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157

Where ideas and people meet

The Green Deal The wake-up call: How green stimulus may be the key to cranking up economic recovery after the crisis


REPORT Staff #157

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

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REPORT #157 Contents

REPORT

The Green Deal

The Green Deal

8

How green stimulus may be the key to cranking up economic recovery after the crisis

Pledges for business leaders Five things you can do now to step up your commitment to the Green Deal

24

Caring for the planet is a fantastic business Jeanologia proves that being sustainable doesn’t have to cost more

This time is different

It can be done Frans Timmermans sees the Green Deal as a huge opportunity to invest in Europe’s recovery

“Climate change will not stop because we close our eyes. Not acting is no option” Frans Timmermans

26

22

“I believe we are at the tipping point of a sustainable leadership revolution” Fabrizio Ferraro

The profound transformation we need corporations to make will also require a profound rethinking of corporate leadership

30

“Whoever doesn’t incorporate the environment into their business will be out of the market in five years” Enrique Silla


THE BIG PICTURE

SMART PICKS

How to flourish in your career

Bankable advice

Laying the ground for a career that

What to do with your money in the current market

will blossom over time

34

52

KNOW

HACK Is there racial bias in basketball? Imprinting innovation Layoffs: what’s the cost to your brand?

36 37 37

Rethinking supply chains after COVID-19

56

By Weiming Zhu and Weiyin Yang

+IESE

Purpose drives performance

Be ready Margarita Oliva on persistence, resilience and brokering deals when working from home

38

Restarting together

Three startups apply innovation to solve socioeconomic problems during COVID-19

42

Sowing sustainability

Inclusive transformation depends on building ecosystems to catalyze change

In conversation with Claudine Gartenberg

Mix novelty and familiarity to move from niche to mainstream

46

FULL STOP 50

Head above water Paralympic swimmer Teresa Perales shares her secrets for staying afloat, even during a pandemic

“A good leader is one dedicated to improving people’s livelihoods” Aggie Konde

68

By Diego Zunino, Stine Grodal and Fernando F. Suarez

Limitless learning

The pandemic has changed the way we learn

64

76


EDITOR’S NOTE

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

T

What do you see? he Green Deal. For some, it represents a call to action, an opportunity that must be seized to tackle a serious global problem. For others, the problem seems overstated, a distraction from the task of running a business in these times of COVID-19. How does one meet ambitious targets for 2030 and 2050 when they may not be around in 2021?

Yet a good leader must always manage with one eye looking out the office window, metaphorically speaking. That is what this issue of IESE Business School Insight is about – helping you lift your eyes from the day-to-day to see what is on the horizon. The Green Deal is happening. Precisely because of, and not in spite of, the pandemic that is ravaging the world, the Green Deal has moved to the top of the agenda – in politics, society and business. It proposes and, in Europe at least, is codifying into law the standards and actions that governments, companies, investors and consumers are taking or will have to take in the very near future. Scanning the horizon from your office window now, what do you see happening? What could happen? What is going on in your environment that is most relevant to you, your company and your stakeholders? What does that reveal about what’s next? Our report on the Green Deal will raise many questions that only you can answer. That is the crux of leadership. In that vein, I suggest you check out The Big Picture on how to flourish in your career. Let this be a handy reference as you reflect on your own career path and consider where you are at in your own age of life and career stage. Think about the recommendations and refer back to it from time to time. Like any roadmap, there are many possible routes, depending on your desired destination and the unexpected detours or paths you take along the way. Pay attention to what you should avoid, watch out for the new opportunities that open up, and embrace each stage of your professional journey with gusto. Such is the trip of life. As we round out an unforgettable 2020, we look forward to what we hope will be a 2021 filled with those previously mentioned opportunities. On behalf of the entire Editorial Board and Editorial Team, I would like to wish all our readers a very Happy Christmas and New Year. As always, we welcome your feedback, especially to hear the stories of how you and your company are seeking to transform the world.


The future is being built today. We are concerned about economic recovery and about the planet. That’s why we are continuing to reinforce our investments in renewable energies, we are advising businesses so they can grow and we are helping families in a vulnerable situation save. Let’s believe in the future again.

naturgy.com

no. 157 | IESE Business School Insight | 7


REPORT The Green Deal

The Green Deal How green stimulus may be the key to cranking up economic recovery after the crisis



REPORT

The Green Deal

C

limate neutral by 2050. That is the

only at the start of what is going to be an incred-

overarching goal for Europe, formal-

ibly complicated transformation process,” Frans

ly launched in December 2019 as the

Timmermans, Executive Vice President for the

European Green Deal.

European Green Deal, told the European Business Summit in November 2020. He was excited to see

But that announcement came as Europe enjoyed

things “moving in the right direction internation-

its highest employment rates ever. And we all

ally. And if international momentum is created,

know what happened soon after: COVID-19 began

that will allow European leadership to actually

wreaking havoc. Yet, amid 2020’s twin health and

achieve something on a global scale.”

economic crises, the European Commission is doubling down on its commitment to sustainable, green growth, unveiling a €1.8 trillion ($2.2 trillion)

Everyone is a winner

There is some evidence of building momentum.

stimulus fund to keep the recovery on the Green

In September 2020, China’s president, Xi Jinping,

Deal track.

pledged to reach carbon neutrality by 2060, a major move from the world’s top polluting na-

Over the past year, we have seen progress on var-

tion. In November 2020, the U.S. president-elect,

ious fronts: a proposed Climate Law, strategic

Joe Biden, pledged not only to rejoin the Paris

plans for key sectors, including sustainable fi-

Agreement that the United States had left under

nance, and various tax mechanisms. Still, “we are

the Trump Administration but to reach net-zero

The Green Deal is Europe’s man-on-themoon moment Ursula von der Leyen

President European Commission

10 | IESE Business School Insight | no. 157


emissions by no later than 2050 – an about-face for the world’s second biggest polluter. In addition to those carbon heavyweights, Japan, South Africa, South Korea and the United Kingdom also recently announced net-zero emissions by 2050. Whether anticipating the 26th U.N. Climate Change Conference of the Parties (COP26) set for November 2021 in Glasgow, or desperate to get out of the pandemic crisis, the world seems to agree that rebuilding is necessary – with the sustainability of the planet holding the key. In the words of the European Commission President, Ursula von der Leyen, this is no less than another man-on-the-moon moment. Just as the Space Race of the 20th century pushed scientific and technological advances on many continents

Green stimulus

at once, the 21st century Green Race has the potential to push many ahead at once for the good of all. Which economies will get to net zero first? Who will lead the transformation? As Timmermans told the European Business Summit, “Whoever ‘wins,’ everybody goes in the right direction.”

20.2%

Of course, everybody means everybody moving in the right direction, not just governments and politicians but companies, investors, citizens and a multitude of other stakeholders. Because while “decarbonizing Europe can have broad economic benefits, including GDP growth, cost-of-living reductions and job creation,” getting there won’t

Among the world’s four largest economies and largest greenhouse gas emitters that have launched stimulus programs to kick-start their recoveries post-COVID-19, Europe’s is the greenest, with over 20% of its stimulus plan directed at green, climate-related initiatives, compared with 0.3%-2.4% in the stimulus programs of China, India and the United States, where the “Green New Deal” is a politically loaded term.

be easy, as a McKinsey report made clear: A netzero transition could create an estimated 11 mil-

sou rce :

IMF, Rhodium Group

lion jobs, yet 6 million would be eliminated. That is why a concerted effort is necessary, so that people can be retrained and reskilled for new positions that McKinsey predicts will open up in renewable energy (1.54 million), agriculture (1.13 million) and

2.4%

buildings (1.1 million), for example. So, what’s happening on the front lines and, crucially, in the growing field of sustainable investing, where the shift is already underway?

EU

India

1.1%

0.3%

U.S.

China

no. 157 | IESE Business School Insight | 11


REPORT

The Green Deal

To be climate neutral by 2050 requires targeted action in these five sectors % that make up the bulk of the greenhouse gases emitted in the EU

Transportation

Industry

Power

28

26

23

Rolling out cleaner, cheaper, healthier forms of private and public transport

Supporting innovation to become leaders in the green economy

Decarbonizing the energy sector

Buildings

Agriculture

13

13

Renovations to cut energy bills and energy use

Making farming more efficient and redesigning food systems

%

%

12 | IESE Business School Insight | no. 157

%

%

% sou rce :

IEA, UNFCCC, McKinsey analysis


Powering forward

The five sectors currently responsible for most of the European Union’s greenhouse gases are transportation, industry, power, buildings and agriculture, according to McKinsey. Europe’s power sector may be the first to achieve net zero, thanks to renewables, particularly wind and solar. As those technologies are increasingly deployed over the next two decades, renewable production and storage capacity will have to be rapidly scaled to keep up with demand from other sectors, especially industry. IESE’s Massimo Maoret has written case studies on key players in the transformation of the power sector, including the Danish company Ørsted, now the world’s largest offshore wind producer, and the Italian energy infrastructure company Snam, which operates Europe’s biggest gas pipeline. Even before the European Green Deal launched, Snam was looking to align its gas pipeline-and-storage business with future sustainable

Camilla Palladino

Executive Vice President Corporate Strategy & Investor Relations Snam

energy needs. For Snam’s Executive Vice President for Corporate Strategy and Investor Relations, Camilla Palladino, “Net zero as a target really focuses the mind. You have to work backward from the goal.”

Net zero as a target really focuses the mind

She explains: “We have moved from what might be called an ‘every little helps’ approach to one in which the harder, longer term sustainability goals are at the forefront. Until we had the net-zero target, the really hard bits of the equation weren’t being addressed. Instead, we would put one foot in front of the other, trying to do the next best thing.” Palladino refers to a story about Bill Gates, who, whenever he heard an idea for what more could be done to stop global warming, would pointedly ask, “What’s your plan for steel?” The reason is that steel and other ubiquitous materials like cement and plastic are major greenhouse-gas contributors, and the real plan he felt was needed no. 157 | IESE Business School Insight | 13


REPORT

The Green Deal

Do your homework

Now is the time to check your business readiness against some of the key planks of the Green Deal.

A climate-neutral Europe by 2050 • Calculate your company’s carbon footprint and test your corporate investments for climate neutrality • Quantify the emissions in your business supply chains and prepare to switch to clean energy and renewables in your business processes

Zero pollution

A circular economy

Farm to fork

Building and renovating

Transportation

• Track your product life cycles for sustainability • Ensure your sourcing is not harming biodiversity

• Test the energy efficiency of your buildings and make upgrades as necessary • If constructing or renovating buildings, seek LEED certification

14 | IESE Business School Insight | no. 157

• Phase out, minimize or substitute products that involve toxic pollutants • Invest in R&D to develop innovative replacements for pollutants

• Eliminate pesticides, antibiotics and fertilizers in compliance with EU food standards • Check that labeling claims (locally sourced, healthy, ecological, organic) can be substantiated: no greenwashing

• Assess how your goods are shipped • Deploy vehicles that use non-fossil fuels


was one that came up with affordable zero-carbon

also plays an important role in reallocating capital

versions of those everyday offenders.

toward “the clear and present danger of climate change. In addition to public initiatives, we are

Now, if you ask Palladino, “What’s your plan for

going to need all the private money we can gather.

steel?” she will tell you, “Clean hydrogen.” Yes, it

We need to invest in a way that reduces this threat

will take years of proof-of-concepts and big pilot

as much as possible,” says IESE’s Fabrizio Ferraro,

projects before it can be seriously ramped up. But

who researches responsible investing and recent-

no more baby steps. The Green Deal has made

ly moderated a panel on the topic as part of the

hydrogen a priority, with hundreds of billions of

Ship2B Impact Forum.

euros in investment expected well ahead of 2050. That means Snam and its industry partners can

Ship2B is an organization dedicated to promoting

start “pushing hydrogen down the learning curve

impact investing in Spain. Its co-founder, Xavier

now” in a much bigger way, “to be ready for it to

Pont (IESE MBA ’02), believes that government and

take its role in the energy mix by 2050,” of which

philanthropic actions are not enough to solve the

green gases are expected to account for more

existential threats facing humanity, and that we

than a quarter.

need to mobilize the might of the capitalist system – which moves more money than the public

This illustrates how the Green Deal may be just

and philanthropic sectors combined – to boost

the impetus certain industries need – with a goal,

impact investing. “That is the real way to generate

regulatory and public support, public and private

social impact.”

investment – to help reach those “hard-to-abate sectors,” says Palladino.

Where the money is

The good news: There is evidence this is happening. Responsible or ESG (for Environmental, Social and Governance) investing has grown to repre-

In addition to the public sector concentrating

sent more than $30 trillion in global assets under

minds toward specific goals, responsible investing

management.

Yes, it will take years before it can be ramped up. But no more baby steps

no. 157 | IESE Business School Insight | 15


REPORT

The Green Deal

Michael Canfield Portfolio Manager Man Group

INVESTING WITH IMPACT We have a very loud voice with the C-suite and can enact real change Climate change in investing is usually framed as risk but really it’s an opportunity

Miguel Nogales

Co-Chief Investment Officer Generation Investment Management

16 | IESE Business School Insight | no. 157

Maria Laura Tinelli

Director and Co-founder Acrux Partners

Initiatives like the Green Deal create the conducive ecosystem and the opportunities necessary for the market to move forward: This makes the difference


Participating on the panel with Ferraro was Miguel Nogales, Co-Chief Investment Officer and a founding partner (along with former U.S. Vice President Al Gore) of Generation Investment Management, which seeks to invest in and engage with companies that have long-term orientations and whose goods and services are consistent with a low-carbon, equitable society. “The idea of climate change in investing is usually framed as risk,” said Nogales, “but really it’s an opportunity.” Nogales sees the current moment as a rare and ripe one for investors, where the stars are perfectly aligned: “There needs to be an enormous and

Where investors lead EU-based institutions and asset owners are more likely than others around the world to commit to responsible investing, as measured by the number (55%) of signatories of the Principles for Responsible Investment (PRI) – although they don’t control the most Assets Under Management (AUM).

rapid transition in everything – from power and mobility to what we eat and what we wear – and that transition has to happen fast and it will have broad support, both regulatory and financial. As an investor, that is an amazing setup.” For investors in Europe and elsewhere, one initiative worth watching is the EU Taxonomy for Sus-

EU

55% AUM $32trn

tainable Activities. Despite its opaque-sounding name, this Taxonomy matters because it will cover disclosure requirements in relation to the Green Deal’s key environmental objectives for a broad range of equity and debt-based financial products. Implementation is planned for 2022. While some may balk at added reporting requirements, alignment with the Taxonomy could

U.S. & Canada

24%

AUM $46trn

open doors to more financing while signaling to investors where to invest responsibly. It could also signal where to invest resiliently. Rui Albuquerque (Carroll School of Management, Boston College) and co-authors found that companies with higher environmental and social scores tend to experience softer landings when exogenous shocks – like the COVID-19 pandemic and consequent stock market crash – occur. And not only do ESG-oriented investors experience less return volatility during a crash, they also see higher stock returns than others, a finding backed by other

Rest of world

21%

AUM $11trn sou rce :

PRI Signatories Reporting in 2019. “ESG and Responsible Institutional Investing Around the World: A Critical Review” (2020) by Pedro Matos, Darden School of Business.

studies of resilience in crisis.

no. 157 | IESE Business School Insight | 17


REPORT

The Green Deal

Green bonds allow investors to invest in pro-planet projects

have very progressive investors or firms, but if they are not appropriately accompanied by government regulation and proactive actions by the ecosystem as a whole, investors or companies alone cannot deliver on the promise.” Here, again, is why all-encompassing initiatives like the Green Deal are so important, in that they “create the conducive ecosystem and the opportunities necessary for the market to move forward. This makes the difference.”

The pressure to apply the Taxonomy will extend

That said, another panelist – Michael Canfield,

well beyond Europe, with U.S.-listed companies

Portfolio Manager of Man Group – stressed that

already studying up. It also has a cascading effect

the role of investors in this ecosystem should

on other regions of the world – a point made by

not be understated. “As investors, we have a very

Nogales’ fellow panelist, Maria Laura Tinelli, di-

loud voice with the C-suite, and we can enact real

rector and co-founder of Acrux Partners, a Lon-

change if we make the effort to do so.” Nogales

don-based impact investment advisory firm op-

agreed. In his experience, “CEOs really listen to

erating in Latin America. “We are beginning to see

investors, perhaps more than you might expect.”

how regulations passed in the EU – which is the

For companies outside of countries with formal

hub for more proactive, progressive regulations to

climate goals, shareholder activism may be anoth-

be issued – filter all the way down to a country like

er path toward change.

Brazil, Argentina or Chile in terms of which standards it chooses to adopt.”

Green bonds: funding action

In the fast-growing realm of ESG investing, there Despite these pushes in positive directions,

is an asset class that is becoming particularly im-

real change will take something more: “Inves-

portant: green bonds. The beauty of green bonds

tors alone won’t cut it,” added Tinelli. “You can

is that they allow all types of investors, be they

18 | IESE Business School Insight | no. 157


individuals or institutions, to invest in pro-environment, pro-planet projects. That is to say, bond buyers are investing in actions, not business profits or potential. Even fossil fuel companies can issue green bonds if they use the proceeds

What’s the view from the C-suite?

to clean up their acts, environmentally speaking. Since 2007, when the European Investment Bank issued the first widely recognized green bonds for green goals, the market has steadily grown. In fact, according to Moody’s, proceeds reached $258 billion in 2019, up from less than $1 billion a decade ago. In September 2020, Germany joined the Netherlands, France, Sweden and Poland in

71

%

want to lock-in climate change gains made as a result of the pandemic

launching a green bond, which, according to the Financial Times, was five times oversubscribed, demonstrating investors’ appetite for more. Naturally enough, the EU plans to fund a substantial portion (30%) of its green recovery with green bonds. Expected to raise up to €240 billion ($290 billion), the EU green bonds slated for sale in 2021 would be the world’s biggest issuance to date,

65

%

say managing climate-related risks will play a part in whether they keep their jobs over the next 5 years

nearly doubling the current green-bond market. That said, there is some question over whether the Taxonomy, linked to a proposed Green Bond Standard, will be ready in time. In any case, the EU looks likely to open the spigot and set standards in the coming months.

This is the train to catch

With the coronavirus halting flights and shuttering parts of the economy, greenhouse gas emis-

+2

percentage points

The connection CEOs feel to a societal-driven purpose has grown stronger since the crisis began, going from 77% to 79% during 2020

sions dropped. The extreme change of habits on a global scale provided a taste of what is required to rein in climate change. But it will take many years of emission cuts comparable to those we experi-

sou rce :

KPMG 2020 CEO Outlook: COVID-19 Special Edition

enced in 2020 just to reach the Paris goals, Nogales pointed out. The way forward is not to give up but to steer economic growth, accelerate change and innovate in bold, new directions.

no. 157 | IESE Business School Insight | 19


REPORT

The Green Deal

Pascual Berrone

IESE professor and author of the book Green lies

Pascual Berrone

credit :

Georgina Ureña

xxxx xxxxxxxxxxxxxxxxxxxx

Why greenwashing won’t wash Whatever you decide to do in relation to the Green Deal, make sure it’s authentic, because the consequences of merely giving the appearance of being an environmentally friendly company on the outside without making the necessary investments or changes on the inside – the practice known as greenwashing – can be severe, both in terms of your firm’s reputation and its bottom line. That’s the message from IESE’s Pascual Berrone, author of the book Green lies: How greenwashing can destroy

20 | IESE Business School Insight | no. 157

a company (and how to go green without the wash). Your environmental efforts must be genuine, insists Berrone. Jumping on the Green Deal bandwagon before you have gotten your house in order – not least gotten the support of the CEO and board – is risky. If your green credentials are shaky, best to hold off until you are in a more credible position. If not, given the power of social media and activist shareholders, any fakery will be quickly exposed and punished.

The only time “faking it till you make it” might work is if it serves as an in-house tool to drive the organization toward deeper engagement, as Jeanologia CEO Enrique Silla explains: “Greenwashing is a lie, but it can also be useful. I daresay that the person who begins with greenwashing will soon realize that planet and profitability are inextricably linked, and the more they start to deal with others who are genuinely walking the talk, they will likewise be transformed.” (See the full interview with Silla later in this Report.) That said, he concurs with Berrone on the safest way forward: Identify how sustainability relates to the way your company creates value; then adjust your operations, investments, governance structures and metrics accordingly. In short, start putting your money where your mouth is. It’s also important to dialogue with your stakeholders – not just your suppliers but consumer groups and policymakers – and partner with industry peers. Only after you have done all that should you even think about tooting your horn. “The era of greenwashing is coming to an abrupt end,” notes investor Miguel Nogales. “The time when you could say, ‘Just come up with a nice report with trees on it to get the activists off my back’ is really over. And that’s a good thing.”


our actions affect those other people. It not only makes good business sense to nurture the wider ecosystem upon which businesses depend, but we also have a moral duty as managers to do right by others and the world.” Putting people alongside planet and profit is the famous triple bottom line for business – a view that seems to be gaining traction. The most recent Korn Ferry survey of European CEOs reported that nearly two-thirds (62%) Putting it another way, Uli Gra-

of them anticipate that the shift from a

benwarter – a lecturer at IESE and

single focus on profit to the triple bottom line will

deputy director at the European Invest-

be the mainstream view by 2025.

ment Fund working with impact investing – noted: “One good thing about trying to do

Paul Polman, the former CEO of Unilever, is one

something with social business models in a crisis

corporate leader who believes the shift is long

environment, like now, is that you will never have

overdue. Speaking at a conference organized by

to worry about not having a market. That incen-

the IESE Center for Corporate Governance, he not-

tivizes growth and increases funding.” Solving

ed that “the way the global economic system has

wicked problems is what entrepreneurs were

provided wealth is unsustainable. Endless growth

born to do.

cannot be perpetuated on a finite planet. In the last 40 years, humans have done historic damage to

And while the coronavirus pandemic has dom-

the planet. The COVID crisis is just a symptom of

inated 2020 headlines, a green recovery offers

the shortcomings of the current system, showing

hope to problem-solvers across industries. “This

that healthy people cannot thrive on an unhealthy

is an opportunity that happens but once in a gen-

planet. Just as U.S. President Franklin Delano Roos-

eration, and it is happening now,” the Spanish

evelt created the New Deal in the 1940s and pivoted

economist Miquel Puig Raposo told IESE alumni

the U.S. to prosperity, the world needs another New

in a recent online learning session. “This is the

Deal.” Which is precisely what we have now.

train to catch.” While more of Europe’s private sector leaders “Why do we think sustainability is important?

may be ready by 2025 to mitigate risks associated

Why do we want to pay people a good living

with exogenous shocks – from frequent and in-

wage?” IESE Dean Franz Heukamp asked in a re-

tense droughts, floods and wildfires to pandemics

cent interview. “Because of our moral obligations

– and achieve prosocial goals, there’s no reason to

as people, recognizing that business is, in essence,

wait any longer. Plotting actions now, as we enter

a community of people serving other people with-

2021, in order to unlock green recovery funds and

in a wider world that is, again, another commu-

make green investments, can put you and your

nity of people. And we need to think about how

business ahead of the curve. no. 157 | IESE Business School Insight | 21


REPORT

The Green Deal

It can be done As the pandemic forced our world to a grinding halt, it offers us a chance to take a step back and reflect: What world do we want our children and grandchildren to grow up in?

T

he European Commission, in response to Eu-

Make no mistake: What we will do on the European emissions

ropean government leaders’ request to chart

trading system, on renewable energy, in automotive – all these

the EU’s long-term course, is working to

steps will imply structural changes in many industries. We are

make Europe the world’s first climate-neu-

at the start of an incredibly complicated transformation pro-

tral continent in 2050.

cess. It will require enormous efforts, but it can be done.

The European Green Deal is our growth model, our plan

We are about to spend enormous amounts of money to

to invest in innovative technologies, new markets and sus-

build back better. This is a huge opportunity to invest mas-

tainable jobs. We will cut at least 55% of greenhouse gases

sively in Europe’s recovery. We have one chance to get it

by 2030. Our Climate Law will put our targets for 2030 and

right, to spend it on where we want to be tomorrow. Let’s

2050 into law. We do so to provide as much long-term pre-

not waste it by locking ourselves into soon-to-be-obsolete

dictability and stability as possible, especially now.

technologies and outdated carbon-based business models. It would be a dereliction of duty if we were to invest in sec-

In the next couple of months, the European Commission

tors with a limited future, only to create stranded assets and

will prepare the legislation to support our climate tar-

economic problems further down the line. Let’s focus our

gets and to deliver regulatory consistency. This is exactly

recovery on our common future instead.

what many in business have been asking for, and rightly so. Because you know the change is coming. Many companies,

At the end of the day, this is not about saving the planet. It

especially the largest ones, have even recognized it much ear-

will do fine without us. This is about a healthier and better

lier than us politicians. Investors are increasingly switching

life for all of us. Climate change will not stop because we

their portfolios.

close our eyes. Not acting is no option.

22 | IESE Business School Insight | no. 157


Frans Timmermans

Executive Vice President for the European Green Deal European Commission


REPORT

The Green Deal

PLEDGES FOR BUSINESS 01 LEADERS

COMMIT TO THE GOAL OF MAKING EUROPE CLIMATENEUTRAL BY 2050

As part of the World Economic Forum’s Great Reset initiative, the CEO Action Group, representing senior executives from 30 leading companies, calls upon businesses to step up their commitment to the Green Deal in these important ways.

Set meaningful, ambitious, long-term targets for your own path toward 2050, embracing new production and work models as appropriate.

TIMETABLE Dec 2019

2020

European Green Deal launched

Promote innovation and align all new initiatives with Green Deal objectives Integrate U.N. Sustainable Development Goals Climate Law proposals and public consultations, to ensure a climate neutral continent by 2050

24 | IESE Business School Insight | no. 157

Industrial Strategy, for a circular economy

Screen and benchmark green budgeting practices Farm-to-Fork Strategy, to promote organic farming

Biodiversity Strategy, to protect natural resources

Sustainable Finance Strategy


sou rce : Based on info from the European Commission and the World Economic Forum CEO Action Group for the European Green Deal.

05

02

STEP UP FINANCIAL DISCLOSURE AND TRANSPARENCY Harmonize your reporting, rating methodologies and validation mechanisms in line with ESG standards and the Taskforce on Climate-related Financial Disclosures (TCFD).

ENSURE YOUR HR POLICIES ARE FAIR, INCLUSIVE AND PEOPLE-CENTRIC Invest in education, reskilling and upskilling of the workforce, with a particular focus on youth, to ensure sustainable employment opportunities and hope for those who need more support in making the transition to the green economy.

04

CONSIDER CHANGES TO YOUR BUSINESS MODEL

03

This may mean reassessing your use of resources, investing in the circular economy, redesigning some supply chains, adopting smart technologies and/or renovating buildings and other infrastructure to make them smarter and cleaner. All without compromising efficiency and competitiveness.

SUPPORT GREEN INNOVATION Ensure your R&D agenda allows ample room for experimentation and collaboration with industry peers on other continents to drive market development and scale up offers in areas identified as priority for the green economy, including investing in lower carbon technology and innovation.

2021 Mainstreaming of sustainability policies Identify and remedy incoherent practices that reduce effective delivery on the Deal Chemicals Strategy, banning harmful chemicals in consumer products

Renovation Wave, greening the building stock

Offshore Wind Strategy, frontloading investment in renewable energy

Smart Mobility Strategy, ramping up production and supply of sustainable alternative fuels and their related infrastructure, e.g., public recharging points

European Year of Rail, and other initiatives to increase and better manage the capacity of different modes of transport

Issuance of EU green bonds expected

no. 157 | IESE Business School Insight | 25


REPORT

The Green Deal

Enrique Silla

CEO and Founder, Jeanologia In 2018 Silla received Spain’s prestigious Jaume I Entrepreneur Award for his pioneering work in the garment finishing industry, creating sustainable, eco-efficient technologies used in over 60 countries for making jeans for Levi’s, H&M, Inditex and other leading brands. IESE Programa de Desarrollo Directivo (PDD) 1993

26 | IESE Business School Insight | no. 157


Caring for the planet is a fantastic business

W

hen Enrique Silla founded Jeanologia in 1994, the idea of reducing water and

eliminating damaging emissions and

waste from denim finishing – one of the most polluting industries – was like “the

lone voice in the wilderness,” he says. But he wasn’t to be de-

terred: “Caring for the planet is a fantastic business.”

Today, over 35% of the 6 billion pairs of jeans produced worldwide every year are made with Jeanologia technologies. And in five years’ time Silla hopes to see “the entire global production of jeans done sustainably and without polluting the rivers and seas of our planet.” To this end, Silla believes the European Green Deal can play

photos courtesy of

Jeanologia

a leading role in transforming not just his own industry but many others that are taking their environmental and social responsibilities more seriously. Here, he explains how. How do you see the Green Deal rebuilding the economy post-COVID-19? There’s going to be tremendous government spending à la Keynes but instead of highways those funds will be destined for companies that put the planet first. Financial markets are no. 157 | IESE Business School Insight | 27


REPORT

The Green Deal

also going to invest more in those enterprises that contrib-

new sectors, but there are untold opportunities in traditional

ute to sustainable societies. We already see major investment

sectors, precisely because being traditional makes them ripe

funds excluding polluting sectors such as fossil fuel compa-

for innovation.

nies from their portfolios. This trend will only continue. When we started, we stuck to two premises in deciding which But the Green Deal is not just about releasing more money

technologies to develop. First, we prioritized anything that

into the economy; it’s about releasing hope in our children,

would reduce a negative impact on the planet. Second, any

who look out onto a bleak world with fewer opportunities

innovation had to reduce costs and enable us to become more

than their parents had and feel demoralized. I think the Green

efficient and competitive – because in the end that’s what our

Deal and other likeminded initiatives around the world can

clients value. However, we would never embark on the second

help inspire a new generation to launch new kinds of busi-

without the first. That’s the mistake some traditional business-

nesses – and that energy, in the end, is what changes the world.

es make: focusing on the second without considering the first.

What about traditional businesses?

You have to decide what kind of relationship you want to

Innovating in a traditional sector or market isn’t impossible.

have with your clients: purely transactional (“You buy what

A lot of smart and talented people gravitate toward startups in

I sell for a set price”) or a partnership, built on trust. I am much more willing to put my trust in a company that has some values and wants to serve society and the planet. You must have a purpose beyond reducing costs and making money. The planet has to be part of your business plan. That also gives your employees greater motivation to keep going and growing, in good times and bad. Taking care of the planet is no longer a source of competitive advantage; it’s a basic requirement. Whoever doesn’t incorporate the environment and ethics into their business will be out of the market in five years. So why is it so difficult for some executives to change their chip? I think some resistance comes from the false notion that being sustainable is going to cost more, making their products more expensive and their business less competitive. Or they think it’s all well and good for European politicians but not for those who live in the real world. Transforming such thinking is a journey, and it starts, like building a house, with the foundations. First, do something simple, like changing to LED bulbs, which will immediately lead to energy and cost savings. Then, take it a step further: Resolve that none of your production processes or the third-party products used in your supply chains will

28 | IESE Business School Insight | no. 157


“Whoever doesn’t incorporate the environment and ethics into their business will be out of the market in five years”

In the future, I envision thousands of small urban factories in every city of the world that produce only for local consumption, with water completely eliminated from production processes, or at least fully recycled. It’s already possible for us to do this today. In fact, we’ve set up such manufacturing centers in Shanghai, London and Los Angeles. And in Nevada, the Levi Strauss factory is located right in the middle of the desert, to make a very visible point about not using water. I see a world with millions of such factories, collectively bringing about a supply-chain revolution. This atomization and relocalization of production will facilitate the return of manufacturing to Europe, generating employment here. Although Europe has lost much of its manufacturing capacity – we’re never going to see huge factories of 4,000 employees in footwear, for example – we can see

contaminate the environment, and strive to reduce your

dozens of small urban factories of 20, 30, 50 or 100 employees,

emissions, residual waste, water consumption and use of

perhaps under the same investor. The labor costs in Europe

chemicals and energy in your production processes. This

may be higher but these would be offset by lower logistical

is what we are trying to implement across the entire textile

costs. This is the paradigm shift I imagine for 2030-2050.

sector through our Mission Zero initiative. For this to become reality, we need the artisan working sideOnce you’ve done that – which is already a lot – we get to

by-side with the technician. We call this person the TechArti-

the third point: system thinking. This is about changing the

san: They maintain their product sensitivity while at the same

whole system, from the design to the execution of products

time they’re able to analyze data and use AI not only to manu-

and services, so that everything is conceived to be recycla-

facture a product that sells but to have the capacity and speed

ble and eco-friendly and add value to society. And every-

to manufacture only those products that are proven sellers.

thing should be measurable, to track progress as the company evolves in ethical and ecological directions. It’s actually

There’s a lot of talk about business resilience to get out of

much easier than you think. Respecting the environment

the crisis. What does this mean to you?

costs less than destroying it.

I think the word resilience has been overused in recent months, with some confusion. Before COVID-19, almost all CEOs and

What changes can we expect to see in the next 10-30 years?

boards of directors prioritized growth and high EBITDA. Now,

Digital technologies and artificial intelligence (AI) are fast

some companies have focused all their efforts on resisting just

changing the way we sell, from the physical world to online,

to get through the crisis, based on loans, and they think that’s

and COVID-19 has accelerated that trend. And if we sell and

resilience. But they’re mistaken, because it’s not a question of

consume differently, then we ought to be changing the way

resisting long enough until things go back to how they were

we produce. As consumers buy digitally, we should be an-

before, because the world won’t be the same again.

alyzing their tastes and then only producing what we know will sell instead of trying to sell whatever we produce. This

We need to transform our companies to be more agile, emerg-

will generate enormous economies of scale, eliminating un-

ing from this crisis stronger and with a newfound purpose.

necessary inventories and working capital. That will have not

That’s resilience. In this moment, the important thing is not

only a financial impact but also an ecological one by reduc-

growth or making as much money as possible, but preparing

ing transport costs and waste.

yourself for the new reality that’s about the come. no. 157 | IESE Business School Insight | 29


REPORT

The Green Deal

This time is different Fabrizio Ferraro

Head of the Strategic Management Department at IESE

30 | IESE Business School Insight | no. 157


C redit : Edu Ferrer

E

xperienced executives, and anyone who bothers to learn about the history of sustainability, will be tempted to dismiss the recent wave of green enthusiasm as a passing fad. We did experience, in fact, a similar wave of societal and corporate attention to the environment, and more broadly the social responsibility of corporations, back in the 1970s, only to see it wane over the years. But this time is different, and sustainability concerns are not just expressed by social movements and concerned citizens but increasingly come from corporate leaders. I believe we are at the tipping point of a sustainable leadership revolution in corporations. First, climate change presents humanity with a global challenge unlike anything we have ever faced before. Given its scope and systemic complexity, climate change will require actions from both the public and the private sectors, and from all of us – as consumers and producers, managers and workers alike. If COVID-19 served as a global stress test to gauge how prepared we are to deal with the kinds of challenges we will face because of climate change, we did not fare particularly well! Second, governments are finally starting to act. Despite decades of neglect, timid aspirations are starting to be translated into more credible commitments. We already have the U.N. Sustainable Development Goals, providing specific targets for

2030. The European Union has been working on numerous initiatives, of which the Green Deal is just the latest. And if, as is promised by the incoming Biden Administration, the United States succeeds in rejoining the Paris Agreement, this would represent another boost to collective government action on sustainability. Third, the financial sector – whose traditional emphasis on maximizing shareholder value has been one of the main reasons given by CEOs for why they can’t introduce more sustainable policies – is increasingly integrating environmental and social performance metrics in its processes. We are now more likely to see Edu Ferrer

investors concerned about companies not doing enough on climate change, rather than about them doing too much. credit :

So, we have an urgent existential threat, governments are mobilizing and investors are changing their tunes. Nothing to worry about then: Surely, the might, power and ingenuity of the private sector will solve things, just like in the 1980s with no. 157 | IESE Business School Insight | 31


REPORT

The Green Deal

the Montreal Protocol. Remember that international treaty to phase out production of substances harmful to the ozone layer? Thanks to collective corporate action on that front, the world managed to eliminate ozone-depleting chemicals, helping the hole in the ozone layer to grow smaller. Unfortunately, the kind of comprehensive decarbonization needed today is much more complex. It will require monumental capital reallocation and fundamental changes for entire industries, for corporate strategies and for business

“We are at the tipping point of a sustainable leadership revolution”

models. And although this transition will generate new jobs in some sectors and regions, it is also likely to cause job losses in others. To ensure a just transition, we will need to ensure that we have policies in place to help those who will suffer the most from the changes. The profound transformation we need corporations to

This radical rethink extends beyond the boundaries of the

make will also require a profound rethinking of corporate

firm. Corporate leaders must exercise system leadership,

leadership. Sustainability cannot be bolted on to existing

engaging suppliers, consumers, NGOs, governments, sci-

strategies but needs to be at their core. Corporate leaders,

entists and other external stakeholders in novel collabora-

especially in large firms, need to accept their systemic role

tions. Rather than lobbying against stricter environmental

in society, assume responsibility for it, and act decisively

regulation, sustainable leaders should be proactively de-

to reduce their negative footprint while maximizing their

signing regulation to create a global level playing field that

positive impact in all areas:

limits arbitrage opportunism between countries, regions and jurisdictions.

• Strategically, they will need to explore novel business models, being mindful of how any changes they decide

Above all, sustainable leaders should not fall for simplistic

to make there may well endanger their own competi-

ideas that have plagued much corporate sustainability dis-

tive position.

course, that a win-win solution can always be found. Actually,

• Financially, they will need to shift investments away from

a serious commitment to ambitious environmental and so-

legacy systems and technologies toward sustainable ones,

cial goals will present trade-offs, and win-win solutions will

in line with science-based decarbonization targets.

not always be possible. Successful corporate strategies have

• In their marketing efforts, they will need to encourage more sustainable consumption and, in some cases,

never been easy to identify and execute, so we should not expect it to be any easier this time. There are no magic wands.

even discourage consumption – a marketing heresy. • Operationally, they will need to rethink their entire supply chain. • Organizationally, they should implement flexible ways of working that minimize employees’ carbon footprint. • As leaders, they will need to inspire and energize the

The world needs sustainable leaders not because the environmental and social challenges are easy to solve and obviously profitable, but precisely because they are wickedly difficult, and we need to reorient the creative power of business toward the development of solutions.

entire organization to embrace and internalize these novel goals, strategies and practices.

32 | IESE Business School Insight | no. 157

Sustainable leaders, it is time to act.


Business Acceleration Program in Munich

Accelerate, Advance, Act The ability to pivot, innovate and envision multiple scenarios is now more critical than ever. IESE’s Business Acceleration Program (BAP) is designed for ambitious high-potential managers in the DACH region who aspire to magnify their organizational impact and enrich their professional network with other high-caliber peers. This new program will boost your leadership potential with minimal disruption to your current commitments. In a dynamic learning forum, you’ll future-proof your career by acquiring breakthrough insights, concepts and frameworks and emerge with a new vision of leadership. Format: Part-time. On campus program, sessions held every 3 weeks, all day Fridays & Saturday morning.

Length: 8 weekends.

Location: Munich.

Language: English.

Find out more at: www.iese.edu/bap Contact information: Barbara Breiter Admissions Manager bbreiter@iese.edu +49 89 24 20 9790

no. 157 | IESE Business School Insight | 33


THE BIG PICTURE

A new perspective

How to flourish in your career

A career path doesn’t always advance in a linear or upward fashion. Changing companies, sectors and roles, as well as career breaks, can all factor in. What’s important is not to grow more quickly than the people around you, but to lay the ground for a career that will blossom over time. Experiment: You

don’t have to leave your current job; you can try new things through special projects or through volunteering, hobbies or involvements outside of work.

4

1

5

Develop your mental agility.

1

4

34 | IESE Business School Insight | no. 157

Don’t worry if some of your team members earn more than you. In a few years’ time, the situation may be reversed.

Nurture knowledge: What matters is not so much what you know today as your capacity to keep learning for tomorrow.

GROWING

3

SEEDS

2

SOWING

3

2

More than money, prioritize projects that allow you to grow, learn and meet people who enrich your own knowledge and understanding.

Up until the age of 35, sow the seeds of success by developing technical skills and creating quality long-term relationships.

Keep an eye on your online presence: Your social media profiles reflect your abilities – and so does their absence.

Be flexible: Sectors get disrupted, companies pivot or disappear, new jobs come and old jobs go. Make a conscious effort to understand what changes, what doesn’t change, what you want to change and what you don’t want to change.

Grow your social capital: Identify the people around you who can help you learn. This is your development network. At the same time, make sure you give back to others: Generosity is a two-way street.


Stay curious, with an open mind to keep innovating.

3

Make the most of being at your peak: Share your wisdom and experience, dedicating time to teach others.

4

2

Useful tools

Pass on your knowledge: It brings happiness to you and others.

COACHING PROGRAMS Understand your strengths and how to develop them, and accept your limitations and seek ways to overcome them. A good coach can help you set realistic ambitions as you plan your next steps.

INFORMATIONAL INTERVIEWS Meet with someone you admire or who works in a sector you’re interested in, just to find out more about their experience. Or perhaps it’s you who is imparting the wisdom.

MENTORING

Remember that it’s never too late: Maybe you’re a late bloomer.

5

FIRM ROOTS

1

Keep learning: With people retiring later, it’s more important than ever to keep your skills up-to-date.

Advise and train someone less experienced to help them acquire new skills and knowledge. Though usually intended for younger workers, senior managers can benefit from reverse mentoring, letting younger, more digitally savvy employees teach them new tricks.

ANNUAL CHECKUPS What are your priorities at this stage? Is this the right time for training or to focus on a new personal goal? What are the skills and competencies you currently have? Are they helping you or holding you back? Do you need new ones to keep growing professionally?

source: “Multiple

stories to career building,” published in IESE Insight Issue 11, and other work by IESE professor Mireia Las Heras, as well as the 5th Annual International Executive Coaching Symposium on “Ages of Life and Career Stages.”

How diverse is your network? Who among your current personal or professional contacts should form part of this network? What new relationship could you strike up that, with time, might contribute to your development?


HACK Benchwarming or bias? Other factors at play when managing high-performing teams

Previous research suggested that coaches in the National Basketball Association (NBA) were more likely to assign playing time to players of their own race. Such a finding seems inconsistent with other studies showing a general downward trend in racial bias in the NBA since the 1980s. It also seems at odds with a wide body of research showing that greater exposure to multiracial environments – as happens to coaches in the highly international, multiethnic NBA – tends to reduce racial bias. So, what else might be happening here? Strategic management professors and self-confessed basketball fans Massimo Maoret (IESE) and Gokhan Ertug (Singapore Management University) put an alternative theory to the test: Could the common practice of “resting the starters,” or benching the best players, account for the statistical patterns that might be interpreted as racial bias? In many high-performing NBA teams, the coaches are white while many of the star players are Black. When it looks like the game is pretty much decided, coaches typically resort to a strategy of putting their team’s lower performing players (often white) back into the game to run down the clock, while resting their star players (often Black) to preserve them for closer games or key moments when they are most needed. When seen through that lens, the same statistical pattern that might indicate a samerace bias instead becomes a tactical decision for winning. Once this is accounted for, same-race bias disappears. In the context of the Black Lives Matter movement, with heightened awareness of racism, research exploring racial bias is timely and necessary. Since racial bias still rears its ugly head in our societies, it is heartening to see that – at least in certain situations like the one these professors describe – elite managers can see past skin color when making personnel decisions. source :

“Do coaches in the National Basketball Association actually display racial bias? A replication and extension” is published in Academy of Management Discoveries 6, no. 2 (2020). Massimo Maoret’s research activities are supported by the Marie Curie Career Integration Grant (FP7-PEOPLE-2013-CIG-631800) and by the Spanish Ministry of Science, Innovation and Universities (ECO2015-70940-R).

36 | IESE Business School Insight | no. 157


Imprinting innovation

The impact of founders on the long-term likelihood of their companies being innovative with business models cannot be overstated. A study of six ventures over 10 years pinpointed three founder practices that were particularly important in predicting high levels of business model innovation:

1

Industry-spanning search Actively looking for new business model ideas outside rather than copying models from within the same industry.

2

Complex system thinking Understanding how the whole industry is structured and functions rather than focusing on internal, operational issues.

3

Centralized decision-making More innovative ideas were enacted when the founder had the final say.

In short, an inspiring, powerful leader willing to take risks can instill an organizational culture of being open to boundary-spanning innovation. Through mentoring and role modelling, this mindset can be imprinted on others. While more diversity in management teams has been shown to yield more innovation, in this study a single leader’s vision was key for business model innovation, lasting even after the founder had left.

source :

“The genesis and metamorphosis of novelty imprints: How business model innovation emerges in young ventures” by Yuliya Snihur (Toulouse Business School) and Christoph Zott (IESE) is published in the Academy of Management Journal 63, no. 2 (2020).

Layoffs: what’s the cost to your brand? While many companies are considering or already implementing mass layoffs as a result of the coronavirus crisis, research finds the negative impact on a brand can be serious. In a study spanning nine countries over 15 years, car brands associated with layoff announcements suffered commercial consequences: sales dropped an average of 8.7% below predicted levels. What’s more, advertising elasticity (the responsiveness of demand to advertising campaigns) fell 9.8% while price elasticity (the responsiveness of demand to price) rose 19.2% meaning that, as consumers turn away from a brand, advertising becomes less likely to reach them and prices may need to be lowered to woo them back. source :

“The commercial consequences of collective layoffs: Close the plant, lose the brand?” by Vardit Landsman (Erasmus School of Economics) and Stefan Stremersch (Erasmus/IESE) is published in the Journal of Marketing 84, no. 3 (2020).

As such, it’s worth including marketing executives in the taskforces that manage layoffs. For one thing, marketers can help with the media messages that will influence public perception of the brand. But more to the point, the apparent limits of advertising to reverse an anticipated drop in sales make it all the more necessary for marketing managers to be brought into the conversation on layoffs, alongside the usual suspects in finance and operations, to help deal with the fallout. no. 157 | IESE Business School Insight | 37


+IESE

Margarita Oliva Sainz de Aja

Head of Banking and Finance for Latin America, DLA Piper

credit :

Juan Ude

Named 1 of 10 Biz/Tech Innovators in the 2020 Latina Powerhouse Top 100. First and only female Chair of the Spain-U.S. Chamber of Commerce. Co-founder and Chair of WILL (Women in Leadership in Latin America). Completed IESE’s Senior Executive Program (SEP)/Advanced Management Program (AMP) in New York in 2013.

38 | IESE Business School Insight | no. 157


M

Be ready

argarita Oliva, from Granada, Spain, was always attracted to the international scene. She started out teaching international law at Granada University, where

she’d earned her law degree, and from

there won a Fulbright scholarship to Harvard Law School. “I was raised with an open mind, knowing that the world was a big place. Then I realized the world was an even bigger place.” Returning to Spain after an eye-opening year abroad, she became an associate at a law firm in Madrid. Although it was

transactional work needed in Latin America. But I arrived

an international practice, she soon realized it wouldn’t be

just after the collapse of the Mexican economy, known as

possible to get a transfer back to the U.S. where she really

the Tequila Effect, when foreign investors were fleeing the

wanted to be. “So I went to the U.S. anyway and started from

region. Getting a job focused on Latin America was difficult.

scratch,” she says forthrightly, heeding her own advice to

The circumstances had changed all of a sudden.

others when facing obstacles: “It’s a matter of making your own luck.”

That last statement sounds familiar… Yes, when I talk to young professionals starting out today,

Here, she reflects on her 24 years as a lawyer brokering

they’re going through something similar. Leaving aside all

cross-border business transactions across the Americas

the financial and economic impacts of COVID-19, we’re also

and how persistence is more necessary than ever in these

seeing a problem in terms of getting visas because the geo-

uncertain times.

political environment has changed. For people wanting to pursue international careers, it’s a challenging time – but not

What was it like arriving in New York in the mid-’90s?

impossible. You have to remember, just as things can sud-

I thought it would be relatively easy: I was a qualified lawyer,

denly change for the worse, they can also just as suddenly

I had Spanish-speaking skills, I had international and civ-

change for the better. Be ready. And while you wait for things

il law experience, and I had worked in both the public and

to change, there are always opportunities to be found. You

private sectors, all of which is very helpful for the kind of

have to persist. no. 157 | IESE Business School Insight | 39


+IESE

Face to face

We hear a lot about the importance of resilience in facing the current crisis. Yes, this is the time to think anew about how we do things, how we can improve, to keep refreshing ourselves, our vision and our strategies for where we’re going next, on a personal level and at the global level. The pandemic has made us stop and rethink our short-, medium- and long-term strategies. We should be doing this regularly, not just when we’re forced to, like now. You landed on your feet and, since 1996, have advised on a variety of corporate financings, M&As and cross-border transactions in the emerging markets of Latin Amer-

“When brokering deals, you need to be reading people in a Zoom call, seeing how they react”

ica. Are these markets as hot now or have they lost their shine for investors?

Where is the drive coming from: the outside investor or

There has been a lot of talk about deglobalization but what

demand inside the country?

I’ve experienced during all these years have been cycles

Both. You could have a local developer who gets together with

– not everything at the same time everywhere. Even if all

some local business partners to create a solar plant to sell en-

the headlines are talking about a backlash against global-

ergy to local companies or factories located there. Or it could

ization, the reality is it’s a very difficult trend to reverse. Of

be an international solar project developer who approaches

course the current situation is making people shift their

local partners and they pitch for these opportunities.

strategies, but there’s still international investment going on at very high rates around the world and particularly in

The local contacts are key. You need your local contacts who

emerging economies.

really know what’s going on in the country. That’s something I strongly recommend to my clients: You need to get in touch

Especially in my areas of energy and infrastructure, these

with local stakeholders – business partners, accountants,

sectors still require a huge amount of investment. That’s go-

lawyers, technical engineers – who really understand your

ing to continue. And if countries want to push growth – and

business in order to make an investment successful.

I’m not just talking about developing economies but even in developed ones like the United States – they will need huge

I guess that’s where you come in. You recently helped

investments. It’s going to happen, regardless.

broker a Deal of the Year for “truly novel legal work at a level of complexity that broke new parameters” (Latin

What about the nature of those opportunities: Are those

Lawyer) for the Uruguay Central Railway, a public-pri-

changing?

vate partnership (PPP) that involved a cross-border

Most of what I’m seeing are investments in renewables: solar,

team in New York, Santiago, Lima, Mexico City and

wind, hydro. Even if some projects aren’t what you would tra-

Toronto. How complicated was it to do that remotely?

ditionally consider as renewables – say, infrastructure – you

When we had big, complex negotiations, we used to meet

will have some component dedicated to making the project

in person. But ever since the 2008 global financial crisis,

environmentally friendly or sustainable. That’s the trend.

companies have been less and less inclined to spend large

Even the big carbon-based energy companies realize there

amounts of money on travel. My business travel was already

is a change coming and they have been working on their own

diminishing before COVID-19 and we have been closing

transition, converting part of their business to the renewable

transactions virtually for some time now. Everything is done

sector and making more investments in that direction. They

through technology but I find things are getting much easier

can’t deny it.

to do remotely, thanks to better technological tools.

40 | IESE Business School Insight | no. 157


Does that include artificial intelligence?

So, working at home through the pandemic hasn’t been

Most law firms are experimenting with AI to generate hy-

a problem for you?

potheses and actionable insights. I think this can work where

I’ve actually been working from home for quite a long time.

things are very standardized, but I don’t think AI will substi-

Twenty years ago, when I was still an associate and started

tute for the role of the lawyer in analyzing and making sense

a family, I was the first associate to work remotely a couple

of the information generated.

of days a week. It was innovative at the time. Some partners were very open to it, others were skeptical. But it worked, not

For example, when brokering deals, like the Uruguay one,

least because I was the most interested person in making it

where there are cultural differences involved, you need the

work. Besides, working via teleconferences, with people all

technical expertise, but you also need to be reading people

over the continent, has been a regular thing for me. What

in a room or in a Zoom call, seeing how they react. There’s

we’ve seen happening more recently because of the coro-

a lot of nuance involved. I remember when I started in Lat-

navirus has been a consolidation of what many of us have

in America, I thought, “We all speak Spanish, we’re all the

already been doing for a while.

same,” and then, in the middle of my first transaction, I realized that wasn’t true. You have to be flexible and adapt to dif-

However, what I’m finding now is that it has been difficult

ferent ways of doing things, different ways of communicat-

for a lot of people, including myself, to have more constant

ing the same message. This requires a high level of cultural

isolation, away from coworkers and colleagues. In theory, we

intelligence that I don’t think AI has yet. That may change as

can keep going like this for a long time, but I do think it is

these tools get more and more sophisticated. Certainly, this

having impacts on the way we work, on how much we can

is something everyone, in all sectors and industries, needs to

accomplish, on how connected we feel to our network and

be paying attention to.

to our colleagues. When I talk to friends in other industries, they tell me they’re having a hard time keeping their teams motivated and together. Without a couple days per week in the office, we’re losing some of the human and group component, the glue that keeps things together. Given the support you received, how are you helping young associates starting out? I try to create an environment of trust through spending time with them and teaching them the reasons why we do

credit :

Juan Ude

certain things, which is helpful for their development and advancement. The goal is connecting consistently, so they have regular opportunities to bring up anything in a natural and honest way, and not just when there’s a problem. I do this with both men and women, but mentoring young women is especially near and dear to my heart. Certain professions require the allocation of a lot of time, and you need the help of the institution during certain phases of life. I was lucky to have bosses who allowed me to make necessary changes in my career path. There are trade-offs. We cannot do everything at the same time. You have to pick what works for you at the time. The more the company helps you, the fewer negative consequences there should be on your career.

no. 157 | IESE Business School Insight | 41


+IESE

Entrepreneurship

Restarting together Teaming up to boost the world’s recovery from Covid-19. In early 2020, IESE joined forces with 13 other organizations from around the world to launch Restarting Together. They put out a call to the world’s startup community to come up with actionable, scalable solutions that could both accelerate economic recovery and create a more resilient society in the face of the COVID-19 pandemic. More than 550 startups from 59 countries answered the call, before three winners were chosen in September. The winners gain access to the reach and resources of the organizing partners to develop their solutions, including commercial acceleration services, technology tools, access to events, training and investment. For its part, IESE will provide mentoring, a workshop on corporate venturing (helping the entrepreneurs to optimize their collaboration with corporations) as well as the opportunity to pitch to IESE’s Business Angels Network and Finaves venture capital fund. The organizers are also free to explore the potential to develop, promote or implement any of the other proposals submitted. The three winners demonstrate how innovation can be used to solve pressing global issues. Here they share their tips for how others can do the same.

www.restartingtogether.com

“Restarting Together is a great example of how crossindustry organizations can work together and support entrepreneurs and our society during these challenging and uncertain times. By joining forces, we were able to build a solid value proposition for startups while increasing our reach and impact.” Agustin Moro

Global Director Strategic Partnerships Telefónica – Open Innovation IESE Executive MBA 2011

42 | IESE Business School Insight | no. 157


MEET THE NEEDS OF VULNERABLE COMMUNITIES Miri Berger

CEO & Co-founder 6Degrees Country: Israel Won for: Enhancing infrastructure adaptiveness and resilience

The past year has been challenging for many

Our solution, MyMove, is a wearable band that

people who have suddenly found themselves

enables hands-free control for people who

unemployed. But of all the people who lost

have lost motor skills, ensuring they can still

their jobs, people with disabilities have been

access any smart device to maintain or reclaim

particularly affected.

their independence.

Although social distancing is essential in the

As social distancing and lockdown measures

fight against the coronavirus, these rules are

continue throughout the world, being able to

especially burdensome for those dealing with

communicate with family and friends, stay-

limited motion and mobility. Many disabled

ing connected to your communities and sup-

people will become severely isolated, as social

port networks, as well as shopping online, are

and educational organizations that were a sig-

critical activities. Our solution opens up new

nificant part of their daily routines are closed.

possibilities for employment and other opportunities that were not available beforehand, all

For many, these problems are compounded

without leaving the house.

by difficulties in connecting to smart devices and online platforms such as Zoom, which further limit their ability to communicate with their loved ones. Loneliness and depression may follow. The impetus for our startup was the personal experience of our co-founder, Aryeh Katz, a veteran who was injured during his military service. The difficulties he experienced in re-

www.6degrees.tech

gaining his independence during his rehabilitation drove him to create a solution for people with limited movement.

no. 157 | IESE Business School Insight | 43


+IESE

Entrepreneurship

BE GUIDED BY COLLABORATIONS Shawn Stein Head of Global Marketing & Strategy Neura Country: United States Won for: Revamping the economy through sustainable growth

Forty-eight hours: That’s all the time there is to recognize a transmission trend and break it before turning into a pandemic. Neura empowers governments and health organizations to make data-driven

Organizing partners The winners were chosen after making a digital pitch to a jury of innovation experts from these 14 organizations (listed alphabetically)

decisions when tackling COVID-19. Our behavioral intelligence platform uses advanced AI and machine-learning algorithms to merge and transform vast amounts of epidemiological and behavioral data into predictive models and actionable insights. These insights are made available to decision-makers to understand and act proactively in order to get ahead of the pandemic, cut the infection chain and allow economies to reopen safely.

Airbus BizLab BASF Boston Consulting Group CEMEX Citi Endeavor IDB Lab IE University IESE Mapfre Microsoft for Startups Navantia South Summit

By targeting high-infection areas and at-risk locations, decision-makers can prioritize their scarce resources, deploy first responders or target communication where and when transmission happens. And they can do so in the most precise way, maximizing economic growth while minimizing infection risks to the population. The global reach of Restarting Together enables us to communicate with as many people as possible. By using the power of that reach, we can make smarter decisions together and collectively avoid transmission, helping to save the lives and livelihoods of millions of people.

TelefĂłnica

www.theneura.com

44 | IESE Business School Insight | no. 157


LEVERAGE EXISTING RESOURCES IN CREATIVE NEW WAYS Mark Hopper Vice President, Product Management Aerial Technologies Country: Canada Won for: Ensuring life continuity, and boosting social inclusion and community

The aging population is a global challenge. The

In coming up with our solution, we thought cre-

way we support our elders isn’t sustainable and

atively about how to reuse existing technologies

needs to change. Current solutions tend to rely

and resources. Millions of households already

on expensive hardware, where human errors

have Wi-Fi, so we figured we could use that

can be common, and nursing homes, which are

existing infrastructure without adding any ad-

getting crowded and in many countries became

ditional hardware. Doing it that way makes our

ground zero for deadly COVID-19 outbreaks.

solution more affordable, at only a few dollars a month; more robust, as we evolve with each

Our solution gets around these issues by pro-

future Wi-Fi upgrade; and more adaptive, as the

viding a sensing technology that is affordable

AI in our product can work in any type of home

and effortless, and which empowers seniors,

and according to each person’s behavioral pat-

and their caregivers, in independent living sit-

terns and needs.

uations by enabling safe, remote care. Using AI models and motion intelligence, Aerial can in-

Restarting Together represents what Aerial is

fer motion activities and time-critical events.

all about: leveraging innovative technology to

Our technology uses an existing Wi-Fi connec-

make people’s lives better while working to-

tion to detect disruptive motions in the home,

gether with others to ensure the best possible

which can be applied not only to remote care

solutions to current and future problems. It has

but to home automation and security as well.

been inspiring to see so many entrepreneurs looking to be part of a global solution.

www.aerial.ai

no. 157 | IESE Business School Insight | 45


+IESE

Agent of change

Sowing sustainability

W

hile COVID-19 has raged out of control throughout much of the United States and Europe, its impact on health in Africa has not been as dev-

astating as some health experts feared. Scientists speculate that this could have something to do

logistics, retail, financing, and so on. This strains

with the extensive community, health and public

businesses, saps resources, reduces margins and

awareness ecosystems built up over many years of

is unsustainable.”

dealing with other disease outbreaks. While there are various actors who can execute “One of the biggest lessons I’ve taken away from

the various tasks in the chain efficiently, the prob-

2020 is the need to build ecosystems that link and

lem is they are not visible to each other nor in-

shorten supply chains for input and output mar-

terlinked, leading to logistical difficulties – for ex-

kets,” says Aggie Konde, Vice President of Program

ample, when smallholder farmers try to engage in

Development & Innovation at the Alliance for a

cross-border trade.

Green Revolution in Africa (AGRA), an organization that is all about building sustainable agricul-

That’s where AGRA comes in: “By supporting ef-

tural systems to increase incomes and boost food

forts that link all these actors in the supply chain,

security for smallholder farmers.

we can improve competitiveness, reduce the costs of doing business and link demand to supply, al-

COVID-19 has forced us all to “take a deeper look

lowing inclusive businesses to thrive. I think this

and prioritize some of the issues that we always

can bring more farmers into the cash economy.”

knew we needed to address,” she says. For AGRA, that was realizing the urgency of building part-

Konde cites an input finance model implement-

nerships and programs to improve the efficiency,

ed in Ghana, Burkina Faso and Mali: “It involved

safety and competitiveness of domestic agri-food

six banks and 43 SMEs, where 40% of the risk was

systems. “In sub-Saharan Africa, there is a tenden-

taken by value-chain actors and 60% by the banks.

cy for businesses to want to do everything them-

This model unlocked loans worth US$1.7 million

selves. So, a manufacturer will also try to handle

for 19,000 farmers.”

46 | IESE Business School Insight | no. 157


Inclusive transformation depends on building ecosystems across supply chains to catalyze change

Aggie Asiimwe Konde

Vice President Program Development & Innovation Alliance for a Green Revolution in Africa (AGRA)


+IESE

Agent of change

Leadership pillars

Before joining AGRA in Kenya, Konde worked as a marketer in the private sector in her home country of Uganda, which taught her about “building opportunities in areas where there was little market exploitation.” Then, she worked in media, which was part private, part public-facing: “It was in this role that I began to appreciate the need for inclusive growth in development, which starts with providing those who are excluded with a platform where they can speak up. I started to think hard about how to build inclusive economies that leave no people behind and that support farmers in being food secure.” It also made her reflect on the nature of leadership: “A good leader is one dedicated to improving people’s livelihoods. In Africa, as elsewhere, we want our leaders to be accountable, and that requires a citizenry that is involved and proactive. The private sector must demand that their public leaders create the environment necessary for people to thrive. Leadership is about creating functioning systems, because if you only build one pillar, it’s just a matter of time before the whole thing collapses. Leaders must take a holistic approach to make sure the entire ecosystem is sustainable.” Konde gives the example of the financial sector, which views agriculture as high risk – and rightly so, as the risks in financing agricultural companies measured by default rates are twice as high as in other sectors. Investment opportunities in the production of crops are limited, owing to the sector’s reliance on rain and its vulnerabilities to external events such as climate change. However, crop production is just one segment of the value chain – albeit a vital one, given that an agricultural company cannot grow if its crops do not grow. But the value 48 | IESE Business School Insight | no. 157


chain encompasses many other investment opportunities, including climate smart technologies, logistics, input provision and processing. That is why there is such a need for inclusive finance that looks at all these elements collectively and is willing to share the risks more broadly. This is AGRA’s role: to show these interdependencies, bring companies together and formulate solutions.

From surviving to thriving

Of course, before you can have commercial farming ambitions, you first need to increase household productivity and answer to the basic need of self-suffi-

“Leaders must take a holistic approach to make sure the entire ecosystem is sustainable”

cient food all year round. “We aim to support smallholder farmers to rise above subsistence farming, producing surpluses that can be sold to generate extra

pyramid. Or a combination of multiple solutions, in-

income that is used to improve their livelihoods, edu-

cluding policy support and partnerships.”

cate their children and move above the poverty line.” “The important thing,” she continues, “is that the sysWhile participating in IESE’s Global CEO Program

tems are functioning, and that farmers have access

for Africa in 2019, Konde was able to “learn, network,

to best practices, financial services, enabling policies

share experiences and unlock some of Africa’s great-

and markets. The countries set the priorities, and

est opportunities. Together with my classmates from

we work with them to make it happen – providing

East and West Africa, we examined problems, dis-

technical assistance, investing in thousands of SMEs

covered opportunities and designed scalable, wholly

to overcome market barriers, and linking the public

African solutions.”

sector and research institutions with private sector actors who can catalyze change.”

AGRA’s vision is bold: to transform the lives of 30 million smallholder farmers from a solitary struggle to

As someone who often finds herself as the lone wom-

thriving businesses. It is a vision based on the convic-

an at the table, Konde is keen to mentor other wom-

tion that, by joining forces (both public and private),

en, helping them to break through their own glass

African-based solutions can empower Africa’s farm-

ceilings. “I try to take on around 15 girls a year, intro-

ers to feed the continent and the world sustainably.

ducing them to people and giving them opportunities to see the world from a different perspective. I’d like

“We take a tailored approach,” Konde explains of

to build a digital solution that could reach many more

AGRA’s work in 11 countries. “We don’t tell countries

young women – and young men, too. I want to em-

what to do. We support local government priorities

power the next generation to become the leaders that

because we want to create self-sustaining systems.

Africa needs.”

The way we increase productivity will differ from country to country. In one, it may be supporting ef-

Her parting words for attaining sustainable, inclusive

forts to access quality seeds. In another, the focus

transformation in Africa are just as applicable to busi-

may be on the last-mile delivery. Or it may be inclu-

ness leaders the world over: “We need to stop running

sive financing solutions for those at the bottom of the

a marathon and start passing the baton in a relay.” no. 157 | IESE Business School Insight | 49


+IESE

Career development

LIMITLESS LEARNING Marc Sosna

Executive Director IESE Learning Innovation Unit

The pandemic has changed the way we do business but also the way we learn. Today’s managers need to keep developing and growing, especially in this new environment.

“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.” This quote (by psychologist Herbert Gerjuoy, later popularized by the futurist Alvin Toffler) rings truer than ever today. Strategies that worked in the past, or even those that may be working today, are not enough anymore. That’s why we need learning agility, characterized by: • Mental agility: being receptive to other perspectives and comfortable with complexity and change. • People agility: being a good communicator and working well with diverse people and stakeholders. • Result agility: being able to deliver results in firsttime situations or crises. • Change agility: being at the forefront of change and willing to experiment. • Self-awareness: knowing your strengths and weaknesses, and how you learn best. The common thread here is being open to diversity, new experiences and different mental models. Closely related to the above are two other important mindsets: • Antifragility: seeing shocks positively, in that the more you’re exposed to, the more resilient you become. • Co-creation: connecting the dots and uniting people, teams and companies to generate new knowledge and innovative value propositions together, and shaping an activity system that will deliver value to customers and other stakeholders. These are the hallmarks of future success. General managers, especially, will benefit from developing this kind of literacy. It’s not about what you know, but knowing what’s needed at all times and then quickly upgrading your skills to meet the occasion.

50 | IESE Business School Insight | no. 157


David Trasobares

HR Executive Development CaixaBank

The current volatility requires us all to adapt and manage in more dynamic ways. And while the economic situation is forcing us to ask some tough questions, it is also forcing us to be more flexible in how we seek the answers. In this regard, online methods are proving their worth, although getting the most out of them demands that we develop new talents. I see this as a key area for managers: learning not just how to communicate via digital media but also how to build effective working relationships. As we anticipate longer periods of remote working, being able to manage, influence and motivate teams using digital tools becomes of paramount importance, deserving our special attention.

Emily Beatty

Background in oil and gas maintenance and operations, looking to switch to consulting

A crisis is a good moment for self-development, to prepare yourself professionally for when better times return. In doing so, you will find yourself in good company, among those who likewise decided to take a risk in uncertain times. I had hit a glass ceiling in my career and decided to change paths; however, that is hard to do without knowledge, experience or contacts in different sectors. This is what I have found in my MBA through teachings and my new network. Granted, the new online tools make some interactions more challenging, but I believe it is good preparation for the increasingly digital world of work that we will be going back to. Developing appropriate skills, work habits and connections via digital tools are key capabilities for future leaders.

Flexible PDD Recognizing the need for learning agility, IESE has launched a new flexible format of its flagship Spanish-language executive education program, adapted for today’s realities.

iese.edu/pdd iese.edu/limitless-learning

credit :

Format: in-person, blended and online sessions, with guided self-study, over 8 months.

Edu Ferrer

Aimed at: functional managers with at least 10 years’ work experience, looking to take their skills to the next level.

no. 157 | IESE Business School Insight | 51


Food for thought

SMART PICKS The Little Book of Common Sense Investing

This influential investment guide by the late John C. Bogle, founder of the Vanguard Group, recommends buying and holding, at very low cost, mutual funds that track a broad stock market index, such as the S&P 500, for building wealth over the long term. As Estrada likes to paraphrase the author as saying, this may not be the best strategy to manage your savings but the number of worse strategies is infinite.

Thinking, Fast and Slow

Bankable advice There’s no clear outlook regarding the next six months, let alone however many years are left until you retire. So, what to do with your money in the meantime? The common wisdom is to diversify, have clear goals, don’t try to secondguess the markets and don’t overreach. In the words of Mr. Wilkins Micawber from the Charles Dickens classic, David Copperfield: “Annual income twenty pounds, annual expenditure nineteen ninety and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” In other words, stay within your means. Here are some picks from Javier Estrada and other IESE professors that may also help. 52 | IESE Business School Insight | no. 157

Some of Daniel Kahneman’s takeaways for (financial) decisionmaking: Don’t let optimism get in the way of a sound decision, stick to formulas, and don’t watch short-term market moves too closely. To that latter point, Estrada recommends deleting any trading apps from phones. Trade too much and you’re more likely to be fearful when everyone is fearful, and greedy when everyone is greedy, which is a way to lose money fast. Even amid extreme volatility, if your own fundamental reasons for investing remain the same, hold on for the ride.

The Wisdom of Finance

“Ideally, the reader is unconsciously taking a course in finance and emerging with the intuitions of finance, but only by enjoying stories,” explains Harvard Business School’s Mihir Desai in the intro to his 2017 book. The humanistic tales come from classics in literature, philosophy and history, as well as pop culture, to illuminate, for example, the “power and perils of leverage” along with other fundamentals of finance.


FROM MY DESK

By Javier Estrada

Morningstar.com

One of the biggest names in financial services is a fine place for valueminded investors to explore thousands of mutual funds of all shapes and sizes. Free and premium offerings help evaluate key aspects, such as ESG ratings (for Environmental, Social and Governance factors in measuring investments). In fact, in 2020, Morningstar acquired the ESG research-and-ratings pioneer, Sustainalytics, to further help investors who want to put their money where their values are.

The Not So Big House

With mortgage rates at record lows and home confinement a too-recent memory, many are stretching to secure large loans to upgrade their housing. But larger homes are harder on the environment, more expensive to maintain and tie up money that could be used elsewhere. Instead of bigger, consider more flexible, with spaces that accommodate work and play. This title (first published in 1998) and its many spinoffs stress quality (building better) over quantity (building bigger).

Investing in a (Very) Volatile Environment: COVID-19 and the Markets During this 50-minute talk moderated by Mike Rosenberg, Estrada discusses the impact of the coronavirus on the financial markets, compares it to other bear markets and draws some lessons to help investors navigate the storm.

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.

Professor of Financial Management

Investing during the pandemic Bonds with negative yields. No interest-rate hikes on the horizon. Given this context, it is natural to worry about what to do with your savings. Here are six timeless recommendations: 1. Forget about forecasts There is massive evidence against anyone’s ability to predict financial and economic variables consistently over time, particularly for the short term. 2. Define your portfolio goal Why are you investing? For how long? Investors who don’t have a goal or holding period are simply shooting in the dark. Begin with the goal and work backward: I call this “investing from Z to A.” 3. Focus Build your portfolio on the basis of the variables you control, like the cost of your portfolio, and don’t worry about those you don’t, like interest rate moves. 4. Watch fees You won’t hear this often (and certainly not from those who want to sell you expensive funds) but the evidence is unequivocal: The more you pay for a fund, the lower the return in your pocket. 5. Keep it simple You can have a portfolio that is perfectly appropriate for your goals with only two or three funds, as long as they are broadly diversified and have low fees. Don’t believe it? Warren Buffett said his own wife’s inheritance should be in just two assets: 90% in a low-fee index tracker fund and 10% in government bonds. 6. Rebalance your portfolio twice a year If any asset class has a much higher or lower weight in the portfolio than what you have determined as appropriate for you, simply revert to the target proportions. This advice, which I’ve been offering for years, is especially valuable today as the coronavirus crisis throws even our basic ideas into question – though it really shouldn’t. Javier Estrada, a professional financial adviser, is the author of The FT Guide to Understanding Finance (2011) and other books.


Value Creation Through Effective Boards Focused Program

New strategies to boost your boardroom effectiveness

Barcelona May 24-27, 2021

Board members from both private- and public-sector organizations will benefit from this singular program, delivered jointly by IESE and Harvard Business Schools. In an energizing learning forum, you will gain critical insights to magnify your individual contribution and promote overall boardroom performance.

More information: Leila Vila Client Services infogm@iese.edu www.iese.edu/boards-program


KNOW

By Weiming Zhu and Weiyin Yang

In conversation with Claudine Gartenberg

By Diego Zunino, Stine Grodal and Fernando F. Suarez

Rethinking supply chains after COVID-19

Purpose drives performance

Mix novelty and familiarity to move from niche to mainstream

Page 56

Page 64

Page 68


Rethinking supply chains after COVID-19 The pandemic has exposed weaknesses in our global supplychain system. Inspired by Donella H. Meadows’ classic work on system thinking, we proffer three keys to rebuild more sustainable businesses after the crisis.

By Weiming Zhu and Weiyin Yang


illustrations :

Sergio JimĂŠnez

illustrations :

Sergio JimĂŠnez


KNOW

Rethinking supply chains after COVID-19

W

hile the true, lasting im-

multinational companies reliant on global supply

pact of COVID-19 on the

chains in a post-pandemic world.

world isn’t yet fully known, the ramifications for how

Indeed, the challenges are universal: how to make a

we conduct our lives and

global operation more robust and efficient, able to

businesses are already plain enough to see. The

cope with disruption like a pandemic, while at the

pharmaceutical supply chain is a prime example.

same time operating within a specific society, with

COVID-19 has exposed serious weaknesses in our

responsibilities to attend to the needs and interests

global interactions and interdependencies, with

of that society in which you are an embedded actor.

feedback loops exacerbating and reinforcing deleterious tendencies. To correct these, we must first

Making a private multinational business sustain-

diagnose the problems at their design – to step

able requires resolving multiple conflicts at the

back and take a holistic, systemic approach, so we

level of the nation-state, a regional block and the

are able to see the big picture and, where possible,

world; it means having to work in close collabora-

minimize the long-term consequences of our ac-

tion with indispensable stakeholders like govern-

tions as we work to make the overall system more

ments, while also having to maintain a requisite de-

robust and sustainable while keeping it efficient.

gree of independence from them, to avoid political

To aid us in this exercise, we turn to the famous

ing, constantly changing and wildly unpredictable.

interference. All this in a context that is fast-movpaper by the late environmental scholar Donella H. Meadows titled “Leverage Points: Places to In-

How does Meadows’ paper – conceived to address

tervene in a System,” which remains as relevant, if

natural ecosystems, environmental conservation

not more so, today as when she first published it

and the sustainability of our planet – speak to

in 1997. Using her paper as our guide, we frame our

these challenges?

discussion around three concepts that we believe, taken together, will help us build a better future,

1. Think in terms of systems

operationally speaking.

In her paper, Meadows identified the fact that “a system just can’t respond (in a controlled and ef-

Although for the purposes of this article we will

ficient manner) to short-term changes when it has

focus on the pharmaceutical industry, the lessons

long-term delays.”

should be applicable to other key industries and Delays include long production and transporta-

We must step back and take a holistic, systemic approach, so we are able to see the big picture

tion lead times as well as a lack of timely information. Or perhaps your information is timely but your responses aren’t. In the case of COVID-19, the delays between information-gathering, communication to the relevant stakeholders, availability of resources, decision-making and action led to very different outcomes between countries; however, those whose delays in these areas were shorter generally find themselves in better situations today. Sometimes delays are unavoidable: “Things take as long as they take,” Meadows acknowledged.

58 | IESE Business School Insight | no. 157


Feedback loops, explained To understand feedback loops, we first need to understand cause and effect. When the effect increases (or decreases) as the cause increases (or decreases), we call that a straight or positive causeeffect (S in the exhibit). When the effect decreases (or increases) as the cause increases (or decreases), we call that an opposite or a negative cause-effect (O in the exhibit). But it’s not quite so simple. In real life, there are multiple and complex cause-effect relationships, resulting in various cause-and-effect sequences – some of them reinforcing and some of them balancing – all within the same system. A classic example is your everyday shower. The water gets hotter the more the faucet is turned hotter (S). But then the water gets too hot, so you turn it down (O). But there is a delay until the temperature adjusts, and now you find it is too cold. So, you turn it up again until you get the desired temperature. That entire sequence of activities – oscillating between too hot and too cold, delayed effects, making constant adjustments – can comprise one big, balancing feedback loop.

Now transpose that example to the loops in your own business supply chain. Chances are you will have several such loops that work in combination with those of your partners, all within a larger system. In our educational programs at IESE, we illustrate this concept in a Beer Game Simulation. Participants are challenged to come up with effective ways of managing the loops – adding more information links or connecting the inventories along the chain with purchasing and manufacturing decisions. It’s a fun game with a serious point. And none is more serious than real-life pharmaceutical supply chains. That is why the system view is so important, to avoid damaging pendulum swings between panic and neglect in management behavior.

Exhibit Straight or positive cause-effect

+

S

The hotter you turn the faucet

Opposite or negative cause-effect

+ The hotter the water gets

+/As the water gets too hot (or cold)

O

- /+ You turn the temperature down (or up)

no. 157 | IESE Business School Insight | 59


KNOW

Rethinking supply chains after COVID-19

“You can’t do a lot about the maturation time of a child, or the growth rate of a forest.”

a threshold, a danger point, a range past which irreversible damage can occur, cause overshoot and collapse.”

What’s critical is the length of delay in a feedback loop. “Delays in feedback loops are com-

One way of stabilizing such volatilities is through

mon causes of oscillations. If you’re trying to

the use of buffers, as Meadows explained: “The

adjust a system state to your goal, but you only

stabilizing power of buffers is why stores hold

receive delayed information about what the sys-

inventory instead of calling for new stock just

tem state is, you will overshoot and undershoot.

as customers carry the old stock out the door.

Delays that are too short cause overreaction, os-

Businesses

cillations amplified by the jumpiness of the re-

because they figured that vulnerability to occa-

invented

just-in-time

inventories

sponse. Delays that are too long cause damped,

sional fluctuations or screw-ups is cheaper than

sustained or exploding oscillations, depending

certain, constant inventory costs – and because

on how much too long. At the extreme, they

small-to-vanishing inventories allow more flexi-

cause chaos. Overlong delays in a system with

ble response to shifting demand.”

60 | IESE Business School Insight | no. 157


These two system variables – delay and buffer – are essential for reacting to sudden change. Understanding this will help you achieve lean and agile operations (by managing delays) and increase your resilience at low cost (by effectively building in adequate buffers). These are two key areas where companies should be paying close attention, especially as the global health crisis and new geopolitical realities are converging to compel them to do so. Case in point: An estimated 40% of the generic drugs in the United States comes from India,

Many nations will be reevaluating their supply chains to mitigate single points of failure and limited resilience

while 70% of the raw materials that India relies on to manufacture generic drugs comes from

for stockouts, and a gravitational shift toward more

China. To “assure an uninterrupt-

localized operations. This may well mean that com-

ed supply of medicines” and avoid

panies will have to duplicate manufacturing sites in

“dependency on a foreign medical

different geographies. Companies will need to re-

supply chain,” the U.S. House of

assess their make-or-buy decisions and how much

Representatives introduced the

spare capacity they should keep on hand. They will

Pharmaceutical

also have to cultivate a wider range of sourcing alter-

Independence

Long-Term Readiness Reform Act in 2019, before the pandemic. It recommended that a report be submitted to Congress detailing “vulnerabilities to the medicine

natives to call upon in a pinch.

2. Unite and collaborate

Meadows explained: “A complex system usu-

ally has numerous negative (balancing) feed-

supply chain during a time of na-

back loops that it can bring into play, so it can

tional emergency.” We can expect

self-correct under different conditions and im-

this bill to take on renewed ur-

pacts. Some of those loops may be inactive much

gency, and many nations will be

of the time‚ like the emergency cooling system in

likewise reevaluating their supply

a nuclear power plant.” The mistake is in thinking,

chains along similar lines: “to di-

“because they aren’t used often and they appear

versify supply away from com-

to be costly,” we strip them away, which may be

plete dependency on sources of

okay in the short term but in the long term, “we

supply in competitor countries

drastically narrow the range of conditions over

and politically unstable countries

which the system can survive.”

that may cut off supply, and address critical bottlenecks and mit-

Controlling for balancing feedback loops need

igate single points of failure and

not presume overinvestment nor operational in-

limited resilience.”

efficiencies. COVID-19 presents the world with an opportunity to lower the cost of preparedness

When such bills become law, the

if we can unite and collaborate on an agreed set

weight of their compliance will fall

of rules and principles governing global supply

heavily on businesses in the form of

chains, both vertically and horizontally, so we

higher minimum safety stocks for

can orchestrate a better coordinated response in

selected products, heavier penalties

times of crisis. no. 157 | IESE Business School Insight | 61


KNOW

Rethinking supply chains after COVID-19

The more unpredictable future outbreaks, the more diversity will be needed in our approaches This vision of greater supply-chain collaboration, complemented with flexible, modular approach-

and other ways to level market playing fields.” In her estimation, a global economy requires global forms of governance. Such a paradigm shift would require company managers and national authorities to relinquish some control, which is a significant ask in the current geopolitical climate. At the very least, individual and collective goals will have to be redefined. Until we are able to coalesce around shared agendas and goals for the common good, our ability to improve our supply-chain deficiencies will remain constrained.

3. Foster diversity

Meadows emphasized a key difference between

es to production, has long been an aspiration of

reinforcing and balancing feedback loops. The

the pharmaceutical industry. Now, not only do

coronavirus is an example of the former: the

we have the will, but digital technologies have

more people catch it, the more they infect other

reached the stage of providing the way. Being able

people. Reinforcing loops drive “growth, explo-

to keep idle capacity low, forecast demand more

sion, erosion and collapse in systems. A system

accurately and manage oscillations more cost-

with an unchecked positive (reinforcing) loop ulti-

effectively is conceivable with today’s digital tech-

mately will destroy itself.”

nologies and AI tools that can generate pictures and predictions of the entire system, so supply

An intervention is necessary to slow it down. For

chains can be redesigned to be more efficient,

Meadows, “Reducing the gain around a positive

with faster response times, in accordance with

(reinforcing) loop – slowing the growth – is usual-

national interests.

ly a more powerful leverage point in systems than strengthening negative (balancing) loops.”

However, this does require nations and companies to increase their level of participation, co-

In the case of pandemics like COVID-19, pre-

ordination and collaboration beyond what they

vention is much preferable to letting it snowball

currently do. If they don’t, Meadows used this

out of control. This will require that we increase

analogy: “A thermostat system may work fine on a

our capabilities for virus transmission preven-

cold winter day‚ but open all the windows and its

tion, developing a clearer understanding of how

corrective power will fail.”

a pandemic originates and then having a trusted, globally coordinated information system of alarm

Companies and governments, she said, were “fa-

and action. Here is where the need for diversity

tally attracted” to a leverage point that was “all but

kicks in.

worshipped by economists” – that of price. Yet that would be to fixate “in the wrong direction,

“Any system – biological, economic or social – that

with subsidies, taxes and other forms of confu-

scorns experimentation and wipes out the raw ma-

sion. The real leverage is to keep (companies and

terial of innovation is doomed over the long term.

governments) from doing it – hence, antitrust

The most stunning thing living systems can do is to

laws, truth-in-advertising laws, attempts to in-

change themselves utterly by creating whole new

ternalize costs, the removal of perverse subsidies,

structures and behaviors. In biological systems,

62 | IESE Business School Insight | no. 157


The authors that power is called evolution. In human society, it’s called technical advance or social revolution. In

Weiming Zhu is Assistant Professor of Production, Technology and Operations Management at IESE.

systems lingo, it’s called self-organization. Self-organization means changing any aspect of a system: adding new (balancing or reinforcing) loops, making new rules. The ability to self-organize is the strongest form of system resilience – the ability to survive change by changing.” We couldn’t agree more. We need to allow, if not

Weiyin Yang (MBA ’09) is a director at Biogénesis Bagó and Garruchos in Shanghai, both arms of the Argentine pharmaceutical Grupo INSUD.

create, more room for diversity in every aspect – from virology to biodiversity in how we coexist with nature – adding more tools to our repertoire to tackle challenges like another pandemic. The more unpredictable and uncertain future outbreaks, the more diversity will be needed in our approaches. To this, Meadows added a moral imperative: “Allowing species to go extinct is a systems crime, just as randomly eliminating all copies of partic-

a wakeup call to think holistically, to work together

ular science journals, or particular kinds of scien-

as one human society, and to build unity by foster-

tists, would be.”

ing diversity of thought and action. This isn’t exclusive to pharmaceutical supply chains and may

“The intervention point here is obvious but unpopular: Encouraging diversity means losing

apply to other types of businesses and industries in a post-COVID-19 world.

control. Whether that means rigorously analyzing a system or rigorously casting off paradigms,

With these three concepts as our foundation, we

in the end it seems that leverage has less to do

believe we will stand a much better chance of

with pushing levers than it does with disciplined

shaping a future that not only builds upon prior

thinking, combined with strategically, profoundly,

achievements but also develops our capacities

madly letting go.”

further, for the sake of preventing future pandemics, reducing global inequalities, maintaining

For pharmaceutical supply chains, if companies

peaceful relations, and mitigating the impacts of

and authorities can work this out together, it

other catastrophic exogenous shocks to the sys-

might herald a golden age for innovation in effi-

tem, including climate change.

cient, small-scale but highly vertically-integrated production processes. A peer-to-peer business model of resource-and-capacity collaboration could balance low-cost supply with multiple geographic manufacturing points, which might serve local interests in securing national or regional responses to sudden crises. Certainly, just continuing to do things the same old way is not going to work anymore. The pandemic is

read more: “Leverage Points: Places to Intervene in a System” by Donella (Dana) H. Meadows was first published in the Whole Earth Review (Winter 1997). It was later expanded and published by the Sustainability Institute, now called the Academy for Systems Change, which Meadows founded. Her 1972 book, The Limits to Growth, which warned of environmental and economic collapse within a century if “business as usual” continued, established her reputation as a thought leader ahead of her time. Her collected writings and other resources can be found at http://donellameadows.org.

no. 157 | IESE Business School Insight | 63


Assistant Professor of Management Wharton School

64 | IESE Business School Insight | no. 157

illustrations :

In conversation with Claudine Gartenberg

Ester Centella

Purpose drives performance


A corporate purpose beyond profit maximization is associated with better firm performance – if that purpose is strongly held by mid-level managers and accompanied with clear direction and resources from management.

D

oes corporate purpose influence

definition of purpose). So, we deliberately don’t

firm performance? More than two

get into social responsibility or terms like “proso-

decades ago, the scholars Chris-

cial” because, like I said before, those terms mean

topher A. Bartlett and Sumantra

different things to different people.

Ghoshal argued that purpose, not

strategy, structure or systems, was the essential

However, we did consider whether a strong focus

precursor to effective management. Since then,

on profit maximization could qualify as a legiti-

the public discourse on purpose has gone up

mate corporate purpose and we concluded that

substantially. And while there’s a growing body of

would not be consistent with the generally un-

research on related topics – from CSR to ESG –

derstood interpretation of purpose as “a concrete

when it comes to corporate purpose itself, apart

goal that reaches beyond profit maximization” (in

from theoretical discussions and case studies,

the words of Harvard’s Rebecca Henderson). So

there is very little empirical progress. Here, Clau-

we do specify that in our definition.

dine Gartenberg, assistant professor of management at the Wharton School, discusses why that

That idea even percolates into economics. In the

is, and shares her findings from one of the largest

words of Keynes, “If human nature felt no satis-

studies done on the topic.

faction (profit apart) in constructing a factory, a railway, a mine or a farm, there might not be much

Why is studying purpose so hard?

investment merely as a result of cold calculation.”

Because it’s such an intangible idea. It can mean

In other words, we have to feel some meaning –

so many different things to different people. This

profit apart – in what we are doing to truly feel

gives rise to a lot of twaddle, where companies just

motivated in our endeavors.

say whatever they want, to position themselves under this catch-all banner of purpose. With so

What else is in your definition?

much cheap talk out there, it makes it hard for us

The word “meaning” is important. As the social

academics to study this stuff.

scientist and Holocaust survivor Viktor Frankl noted in his writings, we are motivated not so

So how do you define it?

much by money or material objects as by a funda-

We define it as: “A set of beliefs about the meaning

mental need for meaning in our lives, which may

of a firm’s work beyond quantitative measures of

come from family, religion, our vocation or some-

financial performance.”

thing else that acts as the modal force of who we are as individuals. Now, taking that insight and ex-

There’s no mention of CSR in that.

panding it to companies in the shared sense, the

Our definition focuses on the strength of the be-

notion of purpose becomes: How do we share this

liefs that a person may hold, not the specific con-

sense of meaning? What is the endeavor that we’re

tent of one’s “reason for being” (the dictionary

doing together? no. 157 | IESE Business School Insight | 65


KNOW

Purpose drives performance

What other problems did you encounter? Besides being hard to define, purpose is hard to measure. We chose to measure purpose in terms of the meaning that employees derive from their job, as evidenced by statements such as, “My work has special meaning: this is not just a job,” “When I look at what we accomplish, I feel a sense of pride” and “I’m proud to tell others I work here.” So, in companies where employees, on average, express a strong sense of meaning and impact from their work, we would say those are companies that have been successful in implementing purpose credibly. Tell us more about the large study you did with Columbia’s Andrea Prat and Harvard’s George Serafeim. We gathered data on almost half a million employees from 500 companies. Using the measure I just described, we found that high purpose organizations come in two flavors: those with high purpose-camaraderie (“I find meaning in my work but also a sense of family”) and those with high purpose-clarity (“I find meaning in my work but also I believe that management has a clear view of

Why them?

where the organization is going and I have a clear

What’s interesting is that people often treat

view of what I need to do to get there”).

middle managers as the dispensable layer of the organization. This may be a contracting issue.

And how does that affect firm performance?

Those at the very top are incentivized with high

Purpose alone has zero relation to performance,

compensation tied to stock options. Those at the

nor does purpose-camaraderie. However, pur-

very bottom have simpler tasks that are spelled

pose-clarity is highly predictive of financial per-

out in legally enforceable hourly contracts. Not

formance, corresponding to about a +4% ROA,

so for those in the middle, who are responsible

about +0.7% annual return on enterprise value

for implementing the strategy, managing up, lat-

and about +7% annual stock returns. Those are

erally and down to make it happen, and they do

robust results that are even more surprising

it all in the absence of extrinsic rewards and in-

when you consider that this better financial per-

centives, like for those at the top, and without it

formance is correlated to a purpose unconnect-

being specified in formal contracts, like for those

ed with profit maximization.

at the bottom. They work for meaning, without an obvious contracting relationship. So, having

The other noteworthy aspect is that this better

high purpose-clarity among this cohort makes

performance is driven almost entirely by the mid-

them more valuable than you think, especially if

dle ranks of employees.

you realize they are driving firm performance.

66 | IESE Business School Insight | no. 157


Middle managers are more valuable than you think, especially if you realize they are driving firm performance

Key takeaways The mere existence of a proclaimed purpose has no connection with firm performance. However, there is a connection if: • Purpose is strongly believed and credibly held by the employees within the organization. • Purpose is accompanied by clarity. • Purpose is felt particularly by the middle ranks of the organization.

What else are you working on?

So, can purpose deliver better corporate

In another line of research, we look at firm own-

governance?

ership. Like our previous paper, we find that the

I would flip it around: Can corporate governance

sense of purpose falls as you move down the

deliver better purpose? As our research shows,

ranks of the organization, from the highest level

managerial purpose-clarity does seem to be com-

executives to the lower-ranked hourly workers.

plementary to better long-term performance. And

Yet we also find that purpose is lower in public

firms with more committed owners make different

and private-equity-owned companies versus pri-

choices that condition the higher presence of pur-

vate firms. Within publicly traded firms, corpo-

pose, so governance structures do seem to matter.

rate purpose is lower for firms with high hedgefund ownership and higher for firms with more

The paradox I find is, if you assume that investors

long-term investors.

are profit-motivated, then why does it appear that they are engaging in actions that would be relat-

This is consistent with other research on the im-

ed to worse corporate purpose or a worse sense

pact of shareholder commitment on firm perfor-

of purpose among employees? We speculate that

mance. Bearing in mind that the average holding

it might be related to the observability of execu-

period for investors in the United States is nine

tive and board actions. In this, there may well be a

months, having a high proportion of transient

substantial role that institutional investors could

investors like this is probably going to have a net

play in influencing the extent to which purpose is

effect on the level of purpose expressed inside

credibly implemented in organizations.

the organization. We see very different managerial choices being made when firms are controlled by less committed investors – from the type of CEO they choose; to making more corporate restructuring decisions, including more M&As; to compensating differently, with bigger gaps between the highest and lowest paid employees. The bigger the pay gap, the lower the sense of corporate purpose.

read more: “Corporate Purpose and Financial Performance” by Claudine Gartenberg, Andrea Prat and George Serafeim is published in Organization Science 30, no. 1 (2019).

Claudine Gartenberg presented her research as part of the conference “Can Purpose Deliver Better Corporate Governance?” held virtually in October 2020. It was organized by the IESE Center for Corporate Governance (IESE CCG) and the European Corporate Governance Institute (ECGI) with support from the Social Trends Institute and the Strategic Management Society’s Annual Conference.

no. 157 | IESE Business School Insight | 67


New product launch strategy

Mix novelty and familiarity to move from niche to mainstream By Diego Zunino, Stine Grodal and Fernando F. Suarez

68 | IESE Business School Insight | no. 157


Javier Tascón illustrations :

Help your new product to “cross the chasm” and reach the “zone of adoption” with these practical tips.

no. 157 | IESE Business School Insight | 69


KNOW

New product launch strategy

F

or years IBM has used its advertising muscle to promote Watson, its AI software that it promised would usher in a radical new era of “cognitive computing.” But mainstream

customers remain puzzled: What’s “cognitive computing”? And other than famously beating humans at playing Jeopardy!, what does Watson actually do? And how is it any different from other AI products on the market? IBM’s Watson problem is not unique. Many companies fail to reach mainstream markets because they fail to manage a fundamental conundrum: How to make a new product appear both novel and familiar at the same time? Play up the novel features and consumers may reject the product for being too unusual; focus on the familiar and consumers may not see any reason to switch from their preexisting favorite. This is especially tricky when introducing genuinely disruptive products. While there will always be a niche of early adopters who will enthusiastically embrace anything new, making the leap to achieving wide-scale interest and adoption from the more conservative mainstream market is a much tougher sell. Overcoming this hurdle is what Geoffrey Moore referred to as “crossing the chasm” in the title of

It starts by realizing that novelty and familiarity

his 1991 book.

are not opposite ends of a spectrum. It is possible to convey both – but you need to get the mix

We have explored this issue in our own re-

right. Emphasizing one at the expense of the oth-

search of dozens of industries, studying the

er frequently results in lost opportunities. In your

category labels that firms and entrepreneurs

product design and communication strategies, you

use when introducing new products in emerg-

need to be mindful of both. Exhibit 1 summarizes

ing market spaces, including the smartphone

the main challenges and tensions, which we ex-

industry between 2000 and 2010. Our analyses

plain in this next section.

show that maximum market adoption happens when labels strike a delicate balance between being familiar but not too familiar, novel but not too novel.

Too much novelty

Novelty evokes surprise or curiosity, which is a precondition for trying out and later adopting a product. You could say that every new prod-

To improve your own firm’s chances of “crossing

uct that wants to be successful has to be novel.

the chasm,” we recommend some specific strat-

However, too much novelty can kill curiosity and

egies to overcome the sense-making challenge

create what we call “the cost of dissonance.” Con-

that can thwart customers’ adoption of a firm’s

sumers become confused as to what the product

new products.

actually is, which makes them reluctant to try it.

70 | IESE Business School Insight | no. 157


Exhibit 1. Striking the right balance between novelty and familiarity PRODUCT DESIGN STRATEGY

NOVELTY

FAMILIARITY

COMMUNICATION STRATEGY

Mix technology or aesthetic elements not typically seen together. The more disparate the elements, the more novel the product design.

Combine words not commonly seen together. The more disparate the words, the more novel the product is perceived.

Make the product similar to preexisting products, in appearance, user interface or both. The more the design breaks with the look-and-feel and user interface of preexisting products, the more unfamiliar the product becomes to customers.

Use words that evoke preexisting products or concepts that customers know. The more the communication strategy breaks with the words used to describe preexisting products, the more unfamiliar the product becomes to customers.

product design strategy.

An example of a prod-

besides being long, what’s a “transporter”? How is it

uct that was introduced with too much novelty

“self-balancing”? “For humans” as opposed to what?

was Google Glass. The product combined two

Segway also used descriptors like “mysterious.” Its

things that had never been put together before: a

benefits certainly remained a mystery for most

tiny computer stuck onto a pair of glasses. The odd

consumers, because Segway ceased production in

design combination led many to question its use-

2020, having never moved past its niche market.

fulness and to highlight its problems, such as obstructing one’s field of vision, the exact opposite of glasses’ main function of helping one to see better.

Too much familiarity

Familiarity makes it easier for customers to make sense of a new product because it gives them

Likewise, the novel design of the Segway, with two

clues about the product’s purpose and uses. Every

wheels arranged next to each other instead

new product, to be successful, has to be some-

of being like a bike or scooter, has been at-

what familiar. However, while some familiarity is

tributed to its downfall. As urban mobili-

beneficial, too much familiarity can create what

ty takes the next step toward e-bikes and

we call “the cost of obviousness.” Customers ig-

e-scooters, there’s much less of a learning

nore the new product because they fail to see

curve for consumers than there is with hav-

important differences from the preexisting prod-

ing to learn how to balance on a Segway. communication strategy.

The problem of too

ucts they already know. product design strategy .

Consider the early

much novelty is compounded when, in addition

designs for electronic cigarettes. The mouth-

to mixing disparate components in the design,

piece was orange and the rest of the stick was

the communication strategy describes the new

white to resemble a real cigarette; an LED light

product with words that rarely appear together.

on the end glowed to look like a burning cigarette tip. Compare that to the design of vape

Segway launched as “a self-balancing human trans-

pens now. It seems customers prefer a unique

porter.” That’s a mouthful: Our research shows

design that’s distinct from a traditional-look-

that longer labels tend to be less effective. But

ing cigarette. no. 157 | IESE Business School Insight | 71


KNOW

New product launch strategy

Anchor the design to the familiar past without being a mere copycat. At the same time, don’t let the novel elements go too far

familiarity in a novel product is a winning formula that can be traced all the way back to the invention of the electric light itself. In their 2001 research article on the subject, Andrew Hargadon and Yellowlees Douglas explain how Thomas Edison purposefully exploited existing gas-lighting technology in the design of electric lighting, even down to emulating the central distribution of the energy through hidden pipes and the use of meters to charge per usage, to gain acceptance and eventually displace established institutions. The key here is to anchor the design to the familiar past without being a mere copycat. At the same time, the novel elements shouldn’t go too far. It’s a case of recombining fairly familiar elements to create a novel expression.

communication strategy.

The short-lived phe-

nomenon of netbook computers illustrates the

communication strategy. Today, what is technically

problem of too much familiarity in the communi-

known as “additive manufacturing” is now univer-

cation strategy. Netbook producers stressed their

sally referred to as “3D printing.” This effectively

familiarity to notebook computers, with Asus de-

combines two familiar words that would seldom

scribing its Eee PC as “a notebook with a differ-

be used together: “printing,” widely understood in

ence,” that difference being it was more compact.

terms of colored dyes on flat sheets of paper, along

This led to netbooks being dismissed as nothing

with the equally understood concept of “3D.”

more than smaller, cheaper notebooks.

Creating the right mix

This example captures how you should communicate using words that consumers may know with-

So, what makes a new product more likely to be ad-

out too much effort. At the same time, you can

opted by the mainstream market? Exhibit 2 sum-

convey novelty by recombining familiar words in

marizes our findings. You want to aim for the cen-

an intriguing yet non-confusing fashion.

tral “zone of adoption” – that sweet spot between familiar but not too familiar, novel but not too novel. Although a difficult balance to strike, many

Defensive strategies

These lessons are not just applicable to innovative

companies manage to crack the code by following

firms introducing new-to-the-world products.

a few basic rules when designing their products and

Incumbent firms can also use these concepts as

planning their communication to launch them.

defensive strategies against disruptors to their industries. Recognizing that innovators will try to

product design strategy.

Apple’s iPod is a good

create links in consumers’ minds with preexisting,

example, combining a digital screen with a me-

familiar products in order to gain market legiti-

chanical wheel that resembled an analog device

macy, incumbents can attempt to stymie such ef-

people were familiar with: the rotary dial phone.

forts by focusing on their differences, and thereby defend their terrain.

LED light-bulb producers do something similar, imitating the design features of preexisting light-

The meat industry, for example, is currently be-

ing technologies. Using design elements to evoke

ing challenged by a whole new array of lab-grown,

72 | IESE Business School Insight | no. 157


Exhibit 2. Aiming for the sweet spot of novelty and familiarity If products are too novel, past the tipping point, like the Segway, mainstream consumers will have a hard time understanding them. You want to introduce more familiarity: pay attention here not to pass the tipping point or you’ll end up like the netbook computer, so much like notebooks that no one could tell the difference. To be in the zone of adoption, aim for the right combination of familiar yet different, novel yet understandable – the way the 3D printer managed to get the balance right. Low

High

FAMILIARITY

Netbook

Zone of adoption 3D Printer Segway

Low

High

NOVELTY sou rce :

Authors’ own elaboration


New product launch strategy

KNOW

plant-based, non-animal meat substitutes. There are ongoing lawsuits in the United States as some state regulators have sided with the meat industry in barring these new food makers from using labels such as “beef,” “meat,” “sausage” and “burger” on their products if they don’t come from slaughtered animals. Incumbents can use their considerable market power to erect important barriers for startups, eliminating familiar keywords from their labeling that would help their novel products find a market. After all, a “lab-grown disk” doesn’t sound anywhere near as appetizing as something called a “burger.” That said, incumbents can’t stop innovators from claiming familiarity to a preexisting product forever. In Europe, where similar battles have been waged over whether almond, rice and soy beverages can legitimately be called “milk” if they aren’t dairy, the EU Parliament voted in October 2020 that veggie burgers can legitimately be called “burgers,” striking a blow against incumbents’ monopoly over certain labels. In another recent case, Unilever, the parent company of Hellmann’s Mayonnaise, tried to sue the makers of an eggless spread called Just Mayo for false advertising. This defensive strategy backfired: Consumers started a petition against Unilever for bullying sustainable food companies, and Unilever dropped its lawsuit.

IBM’s balancing of the familiar with the novel helped people overcome their reluctance to try the new product

Alternatively, incumbents can defend themselves from new rivals by focusing on the familiarity,

Returning to the Watson example, IBM could have

showing that their apparent differences are really

learned from what it got it right when it introduced

not so novel after all. This is what the taxi indus-

the computer to the market for the first time in the

try has successfully managed to do in some juris-

1950s. IBM’s main competitor, Remington Rand,

dictions, getting Uber and Lyft reclassified as just

marketed its computer as a completely new prod-

other taxi companies rather than as distinct “ride-

uct category, different from anything that came

sharing services.”

before, and certainly nothing like the typewriter for

Learn from your past

which it was famous. In contrast, IBM related its computer to preexisting tabulating machines, so

Whatever you do to manage your own challenges,

customers approached it as something they were

don’t forget that sometimes the answer to your

familiar with. IBM even followed the same naming

design and communication strategies may lie in

conventions for tabulating machines to describe

your past.

the computer in similar terms. The rest, as they say,

74 | IESE Business School Insight | no. 157


The authors is history: IBM’s deft balancing of the familiar with the novel helped customers overcome their reluctance to try the new product, whereas Remington Rand’s emphasis on novelty left it a distant second

Diego Zunino is Assistant Professor of Strategy and Entrepreneurship at SKEMA Business School, Université Côte d’Azur.

behind IBM in the emerging computer market.

In times of deep uncertainty

You also need to keep an eye on the shifting market context. In times of sudden, unexpected changes or emergencies, as we have experienced during the coronavirus pandemic, the balance in

Stine Grodal is Associate Professor of Strategy and Innovation at Questrom School of Business, Boston University.

the levels of familiarity and novelty may change, and you need to be prepared to pivot your strategies as opportunities arise. For instance, most people are used to pressing elevator buttons. A touchless elevator control panel would seem too novel, even dissonant, for most users in normal times. But these are not normal

Fernando F. Suarez is the Jean C. Tempel Professor of Entrepreneurship and Innovation at D’Amore-McKim School of Business, Northeastern University.

times. With the public hyper aware of catching COVID-19 from touching potentially contaminated surfaces, the Indian firm TechMax Solution spotted an opportunity and quickly prototyped touchless control panels for elevators, so people can indicate a floor simply by pointing with their finger. In this climate, users are more willing to accept such novelty. The company is now receiving requests from around the world for touchless elevator buttons. The key learning is that you don’t stop paying attention to how your product is being perceived. Markets are dynamic, and consumer tastes, preferences and understandings are constantly changing, especially as new products continue to launch onto the market, each trying to distinguish themselves under a mind-boggling array of different labels (in our study of the smartphone industry, we identified 380 different category labels to describe 308 devices). Remember, your job is to help customers and other stakeholders make

read more: Zunino, D., F.F. Suarez and S. Grodal. “Familiarity, creativity and the adoption of category labels in technology industries.” Organization Science 30, no. 1 (2019).

Hsu, G. and S. Grodal. “The double-edged sword of oppositional category positioning: A study of the U.S. e-cigarette category (2007-2017).” Administrative Science Quarterly (2020). Kahl, S.J. and S. Grodal. “Discursive strategies and radical technological change: Multilevel discourse analysis of the early computer (1947-1958).” Strategic Management Journal 37, no. 1 (2016).

sense of the new and unproven – so, design your products and communicate their features accordingly. Maximum adoption happens when you can find that right combination of familiarity and novelty, and you communicate it simultaneously to your stakeholders. no. 157 | IESE Business School Insight | 75


credit :

www.aisaphotos.com / Courtesy of Teresa Perales

FULL STOP


Head above water If anyone knows how to turn personal trials into triumph, it’s Teresa Perales. Within five years of losing the use of her legs at age 19, she was competing in the Paralympics, winning 26 medals over the course of her swimming career. Here she shares her secrets for staying afloat, even during a pandemic.

“I

n Zaragoza (Spain), there was a

regrets,” she recalls. Four years later, she was di-

sports center for children with

agnosed with neuropathy and lost the use of her

an

for

legs, which left her in a wheelchair. “I had to learn

swim-

to do many things again,” she says. Among them,

unorthodox

identifying

method

promising

mers. They threw you in the

learning to swim. The first week, she had to wear

water, and if you floated, you were worth training;

a life jacket, but within a year, she was achieving

if not, you weren’t. I didn’t float, so they told my

her first swimming victories.

parents that swimming wasn’t for me.” Although this period in her life was one of great Almost 40 years later, Teresa Perales has accu-

uncertainty, she can now see how it benefited

mulated 26 medals for swimming at the Paralym-

her. “I learned so much in those times. A person

pic Games, and many more in World Cups and

who falls and gets up again has many more tools

European championships. How did a girl with no

than someone who has never fallen. I think that

apparent talent become a champion?

gives me an advantage.”

Perales credits two defining moments in her

She doesn’t see the two events that defined her

teenage years. The first was the death of her fa-

life as failures or tragedies; rather, they were

ther when she was 15. “It was a very hard time,

opportunities to learn, gain experience and fig-

but it made me realize that it’s not worth having

ure out what she needed to change. In this, her no. 157 | IESE Business School Insight | 77


FULL STOP

Head above water

she is from. The key has been to change her mindset

“You’re a diamond in the rough that we have to polish”

and to stop looking for excuses. “Complaining gets you nowhere; you need to act. It’s important to have challenges and to remember that something terrible may be followed by something wonderful. Experience has taught me that this is often the case.”

Discover your potential

“You’re a diamond in the rough that we have to polish,” Perales’s first swimming coach told her. The phrase has had a profound impact on her, professionally and personally. “At the time, I didn’t realize the scope of such a comment, but it left a powerful

learning curve can be likened to that of an entrepre-

mark,” she recalls.

neur who suffers an unexpected setback or whose first try at starting a business hasn’t worked out.

Over time, the swimmer has come to believe that her coach didn’t see anything special in her, and that

Perales remembers the day she got up in the morn-

he said the same to all his students. Yet it served as

ing and simply forgot to look at her feet as “the be-

inspiration, a self-fulfilling prophecy that drove her

ginning of a new stage in my life, of realizing that

forward. “Now I say the same thing to managers

I would never walk again and that, from then on, I

when I give talks and conferences,” she admits. “It’s

would do things differently. Perhaps the process

the best thing anyone can say to you, especially when

would be uncomfortable and more difficult, but I

you believe it.”

was not going to do things badly because of that.” Reaching the top as an athlete isn’t just a question of Armed with this new outlook on life, Perales has driven in a rally, swum with sharks,

traveled

the

world and been a member of parliament in Aragon, the region of Spain

78 | IESE Business School Insight | no. 157

where

motivation, of course. Perales swims between three and six hours a day, and in the past, even more. But in sports, as in many other areas of life, training hard is no guarantee of success. “You risk everything in a few seconds.” In her case, 35.88 seconds:


the time of her world record-setting 50 meter freestyle at the 2008 Paralympic Games in Beijing. She recommends not focusing on results but enjoying the process and even the uncertainty generated around the launch of any new venture, with peace of mind. “Deep down, the uncertainty is good. It makes you appreciate what’s really important,” she says. Although naturally, she always goes out “wanting to win.”

Just do it

To be able to live with uncertainty and channel it into positive actions, Perales is committed to working hard on emotional management, insisting it’s one of the keys to success. “I’ve struggled for years to stop thinking when I get on the pool bench.” She finds that if she thinks about it too much, she doesn’t win. “I distract myself, and the focus doesn’t go where it needs to be: on swimming fast.” She has also learned to value the journey: “I find it makes me enjoy the decisive moment even more.” Knowing her strengths and weaknesses is another key. There’s nothing better than thoroughly knowing

Competing when thrown in at the deep end Ready • Look for a mentor who helps you believe in yourself • Practice, practice and practice • Don’t hide behind excuses Set • See the value in uncertainty: It helps you appreciate the good things • Know your strengths and weaknesses • Learn to laugh at yourself and your fears Go! • When the moment of truth comes, stop thinking and act • Enjoy the process, not just the final result • Believe that it will all work out

yourself for helping you get into the flow, so you can act without overthinking, she says. Deescalating and not overly dramatizing the situation is another trick. To manage your fears better, remove their teeth, she Photos courtesy of Teresa Perales

no. 157 | IESE Business School Insight | 79


Head above water

FULL STOP

says. “Fear is wonderful and necessary, because

“continuing to dream of future Paralympic Games is

it keeps you alert, but you have to manage it so it

essential to my plans,” she says. Her focus is to stay

doesn’t leave you blocked. I make a point of laughing

strong and compete in Tokyo.

at fear or laughing at myself.” Although initially scheduled for summer 2020, the

Work against the odds

Tokyo Games were postponed due to the pandemic.

Fear and uncertainty have been constant for many

If all goes well, they will take place in summer 2021.

during 2020, with a global pandemic bringing hu-

Perales’s goal remains to surpass the 28 medals of

man activity around the world to a halt. “People

the U.S. swimming champion, Michael Phelps, who,

began working from home and children switched

unlike Perales, has retired from competition.

to classes online, but for athletes it is impossible to swim or play tennis online,” Perales said during a

When she participates in the next Games, she will be

recent media interview. She dealt with the stay-at-

45 and a year older than expected, among increas-

home orders by improvising a gym at home where

ingly younger rivals. But that is not something that

she could train every day, using sports equipment

worries her. “I have always used my mental capacity

that simulated her movements in the pool.

above all else.”

During the first three-month national lockdown in

For now, the only certainty is that the path to To-

Spain, she set herself three goals: first, establish a

kyo 2021 will be different for everyone, and no one

routine; second, prioritize activities that felt good

knows exactly how it will be. But Perales is content

and safe; and third, make plans for the future, to

to think positively and “to dream that everything will

remind yourself that there would be an end point.

work out.”

And she committed herself to positive thinking. The lockdown wasn’t all bad, she says: “I spent more time with my husband and son, and I’ll treasure that.” But the main lesson she draws from the year in which she has spent the least amount of time in the water is: Never take anything for granted, because it can disappear in an instant. “I had already learned that lesson,” she acknowledged. “But now it has been reinforced. You always learn a little more.”

Look to the future

Perales has competed in Sydney (2000), Athens

(2004),

Beijing

(2008),

Lon-

don (2012) and Rio de Janeiro (2016), but

article by: Tomas Crespo, based on an interview and appearances Perales has made at a number of IESE events organized by professor Santiago Alvarez de Mon.

80 | IESE Business School Insight | no. 157


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