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2018-05-01 The European Business Review

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Are You Following the
Right Digital Recipe?
•••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••
Why Forgiveness
Should be Part of Your
Compliance Initiative
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Audio Branding: Using
Sound to Build Your Brand
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Luxury’s Selective Distribution in the Age of Amazon
Mining Actionable Information
with Smart Capture
Enno Lueckel
Vice President EMEA at Ephesoft
May- June 2018
europeanbusinessreview.com
BACK
Sherilyn Williams Casiano on providing the
true control of their wealth
USA $22 EU €17.5
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MORE THAN A PROMISE. Thanks to Harting’s invention, the smart factory is becoming reality.
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The European
Business Review
empowering communication globally
MAY – JUNE 2018
9
DATA PRIVACY
Why Mark Zuckerberg’s Leadership Failure was a Predictable Surprise
David De Cremer
13
COMPLIANCE
Why Forgiveness Should be Part of Your Compliance Strategy
David De Cremer
18
BIG DATA
The Three Types of Big Data That Matter for CMOs
David Dubois and Gilles Haumont
20
INTERVIEW
Mining Actionable Information with Smart Capture
Interview with Enno Lueckel, Vice President EMEA at Ephesoft
23
DIGITALISATION
Are You Following the Right Digital Recipe?
Tracey Countryman, David Abood, Aidan Quilligan,
Raghav Narsalay and Aarohi Sen
29
DATA MANAGEMENT
Waking Up to Data Quality
Tadhg Nagle, Thomas Redman and David Sammon
34
COVER STORY
Take Back Control: Sherilyn Williams Casiano on
3URYLGLQJWKH$IÁXHQW7UXH&RQWURORI 7KHLU:HDOWK
42
GOVERNANCE
Becoming the Chairman
Didier Cossin and Michael Watkins
47
LEADERSHIP DEVELOPMENT
Designing Results-Oriented Leadership Development Programmes
Camelia Ilie, Guillermo Cardoza and Schon Beechler
51
DIGITAL TRANSFORMATION
Five Leadership Lessons that will Help you Boost Productivity
Deborah Sherry
55
60
72
MARKETING
What the French Open can Teach Businesses about Branding:
The Ten Key Lessons Every Marketer Should Know
Laurence Minsky and Colleen Fahey
LUXURY STRATEGY
Amazon, Just a Click Away from Luxury: What are the
Implications for Selective Distribution?
Xavier Derville and Jean-Noël Kapferer
GLOBAL BUSINESS
How Global are Germany’s Largest Corporations?
Niccolò Pisani and Omar Toulan
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THE MILLION DOLLAR QUESTION
ore than a decade ago, the metaphor “data is
the new oil” shook the world and left organisations scrambling for ways on how they
could translate it into tangible value for their business.
While others already reaped and are reaping the
EHQHÀWV HPHUJLQJ IURP WKH ZHDOWK RI GDWD DW WKHLU
disposal, some are still saddled as they don’t have
the platform and superior knowledge to compete
amid the data gold rush in today’s business world.
This leads us all to the question: How then could
\RXU HQWHUSULVH EHQHÀW IURP WKH DFWLRQDEOH DQG UHOHYDQW
GDWD DYDLODEOH WRGD\"
Our conversation with Enno Lueckel, Vice
President, EMEA at Ephesoft answers this question. He shares his insights on how their innovative
solution – Smart Capture – can facilitate organisations’ quest to mine unstructured data and make it
into actionable information.
From a wealth management perspective, data and
information also play a key role. In the cover story
of this issue, Sherilyn Williams Casiano, Founder
and CEO at S.I. Williams Wealth Management,
LLC, reveals the keys to successful wealth management based on her years of experience in the family
RIÀFH LQGXVWU\ DQG KRZ KDYLQJ DFFHVV WR ´KLJK
quality information” is a prerequisite for gaining
true control of your wealth.
Furthermore, David de Creamer sheds light
on one of last month’s hot topics which revolves
around the issue on data privacy – the Cambridge
Analytica controversy which put Facebook’s CEO
Mark Zuckerberg to Senate inquiry.
His analysis is connected to his visionary piece
that was published in our Jul/Aug 2017 issue entitled
M
“The Challenge of Leading Digital Platforms in
Responsible Ways” which predicted the ethical and
leadership crisis facing Facebook today.
)XUWKHU LQ WKLV LVVXH \RX·OO ÀQG D URXQGXS RI other important matters for businesses.
The experts at Accenture discuss how to use the
perfect digital recipe to cook a successful dish of
digital reinvention for your business.
On Leadership and Management, we highlight
the essential leadership qualities to “Becoming the
Chairman”, and how CEOs can prepare for this
new governance role.
In the Industry Focus we look at the Luxury
Industry and review the strategy of selective distribution in the age of Amazon.
Completing the list of the comprehensive features
within this issue are topics related to Compliance
Culture, Audio Branding, Executive Education and
Digital Transformation Strategies.
May this issue gives you a head start and inspiraWLRQVWRÀQGWKHVROXWLRQV\RXDUHORRNLQJIRU
Have a great time reading!
Production & Design: Angela Lamcaster Print Strategy: Stefan Newhart Production Accounts: Lynn Moses Editors: Elenora Elroy, David Lean Group Managing Editor: Jane Liu Editor in Chief:
The European Business Review Publishing Oscar Daniel READERS PLEASE NOTE: The views expressed in articles are the authors' and not necessarily those of The European Business Review.
Authors may have consulting or other business relationships with the companies they discuss. The European Business Review: 3 - 7 Sunnyhill Road, London SW16 2UG, Tel +44 (0)20
3598 5088, Fax +44 (0)20 7000 1252, info@europeanbusinessreview.com, www.europeanbusinessreview.com No part of this publication may be reproduced or transmitted in any form or
by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without written permission. Copyright © 2018 EBR Media Ltd.
All rights reserved. ISSN 1754-5501
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Data Privacy
Why Mark Zuckerberg’s
LEADERSHIP FAILURE
was a Predictable Surprise
BY DAVID DE CREMER
In today’s more developed global
village, responsible leadership is
of paramount importance especially from businesses that make
use of digital platforms. In 2017, we
published an original article by De
Cremer, Zhang, and De Schutter
entitled “The Challenge of Leading
Digital Platforms in Responsible
Ways”, which pointed out the disasters that Facebook and other digital
platforms could face because of their
lack of responsible leadership and
why simply relying on legislation to
tackle the ethical challenges of digital
platforms is reactive at best. Today, as
requested by The European Business
Review, De Cremer provided an
updated analysis on what they
have predicted in 2017 in relation to
the emergence of the Cambridge
Analytica controversy. The big question today is how can Facebook,
through Mark Zuckerberg’s leadership prevent people from dwelling in
a realm of turmoil?
n our super connected world,
hardly anyone will have escaped
the news that the most famous of
social media platforms, Facebook,
has misused personal information
I
at a very large scale. According to a
recent update on 4th April 2018, it may
well be that the data of as many as
87 million Facebook users has been
accessed. The core of this privacy
VFDQGDO LV WKDW )DFHERRN SURÀOHV ZHUH
PLQHG IRU GDWD WR EH XVHG WR LQÁXHQFH
the U.S. and UK elections. Facebook
According to a recent
update on 4th April
2018, it may well be
that the data of as many
as 87 million Facebook
users has been accessed.
SURYLGHG DFFHVV WR WKHVH SURÀOHV WR
academic scholars, with the pledge
to only use the data for scholarly
purposes, but it soon became clear
that this was not the case. It seems
that scholars working together with
the now infamous British analytics
ÀUP &DPEULGJH $QDO\WLFD SURYLGHG
(knowingly or not) this company the
“holy grail” of big datasets to use
SHRSOH·V SHUVRQDOLW\ SURÀOHV WR JDLQ
the upper hand in several political
battles across the globe.
Most of us watched in disbelief
the evidence mounting that Facebook
allowed personal information to be used
for political purposes and eventually went
into shock when it was revealed how
PDQ\ )DFHERRN SURÀOHV KDG EHHQ GDWD
mined. Wasn’t it the case that Facebook,
as a reputable and competent company,
was believed to be able to protect the
privacy of its users? In fact, in June 2017,
the founder and CEO of Facebook, Marc
Zuckerberg, told in an interview with
Freakonomics Radio: “of course, privacy
is extremely important, and people
engage and share their content and feel
free to connect because they know that
their privacy is going to be protected [on
Facebook]". No matter how much disbelief the world may communicate, this
SULYDF\VFDQGDOFDQEHLGHQWLÀHGDVDIXOO
ÁHGJHG SUHGLFWDEOH VXUSULVH $QG WKH
reason why this is the case is the lack of
responsible leadership that founders and
companies using digital platforms as their
business strategy display.
A predictable surprise is the
www.europeanbusinessreview.com
9
Data Privacy
emergence of a disastrous event that companies
could have anticipated and prepared for (Bazerman
& Watkins, 2003)1. A problem, however, is that too
RIWHQ FRPSDQLHV GR QRW LQYHVW VXIÀFLHQW WLPH DQG
resources in the short term in order to avoid potential negative consequences that may emerge in the
future. As I will explain below, for Facebook, the
reason why they failed to act in a more responsible way concerns their own psychological biases
and hubris. And, unfortunately, such neglect of
responsible behaviour has turned into a predictable surprise in which the damage may take years to
repair. Indeed, as indicated by Mark Zuckerberg in
a podcast interview with media outlet Vox: “I wish
I could solve all these issues in three months or six
months, but I just think the reality is that solving
some of these questions is just going to take a
longer period of time.”
Is all this negative buzz and excitement unique
to Facebook? Not really. It is something that almost
seems inherent to any company adopting digital
platform strategy. So, what is the problem with
creating digital platforms to – using the famous
words of many important Silicon Valley executives – improve people’s lives? Of course, trying to
improve human lives is not a problem, the problem
reveals itself when looking at the motivation of
most entrepreneurs using this platform strategy.
Last year, I, Zhang, and De Schutter already pointed
out the disasters that Facebook and other digital
platforms could face because of their lack of
UHVSRQVLEOH OHDGHUVKLS 6SHFLÀFDOO\ WKHVH DXWKRUV
wrote: “As with any business strategy that is new,
revolutionary and aimed at raising growth quickly,
the focus of platforms is directed primarily towards
the product itself and less so at the possible longterm consequences at the societal level.” (p. 13)2
And, it is exactly this extreme focus on the product
which makes Zuckerberg and many others among
I call it a blind spot, because their obsession
with creating something that the world had not
seen before, but would change the lives of us all,
makes many entrepreneurs see the value of their
undertakings in creating innovation itself, but
not at all in its potential consequences.
10
The European Business Review May - June 2018
him suffer from a blind spot to take on any sort of
responsible leadership. How so?
I call it a blind spot, because their obsession with
creating something unique, something that the world
had not seen before, but would change the lives of us
all, makes many entrepreneurs working in this industry
see the value of their undertakings in creating innovation itself, but not at all in its potential consequences.
It makes most entrepreneurs pursuing innovation as
an end goal so focussed on their products that they
forget about the human actor involved and the consequences that could impact them. Unfortunately, when
creating a platform so innovative like Facebook, one
does carry the responsibility for the consequences the
use of this platform will produce as well. And, importantly, one is responsible for those consequences – that
ZLOOWDNHSODFHLQWKHIXWXUH²IURPWKHÀUVWGD\WKDW
the platform comes into action and not only when
those consequences reveal themselves! This latter part,
however, is not really understood well, as illustrated by
Mark Zuckerberg’s statement that only today – after
the facts are known – he noted that: “I started this
place, I run it, I’m responsible for what happens here.
I’m not looking to throw anyone else under the bus for
mistakes that we’ve made here.”
Too often, however, the beauty and attractiveness of the innovative product – the digital platform
in this case – takes the attention of the developer
away from the true implications and consequences it
could reveal towards society further down the line.
But, creating a platform that is fuelled by information sharing, creates a powerful situation that requires
responsible leadership. As such, in 2017, we wrote
that, “This truth is especially the case for digital
platforms, whose product focus is on working with
information. As we all know, those who have information also have power. It is therefore suggested that
with great power also comes great responsibility.” (p
.13)2 So, why then do we not see greater responsibility
undertaken from these leaders? It is fair to say that
being blind or naïve to the fact that – as the founder
and CEO of Facebook – one is responsible “for this”
is underpinned by a certain psychology.
An important problem is that Facebook and
others in this business have reasoned for a long
time that the platform will regulate itself because
(a) the user’s own interest in connecting with others
worldwide and sharing information as a way to do
so was regarded as a self-regulating mechanism, and
Companies are advised to be present in the platform community to facilitate and
coordinate the exchanges that lead to trust and cooperation building systems.
(b) disclaimers including legal terms and conditions
would induce a sense of responsible information
sharing practices (meaning that Facebook did not
have to actively monitor this). As we all know now,
unfortunately, it did not. Even worse so, in this rather
naive approach on what it takes to run a digital platform in responsible ways, the same mistakes as in
WKHÀQDQFLDOFULVLVVHHPREVHUYDEOH,QIDFWLQRXU
2017 piece, we commented on this exact issue: “As
ZDV WKH FDVH ZLWK ÀQDQFLDO PDUNHWV WRGD\·V EXVLnesses making use of digital platforms also seem
to embrace a certain type of Adam Smith’s “invisible hand”. In other words, creating the platform is
seen as the responsibility of the company whereas
regulating its workings is more an issue of the platIRUP XVHUV 8QIRUWXQDWHO\ DV WKH ÀQDQFLDO FULVLV
showed that the invisible hand is more a fantasy
than reality, in a similar way, digital platform businesses are increasingly being confronted with a host
of unethical consequences due to a lack of responsible leadership and regulation.” (p. 13)2
This belief in the self-regulating capacities of
one’s beautiful and innovative platform design results
in its founders not feeling obligated to lead and coordinate what is happening on the platform. As we
said in our 2017 piece, “One important thing that
is common in these examples is that the respective
company owners did not directly feel responsible for
the rules of play. In other words, as demonstrated by
these platform builders, responsible leadership was
and is lacking.” (p. 14).2 One could maybe maintain
this point of view if the platform is a small one and
the community of users is transparent and accountable. However, Facebook prides itself in leading the
world in social media use with an audience of over
2 billion active users – meaning that the Facebook
community is larger than any country in the world!
Under those circumstances, clear guidance and leadership is needed. One can only deceive oneself in
this case if one believes that such a population mass
can responsibly coordinate itself. For this reason, we
advised companies using a digital platform strategy
in the following way: “[What is] important to take
into account here is that if platforms increasingly
grow bigger, collaboration between the different
stakeholders will be less coordinated and diffusion
of responsibility will emerge. If this is the case, the
platform community will be unable to regulate themselves. Companies are therefore advised to be present
in the platform community to facilitate and coordinate the exchanges that lead to trust and cooperation
building systems.” (p. 15)2
Nevertheless, once ethical dimensions are
removed from the leadership equation, it is hard
to change the view of founders and CEO’s with
what is currently happening. As we (2017) noted:
“In the US, Mark Zuckerberg has recently been critLFLVHG WKDW YHULÀDEO\ IDOVH PHVVDJHV GLVWULEXWHG RQ
)DFHERRNLQÁXHQFHGWKH86SUHVLGHQWLDOHOHFWLRQV
In response to these accusations Zuckerberg noted
WKDWLWZDVFUD]\WKDW)DFHERRNFRXOGLQÁXHQFHWKH
outcome of the presidential race and downplayed
the amount of fake news out there.”(p.14)2 To overcome such blindness, it then takes a disaster to
happen that reveals itself in a painstaking way that
one failed when it came down to taking responsibility for the great powers one was given by the
community of platform users. And, indeed,
only now, Zuckerberg is able – with
KLQGVLJKW DV D EHQHÀW ² WR FRPH
to terms with his own ethical
failures. As he recently
noted, on 4 April
2018, that he:
Facebook CEO Mark
Zuckerberg arrives
to testify before
a joint hearing
of the US Senate
Commerce, Science
and Transportation
Committee and
Senate Judiciary
Committee on Capitol
Hill, April 10, 2018 in
Washington.
CREDIT: Andrew
Harnik/AP/REX/
Shutterstock
www.europeanbusinessreview.com
11
Data Privacy
A pro-active way
of leadership makes
leaders aware of the
potential pitfalls that lie
ahead, preparing them
to anticipate and avoid
potential ethical failures.
“never should have referred to fake
news as "crazy" as he did during the
2016 U.S. Presidential election.”
The problem is that founders of
these digital platforms do not see any
personal responsibility for what happens
once the platform is running, simply
because they only see responsibility for
their direct observable actions but fail
to see that because of their powerful
position (collecting personal information from millions of people), their
sense of duty and responsibility has to
be placed in that broader community of
platform users. Now this privacy crisis
has surfaced, Mark Zuckerberg seems
to understand this important message.
As he indicated on 4 April 2018, when
having a call with journalists worldwide:
“We didn’t take a broad enough view of
what our responsibility was”. The fact
that Facebook failed to take this broader
perspective at the same time underscores
the failure of the founder himself, which
he also acknowledged, by saying: “It was
our mistake – it was my mistake.”
It thus seems that Zuckerberg has
ÀQDOO\ DUULYHG DW WKH UHDOLVDWLRQ WKDW
the start of Facebook had to begin
with an ongoing awareness of his own
personal responsibility as the primary
driver of Facebook’s leadership in the
digital community. It is good to have this
acknowledged by a leader in the community and hopefully it can be used as a
learning opportunity for many of the
other digital platforms out there. But,
be aware, the truth is that our human
psychology can constrain even the best
of intentions. When we engage in and
commit to a new start-up or company
that promises innovative and livechanging opportunities, the ´LQQRYDWLRQ
only” blind spot may kick in and take the
necessity to display responsible decisionmaking (as early on as possible) out of
the leadership equation. It is because of
this psychological bias that we need to
be careful to only use legal disclaimers
or rely solely on box-ticking approaches
that satisfy the minimal requirements
set out by the law. Laws are reactive in
nature. Indeed, governments usually
decide to create new laws as a response to
something that has gone wrong. Hardly
ever will new laws be called into life as
a pro-active measure. And, it is exactly
this kind of proactive attitude, those
leading digital platforms where so many
potential ethical dilemmas can surface,
need to take. In fact, it has clearly been
demonstrated that being responsible in
decision-making requires a pro-active
way of leadership.3 This kind of leadership makes leaders – to the extent that
it is humanly possible – aware of the
potential pitfalls that lie ahead, preparing
them to anticipate and avoid potential
ethical failures.
About the Author
David De Cremer is the
KPMG Chaired Professor
of Management Studies at
the Judge Business School,
University of Cambridge,
UK, a founder the Erasmus Center of
Behavioral Ethics at Rotterdam School
of Management, and a Fellow of the
Royal Dutch Academy of Science. He
has published over more than 250
academic articles and book chapters and
is the author of the books ´3URDFWLYH
/HDGHUVKLS +RZ WR RYHUFRPH SURFUDVWLQDWLRQ
DQGEHDEROGGHFLVLRQPDNHUµand ´+XDZHL
/HDGHUVKLSFXOWXUHDQGFRQQHFWLYLW\µ
References
1. Bazerman, M.H., & Watkins. M. (2008). 3UHGLFWDEOH
6XUSULVHV7KH'LVDVWHUV\RX6KRXOG+DYH6HHQ&RPLQJDQG+RZ
WR3UHYHQW7KHP. Harvard Business Review Press
2. De Cremer, D., Zhang, J., & De Schutter, L. (2017).
The challenge of responsible leadership in digital platforms. 7KH(XURSHDQ%XVLQHVV5HYLHZ, July-August, 13-15.
3. De Cremer, D. (2013). 7KH SURDFWLYH OHDGHU +RZ WR
RYHUFRPH SURFUDVWLQDWLRQ DQG PDNH D EROG GHFLVLRQ QRZ
Palgrave Macmillan.
Compliance
WHY FORGIVENESS SHOULD BE PART OF
YOUR COMPLIANCE STRATEGY
BY DAVID DE CREMER
Compliance strategies are integral in creating
a trustworthy, high performing and innovative work culture. As such, it is imperative for
companies to evaluate the effectiveness of
their compliance especially in today’s complex
business world. In this article, the author highlights the advantage of putting forgiveness a
part of the compliance strategy as implemented by China’s giant telecom Huawei.
n the last two decades, the importance of having
DFRPSOLDQFHWHDPLQRIÀFHKDVLQFUHDVHGVLJQLIicantly. Several ethical failures that took place
at Tyco, WorldCom, Enron, Royal Dutch Shell and
Volkswagen – to name just a few – all have been
widely publicised and discussed. Consequently, the
existence of these numerous international scandals
pushed towards a rise in regulatory requirements
across industries. Despite the enormous number of
articles published on the need for effective compliance in today’s business world, it is somewhat
disappointing to notice that most organisations are
nevertheless only undertaking minimum requirements to maintain compliance.
As many will say, compliance activities usually
involve a tick box approach with the aim to leave a
paper trail behind. Looking at compliance this way
unfortunately reduces it to an activity relying solely
on the use of laws and rules but never going beyond
it. The result of such an approach is that work
cultures are created in which employees are fearful
to undertake any risky legitimate action and shy away
from using sound ethical judgments – “better to be
I
safe than sorry” (De Cremer, 2014). If anything
goes wrong, the dominating response is one of
blame rather than support and efforts to prevent
wrong behaviour in the future. If these descriptions
ÀW ZLWK KRZ FRPSOLDQFH ZRUNV LQ \RXU RUJDQLVDtion then realise that your company is missing out
on many opportunities to create a trustworthy, high
performing and innovative work culture.
Rather than treating compliance as an exercise in running down a tick-box list, I advocate a
view that endorses compliance as way to help all
people in the company to understand the values
the organisation wishes to pursue and how
those values relate to recognising the difference between “right” and “wrong.” One should
not forget that even today many employees
work with incomplete information under time
pressure, making that they look for advice.
Compliance efforts thus must go beyond exercising monitoring whether legal requirements
are met and shift employee’s goals to improving
the quality of their work and considering its impact
on the different stakeholders involved. This way,
organisations will be able to make the shift from
a rule- or legal-based compliance system only to a
Compliance efforts thus must go beyond exercising
monitoring whether legal requirements are met and
shift employee’s goals to improving the quality of
their work and considering its impact on the
different stakeholders involved.
www.europeanbusinessreview.com
13
Compliance
bad apples to display unethical behaviour. In fact, the prescriptive tones used
in the codes of conduct that are issued
by management assume that individuals
are rational purposive actors who act in
accordance with their intentions and
understand the implications of their
actions. This approach leads to the
rather erroneous conclusion that most
business scandals must be the responsibility of a few bad apples. Or, put
in simple terms, it is only bad people
who do bad things. This assumption
is intuitively compelling and attractive in its simplicity. On a practical
OHYHO LW DOVR IDFLOLWDWHV ERWK LGHQWLÀFDtion and actual punishment of those
deemed responsible. However, the
On the limits of rule-Based
ÀQDQFLDO FULVLV LQ GHPRQVWUDWHG
compliance
This over-reliance on implementing a very clearly that the invisible hand idea
more rule-based compliance culture is of Adam Smith does not work because
fed strongly by the belief that a strong completely rational markets composed
focus on compliance will make compa- of actors whose actions are 100%
nies smarter by bringing dirt to the rationally predictable do not exist.
In a similar vein our work cultures
surface. As Dimon said in response to
the London Whale case in 2012: “Since do not consist of robots attuned carethese losses occurred, we have made fully to the perfect use of information.
numerous changes that have made us As a matter fact, exactly because of
a stronger, smarter, better company.” our rather irrational nature (Ariely,
Unfortunately, simply recruiting more 2009), good people do bad things. For
FRPSOLDQFH RIÀFHUV WR HQVXUH OHJDO example, humans tend to see themrequirements are met will not make selves as more honest and fair than
a company smarter. It is important to others and this becomes a problem if
realise that a rule-based only compliance we all show this kind of biased percepsystem will only make your company tion. Indeed, because everyone believes
smarter in a perfect rational world. that they are on average more honest
In such a world, simply telling people than others, we do not consciously
what legally can be done and what not see our own initial ethical lapses and
would indeed work and lead only the as result quickly end up on slippery
value-driven compliance approach in
which legal requirements are explained
in terms of – and provided meaning by
– the values the organisation aims to
achieve. All of this may sound simple
in theory, but reality proves that accomplishing such a work culture is more
complex than one may realise. As a
case in point consider the response
of Jamie Dimon, CEO of JP Morgan,
who said that since 2012 his bank hired
an additional 13,000 people to work in
compliance. In addition, the company
spend an additional $4 billion on
compliance and recruited extra 5,000
employees.
slopes in which one unethical act is
followed up by another more severe
one. At the time that we realise that this
is happening, we have often escalated
DOUHDG\ LQ VLJQLÀFDQW ZD\V ,W LV DW WKLV
point that compliance should be able
to intervene and encourage employees
to voice their problems of escalation
and work together in constructive ways
to see what can be done to remedy the
series of unethical actions that took
place. However, too often we see that
because a rule-based only compliance structure has created a culture
where employees will not speak up
out of fear to be blamed. As a result,
once employees are on slippery slopes
the company does not know that this
is happening and only can wait until
the ethical escalation results in severe
damage once it cannot be hidden
anymore. Although we believe that the
use of stricter compliance approaches
DQG FOHDUO\ GHÀQHG VHWV RI UXOHV ZLOO
make operations more transparent and
controlled, reality is that under such
conditions sensitive cases and information go underground and stay there
until they eventually explode in the face
of the company (see e.g. De Cremer &
Lemmich, 2015).
Forgiveness as a key aspect of
compliance
It thus seems clear that compliance
initiatives should primarily promote a
work culture where employees know
that advice is given when serious ethical
concerns are experienced and fear
of being blamed is removed from the equation.
To achieve such a compliance system, it is needed
that an environment exists in which the company
communicates clearly that it wishes to learn from
ethical escalations to more effectively prevent those
in the future. And, in doing so, this learning process
is perceived to be a collaborative effort between
supervisors and subordinates. Such a work culture
needs what I call an element of “forgiveness”.
Forgiveness in this context is the motivation of the
organisation to respond in constructive and prosocial ways towards a transgressor (e.g. an employee
showing unethical behaviour) combined with the
willingness to overcome together the transgressing
event. Important is that a forgiving act is perceived
by the employee as not including a punishing and
vengeful desire but rather a desire to show benevolent behaviour (McCullough, Bellah, Kilpatrick,
& Johnson 2001). One of the biggest pros of a
forgiving attitude is that it will help your business
LQ VLJQLÀFDQW ZD\V )LUVW LW KHOSV LPSOHPHQWLQJ D
culture where employees feel motivated to voice
their concerns. If employees voice ethical challenges and wrongdoing your organisation will
become a learning one. A learning culture is better
equipped to increase knowledge and be more
effective in promoting loyalty and performance.
Second, as failure in the ethical domain is inevitable, it is needed that trust is present to encourage
voice behaviour but also a sense of calling or duty
among employees to do the right thing and help
the organisation to achieve its own value-driven
purpose. Being forgiving helps in the process of
establishing trust on the long term as employees
will be ensured that unethical behaviour will not
simply be condemned but that efforts will be
devoted to understanding the reasons behind the
behaviour to help both the employee and organisation. Unfortunately, so far, organisations have
not treated the concept of forgiveness as part of
their compliance work in a serious way. And, if
a willingness exists to consider forgiveness as an
effective work tool, managers and survivors turn
out to be too busy to make it part of their own
behavioural repertoire.
Huawei as a case study
In the present article, I aim to understand more carefully what kind of leadership and communication is
“Do not
discriminate against
those who have
made mistakes and
lagged behind.
We need to help
managers who have
been disciplined,
because the
purpose of our
discipline is to help
them rise again."
Ren Zhengfei
needed to facilitate the implementation of forgiveness in the company’s compliance approach. One
company that I have studied which puts forgiveness as a compliance strategy more at the forefront
LV WKH &KLQHVH FRPSDQ\ +XDZHL $W ÀUVW VLJKW LW
may be surprising that a Chinese company is seen
DV DQ H[DPSOH RI GHÀQLQJFRPSOLDQFH DV D VKDUHG
responsibility activity in which the act of forgiveness stands central. Indeed, Chinese companies are
not known for being compliant with ever changing
international regulatory frameworks. Many of these
companies stick to their local culture in which the
default thinking is one of being willing to bypass
compliance to win business. As a result, Chinese
companies have less experience of dealing with
international legal requirements, and therefore
regularly fall foul of overseas regulations. Huawei,
however, differs from the traditional Chinese
company in important ways when it comes down
to operating overseas. Although this telecom giant
was founded in 1987 in Shenzhen by Ren Zhengfei
it currently employs around 180,000 employees and
serves more than 3 billion customers worldwide.
These numbers indicate that the company, although
being Chinese in its foundation, has adopted quickly
an international mindset in managing business the
global way (De Cremer & Tian, 2015). This makes
that Huawei’s identity, since its inception, has shifted
towards an integrative work culture where Chinese
and Western philosophies and traditions meet.
Along with this global mindset came a strong sense
RI DZDUHQHVVWKDWZKDWPD\VXIÀFHLQ&KLQDZKHQLW
comes down to compliance will not be adequate for
their overseas operations.
Huawei’s current strength in the compliance area
lies in the fact that they used own compliance failures very well to distribute the idea well among their
employees that operating globally implies that one
cannot think of the company as being one that is
only subject to Chinese rules. Indeed, in 2015, Ren
Zhengfei, admitted that there were many challenges
for the company in dealing with corruption and
IUDXG6HYHUDOHPSOR\HHVZHUHLGHQWLÀHGDVFRPLQJ
up with fake numbers and engaging win acts of
corruption; events that motivated Huawei to focus
on implementing better internal regulation and
compliance. According to Ren Zhengfei, Huawei as
a private company had to be responsive to create a
work culture where no fear exists to discuss moral
www.europeanbusinessreview.com
15
Compliance
Compliance within the company is a shared responsibility - a collaborative culture needs to exist in which
ethical failures and acts of wrongdoing can be discussed and forgiven to learn and eventually move forward.
and compliance issues and where
responsibility is taken to achieve a
healthy relationship between growth
and doing business the right way.
When forgiveness and leadership
responsibility are part of compliance
In the last few years, Huawei’s approach
to enhance compliance has not been in
VLPSO\ KLULQJ PRUH FRPSOLDQFH RIÀcers because the company considered
such an approach as one that would
heavily step on people who get caught
up in mistakes. Rather, their founder
stressed the need for inspiring those
employees who committed wrong
behaviour to focus them on the right
things again. This approach would
DOORZWKHPWRUHÁHFWRQWKHLUPLVWDNHV
and motivate not only the individual
but their whole team as well to be
more self-disciplined and responsible
towards the future.
Such vision relies on emphasising the
need for being willing to forgive to learn
towards the future in dealing better with
compliance failures. Indeed, as Ren
Zhengfei notes: “Do not discriminate
against those who have made mistakes
and lagged behind. We need to help
managers who have been disciplined,
because the purpose of our discipline is
to help them rise again. As long as they
KDYHUHFWLÀHGWKHLUPLVWDNHVZHVKRXOG
give them opportunities to pick themselves up and reach for even greater
heights.” This quote implies that Ren
wants leadership in Huawei to build a
culture in which they provide help and
mentorship to young and inexperienced
managers who have been disciplined
and demoted rather than simply raising
WKHUHGÁDJWRSURWHFWWKHLURZQPDQDJHment positions. Interestingly, Ren does
not only limit the application of such
16
a sense of leadership responsibility
to those in individual manager positions but also to the whole company.
His speech in 2017 at a regional president’s meeting is telling in this respect.
He argued the following: “Shouldn’t
Head Quarters (HQ) also be accountable for their mistakes? If HQ just
shirks its responsibilities once mistakes
are found how can HQ live up to the
name of HQ? When can’t HQ just step
forward to take a share of the discipline? Only when you step forward you
can be called a hero.”
With this last quote, the founder of
Huawei stresses clearly that compliance within the company is a shared
responsibility, which suggests that a
collaborative culture needs to exist
in which ethical failures and acts of
wrongdoing can be discussed and
forgiven to learn and eventually move
forward. It is only when leaders can
take the responsibility to help others
when being on slippery slopes to come
forward and to help them put on the
right track again that Ren Zhengfei
will see them as heroes who contribute
to the value of the company. That
Huawei is serious about the use of
compliance in this way was emphasised when Ren Zhengfei mentioned
last year that “Our company is undergoing a transformation: keeping up
with the existing pace is not enough;
you also need to keep up with the pace
of future development. You should be
proactive, speak out at the team meetings, and at big conferences to create a
vibrant climate for discussion.”
In conclusion, in the aftermath of
their own failures, Huawei has implemented a form of compliance that
explicitly includes the importance of
leaders being role models for the type
The European Business Review May - June 2018
of behaviour that needs to be shown but
also creating the right type of culture
that helps employees speak up and
learn from their failures. In the eyes of
Ren Zhengfei this kind of compliance
idea emphasises that the Huawei leadership is supportive of their employees
to ensure that the best situations are
created for employees to perform up
their best level by acknowledging the
irrational nature of humans to account
and learn from ethical failures.
About the Author
David De Cremer is the
KPMG professor of
management studies at the
Judge Business School,
University of Cambridge,
UK, a co-founder and co-director of the
One Belt One Road center at the
University of Cambridge and a visiting
professor at Peking University HSBC
Business School. He has published more
than 205 academic articles and book
chapters and is the author of the book
3URDFWLYH /HDGHUVKLS +RZ WR RYHUFRPH
SURFUDVWLQDWLRQ DQG EH D EROG GHFLVLRQPDNHU
and co-author of +XDZHL /HDGHUVKLS
FXOWXUHDQGFRQQHFWLYLW\
References
1. Ariely, D. (2009). 3UHGLFWDEO\ ,UUDWLRQDO 7KH
+LGGHQ)RUFHV7KDW6KDSH2XU'HFLVLRQVHarper
2. De Cremer, D. (2014). Why ethics is often grey
and not white: Business ethics challenges in a
global world. 7KH:RUOG)LQDQFLDO5HYLHZ, January/
February, 23-25.
3. De Cremer, D., & Lemmich, B. (2015).
Compliance alone won’t make your company safe.
+DUYDUG%XVLQHVV5HYLHZ, May.
4. De Cremer, D., & Tian, T. (2015). Leading
Huawei: Seven leadership lessons of Ren Zhengfei.
7KH (XURSHDQ %XVLQHVV 5HYLHZ, September/October,
30-35.
5. McCullough, M.E., Bellah, C.G., Kilpatrick,
S.D., & Johnson, J.L. (2001) Vengefulness:
Relationships with forgiveness, rumination, wellbeing, and the Big Five 3HUVRQDOLW\ DQG 6RFLDO
3V\FKRORJ\%XOOHWLQ 27(5): 601–610.
Society of Corporate Compliance & Ethics
Data Governance
Conference
25–26 June, 2018 | London, UK
While GDPR provides a large mandate, it’s far
from the entire story. This conference, designed
for legal and regulatory compliance professionals,
examines a full range of compliance challenges
associated with managing and securing data.
Join us to gain a better understanding of the risks
and best practices for proper compliance in data
governance and to become a more skilled data
steward.
corporatecompliance.org/data
Questions? beckie.smith@corporatecompliance.org
NEW
for
2018
Big Data
THE THREE TYPES
OF BIG DATA THAT
MATTER FOR CMOS
BY DAVID DUBOIS AND GILLES HAUMONT
Organisations today have massive
amount of data at their disposal.
However, not all C-level executives
have clear typology of the digital
data that can help marketing strategists unlock value. Discover how
this issue can be addressed towards
an enhanced analytics capability,
strengthened data management
and the creation of tangible value
for your business.
ith a few exceptions, the bulk
of brands to date have mostly
leveraged big data for shortterm purposes. For instance, companies
have learnt how to manage their online
reputation by creating social media
command centres that can detect and
react to consumer chatter in real time.
They’ve also learnt to track the recent
online behaviour of customers, which has
helped them run more targeted advertisements. But this makes C-level executives
at best very effective bill posters (when
they manage to attract their customers’
attention), at worst spammers (when their
messages are misplaced or even worse,
irritate customers).
This is due in part to the hype around
big data, a less than adequate moniker
for what’s just the acceleration of data
W
18
collection and processing capabilities
as a result of digital connectedness.
Because big data is multi-formed, the
initial approach of business thinkers
and commentators was to break it into
volume, variety and velocity.
Beyond these descriptive features,
C-level executives lack a clear typology
of the digital data that marketing strategists can leverage to produce novel and
important competitive insights. This
leaves them with steep challenges in how
to think about these data and act on them.
The 3S typology
What kinds of big data can best unlock
value? In practice, we observe three
broad types of big data that really
matter in helping CMOs get a deeper
understanding of their customers and
competitive ecosystems: Social, Search
and Site (Figure 1).
Social footprints
7KHÀUVWW\SHRI ELJGDWDFRPSULVHV
consumers’ and companies’ footprints on social media and other public
platforms, such as Twitter, Facebook,
company websites, media or blogs.
Massive by the sheer amount of
content produced daily – for instance,
one hour of video is uploaded every
1
The European Business Review May - June 2018
second on YouTube alone – this body of
content is the visible part of the iceberg:
what people say and share in public or
semi-public contexts. It contains very
rich information, from public interest in
DEUDQGUHÁHFWHGLQWKHQXPEHURI OLNHV
or comments) to consumers’ perceptions of a brand (expressed through
emoticons or even competitive information). Practically speaking, these data
can be easily collected via social media
analytics solutions, such as those offered
by Digimind, NetBase or BrandWatch,
and are often shared within brand teams
as dashboards.
Social footprints reveal “public
sentiment” around brands. While
important to know, such visible
FRQWHQW GRHVQ·W DOZD\V UHÁHFW DFWXDO
behaviour. For instance, research
shows that some product categories,
e.g. cosmetics, yield a disproportionally high amount of online chatter,
compared to other categories.
C-level executives lack a clear
typology of the digital data
that marketing strategists can
leverage to produce novel and
important competitive insights.
2
Search footprints
The second type of big data, even more massive, comes
from search behaviour. Representing two trillion searches
per year across all major search engines such as Google or Baidu,
WKHVHGDWDW\SLFDOO\UHÁHFWXVHUV·SHUVRQDOLQWHUHVWVDQGWKXVIRUP
an essential part of the iceberg under water. From this perspective, understanding groups of consumers’ search journey can
provide extremely valuable information on their interests. In
practice, aside from Google Trends, Google AdWords and their
equivalent at Baidu or Bing, many SEO or SEM solutions
such as KWFinder offer treasure troves of information about
XSWRGDWH DQG RIWHQ JHRJUDSK\VSHFLÀF VHDUFK YROXPHV
and associated keywords. More radical data-mining solutions
involve directly tapping into millions of search behaviours
to identify consumers’ needs, attitudes and even values for
SXUSRVHVRIVHJPHQWDWLRQSURÀOLQJRUDFWLYDWLRQ
3
Site footprints
The third type of big data comes from site footprints left
by consumers, and to begin with, those on companies’
websites. More generally, HTTP cookies or IP trackers collect
(anonymously) logs of users’ history across devices during a
certain time frame. Essentially, they collect path information
revealing individuals’ behaviour on the web. Cookies can provide
YHU\VSHFLÀFLQIRUPDWLRQRQKRZDVXEVHJPHQWRI FRQVXPHUV
get to an outcome (e.g. online purchase).
An important source of revenues for personalised retargeting
companies such as Criteo, the collection of site footprints is
increasingly challenged due to privacy concerns – a momentum
championed by Apple and its move to prevent cookies from
being collected by default on the latest version of Safari.
A promising alternative used by Tsquared Insights involves
directly collecting detailed online logs of consumer panels
SOCIAL
FOOTPRINTS
VISIBLE
CUSTOMER
BEHAVIOUR
Business leaders should recognise the biases of big
data and properly use each type of footprint
astutely before and after online purchases.
accessing tens of millions of consumers’ digital activity on
search engines, but also marketplaces such as Amazon, nonSURÀW ZHEVLWHV VXFK DV :LNLSHGLD DQG FRPSDQ\ ZHEVLWHV
This data can then be used to maximise campaign effectiveness, optimise customer journeys but also assess brands’
health across different segments.
From spammer to detective
So what does this mean for CMOs? They will need to
become agile detectives. Like Sherlock Holmes who relied
on loosely linked cues to solve enigmas, CMOs must now
navigate social, search and site inputs to generate long-term,
novel insights about customers and keep their brands ahead
of competitors. To crack this puzzle, business leaders should
recognise the biases of big data and properly use each type of
footprint astutely: VRFLDO IRRWSULQWV to unlock qualitative insights
on emerging trends or brand sentiments, sHDUFK IRRWSULQWV to
unveil how and why customers get interested in their products or services, and VLWH IRRWSULQWV to unpack the customer
journey around, before and after online purchases.
In general, we identify six golden rules for CMOs to master
these streams of big data. First, focus on key audiences. Big
data enables marketing heads to segment consumer groups
with unprecedented granularity. Second, engage customers
by identifying their real interests in the category but also
RXWVLGH RI LW 7KLUG FKRRVH WKH LQÁXHQFHUV \RXU DXGLHQFH
ERQGV ZLWK QRW WKRVH \RX IHHO DUH JHQHUDOO\ LQÁXHQWLDO LQ DOO
settings. Fourth, move quickly to adapt to new trends. Fifth,
don’t rest on your laurels. Tracking your brand’s digital health
is a continuous process. And sixth, share digital consumer
insights within your organisation, placing them where they
should be: at the heart of the decision-making process.
7KLV DUWLFOH ZDV ÀUVW SXEOLVKHG RQ WKH ,16($' .QRZOHGJH
About the Authors
SEARCH
FOOTPRINTS
SITE
FOOTPRINTS
CUSTOMER JOURNEY
INVISIBLE
CUSTOMER
BEHAVIOUR
David Dubois OHIW is Associate
Professor of Marketing at INSEAD
and Programme Director of
Leading Digital Marketing Strategy,
one of the school’s executive
development programmes. You can follow him on Twitter
@d1Dubois. Gilles Haumont ULJKW is Vice President,
Luxury & Strategy, at TSquared Insights.
www.europeanbusinessreview.com
19
Interview
Mining Actionable
Information with
Smart Capture
INTERVIEW WITH ENNO LUECKEL,
VICE PRESIDENT EMEA AT EPHESOFT
Companies collect tons of data nowadays, but
PRVW RI WKHP GR QRW \HW SURÀW IURP WKDW WUHDVXUH
The situation can be compared to the peak of the
California Gold Rush: all of the easily accessible
gold had been recovered already and mining the
rest had become very expensive, but then new
technologies were invented to recover the metal
cost-effectively. This is more or less exactly what
Ephesoft did for data: while the cost to recover
actionable information has been very high in the
past, Ephesoft introduced machine learning technology for data capture, which makes extracting
data more affordable and easier to access for
organisations of all sizes. We talked about this
approach with Enno Lueckel, Vice President
EMEA at Ephesoft, discussing how it works in
daily business and what it means for companies.
There are several data capture suppliers on
the international market. What is the difference
that makes Ephesoft’s solutions unique?
We disrupted the document capture industry by
moving from simple data collection to intelligence.
Most other suppliers focus on scanning documents,
while we introduced Smart Capture to gain actionable
LQIRUPDWLRQIRURXUFXVWRPHUV2XUVROXWLRQLVWKHÀUVW
platform which can be run on-premise and as a cloudbased Capture-as-a-Service platform, which means
ORZHUHQWU\FRVWVÁH[LEOHDUFKLWHFWXUHDQGHDV\LPSOHmentation for organisations of all sizes. Additionally,
we combine classic methods of extraction with supervised machine learning. Initially, this approach uses
20
The European Business Review May - June 2018
KXPDQ WUDLQHUV WR YDOLGDWH WKH FODVVLÀFDWLRQV IRU D
few days, but every input makes the system better,
faster and more accurate. For example, a recent client
engaged in supervised learning for only two days, and
we delivered a 92 percent increase in accuracy and 400
percent increase in productivity over what they had
achieved with a competing service before.
That sounds quite interesting! Which indusWULHV SURÀW IURP WKDW VROXWLRQ"
Any organisation that processes a wide range and
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solutions. In some companies thousands of documents are processed manually each day, week or
month. This includes – for example – companies in
WKHÀQDQFLDOVHUYLFHVEDQNLQJLQVXUDQFHKHDOWKFDUH
accounting and invoicing industries as well as governments and the education sector. Due to the approach
of combining hybrid cloud and subscription model,
our solution is not only affordable for big enterprises
but also for small- and mid-sized companies. Also,
our solution allows organisations, which currently
store their unstructured data in dispersed storage
centres, to merge this hard-to-access data into actionable information. This improves accuracy as well as
transparency and reduces risks.
92%
increase in
ACCURACY
400%
increase in
PRODUCTIVITY
Due to the approach of combining hybrid cloud
and subscription model, our solution is not
only affordable for big enterprises but also
for small- and mid-sized companies.
Our mission is to enable organisations to make better decisions by mining the
world’s unstructured data and transform them into actionable information.
This transparency is also important in light of the General Data
Protection Regulation (GDPR)
being rolled out by the European
Union. How does Ephesoft help
with that challenge?
That’s right. Facing the GDPR, every
company must be able to identify every
piece of a customer’s personal data. This
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emails, PDFs and all other channels,
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data within different documents and
various platforms constitutes a high risk
and can easily turn from an untapped
asset into a major liability. Companies
that do not comply with the GDPR are
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our solution Ephesoft Transact ensures
the necessary transparency and integrates document capture functionalities
into ERP, CRM, and ECM systems as
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LQFOXGH 6KDUH3RLQW 2IÀFH ,QIRU
SAP, Box, Alfresco, Salesforce and
many others.
You have announced the new
version Ephesoft Transact 4.5 –
what are the main changes coming
with this launch?
The biggest news is the many features,
which are using more and more supervised machine learning (SML), starting
with Web Services, which provide the
ÁH[LELOLW\ WR LQWHJUDWH 60/ LQWR H[LVWLQJ
document capture solutions to gather
PHWDGDWD ÀHOGV $GGLWLRQDOO\ WKH WHFKnology will provide enhanced extraction
of tables and line items. This reduces the
DPRXQW RI FRQÀJXUDWLRQ WKDW DQ DGPLQ
will need to set up in advance. Operators
can just push a button in Ephesoft
Transact and force the system to “learn”
the table in question. When it sees this
type of table in the future, it will know
which values to extract and how to extract
them more accurately. We also improved
the processing speed: at the most basic
level, the Ephesoft platform runs on a
4-core processor and customers can
upgrade to an 8-core, 16-core or higher,
depending on the necessary performance speed and number of documents
they are processing. Naturally, customers
with higher-end hardware will see a more
meaningful performance increase: a
10% increase in PPM (pages per minute)
on an 8-core and a 32% increase on a
16-core PC, while high-end hardware can
JHW \RX HYHQ KLJKHU ÀJXUHV )RU H[DPSOH
a system with three 16-core CPUs can
get a whopping 64% performance
increase with Ephesoft Transact 4.5.
In this scenario, customers can process
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course, this number only increases as you
add more cores and servers (we tested
three servers with a 32-core CPU and it
yielded almost 750 PPM).
Will there also be new developments
in regard to third-party-programs?
Yes, we introduced a new Technology
Partner export plug-in functionality,
ZKLFK LQFUHDVHV ÁH[LELOLW\ DQG LV HVSHFLDOO\
interesting for medium-sized and large
enterprises. We integrated Box, which
is becoming quite a popular repository
for documents. Users can use Ephesoft
Transact to capture, classify, and extract
metadata from their documents, then
send that information directly into a
Box repository. Organisations won’t
have to write any custom code to set
this up. Additionally, with SharePoint
we integrated one of the document
repository services with the largest
share of the market. This also functions as an out-of-the-box connector,
including comparable features. For
ERP, we partner with Infor, but also
integrate into SAP, providing different
scenarios for linking a document to a
VSHFLÀF %XVLQHVV2EMHFW LQVWDQFH DQG
SAP BDS. On a project level we also
offer integrations with SAP DMS and
SAP Folders Management.
Those sound like great opportunities! So, what will the future bring
for Ephesoft’s customers?
Our mission is to enable organisations to make better decisions by mining
the world’s unstructured data and transform them into actionable information.
Therefore, we focus on our customers,
we try to innovate new products every
two years, and we always use the latest
technology available.
About the Interviewee
Enno Lueckel leads Ephesoft’s Sales
teams in EMEA. He brings over 15 years’
experience in the areas of document
capture and enterprise content management. Prior to joining Ephesoft, Enno
built Notable Solutions’ European operations, transforming the organisation from
a technical sales approach in the MFP
industry, to an EMEA-wide provider of
decentralised capture solutions.
Turning Documents &
Unstructured Content into
Actionable Data
Gain valuable information through content
Flexible architecture: cloud or on-premise
îƎƥƭƑĚƙēîƥîIJƑūŞîŠNjƙūƭƑČĚîŠēIJūƑŞîƥ
Enables GDPR compliance
Our supervised machine learning-powered document
and data capture solution reduces errors, improves
DžūƑŒǷūDžîŠēƙîDŽĚƙNjūƭŞūŠĚNjɍ
Learn more about Ephesoft solutions www.ephesoft.com/transact
Digitalisation
ARE YOU FOLLOWING THE
RIGHT DIGITAL RECIPE?
BY TRACEY COUNTRYMAN, DAVID ABOOD, AIDAN
QUILLIGAN, RAGHAV NARSALAY, AND AAROHI SEN
To produce a successful dish of digital reinvention, start by combining six ingredient
technologies. Here’s how to get cooking.
D
igital technologies have been feeding executives’ appetite for growth, cost savings, and
innovation for years. Each one promises
nourishment and sometimes brings delight. But how
many business leaders are considering the value of
combining technologies to create one gourmet meal?
So far, not many. And to be fair, technologies such
as augmented reality are still very much emerging. Yet
some companies have already discovered the power
of combination and are reaping the rewards.
We studied the performance of 800 companies in 12
manufacturing and resources-based industries and 21
FRXQWULHV$FFRUGLQJWRRXUUHVHDUFKWKHÀYHSHUFHQW
of organisations that combined six ingredient technologies – mobile computing, big-data analytics, machine
learning, augmented and virtual reality, autonomous
robots and autonomous vehicles – lowered their
overall costs by 14% between 2013 and 2016. And we
found trailblazing “combiners” in every industry and
country. Cost savings for those not combining the six?
They saw a negligible cost reduction – less than one
percent. (We used a broad mix of research methods –
See “About the Research” next page.)
That raised even more questions for us: Can
this technological combination really work for
every company? What makes this combination so
special? Which companies have mastered the art
and science of combination, and what can we learn
from their experiences?
To answer these questions, we examined cases of
organisations that are combining multiple technologies. After poring over the results, we believe these
six make for a formidable combination, and every
executive should understand how each strengthens
WKHRWKHUIRUWKHEHQHÀWRI JURZWKHIÀFLHQF\DQG
future innovation. Recipes are meant to be tweaked
and improved, to be sure. But skilled chefs understand the value of a broad range of ingredients and
why they work better in combination.
The Ingredients and the Recipe
Let’s look at the six ingredients, and how one major
industrial company is using them all:
1. Mobile computing. Smartphones, tablets,
and other handheld devices generate a massive
amount of data – 10 million gigabytes every hour,
to be exact.1 For example, Volvo’s On Call mobile
app which gives drivers all sorts of information and
utility. Volvo owners use the app to see where the
car is parked, monitor fuel levels, double-check to
Technologies such as augmented reality are still very much emerging. Yet some
companies have already discovered the power of combination and are reaping the rewards.
www.europeanbusinessreview.com
23
Digitalisation
About the Research
In 2017, we surveyed 931 senior executives from manufacturing and resources
businesses across 12 industries in 21 countries (companies with annual revenues
of more than US$500 million). The survey attempted to understand: (1) the digital
technologies that were being deployed by companies to drive new-to-market
HIÀFLHQFLHV DQG K\SHUSHUVRQDOLVHG H[SHULHQFHV WKH FKDOOHQJHV RI GHSOR\LQJ
digital technologies; and the (3) investments being made in digital technologies and
FDSDELOLWLHVWRGHOLYHUQHZHIÀFLHQFLHVDQGQHZJURZWK,QRXUVXUYH\ZHDVNHG
executives about the digital technologies (out of a list of 10) that were critical for
driving KLJKHURSHUDWLRQDOHIÀFLHQF\ and K\SHUSHUVRQDOLVHGH[SHULHQFHV.
We designated these two outcomes as performance dimensions to map
the impact of digital technology combinations on the bottom-line and topline of corporations, respectively.
We then applied principal component analysis (PCA) to the data set to identify
how the technologies correlated with one another to drive these two performance
dimensions. The PCA analysis returned 5 different technology combinations.
Our model translated each into an index, assigning scores to each company
based on their responses.
:HFKRVHWKHFRPELQDWLRQZLWKWKHPD[LPXPÀQDQFLDOLPSDFWWRUHDUUDQJH
the company list in decreasing order of index scores.
We then compared the top 10% from that rearranged list with the
bottom 90%. The top 10% percent reduced overall costs by 14%. The
bottom 90 by only 0.6%.
see if a window was left open or a door
ajar, and even start the engine remotely.2
2. Big-data analytics. Volvo analyses all that user data in collaboration
with Teradata, the business-analytics
VROXWLRQVSURYLGHUWRÀQGSDWWHUQVWKDW
can make the driving experience safer
and more convenient.3
3. Machine learning. Next, Volvo
translates trends in the data they collect
into something meaningful for everyday
operations. Take their ongoing work to
be a leader in driverless cars. More than
20 cameras, radars, and laser sensors
on board every Volvo vehicle stream
real-time data to Nvidia’s autonomousvehicle computing platform, which
helps the car learn to react to situations
on the road.4
4. Augmented, virtual, and mixed
reality. How else will intelligent machines
interact with humans in the future?
Augmented, virtual, and mixed reality
will be the “next screen”. In 2014,
Volvo partnered with Google to use
the tech giant’s Cardboard VR for
the launch of its redesigned XC90
SUV. Paper goggles, paired with an
Android/iOS app, now allow potential customers to test-drive the XC90
from their home.5 Volvo is also using
Microsoft’s HoloLens mixed-reality
headset to train factory and service
workers and help design new vehicles;
the company is hoping HoloLens
will enable engineers and designers
to communicate better and speed up
vehicle development.6
5 &6. Autonomous robots and
autonomous vehicles. These related
LQJUHGLHQWV UHGXFH WKH LQHIÀFLHQFLHV
and safety risks associated with human
labour. Manufacturing and resources
industries are already the largest
purchasers of robotics products and
services. Volvo, for its part, has used
robots to make cars for decades. Some
processes – such as the welding of
metal parts and the measuring, placing,
and bolting of doors to its cars – are
now completely automated.7 Robots
are currently playing an important role
in the production of Volvo’s popular
S60 sedans.
Car companies are tailor-made to
take advantage of the sixth technology.
Volvo has developed technologies such
as adaptive cruise control, autobrakingpedestrian-detection systems, and
parking assist.8 Volvo has even launched
a large-scale trial of autonomous-driving
technology on actual roads.
One might expect a company like
Volvo to be out in front when it comes to
combining technologies. But many others
from a wide variety of industries are
ÀQGLQJYDOXHLQGLIIHUHQWFRPELQDWLRQV
Take, for example, Lowes. The homeimprovement retailer combined robotics
with augmented reality/virtual reality to
create LoweBot, an in-store robot helper.
LoweBot, made by fellow robots, uses
a 3-D scanner to detect people as they
walk into stores. Shoppers can search for
items by asking the bot a question or by
typing the item name into a touch screen.
The bottom line is, no
matter the industry,
companies can create
value by strategically
combining technologies.
The bot then guides them to the items using
smart laser sensors, similar to the technology
used in autonomous vehicles. Beyond providing
D PRUH HIÀFLHQW LQVWRUH H[SHULHQFH /RZH%RW
helps Lowes with inventory monitoring and
management in real time, detecting patterns that
can guide future business decisions.
Or Burberry. The luxury brand is combining
augmented reality and mobile computing
WR ÀQG QHZ ZD\V WR HQJDJH ZLWK FXVWRPHUV
online. Working with Apple, Burberry created
an AR feature that interacts with users’ camera
feeds to digitally redecorate their surroundings with Burberry-inspired drawings by the
artist Danny Sangra.
The bottom line is, no matter the industry,
companies can create value by strategically
combining technologies.
A Pinch of This and That
Being a master chef and running a top-rated
restaurant requires more than just serving tasty
food. Similarly, being a digital leader requires more
than just investing in the right mix of technologies.
Our case-study analysis suggests three actions
companies can take to make the most of their
digital recip: Focus on people (the chef and his team
inside and outside the kitchen), forge partnerships
(the vendors who deliver the best ingredients), and
ÀQHWXQH \RXU SHUIRUPDQFH PDQDJHPHQW (distinctive
JXLGHSRVWVRI SHUIRUPDQFHWKDWGHÀQHDQH[FHStional dining experience).
People. Companies are increasingly realising that the future is one of people working
together with machines; in a human-plusmachine world, workers will become much
more effective. Consider the example set by
thyssenkrupp, the German multinational whose
products range from elevators to submarines
to steel. In 2016, the companies’ Elevator
Technologies division launched a cloud-based,
predictive-maintenance solution called MAX
in partnership with Microsoft.9 With MAX,
thyssenkrupp’s elevator technicians can access
elevator data in real time, including motor
temperature, shaft alignment, cab speed, and
door functioning.10 And thanks to Microsoft
Azure’s machine-learning algorithms, they can
also retrieve in-depth data on the lifecycle of
each elevator’s key components and systems,
and learn instantly which parts will require
maintenance, and when.11
With HoloLens, Microsoft’s mixed-reality
smart glasses, more than 24,000 of thyssenkrupp’s service technicians can visualise and
identify problems with elevators ahead of a job.
These glasses provide remote, hands-free access
to technical and expert information when on
site, which saves time and relieves stress.12
In all, MAX has helped reduce downtime by
as much as 50% for thyssenkrupp’s customers
and reduced service-intervention times for its
technicians.13 With the solution installed worldwide, the time savings for elevator passengers
could equate to 95 million hours in each year
of operation.14 The company has already found
early success. Since its introduction, more than
110,000 elevators are now using MAX, reducing
downtime for more than 40,000 customers at
almost 49,000 sites.15
Thyssenkrupp’s service engineers are much
more productive, repairing more elevators
in a day than they ever could before. And the
company is saving money.
Partnerships. The best organisations
harness innovation from their employees and
supply-chain partners alike. Before making
Companies are
increasingly realising
that the future is one
of people working
together with
machines; in a
human-plus-machine
world, workers will
become much
more effective.
Microsoft’s mixed-reality smart
glasses – the HoloLens
Source: https://www.microsoft.
com/en-us/hololens
www.europeanbusinessreview.com
25
Digitalisation
DQ\ VLJQLÀFDQW LQYHVWPHQW GHFLVLRQV DERXW
digital combinations, companies should seek
out opportunities to collaborate with startups,
entrepreneurs, universities, and entities in their
industrial value chain. That means competitors, too. Such partnerships reduce the costs of
computation and experimentation. One partner
may invest in augmented reality and virtual
reality, another may invest in machine learning,
and yet another may invest in autonomous
URERWV%XWHYHU\RQHEHQHÀWV
Take, for example, the partnership between
a mining company (Rio Tinto), equipment
manufacturer (Komatsu Ltd.), and a steelmaker
(Nippon Steel & Sumitomo Metal Corp.).
/DVW6HSWHPEHUWKHÀUVWUHWURÀWWHG.RPDWVX
autonomous truck debuted at Rio Tinto’s Hope
Downs 4 iron ore mine in Western Australia,
replete with high-precision GPS, hazard-detection system, and a wireless network. The shared
EHQHÀWV RI VXFK D FROODERUDWLRQ DUH REYLRXV
Increased productivity, cost savings (an estimated 15% lower load and haul-unit costs), and
zero injuries. Ensuring an accident- and fatalityfree work environment is a serious business
priority for Rio Tinto at par with mainstream
SHUIRUPDQFH LQGLFDWRUV VXFK DV HIÀFLHQF\ RU
SURÀWDELOLW\7RWKDWHQG5LR7LQWRLVDOVRXVLQJ
unmanned aerial vehicles, which cast eyes on the
slopes, crests, and walls of mines, warning mine
operators of landslide risks, among other things.
%XWDWKLUGFRPSDQ\1LSSRQEHQHÀWVDVZHOO
The Japanese steel giant saw a record-breaking
VKLSPHQWRI ÀYHELOOLRQPHWULFWRQVODVW\HDU16
The company is now co-investing: Nippon has a
14% stake in the Robe River JV company, which
operates the West Angelas mine in the Pilbara
region.17 Robe River has said they will be introducing 15 autonomous trucks at the site in the
coming months.18
Partnerships like these are more than just
one-time, buyer-seller interactions. They are
long-term ongoing collaborations where every
participant leverages their own technology investments and expertise. Every tech investment has a
ROI beyond the organisation’s walls, and all partQHUVEHQHÀWLQVRPHZD\RUDQRWKHU7KDW·VZK\
companies must carefully sync and pace their
investments in consultation with one another.
Performance Measurement. How do you
really know if digital investments are paying off?
If you save money or see increases in worker
productivity levels? Sure. That’s a big part of it
and will make shareholders and executives happy.
Intel, for example, manages its business through
seven key segments. These include the Client
Computing Group, Data Center Group, and the
Internet of Things Group (IOTG).19 The company
formed IOTG several years ago to expand its
reach in the Internet of the Things market. Today,
that group includes platforms designed for IoT
market segments, including retail, transportation, industrial, video, buildings and smart cities.20
Since 2014, IOTG has been Intel’s fastest-growing
group. In 2016, sales had increased 33% from two
years earlier.21 By separating out IoT revenues from
chipset revenues in particular, Intel can properly
measure a technology bet.
But the real test is whether those new tech
applications and the digital workforces they
spawn are having a GLVUXSWLYH impact. By disruptive, we not only mean dramatic and previously
XQVHHQ LQFUHDVHV LQ SURGXFWLYLW\ DQG HIÀFLHQF\
levels, but an impact beyond the immediate-use
cases. For example, if an autonomous robot
reduces the production-cycle time of an automobile by 20%, the investment will have paid
for itself. Now imagine a scenario where these
robots can predict potential faults during product
assembly, thus reducing future product recalls. Or
if they can inform and improve vehicle design by
optimising the use of raw materials.
Given all this, companies must change the
way they measure performance. They must think
EH\RQG WKHLU WUDGLWLRQDO SURGXFWLYLW\ DQG HIÀciency metrics. To properly measure performance,
Before making any significant investment decisions about digital combinations, companies
should seek out opportunities to collaborate with startups, entrepreneurs,
universities, and entities in their industrial value chain. That means competitors, too.
26
The European Business Review May - June 2018
organisations must understand how technologies and digital
ZRUNIRUFHV GHOLYHU EHQHÀWV DFURVV RUJDQLVDWLRQDO SURFHVVHV
Cook Happy
As advanced digital technologies continue to reshape markets
and society as whole, companies have a rare opportunity to
JURZ DQG PDNH WKHPVHOYHV PRUH HIÀFLHQW WKDQ WKH\ HYHU
could have imagined. These six technologies are only the
basic ingredients. For more complicated dishes, corporations
can look to add pinches of blockchain here and dashes of 3D
printing and digital twin there.
But this core recipe will never see its full potential if leaders
don’t also invest in their people, pursue unconventional partnerships with friends and rivals alike, and change the way they
measure success.
About the Authors
OHIWWRULJKWTracey Countryman is global managing director
in resources with Accenture. David Abood is senior managing
director in resources. Aidan Quilligan is the global lead
for Accenture’s Industry X.0 practice. Raghav Narsalay
is a managing director and Aarohi Sen is a manager with
Accenture Research.
References
´*OREDO 0RELOH 'DWD 7UDIÀF )RUHFDVW 8SGDWH ² :KLWH 3DSHUµ &LVFR
(March 28, 2017). Accessed on January 20, 2018 and viewable at: https://www.cisco.
com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/
mobile-white-paper-c11-520862.html
2. “Volvo became an unlikely tech superpower when no one was watching”, Business
Insider (July 8, 2017). Accessed on January 25, 2018 and viewable at: https://www.
To properly measure performance,
organisations must understand
how technologies and digital
workforces deliver benefits
across organisational processes.
businessinsider.in/Volvo-became-an-unlikely-tech-superpower-when-no-one-waswatching/Volvo-is-interested-in-more-than-just-self-driving-cars-Its-also-investing-intechnology-to-make-its-cars-more-connected-and-convenient-/slideshow/59505068.cms
3. Big Data at Volvo: Predictive, Machine-Learning-Enabled Analytics Across PetabyteScale Datasets”, Forbes (July 18, 2016). Accessed on January 25, 2018 and viewable at:
https://www.forbes.com/sites/bernardmarr/2016/07/18/how - the - connected - car
- is - forcing - volvo - to - rethink - its - data - strategy/3/#21f0f99a612d
4. “Volvo became an unlikely tech superpower when no one was watching”, Business
Insider (July 8, 2017). Accessed on January 25, 2018 and viewable at: https://www.
businessinsider.in/Volvo-became-an-unlikely-tech-superpower-when-no-one-waswatching/Volvo-is-interested-in-more-than-just-self-driving-cars-Its-also-investing-intechnology-to-make-its-cars-more-connected-and-convenient-/slideshow/59505068.cms
5. “Volvo is using Google Cardboard to get people inside its new SUV”, The Verge
(November 13, 2014). Accessed on January 25, 2018 and viewable at: https://www.
theverge.com/2014/11/13/7217397/volvo - is - using - google - cardboard - to - get people - inside - its - new - suv
6. “Volvo's engineers use Microsoft HoloLens to digitally design cars”, CNET (October
26, 2016). Accessed on January 25, 2018 and viewable at: https://www.cnet.com/
URDGVKRZQHZVYROYRLVWKHÀUVWDXWRPDNHUWRDGGPLFURVRIWKROROHQVWR
- its - engineering - toolkit/
7. “Robotics on the rise in manufacturing facilities,” Charleston Regional Business
Journal (September 2016). Accessed on April 10, 2018 and viewable at: https://
charlestonbusiness.com/news/manufacturing/70567/
8. “Autonomous Driving”, Volvo. For more information, please visit: https://www.
volvocars.com/intl/about/our-innovation-brands/intellisafe/autonomous-driving
´WK\VVHQNUXSS UROOV RXW 0$; LQ *HUPDQ\ ZRUOG·V ÀUVW SUHGLFWLYH HOHYDWRU
maintenance service”, thyssenkrupp (April 26, 2016). Accessed on January 25, 2018
and viewable at: https://www.thyssenkrupp.com/en/newsroom/press-releases/pressrelease-61632.html
10. “Microsoft HoloLens enables thyssenkrupp to transform the global elevator
industry”, Microsoft (September 15, 2016). Accessed on January 25, 2018 and viewable
at: https://blogs.windows.com/devices/2016/09/15/microsoft-hololens-enablesthyssenkrupp-to-transform-the-global-elevator-industry/#AmJfgzw4ScgvucZM.97
´WK\VVHQNUXSSH[WHQGVSUHGLFWLYHPDLQWHQDQFHEHQHÀWVRI 0$;VROXWLRQWRPRUH
than 40,000 customers”, IoTNow (October 16, 2017). Accessed on January 25, 2018
and viewable at: https://www.iot-now.com/2017/10/16/69149-thyssenkrupp-extendsSUHGLFWLYHPDLQWHQDQFHEHQHÀWVPD[VROXWLRQFXVWRPHUV
12. “thyssenkrupp unveils latest technology to transform the global elevator service
industry: Microsoft HoloLens, for enhancing interventions”, thyssenkrupp (September
15, 2016). Accessed on January 25, 2018 and viewable at: https://www.thyssenkrupp.
com/en/newsroom/press-releases/press-release-114208.html
13. “Maximum uptime, all the time”, Thyssenkrupp. Accessed on January 25, 2018 and
viewable at: http://www.thyssenkrupp-elevator.com/en/products-and-service/max/
14. “Thyssenkrupp moves into the digital age with MAX”, Thyssenkrupp (May 5, 2016).
Accessed on January 28, 2018 and viewable at: http://blog.thyssenkruppelevator.com/
content/thyssenkrupp-moves-digital-age-maxhttp://blog.thyssenkruppelevator.com/
content/thyssenkrupp-moves-digital-age-max
´WK\VVHQNUXSSH[WHQGVSUHGLFWLYHPDLQWHQDQFHEHQHÀWVRI 0$;VROXWLRQWRPRUH
than 40,000 customers”, IoTNow (October 16, 2017). Accessed on January 25, 2018
and viewable at: https://www.iot-now.com/2017/10/16/69149-thyssenkrupp-extendsSUHGLFWLYHPDLQWHQDQFHEHQHÀWVPD[VROXWLRQFXVWRPHUV
16. “Rio Tinto’s autonomous haul trucks achieve one billion tonne milestone”, Rio
Tinto Media releases (January 30, 2018). Accessed on March 12, 2018 and viewable at:
http://www.riotinto.com/media/media-releases-237_23991.aspx
17. “Five billion tonnes of iron ore shipped from Australia”, Rio Tinto Media release
(May 17, 2017). Accessed on March 12, 2018 and viewable at http://www.riotinto.com/
documents/070517_Five_billion_tonnes_of_iron_ore_shipped_from_Australia.pdf
´5LR7LQWRWRH[SDQGDXWRQRPRXVWUXFNRSHUDWLRQVWRÀIWK3LOEDUDPLQHVLWHµ5LR
Tinto Media release (March 7, 2018). Accessed on March 12, 2018 and viewable at:
http://www.riotinto.com/media/media-releases-237_24642.aspx?utm_medium=RSS
19. “2016 Annual Report”, Intel (2017, Page 5). Accessed on January 25, 2018 and
viewable at: http://www.annualreports.com/HostedData/AnnualReports/PDF/
NASDAQ_INTC_2016.pdf
www.europeanbusinessreview.com
27
Fueling industry growth
with man and machine.
Artificial intelligence (AI) can help industries automate,
augment and innovate to bring together the very best of
man and machine. New research shows AI could increase
corporate profitability by an average of 38 percent across
16 industries by 2035. That’s one acronym and two vowels
between you and a US$14 trillion opportunity.
www.accenture.com/aiboostsprofits
Data Management
WAKING UP TO
DATA QUALITY
BY TADHG NAGLE, THOMAS REDMAN
AND, DAVID SAMMON
Bad data impacts managers and their companies
far more than most realise today and presents
an enormous hurdle for any data strategy. They
can take many simple steps to improve, but
WKH\PXVWÀUVW´ZDNHXSµWRWKHLVVXH+HUHZH
present three ways that can help them do so.
M
ost managers are vaguely aware that data
quality is an issue. They may hear of
UHVWDWHG ÀQDQFLDO VWDWHPHQWV GLIÀFXOties in meeting regulatory issues such as GDPR,
or technical issues involving systems that do not
interconnect. Even though they themselves may
be victimised by bad data from time to time, they
see the issues as “belonging to someone else” and
assume there is little they can do about them anyway.
The reality is completely different. Bad data
hurts managers, the people that report to them,
their departments, and their companies every day,
wasting time, adding enormous expense, compromising decisions, and generally making anything
WKH\ GR PRUH GLIÀFXOW1 Further, through their
inattention, they both contribute to their own
problems and to data quality issues that impact
others. All managers can, and must, take some
rather simple steps to address data quality.
Fortunately, over the last thirty years, the basic
frameworks, approaches, methods and organisational structures needed to attack data quality
have worked and proven themselves.2
This article aims to help managers and executives “wake up” to data quality, in three ways.
First, it relays the stories of those who’ve made
WKHLU ÀUVWHYHU GDWD TXDOLW\ PHDVXUHPHQWV DQG
come to grips with the implications in their own
words. All managers should take themselves
through the experience. Second, it summarises
actual data quality statistics, providing a sobering
alert that all may be victims of bad data, without
even knowing it. Third, it puts data quality in a
forward-looking context. After all, smart compaQLHVDUHLQYHVWLQJLQDQDO\WLFVDUWLÀFLDOLQWHOOLJHQFH
data-driven cultures, and monetising their data.
All such efforts will be slowed and many doomed
at today’s quality levels.
Awakening to Data Quality
As part of Executive Education Programs we conduct
LQ ,UHODQG ZH DVN SDUWLFLSDQWV WR PDNH WKHLU ÀUVW
quality measurment on data critical to their departments, using the Friday Afternoon Measurement
(FAM) method.3 The method is simple, taking no
more than two hours to complete (even on a Friday
afternoon), and best conducted by teams. Critically, All managers
can, and
FAM narrows the focus to the most recent business
must, take
activity and the most important data. We advise all
managers, everywhere, to conduct their own FAMs, some rather
following the steps provided in the references.
simple steps
The result is a number, called DQ, ranging
to address
from 0 to 100 that represents the percent of
data quality.
www.europeanbusinessreview.com
29
Data Management
Realising you have a
problem is necessary,
but not sufficient.
30
Figure 1. Distribution of DQ Scores, as measured by FAM
0.250
Fraction of DQ
scores in each decile
data records created correctly the
ÀUVW WLPH ,PSRUWDQWO\ '4 VFRUH LV
also interpreted as WKH IUDFWLRQ RI WLPH
WKH ZRUN ZDV GRQH SURSHUO\ WKH ÀUVW WLPH.
We then ask executives to reflect on
their results, to explore the implications, and to tee up improvement
projects. This effort, lasting at most a
few weeks, comprises their awakening
to data quality. From 2014 – 16, we
took 75 executives through this exercise. Their stories are fascinating
– and instructive!
7KH ÀUVW SDUW RI WKH DZDNHQLQJ
involves accepting their DQ scores.
)RU RQH PDQDJHU LQ ÀQDQFLDO VHUYLFHV
the realisation that data quality was a
critical, under-appreciated issue came
even before he and his team made
the measurement. Their focus was on
staff data and they decided to start
with a single branch. They gathered the
needed data in advance, at headquarters. In setting out for the branch, they
realised they didn’t have the branch’s
address. Not to worry – that item was
included in their FAM data. Upon
looking, they found three different
addresses and no one knew which
was correct. As one team member
remarked, ´:H NQHZ ULJKW WKHQ WKDW GDWD
TXDOLW\ ZDV JRLQJ WR EH D ELJ LVVXHµ
As teams complete their FAMs, most
ÀQG VFRUHV IDU ZRUVH WKDQ WKH\ H[SHFWHG
A few managers are defensive and try to
discount results. But most are shocked,
HYHQ KRUULÀHG 2QH H[HFXWLYH UHPDUNHG
´,I , ZHUH EHLQJ KRQHVW , ZRXOG KDYH
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UHFRUGV ZHUH LPSHUIHFWµ
0.200
0.150
0.100
0.050
0.000
0-
10
0
11
-2
-3
31
-4
41
-5
51
-6
61
-7
DQ = % of last 100 records correct
While this original perception is
usually based on an organisation’s
ignorance about data quality, in others
it stems from over-estimating their
management capabilities. One manager
noted that FAM, ´&RQÀUPHG RXU XQGHUO\LQJ IHDUV WKDW LQ VSLWH RI WKH FKHFNV DQG
DXGLWV LQ SODFH D KLJK GHJUHH RI LQDFFXUDF\
SHUVLVWVLQWKHGDWDµ
Of course, realising you have a
SUREOHPLVQHFHVVDU\EXWQRWVXIÀFLHQW
The second phase of the awakening
involves understanding the impact, to
their work, their departments, and their
companies. It is fascinating to watch as
people think through these issues.
One participant, in health care,
observed, ´&RQFHUQV UDLVHG DQG SRVVLEOH
LPSOLFDWLRQV RI SRRU TXDOLW\ telephone
QXPEHUGDWDDUHLSDWLHQWVQRWFRQWDFWDEOH
LQWKHHYHQWRI HPHUJHQF\RUDGYHUVHLQFLGHQWLLXQDEOHWRFRQWDFWDSDWLHQWWRFDQFHO
DQDSSRLQWPHQWSDWLHQWPD\KDYHWRRUJDQLVHWUDYHODQGWDNHWLPHRII ZRUNLLLD
SDWLHQW PD\ QRW EH FRQWDFWHG WR PDNH DQ
RIIHURI WUHDWPHQWLI DVORWEHFRPHVDYDLODEOH DW VKRUW QRWLFHµ This result also
highlighted that patient data was not
accurate and up-to-date, a breach of
Irish Data Protection Rules.
As noted earlier, one advantage
of FAM is that it is also interpreted
as “the percent of time we did our
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The European Business Review May - June 2018
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even managers who don’t care about
data per se, cannot excuse such poor
performance. As one remarked, ´:H
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SRWHQWLDOFRVWVRI SRRUGDWDTXDOLW\ÀJXUHVµ
Indeed, “shock” is common as
managers understand their FAM
scores and their implications. One
Clinical Risk Manager called out
reputational risk, ´:KLOH • RI HDFK DWWULEXWH ZDV SRSXODWHG WKH UHTXLVLWH
YDOXHV ZHUH QRW DOZD\V RI DGHTXDWH GHSWK
DQG EUHDGWK 7KH SHUIHFW VFRUH RI LV
FRQFHUQLQJ SDUWLFXODUO\ DV WKH GDWD IRUPV
SDUW RI D QDWLRQDO GDWDVHW 7KHUHIRUH WKH
)$0KLJKOLJKWHGGDWDTXDOLW\LVVXHVZKLFK
wiOOLPSDFWDQDO\VLVXQGHUWDNHQDWDORFDO
DQGQDWLRQDOOHYHOWRLGHQWLI\ULVNFOXVWHUV
7KLV KDV WKH SRWHQWLDO WR FDXVH UHSXWDWLRQDOGDPDJHµ
In some cases, managers forcefully call
out results as unacceptable. A Clinical
Nursing Manager noted, ´8QIRUWXQDWHO\
WKHUH ZDV D VHULRXV GDWD SUREOHP 2QO\
RI WKHGDWDDUHSHUIHFWUHFRUGV7KLVLV
QRWDFFHSWDEOHGDWDDQGLWGRHVQRWFRQIRUP
WRVWDQGDUGµ
As these examples show, most
managers are less concerned with
LPPHGLDWHÀQDQFLDOLPSOLFDWLRQVWKDQ
on their abilities to do their work. But
not always. One, whose data involved
customer activity, focussed on the
attributes needed to solicit prospects.
Most find the “rule of ten,” which states that “it costs ten times as
much to complete a unit of work when the data are flawed in
any way as it does when they are perfect,” a good first approximation.
The error rate was only 4%, but that error rate meant the
´2UJDQLVDWLRQ FRXOG EH ORVLQJ VDOHV RSSRUWXQLWLHV SHU \HDU GXH
WR EDG GDWDµ Roughly a million euros.
Another executive came to recognise an important issue
involving incorrect email addresses, which were needed to
deliver codes that activated software licenses. Even though
the error rate was low (<10%), it led to revenues being
deferred, to the tune of about $30M per quarter.
Finally, a full awakening involves getting in front of the
issues and we are gratiÀHG WKDW PDQ\ PDQDJHUV GLG MXVW WKDW
:H ÀQG WKDW VLPSOH VWHSV XVXDOO\ ZRUN EHVW 7KH +HDOWK &DUH
manager cited above who had issues with patient telephone
QXPEHUV LQWURGXFHG D QHZ SROLF\ WR FRQÀUP WKHVH ZKHQ
patients arrived for their appointments. This simple step virtually eliminated the problem. Similarly, eliminating a single root
cause cured the deferred revenue that stemmed from incorrect
email addresses.
Of course, not all issues are that simple, so some
participants use their FAM to provide hard evidence
and create a sense of urgency around data quality. One
remarked, ´:H FRXOG QRZ JR WR VHQLRU PDQDJHPHQW DQG VD\
WKDW LQ GHDOV VXEPLWWHG E\ WKH VDOHV IRUFH LQ D SDUWLFXODU
ZHHN ZHUH LQFRUUHFW 7KLV LV PXFK PRUH LPSDFWIXO WKDQ MXVW
UHO\LQJ RQ DQHFGRWHVµ
This awakening does not, of course, constitute a fullÁHGJHG GDWD TXDOLW\ SURJUDP 6WLOO ZH FDQQRW VWUHVV
WKH LPSRUWDQFH RI WKHVH ÀUVW IHZ ZHHNV DV PDQDJHUV
awaken to data quality. Therein lies the motive force, the
urgency, and the early results they need to get started.
All managers can, and should, take themselves and their
teams through this awakening.
A Wake-Up Call for All Managers
As we took managers through this exercise, we also developed a dataset of 75 data-quality measurements. We added
demographic variables, including industry, organisation
size, organisation type and the type of data. This dataset
forms the most diverse, comprehensive collection of data
quality statistics we knwow of. It provides an unprecedented opportunity to determine just how good, or bad,
data quality really is.
Figure 1 summarises our most important results. Actual
DQ scores range from zero to ninety – nine percent, with
the mean and median scores at 53% and 56% respectively.
In essence, almost half of the data contained a critical
error! All by itself, this should serve as a wake-up call to all
managers – without hard evidence you must fear that your
data, and your work, are no better.
We also ask managers how good their data needs to be.
:KLOH D ÀQHJUDLQHG DQVZHU GHSHQGV RQ PDQ\ IDFWRUV QR
one has ever thought a score less than the “high nineties”
acceptable. Only 3% in our sample meet this standard. The
rest have a data quality problem and for the vast majority, the
problem is severe!
,WLVGLIÀFXOWWRDVVLJQDFRVWÀJXUHWRWKHVHUHVXOWV6WLOO
PRVWÀQGWKH´UXOHRI WHQµZKLFKVWDWHVWKDW´LWFRVWVWHQ
times as much to complete a unit of work when the data
DUHÁDZHGLQDQ\ZD\DVLWGRHVZKHQWKH\DUHSHUIHFWµD
JRRGÀUVWDSSUR[LPDWLRQ4 Now do the math – operational
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percent in our sample. For most, of course, the operational
costs are far, far greater. Importantly, the rule of ten does
not account for lost customers, bad decisions, reputational
damage, and other waste that most concerned participants
in our classes.
We conducted several analyses to determine if data quality
ZDVVLJQLÀFDQWO\EHWWHURUZRUVHLQWKHSULYDWHSXEOLFVHFWLRQV
)" ǖǽ 2/ +)60"0 /"3") +, 0&$+&#& +1 !&ƛ"/"+ "0 &+ !1 .2)&16 0 ,/" /,00
industry or data type
n of FAM assessments
Mean FAM Score
INDUSTRY ANALYSIS
Technology (Hardware)
23
" %+,),$6ț,ƞ4/"Ȝ
8
48%
Healthcare
23
55%
Financial Services
10
49%
Other
11
55%
53%
DATA TYPE ANALYSIS
44%
Customer
18
Operations
21
47%
Product/Service
17
59%
Sales and marketing data
7
44%
1ƛ1
9
49%
2--)&"/1
3
32%
www.europeanbusinessreview.com
31
Data Management
Data quality must
loom large for those
trying to build a
future in data and
it should be priority
number one for
Chief Data Officers.
industry sectors, small or large organisations and
for different types of data. We found no such
VLJQLÀFDQWGLIIHUHQFHV7DEOHVXPPDULVHVRXU
industry-sector and data-type analyses.
As the top half of the table illustrates, no
industry did much better or worse than any
other. We are somewhat surprised that healthcare data is no better than others – after all
healthcare is a public service in Ireland and highquality data is needed to deliver a high quality
patient-centric service. But evidently not.
Similar to the industry analysis, results
FRQÀUP GDWD TXDOLW\ LV D VLJQLÀFDQW LVVXH IRU DOO
the categories of datasets included in the study.
Even the top mean data quality score (59% –
Product/Service data) is still too far low to
evoke any trust in the data.
Thus, bad data is an equal opportunity peril,
hurting all companies, large and small, in all
industry segments; government agencies; and
in all departments and work teams. Unless they
have hard evidence to the contrary, managers
must conclude that the data they use everyday
is probably no better and carries enormous
costs. Of course, there is no excuse for not
knowing – it is easy enough for every manager
to conduct his/her own FAM.
Special Wake-up for Those Concerned
about the Future
It is trite to observe that data grow increasingly
important. Less recognised is the observation
that everything in the data space depends on
quality. But who would urge people to make
data-driven decisions at current quality levels?
2U WUXVW D URERW $UWLÀFLDO ,QWHOOLJHQFH" $QG
how could one monetise data with so many
errors? Not surprisingly, other research shows
that managers trust neither the data they use to
make decisions,5 nor algorithms.6 Our results
FRQÀUP WKLV LV VPDUW ² WKH GDWD GR QRW PHULW
trust.
Therefore, data quality must loom large
for those trying to build a future in data and it
should be priority number one for Chief Data
2IÀFHUV 7KH IHDU LV WKDW ´ELJ JDUEDJH LQ ELJ
garbage out” is replacing the more familiar
“garbage in, garbage out.” It is time to wake up
and put a stop to it.
32
The European Business Review May - June 2018
About the Authors
Dr. Tadhg Nagle is an associate
faculty member and the co-Director
of the MSc in Data Business at the
Irish Management Institute (IMI).
Tadhg is also a Lecturer (Business
Information Systems) at Cork University
Business School (CUBS), University College
Cork (UCC). Specialising in the business value
of data, Tadhg has created a number of tools
and techniques (such as the Data Value Map –
http://datavaluemap.com) to aid organisations
in getting the most out of data assets. He has
also developed a brand of applied research
(Practitioner Design Science Research) that
DUPV SUDFWLWLRQHUV ZLWK D VLPSOH DQG VFLHQWLÀF
methodology in solving wicked problems.
Dr. Thomas C. Redman, “the
Data Doc,” President of Data
Quality Solutions, helps start-ups
and multinationals; senior execuWLYHV &KLHI 'DWD 2IÀFHUV DQG
leaders buried deep in their organisations, chart
their courses to data-driven futures, with special
emphasis on quality and analytics. Tom’s most
important article is ´'DWD·V &UHGLELOLW\ 3UREOHPµ
(+DUYDUG %XVLQHVV 5HYLHZ, December 2013) He has
a Ph.D. in Statistics and two patents.
David Sammon is a Professor
(Information Systems) at Cork
University Business School,
University College Cork, Ireland.
He is co-Director of the IMI Data
Business executive masters programme and is
co-Founder of the VIVID Research Centre.
References
1. Redman, T., “Seizing Opportunity in Data Quality, 6ORDQ0DQDJHPHQW
5HYLHZ https://sloanreview.mit.edu/article/seizing - opportunity - in
- data - quality/
2. See, for examples, English, L., ,QIRUPDWLRQ 4XDOLW\ $SSOLHG, Wiley,
2009, Loshin, D., 7KH 3UDFWLWLRQHU·V *XLGH WR 'DWD 4XDOLW\ ,PSURYHPHQW,
Elsevier, 2011, McGilvray, D., ([HFXWLQJ'DWD4XDOLW\3URMHFWV7HQ6WHSVWR
4XDOLW\'DWDDQG7UXVWHG,QIRUPDWLRQ, Morgan Kaufmann, 2008, Redman,
T., “Opinion: Improve Data Quality for Competitive Advantage,”
6ORDQ0DQDJHPHQW5HYLHZ, p. 99, Winter 1995, and Redman, T., *HWWLQJLQ
)URQWRQ'DWD:KR'RHV:KDW Technics, 2016.
3. See Redman, T., *HWWLQJLQ)URQWRQ'DWD:KR'RHV:KDW, for full details
or https://www.youtube.com/watch?v=X8iacfMX1nw for a quick
instructional video.
4. Redman, T., 'DWD'ULYHQ3URÀWLQJIURP\RXU0RVW,PSRUWDQW%XVLQHVV$VVHW,
Harvard Business Press, 2008.
´'DWD DQG 2UJDQL]DWLRQDO ,VVXHV 5HGXFH &RQÀGHQFHµ +DUYDUG
%XVLQHVV5HYLHZ, 2013.
6. Dietvorst, Berkeley J. and Michelman, Paul, “When People Don’t
Trust Algorithms,” 6ORDQ0DQDJHPHQW5HYLHZ, p. 11, Fall, 2017.
Cover Story
BACK
Sherilyn
n Williams Casiano on providing the
BGnVFOU ttrue control of their wealth
What is the secret to sustain and grow your
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PRVW HIIHFWLYH DQG HIÀFLHQW
way? In this interview with Sherilyn Williams
Casiano, Founder and CEO at S.I. Williams
ment LLC, she revealed the
Wealth Managem
ul wealth management based
keys to successfu
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w having access to high quality
industry, and how
information is a prerequisite for gaining true
control of your weealth.
Thank you forr taking the time to talk to us
today. Let’s start this interview by you giving
what your day looks like as a
us a glimpse of w
of a reputable wealth managesuccessful leader o
PHQW ÀUP
My day starts with
w a 4-mile run. Then I get my
two boys readyy for school. After they’re off to
nd a few minutes reviewing my
school, I spen
carryforward To Do items from the previous
day, making a new master action list of at
least 7 thingss that I want to accomplish today.
Then, I review and organize the details of
ms to identify what’s missing,
open item
what’s critical, what I need to initiate,
d what I’m waiting for someone
and
ellse to initiate. If I have meetings
scheduled, I create, review
i
or revise the meeting agenda.
I then spend my day managing my checklists, calls,
emails, and requests from clients and their advisers.
In general, I work with a master list of tasks and a
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all of the projects and recurring activities.
To manage my email, I use a series of sub-folders
set up in Outlook to manage communication
with my clients, their trusted advisers, and my
business relationships.
During the day, I manage project accountabilLWLHV IRU VHYHUDO SURMHFWV VSHFLÀFDOO\ ':,0%6
software enhancements; individual clients’ projects
and activities; and various executive and business
development projects, such as our new webinar
series, my forthcoming book 7DNH %DFN &RQWURO,
DQG GHYHORSLQJ RXU )DPLO\ 2IÀFH 2SHUDWLRQV
Consulting business.
When my boys were in grade school, I was very
active in their school’s Parent Teacher Association
and served as an executive member of the PTA’s
board of directors. Evenings and weekends are
reserved for family and quiet time, although more
often than not work intrudes.
In 2015, we had a conversation with you in
which we talked about your transition to S.I.
Williams Wealth Management and how your aspiration for a system that makes managerial tasks
easier led to the creation of DWIMBS™ or the
Cover Story
Like most family offices, I used to struggle to
get all the tax information together for the
tax advisers to prepare annual tax returns.
Because of DWIMBS, this year I was able to
complete and deliver to tax advisers all of
my clients’ tax schedules and reconciliations
four months earlier! Even I was amazed!
Dynamic Wealth Information Management
Business Solution. Since then, what are the
JUHDWHVW DFKLHYHPHQWV RU WKH PRVW VLJQLÀFDQW
progress you have had?
Many new and exciting enhancements have
been added to DWIMBS which let users do
things that solve some of the biggest family
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XSGDWHG DQG SHUIHFWHG 6RPH RI WKH VSHFLÀF
enhancements to DWIMBS include:
i. Expanding the built-in productivity tool to
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and manage the progress of tasks among
team members.
ii. Adding a secure transaction recall feature,
which reduces the time needed to process a
transaction, thus improving productivity and
increasing accuracy.
iii. 0DNLQJ LW HDVLHU WR VHDUFK DQG ÀQG LQIRUPDWLRQ ZLWK RXU LPSURYHG ÀOWHULQJ IXQFWLRQ
iv. Building 55 carefully designed new reports
that enable our clients to gain greater clarity
and insight about their wealth that they can
now use to support their decisions about what
to do with their assets.
v. Designing a clients’ and advisors’ portal that
provides secure permissions-based authentication and access to the information they need
to effectively do their work.
vi. Expanding portfolio information management
to include tracking tax lots, shares history, stock
splits, reverse stock splits, and much more.
vii. Expanding the reconciliation function to be able
to reconcile both bank and non-bank accounts,
such as investment accounts, brokerage
accounts, and other portfolio accounts.
36
The European Business Review May - June 2018
The Dynamic
Wealth Information
Management Business
Solution™ (DWIMBS)
offers a combination of
confidentiality, control,
and asset protection
beyond the means of
traditional accounting,
financial planning, or
family office service.
With DWIMBS, you are able to streamline administrative functions and at the
same time allow your clients to have true
FRQWURO DQG FRQÀGHQWLDOLW\ :KDW IHDWXUHV RI
the system are you continually working on?
The features of DWIMBS that I am ccontinually working on are those that enable us to
give the wealthy the right kind of accurate and
timely information that gives them true control of
WKHLU ZHDOWK :H
YH RSWLPLVHG RXU IDPLO\ RIÀFH
reports to provide the family members, and tax and
estate professionals, with true decision-support
insights. These insights include:
• +RZ WR RSWLPLVH FDVK ÁRZ DQG OLTXLGLW\
across the family's investments in marketable securities, operating companies, direct
investments in private equity, limited partnerships, and the family's commercial and
personal banking relationships
• Capturing and managing hard assets and
collectibles and insurance coverage to assess
levels of risk protection
• Intergenerational wealth preservation and
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• Managing private foundation and personal
charitable contributions for tax planning and
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• )XOO SURÀW DQG ORVV LQVLJKWV LQWR RSHUDWLQJ
company performance.
We are also continually working on making
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so that the technology works the way the user
works. That means assessing what key strokes
are required to complete an entry, looking
DW KRZ WKH ÀHOGV are organised, and making
sure it’s easy to enter, retrieve, edit, save, and
generate report information. The easier and
PRUH ORJLFDO WKLQJV DUH WKH PRUH HIÀFLHQW
your use of time is. I am constantly asking
myself, “Does this make sense? Do I want to
do this? How easy was it to access this or that
information? How long did it take to answer a
client’s or adviser’s inquiry?”
Remember, the whole reason I got into the
software business was to make my day-to-day
ZRUNHDVLHUDQGPRUHHIÀFLHQWDQGWRVXSSO\
more of the right kinds of information to P\
clients. So, besides being the creator of the
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H[DPSOH OLNH PRVW IDPLO\ RIÀFHV , XVHG WR VWUXJJOH WR
get all the tax information together for the tax advisers
to prepare annual tax returns. Becausse of DWIMBS, this
year I was able to complete and deliver to tax advisers
all of my clients’ tax schedules and reconciliations four months earlier! Even I wass amazed!
Your clients are investment bank
kers and
high-end venture capitalists who
o value
excellent asset control. What chaallenges
you most and how do you successfully
align investments with their interrests
and values?
me
The number one challenge for m
m
is getting complete information from
them because they are so busy doingg
deals. So, I’ve learned to rely on their
executive assistants to help me get the
ng
information I need to keep my reportin
accurate, comprehensive, and up-to-date.
Because DWIMBS captures so much reeleomes
vant information for the client, it beco
a simple matter for me to focus on the information that is missing.
I consider my main purpose – and the
purpose of the DWIMBS method and
software – is to give clients the accurrate
hey
and comprehensive information th
need, in order to have true control of th
heir
wealth. Whoever has the most accurate
and complete information has the greatest
control. I am not an investment advisser.
My clients are primarily hands-on investors, so they manage the bulk of th
heir
investments themselves. Giving them
complete, accurate, and easily-understo
ood
information ensures that they’re makking
evidenced-based investment decisionss in
line with their interests and values.
You have a forthcoming book titled
7DNH%DFN&RQWURO which will be of g
great
VLJQLÀFDQFHWRSHRSOHZKRDUHLQWHUHVWHGLQOHDUQLQJ
how to protect and secure their wealth. What are
the highlights of your book that we should all look
forward to?
Well, Russ Alan Prince, who wriites a column in Forbes,
states that the 3 main concernss of the wealthy are: 1)
control, 2) intense customisaation, and 3) tight overook 7DNH %DFN &RQWURO
sight of providers. The bo
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the wealthy’s best tool for maanaging these concerns.
The book takes the mysterry out of why a wealthy
person can’t get a complete picture of their wealth.
o free themselves from
It shows the wealthy how to
the illusion of control prrovided by traditional
wealth management apprroaches – and achieve
truee control.
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model that establishess a solid foundation on
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is designed to give the wealthy family true
control – regardless of
o the personalities that
come and go.
It provides a steep-by-step implementaWLRQSODQIRUVHWWLQJJ XS VXFKDIDPLO\RIÀFH
WIMBS, you mentioned
Aside from DW
me additional software
that you have som
nd. Could you give us
products in min
ut those software prodan overview abou
ussed in your book?
ucts? Are they discu
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7KH ÀUVW RQH WK
suite of applications that would make
advisers’ jobs easieer, especially in the trust
not discussed in
and estates area. They’re
T
the book – maybee we can discuss them in
a future article.
,Q UHÀQLQJ \RXU VRIWZDUH SURGucts, what are the things that you
pay greatest atteention to? What are
usually deal
the constraints you
y
with and how do you address
those barriers?
Cover Story
All wealth management decisions
are based on information. Having
high-quality information gives you the
advantage. Good wealth management
is based on good information. Bad
wealth management is based on bad
or incomplete information.
DWIMBS is the only product designed by someone who has worked first as an
employee in a family office; then as a manager; and then as an owner – who also has a
background in operations management and hands-on experience writing computer code.
First, I am concerned with the end users
of the products: what information they need,
why they need it, how they use it, when they
use it, how often they use it. Each time you
ask those questions, you learn something. My
intention is to make everyone’s job easier and
more effective.
As for the constraints, they’re the evil twins,
time and money. It always takes longer, and
costs more than you expect. A combination of
Parkinson’s Law and Murphy’s Law. Parkinson's
/DZLV´ZRUNH[SDQGVVRDVWRÀOOWKHWLPHDYDLOable for its completion” (also that expenditures
expand to meet the allocated budget). Murphy’s
Law is that anything that FDQ go wrong ZLOO JR
ZURQJ DQG DW WKH ZRUVW SRVVLEOH WLPH Keeping in
mind that these two laws are always in play helps
in planning and navigating delays without being
bent out of shape by them.
With the increasing competition among
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RIÀFHV ZKDW PDNHV \RX WKH EHVWLQFODVV"
What makes us best-in-class is that we are
committed to: 1) giving the wealthy family
true control, not an LOOXVLRQ RI FRQWURO, by giving
them the precise information they need to
make evidence-based decisions; and 2) proactively thinking about what information they
really need and what they could do if they had
that information. Then we go about systematically collecting that information, so that we’re
ready with it when they need it. Often, wealthy
people don’t know what information they need
so they don’t ask for it – and therefore they
never get it.
I think it is so important that DWIMBS is
the only product designed by someone who has
ZRUNHG ÀUVW DV DQ HPSOR\HH LQ D IDPLO\ RIÀFH
then as a manager; and then as an owner – who
also has a background in operations management and hands-on experience writing computer
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needs and frustrations of the various members
RI D IDPLO\ RIÀFH DQG WKH SURJUDPPLQJ WHDP
It’s this unique combination of skills and experience that have come together in the creation
of DWIMBS.
No other software incorporates a proven
method for delivering true control to the
wealthy family.
Providing services in accordance with
the needs and preferences of your clients
requires an excellent team and top-notch
employees. How do you make sure that your
management team is on track in relation to
your present and future endeavours?
It all starts and ends with training, education,
and communication. In my years of experience
as an employee, I often found that companies
don’t necessarily train their team adequately
enough for them to deliver superior products
and customer service. We've developed comprehensive training and user guides, which help to
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than our peers. We've integrated best practices
IRU RSHUDWLQJ WKH IDPLO\ RIÀFH IXQFWLRQV ZLWK
"how to use" DWIMBS to execute these practices through the software.
I mentioned before that one of the key things
that makes DWIMBS so special is that it incorporates a systematic, proven method for delivering
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ZKLFKLVFOHDUO\GHÀQHGDVSDUWRI WKHWHFKQRORJ\
makes training new users easier and ensures that
essentials don’t fall through the cracks.
)RU WKRVH DIÁXHQW IDPLOLHVFOLHQWV ZKR
are in search of bespoke service offerings, what should they keep in mind when
ORRNLQJ IRU D IDPLO\ RIÀFH HVSHFLDOO\ LQ
today’s business climate where complexities continue to escalate?
www.europeanbusinessreview.com
39
Cover Story
:KHQ ORRNLQJ IRU D IDPLO\ RIÀFH KHUH DUH
D IHZ WKLQJV WKH DIÁXHQW IDPLO\FOLHQW VKRXOG
keep in mind:
About the Family
• $UHWKH\ORRNLQJWRMRLQDQH[LVWLQJIDPLO\RIÀFH
or to formalise their own?
• What is the family’s mission?
• How many generations of wealth advice
need management?
• What is the composition of the family's
wealth across personal and business ownership interests?
• Are there compelling family events which will
UHTXLUH KROLVWLF ÀQDQFLDO DQDO\VLV HJ ZHDOWK
transfer from patriarch to next generation)?
• Are there challenges in managing
limited partnerships?
• What are the banking, lending, and cash
management requirements associated with
personal and business entities?
“Success, for me,
means setting goals,
and working toward
achieving those goals –
while being flexible
and adaptable to
changing conditions
in the world.”
$ERXWWKH)DPLO\2IÀFH
• +RZGRHVWKHIDPLO\RIÀFHUXQLWVRSHUDWLRQV"
• :KRDUHWKHNH\SHRSOHLQWKHIDPLO\RIÀFH"
• What is their system?
• 'RHV WKH IDPLO\ RIÀFH VXSSRUW WKH W\SHV RI
investments the family holds?
• &DQWKHIDPLO\RIÀFHSURYLGHWKHEUHDGWKRI
services required to meet personal and business interests?
• &DQWKHIDPLO\RIÀFHVXSSRUWWUXVWDGPLQLVWUDtion and income distribution needs?
• &DQWKHIDPLO\RIÀFHSURYLGHDFRPSUHKHQVLYH
YLHZ RI WKH IDPLO\
V FDVK ÁRZ UHTXLUHPHQWV
across business and personal interests and
charitable giving obligations?
• Are the banking and cash management
services adequate to meet the family's needs?
• &DQ WKH IDPLO\ RIÀFH PDQDJH WKH LQVXUDQFH
and risk management needs of the family's
real estate holdings, hard assets, collectibles,
and operating businesses?
7KHIDPLO\RIÀFHVKRXOGEHIXQGDPHQWDOO\
focussed on managing the LQIRUPDWLRQ that the
family needs to make sense of it all and have true
control. That’s quite different from the family
RIÀFHEHLQJIRFXVVHGRQJURZLQJDVVHWV
Even though the majority of multi-family
RIÀFHV LQ WKH 86 DUH GRPLQDWHG E\ LQYHVWment managers, I believe this is a fundamental
FRQÁLFWRI LQWHUHVW,WKLQNWKDW/X[HPERXUJKDV
it right, since by law, they separate investment
PDQDJHPHQW IURP IDPLO\ RIÀFH PDQDJHPHQW
In my book, 7DNH %DFN &RQWURO I state that
no matter how good the investment adviser is,
their compensation is LQYDULDEO\ linked to their
control of assets – little assets, little compensation; lots of assets, lots of compensation.
Evidently, there are changes in management style as our world advances. What do
you think are the features of an extraordinary leader today? What’s your advice for
people who want to succeed in the wealth
management industry?
A leader today:
a. Must have a vision – and the ability to enroll
others in that vision
b. Has a healthy respect for all people in and out
of their organisation – and shows it
c. Recognises that he or she does not do it alone
d. Has the ability to recognise and secure talented
and committed people
e. Is able to take committed people and turn
them into skilled masters
f. Knows that to succeed in the wealth management industry today, you must understand and
leverage WKHSRZHURI LQIRUPDWLRQ
All wealth management decisions are based
on information. Having KLJKTXDOLW\LQIRUPDWLRQ
gives you the advantage. Good wealth management is based on good information. Bad
wealth management is based on bad or incomplete information. Great Strategy becomes
fatal when combined with low quality, inaccurate and incomplete information.
High-quality information is so important that
I confess to being an evangelist on the subject.
I even wrote two entire articles on it, one in 7KH
(XURSHDQ)LQDQFLDO5HYLHZ titled ´%LJ'DWD<RX
$UH <RX *HWWLQJ +LJK 4XDOLW\ ,QIRUPDWLRQ"µ and the
other in 7KH(XURSHDQ%XVLQHVV5HYLHZ titled, ´7KH
*RVSHORI ,QIRUPDWLRQ0DQDJHPHQWµ
When it comes to habits, there is no oneVL]HÀWVDOO DJHQGD :KDW DUH \RXU IDYRXULWH
routines to keep yourself focused and
healthy at and off work?
I mentioned before that I start my day with
either a 4-mile run or a 30-minute workout
VHVVLRQ LQ P\ EXLOGLQJ·V ÀWQHVV FHQWHU ZKLFK
helps to get oxygen to my brain cells. I practice my own form of spiritual meditation. And
most important, I spend time with my kids. I
love to hear them laugh because it makes me
smile and my heart glad.
At work, I keep it all in perspective. I maintain a clarity of purpose and direction. I believe
that everything happens for a reason.
What does success mean to you? What
message would you share with our readers,
especially in regard to the control and preservation of their wealth?
Success, for me, means setting goals, and
working toward achieving those goals – while
EHLQJ ÁH[LEOH DQG DGDSWDEOH WR FKDQJLQJ FRQGLtions in the world. For example, since I was 11
years old, I knew that I wanted to be an accountant, but I also knew that I wanted to be an
entrepreneur like my Mom, creating something
WKDW PHHWV DQ XQIXOÀOOHG QHHG , DP QRZ OLYLQJ
those dreams every day.
Success also means having the freedom to
be creative at work to solve problems, exceed
FOLHQWV· H[SHFWDWLRQV IXOÀOO P\ RZQ HQWUHSUHneurial vision, and work with great people.
Thank you very much! It was a pleasure
speaking with you. We have learned a lot.
The family office should be fundamentally
focussed on managing the information that
the family needs to make sense of it all and
have true control. That’s quite different from the
family office being focussed on growing assets.
About the interviewee
Sherilyn Casiano is the Founder
and CEO of S.I. Williams Wealth
Management, LLC, a multi-family
office practice in New York City that
offers fully outsourced or selective
co-sourced solutions to single- and
multi-family offices. She founded her family office
practice 14 years ago. Over the years of operating
her practice, Sherilyn has saved her families over
$15 million in estate tax exposure, $1.2 million in
tax preparation fees, over $2 million in income
tax, and much more.
Services offered by her firm include full chart of
accounts management; partnership administration
services; operating company business management;
aggregation of private equity, hedge fund, venture
capital, and limited partnership investments;
banking and cash management services; cash
flow and liquidity management services; trust and
estate administration services; tax support services;
collectibles management and valuation; insurance/
risk management services; and foundation/charitable
giving administration.
Prior to establishing her firm, Sherilyn was a key
member of KKR’s personal wealth group for Henry
Kravis and the other New York general partners.
Sherilyn is a certified CPA and holds an MBA
from Columbia University School of Business. She
is a recognized thought leader in the Family Office
sector, sharing best practices through conference
events, keynotes, and webcasts. Look for Sherilyn's
soon-to-be released book, Take Back Control, for
a more complete guide to establishing your own
family office.
Sherilyn may be contacted at scasiano@
williamswealth.com or (646) 979-3656.
Governance
BECOMING THE
CHAIRMAN
BY DIDIER COSSIN AND MICHAEL WATKINS
The move from CEO to Chairman is a major role shift.
Success requires a set of leadership qualities which few
CEOs have exercised in their previous roles. In this
article, the authors elaborate on the qualities of great
Chairmen and how executives can prepare for this new
governance role.
T
he qualities that make a great CEO do not make a
great Chairman.1 The role of non-executive Chairman,
ORQJ D À[WXUH LQ (XURSHDQ FRPSDQLHV LV EHFRPLQJ
increasingly prevalent in the United States (See below – The
changing face of governance in the U.S. and Europe). The
job of the Chairman is also increasing in importance and
complexity, as companies grapple with more technological
disruption, geopolitical instability, regulatory uncertainty
and social transformation. These can be blind-spots for
operating executives, who by design are incentivised to focus
on shorter-term performance. As a result, non-executive
Chairmen increasingly are leading transformations that go
far beyond CEO removal. Shareholders and society at large
look at the Board, led by the Chairman, as having ultimate
responsibility for business failure or success, having picked
the CEO and approved the strategy.
The changing face of governance in the U.S. and Europe
CEO duality (i.e. CEOs combining a position of chairman)
remains rare in Europe (around 11% within the 350 largest
companies). In the U.S.A., where it used to be the traditional
model, it has fallen from 67% to 53% of the 500 largest
companies within the last 10 years and keeps decreasing
under investor pressure. It has thus become crucial to master
the transition to chair for many CEOs.
42
The European Business Review May - June 2018
:H ZLOO IRFXV VSHFLÀFDOO\RQ &(2V ZKR DUH PDNLQJ WKH
transition to being non-executive Chairmen, and giving up
their executive role in the process. However, much of what
we say about the challenges and skill requirements apply to
CEOs who are adding the role of Chairman to their responsibilities, and to those who are appointed to the non-executive
Chairman role from another executive position, such as CFO,
COO or General Counsel.
There is nothing easy about moving from CEO to Chairman.
7KHUHDUHWZRSULPDU\UHDVRQVIRUWKLV)LUVWPDQ\&(2VÀQG
it hard to stop wielding executive power and “over-manage”
the new CEO, setting up potentially dysfunctional battles over
SRZHU DQG LQÁXHQFH 7KLV LV QRW VXUSULVLQJ JLYHQ WKDW H[HFXtive ability and the need to “run the show” is what gets CEOs
WR WKH WRS LQ ÀUVW SODFH LW·V FRUH SDUW RI WKHLU LGHQWLWLHV DQG WKH
impulse to want to continue to run things can be irresistible. This
is why many corporate governance experts consider the move
from CEO to non-executive Chairman in the same company
as inadvisable. Interestingly, however, some great Chairmen (e.g.
Peter Brabeck at Nestlé) have successfully navigated this transiWLRQ 6RPH LQGLYLGXDOV VHHP WR KDYH WKH ÁH[LELOLW\ WR VKLIW UROHV
and avoid falling into the control trap. Regardless, every executive becoming non-executive Chairman needs to learn to let
1. We use the term “Chairman” for men and women as several women
Chairman have told us they prefer to be called Chairman.
look at Michel Demaré, who, as CFO
RI $%% ZDV EULHÁ\ LQWHULP &(2 EXW
led Syngenta from the chair through a
takeover attack from Monsanto, a CEO
FKDQJH DQG ÀQDOO\ D VDOH WR &KHP&KLQD
The Qualities of Great Chairmen
The move from CEO to Chairman is a
major role shift. Success requires a set
of leadership qualities which few CEOs
have exercised in their previous roles.
Even if they are present in the person
making the transition, they need to be
developed over time. Moving from an
executive to a governance role requires a
different style all together, one of balance
and controlled distance, that allows for
support, supervision and co-creation
while jointly setting high-level objectives.
go while still remaining ultimately responsible. This is, for example, something that
Phil Knight struggled with in working
ZLWKKLVÀUVW&(2DW1LNH:LOOLDP3HUH]
He subsequently made it work with Mark
Parker, who became the long lasting CEO
(and now is Chairman).
However, there is a second, more
subtle reason why CEOs often struggle
with the transition to Chairman: success
in the roles requires a very different set
of leadership skills. The implication is
that great CEOs can be mediocre Chairs
and, perhaps more interestingly, average
CEOs can be great Chairs. Indeed, some
individuals that barely made the CEO
job ended up being strong chairs. Just
Great Chairmen are:
$EOH WR VXERUGLQDWH WKHLU HJRV Effective
Chairmen accept that the CEO is the
public face of the company (except
in certain situations and exceptional
circumstances – see on the right –
When the Chairman needs to take
charge) and are willing to cede the
limelight in order to operate effectively
in the background. Another reason
this is important is that Boards tend to
work better when members feel that
they are roughly on the same level.
This means that effective chairmen
RSHUDWH PRUH DV ´ÀUVWVDPRQJHTXDOVµ
and less as leaders-in-charge.”
*UDFHIXO LQ WKH H[HUFLVH RI SRZHU Effective
Chairmen have authority, but rarely
resort to using it, as the most legitimate
authority comes from the Board as a
body rather than from any individual.
They use their authority to foster open
and honest debates as well as shape
When the Chairman needs to
take charge
At Lafarge Holcim, the largest cement
producer in the world and one of the
most global industrial groups, news of
terrorist group financing in March 2017
suddenly threatened its reputation
and franchise, considering notably the
importance of government contracts in
its clientele. This was quickly followed
by some bold CEO statements around
contribution to a potential U.S.-Mexican
wall. A swift decision was taken to
ensure a strong signal: the CEO resigned
on April 24, 2017 and Beat Hess, the
chairman, took over as Interim CEO.
Hess, one of the most seasoned board
presence in Switzerland, from his time
as board secretary of ABB in the 1980s
(dates), with a spotless reputation and
a true consensus builder, provided a
secure base to all, investors, employees
and clients, in what could have become
dramatic times. A chairman that takes
charge can save the day.
consensus. They act as agenda-setters,
promoters of constructive dissent,
builders of authentic consensus, and
the voice of the Board, and not as
authoritative leaders.
'HGLFDWHG WR HQVXULQJ VXFFHVV LQ WKH ORQJ
UXQ They keep the management
team focussed on the 1 to 5 year time
frame and the Board focussed on the
5 to 10 year time frame or beyond.
Some privileged Chairmen can even
have a 25 year, cross generational
Moving from an executive to a governance role requires a different
style all together, one of balance and controlled distance, that allows for
support, supervision and co-creation while jointly setting high-level objectives.
www.europeanbusinessreview.com
43
Governance
Depending on the
context the organisation
is in, simple, complex or
chaotic, and depending
on the readiness and
maturity of the CEO, the
Chairman needs to tune
his or her role.
focus (e.g. in family businesses and sovereign
wealth funds).
6WHZDUGV RI WKHLU FRPSDQLHV Effective Chairmen
embody and defend the core values of their
organisations. They set the tone on the Board,
steer the development of the vision and
strategic framework, shape the culture, and
establish the constraints within which the
CEO can operate. They thrive for continuous
improvement and rejuvenation of skills on
the board and beyond to ensure adaptability
and agility for long-term survival.
$EOHWRZRUNLQWDQGHPZLWKWKH&(2They understand that the CEO and the Chairman should
be complementary roles, not competing ones.
They establish boundaries (more and more
in writing to ensure clarity) and empower the
CEO and the management team to operate
within them. They monitor the performance
CEO Duality and Board Chair Independence
Source: Bloomberg, companies in the S&P Europe 350 index (June 2017)
100%
90%
80%
70%
60%
87%
88%
87%
87%
86%
86%
86%
87%
88%
89%
50%
40%
30%
20%
00%
13%
12%
13%
13%
14%
14%
14%
13%
12%
11%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
0%
Chair CEO Split
CEO Duality
CEO Duality and Board Chair Independence
Source: Bloomberg, companies in the S&P Europe 500 index (June 2017)
100%
90%
80%
33%
38%
37%
41%
42%
43%
45%
45%
46%
47%
67%
62%
63%
59%
58%
57%
55%
55%
54%
53%
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
70%
60%
50%
40%
30%
20%
00%
0%
CEO Duality
44
Chair CEO Split
The European Business Review May - June 2018
of the CEO (at least via the appropriate
committees), but also act as a sounding board.
Critically they foster the trust and rich communication required to make the role split work.
Key Decisions About Enacting the Role
Chairmen are of course not all alike, and
neither are the circumstances they face. The
implication is that Chairmen need to be
thoughtful in deciding how to play the role.
Key decisions include:
6XSHUYLVHYVVXSSRUW Of course every Chairman
needs to monitor the performance of the
CEO through appropriate reporting, auditing
and supervision. But they need to explicitly
decide whether, to what extent, and how they
will provide support in the form of coaching
and/or mentoring. Indeed, depending on the
context the organisation is in, simple, complex
or chaotic, and depending on the readiness
and maturity of the CEO, the Chairman needs
to tune his or her role. Even in simple times,
and blessed with a well-established CEO, a
strong Chairman, while holding on to more
of a supervisory role, will understand and
be involved enough to be able to coach and
support when times change.
3DVVLYHYVDFWLYH The relationship between the
Chairman and the CEO is quite different
if the Chairman enacts an active role in the
company. Being “active” can mean representing the company in dealings with external
stakeholders in ways that the CEO cannot,
connecting with the parts of society that are
less on the radar screen of the management
team, or simply less reachable. Stephen Lee,
as non-executive Chairman of Singapore
Airlines, famously engaged with unions on
D SHUVRQDO EDVLV UHJXODUO\ DYHUWLQJ GLIÀFXOW
situations. Critically, however it doesn’t mean
engaging as an immediate decision-maker.
Another form of activism emerges when the
Chair takes responsibility for driving a strategic initiative in ways that the CEO and
the management team cannot, for example
in transformational transactions. Consider
the sale of BG to Shell: Andrew Gould,
the non-executive Chairman, with a lifetime
H[SHULHQFHLQRLODQGÀQDQFHZDVWKHQHFHVsary element to drive what amounted to the
largest transaction in Europe in 2016. In
all cases, however, activism must be driven
by the need, and not by the desire of the
Chairman to be “shadow CEO”.
,QWHUQDO YV H[WHUQDO Given limited time,
where will the Chairman focus his or her
attention? If an internal strategy is well
established, a restructuring is required, or
a culture transformation underway, then
the Chairman will focus more on internal
issues, engaging in supervision or support
depending on the need. The archetype of
this will be a private equity Board driving
an operational excellence initiative. In a
ZHOODOLJQHG ÀQHO\WXQHG RUJDQLVDWLRQ WKH
need to deal with external issues related
to technology, regulation, political instability and social transformation will lead the
Chairman to have more of an outside focus.
Ultimately, a Chairman who is supported
by organisational excellence at all levels
up to CEO, will focus his or her energies
on understanding and shaping the external
environment in support of strategy.
Preparing for the Role
The transition into the Chairman role is a time
of particular vulnerability and opportunity, so
it’s essential to do the right things to get ready.
As we have discussed, executives who have been
effective in other roles (particularly CEO) can
struggle with taking on the Chairman role. This
is especially the case when they are giving up the
CEO role to focus solely on being the Chair.
There are some things the new Chairman can
do that really help:
• 5HTXLUH ZRUOGFODVV RQERDUGLQJ The new
Chairman often needs to be able to drill into
the company at a much higher level of detail
In a well-aligned, finely-tuned organisation, the need
to deal with external issues related to technology,
regulation, political instability and social transformation
will lead the Chairman to have more of an outside focus.
than management expects. Gone are the days
when a Chairman could operate just at the
10,000 foot level, or not even know the value
of the assets of the business (although we still
see some cases today). To make the process
RI OHDUQLQJ DERXW WKH EXVLQHVV DV HIÀFLHQW
and effective as possible, the new Chairman
must have an excellent onboarding process,
LQFOXGLQJ ZHOOFRQVWUXFWHG EULHÀQJ ERRNV
organised meetings with internal and external
key stakeholders, and exposure to company
operations and facilities.
• *HWDPHQWRU It’s lonely at the top. But if the
job of the CEO is lonely, the role of the
Chairman is lonelier still. By the nature of
the role, for example, the Chairman cannot
develop trusted advisors within the company’s executive team or with key external
advisors who work with the company.
+RZHYHU LW·V YHU\ GLIÀFXOW IRU WKH UHDVRQV
outlined above, for new Chairmen to make
it up as they go along when facing, for
H[DPSOH D KLGGHQ VKDUHKROGHU ÀJKW RQ WKH
%RDUGRUXQHWKLFDOEHKDYLRUE\DFRQÁLFWHG
Board member. Advice from experienced
Chairmen is invaluable in helping to avoid
common traps, make sound decisions, and
navigate Board politics through the transition and beyond. Mentors need not, indeed
possibility should not, come from within the
same industry or geography. The Chairman
of a leading German retailer, for example,
has been successfully mentored by a leading
www.europeanbusinessreview.com
45
Governance
Swiss industrial chair, despite national and
industry differences.
• &XOWLYDWHDQHWZRUNRI H[SHUWDGYLVRUVConsidering
the small size of their “team”, a successful
chairman relies on expert advice on board
renewal, strategic reviews, M&A and more. He
or she is keenly aware of advisors’ potential
FRQÁLFWVRI LQWHUHVWDQGÀQGZD\VWRPDQDJH
WKHPWREHWWHUVHUYHWKHÀUP*UHDWFKDLUPHQ
often rejuvenate their board to ensure skills
are fresh and focussed. One chairman of a
200 billion+ company told us he was rotating
the HR consultant for board search every two
to three years, as “the advisor starts playing his
own game in board nominations very soon”.
Another chairman recruited a famous investment bank only to do the mechanics of a
successful 70 billions transaction (to ensure
that the bank would not work for the other
side) but used extensively the advice of a niche
ÀUPOHVVWKDQHPSOR\HHVZLWKZKRPKH
had a trusted relationship.
• *HWDQGVWD\HGXFDWHG Board work is evolving
rapidly, and new best practices are being
developed almost on a daily basis. Great
governance has become a competitive
advantage and investors look at it more and
more as a differentiator. Staying current on
the latest and best thinking on core topics,
such as: How do I keep individuals that
meet a few times a year fully engaged? How
do I make the Board a positive contributor
to strategic innovation? How do I ensure
a level of information that is integrative,
enlightening, and helps provide perspectives
beyond management views?
• (QVXUHEHVWLQFODVVVXSSRUW The Board secretary has become a discrete but essential
DVVHWIRUODUJHRUJDQLVDWLRQV5LJRURXVHIÀcient Board processes (such as strategy
process, risk process, nomination process,
QRQÀQDQFLDO DXGLW SURFHVV KDYH EHFRPH
absolutely critical to organisational resilience. Despite their relative isolation,
Chairmen must not be tempted by the do-italone syndrome. While your team has now
extended far beyond the staff (and even
beyond the Board members), the secretary
is a good anchor to have within.
46
The European Business Review May - June 2018
About the Authors
Didier Cossin is Professor of
Governance and Finance at IMD. He
is the Founder and Director of the
IMD Global Board Centre, the originator of the Four Pillars of Board
Effectiveness methodology and an advocate of
Stewardship. He is the author and co-author of the
book ,QVSLULQJ 6WHZDUGVKLS
Michael D. Watkins is Professor
of Leadership and Organisational
Change at IMD. He has spent the
last two decades working with
leaders as they transition to new
roles, build their teams and transform their organizations. He is the author of the international
bestseller 7KH )LUVW 'D\V, which 7KH (FRQRPLVW
recognised as “the on-boarding bible”.
The rise of the activist Chairman
As the chairman becomes more active, the legitimacy of the role extends
beyond traditional without overlapping with the CEO’s role. In particular, here
is a simple mapping of the classical chairman versus activist chairman’s role:
Classical chairman’s
functions
Active chairman’s supplementary
functions
1. Review of financial and
operating plans and results
2. Establishment of the
board’s agenda
3. Oversight of CEO and
management (high-level)
4. Coordination of
board responsibilities
and activities
1. Driving board culture and impacting
organisational culture from the board,
notably setting the tone on integrity
2. Actively working in business (at least 1
or 2 days a week, and more often more)
3. Challenging strategic thinking and co
creating the strategy with the board and
the management
4. In-depth monitoring business plan execution
5. In-depth oversight of CEO, management
and gene pool
6. Disciplining and energising the board
7. Developing stakeholder knowledge on the
board
8. Representation in key stakeholder
relationships as well as crisis representation
Leadership
Designing Results-Oriented Leadership
Development Programmes
BY CAMELIA ILIE, GUILLERMO CARDOZA AND SCHON BEECHLER
their success is due to the programme. Since
only rising stars are invited to attend LDPs,
one could argue that their careers would have
turned out the same without any training.
Much of the confusion stems from the
designation “leader,” which evokes a variety
of images and emotions. Leaders are judged
by their inner and outer qualities, and leadership development is geared toward nurturing
both. Companies are increasingly aware that
leadership is as much about how one thinks
and feels as it is about tangible business
ccording to the Corporate /HDUQLQJ outcomes.2,3 Yet how these interact to enable
)DFWERRN (2014),1 spending on corpo- leadership success remains largely a mystery.
rate training grew by more than For both companies and learning providers,
$130 Billion worldwide in 2013. This report this creates a lot of guesswork when it comes
mentions that 60 percent of all companies to designing a curriculum.
Our research question is focussed on how
indicate that the leadership gap is their top
business challenge, and, therefore, they invest various aspects of leadership development
35% of their entire training budget (35 cents programmes affect participants both individually
of every training dollar) on LDPs. Also, a (i.e., their knowledge, behaviour, and attitudes)
recent survey by Deloitte (2016) reports that and organisationally (i.e., their contributions to the
89 percent of executives rated organisational company).4 While there is no universal formula
leadership as an important priority, and more for cultivating leadership, our research suggests
than half of the respondents mentioned that VRPH VSHFLÀF ZD\V IRU FRPSDQLHV WR PD[LPLVH
their organisations are not ready to meet lead- the impact of their current programmes.
ership needs.
Many LDPs graduates do go on to become Research Methodology
successful senior leaders. However, there is no Our research had three stages.5 First, after a
proven method to assess how much, if any, of comprehensive review of the literature on
In business, one would typically not make
a large investment without an idea of how
to gauge its results. This does not happen
with leadership development programmes
(LDPs), which lack the typical business
analysis of return on investment and the
impact of the programmes. Our research is
focussed on addressing this gap by identifying and explaining two often-overlooked
HOHPHQWV WKDW KDYH D VLJQLÀFDQW LPSDFW RQ
both individual leaders and organisations.
A
A recent survey by
Deloitte (2016) reports that
89% of executives
rated organisational
leadership as an
important priority, and
more than half of the
respondents mentioned
that their organisations
are not ready to meet
leadership needs.
www.europeanbusinessreview.com
47
Leadership
leadership development programmes,6,7,8 we
GHÀQHG WKUHH PDLQ IHDWXUHV RI /'3V LQWHOOHFtual, emotional and experiential) that are critical
to producing impact on both executives’ capacities and organisational results (Figure 1). We
WKHQOLQNHGHDFKIHDWXUHWRDVSHFLÀFLPSDFWRQ
the executive capacities (knowledge, attitudes
and behaviour) and organisational KPIs (business results, retention and promotion).
Retention
Results
Attitude
Knowledge
Emotional training
Intellectual training
Experiential learning
Behaviour
Promotion
Second, we conducted a focus group
involving ten managers from Spanish multinationals that were expanding into Latin
America. The participants, all of whom had
taken part in the design and had attended
several LDPs, were asked to identify the most
impactful methodologies and features of their
programmes and to explain their choices, as
well as to share any concerns that they had
about particular curriculum elements.
The insights collected during the focus
group were used to inform the second stage
of our research, a quantitative survey that
was emailed to 107v leadership development
alumni (top management or HR directors).
Our analysis of the survey results found statisWLFDOFRQÀUPDWLRQIRUDQXPEHURI FRPPRQO\
held assumptions about leadership development. For example, programme content
WKDW ZDV DOLJQHG ZLWK ÀUP VWUDWHJ\ DSSHDUHG
to have greater organisational impact, as did
programmes whose preliminary stages included
participants’ training needs assessments.
As for the impact on participants as individuals,
we found that personalised post-course followup made a noticeable difference. One-on-one
mentoring, in particular, seemed to improve the
process of converting lessons learned during the
programme into meaningful changes in knowledge, behaviour and attitudes.
In addition to the variables that were related
to either individual or organisational outcomes,
some variables affected both types of outcomes.
On a broader level, there is evidence of a low-tomoderate correlation between the two types. This
ÀQGLQJ PD\ JR WRZDUG UHIXWLQJ GHWUDFWRUV ZKR
claim that it is a waste of time and resources to
invest in training leaders who may end up leaving
WKHÀUPDQ\ZD\2XUGDWDVXJJHVWDPRGHVWEXW
clear bump in results for organisations that invest
in leadership development, provided that the
programmes delivered are effective.
Key results. The two “must-haves”
Two variables, in particular, strongly impacted
both individual and organisational outcomes –
the degree to which different aspects of LDPs
were evaluated, and the number of company
directors involved in participant selection.
Too often, programme evaluations are
imprecise and poorly constructed. Participants
Our data suggest a modest but clear bump in results
for organisations that invest in leadership development,
provided that the programmes delivered are effective.
48
The European Business Review May - June 2018
will be asked, for example, to record how they
felt about an instructor’s classroom performance as a whole, regardless of that instructor’s
particular strengths and weaknesses. Our
survey analysis indicates that a more granular
approach would garner more positive results
for the programme overall. Each stage should
be audited on its own, in tandem with course
delivery rather than as an afterthought.
Additionally, evaluations should be geared
toward assessing impact, not impressions.
Rather than asking how a participant felt about
the programme, evaluations should determine,
IRUH[DPSOHZKHWKHUDVSHFLÀFPRGXOHRIIHUHG
takeaways that are clear and relevant enough
for participants to use in their post-course
working life. Only then can feedback be channeled into productive, targeted improvements.
It is crucial that top managers be involved
in the design and delivery of LDPs, despite
WKHGLIÀFXOWLHVRI VHFXULQJWKHLUKLJKO\VRXJKW
after time and attention. Senior executives
are invaluable repositories of organisational
knowledge, though they may not even realise
it. If they can be convinced to share their
wealth of expertise with learning providers,
the resulting programmes will be far more
It is crucial that top managers be
involved in the design and delivery of
LDPs, despite the difficulties of securing
their highly sought-after time and attention.
enriching for participants. Our experiences
with corporate clients have proven this time
DQG WLPH DJDLQ ,GHDOO\ WKUHH WR ÀYH H[HFXtives would be included in the process, each
representing different business areas, so as to
provide a well-rounded array of expertise.
How to attract top managers
Our focus group participants named top
management’s involvement as one of the
most critical ingredients of leadership development – but also one of the most elusive. It
appears, then, that companies are knowingly
settling for less by leaving leadership development programmes largely in the hands of HR
or learning departments. This could be due to
a politically expedient desire to seek the path of
least resistance or to intimidation at the prospect
of asking top management to participate.
,Q RXU ZRUN ZLWK FRUSRUDWH FOLHQWV ZH ÀQG
that top management leaders are more willing
to collaborate with us when there is something
in it for them. As an initial overture, we offer
them guest speaking and mentorship opportunities – preferably at their own company. They
may have attended a leadership development
programme in the past, but participating as an
educator or mentor is an entirely different experience. Giving them a platform – and a taste of
the spotlight – often starts them down the path
to complete co-ownership.
Once you have top executives’ attention, you
must sustain it over the long term. We recommend
regularly emailing the participating executives with
newsletters or blogs containing leadership information and relevant articles. Also, annual business
seminars featuring top experts, networking
sessions, and peer forums are some of the lifelong learning activities that can be implemented
to maintain leadership development as an ongoing
strategy imbedded in the organisations’ lives.
www.europeanbusinessreview.com
49
Leadership
INVESTMENTS IN LEADERSHIP DEVELOPMENT PAY OFF MOST
WHEN PROGRAMMES ARE CUSTOMISED TO ORGANISATIONAL
NEEDS AND THEIR OUTCOMES ARE CONTINUALLY MONITORED.
Money isn’t everything
In sum, our research should caution companies against off-the-shelf approaches to
leadership development. Just as R&D investments would be considered wasted if they
generated cookie-cutter products, investments
in leadership development pay off most when
programmes are customised to organisational
needs and their outcomes are continually
monitored. And, to facilitate the implementation of the programs results, organisations
PXVW EH SUHSDUHG WR GHYRWH QRW RQO\ ÀQDQFLDO
investments, but also a corresponding amount
of resources and time, to the alignment of
internal processes and organisational culture.
Finally, the most critical success factor is the
commitment of organisations’ top management to the programmes’ design and delivery.
It is crucial that they create a close mentorship and support of the LDP alumni in order
to facilitate the changes they are expected to
implement after attending a program and,
thus, assuring a greater impact of LDPs on
business success.
About the Authors
Camelia Ilie is Associate
Professor and Dean of Executive
Education at INCAE Business
School. She is also the Chair of the
Center for Collaborative & Women
Leadership at the Business School. She teaches
leadership development, neuroscience and
transformation and organisational change. An
engineer with a specialisation in Optical and
Biomedical Devices, she earned her doctorate,
6XPPD &XP /DXGH IURP WKH 3RQWLÀFLD GH
Comillas University in Spain.
50
The European Business Review May - June 2018
Guillermo Cardoza, is full
Professor at INCAE Business
School. He was a Research Fellow
at Kennedy School of Government,
Harvard University, where he
conducted research on innovation and competitiveness in emerging economies. During his
term as Executive Director of the Latin
American Academy of Science, he created and
directed the Center for Science Studies and
Information. He was a professor at IE Business
School in Spain for 14 years.
Schon Beechler is Senior
$IÀOLDWH 3URIHVVRU RI /HDGHUVKLS
and Organisational Behaviour,
INSEAD. She received her undergraduate degree in Sociology and
Anthropology with high honours from
Oberlin College and earned a joint PhD in
Business Administration and Sociology from
the University of Michigan. She is a specialist
in global leadership and the management of
multinational corporations.
References
1. Corporate Learning Factbook. (2014). The Corporate Learning
Factbook 2014: Benchmarks, Trends, and Analysis of the U.S. Training
Market. Available at http://marketing.bersin.com/corporate-learningfactbook-2014.html
2. Tompson, H.B. & Tompson, G. (2013).The Focus of Leadership
Development in MNCs. ,QWHUQDWLRQDO-RXUQDORI /HDGHUVKLS6WXGLHV, 8(1): 67-75.
3. Thomas J.R. (2013). Developing Tomorrow’s Global Leaders. 0,7
6ORDQ0DQDJHPHQW5HYLHZ 55(1): 12-13
4. Ilie, C. 2009. 7KHLPSDFWRI PDQDJHPHQWGHYHORSPHQWSURJUDPPHVRQEXVLQHVV
VWUDWHJLHV Doctoral thesis. Universidad Comillas—ICADE. Madrid.
5. Ilie, C., Cardoza, G., Beechler, S, Hugas, J. Designing leadership
development programs for high impact in Emerging Economies:
The case of Spanish Multinationals in Latin America, http://dx.doi.
org/10.2139/ssrn.3064353, 2017
6. De Vries, K. M. & Korotov, K. (2007). Creating transformational
Executive Education programs. $FDGHP\ RI 0DQDJHPHQW /HDUQLQJ (GXFDWLRQ, 6(3): 375-387
7. Dalakoura, A. (2010). Differentiating leader and leadership
development. A collective framework for leadership development.
-RXUQDORI 0DQDJHPHQW'HYHORSPHQW 29(5): 432-441.
8. DiStefano, J., Kemanian, V., Keys, T., & Strebel, P. (2005). Mastering
Executive Education: How to combine content with context and
emotion – the IMD Guide: 42-54. Session scripting. Pearson Education
Limited, Harlow: FT Press.
Digital Transformation
FIVE LEADERSHIP LESSONS THAT WILL
Help you Boost Productivity
BY DEBORAH SHERRY
Today, businesses are presented with a plethora
of opportunities arising from digital transformation. However, not all business leaders know how
they can turn such opportunities into tangible
value for their organisation. The lingering challenge is how they can drive successful digital
transformation strategies to improve productivity and ensure business growth.
ncreasing productivity can create accelerated
JURZWK DQG SURÀW IRU EXVLQHVVHV $QG LW DOVR
drives economic growth, which in turn creates
new jobs and improves living standards. The IMF
estimates that GDP in advanced economies would
EH DERXW ÀYH SHUFHQW KLJKHU WRGD\ LI WKH SUHFULVLV
productivity growth trend had continued. However,
a recent IMF report revealed that productivity in
developed economies has declined dramatically
since the economic crisis and remains sluggish,
with political instability, global trade decline and
the slow pace of technology innovation being cited
as the key factors contributing to the poor results.
And while businesses have no control over the geopolitical environment, they can control technology
deployment in their own facilities and this is where
the big opportunity lies.
Our own estimates suggest that digital technologies will deliver $8.6 trillion in productivity gains
in the industrial world over the next decade. These
LQQRYDWLRQV SURPLVH WR EULQJ JUHDWHU VSHHG DQG HIÀciency to industries as diverse as aviation, rail, power
I
generation, oil and gas development, and healthcare delivery. They hold the promise of stronger
economic growth, better and more jobs, and higher
living standards.
But how can business leaders drive successful
digital transformation strategies to improve productivity and ensure business growth?
Embrace the Industrial Internet to improve productivity
There are countless ways to improve productivity and a plethora of software solutions which
FDQ KHOS \RX DFKLHYH WKLV +RZHYHU ÀQGLQJ WKH
right technology for your business does not need
to be overwhelming. Focus on understanding your
strengths and weaknesses as a business and identifying the clear outcomes or improvements you
need to drive in your company. And use this as your
guiding principle to select the Industrial Internet
of Things (IIoT) technologies that will drive those
improvements. IIOT is one of the best ways to
improve productivity across industries.
The Industrial Internet, which connects
machines, product diagnostics, software, analytics
and people, is worth about £173 billion globally,
compared to the consumer Internet, which is valued
Our own estimates suggest that digital technologies
will deliver $8.6 trillion in productivity gains in the
industrial world over the next decade.
www.europeanbusinessreview.com
51
Digital Transformation
at about £131 billion.
The deeper meshing of the digital world with
the world of machines holds the potential to
bring about profound transformation to global
industries. We call it “the power of one percent”.
In the commercial aviation industry alone, a tiny
one percent saving in global aviation fuel usage
would yield an enormous savings of about £23
ELOOLRQRYHU\HDUV/LNHZLVHDRQHSHUFHQWHIÀFLHQF\LPSURYHPHQWLQWKHJOREDOJDVÀUHGSRZHU
SODQW ÁHHW FRXOG \LHOG RYHU £50 billion savings
in fuel consumption. These are jaw-dropping
ÀJXUHVEDVHGXSRQWLQ\SHUFHQWDJHJDLQV7KHUHDO
savings are likely to be much greater.
Our own experience from fully embracing
the Industrial Internet is a testament to this.
Thanks to rolling out digital industrial apps
developed on our IIoT operating system Predix,
ZH PDQDJHG WR DFKLHYH ELOOLRQ LQ HIÀFLHQF\
gains in 2017 across our factories globally.
The Industrial
Internet, which
connects machines,
product diagnostics,
software, analytics
and people, is worth
about £173 billion
globally, compared to
the consumer Internet,
which is valued at
about £131 billion.
52
Accelerate business change
When we started our digital transformation in
GE eight years ago we found that our business
was at risk of being disintermediated by software companies. To tackle this challenge, we
looked at how we could reorganise our business
to make it more agile. Digital transformation
cannot happen without organisational change,
so we reorganised our business by looking at
what the most disruptive Silicon Valley companies were doing to move so quickly and adapting
it to our environment.
In an industrial setting, it’s essential to manage
risk – but that can make organisations slow.
So we created a culture around “fastworks”, a
simple agile methodology for creating value
quickly at the lowest possible cost – without
losing sight of the critical requirements of assets
like jet engines and wind turbines. It allows us
to fail small and often – but most of all to learn
fast. It lets us build teams around problems
quickly, at low cost – and then when we know
we have the right answer, we can invest and scale
very rapidly. Traditional hierarchies simply don’t
let you move that fast, and you need to adapt
quickly to be a truly digital industrial company.
To be able to accelerate innovation and business change, businesses leaders need to learn
The European Business Review May - June 2018
to move faster – to decrease the time to launch
new services and products. And thus you need
to create a business structure that is adaptive to change and speed. This means moving
away from the traditional “proof of concept”
approach and adopting agile frameworks
for managing IT projects and organisational
change. This requires taking people out of
their functional domain and moving away from
the command/control management style that
dominates traditional working environments.
By incentivising people to work together and
to think out of the box, business can drive
collaboration and innovation, which in turns
improves productivity.
Collaborate to encourage innovation
As we worked to advance our digital transformation, we realised that encouraging innovation
only within the four walls of the organisation is
not enough to keep you ahead of the competition. If we look at the most successful players in
the consumer Internet market, such as Amazon
and Uber, we’ll see that they all created broad
ecosystems of technology platforms and partnerships that foster collaboration. The faster
these ecosystems grew, the more value they
created for their members (the developers) and
end users. That’s why we started developing an
open ecosystem around our Predix platform
to nurture a community of systems integrators, technology partners, independent software
vendors and developers – to grow and scale the
Industrial Internet of Things.
2QFHZHVWDUWHGWRVHHWKHEHQHÀWVDQGWKH
results from these changes, we started to use
what we’ve learned to help our customers in
their digital journeys.
For instance, we worked with the Dutch
Chemical Company Akzo Nobel to help them
optimise the value of their manufacturing
processes. At the beginning, they were not able
WR WUDFH FXVWRPHU GHOLYHULHV EDFN WR VSHFLÀF
batch numbers, so they wanted to achieve more
visibility into the origins of the raw material,
SURFHVVDQGÀQLVKHGSURGXFWGDWD
Aggregating their data in our brilliant manufacturing system enabled them to optimise
their capacity and achieve an increase of 20%.
talent, organisations and governments need to invest more in
training and R&D to create a pipeline of tech talent that can
ÀOOWKHVNLOOVJDSVWKDWH[LVWLQDOO(XURSHDQPDUNHWV
To achieve this, companies need to work alongside
Don’t focus on the cost, focus on the long-term benefits
When thinking about new technology investment many organ- governments and educational institutions to establish a techisations are focussing too much on the cost. This often prevents QLFDOHGXFDWLRQV\VWHPWKDWLVÀWIRUWKHQHHGVRI EXVLQHVVHV
businesses from making the right decision when it comes to today and capable of adapting to the changing skills market.
investing in the technology that creates long-term strategic In particular, we need to focus on maths and other (STEM)
advantage for the business. Short-term criteria can hamper the skills. But we also need work-study programmes and apprensuccess of the long-term business strategy. Investing in tech- ticeships that deliver real technical skills.
Second, we need to invest more in on the job training on
nology can drive continuous improvements across the business
DQGWKHORQJWHUPEHQHÀWVDQGWRWDOYDOXHWKDWWKHWHFKQRORJ\ an ongoing basis. This includes regular training and upskilling,
can drive must be taken into account. Businesses often source but also investing in retraining schemes that support and
IIOT technology like a cost to manage down, rather than an encourage employees to expand their skillset and deliver the
tech skills we need.
investment from which to manage yield.
For instance, the UK-based factory of Cristal Global (SA)
implemented our digital Asset Performance Management In conclusion, it’s all about agility and change
(APM) and Integrity Management technology to drive By making the most of people’s skills and adopting an agile
continuous improvement. This enabled Cristal to implement approach to business management, organisational change
“just-in-time” training, focussing education on the knowl- and technology innovation, businesses will be able to better
edge needed at different phases of implementation. As a respond to the challenges of their market environment and
result, Cristal Global was able to reduce the risk of equip- achieve a strong competitive advantage that allows them to
ment failures by an estimated £2.12 MM per year. By looking stay ahead of the competition. In the next couple of artiDWWKHORQJWHUPEHQHÀWVRI WKHWHFKQRORJ\WKHFRPSDQ\DOVR cles I’ll explore which industries are leading the way in driving
developed a 10-year projection, which indicated a 56% reduc- productivity and will look more closely at some of the biggest
tion in required inspections and overall savings of £3.31 MM opportunities in this space.
over 10 years in inspection costs.
Similarly, we are working with Intel to implement long-term
digital improvements which complement the infrastructure at About the Author
their Ocotillo’s semiconductor manufacturing facility. These
Deborah Sherry is the Senior Vice President
improvements will make the manufacturing facility smarter
DQG&KLHI &RPPHUFLDO2IÀFHURI *('LJLWDOLQ
and more connected, resulting in improved emissions
Europe. Her division delivers cloud-based solumanagement, facilities reliability, manufacturing capacity and
tions that connect industry, transforming
OT enablement. Intel is expecting $5MM savings per year
industrial businesses into digital industrial busiacross all its facilities based on small set of use cases.
nesses. Prior to joining GE, Deborah has had experiences
with companies such as Google, France Telecom Group
It’s all about the people
(now Orange), Samsung, and Citibank in London. She holds
The World Bank recently reported that within 20 years, 90% an MBA from the London Business School, an MA (Hons)
of all jobs will require digital skills. Finding people with Law from Oxford University and a BA from Columbia
the right skills is one of the key challenges facing modern University. She is a strong supporter of diversity, promoting
organisations. To be able to nurture and encourage new tech equality for women and the LGBT community.
It also enabled them to better spot key production trends
and optimise operations.
TO BE ABLE TO NURTURE AND ENCOURAGE NEW TECH TALENT, ORGANISATIONS AND
GOVERNMENTS NEED TO INVEST MORE IN TRAINING AND R&D TO CREATE A PIPELINE OF
TECH TALENT THAT CAN FILL THE SKILLS GAPS THAT EXIST IN ALL EUROPEAN MARKETS.
www.europeanbusinessreview.com
53
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Marketing
WHAT THE FRENCH OPEN CAN
TEACH BUSINESSES ABOUT BRANDING:
The Ten Key Lessons
Every Marketer Should Know
BY LAURENCE MINSKY AND COLLEEN FAHEY
Improving one’s brand identity is indeed
one of the greatest challenges marketers
have. It is for this reason that they’re
constantly on the lookout for approaches
on how they can capture the attention of
customers without them being overfamiliar
or overwhelmed. Looking at how the French
Open created their audio brand and how
they have managed it since its launch can
help marketers improve the effectiveness of
their overall branding efforts – even when
they don’t have an audio brand.
rofessional sporting events, like businesses, have a wide variety of audiences,
stakeholders, touchpoints and channels,
DQG DUH ÀJKWLQJ WR VWDQG RXW DQG ZLQ WKH
hearts and minds of their audiences. This
holds true even when they have a unique and
beloved product. Like business marketers,
sports venues and events struggle in unifying
all of their communications, so they convey the
same personality across all of their touchpoints
DQG SODWIRUPV EXW ZLWK HQRXJK ÁH[ LQ WKHLU
YRLFHV WR PHHW WKH DXGLHQFH·V VSHFLÀF QHHGV LQ
a particular moment. And like businesses, they
experience the common dilemma of keeping
the brand fresh year after year while building
P
The French Open was
the only one located in a
country with a Latin-based
language. This insight
inspired them to embrace
every country that has a
Latin-based language –
infusing a wide range of
Latin sounds and styles in
the crevation of their
sound design.
the recognisability they can only achieve by the
long-term consistent use of branding elements.
While internationally recognised as the world’s
top clay court tennis championship with more
than three billion viewers across the globe,1 the
French Open tournament experienced all of
these issues. And four years ago, they found a
unique, powerful, and highly successful solution
– one that can be instructive to all marketers,
from consumer to business-to-business.
What was the solution? They developed an
audio brand – a complete language of sound
and music composed to deliver their vision,
values and promise, just as marketers do with
visual branding elements. And then they built
that audio brand into key moments of the tournament experience and all its communications.
It sounds like common sense to create an
audio brand, but sonic or sound branding is still
rarely employed by marketers. As we pointed
out in our book, $XGLR%UDQGLQJ8VLQJ6RXQGWR
%XLOG <RXU %UDQG WKH ÀUVW VWHS LV WR UHFRJQLVH
that people are more than just visually oriented
– that your sound can reinforce the coherence –
or incoherence – of your brand promise.2 And,
while you might even recognise a few audio
logos – Intel, SNCF, McDonald’s, MICHELIN,
$;$IRULQVWDQFHWKHDXGLRORJRLVMXVWWKHÀUVW
www.europeanbusinessreview.com
55
Marketing
step. A true audio branding system, just like a
visual one, is a complete language that extends
to all aspects of the sound.
Looking at how the French Open created
their audio brand and how they have managed it
since its launch can help marketers improve the
effectiveness of their overall branding efforts –
even when they don’t have an audio brand.
The initiative began in 2013 and quickly
took root. To get started, the French Tennis
Federation, along with its audio branding agency,
Sixieme Son, looked at the world of tennis. They
realised that the major tennis tournaments – the
Australian Open, Wimbledon, and US Open
– were all from English-speaking countries.
The French Open was the only one located in
a country with a Latin-based language. This
insight inspired them to embrace every country
that has a Latin-based language – infusing a wide
range of Latin sounds and styles in the crevation
of their sound design.
French Open Court
Source: http://www.
tennisticketnews.com/grandslam-tournaments/french-open
of tennis are similar to dance, another differentiator when compared to most other sports
(although both football and basketball have also
been compared to dance). They also considered
the location of the games, Paris, France, and its
WLPLQJVSULQJERWKRI ZKLFKLQIRUPHGWKHÀQDO
expression of the (audio) branding elements.
LESSON TWO: Does engaging with your brand
require any unique behaviours, rituals or actions?
If so, these can and should become a key
consideration when informing the development
of your branding foundation. And if your brand
is place-based and/or time-based, these factors
can and should inform it as well.
Finally, based on the fact that The French
Open uses clay courts, unlike all of the other
Grand Slam tournaments the collective team of
client and agency felt that they should employ
natural, organic sounds and stay away from the
use of any synthesised instruments.
As a result of the considerations, the audio brand
LESSON ONE: When exploring your vision, that was composed that included Latin dance
YDOXHV HVVHQFH ÀQG WKH GLIIHUHQFH WKDW PDNHV rhythms. It featured the sound of the bandoneon,
your offering unique. Make sure the difference is a musical instrument similar to an accordion, is
something big enough, one that might even grow popular in South American countries, particularly
your audience. Then embrace it, use it, amplify it. Argentina, and is obligatory for the tango.
While seemingly contradictory on the surface,
The French Tennis Federation and their audio
EUDQGLQJ ÀUP DOVR ORRNHG DW WKH ´EHKDYLRXUVµ their sound also needed to capture the monuand actions associated with the brand and mental and even heroic nature of being one of
they realised that the side-to-side movements the top four tennis tournaments. It needed to
contain the values of tennis: surpassing yourself,
passion and competition, as well as the heroism
associated with tournaments in the dynamic and
epic musical elements.
LESSON THREE: Did you incorporate key aspects
of your product, service, and/or experience that
you want to communicate into your branding
program? The visual, the auditory, the olfactory,
and even the tactile branding elements must all
point to and reinforce the brand promise, so that
your intended audiences can interpret it through
all their senses.
LESSON FOUR: Did you allow for tension in
\RXULQSXW":HUHFRPPHQGÀQGLQJLWEHFDXVH
it can translate into producing greater audience
LQWHUHVWZLWKWKHÀQDOHOHPHQWV
56
The European Business Review May - June 2018
Developing the entire audio language, including
the logo, required two focussed months and the
WDOHQWVRI WKHHQWLUHSHUVRQ3DULVEDVHGRIÀFHRI the French Open’s sound branding agency so it could
be completed in time for use during the 2014 games.
In addition to conducting the strategic development,
brainstorming, audio mood board development,
FRPSUHKHQVLRQWHVWLQJDQGUHFRUGLQJWKHÀQDODXGLR
elements, Sixieme Son needed to leave enough time,
of course, for client approvals and comments, so they
could give their input along the way.
Looking at all of the possible audio touchpoints,
from the stadium to broadcast to the Internet,
they designed the audio brand to be effective in
all of the formats as well as in the context of its
various usages, before, during and after game. So,
instead of just constructing a limited audio logo,
they composed an entire audio vocabulary that was
UHFRJQLVDEOHDVDIDPLO\EXWÁH[LEOHHQRXJKWRZRUN
in the myriad delivery contexts and usage situations.
Finally, they had to test the (audio) brand
elements at the touchpoints where they would live
to ensure they conveyed the intended experience,
an often-overlooked step in brand development –
PDQ\ÀUPVJRVWUDLJKWIURPWKHGHYHORSPHQWWRWKH
implementation. For the French Open, this meant
tests at the Roland-Garros stadium center court and
Suzanne Lenglen court, ensuring that fans in the
seats could hear and accurately interpret the brand
building communication.
LESSON FIVE: Make sure to leave enough development time, incorporate testing and make sure that
everything aligns. Remember that anything is outof-step with the core promise will lower the brand’s
overall integrity. And, remember, that the brand
development process takes longer and takes more
work than it might initially seem.
The audio brand for the French Open was an
immediate success, embraced by both the fans
and athletes alike. As an example of the initial
reception, the branded music timed to the clapping
of a typical tennis audience was played during the
awards ceremony as the champion, Rafael Nadal,
walked up to accept his trophy, resulting in the
longest standing ovation in the event’s history.
Recalling it, Nadal, said, “To receive this trophy…
with this incredible music, was a powerful and
emotional moment for me.”3
Today, the audio brand for the French Open
has become a key ingredient of the experience for
attendees, players and viewers across the globe. The
branded music plays while fans enter the stadium,
when the athletes enter, when a match commences,
and when a trophy is about to be given. And, of course,
it is played at all media friendly events, reinforcing the
brand as clips are played during news broadcasts.
As a result, all of the various audiences can
recognise the French Open – and be reminded of
their love for it – simply by its music.
But the audio brand also continues to evolve.
For instance, separate musical playlists, all based
in the branded voice, were created to enhance
and underscore many of different contexts and
environments of the overall experience. One
playlist is played for athletes during the limousine
ride to the stadium. And another is played in the
Roland-Garros store for the fans shopping. All
of the new playlists incorporate the DNA of the
brand, so the compositions are undeniably from
Roland-Garros.
LESSON SIX: Make sure you employ the appropriate branding elements at every touchpoint with
every stakeholder, from advertising to PR and
media events to physical place-based locations
and beyond. For business-to-business marketers,
that includes your internal meetings. Since your
employees are the walking proponents of your
brand, you want to give them a consistent view
of it. If your sound is disjointed at your meetings,
it will just as confusing to them as if you had
changed the colour of your logo.
Spain's Rafael Nadal
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winning the men's
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against Switzerland's
Stanislas Wawrinka
at the Roland Garros
2017 French Open on
June 11, 2017 in Paris.
Source: Getty Images
http://www.
sportingnews.com
While branding
is a long-term
investment, the
brand elements
need to be
continually tweaked
and expanded.
Otherwise they will
go out of date.
www.europeanbusinessreview.com
57
Marketing
The strategic use of audio
branding should be employed
not just on sites but across all
sound-enabled touchpoints.
LESSON SEVEN: Don’t rest on your laurels. While branding
is a long-term investment, the brand elements need to be
continually tweaked and expanded. Otherwise they will go out
of date. If your branding elements are continually updated
at a nearly imperceptible level, you will more likely be able
to avoid ever needing a complete rebrand effort, which is a
much more expensive endeavour.
LESSON EIGHT: Is your brand experience truly recognisable
even when your logo has been removed? The days of
the matching suite of luggage approach to branding is
now over.4 You need to make sure people recognise the
experience without mindless repetitiveness of the same
elements, but with a system that seems fresh each time
– yet harkens back to the core DNA of the brand, so the
promise and essence are reinforced.
Even with all of their successes, the French Open
remains the only one among the Grand Slam tennis tournaments to have its own audio brand. But since we are
about to enter an era of the screen-less Internet, we believe
that won’t remain that way for much longer. Just consider
some recent advances with products like Alexa and Echo
where, 50% of searches will soon take place without a
screen5 and voice shopping will jump to approximately $40
billion by 2022 (up from $2 billion today).6 To be effective,
voice searchable sites will need to use soundscapes, music
and voice to distinguish themselves, as they now do with
graphics, colours and typefaces. As a result, other tennis
tournaments will surely soon follow the French Open’s lead.
LESSON NINE: ,I \RX FDQ EHFRPH WKH ÀUVW DQG ´RZQµ DQ DUHD
of branding, take it. And if you can remain the branding
leader, even better. Roland-Garros Stadium is able to take
more of their “fair share,” especially in media coverage
when the broadcasters pick up their brand’s music and play
it all over the world. Are you able to take more than your
fair share based on the size of your business compared to
your competitors?
LESSON TEN: The strategic use of audio branding should
be employed not just on sites but across all sound-enabled
touchpoints including social media, events, customer service
lines, ringtones, advertising and apps. And don’t forget to
use the other sensory branding techniques of scenting for
your environments and products as well as tactile and taste
branding, when it is appropriate, for your products.
Just like areas of marketing, branding theory and practices
continue to evolve. The ten lessons here should help marketers
stay up-to-date with their efforts. Use them today if you want
to stay in the game with your competitors.
About the Authors
Laurence Minsky is Associate Professor at
Columbia College Chicago. He’s a co-author of
7KH $FWLYDWLRQ ,PSHUDWLYH +RZ WR %XLOG %UDQG and
%XVLQHVV E\ ,QVSLULQJ $FWLRQ and $XGLR %UDQGLQJ 8VLQJ
6RXQG WR %XLOG <RXU %UDQG, among other books.
Colleen Fahey is U.S. Managing Director of
Sixième Son, the world’s largest audio branding
agency with clients spread across the globe,
ranging from Huggies to Michelin, and a co-author
of$XGLR%UDQGLQJ8VLQJ6RXQGWR%XLOG<RXU%UDQG
References
1. Minsky, L & & Fahey, C. (2017).$XGLR%UDQGLQJ8VLQJ6RXQGWR%XLOG<RXU
%UDQG, Kogan Page, London
2. Minsky, L & & Fahey, C. (2017). $XGLR%UDQGLQJ8VLQJ6RXQGWR%XLOG<RXU
%UDQG, Kogan Page, London
3. Sixieme Son. (2017). (online) The Music that Moved Nadal to Tears.
htt ps://w w w.six iemeson.com/en/news/nadal-roland-garros-sportsmusical-anthem/ Accessed: April 16, 2018
4. Rosen, W & Minsky, L. (2017). 7KH$FWLYDWLRQ,PSHUDWLYH+RVWR%XLOG%UDQGV
%XVLQHVVE\,QVSLULQJ$FWLRQ5RZPDQ/LWWOHÀHOG/DQKDP0DU\ODQG
5. Olson, C. (April 25, 2016). (Online). “Just say it: The future of
search is voice and personal digital assistants.” &DPSDLJQ, https://www.
campaignlive.co.uk/article/just-say-it-future-search-voice-personal-digitalassistants/1392459 [Access April 16, 2018]
6. OC&C Strategy Consultants. (February 28, 2018). (Online) Voice
Shopping Set to Jump to $40 Billion By 2022, Rising From $2 Billion
Today”. 35 1HZVZLUH, https://www.prnewswire.com/news-releases/voice
- shopping - set - to- jump-to-40-billion-by-2022-rising-from-2-billiontoday-300605596.html [Accessed April 16, 2018]
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Luxury Strategy
AMAZON, JUST A CLICK AWAY FROM LUXURY:
What are the Implications for
Selective Distribution?
BY XAVIER DERVILLE AND JEAN-NOËL KAPFERER
a great deal of attention on the other side of the
Atlantic, despite nominally affecting only countries
governed by European law. An opinion piece even
appeared in Forbes magazine, with the interesting
headline &RW\PD\KDYHZRQWKHEDWWOHEXW$PD]RQZLOO
VWLOOZLQWKHZDU
Why so much interest on both sides of the
Atlantic? Because of the importance of the
European single market? According to the latest
ÀJXUHVIURPFRQVXOWLQJÀUP%DLQLQ(XURSH
did indeed regain its position as the top region for
n Wednesday, 6 December 2017, the sales of “personal luxury goods”, just ahead of
European Court of Justice delivered its the Americas (North and South), both thanks to
judgment in a legal procedure concerning the hordes of Asian tourists who snap up luxury
Coty (the global leader in fragrance ahead of L’Oréal, goods when visiting the continent and owing to a
LVMH and Chanel) and Amazon (the world’s third- rise in domestic demand. But that is not the real
largest distributor and No 1 e-commerce platform). reason behind the widespread interest in the ruling
The court had been asked to give its opinion on in this case. Basically, it represents another step
whether Coty was entitled to prohibit its authorised towards the legitimisation – or not – of the very
retailers from selling on unauthorised platforms concept of selective distribution in the post-digital
(in this case Amazon) where the use of such plat- era. From the United States to Europe, China,
IRUPVLVGLVFHUQLEOHWRWKHFRQVXPHU&RW\KDGÀOHG Japan and Korea, every country has endorsed –
proceedings before the German courts to have one albeit conditionally – selective distribution strategy,
of its authorised retailers banned from selling on the which seeks to protect the value of a luxury brand
Amazon platform with the name Amazon appearing. by ensuring complete vertical consistency between
The German court hearing the case took the view the image of the creator, its reputation, the goods
that such a ban would be contrary to competition law. and services, and the places where the brand is sold
+RZHYHU&RW\ÀOHGDQDSSHDODQGWKH&RXUWRI Appeal referred the case to the Court of Justice of
the European Union (CJEU). The CJEU ruled in Selective distribution strategy seeks to protect
favour of selective perfumery. The Court validated the value of a luxury brand by ensuring complete
the ban imposed by Coty on its authorised retailers, vertical consistency between the image of the
prohibiting them from selling on unauthorised thirdcreator, its reputation, the goods and services, and
party platforms where the use of such platforms is
discernible to the consumer. It is a sign of the times the places where the brand is sold or experienced
that this decision by Europe’s highest court received by the customer both online and offline.
Has the strategy of selective distribution, on which luxury brands depend for
survival, evolved in the modern distribution
world? Combining their expertise in the luxury
industry, the authors elaborate on why luxury
brands should be ever more meticulous in their
practices through their analysis on selective
distribution in relation to the Coty case, one
of the hotly debated topic on both sides of the
Atlantic in December last year.
O
www.europeanbusinessreview.com
61
Luxury Strategy
or experienced by the customer both
RQOLQHDQGRIÁLQH
Selective distribution, on which
luxury brands depend for survival, is
nevertheless still subject to intense
scrutiny all over the world. When it
comes to luxury perfumes, the debate
that has been raging in EU courtrooms
for over 50 years is far from over. It
rears its head each time a new player
(hypermarkets, discounters, category
killers, etc.) emerges in the modern
distribution world. Now it is the turn
of online platforms such as Amazon
and eBay, followed by Alibaba, JD.com,
etc., in their quest for unlimited growth
and the distribution of anything and
everything, including luxury goods.
The debate will be reopened in Europe
when it comes to agreeing the new legal
framework applicable after 2022.
U.S. and European commentators are now focussing their attention
on the GAFA companies, hailed as the
very opposite of selective distribution.
It makes for a good story, but they are
missing the point. Selective distribution has been around for decades. It is,
however, closely watched by the competition authorities. There is no need for
selective distribution to fear a new operator from the United States or Asia.
Manufacturers should not be on tenterhooks, wondering if the latest form
of distribution will sound the death
knell for selective distribution, as was
WKH FDVH ÀUVW ZLWK K\SHUPDUNHWV WKHQ
eBay between 2008 and 2010, and now
Amazon. What luxury brands need to
do is make sure that their own selective
distribution practices are meticulous:
that is the main thrust of this article.
The future of selective distribution is very much in the hands of the
Luxury brands scored a landmark victory in their bid to stop retailers selling their products on online platforms
such as Amazon. Photographer: Jin Lee/Bloomberg
brands themselves. While pro-Amazon
consumerists decry a rear-guard
action by luxury brands, denying their
customers the purchasing conveQLHQFHRIIHUHGE\HIÀFLHQWHFRPPHUFH
platforms (such as Amazon Prime),
manufacturers must insist on the
need to preserve in the long term the
value and intangible strengths of their
brands. Prestige brands need selective distribution. Brands must adhere
to this principle of value retention.
Manufacturers must therefore be very
careful how their own selective distribution system is implemented. There can
be no half-measures. A brand is either
selectively distributed or it is not. Let’s
be honest, a brand cannot claim the
protection granted to this system if it
does not implement it to the letter. The
problem is, with the continued growth
of the luxury market worldwide, selective distribution can be undermined by
licensees, their resellers and their local
partners who do not play by the rules.
The crux of this article is that while
selective distribution has great appeal
for luxury and high-end brands, it
also requires consistency at all times.
However, one thing brands fail to grasp,
or underestimate, is that claiming they
practice selective distribution without
really doing so can be seriously harmful
to the longevity of the brand. What
happens is that the brand slowly ends
up bridging the “image gap” between
itself and these new distribution operators. This article shows how luxury
brands can unwittingly end up in this
situation as they set out to conquer the
world, and how they can get themselves
out of trouble. With Amazon or Alibaba
on the prowl, manufacturers must exercise the utmost care and consistency in
managing their selective distribution
system. This requires rigorous selection
of authorised retailers and a relentless
struggle against unauthorised resellers
and their suppliers. It basically comes
down to determining whether the
operator, digital or otherwise, meets
the objective selection criteria set by
the brand. When deciding whether or
not to work with digital operators (or
THE FUTURE OF SELECTIVE DISTRIBUTION IS IN THE
HANDS OF THE LUXURY BRANDS THEMSELVES.
62
The European Business Review May - June 2018
any operator indeed) , three aspects should be given
careful consideration:
• First, if the brand requires the operator to be
running one or more physical points of sale already,
it must be determined whether or not this requirement is met and whether or not these points(s) of
sale meet the selection criteria set by the brand;
• The second is to determine whether or not the
operator’s website(s) meets the selection criteria
set by the brand;
• Last, but not least, is to ensure that the operator’s
own shop-sign image does not detract from the
prestige of the brand. This question can be answered
with the aid of a consumer survey.
What is selective distribution?
With a system of selective distribution, the manufacturer sells only through resellers it has personally
selected, and prohibits them from reselling its goods
to other, unauthorised reseller-distributors. The selection criteria relate to aspects such as the quality of the
physical point of sale or website where the product
will be sold, how the goods are to be marketed, as
well as the reseller’s own shop-sign image. The types
of points of sale that make up a selective distribution
system can vary widely, from independent multi-brand
retailers (as is the case of watchmakers/jewellers
worldwide), points of sale belonging to regional,
national and even international chains (Sephora in
the case of cosmetics), dedicated counters or multibrand sections in department stores, shops at airports
or on board ships, in duty-free or duty-paid zones
and, of course, high-end multi-brand websites (such
as Farfetch, Rent the Runway, Yoox, Ventes Privées.
com, Mr Porter, and Luisa Via Roma).
Selective distribution should not be confused
with exclusive distribution, which consists in
having a single distributor selling the products in
one or more countries. It is also different to integrated distribution (monobrand stores in city
centres or at airports). Monobrand stores are the
result of vertical integration (DOS: directly operated stores), not the selection of points of sale for
approval as distributors. Some major houses, for
example in the perfume industry, may use both
monobrand stores and selective distributors.
Luxury and premium brands are created not with
the aim of dominating the market but rather to establish a reputation, to set the standard, and to attain
The problem is, with the continued growth
of the luxury market worldwide, selective
distribution can be undermined by
licensees, their resellers and their local
partners who do not play by the rules.
unparalleled recognition. With such prestigious origins,
the brand must strive for vertical consistency, i.e., from
top to bottom: everything from the creator, through
the products, the services, the experience, right down
to the distributor must be perfect. That being so, it is
natural for a high-end brand to opt for selective distribution from the outset: authorised points of sale will
be much more involved and convey the image of
exclusivity of the brand. They must offer consumers
the ambiance and customer service they are entitled
to expect from top brands. Trading up necessarily
involves making the exclusive distribution criteria more
rigorous: Apple is a typical example.
Selective distribution: an enduring practice that has
kept pace with changes in distribution
Selective distribution, for example in the perfume
industry, started in Europe and has evolved over
the course of more than half a century. This is
where it has reached a certain degree of sophistication. It owes its longevity to the fact that it
KDV FHDVHOHVVO\ ZLWKRXW DQ\ PDMRU GLIÀFXOW\
embraced new types and channels of distribution
(specialist perfume stores, department stores,
airport duty-free outlets, regional/national/international perfume chains, and websites). It has
VXEVHTXHQWO\JRQHRQWRÁRXULVKLQRWKHUFRXQtries around the world where it is authorised
subject to certain conditions, such as the United
States, China, Japan and Korea, by adapting to the
types of distribution found there. It has survived
despite challenges from certain forms of distribution such as discount supermarkets or pure
players, not by virtue of any immutable right, but
– as will be seen below – as a result of meticulous
application of the selection criteria and, when it
comes to the reseller’s shop-sign, consulting the
consumer through surveys.
The distribution sector for goods and services
regularly sees the arrival of disruptive players. This is
THERE CAN
BE NO HALF
MEASURE: A
BRAND IS
EITHER
SELECTIVELY
DISTRIBUTED
OR IT IS NOT.
ONLY
SOLD
HERE
Luxury Strategy
why selective distribution is regularly called into
question and re-examined. It has always been
closely monitored by the competition authorities and national courts, so concerned are they
with promoting progress through increasingly
open competition. However, when it comes to the
perfume sector in the European Union, the EU
competition authorities have time and again found
in favour of selective distribution, albeit always
after the system has been put back under the
microscope. In the United Kingdom, discounter
multiple retailer Superdrug took on the distributors
of luxury perfume brands, who ultimately won, but
RQO\DIWHUD\HDURI LQYHVWLJDWLRQE\WKH2IÀFHRI Fair Trading, with the involvement of more than
20 companies. Similarly, it took four years of wrangling to reach a conclusion in Galec (Groupement
d’Achat Edouard Leclerc) v Commission/Yves
Saint Laurent Parfums and Parfums Givenchy. As
for the new VABE (Vertical Agreements Block
Exemption) regulation issued in 2010, it came in
the wake of almost two years of discussions in
which eBay played an active part.
In the European Union, it is the responsibility
of the national authorities to enforce EU competition law while providing manufacturers with
legal certainty in the establishment and defence
of their selective distribution networks. Indeed,
it is no good them having their selective distribution system declared lawful under EU law if
they cannot also defend it against unauthorised resellers or against outsiders – pure-play
e-commerce companies – trying to squeese more
SURÀWIURPWKHLUODUJHFXVWRPHUEDVH%HIRUHWKH
Coty case, the German competition authority
had been very critical of the restrictions on sales
via e-commerce platforms, especially as regards
Adidas and Asics. Coty v Amazon proves that
this legal certainty is not guaranteed since the
opinion of the European Court was needed to
bring the German authority back into line with
the court’s position.
In Coty v Amazon, the Court of Justice was
careful to remain consistent in its stance, taking
the very opposite view to the German court of
ÀUVWLQVWDQFHDQGUXOLQJWKDW&RW\ZDVHQWLWOHG
to prohibit its authorised retailers from selling on
unauthorised platforms (in this case Amazon)
where the use of such platforms is discernible
64
The European Business Review May - June 2018
As part of a valuecreation strategy
for its brand, a
manufacturer
should use selective
distribution to
increase the
perceived quality of
its offering, which
includes not only
products but also
services and the aura
of exclusivity attached
to the brand.
to the consumer. Coty had the right to prohibit
an authorised reseller of Coty fragrances from
selling in a discernible manner on Amazon. For
example, if the authorised distributor’s website
is hosted by a third-party platform, the supplier
can demand that customers do not access the
distributor’s website via a site bearing the name
or logo of that third-party platform. On the
other hand, if the e-commerce platform is only
a service provider for the authorised retailer
and does not appear visibly to consumers, this
formula is authorised by EU law.
However, the case before the German courts
is still ongoing. Frankfurt Court of Appeal, which
had referred the case to the European Court, is
due to deliver its verdict in July 2018. The manufacturers must be happy with this, as they need
legal certainty to implement their strategy on an
international scale. The authorities are monitoring
the situation closely, and this should push manufacturers themselves to be vigilant and consistent.
Moreover, since 2000, the Commission
has been promoting the development of the
Internet, seeing it as a means of achieving the
single market, an opportunity for consumers and
a source of employment. It is keeping a close eye
on the situation, with investigations on barriers to
electronic commerce (2015 – 2017), for example.
It will open the debate once more when it is time
to renew the legal framework in 2022.
An added-value strategy tailored to
specific situations
As part of a value-creation strategy for its
brand, a manufacturer should use selective
distribution to increase the perceived quality of
its offering, which includes not only products
(themselves traded up) but also services and the
aura of exclusivity attached to the brand – in
other words, competitive advantages other than
price. Such a strategy, founded on “competition not based on price”, targets that segment
of consumers who are sensitive to the quality of
products, their packaging, communication, the
distribution framework and personalised advice.
Typical situations that warrant the use of
selective distribution:
1. There are brands for which selective
distribution is indispensable, for instance,
in the fashion, premium accessories, fragrances and
cosmetics sectors. These brands consistently integrate
the very high quality of their products with communication and the sales environment in a coherent, rigorous
vertical approach. When luxury watch brand Bell & Ross
ZDV ODXQFKHG LQ LWV WZR IRXQGHUV LGHQWLÀHG WKH stores in the world they wanted to use as distributors.
Similarly, the launch of the high-end golf brand Callaway
owed its success (apart from to its famous clubs, the
aptly named Big Bertha) to the decision to go with highly
selective distribution in the United States, then worldwide. Nevertheless, managing selective distribution is not
simply a matter of the number of stores but rather the
selection criteria that a retail store, whether brick-andmortar or online, must satisfy if it is to measure up to the
expectations and the image of the brand, or its creator. A
premium brand unequivocally means having top-quality,
sophisticated products sold via selective distribution but
there must also be the sales capacity to develop the brand
DQG FRYHU WKH UHODWHG KLJK À[HG FRVWV
2. Many brands use selective distribution in an attempt
to create a “premium” segment, in which price is no
longer the driving factor behind the decision to buy. In
this case, the consumer is sensitive to service, advice,
attentiveness, and the aura of exclusivity and prestige associated with the brand, and – more so than the
inherent quality of the goods or the communication – to
the experience offered by each point of sale, both online
DQG RIÁLQH )DFHG ZLWK D PDUNHW WKDW KDG EHFRPH VRPHwhat mundane, the brand Royal Canin (bought by the
Mars group in 2003) made a decision that seemed crazy
at the time: to turn its back on the 30% of its turnover
achieved in hypermarkets and restrict its sales to selective
distribution, in this case via veterinarians. This decision,
so daring at the time, saw the brand’s turnover increase
eightfold (from 192 to 1,533 million euros between 1993
DQG 3URÀWV URFNHWHG IURP WR PLOOLRQ HXURV
multiplying by 78. Today, it is the ultimate quality reference in the highly demanding pet-food market.
3. Selective distribution is on the increase in many sectors:
clothing and shoes; consumer electronics; electrical
household appliances; computer games and software;
toys and childcare articles; media (books, CDs, DVDs and
Blu-ray discs); cosmetics and healthcare products; sports
and outdoor equipment, and house and garden products.
In May 2017, following an inquiry lasting over two years,
Photo above: Bond Street, London. It is renowned for its exclusive brands,
GHVLJQHUIDVKLRQÀQHMHZHOVDUWDQGDQWLTXHV
the Commission published its report on barriers to electronic commerce in these various sectors. It found that
almost 20% of the companies surveyed had introduced
VHOHFWLYH GLVWULEXWLRQ V\VWHPV IRU WKH ÀUVW WLPH
4. Selective distribution is born of consistency, which
is indispensable, between the brand, the product and
the distribution. Conversely, when distribution becomes
more commonplace and less selective, the brand declines
in value: this can happen to brands that grant production and distribution licences, which become less fussy
about the choice of outlets for these licensed products, gradually leading to over-distribution of the brand.
&DOYLQ.OHLQIRUH[DPSOHÀOHGDPRPHQWRXVODZVXLWLQ
the U.S. in 2001 against Warnaco, its sole licensee for all
its jeans, after Warnaco distributed Calvin Klein jeans
through well-known US discount chains such as Sam’s
Club and Costco. A costly lawsuit was averted thanks to
a last-minute settlement. Then there is Burberry which,
before its spectacular comeback between 1997 and 2005
under Rose Mary Bravo, was primarily distributed in just
three countries, the UK, Spain and Japan, where it made
PRVWRI LWVSURÀWWKDQNVWRWKH-DSDQHVHLQIDWXDWLRQZLWK
visible logos like the famous tartan. However, Burberry
had a single local licensee in Japan, which did not see a
problem in ubiquitous distribution. In Spain, the brand
also suffered from over-distribution in too many multibrand stores. In general, stretching a brand beyond its
core competence often undermines the selectivity of the
brand’s distribution. Chanel, for example, licensed the
distribution of its sunglasses and spectacles to EssilorLuxottica, and now Chanel eyewear can be found all over
the high street. The licensee has its own volume targets
WR PHHWLI LWZDQWVWRPDNHDSURÀWDIWHUSD\LQJWKHUR\DOties charged by the premium brand.
5. 6HOHFWLYH GLVWULEXWLRQ UHÁHFWV WKH GHYHORSPHQW RI dematerialisation in marketing, moving from offering
consumers a product to offering them a complete
multisensory, service-based experience. The point of
sale then becomes the venue for this experience which,
through a combination of service, story-telling, ambiance
Stretching a brand beyond its
core competence often undermines
the selectivity of its distribution.
www.europeanbusinessreview.com
65
Luxury Strategy
Recent research confirms that the ability of major luxury brands to maintain
their desirability and their price depends on the feeling of exclusivity they
manage to preserve, something that is inextricably linked to distribution.
and new technologies, enhances the image of
the customer and the brand. This, incidentally,
is the challenge facing the Internet, i.e., how to
offer the same level of experientiality so essential for high-end brands. Technological progress
is making this challenge more and more achievable. Burberry is said to be the most connected
fashion brand as the Internet actually enhances
the in-store experience and the interactivity of
shop windows, while at the same time supplying
a continuous stream of tailored online content
(music, pictures and crowd-sourcing, intended
for social networks). This turns the brand’s physical stores, as well as its social networks and the
Internet, into virtual experiential touchpoints
that are constantly reinvented. Victoria’s Secret
KDVOHGWKHZD\LQWKLVÀHOG
break off business relations, especially if the reseller
has itself invested in selling the branded products
of the operator in question.
Digitalisation is revitalising selective distribution
Even though e-commerce still accounts for only 9%
of sales of personal luxury goods (Bain, 2017), more
and more consumers are choosing to buy from brands’
websites or multibrand platforms rather than the
brands’ own brick-and-mortar stores. This is known
as the omnichannel world, where the customer comes
into contact with the brand through multiple touchpoints and decides when and where to conclude the
transaction. The online market is expected to account
for one quarter of sales of personal luxury goods
by 2025, becoming the world’s third-largest luxury
market alongside the U.S. and China. Even now, some
60% of luxury purchases are made after web activity
5HFHQWUHVHDUFKFRQÀUPVWKDWWKHDELOLW\RI PDMRU (social networks, websites, searches on Google or
luxury brands – with sales always on the increase Baidu). Omnichannel behaviour is already the norm
– to maintain their desirability and their price for luxury buyers. The “consumer journey” winds its
depends on the feeling of exclusivity they manage ZD\ WKURXJK ERWK RQOLQH DQG RIÁLQH WHUULWRU\ ,W LV
to preserve, something that is inextricably linked therefore necessary to rethink the purpose of what is
to distribution: Is the brand available everywhere? called, somewhat inaccurately now, a “store” (a word
What is the setting like, how much personalised that alludes to former functions, namely storage). To
attention is attached, what other brands is it next to? make customers continue to visit stores, it is necesThese days, selective distribution appeals to many sary to provide “retail-tainment” facilities. In Korea,
brands, including non-luxury brands, because it can Japan and China, three countries very much at the
boost their development. It creates additional value, forefront of e-commerce, millennials’ favourite
on the one hand by delivering a superior, uniform pastime is going shopping with their friends (even if
exclusive service – both before and after purchase the purchase is actually made later on the Internet).
All distributors of premium products are now
– and on the other hand by offering a unique experiential framework to enhance the brand, projecting wondering what the future holds for the physical
side of distribution. Should they continue to expand
an aura or image of quality or even exclusivity.
One thing’s for sure, every time a brand falls in it, or reduce it? The answer is that millennials, the
perceived value, the diagnosis is the same: is it still customers of tomorrow, do want to continue to
in fairly selective distribution? When this happens, visit stores, just not necessarily in the form they have
there is a need for a reverse strategy, “from mass to today. The solution is to make the point of sale a
FODVVµ+RZHYHULWLVPRUHGLIÀFXOWWRFORVHH[LVWLQJ destination like no other. Millennials love Sephora
sales outlets than to refuse to open new ones. In because they can try out all the new niche brands
the United States, an operator is free to choose its continually introduced by the chain, have fun with the
trading partners. However, once a commercial rela- connected mirrors and virtual reality, and immerse
tionship is established with a reseller, it is harder to WKHLU ÀYH VHQVHV ZKHUHDV RQOLQH VKRSSLQJ HQJDJHV
66
The European Business Review May - June 2018
only sight and hearing. Under pressure from the
digital world, the point of sale must become the
principal place of experience, strengthening the
bond with the brand, the brand’s desirability and
its community of fans. You don’t build a religion
without temples, places for renewing believers’
faith. All this involves absolute control over the
customer experience at the brand’s points of sale.
Hence the need for selectivity.
With competition intensifying both online and
RIÁLQHWKHUHLVLQFUHDVLQJLQWHUHVWLQPRUHVHOHFtive, even exclusive distribution. This is why, even
though the most obvious aspect of a more selective distribution strategy is the reduction of the
number of “gateways”, in reality this reduction
is simply the result of more stringent selection
criteria. Because that’s how it works. Take Moncler,
for example. In its quest to become THE name in
high-end down jackets worldwide, in the wake of
the arrival of more affordable competitors such
as Ralph Lauren or Lacoste, Moncler began shutting down stores across the world, reducing the
number from 2160 in 2010 to 1800 by September
2013. At the same time, it focussed on its excluVLYHÁDJVKLSVWRUHV'26E\WKHHQGRI LW
had just 190 of these shrines to Moncler values
and service. Its new global competitor Fusalp
plumped from the outset for an even more exclusive form of distribution in the most upmarket
locations (Aspen, Courchevel, etc.).
Luxury brands are no longer reluctant to
distribute via the Internet, seeing it as a solution to
one of the industry’s structural problems (at least
as regards fashion goods): unsold stock. Because
of the need to refuel consumers’ desires through
the medium of creativity, some luxury fashion
ranges can unwillingly be over-produced. So what
happens to them at end of, or even mid-, season?
This is why many major luxury fashion houses,
such as Kering or Richemont, use e-commerce
platforms to avoid the stigma surrounding sales in
outlet stores, something that unequivocally signiÀHV WKDW WKH EUDQG LV QR ORQJHU D OX[XU\ QDPH
,W·VDQHHGIXOÀOOHGE\VXFFHVVIXOHSODWIRUPVVXFK
as Farfetch, Net à Porter and Yoox. These platforms do not belong to the regular retail network
of the brand: they have been created to offer
luxury brands a service by proposing goods from
previous collections, during a limited period of
time in an upscale environment. They need to
be strictly controlled by the brand to ensure that
the environment, the packaging, delivery services,
return logistics, and customers’ experience are at
the highest level, compared to the brand regular
network. Today some platforms such as Rent
the Runway even allow you to rent luxury goods
instead of buying them, which works very well
for unusual products that are harder to sell. It is
not for nothing that, on 19 February 2018, Chanel
WRRNDÀQDQFLDOVWDNHLQ)DUIHWFKIROORZLQJLQWKH
footsteps of Richemont with Yoox- Net à Porter.
Lastly, we can no longer talk about luxury
and the Internet without mentioning Chinese
customers, who already account for 32% of
purchases by value of all “personal” luxury
brands. On 1 August 2017, Alibaba, the No 1
Chinese e-commerce company, with its two
platforms TaoBao (CtoC) and TMall (BtoC),
announced a new distribution opportunity for
luxury brands in China, via a dedicated platform within TMall called Luxury Pavilion. Its
competitor JD.com followed suit with Toplife
in October 2017. The brainchild of Jack Ma,
Alibaba’s charismatic CEO, Luxury Pavilion is
based on a new form of selectivity: customer
selection. Not only are the brands invited
to open a store in Luxury Pavillion carefully
chosen, but the customers are themselves handpicked using big data, providing an intimate
knowledge of their e-commerce purchases in
&KLQDDQGVKRUWO\IXUWKHUDÀHOGDVWKH$OLSD\
payment app is rolled out around the world.
The online market is
expected to account
for one quarter of
sales of personal
luxury goods by 2025..
Even now, some
60% of luxury
purchases are made
after web activity.
www.europeanbusinessreview.com
67
Luxury Strategy
Only the top-spending luxury goods customers (based on
annual purchasing records) are selected for this invitationonly platform. It is an approach worth considering: several
brands have already taken up the invitation from TMall’s
Luxury Pavilion in China, such as Burberry, Boss, Estée
Lauder, La Mer, Guerlain, and Maserati.
However, it must be borne in mind that Alibaba’s approach
based on customer selection is radically different from the form
of selective distribution practiced in the European Union. In
the EU, any consumer, regardless of purchasing power, can
access and buy a luxury product in the fashion/accessories or
fragrance/cosmetics sectors. The only condition “imposed” by
the brand owner – in its own interest and that of the consumer
– is that the point of sale or the website must meet the objective selection criteria that it has set. From a commercial point of
YLHZWKHEUDQGRZQHUFDQWKXVUHDFKQRWRQO\DIÁXHQWRUYHU\
DIÁXHQWFRQVXPHUVEXWDOVROHVVZHOORII FRQVXPHUVRU´H[FXUsionists”, who will thus be granted access to the world of the
brand through products at affordable prices. This applies especially to perfumes and cosmetics, although less so to extreme
luxury goods with a higher price tag. In the system proposed by
Alibaba, the approach is more restrictive or conservative since it
LVUHVHUYHGIRUYHU\DIÁXHQWFRQVXPHUVZKRDUHRIIHUHGDXQLTXH
setting and experience with no risk of purchasing a fake.
This method based on creaming off customers does not
correspond to the reasons why an exception has been made
for selective distribution by the competition authorities in
Europe and other countries, an exception they have justiÀHGE\WKHQHHGWRSUHVHUYHWKHYHU\QDWXUHRI WKHVHJRRGV
including their aura of exclusivity.
Letting the consumers have the final say
Selective distribution requires complete consistency between
the brand, the product, the brand communication and the
method of distribution: if the method of distribution is not
in line with the other aspects, the image of the brand will be
The user interface of Tmall’s Luxury Pavilion, Alibaba’s exclusive shopping site
designed to enhance consumers' luxury shopping experience. Source: 36kr
68
The European Business Review May - June 2018
tarnished in the mind of consumers. In the ongoing struggle
with brick-and-mortar operators, and now online players,
who are eager to get round the restrictions imposed by selective distribution to get their hands on premium products, the
ultimate question will be whether or not the image of these
operators affects the prestige of the brand.
All luxury and premium brands must constantly walk the
tightrope between sales volume and image preservation, their
perceived quality based on their price premium. Every year
in the U.S., Dom Perignon must decide whether it should
continue to be sold in Costco, the world’s seventh-largest
discounter distributor, which is also its biggest customer over
there. And where would sales of Moët et Chandon champagne
be if the brand was not present on the shelves of hypermarkets like Auchan and Carrefour?
Constantly pestered by brick-and-mortar discounters and
RQOLQH SODWIRUPV OX[XU\ EUDQGV PXVW EH DEOH WR LVVXH D ÁDW
refusal, based on solid facts, to any discounter whose ambition
is to distribute a premium brand, thereby attaining the holy
grail, which selective distribution represents in their eyes. It’s a
OHJDOPLQHÀHOGQRWOHDVWEHFDXVHRQHKDVWKHIHHOLQJWKDWWKH
root of the problem is the discounter themselves, and selective distribution a way of avoiding them. However, it is not (as
claimed in some recent opinion pieces in the US press) a case
of mounting a rear-guard action, but of stressing the merits
of a system of selective distribution validated by the competition authorities in countries all over the world for premium
EUDQGVDQGJRRGV7KHFRQVXPHUFDQKDYHWKHÀQDOVD\HVSHcially when it comes to the criterion of shopsign, through
surveys. Consumer surveys can help businesses make decisions
by enlightening the brand manufacturer as to the compatibility
between the image of a potential new distributor and the prestige of its own brand.
In 1990, in the United Kingdom, a luxury perfume
brand surveyed consumers on whether its image would be
tarnished if it decided to approve a request for authorisation from a major British food retailer, X. More than 80%
of consumers said that the brand’s image would suffer. The
supermarket’s request was turned down.
Shortly afterwards, this same brand was approached by
Superdrug (perfumes, photos, confectionery, food, sandwiches, etc.). It conducted a new consumer survey to determine
whether its image would be negatively affected if it decided to
approve the sale of its goods through Superdrug, whose image
was founded primarily on a good quality/price ratio and whose
outlets were of average quality. The results of the survey
clearly indicated that consumers felt that the image of the
brand would be undermined if it decided to take on Superdrug
as a distributor. However, despite the results of the survey, the
Too often in practice, when opting for selective distribution the brand fails to select retailers based
on the quality of their sales outlet, or even to get them to sign a selective distribution agreement.
brand decided to go with Superdrug for
purely commercial reasons.
Some time later, another British food
retailer, Y, approached the premium
brand. The brand carried out a new
consumer survey and found that the
percentage of consumers interviewed
who considered that “the sale of goods
under this brand in stores of the chain
in question, Y, would damage the presWLJHRI LWVEUDQGµKDGIDOOHQVLJQLÀFDQWO\
in comparison with the survey conducted
prior to the agreement with Superdrug.
This shows the strong impact that distribution can have on the image of a brand
when it decides to sell through points of
sale of lower quality whose image is detrimental to the brand.
This example underlines the importance of distribution in how brand image
is perceived and why the shopsign criterion matters. Indeed, the concept of a
shopsign goes far beyond its name alone:
it relates to the image that surrounds the
operator’s name. Surveys can help when
making a decision on where to position
a brand. But – as we have just seen – the
quest for volume sometimes leads to
consumer opinion being ignored.
The logic followed by management
in such a case is always “sell where they
shop!” In the United States, for example,
the term “destination stores” refers
to points of sale of mediocre quality
where the presence of high-end branded
goods muddies the image of the brand
in the eyes of consumers. Such a course
of action disregards the impact on the
image that selling via non-selective distriEXWLRQZLOOKDYH,WDPRXQWVWRVDFULÀFLQJ
the long term for the short term.
To be or not to be ...selective?
While everyone agrees on the virtues of
selective distribution, it is a major strategic choice, which also has its drawbacks.
Because it limits the number of resellers
and prohibits them from selling to unauthorised resellers, selective distribution
has been under a great deal of scrutiny by
the competition authorities in most countries, and in particular the EU competition
authorities in Europe since 1970. Unless it
is chosen from the start, opting for selective distribution can mean a fall in sales in
the short term, as it requires withdrawal
from retail outlets of lower quality.
The saying “you can’t be half pregnant” applies to selective distribution.
You either embrace it or you don’t,
there are no half measures. And the
choice must be made at a global level
since consumers would be disconFHUWHG WR ÀQG D VHOHFWLYH EUDQG LQ WKH
European Union was not so in the
United States or China. This type of
thing can happen when local management is given free rein. The situation
must be turned around by bringing
local practices into line with the global
strategy. It is an especially pressing
matter these days given the boom in
shopping tourism, the main reason why
Asians go on holiday. At present only
7% of the Chinese population have a
passport allowing them to travel, but
WKLV ÀJXUH LV VHW WR GRXEOH +HQFH WKH
need to ensure that the brand’s standing
is the same in all destination countries.
Some companies believe that they are
engaged in selective distribution when
this is not entirely the case in reality, and
therefore in the eyes of the law. They do
not realise their mistake until they come
up against an unauthorised distributor,
RQOLQHRURIÁLQHDQGVXGGHQO\ÀQGWKDW
their defence is undermined. How can
this happen? Too often in practice, when
opting for selective distribution the brand
fails to select retailers based on the quality
of their sales outlet, or even to get them to
sign a selective distribution agreement. In
both cases, the brand reduces its chances
of legally defending the selective route it
has chosen if discount distributors who
do not belong to its network decide to
protest their exclusion.
Some of the reasons why even the
strongest brands fail to follow the process
of implementing selective distribution
through to the end, are the control of
OLFHQFHV DQG WKH GLIÀFXOW\ LQ FRQYLQFLQJ
their local partners – in the various
countries – to put selective distribution in place. The spectacular growth of
the luxury sector is due to brands’ not
only constantly expanding their business geographically but also extending
their range of products outside of their
core competence, in collaboration with
powerful partners, who are themselves
often relayed by local partners. Chanel has
granted only one licence worldwide, to
Essilor-Luxottica for eyewear. As a result,
the brand has ended up on the shelves of
mass consumer distribution chains such
as Atol and Krys. It is a typical example:
if a brand uses highly specialised powerful
licensees, the latter may have a different
strategy from their own and prioritise
sales volumes to the detriment of image
protection, even if they have led the
licensor to believe otherwise.
How, then, can a brand get its contractors to commit to selective distribution?
To avoid laxity that can jeopardise a
luxury brand as it pursues growth in
more countries, more circuits and via
more licensed products, two precautions are imperative: it is necessary
to constantly push selective distribution on partners by demonstrating the
shared strategic and commercial beneÀWVDQGLWLVDOVRQHFHVVDU\WRSURYLGH
extensive, ongoing training to teach
local teams, in very practical terms, the
criteria for selecting resellers, whether
RQOLQHRURIÁLQH
www.europeanbusinessreview.com
69
Luxury Strategy
ONE THING
IS FOR SURE,
EVERY TIME A
BRAND FALLS
IN PERCEIVED
VALUE, IS IT
STILL IN FAIRLY
SELECTIVE
DISTRIBUTION?
70
Therefore, from the legal point of view, the brand
must include in its licence agreement the obligation
for the licensee to implement selective distribution
and the right to terminate the agreement if this obliJDWLRQLVQRWIXOÀOOHG9DULRXVGLIIHUHQWREOLJDWLRQV
may be imposed on the licensee:
• HVWDEOLVKPHQW RI D VSHFLÀF GLVWULEXWLRQ QHWZRUN
for the brand,
• a team and sales forces dedicated to the brand,
• comprehensive regular reports on how distribution is faring in each country (breakdown of
turnover and number of authorised points of sale
by distribution channel),
• discussion at least once a year with the brand on
how the distribution of the brand is going,
• the right for the brand to carry out at any time a
distribution audit and a consumer survey on the
positioning of the brand,
• an obligation to train and send the local sales
force on training courses on the selective distribution proposed by the brand.
The brand must monitor compliance with
these obligations.
Another stumbling block to effective implementation of a genuine selective distribution system is
the refusal by local partners to pay the costs of a
EUDQGVSHFLÀFIRUPRI GLVWULEXWLRQIRUH[DPSOHWKH
costs of a dedicated sales force. This is typically the
problem when a group that has been selling somewhat mass-market brands decides to segregate some
of them to trade them up.
In major global wine and spirits groups, in
each country the same sales force markets the full
range of brands to retailers, as well as to restaurants, cafés and hotels. If one such group wants to
trade up some of its brands by restricting them to
certain points of sale, refusing others, this can cause
trouble on two levels. When implementing a selective distribution system, reluctance from the current
network of authorised retailers is often a problem.
This is because premium goods have often been
granted as thanks for major purchases of everyday
brands. Loss of this lever is not received very well
by the sales force itself. Furthermore, to trade up a
brand you need a specialised sales team, otherwise
the approach is not credible, but this can lead to
The European Business Review May - June 2018
very high direct costs in smaller countries, where the
overall volume is low.
/DVW REVWDFOH LQ WKH ÀHOG LQ SUDFWLFH LW FDQ EH
GLIÀFXOW IRU D EUDQG WR JHW D FKDLQ RI SRLQWV RI sale established in several countries and make a
selection from these points of sale based on the
selection criteria of the brand and not on those
of the chain. The chain will argue that as its business concept is the same throughout, all points of
the chain should automatically be approved by the
EUDQG LI WKH EUDQG LV VDWLVÀHG ZLWK WKLV FRQFHSW
However, this does not take into account the fact
that, for example, the quality of the point-of-sale
environment can vary from one point of sale to
another. In addition, the approved multibrand
retailers within the selective distribution network
may be reluctant to follow the strict instructions
on merchandising provided by the brand, especially if they are multiple retailer chains. Lastly, it
FDQ EH GLIÀFXOW WR KDYH WKH EUDQG VWUDWHJ\ WDNHQ
on board by self-employed sales agents who sell
several brands and are employed by distributors as
their sales force in some European countries.
Halfway is no way
Let’s be clear from the start: distribution with little or
not enough emphasis on quality can negatively affect
consumer perception of the brand. Decreasing the
product’s appeal in their eyes will ultimately result
in a decline in sales or a lowering of the brand’s
SV\FKRORJLFDOSULFH$VWRUHRIIHUVDGLUHFWÀUVWKDQG
experience, which has a lasting impact. This impact is
positive if the experience is memorable and negative
for a high-quality product that is found in most mass
distribution channels. One wonders whether the
withdrawal of Cartier’s Must product range, which
had represented a desire to enter much more “accessible” points of sale, cannot be explained by the
negative feedback effect of this range on the prestige
of the Cartier brand itself. It is interesting to note that
in Europe, too, Levi’s has withdrawn the dedicated
brand Levi’s Signature from 15 retail chains where it
was sold at half the price of the iconic Levi’s range.
On paper, Levi’s Signature was meant to be a standalone brand, but in reality, consumers saw it as Levi’s
becoming accessible to the masses.
Between the repeated challenges thrown up by the arrival of disruptive
operators and the watchful eye of EU and national competition authorities,
luxury brands have no choice but to be ever more meticulous in their practices.
A brand that drifts along in the middle of the stream runs
the risk of being caught in a fatal current. Authorised retailers in
a selective network who focus on the quality of their point of
sale and their service may be demotivated by the arrival or retention in the network of stores that do not have the same level
of quality. There is the risk that they will neglect distribution of
WKH EUDQG RU HYHQ DEDQGRQ LW IRU WKH EHQHÀW RI RWKHU EUDQGV
or pay less attention to the attractiveness of their retail space.
The brand cannot then force retailers to maintain a certain level
of quality in their retail space in the absence of a contractual
obligation in this regard. And in view of the expansion of the
distribution segment not focussed on quality, new retailers may
also refuse to sign the selective distribution agreements offered
by the brand. If the brand still decides to supply these retailers
even though they have not signed a selective distribution agreement, the brand will be unable to defend its network. Indeed, it
will not be able to take action against these retailers if they resell
to unauthorised retailers since they have not made any contractual commitment to the brand not to do so.
This triggers a chain-reaction decline in the quality of
distribution, which will further weaken the image of the
goods in the minds of consumers and accelerate the fall in
sales. This situation may eventually lead the brand to lose
control over its distribution, as it is unable to act against any
retailer reselling its products outside of the network.
In the European Union, in the absence of an explicit
selective distribution agreement and selection criteria that
DUH FOHDU REMHFWLYH DQG PHDVXUDEOH LW ZLOO EH GLIÀFXOW IRU WKH
brand to prove the existence and validity of its distribution
system under EU competition law, and thus to win in court
if the brand’s distribution system is challenged by an unauthorised reseller. The brand will ultimately be in a weakened
position vis-à-vis distributors with an unattractive retail space
demanding authorisation. The latter can indeed validly claim
that their points of sale are of a quality at least equal to that
of the least-quality-focused authorised retailers.
Conclusion: greater care and consistency
The future of selective distribution is therefore in the hands
of the manufacturers. It always has been and still is. An addedvalue strategy requires perfect vertical consistency in the
client experience. Selective distribution owes its longevity to
its ability to adapt to new forms and channels of distribution
and to logistics that promote trade and meet the new needs
of consumers. It has developed alongside these new forms
of trade, sometimes even integrating operators provided that
their image does not harm the brand equity patiently built up
by the premium brand. It is therefore a mistake to simply see
the issue as pro- vs. anti-Amazon, Alibaba, et al. The legitimacy of selective distribution is no longer in question from a
legal point of view. On the other hand, for any given brand,
maintaining its selective distribution strategy is entirely in its
own hands; it will be whatever the brand wants it to be.
Between the repeated challenges thrown up by the arrival of
disruptive operators and the watchful eye of EU and national
competition authorities, luxury brands have no choice but to
be ever more meticulous in their practices; selective distribution cannot be done by halves! The more the brand itself
neglects its distribution, the more it is bridging the gap that
can linger in the minds of consumers between its brand image
and that of the next new operator who comes knocking on its
door. By then it will be too late.
About the Authors
Xavier Derville is an expert in protection and
enhancement of high end and luxury brands
through distribution, contracts, Intellectual
Property, relations with European Institutions
and arbitration. General Counsel at YVES
SAINT LAURENT PARFUMS (1986-1998), LACOSTE
(2001-2014) and recently at Zodiac Pool Holding, he acquired
a solid expertise in distribution worldwide (Americas, Europe,
Middle East, China and Japan). He was an ENA postgraduate
fellow in European Studies (2012).
Jean-Noël Kapferer, Ph.D Kellogg Business
School (USA), HEC Paris Emeritus Professor, is a
research fellow at INSEEC Luxury (France).
Worldly reputed expert on brand management, he
has published many reference books –7KH/X[XU\
6WUDWHJ\ (with his co-author V.Bastien, former CEO of
L.Vuitton), +RZ OX[XU\ %UDQGV *URZ <HW 5HPDLQ 5DUH 7KH
1HZ6WUDWHJLF%UDQG0DQDJHPHQW ² and recently co-authored
$GYDQFHV LQ /X[XU\ %UDQG 0DQDJHPHQW He holds executive
seminars in Europe, the U.S.A., China, Japan, Korea and is
a frequent contributor to LBI Luxury Business Institute
(Seoul, Shanghai).
Global Business
HOW GLOBAL ARE GERMANY’S
LARGEST CORPORATIONS?
BY NICCOLÒ PISANI AND OMAR TOULAN
host environments, and struggle with the persistent challenge to locally adapt while preserving
consistent global processes.1
Despite the challenges associated with global
operations, to expand internationally is nowadays more critical than ever, especially for large
companies based in developed economies,
as opportunities for growth reside primarily
in emerging markets.2 To be able to reap the
EHQHÀWV RI WKH ELJ VKLIW RI HFRQRPLF DFWLYLW\
to emerging economies, corporations need to
eing global brings strong strategic rethink their global footprints and remain on top
advantages to companies. In compar- of all the changes that such shift is implying in
LVRQ WR ÀUPV ZKRVH VFRSH LV OLPLWHG WR the international competitive landscape. These
their home countries, global corporations are include the need to compete against new interable to access more customers, acquire priv- national players primarily based in emerging
ileged resources, establish partnerships with economies, access new foreign customers,
foreign counterparts, reach scale and scope UHFRQVLGHU WKHLU RUJDQLVDWLRQDO VWUXFWXUHV WR ÀW
economies in their global operations, and take the changing environment, and develop globaladvantage of cross-country arbitrage opportu- leadership competencies.3
nities. Having said that, being global also entails
Within Western Europe, German compaDGGLWLRQDO FRVWV DQG FUHDWHV VSHFLÀF FKDOOHQJHV nies have been traditionally considered leaders
to companies. Global corporations need to in keeping up with technological- and marketPDQDJH FRPSOH[ QHWZRUNV RI LQWHUÀUP UHOD- related environmental changes. On the industrial
tionships that span beyond national boarders, side German manufacturers are known to be at
face unfamiliar risks in relatively less-known the technological frontier. Country-level data
Whereas facts suggest that German companies are among the best equipped and most
active to pursue global growth, they offer
limited insight to determine the real extent
to which these companies are truly global.
This article aims to offer a data-driven,
rigorous, and comprehensive assessment of
their actual degree of internationalisation
and compare it with the one of other large
enterprises based in the rest of the world.
B
72
The European Business Review May - June 2018
Within Western
Europe, German
companies have
been traditionally
considered leaders
in keeping up with
technological- and
market-related
environmental
changes.
German companies appear as more nationally- and home regionoriented than Western European companies included in the FG500.
This also implies that German companies’ global orientation is
weaker than their Western European counterparts.
gathered by UNCTAD also corroborate that
German companies are among the most internationally-oriented.4 Germany is in fact one of
the largest exporters in the world.5 Whereas
these facts suggest that German companies are
among the best equipped and most active to
pursue global growth, they offer limited insight
to determine the real extent to which these
companies are truly global. Are German compaQLHVPRUHJOREDOLVHGWKDQÀUPVEDVHGLQRWKHU
countries? Stated otherwise, are German companies leading the way in terms of adopting a true
global footprint to keep up with the big shift of
economy activity to emerging economies?
To provide an answer to these questions, we
collected data on the 100 largest corporations
based in Germany according to their turnover
and calculated multiple indicators to determine
their actual degree of internationalisation. To
EH DEOH WR FRQWH[WXDOLVH WKH ÀQGLQJV REWDLQHG
vis-à-vis other large corporations located in
other countries, we repeated the same analysis
IRUWKHZRUOG·VODUJHVWÀUPVDVLQFOXGHGLQ
the Fortune Global 500 (FG500) and compared
the results obtained. Whereas the 100 largest
companies based in Germany obviously have an
DYHUDJHORZHUDQQXDOWXUQRYHUWKDQ)*ÀUPV
all companies included in both samples can be
categorised as “large” enterprises according to
“Eurostat” and are therefore comparable for the
purpose of our study.6,7
6HYHUDO ZRUNV LQ WKH ÀHOG RI LQWHUQDWLRQDO
EXVLQHVV KDYH FODVVLÀHG WKH GHJUHH RI ÀUP
level internationalisation adopting various
measurements and indicators that range from
WKHGLVWULEXWLRQRI ÀUPV·VDOHVWRWKHGHJUHHRI nationality diversity in their top management
teams.8 To offer a comprehensive assessment
of the extent to which German companies are
internationally-oriented, we considered multiple
FIGURE 1. The average distribution of sales of German Top 100 companies versus FG500
34
32
National
48%
Regional
54
Global
20
German Top 100
12
FG500
www.europeanbusinessreview.com
73
Global Business
dimensions in our analysis and thus
focussed on sales, assets, shareholders,
board of directors, and top management teams.
In relation to sales, we gathered information on the geographic distribution
of revenues reported in each company’s
annual report9 and distinguished among
VDOHV ZLWKLQ WKH ÀUP·V KRPHFRXQWU\
(national), international but within the
home region (regional), and outside the
home regional boundaries (global).10
The comparison (see Figure 1 previous
page) shows that German companies’
average revenue distribution is similar
WRWKHRQHRI WKHDYHUDJH)*ÀUP
with respect to the propensity to go
global. Having said that, differences
arise when looking at the proportion
of national and regional sales. Whereas
German corporations tend to be relatively less nationally-oriented than
their FG500 counterparts, they show
a greater propensity to operate within
their home region, this being the likely
result of the high level of regional integration within the European Union.
We then considered the geographic
distribution of subsidiaries and thus
created a dataset that included all
PDMRULW\RZQHG DIÀOLDWHV RI WKH ODUJHVW *HUPDQ ÀUPV RYHU data points) and did the same for the
companies included in the FG500
(the resulting dataset for the FG500
sample comprised over 67,000 data
points). We calculated the distribuWLRQ IRU HDFK ÀUP LQ WKH WZR VDPSOHV
and reported the resulting averages
in Figure 2 above. The pattern that
emerges is comparable to the one
obtained relative to the distribution of
VDOHV :KHUHDV VLJQLÀFDQW GLIIHUHQFHV
are noticeable in the national versus
Ǘǽ %" 3"/$" !&01/&21&,+ ,# *',/&16Ȓ,4+"! ƛ&)&1"0 ,#
German Top 100 companies versus FG500
30
National
48%
29
Regional
58
Global
22
German Top 100
regional orientation, the propensity
WR ORFDWH PDMRULW\RZQHG DIÀOLDWHV
outside the home region is practically
identical in both samples.
More pronounced dissimilarities materialise when considering the
overall distribution of all majorityRZQHG DIÀOLDWHV DQG GLIIHUHQWLDWLQJ
among the region of origin of FG500
ÀUPV VHH )LJXUH QH[W SDJH *HUPDQ
companies appear as more nationally- and home region-oriented than
Western European companies included
in the FG500. This also implies that
German companies’ global orientation
is weaker than their Western European
FRXQWHUSDUWV /RRNLQJ DW WKH VSHFLÀF
propensity to establish majorityRZQHG DIÀOLDWHV RXWVLGH (XURSH
German corporations have a relatively
higher portion of majority-owned
DIÀOLDWHV LQ WKH $VLDQ UHJLRQ WKDQ
North American corporations and, to
an even greater degree, of Central and
Latin American companies. It is worth
of note that FG500 companies based
13
FG500
outside Western Europe all report a
much stronger national orientation
than German companies, with U.S. and
Canadian companies locating up to
RI WKHLUPDMRULW\RZQHGDIÀOLDWHV
at home. Overall, the analysis based on
PDMRULW\RZQHGDIÀOLDWHVVXJJHVWVWKDW
*HUPDQ ÀUPV DUH DPRQJ WKH PRVW
active internationally, but not considerably more than Western European
companies included in the FG500.
We also considered shareholders’
nationality as their geographic distribution may provide a useful indicator
to understand the international orienWDWLRQ RI ÀUPV )RU WKLV SXUSRVH ZH
collected data on the country of origin
and total stake owned for each of the
main shareholders of the 100 largest
German corporations and did the
same for all the companies included
in the FG500. Data for the German
VDPSOHZHUHDYDLODEOHIRUÀUPV
companies for the FG500 sample) and
led to the creation of a dataset with
over 2,900 data points (over 24,000
German companies have, on average, a significantly higher share of national
shareholders when compared with their Western European counterparts.
74
The European Business Review May - June 2018
for the FG500 sample).11 The results obtained
(reported in Figure 4) show that German
FRPSDQLHV KDYH RQ DYHUDJH D VLJQLÀFDQWO\
higher share of national shareholders when
compared with their Western European counWHUSDUWV 0RUHRYHU RXU ÀQGLQJV DOVR LOOXVWUDWH
that the portion of shareholders coming from
outside the European Union is substantially
smaller than the one of the largest Western
European corporations included in the FG500.
This may be associated with the fact that whereas
stock exchanges in other Western European
countries have merged creating larger platforms (e.g., Euronext), global investors need
to access Deutsche Börse to acquire equity
of German-based companies. Looking at the
average geographic distribution of the largest
corporations based in other world’s regions,
RXUÀQGLQJVLOOXVWUDWHDPDUNHGSUHGRPLQDQFH
of national ownership, with intra-regional
ownership losing relevance when moving
away from Western Europe. Given the overall
marked home-country bias reported across all
UHJLRQVWKHÀQGLQJVZHREWDLQHGVXJJHVWWKDW
the average distribution of shareholders may
not be the most insightful indicator to grasp
nuanced differences in the internationalisation
patterns of large corporations.
Recent research has highlighted that the
C-suite of the world’s largest corporations
is not as globalised as conventional wisdom
may suggest.12 Looking at CEOs’ country of
origin for example, only nearly 13% of companies included in the FG500 had a non-native
CEO, i.e. whose main nationality was different
from the country where the corporation had
its headquarters. Figure 5 below reports the
average percentage of non-native CEOs in the
25 largest corporations based in Germany and
compares it with their FG500 counterparts. Our
ÀQGLQJVLQGLFDWHWKDW*HUPDQFRPSDQLHVKDYH
a much smaller propensity to hire a non-native
CEO than other Western European corporations. Their likelihood of hiring a foreign
national (8%) is equivalent to the one of North
American companies, and anyway meaningfully
inferior than the overall FG500 average (13%).
One potential explanation for this result may
be linked to the fact that German companies
primarily use German as reference language
LQ WKHLU KHDGTXDUWHUV PDNLQJ LW YHU\ GLIÀFXOW
for international CEOs to be hired unless they
DUH ÁXHQW LQ *HUPDQ 1RW VXUSULVLQJO\ of the non-native CEOs in Western European
companies included in the FG500 are based in
the U.K., Netherlands, and Switzerland – three
countries where English is commonly used in
the headquarters of large corporations.
While CEOs’ results suggest a relatively
limited exposure to foreign markets in terms of
hiring key executives, we looked at the composition of both boards of directors and top
management teams to investigate whether this
SDWWHUQZDVFRQÀUPHG7KXVZHJDWKHUHGGDWD
on the nationality of each member of the board
of directors and top management team of the 25
largest German corporations and did the same
IRUWKH)*VDPSOH2XUÀQGLQJVVHH)LJXUH
FIGURE 3. Internationalisation patterns in the distribution of majority-owned
ƛ&)&1"0,#
"/*+,-ǖǕǕ ,*-+&"03"/020
ǚǕǕ
33%
National
30
Regional
Asia
U.S. and Canada
Central/Latin America
Other
9
11
"/*+,-ǖǕǕ
5
12
30
National
26
Regional
Asia
U.S. and Canada
Central/Latin America
Other
9
13
"01"/+2/,-"+ ,*-+&"0
ǚǕǕ
8
14
65
National
Regional
Asia
Western Europe
2
6
14
8
Central/Latin America
Other
ǽǽ+!+!&+ ,*-+&"0
ǚǕǕ
5
National
53
21
Regional
Western Europe
U.S. and Canada
Central/Latin America
Other
8
8
0&+,*-+&"0
ǚǕǕ
5
5
43
National
Regional
Asia
Western Europe
U.S. and Canada
Other
31
2
12
8
4
"+1/)+!1&+*"/& + ,*-+&"0
ǚǕǕ
www.europeanbusinessreview.com
75
Global Business
6) show that German board of directors and top
management teams are substantially less internationalised than their Western European counterparts,
this being the likely result of the language barrier
issue discussed in the previous paragraph. In relation to the North American sample, our results
show that U.S. and Canadian companies continue
to have a strong home-orientation when it comes
to decide the composition of boards of directors
and top management teams.13 Overall, the average
degree of internationalisation of German companies’ corporate elites appears as more similar to the
North American sample than the Western European
one. In particular, companies based in the U.K.,
Netherlands, Switzerland, Belgium, Finland, Ireland,
and Luxembourg report an average percentage of
internationalisation that is greater than 35% in both
their board of directors and top management teams.
Our analysis shows that the 100 largest German
corporations are less internationalised than Western
(XURSHDQ ÀUPV LQFOXGHG LQ WKH )* 7KHLU
pattern of internationalisation is rather similar to
FIGURE 4. The average distribution of shareholders of German top 100
companies versus FG500
National
Regional
Global
FIGURE 5. The average percentage of non-native CEOs in German
Top 25 companies versus FG500
58%
Non-native
National
20
22
German Top 100
National
Regional
Global
47%
35
79%
8
92
U.S. and Canadian companies FG500
77%
Non-native
National
2
21
85%
0
15
Central and Latin American companies FG500
6
94
Asian companies FG500
Asian companies FG500
The European Business Review May - June 2018
75
Non-native
National
16
U.S. and Canadian companies FG500
76
25
Western European companies FG500
5
National
Regional
Global
92
Non-native
National
18
National
Regional
Global
8%
German Top 100
Western European companies FG500
National
Regional
Global
the average FG500 company with respect to sales
DQGORFDWLRQRI PDMRULW\RZQHGDIÀOLDWHVZLWKWKHLU
distribution being very comparable to other Western
European companies especially with respect to their
global orientation. In relation to their equity base,
our results indicate a relatively strong predominance
of national investors. This may partially explain the
marked prevalence of German nationals in their
board of directors and top management teams as
well as their lower-than-average propensity to hire
non-native CEOs. Thus, even though countryOHYHO GDWD LQGLFDWH WKDW *HUPDQ ÀUPV DUH DPRQJ
the most active internationally via strong exports
of their products and substantial foreign direct
investments worldwide, our in-depth analysis of
the 100 largest German companies shows that their
degree of globalisation remains relatively limited on
multiple accounts and anyway not greater than large
companies located in other countries, especially
within Western Europe. Of course, these averages
mask major variations across individual companies. Moreover, the aim of this study was not to
Non-native
National
9
91
Central and Latin American companies FG500
Global Business
FIGURE 6. The average percentage of internationalisation in Board of Directors and Top Management Teams in German Top 25
companies versus FG500
30
32
18
15%
13
11
7
BoD TMT
BoD TMT
BoD TMT
BoD TMT
German Top 100
Western European
companies FG500
U.S. and Canadian
companies FG500
Asian companies
FG500
determine whether Germany’s largest corporations should be
more or less international than what they currently are. The
objective of our work was to offer a data-driven, rigorous,
and comprehensive assessment of their actual degree of
internationalisation and compare it with the one of other
large enterprises based in the rest of the world. To this end,
RXU ÀQGLQJV VXJJHVW WKDW DV PXFK DV )* FRPSDQLHV DUH
not as global as one may imagine,14 the same can be argued
for Germany’s largest corporations.
About the Authors
Niccolò Pisani is Assistant Professor of
International Management at the University of
Amsterdam in the Netherlands. He holds a
Ph.D. in Management from IESE Business
School. His research focuses on the international management domain and the topics of his scholarly
enquiry range from global business strategy to international
corporate social responsibility.
Omar Toulan is Professor of Strategy and
International Management at IMD Business
School in Switzerland. Professor Toulan holds his
PhD from the Sloan School of Management at
MIT. His areas of expertise include strategic
management, international business, growth strategies, and
managing the multinational. Prior to entering academia,
Professor Toulan worked as a management consultant for
McKinsey and Company, as well as a researcher at the U.S.
President's Council of Economic Advisers.
References
1. Aghina, W., Smet, A. D., & Heywood, S. (2014). The past and future of global organizations.
0F.LQVH\4XDUWHUO\ 3:97-106; Dewhurst, M., Harris, J., Heywood, S., & Aquila, K. (2012). The global
78
8
4
The European Business Review May - June 2018
3
BoD TMT
Central and Latin
American companies
FG500
company's challenge. 0F.LQVH\4XDUWHUO\ 3:76-80; Dewhurst, M., Harris, J., & Heywood, S. (2011).
Understanding your 'globalization penalty'. McKinsey Quarterly, 3:12-15.
2. Dobbs, R., Remes, J., & Woetzel, J. (2015). Where to look for global growth. 0F.LQVH\
4XDUWHUO\ 1:8-12.
3. Dobbs, R., Remes, J., & Smit, S. (2013). The shifting global corporate landscape. 0F.LQVH\
4XDUWHUO\, 4:16-17; Ghemawat, P. (2012). Developing global leaders. 0F.LQVH\4XDUWHUO\, 3:100-109.
4. Kautzsch, T. (2016). German manufacturing is leading a digital industrial revolution. +DUYDUG
%XVLQHVV5HYLHZ'LJLWDO(GLWLRQ (June 01); UNCTAD. (2016). :RUOG,QYHVWPHQW5HSRUW. www.unctad.org
5. UNCTAD. (2016). :RUOG ,QYHVWPHQW 5HSRUW www.unctad.org; Data for German export
LQ ZDV UHOHDVHG E\ WKH *HUPDQ VWDWLVWLFV RIÀFH 'HVWDWLV KWWSZZZGZFRPHQ
german-exports-hit-new-record-high/a-19034828
6. In 2014 the FG500 list comprised 28 German companies that were then included in both
our samples.
7. The average FG500 company totaled $62.1 billion annual turnover whereas the average
*HUPDQÀUPLQFOXGHGLQRXUVDPSOHUHSRUWHGDQDYHUDJHDQQXDOWXUQRYHURI ½ELOOLRQLQ
EUROSTAT (2016). 6WDWLVWLFV ([SODLQHG http://ec.europa.eu/eurostat/statistics-explained/index.
php/Glossary:Enterprise_size; Given this difference in size, we performed additional analyses to
establish whether differences in terms of level of internationalization could be the effect of the fact
WKDWZHDUHFRPSDULQJWZRVHWVRI ÀUPVZKRVHVL]HLVVLJQLÀFDQWO\GLIIHUHQW)LUVWZHIRFXVHGRQ
WKHÀUVWUHVXOWUHSRUWHGLQ)LJXUHDQGUDQDQLQGHSHQGHQWVDPSOHWWHVWRQWKHUDWLRRI IRUHLJQWR
WRWDOVDOHVFRPSDULQJWKHWZRVDPSOHV)*DQG7RS*HUPDQÀUPV:HREWDLQHGWKDWWKLV
UDWLRLVQRWVLJQLÀFDQWO\GLIIHUHQWDFURVVWKHWZRVDPSOHVS 7KLVHPSLULFDOHYLGHQFHIXUWKHU
FRQÀUPVWKHIDFWWKDWWKHWZRVHWVRI ÀUPVGHVSLWHWKHLUVLJQLÀFDQWGLIIHUHQFHVLQVL]HGRQRWVKRZ
DVLJQLÀFDQWO\GLIIHUHQWSURSRUWLRQRI IRUHLJQWRWRWDOVDOHVZKLFKUHSUHVHQWVWKHPRVWFRPPRQO\
XVHGLQGLFDWRURI ÀUPV·OHYHORI LQWHUQDWLRQDOL]DWLRQLQDFDGHPLFUHVHDUFK$JJDUZDOHWDOIRU
full bibliographic details see endnote n. 8). Moreover, we ran an OLS econometric model using as
dependent variable the ratio of foreign to total sales and as independent variables both measures
RI ÀUP·VVL]H7RWDOWXUQRYHUDQG7RWQXPEHURI HPSOR\HHVDVZHOODVRWKHUNH\YDULDEOHVWKDWZH
NQRZIURPSUHYLRXVUHVHDUFKDUHOLNHO\WREHFRUUHODWHGZLWKÀUPV·OHYHORI LQWHUQDWLRQDOL]DWLRQ
(State-owned company / Publicly listed company / Foreign listed company / Level of indebtedQHVV7KHUHVXOWVZHREWDLQHGVKRZWKDWQRQHRI WKHVL]HUHODWHGPHDVXUHVUHWXUQVDVLJQLÀFDQW
FRHIÀFLHQW7KLVHPSLULFDOHYLGHQFHIXUWKHUVXSSRUWVWKHQRWLRQWKDWDVLJQLÀFDQWVL]HUHODWHGHIIHFW
RQÀUPOHYHOLQWHUQDWLRQDOL]DWLRQLVQRWSUHVHQWLQWKHVDPSOHVXVHGLQRXUVWXG\
8. Aggarwal, R., Berrill, J., Hutson, E., & Kearney, C. (2011). What is a multinational corporaWLRQ"&ODVVLI\LQJWKHGHJUHHRI ÀUPOHYHOPXOWLQDWLRQDOLW\,QWHUQDWLRQDO%XVLQHVV5HYLHZ, 20(5): 557-577.
9. Data relative to the distribution of sales were available for 65 German companies and 307
ÀUPVLQFOXGHGLQWKH)*OLVW
10. For the purposes of our analysis, we considered 5 regions – North America, South and
Central America, Western and Eastern Europe, Asia, and Oceania. Accordingly, for a company
based in Germany sales were categorized as national if made within Germany, regional if made
outside Germany but within Western and Eastern Europe, and global if made outside Western
and Eastern Europe.
2QDYHUDJHPRUHWKDQRI WKHRZQHUVKLSZDVUHSUHVHQWHGIRUHDFKÀUPLQERWK*HUPDQ
and FG500 samples.
12. Ghemawat, P., & Vantrappen, H. (2015). How global is your C-suite? 0,76ORDQ0DQDJHPHQW
5HYLHZ, 56(4): 73-82.
13. Dewhurst, M., Pettigrew, M., Srinivasan, R., & Choudhary, V. (2012). How multinationals
can attract the talent they need. 0F.LQVH\4XDUWHUO\ 3:92-99.
14. Ghemawat, P., & Pisani, N. (2014). The Fortune Global 500 isn’t all that global. +DUYDUG%XVLQHVV
5HYLHZ'LJLWDO(GLWLRQ (November 04).
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