tag:theconversation.com,2011:/uk/topics/business-strategy-4537/articlesBusiness strategy – The Conversation2023-07-20T14:00:05Ztag:theconversation.com,2011:article/2047172023-07-20T14:00:05Z2023-07-20T14:00:05ZNetflix is gaining subscribers again – but here’s how it can succeed once people stop signing up<figure><img src="https://images.theconversation.com/files/538281/original/file-20230719-15-4ybzvg.jpg?ixlib=rb-1.1.0&rect=65%2C57%2C5409%2C3598&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">What's next for Netflix.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bangkok-thailand-may-28-2017-netflix-648328804">sitthiphong/Shutterstock</a></span></figcaption></figure><p>Netflix’s recent move to crack down on password sharing has <a href="https://ir.netflix.net/investor-news-and-events/investor-events/event-details/2023/Netflix-Second-Quarter-2023-Earnings-Interview/default.aspx">boosted subscriber numbers by nearly 6 million</a> in the last three months, for a total of 238 million subscribers globally. Netflix announced plans to limit sharing earlier this year after experiencing <a href="https://www.forbes.com/sites/marisadellatto/2022/08/09/netflix-loses-subscribers-as-disney-catches-up-heres-how-the-major-streaming-services-are-faring-so-far-this-year/?sh=768428002a1c">its first subscriber loss in a decade</a> in 2022.</p>
<p>Its recent decision to offer <a href="https://www.theinformation.com/articles/netflix-signs-up-1-5-million-u-s-subscribers-for-ad-tier-so-far">cheaper, ad-supported tiers</a> has also played a role in this increase in account numbers. This will help to buoy the streaming giant amid <a href="https://www.theverge.com/2023/7/17/23798246/strike-hollywoods-writers-actors-wga-sag-aftra">strikes by actors and writers</a>, <a href="https://techcrunch.com/2023/07/11/tech-industry-layoffs-2023/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAIyQql_zFlZK49M4hJM63TAa9L2vyw2Xz5Xss5byPNtVHGLOKia2H36GcUUpuTqyZyaj0SoUr5cld4VaFVIf7hf27FFG5FO0HdtLHU36wv3HTP0TO417lmKIf0WGUbMuhumLXfsXnNf7YPV4mQBSj15sXXSYh2iLHE-NVtdjj5en">layoffs</a> and concerns about the effect of <a href="https://news.sky.com/story/cost-of-living-streaming-subscriptions-fall-during-2022-12799102">the rising cost of living</a> on subscription spending. </p>
<p>In fact, Netflix’s leading position over a quarter of a century has already given it a solid advantage over an expanding field of competitors when it comes to attracting and keeping viewers. In March 2023, <a href="https://www.nielsen.com/insights/2023/march-madness-fuels-a-rebound-in-viewing-across-cable-in-march/">Netflix accounted for 7.3% of US TV watching time</a>, more than streaming services Prime Video, Disney+, HBO Max and US network NBCUniversal’s Peacock combined. </p>
<p>Netflix has achieved its position by attracting a large number of viewers and then using data about their viewing habits to constantly update its algorithm to improve their viewing experience. This strategy has also provided the company with the financial capability to switch from merely distributing content to actually creating its own shows and movies, such as Stranger Things (2016), House of Cards (2013) and Roma (2018).</p>
<p>But as the video streaming industry has become more competitive over the years, Netflix has had to keep changing its business model to survive. Regardless of its approach, a strategy called “<a href="https://www.investopedia.com/terms/n/network-effect.asp#:%7E:text=The%20network%20effect%20refers%20to,that%20product%20or%20service%20increases.">network effects</a>” – when the value of a product grows in line with the number of customers – has played an important role in its success.</p>
<h2>Network effects</h2>
<p>Founded in 1997, Netflix started out sending DVDs by post. This subscription-based service came with <a href="https://ir.netflix.net/investor-news-and-events/financial-releases/press-release-details/2003/Netflix-Issued-Patent-On-Subscription-Rental-Service/default.aspx">a US$19.95 (£15.42) price tag</a> and no due dates or late fees. </p>
<p>The relatively low price helped build an initial critical mass of users, triggering a network effect. As more users joined the platform, the company could buy more content. This benefited existing users and attracts new ones. It linked the value of signing up to the number of users. </p>
<p>Netflix moved on to streaming films and shows via the internet <a href="https://www.businessinsider.com/innovation-strategy-netflix-lacroix-and-first-mover-advantage-risk-2019-7?r=US&IR=T">ten years after launch</a> – <a href="https://sloanreview.mit.edu/strategy-forum/have-uber-and-netflix-lost-their-first-mover-advantage/">well before potential competitors</a>. Again, it used the knowledge it had developed in the video content delivery market and data from its already large subscriber base to kickstart its online streaming offering.</p>
<p>Since then, <a href="https://hbr.org/2005/04/the-half-truth-of-first-mover-advantage">Netflix’s business model</a> has continued to be strengthened by network effects. It has helped boost the company’s investment in its own content, as well as strengthening the algorithm it uses to suggest what you should watch next.</p>
<h2>Conquering content</h2>
<p>Directors want their movies to be seen by the largest possible audience, while at the same time receiving a high price for their creations. Netflix’s large base of users means it can spread the cost of a show over a large number of users, providing content creators with <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1177443">indirect network effects</a>. It also triggers a virtuous cycle for users, who return to the platform thanks to the growing amount and variety of content. </p>
<p>Netflix’s own content creation has built on this. Starting with Lilyhammer in 2012, it diversified its business model, from simple distribution to become a producer of very successful and popular TV shows, including <a href="https://www.rottentomatoes.com/tv/the_crown">The Crown</a> (2016) and <a href="https://theconversation.com/dystopian-games-how-contemporary-stories-critique-capitalism-through-deadly-competition-199835">Squid Game</a> (2021). It also started producing high-quality, award-winning movies such as <a href="https://www.imdb.com/title/tt1302006/">The Irishman</a> (2019) and <a href="https://www.imdb.com/title/tt1070874/">The Trial of the Chicago 7 </a>(2020).</p>
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<p>Between 2020 and 2022, Netflix’s original productions were the most in-demand originals worldwide. It had <a href="https://www.statista.com/statistics/1248406/vod-services-most-in-demand-original-series-worldwide/">a 45.2% share of the market</a> in the first quarter of 2022, although this was <a href="https://techcrunch.com/2022/04/19/netflix-shares-down-more-than-20-after-losing-200000-subscribers-in-first-quarter/#:%7E:text=Netflix's%20market%20share%20has%20dropped,U.S%2C%20according%20to%20Parrot%20Analytics.">a drop from previous quarters</a>. An increase in <a href="https://www.statista.com/statistics/250934/quarterly-number-of-netflix-streaming-subscribers-worldwide/">the number of subscribers</a> over the longer term has allowed the company to invest more in the development of proprietary content, in turn attracting more subscribers. </p>
<p>This is the essence of positive network effects: people watch Netflix content and it analyses the resulting data to learn about customer preferences and behaviour as they do so. This feeds back into the creation of content that is tailored to what the audience wants to see. Of course, Netflix has also been investing in sophisticated technologies over this period to develop its algorithm so it can make decisions about whether to continue or cancel a show or make a movie. </p>
<h2>Growing competition</h2>
<p>The streaming sector <a href="https://www.statista.com/outlook/dmo/digital-media/video-on-demand/video-streaming-svod/worldwide#users:%7E:text=SUBSCRIBERS%20BY%20SERVICE">is maturing</a> as subscriber numbers stabilise for most providers.</p>
<p>No longer able to count on large flows of new users, Netflix must increase revenues from existing users. It started by creating a basic subscription, which includes advertising and cannot be shared, as well as standard and premium subscriptions. The latter do not have advertising and allow subscribers to add other people at reduced rates. This business model is similar to <a href="https://www.pocket-lint.com/apps/news/spotify/137686-spotify-s-family-plan-is-much-cheaper-now-here-s-what-you-need-to-know/">Spotify’s family plans</a>.</p>
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<p>The company is witnessing an increasing churn rate as its users switch to new competitors – last year it was overtaken by Disney in terms of number of users. Netflix still <a href="https://nscreenmedia.com/netflix-versus-hulu-versus-disney-plus/#:%7E:text=Comscore%20reported%20on%20watch%20time,and%20Disney%2B%20watched%2013%20hours.">leads the market</a> on revenue per subscriber and time spent on the platform, however. </p>
<p>As the streaming sector continues to mature, Netflix’s next challenge will be to continue to engage existing users of its platform by investing this money into creating high-quality shows and films. Indeed, according to its latest results, Netflix’s yearly free cash flow – money it has to spend on things like content – has <a href="https://www.cnbc.com/2023/07/19/netflix-earnings-show-strength-amid-media-chaos.html">passed previous estimates</a> of US$3.5 billion to reach US$5 billion. </p>
<p>Viewers around the world should keep an eye out for what Netflix will produce next to keep its user base entertained.</p><img src="https://counter.theconversation.com/content/204717/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicoletta Corrocher does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Netflix’s different subscription packages are designed to increase profits, while it keeps users engaged with a steady flow of new content devised via its algorithm.Nicoletta Corrocher, Lecturer in applied economics, Bocconi UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2056102023-06-21T15:03:17Z2023-06-21T15:03:17ZWhy businesses leak new product details and how they benefit from these rumours<figure><img src="https://images.theconversation.com/files/532694/original/file-20230619-15-nkvjs3.jpg?ixlib=rb-1.1.0&rect=30%2C10%2C6679%2C4456&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Hot gossip.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/woman-whispering-secret-into-her-friends-1115281736">Cara-Foto/Shutterstock</a></span></figcaption></figure><p>Apple’s recent unveiling of the Vision Pro, its first augmented reality and virtual reality (VR) headset, came as a surprise to no one who follows Apple news – <a href="https://www.independent.co.uk/tech/apple-vr-headset-leak-rumour-release-date-wwdc-b2348463.html">rumours had been circulating for years</a>. </p>
<p>Apple’s products have a long history of creating waves well ahead of launch due to rumour and speculation. In late 2009, for example, the technology blog MacRumors.com suggested – without fully validated evidence – that Apple was going to call <a href="https://www.macrumors.com/2009/12/24/apple-purchased-islate-com-in-2007-apples-new-tablet-called-islate/">its upcoming tablet computer the “iSlate”</a>. Other rumours about the device – some of which turned out to be correct – discussed possible features and the timing of its forthcoming release. Of course, the “iSlate” was finally launched by Apple in April 2010 as the iPad tablet.</p>
<p>A lack of solid information fuelled ambiguity, in that case, and the same has happened with Apple’s Vision Pro headset. By discussing issues like purpose, price and looks pre-launch, consumers and competitors start to develop ideas about products, and perhaps even what accessories or apps will be needed alongside them. They also start to develop thoughts about how the market – or even consumers’ lives – could change as a result. All with often little to no solid information.</p>
<p>Academic research <a href="https://psycnet.apa.org/record/1948-00288-000">classifies a rumour</a> as information passed from one person to another with “a lack of secure standards of evidence”. Rumours are forms of information with an uncertain status when it comes to truth – they are sometimes not even true or false yet.</p>
<p>Rumours generally start any time there is ambiguity about future events. So product innovation rumours speculate on forthcoming products or updates. The source could be someone like a contributor to an online technology blog, but it could also come from within a company itself.</p>
<p>It may appear paradoxical for an innovative firm such as Apple to leak new design products – but these rumours can elevate share prices, test industry and consumer reaction, and preempt competitor moves. Other companies – competitors or those developing accompanying products and services – can also use rumours to their advantage. Such information can help them make decisions under time pressure when trying to keep up with fast-paced change in industries such as tech.</p>
<p>In the case of a firm like Apple, product innovation rumours can act as provisional knowledge. As the competition, but also investors, analysts, and the media, all attempt to gather as much information on the direction of forthcoming innovation, rumours are often used to fill any gaps.</p>
<h2>Gossip that moves markets</h2>
<p>Leaks are often frowned upon by companies because, <a href="https://www.sciencedirect.com/science/article/abs/pii/S0167487002001897">as is well-documented</a> by research, <a href="https://ideas.repec.org/a/ucp/jnlbus/v63y1990i3p291-308.html">it can move markets</a>. In the case of Apple’s recent VR headset launch, rumours were among the drivers of its share price rising to <a href="https://www.forbes.com/sites/dereksaul/2023/06/05/apple-stock-hits-all-time-high-then-falls-after-revealing-3500-price-tag-for-ai-headset/?sh=1721a1d551d9">an all-time high</a> by the day of its debut on June 5 2023. It soon fell again when Apple announced the headset’s hefty US$3,499 (£2,729) price tag, however. </p>
<p>Rumours can also have a strategic impact on competitors. While pre-launch whispers about Apple’s new VR headset were swirling around the internet, it’s competitor <a href="https://www.ft.com/content/f42fb901-b728-431a-99da-b881b15519c4">Meta launched a new edition of its VR product</a> at a seventh of the price of Apple’s.</p>
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<p>But research into the impact of leaking on company performance creates a mixed picture. For example, <a href="https://www.researchgate.net/publication/24058091_Why_Do_Firms_Disclose_Knowledge_and_How_Does_It_Matter">one simulation study</a> acknowledges that there are short-term risks of leaking such as competitors getting hold of commercial information, but ultimately found that firms benefit in the long run. For instance, once details of a new project are out there, a firm might be approached about new R&D partnerships with other companies in its ecosystem.</p>
<p>This is why an organisation might engage in “<a href="https://www.researchgate.net/publication/222821700_Selective_Revealing_in_Open_Innovation_Processes_The_Case_of_Embedded_Linux">selective leaking</a>” of certain product details, such as code or other intellectual property. This can help generate related contributions from other organisations – app developers in the case of Apple, for example.</p>
<p>And so selective revealing helps inform other interested parties about a possible product direction, especially when such information is hard to come by otherwise. But companies have to constantly negotiate how <a href="https://onlinelibrary.wiley.com/doi/pdfdirect/10.1111/j.1467-8551.2011.00762.x">openness as a strategy</a> can work in tandem with the need to protect intellectual property. </p>
<p>This explains why leaks tend to happen in highly competitive markets where there is a need to draw attention to product plans, to create a buzz around upcoming products, or to discourage consumers from buying competing products. Also, it helps employees and managers in other firms – competitors or producers of accompanying products and services – to react quickly.</p>
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<h2>Ambiguity fuels rumours</h2>
<p>Companies in innovative sectors such as technology can face an ambiguous, nascent market environment that, according to our research, has “<a href="https://www.sciencedirect.com/science/article/abs/pii/S0048733318300507">unclear customers, undefined product attributes, and no well-established industry value chain</a>”. Under such conditions, rumours can help managers making technical design decisions to tap into discussions and expectations of producers and consumers. </p>
<p>In such market circumstances, rumours can also help out investors and analysts who need reassurance, not only about an organisation’s financial outlook but, by extension, about its strategy.</p>
<p>The role of ambiguity and relative lack of information during the tech product innovation process encourages people to devour rumours to attain new knowledge, however provisional it may be. This is why tech blogs that share rumours have become important information intermediaries that even major investors and company analysts track to glean information on firms’ potential strategic outlooks. </p>
<p>And so, when keeping an ear out for rumours about new tech, remember they are often based on unverified information. While exciting to follow, only time will tell if such leaks are true or false.</p><img src="https://counter.theconversation.com/content/205610/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Rumours can hinder - but also help - companies that want to get ahead of the competition.Basak Yakis-Douglas, Associate professor, King's College LondonTim Hannigan, Associate professor, University of AlbertaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2030332023-04-11T19:12:11Z2023-04-11T19:12:11ZCorporate social responsibility: Why family businesses get more bang for their buck than non-family firms<figure><img src="https://images.theconversation.com/files/519906/original/file-20230406-18-itucl7.jpg?ixlib=rb-1.1.0&rect=50%2C40%2C6659%2C4426&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">While family owners can sometimes be bad for business, they can also be beneficial in many ways.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>When it comes to turning corporate social responsibility (CSR) into profit, research shows family businesses have the advantage. <a href="https://www.investopedia.com/terms/c/corp-social-responsibility.asp">CSR is a form of self-regulation</a> where businesses make concerted efforts to be socially and ethically accountable to themselves, their stakeholders and the public.</p>
<p>In <a href="https://doi.org/10.1177/01492063211066057">our recent study on S&P 500 firms’ CSR strategies</a>, we found that family businesses get more bang for their buck. While family owners can sometimes be bad for business — the desire for control can result in family-owned businesses under-investing in things <a href="https://doi.org/10.1177/0894486513477454">like innovation</a> <a href="https://doi.org/10.1111/j.1467-6486.2009.00889.x">and diversification</a> — they can also be beneficial.</p>
<p>Family owners tend to focus on the long term because, unlike CEOs in non-family firms, they want their firm to benefit their children and grandchildren.</p>
<p>Because family owners think in terms of generations, they invest more in <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/joms.12015">enhancing their company’s reputation</a> and building deeper connections with employees, suppliers and communities.</p>
<p>Family firms are also able to dedicate the time needed for high quality CSR strategies, unlike non-family firms that might neglect CSR because of short-tenured leadership and concerns about quarterly earnings.</p>
<h2>Symbolic CSR distracts from problems</h2>
<p>There are two types of CSR strategies: symbolic and substantive. Symbolic CSR strategies are low-cost actions designed to garner media attention without solving underlying problems. <a href="https://doi.org/10.1177/01492063211066057">They are reactive, self-serving and distract from current problems</a>. </p>
<p>An extreme and tragic — but powerful — example of symbolic CSR comes from a study on a Malaysian forestry firm’s operations in Guyana. The researchers found that <a href="https://doi.org/10.5465/amd.2014.0064">the company’s Forest Stewardship Council certification diverted attention away</a> from the systemic rape of local women by employees of the company. It took years for global environmental groups and agencies to see through the company’s CSR deception and believe the accusations.</p>
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<img alt="A middle-aged white man with short, curly brown hair speaks into a microphone." src="https://images.theconversation.com/files/519907/original/file-20230406-14-7ew098.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/519907/original/file-20230406-14-7ew098.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=876&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519907/original/file-20230406-14-7ew098.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=876&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519907/original/file-20230406-14-7ew098.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=876&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519907/original/file-20230406-14-7ew098.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1101&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519907/original/file-20230406-14-7ew098.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1101&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519907/original/file-20230406-14-7ew098.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1101&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Tony Hayward, who was BP’s CEO during the Deepwater Horizon oil spill, speaks during a news conference on Fourchon Beach in Port Fourchon, La. in May 2010.</span>
<span class="attribution"><span class="source">(AP Photo/Patrick Semansky)</span></span>
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<p>While the initial positive effect of symbolic CSR can distract from a company’s wrongdoings, the impact usually wears off once stakeholders see through its facade. This is what happened during <a href="https://theconversation.com/deepwater-horizon-scientists-are-still-trying-to-unravel-mysteries-of-the-spill-66878">BP’s massive Deepwater Horizon Oil Spill</a> in the Gulf of Mexico in 2010. </p>
<p>Initially, stakeholders were impressed with BP’s reaction to the crisis, but once they realized the company had cut back on environmental protections — including equipment meant to prevent oil spills — <a href="https://science.time.com/2010/07/25/oil-spill-goodbye-mr-hayward/">they quickly withdrew their support</a>. </p>
<h2>Substantive CSR solves problems</h2>
<p>Substantive CSR, in contrast to symbolic CSR, is long term and actually addresses pressing societal problems. It is backed by meaningful investment and implementation. Organizations <a href="https://doi.org/10.1177/01492063211066057">engaged in substantive CSR will change processes, suppliers and their entire value chains</a>.</p>
<p>Outdoor clothing company Patagonia is an example of an organization pursuing substantive CSR. <a href="https://www.patagonia.com/hidden-cost-of-clothes/">On its website</a>, Patagonia discusses climate change and the global rise of CO2 emissions. Such proclamations might seem symbolic, but <a href="https://theconversation.com/has-patagonia-defined-a-new-gold-standard-for-business-responsibility-191250">Patagonia addresses environmental issues substantively</a> and has committed to only using <a href="https://www.patagonia.com/stories/how-were-reducing-our-carbon-footprint/story-74099.html">renewable energy across all its facilities by 2025</a>. </p>
<p>Substantive CSR can detract from financial performance in the short term because it takes time and money to implement, but it can eventually lift the firm’s reputation and excite stakeholders about its products and services. A favourable reputation, in turn, <a href="https://doi.org/10.1111/joms.12015">improves customer loyalty, sales and profits</a>. </p>
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<img alt="People pass by a wooden sign that says 'We're in business to save our home planet.'" src="https://images.theconversation.com/files/519905/original/file-20230406-440-hxi0f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519905/original/file-20230406-440-hxi0f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=405&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519905/original/file-20230406-440-hxi0f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=405&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519905/original/file-20230406-440-hxi0f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=405&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519905/original/file-20230406-440-hxi0f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519905/original/file-20230406-440-hxi0f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519905/original/file-20230406-440-hxi0f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Buyers pass by a sign in the Patagonia exhibit at the Outdoor Retailer & Snow Show in the Colorado Convention Center in Denver in January 2019.</span>
<span class="attribution"><span class="source">(AP Photo/David Zalubowski)</span></span>
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<h2>CSR has long-term benefits</h2>
<p>Our research found that CSR strategies at family-owned businesses significantly improved firm performance. This benefit wasn’t felt immediately, but in the third year after the initial CSR investment. Positive benefits endured throughout the fourth and fifth years of the strategies being implemented.</p>
<p>Our analysis found that a 20 per cent increase in substantive CSR improved the annual return on assets (a financial ratio that measures a company’s profitability in relation to its assets) to 5.78 per cent from 4.30 per cent within three years. This change equalled a 34 per cent return on assets increase. </p>
<p>When it came to stock market performance (the annual change in the price of the company’s shares on the stock market), the increase was 15.5 per cent.</p>
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Read more:
<a href="https://theconversation.com/how-to-manage-traditions-for-the-continued-success-of-the-family-business-174275">How to manage traditions for the continued success of the family business</a>
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<p>Non-family firms, on average, did not benefit financially from substantive CSR. Their inability to sustain investments across CEOs and time might have reduced stakeholders’ enthusiasm in the company’s CSR efforts. </p>
<p>Non-family firms must work harder to convince stakeholders their intentions are real and sustainable before they are able to reap above-average financial benefits from substantive CSR.</p>
<h2>CSR has short-term benefits</h2>
<p>Family-owned businesses also benefited more than non-family firms when it came to using symbolic CSR strategies. We found that symbolic CSR improved firm performance immediately for family firms. </p>
<p>A 20 per cent increase in symbolic CSR increased their average return on assets within one year to 5.74 per cent from 4.30 per cent — an overall increase of 33 per cent. For stock market performance, the increase in the price of the company’s shares was 5.1 per cent. </p>
<p>Their favourable reputations and <a href="https://books.google.ca/books/about/Managing_for_the_Long_Run.html?id=5fqYqzlWU5IC&redir_esc=y">relationships with customers, suppliers and the local community</a> gave family-owned firms a buffer if things went wrong. </p>
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<strong>
Read more:
<a href="https://theconversation.com/the-future-of-the-family-business-4-strategies-for-a-successful-transition-156191">The future of the family business: 4 strategies for a successful transition</a>
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<p>In the event of a scandal — or a symbolic CSR strategy being exposed as surface-level and insufficient — stakeholders were more likely to trust family owners to address underlying issues and convert their symbolic claims into substantive actions. </p>
<p>Similar investments in symbolic CSR among non-family firms helped them keep up with peers, but not get ahead. Stakeholders were simply more skeptical of non-family firms’ symbolic CSR activities. </p>
<p>Though the average non-family firm may not see significant gains from CSR investments, some do. By building credibility around long-term CSR commitments, more businesses could overcome stakeholders’ skepticism and gain more bang for their CSR buck.</p>
<h2>Profitable in more than one way</h2>
<p>Research shows that the older generations of family business owners often <a href="https://doi.org/10.1016/j.jfbs.2019.100335">under-invested in CSR</a>. This has the potential to lead to considerable conflict with younger generations because for many millennials and Gen Zs, <a href="https://doi.org/10.1002/cb.1882">the environment, community and society can matter as much — or more — than profit</a>. </p>
<p>Our research shows that investing in CSR can be about reaping financial gain while also making societal contributions. Aligning people, the planet and profits is not only worthwhile and laudable — it might also help the next generation identify more strongly with the family business and motivate them <a href="https://www.35questions.com/">to become responsible owners for another generation</a>.</p><img src="https://counter.theconversation.com/content/203033/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>By investing in corporate social responsibility initiatives, family-owned businesses can make financial gains while also making positive societal contributions.Peter Jaskiewicz, Professor and University Research Chair in Enduring Entrepreneurship, Academic Director Family Enterprise Legacy Institute, L’Université d’Ottawa/University of OttawaJames G Combs, Della Phillips Martha Schenck Chair of American Private Enterprise, University of Central FloridaKatrina Barclay, Executive Manager, Telfer Family Enterprise Legacy Institute (FELI), L’Université d’Ottawa/University of OttawaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1706152021-11-26T13:58:55Z2021-11-26T13:58:55ZHow customers and workers can give business strategy a badly needed boost<figure><img src="https://images.theconversation.com/files/433458/original/file-20211123-19-1upl6o1.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4520%2C2994&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Fresh faces.</span> </figcaption></figure><p>COVID forced companies around the world to urgently review their business models. Restaurants switched to <a href="https://www.cbc.ca/news/canada/kitchener-waterloo/restaurants-pivot-to-selling-groceries-during-covid-shutdown-1.5544244">selling groceries</a>, passenger airlines <a href="https://www.pymnts.com/coronavirus/2020/covid-19-airlines-shift-from-passengers-to-cargo/">moved cargo</a>, and car manufacturers <a href="https://www.independent.co.uk/news/health/coronavirus-ventilators-fiat-nissan-general-motors-ford-latest-a9420381.html">produced ventilators</a>. The pandemic highlighted the importance of fresh thinking in the corporate world. </p>
<p>Now the business world faces its next serious challenge: to move on from finding a temporary fix in a pandemic to forging a more permanent path ahead. In a <a href="https://openstrategy.info/">new book</a>, co-authored with Stephan Friedrich von den Eichen, we propose a radical new approach to moving forward. </p>
<p>Put simply, we recommend that businesses should break away from the traditional method of relying on their senior executives to develop strategies. Instead, they should embrace the knowledge and insights of customers, frontline employees, and experts from outside the company – not with feedback surveys or focus groups, but by directly involving them in making important decisions. </p>
<p>It is a system of business development in which people far removed from the company boardroom are involved in crafting detailed plans. They have a much stronger voice, and the companies actually <a href="https://books.google.ae/books?id=LzESEAAAQBAJ&printsec=frontcover&dq=open+strategy&hl=en&sa=X&ved=2ahUKEwjHtsaVrLX0AhVlnVwKHe8KCPwQ6AF6BAgGEAI#v=onepage&q=open%20strategy&f=false">listen to it</a>. The <a href="https://hbr.org/2021/11/balancing-open-innovation-with-protecting-ip">two distinct advantages</a> it brings are fresh ideas and a better chance of employees accepting new plans. </p>
<p>We found many companies are choosing to develop in this way, from innovative small firms like Saxonia (a software specialist), which invites all employees to join regular strategy meetings, to major organisations like Ericsson, which uses an online forum to involve frontline employees in strategic questions. </p>
<p>Others <a href="https://hbr.org/2021/11/balancing-open-innovation-with-protecting-ip">already doing it</a> include IBM, which set up an online conference with over 150,000 participants from over 60 companies and <a href="https://sloanreview.mit.edu/article/an-inside-view-of-ibms-innovation-jam/">resulted</a> in the investment of US$100 million (£75 million) in ten new businesses. A similar approach meant the retail arm of Barclays found a way to bring a 325-year-old bank into the digital age by involving 30,000 employees in their discussion. The bank used their input to create a successful <a href="https://books.google.ae/books?id=LzESEAAAQBAJ&printsec=frontcover&dq=open+strategy&hl=en&sa=X&ved=2ahUKEwjHtsaVrLX0AhVlnVwKHe8KCPwQ6AF6BAgGEAI#v=onepage&q=open%20strategy&f=false">mobile app</a> that now has 9 million users. </p>
<p>The sports giant Adidas involved people from different industries in strategy workshops, including a research scientist from the MIT Media Lab and founder of several start-ups, as well as the chief executive of an <a href="https://www.klickrent.de/">online platform</a> for sharing construction equipment. Together they developed radical new business plans for a more efficient <a href="https://classic.qz.com/perfect-company-2/1145012/a-german-company-built-a-speedfactory-to-produce-sneakers-in-the-most-efficient-way/">manufacturing process</a>. </p>
<h2>Connections and commerce</h2>
<p>This openness to new and numerous ideas is at the heart of all kinds of progress. In his book <a href="https://www.goodreads.com/book/show/16043549-seeing-what-others-don-t">Seeing What Others Don’t</a>, the psychologist Gary Klein claims that 82% of the biggest discoveries and inventions in history were made when people connected the dots after being exposed to different concepts. </p>
<p>He cites the example of neurobiologist <a href="https://www.scientificamerican.com/article/breaking-down-barriers-martin-chalfie/">Martin Chalfie</a> attending a lunchtime talk in 1989 where he learned how jellyfish produce light and are capable of bioluminescence. Chalfie could hardly wait for the end of the seminar, realising how this knowledge could affect his own research. </p>
<p>It was an insight that <a href="https://www.universityofcalifornia.edu/news/how-basic-research-jellyfish-led-unexpected-scientific-revolution-old">revolutionised science</a>, won Chalfie a Nobel prize, and is now used to observe the spread of viruses or the migration of breast cancer cells. </p>
<p>In the corporate world, the same kind of openness to new ideas results in cross-fertilisation, fresh thinking and an ability to spot anomalies that are easily overlooked by executives sitting in echo chambers. </p>
<p>The higher the level of diversity, the greater the chances for ideas to collide. Customers and employees approach questions from a different perspective and should be seen as a valuable resource. </p>
<h2>Boosting morale</h2>
<p>By involving staffers, external partners and customers in the planning phase, the odds of generating ideas that people can use go up quite dramatically. In a survey of senior executives <a href="https://books.google.ae/books?id=LzESEAAAQBAJ&printsec=frontcover&dq=open+strategy&hl=en&sa=X&ved=2ahUKEwjHtsaVrLX0AhVlnVwKHe8KCPwQ6AF6BAgGEAI#v=onepage&q=open%20strategy&f=false">70% told us</a> that opening up the strategy process to others increased their employees’ commitment to a particular strategy. </p>
<p>Participating provides everyone with an opportunity to think through issues that affect them directly. How can they adjust their operations? What needs to change? Who are the people they need to interact with? The apprehension – often twinned with objection – is replaced by a sense of ownership. </p>
<p>Involving people in the plans that will affect them works outside of business, too. For example, <a href="https://www.bbc.co.uk/programmes/b08hnly0">Kinari Webb</a> is an American doctor who set up a successful programme to stop illegal logging in Indonesia. In remote communities in Borneo, she engaged in what she calls “radical listening”, asking local communities what they would need in return for not cutting down trees.</p>
<p>It turned out that most of the logging happened because locals had no means to cover emergency medical costs otherwise. By providing affordable healthcare for these communities, combined with training them in organic farming, logging was reduced by 68%. </p>
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<p>Of course, companies could – and many surely will – develop plans in the way most have always done, by bringing a small selected group of executives together. But <a href="https://psycnet.apa.org/record/1997-36918-010">many studies</a> have shown that small groups of people – particularly homogeneous ones – are subject to several biases that prevent them from developing promising fresh ideas. </p>
<p>Biases are especially dangerous to lone strategists and tightly knit groups, since they don’t have others around to point out their blind spots. To avoid this, it pays to open up. Involving customers and staff in making important decisions provides a more solid foundation for the future.</p><img src="https://counter.theconversation.com/content/170615/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kurt Matzler owns shares in IMP</span></em></p><p class="fine-print"><em><span>Christian Stadler and Julia Hautz do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Breaking out of the boardroom brings in fresh ideas.Christian Stadler, Professor of Strategic Management, Warwick Business School, Warwick Business School, University of WarwickJulia Hautz, Professor of Strategic Management, University of InnsbruckKurt Matzler, Professor of Strategic Management, University of InnsbruckLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1676352021-09-13T01:45:37Z2021-09-13T01:45:37ZNgā āhuatanga ka akona mai ki a tātou e te ao Māori, mō te ao pakihi o āpōpō<figure><img src="https://images.theconversation.com/files/420411/original/file-20210910-13-q8wy36.png?ixlib=rb-1.1.0&rect=4%2C4%2C2845%2C1589&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Illustration by Isobel Joy Te Aho-White</span> <span class="attribution"><span class="license">Author provided</span></span></figcaption></figure><p><em>Mai i te ētita: Nā Piripi Walker i whakamāori tēnei tuhinga mō Te Wiki o te Reo Māori. <a href="https://theconversation.com/putting-the-community-back-into-business-what-te-ao-maori-can-teach-us-about-sustainable-management-166501">Pāwhiria ki konei</a> hei pānui i tēnei tuhinga ki te reo Pākeha.</em></p>
<p>Ki te hīkoi koe ki roto i tētahi rūma poari, kura pakihi rānei, ka rongo koe i ētahi ingoa, hoki atu, hoki atu, e whakatairangatia ana: Ko Apple tērā, Tesla tērā, ko Google tērā, arā atu, arā atu. Kei hea ngā ingoa nunui, me ngā kōrero whakaharikoa mai i te ao Māori? Kāore i te rahi rawa. </p>
<p>He mea pōuri. Arā te tini o ngā kamupene Māori hei akoranga mō tātou i roto i ā tātou mahi whakahaere, whakapakari hinonga, kia toitū te āhua, kia nui ngā hua mō te motu katoa — he whāinga ēnei kāore i tutuki i te huhua o ngā kamupene o te ao arumoni.</p>
<p>He tini ngā māramatanga mō te whakahaere auaha, whakahaere toitū kua tuia ki roto i ngā tātai kōrero o te ao Māori — mai i a Kupe me te toronga mai o tana tira i <a href="https://www.youtube.com/watch?v=3m2GOgievO8">te kitenga tuatahi o Aotearoa</a> e 800 tau ki mua, tae atu ki ētahi mahi o ēnei ngahuru tau tata <a href="https://www.jstor.org/stable/3623221?casa_token=waF5GP0fSwMAAAAA%3A1ol8hpxtRkWPa5dvSeLNpGzWWs97GhPLKQ7qUsQWRXKXFHHFUQEdZ8ycSle8MdR4pOTBLZ9wSXneOnDmr1dtV_bqSxFwUBU_wFkQCEljj4p3M_oaDcc&seq=3#metadata_info_tab_contents">hei whakaora i te reo</a>, te whawhai mō te whenua me te <a href="https://www.maoritelevision.com/shows/ake-ake-ake">tiaki wāhi tapu</a>. </p>
<p>Me kī, e toru pea ngā mātāpono whakahaere hei whakakapi i ēnei māramatanga. E mea ana mātou ka noho ēnei hei kaupapa e ara pūputu anō i roto i ngā kōrero pakihi whakaharikoa ā ngā rā e tū mai nei.</p>
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<h2>Me hāpai tautuhitanga whānui kē atu o tēnei mea te ekenga taumata pakihi</h2>
<p>Tētahi āhuatanga e kitea nuitia ana i roto i ngā whakahaere Māori, ka tere kitea hoki i roto i ā rātou <a href="https://www.youtube.com/watch?v=yqOr_X7QOLs">mahere rautaki</a>, ko te aro nui ki te whai i ngā painga huhua, kaua ko ngā painga ahumoni anake. </p>
<p>I ēnei rā hoki, e kī ana ngā kamupene nui whakaharahara, ko te toitū me ētahi whāinga ehara i te ahumoni tētahi uara nui ki a rātou. Ahakoa ēnā whakapuakanga a ngā kamupene nei, e ai ki te titiro a te nuinga o te tangata, kāore anō ngā whāinga taketake o aua kamupene kia huri ki āhua kē — e noho tonu ana ko te whai kia hua ake he hua moni mā te hunga pupuru pānga, te whāinga nui.</p>
<p>Kāore e pēnei mō te tino nuinga o ngā hinonga Māori, ki a rātou ko <a href="https://www.cambridge.org/core/journals/journal-of-management-and-organization/article/abs/maori-approach-to-management-contrasting-traditional-and-modern-maori-management-practices-in-aotearoa-new-zealand/193BF521A8695EC8E6325D7A57D0A4CD">ngā pānga ā-hapori, ā-taiao, ā-ahurea</a> kei te pū tonu o ā rātou mahi. He āhuatanga tēnei e mōhiotia ana i te ao Māori, nā te mea, ka noho ēnei uara i waenga pū o te ahurea. </p>
<p>Ka kitea te whakaaro nui ki te hapori, ki te taiao hoki i te ao Māori katoa, mai i ngā pakiwaitara o tua whakarere, ki ngā karakia ka tākina i mua i ngā āhuatanga nunui. </p>
<p>He mea taketake hoki ngā whakaaro whakapūmau i te hapori, i te taiao i roto i ngā <a href="https://maoridictionary.co.nz/search?keywords=tikanga">tikanga</a>, te pūnaha o ngā uara me ngā mahi ka noho hei wāhi mō tō tātou āhua noho.</p>
<p>Ehara i te mea ka wareware ngā umanga Māori ki ngā āhuatanga o te nuinga o te ao mō te ine i te ekenga taumata. Me kī, <a href="https://chapmantripp.com/media/j1slpr3f/te-ao-maori-2017-english.pdf">ko te ōhanga Māori te wāhanga hohoro rawa ki te tupu</a> o te ōhanga katoa o Aotearoa, ina tirohia te taha ahumoni anake. </p>
<p>Otiia, ko tā te nuinga o ngā kamupene o te ao he aru i te huamoni, ko tā ngā kamupene Māori (me kī, ngā umanga iwi taketake huri noa i te ao), he ara, he pou tēnei mea te mahi moni hei whakapūmau i ētahi atu ekenga taumata tiketike kē atu: te oranga o te iwi, te whāinga reo i waenga i ngā iwi o te whenua o te ao, me te <a href="https://www.youtube.com/watch?v=ZkM6YGETQ0I">toitū o te taiao</a>.</p>
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<h2>Te titiro whakamua ki ngā whakatupuranga kāore anō kia whānau mai</h2>
<p>Tētahi, ko te mahi a te whakahaere Māori he titiro whakamua ki tua atu i ngā pae tūtata, i mua anō i tāna whakatau take nunui. </p>
<p>I ngā kaporeihana e mōhio nuitia ana, ka aro nui ngā kaiwhakahaere ki ngā putanga hua hauwhā tau, ki ngā hua ā-tau rānei. Ko tā ngā whakahaere Māori he āta whiriwhiri kaupapa mō ngā hua ka puta mā ngā whakatupuranga kei mua i te aroaro, hei ngā ngahuru tau, ngā rau tau hoki kei mua.</p>
<p>Hei tauira, i te tau 1975, i hangaia tahitia e Ngāti Raukawa, e Ngāti Toa me Te Atiawa tāna mahere 25 tau te roa, e mōhiotia nei ko <a href="https://www.mcguinnessinstitute.org/wp-content/uploads/2019/11/A-Whakatupuranga.pdf">Whakatupuranga Rua Mano</a>. Tētahi o ngā hua o tēnei rautaki ko <a href="https://www.wananga.com">Te Wānanga o Raukawa</a>, he wānanga tēnei mō ngā akoranga aro ki te ao Māori, kātahi anō he wānanga pēnei ka whakatūria i te ao hou.</p>
<p>I ēnei tau tata, kua tīmata te mahi a te Kaporeihana o Wakatū i tāna <a href="https://www.wakatu.org/news-stories/2019/4/17/innovative-intergenerational-regional-strategy-announced-for-te-tauihu">mahere rautaki</a> neke atu i te 50 te whāroa. E mea ana a Rachel Taulelei, tumuaki o te kamupene kai, inu hoki a Wakatū e mōhiotia nei ko Kono, e mahi ana te kamupene i raro anō i āna <a href="https://www.stuff.co.nz/business/industries/73938548/maori-business-kono-in-for-the-long-haul---500-years-says-new-chief">tirohanga 500 tau</a> i roto i ana mahi whakamahere.</p>
<p>Ko tētahi take nui i pēnei ai te roa o te toronga whakaaro o ngā whakahaere Māori ko te <a href="https://openaccess.wgtn.ac.nz/articles/thesis/Whakapapa_Investment_Philosophy_A_M_ori_Way_Of_Thinking_About_Investment/15020058">whakapapa</a>. Kei runga noa atu te whakapapa i ngā kāwei whakaheke noa iho o te tangata, i te ao Māori. He uara, he āhuatanga noho, ehara au i te tangata takitahi, engari he hononga, he uri nā ōku tūpuna, heke mai ki ahau, ā, heke atu ana ki ngā whakatupuranga o āpōpō.</p>
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<h2>Ngā hononga ki te hapori</h2>
<p>Hei kupu whakamutunga, whakatairanga ai tēnei mea te umanga Māori i tōna hapori hei pūtahi mō ngā whakaaro o ngā whakahaere. Ka whakaatatia tēnei i roto i te āhua o tā rātou waihanga, whakahaere hoki i ā rātou <a href="https://www.tpk.govt.nz/en/whakamahia/effective-governance/what-is-governance">mahi hautū</a>. </p>
<p>Hei tauira, he mea tohu ngā mema poari o ngā kāporeihana nunui (te hunga kawe haepapa mō te ahunga o te ihu o te waka o te hinonga) e ētahi mema o nāianei, nā tō rātou matatau ki ao pakihi. Hei ngā whakahaere Māori, he mea pōti kē ngā poari i runga anō i te pōti o ngā mema katoa o tō rātou hapori. </p>
<p>Nā konei, he matahuhua ngā poari o ngā whakahaere Māori, te matatau, ngā whakaaro, huri noa i te tēpu.</p>
<p>Ko te mea nui pea, ka rangona ngā reo me ngā whakaaro o te hapori i ngā whakatau hira a te hinonga, nā te pōtitanga o ngā mema poari e te hapori. </p>
<p>Hei tauira anō, ko tētahi o ngā whakahaere Māori e mōhiotia ana e mātou kua kawea kētia āna mahi taketake kia hora whare pāpori, nā te kore whare tōtika mō te tini o te tangata o te hapori. </p>
<p>He mea ātaahua te huringa o ngā whakaaro o Aotearoa i ēnei tau tata ki tōna taha Māori. Ahakoa he maha ngā mahi kāore anō kia tutuki, kua huri ngā whakaaro, kua huri hoki ngā ngākau o ngā tāngata o Aotearoa mō te painga o te <a href="https://educationcentral.co.nz/unprecedented-demand-for-te-reo-maori-classes/">ako i te reo</a> me te whakamiha atu ki ngā <a href="https://www.tvnz.co.nz/one-news/new-zealand/m-ori-carver-among-eight-nz-artists-recognised-arts-foundation-laureates">toi Māori</a>. </p>
<p>He akoranga nui ngā whakaaro Māori mō te pakihi, mō te whakahaere, mā tātou. Mā ōna ara whakatika i te korenga e ōrite o te whiwhinga, me te panonitanga āhuarangi, ka āwhina te ao Māori i a tātou katoa kia piki anō te pai o ō tātou umanga.</p><img src="https://counter.theconversation.com/content/167635/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Ki te tini o ngā umanga Māori, he whānui kē atu ngā hua ka whāia tēnā i ngā putanga ahumoni anake. He rautaki reanga-maha ō rātou, he whakanoho rātou i te painga mō te katoa hei ahunga mō te ihu o te waka. He akoranga i konei mō ētahi atu umanga.Ben Walker, Lecturer (Management), Te Herenga Waka — Victoria University of WellingtonErin Roxburgh-Makea, PhD Student, Te Herenga Waka — Victoria University of WellingtonJesse Pirini, Senior Lecturer in Management, Te Herenga Waka — Victoria University of WellingtonStephen Cummings, Professor of Strategy and Innovation, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1665012021-09-13T01:43:26Z2021-09-13T01:43:26ZPutting the community back into business: what te ao Māori can teach us about sustainable management<figure><img src="https://images.theconversation.com/files/420601/original/file-20210911-14-9h9wal.png?ixlib=rb-1.1.0&rect=833%2C0%2C3438%2C2156&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Illustration by Isobel Joy Te Aho-White</span> <span class="attribution"><span class="license">Author provided</span></span></figcaption></figure><p><em>Editor’s note: This article has been translated by Piripi Walker for Te Wiki o te Reo Māori/Māori Language Week. <a href="https://theconversation.com/nga-ahuatanga-ka-akona-mai-ki-a-tatou-e-te-ao-maori-m-te-ao-pakihi-o-app-167635">Click here</a> to read it in te reo Māori.</em></p>
<p>Walk into any boardroom or business school and you’ll often hear the same companies held up as models of excellence: Apple, Tesla, Google and so on. Sharing success stories from te ao Māori (the Māori world)? Not so much. </p>
<p>And that’s a shame. There are many of them, and they can teach us how to manage and grow organisations in sustainable ways that benefit the wider community — goals that often elude large Western businesses.</p>
<p>Insights into innovative and sustainable management are woven through the history of te ao Māori — from Kupe and his crew’s <a href="https://www.youtube.com/watch?v=3m2GOgievO8">discovery of Aotearoa</a> some 800 years ago to more recent efforts to <a href="https://www.jstor.org/stable/3623221?casa_token=waF5GP0fSwMAAAAA%3A1ol8hpxtRkWPa5dvSeLNpGzWWs97GhPLKQ7qUsQWRXKXFHHFUQEdZ8ycSle8MdR4pOTBLZ9wSXneOnDmr1dtV_bqSxFwUBU_wFkQCEljj4p3M_oaDcc&seq=3#metadata_info_tab_contents">revitalise te reo</a>, reclaim land and <a href="https://www.maoritelevision.com/shows/ake-ake-ake">protect wāhi tapu</a> (sacred sites). </p>
<p>Broadly, we can bundle these insights into three management principles. We argue these will be recurring themes in future business success stories.</p>
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<h2>Embracing wider definitions of success</h2>
<p>A common feature of Māori organisations, and one that’s often explicit in their <a href="https://www.youtube.com/watch?v=yqOr_X7QOLs">strategic planning</a>, is their focus on judging success against many criteria, not only financial ones. </p>
<p>Nowadays, of course, even the biggest businesses claim to value sustainability and other non-financial outcomes. But it’s usually accepted that the ultimate goal of such businesses has stayed the same — to turn a profit for shareholders.</p>
<p>This is rarely the case for Māori organisations, which almost always put <a href="https://www.cambridge.org/core/journals/journal-of-management-and-organization/article/abs/maori-approach-to-management-contrasting-traditional-and-modern-maori-management-practices-in-aotearoa-new-zealand/193BF521A8695EC8E6325D7A57D0A4CD">community, environmental and cultural impacts</a> at the centre of what they do. Such an approach comes naturally to those in te ao Māori, as these values are also central to the culture. </p>
<p>Community and ecological concerns are everywhere in te ao Māori, from the ancient pakiwaitara (legends) about how our world came to be, to the karakia (prayers) said before significant events. </p>
<p>Sustaining community and environment is also central to <a href="https://maoridictionary.co.nz/search?keywords=tikanga">tikanga</a>, the system of values and practices that inform our way of living.</p>
<p>None of this is to say that Māori businesses don’t care about conventional measures of success. In fact, the Māori economy may be the <a href="https://chapmantripp.com/media/j1slpr3f/te-ao-maori-2017-english.pdf">fastest growing</a> part of the New Zealand economy in purely financial terms. </p>
<p>But whereas conventional companies prioritise profit, for Māori (and indeed Indigenous businesses around the world), making money is usually seen as a stepping stone to more valued destinations: community well-being, a political voice and <a href="https://www.youtube.com/watch?v=ZkM6YGETQ0I">environmental sustainability</a>.</p>
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<h2>Taking the long view</h2>
<p>Māori organisations also tend to take a long-term perspective when making important decisions. </p>
<p>In a typical corporation, managers are hyper-focused on quarterly or annual results. But it’s not uncommon for Māori organisations to approach things from a multi-generational standpoint, where success is measured over decades and sometimes even centuries.</p>
<p>In 1975, for example, the iwi of Ngāti Raukawa, Ngāti Toa and Te Atiawa jointly created a 25-year strategic plan known as <a href="https://www.mcguinnessinstitute.org/wp-content/uploads/2019/11/A-Whakatupuranga.pdf">Whakatupuranga Rua Mano</a> (Generation 2000). One of the fruits of this strategy was <a href="https://www.wananga.com">Te Wānanga o Raukawa</a>, an institute for Māori-focused tertiary education, a first of its kind.</p>
<p>More recently, Wakatū Incorporation has started work on a <a href="https://www.wakatu.org/news-stories/2019/4/17/innovative-intergenerational-regional-strategy-announced-for-te-tauihu">strategic plan</a> spanning more than 50 years. And Rachel Taulelei, CEO of Wakatū-owned food and beverage company Kono, has been emphatic that the company is working to an <a href="https://www.stuff.co.nz/business/industries/73938548/maori-business-kono-in-for-the-long-haul---500-years-says-new-chief">ambitious 500-year horizon</a> in its planning.</p>
<p>A <a href="https://openaccess.wgtn.ac.nz/articles/thesis/Whakapapa_Investment_Philosophy_A_M_ori_Way_Of_Thinking_About_Investment/15020058">major reason</a> Māori organisations think in such long time frames is whakapapa. In te ao Māori, whakapapa is more than just one’s line of descent. It is a value, a way of being that encourages people to think and act not as individuals, but as links in the chain between past ancestors and future generations.</p>
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<h2>Connections with community</h2>
<p>Finally, Māori businesses place their communities at the centre of management thinking. This is often reflected in how they <a href="https://www.tpk.govt.nz/en/whakamahia/effective-governance/what-is-governance">create and maintain their leadership</a>. </p>
<p>In large corporations, for example, board members (those responsible for the overall direction of the organisation) are typically appointed by existing members on the basis of their business acumen. In Māori organisations, however, boards are often democratically elected by the community they serve. </p>
<p>Because of this, Māori organisation boards tend to be diverse in the expertise and viewpoints they bring to the table.</p>
<p>Most importantly, though, the election of board members means community views are represented in an organisation’s most important decisions. </p>
<p>For example, one Māori organisation we know of has been considering a radical departure from its core business into providing social housing because so many in the community are struggling to find affordable places to live.</p>
<p>There has been a welcome shift in Aotearoa’s relationship with its taha Māori (Māori side) in recent years. While there’s still much ground to make up, New Zealanders increasingly see value in <a href="https://educationcentral.co.nz/unprecedented-demand-for-te-reo-maori-classes/">learning te reo</a> and recognising <a href="https://www.tvnz.co.nz/one-news/new-zealand/m-ori-carver-among-eight-nz-artists-recognised-arts-foundation-laureates">Māori artforms</a>. </p>
<p>Māori approaches to business and management can be equally enlightening. By giving us a glimpse of how to tackle troubling issues like inequality and climate change, te ao Māori can help us all build better businesses for the future.</p><img src="https://counter.theconversation.com/content/166501/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Māori businesses often prioritise more than financial results, have multi-generational strategies and put community at the centre of planning. Other businesses could learn from this.Ben Walker, Lecturer (Management), Te Herenga Waka — Victoria University of WellingtonErin Roxburgh-Makea, PhD Student, Te Herenga Waka — Victoria University of WellingtonJesse Pirini, Senior Lecturer in Management, Te Herenga Waka — Victoria University of WellingtonStephen Cummings, Professor of Strategy and Innovation, Te Herenga Waka — Victoria University of WellingtonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1502552020-11-24T10:46:01Z2020-11-24T10:46:01Z‘Never let a crisis go to waste’: how three CEOs helped their companies thrive in a pandemic<figure><img src="https://images.theconversation.com/files/370813/original/file-20201123-21-p086er.png?ixlib=rb-1.1.0&rect=3%2C0%2C2612%2C1646&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Some businesses have managed to build positive outcomes from the crisis.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/bankrupt-concept-people-trying-keep-downward-1439691422">MicroOne/Shutterstock</a></span></figcaption></figure><p>The COVID-19 pandemic has prompted different responses from company CEOs seeking to ensure their businesses survive. Keeping their employees safe has been the first priority, but beyond that, their task has involved understanding the situation, launching countermeasures, and trying to evolve ways of working to ensure their businesses can continue. </p>
<p>We spoke to the chief executives of three major companies in three very different industries. In their responses to the crisis we found that Winston Churchill’s adage of “never let a crisis go to waste” was as relevant as ever, with businesses finding positives during the pandemic.</p>
<h2>Accelerate strategy</h2>
<p>Shipping giant AP Møller-Maersk <a href="https://www.maersk.com/news/articles/2019/06/26/the-foundation-for-a-transformation">embarked on a historic transformation</a> in 2016 to become an integrated transport and logistics company – combining its shipping line, port operations and freight forwarding businesses into a single entity. However, <a href="https://shippingwatch.com/carriers/Container/article11958155.ece">progress had been limited</a>. </p>
<p>The pandemic brought unprecedented challenges to Maersk’s customers who, faced with falling demand, had to manage their global supply networks as effectively as possible. They wanted better information across the supply chain and the ability to change outcomes while goods were in transit. </p>
<p>These demands affirmed Maersk’s strategy to shift from being a port-to-port container transport company to an integrated, end-to-end logistics company, making use of digital technologies to provide the connectivity and visibility that customers required.</p>
<p>Maersk’s customers turned to its blockchain-enabled supply chain platform <a href="https://www.tradelens.com/about">TradeLens</a>, where the number of transactions <a href="https://www.maersk.com/news/articles/2020/10/15/tradelens-amid-surging-use-of-digital-solutions">almost tripled</a> from 70,000 a week in January 2020 to 194,000 a week in June. Transactions through Maersk.com increased by 20%-25% between January and October 2020. Maersk’s CEO Soren Skou told us: “The investments we made in the last five years in digital capabilities came in very handy during COVID-19.” </p>
<p>The pandemic accelerated Maersk’s technological transformation efforts, which led to new digital products and services while modernising its customer interface, back-end infrastructure and assets such as ships and terminals. Maersk also built expertise through acquisitions, purchasing warehousing and distribution company <a href="https://www.maersk.com/news/articles/2020/04/01/ap-moller-maersk-completes-acquisition-of-performance-team">Performance Team</a>, and customs management firm <a href="https://www.offshore-energy.biz/maersk-to-acquire-swedish-customs-service-specialist">KGH Customs</a>.</p>
<p>Skou was able to apply what he’d learned from the financial crisis of 2008-09, when Maersk and its competitors fought for market share and ended up driving down freight rates. This time, Skou focused on profitability: cutting capacity by 20%, but <a href="https://shippingwatch.com/carriers/Container/article12356025.ece">filling the remaining vessels</a> even as the pandemic caused shipping volumes to drop. The plunging price of oil also helped Maersk’s financial performance, and its earnings actually <a href="https://www.maersk.com/news/articles/2020/10/13/maersk-upgrades-expectations-for-q3-2020">increased in the first three quarters of 2020</a>, despite near-paralysis of the global economy.</p>
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<img alt="Businessman examines blackboard showing drawing of business performance falling as COVID rates rise" src="https://images.theconversation.com/files/370816/original/file-20201123-13-1h3hdca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/370816/original/file-20201123-13-1h3hdca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/370816/original/file-20201123-13-1h3hdca.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/370816/original/file-20201123-13-1h3hdca.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/370816/original/file-20201123-13-1h3hdca.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/370816/original/file-20201123-13-1h3hdca.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/370816/original/file-20201123-13-1h3hdca.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">For many businesses, the effects of the pandemic have been harsh – even terminal.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/econimical-crisis-concept-due-coronavirus-covid19-1686250051">Song_about_summer/Shutterstock</a></span>
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<h2>Scale-up innovation</h2>
<p>Large companies are often seen as slow and trailing in innovation compared to smaller, more nimble competitors. Standard operating procedures mean they focus on developing “perfect” solutions, testing in pilot markets and proving the business case over a couple of years, before finally rolling out – by which time they have probably missed the boat.</p>
<p>Mars Petcare, a global leader in pet food and pet health services, found that COVID-19 necessitated scaling up innovation. Prior to the crisis, the company had been working on a <a href="https://www.mars.com/news-and-stories/press-releases/mars-pet-insight-project">telehealth service for pet owners</a>, offering video consulatations with vets at 20 veterinary hospitals, where it proved to be a valuable triage tool for prioritising cases. </p>
<p>As the pandemic took hold, pet owners started working from home, inevitably spending more time with their pets which generated more queries about minor health issues. An initial video call with a vet was an ideal solution.</p>
<p>Working with Microsoft, the company scaled its telehealth service from 20 to around 2,000 veterinary hospitals – in one month. Poul Weihrauch, global president of Mars Petcare, told us:</p>
<blockquote>
<p>This may not help our earnings in the short term, but it will make the clients happier and pets healthier today and in the long term. A common belief is that big companies are slow, but this shows that big companies can scale innovation very quickly. This time, it was done by necessity… but clearly the goal is that it should be the norm.</p>
</blockquote>
<p>These efforts, <a href="https://www.cnbc.com/2020/04/23/vet-telehealth-surges-as-first-us-pets-test-positive-for-coronavirus.html">spurred by high demand during COVID-19</a>, tied in well with Mars Petcare’s strategy to dramatically accelerate its evolution from pet food manufacturer to provider of pet care services.</p>
<h2>Engage with employees and customers</h2>
<p>When the pandemic struck, security became an “essential service”. Security company Securitas realised it needed to quickly ramp up its electronic solutions. This validated the company’s <a href="https://www.securitas.com/media/regulatory-press-releases/securitas-accelerates-the-transformation-of-the-group">strategy launched in 2018</a> to evolve from providing traditional physical guarding to digital security solutions such as facial recognition technology and remote video monitoring.</p>
<p>CEO Magnus Ahlqvist wanted to manage customers’ uncertainty, outlining how Securitas was dealing with the crisis. He and his management team worked with major clients, with a similar sponsorship system for each of the countries in which Securitas operates. Ahlqvist told us: </p>
<blockquote>
<p>“I have spent more time with clients than I would normally… Being visible and present for clients in a tough moment will pay off in the long term.”</p>
</blockquote>
<p>The Swedish company’s 340,000 frontline guards had to rise to an unprecedented challenge, for which the company pushed hard to <a href="https://www.securitas.com/our-offering/security-solutions/">equip them with better digital tools</a>.</p>
<p>Having already embarked on strategic transformations, these firms were well equipped to turn an unparalleled threat into an opportunity. Setting a good example from the top, the chief executives were able to put the crisis to work by accelerating strategy, scaling innovation and deepening customer engagement, generating the energy required for the organisation to thrive, despite the hurdles thrown up by COVID-19.</p><img src="https://counter.theconversation.com/content/150255/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The coronavirus crisis has hit many businesses hard, but some have turned their difficulties into a springboard to move the company forward.Thomas Malnight, Professor of Strategy, International Institute for Management Development (IMD)Ivy Buche, Associate Director, Business Transformation Initiative, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1271532019-11-18T11:56:55Z2019-11-18T11:56:55ZTesla’s business strategy is not chaotic – it’s brilliant<p>Few companies have attracted as much praise, derision, scepticism and enthusiasm as Telsa Motors and its founder Elon Musk. Having interviewed Elon Musk and the Tesla leadership as part of <a href="https://store.hbr.org/product/the-innovator-s-method-bringing-the-lean-start-up-into-your-organization/16914">my</a> <a href="https://hbr.org/ideacast/2019/06/why-you-need-innovation-capital-and-how-to-get-it">research</a>, one of the questions I’m asked most frequently is: how can you make sense of Tesla’s wild strategies? The latest example is the move to create a “Gigafactory” for car batteries just outside Berlin.</p>
<p>Part of the challenge in understanding Tesla’s strategy are the commentators. These range from <a href="https://www.theverge.com/2019/4/20/18509371/skabooshka-twitter-elon-musk-tesla-short-seller-tslaq">short-selling</a> to star worship. Many ask the wrong questions, such as <a href="https://theconversation.com/elon-musks-claim-that-tesla-wont-need-rescuing-is-for-the-birds-heres-why-100990">why Tesla isn’t making any money</a> – a question appropriate for a mature business, but not a growth one. While all businesses must be sustainable in the long run, Tesla is like most rapid growth companies that eat up more cash flow than they produce while in the early growth phase. </p>
<p>But the biggest part of the challenge may simply be understanding Tesla’s strategy. Why would a new company, already taking on the Herculean task of introducing an entirely new type of car to the market, also take on the incredible risk of building some of the world’s largest battery factories? Or for that matter, a dealership and repair network? Or a charging network? Or, even crazier, a solar power business? </p>
<p>On the surface, it makes no sense and there is no doubt that it introduces more risk to the company, increasing its chances of failure. But when viewed through the lens of the <a href="https://www.sciencedirect.com/science/article/abs/pii/S0048733306000862">decades of research on technology strategy</a>, Tesla’s approach takes on a different light. </p>
<h2>Building a new architecture</h2>
<p>The big challenge to understanding Tesla’s strategy is that most of us only look at it from one level of analysis. Namely, when we see Tesla, we see a company that produces cars. But when I teach executives how to invest in future technology, I encourage them to think at multiple levels of the technology stack: not just products, but also components and systems. So let’s take a closer look at Tesla.</p>
<p>At the level of the product, although a Tesla looks the same as other vehicles, underneath the hood the vehicle has a fundamentally different architecture – both in terms of hardware and software. This matters because a long research tradition underscores that when incumbents face a new technology architecture, they struggle to understand and adapt. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/302184/original/file-20191118-66925-gb3jjl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/302184/original/file-20191118-66925-gb3jjl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/302184/original/file-20191118-66925-gb3jjl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/302184/original/file-20191118-66925-gb3jjl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/302184/original/file-20191118-66925-gb3jjl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/302184/original/file-20191118-66925-gb3jjl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/302184/original/file-20191118-66925-gb3jjl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Tesla is building a new architecture.</span>
<span class="attribution"><a class="source" href="https://pxhere.com/en/photo/423732">Pxhere</a></span>
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</figure>
<p>Even though they can see what the technology is, they struggle to adapt both because they are reluctant to give up the existing capabilities they have perfected over decades and to fully integrate the new ones. Although incumbents may imitate the new architecture, they have a hard time overcoming the way they have done things in the past and to match the superior performance of the new, purpose-built architecture. </p>
<p>You can see evidence of this playing out in the auto industry. Early electric vehicles produced by incumbents on internal combustion engine architectures paled in comparison to the Tesla, and even newer “blank slate” efforts sometimes don’t quite measure up. It’s always the little things that get in the way – such as the fact that most vehicles built by other manufacturers have up to five separate software systems rather than a single integrated system like a Tesla, which gives a performance advantage.</p>
<h2>Controlling the bottleneck</h2>
<p>If we lower our level of analysis to the level of components, rather than products, we see the Tesla strategy in a different light again. What we know about technical systems is that, as they mature, the value migrates to the bottlenecks that control the system’s performance. </p>
<p>This is why in the PC industry, Intel has made so much money for decades while hard drive and modem manufacturers made peanuts. Intel <a href="https://www.capgemini.com/wp-content/uploads/2017/07/Strategy_Bottlenecks__How_TME_Players_Can_Shape_and_Win_Control_of_their_Industry_Architecture.pdf">controlled the bottleneck</a> to the performance of the PC whereas hard drive manufacturers did not. </p>
<p>The bottleneck for electric vehicles now and in the future is the batteries. If Tesla can dramatically lower the prices of batteries by manufacturing at scale, they lower the barriers to adoption for electric vehicles. But more importantly, the battery bottleneck isn’t going away any time soon, which means, if they succeed, Tesla controls the biggest profit pool in the future of auto manufacturing.</p>
<h2>Delivering solutions</h2>
<p>Lastly, if we raise our level of analysis above components and products, to the level of systems, we see Tesla in yet another light. The truth is that consumers don’t want products, they want solutions. Most car makers deliver products. But Tesla tries to deliver a complete experience: car, upgrades, charging, insurance – the whole bundle. And as a result, the majority of Tesla owners talk in glowing terms about their Tesla, both because it is a great car, but also a great solution. In what other vehicle do you wake up in the morning to find new self-driving features?</p>
<p>Let’s be clear – the risks are high. Tesla has compounded major bet upon major bet by having a multi-level strategy that targets components, products and systems. Everything has to go well to succeed. But if the stars align, it’s a brilliant strategy at all levels.</p><img src="https://counter.theconversation.com/content/127153/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nathan Furr does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>One of the questions I’m asked most frequently is: how can you make sense of Tesla’s wild strategies?Nathan Furr, Associate Professor of Strategy, INSEADLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1214042019-08-09T15:05:36Z2019-08-09T15:05:36ZIkea v Pepperfry: India the venue for a David and Goliath furniture fight<figure><img src="https://images.theconversation.com/files/287526/original/file-20190809-144862-195bkkc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ikea's Hyderabad store has not been as busy as the Swedish giants had hoped.</span> <span class="attribution"><span class="source">fotosunny / Shutterstock.com</span></span></figcaption></figure><p>Ikea is celebrating its first anniversary of operating in India. Even though the company secured regulatory approval to enter the country in 2013, it took five years of effort and significant investment before the first Ikea megastore opened <a href="https://money.cnn.com/2018/08/08/news/companies/ikea-in-india-hyderabad/index.html">its doors to Indian consumers in Hyderabad in 2018</a>. </p>
<p>The response was overwhelming – 40,000 shoppers turned up on day one, resulting in two-hour long queues just to get inside, <a href="https://www.businesstoday.in/current/corporate/around-40000-people-visit-ikea-hyderabad-store-on-first-day-twitter-reacts/story/281216.html">while traffic built up outside</a> the store. Ikea has since purchased land parcels in Mumbai, Bangalore and Gurugram (near Delhi), announced a ten-fold increase in its employee strength to 15,000 and set a target to reach 200m customers in three years. </p>
<p>Despite Ikea’s big ambitions <a href="https://www.thehindubusinessline.com/companies/ikea-to-increase-india-employee-count-10-fold/article25558896.ece">to increase its presence in India</a> and capitalise on a growing middle class market, as well as its experience in doing so around the world, it faces stiff local competition from Pepperfry, India’s existing, largest online furniture retailer. </p>
<p>On the surface, there is no comparison between Ikea and Pepperfry. One is a global player with deep pockets, more than US$40 billion in revenues and decades of experience. The other is a six-year-old venture capital backed start-up that is <a href="https://www.livemint.com/Companies/F226AIOSrtquvHbK0WZ0kO/Pepperfry-cuts-losses-by-32-in-201718.html">yet to turn in profits</a>. But a closer look at Pepperfry’s business fundamentals reveals that there is more to it than meets the eye.</p>
<h2>Strategic choices</h2>
<p>When Pepperfry’s co-founders, Ambareesh Murty and Ashish Shah, both formerly of eBay, made their first investment pitch to a venture capital firm in mid-2011, the concept of an online furniture marketplace <a href="https://www.livemint.com/Companies/GjGHZcLEOFJ0QN7gjGuq5I/Ikeas-India-entry-may-quicken-shift-to-organized-furniture.html">was unheard of</a>. Furniture was not a natural fit for e-commerce because of its high value and non standard nature (compared to books, music or electronic goods). Indian consumers preferred local retailers or trusted carpenters over an online supplier. Plus, the supporting infrastructure in terms of logistics was lacking. </p>
<p>Undoubtedly, Pepperfry had decided to follow a riskier path in building a business model around an online platform. But its co-founders made some strategic choices to make a success of the business.</p>
<p>One of the trickiest elements of the furniture business is offering the right combination of variety, quality and price. Murty and Shah changed the game by building a well-curated offering from specialist merchants, small and medium enterprises and artisanal woodworkers in furniture manufacturing hubs in north India. They built personal relationships with their suppliers, digitised their catalogue and constantly improved their operations. After carefully selecting and listing products, they then use data analytics to track which ones are the most popular and scale up or remove them accordingly. Based on consumer choices, they continually give feedback on designs and trends to their manufacturers.</p>
<p>Success so far has also been built by ensuring that Pepperfry offers customers the same service in multiple ways – whether that’s online via their computer or mobile, or offline. This omnichannel approach is increasingly important for the success of any retail business. </p>
<p>The company launched Studio Pepperfry, an offline store, in Mumbai in 2014 - an industry first for an online platform in India. It now <a href="https://www.businessinsider.in/pepperfry-studio-location-to-increase-50-as-sales-double/articleshow/69859900.cms">has 65 across 28 Indian cities</a>. These studios act as experiential centres and are staffed by interior designers to help people choose what they want. Nothing is for sale; instead, the studios act in service of the online offering.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/287523/original/file-20190809-144878-ubhwun.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/287523/original/file-20190809-144878-ubhwun.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/287523/original/file-20190809-144878-ubhwun.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/287523/original/file-20190809-144878-ubhwun.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/287523/original/file-20190809-144878-ubhwun.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/287523/original/file-20190809-144878-ubhwun.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/287523/original/file-20190809-144878-ubhwun.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A Pepperfry studio in Mumbai.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/124854278@N07/48186262257/in/photolist-ykfPC6-2gR7rq6-2gR7rwD-2gq3Xcx-2gq3U4o-PFnaib-2gR7riC-2gR6FhL-2gNccTd-2gNcXnU-2gNcXmg-2gNccND-2gzS8u3-2gq4fqX-2gq4bZ8-2gq4beA">Pepperfry</a></span>
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<p>The third and perhaps most important element of Pepperfry’s success has come from building its own logistics arm – including first-mile pickup and last-mile delivery of all the company’s furniture. Consider transporting a 300kg four-door wardrobe 1,500km from the manufacturing site in north India to the largest demand centre in south India. This involves going through multiple hubs before the wardrobe reaches the end consumer, resulting in skyrocketing costs as well as very high chances of breakage. </p>
<p>After a poor initial experience with third-party logistics providers and the lack of alternatives in the Indian market, Pepperfry decided to build its logistics infrastructure from the ground up and learn on the go. An in-house logistics arm is another industry first in India, particularly for an online platform provider. According to <a href="https://yourstory.com/2018/03/online-furniture-platform-pepperfry-won-fiscal-fitness-trophy-fy2018">some estimates</a>, Pepperfry’s logistics arm is the largest business-to-customer big-box delivery service in India.</p>
<h2>Competitive advantage</h2>
<p>Given Pepperfry’s competitive advantage, Ikea may struggle to beat this local start-up. If anything, its strategy appears to mirror that of Pepperfry. Ikea <a href="https://inc42.com/buzz/ikea-reverses-its-omni-channel-strategy-for-expansion-in-mumbai/">recently announced it was reversing plans</a> to launch its second store in Mumbai. Instead of opening the offline store, it is starting online sales instead. It will then introduce smaller outlets across the country, in sharp contrast to the signature Ikea shopping experience of large out-of-town megastores. </p>
<p>Ikea’s Hyderabad store manager, John Achillea told India’s Economic Times newspaper that footfall in the Hyderabad store <a href="https://economictimes.indiatimes.com/industry/services/retail/not-quite-a-crush-yet-ikeas-high-on-low-price-volumes/articleshow/67783468.cms?from=mdr">was 2m below the projected 7m</a> in the first year and its sales numbers are not public. The store now runs a free shuttle bus service for customers from a few points around the city.</p>
<p>India is a large and growing market. The furniture industry there is worth <a href="https://www.techsciresearch.com/news/218-india-furniture-market-to-surpass-usd32-billion-by-2019.html">US$32 billion</a> and projected <a href="https://www.globenewswire.com/news-release/2019/05/07/1818085/0/en/India-s-Furniture-Market-Forecast-to-2023-61-Billion-Opportunity-Analysis.html">to double to US$61 billion by 2023</a>. Ikea will be hoping to capitalise on this. But, in the meantime, Indian players have effectively held their ground by leveraging local knowledge and addressing the country’s infrastructure challenges.</p><img src="https://counter.theconversation.com/content/121404/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>India’s furniture industry is worth US$32billion and is projected to double by 2023.Ivy Buche, Associate Director, Business Transformation Initiative, International Institute for Management Development (IMD)Amit Joshi, Professor of Digital Marketing and Strategy, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1160122019-04-25T15:25:22Z2019-04-25T15:25:22ZSainsbury’s-Asda merger: failed big bet has serious strategic consequences<figure><img src="https://images.theconversation.com/files/270969/original/file-20190425-121245-1ufxku2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The two supermarkets will not become one.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/flint-uk-may-1-2018-asda-1081695164?src=eIrzcUMDvdQTjTtFwY3zuA-1-0">John David Photography / Shutterstock.com</a></span></figcaption></figure><p>The problem with big bets is that sometimes they don’t pay off. While a lot of attention is often paid to successful mergers and acquisitions (M&A) deals, little attention is paid to the dark side of M&A – what happens to a company’s strategy when a deal fails. The UK competition watchdog’s <a href="https://www.bbc.co.uk/news/business-48048596">decision</a> to block Sainsbury and Asda from merging will have big consequences for both supermarkets.</p>
<p>The proposed £10 billion merger was designed to solve a pressing strategic problem in the UK: an increasingly competitive industry where the winners are aggressive discounters (Aldi and Lidl) and, to some extent, the premium niche competitors like Waitrose and M&S. For the giant supermarkets, Sainsbury’s, Tesco, Morrisons, Asda, the recent past has been marked by heroic struggles to achieve some profitability and find growth in a slow market. </p>
<p>With the centre ground under constant performance pressure, Sainsbury’s and Asda’s decision to merge made perfect sense. It might also have provided some protection against current threats presented by new entrant Amazon. Through the merger they would be able to significantly reduce their costs, allowing them, in theory, to pass on price reductions to consumers. But the regulator took the view that the combined group, with around 30% of the market, might wield monopolistic power that could lead to an increase in prices and reduced customer choice.</p>
<h2>What next?</h2>
<p>Following the regulator’s decision, Sainsbury’s share price fell 7%. But when the merger was originally announced, Sainsbury’s share price <a href="https://www.about.sainsburys.co.uk/investors/share-price-information/chart">soared to 314p</a>. This means that the share price fall to 212p is a 38% reduction. The market is clearly judging the deal a failure. And, as the share price is below Sainsbury’s pre-deal share price of 266p, the market is also judging Sainsbury’s to be in a worse strategic position than it was before merger talks. </p>
<p>The first strategic problem is that Mike Coupe, Sainsbury’s CEO, has spent a lot of time and effort convincing the markets that the merger was the best way forwards for the company. Now this strategy is in ruins, there is a problem that arguing for another strategy will most likely seem second best, so garnering investor support could be difficult. </p>
<p>Big deals need big commitment from CEOs. Unfortunately, Coupe will have suffered reputational damage by failing to achieve the deal, and an unfortunate media slip following news of the merger (he was <a href="https://www.youtube.com/watch?v=I3q-zBLZEW4">caught singing</a> “We’re in the money”), now seems like hubris.</p>
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<p>Nonetheless, from a strategic point of view, Sainsbury’s could look for other M&A deal opportunities in the supermarket sector, using the same logic of efficiency gains and market power benefits. The main problem though is that there are no large targets available. And, even if they might become available in some shape or form, Sainsbury’s would most likely run into regulatory constraints again and also face significant restructuring costs. </p>
<p>Sainsbury’s could make small acquisitions, but due to its size, these deals would make next to no difference to the group’s overall performance. Even if the small acquisitions are innovative players, it would still take a long time before they really could make a significant impression. </p>
<p>Another strategic option is to grow overseas through a major cross-border M&A. But the supermarkets have generally had rather poor experiences with international expansion, with many <a href="https://www.theguardian.com/business/2013/aug/11/tesco-retreat-overseas-rotten-returns">destroying value</a>. Other alliances might help reduce the basic problem of reducing costs, but it is difficult to see how they can consistently close the gap with discounters. It might also consider buying outside of the industry as a defensive hedge to change, but this is risky territory indeed.</p>
<p>Sainsbury’s big size means it needs to do something bold. But, having had its deal rejected, there is a risk that it will revert to incrementalism. This may be too little too late and would not really address the pressures of a squeezed supply chain, consumers requiring even lower prices and major new entrants forcing the pace of change. Plus, there’s also a risk that Asda might be acquired by another competitor (it is owned by Walmart so its future will depend on the US giant’s plans). This would further weaken Sainsbury’s strategic position.</p>
<p>While there are always opportunities for further cost reductions, Sainsbury is already well run so these gains will be marginal, hard to achieve and, if pursued too aggressively, run the risk of changing the nature of the business as it is. Rather than being whittled away by a thousand cuts, Sainsbury’s may alternatively look to transform itself rather than trying to preserve its current way of competing. </p>
<p>The industry as a whole fears Amazon taking over. Just the announcement of Amazon entering the industry, <a href="https://theconversation.com/will-amazon-do-to-the-grocery-industry-what-it-did-to-ecommerce-96874">when it bought Whole Foods in 2017</a>, caused share prices to fall. Maybe in the face of the revolution in digital strategy, where the largest operators in traditional industries such as accommodation (Airbnb), taxis (Uber), retail (Amazon), don’t own large amounts of assets, Sainsbury’s should rethink the supermarket business. Perhaps its largest assets – the megastores and car parks – are also its biggest source of rigidity. Responding more rapidly to a changing environment and staying in tune with changing customer demands may require a different sort of business model.</p><img src="https://counter.theconversation.com/content/116012/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Duncan Angwin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Sainsbury’s faces tough times ahead following the blocking of its merger with Asda.Duncan Angwin, Sir Roland Smith Professor in Strategic Management, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1087842019-01-07T14:23:34Z2019-01-07T14:23:34ZHow to increase your lottery winnings (and succeed in business) by being contrary<figure><img src="https://images.theconversation.com/files/252375/original/file-20190103-32148-16g42da.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/portrait-happy-man-exults-pumping-fists-538618510?src=nBqRpbUIXNw32BliXXL4rA-1-81">pathdoc/Shutterstock</a></span></figcaption></figure><p>No rational person would ever enter the lottery. The chance of picking the right six numbers and hitting the jackpot in the UK’s Lotto is approximately <a href="http://lottery.merseyworld.com/Info/Chances.html">one in 14m</a>.</p>
<p>But even in something based purely on luck, a strategy can be found. If it was mandatory to play the lottery, how would you enhance your prospect of winning a bigger pay out? The answer is to always pick numbers above 31.</p>
<p>That is because <a href="http://journal.sjdm.org/15/151103a/jdm151103a.pdf">analysis has shown</a> that the majority of people choose numbers associated with their birthday or a family member’s birthday as their “lucky” numbers. So picking numbers above 31 will ensure that if your combination is the luck of the draw you will get a much larger slice of the winnings because other people are less likely to have picked the same.</p>
<p>This kind of contrarian thinking can be applied to business as well, where strategy and behavioural science can be combined to exploit the many seemingly irrational biases we all have. Smart traders have for centuries exploited “noise traders” who overreact to news events when making investment decisions. But my <a href="https://journals.aom.org/doi/10.5465/ambpp.2017.10">research</a> shows this is also feasible beyond financial markets; recognising and fixing your own biases but exploiting those of rivals can be a successful strategy when it comes to business.</p>
<p>How exactly you do it needs solid evidence and analysis to provide a strong foundation for your strategy. So I call this approach “analytical behavioural strategy”. This is because it involves drawing on behavioural science to search for contrarian opportunities and then using data analytics to gain a competitive advantage.</p>
<h2>Regression to the mean</h2>
<p>For instance, most people don’t recognise something called <a href="https://academic.oup.com/ije/article/34/1/215/638499">regression to the mean</a>, where very high or low results are usually followed by more average ones. This can be used to measure the impact of luck on performances.</p>
<p>Regression to the mean in business happens whenever results is not entirely under the control of the person or organisation, such as sales performance or a firm’s growth. A great performance suggests good management but also good timing or luck. By definition, good luck is temporary so future performance is unlikely to be as strong (it will regress downward to the mean). The good thing for a contrarian strategist is that many rivals will <a href="http://psycnet.apa.org/record/1974-02325-001">naively assume</a> that the great current performance will persist.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/252378/original/file-20190103-32148-16zpkzn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/252378/original/file-20190103-32148-16zpkzn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/252378/original/file-20190103-32148-16zpkzn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/252378/original/file-20190103-32148-16zpkzn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/252378/original/file-20190103-32148-16zpkzn.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/252378/original/file-20190103-32148-16zpkzn.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/252378/original/file-20190103-32148-16zpkzn.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Working with a moderately successful act is a better strategy than targeting an artist with one instant hit.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/music-band-during-cd-recording-studio-302301638?src=Ey4JFWBDD3ebQLqQ45ee7g-1-3">Nejron Photo/Shutterstock</a></span>
</figcaption>
</figure>
<p>Let’s look at the music industry. If a new band or musician has a top 20 hit, should a music label immediately try to sign them? <a href="https://journals.aom.org/doi/10.5465/ambpp.2017.10">My analysis</a> of 8,297 acts in the US Billboard 100 from 1980 to 2008 would suggest not. Music label bosses should instead be looking to sign up those reaching positions between 22 and 30 in the charts.</p>
<p>Artists charting in the top 20 will likely see their next single achieve between 40 and 45 on average, regressing disproportionally more to the mean than their lower performing counterparts. Those charting between 22 and 30, meanwhile, have the highest predicted future rank for their next single. This is where music label bosses will find the hidden gems.</p>
<p>Most of their rivals will be bidding for those superstars who entered the top 20, which are both more expensive and, statistically, have lower expected future performance. In contrast, looking at the “second best” should unearth cheaper acts that are actually going to produce more impressive future successes.</p>
<p>Another question that we can tackle in this way is which markets to export growing businesses should export to. Many companies naturally head to Asian markets with a high GDP growth rate such as China or India. The problem with such a strategy is that most of their competitors will be heading for those countries as well.</p>
<p>A <a href="https://journals.aom.org/doi/10.5465/ambpp.2017.10">careful analysis</a> of GDP growth between 1960 to 2017 around the world reveals that regression to the mean is also very strong in this area but has an asymmetrical effect, affecting countries at the bottom of the table more. This is where the hidden gems could be. If a country has a very poor growth rate – in the bottom ten countries – it will probably perform significantly better in the following year than the next ten worst performers.</p>
<h2>Contrary investment</h2>
<p>Just as with the strategy for winning a greater share of the lottery jackpot, a contrarian company that enters new markets like this will benefit from being one of the few, if not the only, one investing in these countries. It is a brave move, but sometimes the wisdom of the crowd has to be balanced against the strong competition you will face in high growth countries or industries.</p>
<p><a href="https://journals.aom.org/doi/10.5465/ambpp.2017.10">My research</a> shows that countries in the bottom 10%, whose economies are currently shrinking by about 3% a year, are likely to improve their GDP growth rate substantially. In fact, in any year, the worst ten countries are more likely than not to move up the chart to perform better than 45% of all other countries in the following year. </p>
<p>This contrarian theory doesn’t guarantee success. Many countries will in reality have terrible prospects due to wars or other crises. Instead, this approach offers a search guide for looking for opportunities from the over or under-estimations of rivals. Some countries might be under the radar for political reasons but will still have a reasonable economic future.</p>
<p>A good example is China after the 1989 Tiananmen Square protests, which sparked worldwide condemnation and saw many Western companies pull out of the country. Instead of following this consensus, many Taiwanese and Hong Kong companies moved into China and their investment was welcomed with open arms. <a href="https://books.google.co.uk/books/about/China_at_the_Crossroads.html?id=RBQLWu2ZTLYC&redir_esc=y">They gained first mover advantage</a>, which has helped them keep ahead of a sway of Western firms ever since.</p>
<p>This shows how being aware of the biases discovered in behavioural science can help companies stay one step ahead of the competition and create new strategies to take advantage of the blind spots of rivals. Fortune favours the strategists who understand this theory. Following the evidence will enable you to see what others fail to see and do what others fail to do.</p><img src="https://counter.theconversation.com/content/108784/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Chengwei Liu does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Winning big often involves looking for the opportunities that are the opposite of what everyone else is doing.Chengwei Liu, Associate Professor of Strategy and Behavioural Science, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/966072018-05-29T22:58:50Z2018-05-29T22:58:50ZManagement wisdom from the NBA: sometimes the best move is the one you don’t make<figure><img src="https://images.theconversation.com/files/220564/original/file-20180528-90281-xhm6xd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Houston Rockets head coach Mike D'Antoni, during Game 2 of the NBA basketball Western Conference finals against the Golden State Warriors in Houston. D'Antoni successfully resisted calls to change his team's offensive strategy after losing Game 1.</span> <span class="attribution"><span class="source">(AP Photo/David J. Phillip)</span></span></figcaption></figure><p><a href="http://www.espn.com/nba/story/_/id/23525823/houston-rockets-blocking-noise-sticking-their-season-long-plan-golden-state-warriors">“Defiant Rockets rewarded for ignoring calls for change.”</a> That was one of the top headlines on ESPN following the recovery by the Houston Rockets in Game 2 of the NBA Western Conference finals. Despite a barrage of criticism directed at the team’s offensive strategy after a lopsided loss in Game 1, the Rockets stayed the course. And it paid off. </p>
<p>After a tough 119-106 loss to the Golden State Warriors two nights before, Houston coach Mike D’Antoni could have gone back to the drawing board and changed the offensive game plan. After all, that is what critics expected he would do to put the team in a more competitive position in Game 2.</p>
<p>But D’Antoni, like many basketball coaches, knows that sometimes the best move is no move at all. </p>
<p>D’Antoni’s decision not to change the isolation-heavy offence that led his team to the top of the Western Conference during the regular season is what I call “<a href="https://www.researchgate.net/publication/291367325_Competitive_Forbearance_The_Content_the_Process_and_the_Outcomes_of_Purposefully_Not_Acting">competitive forbearance,”</a> a purposeful decision not to act when key decision-makers have opportunity and capability to do so. </p>
<p>Competitive forbearance is also an important strategic decision in the business world.</p>
<h2>Competitive forbearance in business</h2>
<p>Competitive dynamics, a stream of strategic management research, addresses fundamental questions in strategy: How firms behave and why firms perform differently.</p>
<p>Studies in this area have mainly focused on how competitive aggressiveness — the propensity to carry out a large number of competitive actions — increases a firm’s performance. <a href="http://journals.sagepub.com/doi/full/10.1177/0149206316673718">Firms that fail to act frequently appear unenterprising or “passive,” which can diminish performance.</a></p>
<p>Little attention has been paid to the possible benefits of purposeful decisions not to act.</p>
<p><a href="https://www.sciencedirect.com/science/article/pii/S0149206300000805">Mutual forbearance theory</a> suggests multimarket rivals choose competitive forbearance to prevent unnecessary losses associated with escalating rivalry across several markets.</p>
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Read more:
<a href="https://theconversation.com/hoping-for-a-bullish-stock-market-cheer-for-the-washington-capitals-97230">Hoping for a bullish stock market? Cheer for the Washington Capitals</a>
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<p>However, multimarket contact is just one situation in which forbearance is preferable to action. Savvy firms use forbearance to outmanoeuvre rivals in a variety of competitive situations.</p>
<p>For example, Apple decided not to integrate Adobe’s Flash Player into the iPhone and the iPad. As a result, <a href="http://allthingsd.com/20120815/gone-in-a-flash-adobe-pulls-player-from-google-store/?KEYWORDS=Apple+flash+player.">Adobe withdrew its Flash Player from the Android mobile operating system</a> of Apple’s arch enemy, Google, and chose to refocus its efforts around the emerging HTML5 standard. This suggests that Apple’s forbearance was the right choice despite being heavily <a href="http://www.apple.com/hotnews/thoughts-on-flash/">criticized at the time</a>. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/220575/original/file-20180528-80645-1wwih1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/220575/original/file-20180528-80645-1wwih1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=462&fit=crop&dpr=1 600w, https://images.theconversation.com/files/220575/original/file-20180528-80645-1wwih1j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=462&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/220575/original/file-20180528-80645-1wwih1j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=462&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/220575/original/file-20180528-80645-1wwih1j.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=581&fit=crop&dpr=1 754w, https://images.theconversation.com/files/220575/original/file-20180528-80645-1wwih1j.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=581&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/220575/original/file-20180528-80645-1wwih1j.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=581&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">When Steve Jobs introduced the first iPhone in 2007, Apple made a conscious decision not to allow it to work with Adobe’s Flash Player.</span>
<span class="attribution"><span class="source">(AP Photo/Paul Sakuma)</span></span>
</figcaption>
</figure>
<p>I was part of a research project that explored the antecedents and consequences of competitive forbearance in the basketball coaching setting. Our research findings show that it has a significant impact on competitive rivalry. </p>
<h2>How forbearance improves performance</h2>
<p>In basketball, coaches make a wide range of forbearance decisions — not replacing players who are in foul trouble, not calling timeouts when teams are underperforming and not responding to opponents’ changes in offensive or defensive strategies.</p>
<p>In fact, 30 post-game interviews with nine coaches regarding their strategic decisions in 15 basketball games in the division one men’s basketball league of the FIBA–Europe revealed 673 competitive acts and 143 competitive forbearances. In other words, 17 per cent of all considered competitive moves were purposefully not executed. Competitive forbearance varied systematically across coaches.</p>
<p>The reasons basketball coaches choose to forbear can vary, from waiting for the full benefits of previous decisions to materialize to increasing players’ confidence — or in the case of D’Antoni, avoiding moves inconsistent with the team’s existing strategy and providing an opportunity for players to learn from experience. It was the right call — the Rockets went on to win 127-105 in Game 2. </p>
<p>Although competitive forbearance can improve team performance by expanding the range of strategic maneuvers and by making competitive behaviours less predictable, coaches are more prone to act than to forbear. Why is that? Two key factors are stakeholder pressure and coaching confidence. </p>
<h2>Not acting attracts criticism</h2>
<p>Owners, journalists, analysts, fans and players often assume that not taking action indicates incompetence and a lack of coaching skills. Thus, the norm is to act and forbearance is a violation of the norm.</p>
<p>The negative outcomes associated with forbearance are judged more harshly than the negative outcomes of actions. The effects of this pressure are especially evident in the last two minutes of the game, where our study revealed competitive forbearance was 62 per cent less likely to occur.</p>
<p>Not all coaches succumb to stakeholder pressure. More accomplished coaches had 42 per cent higher odds of forbearing. We also found the coaches who were confident about winning the game were over two and half times more likely to forbear. D’Antoni’s regular-season record with the Rockets — 65 wins in 82 games — would indicate a certain amount of confidence in the team’s odds of success. </p>
<p>When key decision-makers actively use forbearance, they consider a wide range of plots to outcompete rivals. They are also less predictable to rivals because they forbear when rivals expect action.</p>
<p>Despite its unique advantages, competitive forbearance is not in the toolkit of many basketball coaches. Only more accomplished and confident coaches are more likely to use competitive forbearance, which in turn, increases team performance. </p>
<p>And how did it work out for the Houston Rockets? D’Antoni kept firm to his forbearance decision throughout the Western final — he did not change the team’s offensive strategy. But a collapse in the second half of Game 7 led to a Golden State victory. <a href="http://www.espn.com/nba/story/_/id/23636649/eric-gordon-believes-houston-rockets-playing-title-chris-paul-had-played">If the Rockets did not lose Chris Paul when they were up 3-2 after five games</a>, they might have been in the finals.</p>
<p>Indeed, it is not one decision, but a series of decisions that can increase or decrease performance. Forbearances increased the chances of success, but it is a combination of actions and forbearances that is critical for winning.</p><img src="https://counter.theconversation.com/content/96607/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Goce Andrevski does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Research has shown that the most successful basketball coaches resist pressure to make changes during games. Choosing not to make a move is sometimes also the right call for business leaders.Goce Andrevski, Associate Professor, Queen's University, OntarioLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/903732018-01-24T11:39:45Z2018-01-24T11:39:45ZSuccessful businesses need proactive leadership – and so does Congress<figure><img src="https://images.theconversation.com/files/203119/original/file-20180123-33548-1thqhdc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Congress could learn a thing or two about acting proactively from Elon Musk, seen here with his Dragon space capsule.</span> <span class="attribution"><span class="source">AP Photo/Jae C. Hong</span></span></figcaption></figure><p>Imagine you’re speeding along on a highway. Suddenly, the traffic ahead of you slows, forcing you to hit the breaks. Eventually you arrive at the source of the bottleneck: a mattress lying in the right lane. One by one, your fellow motorists simply crept around it. No one stopped to move it off the road to relieve the congestion. </p>
<p>Why would so many people fail to take action and (easily) fix the problem that slowed traffic to a crawl?</p>
<p>People – whether motorists, business leaders or lawmakers – are simply not very proactive. By that we mean humans have a tendency to keep doing what they’ve been doing, maintaining the status quo rather than breaking the flow and creating a better future. In the mattress example, it means driving around the obstruction rather than removing it, allowing the problem to continue indefinitely.</p>
<p>As researchers of organization behavior and leadership, <a href="http://onlinelibrary.wiley.com/doi/10.1002/(SICI)1099-1379(200002)21:1%3C63::AID-JOB8%3E3.0.CO;2-J/abstract">we have long studied</a> the nature of proactive behavior and how it helps people perform better at their jobs. Failing to behave proactively can be consequential as well, often negatively. For an apt illustration, look no further than the <a href="https://www.nytimes.com/2018/01/22/us/politics/congress-votes-to-end-government-shutdown.html">three-day federal shutdown</a> that resulted from Congress’ failure to pass a budget.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/203120/original/file-20180123-33538-1qi2ub8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/203120/original/file-20180123-33538-1qi2ub8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=332&fit=crop&dpr=1 600w, https://images.theconversation.com/files/203120/original/file-20180123-33538-1qi2ub8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=332&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/203120/original/file-20180123-33538-1qi2ub8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=332&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/203120/original/file-20180123-33538-1qi2ub8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=417&fit=crop&dpr=1 754w, https://images.theconversation.com/files/203120/original/file-20180123-33538-1qi2ub8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=417&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/203120/original/file-20180123-33538-1qi2ub8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=417&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">At least someone was being proactive.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/dno1967b/5407276740/in/photolist-6kAc5M-6kA1jT-6kzY9g-6kE34b-6kEiko-6kEF2j-6kA5T8-6kEFws-6kEjVu-6kAwip-6kAttF-6kAbyc-RXQzK8-6kzYAe-6kzSe6-6kEf47-6kEwRh-6kzRGn-7Q5bDD-mRy3n-6kE7Tq-6kAuNe-bazY2e-6kE5xY-6kA6oB-6kA62K-6kAp2i-6kzWEi-6kzHon-6kA7ri-6kzHD8-6kzHQM-6kA9fX-6kA9Fz-6kA8Bc-6kDSSy-6kzZ7H-6kEqhf-6kAdWT-6kEeym-6kDRrU-whcKnm-6AQb7-9tV88J-2syfy-hbXL3-2syiB-9ePGZj-XRUUWu-4C1iHD">Daniel Oines</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>What it really means to be proactive</h2>
<p>People commonly think being proactive means simply starting sooner rather than later, not procrastinating, or taking initiative to get work done. </p>
<p>But it is far more than that. Your behavior is proactive when:</p>
<ol>
<li><p>you choose it yourself rather than comply with external demands</p></li>
<li><p>you execute strategically more than mindlessly</p></li>
<li><p>you are future-focused rather than anchored in the present or past </p></li>
<li><p>your intention is to change something for the better, thus to create a better future.</p></li>
</ol>
<p>A prime example is <a href="https://www.livescience.com/45992-elon-musk-innovations.html">Elon Musk</a>, whose steady stream of companies from PayPal to Tesla and SpaceX reveals his constant ability to act strategically and long term – very long term, in the case of his <a href="https://www.theverge.com/2016/9/28/13087110/spacex-elon-musk-mars-plan-habitat-radiation-funding-questions">plan to colonize Mars</a>. </p>
<p>Proactivity begins with recognizing that a current trajectory – your own, your team’s, your company’s – is not good enough, or downright bad, and deciding to make a course correction. More concretely, proactivity means solving or preventing problems and identifying and capturing opportunities, en route to a future that is better than if you had not changed course.</p>
<p>Our research suggests that truly proactive leadership is a rare bird. In one study, for example, <a href="http://psycnet.apa.org/record/2003-01068-012">we interviewed 75 chief executive officers</a> in several countries including the U.S. and asked them to tell us their work goals. Of the over 2,000 goals they mentioned, the vast majority were business-as-usual, maintenance goals such as “keeping customers,” “surviving” and “holding onto good employees.” Only a very few, such as “building a new factory,” “finding a new international partner” and “being a leader in changing how the marketplace works” were notably proactive in ways that could dramatically change their companies’ trajectories.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/203154/original/file-20180124-72603-194lc69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/203154/original/file-20180124-72603-194lc69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/203154/original/file-20180124-72603-194lc69.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/203154/original/file-20180124-72603-194lc69.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/203154/original/file-20180124-72603-194lc69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/203154/original/file-20180124-72603-194lc69.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/203154/original/file-20180124-72603-194lc69.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A normally busy Senate corridor is empty during the recent government shutdown, a result of a failure to behave proactively.</span>
<span class="attribution"><span class="source">AP Photo/J. Scott Applewhite</span></span>
</figcaption>
</figure>
<h2>Proactivity and success</h2>
<p>We conducted several studies to better understand the connection between being proactive and performing successfully.</p>
<p>In the <a href="https://www.researchgate.net/publication/229455940_The_Proactive_Component_of_Organizational_Behavior_A_Measure_and_Correlates">first one</a>, we asked 148 business grad students at a single school with significant full-time work experience to fill out a survey intended to measure their behavioral tendencies. The survey listed 17 different behaviors, such as “If I see something I don’t like, I fix it,” “I am always looking for better ways to do things,” “I love to challenge the status quo” and “If I believe in an idea, no obstacle will prevent me from making it happen,” and we asked the students to mark how strongly they agreed with each statement in terms of how they work, from 1 to 7. </p>
<p>We then compared scores with actual achievements based on participants’ application material, including resumes and essays. Those who scored higher on the proactivity scale had more impactful accomplishments in their work and personal lives. Moreover, we asked them to list four to eight peers among their classmates whom they predicted would become transformational leaders in their future careers. Proactivity rankings correlated with the number of peer nominations.</p>
<p><a href="https://www.researchgate.net/publication/232488574_The_Proactive_Personality_Scale_and_Object_Job_Performance_Among_Real_Estate_Agents">Our second study</a> involved a sample of 131 real estate agents who completed our proactivity survey. Using archival records, we found that agents that scored higher on the scale sold more houses, earned greater commission income and brought in more listings than their peers.</p>
<p>In a <a href="http://onlinelibrary.wiley.com/doi/10.1002/(SICI)1099-1379(200002)21:1%3C63::AID-JOB8%3E3.0.CO;2-J/abstract">third study</a>, we asked 156 managers at a Puerto Rican financial services firm to fill out our survey. Their bosses then completed a separate survey rating those managers’ leadership behaviors, such as charisma and inspirational speaking. Those ranked most proactive received higher ratings from their bosses, while low-scorers were near the bottom. </p>
<p><a href="https://www.researchgate.net/publication/318727100_Proactive_Personality_A_twenty-year_review">Other studies</a> have linked proactive behavior to better job performance, a tendency to exceed expectations, effective stress management and more entrepreneurial behavior. </p>
<p>A caveat to all this is that being proactive – like starting a new business – can be risky and even backfire. But the <a href="https://www.researchgate.net/publication/318727100_Proactive_Personality_A_twenty-year_review">evidence shows clearly</a> that the likely gains far outweigh the potential costs. </p>
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<span class="caption">President Barack Obama, seen speaking at COP21 in France in 2015, acted proactively on the threat of climate change, while his successor has not.</span>
<span class="attribution"><span class="source">AP Photo/Francois Mori</span></span>
</figcaption>
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<h2>Not behaving proactively has costs too</h2>
<p>So what does all this mean for Congress? </p>
<p>The <a href="https://www.washingtonpost.com/powerpost/shutdown-looms-as-senate-democrats-dig-in-against-gop-spending-plan/2018/01/19/f4370868-fccd-11e7-a46b-a3614530bd87_story.html">federal government shut down</a> over the weekend because lawmakers and President Donald Trump couldn’t agree on a budget, something <a href="http://www.pewresearch.org/fact-tank/2018/01/16/congress-has-long-struggled-to-pass-spending-bills-on-time/">Congress has long struggled with</a>. Identifying the country’s most vital priorities and reaching agreements with all relevant parties about how best to move forward is a fundamental proactive behavior. </p>
<p>Whatever the merits of the competing arguments right now over <a href="https://www.cnbc.com/video/2018/01/21/immigration-is-a-key-issue-in-us-budget-shutdown.html">immigration</a> or funding priorities that prompted the shutdown, acting proactively means getting results, and that often requires coalitions and compromise. Without it, government will continue to be plagued by potential shutdowns, brinkmanship and a trajectory toward worse rather than better futures.</p>
<p>Lawmakers have shown this tendency further by refusing to act to fix predictable future problems, such as <a href="http://www.wri.org/our-work/project/world-resources-report/adaptation-climate-change-moving-beyond-reactive-approaches">climate change</a> or the Russian government’s <a href="https://www.nytimes.com/news-event/russian-election-hacking">hacking of U.S. elections</a> – both of which require proactive behavior to resolve for the sake of our future.</p>
<p><a href="https://www.sciencedirect.com/science/article/pii/S0959378016304307">Surveys of Americans</a> across the political spectrum have shown that they respect leaders who engage in proactive ways on the problems facing their country. Perhaps that could help convince lawmakers and presidents that it’s in their own self-interest to do so.</p>
<p>Sadly, neglecting the future is our default. Proactivity requires all-too-rare strategic forethought and sustained, constructive action to avoid the worst and create the best possible futures. </p>
<p>As Irish playwright George Bernard Shaw perhaps <a href="https://www.goodreads.com/quotes/28382-we-are-made-wise-not-by-the-recollection-of-our">put it best</a>: “We are made wise not by a recollection of our past but by a responsibility for our future.” Imagine the benefits if more of our leaders would think and act through such a forward-looking lens. </p>
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<p><a href="http://aom.org/">Thomas Bateman is a member of the Academy of Management</a></p>
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<p><a href="http://aom.org/">Mike Crant is a member of the Academy of Management</a></p>
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<p class="fine-print"><em><span>Thomas Bateman is an Academy of Management scholar.</span></em></p><p class="fine-print"><em><span>Mike Crant is an Academy of Management scholar.</span></em></p>Research shows the ability to act strategically for the long term is a key component of successful leadership – and sorely lacking in Congress these days.Thomas S. Bateman, Emeritus professor, University of VirginiaMike Crant, Professor of Management and Organization, University of Notre DameLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/856102017-11-06T02:48:32Z2017-11-06T02:48:32ZWhat the NRA can teach us about the art of public persuasion<p>Today’s mass shooting at a small Baptist church in the small Texas town of <a href="http://time.com/5010772/texas-sutherland-springs-church-shooting/">Sutherland Springs</a> highlights the role of pro-gun advocates in blocking the progress of effective gun control.</p>
<p>Such advocacy often reflects the persuasive power of “issue management” – a communication process that enables organisations to isolate public issues and steer them in a direction that suits their interests. In the case of the terrible mass-shooting in <a href="https://www.washingtonpost.com/news/morning-mix/wp/2017/10/02/police-shut-down-part-of-las-vegas-strip-due-to-shooting/?utm_term=.cb00b40a31e0">Las Vegas</a>, the NRA turned a potential PR disaster into a near-triumph.</p>
<p>This approach has been used since the early 1980s, when issues management was developed as a strategy to help US businesses compete on an equal footing in setting the social agenda. It was soon adopted around the world by governments, non-profits, community groups and activist organisations. </p>
<h2>Controlling the headlines</h2>
<p>Usually it’s pretty transparent who’s managing the issue and trying to persuade the public, the government or some other decision maker. </p>
<p>For example we know broadly who is trying to convince us to vote <a href="http://www.equalitycampaign.org.au/join?splash=1">for</a> or <a href="http://australianmarriage.org">against</a> same-sex marriage, or to <a href="http://www.adaniaustralia.com">support</a> or <a href="https://www.acf.org.au">oppose</a> the Adani coal mine, or to join the campaign to <a href="http://www.duck.org.au">ban duck-shooting</a> in Victoria.</p>
<p>But sometimes it is much less clear. A case in point is the television campaign purportedly launched by Australian convenience-store owners to oppose plain packaging of cigarettes, which turned out to be <a href="https://mumbrella.com.au/tobacco-funded-lobby-group-begins-attack-ads-31056">funded</a> by Big Tobacco. </p>
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<img alt="" src="https://images.theconversation.com/files/191525/original/file-20171024-20375-o2umwy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/191525/original/file-20171024-20375-o2umwy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=340&fit=crop&dpr=1 600w, https://images.theconversation.com/files/191525/original/file-20171024-20375-o2umwy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=340&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/191525/original/file-20171024-20375-o2umwy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=340&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/191525/original/file-20171024-20375-o2umwy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=427&fit=crop&dpr=1 754w, https://images.theconversation.com/files/191525/original/file-20171024-20375-o2umwy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=427&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/191525/original/file-20171024-20375-o2umwy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=427&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A section of the advertisement that appeared in the Australian media that was actually partly funded by the tobacco industry.</span>
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<p>In fact some of the most effective issue management is only partly visible to the public, and in some cases is never seen at all in the mainstream media. </p>
<p>Conversely, there are rare occasions when a major controversy is fought out almost entirely in the headlines and the issue management is laid bare for all to see.</p>
<h2>NRA agenda setting</h2>
<p>Whatever you think of the National Rifle Association you have to give them credit for some highly effective issue management. In the wake of the shooting rampage in Las Vegas, they could have dusted off their usual response after every previous mass shooting. </p>
<p>But instead, the plotters at NRA came up with an audacious new approach – they called for a review of the so-called <a href="https://www.nytimes.com/interactive/2017/10/04/us/bump-stock-las-vegas-gun.html">bump stocks</a>, which are devices retrofitted to turn a legal semi-automatic weapon into an illegal automatic killing machine. </p>
<p>Bump stocks allow the gun to fire faster than you can manually pull the trigger, which is how the Las Vegas shooter could fire so many shots in such a short time.</p>
<p>In issue management terms, the NRA’s strategy was a classic case of “look over here” while maintaining its devotion to its core objectives.</p>
<p>By seeming to give away something that is peripheral to the gun rights issue, the NRA implemented a perfect example of the tried and true “issue diversion tactic”. In doing so, it positioned itself as part of the solution, rather than as a key part of the problem.</p>
<h2>The long and short of it</h2>
<p>While some issue management campaigns are very long-term - like the decades-long tussle over cigarette sales - there are also occasions when the issue management strategy seems to be a short-term initiative explicitly designed to influence the media headlines (such as the NRA campaign).</p>
<p>Commentators and reporters in the US and elsewhere rushed to express amazement that the NRA was actually “supporting gun control”. Headlines around the world hyped a minor concession on bump stocks into an apparently substantive change of direction.<br>
For example, <a href="http://abcnews.go.com/WNT/video/las-vegas-shooting-leads-1st-signs-movement-gun-50313809">ABC America</a> headlined it: “Las Vegas shooting leads to first signs of movement in gun control stalemate” and The Orange County Register <a href="http://www.ocregister.com/2017/10/05/gun-control-war-dramatically-changes-with-gop-nra-agreeing-to-regulations/">trumpeted</a>: “Gun control war dramatically changes with GOP, NRA agreeing to regulations.”</p>
<p>Meanwhile, in Australia the <a href="http://www.abc.net.au/radio/programs/worldtoday/nra-supports-crackdown-on-rapid-fire-device-used-in-las-vegas/9023098">ABC</a> reported: “NRA supports crackdown on rapid-fire device used in Las Vegas” and <a href="https://sputniknews.com/us/201710051057987478-NRA-additional-gun-control-las-vegas-shooting/">Sputnik News</a> carried the headline “NRA calls for additional gun control following Las Vegas massacre.”</p>
<p>Overall the NRA’s strategy produced a real media win, placing itself at the centre of claimed reform. At the same time the group also achieved political success. </p>
<p>Republican politicians were predictably quick to embrace a call for “<a href="http://www.washingtonexaminer.com/paul-ryan-indicates-support-for-banning-bump-stocks/article/2636677">sensible regulation</a>” which they could endorse without alienating their gun-rights-endorsing voters. </p>
<p>Even anti-gun Democrats had little choice but to <a href="https://www.theguardian.com/us-news/2017/oct/04/dianne-feinstein-bump-stocks-senate-gun-control-bill">support the proposal</a>, thus delivering a faux image of bipartisanship, with the NRA appearing as honest broker. </p>
<p>The NRA’s plan was an ingenious win-win for them – though not for actual gun control. </p>
<h2>The art of issue management</h2>
<p>Issue management is a serious discipline taught in universities and practised in boardrooms around the world. </p>
<p>It can be used by a corporation to persuade the government and the public to accept construction of a new toll road, or by the government to encourage childhood vaccination. Or it might be used by a non-profit to increase funding to combat aboriginal inequality, or to drive domestic violence onto the national agenda. </p>
<p>Yet issue management has always had its critics, who claim it is often just a mask for manipulation and everything that is bad about public relations. </p>
<p>There is a <a href="http://www.issueoutcomes.com.au/Websites/issueoutcomes/Images/Embedding%20IM%20for%20crisis%20prevention%20DPMJ.pdf">large body of literature</a> and evidence to refute this assertion, but some controversial cases undoubtedly give strength to the critics who claim it is all about “dirty tricks,” like the example of Big Tobacco’s “hidden” campaign against plain packaging of cigarettes.</p>
<p>Whatever you think of the NRA, their response to the Las Vegas tragedy was a lesson in well executed issue management - and we can expect them to use a similar strategy in response to today’s tragedy. It’s just a shame that such strategic audacity wasn’t applied in support of a more worthy cause.</p><img src="https://counter.theconversation.com/content/85610/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Jaques does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In the wake of the Vegas shooting, the NRA has turned the public’s attention away from the core issue of banning guns by using a business strategy called issue management.Tony Jaques, Senior Research Associate, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/848272017-09-29T04:04:35Z2017-09-29T04:04:35ZWhat Twitter can learn from that time Coca Cola changed its formula<figure><img src="https://images.theconversation.com/files/187949/original/file-20170928-1440-13uv8c6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Twitter is experimenting with 280 characters.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The 140-character message limit has defined Twitter. But the company is now <a href="https://blog.twitter.com/official/en_us/topics/product/2017/Giving-you-more-characters-to-express-yourself.html">experimenting</a> with its format, doubling the length of some users’ tweets to 280 characters. Why are they taking such an enormous risk, playing with the characteristic that defines and differentiates the service? </p>
<p>The reason is that Twitter’s user base has been <a href="https://www.statista.com/statistics/282087/number-of-monthly-active-twitter-users/">stuck</a> at about 320 million for some time. If this doesn’t change, <a href="https://arxiv.org/pdf/0907.1514.pdf">entropy</a> will set in and Twitter could collapse. </p>
<p>We can learn a lot about what Twitter is going through by looking at the time Coca Cola decided to change its recipe, and unveiled “New Coke”. The change was rejected by customers, and the company <a href="http://www.coca-colacompany.com/stories/coke-lore-new-coke">had to backtrack</a>.</p>
<p>Another thing pushing Twitter’s move is that it <a href="https://venturebeat.com/2017/07/27/twitter-user-growth-stalls-as-revenue-fell-5-in-q2/">reported</a> a slight decline in users and a loss of US$116 million in the most recent quarter. It was punished by investors and put on notice, so increasing users and ad revenue are important corporate objectives. </p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"912795950476857344"}"></div></p>
<h2>Users still don’t want to pay</h2>
<p>Twitter’s problem, like all social media and news platforms, comes down to the <a href="http://www.bandt.com.au/media/study-90-aussies-unwilling-pay-online-news">unwillingness of online users to pay</a>. Older forms of media - newspapers and the like - are just holding on despite declining advertising revenue, but that’s becoming increasingly difficult as traditional consumers die and younger consumers expect all media to be accessible online. </p>
<p>By experimenting with longer messages, Twitter will be hoping to solve some of the <a href="http://www.reuters.com/article/us-twitter-advertising/with-ceo-shakeup-twitter-under-pressure-to-please-advertisers-idUSKBN0OV0D420150615">problems faced by advertisers</a>. At present, advertisers prefer to spend their money on other platforms because they have many more active users who are more attentive, and provide better data on how to both target consumers and evaluate impact.</p>
<p>The capacity to reach audiences and provide content on Twitter is <a href="http://enrichmarketing.co.uk/make-140-characters-twitter/">severely limited</a> by the 140-character restriction. While Twitter <a href="https://digiday.com/media/twitters-new-rules-character-limits-mean-advertisers/">belatedly tackled</a> some of the limitations of its format by allowing the addition of images, videos, and weblinks, the short message format remains restrictive for promotional communication. </p>
<p>Longer tweets will keep users on a screen for longer, and allow advertisers to “push” messages to users. But the risk for Twitter is that this is precisely what its most loyal users want to avoid.</p>
<p>Twitter urgently needs to find a way to meet the demands of its advertisers, but by doing so it risks alienating users - the people who create the network that makes Twitter valuable. </p>
<p>Remember <a href="https://www.wired.com/2013/02/friendster-autopsy/">Friendster</a>? Remember MySpace? The latter’s former head of online marketing, Sean Percival, <a href="https://www.theguardian.com/technology/2015/mar/06/myspace-what-went-wrong-sean-percival-spotify">once noted</a> that among the many mistakes made by MySpace, disrespecting users was a key one. </p>
<p><a href="http://journals.sagepub.com/doi/abs/10.1177/1329878X1314600116">Most</a> social media users treat the online space as a public service <a href="https://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2025674">without much awareness</a> that the vast technological enterprise that delivers it must be paid for.</p>
<h2>Lessons from business history</h2>
<p>Twitter might ponder what happened when Coca Cola <a href="http://www.coca-colacompany.com/stories/coke-lore-new-coke">changed the formula of its signature product in 1985</a>. </p>
<p>At the time it was believed that the change was a reaction to the increased market share that Pepsi enjoyed after its hugely successful marketing campaign featuring artists such as Michael Jackson.</p>
<p>The New Coke formula also tested well against Pepsi in focus group studies that included 200,000 taste tests. But <a href="https://www.goodreads.com/book/show/203590.The_Real_Thing">an account of this episode</a>, written by Constance L. Hays, argued the real motivation behind the change was US$50 million in annual savings by reducing the use of more expensive ingredients.</p>
<p>In interviews with Pepsi chemists, Hays was told: “Coke turned its back on the very thing that made it great.”</p>
<p>While the company recovered well from the public relations crisis, and now tells a positive story about it, for a time Coca Cola was in grave danger. Tellingly, it was saved by the people who loved the product enough to pressure the company to reverse its decision. These customers organised a boycott and other public campaigns that saw the old formula restored after three months.</p>
<p>An important lesson for marketers from the New Coke experiment was that in spite of the rigorous market testing, other factors had to be considered. Marketers learned about the importance of habit, tradition, brand loyalty and affinity, or more simply, the truth of the adage “if it ain’t broke, don’t fix it”. </p>
<p>While Twitter is not selling a much loved soft drink, the tech world is also littered with cautionary tales of failure like <a href="https://www.finder.com.au/tivo-to-shutter-australian-epg-by-31-october">TiVo</a>, or the Microsoft <a href="https://www.digitaltrends.com/mobile/five-reasons-the-microsoft-zune-is-dead/">Zune</a>, and “tweaks” to successful products and applications that have damaged companies and brands, like Vegemite iSnack 2.0 (now rebadged as Cheeseybite). </p>
<h2>Are they solving a problem for users?</h2>
<p>One of the common features of both human and computer networks is that weak connections lead to network instability and breakdown. Yet this is precisely the risk Twitter is taking by changing its format. Longer messages may drive away loyal users who love the current format without attracting new users to satisfy and reassure investors and advertisers. </p>
<p>Many people are asking serious questions about the value of their time spent on social media and various studies show use of social media sites is <a href="https://theconversation.com/so-long-social-media-the-kids-are-opting-out-of-the-online-public-square-53274">starting to decline</a>. </p>
<p>Creating longer messages won’t solve this problem, especially as it threatens to make Twitter even more time consuming. People will have less time to follow other users as they spend more time writing, and less time reading and sharing posts. </p>
<p>Twitter might be seizing the day - <em>Carpe Diem</em> - to change its primary product or test the waters to gauge public reaction, but it’s worth remembering that those two powerful Latin words are from <a href="https://www.phrases.org.uk/meanings/carpe-diem.html">a longer phrase by the poet Horace.</a> </p>
<p><em>Dum loquimur, fugerit invida
Aetas: carpe diem, quam minimum credula postero</em></p>
<p>which translates as:</p>
<p><em>While we’re talking, envious time is fleeing: seize the day, put no trust in the future</em></p>
<p>Twitter might consider Horace’s longer message before it commits to the introduction of 280-character posts. Its future may be at stake.</p><img src="https://counter.theconversation.com/content/84827/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Collette Snowden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Twitters experiment with 280 characters bears a remarkable resemble to the time Coca Cola changed its formula. That didn’t end well.Collette Snowden, Senior Lecturer, School of Communication, International Studies and Languages, University of South AustraliaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/839962017-09-14T12:02:55Z2017-09-14T12:02:55ZApple makes a $999 gamble on its aspirational brand<p>Apple is taking a calculated risk with the pricing of its new phone. The US$999 iPhone X is a bet on users’ loyalty and wealth and is on the surface consistent with the company’s longstanding strategy of differentiation and exclusivity. The danger lies in how the phone sells in the world’s huge and growing emerging markets; Apple clearly thinks it is a risk worth taking.</p>
<p>And it’s not without reason. Apple has always targeted the higher end of the market worldwide rather than just aiming for a larger base of users. In fact, if anything, Apple tends to price phones <a href="http://www.telegraph.co.uk/technology/2016/09/10/how-much-does-the-iphone-7-cost-around-the-world/">higher outside the US</a>. The UK has to stomach <a href="https://www.theguardian.com/technology/2017/sep/13/apple-iphone-x-launch-uk-prices-dollar-parity">an inflated price</a> for the iPhone X even when tax differences are allowed for. </p>
<p>To be clear, the top end phone is not the only option. British customers will be able to pick up an iPhone 8 for £699 and an iPhone 8 Plus for £799. This is still more expensive than its direct competitors, but the demand curve for the iPhone is relatively inelastic. This means that for a given percentage increase in price, the percentage reduction in demand is smaller, giving an overall increase in revenues. No wonder the iPhone accounts for the majority of <a href="http://investor.apple.com/financials.cfm">Apple’s revenues and profits</a>.</p>
<h2>New markets</h2>
<p>The question that most immediately arises is whether Apple’s move will work in important emerging economies. It is certainly consistent with Apple’s image as an exclusive handset and as “the real thing”, despite the availability of much cheaper imitations. The dilemma for Apple when it comes to marketing strategy is this: A high price, while aiding exclusivity and strengthening its premium strategy, may also constrain its growth in lucrative emerging economies such as India. </p>
<p>On the other hand, if Apple decides to offer cheaper versions of its products in particular markets, or lower prices for the same products that are more expensive elsewhere, it will create bigger problems for itself. </p>
<p>Cheaper versions of its products sold anywhere will detract from its overall premium strategy. The same products sold more cheaply in some countries will quickly create arbitrage options that can be exploited by black market traders, unsettling Apple’s strategy in developed markets, too. </p>
<p>For now, Apple has chosen to maintain a consistent strategy worldwide, and ride the growth of emerging markets by tapping into the expansion of the middle class as it occurs. Despite teething troubles, this decision is working out <a href="https://www.cnbc.com/2017/07/25/apple-iphone-sales-in-china-market-share-falling-canalys-data.html">relatively well in China</a>, a country further ahead in its modernisation journey than its fellow emerging markets powerhouse India, and where more users can afford to buy genuine Apple products. While the $999 pricing may not be the ideal option for India right now, the other options are worse for Apple. </p>
<p>In the medium to long term, more and more people will be able to afford Apple products in India and beyond. Keeping a consistent image and quality will aid in the slower but steady increase in users in those emerging economies. The goal is to keep the iPhone as an aspirational device people will buy as soon as they are able to.</p>
<h2>New features</h2>
<p>At the same time, Apple is continuing to focus on intense levels of efficiency in production and more broadly at the operational level, aided by a largely consistent design, operating system and functions across its different iPhone models. The $999 iPhone has no home button enabled by a new type of screen, and includes face recognition and “animojies”. These are features that will find their way to more affordable iPhone models in subsequent releases.</p>
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<p>As <a href="http://www.wbs.ac.uk/wbs2012/assets/WBS_Core_Edition_One_Quantum%20Strategy%20at%20Apple%20Inc_56-59%20(3).pdf">I have argued elsewhere</a>, while Apple’s strategy for the broad market is one of differentiation, internally it is striving for the lowest cost possible, and <a href="http://www.sciencedirect.com/science/article/pii/S0090261613000132">has delivered impressive efficiency levels</a>. How does it do this? </p>
<p>Well, it is a combination of things, including good integration across its product lines which increases Apple’s negotiating power over suppliers and makes effective use of external manufacturers. Apple also keeps its supply chain lean by getting its products out the door and into our hands as quickly as possible. Apple bosses, meanwhile keep innovation spending highly focused, and further dampen costs by using a <a href="http://fortune.com/2011/08/29/rethinking-apples-org-chart/">stripped-down corporate hierarchy</a> which cuts down on meaningless meetings. </p>
<p>So, the $999 iPhone might just be worth it for Apple, but what about the customer? The advances that the iPhone X offers, such as face recognition, wireless charging, infrared camera and edge to edge screen may be significant in terms of user experience. We will need to wait for the reviews to come in though; will the facial recognition work seamlessly? How will people react to the absence of the home button, and will the gestures offer ease of use?</p>
<p>Pricing, apart from the ability to pay, is also to an extent a social construct. People will pay what they think is appropriate, if they can afford it. Apple has traditionally pushed the boundaries of customer sense of pricing appropriateness. In terms of affordability, in countries where mobile operators offer package deals, the incremental cost over the $699 iPhone 7 for example will amount to a couple of cups of coffee per month. In any case, users will have the option of buying the more affordable handsets. </p>
<p>People have been predicting Apple’s demise for several years now, but Apple’s performance has <a href="https://www.apple.com/uk/newsroom/2017/08/apple-reports-third-quarter-results/">remained strong</a> since Steve Jobs’ death. At a market cap of US$815 billion, Apple is the most valuable listed company in the world by some distance from the second, Alphabet (Google), at US$649 billion. Apple’s pricing move for its top iPhone is an example of the essence of strategy: making tough decisions, real choices that are meaningful for company performance. No move is risk-free, but at the very least this courageous move will create some distance from competing brands in terms of exclusivity.</p><img src="https://counter.theconversation.com/content/83996/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Loizos Heracleous does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The tech giant has doubled down on its strategy of exclusivity, but does it risk weakening its position in emerging markets?Loizos Heracleous, Professor of Strategy, Warwick Business School, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/810822017-07-27T20:16:21Z2017-07-27T20:16:21ZPaying CEOs with stock options doesn’t drive their business strategy: research<p>The CEO pay of the United States’ biggest corporations is seen as the world benchmark. A large part of the way these executives are remunerated is through receiving stock options in the company they direct. </p>
<p>However <a href="http://www.sciencedirect.com/science/article/pii/S092911991730144X">our research</a> shows that compensating executives in this way doesn’t necessarily lead to a higher payout of dividends to shareholders. </p>
<p>In dollar terms, average pay of CEOs of the US top 500 firms has increased from US$3 million in 1992 to US$12 million in 2016. A major contributor of this increase has been stock options. </p>
<p>For example, Thomas Rutledge, CEO of US telecommunications company Charter Communications received a US$98 million pay package in 2016. And 80% or US$78 million was in <a href="http://deadline.com/2017/03/charters-tom-rutledge-made-98-5m-2016-1202045004/">stock options</a>. </p>
<p>A stock option is a financial contract that basically allows someone the right but not the obligation to buy a certain number of company shares in the future, at today’s market price. Thus, stock options allow CEOs to benefit if the company’s stock price rises, but not lose out if the stock price falls. Because in the latter case CEOs simply walk away from the transaction as the contract is not binding. </p>
<p>The idea behind it is to give risk averse CEOs incentives to take risk, so as to increase the stock price, and therefore their remuneration. This also works out for shareholders, who benefit from an increased stock price. </p>
<p>But this may also lead CEOs to take excessive risks with their firm’s strategy in order to drive up the stock price. While choosing riskier strategies increases CEO pay, stock options provide CEOs with insurance when these policies fail. Shareholders do not have this same insurance and are therefore left to experience the pain alone. </p>
<p>In 2005, regulations were introduced that required US firms paying CEOs with <a href="https://en.wikipedia.org/wiki/Stock_option_expensing">stock options to list them</a> in financial statements. The change caused firms to think twice about using stock options. </p>
<p>Many firms decided to significantly reduce or at the extreme <a href="http://www.sciencedirect.com/science/article/pii/S0304405X12000050">no longer grant stock options</a>. Taking advantage of this change in regulation, we are able to determine if stock options are in fact a driver of the strategies of these businesses. It would seem not. </p>
<p>For example, <a href="http://www.sciencedirect.com/science/article/pii/S0304405X01000393">previous research</a>
found stock options were the reason for the demise in dividends. But <a href="http://www.sciencedirect.com/science/article/pii/S092911991730144X">we found</a>, that before and after the regulation, companies that didn’t have stock options increased diviends more than firms which did. So the stock options had no bearing on diviends.</p>
<p>Our findings also answer another question on whether a firm’s risk strategy aligns with stock options. If stock options drive the choice of riskier policies, holding less cash is certainly consistent with that. Examining the 1,500 largest US firms from 1992 to 2016, we found that <a href="https://ssrn.com/abstract=3005080">stock options have no impact on the amount of cash held by these firms</a>. </p>
<p>If stock options drive cash holdings then firms most affected by this US regulatory change should have experienced a bigger change in cash balances than firms least affected. That is, firms that were not using stock options extensively prior to the regulatory change would have been less affected than those using them extensively. By finding that the decline in cash is the same for both types of firms, we dispel the notion that stock options drive cash holdings. </p>
<p>All of this raises questions about the effectiveness of stock options as a driver of business strategy. This is quite surprising as stock options are often touted by <a href="https://hbr.org/2000/03/what-you-need-to-know-about-stock-options">numerous academics</a> as the answer to creating <a href="https://en.wikipedia.org/wiki/Pay_for_performance">pay that leads to better business performance</a>.</p>
<p>Since 2005, US firms have begun to grant their CEOs long-term incentive plans, changing the <a href="http://knowledge.wharton.upenn.edu/article/how-new-accounting-rules-are-changing-the-way-ceos-get-paid/">way companies pay their CEOs</a>. These plans may or may not be tied to the company’s share price. </p>
<p>Long term incentive plans are typically structured to include a targeted level of performance and a stretch component to reward CEOs for achieving abnormal performance. Many also contain restricted stock - shares that can only be sold, once a certain hurdle has been met, for example, when earnings per share increase by 10%. </p>
<p>Although, these long-term incentives are not stock options they nonetheless reward CEOs for good performance, but do not penalise CEOs for bad performance. So they could have a similar lack of effect on business strategy.</p><img src="https://counter.theconversation.com/content/81082/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Compensating executives with stock options doesn’t necessarily lead to more risk taking and higher dividend payouts.Sigitas Karpavicius, Senior Lecturer in Finance, University of AdelaideJean Canil, Senior Lecturer in Finance, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/791992017-07-03T20:09:08Z2017-07-03T20:09:08ZGig economy businesses like Uber and Airtasker need to evolve to survive<p>The honeymoon is over for the <a href="https://theconversation.com/au/topics/gig-economy-19448">gig economy</a>. The loose collection of online platform companies – from Airtasker to Uber and Deliveroo – has long trumpeted its difference from the business norm, but is starting to lose its shine. Now these companies must own up to the limits of their business model. </p>
<p>Murmurs of criticism that always existed around aspects of the gig economy’s operation have turned into a chorus of challenge. Labour activists <a href="http://journals.sagepub.com/doi/full/10.1177/0022185617697760">take aim</a> at platforms’ treatment of workers and their refusal to define themselves as employers. Tax regulators are following the money and <a href="http://www.news.com.au/finance/small-business/tax-office-cracks-down-on-sharing-economy/news-story/55bfade6f14168c42bc7f9f444e781f7">checking</a> whether gig companies pay their fair share. Even some of the investors who bankroll these platforms are <a href="http://www.theage.com.au/business/markets/magellans-hamish-douglass-says-uber-is-a-ponzi-scheme-20170523-gwb701.html">wondering</a> if they are really just get-rich-quick schemes for their owners. </p>
<p>Some observers even <a href="https://theconversation.com/ubers-problems-highlight-silicon-valleys-faltering-vision-for-the-future-79891">suggest</a> that gig economy leaders are deliberately ignoring serious flaws in their business models. The most recent example is former Uber boss Travis Kalanick, who was <a href="https://www.nytimes.com/2017/06/21/technology/uber-travis-kalanick-final-hours.html">forced to resign</a> after a series of scandals centred on the organisation’s <a href="https://theconversation.com/fixing-a-toxic-culture-like-ubers-requires-more-than-just-a-new-ceo-79102">toxic work culture</a>. </p>
<p>Platform companies cannot ignore these controversies and hope to ride out the storm. The sector as a whole needs to change to survive, and there are potentially large competitive advantages available for firms that respond quickly to these emerging opportunities and constraints.</p>
<h2>The business cycle</h2>
<p>Right now, business and employment conditions <a href="http://journals.sagepub.com/doi/abs/10.1177/0022185616634716">are weak</a>. Firms are slow to hire and there is an oversupply of workers. Many platform companies <a href="http://www.newstatesman.com/politics/economy/2017/03/gig-economy-freedom-boss-or-just-con">exploit this</a>, offering new recruits attractive starting pay rates and then <a href="https://www.ft.com/content/88fdc58e-754f-11e6-b60a-de4532d5ea35">reducing them</a> as more people join the app.</p>
<p>The crunch will come when labour market conditions improve and workers have more alternatives. Then, the balance of costs and benefits will look very different for potential gig workers, and the attractions of flexibility may not be enticing enough. </p>
<p>At that point, platform companies will not have a long queue of eager workers at their door. They will have to improve (and maintain) the conditions they offer - <a href="https://www.ncver.edu.au/publications/publications/all-publications/what-is-a-skill-shortage">just as other firms do</a> when facing skill shortages.</p>
<p>This will be a difficult adjustment for many platform companies. Most have simply <a href="https://theconversation.com/the-way-they-manipulate-people-is-really-saddening-study-shows-the-trade-offs-in-gig-work-79042">not built the culture</a> of trust and reciprocity that would help them to retain their most capable workers in the longer term.</p>
<p>Instead, most platforms have viewed workers as interchangeable units whose jobs can be done easily by anyone with a little training. Few companies would be so sure about finding good replacements for their current workers or so unfazed about the costs of doing so. But many platform companies continue to drive a hard bargain with their workers.</p>
<h2>Moving upstream</h2>
<p>Jobs in the gig economy today are <a href="https://grattan.edu.au/wp-content/uploads/2016/04/871-Peer-to-peer-pressure.pdf">mostly at the low end</a> of the labour market. The work often involves “one-off” tasks where formal training requirements are low and personal interaction is limited or absent - things like painting a wall, delivering a parcel, or checking digital media content. </p>
<p>The platform model is much less prevalent higher up the occupational ladder. This is partly because skilled workers prefer and can demand the better conditions of traditional employment, and also because licensing and accreditation barriers make it difficult for platforms to employ professionals.</p>
<p>However, there is evidence that platforms are starting to gain a foothold in some professional labour markets. New platforms exist for services in accounting and the law, and even in more sensitive areas such as personal care. One example is <a href="https://bettercaring.com.au">Better Caring</a>, an online marketplace for aged and disability support workers. </p>
<p>The emergence of these new types of platforms suggests that the platform model may be capable of adapting itself to a wider range of labour markets. Expanding into professional, caring and other skilled occupations is a survival imperative for the platform economy, given the <a href="https://www.gov.uk/government/publications/uk-labour-market-projections-2014-to-2024">many</a> <a href="http://fortune.com/2015/07/23/humans-are-underrated/">projections</a> about where the future jobs are likely to come from.</p>
<p>Yet the challenge for the gig economy to transcend its origins is also about the platform model’s suitability for a different and more discerning group of customers. The person ordering a meal delivery has little need to know the name and life story of the rider who brings it. But a person arranging a carer for an elderly parent will want to know a great deal about the person they are employing.</p>
<p>Platform companies may become more permanent players in our economy if they evolve to add value even for customers making choices about these very different types of transactions.</p>
<h2>Competition</h2>
<p>Past experience suggests that, once an app is operating, its functions can be easily copied by rival firms. Uber and Lyft offer similar platforms, as do Deliveroo and Foodora. </p>
<p>The platform model can be copied by other types of businesses offering similar services but with different ownership models and better working conditions.</p>
<p>One example of this are “<a href="http://www.rosalux-nyc.org/wp-content/files_mf/scholz_platformcoop_5.9.2016.pdf">platform cooperatives</a>” that mimic the leading platforms but are owned by their workers. Unionised taxi drivers in the United States have developed apps that channel profits back to drivers through healthcare and other benefits. </p>
<p>By carving out a niche of the market, these new rivals pose a potential competitive threat. Perhaps more importantly, they serve as a reminder of some fundamental flaws in the “default” model used by more mainstream platform firms. </p>
<p>The cooperative model is just one option towards making the gig economy more resilient to the business cycle.</p>
<p>Today’s manifestations of the gig economy are tilted in favour of too few beneficiaries and are not built to last. To prosper in the longer term, platform companies must do what they claim to do best: innovate.</p><img src="https://counter.theconversation.com/content/79199/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Today’s manifestations of the gig economy are tilted in favour of too few beneficiaries, and are not built to last.Josh Healy, Senior Research Fellow, Centre for Workplace Leadership, The University of MelbourneAndreas Pekarek, Lecturer in Management, The University of MelbourneDaniel Nicholson, Research Assistant, Industrial Relations, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/790652017-06-28T14:06:33Z2017-06-28T14:06:33ZM&S delivers – but is it too late?<figure><img src="https://images.theconversation.com/files/175854/original/file-20170627-24813-w8gtfv.jpg?ixlib=rb-1.1.0&rect=0%2C30%2C5116%2C3377&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/liverpool-uk-3rd-november-2016-people-511384453?src=bWVRj9_srFK-b5sdTmoUvA-1-12">Kenny1/Shutterstock</a></span></figcaption></figure><p>Over the last five years <a href="http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11282688/How-the-UK-embraced-the-online-shopping-revolution.html">a revolution</a> on the British high street has seen businesses and their customers wholeheartedly <a href="http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/9157237/More-High-Street-shops-to-close-as-shoppers-move-online.html">embrace online</a> shopping. </p>
<p>Some companies seized the opportunity to branch out into often unfamiliar territory, while others failed to recognise how forcefully and quickly this market trend would blossom. When Marks and Spencer – the iconic socks-to-sausage rolls retailer – finally gets round to <a href="https://www.theguardian.com/business/2017/apr/27/this-is-not-just-any-online-grocer-ms-plans-food-delivery-service">trialling food deliveries</a> this autumn, it will find out if that particular lucrative ship has sailed.</p>
<p>M&S is playing catch-up with pretty much every one of its direct competitors in food retail. And the warnings are there for high street laggards. Now gone are places like <a href="https://www.theguardian.com/business/2013/nov/06/blockbuster-video-closes-remaining-stores">Blockbuster video</a> and <a href="http://edition.cnn.com/2011/US/09/12/first.borders.bookstore.closing/index.html">Borders bookshops</a>, which failed to adapt their business to the “<a href="http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11714847/Online-shopping-is-king-high-street-stores-must-adapt-or-die.html">sofa-surfers</a>” whose shopping style was attuned to the advent of rivals such as <a href="https://www.forbes.com/sites/gregsatell/2014/09/05/a-look-back-at-why-blockbuster-really-failed-and-why-it-didnt-have-to/#759e41fa1d64">Netflix</a> and <a href="http://business.time.com/2013/03/18/amazon-prime-bigger-more-powerful-more-profitable-than-anyone-imagined/">Amazon Prime</a>. </p>
<p>It’s worth remembering that Netflix in 2000 <a href="http://www.cnet.com/news/blockbuster-laughed-at-netflix-partnership-offer/">proposed a partnership</a> to Blockbuster CEO John Antioco and his team, only to be turned down. Choosing your moment can be crucial.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/175861/original/file-20170627-24760-48qt69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/175861/original/file-20170627-24760-48qt69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/175861/original/file-20170627-24760-48qt69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/175861/original/file-20170627-24760-48qt69.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/175861/original/file-20170627-24760-48qt69.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/175861/original/file-20170627-24760-48qt69.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/175861/original/file-20170627-24760-48qt69.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/175861/original/file-20170627-24760-48qt69.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Ancient history.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/chichester-england-november-10-closing-down-163045838?src=cHAnMG8TRnX4mXn1KqCaKw-1-1">JLRPhotography/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Belly up</h2>
<p>Whether or not a company survives depends on a number of factors, but mostly it concerns one key objective – can it remain profitable? What this often translates to is how well a company can maintain a market presence by offering a <a href="http://www.economist.com/node/14301696">unique selling proposition</a> – what marketing types like to call a USP. This can include offering the best price, best quality, market-leading service, widest choice, best guarantee or a market-leading product. In short, anything that distinguishes it (positively) from the main competition. </p>
<p>M&S has traded on its reputation for quality and a mixed offering, but with equally mixed results. Clothing has consistently struggled, while food has <a href="http://news.sky.com/story/ms-to-trial-online-food-delivery-service-this-autumn-10853563">underpinned its performance</a>. When trying to maintain a fine balance like that, the line between thriving and failing becomes a fine one. </p>
<p>Many in the past have offered a USP, and been much-loved by the public. Once-renowned companies such as <a href="http://www.bbc.co.uk/news/av/business-36127732/three-things-bhs-got-wrong">BHS</a>, <a href="http://www.bbc.co.uk/news/business-25345257">Blockbuster</a>, <a href="https://www.theguardian.com/business/2009/nov/26/borders-closure-stores-amazon">Borders</a>, <a href="http://www.bbc.co.uk/news/business-20164228">Comet</a>, and <a href="http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/6570626/Woolworths-the-failed-struggle-to-save-a-retail-giant.html">Woolworths</a> were all once market leaders in their respective fields, but eventually they all failed. They failed to remain relevant in their respective markets and often failed to embrace technology which would have allowed them to keep up with the competition.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/175863/original/file-20170627-24776-10zt5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/175863/original/file-20170627-24776-10zt5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/175863/original/file-20170627-24776-10zt5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/175863/original/file-20170627-24776-10zt5t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/175863/original/file-20170627-24776-10zt5t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/175863/original/file-20170627-24776-10zt5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/175863/original/file-20170627-24776-10zt5t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/175863/original/file-20170627-24776-10zt5t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Hitting the wall.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/lwr/4692390873/in/photolist-89DJjV-7e6ir4-5HLdDR-6LwTFc-92NEia-7dayCk-5Lxgjk-7DEecT-7AL8xy-fxAHaS-wXrc51-7dnC8v-5UVy6C-favAL-9nWBqA-5UVKtR-5UVw8d-5UVx2Y-6gpPLH-62DRrS-5jvi5Z-5MyiK2-pNdgWn-dtGTR4-4pvgss-q5pN5p-844rKR-p8QybK-p8MYXL-5WZDRF-5NU1ti-4xAVW-q5pMcn-pNdi9T-5Xve7t-78upnz-6fXYfR-dhcFdP-6gvrvJ-6yTmKo-6fXXQx-7BiBXE-6oZYnB-jLsJF-5WFFh9-69DV6L-63fCzd-9HGreM-6g3aLA-5Ns5pq">Leo Reynolds/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<h2>Staying alive</h2>
<p>Survival involves much more than management making the right decisions, it often involves being ahead of the curve. We can see the effect of this dynamic in the UK high street right now. It is why M&S has had its <a href="http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11513251/Marks-and-Spencer-has-no-place-in-the-modern-world-which-is-why-its-recovery-should-be-celebrated.html">place in the modern world questioned</a> on a number of occasions. </p>
<p>M&S’ sustained issues with <a href="http://www.bbc.co.uk/news/business-35251415">its clothing range</a> have been masked by strength in food, which has made it all the more odd that the move into deliveries <a href="http://www.bbc.co.uk/news/business-39743611">has taken so long</a>, and seems so tentative, even now. At a time when retail space is no longer entirely essential, M&S is caught between <a href="http://www.telegraph.co.uk/business/2016/11/04/marks--spencer-to-shut-uk-stores-in-shop-shake-up/">closing some stores</a> and opening new food-only stores as it tries to understand changing demand.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/175865/original/file-20170627-24776-phhw5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/175865/original/file-20170627-24776-phhw5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/175865/original/file-20170627-24776-phhw5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/175865/original/file-20170627-24776-phhw5t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/175865/original/file-20170627-24776-phhw5t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/175865/original/file-20170627-24776-phhw5t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/175865/original/file-20170627-24776-phhw5t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/175865/original/file-20170627-24776-phhw5t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">New benchmarks.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/london-uk-november-19-2011-ikea-422348707?src=9j2NkAzwAxMSXFxQOi3WCg-1-5">Tony Baggett/Shutterstock</a></span>
</figcaption>
</figure>
<p>The warnings from retail experts are all about failing to latch on to <a href="https://www2.deloitte.com/uk/en/pages/consumer-business/articles/retail-trends-2017.html">market movements and trends</a>, but M&S has seemed more worried about the risks of being the front runner. It is true that trends can quickly fade, but anyone watching Tesco, Asda, Ocado and Sainsbury’s vans rattling up and down our streets every day must have wondered what M&S was playing at.</p>
<p>Clicks are king for the moment, and for “bricks and mortar” retailers to thrive, they must develop a business structure that makes sense right now. If M&S wants an example to follow it could do worse than <a href="https://www.forbes.com/sites/walterloeb/2012/12/05/ikea-is-a-world-wide-wonder/#2434bd8f27b9">Ikea</a>, which has worked to get rid of inefficient practices and established teams that collaborate across all channels, not just one, a tactic that may help M&S with the challenge of running its clothing offering alongside food and homewares. </p>
<p>Food deliveries are an effort to meet new customer demands, but M&S would do well to view its all of its operations from the position of the consumer – from the outside in – to develop an environment that actually enhances brand loyalty across all products. <a href="https://www.dezeen.com/2013/01/25/apple-trademarks-design-stores/">Apple’s product showrooms</a> are world leaders in this respect.</p>
<p>M&S faces another testing year on the high street and on the internet. It no doubt hopes that a late foray into food deliveries will expose its business to more sofa-surfers and in turn help its ailing clothing division. But, a word of caution. Competition will be fierce, and if those previous company failures have taught us anything, it is that brand loyalty can vanish in the face of poorly handled strategy.</p><img src="https://counter.theconversation.com/content/79065/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Wood does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What the lessons of failed high street brands mean as M&S finally makes a big move.John Wood, Lecturer in Law, University of Central LancashireLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/767472017-04-27T12:45:35Z2017-04-27T12:45:35ZHow brands that disguise their origins do damage to their bottom line<figure><img src="https://images.theconversation.com/files/166953/original/file-20170427-15117-1n3w5cr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">shutterstock.com</span></span></figcaption></figure><p>Many brands, particularly those from countries associated with poor production quality, attempt to disguise their origins. Some even attempt to deliberately associate their brand with a country that has a strong image to win over customers. Chinese consumer goods company, the Haier Group, for example, adopted the German-sounding name and dropped Qingdao from its original moniker in the early 1990s <a href="https://books.google.co.uk/books?id=EGrwAwAAQBAJ&pg=PA290&lpg=PA290&dq=haier+german+sounding&source=bl&ots=dvnUN6gGtf&sig=gmXIhMcGR4iPxLjeXZLKuVxEdJY&hl=en&sa=X&ved=0ahUKEwjA5f3RrMLTAhXmJcAKHU83ABcQ6AEITDAH#v=onepage&q=haier%20german%20sounding&f=false">to inspire confidence</a>. </p>
<p>With Haier, the name change was accompanied by a turnaround in the company’s quality control and manufacturing process, but the association with Germany certainly helped promote this image. And it’s not the only company to use a name that doesn’t obviously reflect its origins. <a href="http://www.jstor.org/stable/41304396">Research</a> shows that consumers are misidentifying the country of brand origin nearly half the time for local brands and as high as 88% of the time for overseas brands. </p>
<p><a href="http://dx.doi.org/10.1108/IMR-08-2015-0178">Research I’ve carried out with Meltem Cakici</a> suggests that this can backfire, however. When customers find out the truth about a brand’s origins, they are not happy about it. In fact, they feel discontent and are put off buying from them in the future. With access to information at the palm of our hands, customers are increasingly finding out the truth about a brand’s origins, which can have dire consequences for its bottom line.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/166952/original/file-20170427-15093-1moueti.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/166952/original/file-20170427-15093-1moueti.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/166952/original/file-20170427-15093-1moueti.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/166952/original/file-20170427-15093-1moueti.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/166952/original/file-20170427-15093-1moueti.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/166952/original/file-20170427-15093-1moueti.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/166952/original/file-20170427-15093-1moueti.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Wait, Haier is a Chinese brand?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/popculturegeek/6764015553/in/photolist-biHmaP-bXfcTv-q6JfG-cSbcay-37BZJz-cSbces-cSbcbU-exB4BN-exxYxa-exxYAc-exBh2b-exxYt4-exDDXL-exDRFS-exAvBV-exB4Ly-exB4Gh-exxYBF-H9GvHS-ih7uqj-cSbbZ9-cSbc6f-5b6Rko-bAXYCT-ih4tjK-cSbbXQ-9955De-dBo4aF-7etfqF-cSbc7S-nHXPS-5Bgfef-cSbc3y-ih7viS-cSbc25-bo4qgs-9AmTyR-Jvx1of-yhid7W-bo4qbf-8WeK6J-bo4g6f-biHmEB-bo47EJ-bo47yU-bo4q3b-9kknJo-bo4fdh-bAY7oH-dH5ba">The Conmunity / flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
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</figure>
<p>In a recent study, we found that when people become aware that they had misclassified a brand’s origin it can automatically trigger something called cognitive dissonance – a state of mental discomfort as a result of being exposed to contradictory information. We found that if people identified the brand to be from a country they have a high regard for, and then they realise that the real origin happens to be one they have a lower affinity for, their negativity towards that brand and purchasing it increases. </p>
<p>Plus, the higher the affinity felt towards the misclassified brand, the greater the reduction in their likelihood to purchase it once they learn its true origin. So, even though they liked the brand, just knowing that they mistook the brand origin puts people off purchasing or even considering that brand. </p>
<h2>Staying true to your origins</h2>
<p>In an opposite scenario to the above, you would assume that if people learned that a brand was actually from a country that they had a high affinity with, then they would become more likely to buy it. But what we found was counter-intuitive. </p>
<p>Even when people had a higher affinity for the revealed brand origin than to the misclassified brand origin, their desire to purchase the brand still decreased. For example if people thought a brand was British or American and then they discovered that it was actually from India, and they happen to have a higher affinity towards Indian brands, we still found that people would become less likely to buy this brand as a result of finding out the truth. </p>
<p>This surprising finding shows just how important it is that brands stay true to their origins. This is because consumers don’t like being tricked – it’s enough to put them off buying at all. </p>
<p>We further examined this phenomenon among people who claimed to have higher product knowledge of fashion (experts) versus those who did not (novices). You might assume that the experts would be keen to possess as rich an amount of knowledge as possible of brands, and so, when informed that they had misclassified the origin of one, they would be happy to improve their knowledge bank. But we found that experts were more put out than the novices when they learnt that they had misclassified a brand’s origin. With self-styled experts abandoning brands, this could lead to significant brand damage in today’s social media-driven consumer society. </p>
<p>People that consider themselves novices when it comes to the sector the brand represents also reject the brand when they become aware of their misclassification. This would obviously be reflected in their future purchasing decisions. So it’s clear that brands stand to lose a lot if they build their strategy on misinforming or hiding their origins, once people become aware of the reality. </p>
<p>Hiding their true origins should be considered a threat to a brand’s image and profits and should therefore be avoided or reversed. If the product is of good quality and offers what people want, the authenticity of the brand itself will shine through and this should ensure its success.</p><img src="https://counter.theconversation.com/content/76747/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Paurav Shukla does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Many brands, particularly those from countries associated with poor production quality, attempt to disguise their origins.Paurav Shukla, Professor of Marketing, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/700812016-12-16T12:03:37Z2016-12-16T12:03:37ZWill services be the saviour of manufacturing?<figure><img src="https://images.theconversation.com/files/150315/original/image-20161215-26051-bgmhxk.jpg?ixlib=rb-1.1.0&rect=134%2C103%2C3823%2C2320&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption"></span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/pic-509065993/stock-photo-jiangxi-china-september-9-2011-jiangxi-nanchang-jiangling-motor-group-company-the-workers-are-assembling-cars-factory-avtotor-carcar-factory-avtotorworkers-assembled-in-china-made-ca.html?src=ZwjqhFHIOlRXmKBKbY3KZA-2-70">humphery / Shutterstock.com</a></span></figcaption></figure><p>The traditional mission for manufacturers was clear-cut: take a combination of people, processes and equipment, and then transform materials into products for sale. Over the past few decades, however, this simple concept has shifted, drawing together two major parts of the economy we always thought of as separate.</p>
<p>For manufacturers seeking customer satisfaction, competitiveness and sustainable revenue, simply making and selling physical products is no longer enough. In the drive to build and protect customer bases and profit lines, services now have a pivotal part to play. The manufacturing sector finds itself transitioning to a new way of doing things: “servitization”.</p>
<p>In simple terms, it is about manufacturers building their revenue streams through services. You will have experienced something like it if you have ever gone for a new car on a <a href="http://www.autoexpress.co.uk/car-news/90794/pcp-personal-contract-purchase-car-deals-explained">Personal Contract Purchase (PCP) contract</a>. It is basically a leasing model, in which the car manufacturers charge their customers based on the estimated mileage for a fixed period, rather than just the price of the asset. Repair and maintenance are usually included in these contracts, meaning that the customers would only need to fill the tank and enjoy the drive. </p>
<p>But servitization goes way beyond that in this new era and, of course, services themselves are not homogeneous. A variety exist – and they differ substantially in their level of risk, level of competition and potential to create competitive advantages.</p>
<h2>Power games</h2>
<p>In industry, debates about servitization almost invariably refer to <a href="http://www.rolls-royce.com/media/press-releases/yr-2012/121030-the-hour.aspx">Power by the Hour</a>, the pioneering engine maintenance solution introduced by Rolls Royce in the early 1960s. It involved extensive changes to processes, structures, technologies and personnel within Rolls Royce and provides a benchmark for others. It also changed the deal with customers from a transactional purchase of equipment towards a ten-year contractual relationship. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/150302/original/image-20161215-13648-1953qix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/150302/original/image-20161215-13648-1953qix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/150302/original/image-20161215-13648-1953qix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/150302/original/image-20161215-13648-1953qix.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/150302/original/image-20161215-13648-1953qix.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/150302/original/image-20161215-13648-1953qix.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/150302/original/image-20161215-13648-1953qix.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/150302/original/image-20161215-13648-1953qix.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Can services be an engine of the manufacturing economy?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/18378305@N00/7426133522/in/photolist-cjdSLS-hFR3Qq-hFQFuN-7JLjrb-hF3B2J-hF4Pri-hAwgvT-dZqEoE-9CXfYP-nEmbDY-i3VxXQ-eo7KH9-f2UGrG-9vDFwo-enx6jP-7JhgrN-jm1d5d-bLsxLt-7Zgydh-9DDuo1-nkxPFg-bnx9Mv-8fLCyH-hE5oza-eXxvGy-9D1t3W-9NGYu8-9CBFye-kMsD3-7JLjKy-pACfmn-nA7hNC-eXxo2s-jic8V7-7APufU-9LBtV2-ojekDp-9CEyKb-eC29G8-bB568d-fM39Ao-qgQcDj-hAwUjo-9D1d1w-ioJfC-b4CR3z-bAuSZC-fCQfSd-7YLgj7-dRaKw4">Can Pac Swire/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>These days there exists a remarkable breadth and depth of different offerings. Some manufacturers may offer an ever greater variety of “intermediate services”, including condition monitoring, maintenance, repair, overhaul and remanufacturing. Some move towards advanced services – such as Power by the Hour. These plans can include penalties if a product fails to perform when in service, or a system of payments structured around product usage all wrapped up in long-term contractual agreements which span up to 15 years.</p>
<p>Other examples include <a href="http://www.alstom.com/Global/US/Resources/Documents/Download%20Centre/Brochure%20-%20TrainLife%20Services.pdf">Alstom’s TrainLife Services</a>. In this, French group Alstom provides the train with a bundle of repair and maintenance services and charges the operators (such as VirginTrains) based on the miles travelled through 15-20 year contracts. <a href="https://www.xerox.co.uk/en-gb/services/managed-print">Xerox’s Print Management</a> system offers a services and copier bundle which charges customers based on the number of papers they have copied or printed, and <a href="http://www.man-tco.co.uk/finance/">MAN’s pay-per-kilometre</a> programme does a similar thing based on the distance its trucks are driven. </p>
<p>Such offerings are widely associated with a wholesale shift in ideas about the very nature of manufacturing. Ultimately, these make the deal more of a partnership than a transaction. </p>
<h2>Momentum</h2>
<p>More and more manufacturing firms are joining in. A few weeks ago, <a href="https://www.genewsroom.com/press-releases/ge-digital-acquires-servicemax-extend-predix-and-analytics-across-field-service">GE Digital announced</a> the acquisition of ServiceMax, a cloud-based field service management company – which, in theory, will enable GE to develop and deliver smart and connected industrial machines more smoothly and quickly than its competitors. </p>
<p>Goodyear <a href="http://www.marketwired.com/press-release/goodyear-launches-new-business-connected-fleet-management-solutions-2178154.htm">has also announced</a> the launch of Goodyear Proactive Solutions. This will aim to use new technologies such as predictive analytics to help truck fleet managers better handle how their vehicles are used. The common thread is that the outcome is not the sale of a product, but capability delivered through the performance of the product.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/150304/original/image-20161215-13653-30bt2y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/150304/original/image-20161215-13653-30bt2y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/150304/original/image-20161215-13653-30bt2y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/150304/original/image-20161215-13653-30bt2y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/150304/original/image-20161215-13653-30bt2y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/150304/original/image-20161215-13653-30bt2y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/150304/original/image-20161215-13653-30bt2y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/150304/original/image-20161215-13653-30bt2y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Purple patch. Brompton bike hire arrives in Birmingham.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/birminghamnewsroom/14865540468/in/photolist-eeMU2G-smAfpw-oDBMgS-oDB38D-oW77C2-oVQt5H-bshgt5-pMkRtW-buQvGd-ecHEYZ-DknC41-eeGcSp-eeGaq4-eeMUCJ-acoCzC-eeMUbs-BWZmgd-Cdqrvn-rUzc1g-wD6rdL-waw3tW-yaDi6H-z7wioc-wM9znZ-xnNp47-L7kpev-HHYU33-GX36PV-Cb8T9o-vSH2UB-fh2m1r">Birmingham News Room/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
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<p>Servitization has emerged in business-to-business (B2B) offerings. But the concept is also starting to touch our everyday lives at a business-to-customer (B2C) level. Take Daimler’s <a href="https://www.mercedes-benz.com/en/mercedes-me/">Mercedes Me platform</a> which remotely notifies drivers if the car requires maintenance or repair work. Brompton, the British manufacturer of popular folding bikes, now <a href="https://www.bromptonbikehire.com/">rents the bikes</a> via docks across the UK to provide a more hassle-free option. </p>
<h2>Advantange</h2>
<p>Before it becomes ubiquitous, as it may well do, servitization offers manufacturers a key competitive advantage. Those who embrace the idea should be able to help customers better achieve key strategic aims and, in doing so, offer something their rivals cannot. That in turn should deliver business growth and sustainability for both themselves and their customers. </p>
<p>Manufacturers get long-term contracts, closer relationships with clients, new business opportunities and revenue streams – and an enhanced image alongside that market differentiation. Customers should be able to squeeze out greater value from operations, better predict costs, and find it easier to scale up their operations.</p>
<p>The trend offers a future which will penalise the laggards. More and more technology-focused firms are moving into the product manufacturing space and disrupting their value networks. Take Uber, the ride-sharing tech company which is moving into the long-haul transport business with <a href="https://freight.uber.com/">Uber Freight</a>. This will allow a shipper to directly connect with a truck, challenging the traditional business model: in short, cutting out the middle man and offering real-time pricing. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/150311/original/image-20161215-26045-17asqjb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/150311/original/image-20161215-26045-17asqjb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/150311/original/image-20161215-26045-17asqjb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/150311/original/image-20161215-26045-17asqjb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/150311/original/image-20161215-26045-17asqjb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/150311/original/image-20161215-26045-17asqjb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/150311/original/image-20161215-26045-17asqjb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/150311/original/image-20161215-26045-17asqjb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Branching out. Uber gets trucking.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/pic-312342911/stock-photo-chiangmai-thailand-september-1-2015photo-of-wwwubercom-uber-homepage-on-a-monitor-screen-through-a-magnifying-glass.html?src=AZaFawq_ayCZCaDzlpQ0aw-1-64">GongTo/Shutterstock</a></span>
</figcaption>
</figure>
<p>Moves such as this create an active network in which manufacturers must be involved. The parts of the network evolve together to improve capabilities, and investments are aligned to create value or improve efficiency. What that means in practice is that a collaborative network is built between distributors, suppliers, technology and customers, which creates a resilient barrier that inhibits the entry of new players.</p>
<p>It is true that manufacturing firms can see an advanced services model as high-risk. The traditional product-based mindset is hard to break out of and realising the full potential of servitization demands innovation of the business model, a willingness to embrace new technology and new skill sets, as well as – ultimately – a wholesale change to the organisational culture. </p>
<p>But it might just be worth it. Manufacturing firms across the globe face a period of socioeconomic uncertainty. In the UK, Brexit is only adding to the challenges from a fragile recovery after the 2008 financial crisis, marked by intense competition from low-cost economies. In such an environment, servitization can offer a defensible long-term strategy that localises value creation and value capture.</p><img src="https://counter.theconversation.com/content/70081/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ali Ziaee Bigdeli is part of an EPSRC funded project (Ref: EP/K014072/1; EP/K14064/1; EP/K14080/1; EP/K14080/2) in partnership with the Advanced Manufacturing Research Centre (AMRC) of Sheffield University. The project focuses on developing applied game technologies to transform the servitisation of mainstream manufacturing companies. </span></em></p>Making products in our new economic age is fast becoming a partnership with customers, not just a transaction.Ali Ziaee Bigdeli, Senior Research Fellow, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/645932016-08-30T20:12:33Z2016-08-30T20:12:33ZBusiness Briefing: hack-proof, how business can stay ahead in cybersecurity<p>The first thing business gets wrong in understanding cybersecurity is assessing the value of the information it holds.</p>
<p>Businesses need to know the information they are trying to protect. Is it information about the business that would be shared via marketing? Information that is commercial in confidence? Or does it have a high security risk, such as defence information, intellectual property for a new drug or customer’s financial information? </p>
<p>It’s important to know the difference, says Craig Horne, chairman of the Australian Computer Society in Victoria, who is also completing his PhD in information security strategy in organisations.</p>
<p>Another aspect to cybersecurity is having the right people, hardware and software to manage risks. Companies could be doing better by sharing information on known threats and employing people with real world skills, rather than just <a href="https://theconversation.com/au/topics/stem-8868">“STEM”</a> (science, technology, engineering and maths) graduates, to tackle future risks.</p><img src="https://counter.theconversation.com/content/64593/count.gif" alt="The Conversation" width="1" height="1" />
Businesses are going about cybersecurity the wrong way and need to go back to the question: what are you trying to protect?Jenni Henderson, Section Editor: Business + EconomyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/583612016-04-26T11:33:26Z2016-04-26T11:33:26ZFirms in greener countries pay less to borrow money – new study<figure><img src="https://images.theconversation.com/files/120183/original/image-20160426-1344-1bgtl6n.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Green government, cheaper business</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/s/green+saving/search.html?page=4&thumb_size=mosaic&inline=94287547">Ponsulak</a></span></figcaption></figure><p>After years of pressure from consumers, employees and activists, the business world is increasingly convinced of the importance of improving its impact on society and the natural environment. In a <a href="https://www.unglobalcompact.org/docs/news_events/8.1/UNGC_Accenture_CEO_Study_2013.pdf">UN/Accenture survey</a> from 2013, which involved more than 1,000 top executives from over 100 countries, 93% of respondents said that sustainability issues were important or very important to the future success of their business. </p>
<p>This change of heart is underpinned by <a href="http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=1866371">research</a> into the relationship between corporate social responsibility (CSR) and the financial performance of both individual firms and investment portfolios. <a href="http://www.tandfonline.com/doi/full/10.1080/20430795.2015.1118917#.Vx82TrzSffY">It shows</a> a modest but statistically significant positive correlation between the two. </p>
<p>Why would this be the case? Good CSR practices can mean a firm develops better relations with the people and organisations it works with. Building trusting relationships by addressing their needs and concerns through CSR can improve the firm’s reputation and make it more valued. It also tends to give the impression of competent executives who have what it takes to stay in business and lead from the front. </p>
<p>Yet most studies have focused on how CSR affects a company’s share price, giving less consideration to its impact on debt finance. The latter is arguably at least as important to companies: in 2012, <a href="http://www.mckinsey.com/global-themes/employment-and-growth/financial-globalization">according to</a> estimates by the consultancy McKinsey, global shareholder equity amounted to $50 trillion (£35 trillion) where total corporate debt was $86 trillion. It is also even more important for lenders than shareholders to be invested in well-run firms, since they have more chance of missing out on any benefits: lenders’ gains are capped at the level of the interest payments they receive, while shareholders’ upside is potentially unlimited. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/120012/original/image-20160425-22390-1f38ppq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/120012/original/image-20160425-22390-1f38ppq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/120012/original/image-20160425-22390-1f38ppq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/120012/original/image-20160425-22390-1f38ppq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/120012/original/image-20160425-22390-1f38ppq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/120012/original/image-20160425-22390-1f38ppq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=565&fit=crop&dpr=1 754w, https://images.theconversation.com/files/120012/original/image-20160425-22390-1f38ppq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=565&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/120012/original/image-20160425-22390-1f38ppq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=565&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">To sustainability and beyond …</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?lang=en&language=en&ref_site=photo&search_source=search_form&version=llv1&anyorall=all&safesearch=1&use_local_boost=1&autocomplete_id=&search_tracking_id=gY_Lc6UkE1qtOpKdFD9ICQ&searchterm=green%20investment&show_color_wheel=1&orient=&commercial_ok=&media_type=images&search_cat=&searchtermx=&photographer_name=&people_gender=&people_age=&people_ethnicity=&people_number=&color=&page=1&inline=304609097">Dooder</a></span>
</figcaption>
</figure>
<h2>Debt and sustainability</h2>
<p>I have <a href="http://onlinelibrary.wiley.com/doi/10.1111/jbfa.12183/abstract">just co-published</a> a study into this area, and our starting hypothesis was that good CSR reduces the risk of a business defaulting on its debts. Since lending institutions ultimately price loans and bonds based on the risk of default, CSR should affect the cost of the debt. We studied 470 loan agreements in the period 2005 to 2012 across borrowers in 28 countries operating in all the major sectors. </p>
<p>In general, however, we found that improved CSR performance did not make it cheaper for a company to raise money – and some kinds of improved CSR, particularly those related to social issues, even appear to make it more expensive. But we also looked at how debt costs were affected by what countries were doing in relation to sustainability, and found a very interesting correlation: governments’ efforts made a significant difference to the borrowing costs of the companies based there. This cuts across all the main facets of sustainability, including healthcare, corruption, social freedoms, emissions, waste, labour rights and biodiversity. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/120176/original/image-20160426-1341-81w5d0.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/120176/original/image-20160426-1341-81w5d0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/120176/original/image-20160426-1341-81w5d0.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=194&fit=crop&dpr=1 600w, https://images.theconversation.com/files/120176/original/image-20160426-1341-81w5d0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=194&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/120176/original/image-20160426-1341-81w5d0.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=194&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/120176/original/image-20160426-1341-81w5d0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=244&fit=crop&dpr=1 754w, https://images.theconversation.com/files/120176/original/image-20160426-1341-81w5d0.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=244&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/120176/original/image-20160426-1341-81w5d0.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=244&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Source: Yale’s EPI/Transparency International.</span>
</figcaption>
</figure>
<p>We found that an increase by one unit in a country’s overall sustainability metric led to an average decrease of 69 basis points in the cost of corporate debt. In other words, a loan or bond that would otherwise be priced at 3% was now priced at 2.31%. </p>
<p>And when we looked at the individual elements of those national sustainability efforts, we found that the environment looks to be more financially important than social justice. It led to an average drop in debt costs of around 80 basis points, where the equivalent improvement in social sustainability led to a drop of around 50 basis points. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/120170/original/image-20160426-1335-2gfnrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/120170/original/image-20160426-1335-2gfnrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/120170/original/image-20160426-1335-2gfnrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=712&fit=crop&dpr=1 600w, https://images.theconversation.com/files/120170/original/image-20160426-1335-2gfnrb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=712&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/120170/original/image-20160426-1335-2gfnrb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=712&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/120170/original/image-20160426-1335-2gfnrb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=895&fit=crop&dpr=1 754w, https://images.theconversation.com/files/120170/original/image-20160426-1335-2gfnrb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=895&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/120170/original/image-20160426-1335-2gfnrb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=895&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Bio-bounty.</span>
<span class="attribution"><a class="source" href="https://www.unglobalcompact.org/docs/news_events/8.1/UNGC_Accenture_CEO_Study_2013.pdf">P. Chinnapong</a></span>
</figcaption>
</figure>
<p>The intuitive explanation for why these things have an effect is that where a country is taking sustainability seriously, it acts as a shield for the borrowing firm. By protecting firms from the operational and reputational hazards that come from wider social and environmental challenges, lenders judge their risks of defaulting as being lower. This appears to negate the need for them to consider the firm’s own CSR activities. It will be interesting to see if this affects how governments and corporations approach sustainability issues in future.</p><img src="https://counter.theconversation.com/content/58361/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The new study was funded by the Centre for European Economic Research, but the views in this article are entirely those of Bert Scholtens. </span></em></p>There are gains to be made from going green.Bert Scholtens, Professor of Banking and Finance, University of St AndrewsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/549652016-03-01T04:28:37Z2016-03-01T04:28:37ZHow innovation can help companies in a turbulent global economy<figure><img src="https://images.theconversation.com/files/113192/original/image-20160229-4074-1g5p5jl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sometimes the greatest innovations emerge from times of crisis.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>In their book <a href="http://www.businessmodelgeneration.com/book">Business Model Generation</a>, authors Alexander Osterwalder and Yves Pigneur explore the power of asking “what if” questions. This is illustrated by the example of furniture giant IKEA. In 1960 it asked:</p>
<blockquote>
<p>What if customers bought furniture in components in a box and assembled it themselves?</p>
</blockquote>
<p>The idea was unheard of at the time. Today it’s common practice in the furniture industry.</p>
<p>Another “what if” example given by the authors is telecommunications app Skype. It provides free voice calls worldwide and is believed to have earned <a href="http://www.bloomberg.com/news/articles/2013-02-19/microsoft-s-skype-unit-approaching-2-billion-in-annual-revenue">US$2 billion</a> in 2013. Not bad for a “free” service. </p>
<p>But the company asked an important question when it was setting up – what if while most of its services were free, it also made room for monthly subscriptions and Skype credit which could be used to make calls and send text messages to non-Skype members? It did, and this is where Skype is making its money.</p>
<p>Many businesses are taking strain in a tumultuous global economy. Adopting a <a href="https://www.researchgate.net/publication/285299110_The_phenomenon_of_being-in-management_in_executive_education_programmes">genuinely innovative mindset</a> to business can help in this unstable economic landscape. Such a model helps to promote innovative thinking and creative approaches to sticky problems – a new capability that businesses need in abundance.</p>
<h2>Why innovation matters</h2>
<p>The essence of this model involves rethinking the ingrained style of an organisation’s practices, its mechanisms for creating value and how value is produced. It also involves creating new styles that can be adopted when the time is right – not simply evaluating options and avoiding the worst of these. </p>
<p>Importantly, all of the options are carefully tested before being applied, usually in low-cost experiments and while proven models are still in place. Organisations that do this well are often referred to as design-thinking or ambidextrous. They essentially balance the resource allocation and organisational focus on both exploring new models and reliably executing current working models. </p>
<p>With all of this in mind, here are three key lessons that truly innovative businesses have already learned.</p>
<h2>Listen to your stakeholders</h2>
<p>Companies should embrace any opportunity to listen to their customers, staff and others connected to making the organisation work. </p>
<p>Listening to others can help reframe challenges and create new ways of looking at old problems, leading to new choices. This can be one of the most fundamentally powerful techniques any executive can learn. </p>
<p>Research confirms that <a href="http://cup.columbia.edu/book/solving-problems-with-design-thinking/9780231163569">consultation</a> is a key factor in successful innovation. Or, to put it another way, impatience is often the biggest obstacle to innovation: too many people want to rush towards solutions instead of taking the time to properly examine and understand the situation.</p>
<p>Genuinely thinking about a system – a university or a business – allows those involved to make sense of the mess and bring its inter-connectedness to the fore by engaging the stakeholders. This typically leads to more authentic participation and creative action.</p>
<h2>Capitalise on crises</h2>
<p>A crisis creates disharmony or anomaly, and this is a key raw material for innovation. </p>
<p>For this material to be productively used, though, people must have a degree of mastery in design thinking, integrative thinking and systems thinking. And they need to learn to be comfortable in the chaos – or at least have the courage to sit with the discomfort of chaos to see what emerges.</p>
<p>But it can be very challenging to overcome fear in the business world. In times of crisis, organisations do not want to take risks. They want to stay safe and comfortable. </p>
<p>The rewards for those who do take the plunge are considerable, as proved by well-known companies like Naspers. Once the mouthpiece of apartheid and a publisher of traditional newspapers it has, over the years, <a href="http://qz.com/161792/naspers-africas-most-fascinating-company/">transformed itself</a> into a cutting-edge, tech-savvy multinational. How? Through innovation and risk even in times of uncertainty.</p>
<h2>Create an innovation culture</h2>
<p>In their book <a href="http://cup.columbia.edu/book/solving-problems-with-design-thinking/9780231163569">Solving Problems with Design Thinking</a>, Jeanne Liedtka, Andrew King and Kevin Bennett suggest that the highest payoff in most organisations doesn’t lie in innovating a solution. Instead, it lies with innovating how people work together to implement the new possibility they see amid organisational inertia, bureaucracy and risk aversion. </p>
<p>Business model innovation is a powerful and practical mechanism for establishing a culture of change in a company. By combining theory and practical application, individuals are guided towards coming up with solutions for their business environment. Techniques like generative reasoning, causal modelling, assertive enquiry, design thinking and integrated thinking are combined to get the best results.</p>
<p>These techniques drive people to really question the fundamental assumptions ingrained in an institution’s processes with an eye on how to improve these. They provide a robust framework within which people can think about change. </p>
<h2>The sky is the limit</h2>
<p>The enduring value of business-model innovation lies in its ability to change mindsets and behaviours. It shifts an organisation’s thinking from problem-solving to solution-finding mode. These may sound like ostensibly the same thing, but they are fundamentally and powerfully different.</p>
<p>One is focused on the problem and the other is about opening up the mind to explore new possibilities. </p>
<p>And, as any innovation business knows, once you open up to possibility then the sky is the limit in terms of what can be achieved.</p><img src="https://counter.theconversation.com/content/54965/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kosheek Sewchurran does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Adopting a genuinely innovative mindset to business can help companies to navigate a tough global economy. It’ll involve risks, but can deliver great rewards.Kosheek Sewchurran, Associate Professor, Department of Information Systems, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/535812016-01-22T16:55:46Z2016-01-22T16:55:46ZJob cuts save money but can hurt business in the long-run<figure><img src="https://images.theconversation.com/files/109003/original/image-20160122-430-q8ssy7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Barclays is cutting 1,200 jobs worldwide.</span> <span class="attribution"><a class="source" href="http://www.shutterstock.com/gallery-595720p1.html">pcruciatti / Shutterstock.com</a></span></figcaption></figure><p>Barclays, Pearson and Virgin Media have all announced <a href="http://www.theguardian.com/business/2016/jan/21/pearson-barclays-and-virgin-media-announce-job-cuts">significant job cuts</a> as part of a growing pressure to cut costs, adding up to more than 6,000 job cuts in total. Firms are increasingly turning to cost-reduction strategies as a coping mechanism for competitive and difficult economic conditions. But while these strategies help to reduce costs in the short-term, these cuts can have much bigger, and fundamentally important implications for the identity of the firm and their long-term competitiveness. </p>
<p>Take education giant Pearson. The publishing company is to cut 4,000 jobs globally, or one in ten of its staff, as a result of the prolonged downturn, though largely across its US markets. Its chief executive, John Fallon, defended the decision by arguing that cost savings <a href="http://www.ft.com/cms/s/0/b2b8abd6-c010-11e5-9fdb-87b8d15baec2.html#a">of £350m would be achieved by 2017</a> – something greatly needed within a firm with one of the highest administrative costs <a href="http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/media/12111830/Pearson-issues-profit-warning-and-announces-4000-job-cuts.html">of any FTSE 100 company</a>. Pressure from shareholders has trapped the firm in an economic cycle, which has proven difficult to get out of. </p>
<p>No doubt this kind of cost-reduction strategy stimulates a short-term solution and appeases shareholder demands – evidenced by share prices rising 15% <a href="https://uk.finance.yahoo.com/news/pearson-chief-rails-naive-ignorant-081237591.html">on announcement of the news</a>. But there’s evidence to show it actually creates longer-term issues for companies, continuing to trap them in a downward cycle.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/109006/original/image-20160122-447-1slq4ld.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/109006/original/image-20160122-447-1slq4ld.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/109006/original/image-20160122-447-1slq4ld.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/109006/original/image-20160122-447-1slq4ld.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/109006/original/image-20160122-447-1slq4ld.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/109006/original/image-20160122-447-1slq4ld.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/109006/original/image-20160122-447-1slq4ld.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Firing people doesn’t just do emotional damage, it can hurt potential profits too.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
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<p>Over the last decade, <a href="http://mlq.sagepub.com/content/43/1/53.full.pdf+html">numerous studies</a> have demonstrated the precedent that cutting costs by cutting people can have longer-term, damaging effects on company performance, in addition to the negative consequences for employees and their families. Indeed, despite warnings, major businesses still decide to use mass layoffs as an effective weapon to deal with difficult and competitive conditions. </p>
<h2>Fostering innovation</h2>
<p>In the heat of any competitive crisis, companies must focus on financial viability, but they must do this while considering their strategic needs. Short-term actions have longer-term consequences. As such it is possible to argue that quick headcount reductions come at a price. Notably, the price of missed opportunity. </p>
<p>For example, Pearson have said that they want to focus more <a href="http://news.sky.com/story/1626996/education-publisher-pearson-cuts-4000-jobs">on new product development</a>, but may have inadvertently reduced the long-term innovative and strategic capabilities of the firm. If you take away people within the firm who might have the power to influence business practice, you could negatively influence the firm’s long term capabilities. You want to be able to enable creative problem solving and thinking through individuals within the firm, not stifle innovation by creating a culture where employees are not fostered.</p>
<p>To drive long-term competitive advantage and innovation, there is a need to foster capabilities within a company. Ways of doing this could be through platforms to encourage greater employee interaction or through a better understanding of the personalities in your workforce. </p>
<p>For example, a study I <a href="http://www.hud.ac.uk/ourstaff/profile/index.php?staffid=1473">recently conducted</a> measured the personality profiles of 233 senior leaders from across finance and high-tech industries, and linked this to the way in which strategic capabilities were built within their firms. It showed that conscientiousness was strongly linked to a leader’s ability to sense opportunities within a company – something <a href="http://onlinelibrary.wiley.com/doi/10.1002/smj.640/pdf">we know</a> drives a better competitive position. So if you take away people that naturally look for opportunities and shift away from the status quo, you can also stifle innovation. Having already restructured once <a href="https://next.ft.com/content/b2b8abd6-c010-11e5-9fdb-87b8d15baec2">under its current chief executive</a> – cutting 5,000 jobs in 2013 and 2014 – perhaps it is time Pearson tried a new strategy?</p>
<p>Strategic vision requires a commitment to people and fostering talent within a firm, which in turn helps develop the strength of company culture. While some firms may always be able to match another’s financial and physical resources, replicating the wealth of their employees and culture is rather more troublesome. Firms such as Pearson, Barclays and Virgin Media may therefore need to ask themselves whether workforce-related cuts are the best course of action.</p>
<p>Intelligent and effective cost cutting should not jump to mass layoffs. The answer to long-term advantage may lie in an understanding of people and viewing employees as the solution and not the problem when responding to a tough market.</p><img src="https://counter.theconversation.com/content/53581/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Shelley Harrington receives funding from The Economic and Social Research Council. </span></em></p>Barclays, Pearson, Virgin Media and others have announced big layoffs following poor results – research shows it could be bad strategy in the long-run.Shelley Harrington, Lecturer in Organisation Studies , University of HuddersfieldLicensed as Creative Commons – attribution, no derivatives.