SEP/NOV 2014 | dialoguereview.com
what makes a genius? 58
US music guru PF Sloan says it’s time to unleash the creatives the great transformation 84
Drucker Society president Richard Straub calls for change world peace through business 95
Terry Neese argues that female entrepreneurs are the key
Viewing risk: Threat or opportunity? Risk averse businesses that fail to grow are running the risk of stagnation. Is it time leaders used risk to gain strategic advantage? PAGE 28 banker to the world 30
leadership development 64
business lessons from sport 88
emerging economies 72
William Rhodes says crisis prevention and management is the secret of good banking
Norway’s oil giant Statoil takes an original approach to management excellence
The summer of sport has come to an end but there are legacy lessons for managers
Exclusive research reveals SMEs are vital for sustained growth in Eastern Europe
contents/FOCUS
30
Managing risk: the key to good banking
William Rhodes explains the importance of creating effective procedures for crisis prevention and crisis management
34
38
How does a changing world affect the business environment and how should organizations consider reacting, asks Jeremy Greenstock
Daniel Vermeer explores how challenges around water and climate are becomming increasingly difficult to manage
Environment matters in a risky world
Storm clouds on the horizon
44
Get the global strategy right
Dane Chamorro looks at how companies are continuing to misjudge some of the risks involved in global expansion
48
How culture can fail business
Cultural or soft risk could be a huge threat to organizational success if businesses do not govern, lead and manage it, according to Richard Finn
Dialogue | Sep/Nov 2014
52
Risk pendulum is swinging
Business leaders from various sectors express their views on taking risks and how to manage them successfully, as Bertha Herrerias, Liz Mellon and David Woods report
57
Addressing risk on the board
Nick Araco Jr outlines the reasons why it is crucial to establish strong relationships across the enterprise and with customers
3
contents/FEATURES
58
64
Creating a team of special forces
The gift of genius
Dana Bernstein and Ian Turner explore how Norwegian energy giant Statoil developed the leadership capability of senior managers to reinvent the company and position itself as a global leader in the oil and gas sector
Is the term ‘genius’ thrown around too freely? Songwriter P F Sloan and author S E Feinberg discover that true genius is much rarer than you may think
72
Why SMEs are vital in Hungary
Small businesses and entrepreneurs in Eastern Europe are dynamic, flexible and can create good jobs quickly, says Magdolna Csath
76
CEO on the spotlight
Michael Tobin, CEO of Telecity Group, discusses how extreme and unusual management techniques help teams to overcome fear of business failure
80
The hallmark of a good brand
Governments should start to be far more proactive about how corporations are allowed to brand themselves and thus help shape the way they behave, says Chandran Nair
84
A state of transition
It’s time that managers changed their mindsets to adapt to a transforming world says Drucker Society’s Richard Straub
88
From sport to business
Alicia Kaufmann and Alison Gill examine sporting leadership psychology and ask whether the high-performance skills athletes possess can be transferred into business
4
Dialogue | Sep/Nov 2014
contents/OPINION&REGULARS
08
10
Editor’s letter
David Woods urges global leaders to prepare for a cataclysmic transformation and an environment teaming with risks that were unheard of 20 years ago
14
Mike Canning
Our tribute to Maya Angelou; a round up of Dialogue’s brand debate; the world’s most diverse employers
17
Dave Ulrich
Duke Corporate Education’s CEO calls for optimistic leaders who can see opportunities, where others only see uncertainty and despair
Our HR guru investigates whether corporate values actually have any value in the modern workplace
18
24
Purpose
Employers have varying degrees of success when trying to instil a sense of purpose in their businesses. We investigate how some companies are making work more purposeful
98
Books
Our intrepid team of reviewers look at technology to help give better presentations, celebrate ‘not knowing’, and explore conscious leadership
Dialogue | Sep/Nov 2014
Spark!
Alberto Andreau
Telefónica’s global director of corporate reputation asks business leaders to keep on their toes and not let the slowest set the pace
104
Your Dialogue
A round-up of your Tweets and comments, what has featured on the website and a sneak preview of what the next edition of Dialogue holds for readers
26
Nigeria
In the third part of our study of the MINT Nations we investigate Africa’s greatest economic hope, Nigeria, as it begins to demand a greater share of global investors’ attention
106
Karina Robinson
Our columnist takes a look at the reasons why generation y have struck the right work/ life balance – they tend not to seperarte work from play, she tells us
5
sep/nov 2014
contributors
william rhodes William Rhodes was formerly senior vice-chairman of Citigroup and Citibank and he serves Citi as a senior adviser. He gained a reputation for international financial diplomacy in the 1980s, for helping manage the external debt crisis that involved developing nations and their creditors. He has received accolades including an honorary doctorate in humane letters from his alma mater Brown University, Chevalier and Officer of France’s Legion of Honour, decorations from Korea, Brazil, Mexico, Argentina, Venezuela and Jamaica, and multiple awards in recognition of his contributions to international banking and finance.
richard straub After stepping down from his executive role in IBM in 2005, Richard Straub took on a working portfolio at the intersection of academia and business. This includes the roles of the director of development at the European Foundation for Management Development (EFMD) and senior adviser to the chairman of IBM EMEA. He established the Peter Drucker Society, of which he is currently the president. For the past 10 years, he has been involved in EU-level industry initiatives in the area of skills, learning and innovation as chair of the European Career Space Consortium, the Living Labs Policy Group and the Open Innovation Strategy Group.
p f sloan P F Sloan is considered one of the most influential songwriters in American music and, in 2012, he was honoured with a nomination to the Songwriters Hall of Fame. His composition Eve Of Destruction became an international number one. He has also written numerous hits for artists such as The Turtles, The Grassroots, Jan and Dean, Herman’s Hermits and The Searchers. Sloan has been researching the life and music of Ludwig van Beethoven and his new album Beethoven has just been released by Foothill Records. His much awaited autobiography – What’s Exactly The Matter With Me? – co-written with Stephen Feinberg, was published in June 2014.
michael tobin Michael Tobin is CEO of Telecity Group and leads the management of the group as well as the formulation and implementation of its strategy. He has 25 years’ experience in senior roles across the technology sector. He led Fujitsu’s e-commerce operations in Germany and ICL’s Danish outsourcing subsidiary. He held senior positions at International Computer Group and Tricord Systems Europe, and was MD of Goupil UK. He is chairman of the Friends of The Loomba Trust and serves on the board of The Technology Leadership Group and The Prince’s Trust, and the fundraising boards of Great Ormond Street Hospital and the Make a Wish Foundation UK.
terry neese Dr Terry Neese is founder and CEO of the Institute for Economic Empowerment of Women. She leads the organization to accomplish its mission via two programmes, both domestic and international training for women business owners in the area of public policy and entrepreneurial education. Founder of Terry Neese Personnel Services and an inductee into the National and Oklahoma Women’s Hall of Fames, Terry is a past national president of the National Association of Women Business Owners. She made history in 1990 when she became the first woman nominated by a major political party for the seat of Lieutenant Governor of Oklahoma.
daniel vermeer Dr Daniel Vermeer is founder and director of Duke University’s Center for Energy, Development, and the Global Environment, which harnesses the power of business to meet the demand for energy, resources and improved quality of life. He is the founder and chief architect of the Global Water Challenge, a multi-partner organization for innovative water and sanitation initiatives, coauthor of the CEO Water Mandate (signed by more than 50 Fortune 500 companies) and lead contributor to policy documents issued through the World Economic Forum, World Business Council for Sustainable Development and the UN Foundation.
Dialogue | Sep/Nov 2014
7
EDITOR’S LETTER
David Woods
Editor-IN-CHIEF
Risky transformation Do you ever find that in life, things (admittedly on very rare occasions) just fall into place? When we set out to put this issue of Dialogue together, the focus we had in mind was risk: looking at the issue from the environmental angle, to global, to political and diplomatic, to financial and internal. But as I have come to put the pages together, I realize that the features in this entire issue have fallen into place to cover a much bigger topic: transformation. The collection of features in our Focus serve to demonstrate that risk, while often perceived as a dangerous threat to business, doesn’t have to be. The savvy leaders who prepare for risk and strategize around it have, in many cases, uncovered great opportunities from this that have allowed them to gain competitive advantage. And as global markets slowly but surely begin to grow following the crisis of 2008, conversely the organizations that are too risk averse are actually running the risk of stagnation as their competitors move forward. After all, when you think about it, risk is growth and growth is a risk... Dialogue is one of the official media partners for the 6th Global Drucker Forum in November in Vienna, Austria, where the focus of the conference will be The Great Transformation. In our interview with the Drucker Society’s president Richard Straub (page 84), he urges leaders to transform their mindsets as the world enters a period of (limited?) economic recovery. He says new technology and ways of doing business could lead to a 21st century industrial revolution by boosting innovation and creating emerging industries. But they could equally have a devastating effect on jobs and employment if corporations continue to target primarily productivity enhancements and cost-cutting (read: risk aversion). Are managers, leaders and entrepreneurs up to the task of tackling this great transformation? Straub explains that it appears we have reached a fork in the road, where either the world will embark on a route towards long-term growth and prosperity or we will take the wrong path and manage our way back to economic decline. Either way is risky.
+ digital exclusive David highlights the main features in this issue of Dialogue
@davidpaulwoods david.woods@lidpublishing.com
8
And while, in the northern hemisphere, in fall, as the leaves on the trees turn orange and we prepare ourselves to face the winter ahead, it’s important to remember that, in the southern hemisphere, colleagues prepare for a spring awakening. The business world is changing around us all just as the seasons are changing. The trick for leaders is to transform themselves to change alongside it. So, as you read the features on the following pages, take some time to think about how you can transform your outlook on risk from threat to strategic advantage. Evolution is too slow. It’s time for a global transition – a cataclysmic transformation – and since we operate in an environment teaming with risks that were unheard of just 20 years ago, time is running out.
Dialogue | Sep/Nov 2014
19% of professionals under the age of 35 want to relocate to New York Source: deVere Group In June, a UK-first global initiative, ‘SkillTree Great Place to Study – India Edition’, was launched.
The initiative came from SkillTree Knowledge Consortium, India’s first syndicate of private universities and institutions in the sub-continent. The event was held in association with international brand consultancy Sterling Media and powered by Lavasa Corporation Limited, a subsidiary of Hindustan Construction Company. The event took place at the iconic venues the House of Commons and Madame Tussauds London, and marked the first international education convocation of its kind in London to profile some of India’s most established and respected educational institutions. The aim is to position the selected Indian colleges and universities as proven leaders on a global platform, and to cement India’s position as an educational destination of choice by the global student fraternity.
During bad circumstances, which is the human inheritance, you must decide not to be reduced. You have your humanity and you must not allow anything to reduce that. We are obliged to know we are global citizens. Disasters remind us we are world citizens, whether we like it or not Maya Angelou (1928-2014)
23%
of professionals under the age of 35 want to relocate to Dubai Source: deVere Group
The Most Diverse employers on the planet (2014)
01.
Novartis Pharmaceuticals Corporation
02. Sodexo 03. EY 04. Kaiser Permanente 05. PWC 06. MasterCrad Worldwide 07. Procter & Gamble 08. Prudential Financial 09. Johnson & Johnson 10. AT&T 11. Deloitte 12. Accenture 13. Abbott 14. Merck & Co 15. Cummins 16. Marriott International 17. Wells Fargo 18. Cox Communications 19. Aetna 20. General Mills 21. KPMG 22. Target 23. IBM 24. ADP 25. New York Life
On the same night as the World Cup 2014 kicked off, Dialogue invited three renowned brand and marketing experts – and Dialogue authors – to come together in London, to discuss “Brand” and whether or not its death was on the horizon. Andy Law, Robert Mighall and David Arkwright made up the panel, and they were clear and unanimous in agreement that “Brand” is not dying but evolving. Mighall questioned that people lived brands. “People are not branded, they have free will,” he said, unlike cattle, originally branded in order to mark ownership. Arkwright argued that people do live brands and used the example of Nike. People experience the Nike concept and are affected and influenced by taking part in events such as Run London and Run Paris. The panel established that brands need good brand guardians in order to survive. The role of the brand/marketing director is as demanding as ever, even if in a different way than before. As Law quite humorously put it: “Brands do not die, they are murdered; murdered by disengaged management.” Surviving brands are those that are successfully managed and marketing directors need to be savvy and know where to invest their budgets, they concluded. The event was supported by recruitment specialist CareerMovesGroup.
Sometimes when you innovate, you make mistakes. It is best to admit them quickly, and get on with improving your other innovations Steve Jobs
Confidence in the economic landscape is growing – albeit tentatively – according to several pieces of research released in the past three months. More than half (57%) of chief finance officers “expect discretionary spending to increase”, according to Deloitte, while HSBC’s latest Ambitious Businesses report agrees that two-thirds of business leaders feel confident of the current economic climate, but 36% still believe it is too risky to invest heavily at this time. BDO’s Optimism Index has risen by 0.4 to reach 104.8 in June, driven mainly by the services sector.
We must ensure that the global market is embedded in broadly shared values and practices that reflect global social needs, and that all the world’s people share the benefits of globalization
Kofi Annan
26% of professionals under the age of 35 want to relocate to Hong Kong Source: deVere Group
Being good in business is the most fascinating kind of art. Making money is art and working is art and good business is the best art Andy Warhol
15%
of professionals under the age of 35 want to relocate to Cape Town Source: deVere Group
The Women in the City Future Leaders Award shines a spotlight on exceptional women and leadership talent. The 2014 winners were selected from a shortlist of 10 outstanding candidates. The joint winners of the prestigious award announced were Naomi Bowman, senior manager – governance & operations – Group Monitor Liaison Office, HSBC Holdings, and Dr Deborah Gill, interim director, UCL Medical School, University College London. Gwen Rhys, CEO of Networking Culture Ltd and founder of Women in the City, said: “Five years ago, we launched this award and each year it continues to gain momentum. We’re delighted that the calibre of entries this year was so high that it made the judging process challenging, with the end result being that two winners were chosen. Our awards act as a springboard for many women by focusing the spotlight of success on them. Rewarding and recognizing women who demonstrate leadership qualities is an important part of the process of raising the profile of women who are making a contribution beyond their functional, technical or specialist area. Congratulations to our winners and finalists, and well done to our shortlisted candidates who faced stiff competition this year.” For more information, visit www.dialoguereview.com
The number of M&A deals completed in Europe has rebounded in 2014 following the slump in deals that occurred towards the end of last year, according to Towers Watson’s Quarterly Deal Performance Monitor. The research – run in partnership with Cass Business School – shows that the number of deals in Europe for the second quarter of 2014 is the highest in the region for more than two years, with 34 deals over $100 million completed so far. Elsewhere in the world, in this quarter North America still accounts for more than 50% of the total number of deals completed globally, but volumes remain low compared to the previous three quarters in the region. In Asia-Pacific, deal volumes continue on an upward trend, although they are below European levels for the first time in a year. The research also shows that so far in 2014, acquiring companies around the world are significantly outperforming the market. This is most noticeable in AsiaPacific where companies completing deals have, so far this year, produced a financial performance of 23.1 percentage points (pp) above the regional index. During the same period, acquirers in North America also outperformed by 6.2pp, which is consistent with the corresponding period in 2013, while European acquirers outperformed their index by 3.1pp. Globally acquirers outperformed the market index by 7.9pp over the year to date.
opinion
Optimists wanted “Optimists see the opportunity in every difficulty” – Winston Churchill
I Michael Canning CEO, Duke Corporate Education
14
n a landscape full of difficulties, these days we need more leaders who can see opportunities where others see uncertainty and despair. In the past year, I have spoken to senior leaders around the world who are focused on building the capability of their people to deal with an environment replete with uncertainty and volatility. This combination of conditions generally leads to greater anxiety resulting in risk-averse behaviour. When encountering uncertainty, we tend to slow down, increase caution and analyze things until we find fresh anchors that give us a sense of certainty. In a business environment characterized by constant disequilibrium and a growing need for speed, the opposite is required. We need more leaders with optimism, which is at the heart of the entrepreneurial spirit. According to Norman Vincent Peale in his 1965 book The Power of Positive Thinking, optimism is the tendency for an individual to believe in the best possible outcomes in the face of uncertainty. SE Taylor and his colleagues (1992) found optimists are also much more likely to engage in problem solving when faced with difficulties. Martin Seligman, father of positive psychology, defines optimism as the ability to react to problems with a sense of confidence and high personal ability. Optimists have inbuilt emotional resilience – they believe that negative events are temporary, limited in scope and manageable, instead of all-pervading. Manju Puri and David Robinson from Duke University’s Fuqua School of Business have shown a direct link between optimism and entrepreneurial behaviour. They found overwhelming support for the idea that entrepreneurs are more optimistic than non-entrepreneurs. Not only did they find entrepreneurs to be more optimistic, but also noted that more optimistic people are more likely to think of themselves as risk-takers than are less optimistic people, and showed that nonentrepreneurs are three times more likely than entrepreneurs to report being unwilling to take
financial risk. Their study also revealed optimism is related to many other economic decisions. For instance, optimistic people view work more favourably and work longer hours. Obviously, optimism needs to be coupled with a strong grasp of reality. But as one leader mentioned to me, we need our executives to be hungrier, much less risk averse and learn how to lean in to opportunities for us to continue to win business. It is the way of the world: we need more leaders with entrepreneurial instincts to see opportunities, take risks, seize them and be willing to work hard to turn them into value. Optimistic leaders also have a more positive influence on those around them. As ex-general Colin Powell stated: “Perpetual optimism is a force multiplier. The ripple effect of a leader’s enthusiasm and optimism is awesome. It drives your followers to share your optimistic beliefs.” The link between optimistic leaders and their “force multiplier effect” in the workplace may be a bit circuitous, but studies show the logic seems to work like this: optimistic leaders are more likely to be engaged leaders who, in turn, are more likely to engage employees, and engaged employees are more optimistic and productive according to Margaret Greenberg (2007). In an age in which talent and knowledge are real differentiators and we are all trying to create more engaging work environments, the optimistic leader is a real point of leverage. In addition, a number of studies have revealed that optimistic people are healthier. The mere act of expecting positive outcomes can boost a person’s immune system, protect against harmful behaviours and help people cope following difficult news. Among psychological constructs, optimism may be one of the most important predictors of physical health. It is like a built-in resilience, which we all need today. In a world of uncertainty and risk, we need optimistic, risk tolerant, leaders who can seize opportunities and energize employees and customers. In uncertain times, where business models, and value propositions are under assault, leaders are the greatest leverage point for change. We need optimistic, force multipliers to beat the odds.
Dialogue | Sep/Nov 2014
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OPINION
The ultimate value of values
I Dave Ulrich Professor at the Ross School of Business, University of Michigan, and partner at the RBL Group
n the past 20 years, almost every organization large or small, domestic or global has crafted a set of values. These often represent core beliefs and shape daily behaviours of leaders. They underlie a code of conduct and form the basis for an organization’s culture. Some criticize and simultaneously praise values statements because they create or expose leadership hypocrisy where leaders’ actions do not reflect the stated values. I suggest that the ultimate value of values is not just shaping leadership behaviour, but shaping the right leadership behaviour. The value of values starts by defining the value of values. Value focuses outside; values come from within. Value emphasizes what others get from our efforts; values emphasize who we are. Value can be created through innovation and hard work; values are inherited and may be honed through self-awareness and experience. Value can be measured by impact; values are measured by the strength of our character. Value derives from the worth of our work to stakeholders; values reflect the worth of our work to us.
Value can be created and developed through innovation and hard work There are three steps to fully creating value from values. Step 1: Ask target customers: “Are these the values you want us to have?” If value is defined by the receiver, it is helpful to know if an organization’s values resonate with top customers. We suggest that sales and marketing segment key customers who are high buyers of products and services sold by your organization, but low volume with your firm. Customer share that is the percentage of customer purchase from the firm can mean more than overall market share as it focuses on which customers matter most. It is helpful to ask these customers if your firm’s values matter to them? Generally, with values like
Dialogue | Sep/Nov 2014
innovation, collaboration, service and respect, the answer is “yes”. But in one case, the firm’s primary value was “to be the most profitable in the industry” and the customer said this was not what mattered to them. Customer value begins with customers being part of defining desired values. Step 2: Ask target customers: “What do we have to do to live these values better than our competitor?” Ask customers to operationalize the values. Too often, desired leadership behaviours come from our own expectations. My favourite example comes from those who travel extensively. Imagine, you show up at a nice hotel. The bellman grabs your bag and takes it to your room. Is this a reflection of the value “good service?” I ask this question to many business leaders and about 20% agree, proactive bellmen taking care of luggage means “good service”, but 80% consider this intrusive and not good service. This simplistic example can be expanded to target customers. When they participate in and operationalize the behaviours from the espoused values, they help you know what they expect from you. This dialogue helps become specific about the value of values from a customer point of view. Step 3: Ask target customers: “When we live the behaviours you specified, will you buy more from us?” With the goal of customer share, customers can be asked what it would take to increase their share. And customer share will quickly lead to sustained profitability. If their answer to this question is “no”, it is useful to start over at question one and define the values that matter most to them. If their answer is “yes”, it is an opportunity to show customers a commitment to serve them. Value statements make core beliefs more explicit. But when values become the basis of customer discussions and commitments, the value of values increases dramatically. When HR professionals partner with sales and marketing in these discussions, customer share may rise and sustainable value is created. This is an example of “outside in” work that defines effective organizations not just by what is done, but how it adds value to key stakeholders.
17
PURPOSE
A sense of purpose I n the March/May issue of Dialogue, Duke Corporate Education’s CEO Mike Canning, in his column, urged leaders to consider the “why” of the businesses they lead to make sure they are leading with a sense of purpose, both internally and externally. As the research on the following pages illustrates, employers have had varying degrees of success when it comes to instilling a recognition of purpose among
employees. An encouraging 71% of employers claim to have “clearly defined” their culture and values, but a massive 68% of their staff believe strongly that employers do not do enough to create a sense of purpose and meaningful impact. Employers such as IBM and Google have invested in defining their purposes clearly to staff, clients and stakeholders, but in many businesses, much more needs to be done.
MEANING
How much would you agree or disagree with the following statement? “Businesses do not do enough to create a sense of purpose and deliver meaningful impact.”
68%
66% 32%
STRONGLY / SOMEWHAT AGREE EMPLOYEES
Source: Deloitte
18
35%
STRONGLY / SOMEWHAT DISAGREE / NOT SURE
Google’s founders have been clear about the company’s purpose:
“to organize the world’s information and make it universally accessible and useful”
EXECUTIVES
source: Google
Dialogue | Sep/Nov 2014
CONNECTIVITY
IMPORTANCE & PURPOSE Which of the following, if any, do you consider to be helpful in achieving a sense of important purpose at a company?
75%
69% 70%
69%
66% 64%
60% 63% 46% 47%
44%
49%
43% 34%
Offering employee development programmes that offer education, training, and/ or mentorship
EMPLOYEES
Providing business services and products that make a meaningful impact for clients/ customers
Providing business services and products that benefit society
Encouraging community outreach and volunteerism
Adopting sustainable /”greening” business practices
Giving monetary donations to non-profits
Engaging in pro bono work and skills-based volunteerism
Source: Deloitte
EXECUTIVES
of employers have “clearly defined” their culture and values
If we want to know what a business is, we have to start with its purpose. And the purpose must lie outside the business itself. In fact, it must lie in society, since a business enterprise is an organ of society. There is only one valid definition of business purpose: to create a customer.
of employers have not defined their culture Source: Peter Drucker in The Daily Drucker Source: Purple Cubed
Dialogue | Sep/Nov 2014
19
CONNECTIVITY
IBM’S ‘BEE ESSENTIAL’ TABS
“PUT THE CLIENT FIRST”
“RESTLESSLY REINVENT – OUR COMPANY AND OURSELVES“
“THINK. PREPARE. REHEARSE“
“LISTEN FOR NEED, ENVISION THE FUTURE“
“DARE TO CREATE ORIGINAL IDEAS“
“UNITE TO GET IT DONE NOW“
“SHARE EXPERTISE“
“TREASURE WILD DUCKS“
“SHOW PERSONAL INTEREST“ Source: IBM
Academic Jim Stengel and his researchers found that the ideals that drive the world’s top 50 brands could be grouped into one of just five fields of what he calls “fundamental human values” that improve people’s lives by:
Eliciting Joy: Activating experiences of happiness, wonder and limitless possibility Enabling Connection: Enhancing the ability to connect with one another and the world in meaningful ways Inspiring Exploration: Helping people explore new horizons and new experiences Evoking Pride: Giving people increased confidence, strength, security and vitality
values
50%
...?
...of employers do not believe their workforce can articulate their company values
And a further fifth of employers are not sure whether they can or cannot
...?
Our company values are...
Impacting Society: Affecting society broadly, including by challenging the status quo
Source: Grow: How Ideals Power Growth and Profit at the World’s Greatest Companies by Jim Stengel
20
Source: PURPLE CUBED
Dialogue | Sep/Nov 2014
CONNECTIVITY
How does purpose correspond to company performance?
91%
90%
91%
94%
89%
79% 66%
65%
63%
61% 38%
19%
Over the past year, my company has performed well financially
My company has a history of strong financial performance
My company has a distinct brand that stands out among competitors
My company has a clearly defined culture and values/ beliefs system
My company has strong customer satisfaction
My company has strong employee satisfaction
My company has a strong sense of purpose
Source: deloitte
My company does not have a strong sense of purpose
How much would you strongly agree with each of the following statements?
12% differential
10% differential
23% differential
64%
64% 56%
52% 46%
27% differential
51% 41% 28%
My company has a strong sense of purpose
EMPLOYEES
My company’s purpose is clearly conveyed to all employees
57%
23% differential
I could easily explain to friends and family how my company and I, as an employee, serve this purpose
My company’s purpose is part of the reason I chose to work here
30%
My company’s purpose has influenced my decision to stay with my organization
EXECUTIVES
Source: deloitte
Dialogue | Sep/Nov 2014
21
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opinion
Don’t let the slowest set the pace
O Alberto Andreu Global director of corporate reputation and responsibility at Telefónica and visiting professor at Economics and Business Administration, Navarra University
ne of the first things I learned on my MBA course is that, in life, we always travel at the speed of the slowest. It emerged from the case study of the chubby kid in the Boy Scouts troop. “Let’s assume,” we were told, “that you’re in charge of a group of boys. What you have to do is climb a hill without losing any of the kids on the way, but unfortunately one of the scouts is a touch on the tubby side and, of course, he moves more slowly than the others. Your decision is this: in which position do you place your plump lad?”. After a lot of discussion, we worked out the right answer: the only way to keep the group together and all arrive at the same time is to put the fat boy at the front. If you put him at the rear, you’re going to lose him. Put him in the middle, and you split the troop in two. “In other words,” our lecturer said, “it is an unfortunate fact that a group always travels at the speed of the slowest, which in this case is Tubby.” Ever since then, I’ve been unable to avoid noticing the Tubbies in every company, the people who always find “a problem for every solution”. If that’s the case, what can we do to get an organization to shift a bit faster, and somehow avoid being kidnapped by the fat boy? Well, here are a few suggestions to try: 1. Management by special project or mission. An enterprise operates the same as an army: it’s much more expensive and timeconsuming to move whole divisions than to send in special commandos with a set mission. In other words, it’s much more useful to set up small groups which can – without losing the overall perspective – organise themselves via projects with a set goal; reporting directly to the CEO; with their own, albeit smaller, budgets; with connections laid down in the formal structure, although without interfering with their day-to-day operations; and with an end date: they finish when the project is complete.
24
2. Avoid consensus decisions. Nothing is more counter-productive than the consensus decision. A consensus decision is a mistake for three reasons. First, nobody is responsible for the decision, be it for the good (reward) or the bad (accountability). Number two is that the solutions the group comes up with are almost always rather cautious, more concerned with maintaining the status quo of the “winners” in the deal than with transforming it. And last, of course, you’ve given Tubby the best blocking tool of all: one person doesn’t like it, and everybody stops. 3. Hand out symbolic rewards and defend reality. We hardly notice the time we waste fighting little battles that distract us from our real goal – making a difference. Over time, I have come to realize that Tubbies are more concerned with formal issues (such as status, position or responsibility) than with reality issues (goals, deadlines, results and focus). This means that in order to make that difference, you may have to hand out some “formal privileges” as rewards and just get it done as quickly as possible. 4. Always set a final deadline. It is impossible to get an organization to do anything unless you set a deadline. That means the first thing you have to do is create a feeling of urgency. A Spanish bank once launched a conversion programme under the heading of the “Thousand Day Plan”, so that every day it could remind the staff that there was one day less, in which to complete the plan (999, 998, 997, and so on to the end). Brilliant! Having said that, even though “I often spot a Tubby”, I have been surprised on more than one occasion to realize that the person I had decided was a Tubby of the highest order was teaching us all a big lesson. So, keep on your toes, as you never know what mountain you may have to climb.
Dialogue | Sep/Nov 2014
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COUNTRY FOCUS: nigeria
Africa’s hope: Nigeria The Federal Republic of Nigeria Population:
166.6
Capital:
Abuja
million (UN, 2012)
Major languages: English (official)
...Area:
sq miles
(923,768 sq kM)
Ibo
T
he third emerging economic giant in our series is Nigeria. The African nation is often viewed by economists as more attractive than the other MINT countries (Mexico, Indonesia and Turkey) because it has shown strong growth despite its structural problems: power shortages, corruption and, in some cases, an inadequate education system. The CIA World Factbook says its population is growing at a rate of 2.54% and is currently 175 million. Nigeria’s geographical advantages are less obvious than its MINT cousins, but, in spite of this, it is on the brink of becoming the hub of Africa’s economy as the entire continent continues to enjoy sustained (and strong) expansion. In Nigeria’s case, GDP statistics have not been rebased since 1990. The impact of dramatic growth in telecoms, banking and the “Nollywood” film industry may have been downplayed. But given Nigeria’s vast and rapidly growing population, it cannot fail to demand an ever greater share of global investors’ attention.
356,669
Hausa
Yoruba
EDUCaTION After the 1970s oil boom, tertiary education was improved so that it would reach every sub-region of Nigeria
Major RELIGIONS:
Life expectancy:
52 years
53 years
source: UN
GNI per capita:
US $1,280 source: World Bank, 2011
26
Islam, Christianity, indigenous beliefs
29%
Education is provided free by the government, but the attendance rate for secondary education is only 29% (32% for males and 27% for females) 68% of the population is literate, and the rate for men (75.7%) is higher than that for women (60.6%)
Source: US Library of Congress
Dialogue | Sep/Nov 2014
COUNTRY FOCUS: NIGERIA
INDUSTRY
PETROLEUM
Nigeria has a manufacturing industry that includes leather and textiles, car manufacturing, T-shirts, plastics and processed food
Nigeria is the 12th largest producer of petroleum in the world and the 8th largest exporter, and has the 10th largest proven reserves. (The country joined OPEC in 1971)
Petroleum plays a large role in the Nigerian economy, accounting for Nigeria has one of the fastest growing telecommunications markets in the world, major emerging market operators (such as MTN, Etisalat, Zain and Globacom) basing their largest and most profitable centres in the country
40%
of GDP
80%
of government earnings source: OPEC
Main exports:
Petroleum, petroleum products, cocoa, rubber source: BBC
The country has a highly developed financial services sector, with a mix of local and international banks, asset management companies, brokerage houses, insurance companies and brokers, private equity funds and investment banks
2003 September – Nigeria’s first satellite, NigeriaSat-1, launched by a Russian rocket 2005 July – Paris Club of rich lenders agrees to write off two-thirds of Nigeria’s $30bn foreign debt 2006 April – Helped by record oil prices, Nigeria becomes the first African nation to pay off its debt to the Paris Club of rich lenders
60% of Nigerians work in the agricultural sector and Nigeria has vast areas of under-utilised arable land source: Patricia Ley (2004) Nigeria
2008 January – Oil trades at $100 a barrel for the first time, with violence in oil producing countries such as Nigeria and Algeria helping to drive up prices 2008 April – Oil production cut by about half as a result of strike action and attacks on pipelines by militants; problems in Nigeria help keep world oil prices at record highs
A 2004 vaccination drive, spearheaded by the WHO to combat polio and malaria, meant that
polio was cut 98% between 2009 and 2010 Source: WHO
Dialogue | Sep/Nov 2014
Key Dates for Business in Nigeria
2010 May – Vice-president Goodluck Jonathan, already acting in Umaru Yar’Adua’s stead, succeeds him as president, following Yar’Adua’s death source: BBC
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focus Managing risk: the key to good banking political risk: storm clouds on the horizon Environmental risk: crisis into opportunity international risk: get the global strategy right soft risk: how culture can fail business risk pendulum is swinging back addressing risk on the board
28
Dialogue | Sep/Nov 2014
focus
the
Bridging the void Since the global financial catastrophe of 2008, leaders have been embroiled in a debate over the future of capitalism and risk management; struggling with whether or not to adopt risk aversion tactics. But over the past year, the risk pendulum has swung away from risk aversion as corporates raise their heads above the parapet in a bid to take more calculated and strategic risks to grow their businesses. Risk opens a void, but savvy leaders are bridging the risk gap and moving from viewing risk as a threat to an opportunity to achieve strategic advantage.
Dialogue | Sep/Nov 2014
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focus Managing risk: Central to good banking political risk: storm clouds on the horizon Environmental risk: crisis into opportunity international risk: get the global strategy right
Managing risk: the key to good banking
soft risk: how culture can fail business risk pendulum is swinging back addressing risk on the board
30
The 2008 financial disaster exposed devastating failures in risk management. William Rhodes explains the importance of creating effective procedures for crisis prevention and crisis management Illustration: cameron law
Dialogue | Sep/Nov 2014
management needs not only to provide informaThe 2008 financial crisis underscored both tion and controls on business today, but also to failures in risk management by several banks, focus on prospects so that preventive actions can as well as failures by many official supervisory be taken in a timely fashion. authorities to perform effective banking oversight. This crisis, like so many before it, demonNo one was listening strated how crucial it is that managers and boards Too few banks and too few official superviof banks constantly and consistently pursue sors did just this during the period from 2004 to approaches that ensure integrity and trust are 2007 when a range of financial activities were the guiding principles of their institution’s corunfolding that should have sounded alarm bells. porate culture. The critical challenge is for the The levels of leverage in some financial institumanagement of financial institutions to develop tions were soaring, as were the levels of issuance effective mechanisms for both crisis prevention of sub-prime mortgages and the complexities and crisis management. of ever-more-derivative financial instruments. In 1990, after almost a decade of representing The attraction of making quick profits blinded Citibank in negotiating many facets of what has some people to the unfolding and rising risks. become known as the Latin American The success over many previous years of the debt crisis, I served as the senior risk American financial system had made too officer at Citibank and I was responmany supervisors complacent about the sible for introducing a new risk-assesssystem’s eroding health. ment system called “Windows on Risk”.1 One of its important achievements was The fact that the warnings were predicting the Asian financial crisis in largely ignored ought to be a lesson 1997-1998 and this enabled Citibank to bankers and supervisors should reflect watch the video minimize its exposure to the region. upon. Over the years, I have, at times, of an interview about “Windows on Risk” involved tracking 14 used opportunities to speak at the financial risk with distinct risk factors: client credit worthiannual meetings of the Inter-American WILLIAM RHODES ness; industry risks; product risks; obligor Development Bank to highlight (debtor) concentrations; global real estate prospective difficulties in the financial risks; country risks; counterparty trading system. In the spring of 1997, I warned at risks; price, interest rate, exchange rate and its annual meeting in Barcelona that Asia’s commodity risks; liquidity risks, equity and financial situation was heading for difficulties, debt risks; distribution and underwriting risks; which The Financial Times reported on its front legal risks; audit risks; and technology risks. page. Indeed, it was only a few months later that Scenarios were developed to evaluate problems in Thailand triggered the Asian financial multiple risks simultaneously in a complex crisis. matrix approach. The study sought to consider In April 2006, at the IDB’s annual meeting in “what if” scenarios and to assign weightings to Belo Horizonte, Brazil, I stressed that the days of the likely impacts of “trip wires”, such as natural easy money were coming to an end. The Financial disaster, a sudden governmental change and a key Times quoted me as warning: “We are in a situachange in the macro economic situation. Detailed tion similar to that which existed in the spring of data analysis and expert judgement combined to 1997 when threats existed to market stability and make the system work. The findings influenced a lot of people didn’t want to see it.” Concerned the day-to-day work of Citibank’s managers about the complacency, I wrote an article for as they considered credit and operational and The Financial Times on March 29, 2007, under other risks. the headline A Market Correction is Coming. This Leaders need to have the vision to call probTime for Real. I argued that pockets of excess lems early, and then you need to take rapid action were becoming harder to ignore and stressed the to head them off. This means senior managerisks, in particular, in the sub-prime US mortgage ment in a bank sounding warnings, instructing market. I added: “This is clearly the time to exermanagers to reduce exposures and reviewing cise greater prudence in lending and to resist any existing strategies. This can save billions of dollars temptation to relax standards.” as well as reputations. Most of the banking community did not believe The matrix approach of placing knowledge a correction was coming in the near future. It was on 14 different risk indicators, alongside each clear a few months later, and it remains the case other simultaneously, can create comprehensive today that financial institutions need to do a much pictures of complicated situations and provide better job of risk management and corporate windows into evolving developments. Risk governance. They need to learn, for example, from
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Dialogue | Sep/Nov 2014
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BIOGRAPHY William Rhodes is a Brown University professor at large. He is formerly senior vice-chairman of Citigroup and of Citibank, and he continues to serve Citi as a senior adviser. Rhodes gained a reputation for international financial diplomacy in the 1980s for his leadership in helping manage the external debt crisis that involved developing nations and their creditors worldwide. He headed the advisory committees of international banks that negotiated debt-restructuring agreements for Argentina, Brazil, Mexico, Peru and Uruguay. In 1998, when the Republic of Korea experienced liquidity problems, he chaired the international bank group that negotiated the extension of short-term debt of the Korean banking system. In 1999, he acted as global co-ordinator to help implement the maintenance of trade and interbank lines by foreign commercial banks to Brazil. He has received decorations and honours including an honorary doctorate in humane letters from his alma mater Brown University, Chevalier and Officer of France’s Legion of Honour, decorations from Korea, Brazil, Mexico, Argentina, Venezuela and Jamaica, and multiple awards from not-for-profit organizations in recognition of his contributions to international banking and finance. Rhodes is the author of Banker to the World (2011), which was published for the first time this year in Latin America under the title Banquero del Mundo. He also served as vice-chairman of the G30’s steering committee that prepared the reports calling for reforms in banking governance.
the “Windows at Risk” approach where we not only saw problems arising, but ensured that they led to actions that reduced risk. But if the bankers were not listening to warnings of mounting difficulties, neither were the regulators and the supervisors. The financial community needs sound, smart and realistic regulation that is implemented on a continual basis to ensure risks are managed well, yet innovation is not stifled.
The critical role of reputational risk The financial crisis exposed weaknesses in each of the four major areas of risk: credit risk, market risk, operational risk and reputational risk. The latter area has been the least discussed since the crisis, yet I believe it is of great importance. A bank’s reputation is its most valuable asset. Failures to manage reputational risk can result in existential threats to an institution as it loses the trust of its employees, shareholders, customers, business partners and regulators. This issue has recently been attracting more attention because of the publication of two reports, based on extensive surveys and research, published by the Group of Thirty
32
(G30), an international forum of public and private sector financial leaders, which called for farreaching reforms in banking governance. These studies ranged right across the critical areas of risk management and culminated in the proposal that there needs to be a paradigm shift in relationships between official banking supervisors on the one side and the boards of directors and top managements of banks on the other. The G30 published two reports: first, in April, 2012, it published Toward Effective Governance of Financial Institutions and, in October 2013, it followed up with A New Paradigm: Financial Institutions Boards and Supervisors. In the first of these G30 reports, it was argued that building confidence and stability in the global financial system requires far-reaching governance reforms that are collaboratively embraced by boards of directors, firm managements, regulators and supervisors, as well as long-term shareholders. One of the core points the report made was that boards and management teams needed to be more sensitive to how they are perceived by their business partners and employees, which means that the tone at the top is important. This must influence the corporate culture, which dictates the institution’s values and the behaviours of its employees.
Key recommendation The report was based on an examination of governance arrangements at 36 of the world’s largest financial services firms, interviews with leaders of these institutions, as well as regulators and supervisors. A key recommendation was a call on management to strengthen the fabric of checks and balances in their organizations. We argued that the board and management need to reinforce the values that drive good behaviour through the organization. I stated publicly at the time of the report’s publication, and subsequently to a meeting of the Financial Stability Board (FSB), that the board’s crucial task is to ensure that the firm takes every step possible to protect against potentially fatal risks. While boards should not try to manage firms, they need to be unstinting – more so in the future than many have been in the past – in their concern for reputational risk. Boards and management need to champion an appropriate culture within the business and vigorously discuss all strategic proposals, key risk policies and major operational issues. The FSB, the premiere international financial regulatory body, considered the report and encouraged the G30 to continue its work and this was
Dialogue | Sep/Nov 2014
the genesis of the second report, published in 2013. I have long argued – and this is a point stressed in the G30’s New Paradigm report – that a deficiency or failure of culture including reputational risk can be as destabilizing to an institution as problems of capital or liquidity. The risk management failures in the last financial crisis severely damaged public trust. It is not clear whether trust has been restored significantly and whether the industry has given enough attention to this matter. As fresh allegations of wrongdoing have hit the headlines, so this distrust has created cynicism about financial institutions’ capacity to change on a voluntary basis. Inevitably, the pressure mounts on governments, central banks and banking authorities to impose new measures that, in effect, could do their own damage to the financial sector. Given this critical situation, it is not only imperative for organizations to strengthen their internal processes to improve their overall risk management, but that they, at the same time, take a far more pro-active approach to reputational risk. Considering culture together with governance and business strategy is an essential part of forward-looking supervision.
Culture matters Issues of culture and risk are “soft” and correspondingly hard to deal with, and that has too often been seen as reason enough to set these matters aside. In the G30 report, it was concluded that greater attention needs to be paid to reforming culture in many institutions. Every bank has its own culture. Boards and supervisors must better understand cultural factors in effective governance and they need to institute regular mechanisms for measuring cultural performance. Measurement is difficult, because culture is about behaviour. However, an important start, as highlighted in the recommendations by the G30, is to ensure that official supervisors and bank boards find ways to engage more in meaningful discussions on these issues. There is no simple formula and every institution develops its own unique culture. The perspectives of supervisors, who see many institutions, can be helpful, without them seeking in any manner to impose a specific cultural template on the board of directors. The G30 group did not believe supervisors and policymakers should seek to write rules or guidance about culture, but they should set realistic expectations about what can be achieved. A culture that places too great an emphasis
Dialogue | Sep/Nov 2014
on short-term profit-maximization and risk is one that can damage the financial strengths and the reputation of the bank – and once a reputation is lost, it is very difficult to restore it. The New Paradigm underscored the fact that boards should identify and deal seriously with potential cultural problems, make sure their compensation system in practice and provides the incentives that support the desired culture and monitor risk culture.
Once a reputation is lost, it is very difficult to restore it
How to understand risk
Understanding risk is at the very core of corporate governance and management in every business organization. In banking, it tends to be more complicated than in most other business sectors. The complexity is mounting because of the globalization of the finance industry and the multiplicity of new, and often sophisticated, products. New technology has accelerated the pace of almost all forms of financial transactions and that adds significant pressures to risk management. I have long taken the view, reinforced by working on the “Windows on Risk” system, that if a risk is too complicated to understand, it is too complicated to accept Effectively balancing risk, return and resilience takes judgement and establishing sophisticated risk management systems that strive, in a matrix format, to evaluate on a continuous basis the many forms of risk, is an essential component of sound risk management practice. It needs to be developed alongside heightened focus by boards of directors on the many facets of risk and the willingness of boards to engage with senior management on issues that may appear to be overly complicated and, thus, potentially too risky. Values and culture are the ultimate “software” that determines the behaviours of people throughout the financial industry and the effectiveness of the industry’s governance arrangements. Trust and integrity need to be seen as being at the very centre of the system. ● William Rhodes is president and CEO, William R Rhodes Global Advisors, LLC, professor-atlarge at Brown University and author of Banker to the World: Leadership Lessons from the Front Lines of Global Finance. Until 2010, he was senior vice-chairman at Citibank and Citigroup 1 A detailed discussion of “Windows on Risk” is found in Banker to the World – Leadership Lessons from the Front Lines of Global Finance by William R Rhodes, published by McGraw Hill
33
focus Managing risk: Central to good banking political risk: storm clouds on the horizon Environmental risk: crisis into opportunity international risk: get the global strategy right
Political risk: storm clouds on the horizon
soft risk: how culture can fail business risk pendulum is swinging back addressing risk on the board
34
How does a changing world affect the business environment and how should organizations consider reacting? Jeremy Greenstock investigates Illustration: cameron law
Dialogue | Sep/Nov 2014
more widely attainable, leading to a marked The launching of the Arab Spring revoluprocess of localization in political activity. Weakly tions in 2011 and Russia’s intervention in Ukraine governed states, or governments that completely in 2014 have made it impossible for businesses fail to meet public expectations, find their rule to ignore the potential impact of sudden political much more powerfully contested than before. developments. The rapidity of geopolitical shifts, The examples of Scotland and Catalonia show after the apparent stability of previous decades, that, even in a reasonably governed state, the has created an area of commercial discomfort appeal of local identity can overcome the logic of that has coincided very disturbingly with the ecowell-structured co-operation. nomic and financial tribulations of the post-2007 Part of this loss of traction by central governperiod. Yet, for all the talk about global change ments – in democracies as well as autocraand political risk, there is little clarity about what it cies – can be attributed to the growing all means for the private sector. popular disaffection with the use of force Multinational companies have been or top-down command. Governments increasingly inclined to engage special have lost both legitimacy and authority if advisers, appoint international advisory they rely on suppression or if they use miliboards or bring in consultants to remedy tary power to pursue their external interests. the problem and broaden their underThe impact of international public opinion, standing. But these investments tend enlarged by open communications and to lead to partial satisfaction at best. global connectivity, has produced a Most businesses are rather poor at concrete change in the relationship framing the questions that need to be between rulers and subjects. That asked about political risk, and the advidigital exclusive can constrain unjust government, but sory industry too often tries to respond JEREMY GREENSTOCK it can also make all government that on the basis that the customer must be talks about power much more difficult. right. With this confusion in the air, senior structures in a This gradual delegitimization of executives are disinclined to leave their globalized world and centralised authority has had the comfort areas to review their approach to nuclear disarmament effect of turning economic capacity lateral risk, and many find they have greater into a more telling criterion of national faith in their own instincts than in the opinor community strength than political, ions of “experts”. Shareholders should not diplomatic or military capability. Virtually sleep happily with either approach. everyone wants a better material life for themThis article seeks to do two things: selves and their family, and the denial of their describe how a changing world affects the expectations can be a factor for instability. But the business environment and suggest how competition between communities for resources, companies should consider reacting. capital and skilled labour also tends to increase Torrents of change under these circumstances, while trade patterns The intensity of social and political change develop more among the like-minded than as a witnessed so far this century is the product of global opening-up of low-barrier trade. It seems globalization and greater freedom. The first has like a paradox that horizons should narrow as become a cliché, but the implications of the a result of greater freedom of choice, but that is second are poorly understood. Democracy’s the conclusion to draw from the last two decades victory in the Cold War and progress in science of geopolitics. and technology, especially information techInternational businesses have to take account nology, have generated greater equality between of these trends. The controls on disordered nations than in previous eras – and a different behaviour have become weaker and the institubalance of power between governments and inditions that have fostered widespread agreement vidual citizens. The world has spawned a plethora on keeping the peace and expanding trade are of independent decision-making centres, and running out of steam. This places a premium on national and international order is harder to keep knowing where you are and what could happen on the basis of agreed rules, especially when so next. Self-sufficiency in this respect helps to mainmany more people dispute those rules. tain the licence to operate. The rise in impact of the people’s voice has As for companies moving into new markets, already had far-reaching political consequences. or reviewing their marketing strategies in counEvery human being’s default setting is tribal – we tries they thought they knew, the trend towards like to be part of a team of our own identity. The distinctive local choices and cultural preferences spread of freedom has made this core comfort has to be assessed. Regional and even national
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Dialogue | Sep/Nov 2014
35
approaches may have to be subdivided into tailored tactics for each identity space. The business strategy map is taking on a greater variety of colours, which need to be checked for change on almost a monthly basis.
Business reactions It is more complicated than it sounds to evolve the right corporate mindset against this background. With a world so focused on economic outcomes, the commercial environment has grown very mobile and variable – so all the more power to the quick-footed. But there is a catch here. First-movers do not have it all their own way. Firms have to generate a high degree of linear momentum and efficiency to beat the competition and deliver shareholder value. This concentration on bottomline targets is fine in a context of general stability, but in a period of dynamic political and social change, a company is more exposed to lateral shocks – unless care is taken to balance linear drive with the right sort of resilience. Having one’s eye on one enemy, the competition, is not enough when another, habitat change, is sneaking up from right or left field. How does a company keep up with all of this? Flows of information on events, on what has just happened out there in the world, are comforting, but not enough to interpret what might happen next – unless they are very deliberately used within the company structure to share perceptions and assess implications and consequences. Firms often fail to test information quality rigorously enough when it lacks a good basis of evidence; nor are companies inclined to insist on a variety of sources – internal/external, UK-/nonUK-based, publicly/privately sourced, and so on. Accountability for the mixing and distribution of information flows can be loose, and not enough time is spent discussing and challenging corporate assumptions, whether derived from the CEO or externally. Even the business of defining what really matters for a company’s next moves can be left confused or subjective. A top-down or centre-periphery culture in the organization can be beneficial and has certainly become the norm when the drive for linear efficiency is paramount. But it magnifies the errors when the top/centre gets it wrong and it stifles the intellectual and information-gathering potential of those capillaries that are likely to be the first to spot clouds on the horizon. The three essential ingredients for managing this complex area of lateral risk – indeed the three principal characteristics of the domination of homo sapiens over all other creatures
36
– are intelligence, adaptability and teamwork. The analysis has to be right; the capacity to plan, turn and diversify has to be nurtured; and the team needs to be constituted and organized to ensure the right skills are available and used. No one can predict what might happen next. But it is possible for a business to understand the range of probabilities and to decide what choices and contingencies flow from that assessment. Outside advice should not substitute the internal capacity to handle this, although it can help with the development of that capacity, as my company tries to do. The important thing is to ask the awareness question in the first place: what is it in our lateral environment that is most likely to affect our performance? Then a company might be on the way to riding the storm.
The business strategy map is taking on a greater variety of colours
● Jeremy Greenstock is chairman of the UN Association in the UK and Gatehouse Advisory Partners
Dialogue | Sep/Nov 2014
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focus Managing risk: Central to good banking political risk: storm clouds on the horizon Environmental risk: crisis into opportunity international risk: get the global strategy right
Environmental risk: crisis into opportunity
soft risk: how culture can fail business risk pendulum is swinging back addressing risk on the board
38
As challenges around climate, water, land and waste become more acute, environmental risks are proving to be increasingly difficult to monitor and manage, as Daniel Vermeer reports Illustration: cameron law
Dialogue | Sep/Nov 2014
environment, tracking trends and sensing emerging When he took over as BP’s CEO, Tony Hayward weak signals. They also need to be in close contact established several policies for reducing safety risks, with their stakeholders – customers, employees, including using lids on coffee cups while walking. suppliers, governments, NGOs and the public – to But his focus on cutting costs led to the elimination know what issues they are focused on. Not all trends of several environmental positions in the company, are equal and some are more relevant to compabased on his perception that BP was “excessively nies and supply chains. To manage risks, businesses cautious” in its strategy to move “beyond petroleum” must prioritize issues most relevant to them and their under John Browne’s leadership – and needed to resupply chains. Materiality assessment (see page 40) focus on core business. is a powerful methodology for evaluating the risk As this example shows, some risks are understood landscape, considering both the importance of the and managed by most firms, but other risks can issue to the company and the stakeholders’ level lurk “below the radar” – where they can inflict the of engagement. greatest damage. One of the elusive – and growing – threats is generated in the interaction between a Coca-Cola’s experience in India company and the natural environment. Businesses face a variety of complex risks, from Environmental risks are difficult to monitor and political instability to currency fluctuations. However, manage. One reason for this is that most environmental factors are increasingly relevant to environmental risks exist in a company’s business, due to both direct impacts and indiexternal environment, where the busirect consequences. There are direct enviness has little ability to directly impact ronmental risks that threaten business’s raw them. Second, there are many environmaterials and partners, including storms, mental risks, including those related to floods or droughts. There are also indiclimate change, water, energy use, waste rect environmental risks comprising and biodiversity and these are often interdigital exclusive increasing costs, new regulations, public connected. Third, environmental risks scrutiny, conflicts with other stakeplay out across many different spatial (e.g. DAN VERMEER gives his personal reflections on holders and political conflict. It is often local to global) and timescales (e.g. shortenvironmental risk. difficult to distinguish between local and term acute to centuries-long processes). global risks, or to manage independently And finally, environmental risks are not often the complicated interactions between reflected in terms of price signals or regudifferent factors. Coca-Cola’s experience in latory constraints; and when these signals India highlights this challenge. come, they tend to be abrupt and disruptive. For Coca-Cola, India is one of the fastest-growing Environmental impacts markets in the world. But widespread depletion are increasing and contamination of water resources has created Environmental events are increasingly impacting significant challenges as the company attempts to the bottom line. In 2011, devastating floods struck secure access to its primary ingredient. For CocaThailand. With suppliers of critical auto parts Cola’s India division, problems began in the early knocked out, the production of Toyota, Honda and 2000s when local activists in a droughtother carmakers fell by hundreds of thousands of plagued region began to target vehicles (and Toyota’s earnings dropped $1.5bn). the company for selling products In 2012, when Hurricane Sandy hit the East Coast, contaminated with pesticides and Lower Manhattan lost power for four days, resulting draining local aquifers. in more than $500 million in direct damages for Con While the initial tensions were isolated Edison – and costs to New York City businesses to specific Indian communities totalling $6bn. near bottling facilities, the critiExperts are predicting that drought in California cisms began to circulate more will cost the state $2.2bn this year, resulting in a widely over time – e.g. broadcast by a blogger loss of more than 17,000 agricultural jobs. Around with activist connections based in San Francisco, the world, these events are increasing in scale and highlighted by The Body Shop’s CEO Anita frequency, and threaten to rock business operations Roddick in her blog, and ultiand supply chains to the core. mately picked up by the BBC. To identify and prioritize risks, businesses need When a BBC reporter wrote a a systematic way to monitor their external controversial story about Coca-Cola’s water
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The Global Reporting Initiative’s G4 guidelines for sustainability reporting, have emphasized the importance of companies organizing their reports based on their assessment of materiality of specific issues. For example, a food company may prioritize climate and water impacts on its business, while a consulting firm may highlight the impacts of its employees’ business travel. The original notion of materiality was an accounting term, and referred to the estimated effect an item of information may have on an investor’s evaluation of a company. Information is considered more material if it is useful for “reasonable” investors to consider in evaluating a company’s current value and threats to its future profitability. If an investor’s decision to invest in a company can be swayed by knowing a particular piece of information, then the company is required to disclose it publicly. In the US, disclosure requirements are established by the Securities and Exchange Commission, but there are many other expectations from many other constituencies to share more than only what is required by law. The materiality of specific issues is evaluated based on their relative importance in two dimensions: relevance to the company’s operations, profits and reputation; and significance of the issue to the company’s relevant stakeholders. Gathering data on these two considerations will allow the company to plot all potential issues on the matrix above. Materiality assessment helps companies systematically evaluate and prioritize their most important issues, rather than superficially treating all issues with the same urgency. Assessing materiality also provides an opportunity to gather feedback systematically
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LEVEL OF CONCERN TO STAKEHOLDERS
materiality assessment
Low impact, high concern
medium impact, high concern
high impact, high concern
Low impact, MEDIUM concern
medium MEDIUM, high concern
high impact, MEDIUM concern
Low impact, Low concern
medium impact, Low concern
high impact, Low concern
SIGNIFICANT/INCREASING IMPACT ON OR BY COMPANY
How are material issues prioritized?
from different constituencies, and identify areas of common interest and concern. Finally, assessing your material issues will improve your external communication in both formal required disclosures (e.g. 10-K in the US) and voluntary reports (e.g. GRI-compliant sustainability reports).
Materiality assessment – questions to ask l To understand the importance of an issue to your company, you should ask: • Does/could the issue significantly affect company profits? • Does/could the issue significantly impact business continuity? • Is this issue globally relevant or more regionally specific?
• Is the company uniquely exposed on this issue? What are your peers doing? • Does the company lack the information/expertise to manage the issue? l Stakeholder input and feedback is critical for understanding materiality – you should know: • Who are your company’s most important stakeholders? (Employees, regulators, local governments, NGOs, general public, etc.) • Is the issue high on your stakeholder’s agenda? • Do your stakeholders closely connect you with the issue? • Is it likely that the issue will require increased regulation or costs?
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practices in India, it became a global headline. At the same time, an Indian NGO campaigned for new government policies on pesticide contamination by questioning the quality of Coca-Cola’s products. Finally, student groups in the US became alarmed by the accusations, and organized campaigns to remove Coca-Cola’s vending machines from their campuses. What began as a local skirmish over water use became a global crisis with significant negative impacts on sales and reputation both in India and globally.
A customized and multi-faceted approach
their priority issues. Often, there is a disconnect between the scientific information about environmental issues and a company’s perception of their accountabilities and risks related to the issue. However, the risk process helps to translate these factors into organizationally-relevant terms. For example, while climate change is a global issue, it is not always easy to articulate a particular company’s stake in mitigating and adapting to climate volatility. Risk assessment can help characterize and quantify the company’s specific interest and justify its investment in addressing risk. Outdoor gear manufacturer Patagonia provides an interesting example of proactively addressing its risks by engaging other stakeholders in the process. After extensively evaluating the environmental impacts of specific products across their global supply chain, Patagonia launched a digital exclusive public website “Footprint Chronicles”, to DAN VERMEER gives his document the environmental impacts personal reflections on of raw materials, manufacturing and environmental risk. distribution around the world. On this site, it not only shared its total environmental footprint, but also invited its partners, suppliers and the general public to share ideas to solve challenges. Instead of hiding weaknesses, the company is using the power of transparency to crowdsource innovations to improve its business.
This story highlights the complex dynamics of managing environmental risks, and why they require a 360-degree multi-faceted approach. In assessing the potential impacts of environmental risks, companies should consider the following: 1. Resource degradation – what pressures will environmental conditions exert on the company’s local operations? 2. Supply reliability – how might environmental trends impact our supply of raw materials? 3. Cost impacts – as resources become stretched, how might rising costs across the supply chain alter our business model? 4. Policy – how might new regulations, or failure to comply with existing regulations, affect our business? 5. Efficiency – how much value are we producing per unit of resource inputs? Can we decouple growth from resource use? 6. Social tensions and conflict – what risks might emerge as more people attempt to access the same resources? The world is a risky place, and it is impossible to anticipate how risks will unfold or impact business. Companies can create an organizational capability to evaluate, prioritize, and track risks over time. An effective risk management process brings together people from across the organization – different functions, geographies and parts of the supply chain – to develop a shared point of view on company priorities. A generic one-size-fitsall approach will not work because each enterprise has unique exposures and opportunities. This internal consensus can guide the company’s investments in mitigating risk, and creating value.
Creating a shared language The process of risk assessment is powerful – not just the conclusions. By engaging across functions and with stakeholders, companies can develop a shared language around
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Turning risk into opportunity Another hurdle for implementing risk assessment is the perception that high risks equate to poor performance. Employees can resist the risk process because they sense that acknowledging risks may be viewed by their managers as evidence they are doing something wrong. However, significant risks can and do exist, and can emerge rapidly even when the company is doing all the right things. Risks are facts of the external environment, and should not be seen as a failure of the business. Rather, the goal should be to understand deeply, mitigate priority risks where you have the ability and the resources to do so, and engage partners creatively where the risks are systemic. This will not eliminate the risks (though it may reduce them) but it will help you become more resilient to potential impacts. Unilever’s diverse portfolio of products ranges from nutrition to hygiene to personal care, and every aspect of its business – from raw material sourcing to manufacturing to consumer use – impacts on the environment. While the company has long been focused on the risks related to environment, it has established a true leadership position on the environment under CEO Paul Polman’s leadership. Based on an assessment of its material issues, Unilever has established an aspirational goal to double its
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automotive industry The automotive sector is an example of how environmental risks can create business opportunities. Historically, the US automotive industry has not been a leader in responding to environmental challenges. Since their invention, cars have tripled in weight, but less than 1% of the energy they consume actually moves people; the rest is burned in heat, tyre wear and moving metal. The “one person per vehicle” model on an ever-expanding road system (required by people living in distant suburbs) is inherently resource-intensive, and is not a sustainable model for meeting the world’s transportation needs. Even as gas prices went up and more efficient foreign cars entered the market, car companies resisted fuel efficiency regulations and focused their business models on selling larger, gas-guzzling SUVs – until the economic crisis. After a period of soul-searching, something fresh is emerging in the industry. Not only are surviving car companies restoring profits by selling more efficient vehicles, there is also a fresh generation of innovative companies rethinking every aspect of transportation to provide solutions that are superior for customers and the environment. For example, ZipCar offers customers the option to access a shared pool of vehicles when they need it, rather than owning a vehicle that sits in the garage most of its life. Not only does this business model reduce the cost and investment required for their customers, it also inherently reduces the resources needed to meet society’s transportation needs. Related examples abound: displacing traditional taxis, Uber uses the power of connectivity to more efficiently transport people in urban areas. Selfdriving cars (from companies including Google) utilize artificial intelligence to prevent accidents, enable more efficient car platooning, and ultimately reduce the need for infrastructure. Tesla Motors designs, manufactures and sells electric cars and components – but it operates more like a consumer electronics company than a traditional car company. By being integrated on a electric/digital platform, Tesla vehicles tap into the digital cloud to optimize their driving, based on the collective experience of all Tesla cars on the road. Software updates based on this intelligence can improve a driver’s route, improve their efficiency and plan the next battery recharge. While the future of these innovations is uncertain, a new paradigm is emerging, that is likely to be better for people and the planet.
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revenues over the next decade while reducing its environmental impacts by 50%. Achieving this goal will require more than mitigation efforts and efficiency – but demands a radical rethinking of the company’s product portfolio, supply chain, business model, and engagement with consumers. Driven by this ambitious goal, Unilever is pivoting toward an inherently more sustainable enterprise that creates value by aligning its strategy to the world’s biggest environmental challenges.
Risk as an innovation catalyst While risk assessment is often seen as purely defensive, it can and must be connected to value creation. It is not just about potential downside impacts, but about developing a unique and valuecreating way of responding to challenges. This means that risk assessment cannot be outsourced to facility managers or risk specialists - it must engage the whole enterprise. An effective risk process can highlight opportunities to create new solutions and grow markets. Therefore, it is critical that a company’s business leaders, innovators, and product developers are part of the conversation. Nike, like many of the current corporate sustainability champions, learned the hard way about the importance of sustainability risks – when revelations about labour practices in its supply chain became public. However, over the last two decades, Nike has transformed its approach to environmental risks, using it to spur creative new products, management processes, and partnerships. For example, it has recently unveiled its Flyknit shoes; the shoe’s onepiece upper uses just one material. Nike has also has been instrumental in creating innovative partnerships focusing on climate action (BICEP) and sustainable materials (Launch). Nike has institutionalized the connection between social and environmental issues and its innovation function by creating a new organization of Sustainable Business and Innovation (SBI). At its core, Nike’s approach recognizes that a company can create enormous business value by embracing environmental risks, and stimulating new innovations to respond to the challenges. Environmental risks can be the most complex challenges for companies - but can also be the most rewarding to address. As challenges around climate, water, land, and waste become more acute, the imperative to protect your business and enhance your business will become even more clear. ● Daniel Vermeer, PhD, is associate professor of the practice and executive director at the Center for Energy, Development and the Global Environment (EDGE), Duke University
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Why environmental risks hit the wallet harder than wars + read more Read Carl’s blog as he undercovers what it means to be a ‘garbage philospoher’
I have many war stories from fundraising for Alder, which is the largest environmental technology investment fund in the Nordic region. At one point, I remember meeting a secretive family foundation that managed an almost unimaginable cash pile. Over a cup of coffee, they told me about the different projects they were working on. One was buying up beachfront property in remote locations in Asia. “When the Asians get rich, they will want to have access to beach-front property,” they pointed out proudly. “Look at what happened to beach-front property in Europe during the 20th century – it has grown 1000-fold in value, even if nothing has been done to the property.” They informed me about their elaborate blueprint for deciding which spots to buy, which involved analyzing the rule of law of the country, in which they were investing and the proximity of the site to population centres. They even sent in divers to check the quality of the water. I took a deep breath and asked if they had factored in climate change? Had they, I wondered, incorporated into their investment model the fact that what is beach-front property today might be underwater in 30 years? There was a pause. The pause became an awkward silence. Then they looked at me as if they had seen a ghost. I left that meeting with yet another
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example of how business leaders tend to underestimate environmental risk – even though environmental risks tend to hit the wallet harder than wars. There was a story recently retold in the Financial Times about how a young analyst at a major hedge fund came in to the fund’s founding partner with an idea about betting short on the back of the worsening crises in Ukraine and Palestine. The partner sent him away to make a list of all the wars during the bull markets in the late 1990s, which was a long list of everything from Somalia to Kosovo – the point being that despite the awful toll in human terms, wars tend to have little economic impact. A compilation by JP Morgan Asset Management in July of this year showed wars zones accounting for only 3% of global GDP and only 0.7% of equity market capitalization. The reverse is true of environmental risks – hurricanes Sandy and Katrina, arguably caused by climate change, cost 20 billion dollars each in economic damage. Ignoring the existential component of such threats as climate change and water scarcity, we can see that the environmental risks tend to have huge economic impact. The reason is that environmental risks tend to impact key resources that make the economy run smoothly, such as energy, water and raw materials, or impact the value of key stores of value, such as land. Yet these risks are consistently ignored or underestimated. A striking example of both the magnitude of the potential economic impact of environmental issues and how little attention is paid by business people is the “Carbon Bubble”. This alarm bell for the Carbon Bubble was sounded by an
organization called the Carbon Tracker Initiative (www.carbontracker.org/). Its starting point was that a large part of the world’s listed equity capital is tied into oil and gas companies. A total of 25% of the companies on the Global FTSE Top 20 most valuable companies by market capitalization are oil companies. Their balance sheets are, to a large extent, made up of reserves of fossil fuels. The problem with these reserves is that the majority of them – 80% according to Carbon Trackers estimates – cannot be used if we are to stay within a safe 2 degree level of global warming. This means that these reserves may be largely worthless and the balance sheets of the oil and gas behemoths as hollow as an empty oil drum. Because of their size, oil and gas makes up a large portion of market indexes and thus a large portion of pension fund investments – a huge bubble waiting to burst. The “Carbon Bubble” is just one environmental risk of many as the world is entering an unprecedented Age of Scarcity. Five billion people are soon to be middle-class, using more resources than is sustainable. We’ve seen it the form of rising raw material and land prices. But it is just the beginning. Soon our economies will run into constraints of water, materials and global warming. This spells a lot of risk, but also a lot of opportunity. Just make sure to not be like the family foundation. Make sure your investments are not under water. ● Carl Hall is the co-founder of Alder, the largest environmental technology investment fund in the Nordic region, and author of The Environmental Capitalists: Making Billions by Saving the Planet
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focus Managing risk: Central to good banking political risk: storm clouds on the horizon Environmental risk: crisis into opportunity international international risk: risk: get the global global strategy right right soft risk: how culture can fail business risk pendulum is swinging back addressing risk on the board
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International risk: get the global strategy right and avoid hazards Dane Chamorro, an American consultant based in Singapore, explains how companies are continuing to misjudge some of the risks involved in global expansion Illustration: cameron law
Dialogue | Sep/Nov 2014
We live in a world of global companies, global supply chains, global 24/7 media coverage and daily analysis of the growth prospects of emerging economies. Yet, the truth is that expansion into a foreign market, whether moving from East to West or from West to East, is no easy feat.
Systemic differences make for different business rules
and a sizeable investment to be successful under these very different commercial conditions. They nodded “yes, yes” but without really listening – it was clear that they had their instructions and they were already on to execution phase. They entered the market with a local partner, but pulled out after two years. They could not make a success of it by using the same business model that worked so well for them at home – and they blamed it on the “complexities” of China. This illustrates what I would always explore with a prospective investor at a first meeting – get the strategy right first. The tactics, such as who is your best joint venture partner, can follow.
Despite all the books and articles about the lure of emerging markets (EMs), it is a challenging experience to step out of your own business norms and culture and operate effectively in a developing world economy. Even at the most basic level, systemic The basics: what is EM risk? and cultural differences can trip leaders When assessing risks, work from macro up, with anything from how local to micro, starting with the jurisdictional governments operate to the appropriate environment within which the business time to arrive at a meeting (you’ll want to WATCH THE VIDEO will be operating. be punctual in Tokyo, while everyone in DANE CHAMARRO takes Start with some basic questions: Jakarta understands jam karet or “rubber” part in a panel interview l What is the government structure time due to the traffic jams). At the macro on corruption in Asia and how does it operate? (one-party level, political, regulatory, reputational and state, messy democracy, centralized corruption risk can be more than daunting, or federal, etc); What are the politics like but understanding them can make the – party or personality-based? How does difference between success and failure. An the government fund itself? (Most Asian example might help. countries have a low tax base and collection is Some years ago, I was advising a retail highly corrupt.) grocery group about entry into China. We went through the usual checklist of fundamental questions: what is your existing business model and how might it work in China? Should you consider joint venture partners or licensees? Is the talent you need available AGENT locally? Why are you doing this and why are you doing it now? What is your key advantage, what can you bring to this market that no one else does? GOVERNMENT People sometimes get stuck in an “EM growth” DISTRIBUTOR OWNED mindset and then “deal destiny” takes over – that is, you’ve started the deal so it will conclude. But there is a vast difference between EMs, so, for example, differentiating between why you would consider an investment into India vs China – two Your very different markets despite their similar sizes – is business a key question. (model) It turned out that this retail company was seen LICENcE joint venture as a high-quality provider in Europe and wanted to bring that capability to China as its key differentiator for a market that is highly sensitive to food quality issues. It was also after growth, of course, given that OECD market growth in the sector was typically no more than 1%. We explained to them MINORITY 100% foreign INVESTMENT owned that in their current market, the top 10 players (of which they were one) supplied 80% of the market; in China the market was much more fragmented, with only 8% of the market supplied by the top Figure 1: Business model 10. They would need a new value proposition
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l Is there a competent bureaucracy? Is it pro, neutral or anti-business? (for example, in India and Indonesia, socialist sentiment is strong). How capricious? How corrupt? l Is my industry regulated? (Even seemingly innocuous sectors like retail are regulated in Asia); If so, is it transparent? Does my regulator own my largest local competitor? l Is there a functioning court system that can enforce a contract? Is it subject to inducements (for example, can judges be bought)? l Is there local currency exposure? (A good guide is the Bank for International Settlements’ trade-weighted value of currencies). Are profits repatriatable? How do foreign exchange regulations work? l What are the corporate ownership structures (most Asian businesses are either state-owned or family businesses, even if they are publicly listed)? Are there a few families/cronies that dominate key sectors? l What are the infrastructural and logistics challenges? How is land acquired and/or how do leases work? l How free is the media, social or otherwise? Does it have an anti-foreign bent? Does it shape public opinion or regulation? l Is there activism of local communities, religious groups, labour unions, NGOs? The answers to these questions provide a basis from which to understand the macro environment. It also never hurts to study the history of the place to Figure 2: The taxonomy of risk
Pre-market entry issues
Post-market entry issues
• Thorough due diligence • Current business model in comparison with the market • Best entry route into the market • Dealing with setbacks and crises
• Managing your assets and reputation • Dealing with fraud and corruption • Managing through a crisis • How to withdraw from a joint venture • How to exit the country
Macro challenges
Micro challenges
• The business environment • Investment rules • Labour groups • Working with communities • Regulatory and political issues
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• Choosing vendors • Finding joint venture partners • Working with counter parties • Activities of agencies • Handling investigations
understand the sensitivities – for instance, neither Thailand nor China were formally colonized in the last century, yet while the Thais are quite proud of maintaining their independence compared to their neighbours, in China the period from 1850 to 1950 is considered a source of national humiliation and a sore point. Visitors to the countries will find these alluded to routinely in conversation and it helps to have the context in mind so as to avoid alienating your counterparty. You can see this playing out now in Chinese government accusations against foreign companies for “gouging the Chinese people” on the prices of some products. Then you can progress to the “micro” side involving your particular industry, investment or business interest – for example, type of investment structure, business model, sales structure, manufacturing/distribution model, human resources, licensing, and so on (see Figure 1, page 45). The best-managed firms do these assessments as a matter of routine, with or without external assistance. A small number even understand that it is not just the direct risks to their business, but also the vicarious risks posed by third parties acting on their behalf. This may be the freight forwarder that pays a bribe to a customs officer to clear your shipment or it may be a key supplier that is located on a flood plain and suffers a total loss of business in a particularly bad Monsoon season (this happened to a lot of companies in Thailand in 2010). But very few companies do these assessments on a rolling basis and, as a result, they are often caught unawares when the political or regulatory environment shifts or when their country manager secretly colludes with a competitor or vendor.
Successful incumbents keep alive to change Sometimes, even successful incumbents get caught out. Let’s take a look at the healthcare industry in China. There is a number of global healthcare companies that have built successful businesses in China – but now the operational environment has changed and it is largely down to politics. The reason is simple. EM consumers are highly sensitive to increases in the cost of living, especially in daily needs – items such as mobile telephony, healthcare, education, transport and food. A sudden rise in the price of onions has brought down an Indian government (this means the government fell because it was not able to control inflation in a basic food staple). China’s Communist Party is highly sensitive to its history – the battle against hyperinflation was a significant factor in winning urbanites to the CCP against their Nationalist Party
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adversaries in the late 1940s and also played a large part in the Tiananmen incident of 1989. The Chinese government has been messaging healthcare reforms for many years and passed new legislation dealing with corruption in healthcare in 2010. But it is China’s new leadership under Xi Jinping and Li Keqiang that came to office with a necessary goal of introducing some tough reforms across the economy – including a liberalized financial sector. And to do that in any system, the leaders need to have the support of the people. The best route to garner support is to go after what irritates your constituents – high prices driven by those firms that have pricing power. It is even better if those firms happen to be foreign multinational corporations, because they do not have the rear guard political connections that China’s state entities do. Politics by any other name – but with a uniquely Chinese twist. The good news is that China’s government is relatively efficient compared to some others like India’s or Indonesia’s and, if you understand how to listen, the changes are broadcast for a long time in advance before they are put into action. The bad news is that if the state turns its attention to you, it can be ruthlessly efficient at achieving its goals – and Chinese enforcement agencies, be they anti-trust authorities or the police, do not work like their Western counterparts. Unfortunately, established corporate structures are not always open to change, or open to changing fast enough. If your business model is, or has been, based on big top line growth in EMs to bolster the corporate P&L, revisiting the business model and reducing growth estimates can make for some difficult conversations with the board. Add to this, the fact that China is not a traditional EM – it is the world’s largest economy managed by a Leninist bureaucracy steeped in 3,000 years of Chinese history with an increasingly sophisticated PR capability and riddled with corruption. Most managers with EM experience have never dealt with anything like it.
Healthcare companies operating in China are dealing with the post-entry issue of a politically-driven change in the regulatory landscape (macro) coupled with the integrity of their business processes (micro) – for example, bribing doctors to promote their brands. If you are selling soap powder, how important are you to the government? Answer, not very – so if you have a problem with your contracts, suppliers, partners, and so on, no one in a position of authority is going to assist. What if you are building power stations? More so, and you get more assistance “protection” as a result.
People get stuck in an “EM growth” mindset, then “deal destiny” takes over
A taxonomy of risk The challenges facing companies that want to do business in Asia can be arranged into four broad areas based first on whether the investment is new or existing and then by the nature of the issue (macro or micro or both). In the previous case of the food retailer, the business issues were about the pre-market entry challenge of business model adaptation to a new market (macro) and due diligence on potential partners (micro) (see Figure 2).
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All politics are local – so are ethics
A good example of this, is a question asked by a Chinese national at a presentation by the Securities and Futures Commission (SEC equivalent) in Hong Kong; “Why is insider trading illegal?” This question, almost unimaginable in the West, reflects a fundamental difference in perceptions of what is right, fair and ethical. Some companies suspect or discover that their local management is involved in some form of self-dealing, conflict of interest or malfeasance with outside vendors. The first question to consider is what your policies say about the issue under scrutiny and whether you have trained people on the policies. We tend to assume that these “rules” are obvious, but they stem from a very Northern European ethic that is not shared by most of the globe. Again, you may encounter these “unwritten rules” on the macro side just as easily. A financial services company was considering opportunities in Myanmar. The company representative said: “Myanmar is a medium-term opportunity, right now I need to know what’s not written down about getting a business licence in Singapore because I know only 90% of what I need to know is in the regulations.” Smart – even in a highly transparent environment like Singapore there are still unwritten rules. The not-so-secret secret is to do your homework or in the words of Solomon: “With all thy getting, get understanding.” ● Dane Chamorro is a managing director at Control Risks and has more than 20 years’ experience in the Asian region. He regularly advises strategic and portfolio investors on political and partner risks, corporate governance and high-profile business disputes. He is a fluent Chinese speaker and an honours graduate of both Georgetown University’s School of Foreign Service and the US Army Intelligence School
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focus Managing risk: Central to good banking political risk: storm clouds on the horizon Environmental risk: crisis into opportunity international risk: get the global strategy right
Soft risk: how culture can fail business
soft risk: how culture can fail business risk pendulum is swinging back addressing risk on the board
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Cultural or soft risk could be a huge threat to organizational success, if businesses do not govern, lead and manage it, says Richard Finn Illustration: cameron law
Dialogue | Sep/Nov 2014
Culture in all its gory variants has been the most common diagnosis for organizational failure in the past five years. A short-term culture was to blame for the behaviour of investment bankers in the US and the UK; London’s Metropolitan Police is accused of a culture of racism; the UK’s Mid Staffordshire hospital had an “uncaring” culture resulting in avoidable deaths and, in the not-too-distant past, a culture of greed was the cause of Enron’s failure. The Economist Intelligence Unit has recently published a report A Crisis of Culture; the UK Parliamentary Committee on Banking Standards has published a report criticising the culture of banks and recommending changes; and the Salz Report into the problems at Barclays highlighted culture as a major factor in its reputational demise.
And yet in recent research carried out with chairmen and non-executive directors (NED) of organizations in the City of London, it was found that very few boards had culture on their agenda and soft risks were rarely part of their risk registers. If soft risk was being managed at all, it had been delegated to the HR department. How and why have so many organizations been asleep at the wheel? Maybe because it is “only” soft risk? Soft risk becomes significant when culture becomes misaligned with organizational purpose. It is the result of poor governance by boards, myopic leadership in the C Suite and a lack of empowerment of line managers to manage poor behaviour. The costs become explicit in a number of different ways (see figure 1). And soft risk does not stop with the organization. The culture of an organization’s ecosystem needs to have its collective soft risk managed as well: outsourced customer interfaces, for example, in the auto industry, and contracted out call centres can, through poor customer service, seriously impact the reputation of the producer. Hard risk management is in the hands of accountants for financial risk and compliance for compiling and acting on a risk register. With some exceptions, such as regretted turnover and employee engagement, it is rare for soft risks to be tracked in a risk register. However, the platelets of organizational power and control are shifting. The management accountants have included human, social and relationship factors in their new integrated reporting recommendations, which are currently out for consultation. The risk profession has published two reports, Roads to Ruin and Roads to Resilience, which recommend the inclusion of people and cultural issues into a new risk radar. I predict that the HR profession will not be far behind in trying to colonize this business critical area of organizational risk.
The costs are staggering if soft risk is not managed
Soft risk is the current zeitgeist The costs are staggering if soft risk is not managed. In the US, banks have, so far, been fined $100bn since 2008; 189,000 jobs have been lost in the City of London since 2008; the bill for PPI mis-selling continues to rise and household names like Lehman have completely disappeared.
Business underachievement
TALENT FLIGHT
poor products
MISALIGNED CULTURE
poor service
REPUTATION DESTRUCTION
DAMAGED INVESTOR SENTIMENT
Figure 1: The costs
Dialogue | Sep/Nov 2014
How can organizations mitigate soft risk? Soft risk is sourced in misalignment. It becomes a cost when the link between organizational purpose and the behaviour of employees or contributors in the service value chain become disconnected. If organizations want to manage soft risk effectively, they will need to govern it in the same way as any other critical business issue: giving decision rights and accountabilities to a range of interested parties to measure and manage it effectively.
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organization purpose
VALUES
STRATEGY
CULTURE
BEHAVIOUR
Figure 2: How to mitigate soft risk
llBoards need to assure themselves that culture and behaviour are creating value for the declared purpose of the organization. They should consider having a NED on the board who understands soft risk and they may need to create a new sub-committee to govern it on their behalf. In addition, board members and senior executives will need to set the tone for behaviour from the top. llThe CEO must ensure that soft risk is measured and tracked and that appropriate executive action is taken. llLine managers should be empowered and competent to address bad behaviour. llFinance, risk, compliance, HR and supply chain managers will need to create multidisciplinary teams to identify and address soft risk.
Further reading: A Crisis of Culture, valuing ethics and knowledge in financial services, The Economist Intelligence Unit, 2013
Soft risk is potentially a huge threat to organizational success
Roads to Ruin, Airmic, 2011 Roads to Resilience, Airmic, 2014 Global Management Accounting Principles consultation document, CGMA, 2014 Governing Values: a guide for boards of financial services companies, City Values Forum, 2013 Putting the service profit chain to work, HBR, 2008
Soft risk is potentially a huge threat to organizational success. If organizations do not govern, lead and manage it, they will risk going the way of the many other organizations that have allowed misaligned cultures to derail their purpose. â—? Richard Finn is managing director of Richard Finn Ltd, an educator at Duke Corporate Education and chairman at Kent Music
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Dialogue | Sep/Nov 2014
VIENNA
Hall of Sciences Aula der Wissenschaften
13I14 NOV.
Clayton Christensen, Professor of Business Administration at Harvard Business School Steve Denning, Member of the Board of Directors Scrum Alliance, Forbes contributor Yves Doz, Professor of Technological Innovation at INSEAD Pankaj Ghemawat, Professor of Strategic Management at IESE Business School John Hagel III, Director Deloitte Consulting LLP, Co-Chairman Deloitte Center for the Edge Gary Hamel, Management expert, Consultant, MIX Co-founder and Professor at London Business School Jeff Hoffman, Serial entrepreneur, Co-founder of priceline.com Herminia Ibarra, Professor of Leadership and Learning and Professor of Organisational Behaviour at INSEAD Adi Ignatius, Editor-in-chief, Harvard Business Review Roger L. Martin, Academic Director, Martin Prosperity Institute, Rotman School of Management Nilofer Merchant, Writer Marc Merrill, President & Co-founder of Riot Games Vineet Nayar, Vice Chairman of HCL Technologies Martin Wolf, Chief Economics Commentator, the Financial Times
www.druckerforum.org
focus Managing risk: Central to good banking political risk: storm clouds on the horizon Environmental risk: crisis into opportunity international risk: get the global strategy right soft risk: how culture can fail business risk pendulum is swinging back addressing risk on the board
Risk pendulum is swinging back Business leaders from various sectors express their views on taking risks and how to manage them successfully. Bertha Herrerias, Liz Mellon and David Woods report
Tom Grondin, chief risk officer, Aegon NV In the insurance sector, risk is everything. All businesses are founded on risk in operations and development, but in the insurance industry, it is at the heart of the products we sell and it is embedded in everything we do. We assume, pool, transfer and warehouse risk for our customers. With regards to mitigating risk, my view is that the first way to do this is to only take risks that help you fulfil your purpose. Our purpose is to help customers take responsibility for their financial future and if the risk a customer wishes to take will not help secure his or her future, we won’t offer it. If thess criteria is met, we will offer it if we have the competence. We will retain the risk if it is within our appetite, or transfer/hedge it if it’s not. However, I think there must be a misunderstanding around risk and there is a perception that risk is a bad thing. Risk serves an important purpose because businesses need
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risk in order to grow and to thrive. Organizations in some sectors have become reluctant to take risks [since the 2008 financial crisis], but if an organization is too risk averse, this can stifle its growth. I think it’s fair to say that a business is actually taking a risk if it tries not to take risks, because within inactivity is the business risk of losing relevance and market share. But during the past two years, the world has rapidly changed and some organizations are moving full steam ahead with risk-taking. The risk pendulum is swinging back again – but how far it has swung thus far and how far it will go is debatable.
Kevin Parry, former CFO, Schroders It’s my job to worry. Every leader should understand that business is not about individual prowess, but about the longevity and continuation of the enterprise. Coming from the wealth management industry, I categorize
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risk into five areas. The first is probably the easiest to understand and within our control – operational risk. Are spreadsheets reliable and passing information around the company, are ATMs working or out of action? The second risk is not meeting client requirements in terms of their investment goals – we are looking after others’ money and have to perform well for them. Our success or failure here, partly depends on risks three and four: external market liquidity and credit ratings. If there is insufficient liquidity in the market and we can’t sell funds, or if we are holding assets that have deteriorating credit and so become subject to defaults or downgrades, this reduces our capability to meet our clients’ needs. The fifth and final risk is emergent – for example, new regulations or Securities Exchange Commission announcements. It is harder to plan for risk in this arena, as announcements can be unexpected. One example would be the UK Chancellor’s Budget in March
Dialogue | Sep/Nov 2014
2014, which removed the need to create income from pensions through annuities. That said, I don’t think that the financial services industry invests enough in listening to futurologists and investigating coming trends – sometimes these “unexpected” announcements are foreshadowed. Too often, government affairs are monitored by the public relations department, rather than by the business, which should link better into government departments and diplomats to get an inkling of future events. Even boards too often think only five years ahead, rather than 10 or more. Risk is fundamental to rounded management – if you don’t take it seriously, you are unsophisticated and ill-prepared to manage your future. There are three lines of defence against making mistakes in the business and the first one is people, who need to understand the fundamentals of the business and execute tasks well. Are people kept up to date through training, are they supervised well, and is there a real culture of responsibility rather than one of making an extra buck? The culture needs to be led from the top, spread down and reinforced through good business practices and behaviour – not just platitudes from the senior executive platform. The second line of defence is the risk management functions, including legal and compliance. They work to short-term time frames; pre-execution, they look at new types of transactions, and post execution, they look at unexpected exposures and the consequential capital implications. The key aspect here is that it mustn’t degenerate into a tick-box exercise, but add real insight. The third line of defence is internal audit – the advantage here is that audit works to longer time frames than short-term business targets. They can investigate what happened and recommend changes to how the business operates. Is risk well understood? No, I don’t think so – at least not adequately. Risk isn’t glamorous – you don’t get plaudits for avoiding something happening. But the people who dismiss risk
Dialogue | Sep/Nov 2014
management are either naïve or cannot understand its complexity. We need to understand both micro risk – my financial transaction risks – and macro risk – how do the individual risks carried by, say, 100 traders in sugar, add up to an overall risk in sugar trading? There has to be a culture of good risk management and to set that tone, you need management depth. We are back to the first line of defence – people. A computer may just block a trader from completing a trade – a manager should be able to explain a “no” decision. The risk function is too remote for day-to-day risk management – it has to be in the hands of the people doing the business. The challenge in the financial services industries is the ego-driven, super hero culture of the star trader. Good traders are not normally good managers and managers are not prized like traders. That’s why a culture of responsibility has to be set from the top and good risk managers of people should be rewarded. I don’t think we are too cautious at the moment, but I feel it coming, because we have gone too far in some places. Many issues regulators are facing today actually happened post-2008 – for example, mis-selling insurance on household goods. But some parts of the market are definitely too cautious; there is a lack of advice for pensioners on how to spend or invest their pension pots, which is more important than ever now that annuities will be no longer compulsory and the clearing banks are so risk averse that they have pretty much pulled out of pension advice. The point about good and consistent risk management is that it can avoid the pendulum of risk-taking and risk averseness. Good risk management flattens the peaks of making too much profit in the good times and the troughs of exiting markets that have become too risky. Get the basics right – simple things
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like don’t borrow short and lend long. Good risk management is sophisticated common sense. Dennis Loughridge, CFO, Duke Corporate Education At one level, external events that slow the global economy are our biggest risk, like 9/11 and the financial crisis of 2008. Too many companies, mistakenly in my view, regard people development as training, rather than as a support for effective strategy execution. So, when times are tough, the training budget is an easy target to cut. To counteract this, leaders need to monitor, understand and respond fast to key external events, because they take about six to nine months to impact the bottom line – by which time, it’s too late to act. Then, because we are a people business, our second most important risk is internal – turnover of key personnel. Losing a core player affects our clients and our organization, through our culture and how our people feel about the business. Our response is to keep a close eye on our capabilities, especially as our business and our clients evolve. It’s not enough for us to keep hiring the same people. Questions we need to ask ourselves consistently are: do we have the right senior people? What capacity should we invest in? How do we leverage the expertise that we have? Our people are talented and will do anything to meet client needs – they are willing to travel anywhere and to do anything, operating to a few key rules. Our third is reputational risk; neither we nor our owner, Duke University, want our brand to be tarnished. This means that we must focus consistently on quality and act with total integrity to meet our broader obligations to suppliers, our employers and regulatory authorities in the multiplicity of countries in which we operate. I don’t think we are too careful today, but we could always do better. We need to continue to work hard to ensure that our senior leaders operate enterprise-wide and worry about our broader growth targets, not just personal client portfolios. If anything,
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we are too client-centric. And we need to be a little more aggressive in investing ahead of demand. It’s the mirror image of being ready to cut back when we can see global economic events conspiring against us – being ready to be ready to invest when an upswing is on the way.
Chris Rees, CFO, Reed Exhibitions Risk management sits well under finance in Reed Exhibitions, because finance folk are generally diligent, cautious and methodical – and those are key attributes when it comes to beneficial risk management. Risk, or more accurately the consideration of risk, runs like a “spell-checker” in our company, it runs consistentlybut-quietly in the background, intervening and coming up with alternative suggestions when or where necessary. We don’t start a commercial conversation with risk, but more often than not, key business conversations will take a brief deviation to consider the associated risks specifically. In our industry, a small risk might result in a decrease in, or even total loss of, the revenue from one particular exhibition; a bigger risk would likely be more strategic in nature, such as a paradigm shift in the business model. Indeed, our sister B2B publishing companies have successfully managed themselves recently through the migration of the publishing industry from paper to digital. The “risk coin” invariably has two faces. For example, investing in new markets like Indonesia or Mexico holds the possibility of substantial growth that would give us a win, but also there would be a substantial downside if we tripped up by trying to go too fast or
by selecting the wrong partner. On one level, innovation might be considered a source of risk, but I just love to look at innovation and risk the other way round. Often we look at a business risk and think how we might apply innovative thinking to that particular risk to result in an upside ultimately. With such thinking, it will be no surprise that we have found opportunities from unexpected places. For example, with business generally becoming more digital, we might have expected our face-to-face business of exhibition organizing to be challenged. However, while our customers have migrated advertising expenditure to online over the past 10 years, they have found it beneficial (with a little persuasion) to retain some face-toface contact with their customers and there is no better place to do this than at trade shows. So they have been spending a bit more with us. That doesn’t mean we are complacent about change and technological evolution, far from it. We have been using technology to improve their experience and to deliver even higher returns, through combining face-to-face exhibitions with industry networking events and online virtual experiences, such as appointment setting and matchmaking between participants before and after shows. We separate risks into two categories, operational and strategic. In terms of operational risk, I want to explain how we mitigate what I would describe as our “business continuity” risk. Rather than having manuals packed full of procedures for dealing with every possible eventuality, we have a combination of four steps that together act in unison to minimize and
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manage risk. Step one is a comprehensive IT Disaster Recovery Plan. There is no way around this. We have to ensure business continuity and resilience in our IT systems. Step two is an authority matrix, so, for example, everybody is aware that only our CEO has the authority to cancel a show. The third step is a “communications tree” that we test regularly, so that an event can be communicated swiftly throughout the organization. How do we test it? Well, occasionally our CEO will start the cascade with a command such as: “Everyone bring a toothbrush to work tomorrow.” It’s very easy to see whether the cascade has worked by counting the toothbrushes. And our final and most flexible step is the resourcefulness of our people. Our people capability is part of our DNA rather than a formal talent succession process. A trade show is a 12-month project run on tacit knowledge and arguably, osmosis, with experienced show directors working through a network of contacts. This has seen us successfully through many crises, such as SARS, 9/11, tsunamis, the bombing of the Grand Hotel in Brighton, anthrax scares, bomb threats, strikes (most often in France) and hurricanes such as Katrina. Taking the example of Katrina, we and our contractors moved our show in three days from a devastated venue to a football stadium – the show went on. Where business continuity risks are concerned, I believe passionately that we could over-plan and still miss a business continuity challenge. By having just these four steps, our people have to think on their feet and this has less net risk than having a very procedural culture where, if it were not in the manual, people might be stuck like rabbits in the headlights. Strategic risk is more challenging – political risks, trade embargoes, bribery and corruption, health and safety, and global regulations on privacy and data protection being some more recent examples. Partly, we mitigate business risk by spreading it across a broad portfolio of more than 500 shows – in different business sectors and geographic regions.
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We also sit down twice a year specifically to identify business risks, the likelihood and the potential impact of each, and then assign an owner to them. We document the mitigating controls we intend to bring to bear. We also set up special projects, working parties drawing together some of our brightest young talent, to take a peek over the horizon and consider how we might be conducting business in 2020, for example. It is exciting stuff and those involved do not necessarily appreciate that they are involved in risk management.
Arturo Lara, partner, Risk Advisory Services RSM Bogarín y Compañía, Mexico There are several significant risks to businesses, depending on a variety of particular circumstances. However, I would like to focus on operational risk and, in particular, the risks related to information technology, which persist in many companies, regardless of the industry they belong to. As the necessities of technology rapidly increase, managers are failing to implement strategies or adapt, when new needs of business arise in which new technological changes are demanded. This is exacerbated if we consider staff turnover. When employees leave a business, they take with them the knowledge about the use of technology, which is often not properly documented by the organization. This does not exclude big companies, but it is more common in small and medium enterprises. Crisis affects industries in different ways. However, a long-lasting crisis produces a “domino effect” that causes the crisis to be magnified and could affect the economy of a whole region or the entire world. Once companies begin to take the necessary actions to survive a crisis, those that succeed learn fresh lessons, which are not necessarily related to taking risks. But the key lesson is to assess risks professionally and find different ways to be protected. Entrepreneurs learn that taking
unnecessary risks can lead to losses, so they learn to manage risks appropriately. Therefore, with regard to risk taking, entrepreneurs continue to take risks only if the total of the expected returns is considerable. For me, and speaking in general, it is not a good idea to incentivize employees to take risks. Let’s say, for example, someone goes to a bookmaker; you give him a commission on the money he earns, but bet with your money. He will take big risks trying to gain the best return, knowing that he will lose nothing and his revenues have no limits, but the position of the owner of the money is completely the opposite. The right thing to do is to give the employee a range for risk-taking (tolerance), he shall be evaluated by his results (profit) and losses will be reflected in his earnings (loss shared partner), so that incentives for risk taking will be aligned with the risks of the person putting up the money. Entrepreneurs take the place of those who do not want to take risks. Entrepreneurs take risks by their very nature. However, as capital is limited, they will always seek to optimize risk by investing in business that maximizes their returns on risk-taking. What happens is that the risk/return ratio changes in a project for various reasons and the investor expects better opportunities. If it is possible, employees could be rewarded with variable result-orientated remunerations, as long as the risks taken are within the range determined by the company. Leaders should keep in mind that there have been banks, such as Barings Bank, which have become bankrupt because an employee took a risk that (at least in his estimation) was acceptable, but the results were catastrophic. The board of directors owns risk in a business. The board delegates responsibilities to its committees to support and manage risk in order to take the appropriate control measures. However, it is important to say that it is crucial to create a sense of ownership of risks among all organizational members.
Dialogue | Sep/Nov 2014
Addressing risk on the board
focus Managing risk: Central to good banking political risk:
storm clouds text
on the horizon Environmental risk: crisis into opportunity
international risk: get the global strategy right soft risk: how culture can fail business
Nick Araco, Jr
President & CEO, The CFO Alliance
risk pendulum is swinging back addressing risk on the board
There is no question that the role of the chief financial officer (CFO) has always been demanding. However, given rapid developments in technology, regulation and the entry of new players in the marketplaces in which they compete, the success of the CFO depends on his or her ability to deliver on a broad agenda by establishing strong relationships, internally, across the enterprise, as well as with the most critical external stakeholders they have: their customers. The swift development and ease of access to new technologies surrounding the customer experience creates opportunities and issues for the CFO. In the face of ever-growing transaction volumes, and with access to an unlimited quantity of data on the “who/what/when/why/where/ how” they are interacting and doing business with their customers, many CFOs are using fresh technologies to deliver the business intelligence, process efficiency, and compliance and control requirements that support their customer experiences. During my travels to the US to meet 400 CFOs, 90% agreed that these technological advances provide them with “more information in less time”. But 60% of these same CFOs felt they were feeling “spread too thinly” and 50% were paralyzed by the speed and quantity of data they now had at their fingertips. I probed a bit deeper to identify the root cause and, with their help, determined that often it was because the relationship between CFOs and their chief marketing officers (CMO) was not functioning like a partnership. By talking to other CFOs, we determined that the strongest
Dialogue | Sep/Nov 2014
partnerships developed when: (1) both individuals were focused on the numbers that matter; and (2) both tried to balance short- and long-term opportunities and risks. A number of CFOs agreed to help their CMOs identify and measure the numbers that were most aligned with profitability and most impactful to determining shareholder value – return on investment, net present value and operating margins.
Enhancing collaboration In return, CFOs agreed that if they would work to enhance their collaboration with their CMOs, they could enhance their understanding and confidence in the non-financial metrics that drive their businesses. For example, the CFO WATCH THE VIDEO of a consumer products company said that, by DOWNLOAD THE working together, they were able to develop VIDEO HERE a set of non-financial metrics that helped them better identify opportunities and manage a variety of business risks. These non-financial metrics included the number of people visiting and interacting with their blog, website and social media platforms, as well as the long-term indicators of the “health” of their brand. This approach to marketing may not mean the end of difficult budgeting, forecasting and performancebased conversations between the CMO and CFO. But the emergence of this technology and data-driven environment provides them both with a common ground on which to synchronize their understandings and perspectives, and achieve a better understanding of each other’s roles in driving real business value.
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creativity
The gift of Music has given us some of the greatest geniuses in history, including Beethoven. But is the word ‘genius’ thrown around too freely in modern workplaces? P F Sloan and S E Feinberg search for enlightenment Illustration: PETER STRAIN
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16th century Rabbi once wrote: “In the days to come, anyone with common sense will be considered a genius.” Author Mark Twain agreed when he opined: “The thing about common sense is that it’s not so common.” An Indian story tells of a man who had lost a valuable ring in his house. He went outside and started to look for the ring under the street lamp. A man approached him and wanted to help. “What are you looking for?” the man asked. “Oh, I’m looking for a ring.” “Where did you lose the ring?” “In my bedroom.” “Why are you looking for the ring out here?” “The light is better.” There is an obverse logic of common sense in the man looking for the ring. He is right in a humorous way. You cannot find a ring in the dark. All the endeavours of “humanity” since our emergence from caves have come from subtle shifts in perception. The human race seems to continue to slog and plod through the muck of history, waiting for the next genius to lift it up and out. Genius seems to be a level of awareness that, when put into practice, moves humanity forward for the benefit of all. “Spread out!” The first soldier, who yelled this while marching in close order into a hail of bullets and certain death, saved many of the lives of his friends. That was certainly innovative. Was he a genius? Is self-preservation a
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spark that ignites the imagination that can change the world? What and who do you think of when you think of genius? The art of Da Vinci, Michelangelo, Shakespeare, Milton? The science of Newton, Galileo, Pasteur, Einstein, Tesla? The music of Mozart and Beethoven – Dylan or Brian Wilson? How about Steve Jobs? Forgive us if we have left out your favourite genius. Everyone has one.
Genius comes in flashes of inspiration A curious thing happened while writing this article. We discovered when asking people about the nature of genius, that rather than having a calm and interesting conversation about it, they became agitated and angry – even threatened about their own personal ideas of who is and who is not a genius. Who knew that a discussion about genius could become so controversial? We had no idea that people covet their own personal genius as one covets one’s favourite Italian restaurant. It is in the nature of all sentient beings to think, analyze and produce
solutions. Ants, monkeys, lions and birds can do this. The human being differs from the animal in that he can conceive of the good of all. The human mind (having long suffered due to separation from its source) comes closest to finding relief – if not self-awareness – when exploring its own heart. And in doing so, it gets to the heart of the matter, answering its own questions. Genius comes in flashes of inspiration, but it has been working in the depths of the human heart, perhaps for lifetimes. While genius seems to come in many sizes, little geniuses, in all fields of human endeavour, push the ball forward to the goal line.
Genius of creativity Let’s take a look at two recognized geniuses working in the same field. Mozart, a child prodigy, wrote from a fully conceived idea that swiftly developed into a symphony. Beethoven, also a child prodigy, was able to fully conceive a symphony in all of its glory, but had to wait years before it would materialize. Some consider Mozart to be the greater genius because we are told he received divine inspiration and immediately acted upon it, whereas, Beethoven struggled to remain true to his initial inspiration. Both composers lift our spirits into the realm of beauty and truth. And like love itself, it feels natural. Genius, therefore, is natural because it has, within its nature, truth, beauty, simplicity, imagination and discernment. The music of Beethoven and Mozart has all of these elements. The
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point is, it doesn’t matter how long the symphony takes to write, as long as it is written. Is genius transferable? If I spend time with genius, will it rub off on me? Another German composer Ferdinand Ries spent years with Beethoven and asked him these very questions. As a composer himself, he pressed Beethoven for answers (see box below). We have all experienced ideas that come unsummoned. Mostly, they come as simple reminders of things that need to be done; very few of us gain an inspiration for a symphony or a perpetual motion machine. Fewer still have the wherewithal to wrap a rope around the idea and then haul it into the workshop and dedicate the next 25 years to make it a reality – while in the midst of attending to other projects. “We must stand on the shoulders of giants” is a phrase attributed to Albert Einstein. Beethoven stood on the shoulders of Haydn and Mozart and said he couldn’t have done what he did without them. They came first. The past is important. “I seem to be existing, in a world that will not listen, like a book with pages missing and just blots out the past,” writes P F Sloan, the co-author of this article, in his song This Mornin’. “I was 17
We all have experienced ideas that come unsummoned and listening to the heart and soul of Woody Guthrie and Bob Dylan, standing on their shoulders and getting to see from a higher view.” It is in the nature of genius to learn from the past with a keen sense of discernment.
Modern Exceptionalism All that is new and fashionable today we know will fade away quickly and the new stuff that will take its place will again take its toll on our excitement. We call this malady Modern Exceptionalism. The pages of the past are discarded, and the chant goes up: “We are living in the most modern society of all time!” This is why, in education, “new” concepts like emotional intelligence are re-invented, starting with Euripides and continuing until Goleman and beyond. Therefore, we are better than anyone else who has ever lived.
Here is an excerpt from our popera Louie! Louie! (The Secret Life Of Ludwig van Beethoven) that deals with the genius of creativity. By the way, these are the actual words of LV Beethoven and Ferdinand Ries, taken from their personal letters: Ries says to Beethoven: “You have allowed me personal closeness. That of a confidante and friend. I have learned so much from copying each note as it plays in my heart… from my eyes to my hand… I say to myself… how does he do this? Always surprising me… and delighting me in unexpected ways. Can what you have be learned by someone like me? Or am I doomed to mere mediocrity – not having been a prodigy. I’m fearful of a life wasted… fearful of deluding myself that I can do great things in music. But I am desperate to know where creativity comes from? From where is creativity conceived? Where does it begin, I mean… for you? Please, you must tell me if you place any value at all on my service and love for you!”
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How many times in history has that proclamation been heard? But is this true? Do the peace and serenity that have been replaced with instantaneous communication mean a better life? The human mind has reached out into the stars. Scientists study subatomic particles. The world gets smaller and smaller as communication gets faster and faster. Some say the new generations coming in is already hard-wired for this leap in technology, but the so-called genius child who can figure out the intricacies of a computer at four years of age may still need a picture of a hamburger on the menu. What good is all this technology if we are constantly absorbed in the outside world and looking for fulfilment there? Genius requires fantasy, dreaming and a modicum of solitude. Would there ever have been a space
Beethoven responds with a suppressed sense of aggravation: “You ask me where I get my ideas. That I cannot tell you with certainty; they come unsummoned, directly, indirectly – I could seize them with my hands out in the air… or in the woods… in silence of the nights… early in the morning; incited perhaps by moods, which are translated by the poet into words, by me into tones… that sound… and roar and storm about me until I have set them down in notes. I carry my ideas with me for a long time before I write them down… my memory is so reliable that I am certain even after years, never to forget a subject which has once been created. I alter a little and try again until I feel I am satisfied and have found it right. Then begins in my head the process of working it out… and as I am fully conscious of what I want… the original idea never leaves me, but rises and grows. I never write a work continuously through, without interruption. I am always working on several at the same time… taking up one… then another.”
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+ WATCH THE VIDEO Click here to see PF Sloan performing the classic ‘California Dream’
programme without the imagination from a genius like author H G Wells? Probably. Man has always dreamed of going to the moon and feasting upon an endless supply of cheese. Can genius have its day and then become passé? The nature of genius is unswerving faith and adherence to the truth and it cannot rest until the solution is obtainable. Without the adherence to the truth, even if E=mc2 becomes passé, progress would have been impossible without it having been so. So, the answer is, we need a genius with common sense to fix the new messes we have created for ourselves. Genius is a genre, not a description. It is the mountain peak. When the confusion of complexity clarifies into simplicity, we tend to characterize it in popular language as the “aha!” or “eureka!” moment. But, often as not, that singular, sudden burst of illumination can get buried somehow. So, like the task of the detective, the work of remembering and uncovering
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the brilliance of the shining diamond becomes necessary. Perseverance and patience, along with tremendous endurance, is in the very nature of genius.
We must stand on the shoulders of giants If everyone who has been labelled a genius by someone or by society were a genius, one could throw an iced macchiato and hit five geniuses in front of any Starbucks. But we know, in reality, it really would be less than 1% of all people who have ever lived, since it is society that bestows the mantle of genius upon someone who seems to satisfy their immediate needs. Say, for
example, if Hitler had won World War II, would we not be reading about the genius of Goebbels or Albert Speer? Is there such a thing as evil genius? So-called evil geniuses have one thing in common – whatever they do, it benefits themselves first, or their own specific interests, and does not take the benefit of all into consideration. An Aztec priest who cut out the hearts of terrified, young, captured warriors to the cheers of thousands may have been perceived as beneficial to society (because the act, in this example, could have been believed to help improve the chances of rain). We imagine two Aztec citizens walking away from this rite, feeling very good indeed about the genius of the priest on top of the pyramid. When the French Emperor Napoleon declared that all art came from God and therefore, by law, was the property of all and not of one person, artists stopped working, as there was no reward. Beethoven,
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Perseverance and patience is in the very nature of genius
however, continued writing, rarely being compensated for his work while proclaiming that “genius requires a sense of beauty!” Does genius require reward? No. But it does require self-satisfaction. Today’s concept of the word genius is generally confused with the word “talent” and is bandied about with little regard to its lofty place, like the words “hero” or “brilliant”. Even the car mechanic who figures out what is wrong with your engine is decried a genius! He may be very clever, but is he a genius? Just for a moment, let’s take on the role of peacemaker and play Genius Tradeoff. Is the car mechanic a genius? You say he is, we respectfully disagree and argue for the hair stylist who has the ability to turn a “sow’s ear into a silk purse”. Frank Lloyd Wright. One yea and one nay. Do we
all have to agree, for it to be so? Or can we simply realize that there is a looser definition of genius today that did not exist in the past, and accept that premodern genius had a higher bar than has post-modern genius. If so, we can now enjoy all the five-year-old mini Beethovens pounding on piano keys, while the mother, with great pride, tells everyone that their sons are geniusess. We can smile and look on with understanding, as long as we have some insight into the true nature of genius. We have designated nine pillars to the architecture of genius. First, is an unwavering faith in, or obsession with, truth. It may manifest as a conceptualization, which then leads to a search – this is the “great pursuit of truth.” We find the second in the inner realms of the mind and spirit – the dual sisters of imagination and curiosity – ultimately
released into the material world of the practical. The third is perseverance and persistence and the ability to endure, both physically and mentally. This is essential, as the hindrance of failure must not interfere with this unwavering pursuit. The fourth pillar is knowing that the fully-realized idea is self-evident and will ultimately enlighten and remove ignorance. The fifth is simplicity from complexity. The sixth is awareness of the past and discernment, the tool of deductive reasoning – Sir Arthur Conan Doyle’s Sherlock Holmes. The seventh is that an idea be for the betterment and uplifting of all humanity. The eighth is the allowance of fantasy, dreaming and the essential element of solitude. The ninth is the ability to keep an open mind, sincerity of purpose and beauty. In our opinion, one of the many gifts in the world is the gift of genius.
the authors
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life and music of Ludwig van Beethoven and his new album Beethoven has just been released by Foothill Records. His much awaited autobiography – What’s Exactly The Matter With Me? – co-written with Stephen Feinberg, is out June 2014. S E Feinberg earned his degree from Bryant and Stratton School of Business and when starting out, worked under the guidance of playwriting mentors Alan Kennedy and popular playwright Leonard Melfi.
Dialogue | Sep/Nov 2014
Photo: Joaquin Montalvan
P F Sloan is considered one of the most influential songwriters in American music and, in 2012, he was honoured with a nomination to the Songwriters Hall of Fame. His controversial composition Eve Of Destruction, written before his 20th birthday, became an international number one hit and an anthem for a generation. He has also written numerous hits for pop artists like The Turtles, The Grassroots, Jan and Dean, Herman’s Hermits, The Searchers and many more. For the past 12 years, Sloan has been researching the
The Ch i e f E x Is the e c u t place t i v e o be fo O f ficers’ r learni ng, net C working l ub with p eer s, and more!
Find Out More at: www.CEOClubs.org CEO Clubs International is the oldest and largest worldwide membership association of CEO’s. Headquartered in Manhattan, the 35 year old organization has chapters in Dallas, Boston, NYC, Baltimore, and Miami plus international chapters around the world. Members enjoy meetings at home and abroad at exquisite locations. We create a nurturing environment for CEO’s and business leaders dedicated to improving the quality and profitability of their life and enterprise through shared experience and personal growth.
The Club serves as an information resource for growing businesses. CEOs and entrepreneurs sharing ideas is a powerful remedy to combat challenges and economic turmoil. The CEO Club provides an outstanding opportunity to meet peers and exchange ideas while learning, having fun, making money and creating friendships. We invite you to attend future events, meet our members and let’s explore ways we can inspire each other and work together for greater personal and professional accomplishment.
leadership
Gudrun, Statoil’s newest platform on the Norwegian continental shelf, North Sea
Creating a team of special forces Norwegian energy giant Statoil developed the leadership capability of 10 senior managers in a bid to reinvent the company and position itself as a global leader in the oil and gas sector. Dana Bernstein and Ian Turner discuss how they did it. 64
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Ian Turner
Dana Bernstein
Executive director of Duke Corporate Education
Head of leadership development, corporate people and organization, Statoil
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eadership development programmes across the world are being “sliced and diced” and, in many cases, have become glorified networking groups. But Norwegian energy giant Statoil invested in developing the leadership capability of 10 of its senior managers in a bid to reinvent the company and position itself as a global leader in the oil and gas sector. Dana Bernstein, head of leadership development, corporate people and organization at the company, and Ian Turner, executive director of Duke Corporate Education, designed and delivered a bespoke leadership excellence programme – the first of its kind in the world. Here they reflect on how this impacted on Statoil as it expands, as well as how it has reshaped them personally as individual leaders.
IT: That is very interesting because it has to act like a commercial company, but the main shareholder is still the Norwegian Government. DB: To all intents and purposes, Statoil is an international oil company (IOC) and there are aspirations to hold on to its Norwegian roots, but continue to
Dialogue | Sep/Nov 2014
IT: You mentioned the Norwegian continental shelf and that’s the basis of the start of the business of Statoil... DB: That’s the heart of it, but we operate in more than 35 countries and over the past four years, we have had a big expansion. We are doing a lot of work in Brazil, Angola and Tanzania to name but a few. In 2001, Statoil was traded and the next big growth spurt was the merger with Norsk Hydro in 2007.
The key thing is about partnership and teaming IT: This is one of the most successful examples of a merger, given the close cultural fit. DB: Yes – and this pushed Statoil to become a bigger player and opened up a lot of new opportunities. IT: One of the things I found out when working with Statoil is about the reputation that Statoil has among its partners. This is a really important part of its raison d’étre. How would you characterize that reputation? DB: The key thing is about partnership and teaming. Statoil knows it can’t be successful alone and has to have a good working relationship with partners. Trust is critical to our success.
IT: Your role was to help develop Statoil’s capability in business development. But in Statoil, business development has a very special meaning… DB: Business development for us is looking at what we have in our portfolio and investigating how to maximize the value of it. We do that by looking at mergers, acquisitions, divestments, swaps and so on. It’s essentially examining assets, what we’re doing and how we can best play around with the pieces of the puzzle to increase value for the company. IT: So oil and gas companies can generate huge values not just by the discoveries they have made but also by acquiring, putting companies together and managing more effectively. That’s part of the skill of business development. DB: Of course. Partnerships with other companies open up new opportunities and geographies. Strategic thinking is the heart of global strategy and business development. IT: It is interesting then, that the global Strategy and Business development (GSB) department – which has the main responsibility for business development – is located in London. DB: Historically, all business areas were headquartered in Norway. But in 2011, we created two areas outside of the country, comprising GSB in London and Development Production North America (DPNA), in Houston. The head of GSB is John Knight and William Maloney heads DPNA. Neither is Norwegian and this is also significant. London is a centre where deals are happening, because
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MAIN Photo: Harald Pettersen
Ian Turner: Shall we start by talking about the journey Statoil has made over the past decade? Dana Bernstein: Statoil is a Norwegian energy company founded in 1972. It is state-owned and one of the largest players on the Norwegian continental shelf. In 2001, it became publicly traded on the Oslo and New York Stock Exchange. Currently, the state owns 67% and the public owns the rest.
expand and build on the platform of international business.
leadership
Dana Bernstein Dana Bernstein is head of leadership development at Statoil in Corporate PO. She has been with Statoil since 2011. Her first role was as head of the business development (BD) academy and that was a direct result of an organizational change in the company where Statoil created a new business unit called Global Strategy and Business Development (GSB). As part of that, there was a clear need to look at the skills and capabilities of the people in that unit and develop them in their roles, so Bernstein was hired externally for that position. Previously, she was a management consultant at Accenture. She has two degrees in psychology including a masters from London School of Economics in organizational and social psychology. At Accenture, Bernstein was the organizational and culture lead for the UK and Ireland, but also worked for a diverse range of clients working on organizational culture and learning strategies, not just for the energy sector. She worked with pharmaceutical and public sector industries.
of the financial sector. You have to be where the deals are, to be a key player. It was a significant move. We still have a lot of ex-pats because, according to employer branding consultancy Universum Global’s Norway Top 100 Ideal Employers (2014), we are number one, whereas, outside of Norway, Statoil is less well known. IT: But in Norway, Statoil makes up 25% of the GDP of Norway. DB: It’s huge. In terms of revenue, it’s 39th on Fortune’s Global 500 list. IT: So what you described is quite a shift in strategy and Statoil always had strong technical skills in getting oil and gas out of deep-sea conditions. But in the past few years, Statoil has focused on adding portfolio management to supplement those core skills. Is that a fair characterization? DB: I think so, but I wouldn’t want to undermine the technical piece because we are a technology-driven upstream company. The creation of GSB will maximize this. IT: And part of that is the creation of the business development (BD) academy where you come in, because you created it. DB: I did and this really appealed to me about this position. I was handed a PowerPoint slide that said: “This is what we think it will look like, but go and
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create something with your vision”. I had the opportunity to create something that was best practice and would hopefully be a standard by which we could do other things. IT: What struck me as an outsider was that this was an initiative that clearly had support from the top. John Knight was instrumental in this. DB: In order for a strategy like this to be successful, you need HR and business buy-in. It needs to be linked to capability building. I was part of the business and I didn’t report to the people and organization (PO) department [human resources], but I was invited to their weekly meetings; I know them very well – they’re friends. It was an open two-way conversation to make sure it was a success. IT: So there was a very strong impetus from the top; but what interested me when I started working with you to develop the programme were the connections with the work you’d done on competencies you wanted people to exemplify. DB: BD leadership competencies made up one of the first projects I worked on, in close collaboration with GSB’s people and leadership development (PLD) lead. We worked to help the business identify these competencies and they formed the crux of the programme we developed.
IT: The BD academy was a first for Statoil. Can you tell us a little bit about it? DB: The academy has three levels (fundamentals, advanced, excellence). Every programme that sits in fundamentals and advanced was built from scratch in-house and led by someone on my team and someone in the business who knew the subject matter best, from design through to delivery. So, the academy in its entirety was a success because it was supported across the business. When I started, I made them understand it was being done “with you, for us all”. There was some resistance, because this was extra work for people. But they had a great sense of ownership and pride; to know the subject matter and deliver it well – these are valuable skills. IT: Leaders as teachers... DB: This is a fundamental part of how we see both leadership and the role leaders play, but also Statoil as an organization. The excellence level was what we did with you. The programme was one of the best deliverables to come out of the BD academy because of the impact it had on some of our top leaders. The 10 participants were not picked arbitrarily. We recognized that, in order to achieve our ambitious goals of growing in an international context in a volatile world, we needed – to quote the former head of Business Development Execution (BDE) Halvor Engebretsen – to create a team of “special forces” that we could drop into any of these projects and be able to move forward successfully, lead teams and understand the external context. While we had a baseline of good people, we needed even more of it in order to achieve what we wanted to achieve. IT: It is worthwhile at this point saying that in terms of the scale, these guys could be managing projects generating a value of $billions, but the curious thing, in terms of management, was that the task was quite unusual because the teams were brought together at short notice for
Dialogue | Sep/Nov 2014
leadership
an intense period of activity and the projects had a number of stage gates to have approved. So the management task was unusual. DB: This was one of the differentiators for this programme. It was unique because it was intense and, prior to starting to work on the programme together, the participants often did not know the people they were working with and sometimes operated in virtual teams. But we also recognized that we had to accelerate. So we put such a focus and energy on what ended up being a wonderful initiative. IT: I remember Sigmund Helland, former VP Business Development Excellence, saying that: never had so much been devoted to so few people... It was quite an extensive experience. DB: The question is: do you push as many people as possible through something to spread out the cost or do you have fewer people and be more targeted? John Knight’s view was that the most important driver was that we had the right people on this programme. And when they were through this, the impact would have been so significant because of the value of the business deals they were working on. If you could up skill these people you could...
IT: The programme itself took a year? DB: It was 12 months – even longer if we look at the lead in and nomination process. IT: Yes. There was a very rigorous process that participants had to go through to get on the programme in the first place. DB: It was different from what has been done in other parts of the company, but it was important that a precedent was set up that this was not just “another leadership programme”. This was going to be different and our expectations were going to be different. You’ll often see leaders go to programmes, have
Dialogue | Sep/Nov 2014
IT: Some participants had quite a big management role with a lot of people reporting to them. They were the people who had the biggest value deals. Many of them have also gone to senior positions now. DB: We had a reorganization of GSB in May this year – more than half of the applicants who finished the programme last November have been promoted. Would I say they have been promoted as a direct result of this programme? I think it contributed and they would all support that. IT: Were there any aspects of the programme that you’re proud of and would like to reference and highlight. DB: I think the group members were very supportive of one another. They challenged each other. There were two main fundamental pieces that were red threads going through the programme. There was a business challenge that they were working on and that ended up being one of the best experiences. The other was personal development planning. We asked them to keep a learning journal, and provided exercises and activities that enabled reflections of being a leader in dynamic teams. They had lots of feedback from the coaches, from you Ian, from myself, from a special adviser in corporate PO. That was something that continued throughout the modules and it culminated with a day-long session with
the SVP PO and VP of executive and leadership development, when the programme participants shared their leadership learning journeys. That tied up all the loose ends and the business challenge was presented extremely well to john Knight and Tim Dodson, the executive VP in exploration. IT: The interesting thing for me was that the participants wanted to hear more of other people’s stories. DB: They got so much more from it than I expected and there’s the opportunity to do more as we develop the programme. IT: The way we connected it with the Statoil development process and the competencies was exceptional. DB: We also launched a fresh leadership profile and leadership strategy, and it was taking place as the latter part of the programme was happening. It linked together. IT: We were laying the track as the train was going down the track. We were designing the programme as we worked with the group and went through. We learned we had to put more focus on the communication side and we did a lot of work towards the end on this. DB: Yes. Both on being short and impactful, but also storytelling and engaging emotionally. Photo: Harald Pettersen
IT: ... generate value much in excess of the programme. DB: Exactly.
a nice time and it’s good networking, but it’s hard to see what the impact is. So our process was identification of potential candidates through the VPs of PO and through the line managers and executive VPs, in areas where business development happens. Then there was an application, which was qualitative content reflecting on participants’ experiences in business development and managing projects as well as their aspirations. We wanted to make sure people didn’t drop off. We confirmed all the dates ahead of time. Nobody missed anything. They wanted to be there because we set that precedent up front.
Gudrun platform
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IT: It’s a huge environmental issue because in the country, they rely on wood for fire and in the city they rely on charcoal. They have little access to gas or electricity. DB: We visited a school and afterwards we collected a little bit of money for it. It meant so much to the school and I feel so privileged to have been part of that. Leadership programmes are being sliced and diced. To be able to do this and experience the impact on myself and the participants has been wonderful. Participants of the programme visit Tanzania
IT: Can you also talk about Tanzania and the module there? DB: Tanzania is a really big strategic geography for Statoil, especially in terms of international growth. We have made some discoveries there recently and we will be working there quite significantly in the future. We saw it as a place for us to get more embedded in the challenges Statoil faced there, particularly [understanding] stakeholders and working through ambiguity. IT: So understanding unfamiliar territory. We thought the best way to expose the participants to this would be to take them there and take them out of their comfort zones. DB: There was no point in doing this in a training room. It was really about getting them out of the office and introducing them to external
A school visit in Tanzania
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stakeholders, including government officials, villagers, CSR initiatives, local businesses, competitors and ambassadors. We also went to a cement plant and what was really good about that experience was that the head of HR was a local woman, so our people understood more about doing business in the local community. Because of the nature of how things are done, we planned as much as we could, but things were changing at the last minute. They needed to experience this. It’s one of the things I’m most proud of because they all came back deeply affected in a positive way; their eyes opened to what we need to do. It left a lasting impression. We build on our company values wherever Statoil is positioned in the world. The “how” has to be relevant to local stakeholders. It has to be meaningful. So how we do things in Norway might not be the right way to achieve the same end goal in Tanzania. You can’t see that unless you’re in that location yourself. One of the things we planned for was a CSR expedition to a local village and a school. While we were there, one gentleman asked us: “When will you make the darkness go away,” because they don’t have electricity. IT: Only 15% of the population has access to electricity. DB: You can read that statistic, but when someone actually said that, the participants were speechless. It’s quite visceral.
IT: Do you have any advice for other companies faced with similar challenges? DB: It has to come from the top. The initiative can’t be just HR but a business strategy. Participants have to know it’s not a “nice to have” and have respect for it. Linked to that is the role of their line managers. Without applying things back at the job, it won’t have the same impact. IT: You’ve changed your role now, so what are your plans for the future? DB: In May this year, I moved to the corporate people and organization department as the head of leadership development. I think it’s an exciting opportunity. Even in the past year, the industry has experienced a challenging environment. Statoil has a strong focus on increasing value and decreasing capital expenditure. On the back of that, Statoil has initiated two transformation programmes. One is for technical efficiency and the other is the organizational efficiency project. Through these, we want to support the organization to be more competitive and leadership plays a key role in this. I have an opportunity to reflect on how to improve the programmes moving forward. One of the remits for me is to look at what we need from a portfolio perspective. For me, it’s about linking initiatives and finding new and better ways of doing it and integrating them all together. It’s a big challenge, but an exciting one and it’s a great time to do it. Let’s hear your views... email us at your.dialogue@lidpublishing.com
Dialogue | Sep/Nov 2014
www.worldchamberc.org
ADVERTISING FEATURE
“In a radically decentralized organization, defects simply do not stand a chance”
Time to reset your clockspeed? Businesses may have their own clockspeeds that vary according to the nature of their environments, says Thomas Jackson, but how fast is fast enough?
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ow fast does an organization need to be to stay ahead of its competitors? “Clockspeed” is a term for the speed at which a species must reset its biological clock – or reproduce and mutate – to survive. Businesses may have their own clockspeeds that vary according to the nature of their respective industries and environments. In the age of social marketing, the question is: How fast is fast enough? Toyota’s eclipse of General Motors’ (GM) global sales lead, followed by GM’s bankruptcy and its subsequent mixed recovery, suggests an answer: no business can be fast enough.
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Toyota is famous for collapsing production “lead time” and other measures of organizational agility, and famous for pressing its suppliers to do likewise. Of course, with its recent troubles, not even Toyota can be fast enough. What is the key to organizational fitness? According to Nobel Laureate economist Oliver Williamson, the answer is decentralization. The bestdocumented case of decentralization is, ironically, General Motors. GM once represented the gold standard of how to organize and run a large organization. In the early 1920s, GM’s leader, Alfred Sloan, transformed a holding company into
the most-admired company in the world. Chevrolet, Buick, Cadillac, etc, became corporate divisions of GM, each with its own president, empowered to make decisions with respect to their unique market segments. To mitigate the risks of decentralized power, Sloan and an army of financial specialists assigned GM’s presidents with financial targets and audited them annually for return on investment. Thus was born management accounting. How fast was Sloan’s GM? We don’t know precisely, but we know that in the 1920s, Henry Ford was slow to introduce large engines, colour and other options in its otherwise
Dialogue | Sep/Nov 2014
ADVERTISING FEATURE
dependable cars. By 1926-27, GM’s rising sales of more powerful, colourful cars outpaced sales of the fabled black Model T and threw Ford into a tailspin. Ford did not straighten up and fly right until it decentralized its own structure in 1948. We have described how GM overtook Ford. How did Toyota overtake GM? In 1963, Toyota won the Deming Prize for quality by taking decentralization to a new level: it empowered frontline assembly workers to stop the line whenever defects occurred. The same stop-the-line principle was later applied to processes in other areas including engineering and marketing. Scholars have labelled Toyota’s innovation “radical decentralization”. How fast is “radical”? After adopting Toyota’s system in the 1990s, Porsche was able to reduce its normal product development lead time from seven years to three. More recently, Toyota slashed its product development lead time for the Prius, bringing it to market in less than 18 months. We can agree, the new organization is fast; but why? Simply put, lean organizations find and fix defects of all kinds faster than GM and organizations that still follow Sloan’s model. In a radically decentralized organization, full of empowered marketers, engineers, operators and suppliers, defects do not stand a chance. Corrective action can bypass bureaucratic processes that all too frequently focus on fixing blame instead of problems. Toyota’s control systems are so effective, even accountants
are considered something of a waste. There may be a more scientific explanation. Economists believe that human organizations are similar to large computers. Like computers, organizations are designed to process information and solve problems. Decentralization may have so-called “speedup” effects similar to the effects of “multicore” processing in computers. Computing speeds increase quickly as the number of cores processing the information increases. Organizational learning may likewise speed up as leaders decentralize, engaging and empowering more employees in finding and fixing defects. Is this at all measurable? Computer scientists frequently apply a rule known as Amdahl’s Law to measure the speedup available through writing programmes that involve more and more information processing cores. Applying the same law, we may hypothesize that the speed of an organization is inversely proportional (more or less) to its degree of centralization. For the sake of illustration, assume that in 1926, the year of its near-bankruptcy experience, the Ford Motor Company was completely centralized under Henry Ford. In other words, P = 0. Unsurprisingly, Amdahl’s law predicts that S = 1, which implies that Ford was seeing none of the benefit that might have ensued from letting go the reins of power. If, however, it could be established that Sloan had decentralized GM by, say, 50%, or P = 0.5, Amdahl’s law would forecast S = 2, which means that GM would
What is Amdahl’s Law? Mathematically,
S = 1/(1-P) Where:
have been about twice as fast as Ford in finding and fixing defects or in finding and serving new markets. Subsequently, if it could be established that Toyota has decentralized by 75%, Amdahl’s law would forecast S = 4, which means that Toyota would be twice again as fast as GM. As Ford, GM and Toyota have all learned painfully, there is no place to hide from the struggle for survival, even if you’re currently Number One. Although the latest evolutionary mutation happened in Japanese manufacturing, all industries throughout the world will be affected eventually. It’s do or die. Healthcare is the most recent industry to embrace the Toyota system. Initial results are quite promising, with rates of improvement in quality and cost (and patient safety) as impressive as those seen in manufacturing. But as manufacturing leaders found a decade ago, healthcare leaders are finding that sustaining initial gains from improvement requires new ways of organizing the problem solving – and new ways of leading an empowered workforce. Computer science predicts that the sky’s the limit. If you are willing to pursue parallel processing with multiple cores, computing can be sped up by orders of magnitude, hundreds even thousands of times faster than today. Think about that the next time your leaders argue in favour of reinstating command and control… Perhaps its time to reset your clockspeed. • Thomas Jackson is a principal at Rona Consulting Group, which develops healthcare leaders who make things better for patients: safer care, higher quality, fewer waits and lower costs through the application of the Toyota Management System. For more information, visit http://ronaconsulting.com
S = the rate of speedup; P = the degree of parallelization or decentralization; (1 – P) = the degree of centralization or central processing.
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emerging economies
Why smes are vital to emerging economies – a special view of Hungary
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Emerging economies
Small businesses and entrepreneurs in Eastern Europe are dynamic, flexible and can create good jobs quickly, says Magdolna Csath, so the government should treat them as strategic partners Illustration: ADRIÀ FRUITÓS
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mall businesses and entrepreneurs are the most important resources of innovation and, at the same time, the origins of growth and job creation, according to the Organization for Economic Co-operation and Development (OECD). The Hungarian economy, for example, is dominated by big players – mostly multinationals that have established “screwdriver” (in other words, assembly line) operations to take advantage of the generous subsidies offered by the government, including tax holidays, direct support for investment and employee training, and also cheap land and inexpensive labour. These companies mostly do not sell in Hungary, so they are not interested in offering good salaries so that their workers could buy their products, unlike Henry Ford back in the 19th and 20th century. They assemble the products locally and sell them in the global market. Therefore, they locate their plants close to highways. Because of this, the distribution of these multinationals are concentrated in a few areas. Harmonious economic development of the country cannot be expected from the operations of these businesses. In terms of labour, they look for well-trained and disciplined people, so they prefer locations close to colleges and universities. On the other hand, micro and small businesses are widely spread throughout the region. They provide a living for the family and some additional employees. These businesses are capable of utilizing less
Dialogue | Sep/Nov 2014
educated people, so they not only create jobs, but can also employ people the multinationals would never be inclined to employ. Therefore, small businesses solve social problems as well. Small businesses are creative, flexible and mobile. They can quickly move and capitalise on, or create, new market opportunities. They can also improve the quality of life of the people living in their vicinity with their services.
Innovation is not the big thing. It is the only thing And, more importantly, they pay taxes and invest profits locally. For these reasons, their role in the economy of a less developed country should be appreciated and their initiatives supported, as was emphasized by the OECD and the EU too. An OECD publication (2010) stated: “Small businesses and entrepreneurs are the most important resources of innovation and, at the same time, the origins of growth and job creations.” At a European Commission press conference held on 2 May, 2013, the following was announced: “The engine for economic growth in Europe will be the SME sector. However, for that purpose, their access to financing shall be improved.”
What is happening in Hungary? But, of course, it is also crucial that these small businesses could create high, new value very efficiently. This is how they can contribute to the development of the local economy and to decreasing regional inequalities. For example, In Hungary, 99.9% of all businesses are SMEs and they employ 71.2% of employees in the country. Of the 99.9%, micro and small companies constitute 9.1% and employ 54.4% of employees. However, small businesses create only 34.5% of the value added to the economy. A research team at Saint Stephen University in Hungary endeavoured to discover the reasons for this.
Research findings The research was primarily undertaken among SMEs businesses in Eastern Europe. For comparison, a Slovak and Polish sample was collected in addition to 814 questionnaires from Hungary. In the Slovak Republic, 12 qualitative interviews and five case studies were collated. From Poland, 20 qualitative questionnaires were analyzed. Of the questionnaires, 78.13% were filled out by micro and small businesses, 12.78% by mediumsized enterprises and 4.55% by large businesses. The rest did not identify their size. External and internal problems have been identified in the research. Among the external ones, the key problem is the unfriendly business ecosystem
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recommendations to the EU The research paper made some recommendations to EU decision-makers: ●● There should be a person in government who is responsible for the SME sector – a common practice in more EU member states – who co-ordinates the tasks of strengthening the SMEs ●● SMEs should be given a second chance in case they get into trouble ●● Unpaid invoices should not be considered as income/revenue by the tax authority ●● VAT payments should not be required before income for the work – which is the basis of the invoice – is paid ●● SMEs should be supported in their efforts to co-operate, create strategic alliances and open innovation networks ●● Innovation and high value-added activities should be encouraged by tax holidays, government-sponsored training and access to loans ●● Participation of SMEs in public procurement and access to EU-supported projects should be supported by minimal bureaucracy, maximum transparency and lack of corruption ●● SMEs should be celebrated as heros of our era because of their potential to contribute not only to the economy but also to human development in society
characterized by extensive bureaucracy, weak innovation support, frequent regulatory changes, high level of corruption and particularist values. Business ethics are also at a low level: small businesses perform the work, but are not paid. Therefore, the so-called circular debt is increasingly widespread. This means that, if work completed is not paid for, the small business cannot pay its obligations, either. Because of this situation, trust is low among business partners, so it is difficult to establish co-operation and clusters.So,forexample,open innovation is an almost entirely unknown practice among SMEs.
External problems identified by the research Strong centralization, rigid governance structures and top-down procedures create tremendous bureaucracy that is especially difficult and expensive for the SME sector. A 2014 OECD survey found that, out of 34 countries
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examined in terms of administrative burdens, Hungary is 29th on the list. Regulations change often and unexpectedly. The tax authority handles the SME sector as “a group of potential deceivers” and keeps it under strict and frequent control. At the same time – as was announced at a recent international tax conference in Budapest – the tax authority is very friendly, patient and hospitable large foreign businesses. But in the case of local SMEs, it does not care whether the invoice for the performed work had been paid or not, it requires the company to pay all its tax obligations, including VAT. Very often, this is the reason why small companies go bankrupt without being given a “second chance”. Corruption is widespread and this is one reason why small businesses have few chances to get access to public procurement and EU funding (because they cannot pay a high enough bribe).
The business ecosystem is unfavourable for the small local businesses
If you combine all the environmental barriers to becoming a successful SME in Hungary, it can be concluded that the business ecosystem is unfavourable for small local businesses. On the other hand, it is welcoming to foreign multinationals. But one cannot apply double standards within a given system without hurting the system itself. This is proven by a recent study of the Economist Intelligence Unit, which ranks Hungary the 37th ‘globally concerning’ business environment, while Poland is 29th and Slovakia is 31st. This ranking shows a better, more business-friendly environment in the case of Poland and Slovakia. The Slovak and Polish sample demonstrated the same: the answers were more positive about the local business ecosystems than in the case of the Hungarian sample. The unfriendly business ecosystem creates an additional problem in Hungary, which is lack of trust due to the low level of confidence in the institutions and also in business partners. Low level trust discourages co-operation between small businesses, which would be important for increasing their competitiveness in the world markets.
Internal problems The research also identified internal problems. Very often, small businesses are established to support the family or qualified people – often engineers – who set up small businesses in case they lose their jobs, or want to
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Emerging economies
fulfil an idea or a dream. They have little management, marketing or international business knowledge or experience. Often, they do not speak foreign languages either. So, even if these businesses have excellent products or service ideas, they encounter problems finding international markets for them. They cannot put together a reasonably wellargued business plan, so the financial sector does not trust them – consequently, they have problems gaining financing. Modernizing small businesses would require investment in technology, market entry and knowledge in general. Without up-to-date management, marketing and financial knowledge, they cannot capitalise even on great innovation ideas. Due to a lack of financial resources, they cannot buy this knowledge from external consultants either. But their role in modernizing the local economy should be strengthened. Therein lies a problem: how to empower SMEs for the sake of the development of the local economy, which is dominated by strongly supported foreign multinationals that are basically only interested in minimising costs locally to maximise profits, but do not feel responsible for the development of the local economy or the social conditions.
How can SMEs become a driving force for prosperity? The key word for success in our age is innovation. As German author and business leader Hermann Simon put it in his 2009 book Hidden Champions of the Twenty-First Century: “Innovation is not the big thing. It is the only thing.” Small businesses are not capable of innovating alone: they need to establish partnerships and engage in open innovation practices. This is hindered by the low trust level, unfriendly business environment. Seventy-five per cent of the SMEs in the sample indicated that extended bureaucracy killed their innovative spirit, 52.83% complained about the high level of corruption as an obstacle
Dialogue | Sep/Nov 2014
to innovation and 55% mentioned low-level trust as a factor hindering innovation. Finally, particularist culture is having a negative influence on innovation. Particularist culture is best characterized by a Eastern European proverb: “What is allowed to Jupiter it is not allowed to the small ox.”
The explanation In other words, particularist culture means that rules and regulations do not apply equally to the different players of the economic system. There are “privileged” players and players kept under strict control. This is related to the positive discrimination of foreign multinationals mentioned earlier and also to “business circles” close to the “political elite”. The rest is controlled, supervised and disciplined by the institutional hierarchy, most severely by the tax authority. All these facts may explain the very poor innovation results of local SMEs. The EU Small Business Act Fact Sheet (2013) warns that the percentage of those SMEs that introduced process-related innovation in Hungary is 50% of the EU average, and only every 14th SME has successful
export activity. For successful export, of course, innovation would be absolutely necessary. The external and internal difficulties combine to hinder the development of the SME sector, and especially the micro and small business segment of it. Increasing competitiveness would require co-operation, more innovation, continuous learning and a business-friendly environment with reduced administrative burdens, transparent government decisions, performanceoriented, universalist culture and trust-based institutional practices. The opportunities are out there. Both the government and the businesses have several things to do (see box, page 74). Small businesses are dynamic, flexible and can create good jobs quickly. They can also solve social problems, which would damage the texture of any society. So the government should treat them as strategic partners, keeping in mind that the OECD has said it is these organizations that could lead to significant economic growth. Even the government is aware of these facts and feels something should be done. In a 2012 Hungarian Government document, the following statements can be found: “Termination of imbalances distorting competition and the oligopolistic and monopolistic market positions – no matter whether they are state or market-related oligopolistic or monopolistic positions – is an important objective. Also, combatting corruption and re-establishing economic and legal predictability are important.” l Professor Dr Magdolna Csath, Saint Stephen’s University (Gödöllő) and National University of Public Services (Budapest), Hungary
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+ WATCH THE VIDEO WATCH MICHAEL TOBIN’S TEDEX TALK focusing on changes, challenges, growth and leadership
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Dialogue | Sep/Nov 2014
interview
CEO in the Spotlight: Michael Tobin Michael Tobin, CEO of Telecity Group, talks to Liz Mellon about how extreme and unusual management techniques help teams to overcome fear of business failure
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ver since I read Forget Strategy, Get Results by Michael Tobin, I was eager to meet the man himself. Many leaders “talk the talk”, but a fraction of them “walk the talk”. Rarely had I encountered one that, at least on paper, also did it with panache and a twist of lemon. Shaken and stirred. So, an interview over lunch was arranged. I was intrigued. As CEO of global provider of data centres Telecity Group, Tobin leads the management of the company and the formulation and implementation of its strategy. But his book recommends management techniques that are extreme and unusual. For example he details how he and his team were kidnapped and interrogated by “Kalashnikov-wielding members of the KGB” to teach them how to handle journalists’ questions. He runs marathons, competes in triathlons and takes his staff on extreme physical challenges to overcome fear of business failure. After all, once you have swum with sharks (another one of his team-building activities), it puts even the biggest business decision into perspective. But would he just be the product of a ghost writer’s imagination, a brash London-EastEnd-boy-made-good on a mission to conquer the world’s toughest terrains, or a man of true courage and compassion? We sat, divided by the table, age, gender and choice of career. Me, an academic, with some experience of running a small business, and he, a
Dialogue | Sep/Nov 2014
successful entrepreneur and philanthropist who continues to build and grow a global business. Yet, we turn out to believe in the same fundamentals of what it takes to be a leader. We shared our experiences of the slums in India and our African encounters. We compared our shared views of China’s re-emergence as a global power, the true definition of courage and what it was like to grow up poor. My doctorate was on leaders’ values: Tobin wears his
I get lonely and inside I have my demons, but I control my fear and do it anyway values on his sleeve, bright, shiny and offering guidance on a dark night. During the interview, we dug deeply into a small number of core leadership capabilities we believe enable change at the warp speed demanded by business today. Core capabilities that are easy to list, but which are extraordinarily challenging to deliver. Let’s start with courage. Tobin is clear that fear is a core driver for people. Too many organizations talk about the importance of collaboration and innovation, while employees are too scared to move outside the office manuals or to take a decision. And while fear is a driver, it leaves a lot of untapped potential in its wake, because fear drives people to conform and to do what they
are told, rather than to take risks and go beyond what is being asked of them. But having courage and taking risks doesn’t mean the fear goes away. As Tobin explains: “Courage is not the absence of fear, but rather the capacity to take action despite being scared.” It’s like learning to scuba dive if you are afraid of drowning; the fear is still with you, but it doesn’t stop you. Fear leads to lack of initiative and acting under instruction, and ultimately to political behaviour, where being right and on the right side matter more than results. Having courage eradicates politics because people take actions and manage their fear, controlling it rather than letting fear stifle or stop them. He says: “I get lonely and inside, I have my demons, but I control my fear and do it anyway.” Failure is the liberation of fear. Tobin points out that, if individuals only ever experience success, they will become more limited and one dimensional, to the point that failure can derail them. (The opposite is also true – those who experience only failure learn how to be helpless and suspicious of success). There is such a thing as a learning and a non-learning mindset. Those who can see risk and failure as part of the process of growing and developing are unafraid to experiment. And if success is measured by an internal barometer, as Tobin says in his book, you can become instantly more successful just by changing your mood. Tobin attributes the difference in rates of entrepreneurship between the US and the UK as the latter’s fear of failure – he sees the UK as a risk-averse nation.
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Michael Tobin: the man and the author Michael Tobin is second generation Irish and the youngest of five children. His father was abusive so his mother fled with her two youngest children to Zimbabwe (then known as Rhodesia). The Unilateral Declaration of Independence was declared shortly after their arrival. This led to two bouts of bullying; in Rhodesia for being British when Britain was thought to have restricted imports, and once back in Britain for having lived in an apartheid regime. Tobin eschewed University in favour of hustling reconditioned pianos from derelict houses on London’s Old Kent Road to be sold for £10 in the markets. He attributes a lot of his good fortune to luck (backed up by determination, commitment, risk-taking and hard work). Now, CEO of Telecity Group, Tobin leads the management of the group, and the formulation and implementation of its strategy. He has more than 25 years’ experience in senior roles across the telecommunications and
There’s been discussion among female leaders about “having it all”, the notion that something has to be sacrificed (family time, children, socialising) for a woman to have a successful career. I think this takes the debate to the wrong place because no one can “have it all”; the key is about options. If you have no options, you have no choice and so you are compelled or corralled towards one outcome. If you can create options, then you have choice – but you then have to own the choice you make. Those who regret their choices are the ones who then talk about the sacrifices they have had to make and bemoan the impossibility of having it all. Tobin agrees. At school, he was a competent student, but preferred the idea of making money to going to university, so he chose to start work instead of pursuing book learning. He owned his choice, whether what followed had been failure, rather than the great success he has now achieved. Much of his charity work is driven by his desire to give equality of opportunity and education to those who would otherwise have no choices. Tobin has a sense of derring-do, personal physical challenge, fun, keeping friends and family close to help run the business, a challenging upbringing, little education and being self-made. Like Virgin CEO Richard Branson, he has overcome childhood
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technology sector. Prior to joining Telecity Group, he led Fujitsu’s e-Commerce operations in Germany. Before that, he ran ICL’s Danish outsourcing subsidiary in Copenhagen. He held senior positions based in Paris for 11 years at International Computer Group and Tricord Systems Europe, and was formerly MD of Goupil UK. Tobin is a non-executive director of Pacnet, an Asia Pacific provider of network and technology solutions. Tobin is chairman of the Friends of The Loomba Trust and on the boards of Byte Night, which raises money for Action for Children; The Technology Leadership Group and The Prince’s Trust, and the fundraising boards of Great Ormond Street Hospital and the Make a Wish Foundation UK. He was awarded Ernst & Young Entrepreneur of the Year for IT Services. His book Forget Strategy, Get Results was launched in February 2014.
challenges, although in Tobin’s case they included being bullied at school, being chased across the world and attacked by a violent father (see box above). But like Branson, he believes in surrounding himself with people who he can trust, including life-long friends (three of his best men from his wedding work in his business). Tobin’s view is that skillsets can be learned faster than trust can be built and so he regularly gives challenging assignments to people he trusts who are, on the face of it, not qualified for the job in hand. So he gave the job of running an Initial Placement Offer to a network engineer, on the grounds that “it’s just another type of project” and had his head of investor relations build new data centres. Doesn’t having people he regards as friends running big chunks of the business make performance management hard? “No,” says Tobin, because he doesn’t have favourites; he has a steady eye on what’s best for the business. He thinks that performance management is easier if you surround yourself with “brilliant people”. Tobin is right, but the difference with him is that he doesn’t just say it, he does it. It’s getting towards the end of an inspirational lunch, so I pinch myself and ask a tough question – with all this success, how do you keep yourself in touch with the, often harsh, realities of
life? How do you stay close to the needs and aspirations of your employees, who don’t have drivers and fly business class? How do you keep in touch with what’s important rather than get swept away by your own importance? He responds by explaining about some of his charity work, visiting sick children in Great Ormond Street Hospital in London, poor schools in India, sleeping rough alongside other CEOs in London’s Paternoster Square once a year. The difference is that at the end of the day, he goes home – the sick and the poor can’t. It’s not 24 hours in their lives; it is their lives. How can he ever become smug or arrogant when there is such unhappiness and need in the world? And all his indicators pointed towards the same outcome for him when he was young, with poverty, criminality and violence in his family. But, in describing his philanthropy, he is tough on his own motivations, explaining that his charity work is an opportunity for him to assuage his guilt for having escaped his destiny; for having made it when others couldn’t. I was intrigued to meet Michael Tobin. From the moment I put out my hand to shake his, I knew that I was meeting an unusual leader. l Liz Mellon is co-author of Executing Strategy: A 5 Step Guide for Turning Vision into Action
Dialogue | Sep/Nov 2014
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branding
The hallmark of a good brand Governments should start to be much more proactive about defining how corporations are allowed to brand themselves and thus help shape the way they behave, says Chandran Nair Illustration: IKON/elly walton
+ WATCH THE VIDEO TAKE A LOOK AT Chandran NAIR’S TEDEX TALK in Tokyo, where he “asks the hard questions”...
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T
he profusion of media stories about corporate malfeasance has put the lie to the claim that there is no such thing as bad publicity. Public trust in corporations is at an all-time low – fewer than one in five respondents to the 2013 Edelman Trust Barometer believed that a business leader would tell the truth when confronted with a difficult issue. The conclusion to Interaction Associates’ 2012 Building Trust report was that “trust in business [had fallen] off a cliff”, which is little wonder after repeated revelations in the vein of Starbucks paying zero pounds in tax in the UK, Microsoft handing encrypted messages to the US National Security Agency or GlaxoSmithKline bribing Chinese officials for decades. At a time when corporations span the globe and make up a bigger part of our lives than ever before, this is a damning indictment of the status quo. But rather than taking the message and reflecting on their behaviour with humility, companies have responded by investing larger sums than ever before in creating and maintaining brand identities, seemingly oblivious to the reality of public outrage. As it stands now, selecting the “right” font can cost you millions, the right logo even more. The management consultancy Accenture paid a staggering $100 million to Landor Associates for its logo in 2000, despite the fact that the name had already been decided through an internal employee competition. Pepsi’s 2009 redesign of its logo was justified with reference to, among other things, the Mona Lisa, the Parthenon, the Earth’s Geodynamo and the fact that the logo’s “energy fields are in balance”. Meaningless or unintentionally humorous mission statements are so common they have become passé – Enron’s motto was “respect, integrity, communication and excellence”. This is the very definition of missing the point. Corporations have been misled by marketing gurus and branding consultants into believing
Dialogue | Sep/Nov 2014
that such efforts will result in a brand that attracts new customers, keeps existing customers loyal and creates a consistent identity for the company. This is complemented with massive advertising campaigns – McDonald’s spent $1.3 billion on advertising in 2012. But this approach is misguided for several reasons. When the explicit purpose of an activity is to entrap gullible consumers, it raises serious ethical questions. Nor is the public so stupid as to be fooled by large advertising budgets designed to conceal the facts about underlying bad behaviour or the truth about a company’s goods and services. Bank of America’s attempt to position itself as “The Bank of Opportunity”, for example, did not prevent consumerist users from repeatedly voting it the worst company in the US for its predatory practices and role in the 2008 financial crisis. If ever a time existed when brand integrity could replace real integrity, it certainly isn’t now.
Brands that cannot be challenged are worse than dictators, they are dogmas Corporate bureaucracies But it is actually the internal effects an obsession with brand can have on a company that are most damaging. According to the annual CMO Survey by Duke University, the size of businesses’ marketing budgets in 2014 grew to 11% of the total firm budget, up from 8% just three years earlier, and the number of marketing employees grew to 6.3% of total employees from 4.2% over the same period. Similarly, the percentage of students graduating
from Harvard Business School with a degree in marketing was 15% in 2013, more than double the number in 2008. Many companies have become filled with overpaid and overstaffed PR, communications and marketing departments, which, once they reach a certain size, can all too easily become vested interests more concerned with protecting their own empires than acting in the best interest of the company. Anyone who has worked in the corporate world will know from personal experience the Kafkaesque experience that is dealing with a company’s “brand guardians”, whose only job seems to be preventing others from doing anything new, creative or productive. These corporate bureaucracies keep growing and are a source of the worst kind of conformity. It is not difficult to find irony in the fact that while we preach about spreading open and democratic societies, corporations remain highly undemocratic and full of (somewhat) benign “dictators” at many levels. But brands that cannot be challenged – even by earnest employees keen to protect the company from inappropriate brand messaging – are worse than dictators, they are dogmas. They are completely inflexible and can never be questioned, even by senior management. It is no accident that these same managers are often caught by surprise by fresh branding strategies and are left feeling impotent in their own companies. This is a sign that the branding department has become a law unto itself.
Fighting the war for talent At a time when companies are constantly claiming that they are “fighting a war for talent” as they scramble to hire and cultivate the best employees, they are also actively promoting a system that constrains talent and prevents genuine innovation. When employees are told to “believe in the brand or else”, they are either pushed away or, even worse, fall for their own PR. The result is an echochamber of low-level ideas rather than the diversity and creativity that
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branding
Figure 1
Figure 3
Height and width of the Pantheaon is proportional to yield a Golden Rectangle.
Figure 2
End of aisle
Gravitational Pull of Pepsi
Leonardo Da Vinci studied the proportion of the human face and applied his findings in the Mona Lisa painting.
Figure 1. Accenture’s $100,000,000 logo. Figure 2 & 3. Images from Arnell Group’s design document for the Pepsi logo
companies claim to want. The discovery of a slightly sweeter fragrance of shampoo or pinkcoloured cookies that appeal to a niche demographic is what passes for innovation in the consumer goods world. But what is the point of hiring the “best people” and paying them well if they are then forced to work in an environment totally lacking intellectual freedom or the ability to question dogma? Since the financial crisis in 2008, many commentators have complained about the enormous waste of talent that Wall Street has become because of its practice of employing smart people to engage in socially destructive behaviour. But in many other companies, smart people have been employed effectively to keep the company railroaded and heading in the same tired direction, which hardly seems an improvement or the basis for real strategy.
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The confluence of an overemphasis on marketing, branding and PR can also create an attitude of “play now, pay later”, where employers start to believe that they can behave badly today and make it up, or cover it up, with some combination of PR and CSR tomorrow. In 2007, the same year it was busy selling toxic mortgage-backed securities to investors all over the world, JP Morgan launched JP Morgan Social Finance, whose stated goal is “generating positive impact alongside financial return”. And Apple’s belief in itself as a “cool” company certainly seems to have helped it countenance tax avoidance on a massive scale, now under investigation by both the US Senate and the EU. During his testimony before the US Senate on the issue, Apple CEO Tim Cook not only denied any wrongdoing, but offered his own suggestions on how the American tax system might be improved. In
the short-run, such tactics may even work. Cook’s testimony was greeted not with outrage, but by multiple senators proclaiming how much they loved Apple products. But in the long-run, such an attitude creates a toxic workplace environment and is no basis on which to build a successful organization. Take BP, which spent $211 million designing and rolling out its “Helios mark” logo and followed it up by rebranding itself “Beyond Petroleum”. According to Lord John Browne, the then CEO, the fresh brand would “greatly strengthen the sense of identity and common purpose“ of BP’s 100,000 employees. It was undoubtedly a clever campaign and maybe even well-intentioned although Greenpeace described it as ‘greenwash’. But the underlying behaviour of BP’s management remained substandard, and whatever goodwill it
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might have earned with clever slogans was more than wiped out by the Gulf of Mexico oil spill. If the public is allowed to maintain the sense that although brands may change, the underlying corporate culture remains rotten, it will inexorably destroy their trust in business.
Behaviour before brand What should companies do instead? They should learn to start placing their behaviour before brand. Good behaviour creates a good brand without having to spend millions of dollars or create obstructive, insecure and lessthan-important PR and communications departments. It also attracts talent far better than an empty promise to “create value” ever could. More importantly, good behaviour is what makes a good company, of which a good brand is only a signifier. In the long run, the best brand in the world cannot cover up a bad product or service, and no lack of PR can kill a good and continually-improving one. It isn’t controversial that we should care more about how a thing is than how it seems, but it’s something about which we need to be reminded every once in a while. This is all well and good, but getting there will admittedly be difficult. The first step must be to recognize the tyranny of branding “gurus” and limit, rather than expand, the power of PR and communications departments. PR and communications do have an important function, but the trouble is a result of giving them far more power and influence than they should have. One suspects that this is due, in no small part, to the fact that nobody can understand what they are saying half the time, which usually results in one of two reactions – silent compliance or a naïve belief that it must be true. Unfortunately, the latter reaction has become all too common among senior executives and even board members, particularly when it comes to the all compelling power and effectiveness of “new paradigms” such as social media. It might not exactly be scientific, but a lot can be learned about a company by the relative distances of
Dialogue | Sep/Nov 2014
Companies should learn to start placing their behaviour before brand. Good behaviour creates a good brand
people from the CEO or management team. And recently, the communications and PR heads have been sitting far too close for comfort, and edging out those with more productive functions or challenging insights. Ironically, one solution might be to actually make the fashionable-but-impotent CSR departments, which at present are little better than their marketing or PR counterparts, more powerful. A large part of the reason that CSR initiatives are currently little more than spin-doctoring is because CSR executives are almost always devoid of any real power to change company behaviour. But CSR stands for corporate social responsibility and the way a company behaves is 99% of its social responsibility. Give people in these positions the ability to effect change and bring their insights to bear at the main table, and they might choose to do so. Similarly, marketing departments, especially the people within them with clientfacing roles, should be empowered and allowed to shape a company’s brand, rather than simply being given a brief to execute by the branding department. Those who interact with customers daily are in a far better position to decide the direction a company should take than a room of “experts” testing focus groups.
Levelling the playing field Governments should also start to be far more proactive about how
corporations are allowed to brand themselves and thus help shape the way they behave. For example, a tax on advertising that is used to pay for mandatory consumer information reports on corporate products or public interest advertising, will have a direct effect on branding strategies. No amount of regulation will ever solve the problem on its own, but governments should make it as difficult as possible for corporations to make a living by misleading or cheating their customers. Taxing advertising would also go some ways towards levelling the playing field and allowing small, service-oriented companies to survive being overwhelmed by larger rivals with massive marketing budgets. Finally, business schools and executive education providers claim to be able to impart the skills necessary to be a successful executive and equip their students to navigate the ethical dimensions of a complex and competitive world. So let us take them at their word and ask that they teach their students to guard against the dangers of putting branding before all else or compromising their intellectual honesty. One suggestion – if a company truly stands for something, every employee working there should be able to tell you what it is. If it takes a highly paid MBA 20 minutes to explain just what a company’s values are, chances are they are more for show and less for actually adhering to. None of this will be easy, and the first wave of changes will have to be made in the face of a great deal of institutional inertia and vested interests trying to protect themselves. But companies are always going on about leadership, and leadership is nothing if not taking the lead. By putting the proper checks and balances in place to guard against brand overreach, companies will be in a position to make difficult decisions about substantive issues regarding their business – the hallmark of a good brand. l Chandran Nair is the founder and CEO of the Global Institute for Tomorrow (GIFT)
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sustainability
Moving towards the great transformation Ahead of the 6th Annual Drucker Forum in November, Richard Straub, president of the Drucker Society, talks to David Woods about the need for leaders across the world to shift their mindsets to spearhead world-changing innovation Illustration: BEN TALLON
You have talked openly in the past about “huge structural issues” looming post 2008. Can you explain a bit more? Yes. There is a cycle of growth, stagnation and recession. Evidence of the need for change is strong and a number of factors have converged to make the picture especially daunting. Taken together, they indicate global economies could be heading towards decline rather than prosperity. I wrote an article for the European Foundation for Management Development (EFMD) Global Focus magazine earlier this year, where I said that even though some indicators have improved since the financial meltdown of 2008, the structural problems that are bogging down economies are by no means resolved. I believe the debt crisis in developed economies severely limits the ability of governments to provide further stimulus. Since the 1980s, companies have set aside concerns for a broader set of stakeholders – customers, employees and communities – in favour of what they believe to be the interests of shareholders. This trend accelerated after the financial crisis and led to a significant reduction in value-creating investments with a long-term horizon. The state is big, inefficient and broke, according to Economist editorin-chief John Micklethwait. Since 2011, things have got worse. With a
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suffocating bureaucracy, the state too often deprives advanced economies of the oxygen they need for innovation and growth. If you’re in a crisis, it’s hard to reform without avoiding more damage, so you find yourself firefighting. With unemployment and, in particular, youth unemployment reaching historic dimensions, the idea of progress and continuous improvement of our living conditions is giving way to increasing angst about the future. What are your thoughts on this? The economist Thomas Piketty argues in Capital in the 21st Century that capital has essentially won in a fight over labour. With returns on capital growing faster than the economy overall, the share of capital is increasing at the expense of labour, resulting in widening income disparities. Piketty’s analysis points to a long-term trend: unemployment and underemployment are at stubbornly high levels. Youth unemployment remains a huge concern. One billion people around the globe will be over the age of 65 by 2035. At the same time, falling birth rates in developed economies have meant a decline in the number of people who can support this older population. The implications for funding retirement and social protection systems are
striking. As a result of this, the financial burden for those in the workforce is becoming unbearable. What is the future of work? How can companies contribute to create job opportunities for the generations to come? Can we finally set free the human potential embedded in organizations? A great transformation will not happen overnight, but the world is already in a state of transition where sound, existing management knowledge can be applied. Based on these foundations, new concepts and methods are being introduced that fit our time more precisely. I don’t know what the future will be. But leaders can determine the direction they want to go. They can take purposeful steps toward the great transformation, creating a world that embraces technology, but that keeps the human being at its core. It appears we have arrived at a turning point where either the world will embark on a route towards long-term growth and prosperity or we will manage our way to economic decline. Is the very coherence of our societies at stake? I think so. Managers need to ask themselves the fundamental question: how far are they looking towards a bigger
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sustainability
endeavour – society. Yes, there is a change and managers are waking up gradually – but their environment is breaking down and businesses can only be healthy in a healthy society. If you take large corporations, the idea of shareholder or stakeholder value is still an ongoing debate. But in practice, shareholder value has become the dominating ideology – almost a religion. Yet, as Peter Drucker said so well, free enterprise cannot be justified as being good for business. It can be justified only as being good for society. Harvard Business School professor Clay Christensen calls the split between diverging pressures and incentives “the capitalist dilemma”. It is a root cause for the lack of economic growth because businesses are primarily investing in efficiency to achieve fast returns. This is what those shareholders, who consider their stock holdings as financial investments, appreciate. They are not acting like family owners would be – with a concern for the long-term prosperity of the enterprise. They are welcome corporations taking on huge amounts of new debt – not to invest in entrepreneurial projects, but to buy back stock as a way to push up share prices. These strategies run counter to any genuine concerns for the employees (the usual lip-service is “they are our most important asset”) and society at large. Corporate responsibility towards society would mean ensuring the long-term viability of the enterprise by investing into its future, which entails risks. This is why we need entrepreneurs, not “financial engineers”, at the top of companies. The challenge is not cutting cost to the bone, but creating new business models, new markets and even new industries. How can policy makers in conjunction with investors, boards and top managers create a framework that overcomes short-termism and puts human capital and community in the frontline of long-term company valuation? I want to add a new perspective to the idea of corporate social responsibility
Dialogue | Sep/Nov 2014
+ WATCH THE VIDEO See some highlights from last year’s 2013 DRUCKER FORUM on managing complexity
We need entrepreneurs at the top of large companies (CSR) – not the one shown in glossy brochures. CSR should be a natural, inherent element of business to keep it viable. As discussed before, this can only work through value creation and innovation. Empowering innovation, as Clay Christensen calls it, creates growth and jobs – it’s not about “doing a CSR programme”. Businesses cannot and must not focus on the short term – although they need to be aware that long-term innovation will not pay back tomorrow. In order to prove the success of the CSR and innovation framework, managers need good metrics. Engagement metrics, for instance, can be a strong indicator of how healthy a business really is. Cost-cutting will look good on initial profit and loss reports, but it could
mask a cancer within the business – where the people on the ground could have been disengaged for 10 years or more. It is important that these people on the ground within business report that things are going well. Investors are blind to this, because they are happy if the share price is going up. But it is important that they are aware of what’s happening within business that is not shown on the balance sheet. But then incremental changes will not suffice and it is about changing the very nature of our organizations and the way they function in a new world. Surely this is easier said than done? It is management that creates actual value – or destroys it. Management’s decisions lead into world-changing innovations or may cause a massive waste of productive resources. Before growth figures for a country are calculated, the actual growth happens in individual organizations that are successfully “managed”. While politicians and other experts are obsessed with aggregations and ratios, they tend to forget that the
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The Drucker forum 2014 The 6th annual Drucker Forum will take place on November 13 and 14 at the Hall of Sciences in Vienna, Austria. The focus of the conference is The Great Transformation – Managing Our Way to Prosperity. l Expert speakers and moderators including Roger Martin, Gary Hamel and Clay Christensen will ask: l Does the practice of management need fundamental change? l How can economics and management be repositioned as complementary disciplines to create change? l What are the leadership competencies required to achieve continuous innovation and transformation within organizations? l How can technology be leveraged more effectively for growth? l What is the contribution of educational institutions (from schools to universities) to create an understanding of the vital role of management and leadership for business and non-business institutions and organizations? l What can we learn from SMEs in terms of change-management and adaptability? ... And much more. To book your place, visit: http://www.druckerforum.org/registration/
growth happens in real life and not in the abstractions of economics. Management is a real-world practice dealing with people and organizations. Managers can make all the difference in the world with their knowledge, their creativity, their emotions and their values. Management in this sense includes commercial players, non-profit organizations and public-sector bodies. Each has the mandate to create value and to achieve its mission. Once we accept the importance of good management for the economic and social wellbeing of today’s world, it is legitimate to ask a critical question: are managers equipped – in terms of skills, competencies and courage – to lead us towards transformation? Leaders have learned a lot about management. It has become a focus of education, research and practice. Much great thinking has gone into the development of the discipline of management, into tools and methodologies and, increasingly, into specialized fields such as marketing, operations, finance and HR. But despite considerable progress in making management more effective,
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many fundamental challenges remain. Bureaucratic hierarchies (controloriented, top-down structures) are still prevalent. The track record for transforming organizations, whether companies, non-profits, social security agencies, educational institutions or providers of government services, is poor, to say the least. Why do you think this is? It is down to overwhelming internal complexity of large organizations, which causes a tendency to focus internally rather than taking the outside-in perspective. Internal thinking can lead to a loss of customer focus and value creation, and, as a consequence, more energy is spent on resolving internal issues than on finding original ways of delighting clients. The over-emphasis on shortterm gains at the expense of longterm prosperity has become the new normal, despite its negative consequences. What are the management skills and leadership competencies required to achieve continuous innovation and transformation within organizations? How can businesses
Managers can make all the difference in the world with their creativity establish a fresh balance between economic and human values? Done right, a marriage between the human spirit and technology could produce exciting and incredible results. Just think about the unbelievable waste that is created in today’s organizations in terms of people’s ideas, creativity, motivation and engagement. Releasing just 10% of this latent value would mean a jump in innovation, value creation and, in turn, the world’s prosperity. Performance management research company Gallup estimates the actively disengaged workers in the US alone cost the economy half a trillion dollars each year. But I can see already today cases that show the tremendous potential for achieving massive and deep transformation in short time-spans. With a human-centric approach, serviced by the best that technology has to offer and supported by smarter government policies and regulations, businesses can create fresh infrastructures enabling knowledge, communication and collaboration. This could trigger a tsunami of innovation and value creation. l Richard Straub is president of the Peter Drucker Society Europe and director of Corporate Services and EU Affairs at EFMD Further reading: The Great Transformation, Richard Straub, Global Focus The EFMD Business Magazine, Vol 8 Issue 2 (2014)
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Jeremy Greenstock, chairman of the UN Association in the UK, talks about power structures in a globalized world and nuclear disarmament
Watch the video of an interview about financial risk with WillIam Rhodes, author of Banker to the World
Dan Vermeer, executive director at Duke University, gives his personal reflections on environmental risk.
Dane Chamarro, MD at Control Risks, takes part in a panel interview on corruption in Asia
Watch Michael Tobin’s tedex talk focusing on changes, challenges, growth and leadership
Take a look at Chandram nair’s tedex talk in Tokyo, where he “asks the hard questions”... See some highlights from last year’s 2013 Drucker Forum on managing complexity And presenting a ‘Discovery Pathway’ on risk, drawing on chapters from key books and articles that will take the ideas discussed in this issue of Dialogue to a deeper level of learning
PURPOSE
a sense All this, plus purpos of e exclusive sound I bytes from leading authors and commentators, case studies, research, forums, opinion, interactive infographics, slide shows and much, much more
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sports leadership
From elite sports stars to business leaders Alicia Kaufmann examines sporting leadership psychology and asks whether the high-performance skills athletes possess can be transferred into the business world Illustration: charles tsevis
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elson Mandela, former president of South Africa, once famously said: “Sport can change the world.” But what is the secret to success? Sports people have to have a passion to win and the resilience if they lose, to get up and try again – but are these skills that can be transferred to the corporate world? The inner strength I describe above, enables athletes to withdraw from the vagaries and uncertainties of the environment, and this is something that business people should also consider. Much more analysis of this sporting leadership psychology can be found in research I have undertaken, commissioned by the Higher Sports Council in Madrid, Spain. The council was asked to analyze the present and the future high performance of athletes, considering a sample of 200 people comprising active and retired, male and female athletes. This was the world’s first study to analyze, from a psycho-dynamic perspective, the relationship between physical effort and emotional intelligence: the will, perseverance and clear goals that help althletes avoid crumbling with depression. These capabilities, along with a winning attitude, emotional maturity and high tolerance of frustration, enable you to try and – in some cases – fail. Intense passion and desire for promotion (often from childhood) are hallmarks of elite athletes. These are some of the traits of elite sports people who later on become excellent business leaders.
Evolution of leadership Enterprise and sport represent an archetype in the globalization era. Digital technology is the symbol of this change of paradigm. The flexibility of sports and enterprise leaders is based on having “innovation in the mind”, a great capacity to “persevere to attain goals” and a core purpose of “team work, curiosity and generosity”.
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In this way, sports and business leaders create a system of multiple interactions. Some businesses help elite sports people to attain success, while others help them develop “moral muscles”. Universal principles are the basis on which they build their personality.
Intense passion and desire for promotion are hallmarks of elite athletes Sports in Spain account for approximately 1.6% of the country’s GDP. It is a dynamic market in growth. Sports are practiced by 37% of the population, far from the 75% of the population of Finland or Denmark (50%). But the technological revolution demands a transformation in human capital, because leaders have to cope with uncertainty, ambiguity and increasing environmental and internal demands. There has been an evolution of leadership styles that shift from controlling and giving orders to followers, to empowering employees and giving them a voice. The “charismatic leader” proposed by sociologist and political economist Max Weber describes the qualities expected from this leader as well as power relations. Charismatic leadership is replaced by transformational leadership. The fundamental difference between these styles of leadership is that while the transformational leader wishes to empower his or her team, the charismatic leader, due to his or her own fears, prefers weak and dependant followers. To become a “good enough leader”, you have to be better equipped psychologically for the challenges you have to face in a global business world. The critics of the environment should
just be a mirror (or provide feedback) to become a better leader. Never put oneself in the role of victim, accept the responsibilities of what you do. If you think “the problem is outside, that is the problem”, know how to lose sportively. Work and think strategically and contribute in a positive way with your team. Concerning the dark side of leaders, an executive coach should be able to absorb the person’s anxiety, while simultaneously challenging the individual to move forward.
Talent trajectories and the winner’s culture As part of our research and during the interviews with sports people, we explored how their talent was detected during their professional life cycle. We were given an insight into this journey, when and how it was discovered, their enthusiasm and persistent work, from infancy onward. Most of the life stories confirm that sport has always been their passion. Loving what they do is the secret for them, as well as for business leaders. One of the sports people who took part in the research said: “I began taking part in sport when I was very little. My mother took me to swimming classes. I liked to jump a lot. At the beginning I was quite bored, but I loved to look at the springboard. My father saw that and enrolled me. I began with that as a hobby; it was fun. I got hooked. I began to compete at different levels, little by little, until I got to the highest level.” (Female Olympic swimmer, age 30) This is not an isolated case – talent is detected by chance, but later in life people get focused and fight for what they like. They often begin sports with their siblings. Imitation and competition are evident from when they begin a sport. They learn to compare, compete and co-operate. They learn teamwork and co-operation. But an interesting finding of the research was that young boys are encouraged to compete, whereas girls are told just the contrary: “I began playing tennis when I was six because I was enrolled in gym, but I got bored. My sisters did the same. I saw kids
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playing in a tennis court and looked like they were having fun. Then our parents enrolled us in tennis. At the age of 10, I had already won several competitions. When I was 12, I was champion of Spain. I rapidly improved. At that point, I started a ‘non-stop tennis career’.” (Woman, tennis player) But there are also some contradictory feelings coming across. On the one hand, the sports people in the study talk about the happiness of doing what they love, but on the other hand, they report some sadness for being tied to their “career” at such an early stage. Instead of having fun with friends, they had to be constantly training or working: “I began the sport when I was 13, by chance. My father enrolled me in many activities. I frequently told him leave me alone... but my father insisted.” (Male fencer, age 31, now an engineer) Emotions such us rivalry, jealousy and aggressiveness among brothers and sisters showed up, in the same way that they do in business organizations between colleagues. The hobby later turned into a profession and a few had genuine talent. They developed a positive character, lived passionately and developed enthusiasm and commitment for their sport. Early parental separation and economic autonomy promote early emotional growth in the subjects. With the physical transition from home to the training centre, parental figures were replaced by coaches, who became the authority and role model in their lives. “At first, you just look at what is happening – when you get a call from [soccer team] Real Madrid, it is something quite special; your parents perceive it as a great opportunity for their child’s success, but they fear the new world you are moving into and what is going to happen if things go wrong. My family has been an incredible support; I felt extremely lucky. I considered myself very happy at home and with my friends at school.” (Retired soccer player, now business leader) “When I was preparing exams for university, practicing sports relaxed me when everybody else was quite
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They learn to compare,compete and co-operate, which are the basics of teamwork stressed. It was also a way of taking things easy and not watching TV. With karate, both hemispheres of the brain are at work. You get very relaxed and it makes it easier to study. I could always make the most out of my time.” (Male karate competitor) Practising sports brings about integration of head, heart and body – the perfect triangle for success. Former South African president Nelson Mandela transformed a circle of decline into one of success and hope. Sports are an ideal realm to witness confidence at work. Each success leads to an increase in confidence. It is the road to success. Winning becomes an ingrained tradition, embedded in the organizational culture and supported by powerful external networks. Winning is hard work, losing is easy. Sports habits create a “winning culture”. The benefits of winning go beyond economic aspects because the whole context is enriched and propel the success cycle.
New leaders and values in knowledge society The rules of the game were thrown out altogether in many parts of the world. The information age brought change at the speed of light. Matrix structures flattened hierarchies and organizations went global. Modern leaders have to adapt to this upheaval. Think in terms of a longer time horizon than the rest of your team, and develop the capacity to cope with the anxieties associated with the task.
There is usually a high pressure on sports people and business leaders to provide results in a short time span. Too much pressure can bring about a regressive mode. Among the distinctive traits, it can be seen that the main values applicable for both groups are: capacity to make effort and attain goals; persistence, responsibility, a winner’s attitude, and tolerance to frustration, which comes as a result of an emotional maturity. In addition business for business leaders and sports people the reverse of success is: ●● Loneliness of command: with senior positions, stress develops and feelings of isolation can overwhelm l Fear of envy: some people find envy most disturbing, when victory overcomes ●● What now? Once you achieve a lifetime’s ambition, the feeling that there is not much to strive for is depressing ●● Feeling of being constantly watched: by mass media ●● Addiction to power: fear of losing what has been so difficult to gain ●● Feelings of personal guilt: about the personal costs of success ●● Steeper learning curve: Competencies quickly become obsolete so that learning continually is the challenge Taking into account the outcomes of the research and the differences of this professional group compared to others, it can be concluded that bearing in mind sports values and being a “good enough leader” can open the way to “authentizotic” organizations. This word, which comes from Greek, is a synonym in the first part of trustworthy and zotic meaning “vital to life”. Therefore, it can be concluded that leaders today can create a place where people are invigorated by their work, as elite sports people do, using some of their values that prove useful in getting to the top. ● Alicia Kaufmann, PhD in Sociology of Organizations and executive coach
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Sporting excellence in the workplace There are some clear parallels between how athletes and business leaders should prepare for optimum performance, says Olympian and businesswoman Alison Gill Illustration: charles tsevis
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ollowing the success of the 2012 Olympic Games and with a summer of superb annual international sporting events nearing a close, it’s a great time to remind ourselves of the lessons from sport which can translate to improved performance in business. There are some obvious – and also some more subtle – parallels to be drawn between how an athlete and a business person should prepare for optimum performance. Both sport and business require the development of technical skill. For a sports person, it might be the ability to run fast; for a business person, to spot a gap in the market before others see it. Both activities require preparation, planning and practice. Both require mental and physical resilience to enable individuals to perform consistently at a high level over a sustained period of time. This requires a holistic view of the factors necessary for high performance and a need to develop the body and the mind to be resilient, cope effectively with pressure and be in a state of resourcefulness for the greatest length of time possible. With this holistic view of performance in mind, both sports people and business leaders should call on experts to support them with certain aspects of their performance. One example here is the coach. The athlete and coach relationship has successfully crossed the boundary from sport to business. The focus on tennis player Andy Murray’s choice of coach in the run up to Wimbledon 2014 showed just how important this relationship is. Just a
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few years ago, having a coach could be seen as a sign of weakness, but over the past decade or so, this relationship has increasingly been emulated by senior business people. Having worked with leaders in both realms, I have come to realize that there is much knowledge to be transferred both ways. Increasingly, I can see that there are three lessons that are key to both. The first is to train the brain; the second is that physiology underpins how you think, feel and behave, and, finally, that practice does indeed make perfect. High performance in both realms requires strategic planning.
Both sport and business require the development of technical skill
Train the brain The brain is a powerful weapon and many of its secrets are still unknown. Self-awareness is a prerequisite; there is no room for Imposter Syndrome as coined by Pauline Clance in her book or self-doubt in sport. Athletes don’t just set goals; they know why their goals matter, so that when the going gets tough, they can sustain the motivation and energy toward the goal. They use positive words, affirmations and mantras that they write everywhere (often in indelible ink on the body in races), so that they are never far from sight. They keep a bank of positive memories, testing themselves again and again, and using those positive memories to remind themselves of their ability to cope. They practise visualization – using every sensory mechanism to see, hear and feel when they are at their best, and they channel their energy, focusing on the here and now, the next manageable chunk, ticking off each step or stroke, so that the end goal
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Better physiology, better emotional management and better behaviour lead to better decisions always gets closer and is never allowed to feel too remote or too impossible to achieve. In short, they train the brain. Mental resilience, the ability to focus on what is important and to deal with pressure in the run-up to an important event, are all essential. Dr Steve Peters is the psychiatrist who worked with Olympic gold medal winning cyclists Sir Chris Hoy and Victoria Pendleton in the run-up to the London 2012 Games. Peters has developed what he describes as a mind-management programme, known as the “Chimp Paradox”. An individual’s emotional, irrational side is depicted as the chimp and there is a constant struggle between the rational side of the individual and the doubting, confusing, hijacking chimp. Optimum performance requires a thorough understanding of what is going on in one’s head and an ability to manage the chimp, particularly during important competitions and races. Arguably, sports people are more advanced than business people at not only recognizing that thoughts, feelings, emotions and distractions exist, but also in developing and implementing tools and techniques to move to the right state for high performance.
Get the physiology right In both worlds, sport and business, there are some tough truths to face with regard to physiology, body shape and developing physical performance capacity. There is a myth that surrounds athletic performance about the ability to consume as much food as one needs. Yet most athletes, despite a ruthless training regime, must learn to watch what they eat and drink carefully. Optimizing hydration and nutrition is vital to performance success. Research from the European Journal of Clinical Nutrition, by R J Maughan, has shown that even modest levels of dehydration of only 1-2% of body mass can cause alertness and concentration
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levels to decline significantly. Hydration is taken so seriously in sport that individuals always have a water bottle close to hand and urine is tested daily to ensure that fluid intake is meeting the individual’s requirements. According to Olympic rowing medallist Alison Mowbray, athletes must also learn the significance of different food types that help them to perform; a milkshake straight after weight training; 50 grams of carbohydrate consumed within 30 minutes of a training session; half of what we eat should be fruit and vegetable; eat low Glycaemic Index (GI) foods. These simple rules enable athletes to learn what their body needs to optimize energy levels and concentration. Athletes know that physiology fundamentally underpins how you think, feel and behave. Food and drink are fuels rather than just a response to hunger. The most likely lunchtime food to see when wandering around any business district is still the sandwich, a high GI choice that will leave the individual full of energy for a while, before plummeting into a trough of lethargy. Prolonged high performance requires energy levels to be moderated across the course of the day and business people should think of their food choices as fuel rather than just something to fill the hunger gap. It is commonplace for sports people to see both a physiotherapist and a medic for prevention, as well as cure. Business people should think of ways of using medical support to minimize the risk of injury and illness, with particular regards to managing the effects of long periods of time sitting at a desk using a computer, such as repetitive strain injury and back problems.
Practice makes perfect In sport, there is as much, if not more, emphasis on practice as there is on performance. This practice is not limited to technical practice, but also to the more behavioural elements of
performing – teamwork, communication, problem-solving, innovation and race tactics. To change performance, you must change behaviour. Behaviour is how we do things: how we communicate, how we interact and how we focus. Doing things differently to improve performance is the work of the athlete and coach partnership. The athlete and coach use a training diary – a databank that is used to record goals, required technical, behavioural, mental, physiological and biological enhancements, and to channel practice to the areas that need most attention. The athlete and coach are focused on a multilayered approach, working daily. Mastering the relationship between how the body is fuelled and what the athletes feels, thinks and does is the work of a great coach. Routines are an important aspect of the athlete’s day. The race day routine, for example, involves getting up at a certain time, eating a particular type of food, consuming a certain amount of drink and warming up in a certain way. Routine is a method that enables the athlete and coach to know how the athlete wants to feel, think and act. The routine is a backbone from which to experiment and learn more about oneself. Breathing and relaxation techniques can be used to control heart rate, for example, while affirmations and mantras can be used to dispel negative thoughts and lower levels of the stress hormone cortisol. Minor changes in routine are used to study and practice raising the performance bar. How does this relate to business? Well, think about delivering a presentation to a large audience, negotiating a complex deal or leading on strategy development. The leaders who complain that they find these difficult are really intent on maintaining amateur status. Very few skilled presenters, negotiators or strategists are “naturally” talented – they put in the hours of practice until
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they are good. The Cambridge Handbook of Expertise and Expert Performance states that it takes 10,000 hours to become
an expert, not just mindless practising but 10,000 hours of deliberate practise, focused on performance improvement and adjusting your execution until you get closer to your goal.
Stand and deliver In an increasingly complex and volatile business world, leaders bear a weight of responsibility to deliver. It is incredible what human beings are capable of achieving – whether it is scaling the highest peak, developing the next and greatest innovation or breaking a world record, it is the whole human that matters. To echo the words of four times World Champion and unbeaten iron man triathlete Chrissie Wellington, “our limits are never where we think they are”. Enlightened leaders in business and sport develop themselves and their organizations holistically. Does “the team” stop at the coach, the psychiatrist, the physio and the nutritionist? Not according to most professional sports people whose support team would also include a manager, maybe a strategist or finishing coach, as well as friends and family who have the job of making the sports person’s life on the competition circuit as comfortable as possible. In the same way, high performing business people need to spend time – and often money – managing their personal lives so that home is comfortable, essential tasks completed and dependents well cared for. At an event run earlier this year by the Financial Times for non-executive directors, it was suggested that business women who are also mothers should allocate one-third of their income to expenses including house-keeping and childcare. The changing demands of the leader in 2014 has led to focus on how to develop high-performing teams that can collaborate to solve complex problems, achieve results and be responsive to the changing needs of their organization. Business people can learn from their sporting counterparts by building teams that can offer them the type of holistic support required for high
Dialogue | Sep/Nov 2014
performance in a competitive, pressured world over a prolonged period of time. Better physiology, better emotional management and better behaviour lead to better decisions. ● Alison Gill is a psychologist, business woman and Olympian. She studied Experimental Psychology at Oxford. Having learnt to row at Oxford, she went on to row for Great Britain at three Olympic Games (1988, 1992 and 1996) FURTHER READING Impostor Phenomenon: Overcoming the Fear that Haunts Your Success, Pauline R
Clance (1985), Peachtree Pubs The Chimp Paradox: The Mind Manage ment Programme to Help You Achieve Success, Confidence and Happiness, Professor Steve Peters (2012), Vermillion Impact of mild dehydration on wellness and on exercise performance, R J Maughan, European Journal of Clinical Nutrition (2003) 57, Suppl 2, S19–S23 Al’s Ten Guiding Principles for a Long and Active Life, Alison Mowbray (2014), Gold Medal Flapjack, Silver Medal Life. The Cambridge Handbook of Expertise and Expert Performance, K Ericsson et al (2006), Cambridge University Press A Life without Limits, Chrissie Wellington (2012), Constable, London
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appointments
Finance Director £90,000 to £ 100,000 London
A well-known media group is recruiting a Finance Director for one of their key UK business units. Supporting the Divisional Managing Director, this is a newly created role covering the breadth of finance, from developing business cases, driving insight, building the budget whilst ensuring financial rigour and compliance.
You must also be able to challenge, push back and influence senior stakeholders. This newly created role will give the chosen candidate a fantastic opportunity to have a significant and immediate impact in a rapidly-changing environment. Ref: 1407-9
The successful candidate will be a ‘hands on’ qualified accountant with demonstrable experience of both commercial finance and financial accounting, whilst having a proven background of driving change across both.
To apply go to: www.totallyexec.com
In House Legal Director Competitive salary Saudi Arabia
Our client is one of the Middle East’s best known communication companies. A leading wireless services provider employing thousands of staff, offering a range of services to tens of millions of customers. A new, exciting opportunity has arisen for a senior managing lawyer to head them team in Saudi. You will have extended experience of the Telco or IT sectors in the region, and experience of managing a team. For consideration you must fulfil the following criteria: • Ideally qualified in a Middle Eastern or Western jurisdiction
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• Arabic and English language skills are essential • Good private practice experience with solid negotiation and drafting skills • 7+ years legal experience involving commercial, litigation, contracts and compliance affairs • Knowledge of local, regional and international laws and regulations • Communications / IT industry experience highly desirable Ref: 3938TL To apply go to: www.totallyexec.com
GUEST OPINION
Terry Neese Founder of the Institute for Economic Empowerment of Women
Female entrepreneurs: the key to peace?
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ccording to the Center for Women’s Business Research, eight million US businesses are women-owned. Womenowned firms have an economic impact of $3 trillion in annual revenues and they have approximately 23 million employees (or voters), which is 16% of all US jobs. Women in the US are starting companies two-to-three times faster than their male counterparts. Why is this important data? It is widely acknowledged that societies that are economically stable have a much greater capacity for peace. The case for such a bold statement can be found through evidence in the relationship between democracies and the Gross Domestic Product (GDP) from Przeworski and Limongi (1995). l Democracies are stable above $6,000 GDP per capita (World Bank) l Democracies are vulnerable to coups and civil wars between $3,000 and $6,000 GDP per capita (World Bank) l Democracies are likely to fail below $3,000 GDP per capita (World Bank) (Modernization: Theories and Facts, World Politics) Rwanda’s GDP per capita is $620 and Afghanistan’s GDP per capita is $687, which puts them well below the $3,000 level where democracies are likely to fail. That is why the work that the Institute for Economic Empowerment of Women is doing in these countries is so important. The Institute for Economic Empowerment of Women’s Peace Through Business® Program helps provide women with a voice in
Dialogue | Sep/Nov 2014
their fight to establish peace and free market opportunities. Women are 50% of the world’s population, which gives us the ability to make major changes in the world’s economy. In our 8th year, more than 400 women have graduated from the Peace Through Business® Program. Additional data shows
Women are the key to bolstering our future global economy that 80% of our graduates are still in business today, compared to a US 57% failure rate in business start-ups within the first five years. Each PTB graduate provides, on average, 25 jobs per company. Graduates from Rwanda and Afghanistan are setting a high mark in job creation. Successful business statistics and personal stories show women graduating from our programme and getting involved in public policy too. Rwanda has the notable position of being top in the world for women in government, with 63.8% of the lower house of parliament represented by women and 38.5% in the Senate. Graduates who have served, or are serving, in public office are: Teddy Gacinya, Anne-Marie Kantengwa, MarieJosee Kankera, Anne Rugege, Sara Mukandutiye and Erin Asiimwe. Anne
Marie Kantengwa , a 2013 PTB graduate, owns Hotel Chez Lando and has a staff of 140. After the genocide, she took over her family-run hotel and transformed it into a wonderful destination hotel in the City of Kigali (www.chezlando.com). In Afghanistan, PTB alumnae, along with other business women, founded Leading Entrepreneurs of Afghanistan Development (LEAD). In January 2014, founders, including PTB graduates Freshta Hazeq, Farah Karimi, and Manizha Wafeq, met with President Hamid Karzai to express support for his administration to sign the Bilateral Strategic Agreement with the US to help with the relief of the economic and political deterioration being felt within the country. This was a huge step for women in Afghanistan. The number of women who have graduated from the program shows even in countries where women face hardships, they have the desire to contribute to their country economically, socially and politically. I believe in these philosophies; but more importantly, we believe in women. Women are the caretakers, mothers, grandmothers, wives, sisters, aunts, and so much more. They are emerging leaders in the business world; women are the key to bolstering our future global economy. Small business has been the backbone of economic stability and the IEEW believes that women are the key to the development and stability of business in emerging economies. There is no doubt that women entrepreneurs are establishing credibility and peace around the globe.
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Structure is all in the stars Murthy Chaganti
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rganizational structures: what can they learn from astronomy? It would be fair to say that there is a direct correlation between the success of an organization and its organiza tional structure. The more aligned the struc ture is towards the goals of the organization, the more impactful the execution of the organization.
The heliocentric model works when the portfolio is sharp and the brand has mystique and aura While the design and pricing of the prod ucts, the distribution efficiency and the marketing communication play an essen tial role in determining success, they have to come together under the umbrella of a tightly woven organizational structure to have a multiplier effect on results. In an increasingly globalized world, where most organizations depend on markets that were hitherto untapped by them and are thousands of miles away from their head quarters, the challenge that crops up is – what is the structure that a company needs to put in place to reap maximum benefits. Can the theories of astronomy help us arrive at a model? In mankind’s quest to understand how the universe works, two theories, many centuries
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apart, were propounded. The geocentric theory propounded by the ancient Greeks said that the Earth (Geo) was the centre of the universe and the other planets and the Sun circled it. The heliocentric theory propounded that the earth and the planets revolved around the relatively stable Sun (Helios). Now, replace the Sun with the company headquarters and the Earth with the market. The heliocentric theory has the company headquarters as the all-powerful entity and its divisions and the markets toe the head quarter line. The product, pricing, communi cation and employee policies are driven from the headquarters, with very little delegation of power, authority down the line. The complete opposite of this is the geocentric model where the market determines the strategy of the company. The products, the pricing and communication vary based on the market. Customization is a way of life in this model. An example of a company run on the heli ocentric model is Apple. Whether it is design, pricing, communication or logistics, the office in Cupertino does it all. The product is the same whether the customer is in Chicago or Canberra, and the communication the same in Mumbai or Mexico City. This approach has worked wonders for the organization and made brand Apple a gigantic success. A geocentric model example is Nokia. In its heydays, it made customer centricity its mantra. The product, pricing, distribu tion models and so on varied from country to country. If power-starved and noisy India
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OPINION
required a differentiated product, Nokia launched phones with higher decibel levels and longer battery life; if Europeans bought their phones on contract, Nokia invested in strengthening that distribution model. The customization worked, propelling it to market leadership position for many years, until it all came crashing down. When do these models work? The heliocentric model works when the product portfolio is sharp and the brand has mystique and aura. When an organization sells products like Chanel, Louis Vuitton or Rolex, a tightly-run organizational structure with decision-making vested in a few indi viduals is ideal. The more rigid the brand and the further the product is from empowering its customers, the greater the allure. The heliocentric model also works in the non-so-elegant worlds of bureaucracy and defence forces. This is because, by definition, these organizations cannot mean different things to different people. The geocentric model works best when the product portfolio is not compact and the market determines the product choice. A Walmart in the US has to sell products that are substantially different from ones sold in China. And, the decision-making has to be vested in the local market. Just imagine the pace at which Walmart would move if for procuring bananas in Mexico, the decision were to be made in Arkansas, Bentonville its headquarters. For organizations such as Unilever and P&G, the geocentric model becomes the only choice. By their very DNA, these organiza tions have to work on an empowering mode. The decision making has to be vested in the teams running the local markets and customi zation of products is a must. Whether it is the average size of a shampoo bottle or the look of a model to be used in communication, the calls have to be taken by the people close to the market.
To determine the right structure, a firm has to dispel the notion that the market determines the model ahead of the curve, always. The heliocentric Japanese organizations like Sony, Panasonic and Mitsubishi are pale shadows of their former selves, for the simple reason that they could not continue to be ahead of the curve. Want to mean different things to different people? Want to sell branded commodities? Want to appeal to the bottom of the pyramid? Want to sell a portfolio of products? Go geocentric. The pitfalls – these organizations would find it difficult to reach meteoric levels, the growth rates are stymied by the level of economic activity. They would find it difficult to sell brands and easier to sell products. And the caveat, heliocentric organizations with weak leadership would get propelled into obscurity in seemingly no time, but geocentric organizations with weak leadership might result in centres of excellence, close to the market. To sum up, when planning an organiza tional structure, the leader and leadership should be clear about its mindset. What it wants to create should result in the structure, not the market. ●● Murthy Chaganti is a seasoned business professional from India who writes about business, politics and sports. He holds a senior role in the Indian telecom sector
What is the right model? To determine the right structure, an organiza tion has to dispel the notion that the market determines the model. It is its mindset that should determine its model. Want to create a brand? Want to create a mystique around yourself? Want to be seen as alluringly distant? Want to create a unique user experience? Go heliocentric. The pitfalls? The investment in brand, design, communication and people has to be
Dialogue | Sep/Nov 2014
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REVIEWS
books and apps
under the spotlight
In association with:
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The Management Shift How to Harness the Power of People and Transform Your Organization for Sustainable Success Vlatka Hlupic Palgrave Macmillan
The Management Shift is a groundbreaking book that will help its readers successfully harness today’s rapidly moving winds of change, and move beyond the management approaches that worked well in the Industrial Age, but fail consistently in today’s Knowledge Age. This book is not only important to workers and organizations, but to society as well. Vlatka Hlupic paints a clear picture of how each of us can achieve a true management paradigm shift – focused on people, collaboration and purpose. By embracing this new paradigm, every company can create greater value, innovation and employee engagement. Unlike so many “flavour of the month” books that identify problems via sound bites, The Management Shift provides a proven solution with clear implementation instructions, including Dr Hlupic’s brilliantly designed 6 Box leadership organizational body scan. Throughout the book, she also provides many insights from her extensive research, a series of real-world examples and research conducted by other management thinkers. The Management Shift provides a practical and holistic architecture for its readers: • The WHY aspects show why organizations need to adopt new management practices to survive, thrive and have purposeful existence. They show why this shift is so important for every organization, including the consequences of not shifting.
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• The WHAT elements show what needs to be done in organizations to adopt new management practices for better innovation, engagement and value creation. It highlights what the shift is all about and what each of us needs to do as individuals and organizations to achieve this shift. • The HOW passages show how the management shift can be successfully and sustainably achieved in practice through Hlupic’s 6 Box Leadership diagnostic. This proven tool is based on more than 20 years of research and consulting experience, and has been used successfully in scores of organizations worldwide, large and small, in private and public sectors. The Management Shift successfully charts the course for turning knowledge into action to achieve individual, organizational and societal transformations. Executives, managers and others who work with and depend upon one another to achieve successful results need to read this book. The Management Shift will help you and your organization improve engagement and performance, identify the bottlenecks preventing growth and creativity, and uncovering hidden strengths and weaknesses. It will clearly guide you – step-by-step – to implement transformative management practices for sustainable success. Jack Bergstrand, CEO of Brand Velocity, Inc
Dialogue | Sep/Nov 2014
REVIEWS
The Social Leader
Frank Guglielmo and Sudhanshu Palsule Bibliomotion
Discovery path: Going Green “Green business” is something a lot of people talk about, but what does it really mean? When you’re running a business, it’s important to know the options and implications for applying “green thinking” to your company strategy. Take part in the full discovery path here: http://www.bluebottlebiz.com/book/resilience
Contents:
One of the fun things for me in reviewing this book is seeing written down many ideas that I have observed Sudhanshu trying out in the classroom with serving executives over the past year or so. However, what does this book offer a reader who is new to all these ideas? Essentially, this is a call for leaders to engage in 21st century leadership and to move away from the military approaches of the past. Command and control leadership is simply no longer fit for purpose. The authors highlight the numerous phrases and metaphors we all use every day at work that show how deeply ingrained top down and combative leadership is within us. Phrases like “don’t put your head above the parapet”, “she shot down my idea” and “we need to cascade these ideas down the organization” all conjure up the same picture. The authors entreat us to reverse or upend much of our thinking, to become social leaders – ones who understand that the business world hasn’t just changed or evolved over the past 10 years; it has been revolutionized. They see the leader not as a general with a unique overview of the battlefield, commanding troops, but as a mayor, juggling the different needs and aspirations of multiple constituencies, who communicate directly with each other rather than through the mayor’s office. The book is organized into two halves, the first setting out the major societal and communication changes in a 24/7 connected world that drive the need for a new way to lead. The second half takes the leader step-by-step through the five stages of becoming an effective social leader – mindfulness, proactivity, authenticity, openness and social scalability. The appendix offers a self-assessment tool that can be used to identify areas of change. It’s hard, in an overcrowded market, to find something new to say on leadership. Chapter 8 on Authenticity is my favourite, because it looks innovatively and more holistically at the topic. If you want a step-by-step guide to update your leadership effectiveness for the age of social media, this book is for you. Liz Mellon chairman of Dialogue’s editorial board
Dialogue | Sep/Nov 2014
• The Green Scorecard The first chapter we’ll look at focuses on various green initiatives where we live and work, highlights the forces that are driving these initiatives and considers the implications of applying such changes. http://bit.ly/1pJyF02 • Street Smart Sustainability The choices you make with your company’s money have more impact than you think. The authors of this book say it best: “The most important message in this chapter is that you have enormous power to do good by choosing how you spend your money, whom you spend it with and what you spend it on. And if you believe that you are too small to make a difference or to be able to influence your vendors’ environmental practices, you are just plain wrong.” http://bit.ly/1qBBKEy • International Cases in Sustainable Travel & Tourism Let’s change gears a bit and look at a case study where Marriot proves that even larger, less “agile” companies can choose sustainable practices while not only maintaining, but actually growing their profitability. http://bit.ly/1nDH6Nv • Majora Carter: Greening the ghetto For further inspiration, take a few moments to watch this TED Talk, highlighting three stories of local ecoentreprenuership. http://bit.ly/1rNwJFW • The Green Guide For Business We’ll finish with the introduction from this book, which I consider an indispensable read if you’re serious about bringing a greener approach to your business strategy. Read on to learn why it pays to be brave and do the right thing. http://bit.ly/Uuv4ZE About the author: Tabitha Jean Naylor is the founder of SuccessfulStartup101.com, a digital magazine that provides answers to questions facing business owners. She is also owner of TabithaNaylor. com, a marketing firm for start-ups and small businesses.
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REVIEWS
back to the future risk - BLUE BOTTLE BIZ’S TOP FIVE
Intelligent Internal Control and Risk Management Matthew Leitch Ashgate
Matthew Leitch offers 60 high-performance control mechanisms, insight into the psychology of risk control and a strategy to integrate internal control with risk management. http://bluebottlebiz.com/book/intelligent-internalcontrol-and-risk-management/
Successful Career Management
Stuart McAdam Thoroughgood Publishing
The Executive Guide to Enterprise Risk Management Christopher Chappell Palgrave Macmillan
This book, by Christopher Chappell, provides a practical, executive-level guide to implementing an enterprise risk management (ERM) framework within an organization. http://bluebottlebiz.com/book/the-executive-guide-toenterprise-risk-management/
Managing Business Risk Jonathan Reuvid Kogan Page
This book looks at the key areas of risk that you need to consider in today’s business market. It uses expert advice from consultants, lawyers and regulatory authorities to show how to protect your business against these sources of risk and give it a competitive advantage. http://bluebottlebiz.com/book/managing-business-risk
Tame, Messy and Wicked Risk Leadership David Hancock Ashgate
The author explains how traditional risk processes ought to be abandoned in favour of developing relationships with stakeholders and facilitating mitigation plans to achieve the best possible outcome. http://bluebottlebiz.com/book/tame-messy-andwicked-risk-leadership
A Short Guide to Operational Risk David Tattam Ashgate
This book provides an in-depth understanding of the nature of operational risk, which is directly related to the running of the organization. http://bluebottlebiz.com/book/a-short-guide-to-operational-risk
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In many ways, this looks like a rather modest book. But it contains more new ideas and clear thinking than many of those self-proclaimed business books launched with so much PR money and hype. The writing is clear and personal. The advice is sound. There are three groups responsible for our individual career. Ourselves, our boss and the organisation as a whole. It advocates all CEOs being CTOs (chief talent officers) as well. It attempts to point out how and when these groups need to work together to ensure successful career management. In an era of paradox, challenges and uncertainties can make organisations appear “bipolar” as they swing between boom and bust; hire and downsize to respond to market shifts. This is a self-management book rather than a self-help manual identifying the stages and processes required to manage one’s own career journey. It should be as useful to the recent graduate as the middle-aged, middle brow, middle managers wondering where to go next. In essence the book explores dilemmas confronting organisations and individuals as they attempt to chart career journeys and trajectories in what are ever-morechoppy waters. It identifies potential bridges between career management and talent management McAdam argues that what matters is staying/retaining for the right reasons rather than leaving/dismissing for the wrong ones. Individuals can benefit from reviewing the Return on Me they are expecting from their role and organisations need to communicate clearly their expectations of the Return on You they require. Both need ongoing recalibration and attention. The academic in me wished for references to studies which support the ideas. The consultant in me wished for a few more case studies. But the pragmatist in me recognised this to be useful and challenging book in a capricious and complex world. And maybe there are not that many references because the ideas are really new. Adrian Furnham, professor of Psychology, University College London
Dialogue | Sep/Nov 2014
REVIEWS
Founder and Distinguished Clinical Professor and Organizational Change, INSEAD Global
lash of cold water in the face of sleepwalking managers. Reciniello has written a thoughtful, or leaders committed to greater self-awareness ations.”
Professor and Director, Center for the Study of sity of Missouri
most powerful components for success in st and transparency. Yet we push these out of cultures where people can speak up and hide r real selves will not be valued. The Conscious udge us to wake up and become aware of all the ther. Waking-up and becoming conscious is an hip everywhere.”
THE CONSCIOUS LEADER
utely notes ‘we cannot become mindful if we are deep understanding of what life in organizations s a wealth of information revealing how leaders terns of which they are unaware. This book is a creating better places to work.”
THE CONSCIOUS LEADER
Foreword by Dave Ulrich
£16.99 in UK only
9 780985 286446
Shelley Reciniello
Head of Human Resources Credit Suisse First of Human Resources and Chief Administrative on
The answer, according to Dr. Shelley Reciniello, often lies deep beneath the surface in the unconscious processes of leaders and their employees.
Haiku Deck – present with flair
Working as a sort of psychological detective, her job has been to consult with organizations and individuals to figure out what the real problem is when a poised-for-success corporate initiative fails, when a promising individual or team can’t perform, or when a well-conceived departmental project doesn’t deliver. When what has gone wrong doesn’t make sense, she looks for the unrecognized, underlying psychological issues that caused the problem. What’s going on unconsciously, out of awareness, is often more important than what is happening on the surface.
How can you wake-up and become conscious of secret motivations, unrecognized Achilles heels, and hidden agendas in yourself and your employees?
ark Communications, Inc.; author of Conversational s Build Trust and Get Extraordinary Results.
and tricky subject – Freud and psychoanalysis – nd approachable in the context of business and addition to all leadership books out there today.”
The Conscious Leader
Why do things go wrong in companies that shouldn’t?
apps apps for leaders
9 principles and practices to create a wide-awake and productive workplace
Shelley Reciniello
The Conscious Leader describes the nine most fundamental but often neglected truths about human beings and their workplace behavior in jargon-free, accessible concepts and examples. With humor and inspiration, Dr. Reciniello provides you with the principles and practices necessary for conscious leadership which you can immediately apply in your organizations.
Shelley Reciniello LID Publishing
When I work to help leaders understand and improve their behaviour, I often ask: “What value does that behaviour add to employees, customers, investors or communities?” Wendy, my wife, looks at the same behaviour and asks: “Where does that come from?” Each approach is useful. The sociological, contextual approach helps look at outcomes and the psychological approach helps look at causes. In this wonderfully-written book, corporate psychologist Shelley Reciniello bridges these perspectives at the individual and organization level. For individual leaders, she helps make the unconscious conscious. She is able to help leaders dig into the psychology of why they do what they do, and she is also able to put it into a business context. Without that context, noble personal attributes appear to be narcissistic. Being authentic – without defining the value that authenticity gives to employees, customers and investors – is short-lived and self-serving. Committing to others without understanding their personal motives could be seen as pandering. By combining the psychological (internal awareness) and sociological (external context), she is able to give marvellous tips. Leaders today lead through the organizations they manage. Like individuals, organizations have public actions, management processes, and morphologies or structures. These more conscious aspects of organizations have led many leaders to proclaim change, set strategy, reengineer processes or de-layer organizations. These wellintentioned organizational changes are often proclaimed to be transformational. But they are not. A large challenge for individual and organizational change is sustainability. How can good ideas happen? This requires a combination of psychological understanding about why they happen and sociological understanding of the outcomes of the activity. When the unconscious behaviour of leaders and cultures of organizations becomes conscious, sustained change can and will occur. This exquisitely and cleverly written book will help make this happen. Dave Ulrich, professor at Ross School of Business, University of Michigan
Dialogue | Sep/Nov 2014
Haiku is a form of Japanese poetry and recently used in an attempt to help us move away from the bullet-drenched hell that is corporate presentations. A similar way of moving away from 60 minutes of intense slideshow overload is Pecha Kucha (20 slides of 20 seconds each). So Haiku Deck – what is it? Found in the iOS app store and coming to Playstore soon, www.haikudeck. com is a visual presenter’s heaven. A simple slide construct of either a title slide, with sub-title and then some - yes - bullets the attempt is to visualise and keep text to a minimum. You’ll be amazed at the brevity you can bring when you don’t want your text to squeeze out a beautiful graphic. Hang on, I can use Google Images all over PowerPoint. Why would I use Haiku Deck? Well, Haiku Deck uses images under Creative Commons licensing (essentially no copyright as long as the originator is credited), so no Intellectual Property Rights to infringe. Unlike Google images. Haiku Deck searches for you based on a key word. So Haiku Deck does the searching for you and allows you to upload your own images. Haiku Decks are exportable to PowerPoint or PDF formats or export straight to SlideShare or any Social Media sites. Haiku Deck is helping restore the art in presenting through visuals that wow. Of course, you could also continue to put that model into your slides and say “you probably can’t see this at the back...” l Perry Timms is an independent HR/OD practitioner, writer and speaker, and is CIPD adviser on social media & engagement. Follow him on twitter @PerryTimms
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REVIEWS
back to the future
Future Shock Alvin Toffler
This classic book was written in 1970, so it is interesting to review what it said and what has happened since. The author (aged 86) defines Future Shock as the disease of change. He originally coined the phrase in an article in 1965. If change is too rapid, he says, it overwhelms people. This comes about via five main phenomena: 1. The death of permanence: achievements in the 800th lifetime (see below), the pace of life and accelerative thrust that speeds everything up. 2. A constant state of transience: throwaway things, nomadic people, adhocracy organisations and fast, kinetic information. 3. An obsession with novelty: scientific, experiential and family changes. 4. Too much diversity: “overchoice”, a surfeit of “subcults” and a diversity of lifestyle choices (he predicted the paradox of choice). 5. Reaching the limits of our adaptability: overstim ulated individuals suffering a bombardment of the senses. He talks of the 800th lifetime. This refers to dividing the past 50,000 years of man’s existence into lifetimes of 62 years each. Of these, 650 were spent in caves and the majority of everything we use today was generated in the present – the 800th lifetime. Victims of Future Shock include deniers (those who deny change), specialists (who only keep pace with change in a specialist area), reversionists (always going back to previous adaptive routines) and super simplifiers (who grasp any cause and back it totally, without truly understanding it). He then offers some strategies for survival, which include changing educational emphasis from the historical to the futuristic, taming technology and a treatise on the strategy of social futurism. Toffler argues that Future Shock is a social illness that contains a crisis of adaptation, an ephemeral environment, a (human) biosystem with a limited capacity for change and millions threatened with adaptive breakdown. If so, then maybe nothing much has changed in nearly 45 years. Certain predictions are fun and/or ironic to look back on – such as total control of the weather, the role of eugenics, cloning, cyborgs, robots and so on. He also talks of uncoded and coded messages. The former are any stimuli we take in that are natural; the latter depend on social convention and are humangenerated. In 1970, he was bemoaning bureaucracy and heralding the return of entrepreneurialism – sentiments that echo down the years even today. Kevin Duncan is a top-selling business author. His book can be found at theideasbook.net. Look him up at expertadviceonline.com or email him at kevinduncanexpertadvice@gmail.com
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Not Knowing The Art of Turning Uncertainty into Opportunity Steven D’Souza and Diana Renner LID
Not Knowing, by Steven D’Souza and Diana Renner, was published in June 2014. It posits that knowledge can often work against our best interests by blocking our sense of what’s possible. The authors focus on “the edge between the known and the unknown”, where “we have the opportunity to leave behind unconscious and unhelpful reactions… [leading] us to experience new learning, creativity, joy and wonder”. This exciting book (www.notknowingbook.com) is unlike most of those aimed at managers and leaders. Rather than offering diagrams, charts and bullet points, the authors (both learning and development specialists) offer a series of short, real-life conversations, interviews and stories. The cumulative effect is that the reader meets many people who demonstrate that, quite often, “knowledge” can be dangerous. Knowledge is placed in quotes because the authors stress that being sure is often being wrong. Perhaps you know too much to be sensitive to subtle, but critical, changes to the current situation. Then, being sure often ends with the recognition that you thought you knew more than you really did. The authors believe that, when confronting a major life or business challenge, wiping the slate clean and giving everything a fresh look is the best way to come up with solutions that are both apt and imaginative. How many books suggest that guidance from experts and leaders can often lead to peril, mainly because they have stopped observing honestly and rely on experience that’s irrelevant? How many books offer the view that today’s complex and ambiguous world is one that cannot be understood by received knowledge? Read this book without any expectations. Experience it as an introduction to new personalities and perspectives without immediately judging their merit. Enjoy this book without intending to implement it in your workplace tomorrow. Do these things and you’ll find that Not Knowing will influence your way of thinking far greater than you ever imagined. Who knew? Joseph Pistrui, director, The Nextsensing Project
Dialogue | Sep/Nov 2014
Your
Edited by Kyomi Wade
Get online; get social; get involved
your.dialogue@lidpublishing.com
@dialoguetweets
The Dialogue Review
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www.youtube.com
www.facebook.com/dialoguereview
Lorii Myers @LoriiMyers
Are leaders born resilient? via @DialogueTweets Emily Perry @EmilyBPerry
Why being a #genius means learning to #fail sometimes. Good post from @HubSpot via @DialogueTweets
Death of the Brand event In conjunction with Career Moves Group, Dialogue hosted an event in London asking several marketing professionals: “Are we facing the death of the ‘brand‘ as we know it?” The event comprized an expert panel of authors.
Duke CE @DukeCorpEd
Learning #leadership skills from those who motivate people to work for free in #DialogueReview @DialogueTweets – bit.ly/1riNZDM
Alberto Andreu @aandreu
“How to establish a corporate vision”. My last post at Dialogue Review ow.ly/yNrOs cc @DialogueTweets @ davidpaulwoods
Stella Matimba @neepadzarondora
Being methodical might not get you to the C-Suite by @dorieclark via @DialogueTweets @ LizMellonDuke #leadership
Watermill Group @WatermillGroup @LizMellonDuke @dorieclark @DialogueTweets
Love this line about brand “it is something you live out every day” HireQ @HireQ_Inc
Why leaders need consciousness by @davidpaulwoods @DialogueTweets #leadership
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Your comments on the night: Emma Price:
David Arkwright says people do live brands, it’s all about creating a meaningful brand #deathofthebrand
ON THE WEBSITE: How digital recruitment helps select quality candidates A recent report by McKinsey stated that there would be an 18 million person shortage in the supply of highly-skilled, university-educated workers by 2020. This emphasizes the need for HR leaders to stay ahead of the curve and ensure they are adopting digital recruitment solutions that combat the growing problem of skill shortages in talent acquisition. Neal Bruce, director of product strategy at Lumesse, details how digital interviewing platforms allow recruiters and candidates to connect in more meaningful ways, while significantly increasing the efficiency of the recruitment process. In global enterprises, HR leaders and recruiters are rushing to get to the best talent – the race is growing faster,
Lara Calderwood:
“Brands don’t die, they are killed off by bad management and repetition of bad ideas” #dotb #deathofthebrand Mark Masters:
Successful brands behave how their audience wants them to deliver. Interesting debate tonight. Everyday is school day kids. #dotb Juice PR:
Brands emerged (historically) to fulfil one function and that is trust – former Oxford lecturer/Penguin editor #dotb the skilled candidates fewer. Yet while the skilled talent pool is shrinking, numbers of unsuitable candidates are growing along with the tasks that the HR department is being asked to complete. To complicate matters further, globalization and dispersed, flexible workers are causing an interview scheduling nightmare, with senior decision makers sometimes left out of important decisions. To win the race, the HR team needs to use smart digital tools to make the selection process more efficient across a global team of senior decision makers, while still ensuring that a quality candidate is chosen. Read the full article at www.dialoguereview.com
To maximise global commerce, fresh partnerships are needed What is the first picture you think of when you hear the term “global
Dialogue | Sep/Nov 2014
YOUR DIALOGUE
commerce”? For many, visions of CEOs touching down in their Gulfstream jets in glamorous capitals of the world come to mind. Global commerce is indeed an integral part of many corporate business plans. It is a source of revenue that fuels economies across the planet. However, its reach extends far beyond jet-setting executives. Smalland medium-sized companies can participate as well. Both exporting and global investment have flourished in recent years. A review of data provided by the US Department of Commerce indicates that US exports have increased by approximately 200% between 2003 and 2013. Similarly, imports to the United States have increased by approximately 180% during this period.
Part of this rapid increase in trade can be attributed to many small- and medium-sized companies which are exporting for the first time. The establishment of foreign subsidiaries is no longer the exclusive domain of the Fortune 500. Like exporting, many small- to medium-sized firms have entered the mix and established operations beyond their shores when an attractive market has been identified. Despite many successes of new players in the global arena, there is still a vast, untapped potential. Many companies and entrepreneurs have yet to explore the potential of going global. In order to tap into this potential, new partnerships should be explored. By Christopher Smith, an attorney located in Macon, Georgia. See the full feature at www.dialoguereview.com
Poll | We asked: Focusing on last issue’s “future of branding” topic, we asked online readers: Which of these brands do you believe has achieved the most “believable” consumer campaign? Persil (20%) Nike (20%) Dove (60%) Do you agree with the results? Go online to get involved in the debate. www.dialoguereview.com
> COMING UP NEXT MONTH: The age of technology – robots: from horsepower to manpower to computing power, we investigate the effect technology has on global business and everyday life Dialogue IS BROUGHT TO YOU BY... editorial board
editorial
Dr Liz Mellon
David Woods
chairman
Editor-in-chief david.woods@lidpublishing.com
Professor Pedro Nueno
SEP/NOV 2014
President, china europe international business school
Karina Robinson Founding Principal, Robinson Hambro
Mike Canning
Laura Hawkins art director
Kyomi Wade
CEO, Duke corporate education
Social and community manager
David Woods
Glenys Trevor
editor-in-chief
Management Martin Liu Publisher
Rebecca Nolan Strategic communications and alliances manager rebecca.nolan@lidpublishing.com
Nikki Mullin BUSINESS DEVELOPMENT manager nikki.mullin@lidpublishing.com
Raul Vazquez digital and marketing
Dialogue | Sep/Nov 2014
production editor
Sarah Wild copy editor Copyright 2014 by Duke Corporate Education and LID Publishing Ltd. All rights reserved. Material may not be reproduced without permission of the publisher. While we take care to ensure that editorial is accurate, independent, objective and relevant for the readers, Dialogue accepts no liability for reader dissatisfaction rising from the content of this publication. The opinions expressed or advice given are the views of individual authors and do not necessarily represent the views of Dialogue. This journal is also supported by Knowledge Partners, including Duke Corporate Education as Lead Knowledge partner. Whenever an author is related to a Knowledge Partner it will be noted as such. Dialogue takes every effort to credit photographers but we cannot guarantee every published use of an image will have the contributor’s name. If you believe we have omitted a credit for your image, please email the editor. ISSN: 2053-4361 Printed by Pensord, www.pensord.co.uk
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opinion
Karina Robinson Founding partner, Robinson Hambro, and former senior editor of The Banker
Striking the right work/life balance
A
few months back, I spent a weekend with eight 23-year old guys. The five lessons I learned, other than about the beauty of youth and the value of intergenerational mingling, are relevant for companies and for society. Lesson One. The young men worked in a mixture of workplaces, mainly professional services such as top accountancy and law firms, as well as global corporations. Virtually all had steady girlfriends. Ambitious, valuesdriven and fun-loving, they did not separate work and play in the same way as earlier generations. One, with a top degree from Oxford, had chosen Bain over McKinsey, believing the latter would allow him to “have a life.” Consultancy Bain has published some of the most ground-breaking studies on flexible working. Whether or not it encourages its employees to spend time with their hobbies and families, the perception is that it does and this attracts high calibre candidates of either gender. Many firms still believe flexible working appeals only to prospective mothers. Lesson Two. One young man worked for food giant Mars. The $30 billion company, owned by the fourth generation of the family, can scoff at quarterly reporting and short-term profit maximization, and focus on the longer term. One of its five principles is freedom, by which it means the freedom that comes from not selling stock or taking on restrictive debt, a very interesting use
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of the word and one with which more of the millennial generation identify. The founders of companies like Google may have raised money by selling shares, but they kept control by issuing equity that had minimal voting rights. In fact, they took this even further when raising
Ambitious, valuesdriven and funloving, they didn’t separate work and play the same way as earlier generations capital in the spring of 2014. The shares have no voting rights at all. Lesson Three. The chairman of a US-headquartered bank discussed the challenges of keeping clever executives motivated in a lower-growth economy where regulation limits payouts. The old formula is no longer standard: the one in which you work absurd hours, often on boring assignments and, as you climb up the banking ladder, ever larger bonuses are yours. Therefore, intellectual stimulation and the ability to learn new things during work becomes a key offering to retain promising employees. This bank emphasizes the value and excitement of its internal training and its ability to help employees grow. Its
“university” creates projects that are cross-function and cross-geographic, allowing employees to integrate and identify beyond the narrow silos that make up banking today. Lesson Four. Learning is not a one-way street, a delivery from the older mentors to the younger mentees, as it was for my generation X. Firms know it is vital to understand how to use technology and social media. This knowledge must be incubated inside the company. Three years ago, Mastercard realised that only 3% of its employees represented the millennial generation. This was holding the company back. Now millennials make up 30%. Lesson Five. For these Millenials, the UK government was onto a winner with prime minister David Cameron’s emphasis on raising the nation’s wellbeing rather than an excessive focus on GDP, an idea he has partially shelved due to electoral politics. But the idea of a nation’s wellbeing has been gaining traction throughout the developed world and, crucially, ways to measure it, and thus apply a social cost-benefit analysis to government policy, is ever more advanced. The former head of the UK’s bureaucracy, Gus O’Donnell, chaired the international Commission on Wellbeing and Policy (www.li.com/programmes/thecommission-on-wellbeing-and-policy) and companies should be paying attention to the conclusions because they will affect the bottom line.
Dialogue | Sep/Nov 2014
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