gaudí Show passion When pursuing your own projects, follow Gaudí’s advice: “To do things well, first you need love, then technique.”

Delegate Surround yourself with the best people.

Develop them. Align them with your vision.

Discover how they work best, then let them get on with it.

Be humble From a working-class family of coppersmiths, Gaudí knew a craftsman’s worth was in his creations, not his origins. He was able to “walk with kings” but never lost the common touch.

Stay disciplined You don’t have to go as far as Gaudí did – actually living in his workshop – but the point is, cut out the distractions, don’t waste time, and give it your full focus.

Take failure in stride When trying new things, accept some of them will fail. Learn and grow from the experience.

80 | IESE Business School Insight | no. 154

Antoni Gaudí: the focus was on the project, not himself.

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