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Where ideas and people meet

Build Back Better How business model innovation can help your firm out of the crisis


Staff #156

Editorial Director Emeritus

Photos

Antonio Argandoña

Javier Arias, Maria Dias, Edu Ferrer, Paul Mac Manus, Marcus Perkins

Editorial Board Fabrizio Ferraro, Strategic Management

Illustrations

Carlos García Pont, Marketing

Raúl Arias, Jojo Cruz, Javier Tascón

Beatriz Muñoz-Seca, Production, Technology and Operations Management Sebastian Reiche, Managing People in Organizations

Art Direction and Infographics Prodigioso Volcán

Joan E. Ricart, Strategic Management Carles Vergara, Financial Management

Production Manager Louma Atallah

Managing Director Gemma Golobardes

Layout Manoli Gutiérrez, Marta Moreno

Director of Content and Channels Marta Comin

Corporate Marketing and Communications Susanna Arasa

Editor in Chief Philip Seager

Published by IESE Business School — University of Navarra

Editors

Legal Deposit: B 24325-2018 — ISSN 2604-5907

Emily McBride, Roger Perelló, Cintra Scott Editorial Contributors Nacho Benavides, Javier Moncayo, Larisa Tatge, Gonzalo Toca, Michelle Wallin

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. www.iese.edu insight@iese.edu

Barcelona Avda. Pearson, 21

Munich Maria-Theresia-Strasse 15

08034 Barcelona, Spain

81675 Munich, Germany

Tel.: +34 93 253 42 00

Tel.: +49 89 24 20 97 90

Madrid Camino del Cerro del Águila, 3

New York 165 W. 57th Street

(Ctra. de Castilla, km 5,180)

New York, NY 10019 USA

28023 Madrid, Spain

Tel.: +1 646 346 8850

Tel.: +34 91 211 30 00


Contents #156

REPORT

Build Back Better 8

How business model innovation can help your firm out ut of the crisis

Developing a BMI mindset C hange your chip with these 7 practical tips

24

“The crisis may have created a greater willingness to change� Philipp Schulte on how to run a strategic workshop that plans for the future

26

Enabling innovation How corporate venturing enablers can help firms innovate and grow

“I’m asking you for your ideas� How Bruno Lea is helping an established company think afresh about its business model

30

20

“For me, COVID-19 ZDVGHäQLWHO\DQ RSSRUWXQLW\IRU LQQRYDWLRQĂ— Bruno Lea Performer CNC, Haas Automation

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M. Julia Prats

Dr. Philipp Schulte Giesecke+Devrient


THE BIG PICTURE

SMART PICKS

Teleworking: the new normal?

Stretch assignment

How COVID-19 lockdowns affected

An interview with Pau Gasol (pictured) and other resources to stay well in testing times

34

work in six EU countries

52

KNOW

HACK Taking the iceberg challenge

36

Buying time for banking

37

Keys for pivoting your business

37

Calculating the cost of climate change

56

By Carles Vergara

+IESE

Tipping points in society: Are you ready?

Companies that design for difference win every time Jonathan Lakin uses AI to detect customer intentions

In conversation with Massimo Maoret

38

Lessons from sports to compete with AI

Technology transfer Best practices in taking an idea to market

64

42

68

By Pedro Larrañaga and Concha Bielza

Managing the unknown Why now is a good time to invest in startups

46 FULL STOP

Market ready Even with COVID, some skills are always in demand

Keys to confronting crises 50

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Insights from the front line in the fight against COVID-19 in Spain

76


EDITOR’S NOTE

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

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Helping the planet means investing in the environment. That’s why we’ve invested over 1.4 billion euros in renewables over the last 3 years, thereby supplying 3 million homes with energy from the wind, water and sun.

naturgy.com


REPORT How business model innovation can help your firm out of the crisis


REPORT

Build Back Better

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no. 156 | IESE Business School Insight | 11


REPORT

Build Back Better

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no. 156 | IESE Business School Insight | 13


REPORT

Build Back Better

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14 | IESE Business School Insight | no. 156


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Examine how incumbent business models work and look farther afield to learn from very different industries no. 156 | IESE Business School Insight | 15


REPORT

Build Back Better

6 questions to BMI 1. What perceived customer needs can be satisfied through the new business model design?

model (e.g., the focal firm or a partner) and what novel governance arrangements could enable this structure?

2. What novel activities are needed to satisfy these perceived needs?

5. How can value be created in novel ways through the business model for each of the participants?

3. How could the required activities be linked to each other in novel ways? 4. Who should perform each of the activities that are part of the business

6. What novel revenue model fits with the firmâ&#x20AC;&#x2122;s business model to appropriate part of the total value it helps create?

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16 | IESE Business School Insight | no. 156


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no. 156 | IESE Business School Insight | 17


REPORT

Build Back Better

When you innovate, look at the forest, not the trees

Christoph Zott 3URIHVVRURI(QWUHSUHQHXUVKLS

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Adopting a BMI mindset for change

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18 | IESE Business School Insight | no. 156


Wanted: Your business model challenges

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Does your firm have its own business model challenge? Every year IESE runs a Business Model Challenge elective during which teams of secondyear MBA students collaborate with real companies to provide fresh, unbiased, outside perspectives on their current business model, and then present them with a well-crafted proposal for a potential business model innovation (BMI).

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Interested in submitting a challenge? Email czott@iese.edu for details on how to apply. Certain conditions apply.

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Deadline for submissions: Nov. 30, 2020

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Company reps are invited to collaborate closely with MBA teams and to visit the IESE campus in Barcelona (conditions permitting) sometime between January and April 2021 for discussions and final presentations.

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Take advantage of this opportunity!

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New Executive Education course on business model innovation strategy IESEâ&#x20AC;&#x2122;s Christoph Zott and Marc Sosna are developing a new online course on business model innovation strategy. Watch for details at executiveeducation.iese.edu

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no. 156 | IESE Business School Insight | 19


REPORT

Build Back Better

Iâ&#x20AC;&#x2122;m asking you for your ideas

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REPORT

Build Back Better

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“You have to search outside your industry, which forces you to imagine things that nobody else has implemented in your sector”

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If no one else in your industry is doing it, how can you check your ideas to see if they might work?

Another part of BMI thinking is reframing problems as

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22 | IESE Business School Insight | no. 156


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REPORT

Build Back Better

Developing a BMI mindset Business model innovation (BMI) is a key task for managers – yet they often can’t do it because they lack the requisite mindset. The BMI mindset is one that is able to conceive of the entire activity system of a firm in terms of problem-solving or business opportunities. By thinking proactively and holistically about how you do business, you can better prepare for changes in your industry or business environment. Granted, such thinking isn’t easy and may not come naturally. But the good news is, it can be taught and learned. Here’s how to develop it, in yourself and in others.

ACTIONS TO FOSTER BMI IN YOURSELF

1

2

3

Anticipating

Distancing

Abstracting

Never be complacent about your current position. Just because the future is unknown doesn’t mean you can’t try to imagine future scenarios, especially ones in which your competitive position isn’t the same forever. Use strategic foresight tools to help you think about future possibilities.

Don’t get so mired in the day to day that you lose sight of the bigger picture. Step away to get an outsider’s view of your firm, either through a strategy workshop, or by leveraging the views of external hires, advisers and periphery employees who may have a very different take.

Think about your business model in generalizable, conceptual terms, which helps in identifying elements of your existing model that could be applied to a new domain, or vice versa. Just be careful not to oversimplify or ignore crucial elements on which your current model depends.

24 | IESE Business School Insight | no. 156


ACTIONS TO FOSTER BMI IN YOUR TEAMS

MORE INFO: Business Model Innovation Strategy: Transformational Concepts and Tools for Entrepreneurial LeadersE\&=RWW DQG5$PLW :LOH\ 

7 6 5 Employee selection Hiring criteria should include openness to learning. Probe job candidates about their recent learning experiences, not just their industry expertise. An individual with less firm-specific experience but a more open mind or broader background may prove more valuable longer term.

Memorable mentoring Send strong messages from the top that BMI is important. This can happen through formal training and workshops on the topic, but also through informal means. Make sure your meetings are future-oriented, where everyone is encouraged to share examples from other industries to solve problems. Invite employees to travel outside their usual domain to compare how things are done elsewhere.

Role modeling Unlike mentoring, role modeling is neither necessarily based on direct interaction nor does it necessarily have a teaching purpose. By deliberately displaying your own interest in BMI and always being open to new learning experiences, employees may seek to emulate the same attitudes and behaviors if they are so inspired.

Avoid these traps

4 Reframing Make sure you have strong communication processes and that there is sufficient appetite for flexibility and change within the organization before presenting business model alternatives. How receptive is your organization to diverse perspectives? Does it take a crisis before change is considered?

Framing tip When presenting BMI internally, be conscious of how you do it. When framed as a threat, people tend to get more rigid, which restricts information, narrows attention and reduces channels, resulting in inertia. When framed as an opportunity, people react more positively under the expectation of gain, which motivates change and promotes innovation. Opportunity and threat perceptions act as important cognitive antecedents to business model change and innovation.

Not seeing the forest for the trees Paying too much attention to individual components (e.g., the product or technology) rather than seeing how the whole system works. Accepting your model as a given Path dependencies (e.g., standard procedures, ongoing contracts, stable relationships, established routines) discourage the search for anything new. Following a dominant template Benchmarking and copying elements from other business models similar to your own, forgetting that things can and often should be redesigned with novel features.


REPORT

Build Back Better

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REPORT

Build Back Better

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28 | IESE Business School Insight | no. 156


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Build Back Better

CREDIT :

Edu Ferrer

REPORT

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30 | IESE Business School Insight | no. 156


ENABLING innovation Corporate venturing enablers can help established firms and startups to innovate and grow at a higher speed and lower cost.

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no. 156 | IESE Business School Insight | 31


REPORT

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32 | IESE Business School Insight | no. 156

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Your independent digital advisor We help you in the IT decision-making process to grow your business

Digital adoption trends

Design the right digital & governance strategy Train your team for the digital challenge

Reduce time, costs and risks in your IT acquisition process

Contrast the positioning of IT providers


A new perspective

THE BIG PICTURE Teleworking: the new normal? How did salaried professionals who had never worked from home before react to the experience during the coronavirus lockdowns? Do you see yourself in the results of these EU surveys? How might your work culture change as a result?

UNITED KINGDOM

NETHERLAN

The 5 stages of grief Everyone reported some negative feelings over the loss of faceto-face interactions with colleagues. Yet the majority (in all 6 EU countries) came to terms with teleworking during lockdown. denial

anger

depression

43%

35%

39%

exploration acceptance

74%

%

83%

47

10

8

%

35

38

0

SPAIN

Time spent working during the lockdown worked as much as before

66%

23%

worked less than before (avg. -3hrs/day)

11%

worked more than usual (avg. +1.5hrs/day)

20

% 0

40

GERMANY

51 20

13

54 40

60

%

40 0

28

8 4 20

40

4 in 10 Span found work iards home very sing from tressful People most energized by digital interactions British or Spanish 30-40 years old Parents High level of job autonomy Stuck to a routine Extroverted

34 | IESE Business School Insight | no. 156

Feeling suppor ted by your boss* reduce s feelings of stress and an xiety.

*Includes their openness to different ways of working and being understanding of employeesâ&#x20AC;&#x2122; need to care for dependents â&#x20AC;&#x201C; the case for twice as many women as men.

orkers anish w p S id d boss? extent To what ported by their p u feel s


% of active workforce working from home versus the office during the coronavirus outbreak (measured May 2020)

Aspects to consider Two IESE professors discuss the issues that your company may also be chatting about…

KEY from home

Sebastian Reiche

in the office

Do we need to rewrite our company policies for teleworking?

100%

0 before only in the office

before partly like before in the office

It depends on personal preferences as well as logistical and technical issues.

like before

The best of both worlds may be to work remotely two or three days a week for personal productivity, while going into the office the other days to maintain workplace relationships and contact with the company culture. DS

Mireia Las Heras

BELGIUM What meetings should remain emails? Only 20% of meetings need to be face-to-face, while the rest can be handled via videoconferences. This may mean less business travel.

4

%

45 60

80

42

20

1

37

How can we continue to grow our digital capabilities acquired during the crisis?

100 0

FRANCE

The qualities that got us through the crisis – flexibility, generosity, initiative and an upbeat attitude – are worth preserving. I hope the remote work experiment has shown us the possibilities for designing work that is more flexible and accommodates different needs and circumstances.

%

60 80

45

11 3

41

100

Country differences may be attributed to different work cultures, economic mixes (industrial vs. services), infection rates and government responses

Continue the conversation in your company…

SOURCES: blog.iese.edu/expatriatus mireialasheras.com/research-reports/ telecommuting

60% felt moderately supported

R

60

25% felt very little support

15% felt highly supported

Based on separate surveys by IESE’s Jeroen Neckebrouck (with Cass Business School and the HR service provider SD Worx) and by Mireia Las Heras, director of the International Center for Work and Family. Read “Keys to telecommuting during, and after, the lockdown” at ieseinsight.com.


HACK

Iceberg challenge

You deepen your segmentation to reach new levels of abstraction â&#x20AC;&#x201C; and insight. Thus, your marketing spend can be targeted at those who yield the most value. Your offer is tailored to genuine customer preferences. And you sell, not by doing things the same old way, but by reaching customers at the exact right moment in their journey when they are most predisposed to buy.

36 | IESE Business School Insight | no. 156

HOW AM I GOING TO SELL?

Current sales

Observed customer behavior, feedback from surveys

Proven sales and marketing channels

Potential sales opportunities

Unarticulated Understanding wants, preferences the decisionand needs making process that customers go through

ROI

Innovative answer to the above

Sales and marketing response to the above

CUSTOMER VALUE

CUSTOMER PREFERENCES

KEY TOUCHPOINTS IN THE BUYER JOURNEY

IMPLICIT

But you must go deeper, exploring not just current but potential sales opportunities; responding not just to what customers are telling you they want but tapping into their unarticulated ZDQWVSUHIHUHQFHVDQGQHHGV7KLVĂĽLSVWKHRULJinal questions, so itâ&#x20AC;&#x2122;s no longer how much youâ&#x20AC;&#x2122;re going to spend, but rather, whatâ&#x20AC;&#x2122;s the return on investment (ROI)?

WHAT AM I OFFERING?

EXPLICIT

Sales and marketing departments typically start off with three basic questions: How much am I going to spend? What am I offering? How am I going to sell? To answer these questions, they consider current sales, what they already know about the customer, and which sales channels have worked so far.

HOW MUCH AM I GOING TO SPEND?

INFORMATION

When it comes to market segmentation, just like icebergs, the factors that could have the biggest impact on your business may lie beneath the surface. For this reason, IESE marketing professor Jorge Gonzalez uses this framework. So, dive in and develop a deeper understanding of your customers.

SOURCE : The technical note â&#x20AC;&#x153;Market Segmentationâ&#x20AC;? (MN-400-E) by Jorge Gonzalez is available from www.iesepublishing.com.


Buying time for banking Historically low interest rates, new regulation, rapid digitalization DQGJURZLQJFRPSHWLWLRQIURP%LJ7HFKDQGäQWHFKVWDUWXSVZHUH already challenging traditional banks well before COVID-19 (see The Big Picture in IESE Business School Insight #155). With the pandemic exacerbating these trends, here’s where to focus next:

“The Bank Business Model in the Post-COVID-19 World,” the second report in The Future of Banking series from IESE and the Centre for Economic Policy Research (CEPR), was prepared by IESE’s Xavier Vives, with Elena Carletti (Bocconi), Stijn Claessens (Bank for International Settlements) and Antonio Fatas (INSEAD).

1

2

Banks should make the most of their trusted role as lenders, and leverage the temporary regulatory and supervisory relief that the crisis has afforded them, to revitalize their relationships with customers and build bulwarks against their challengers.

Consolidation could help banks gain the cost efficiencies and IT investment they need to survive. Beware that the strained political environment could make cross-border mergers more difficult as states become more protective of their national banking interests.

3

Regulators must strike a fine balance between protecting financial stability while facilitating healthy competition and innovation. The coordination of competition policy with prudent data-protection policies will involve complex trade-offs.

Though the impact of COVID-19 varies across sectors, all companies will need to pivot to adapt to the new normal. What can we learn from online companies, which seem to have been less drastically impacted? Heed these tips from Fuencisla Clemares, Country Manager for Google in Spain and Portugal.

Take care of your employees. It’s time to demonstrate your corporate values and put extra effort into looking after your people.

Learn to work remotely. Enable your employees to work from home. Make sure they have the equipment and resources they need.

Prioritize adaptability. Besides adopting agile methodologies, make “learning ability” part of the employee hiring and development criteria.

Keys for ivoting your business

Identify users’ real needs. Consumer behavior has grown more erratic. Dig deeper to understand the new breed of at-home consumer.

Redesign the office of the future. Assess when and why employees need to be in the office, and switch to teleworking as appropriate. Manyy positions can benefit from teleworkk king, and companies can reap the benefit of employee productivity and satisfaction. WATCH:

The full video with Fuencisla Clemares and Julian Villanueva is available in Spanish at iese.edu/open.


+IESE

Jonathan Lakin Founder and CEO of Intent HQ, sponsor of IESE’s Chair on Changing Consumer Behavior, currently held by marketing professor José Luis Nueno.


W

Marcus Perkins CREDIT :

Companies that design for difference win every time hen it comes to customer analytics, most

In this interview with JosĂŠ Luis Nueno, Lakin elaborates on

companies think of what that data will en-

managing these challenges when â&#x20AC;&#x153;playing to change the game.â&#x20AC;?

able them to do to their customers: sell more, increase plans, reduce costs. Jonathan

How do telcos, one of your key clients, illustrate the shift

Lakin had a different idea: using analytics to listen to custom-

that many companies need to go through?

ers and understand what theyâ&#x20AC;&#x2122;re trying to do â&#x20AC;&#x201C; their intent.

Telcos are trying to reinvent themselves but reinvention is

Thus, his company, Intent HQ, was born in 2010. Advances

hard. While telcosâ&#x20AC;&#x2122; reputation for â&#x20AC;&#x153;invented hereâ&#x20AC;? might have

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been true in the past, today it is Apple, Samsung and the OTT

billions of signals from millions of customers to determine

players that get the glory. Yet thereâ&#x20AC;&#x2122;s still pressure on manage-

what matters to each person, and operationalize that insight.

PHQWWRGHOLYHUFRQVLVWHQWFDVKĂĽRZDQGPDUJLQVHYHQWKRXJK competition and 4G maturity have made commoditization

It hasnâ&#x20AC;&#x2122;t been easy: â&#x20AC;&#x153;The pace of AI is outstripping our ability

more prevalent, and 5G requires a considerable capital invest-

to leverage it,â&#x20AC;? says Lakin. The challenges are technical, requir-

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ing an entirely new way of processing data, as well as organizational, as companies need to change their old ways of working

All this requires a regime change. Because many of us in In-

to take advantage of the AI opportunity. There are also chal-

tent HQ come from telco backgrounds, we get it. The capa-

lenges around privacy, which is where Intent HQ has focused

bilities we provide help to break down company silos, forcing

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telcos not just to rethink their business models but to turn

sible both from a customer insight and a privacy perspective.â&#x20AC;?

them on their heads. We help them establish an ecosystem to no. 156 | IESE Business School Insight | 39


+IESE

Face to face

â&#x20AC;&#x153;We look for people who can â&#x20AC;&#x2DC;smellâ&#x20AC;&#x2122; the dataâ&#x20AC;?

Companies that design for difference win every time. The FKDOOHQJHLVWZRIROGVLIWLQJDOOWKHGDWDWRäQGWKHNH\FXVtomer signal, and then operationalizing that insight at every touchpoint. This requires a completely different approach, not only to how you compute your data but to how you orchestrate it across the plethora of platforms and systems that make up todayâ&#x20AC;&#x2122;s complex IT landscape.

co-generate value for end customers, because collaboration

How are you dealing with those challenges?

and partnership now hold the key.

Think of the MP3 player. The core innovation was the algoULWKP WKDW FRPSUHVVHG WKH UDZ PXVLF äOH ZKLOH UHWDLQLQJ

What else might companies be missing?

close to the original sound quality. That reshaped an entire

Many organizations have forgotten about the data gold sit-

industry and changed the way we relate to music forever.

ting right under their noses â&#x20AC;&#x201C; itâ&#x20AC;&#x2122;s just hidden in a lot of

The same will be true for encoding raw customer activity

noise. Our AI looks at the customer activity data through a

data. To make data easy enough for data scientists to use

number of different lenses. Our IntentGraph has a seman-

every day, we need to compress and transform it without

tic and a behavioral component. The semantic graph looks

losing the meaning.

at language, so when someone says â&#x20AC;&#x153;Queen,â&#x20AC;? for example, we know whether they meant the band or the monarch.

This is one of the things we do at Intent HQ: taking raw

The behavioral graph looks at people who exhibit similar

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social behavior, such as going to the same type of restau-

meaning, removing sensitive data, turning it into vectors

rant or being persistent complainers. We start with the

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data we have â&#x20AC;&#x201C; every tiny signal, every interaction â&#x20AC;&#x201C; and

entists. This new behavioral dataset can then be used to

then build out from there. Itâ&#x20AC;&#x2122;s combining human behavior

improve all the customer propensity models across an or-

with quantitative measures thatâ&#x20AC;&#x2122;s key to business transfor-

ganization. This means organizations can start to talk to

mation, particularly in detecting which customer behavior

their customers more like a friend rather than as average

drives your KPIs.

revenue per user.

What common mistake do you see analytics teams make?

How about privacy concerns?

Using averages, such as the average of all the interactions

Customers want to be treated personally but they also de-

that happen in a day. While storing an average might seem

mand privacy; itâ&#x20AC;&#x2122;s not an either/or. Most organizations, how-

a reasonable trade-off to spending money on storing every

ever, think about privacy one-dimensionally: as compliance

single piece of data, for many kinds of analyses, particular-

with legislation. But privacy is ultimately about trust: demon-

ly those involving humans, we are unwittingly trading the

strating it, rewarding it and building it directly into the cus-

cost for accuracy. Think of all the ways your own behavior

tomer experience.

is a bit quirky or different from the average person. By using averages, the products or experiences we design will be

Building it into the experience fabric means thinking about

naturally less compelling.

SULYDF\ DW HYHU\ VWHS RI GDWD ĂĽRZ )RU H[DPSOH LQ WKH GDWD

40 | IESE Business School Insight | no. 156


layer, automatically removing sensitive data classes, like pol-

What management profile is necessary for what you do?

itics or health, before they can be used. In data processing,

7DOHQWDORQHLVQĂ&#x201D;WVXIäFLHQW<RXQHHGWRPDUU\WHFKQLFDOH[-

preventing the processing of data for restricted categories.

pertise with data curiosity and commercial savvy. When I did

And at the customer touchpoint, offering a graduated con-

WKH*OREDO([HFXWLYH0%$DW,(6(,UHFDOODäQDQFHSURIHVVRU

sent approach that builds a greater sense of value exchange.

talking about developing a â&#x20AC;&#x153;smell for the numbers.â&#x20AC;? I loved that concept. We look for people who can â&#x20AC;&#x153;smell the data,â&#x20AC;?

Did COVID-19 affect your models if they were trained on

which is really about having an instinct or natural curiosity

prior behavior?

IRU äQGLQJ WKH LQVLJKW DQG VWRULHV LQ WKH GDWD DQGZHDYLQJ

Churn is an area that saw obvious impact. In lockdown,

together the many strands into a picture of the future. This

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kind of data curiosity is in short supply, and thereâ&#x20AC;&#x2122;s always a

PHDQW äJXULQJ RXW ZKLFK FXVWRPHUV ZHUH VXIIHULQJ KDUG-

strong demand for it.

ship and providing solutions to mitigate churn later. This goes back to what I said earlier: focusing on understanding

Which is more important for a manager: good instincts or

what a customer is trying to do, rather than just analyzing

lots of good data?

their current activity.

Both! Youâ&#x20AC;&#x2122;ve got to have some intuition to select the types of data that will give you actionable insights. On the other hand, without good data, youâ&#x20AC;&#x2122;re lost. Itâ&#x20AC;&#x2122;s wonderful how often the arrival of more data yields better insights, which will shape your instincts. Good instincts guide choices and select the actions the data will drive. Those actions generate more new data and, if done right, more new insights. We learn and improve. This goes back to that rare skill of data curiosity. Thatâ&#x20AC;&#x2122;s what good management is all about.

CREDIT :

Marcus Perkins

no. 156 | IESE Business School Insight | 41


+IESE

Entrepreneurship

Technology transfer Despite the popular perception, most breakthrough innovation is not the result of college dropouts brainstorming in their garages, but comes from years of research, often carried out in partnership with universities and R&D labs. How to ensure those great ideas move beyond the walls of academia and make it to market â&#x20AC;&#x201C; in other words, how to achieve successful technology transfer? Here, three people tell their stories, below which we highlight some best practices.

42 | IESE Business School Insight | no. 156


One of the most common mistakes

dustrial production unit invariably en-

when setting up a tech company is fo-

tails delays, both in the reception of the

cusing so much on the technology that

equipment and in its subsequent de-

you forget the business vision. Experi-

ployment. Inexperienced entrepreneurs

ence shows it’s better to conceive of a

may also set unrealistic expectations,

product supported by technology rather

demanding either unreasonably large or

than the other way around. Without any

exceedingly small stakes in the venture.

clear idea of the potential application of

Care must be taken not to increase ex-

the technology you hope to sell, it makes

penses and investments too soon, before

little sense to conduct a market study,

there is a solid base of sales to support

much less start a company. For this rea-

the business in the medium term.

son, sometimes the fact of having a reg-

Antonio González Prada Director of Technology Transfer, University of Navarra’s research center CEIT

EXPAND YOUR BUSINESS VISION Identify which knowledge, skills and profiles you might be missing, and then complement whatever is lacking by connecting individuals from R&D labs, universities and companies.

istered patent can be overrated.

$VVHPEOLQJWKHULJKWSURäOHVZLOOJRD long way toward making sure every-

Many entrepreneurs make overly op-

one is speaking the same language,

timistic forecasts regarding sales and

translating research discoveries into a

development times. Setting up an in-

viable business.

STRIKE THE RIGHT BALANCE Economic sustainability and academic quality need not be opposing forces but should be aligned in an integrated vision that also includes social impact.

ENSURE DIVERSE TEAMS Having a mix of profiles – executives with MBAs and academics with PhDs, as well as gender, ethnic and geographic diversity – enhances rigor, relevance and performance. Offer coaching and mentoring through entrepreneurs-in-residence, investors-in-residence, legal partners, visiting practitioners and outside experts to educate and align all participants.


+IESE

Entrepreneurship

As a professor of bioengineering at the

But some of the chefs who were doing

Polytechnic University of Catalonia

things in molecular gastronomy saw

83&  ZRUNLQJ LQ WLVVXH HQJLQHHULQJ ,

the potential. The next time, I created

was interested in how I could impact

a steak and took that around instead.

the planet, not just the biomedical

It was small and basic and didnâ&#x20AC;&#x2122;t look

äHOG$QGZKREHWWHUWKDQDWLVVXHHQ-

much like a steak, but it was an import-

gineer to create an alternative to meat?

ant step. It pushed us to work on things like appearance, texture and other sen-

We came up with a unique technology to

sorial properties, like taste.

produce a plant-based meat substitute using a 3D printer. Although we started

As important as it is to really know

with the technology, we detected a grow-

your technology, you also have to be

ing trend in alternative proteins and a

FUHDWLYHĂĽH[LEOHDQGDGDSWDEOHZLWKLW

gap in the market, and we were able to

As soon as we saw there was interest,

get the timing right for our product.

we pivoted in that direction and have

Giuseppe Scionti CEO & Founder, NovaMeat

attracted lots of media attention as a One early misstep was that I created

result. You have to test the technology

a prototype of a human ear and took

many times to make sure it works, but

that around to Michelin-starred chefs,

you also have to take risks when the

who were surprised, to say the least.

timing is right.

IS THE BUSINESS APPLICATION CLEAR? Itâ&#x20AC;&#x2122;s important to keep the research aligned with whatâ&#x20AC;&#x2122;s relevant for a client.

MAP MARKET NEEDS, USING THE PRINCIPLES OF DESIGN THINKING â&#x20AC;˘ Identify customers who may use the invention. â&#x20AC;˘ Understand and translate market needs into actionable insights. â&#x20AC;˘ Prototyping allows researchers to make rapid iterations and subsequently adapt and learn from what does and doesnâ&#x20AC;&#x2122;t work.

FOLLOW LEAN RESEARCH PRINCIPLES Great work is frequently achieved via quick iteration and short feedback loops, so you understand the problem and pivot toward improvements quickly.


We work in the advanced area of med-

in the short-term, so we had to rely on

LFDO YLUWXDO UHDOLW\ 95  7KLV LV QRW

grants and other sources of funding. We

about playing games; itâ&#x20AC;&#x2122;s about using

focused on a smaller number of custom-

95 WR FKDQJH EHKDYLRU IURP PDQDJ-

ers to make sure that they could use this

ing chronic pain to recovering after a

complex technology.

stroke. We started with two pioneers in

Charlie Pearmund Managing Director, 9LUWXDO%RG\ZRUNV

WKHäHOGÃ&#x2018;0HO6ODWHUDQG0DYL6DQFKH]

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RI WKH 8QLYHUVLW\ RI %DUFHORQD 8%  Ã&#x2018;

sets came to market that cost around

whose research showed that you could

$400 and require no laptops, cables or

trick the brain into thinking the virtual

sensors. That drastically reduces our

body was real, and once you did that,

hardware needs. Suddenly, weâ&#x20AC;&#x2122;re much

you could manipulate the body to react

more scalable. Weâ&#x20AC;&#x2122;re now in a position

in different ways.

to migrate to these headsets and seek more funding.

Our experiments are done in labs with very powerful hardware. The results

For us, the secret has been the caliber of

are impressive but the hardware is ex-

our founders and sticking to the science.

pensive. We prioritized the science in

Weâ&#x20AC;&#x2122;ve built a client base slowly and add-

WKH EHOLHI WKDW WKH 95 KDUGZDUH ZRXOG

ed functionalities very carefully. We were

eventually become more accessible. That

also able to read the market correctly for

PHDQW VDFULäFLQJ FRPPHUFLDO LQWHUHVWV

ZKHUH95LQYHVWPHQWZDVWDNLQJSODFH

PARTNER WITH RECOGNIZED PROFESSORS

BUILD A UNIT FOR RAISING PUBLIC FUNDS

Improve your capabilities by partnering with renowned researchers. Collaboration is maximized when the team size is around two or three researchers.

Hire a specialist or partner with external consultancies who can help you prepare proposals, etc., leveraging their knowledge and resources of tapping public funds and lowering the costs of you having to do it.

IDENTIFY THE BENEFITS FOR A POTENTIAL CLIENT Spend time raising awareness and visibility through industry networking events and conferences, laying the groundwork for the market to understand the implications, applications and value propositions of your research.

MORE INFO,(6(Ã&#x201D;V(QWUHSUHQHXUVKLSDQG,QQRYDWLRQ&HQWHU (,& SURGXFHVUHSRUWVDQG resources with more tips like those contained in â&#x20AC;&#x153;Technology Transfer: Commercializing 'LVFRYHULHVDW5HVHDUFK&HQWHUV7KURXJK/LQNHG,QQRYDWLRQÃ&#x2014;E\-RVHPDULD6LRWD7RQ\'DYLOD HWDO$OVRWKH%DUFHORQD7HFKQRORJ\7UDQVIHU*URXS ZZZEDUFHORQDWHFKWUDQVIHUFRP  created by IESE with support from the regional government agency ACCIÃ&#x201C;, brings MBA students together with scientists to come up with commercially viable inventions. BTTG has been recognized by the AACSB, the worldâ&#x20AC;&#x2122;s largest business education alliance, for its efforts in encouraging entrepreneurial thinking and new business creation.

no. 156 | IESE Business School Insight | 45


Agent of change

CREDIT :

Edu Ferrer

+IESE

Elena de Benavides Founder of and investor in numerous startups. “Those who know me say I’m good at creative problem-solving and identifying talent – but they say my Spotify playlist is horrible. Oh well, I love it anyway! I move to a different beat.”

46 | IESE Business School Insight | no. 156


Managing the unknown E

lena de Benavides doesnâ&#x20AC;&#x2122;t let unexpected setbacks get her down. She gets back up and continues innovating. Still under 40 years old, she has

Is now a good or bad time to invest in startups? Serial entrepreneur Elena de Benavides sees the opportunities.

already founded seven startups. As

proof of her entrepreneurial credentials, she is as KDSS\WRWRXWWKHIDFWWKDWĂ&#x2013;äYHRIWKHPZHUHIDLO-

DQGERRVWWKHLUSHUIRUPDQFH5HEHOOLRQDäQWHFK

uresâ&#x20AC;? as she is that two were resounding success-

offering banking services to Generation Z; and

es, including one that led to her being named one

Mimento, an app to print photos from your mo-

of 10 young Spanish innovators of the year from

bile phone.

no less than the Massachusetts Institute of TechQRORJ\ 0,7 EHIRUHVKHZDV

She has served as CEO of the International InstiWXWHRI3KOHERORJ\ ZKRVHSDWHQWHGQRQLQYDVLYH

Benavides has invested in 10 other startups, the

treatment for vein diseases earned her the pre-

majority of which are still alive and in some cas-

YLRXVO\ PHQWLRQHG 0,7 GLVWLQFWLRQ  6KH ZDV LQ-

es growing strong. Her investment projects are

YHVWPHQWGLUHFWRUDW*DOD9HQWXUHVD9&LQYHVWRU

as wide-ranging as Zapiens Tribe, a cloud-based

in early-stage tech startups. And she is currently

knowledge management tool to improve infor-

Open Innovation & Entrepreneurship Lead for

PDWLRQĂĽRZVEHWZHHQSHRSOHZLWKLQDQRUJDQL]D-

(OHZLWWKHQHZYHQWXUHDUPRI5((WKHQDWLRQDO

tion in order to train them, identify hidden talent

electricity operator in Spain. no. 156 | IESE Business School Insight | 47


+IESE

Agent of change

â&#x20AC;&#x153;No one can afford to stay put or stop experimenting. This implies philosophical, cultural and technological challengesâ&#x20AC;?

reason, she has joined IESEâ&#x20AC;&#x2122;s Business Angels Network, a community that brings together entrepreneurs and hundreds of active angel investors for networking events and forums, with a special focus on ongoing professional development and educational opportunities. She also serves as a mentor to IESE Women Angels, which promotes investment by women. Not many are aware such opportunities exist. â&#x20AC;&#x153;At IESE Women Angels, we fully support female investors, sharing our experiences and concerns, and helping them overcome

Throughout all these pursuits, Benavides has had

the various obstacles they may en-

to learn to manage the unknown and take uncer-

counter during the early stages of

tainty in stride. So, when the coronavirus pan-

their investment.â&#x20AC;?

demic came along, it represented only the latest in an endless series of challenges that characterize

Such support is especially valuable

the entrepreneurial journey.

in Spain, where less than a quarter of startups are spearheaded by

Although some funding may dry up as investors

women, less than 10% of startup

look to place less risky bets, Benavides is not over-

investors are women, and where fe-

ly worried about the investment outlook, given

male representation in positions of leadership in

that not all sectors of the economy or regions of

YHQWXUHFDSLWDODQGSULYDWHHTXLW\ 9&3( LVPLQ-

the world are impacted equally. â&#x20AC;&#x153;There will always

imal.

be winners and losers, in good times and bad,â&#x20AC;? she says. â&#x20AC;&#x153;Itâ&#x20AC;&#x2122;s not worth waiting to see whether there

0RUHRYHUWKRVHZRUNLQJLQ9&3(W\SLFDOO\FRPH

will be a better time to invest. An opportunity is

IURPSXUHäQDQFHEDFNJURXQGV%HQDYLGHVIDFHG

an opportunity, and maybe even more so when

this additional hurdle when she transitioned from

business conditions change in unexpected ways.â&#x20AC;?

being a young female entrepreneur to working in WKH9& VHFWRU KHUVHOI 6KH VD\V WKDW GRLQJ ,(6(Ă&#x201D;V

Supporting female investors and entrepreneurs

Programa de Desarrollo Directivo 3''  JDYH KHU

Early in her career, Benavides learned that one

WKRXJK,Ă&#x201D;PQRWDäQDQFHVSHFLDOLVWĂ&#x2014;WKDWVKHQHHG-

way of reducing uncertainty was to draw upon

ed and, just as important, â&#x20AC;&#x153;opened my mind and

the expertise and experience of seasoned in-

broadened my understanding of the many differ-

vestors and research-based institutions. For this

ent facets of a company.â&#x20AC;?

48 | IESE Business School Insight | no. 156

WKH Ă&#x2013;SUDFWLFDO XQGHUVWDQGLQJ RI äQDQFHV HYHQ


IESE’s Business Angels Network Active since 2003 in bringing together investors and entrepreneurs, with 250+ startups financed with €50m+ in direct investment.

IESE Women Angels More than 25 women-led startups have been financed by female business angels since this initiative was launched in 2017. iese.edu/entrepreneurship/business-angels

the money poured in.” Which wasn’t necessarily a good thing: “Some valuations skyrocketed beyond what was reasonable.” Having seen the highs and now the lows, some things don’t ever change, she says: “No one can afford to stay put or stop experiPHQWLQJ 7KLV LPSOLHV VLJQLäFDQW challenges – philosophical and CREDIT :

Edu Ferrer

cultural as well as technological – to completely understand not only

This broader vision helped her when it came to

the business model but also the social need that

managing the emotional rollercoaster that start-

it meets.”

up teams go through, especially when the venture really starts to take off. “It was important to create

This latter point is something that has inspired

a space where these peculiar dynamics could be

Benavides from the beginning of her career and

better managed and understood, both between

that is more relevant than ever in the current envi-

the company and its customers, and between in-

ronment. “Coming up with a business innovation

vestors and members of the startup team, where

that improves the well-being of millions of people

building trust is vital.”

is how I got my start. Now, with Elewit, we’re looking for sustainable projects that boost the energy

Innovating for social impact

transition and that might alleviate the impact of

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&29,'WKURXJKLQQRYDWLRQ,QHHGWRUHDOO\EH-

evolved dramatically in Spain within the space

lieve in what I’m doing every moment. And this is

of just a few years: “We professionalized very

the moment.”

quickly. Many people came onto the scene and

ARTICLE BY :

Gonzalo Toca

no. 156 | IESE Business School Insight | 49


+IESE

Career paths

MARKET READY Digital skills, particularly with AI, as well as entrepreneurial initiative, leadership and communication ability: these are highly in demand, according to a recent IESE study that calls upon universities to better prepare graduates for what today’s market wants and needs. With COVID-19 creating an uncertain job market, these young leaders share what IESE’s Master’s in Management (MiM) taught them about launching a career in 2020.

Companies aren’t just looking for tech skills – though those are important. AI, machine learning and big data are changing everything, and those of us in the early stages of our careers need to be ready to manage those innovations. Entire areas of trading and asset management are changing fast. Even so, technology doesn’t determine

Companies need human capabilities to solve complex problems

everything. Supply and demand are still the result of human behaviors. Personal relationships and human irrationality will continue to form a core part of äQDQFLDO GHFLVLRQPDNLQJ DQG PDQagement. Companies also need human capabilities and talented people with

Enrico Fausti Job offer: Credit Suisse

social intelligence who are able to come My Economics and Finance bachelor’s

up with smart solutions for the complex

degree was quite theoretical, so I was

problems we face today.

looking for a completely different experience, one that would change my

Eventually, I’d like to be a director of an

mindset, that was practical and

investment bank, but for now my focus

focused on problem-solv-

is on continuing to learn and under-

ing, and that would help

stand how to think critically and solve

me grow and prepare

business problems. What’s true of se-

me for who I would

nior managers is also true of students:

need to become in

Building a solid base of knowledge will

the future.

help you go wherever you want.


Companies will only ever be as innovative as the environment they create

at a glance Average age

23

Emma Lotz Work experience

Job offer: Procter & Gamble

Up to 2 years (average) Diversity Having studied International Business

Participants represent up to

in France and the Netherlands, I was

17 nationalities

ready to explore various management äHOGV ZLWK SHRSOH IURP GLYHUVH EDFNgrounds. A career path can go in many different directions, so itâ&#x20AC;&#x2122;s important to know which steps you want to take to reach your own personal goals. Learning

know theyâ&#x20AC;&#x2122;ll only ever be as innovative

how to analyze and see problems from

as the environment they create, so they

many different angles, without being

are keenly searching for people with

given the answer, is a vital skill for that

critical awareness of the technologies

path, as is knowing how to network.

that will become the disruptive forces of tomorrow.

Recognized IESE, being part of the University of Navarra, is able to confer a Master in Management certified by the Spanish Ministry of Education. Growing After a successful inaugural 2019-20 class, IESE is oversubscribed for 2020-21.

Given the extraordinary times weâ&#x20AC;&#x2122;re living through right now, you really

Iâ&#x20AC;&#x2122;m excited to get started. I hope to

QHHGWRUHĂĽHFWRQWKH VNLOOVWKDW FRP-

become a leading expert in my

panies will value, and invest in learn-

äHOG VRPHGD\ PDQDJLQJ D

ing. What are your key assets and sell-

team and helping people

ing points? Although it may be strange

and the company grow

to be starting a career now, it can also

and develop. I want to

be an exciting opportunity to discover

be the kind of lead-

new positions and sectors you might

er who gives people a

not have considered before. Any op-

greater sense of purpose.

mim.iese.edu

portunity to learn can be a dream job. Focus on developing transferable skills

the online world of work. Companies know that for them to embrace technological change, they increasingly need to recruit and retain such talent. They

CREDIT :

Iâ&#x20AC;&#x2122;m comfortable with technology and

Paul Mac Manus

in preparation for better times ahead.


Food for thought

SMART PICKS The Rider If youâ&#x20AC;&#x2122;re a cycling enthusiast frustrated by lockdowns, then this novel by the famous Dutch writer Tim Krabbe, himself a cyclist, might be for you: Itâ&#x20AC;&#x2122;s a loving, imaginative and, above all, passionate WULEXWHWRF\FOLQJUHĂĽHFWLQJZKDWJRHVRQ inside a riderâ&#x20AC;&#x2122;s mind as he competes in a French bike race. It has been hailed as capturing the highs and lows of the cycling experience in prose, which ends up being no less than an ode to life.

Stretch assignment There are loads of resources to help us cope with the physical, emotional and mental strains of living life and going to work in the age of coronavirus. As the line between work and home blurs, it becomes all the more important that we make time to detach from work. The resources listed here can help you keep your head and stay healthy. But remember, as much as reading about sports or watching an inspirational video with a world-class athlete may offer respite from work, nothing beats getting up, moving around and practicing the healthy habits and regular physical activities highlighted by these resources. 52 | IESE Business School Insight | no. 156

Learning from adversity: A conversation with Pau Gasol â&#x20AC;&#x153;We canâ&#x20AC;&#x2122;t control the many things that happen to us in life,â&#x20AC;? says the NBA All-Star Pau Gasol, â&#x20AC;&#x153;but we can control our reaction to them.â&#x20AC;? Gasol reacts with positivity, telling IESE professor Santiago Alvarez de Mon that â&#x20AC;&#x153;we can be nostalgic for how things used to be, or we can evolve and grow.â&#x20AC;? During this 50-minute conversation, Gasol also highlights our interconnectedness as human beings and the need for teamwork.

This is one of dozens of live sessions and open-access resources available at iese.edu/open to inspire the business community to proactively overcome the crisis.


FROM MY DESK

By Jeroen Neckebrouck Assistant Professor of Entrepreneurship

TheMinimalists.com In 2011, Joshua Fields Millburn and Ryan Nicodemus walked away from their corporate careers in search of a simpler life. If the lockdowns got you thinking, like them, of “living a meaningful life with less stuff,” then The Minimalists are for you. Their black-and-white site is full of stark truths. Listen to their podcasts or audiobooks while exercising or clearing out the (literal or figurative) clutter in your life.

Intermittent Fasting

www

Fasting, a spiritual discipline going back to biblical times, has more recently been embraced for its health benefits. There is growing medical support for intermittent fasting (IF), which, rather than going days without eating, consists of time-restricted eating, aligning meal times with circadian rhythms. So, no latenight eating or snacking, and a later breakfast, which is better for metabolism. When combined with a Mediterranean diet and a healthy, active lifestyle, IF has been shown to lower blood sugar and blood pressure, and enhance brain function, not to mention contributing to weight loss. Something to consider for those looking to shed those quarantine kilos. There are numerous apps to help you create your own fasting plan, track health metrics, keep mood journals, and more. Here are three of the most popular: • Zerofasting.com • Lifeapps.io/apps/life-fasting-tracker • Bodyfast.de

Headspace.com Guided meditations, articles and videos brought to you by an advertising executive and a sports student turned monk who now work with athletes and business leaders “to demystify the mystical” and “give you tools and resources to look after your mind.”

Move it or lose it Did you miss going to the gym during lockdown? Personally, I missed cycling. The health benefits of physical activity are well-documented, including it being one of the best ways to boost the immune system. It also has psychological benefits. Engaging in physical exercise helps us to switch off, reduces stress and enhances well-being, giving us the detachment from work that we all occasionally need, which will ultimately give us more energy to be effective at work. In April 2020, at the height of the lockdowns, I surveyed European workers who had been physically active prior to the pandemic to examine their changed habits during the coronavirus lockdowns and the effects on their well-being. Interestingly, 75% of those who maintained some form of physical activity – even in a reduced or different form from what they were doing before – reported having an easier time being able to detach from work. Continuity matters: Those who exercised more regularly prior to lockdown lost less of their ability to detach when doing physical exercise during the lockdown. So, whatever activity you were doing before, keep doing it. It’s important to develop good habits, especially if we intend to work from home longer term or if there’s another COVID wave and we find ourselves stuck indoors again. If you’re currently not doing anything, there’s no better motivation than a global health crisis to get started. Experts recommend 2.5 hours a week of moderate-intensity exercise, meaning you should break a sweat but still be able to speak. The type of physical activity doesn’t matter as much as actually doing it. It could be as simple as walking or cycling instead of driving, getting off the bus a few stops earlier and walking the final stretch to work, or taking the stairs. And if it’s not possible to go outside and have physical activity in real life together with others, our survey also showed that being active on virtual platforms where you could at least see others – such as doing yoga virtually with a coach or with others online – is also beneficial. But the key point is: you’ve got to move.


No pandemic should stop talent

Covid-19 Scholarships

At IESE, we want to make sure that COVID-19 doesn’t prevent promising talent from studying with us. That’s why we’ve launched our COVID-19 Scholarship program, aimed at young professionals interested in pursuing one of our Master’s degrees and at high-potential managers working in sectors hardest hit by the pandemic.

For more information: www.iese.edu/financial-aid


KNOW

By Carles Vergara

In conversation with Massimo Maoret

By Pedro LarraĂąaga and Concha Bielza

Calculating the cost of climate change

Tipping points in society: Are you ready?

Lessons from sports to compete with AI

Page 56

Page 64

Page 68


Calculating the cost of climate change By Carles Vergara

The coronavirus was only the latest disaster to hit realestate markets. Now is the time to think more, not less, about the effects of climate change on your business.


ILLUSTRATIONS :

Javier Tascรณn


Calculating the cost of climate change

KNOW

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The rise of catastrophic events

business strategies in light of the

The rise of extreme events will make some locations

global health crisis, one of the

that were once desirable places to live, visit, work or

smartest things they can do is

trade become less so. Whether pandemics such as

factor in climate change, if they

COVID-19 or climate-related disasters, recent events

havenâ&#x20AC;&#x2122;t already. Climate change was impacting

have exposed systemic weaknesses that, unless ad-

businesses around the world even before the onset

GUHVVHG ZLOO FRQWLQXH WR DIĂĽLFW FHUWDLQ ORFDWLRQV

of COVID-19, on top of ongoing disruptions related

more than others, with direct or indirect impacts on

to technology, demographic shifts and globaliza-

business activity. Real-estate industry professionals,

WLRQ 7KH FRURQDYLUXV SDQGHPLF KDV DPSOLäHG DOO

in particular, should be keeping a closer eye on them.

A

these risks, bringing them into sharp relief. My research with colleagues from the Haas School 1RZDVZHäQGRXUVHOYHVDGDSWLQJWRZKDWVRPHDUH

of Business of the University of California, Berke-

calling â&#x20AC;&#x153;the big reset,â&#x20AC;? itâ&#x20AC;&#x2122;s worth considering how to

ley, highlights the consequences of destructive

better prepare your business for extreme events. My

events on real-estate markets, with wide-ranging

research on real-estate markets tested by climate

implications for mortgage lenders and insurance

change illustrates how companies across different

companies, but also for construction companies,

sectors may need to recalculate the costs and their

developers, urban planners, infrastructure pro-

exposure to assets susceptible to abrupt value losses

YLGHUV UHJXODWRUV DQG SURSHUW\ RZQHUV 6SHFLä-

owing to climate-related catastrophes.

FDOO\ ZH VWXGLHG ZLOGäUHV LQ &DOLIRUQLD RYHU WZR

Significant climate anomalies in 2019 Asia: 3rd warmest on record, after 2015 and 2017

Alaska: warmest year on record

Europe: 2nd warmest on record, after record 2018

Mexico: warmest August on record

Australia: warmest year since its records began in 1910 Africa: 3rd warmest on record, after 2016 and 2010. Africaâ&#x20AC;&#x2122;s 10 warmest years have occurred since 2005

South America: 2nd warmest in 110 years, after record 2015

SOURCE:

Global Climate Report 2019, National Oceanic and Atmospheric Administration (NOAA), National Centers for Environmental Information (NCEI), U.S. Department of Commerce

58 | IESE Business School Insight | no. 156


The rise of extreme events will make once-desirable locations to live, work or trade become less so

OLNH D OLIHWLPH DJR WKH$XVWUDOLDQ EXVKäUHV ZHUH the top story in the world until they got eclipsed by COVID-19. Apart from the destruction of millions of acres of land and thousands of homes and buildings, these events cause important drops in air quality, with smoke in the case of Australia reaching Chile and Argentina. (We donâ&#x20AC;&#x2122;t have to think too far back, either, to remember the havoc wreaked when the eruption of an Icelandic vol-

GHFDGHVPHUJLQJGDWDRQäUHVPRUWJDJHVSURS-

cano spewed an ash cloud that closed Europe-

erty characteristics and weather.

DQ DLUVSDFH FDQFHOOHG RYHU  ĂĽLJKWV DQG disrupted businesses, supply chains and travel

2XU äQGLQJV ZHUH VXUSULVLQJ Ă&#x2018; WKRXJK WKHUH

during the spring of 2010.)

should be nothing surprising about climate-reODWHG HYHQWV OLNH äUHV DQG üRRGLQJ ZKLFK DUH

Flooding events are also multiplying. An OECD

happening with such frequency that no business

study on Cities and Climate Change listed

should treat them as â&#x20AC;&#x153;black swans.â&#x20AC;? In California,

Miami, Guangzhou, New York, Kolkata and

ZLOGäUHVKDYHEHFRPHVRFRPPRQSODFHWKDWSHR-

6KDQJKDL DV WKH WRS äYH FLWLHV LQ WHUPV RI DV-

SOHQRORQJHUWDONRIDZLOGäUHĂ&#x2013;VHDVRQĂ&#x2014;DQ\PRUH

VHWV H[SRVHG WR FRDVWDO ĂĽRRGLQJ LQ WKDW RUGHU

They happen all year long and are expected to in-

A two-meter rise in sea levels would mean the

crease in frequency and severity, owing to warmer

disappearance of Miami Beach; with three me-

and drier conditions.

ters, the land where San Franciscoâ&#x20AC;&#x2122;s airports are located today will be underwater. Tokyo, Hong

At the same time, other factors are contributing

Kong, Amsterdam and Rotterdam are also pre-

WRZLOGäUHV LQ WKH VWDWH PRUH KRPHV EHLQJ EXLOW

GLFWHGWREHVLJQLäFDQWO\DIIHFWHG

in forested areas; a buildup of brush growth that HQGVXSIXHOLQJODUJHUäUHVDQGDJLQJSRZHUOLQHV

Meanwhile, in 2019, England and Wales experi-

The latter were directly linked to the so-called

enced the wettest February since 1766, when re-

Camp Fire in 2018, which destroyed around 19,000

FRUGNHHSLQJ EHJDQ FDXVLQJ VHYHUH ZLQWHU ĂĽRRG-

homes and other structures and killed 85 people

ing and infrastructural damage at a time when

(with one person still missing). It was the deadliest

more real estate urgently needs to be built to deal

ZLOGäUH LQ &DOLIRUQLDĂ&#x201D;V KLVWRU\ WKH PRVW H[SHQ-

with serious housing shortages across Britain.

sive in the world in terms of insured losses, and LW EDQNUXSWHG 3DFLäF *DV  (OHFWULF 3* (  WKH

Tackling the issue

utility company responsible for the faulty lines.

What should business leaders, particularly those in at-risk geographical areas, do to grapple with

:LOGäUHV LQ RWKHU UHJLRQV RI WKH 8QLWHG 6WDWHV

these extreme (yet largely foreseeable) challenges?

from Appalachia to Alaska, have also become more prevalent. And many other countries are ex-

ANALYZE YOUR EXPOSURE.

periencing similar trends. In Australia, the bush-

matter how remote the issue may seem today, it

äUH Ă&#x2013;VHDVRQĂ&#x2014; WKDW EHJDQ LQ -XQH  FRQWLQXHG

will impact your industry in some way soon. Have

ZHOOLQWR$OWKRXJK-DQXDU\PD\VHHP

you analyzed your exposure to climate-related

First, recognize that, no

no. 156 | IESE Business School Insight | 59


Calculating the cost of climate change

KNOW

risk? Do your competitive advantage and investment decisions include the impact of climate change and, now, pandemics? How are competitors likely to respond to these same risks?

ADJUST

YOUR STRATEGIES AND BUSINESS MODELS.

Second, think deeply about how climate change and other extreme events should be factored into your business strategies. Start gathering data that can be incorporated into your business models and can guide your decision-making. By introducing climate change and other risks into your business models, it will be possible to identify new opportunities and avenues for growth.

The bigger the devastation, the more that homeowners are required to rebuild according to stricter codes

Changes in location, for example, can create new business opportunities. Locations with once livable temperatures will become hotter, making

homes that were once valued at an average of

WKHP PRUH GLIäFXOW WR HQGXUH IRU VRPH SHRSOH

around $200,000 were rebuilt and are now worth

As a result, the way cities are designed and the

$1 million or more.

materials used in buildings will change. Green buildings will remain attractive, since they offer

How can this be so? Our research suggests this

cost savings on utility bills due to greater energy

happens because of externalities associated with

DQGZDWHUHIäFLHQF\DQGGHOLYHUKLJKHUSURSHUW\

large destructive events. The bigger the devasta-

values for developers. How communities address

tion, the more that homeowners are required to

these issues will be vital to their attractiveness.

rebuild according to stricter codes and the stricter requirements demanded by insurance companies

MAKE REASONABLE IMPROVEMENTS.

With regard

in order for them to continue granting coverage.

to the adage of a disaster being an opportunity for

These factors work together, leading to the recon-

change, we found that to be the case in our research.

struction of homes that are more modernized in terms of infrastructure, which in turn makes them

$V \RX ZRXOG H[SHFW DIWHU D äUH ZH IRXQG DQ

more valuable.

uptick in mortgage delinquency and foreclosure rates. However, what surprised us from

6FKQHLGHU(OHFWULFĂ&#x201D;V&KLHI,QQRYDWLRQ2IäFHU(P-

our data set of houses and mortgages and Cali-

manuel Lagarrigue noted a similar trend at work

IRUQLDZLOGäUHVEHWZHHQDQGZDVWKDW

in an IESE video talk on the consequences of the

WKH ODUJHU WKH äUH WKH lower the level of default

FRURQDYLUXVORFNGRZQVĂ&#x2013;:HĂ&#x201D;UHVHHLQJDORWRILQ-

and foreclosure. And instead of moving away

novations in the residential market. If people are

from the affected area, as is generally the case

staying at home and realizing that their vacations

after a disaster, homeowners continued paying

this year will be at home, theyâ&#x20AC;&#x2122;re investing more

their mortgages and rebuilt homes that ended

in their homes. In places like California and Aus-

up having an even greater estimated market val-

tralia, where there are electrical grid failures, peo-

ue. Based on data taken from one neighborhood,

ple are investing in solar storage systems to make

60 | IESE Business School Insight | no. 156


Weather-related insured losses and the number of natural loss events are increasing Global insured catastrophe losses

Number of relevant natural loss events worldwide

The share of weather-related catastrophe losses has increased steadily to account for over 80% of insured catastrophe losses in 2018.

The upward trend is accompanied by a growing frequency of weather-related loss events, the number of which hit a record in 2018.

$US billions

%

No. of events

%

160

100

900

95

95

800

94

140

90 120

93

700

92

85 600

100

91

80 500

80

90

75 400

89

70

60

300 88

65 40 60 20

55

0

50 1985

1990

1995

Man-made disasters Weather-related catastrophes Earthquake/tsunami

2000

2005

2010

2015

200

87

100

86 85

0 1985

1990

1995

Geophysical events Climatological events Meteorological events Hydrological events

% of weather-related catastrophe losses, 5-year moving average

SOURCE:

2000

2005

2010

2015

% of weather-related events, 5-year moving average

European Central Bank

their homes more economical and sustainable.

PLAN FOR THE LONG-TERM RAMIFICATIONS.

Trends like these have been one of the big surpris-

previous points indicate, homeowners and

es of the crisis.â&#x20AC;?

EXVLQHVVHVPD\EHQHäWIURPPDNLQJLPPHGLDWH

As the

upgrades to account for climate risk, and those Bear in mind this dynamic only works so long

who prepare sooner rather than later are also

DV WKHUH LV D ZHOOIXQFWLRQLQJ äQDQFLDO VHUYLFHV

PRUH OLNHO\ WR EHQHäW 7KDW EHLQJ VDLG WKHUHĂ&#x201D;V

market to continue to cover costs. The size of re-

no escaping the fact that, over time, insurance

cent losses, compounded by the additional costs

will only get more expensive. In California, state

being racked up from the coronavirus pandemic,

regulators have prohibited insurance compa-

FDVWVGRXEWRQWKHFRQWLQXHGDELOLW\RIäQDQFLDO

nies from dropping policyholders, imposing a

service providers to absorb more losses. Rein-

RQH\HDU PRUDWRULXP LQ DUHDV VWUXFN E\ äUHV

vesting in the same spot may not be the most

Even so, any such measures are temporary. In-

VXVWDLQDEOHVROXWLRQ7KHUHDUHDORWRILIVĂ&#x2018;FKLHI

surance rates are still skyrocketing, making in-

among them, whether climate-risk trendlines are

surance less and less affordable for those who

improving or deteriorating in a given area.

need it most. no. 156 | IESE Business School Insight | 61


KNOW

Calculating the cost of climate change

Sectoral exposure statistics can provide a first approximation of risk Euro area banksâ&#x20AC;&#x2122; exposures as a share of total exposures

11%-12%

7%

Real estate-related assets

SOURCE:

Wholesale and retail-related assets

European Central Bank

1%-4%

Construction-related assets

In some cases, insurers may no longer be willing

sell a home due to social distancing guidelines,

to insure properties. Without insurance, it will be

these changes in mortgage policies will make it

impossible to obtain a mortgage. This means peo-

HYHQPRUHGLIäFXOWIRUPDQ\äUVWWLPHDSSOLFDQWV

ple will have to pay in cash, which will limit de-

to access funding. Itâ&#x20AC;&#x2122;s an especially cruel posi-

mand. This will have an important effect on mort-

tion to be in when historically low interest rates

gage markets and housing prices.

means credit is cheaper than ever.â&#x20AC;? Longer term, this would contribute to a widening of the wealth

<RXDOUHDG\VHHWKLVWUHQGDPRQJOHQGHUV-30RU-

JDSĂ&#x2018;VRPHWKLQJWKDWZDVDOUHDG\DWXQVXVWDLQDEOH

gan Chase, one of the largest mortgage lenders in

levels before the latest crisis hit.

WKH 86 ZDV DPRQJ WKH äUVW WR UDLVH ERUURZLQJ standards in April 2020 as the coronavirus lock-

Between climate change and COVID-19, those offer-

down began to bite there, and many other banks

LQJäQDQFLDOVHUYLFHVIDFHXQSUHFHGHQWHGFKDOOHQJ-

soon followed suit, tightening their lending re-

es and greater levels of systemic risk. Those working

quirements, raising minimum credit scores and

in the industry should be building new benchmarks

demanding bigger down payments, from an aver-

and doing regular risk modeling similar to the stress-

DJHRIWRRUPRUH$VRQHUHSRUWQRWHG

tests developed and carried out by central banks fol-

â&#x20AC;&#x153;At a time when itâ&#x20AC;&#x2122;s challenging enough to buy or

ORZLQJWKHJOREDOäQDQFLDOFULVLV

62 | IESE Business School Insight | no. 156


The author

Carles Vergara is a professor and head of the Financial Management Department at IESE. He has been a visiting professor at the University of California, Berkeley, where he earned two masterâ&#x20AC;&#x2122;s degrees and a PhD in Finance and Real Estate, his main research interests.

In his 2020 letter to investors, BlackRock ChairPDQDQG&(2/DUU\)LQNZDVLQQRGRXEWĂ&#x2013;:KDW ZLOOKDSSHQWRWKH\HDUPRUWJDJHĂ&#x2018;DNH\EXLOGLQJEORFNRIäQDQFHĂ&#x2018;LIOHQGHUVFDQĂ&#x201D;WHVWLPDWHWKH impact of climate risk over such a long timeline, DQG LI WKHUH LV QR YLDEOH PDUNHW IRU ĂĽRRG RU äUH insurance in impacted areas? From Europe to Australia, South America to China, Florida to Oregon, investors are seeking to understand both the physical risks associated with climate change as well as the ways that climate policy will impact Earlier this year, the European Central Bank (ECB)

prices, costs and demand across the entire econ-

announced that it would be assessing banks, in-

omy. These questions are driving a profound reas-

surance and reinsurance companies, credit agen-

sessment of risk and asset values.â&#x20AC;?

FLHV DQG RWKHU äQDQFLDO LQVWLWXWLRQV LQ WHUPV RI how well they were approaching climate-related

Although COVID-19 has understandably dom-

risks and pricing it into the market. The ECB de-

inated the 2020 agenda, businesses must not

äQHGWKUHHFDWHJRULHVRIULVN

take their eyes off the ball and ignore the ongoing, no-less-existential threats posed by climate

â&#x20AC;˘ Disregard: Does your company disregard the

change. If, as some believe, the coronavirus pan-

risk of climate change, leading you to price risk

demic reinforces the case for more responsive-

inappropriately or not keep enough in reserve?

ness and engagement, and a shoring up of our

â&#x20AC;˘ Delay: Have you not gotten around to analyzing

systems and institutions to deal more effectively

\RXU H[SRVXUH" <RX PD\ äQG \RXUVHOI VFUDP-

ZLWKH[RJHQRXVVKRFNVWKHQZHVKRXOGH[SHFWĂ&#x2018;

bling to catch up as new regulations and disclo-

DQGGHPDQGĂ&#x2018;PRUHWKRURXJKULVNDVVHVVPHQWVRI

sure requirements demand that you report on

climate-related events.

your exposure or get left behind. â&#x20AC;˘ 'HäFLHQF\ Do your risk assessments ensure VXIäFLHQW TXDQWLW\ DQG TXDOLW\ RI UHVRXUFHV WR mitigate the impact and pay for the costs of future disasters?

READ MORE: â&#x20AC;&#x153;Mortgage Markets with Climate-Change 5LVN(YLGHQFHIURP:LOGäUHVLQ&DOLIRUQLDĂ&#x2014;E\3DXOR Issler, Richard Stanton, Carles Vergara and Nancy Wallace. Working Paper (2020).

,WĂ&#x201D;VZRUWKUHĂĽHFWLQJRQWKHVHLQWHUPVRI\RXURZQ business. No one can consider themselves immune. no. 156 | IESE Business School Insight | 63


Tipping points in society: Are you ready?

F

rom climate change to data privacy to global movements calling for institutional reform, the legal environment can change swiftly even without a change in the law, and industries

need to be paying attention. Massimo Maoret, an

In conversation with Massimo Maoret Associate Professor of Strategic Management at IESE and European Commission Marie Curie Fellow

associate professor of strategic management at IESE, recently wrote a paper on this topic with Simona Giorgi (University of Bath) and Edward Zajac (Kellogg School of Management, Northwestern University). In this interview, he explains how public sentiment, beliefs and values affect companies, especially in terms of the enforcement of regulaWLRQVDQGZK\LQGXVWULHVQHHGWRNHHSWKHLUäQJHU on the pulse of societal culture.

To develop sound business strategy, itâ&#x20AC;&#x2122;s important to understand the prevailing beliefs and values of a society, as well as the legal context. Hereâ&#x20AC;&#x2122;s why you need to be paying attention.

Your paper talks about â&#x20AC;&#x153;the role of cultural consonance.â&#x20AC;? What is that? â&#x20AC;&#x153;Cultural consonanceâ&#x20AC;? is the idea that society KDVVSHFLäFFXOWXUDOV\PEROVEHOLHIVDQGYDOXHV any of which may be more or less prevalent at D VSHFLäF WLPH 7KLV LV VRFLHWDO UDWKHU WKDQ QDtional culture, meaning that it refers to a specific population rather than to any nation.


Jojo Cruz ILLUSTRATIONS :

In our paper we study a historical case that can

1967 to 1972, regulators were able to add and en-

WHOOXVDORWDERXWWKHSUHVHQWGD\WKHHYROXWLRQ

force safety standards, which saved thousands of

of automobile safety laws in the United States

lives. The attitude was that safety was paramount,

between 1966 and 1980.

combined with a general faith in science in the United States, brought about by the moon land-

,Q  WKH 1DWLRQDO 7UDIäF DQG 0RWRU 9HKLFOH

ing and the Space Race. In society, there was little

6DIHW\ $FW ZDV SDVVHG ZKLFK IRU WKH äUVW WLPH

focus on cost, and the prevalent belief was that

established a federal regulator and a set of safety

you could engineer safety.

standards. It was approved unanimously, an unusual event in American history, which goes to

But then things changed. In 1973 there was the oil

show how clearly society saw there was a safety

crisis and cost considerations began to creep in

SUREOHPRQWKHLUURDGVLWZDVVHHQDVDQHSLGHP-

more widely in society. The auto industry start-

ic, resulting in thousands of avoidable deaths. The

ed to claim that safety could not be unconnected

law mandated automakers to include several safety

to cost, and that such costs would be borne by

features into their cars, most famously seat belts.

the consumers. And they were able to successful-

Automakers werenâ&#x20AC;&#x2122;t too happy about this, because

ly challenge the regulators because â&#x20AC;&#x153;engineering

adding these features meant adding extra costs.

will solve everythingâ&#x20AC;? was no longer the attitude

We can say there was something of a power battle,

of the day; instead, people were worried about

in the early years, between the federal regulators,

unemployment rates and other costs. What hap-

HQIRUFLQJVDIHW\IHDWXUHVDQGWKHLQGXVWU\äJKWLQJ

pened was a shift in culture.

to minimize the safety requirements. We used this historical example because itâ&#x20AC;&#x2122;s eas7KLV VSHFLäF FDVH LV LQWHUHVWLQJ EHFDXVH\RX VHH

ier to see some of these transformations in ret-

a switch in the middle of the power battle. From

rospect, and to see that itâ&#x20AC;&#x2122;s not a story about the no. 156 | IESE Business School Insight | 65


Tipping points in society: Are you ready?

KNOW

technical aspects of the law. Itâ&#x20AC;&#x2122;s really a story of

Letâ&#x20AC;&#x2122;s think about regulating Facebook. Thereâ&#x20AC;&#x2122;s a

a regulatory agency that lost power because the

clear debate about this. Is society more concerned

societyâ&#x20AC;&#x2122;s symbolic idea of safety fundamentally

with privacy or more with free speech? If privacy

changed. Similar stories are playing out around

considerations resonate within society, it will be

us every day.

much easier to limit Facebook. But if the common UHDVRQLQJ LV PRUH DERXW IUHH VSHHFK RU äJKWLQJ

In your paper, you describe an â&#x20AC;&#x153;undulating

terrorism, for example, the ideas that are cultur-

battle for relative power, influenced by cultur-

ally consonant will allow the regulator to enforce

al consonance.â&#x20AC;?

stronger or weaker coercion over Facebook. The

Itâ&#x20AC;&#x2122;s â&#x20AC;&#x153;undulatingâ&#x20AC;? because power can shift from

important aspect here is that we are not simply

one side to the other. And it depends on how so-

talking about passing a law, but the extent to

ciety looks at it. So, sometimes we might see that

which the regulations will be enforced (or not).

an industry is strong enough to avoid regulation, because of its importance to a countryâ&#x20AC;&#x2122;s GDP, for

$QRWKHUH[DPSOHVHOIGULYLQJFDUV,VWKLVDFKDQFH

example. Other times the dominant belief might

WRLPSURYHSURGXFWLYLW\DQGHFRQRPLFHIäFLHQF\"

be that because an industry is so strong, it needs

Or will we be concerned about protecting the jobs

to be regulated. And the balance of power can

of taxi drivers and related industries? Depending

shift. Depending on whatâ&#x20AC;&#x2122;s foremost in our minds

on how these ideas resonate with society, we will

DWDJLYHQWLPHZHMXVWLI\Ă&#x2018;DQGPRVWLPSRUWDQW

regulate self-driving cars heavily or allow the in-

HQIRUFHĂ&#x2018;VSHFLäFODZVRUZHGRQĂ&#x201D;W

dustry plenty of freedom. The interesting thing is it has little to do with the quality of the regulation itself. A law might be fundamentally a â&#x20AC;&#x153;goodâ&#x20AC;? law, but if it isnâ&#x20AC;&#x2122;t culturally

Tracking â&#x20AC;&#x153;safety as designâ&#x20AC;? and â&#x20AC;&#x153;safety as cost-benefitâ&#x20AC;?

consonant, itâ&#x20AC;&#x2122;s going to be harder to enforce it.

Comparison of topic prevalence in congressional

What are the implications for management?

hearings (1965-1980)

7KH äUVW VWHS WR GHYHORSLQJ DQ\ EXVLQHVV VWUDWHgy is understanding the context around you. We consider the law, of course, and what kinds of reg-

0.9

ulations are in place. We dedicate less thought to

0.8 0.7

cultural consonance, to identifying the symbols

0.6

that are relevant at that given moment.

0.5 0.4

Yes, the economic situation, the markets, the laws

0.3 0.2

DUHDOOLPSRUWDQW%XWVRLVVRFLHWDOFXOWXUHĂ&#x2018;RXU

0.1

FRPPRQO\KHOGEHOLHIVDQGYDOXHVĂ&#x2018;DQG\RXKDYH

0 1966

1968

1970

1972

1974

1976

1978

1980

to play with an eye on that as well. To return to the automakers, they were pushing

Probability of presence of â&#x20AC;&#x153;safety as designâ&#x20AC;? topics

back before 1972, but their pushback didnâ&#x20AC;&#x2122;t real-

Probability of presence of â&#x20AC;&#x153;safety as cost-benefitâ&#x20AC;? topics

ly work until afterwards, despite it being a time when the power of the state was waning. They pushed, but their point of view didnâ&#x20AC;&#x2122;t align with society in general.

66 | IESE Business School Insight | no. 156


example really demonstrates that you want to stay attuned to whatâ&#x20AC;&#x2122;s going on around you, because if youâ&#x20AC;&#x2122;re an incumbent, your position can become risky. But there are also potential opportunities Ă&#x2018;IRULQFXPEHQWVZLOOLQJWRHPEUDFHFKDQJHDQG for new entrants. Take the case of the Danish state-owned power company Ă&#x2DC;rsted. It was very oriented to coal, oil and gas, but they were able to pull off a remarkable switch in just a couple of years. They are now one of the world leaders in offshore wind energy. They were attuned to the shift in public sentiment, and they leaned in to the change, which is why they are where they are today. If there is a competitive advantage to recognizing these cultural switches, how should a company go about identifying them? There are computational tools to analyze culture. Up until now, culture was a hard thing to grasp, but now there are sophisticated algorithms that can go through large quantities of text and extract topics from it. It still requires human oversight, of course, because you need to decide exactly what those words mean. But by looking at the changing You also mention the energy industry.

topics, you can see how some ideas are chang-

Energy is very interesting because there is a very

ing, or are becoming more or less prevalent. That

strong set of symbols around it. Is energy just

could give you a head start to see where weâ&#x20AC;&#x2122;re

the way we make things run? Or is it a way to

headed culturally.

save the world? This is another area where we have seen a switch in recent years. Weâ&#x20AC;&#x2122;ve suddenly started talking about the need for green energy. Despite the fact that weâ&#x20AC;&#x2122;ve known what we know about the planet since the 1980s, oil and gas companies are only starting to come under severe pressure right now. And thatâ&#x20AC;&#x2122;s because the symbolic systems of our FXOWXUHKDYHFRPSOHWHO\ĂĽLSSHG6XUHJUHHQKRXVH gas emissions are sky-high, but that was true 10 years ago, too, and nobody cared, because those were not the symbols we were attending to then. Greta Thunberg had a much greater impact than hundreds of Greenpeace demonstrations. This

SOURCE: Giorgi, S., M. Maoret and E. Zajac. â&#x20AC;&#x153;On WKHUHODWLRQVKLSEHWZHHQäUPVDQGWKHLUOHJDO HQYLURQPHQW7KHUROHRIFXOWXUDOFRQVRQDQFHĂ&#x2014; Organization Science 30, no. 4 (2019). Massimo Maoretâ&#x20AC;&#x2122;s research activities are supported by the European Commission (Marie Curie Career Integration Grant FP7-PEOPLE-2013-CIG-631800).

no. 156 | IESE Business School Insight | 67


Lesson s from s ports to com pete with A I By Pe d

ro La r

ra Ăą a ga an d

Conc ha Bi elza

Sports teams are increasingly leveraging the power of artificial intelligence to enhance their performance. Here are five things companies can learn from them to achieve winning results. 68 | IESE Business School Insight | no. 156


Raúl Arias ILLUSTRATIONS :

no. 156 | IESE Business School Insight | 69


KNOW

Lessons from sports to compete with AI

More and more companies are realizing they, too, need to embrace AI to stay in the game, as highOLJKWHG LQ D UHFHQW VWXG\ E\ ,(6( SURIHVVRUV -RVŠ $]DU 0LUHLD *LQŠ DQG 6DPSVD 6DPLOD WRJHWKHU with Liudmila Alekseeva and Bledi Taska. Examining U.S. online job postings between 2010 and 2019, the authors found that, while the demand for other computer-related skills remained stable, the demand for AI skills in SDUWLFXODUZDVH[SORGLQJĂ&#x2018;E\DIDFWRURILQ absolute numbers and by a factor of four as a proportion of total job postings. And this growing demand wasnâ&#x20AC;&#x2122;t limited to the IT industry but was found across all sectors and occupation groups, including professional and administrative services, finance, manufacturing and even

W

hen Billy Beane took over as

agriculture. Whatâ&#x20AC;&#x2122;s more, such jobs commanded

manager of the U.S. base-

DZDJHSUHPLXPĂ&#x2018;RQDYHUDJHJRLQJXSWRDQ

ball team, the Oakland Aâ&#x20AC;&#x2122;s,

almost 18% higher salary for jobs in administrative

it was a lower valued team.

and support service sectors. The significantly high-

The challenge he faced will

er premium for AI skills suggests there is a â&#x20AC;&#x153;real

be familiar to many businesses (and professional

shortage of managers who are able to create and

EDVHEDOOLVDIWHUDOOMXVWDQRWKHUW\SHRIEXVLQHVV 

capture value with AI,â&#x20AC;? state the authors.

How to compete in the big leagues with fewer resources? He couldnâ&#x20AC;&#x2122;t afford to recruit the best

Having studied artificial intelligence for more than

players. Instead, he turned to sabermetrics, using

30 years, we recognize the need for all profession-

statistical analyses to crunch data on player met-

al entities to grow in their use of AI. We have spent

rics to see which ones bettered the odds of suc-

our careers researching the many different ways

cess. Determining that the percentage of playersâ&#x20AC;&#x2122;

that data can be used to analyze, predict and pro-

On-base Plus Slugging (OPS) was a better metric

vide knowledge to optimize decision-making pro-

than batting average, he recruited undervalued

cesses and enhance performance. This has led us

players with high OPS rather than more expensive

to partner with Olocip, a firm set up by the Span-

players with high batting averages. Subsequently,

ish professional soccer player Esteban Granero.

the Oakland Aâ&#x20AC;&#x2122;s rose in the ranks, going on to win

We lead an AI modeling and development team

a record 20 consecutive games in the 2002 sea-

for Olocip, offering business and sports clients

VRQ7KHLUZLQQLQJ VWUHDN Ă&#x2018; DQG WKH WUDQVIRUPD-

customized solutions to their performance issues.

WLYHLPSDFWRIDQDO\WLFVRQWKHVSRUWĂ&#x2018;EHFDPHWKH

Here, we share some of the practical applications

subject of a book that was later made into the 2011

derived from our professional work and research

movie Moneyball.

in this sphere.

70 | IESE Business School Insight | no. 156


Machine learning in sports

In sports, the two most relevant types of data to

Statistical analyses of sports data began as far back

EHFROOHFWHGDUH WUDMHFWRULHVWKHPRYHPHQWRI

as the 1950s, using manual annotation methods.

the players or the ball within the field of play; and

Back then, the term artificial intelligence (AI) was

2) events, which can include player actions such as

just being coined, and the ability of machines to

passes or shots, or referee decisions like fouls and

PLPLFVRSKLVWLFDWHGKXPDQWDVNVĂ&#x2018;OLNHIDFHUHF-

cards. But itâ&#x20AC;&#x2122;s more than just collecting and stor-

RJQLWLRQRUPDNLQJDFFXUDWHPHGLFDOGLDJQRVHVĂ&#x2018;

ing the data with the aim of visualizing it, using

was still decades away. It wasnâ&#x20AC;&#x2122;t until recent years

descriptive methods to depict what has happened

that AI evolved to the point of machine learning,

in the past, which is often as far as some analyses

not just being able to do complex statistical com-

go. Current machine-learning algorithms enable

putations at lightning speed, but identifying pat-

XVWRJRPXFKIXUWKHUDQGGHHSHUWR WKHFDXV-

terns in the data, transforming those patterns into

al dimension, diagnosing why this has happened;

models, adapting those models according to in-

2) the predictive dimension, predicting what will

coming changes in the data, performing â&#x20AC;&#x153;reason-

happen next; and 3) the prescriptive dimension,

ingâ&#x20AC;? to generate new knowledge, and then aiding

suggesting what you can do to make what you

humans in arriving at decisions. This is where AI

want to happen next.

has become highly valued, especially as it removes aspects of human fallibility, which is where past

Practical applications

analyses fell short.

When the English soccer club, Leicester City, beat the odds and won the 2015-16 Premier League for the first time in its history, part of the credit was given to the clubâ&#x20AC;&#x2122;s savvy use of AI analytics

AI has become highly valued, especially as it removes aspects of human fallibility, which is where past analyses fell short

and tools, including the use of wearables to track player movements. Using data-driven insights, training sessions were adapted to the needs of each player, and they honed their play to minimize injuries. Extrapolating from this and other well-known examples, we discuss five main areas where we find AI can contribute to competitive DGYDQWDJH

SELECTION

OF TALENT AND TEAM FIT.

When scout-

ing high-potential talent, sports clubs, like companies, are not just interested in analyzing indiYLGXDOV LQ LVRODWLRQ FRPSDULQJ RQH SURäOH ZLWK another and judging each relative to their respective past performances. What they really want to know is how that talent might perform within D JLYHQ WHDP FRQäJXUDWLRQ DQG KRZ WKHLU OHYel of play might develop and improve over time.

no. 156 | IESE Business School Insight | 71


KNOW

Lessons from sports to compete with AI

There are lots of applications for any employer, where productivity losses linked to absenteeism have been estimated to be just as costly for business as for sport

PREVENTION

OF LOSSES.

Player injuries cost En-

glish Premier League clubs a record ÂŁ221 million, according to the Football Injury Index 2019 proGXFHGE\WKHLQVXUHU0DUVK-/76SHFLDOW\$,FDQ help reduce these costs by analyzing everything from training workload and training surfaces to lifestyle habits and even genes. The important thing here is not to produce false positives for certain risk factors. This underscores the need for feeding in reliable, trustworthy data. You need to check the AI is not overestimating risk, reducing the workload without the player actually being at risk, nor underestimating the probability of injury. Some AI systems can quickly and reliably predict recovery time after injury. And the data-driven advice can be tailored to the individual and be more precise, to avoid generic prescriptions like â&#x20AC;&#x153;players should generally avoid play for between 16 and 24 weeks for this category of injury.â&#x20AC;? There are lots of applications here for any employer, where productivity losses linked to absenteeism have been estimated to be just as costly for business as for sport.

PREDICTION

OF RESULTS.

Systems abound to pre-

Predictive AI systems can do this, taking key per-

dict which team will win a match. Here, the choice

formance metrics (e.g., assists, shots, goals, ball

of variables makes all the difference. In basketball,

recoveries, loss of possession, etc.) and, using re-

the speed of the game might be the relevant fac-

gression analysis, detecting the key variables and

tor, whereas in soccer, ball possession or team fa-

the relationships between them. Finding such

tigue based on the number of games played in the

correlations can help managers estimate how a

preceding weeks might be what counts. Which are

certain player might perform as part of, not just

the key variables to predict success for the results

the present team, but a future one with a different

you want to achieve?

mix of variables. Crucially, the subjective, biased assessments of talent scouts are removed from

REAL-TIME

the equation. These performance predictions

how certain interventions during play, such as

can be complemented with estimates of a play-

telling players to close gaps or play more aggres-

erâ&#x20AC;&#x2122;s future market value, helping managers make

sively, might change the probabilities of other

more informed decisions about player transfers,

variables, like scoring a goal. Think of using AI as a

contracts and insurance against possible losses in

virtual assistant, proposing solutions in real time,

player value. AI can also suggest the position best

such as deciding when it may be time to swap out

suited to the performance metrics of a particular

players or even going so far as to recommend how

player, and predict a playerâ&#x20AC;&#x2122;s success based on

much water players should be drinking through-

factors such as creativity, inhibition or cognitive

out the match. FC Barcelona is already piloting

ĂĽH[LELOLW\.QRZLQJDOOWKLVFDQUHDOO\KHOSDFRDFK

such applications in its lower division teams be-

RUEXVLQHVVPDQDJHUFRQäJXUHWKHLUEHVWWHDP

fore rolling them out more widely.

72 | IESE Business School Insight | no. 156

SOLUTIONS.

AI is also able to analyze


6 tips to stay on the ball with AI 1. Focus on principles. You donâ&#x20AC;&#x2122;t need to be a data scientist, but you do need to understand the underlying principles: what is your value proposition to customers, what are the key processes through which you create that, and how could AI help in those? 2. Start small. There are ready-made tools to get managers started using AI. Run pilot projects to understand the possibilities. Once you discover its value, then you can hire data scientists and run more customized, complex projects. 3. Build cumulative advantage. As with many digital tools, AIâ&#x20AC;&#x2122;s power grows over time, through network effects and economies of scale. The sooner you start, the stronger your position will be, making it harder for laggards to replicate.

4. Ensure quality data. Make sure your governance structures give you access to the data you need. If collaborating with third parties, make sure your contracts specify ownership of the data insights. 5. Manage algorithms in addition to people. Learn to manage a portfolio of algorithms, knowing how and in which contexts they work best, and what potential biases they may have. You will be entrusting your teams to make decisions based on them. 6. Seize the moment. With tech costs falling all the time, the barriers to adopting AI have never been lower, while the COVID-19 crisis has made the need for radical business transformation more urgent than ever. Donâ&#x20AC;&#x2122;t delay!

SOURCE:

Ă&#x2013;:K\WKHWLPHWRLQYHVWLQDUWLäFLDOLQWHOOLJHQFHLVQRZĂ&#x2014;DQRQOLQHVHVVLRQE\6DPSVD6DPLODFDQEHYLHZHGDW ZZZLHVHHGXRSHQ6DPLODKHDGV,(6(Ă&#x201D;V$UWLäFLDO,QWHOOLJHQFHDQGWKH)XWXUHRI0DQDJHPHQW,QLWLDWLYHDPXOWLGLVFLSOLQDU\ project that, in addition to research, will prepare executives to incorporate AI ethically and responsibly into their companies. Go to www.iese.edu/AI-Initiative. 7KHFDVHVWXG\Ă&#x2013;)&%DUFHORQD0RUHWKDQDFOXEPRUHWKDQGDWDĂ&#x2014;E\-DYLHU=DPRUDLVDYDLODEOHIURPZZZLHVHSXEOLVKLQJFRP

no. 156 | IESE Business School Insight | 73


KNOW

Lessons from sports to compete with AI

The authors PERSONALIZED

EXPERIENCES.

AI is also being used

to build stronger relationships with sports fans by offering more personalized, immersive user expeULHQFHV7DNH:LPEOHGRQWKHWHQQLVWRXUQDPHQW generates game highlights based on measuring player emotion and crowd reaction, and it uses chatbots to answer fan questions and smart assistants to give out ticket information and guide fans around the grounds. FC Barcelona uses AI to address mobility and security needs within its stadium to monitor how and where people congregate. Before the UEFA Euro 2020 soccer championship ZDVSRVWSRQHGGXHWR&29,'WKH-RKDQ&UX\II Arena in Amsterdam was preparing a fully smart stadium, with thousands of sensors connected to seats, stairs, refreshment stands, parking lots and entrances to monitor crowd movements and flows, in order to ensure a smooth, safe, seamless experience for up to 80,000 visitors in and around the stadium. While AI allows managers to do so much more than they ever could before, it does not and should not replace human beings in the decision-making process; it should be a case of the human and the machine working in sync. The machine can do analyses that far exceed human capabilities, yet those machine-generated insights need to be considered in concert with human experts, who create and feed the computational models in the first place. No matter how intelligent the system, its proposals must be approved by a person who takes the final responsibility. Although technology certainly has a role to play in management, never forget that management, whether of a sports team or of a business, is not something to be left to the sole discretion of a computer.

74 | IESE Business School Insight | no. 156

Pedro LarraĂąaga is a professor of Computer Science and ArtiďŹ cial Intelligence at the Technical University of Madrid (UPM) where he co-founded the Computational Intelligence Group. He was formerly with the University of the Basque Country where he was a founding member of its Intelligent Systems Group. He is a fellow of the European Association for Artificial Intelligence.

Concha Bielza is a professor of Statistics and Operations Research in the Department of ArtiďŹ cial Intelligence at the Technical University of Madrid (UPM) where she also co-founded the Computational Intelligence Group. She has won numerous research awards, both from UPM and Spainâ&#x20AC;&#x2122;s Ministry of Education, Culture and Sport.


Keys to confronting crises

All photos courtesy of the University of Navarra Clinic

FULL STOP


Insights from the front line in the fight against COVID-19 in Spain.

O

n March 7, 2020, Ana Isabel went to the emerr-gency room at the University of Navarra Clin-ic in Madrid. She had a fever and a cough, h, and was having trouble breathing. She wass admitted with COVID-19, the virus that wass

vfast spreading across the globe. A week later, the Spanish gov-

e ernment declared a state of emergency and the country, like many others, commenced a months-long lockdown. e The hospital had been expecting just such a case. In late February, the global healthcare agency Joint Commission In-ternational ( JCI) had upped its infectious disease protocols, s, advising the Spanish hospital to prepare itself as the corona-virus made its way west from China to Europe. Northern Italy y was already under quarantine. $QWLFLSDWLQJSUREOHPVLVWKHäUVWNH\IRUGHDOLQJZLWKDFUL-sis, says Jose Andres Gomez Cantero, general director of the e

Redoubling their efforts

University of Navarra Clinic, with hospitals in Pamplona and

$QD,VDEHOĂ&#x201D;VOXQJVIDLOHG6KHEHFDPHWKH&OLQLFĂ&#x201D;VäUVWSD-

Madrid. As the saying goes, an ounce of prevention is worth

tient to be put on a ventilator in the ICU. The Clinic ex-

a pound of cure. Having been alerted, the Clinic immediate-

panded its capacity, making 300 beds available in Pamplo-

ly adopted extra protection measures and mobilized stake-

na (although only 200 were ultimately needed). In Madrid,

holders in advance.

the expansion was organized around three units: ER, Hospitalization and ICU. ER was expanded to 33 places. The

They worked out contingency plans with their infectious dis-

number of single-occupancy rooms was tripled. And the

eases unit. â&#x20AC;&#x153;We had already been building protocols to pre-

ICU quadrupled in size, annexing part of the surgery re-

vent outbreaks of Legionnairesâ&#x20AC;&#x2122; disease and other infections,â&#x20AC;?

covery area.

says Gomez Cantero. â&#x20AC;&#x153;And we had already been working with our nursing services in preventing infections via catheters

Even so, the end of March and beginning of April were â&#x20AC;&#x153;the

and intravenous tubes.â&#x20AC;?

PRVW GLIäFXOW WLPHV ZH KDYH HYHU H[SHULHQFHGĂ&#x2014; VD\V *RPH] Cantero, recalling at one point there were more than 20 pa-

Thanks to those previously laid foundations, after COVID-19

tients waiting to be admitted to the ICU and only nine free

hit, the contagion rate among Clinic healthcare workers ended

beds. Staff had to get creative, using nasal cannulas to provide

up being 7% and the mortality rate among admitted patients

oxygen to patients without a ventilator. This may have contrib-

was 5%, compared with the national average of 20% for both.

uted to the lower mortality rate at the Madrid hospital, he says.


FULL STOP

Keys to confronting crises

â&#x20AC;&#x153;Everyone pulled together for the greater goodâ&#x20AC;? ,QJHQXLW\ DQG ĂĽH[LELOLW\ ĂĽRXULVKHG DFURVV DOO GHSDUWPHQWV

All staff were repeatedly tested for COVID-19. Gomez Can-

The clothing service repurposed reusable Gore-Tex gowns,

tero proudly reports that, â&#x20AC;&#x153;No doctor at the Clinic has been

initially designed to be worn over surgical pajamas, to make

infected since the end of March, and no healthcare worker

new masks, hoods and neck coverings to protect workers

since the end of April.â&#x20AC;?

and avoid infections. The laundry service increased shifts to keep up with the need for protective equipment.

Weâ&#x20AC;&#x2122;re all in this together The Clinic had already used ultraviolet lamps to disinfect

Cooperation involving all stakeholders is another key. All

rooms for years, and these came into their own for disinfect-

personnel â&#x20AC;&#x201C; from doctors and nurses to cleaners and main-

ing rooms with COVID-19 patients. Also, through their links

tenance staff â&#x20AC;&#x201C; were enlisted in the effort.

with the universityâ&#x20AC;&#x2122;s Pharmacy Faculty, they were able to (literally) get their hands on extra supplies of sanitizing gel,

$IWHUUHFHLYLQJWKHäUVW&29,'SDWLHQWVĂ&#x2013;HYHU\WKLQJDFFHO-

which they also distributed to others.

erated,â&#x20AC;? says Gomez Cantero. â&#x20AC;&#x153;We met daily to organize care based on the number of patients in Pamplona and Madrid.â&#x20AC;? Another committee made up of department reps from infectious diseases, preventive medicine and occupational hazards tiou made ma decisions at each step. The Clinic also coordinated with other area hospitals and with the Health Department. oth In Pamplona, a COVID-19 unit was established, involving experts in pulmonology, internal medicine and infece tious diseases but also others from oncology and cardiology who wanted to collaborate. They lent support to Madrid, sending beds, medical supplies, pharmaceuticals and even willing staff.

Jose Andres Gomez Cantero: Can o: Anticipating An nticipating problems, protecting your people, p e, and working in close cooperation with wit your ur stakeholders are essential in times of crisis. s.


Josep Valor and Ines Alegre

Going viral A second pandemic has raged in parallel with COVID-19: FAKE NEWS ven before the arrival rrival val of the coronavirus, coronavirus coronaviru trust in traditional sources of authority – the government, scientific experts, mainstream media – was down, while dubious information, “alternative facts” and memes shared by family and friends were where people put their faith. So, when COVID-19 hit, although there was plenty of accurate healthcare information to be found online, users weren’t looking for it. Instead, many turned to their favorite social media influencer. IESE professor Josep Valor writes about this in his Media Matters blog with Carmen Arroyo: “There’s a gap in social media that needs to be filled by doctors who are also savvy social media users.”

beliefs, regardless of w whether it’s true or not – as a recent study by Josep Valor and his IESE colleague Ines Alegre attests.

Recognizing this, the University of Navarra Clinic published a series of video Q&As about the coronavirus on their media channels, which racked up hundreds of thousands of views.

The study also found that self-described liberals and conservatives differed in their ability to spot fake news, owing to the extent they exhibited dogmatism, which the authors found to be more the case in their sample of U.S. conservatives than liberals. So, when trying to discern the snake oil from the science on the coronavirus, before you click and share, take a step back and exercise more critical thinking, especially if you lean conservative.

E

Besides this need for more medical experts to make their voices heard online with the facts, there’s also a need to combat confirmation bias – i.e., tending to believe news that’s consistent with your prior

They asked individuals to self-identify their political persuasion, and then showed them 40 news headlines, some real, some fake, asking them to judge which was which. As suspected, individuals tended to rate a news item as being true if it confirmed their political beliefs, even if it was actually false. However, when asked to judge the veracity of an item that was far from their own political beliefs, people were more likely to call it correctly. The suggestion is, “perspective helps.”

no. 156| IESE Business School Insight | 79


Keys to confronting crises

FULL STOP

s p it a la A lt a h o Is a b e l a n A de

r ia

The day Ana Isabel was discharged was an emotional moment for all, which the Clinic shared on social media

por cambiar, el feliz de r las o p o n Ana Isab e Ă­g fas de ox fin, las ga dos de de sol. mociona os muy e tr o s o n Y . spitalaria su alta ho itas n o b Noticias

WKHLUORYHGRQHVGXULQJWKHLUäQDOGD\VĂ&#x2018;DOHYHORISDOOLDWLYH care that earned them positive recognition from the World Health Organization for still delivering humane, effective, compassionate care, even under exceptional circumstances. Another way that Gomez Cantero has seen people expressing solidarity is in relation to the cooperative effort of the KHDOWKFDUH DQG VFLHQWLäF FRPPXQLWLHV DURXQG WKH ZRUOG â&#x20AC;&#x201C; from China, Singapore and South Korea to Italy and the

Everyone pulled together for the greater good. It was not un-

United States â&#x20AC;&#x201C; in sharing their knowledge of the virus,

common to see renowned surgeons whose operations were

learning from each otherâ&#x20AC;&#x2122;s experiences, and working togeth-

on hold taking orders from more junior doctors in charge of

er on clinical trials in the pursuit of a vaccine.

coronavirus patients. He hopes this spirit will continue. For their part, the Clinic is Still, some things couldnâ&#x20AC;&#x2122;t be delayed, even with a crisis. â&#x20AC;&#x153;One

embarking on new lines of infectious disease research. â&#x20AC;&#x153;We

of our COVID-19 patients gave birth but she couldnâ&#x20AC;&#x2122;t see her

must be prepared for new pandemics,â&#x20AC;? he says, â&#x20AC;&#x153;because, as

baby until after she had fully recovered three weeks later,â&#x20AC;?

we have seen from this experience, preventing the next new

says Gomez Cantero. A new proton therapy unit at the Ma-

outbreak will be easier than trying to cure it.â&#x20AC;?

GULG&OLQLFZHQWLQWRRSHUDWLRQWUHDWLQJLWVäUVWFDQFHUSDWLHQW on April 17, at the height of the crisis. In Pamplona, 13 critical transplants were carried out, despite the pandemic. At the end of April, Ana Isabel was discharged, which gave everyone a much-needed morale boost. â&#x20AC;&#x153;She was RXUäUVWSDWLHQWWRJRWKURXJKLWDOOIURP(5WRWKH,&8 WKHäUVWWREHSODFHGRQDYHQWLODWRUDQGWKHäUVWWREH removed from one. Seeing her leave on her own two feet really lifted our spirits.â&#x20AC;? Not everyone was so fortunate, however. In cases where patients succumbed to COVID-19, the Clinic found ways to accommodate family members being present with

80 | IESE Business School Insight | no. 156

Jose Andres Gomez Cantero (pictured center) with members of his executive team.


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40 Sessions and many more to come

www.iese.edu/open

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IESE Business School INSIGHT No. 156  

Download: https://insightreports.iese.edu/en/revistas/build-back-better/

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Download: https://insightreports.iese.edu/en/revistas/build-back-better/

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