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AMA Fall 2015 • VOlUME 1 • NUMBER 3

UARTERLYJOURNAL OF The AMeRicAN MANAgeMeNT AssOciATiON

w w w . a m a n e t . o r g

Interview with

Richard Dobbs

The Four Global Forces Breaking All the TrendsPage 6

OTher hiGhliGhTSMerGerS CAn SuCCeed in TOdAy’S WOrld 3

an interview with Georg Vielmetter The MeGATrendS TrAnSFOrMinG BuSineSS Page 18

The MindFulneSS eFFeCT Page 30

iS yOur innOvATiOn TeAM PriMed FOr SuCCeSS? Page 38

GeT reAdy FOr “COnFliCT MinerAl” COMPliAnCe in The eu Page 41

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AMA QUARTERLY I Fall 2015 I 1

FEATUREs

13 Mergers Can Succeed in Today’s World Successful acquirers are beating the odds of failure, which are similar to getting heads 50% of the time on a coin toss. These organizations follow a playbook, built from their past successes and failures, to guide their future integration successes. By Todd Antonelli

18 The Megatrends Transforming Business In a Q&a interview, Georg Vielmetter of the Hay Group talks with AMA Quarterly about the six most transforming megatrends that business leaders need to be aware of. By Christiane Truelove

26 10 Signs You Need to Update Your Data Security Overwhelmed by data security recommendations? This article cuts through the information flow and provides direct guidance on the top 10 signs that you should immediately conduct a review to update your data security program. By Robert J. Munnelly Jr.

30 The Mindfulness Effect There have been few studies of workplace mindfulness practices on their effectiveness. To help fill this gap in the research, american Management association conducted a major survey in association with the Business Research Consortium and arrived at 10 key findings. By Miles H. Overholt and Mark Vickers

34 The Rise of the Membership Economy The Membership Economy is a massive new trend that is transforming virtually every major industry and changing the role of the marketing discipline. By Robbie Kellman Baxter

38 Is Your Innovation Team Primed for Success? To meet the insatiable demands and expectations of the market, companies are reshaping and retooling their traditional approaches to innovation. Perhaps the most critical task—and the most challenging—is choosing the right people for an innovation team. By Stephanie Orellana, PhD

41 Get Ready for “Conflict Mineral” Compliance in the EU The handwriting is on the wall when it comes to responsible supply chain sourcing, and no amount of bleach is likely to make it go away. By Barbara A. Jones, Esq.

45 Empower Your Business to Create a Competitive Advantage The way any business is organized, structured, and operated on a daily basis boils down to the people who are involved—the extent to which they are interested in and participate in the business. By Shawn Casemore

DEpARTMEnTs

2 EDIToR’S PICk Get Ahead of the Cutting-Edge Trends

3 PERSoNAL INSIGHTS CSaaS: C-Suite as a Service Extended service arrangements are not new, but can the idea be expanded to include executive talent? By Tom Leahey

20 oFF THE SHELF Empire and Manure The blithe acceptance that things are as they are brings about a reluctance to recognize and embrace change, even when it is staring us in the face. This is understandable. But it can blind us to the inevitable, and to the need to adapt to change. By Georg Vielmetter and Yvonne Sell

48 oUR VIEW Training Holds True When Disaster Strikes The recent explosions at a warehouse in Tianjin, China, remind us that in a VUCa world, we must ensure that people are equipped to be decisive and effective. By Edward T. Reilly

6 ThE FoUR GLobAL FoRcEs bREAkinG ALL ThE TREnDsAn interview with Richard Dobbs, a director of the Mckinsey Global institute, reviews the four forces reshaping the world. Dobbs explains visionary leaders and executives can react in a positive, productive way to the rapid changes sweeping through the world.

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AMA UARTERLY Fall 2015

Volume 1 • Number 3

JoURnAL oF ThE AMERicAn MAnAGEMEnT AssociATion

Data security

“conflict Mineral” compliance

2 I AMA QUARTERLY I Fall 2015

EdITOR’S PICk

Do you follow trends? Admittedly, when it comes to things such as fashion and

music and food, some trends can be ridiculous (platform shoes with live goldfish in them and power noise).

Other than maybe providing a few laughs or fodder for spirited debate, trends like these have very little impact on your life, especially your life as a business professional. In this issue of AMA Quarterly, however, we are focusing on the global trends that can affect your business, your industry, and your decisions as you find yourself reacting to them.

Our cover story is a Q&A with Richard Dobbs, a director of the McKinsey Global Institute and a co-author of No Ordinary Disruption: The Four Global Forces Breaking All the Trends (PublicAffairs, 2015). Dobbs reviewed these trends for AMA Quarterly and explained how visionary leaders and executives can react in a positive, productive way to the rapid changes sweeping through the world. Another Q&A is with Hay Group’s Georg Vielmetter, who co-authored with Yvonne Sell the book Leadership 2030: The Six Megatrends You Need to Understand to Lead Your Company into the Future (AMACOM, 2014). Like Dobbs and McKinsey, Vielmetter and Hay Group pinpoint trends business leaders need to be aware of, but the trends outlined are ones that are expected to stick around for a long time (unlike goldfish shoes and disco).

Identifying trends can be a challenge if they are in an area that is outside your expertise. However, these trends can still affect your business. In “Get Ready for ‘Conflict Mineral’ Compliance in the EU,” Barbara Jones explains that the European Union will soon be adopting rules requiring suppliers to certify that certain “conflict minerals”—tin, tantalum, tungsten, and gold—are not coming from mines or smelters that financially support abusive governments. As Jones explains, these rules are more stringent than the SEC rules in place in the United States. Manufacturers and importers of clothing notions such as buttons and zippers will be among those affected by the new rules, and managers in the fashion industry will have to account for the impact of these rules.

And though not a new trend, stress in the workplace continues and is a global issue. Companies are increasingly using mindfulness techniques to combat it, according to a study by American Management Association and the Business Research Consortium. You can review the 10 key findings on page 30 in “The Mindfulness Effect.”

Get Ahead of the Cutting- Edge Trends

JoURnAL oF ThE AMERicAn MAnAGEMEnT AssociATion

GUEST EdITOR Christiane Truelove

CREaTIVE dIRECTOR lauren McNally

COPy EdITOR Eileen davis

GRaPHIC aRTIST Tony Serio

PROdUCTION MaNaGER laura Grafeld

PUBlISHER Christina Parisi

pREsiDEnT & cEo Edward T. Reilly

AMA Quarterly© (ISSN 2377-1321) is published quarterly by american Management association International, 1601 Broadway, New york, Ny 10019-7420, Fall 2015, Volume 1, Number 3. POSTMaSTER: Send address changes to american Management association, 600 aMa Way, Saranac lake, Ny 12983-5534.

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Submissions. We encourage submissions from prospective authors. For guidelines, write to The Guest Editor, AMA Quarterly, 1601 Broadway, New york, Ny 10019-7420 or email [email protected]. Unsolicited manuscripts will be returned only if accompanied by a self-addressed, stamped envelope.

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AMA UARTERLY

Christiane TrueloveGuest Editor, AMA Quarterly


Just the other day, I saw a charge on my credit card from a local gym—a

monthly subscription payment for mem-bership fees. To my surprise, the com-mitment renewed each month until the customer (in this case, my teenage daughter) was able to navigate myriad cancellation requirements. Trying to take something positive from this “fitness as a service” episode, I began to think about purchasing in more general terms. No doubt, companies have repositioned over the past decade in terms of delivery and administrative capabilities, pivoting prod-uct and service offerings to adapt to an evolving marketplace.

Selling services to retail consum-ers on a renewable basis offers obvious advantages to companies. The cost of customer acquisition, high customer retention, accelerated scalability, and annuitized revenue streams (building exponentially over time) all contribute greatly to enterprise value and share-holder returns. But the business world moves fast today. Startups are moving from an A-round capital raise to an ulti-mate exit in just a few years with greater regularity. A robust revenue model is essential when one considers optimizing a company sale.

What could be on the horizon in terms of corporate assets that would fit into our new “as a service” world? Perhaps we need to look no further than the C-suite.

Paper clips launch the extended-service approachExtended-service arrangements, which frustrate so many consumers, started in corporate purchasing departments look-ing for new ways to buy needed products and services. In the corporate world, shifting the burden from one-and-done

purchase commitments to flexible, agile arrangements is nothing new. Corporate buyers long ago established sleek, inno-vative approaches to purchasing assets. Often, new approaches involved mov-ing capital-intensive assets away from the balance sheet to off-balance-sheet hideouts. This effort had dual intentions: Newly created purchasing entities made the detection of important financial com-mitments difficult for even the savviest readers of financial statements, and pur-chasing could be done on a large scale once trusted vendors were vetted. What started with paper clips and office sup-plies quickly moved to the big stuff.

As the extended-service movement gathered momentum in the 1990s, a new breed of financial architects created synthetic and off-balance-sheet arrange-ments. Conventional thinking during this

time was that low-yielding assets such as real estate, equipment, and technology placed unwanted downward pressure on balance sheet return ratios. By creating operating commitments instead of capi-tal commitments, organizations could, in effect, release and redirect cash for growth initiatives while, at the same time, enhanc-ing return ratios.

This financial innovation began with real estate, perhaps the most underap-preciated and yield-consuming of all bal-ance sheet assets. Many companies took advantage of off-balance-sheet arrange-ments such as sale/leasebacks and synthetic leases to stay in control of non-core properties and relocate low-yielding assets from the balance sheet to special- purpose entities. The cascade of finan-cial innovation continued with synthetic arrangements for heavy machinery and

CSaaS: C-Suite as a ServiceExtended-service arrangements are not new, but can the idea be expanded to include executive talent? By Tom Leahey

PERSONal INSIGHTS


specialized equipment with short useful lives. Even controversial assets, such as private company aircraft, could be kept from the eyes of investors by wrapping them in synthetic financing arrangements.

Technology takes “as a service” to a new levelMost recently, organizations have used a similar approach to managing the acqui-sition of technology assets, which present unpredictable costs and a high degree of technical obsolescence. Alternative con-figurations and innovation have allowed companies to move away from heavy infra-

structure and technology investments through cloud-based offerings, including Software as a Service (SaaS), Platform as a Service (PaaS), Infrastructure as a Service (IaaS), and even Business Process as a Service (BPaaS). The benefits include lower levels of committed capital, best-of-class security, scalable configurations, and the ability to keep pace with ever-changing technology. Best of all, this new approach established a higher level of cost predictability—a daunting task in the technology age.

Not too long ago, companies directed considerable capital to technology in ways that seem unimaginable now: endless racks of servers housed in data rooms (or buildings), heavy commitments to perpetual software licenses, and a variety of switches, routers, and infrastructure. The hybrid cloud model has been a game changer in that even the smallest organi-zations can support safe, reliable, highly

secure IT infrastructure with absolute minimal amounts of committed capital.

Next extended service: HRSo the question becomes, are we done? Are there company assets, outside of real estate, equipment, and technol-ogy, that have been overlooked—those that present a heavy capital burden, are unpredictable in terms of costs and per-formance, and can significantly impact corporate returns? The answer is yes. We have missed the most conspicuous of all company assets—human resources—and more specifically, executive talent.

As with IT or real estate assets, the evolv-ing demands within any company cre-ate a near constant state of mismatch between resources and corporate needs. Companies crave a cost-effective, flexible, and dynamic solution to human issues, just as they once did with bricks, mortar, and equipment needs.

As an example, the Finance as a Service (FaaS) model has gained trac-tion as a way for venture- and private-equity-funded companies to quickly climb the ladder, develop sophistication and management depth, and position for a potential exit transaction. With institu-tional capital available to companies at pre-revenue and embryonic stages of development, the firms have little time to develop fluency in external reporting, investor communications, transactional experience within banking and capital markets, and other needed services within the finance function.

This “reaching down” capital effect has placed pressure on promising and youthful companies to find professionals who can deliver on myriad requirements. Unfortunately, most chief financial officers offer a degree of specialization at vary-ing points and are unable to provide the needed competence in all critical func-tions. Investors and boards more frequently think of finance, technology, or operations executives not as permanent additions to an organization but as specialized, off-bal-ance-sheet resources, much along the lines of SaaS or IaaS. A more flexible approach to the C-suite offers companies the same

benefits once attributed to off-balance-sheet arrangements for real estate, tech-nology, equipment and other important, but often mischaracterized, assets.

FaaS: A team approachThe use of consultants and staffing aug-mentation has been in place for some time. We’ve all heard of fractional “for hire” CFOs. What is different about the FaaS model? Couldn’t you just hire an experienced CFO to handle the financial end of the business? The FaaS model involves a team instead of one person and encompasses a full set of services that require the following: financial leader-ship, tax advisory work, capital markets expertise, deep accounting knowledge (and the ability to outsource certain accounting functions), expertise in data management, and more. In many cases, an interim CFO will provide expertise in one or two of these areas.

The Finance as a Service (FaaS) model has gained traction as a way for venture- and private-equity-funded companies to quickly climb the ladder and develop sophistication and management depth…

PERSONal INSIGHTS


However, companies using the FaaS model must insist on a consolidated service-level agreement in which the full financial function can expand and contract to offer expertise during tax and budgeting season, leadership during a capital-raising effort, and help as they manage through significant transactions.

For most organizations, the wrong permanent hire can be a crippling mis-take in terms of cost, cultural and repu-tational harm, and time lost in executing a given strategic plan. Some estimates put the cost of a missed C-suite hire at 15 times annual salary.

Consider the chart above. This chart assumes that the full-time hire works out well for the company and is a long-term addition to the executive staff. Assuming anything different actually becomes quite scary for the company. As an example, let’s take a company with $75 million in annual revenues that is considering a new CFO. It has been presented with the option of using a FaaS approach instead of a permanent

hire. Since FaaS assumes minimal termi-nation provisions, ending that relationship is straightforward and can be completed professionally in as little as 30 to 45 days. As we all know, executive terminations are complex and expensive. Separation, nonsolicitation and noncompete agree-ments, and severance packages, not to mention fallout from external stake-holders, can easily add up to millions of dollars for our hypothetical widget maker.

Since most research will tell you that the typical tenure of a CFO is two to three years (less in venture- and PE-funded companies), a flexible model will cap-ture all that is lost with an “in-and-out” finance executive. A flexible approach is usually structured with a fixed monthly retainer (in our example above, a $20,000 monthly fee is assumed) and can include a team of experts who can be pressed into action at the appropriate time. Again, a tax professional can be a big part of the team during tax season,

while a capital markets veteran can be slotted to lead a capital transaction. As one would expect, a lead finance “CFO Partner” will be responsible for the entire function, managing the team and meeting all requirements.

Is FaaS a good fit for you?As with any extended-service model, FaaS is not a one-size-fits-all solution for every business. So how do you know if this approach is right for your company? Here are six simple questions that can set you on your way:

1. Do we require dynamic and varied skills?

2. Are we hiring into an inflexion point (such as a capital raise, reorganization, or acquisition)?

3. Do we have the skill set we need, or does the company need a different type of executive?

4. Will this hire set a new standard for the entire executive team?

5. Is there a comfort zone that the CEO does not want to upset?

6. Is strategy a part of every conversation/executive meeting?

The last of the cornerstone assets—human resources—has come under the microscope. The mantra for the past few decades has been nothing short of a cul-tural crusade to recruit, retain, and train talent. And for many companies, espe-cially larger entities, this approach has worked beautifully. However, for organi-zations at significant inflection points or those facing episodic challenges—such as a capital raise, international expansion, or a change-in-control transaction—the risk seems too great to adhere to a legacy model that has always had severe limita-tions and inherent challenges. AQ

Tom Leahey is principal and lead for the Strategic Growth Advisory Practice, Windham Brannon (www.windhambrannon.com), an Atlanta-based CPA firm that provides audit, tax, and advisory services for businesses and high-net-worth individuals. Leahey has more than 25 years of experience in finance and executive management in a variety of high-growth environments including software, managed services, and professional services companies.


Why should business leaders be aware of these trends?

RD: I think the mid-level manager or the senior-level manager has an issue. And the issue is about their intuition. However fact-based we say we are when making a decision, a lot of our decision making is based on our intuition—intuition we’ve built up over the last 20 or 30 years, or all of our lives, about how the world works. The problem is, the intuition about how the world has worked in the past may not be right as we look at the future. That’s because we are seeing these four major disruptions, all of which are larger than anything we’ve ever seen, and they’re hitting the world economy at the same time.

So I think the challenge that mid-level managers have is how they can reset their intuition about how the world is going to work going forward, and adjust it to reflect these controversies.

What are each of the four disruptions?RD: The thing about these disruptions is that none of them will be a surprise. We all know they’re happening. The challenge is the speed and the scale that they’re happening at and the second- and third-order effects that come from it.

The first one is the urbanization going on in Third World markets. This is, again, not a new phenomenon. The British

An InTERvIEw wITh

Richard Dobbs

The Four Global Forces Breaking All the Trends

By CHRISTIaNE TRUElOVE

Richard Dobbs is a director of the McKinsey Global Institute and a co-author of No Ordinary Disruption: The Four Global Forces

Breaking All the Trends (PublicAffairs, 2015). Dobbs reviewed these trends for AMA Quarterly and explained how visionary leaders and executives

can react in a positive, productive way to the rapid changes sweeping through the world.

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Industrial Revolution was an industrialization revolution, but what is different now is that it is happening at different speeds and scales. In Britain it took 150 years for us to double our GDP per capita during our Industrial Revolution. Asia is doing it, Asian governments like China are doing it, over about 12 years. The British Industrial Revolution started with 10 million people. Emerging markets are starting with 3 billion people through their industrial revolution.

What we are saying is that what happened during the British Industrial Revolution was what underpinned the rise of the British Empire and big changes in British society. We’re seeing the same type of thing happening again. We’re just seeing it 10 times as fast and 300 times the scale, at something like 3,000 times the size of the British Industrial Revolution. And that is the challenge; it’s just a different speed and scale. We’ve already taken the consuming class, the people who are able to spend more than $10 a day, from about a billion people in 1990 to 2 billion in 2010. By 2025, that number is going to go to 4 billion.

One example of what is difficult intuitively for managers is understanding the nature of where these people are. There’s a city called Tianjin outside of Beijing. In typical audiences, about 20% know where the city is, and 5% of them have visited. The city of Tianjin currently has a GDP of about $130 billion, which puts it on par with the city of Stockholm. Now, as we paint the picture going forward, this city that many executives don’t know about has some of the best GDP growth, comparable with some cities in Europe. Stockholm

has some of the best GDP growth in Europe. The GDP of Stockholm goes up to about $210 billion by 2025. Tianjin grows even better and gets up to about $600 billion. The GDP of Tianjin ends up as the same as the GDP for all of Sweden. So this city, which isn’t really one of the prominent cities in China, by 2025 will have the same GDP as all of Sweden.

The problem is, if you look at most companies and ask who is responsible for Sweden or who’s responsible for Stockholm, they’ll come back and say, “Well, that’s Lars” or “That’s John.” If you ask them who’s responsible for Tianjin, many of them would say they don’t know, and they’d have to get the file out. It’s not obvious. Ask them, “What resources are you putting into growing your business in Tianjin compared with what you’re putting into your businesses in Sweden,” and again, it’s not the right order of magnitude. So there’s sort of this shift in economic power. Companies are aware it’s happening, but they’re not reallocating resources, including marketing spent on people, to the same extent.

I was talking to the CEO of a well-known brand of hotels, and they already have two hotels in Tianjin so they are ahead of it. But most companies are not investing enough to reflect this shift, and there is a lot of inertia in the way companies make their investment spending. It’s quite scary that these cities that most of us have never even heard of are going to be delivering this huge amount of growth.

Another story is there’s a place in the West Country of England called Clark’s Village, where Clark’s used to

Four Disruptors Reshaping the WorldBy RICHaRd dOBBS, JaMES MaNyIka, aNd JONaTHaN WOETzEl

Today our world is undergoing an even more dramatic transition due to the confluence of four fundamental disruptive forces—any one of which would rank among the greatest changes the global economy has ever seen. We estimate that this change, compared with the Industrial Revolution, is happening 10 times faster and at 300 times the scale, or roughly 3,000 times the impact.

Although we all know that these disruptions are happening, most of us fail to comprehend their full magnitude and the second- and third-order effects that will result. Much as waves can amplify one another, these trends are gaining strength, magnitude, and influence as they interact with, coincide with, and feed upon one another. Together, these four fundamental disruptive trends are producing monumental change.

THE AGE oF URBANIzATIoNThe first trend is the shifting of the locus of economic activity and dynamism to emerging markets like China and to cities within those markets. These

in the industrial Revolution of the late 18th and early 19th centuries, one new force changed everything.


manufacture shoes. The shoe manufactory shut down 20 years ago as shoe manufacturing shifted to Asia—to Korea, Taiwan, and China. What now happens when you go to Clark’s Village is that they have a whole bunch of outlet shops. And the biggest driver of Clark’s Village is no longer the Brits, it’s the Chinese tour buses coming in. The typical Chinese person will come and spend 500 to 1,000 pounds, and the typical Brit who goes there will spend 50 to 100 pounds. We’re all sitting here thinking we should be marketing to the British consumer, but actually the Asian tourist is a very important marketing opportunity for us.

So that’s the first disruption, the rise of this new consuming class and understanding some of the second-order effects—what this means for commodity prices, what this means for the ability to sell to a different group.

What is the second disruption?RD: The second effect is the aging of populations. Again, we know it’s happening, but the consequences are quite extreme. Germany as a country is going to have 15 million fewer workers by 2050 than they have today. China, where aging is incredibly extreme, is going to have 150 million fewer workers.

We’ve gone through a period where we’ve had phenomenal economic growth. Since the Second World War, the global economy has grown between 3% and 5%, driven by productivity and demographics. The issue we’re going

to have going forward is that as the demographics growth becomes less, as a result of aging, the global growth rate is going to be lower. We’ve all grown up in this 3% to 5% world. If you lived before the Second World War, you were living in a 2% growth world. And if you look at the picture going forward, as demographics stop driving growth, unless you get a step up in productivity we’re going to have much lower growth.

Another challenge with this aging is how companies think about marketing to the elderly consumer. A lot of companies struggle, saying, “We don’t want to position our products for the elderly. We want to position our products for the young. We don’t want to market our products to the elderly because it’s going to damage our brand.” But you [see] as the elderly consumer becomes a more and more powerful part of the consumption, how their needs change. A few years ago, I remember seeing my grandmother wearing children’s shoes. I asked her, ‘Why are you wearing children’s shoes?’ and she said they were much easier to get on because they had Velcro. She could open them much more easily than if she had laces.

Look at a television set. My typical television set has something like 30 buttons. It’s incredibly confusing to someone who’s slightly elderly about how to operate it. Companies need to start working out how their products should be more tailored to the elderly. And that goes sort of in the face of the fashion of companies, which is to think

emerging markets are going through simultaneous industrial and urban revolutions, shifting the center of the world economy east and south at a speed never before witnessed.

As recently as 2000, 95% of the Fortune Global 500—the world’s largest international companies, including Airbus, IBM, Nestlé, Shell, and Coca-Cola, to name a few—were headquartered in developed economies. By 2025, when China will be home to more large companies than either the United States or Europe, we expect nearly half of the world’s large companies—defined as those with revenue of $1 billion or more—to be headquartered in emerging markets. “Over the years, people in our headquarters, in Frankfurt, started complaining to me, ‘We don’t see you much around here anymore,’” said Josef Ackermann, the former CEO of Deutsche Bank. “Well, there was a reason why: Growth has moved elsewhere—to Asia, Latin America, the Middle East.”

Perhaps equally important, the locus of economic activity is shifting within these markets. The global urban population has risen by an average of 65 million people annually during the past three decades, the equivalent of adding seven Chicagos a year, every year. Nearly half of global GDP growth between 2010 and 2025 will come from 440 cities in emerging markets—95% of them small and medium-size cities that many Western executives may not even have heard of and couldn’t point to on a map. Yes, Mumbai,

Dubai, and Shanghai are familiar. But what about Hsinchu, in northern Taiwan? Brazil’s Santa Catarina state, halfway between São Paulo and the Uruguayan border? Or Tianjin, a city that lies around 120 kilometers southeast of Beijing? In 2010, we estimated that the GDP of Tianjin was around $130 billion, making it about the same size as Stockholm, the capital of Sweden. By 2025, we estimate that the GDP of Tianjin will be around $625 billion—approximately that of all of Sweden.

ACCELERATING TECHNoLoGICAL CHANGEThe second disruptive force is the acceleration in the scope, scale, and economic impact of technology. Technology—from the printing press to the steam engine and the Internet—has always been a great force in overturning the status quo. The difference today is the sheer ubiquity of technology in our lives and the speed of change. It took more than 50 years after the telephone was invented for half of American homes to have one. It took radio 38 years to attract 50 million listeners. But Facebook attracted 6 million users in its first year, and that number multiplied 100 times over the next five years. China’s mobile text- and voice-messaging service WeChat has 300 million users, more than the entire adult population of the United States.

Accelerated adoption invites accelerated innovation. In 2009, two years after the iPhone’s launch, developers had created around


about targeting the 20- to 30-year-old, or the 30- to 40-year-old consumer.

And you said that will be for everything. You mentioned fashion, with the shoes, and I would also assume packaged foods, computers, electronics…

RD: Yes, even shopping experiences, how people want to go on holiday. All of that needs to be altered. And there are obviously companies that have done very well on this, but many companies are struggling to do a great job with this segment.

Is there a business segment that has seemed to grasp the concept of producing products and experiences for the elderly?

RD: There is a company in the UK called Saga, where they actually target over-50s. They sell holidays and do financial products. They have a thing where you cannot buy their products unless you’re over 50. That’s part of the proposition. So they’ve forced themselves to be at that extreme end. I think many companies are slightly struggling on this.

You’ve mentioned two trends now. What is number three?

RD: Number three is technology. Again, we know technology has been disrupting the world. Arguably the printing press was a disruption, with monks [who were] writing out the

Bible by hand finding that their jobs had disappeared. But the big difference is the pace at which technology is disrupting. Look at the telephone, which took 75 years to reach a 50 million audience. Radio took 38 years; television took 13 years. Twitter took nine months. So these technologies are happening at an increasing pace and speed and are accessing customers much quicker.

We all know that technology is disrupting some businesses, but some of the second- and third-order effects are still affecting companies. We saw how mobile smartphones have impacted retailers. I can go into a retail shop and use my smartphone to scan the barcode, and it will give me a whole list of other places where I could buy that product cheaper. Price transparency has come to where we can all do this on our smartphones. It’s quite a shock if you’re a retailer. The traditional way retailers used to work is you’d have the key value indicator, in terms of the product where everyone understood the prices, and you price some products low and other products slightly higher. The key value indicators allowed you to do that. But obviously, if people can scan and compare the price in the store, then you’re actually giving the consumer much greater price transparency.

And what is the fourth disruption?RD: The fourth disruption is the fact that we’re connecting the world’s economy much more than we used to. We have these sources of connectivity; we have them through capital flows, we have them through labor flows, we also have them

150,000 applications. By 2014, that number had hit 1.2 million, and users had downloaded more than 75 billion total apps, more than 10 for every person on the planet. As fast as innovation has multiplied and spread in recent years, it is poised to change and grow at an exponential speed beyond the power of human intuition to anticipate.

Processing power and connectivity are only part of the story. Their impact is multiplied by the concomitant data revolution, which places unprecedented amounts of information in the hands of consumers and businesses alike, and the proliferation of technology-enabled business models, from online retail platforms like Alibaba to car-hailing apps like Uber. Thanks to these mutually amplifying forces, more and more people will enjoy a golden age of gadgetry, of instant communication, and of apparently boundless information.

Technology offers the promise of economic progress for billions in emerging economies at a speed that would have been unimaginable without the mobile Internet. Twenty years ago, less than 3% of the world’s population had a mobile phone; now two-thirds of the world’s population has one, and one-third of all humans are able to communicate on the Internet. Technology allows businesses such as WhatsApp to start and gain scale with stunning speed while using little capital. Entrepreneurs and startups now frequently enjoy advantages over large, established

businesses. The furious pace of technological adoption and innovation is shortening the life cycle of companies and forcing executives to make decisions and commit resources much more quickly.

THE CHALLENGES oF AN AGING WoRLDThe human population is getting older. Fertility is falling, and the world’s population is graying dramatically. While aging has been evident in developed economies for some time—Japan and Russia have seen their populations decline over the past few years—the demographic deficit is now spreading to China and soon will reach Latin America. For the first time in human history, aging could mean that the planet’s population will plateau in most of the world. Thirty years ago, only a small share of the global population lived in the few countries that had fertility rates substantially below those needed to replace each generation—2.1 children per woman. But by 2013, about 60% of the world’s population lived in countries with fertility rates below the replacement rate.

This is a sea change. The European Commission expects that by 2060, Germany’s population will shrink by one-fifth, and the number of people of working age will fall from 54 million in 2010 to 36 million in 2060, a level that is forecast to be less than France’s. China’s labor force peaked in 2012 due to income-


through political systems. As an example, the country of Greece has been in default on their government debt 50% of the time since they’ve become independent from the Ottoman Empire. It really didn’t matter, unless you were a banker lending to Greece, whether they were in default or not. What we’ve now seen is that because we’ve linked Greece to the global economy through the euro, suddenly we’re in a major price problem.

The global economy had a whole bunch of shocks thrown at it over the last half century. The savings and loans, the invasion of Kuwait, the Middle East oil crisis. Actually, the local economies, because they were relatively disconnected, never had a global recession. What we’ve just seen now is the first global recession because we’ve connected things up. The Lehman crisis, and the whole financial crisis, wasn’t that big, but it resulted in the world’s first global recession.

So that’s the fourth one, in that we’ve linked things up. Another example of this linkage: Commodity prices and food prices and energy prices used to have very little correlation. When we link them up through biofuels, among other things, now the correlation has gone up. So the year where you have high food prices you’re also likely to have high energy prices.

What do these four disruptions mean for corporations and leaders?

RD: The Western corporations have had a wonderful 30-year period. They’ve been able to grow profits, particularly profits

after tax and after interest, almost twice as fast as global growth. So it’s been a great period. Now we see these disruptions coming through and actually causing some challenges for them. We see that the rise of emerging-market companies is going to be a big challenge. We see that 50% of the largest companies in the world are coming from emerging markets. And these companies are going to provide a higher degree of competitive intensity in the world economy.

The second shock is that we’re going to see technology companies increasingly disrupting industries outside their own. The media industry is one of the first [that the]technology companies disrupted. Or you look at the whole payment system, how the banks’ payment systems have been disrupted. You can see how that’s happening.

And the third thing that’s happening is that technology is going to allow small and medium-size enterprises to compete against much larger corporations. Examples of this are online platforms such as Alibaba or eBay or the UK government’s G-Cloud, which is how the government buys IT services. When these are established, you find that small or medium-size enterprises are able to go in and use the scale that the platform brings to compete against the larger corporation. So we think the large corporations, as we look at the picture going forward, are under a certain amount of pressure in terms of the dynamics.

What does this mean for leadership? One of the three most important things is, first of all, external focus. I’m

driven demographic trends. In Thailand, the fertility rate has fallen from 5 in the 1970s to 1.4 today. A smaller workforce will place a greater onus on productivity for driving growth and may cause us to rethink the economy’s potential. Caring for large numbers of elderly people will put severe pressure on government finances.

GREATER GLoBAL CoNNECTIoNSThe final disruptive force is the degree to which the world is much more connected through trade and through movements in capital, people, and information (data and communication)—what we call “flows.” Trade and finance have long been part of the globalization story, but in recent decades there’s been a significant shift. Instead of a series of lines connecting major trading hubs in Europe and North America, the global trading system has expanded into a complex, intricate, sprawling web. Asia is becoming the world’s largest trading region. “South–south” flows between emerging markets have doubled their share of global trade over the past decade. The volume of trade between China and Africa rose from $9 billion in 2000 to $211 billion in 2012. Global capital flows expanded 25 times between 1980 and 2007. More than 1 billion people crossed borders in 2009, over five times the number in 1980. These three types of connections all paused during the global recession of 2008 and have recovered only slowly since. But the links forged by technology have marched on uninterrupted

and with increasing speed—ushering in a dynamic new phase of globalization, creating unmatched opportunities, and fomenting unexpected volatility.

RESETTING oUR INTUITIoNThese four disruptions gathered pace, grew in scale, and started collectively to have a material impact on the world economy around the turn of the 21st century. Today, they are disrupting long-established patterns in virtually every market and every sector of the world economy—indeed, in every aspect of our lives. Everywhere we look, they are causing trends to break down, to break up, or simply to break. The fact that all four are happening at the same time means that our world is changing radically from the one in which many of us grew up, prospered, and formed the intuitions that are so vital to our decision making.

This change can play havoc with forecasts and pro forma plans that were made simply by extrapolating recent experience into the near and distant future. Many of the assumptions, tendencies, and habits that had long proved so reliable have suddenly lost much of their resonance. We’ve never had more


still amazed at how inwardly focused people are in many companies…. Part of the challenge for managers is how you get your company to change, so executives spend a lot of time inwardly focused on understanding the dynamics and politics at that company. We think that as the world is changing, the winners are going to be the leaders understanding externally how the world is changing, so that they can get their company changed.

The second dynamic in terms of what these individuals are going to need to do is in terms of agility. When the world is changing a lot and businesses are suddenly displaced and jobs are changing, successful leaders are going to be ones that are agile. They are going to be able to change their business to do things differently. And one of the things that we believe is really important is this concept of agility and low cost and how to do this.

An example is the Indian space program, which successfully put an orbiter around Mars. That in itself is quite an achievement—the fact that they did it the first time when every other country that had done it had to have a couple of goes first. But what was really striking was the fact that they were able to do it at a very different price level. It cost them about $75 million to do this. To put that in context, the film Gravity cost $80 million to make. But the Indians, being agile, were able to do this, put these orbiters around Mars.

The final thought is about attitudes. The world that we’re going into you can view as very negative. You can view a lot

of middle-class jobs suddenly disappearing; you can view government deficits being made worse by aging; you can view lower growth making it more difficult for companies and governments to deliver on their social obligations. There could be huge political tensions, and any political tensions can spread around the world because of the global connectivity.

You could also say this is a very optimistic world. We’ve already taken a billion people out of poverty through urbanization. Instead of a customer base of a billion, as we had in 1990, we’re going to have a customer base of 4 billion that we can sell to by 2025 as the middle class grows. We’re going to have tailored drugs that allow us to go after cancer in our body, tailored to our own individual genome. We’re going to have the ability to search through everything online and be able to access information in a very different way.

We think it’s a very important attribute for the winners to have an optimistic view of this changing world. The pessimists are going to say, “There are all of these changes. How do we stop them from happening?” The optimists are the ones who are going to say, “Well, these are some great changes. Let’s work out how we can leverage them and how we can create opportunities from them.”

We think that, disproportionately, the winners are going to be optimists. It’s going to be external focus, it’s about agility, and it’s going to be optimism. Don’t worry about cannibalization. Some opportunities are going to be taken away, but there are going to be new opportunities out there. AQ

data and advice at our fingertips—literally. The iPhone or the Samsung Galaxy contains far more information and processing power than the original supercomputer. Yet we work in a world in which even, perhaps especially, professional forecasters are routinely caught unawares. That’s partly because intuition still underpins much of our decision making.

Our intuition has been formed by a set of experiences and ideas about how things worked during a time when changes were incremental and somewhat predictable. Globalization benefited the well established and well connected, opening up new markets with relative ease. Labor markets functioned quite reliably. Resource prices fell. But that’s not how things are working now—and it’s not how they are likely to work in the future. If we look at the world through a rearview mirror and make decisions on the basis of the intuition built on our experience, we could well be wrong. In the new world, executives, policymakers, and individuals all need to scrutinize their intuitions from first principles and boldly reset them if necessary. This is especially true for organizations that have enjoyed great success.

While it is full of opportunities, this era is deeply unsettling. And there is a great deal of work to be done. We need to realize that much of what we think we know about how the world works is wrong, to get a handle on the disruptive forces transforming the global economy, to identify the longstanding trends that are

breaking, and to develop the courage and foresight to clear the intellectual decks and prepare to respond. These lessons apply as much to policymakers as to business executives, and the process of resetting your internal navigation system can’t begin soon enough.

There is an urgent imperative to adjust to these new realities. Yet, for all the ingenuity, inventiveness, and imagination of the human race, we tend to be slow to adapt to change. There is a powerful human tendency to want the future to look much like the recent past. On these shoals, huge corporate vessels have repeatedly foundered. Revisiting our assumptions about the world we live in—and doing nothing—will leave many of us highly vulnerable. Gaining a clear-eyed perspective on how to negotiate the changing landscape will help us prepare to succeed. AQ

Richard Dobbs is a director of the McKinsey Global Institute and a director in McKinsey’s London office. James Manyika is a director of the McKinsey Global Institute and a director in the San Francisco office. Jonathan Woetzel is a director of the McKinsey Global Institute and a director in the Shanghai office.

This article is from No Ordinary Disruption: The Four Global Forces Breaking All the Trends by Richard Dobbs, James Manyika, and Jonathan Woetzel. Copyright 2015, McKinsey and Company. Published by PublicAffairs. Excerpted with permission of the publisher.


Mergers Can Succeedin Today’s World

By TOdd aNTONEllI


• Understanding value drivers and integration implications (acquisition strategy articulation)

• Establishing an overall timeline• Identifying and resolving early decisions and dates for

resolution• Developing a Day-One checklist• Determining an accelerated decision-making process • Establishing communication infrastructure• Holding the kickoff meeting

The integration steering committee will vary based on the size of the acquisition. For small acquisitions, the committee may be one step up the chain of command from the integration project manager. For larger acquisitions, the committee could include the CEO, COO, and CFO of both companies.

The integration management team (see Table 3), including an integration project manager and an organization capability lead, will provide oversight and support to the integration teams. This management team should leverage information collected by the due diligence team (such as organization charts, process maps, and financial information) to facilitate analysis in the integration planning phase. The team should obtain information from conducting operational due diligence and coordinate with the due diligence team to capture any potential integration risks that were identified during the due diligence process.

The integration project manager should work with the company’s M&A team and the leadership team—typically executive leaders from both companies—to articulate the acquisition strategy and, from this strategy, determine the level of integration required. Once this level has been determined, the integration project manager will use the integration tools to establish an overall timeline and work plan.

The integration project manager will:• Coordinate all integration activities across functions and

establish a master plan• Ensure adequate resource allocation for functional

integration teams• Maintain focus throughout the merger, beginning with

closing mechanics and required Day-One plans• Track integration project issues, risks, and status toward

achieving goals• Provide regular reporting to the steering committee/senior

management

The organization capability lead will use communication planning tools to develop a high-level communication plan,

Activist investors are pushing boards to decide whether to use funds for dividend distribution or growth. Take, for example, Carl Icahn’s challenge to Apple. The fear of losing out on the “next best thing,” as with Facebook’s recent acquisition of Oculus VR, can induce some CEO acquisition fever as well. Other companies are amassing seemingly disparate businesses for no immediately overt reason; consider Google’s obsession for robotics companies. And some buyers are silently making acquisitions—communicating only as or if required—and immediately blending the acquired talent and intellectual property into their product, solution, or service development teams.

Acquisitions also are occurring in industries plagued by revenue stagnation in the traditional settings. Cable companies are merging to pick up more consumers in markets they couldn’t reach before with new products and solutions that may create a better traditional choice or compete with the disruption caused by streaming companies such as Netflix or HBO.

In each case, successful acquirers are beating the odds of failure, which are similar to getting heads 50% of the time on a coin toss Why? These organizations typically follow a playbook, built from their past successes and failures, to guide their future integration successes.

REVIEWING THE PLAYBOOKMany acquirers build their playbook to ensure the successful integration of new acquisitions, to record learnings from leading practices, to capture resolutions to mistakes, to record successful practices, and to drive results. The playbook contains guidance, methodologies, and tools that support the integration team in addressing critical elements of integration, equipping management teams for success.

Let’s take a closer look at a playbook model you might use as a CEO to lead the integration process with your board and executive team (see Table 1). Using this one-page view, you can guide the development of your organization’s merger integration playbook.

The premerger work or integration planning includes the actions to be taken by the integration team after an agreement has been reached to acquire a company. The most important activities are:

• Establishing an integration steering committee and a management team (from both firms), with an integration project manager and an organization capability lead

Flush with cash and propped up by robust share prices, many high-tech companies and their suppliers

are in the mood for acquisitions.


and what is critical to integrate quickly to ensure financial and operational results.

One of the most important tasks in the preplanning phase is to determine the level of acquisition integration (see Table 4). This level will be determined largely by the strategic objectives of the acquisition.

There should be no doubt as to why a focus on customers is so important in the process of combining organizations. In fact, customers should receive most of the attention during the integration process. Companies often overlook the need to ensure a seamless customer experience. Make sure that points of contact are clear, attention and support are uninterrupted, and partnership and channel relationships are maintained.

The critical reason for focusing on customers is to determine what’s in it for them. You must understand, develop, and articulate clear market and customer value propositions for

including “announcement” communications for relevant stakeholders (employees, acquisition-target employees, customers, suppliers, media, and so on).

The organization capability lead will:• Oversee change management activities (such as culture

change and HR/people)• Manage the communication plan and execute project

communications

The critical first step to set the stage for a successful merger integration process is to develop a well-defined, articulated business strategy. The strategy should explain the reasons for the deal, define the degree of innovation/transformation, and help make the deal’s context understood (see Table 2).

The strategy should be driven out of the acquisition and due diligence process, and it must focus not only on why an acquisition is needed, but why this acquisition is needed. The explanation should include how it will drive shareholder value

TABLE 1

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the post-combination entity. If you can’t, you can bet your competition will.

Clearly articulated market value propositions support “product, solutions, and services” road maps. Offerings are clearly communicated to the marketplace, internal efforts are aligned, and a clear branding strategy is in place.

Often confused with cost reduction, synergies are more closely related to business combination value optimization. The key premise of a synergy is that the whole will be greater than the sum of its parts. Simply stated, synergy refers to the phenomenon of 2 + 2 = 5. In mergers, this translates into the ability of a corporate combination to be more profitable than the individual parts of the combined companies.

Synergies include both cost-reduction and growth strategies and must be clearly identified. They should include cost and revenue; assign clear metrics/targets at the project level; and have strong project management in place.

There are two main types of synergy: operating and financial. The latter refers to the possibility that combining one or more companies may lower the cost of capital.

TAKING OFF ON DAY ONEA focus on governance and Day-One organizational readiness will position the combined entity for integration success and create an efficient transition for both organizations and their stakeholders. Here are a few key success strategies that winning organizations use:

• Plans are in place for all functions, businesses, and locations

• Governance is clearly communicated

TABLE 4

TABLE 3


• The organization communicates effectively with stakeholders

• There is an unyielding focus on employees and appropriate retention

• Divergent operating principles are addressed• The organization acts quickly and decisively

Short-term activities include those related to integration oversight and management and those performed by the functional teams (see Table 5).The integration team’s project management functions include:

• Managing the integration team kickoff and ensuring teams have all relevant tools needed to assist with the integration

• Providing teams with templates for tracking progress and issues (risk tracking template, issues tracking template, weekly status update template) and consolidating input from teams

• Reporting status to the integration steering committee• Managing the communications plan and working

with corporate communications and teams to develop companywide communications

• Incorporating findings and recommendations from function teams to create overall organizational design/charts and synergy savings

The functional integration teams’ activities include:• Creating joint company/acquisition target team to assess

the current situation (organization, processes and policies, and systems)

• Redesigning as needed to achieve the strategic goals of the acquisition

• Developing detailed plans for transitioning to the new design

Long-term activities are mainly related to executing the detailed integration work plans developed in the integration planning phase (see Table 6)

During the organizational/cultural integration, the company should:

• Implement the new organizational structure• Complete the cultural alignment• Focus on employee retention• Align compensation and benefits (as applicable)

During process implementation, the company should:• Implement new processes for each function or

subfunction, using detailed work plans developed during the prior phase

• Identify ongoing synergies and benefits

In total, the merger integration playbook on a page depicts the level of simultaneous work that must occur. Organizations fail most often because they do not follow routines, they repeat past mistakes, and they lose sight of the key strategies necessary for integration success.

Successful acquirers build their own acquisition integration playbook. These leading companies are realizing the benefits of strategic value creation, holding executives accountable for its achievement, and equipping their leaders with successful strategies and tools to get the deals done their way. AQ

Todd Antonelli is managing director of Berkeley Research Group, based in Chicago. He has more than 25 years of global experience in delivering, facilitating, and leading successful consulting practices and providing global consulting services.

TABLE 5

TABLE 6

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An InTERvIEw wITh

Georg vielmetter

The Megatrends Transforming

BusinessBy CHRISTIaNE TRUElOVE

Georg vielmetter is a member of hay Group’s European leadership team, with responsibility for the European leadership and talent practice, and is regional director for the firm’s consulting practices across Europe. he is co-author with Yvonne Sell of Leadership 2030: The Six Megatrends You Need to Understand to Lead Your Company into the Future (AMACOM, 2014). vielmetter talked with AMA Quarterly about some of the most transformative megatrends that business leaders need to be aware of.


What are the megatrends you describe in Leadership 2030, and why are they called “megatrends”?

GV: We picked the idea of megatrends because megatrends last long. That’s one of the two or three defining qualities of a megatrend. If a trend does not last for at least 15 or 20 years or so, we would not call it a megatrend. The book was just published a year ago, and we wrote it two years ago or so. If these trends didn’t apply today, we would have done something really wrong…. As a general remark, I would say that all of these trends still absolutely apply and are still important and are having a strong impact on organizations and societies and individuals.

What about the trend of globalization. How has this trend developed?

GV: What I’ve done is distinguish between the two types of globalization: 1.0 and 2.0. 1.0 was basically the West going east. That’s essentially what we saw over the last century, and predominantly even earlier, and it meant that the big Western companies were in a way exploiting cheap labor and cost conditions in less-developed countries—produce stuff there and ship it back to their home countries to sell it there. And that still goes on. As you know, the U.S. produces a lot of stuff in the south, in South America.

In Globalization 2.0, the East goes west. It is a strong shift in economic balance of power to Asia and especially to China, and Chinese companies really buying a lot of companies in Western countries, in Europe and also the U.S., as well as opening up many subsidiaries here and getting dominant and strong players in the global economy. That still continues, even though the growth patterns in China are no longer as steep as they were a few years ago. But still, it’s a very strong economy, it’s a very rich economy, with deep pockets. And more and more, there are private entrepreneurs. There are now not only state entrepreneurs.

I was speaking at a big conference in South Korea, and what was interesting is that there were so many Chinese business leaders and entrepreneurs. I spoke after a young woman from China who had started her own company in the sustainable green food business. You don’t associate that with China. Then there was another guy speaking, a CEO who seven or eight years ago founded his own logistics company. He spoke in Chinese and was translated. His company has 200,000 people within 10 years!

It’s just a question of size and scope, and still, absolutely it [globalization] goes on. For Western companies, it means that they still need to find ways to approach these different markets. They need to find more decentralized ways to get

a footprint in local markets, because the buying patterns of people are different there. The middle class is still growing there, and the middle class is what every company is targeting as clients.

Another megatrend is the environmental crisis. What are the components of that?GV: This global megatrend actually consists of two: One is climate change, and the other one is scarcity of resources, strategically relevant resources. Something happened that we couldn’t cover in our book because it happened so late, and that was the developments in the oil and gas industry, especially in the U.S., around shale oils and fracking, and the fact that the U.S. is the second-biggest oil producer in the world

again. As a consequence, the oil price went down really dramatically.

The Saudis were playing a game here, and they did not reduce the amount of oil produced as they had in the past when we wrote the book, and that might lead some people to think that what we wrote about the scarcity of resources is outdated or completely exaggerated, because oil is cheaper than it has been for many years. I think that’s true for now, and maybe for quite a while, but if you look at it in more detail, this only prolongs the problem. So we may not see an explosion in the prices of these resources in 15 years, but maybe in 25 years or so, because the resources are not endless, even if some new resources have been found. They are much more expensive to be produced, and the side effects are dramatic. That’s why many European countries don’t allow fracking, because of all of the environmental side effects, which are very well documented and widely undisputed, apart from lobbyists.

You use a lot of other scarce resources to get the oil out of the ground, like water, for example.… People think, “We’re able to frack, so we have solved this problem.” No, there are two arguments in that. At best, you have prolonged the problem, maybe for 10 or 15 or 20 years. The second is that the side effects of getting these resources out of the ground are so enormous that this is something that needs to be discussed, especially in the light that other resources that are scarce, like water, [are needed] to get that other scarce resource, oil, out of the ground.

But from an empirical perspective, that is probably the topic in the book that has changed most since we wrote it.

Besides oil and gas, there are other scarce resources, like rare earth minerals with names most of us have never heard of. But we need more and more of them, a dilemma that arises from the digitization trend because of all the smartphones and other digital media technology we use. We


need all of these rare earth minerals. They are scarce and, even worse, in politically difficult locations such as Congo and China. There’s a lot of price manipulation because they almost have a monopoly on some of them.

The climate change phenomenon is by far the most dramatic that we see…. Well, one of your guys running for president, Ted Cruz, was in California and was asked about the drought and climate change and he said, “Well, I am just coming from New Hampshire and there is snow all over the place. We have to stay with the facts.” [Editor’s note: Cruz appeared on Late Night with Seth Meyers in March and said, “I just came back from New Hampshire where there’s snow and ice everywhere. And my view actually is simple: Debates on this should follow science, and should follow data.”]

That’s a discussion that I have to say, coming from a European perspective, sounds a little bit awkward, because even conservatives here in Europe don’t deny climate change anymore. I know it’s different in the U.S.

Moving on from there, how do businesses have to react to get employees, to keep employees, and become closer with their customers?

GV: Regarding employees, I would also distinguish the

long-term and the short-term perspective. If we look at today, it really differs a lot among different countries. Take Europe, for example. You still have some countries in crisis mode—like Greece, for example—and southern European countries like Spain and Italy have huge unemployment rates, among the youth especially. In Greece and Spain, I think the unemployment rate among people under 25 is between 40% and 50%. It may sound cynical, but I think in those environments, under the circumstances, companies don’t have to bother so much because everybody is happy to get a job. That’s true short term and even midterm in some countries.

But if you look at other countries, especially parts of the U.S.—and I think that’s true for some countries in northern Europe, Germany, and the Netherlands, and for countries like Australia and New Zealand and even for countries like China—it looks really different. Especially in combination with demographic change and the fact that so many of those countries have aging populations, if you take a mostly long-term perspective, it will be more difficult for those countries under those circumstances to get the people they want into the organization, because people will have more choices. If you disregard the countries in crisis mode, if you are well educated, you will have more choices. You will be

Empire and Manure By GEORG VIElMETTER aNd yVONNE SEll

Name the following country: It is the richest nation in the world, with the world’s highest standard of living, largest military force, and most developed education system. It is the global center of business, finance, innovation, and invention, and its currency is the international standard of value.

The answer is Great Britain.

Actually, we misled you a little. More precisely, the answer is the British Empire in the year 1900.

Even more recently than that, in 1922, the British Empire was still the largest empire the world had ever known. It spanned 12.7 million square miles (33 million square kilometers), roughly a quarter of the earth’s land mass, and included 456 million people, a quarter of the world’s population.

At that time, few could have imagined how the world was going to change within just a hundred years. Nobody could have forecast the ebb and flow of world power that would follow: the emergence of the United States as the world’s dominant superpower, the rise and fall of the Soviet Union, and now the ascendency of China to threaten America’s hegemony. And many people have no idea that Britain’s supremacy was ever the global status quo.

But then, prediction is very difficult, especially about the future of superpowers.

IN THE MIRENevertheless, people dare to predict. Let us return to the days of the British Empire for a moment and consider the great horse manure crisis of 1894.

Imagine London in 1894—the world’s largest city, a hectic, densely populated metropolis, and the commercial center of the world. Transportation was its lifeblood. And in the 19th century, as had been the case for thousands of years, transportation meant horses. Just about every product made relied on horsepower for distribution. No large city could have functioned without horses.

In 1894, therefore, London was home to tens of thousands of horses, each of them consuming, according to one calculation, the produce of five acres of arable land per day. And each produced between 15 and 35 pounds of manure. Per day.

This was a problem. More than a problem. It was a crisis. Horse manure was piling up on London’s streets. It was reaching intolerable levels, polluting the environment and attracting billions of flies, which spread fatal diseases such as typhoid. The stench was abominable, and the effect of rain on all that waste does not bear thinking about.

The abundance of horses led to other problems too: road

“prediction is very difficult, especially about the future.” —Mark Twain, humorist

OFF THE SHElF


able to make a living if you are well educated, without being constantly, specifically tied to one single employer. That’s the trend we’re seeing more and more. Of course, we’re seeing that first in the creative class, and this is the only class that is still growing. All other classes are shrinking. You see that many of those people don’t want to go to the same employer every day, the same job every day. They want to have more interesting jobs; they want to have jobs that they can connect to their own value systems, their beliefs, to what they think gives meaning and identity and purpose to them.

For many people, that means they want to work in whatever kind of relationship to the organization—maybe part-time, maybe a loose way of being connected. This trend will become stronger and stronger, especially if we take into consideration the demographic change and the aging societies, and that means companies have to find more ways to make themselves attractive and to bind those individuals to the organization. And that asks from leaders [that they] personally create loyalty to those individuals, because an abstract entity like a corporate name or logo is, in the long run, not so attractive to many people. It’s much more interesting to see that the leader they work with is

“ You see that many of those people don’t want to go to the same employer every day, the same job every day. They want to have more interesting jobs; they want to have jobs that they can connect to their own value systems, their beliefs, to what they think gives meaning and identity and purpose to them.”

Georg Vielmetter and Yvonne sell


as disruptive, as innovative, as having the coolest, newest products don’t need to work as hard to create employee loyalty. But for all other companies, and that’s the vast majority of companies, what I just said would apply.

You talked about digital technology being a disruption. We’re speaking virtually, by Skype. Even five years ago this would not have been thought of for a conference call. We would have been on the phone, and we would have had to go into an office.

GV: Exactly, and we’re doing it for free! In my case, we would have used a video system, and that, of course, we don’t have at home, and you’re lucky if you do have it in the office. But our system in the Berlin office broke, I think, a year ago, and nobody missed it! We decided not to replace it because we use Lync and Skype all the time and nobody misses the traditional video system. It was complicated and you needed certain access to set things up.

So with the virtualization of work, how is that transforming businesses now, and how is it expected to continue to transform businesses?

convincing and inspiring, giving them the space they need or want for doing what they want to do.

There’s one exception, maybe, and that’s Silicon Valley or companies of that type. The difference here is that these are companies that are very early in their life cycle. They were founded by an inventor or an entrepreneur, and they do something new. Often they have a disruptive business model or disruptive technologies, like Apple or Facebook or other companies, and people are taken away by the idea of working with that organization because they do such cool and innovative and vanguard new things. So in those cases, the brand and the name of the company are sufficient to motivate people to work there, and work 15 hours a day on average salaries. Often they are not paid well, but they can say “I work for Google or so.”

If you look at the older generation of those companies, take Microsoft, it’s completely different. The grandfather organizations, they don’t have that cool image or appeal anymore. And I guess it would be normal that in 20 or so years, the same may be true for Google or Facebook or Apple, when there will be the next generation of innovators.

So that’s the exception. Those companies that are regarded

congestion (horses were slow), accidents (they were given to panic in crowded conditions), mistreatment of the animals, and a growing demand for valuable land to house and feed them. Scientists and politicians were at a loss as to what to do. An urban planning conference addressing the topic broke up prematurely when no solution could be found.

This was the context in which the Times of London dared to predict in 1894 that by 1950, every street in London would be nine feet deep in horse manure. Of course, London was not the only modern city facing a horse manure nightmare. Another forecaster warned that New York would be plagued by droppings three stories high by 1930.

But then, prediction is very difficult, especially about the future of horse manure.

THE TIMES THEY ARE A-CHANGIN’The fact is that nobody knows what the future will look like. It is all too easy to focus on one single trend, development, or incident, then extrapolate and jump to the wrong conclusion. But there comes a time when people have a feeling that change is in the air. We live in such a time.

This is the impression we have gleaned from hundreds of conversations with business leaders, academics, colleagues, and clients. They perceive that the way we do business will be dramatically different in the future, as will the way we lead people and organizations. It is a perception born of thousands of experiences, observations, and trends, all of which add up to a sense that we are in an era of far-reaching change.

It is a perception born of economic growth booming in unexpected parts of the world and stagnating in old economies, and of China being on the verge of surpassing the United States as the world’s largest economy.

It is a perception born of nanotechnologies and biotechnologies advancing in ways that most of us do not really understand.

It is a perception born of younger generations operating in the virtual world as comfortably as in the physical one and expecting to be allowed to spend time on Facebook while working.

It is a perception born of employees becoming as concerned about living fulfilling lifestyles as they are about how much they earn—if not more so. Of talented individuals being able to change jobs at will. Of top managers in Brazil, Russia, and China earning more than their colleagues in Germany, the UK, and the United States. Of companies struggling to find young talent, while older employees continue to work past 60, 70, and even 80 years of age.

And so on…. It is a perception born of all of these things and many, many more.

In early 2013, an iconic symbol of London, the one-time global center of commerce, came under Chinese ownership: The company Manganese Bronze, which makes the famous London black cab, was bought by Chinese car manufacturer Geely. In fact, after its bankruptcy a few months before, Manganese Bronze was rescued by Geely.

The fate of Manganese Bronze is deeply symbolic of the fact that times are changing. The prospect of the last car company in British hands being saved by a Chinese buyer was not bemoaned


GV: My perception is the digitization trend is one of the most disruptive and most discussed trends right now. And it’s fundamentally changing how businesses work and operate in many regards. As you’ve said, the fact that we are communicating now the way we do is a dramatic change that happened over the last three or four years or so. It was not even possible five years ago, and it makes it enormously easier for people to communicate globally.

But it’s not only that…There are some implications that have to do with the fact that the distinction and the division between private and professional gets blurred. I can talk to you and at the same time be on Facebook or whatever and do my work and private stuff. It’s no longer possible to distinguish this. There are still companies that prohibit employees from using some systems during work time, but that’s just hopeless and doesn’t make any sense for different reasons. First of all, it’s hard to distinguish what is private and what is professional sometimes. And second, there is a clear demotivating impact, especially on Generation Y, if you forbid them between tasks to do some social media.

But there are other technological implications that have to do with developments in the industry, like 3D printing, that

“ It’s hard to distinguish what is private and what is professional sometimes. And second, there is a clear demotivating impact, especially on Generation Y, if you forbid them between tasks to do some social media.”

as a national catastrophe. Rather, it was warmly welcomed by London’s mayor, Boris Johnson, who declared himself “delighted” that Geely had secured the company’s future.

We too get the feeling that change is afoot. A few weeks ago, we interviewed a chief financial officer as part of the due diligence process for a private equity deal. She told us that she had been working three days a week for the past two years to give her more time with her young family. The investors were only vaguely surprised—and largely unconcerned—to learn about this. A decade ago, a senior executive working a three-day week would have been unimaginable. Now it barely merits a mention.

The European head of a global financial services company recently complained to us that his organization struggles to recruit the best talent. This is not because the best do not apply but because “they expect good salaries, but are totally unwilling to put in the long hours we had to 10 years ago.”

In addition, a recent hire informed us—while in the process of signing his contract—that he planned to go on paternity leave just a few weeks later. And one job candidate asked about our company’s “carbon policies.”

We’ve seen numerous senior managers from emerging markets leave careers in the West to return to their native countries of India, China, and Indonesia to work for local companies. At the same time, Anshu Jain, an Indian who hardly speaks German, became co-CEO of the German financial giant Deutsche Bank in 2012. (Editor’s note: Jain resigned as co-CEO in June 2015.) All of this led us to the same conclusion as the leaders that we and our colleagues at Hay Group, the global management consulting


will have a big impact on manufacturing. For example, if you can print out stuff whenever, just sending a file with the template, it will change logistic chains and even the question of where you produce what. And it has a huge impact on how many different organizations work.

It’s an open question still, as to how disruptive it is for many different industries. For some businesses, the digitization trend is very disruptive. Take Amazon. They were very disruptive for the stationary retail business in many regards, because you can buy everything they sell online. And it’s been disruptive for many manufacturing businesses, but not in all ways. Take the car industry. You still need plants where you assemble cars. You cannot do that from home or via Skype or from remote. That’s impossible. You need plants. But we’re seeing big changes in the workplace, where you need fewer traditional blue-collar workers, because things are done by robots. And people who work with the robots almost seem to build a unity with them. They control the robots, but at the same time the robots control the people

as well. Because when it comes to standardized and repeat activities, machines are better than people. They do less mistakes. And that has impacted how the plant of the future will look. So this [digitization] trend is absolutely having an enormous impact on the future of work and organizations in general.

There are a few interesting studies—one is by Oxford University—on the future of jobs. It was published after we had done the book. They did a prediction of which jobs would disappear because of developments in the digital field. I remember one figure, they said that more than 90% of short-order cooks would disappear. And that’s by 2040 or 2050 or so. [Editor’s note: The study being referred to is “The Future of Employment: How Susceptible Are Jobs to Computerisation?” by Carl Benedikt Frey and Michael A. Osborne, 2013, Oxford Martin School http://www.oxfordmartin.ox.ac.uk/downloads/academic/The_Future_of_Employment.pdf] That’s because we have much more standardized food you can buy in a shop that is precooked, and you don’t need the cooks for that anymore.

firm we work with, talk to: Something is in the air. But it is difficult to get a grip on exactly what is changing, how and why, and what the future will look like as a result.

THE SHAPE oF THINGS To CoMESo despite the difficulties of prediction, we are daring to predict. In our book Leadership 2030 (AMACOM, 2014) we predict the changes, challenges, and environments that leaders will encounter in a future shaped by six megatrends, as well as the attributes they will need to cope with an altered landscape.

It is important to put this into perspective, however. Our aim is not to extrapolate hard numbers into the future, as people tried to do when faced with rising levels of horse manure in the streets. That would be attempting the impossible.

And we don’t have a crystal ball. We are not trying to set down in stone exactly how the future will unfold. That would also be attempting the impossible. We have no way of knowing whether “black swans” might occur: unforeseeable, disruptive episodes with far-reaching effects that radically alter the course of world events and the direction of one or more of the megatrends. Examples of such events are the recent financial crisis, the revolutions in Eastern Europe, the invention of the Internet, and World War I.

Rather, we are forming a view of the shape of things to come. What Leadership 2030 does attempt to do is to investigate the early indicators of long-term, fundamental change, then draw conclusions from this analysis.

In some ways, this is a counterintuitive exercise, for human beings tend not to question the world around them. Rarely, if ever, do we ponder how the complex normality we have constructed for ourselves might be different. Rather, we take as self-evident everyday life as we know it. We unthinkingly accept

our physical environment, our societal structures, and the cultural norms, common values, and belief systems that give us identity, belonging, and meaning. To question all of this at the same time would be to place ourselves under an unbearable mental and emotional strain.

So we go about taking everyday life for granted. We trust that the world is round, that the sun will come up in the morning and set in the evening, and that there will be oxygen to breathe. We assume that the building we work in will be there when we arrive each day. And we believe without doubting it that the United States is the world’s greatest superpower (or, at least, we did until very recently).

In 1900, people took for granted that the world’s dominant power was Great Britain. And they took for granted that the main means of transportation was the horse and that they just had to put up with all the manure.

But overreliance on our known world leads to inertia. The blithe acceptance that things are as they are brings about a reluctance to recognize and embrace change, even when it is staring us in the face. This is understandable. But it can blind us to the inevitable, and to the need to adapt to change. AQ

Georg Vielmetter is a member of Hay Group’s European leadership team, with responsibility for the European leadership and talent practice. He is regional director for the consulting practices across Europe. Yvonne Sell is head of the UK and Ireland leadership and talent (L&T) practice, a director at Hay Group, and a member of the core European L&T team.

Adapted, with permission of the publisher, from Leadership 2030: The Six Megatrends You Need to Understand to Lead Your Company into the Future by Georg Vielmetter and Yvonne Sell. Copyright 2014, Hay Group Holdings. Published by AMACOM.


Or even when you go to a restaurant, you have a lot of precooked stuff. You see that in a less drastic extent—here in Germany, at least—with bakeries. Today, I think we only have a third of the number of real bakeries that we had four or five years ago. A baker who had a vocation and a proper three years of training, he was doing rolls and sandwiches, etc. Today, everything is pre-fabricated, and anyone with 30 minutes of instruction can do it.

That’s a simple case. But even for more complex jobs, that will happen. Less so when it comes to psychologists or managers, where you have to use very individualized approaches and have to work with people. Take journalists, for example—there are automatic text-generating programs, and when it comes to many stories, these programs probably can replace journalists.

Most of these developments would not be possible without developments in the digital industries and related industries, and that’s why this trend is so deep and so important.

When it comes to demographics, most of the world’s population is getting older, and that means a shrinking global workforce and an impact on healthcare, among other things. How do businesses adjust to this trend? What do they need to do?

GV: The strange thing about the demographics situation is that we’re seeing something of a bifurcation. On one hand, in most of the countries that are the most developed, we are indeed seeing an aging of the population and the population shrinking.

But if you look at that from a global scale, population is still growing and will probably [continue] for the next 20 or 30 years. Since I started working on this book, the world’s population grew by 700 million people or so. I recognize that because sometimes when I give speeches on the topic, I look up the new figure, and it’s always growing.

But it’s really a bifurcation, because most of those people live in the less- or least-developed world. Africa or Arabia has a huge asymmetry; they have a lot of very young people, which also causes security problems because if they don’t get jobs, they get frustrated and aggressive.

On the other hand, northern European countries and Japan,

Korea, and China have aging populations and a shrinking workforce. In those cases, there are a few coping strategies that companies and organizations need to apply.

One is, people need to work longer. Until recently, in Europe, unlike in the U.S., you had something like a normal retirement age. In Germany, until two years ago the normal retiring age was 65. And it was so since the late ‘50s, when the pension system was set up.

The average time people got their pension was two years, because people died in their late 60s. Today, the average time people get their pension is 18 years, but the pension age stayed the same. So it was changed to 67 because it was not affordable to the system.

Also, people want to work longer. If you are not two years away from the average life expectancy, but 18, you are quite fit. So many of our organizations contract, in a very loose way and individualized way, elderly people—in the U.S., we’d say “late-career people.” These people want to work longer, and the organization wants them as well. So you’ll see more of that, older people working for companies because they like it and need the money.

At the same time, I think we will see more migrations. More countries are trying to get more people in, which is good because there are other countries with too many people.

I think there needs to be more effort and emphasis on general education. That’s another bifurcation within countries. I think it’s true for many of the most developed countries that you have between 15% and 30% of much younger people who just don’t make it, who don’t have the education you need today, unless you want to get a job being a garbage cleaner, and there are not many jobs left at that level. I think countries have to take the effort to do everything that they can to educate those people and get them into the workforce.

But it’s a very big problem, and organizations can only try and make themselves attractive and compete with other organizations. Many of the measures that need to be taken need to be done on a societal level or a country level, and it’s very difficult for just one company to change this.

The war for talent will increase even more. I am convinced about that. AQ

“I think we will see more migrations. More countries are

trying to get more people in, which is good because there are other

countries with too many people.”

10 SiGnS You need to Update Your Data Security

By ROBERT J. MUNNElly JR.


The torrent of information offers reminders of the widening scope of the data security crisis and proposes a variety of ideas for rethinking or even overhauling a company’s information security and privacy systems, daily work practices, and internal policies.

This article cuts through the information flow and provides some direct guidance in an easy-to-understand format. Here are the top 10 signs that you should immediately conduct a review to update your existing data security program.

1. You implemented an IT-focused information security program without addressing important non-IT elements. Many tech-savvy businesses responded to the data revolution by implementing so-called WISPs (written information security plans) focused exclusively on IT protections such as firewalls, virus protections, and the control of access to sensitive information, along with associated training.

Although certainly better than having nothing in place, this type of IT-focused plan ignores the need for a WISP to address substantial non-IT components as well. Such issues should include (but are not limited to) the following:

• Physical security, including security access at entrances, escort requirements for visitors, and the risk of external visual access through ground-floor windows

• Control over paper records using locked cabinets or offices or a “clean desk” policy

• Policies requiring the destruction of outdated or disposed-of sensitive information

• Data-related personnel policies, including those that expressly empower the company to sanction or terminate employees who breach data security policies

• Company control over remote devices and smartphones, including mandatory remote wipes for lost or stolen devices

If your current WISP does not address these non-IT provisions, beef up your protections fast.

2. You do not have a clear idea of the extent to which state or federal data security laws apply to your business. For U.S. companies, federal and increasingly state regulators have responded to the information age by enacting laws that

require businesses to protect against unauthorized access to confidential employee, customer, and patient information —referred to as personal information (PI) or personal health information (PHI). Similar and even more restrictive rules, in some cases, apply in many non-U.S. countries.

A review of your program is critical if you do not know whether or to what extent you are subject to these ever-expanding legal requirements. Many of these are embedded in federal industry-specific requirements, such as Gramm-Leach-Bliley (banks and lenders), HIPAA/HITECH (healthcare providers), “Red Flags Rule” (creditors, including utilities and auto dealers), and a broad set of statutes, rules, and executive orders applicable to federal defense contractors.

Public companies also should have a good handle on the extent to which Sarbanes-Oxley may require data security protections to be reviewed and certified by top company brass. The same is true if you are not aware of the extent of applicable state-law data rules. Some states now impose upon all businesses significant requirements that fall within the scope of the rules, which in many cases extend to businesses well outside of state borders. Leading examples include Massachusetts, which imposes mandatory WISP, network security, laptop and email encryption, and vendor management obligations on all businesses holding PI of Massachusetts residents, irrespective of whether the data is held in-state; Nevada, which imposes broad encryption obligations on both in-state and out-of-state PI holders; and Connecticut, which in June 2015 announced new requirements effective in the future for healthcare insurers and state vendors receiving PI or PHI. If you do not know whether and to what extent these federal and state laws apply to you and what they require, ask!

3. Your business relies only on outsourced or part-time IT assistance. Many midsize or family businesses underinvest in IT as a consequence of failing to understand the true scope of evolving threats associated by interconnected networks. As a result, these businesses often fail to implement adequate, much less industry-leading, defenses against the external network incursions that have been at the heart of so many recent security breach cases.


Many leaders are overloaded with advice from commentators, professional service firms, and

security consultants about how best to protect their organizations from the data security crisis that has

been growing almost exponentially with every new major breach or data-related lawsuit.


Failures from under-resourced IT assistance can be characterized in three main areas:

• A failure to make smart technology purchases and pay close attention to the installation of firewalls and virus protection software and updates opens such businesses to an intentional attack or a careless loss of data

• A lack of knowledge about or inattention to key points of weakness—such as insecure or abandoned Wi-Fi networks, server ports left open following maintenance, failure to lock down smart copier hard drives at contract end, failure to employ disk encryption for laptops of key employees, and the use of insecure cloud networks—is similarly dangerous from a security standpoint

• Maintenance and updates to software and equipment protections that have been installed are insufficient

It is very possible that your outsourced or part-time IT staff is meeting all applicable requirements and maintaining a strong set of data security protections. Nevertheless, it is a possible red flag, and you should immediately review the adequacy of current program protections.

4. Your WISP does not address protections applicable to vendors holding your confidential information. The industry-

leading state rules for Massachusetts included specific provisions that required holders of confidential information to both (1) supervise vendors providing services relative to such information and (2) address in a written contract the specific vendor rights and obligations relative to your PI or PHI. This attention to vendors and the development of targeted contractual protections in vendor agreements is an excellent and often critical practice for all well-run businesses.

Implementing a vendor management program often presents challenges, so it is best to get started promptly. Common challenges can include determining the right questions to ask during due diligence of existing and new vendors; identifying what contractual protections are suitable for particular vendor relationships; and deciding how to respond when a vendor refuses repeated requests to answer questions or agrees to new contractual provisions.

Conversely, if you provide vendor services to holders of confidential information, you can expect to field inquiries about the adequacy of your data-protection practices relative to customer PI and PHI. In this case, you will want to develop a plan for how best to respond to such requests, including whether to adopt stronger security protections, accept enhanced disclosure obligations, or even agree to

“Failure to update the wISP or underlying procedures to correct the deficiencies may leave you open to future breaches.”


closely regulated field and your policies and practices have not been subject to a comprehensive review for several years.

8. You work in a law or other professional services firm. Evidence suggests that those interested in stealing sensitive information for profit or corporate espionage have turned their attention increasingly away from well-protected technology businesses and toward the professional firms that serve those targets. Such firms offer the proverbial “target-rich environment” for thieves: They may offer access on a “wholesale” basis to information on dozens of client companies; they often are slow adopters of cutting-edge security technology compared with their clients; and many individual professionals within such firms operate from an “old school” perspective and resist making full use of their firm’s security technologies. WISP development, network and software options, remote device control, and training all may be needed to protect the firm and its clients from risk of improper access.

9. You hold unnecessary confidential information. It is a truism in this data age that liability attaches to every confidential record you own or control. Many companies may benefit from changing their practices to move toward being a “Lean Information Firm.” This change could be as simple as implementing a robust policy governing records retention/disposal, increasing shredding efforts, changing policies so as to not automatically request Social Security numbers from job applicants until they are hired or face a security check, and relying on third-party credit/debit card vendors rather than self-processing for customer purchases. If you have not adopted modern “Lean Information Firm” principles to date, tightening up your practices and limiting potential data exposure should be considered on a priority basis.

10. You are underinsured against potential data breach losses. As a final, but not least important, point, general liability policies have been increasingly revised to exclude data security-related losses, which may be significant. Given the multimillion-dollar losses reported for many businesses suffering from significant breaches, you should consider whether data security insurance protection should be part of your program of managing overall business risks. Such coverage is both popular and cost-effective for many companies operating in data-intensive fields, and an insurance professional can help you evaluate available options. Conversely, if you are not planning to invest in robust cyber coverages, it increases the importance of evaluating the strengths and weaknesses of your current set of data security policies and procedures. AQ

Robert Munnelly is a shareholder at Davis, Malm & D’Agostine, P.C. in the firm’s Regulatory & Administrative Law Practice. He has extensive experience with legal, regulatory, and local taxation issues faced by energy, cable television, and telecommunications companies in New England and nationally. His data security and information privacy practice focuses on advising and working with companies to develop written plans, improve security-related polices, support compliance training, and respond to potential security breaches. He can be reached at [email protected]

indemnification obligations in the event that your actions contribute to a harmful security breach.

5. You’ve had a significant breach but have not updated your WISP. While some breaches result from bad luck (a reputable transportation company loses key data files en route to a disposal facility) or unpredictable human error (a maintenance person dumps sensitive records in an open dumpster rather than shredding them), some are the foreseeable end product of a poor or incomplete WISP or no WISP at all.

Organizations need to view every breach as an opportunity or obligation to evaluate the adequacy of their security procedures. An external hacking event should lead to a reevaluation of network security hardware, software, and work practices. A lost, unencrypted laptop is a good impetus for installing full disk encryption on all laptops holding PI or PHI. A vendor deficiency should lead to a review of contractual provisions or even reconsideration of the use of that vendor on future service efforts. Failure to update the WISP or underlying procedures to correct the deficiencies may leave you open to future breaches or, even worse, increase your potential liability in the event of recurrence of a similar breach.

6. You had a corporate transformation or restructuring and have not updated your WISP. WISPs should grow and evolve with new business opportunities and challenges. Expansions into new states, countries, or lines of business should trigger a reevaluation of the adequacy of what might now be an outdated WISP. This can happen all the time. In particular, international data protection rules are tricky, so opening a new office or working with a new sales staff in another country needs to be addressed in a WISP. The same is true if you begin to do business within a state that has a more restrictive data regime.

In addition to geographic changes, changes in the nature or scope of your business can have data implications. For example, the move of a business-to-business firm into a retail market segment may result in a vast increase in the amount of PI or PHI flowing into the business and may require associated changes in data handling, recordkeeping, and storage practices.

7. You are in a closely regulated field and your WISP is several years old. The field of data protection has changed rapidly in relation to several closely regulated fields. Notable examples include the 2013-14 federal rewrite and expansion of HIPAA/HITECH in the healthcare information area and the 2014 federal expansion of obligations in the defense contractor rules. Technology also has been changing rapidly, with the availability of cheaper and easier-to-use encryption, the strong trend toward the use of the “cloud” for data management and storage, and continued movements toward paperless work environments.

The combination of regulatory changes in many areas and rapid technology changes means that your WISP and related policies also may be in need of change if you are operating in a


Mindfulness is the art of living in the moment. A mindful person is one who pays attention to the present in a nonjudgmental way. Ancient practices such as meditation were created, in part, to help people master the art of mindfulness.

So, why are some experts promoting it as a valuable workplace practice?

The answer is multifold. First, the process of globalization has made more people aware of mindfulness-enhancing practices such as mediation, yoga, tai chi, and others. Second, a variety of scientific studies have lent support to the notion that mindfulness practices have beneficial effects such as reduced stress levels, enhanced concentration, performance improvements, and improved brain functioning.

As a result of these first two trends, a third trend has

developed: Some management thinkers now view mindfulness as a possible treatment for a number of workplace ills. Job-related stress is the most obvious of these ills, but there are others, including poor productivity levels, declining job satisfaction, and subpar leadership skills.

Yet, there have been few studies of workplace mindfulness practices on their effectiveness. To help fill this gap in the research, American Management Association conducted a major survey in association with the Business Research Consortium (see box on page 32). In the course of this study, we arrived at 10 key findings:

Stress is a serious concern. Among all the workforce-related issues we explored, the problem of high stress levels ranked highest. Fully 55% of respondents indicated that

The MinDFUlneSS

eFFeCTBy MIlES H. OVERHOlT aNd MaRk VICkERS

At first glance, it may seem strange that an idea dating back millennia could suddenly become so fashionable in

management. Yet, that’s exactly the case with mindfulness.


their organizations suffer from an above average or very high degree of employee stress. In contrast, only about 8% reported that their organizations had less-than-average amounts of employee stress.

Stress management is a leadership deficit. We asked respondents to rate the degree to which leaders in their organizations demonstrated five qualities. Of all the qualities we examined, leaders were, on average, worst in the area of stress management. Only about a fifth of respondents said their leaders were above average in this area, whereas three- quarters said they were average or worse.

Almost half of respondents’ firms leverage mindfulness. Given the high stress of today’s workplace, what proportion of organizations have introduced mindfulness training or otherwise provided resources to mindfulness practices? Among our respondents, nearly half said their organizations do this to some degree. But just 13% said their organizations do so to a very or fairly high degree.

We also found that a surprisingly high number of respondents (87%) engage in mindfulness practices outside of work. Almost 65% practice with some regularity and focus. These high numbers suggest that those with experience in mindfulness practices were more likely than others to respond to this survey.

Attention training is key to mindfulness. Mindfulness exercises can take many forms, so we asked participants about their organization’s practices. It turns out that no single practice dominates, which may speak to the variety of mindfulness-related exercises or to the fact that, as with any relatively new trend, organizations are still experimenting with which ones best fit their needs.

About 30% said their organizations make “attention-training exercises” available, but this is a catchall category that potentially includes any or all of the other listed practices. Among the more well-defined practices, the most commonly provided or supported one was “yoga or tai chi,” with over a quarter (28%) of participants choosing it. It was followed by “meditation,” at 24%.

Participation tends to be voluntary. Most respondents whose organizations support mindfulness training said that participation is voluntary (67%). Just 4% said it was mandatory. The rest either said they didn’t know or that “it depends.” We added “it depends” to possible responses because, while we expected that most programs in

any given organization would be voluntary, some might be part of mandatory development or employee assistance programs.

Organizations might find that mandating mindfulness training is self-defeating. An employee who resents being asked to spend time on such training—which could be viewed as unconnected to work skills—is unlikely to benefit from it.

Delivery is not yet standardized. There is no obvious “right way” of giving employees access to mindfulness-related workshops, presentations, and/or training. Among the participants whose organizations do this, about a third primarily used internal trainers, another third mainly used external vendors, and the other third used both.

The lack of a common practice in this area is another indicator that mindfulness-related training in the workplace is still in the early stages. We expect that, over time, one of these three methods of providing access will become more common than the others.

Most respondents see positive organizational impacts. Respondents from the organizations that utilize mindfulness practices hold high opinions of their utility. In fact, about 85% of respondents reported that mindfulness training and/or resources are at least somewhat beneficial to their organizations, and nearly two-fifths viewed them as “very beneficial.”

We found it interesting that optimism about workplace-based mindfulness practices extends to those whose companies do not yet support it. That is, we asked respondents from organizations that do not provide training and/or resources for mindfulness about how beneficial they expect mindfulness practices would be. Nearly as many of these participants

High Stress Has Become a Significant Problem in U.S. Organizations, Exceeding Other Workforce Management Issues

Organizations that experience the following issues to an above average or very high degree

HIGH EMPLOYEESTRESS LEVELS

POOR DECISION MAKING

STAFF TURNOVER

INTERPERSONALCONFLICTS

ABSENTEEISM

0 10 20 30 40 50 60

21.8%

17.1%

21.1%

55.4%

9.0%

AMA Report: “Stress Management and Mindfulness at Work,” by Miles Overholt and Mark Vickers. © AMA 2015

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(33%) estimated such training would be “very beneficial” as those from organizations that actually provide such training (39%). Another 54% estimated it would be “somewhat useful.”

Most mindfulness practitioners experience work benefits. The perceived impact of mindfulness practice on workplace performance is strongly positive. Respondents who engage in mindfulness practices outside the workplace report that such practices help them control stress at work (85%), be more productive (82%), make better decisions (79%), have better work relationships (76%), and be more engaged (71%). Although there is a subjective element to these findings, these high percentages are nonetheless likely to impress most management teams.

Engagement is statistically linked to mindfulness. Having discovered that most respondents believed mindfulness practices benefit their organizations as well as their own work performance, we set out to see if we could discover statistical relationships between mindfulness practices and other organizational factors. We found that respondents who said employees were more engaged in their organizations were also significantly more likely to say their organizations provided some type of training and/or resources for mindfulness practices. In addition, the analysis uncovered a link between mindfulness and leaders’ ability to engage employees. That is, respondents who said their organizational leaders were better at engaging employees were also more likely to say their organizations provide some type of training and/or resources for mindfulness practices.

Leaders might derive a mindfulness advantage. We found significant statistical correlations between mindfulness practices and leadership skills in three other areas as well:

• Leaders’ emotional intelligence. Respondents who gave their leaders higher marks in terms of their emotional intelligence were also more likely to say their organizations provide some type of training and/or resources for mindfulness practices.

• Leaders’ ability to manage stress. Participants were more likely to say their leaders are good at managing the stress of employees if their organizations provided some type of training and/or resources for mindfulness practices.

• Averaged index of multiple leadership abilities. We created an index by averaging the scores respondents gave their leaders in terms of their abilities in the areas of emotional intelligence, decision making, engagement, resilience, and stress management. The higher the overall score, the more likely respondents were to say their organizations provide some type of training and/or resources for mindfulness practices.

Correlation is not causation, so it is impossible to know from these data whether mindfulness training is helping to drive such outcomes or whether organizations with such characteristics (e.g., better employee engagement and better leadership) are simply more likely to be on the cutting edge of utilizing mindfulness practices.

Still, we found it interesting that there were multiple correlations between mindfulness practices and leadership performance. It is possible that leaders who adopt and implement practices related to mindfulness are viewed as more caring than other leaders, thereby enhancing their reputations as emotionally intelligent people capable of engaging their workforces.

Another interpretation is that leaders who have access to mindfulness practices in the workplace genuinely improve their ability to do their jobs, increasing their own emotional intelligence and becoming better at managing their staff members.

CONCLusIONMost respondents’ experiences with mindfulness tend to be positive. They report that mindfulness is an effective way to counter their own stress levels while increasing productivity and decision-making abilities. Most report that mindfulness training and support either are or would be beneficial to their organizations. Respondents from organizations that provide mindfulness training and support are also more likely to view their workforces as more highly engaged and their leaders as more highly skilled.

Given such findings, we expect that mindfulness practices will become more prevalent in the coming years in U.S. workplaces. The correlations between mindfulness and leadership skills suggest such practices may be increasingly incorporated into leadership development programs.

If the benefits of such practices are demonstrated over the long term, then they will probably become part of the standard package of employee offerings, incorporated into existing wellness and learning programs. AQ

Miles H. Overholt is the principal of Riverton Management Consulting Group. His work centers on leading individual, team, and organizational transformation. His clients range from entrepreneurial startups to the Fortune 500. He is the author of Building Flexible Organizations: A People-Centered Approach.

Mark Vickers is a principal at Vigoré Publications. He has authored, co-authored, and edited hundreds of research reports and articles.

ABoUT THIS STUDYThe findings in this report originate from American Management Association’s “Mindfulness Survey,” conducted in collaboration with the Business Research Consortium (BRC) in late 2014. BRC provides research expertise to professional firms and vendors. Gathering information from 991 respondents, most of them residing in the United States, the survey asked participants about whether their organizations were using or supporting mindfulness practices and, if so, how this was being done. It also asked a series of questions about the state of their organizations in terms of workforce-related issues such as engagement and stress, as well as leadership issues such as emotional intelligence and decision-making abilities.

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The benefits of the Membership Economy are significant. By adhering to some key principles, organizations of all types can do the following:

• Turn digital subscriptions into forever sales• Build an online community your customers will love• Develop new loyalty programs that really pay off

• Transform “freemium” users into superusers• Create a self-generating revenue stream• Keep memberships and profits growing for years to come

The Membership Economy is relevant to executives in SaaS, subscription, and other tech companies, small businesses with limited resources, established companies using a

The RiSe oF The MeMBeRShip eConoMY

By ROBBIE kEllMaN BaxTER

The Membership Economy is a massive new trend that is transforming virtually every major industry and changing the role of the marketing discipline. It’s about access over ownership, relationships over transactions, and community

with multidirectional communication.


traditional business model, and nonprofits. It has transformed industries such as music, software, hospitality, and recruiting, and it is now disrupting consumer packaged goods.

It’s about a shift—from ownership to access, from the transactional to the relational, from unidirectional organization-customer communication to multidirectional communication between the customer and the organization and even among customers themselves, under the umbrella of the organization.

In the Membership Economy, the transaction is the starting line, not the finish line, and it’s a “forever transaction.” Your best members become superusers who drive your whole business forward. The organization enjoys greater engagement and loyalty and a more predictable revenue stream, which can support your long-term objectives.

WHY Is IT sO PREVALENT?Organizations are rushing to evolve to membership models, and consumer and business customers are rushing to join. Why?

Recurring, predictable revenue lets you manage cash flow and plan for the future. It helps ensure your organization’s ongoing success. That’s why organizations of virtually every type are trying to figure out how to build ongoing formal relationships with customers and drive forever transactions that are made once but result in ongoing automatic payments. Organizations love it.

But why do members like it? It comes down to basic human psychology. We all have the same basic longings. Abraham Maslow described them in his hierarchy of needs in the 1940s, and they’re as true today as they were back then. Once our basic physiological needs have been met, we want to mitigate risk, to belong, and to be held in high esteem. Ultimately, we all want to self-actualize and be able to express our full potential.

Organizations that promise long-term, ongoing relationships with customers can provide them with more than just the products and services they sell. They can actually help their customers to achieve the needs Maslow described—belonging, being safe, being admired, and being part of something important. Membership, when done properly and with authenticity, taps into and satisfies these longings.

How can your organization move beyond just “selling stuff” to creating meaning for your members? Organizational leaders have understood the value of tapping into these longings for ages. It’s always been what drives people to join. It’s why we root for sports teams and feel connected to people wearing the same logos, even if we don’t know them, even if we don’t know the players on the field, and even if we’ve never played the sport. It’s why we join sororities and fraternities. And it’s at least part of the reason why we participate in organized religion.

WHY NOW?But none of this is new. We’ve had organized religion for centuries, fraternities and sororities have been around for a while, and the membership business model isn’t even new. Look at professional guilds, gyms, and even Charles Dickens, who sold his novels using a chapter-by-chapter subscription model. So why is it taking off now?

Technology is extending the infrastructure of trust. Long-lasting relationships are built on trust, and the better technology gets, the more possibility there is for us to develop trusting relationships across time and space with strangers and with organizations.

All kinds of technology trends are helping, but here are a few of the most impactful:

• Mobile devices that are always on and wearable, allowing you to connect with your customers anytime, and they with you

• Declining costs of storage that make it easy to share video and audio content and software

• The ability to communicate and share from the organization to the customer, the other way around, and among customers, who can generate and share their own content

• The ability to track and analyze behavioral and preference data (surveys and usage) also important to you

Technological changes, combined with our timeless human needs, are creating new possibilities for membership.

IDENTIFYING YOuR suPERusERsThese changes are fueling the Membership Economy and are enabling a new kind of member. I call them “superusers.”

Superusers are people who exhibit three traits:

• They use your services regularly and well and are representative of the direction you plan to go in. They’re like your “target member” plus more.

• They recruit and engage their peers to make the experience better for them.

• They work with the organization as a whole, providing feedback and leadership as advisors and volunteers.

There is a major difference between a target customer and a superuser. Superusers go beyond just loyalty and usage to build the business on the company’s behalf.

You can optimize the onboarding experience to identify and engage superusers—to find the people most likely to become superusers and win them to your organization. To do so, you’ll need to remove friction, give them immediate benefits, and reward them for desired behaviors (which implies that you know what those desired behaviors are!).

suPERusER ExAmPLE: sALEsFORCEIn 2014, Salesforce was named the world’s most innovative company for a record fourth year by Forbes. Why? Well, for


one thing, because the company treats its B2B customers like people. Salesforce understands that when it brings a new corporate customer onboard, it is really bringing individual people onboard. Those people need to be successful and engaged and to belong from Day One.

The company has invested heavily in developing community, and open conversation among customers who use its products, since its founding in 1999. It was also among the first B2B companies to sell access rather than ownership and minimize the risk associated with major software purchases. Its MVP program was created to recognize standouts in the Salesforce community for their leadership, expertise, and ongoing contributions.

Salesforce users love the brand, help their peers be successful, give feedback to the company, and help onboard new customers. And the prize for being recognized as an MVP? They get to do more! More speaking at SFDC events, more access to SFDC execs, and special opportunities to connect with other MVPs (and lots of logowear too). In short, their rewards, while coveted and appreciated, also reinforce the behaviors that will generate more MVPs. Pretty smart, and worth emulating.

THINKING DIFFERENTLYMaybe the Membership Economy has gotten you thinking, but you’re not sure what this might mean, specifically for your organization.

The Membership Economy is happening in companies well beyond traditional membership organizations, and there is a lot to learn across a broad range of models. It’s not enough just to be a membership organization. You’ve got to look more broadly, because your members are getting terrific membership experiences from organizations you might not think of as membership organizations, and they are raising their expectations as a result.

I have seen evidence of the Membership Economy across a broad range of organizations. In my research, I focus of six categories of organizations that are currently applying principles of membership.

There are the edgy digital natives—the subscription services and online communities that are so common in Silicon Valley. This is where I first got the ideas that have become the focus of my research and my work. But the Membership Economy also is evident among large traditional organizations such as Weight Watchers and the loyalty programs of Starbucks and Caesars Entertainment. And the Membership Economy is transforming small businesses like my neighborhood bookstore Kepler’s and “Million Dollar Consultant” Alan Weiss, a solo practitioner whose community spans thousands of active members, most of whom spend thousands of dollars with him every year.

ExAmPLE: AARPAARP is an organization that doesn’t mind disrupting itself.

The Seven-Step Membership Economy Frameworkhere’s a framework designed to help organizations unearth potential ways to harness the power of the Membership Economy. not all of these steps make sense for every organization, but it’s a useful way to probe for ideas.

organization. Several investors have told me that the trickiest thing about building a business around a long-term relationship with the customer is having a team that understands this model. Membership changes the metrics and changes the attitude, and you need the right team to survive this change.

Funnel. As marketers, we know that it’s wise to start at the bottom of the funnel and make sure you can retain your customers before you invest in the acquisition of new customers. This is doubly true in the Membership Economy because you’re so dependent on loyalty, engagement, and referrals. The funnel actually is more of an hourglass, with the moment of transaction as the narrowest point. Marketing needs to spend as much time below the transaction as above it.

onboarding. It’s critical to make sure that new members have positive experiences and build habits of engagement from the moment of transaction. Do you have a process for onboarding?

Pricing. There are infinite permutations of pricing for the long-

term, but the best models are simple—such as three tiers based on either level of engagement or differentiated segments. It’s OK to offer some benefits as one-off transactions, but ideally everything fits into the tiers. A key benefit for both sides is predictable revenue/costs. This is not about pricing for cost plus—it’s about pricing for value and pricing to drive the right kind of usage that gives the most value and builds the greatest engagement and stickiness.

Free. As delivery costs decline, it becomes increasingly possible to incorporate elements of free trials and/or freemium subscriptions into your model. There are three reasons to give stuff away:

• When free serves as a source of awareness and trial• When free(mium) has a network effect, in which each new

member increases the value for the existing members• When free(mium) members are marketing channels,

recruiting in new paying subscribers

Technology. Technology is constantly and rapidly changing. Organizations need to be clear on their requirements and continually explore what’s available in terms of tools. So much can be outsourced and leveraged through a SaaS model that the responsibility for identifying and buying these services


Its mission is to improve the quality of life for Americans over the age of 50. Last summer, it launched the RealPad, a tablet device for seniors.

Dawn Sweeney, CEO of the National Restaurant Association and formerly of AARP, has an exercise she does with her team periodically. She asks them how they would put themselves out of business, if they had a clean slate and a decent budget. They use that brainstorm as input for new initiatives.

It’s this kind of willingness to constantly slough off old successes to make room for new ones that best serve your members that has made AARP so powerful and relevant the past 50-plus years.

ExAmPLE: AmAzONAmazon was named for the giant river that is the source of all life in the Brazilian rainforest. Food and water, along with the overall health of the ecosystem, all come from this great river. Similarly, the company Amazon continues to evolve, using principles of the Membership Economy to play the same kind of pivotal role for its customers. Starting as a retailer of books, it evolved into a retailer of everything, then a tech platform for all kinds of retailers, a hardware company, and a digital source for content and services. Other companies could learn a lot from Amazon, especially in terms of the value of constant innovation and investment.

Amazon has tested many kinds of subscription, community, and membership over the years. Membership is about a formal ongoing relationship, while community is about connection and communication among a group of people with shared interests. Amazon has invested in both. Here are a few examples:

• Amazon Prime (subscription to free shipping plus access to digital content such as eBooks, music, and video)

• Amazon forums (communities where members can share ideas and opinions on everything from BBQ to Michael Jackson)

• Woot (the deal-of-the-day site where passionate members debate the merits of each deal)

• Subscription service on consumables (the ability to get your favorite products delivered automatically every week or two)

Why is Amazon investing in so many experiments? Because it sees the huge potential of transforming customers into members. AQ

Robbie Kellman Baxter brings more than 20 years of strategy consulting and marketing expertise to Peninsula Strategies. Her clients have included startups and midsize venture-backed companies as well as industry leaders such as Netflix, Yahoo, Oracle, and eBay. Her expertise with companies in the emerging Membership Economy extends to include SaaS models, subscription models, and the implications of social mobility.

increasingly falls in the purview of marketing, not IT.

Customer success. This a new discipline at many SaaS companies, designed to ensure that every customer is engaged, happy, and aware of all the value that is possible from the relationship with the organization. Every organization needs to be tracking and supporting engagement for the lifetime of the relationship, especially when the customer is making a forever transaction.

Remember, none of this matters if you, the leader, do not believe in it. Membership is not a tactic, and it’s not a pricing structure. It’s about your mindset, about focusing on the formal ongoing relationships with your members as being more important than any products, people, or processes in which you’ve already invested.

At the core of the Membership Economy is the attitude. It is about how you feel about your members. Everything else follows from there.

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is Your innovation Team primed for

SUCCeSS? By STEPHaNIE OREllaNa, Phd


To meet the insatiable demands and expectations of the market, companies are reshaping and retooling their traditional approaches to innovation. Perhaps the most critical task—and the most challenging—is choosing the right people for an innovation team.

Just because someone has a strong track record in R&D or in bringing products to market doesn’t mean he or she is a good candidate. Conversely, some of the most valuable and successful members of innovation teams may not have years of experience. While a certain level of relevant expertise and competence is a given, successful innovation also requires a special set of qualities that go above and beyond the practical application of knowledge and skills.

Paving the way for a successful innovation team starts before the players are actually chosen. Some companies still begin the selection process by making a list of available talent. But if these individuals don’t have both the appropriate technical know-how and the right mindset for collaborative thinking, the ability of the team to successfully innovate is limited before they’ve even begun their first project.

Instead, organizations need to start by creating a clear and well-defined description of their innovation goals. This process will ensure the candidates are aligned against the desired outcome, not the other way around. And, in large environments, it will encourage a broadening of the talent pool beyond a certain division or department.

QuALITIEs FOR INNOVATIONAfter you’ve qualified candidates’ technical expertise and competence, the next selection criteria you must consider are less tangible but equally important. Successful innovation teams are made up of individuals who share three fundamental qualities:

• They are good at creative problem solving

• They are open-minded and eagerly embrace new thinking and ideas

• They are not limited by their own knowledge and experience

With the first quality, it’s important to make the distinction between invention and innovation. Innovation takes an

invention and transforms it beyond its original, intended use. That’s why the ability to creatively problem solve by envisioning a new application of an existing technology or solution—especially those in parallel or even unrelated industries—is so critical to successful innovation.

The second quality, open-mindedness, is an absolute imperative for all innovation team members. Innovation simply doesn’t have a chance to flourish if it’s dismissed in its infancy by those who are not able or willing to consider and then build on the ideas and perspectives of others.

Finally, team members must have a way of thinking and therefore ability to truly innovate that are not limited by an ingrained perspective or approach to a specific technology or process. Academics refer to this as “cognitive bias” or the “curse of knowledge.” Simply put, if someone is too set on a candle as a source of illumination, then he or she won’t be able to imagine using its wax drippings as a polishing agent or lubricant. For a real-life business example, consider how PepsiCo is repurposing orange peels from its juice process into biofuel and other materials. Or how the Climate Change and Emissions Management Corporation is supporting projects that capture the carbon dioxide in greenhouse gases and transform them into something useful, such as graphene, carbon nanotubes, fatty acids, and biofuels.

It’s also constructive to consider the team’s generational composition. There is often a distinctive difference between the innovation skills of baby boomers and those of Millennials. Boomers can be eager early adopters and have no problem diving into problems, adjusting course and tactics as they go. Millennials, on the other hand, frequently need a well-defined plan of attack. Once they know what it is, they’re lightning fast at putting it into action.

On the other hand, there is often a perception among younger people that the baby boomers’ years of experience prevent them from coming up with anything new. Not only is this an erroneous assumption to apply across an entire generation, but it automatically eliminates the opportunity to learn from the previous successes, failures, and mistakes of baby boomers. Teams may even end up wasting time and resources on problems that have already been solved. The

Everyone understands that innovation drives the future. As global competition continues to increase across

virtually every industry and innovation is consumed at an ever-faster rate, the pressure to introduce the next

breakthrough has never been greater.


an innovation team may be new, or where it might be seen as threatening to other R&D employees or initiatives.

Sometimes it’s equally helpful to describe a situation where the leader is not an appropriate choice. Imagine someone so focused on his internal process, overall project milestone requirements, and own ideas about how the initiative should be managed that he can’t get out of his, or his team’s, own way.

Which brings us to the last quality the leader must possess: fearlessness. Only leaders who set an example of how to apply the courage and technical know-how needed to develop significant innovation can rightfully expect their teams to do the same. If the leader demonstrates that he or she is willing to boldly go where no one else has, the team will follow. AQ

Stephanie Orellana, PhD, is director, Open Innovation Insights and Solutions, at NineSigma, a leading innovation partner to organizations worldwide. Contact her at [email protected] or visit www.ninesigma.com

learning here is that an innovation team with representatives from both generations can take advantage of their different and often complementary strengths.

INNOVATION FROm THE TOP DOWNThere is one key team member whose selection is paramount to successful innovation—the leader. This person must be willing to assume ultimate responsibility for the team’s performance. He or she must have an abiding passion for innovation and the communications skills necessary to provide the inspiration, support, and guidance that will keep the team motivated and moving forward.

The leader must also be prepared to defend the team and its process and run interference on its behalf, should its work (or even its existence) be challenged by other factions within the organization. This role is especially critical in companies that do not have particularly innovative cultures and where

“For a real-life business example, consider how PepsiCo is repurposing orange peels from its juice process into biofuel and other materials. Or how the Climate Change and Emissions Management Corporation is supporting projects that capture the carbon dioxide in greenhouse gases and transform them into something useful.”

Get Ready for

“ConFliCT MineRAl” Compliance in the eU

By BaRBaRa a. JONES, ESQ.



The rules, which continue to be the subject of a First Amendment challenge in the D.C. Circuit Court of Appeals, impose supply chain diligence requirements on SEC registrants relating to the sourcing of such minerals from mines and smelters that support militant groups in the Democratic Republic of Congo and adjoining countries (DRC Region). Since the rules apply to registrants that manufacture or outsource their manufacturing, a wide array of companies beyond the technology sector have been affected. These include companies in apparel and accessories (zippers, buckles, clasps, eyelets, and other fasteners), jewelry, toys, gaming machines, medical devices, lighting, home products, automotive, furniture, and other sectors.

Fast forward to 2015, and despite the fact that the pending U.S. litigation against the SEC rules has yet to be resolved, the European Parliament is adopting amendments to the European Union’s original proposal, resulting in a stringent and potentially more expansive regulation than the current SEC rules. The overwhelming vote in the European Parliament of 402 to 118 in May 2015 came as something of a surprise, given that the original draft of the legislation called for a “voluntary” certification program. Extensive lobbying efforts by more than 65 international campaigning organizations resulted in the passage of amendments to the original proposal calling for mandatory reporting and independent third-party certification of smelters and refiners. As set forth in the amendments adopted by the Parliament on May 20, 2015, the proposed law would require “all companies who first place covered resources, including products that contain those resources, on the Union market [to] conduct and publicly report on their supply chain diligence.”

Following the success of the lobbying efforts during the passage of the Dodd-Frank Act to tag on a conflict mineral provision in this otherwise sweeping financial reform law, focused attention by lobbyists directed at the members of the European Parliament to adopt similarly mandatory provisions was not unexpected. The EU’s initial proposal for self-certification was viewed in the popular press and by international human rights groups as weak and expected to be ineffective, if adopted. According to Global Witness, the EU is responsible for almost 25% of the world’s trade in so-called conflict minerals. The group estimates that the

trade in the DRC Region and Colombia alone has not only fueled conflict and human rights abuses but also resulted in the displacement of more than 8 million people. With success in the U.S. Congress under their belt, international lobbyists targeted the European Parliament.

Companies may rightly question why they should establish systems and procedures for a regulation that may be a few years away. The answer is quite simple. Experience in the United States has shown that the preparation, diligence, and risk assessment involved is not an overnight project. Even companies that have been subject to the SEC reporting requirement for the past two years are still finding that their processes and procedures require modification to be more effective. There are also real cost and resource considerations, particularly for small and midsize companies. Spreading out the program development over a period of 12 to 18 months will alleviate burdens on management time, while also allowing for strategic discussion of product specifications and supply chain and purchasing procedures.

This isn’t rocket science. It is a basic management tenet that to be effective you have to plan ahead strategically. The handwriting is on the wall when it comes to responsible supply chain sourcing, and no amount of bleach is likely to make it go away.

WHO WILL BE AFFECTED?Unlike the SEC rules that apply to public reporting companies whose use of the minerals is necessary in the production or functionality of the products they manufacture or contract to manufacture, the EU proposal applies to importers of tin, tungsten, tantalum, and gold for manufacturing consumer goods. The importers, whether public or private entities, will need to be certified by the EU, rather than self-certify, to ensure that their commerce is not fueling conflicts and human rights abuses in “conflict areas.”

Importers certified as responsible importers of smelted and refined minerals would be exempt from conducting independent third-party audits, provided they provide substantive evidence that all smelters and refiners in their supply chain conform to the regulation. The European Commission would be required to adopt and make publicly available, including via publishing on the Internet, a “decision”

Two years have passed since companies began reporting their use of so-called conflict minerals—tin, tungsten,

tantalum, and gold—to the U.S. Securities and Exchange Commission (SEC) in accordance with rules adopted

under the 2010 Dodd-Frank Act.


listing the names and addresses of responsible importers within the scope of the regulation.

In addition to the impact on EU importers, the regulation would affect downstream companies—estimated at more than 880,000 EU manufacturers, most of which are small or midsize. They will be required to provide information on the steps taken to identify and address risks in their supply chains relating to the subject minerals, including steps taken to avoid use of minerals from the affected areas. Because of the potential impact on this segment of industry, the Parliament has asked the European Commission to grant financial support to microbusinesses and small and midsize entities in their efforts to secure the necessary certification.

Smelters and refiners operating in the EU that process and import conflict minerals also would be required to apply and comply with the required supply chain due diligence.

Failure to do so could result in the applicable authorities imposing corrective measures to ensure compliance, which may include financial or other penalties for repeated failure to comply.

The geographic scope of the proposed legislation is significantly broader than that of the SEC rules, which are limited to the DRC Region. The EU regulation would apply to all conflict-affected high-risk areas, defined as “those in a state of armed conflict, with widespread violence, the collapse of civil infrastructure, fragile post-conflict areas and areas of weak or non-existent governance and security, characterized by widespread and systematic violations of human rights.” The DRC Region is just one of such affected areas, and presumably the list will change from time to time as conflicts erupt throughout the world.

Despite the significant May vote in the European Parliament, additional work will be required before the proposed regulations are finalized into an enforceable law. Parliament must now enter into discussions with the ministers of the EU member states on trade policy gathered in the Council of the European Union, which is another EU legislative institution, to agree on the final provisions of the law. Implementation of the law, once adopted, is expected to be modeled after the five-step diligence process outlined by the Organisation for Economic Co-operation and Development (OECD) for tin,

tantalum, and tungsten, together with its supplement on gold. This is the “internationally recognized” protocol currently relied upon by companies subject to the SEC rule, to which entities in the EU would be expected similarly to conform. EU entities would become subject to the regulation upon adoption, as the regulation would not require implementation by the member states.

GETTING AHEAD OF THE COmPLIANCE CuRVEGiven the applicable scope and geographic breadth of the proposed EU regulation, businesses operating in the EU that are likely to be affected by the law, once adopted, would be wise to begin evaluating their supply chain now and setting up diligence processes and a risk mitigation protocol to get ahead of the curve. Requiring businesses to be socially responsible—to be good corporate citizens—is becoming more widespread throughout jurisdictions, as governments strive to use every

acceptable weapon in their arsenal to stem global conflict and related human rights abuses while minimizing the need to deploy armed forces on the ground.

The good news is that multinational companies already subject to the SEC’s conflict mineral reporting regime have a head start in this effort. They will have adopted and implemented, at least to some degree, OECD-compliant measures to address supply chain sourcing and management. Industry efforts, particularly those led jointly by the Electronic Industry Citizenship Coalition and the Global e-Sustainability Initiative, commonly referred to as EICC-GeSI, have made significant strides in facilitating diligence efforts and in certifying “conflict-free” mines and smelters throughout the world through the Conflict-Free Sourcing Initiative’s Conflict-Free Smelter Program.

But where should a company start if it has not been so “fortunate” as to be subject to the SEC’s reporting regime? Here there is some good news—there is now a plethora of information available that simply did not exist three years ago. Here are six steps to take:

STEP 1. If you have yet to read the OECD guidance, then download a copy from the organization’s website at http://mneguidelines.oecd.org/mining.htm and start reading. In addition to the main guidance document, there are two

“The ‘social’ purpose of the law or regulation… is to encourage responsible sourcing and ultimately put a financial squeeze on the ‘bad guys’ perpetrating the human rights abuses and fueling the conflict in the region.”


supplements you will need to reference as well—one for tin, tantalum, and tungsten, and a separate supplement for gold. The guidance provides sample policies and procedures to incorporate into an enterprise-wide protocol for conducting supply chain diligence and managing associated risks. Any country considering the adoption of laws or regulations relating to conflict minerals supply chain compliance and reporting will rely upon the OECD guidance, except in the unlikely event the country decides to develop its own guidance. The OECD guidance is internationally recognized for this purpose, so why reinvent the wheel if it is not broken?

STEP 2. Once you have reviewed the OECD guidance and considered your enterprise’s position in the supply chain, you can begin to develop appropriate steps for a compliance protocol. You will need to organize an internal compliance group or task force comprised of individuals from the manufacturing, product development, purchasing, internal audit, and compliance teams to ensure appropriate input and consideration of issues. Many companies will also add someone from the IT group to participate in the development of online reporting and tracking systems. Participation from your in-house or external legal team can also be valuable in monitoring adherence to the applicable legislative requirements. One of the first responsibilities of the task force will be to identify products containing the subject minerals and the associated suppliers, if not sourced directly from mines or smelters.

STEP 3. To assist you in the diligence process, EICC-GeSI has developed a downloadable diligence reporting template that has become the standard form used by companies in all industries, not just technology companies. The template can seem a bit unwieldy to use at first, but the majority of entities throughout the global supply chain are likely to have been asked to complete it by one or more SEC-reporting companies in their diligence exercise. The template can also be used as a basis for creating a custom diligence form that may appear more user-friendly. However, supply chain participants often find custom forms more confusing and prefer to rely upon the EICC-GeSI template due to its familiarity. The template or custom form is distributed to all of the company’s suppliers and seeks specific disclosures on the presence of the subject minerals in products, parts, or components provided to the company, as well as information, to the extent known, on smelters and refiners.

STEP 4. Unfortunately, as most companies have found, the diligence process is not as simple as identifying relevant suppliers and requesting they complete a template questionnaire and certification form. Repeated follow-up often is required with recalcitrant suppliers who either do not respond at all or provide incomplete information. The onus is on the reporting company to pressure its suppliers to make inquiries of sub-suppliers and upward through the chain back to the original smelter and mine. There is, of course, an economic incentive for the supply chain to be cooperative—the potential risk of losing the business or having it significantly

curtailed can be a strong motivator. But the ability to wield this economic threat depends on one’s position in the supply chain. If you are a small enterprise in a remote downstream position, your ability to influence, for example, the behavior of a significant supplier may be quite limited.

STEP 5. As you start to collect data from the diligence exercise, you will be able to begin the task of identifying where risks lay in your supply chain. The Conflict-Free Sourcing Initiative has developed an auditing and certification program for smelters and refiners, identifying which ones are “conflict-free,” meaning they are sourcing from mines that do not support, directly or indirectly, militant groups or abuses in the region. A list of certified smelters and refiners for each of the four minerals is available on the initiative’s website at www.conflictfreesourcing.org/conflict-free-smelter-program/. The U.S. Department of Commerce publishes a comprehensive list of “World-Wide Conflict Mineral Processing Facilities” at www.ita.doc.gov/td/forestprod/DOC-ConflictMineralReport.pdf. However, the list does not attempt to identify whether the listed entities are conflict-free.

Measures to mitigate risks may range from working with suppliers to eliminate the risk to terminating an uncooperative supplier. Some companies, particularly in the fashion industry, are redesigning products and merchandise to eliminate the use of the subject minerals, such as by replacing metal zippers with nylon or molded plastic. Other companies have adopted an approach of simply prohibiting suppliers from sourcing from the conflict region. While this may be an effective approach to minimizing the company’s diligence efforts and compliance costs, it does run counter to the “social” purpose of the law or regulation—which is to encourage responsible sourcing and ultimately put a financial squeeze on the “bad guys” perpetrating the human rights abuses and fueling the conflict in the region. Restricting sourcing to non-conflict regions can also have the unfortunate effect of damaging the commerce of the “good guys,” including artisanal miners, as has been experienced in the DRC Region.

STEP 6. The company’s task force or compliance team will need to develop a recordkeeping and tracking system memorializing the steps undertaken in its diligence process, suppliers contacted, follow-up required, and risk mitigation efforts. Additional data may be required as well to ensure sufficient information is captured to comply with the applicable regulatory disclosure and reporting requirements, once finalized. AQ

Barbara Jones is a shareholder in Greenberg Traurig’s Corporate and Securities practice group and a member of the Global practice group and the Emerging Technologies Team. She is a co-coordinator of the firm’s cross-disciplinary Conflict Minerals Compliance Initiative. Her work extends to complex regulatory reporting and compliance issues arising in connection with her transactional work and representation of public listed companies, investment banks, financial institutions, and private equity groups. Jones can be reached at 617-310-6064 or [email protected]

empower Your Business to Create a

CoMpeTiTive ADvAnTAGe

By SHaWN CaSEMORE



Of course, advice on how to compete and grow a business will vary depending on who you talk to. Marketing experts will tell you to “improve your marketing.” Sales experts will tell you to “improve your funnel and closing ratio,” and, of course, lawyers will tell you to trademark and patent everything and sue those who infringe.

My opinion is a little bit different.

This isn’t to say that I disagree with the concepts and methods set forth above. In fact, quite the contrary. Holding a compelling and distinct competitive advantage requires all of those things. But in our need to find a quick fix, we seem driven to sign up for the next big thing while having little consideration for the people behind the scenes who will use, apply, and support whatever this “thing” might be.

Consider, for a moment, the sheer number of organizational change initiatives that fail to achieve their desired outcomes, often quoted in the neighborhood of greater than 70%. I would guess that you’ve heard these statistics so many times that it would be a waste to include a reference at this point. It’s also inappropriate, however, to cast this blanket over every organization. In my experience, many change initiatives are successful and I should mention that I’m including strategy under the “change” umbrella, since a great strategy often requires several change initiatives to achieve the vision). But the extent to which they achieve the “expected” outcomes is often where we find less-than-stellar statistics.

The logical question, then, is “why?”

FOR THE PEOPLE, BY THE PEOPLEPoor planning, ineffective measures, and lack of effective communication all come to mind initially, but what’s the cause? Amid the cacophony of strategic initiatives, new technology, and various “programs” that most organizations are engaged in at any one time, we often fail to specifically ask for and incorporate the ideas, opinions, and concerns of the most valued resource any company has: its people.

It stands to reason that regardless of the sector or industry, for a business to be competitive there must be a steady flow of new and repeat customers. Whether these customers buy or not is heavily influenced both directly and indirectly by employees, because it’s the employees who design, sell, create, produce, and deliver the company’s products and services. Looking at the influence employees have on the

success of a business casts a broader reality on how an employee can make or break a customer’s buying decision.

It goes without saying that the way any business is organized, structured, and operated on a daily basis boils down to the people who are involved—the extent to which they are interested in and participate in the business. It doesn’t really matter which software you purchase, how advanced your technology is, or whether you’ve got the latest and greatest equipment available if the people who operate within your business every day aren’t interested in what’s happening and aren’t provided the authority and autonomy to impact how they work, how they serve customers, and how they interact with others.

You’ll notice here that I’ve purposefully avoided discussing “engagement.” I have seen that engagement is a waste of time if you haven’t figured out how you will put it to use. In my forthcoming book, Operational Empowerment: How to Collaborate, Innovate and Engage to Beat the Competition (McGraw-Hill Education, November 2015), I provide a playbook for building a more effective and profitable business by empowering employees.

In the book, I discuss several key aspects that I want to share with you here, as they are highly relevant to any leader in business today. In fact, if you are a leader, then your role is evolving, whether you like it or not, to one of a facilitator of empowerment. Put another way, with the continued rise in the number of Millennials entering the workforce, we face a shift away from the willingness to accept and adhere to a top-down approach to management, communication, and influence and toward a bottom-up approach to employee empowerment. This bottom-up approach requires that leaders see their roles less as those who manage and coach and more as those who listen. The shift is from those who provide instruction to those who support productivity, from those who influence and shape to those who facilitate and support.

It’s worth noting that the approach I discuss in Operational Empowerment is not one of agile leadership (a process that originated in technology). Nor am I suggesting the extreme shift offered by methodologies such as Holacracy, currently the ambition of Zappos CEO Tony Hsieh and the executives of several other tech-based firms.

THE POWER OF THREEEmpowering a business operation is built on three key principles:

“how can I increase my competitive advantage in a global marketplace?” This has to be the most

troubling yet compelling question of all those that keep CEOs awake at night.

1. The majority of employees want to participate, want to work, and want to add value and be part of something bigger than themselves. If given this opportunity, employees will self-govern and sacrifice those who don’t fit the group mold.

2. Employees have the most intelligence and influence over every customer interaction, and if provided the opportunity and authority, the majority will work diligently to ensure that every customer transaction is a positive one.

3. In any business operation—be it industrial or not-for-profit, B2B or B2C—employees must be involved in the decisions, investments, and actions if those investments are going to be adopted fully and have an impact on business efficiency and effectiveness.

By incorporating feedback and input from employees, customers, and suppliers before, during, and after the strategy formulation, executives can spawn interest, enthusiasm, involvement, and understanding. These ingredients are key to creating the impetus and environment for the acceptance and adoption of change. They also provide a more robust vision of the business’s current state and the actions and investments necessary to achieve the desired future state.

Although creating a strategy in this manner may appear to be complex and difficult, making it impossible to develop a compelling vision of what’s possible, it achieves just the opposite. By incorporating more diversity in the input to the strategy, we launch from a more realistic view of the current state. We also hold broader ideas as to where the business should be going and what’s necessary to get there.

One of the many case studies I present in my book is that of a midsize manufacturer that had been formulating its strategy every three years for nearly two decades, a common theme among North American manufacturers, in my experience (at least for those that have a strategy!).

In preparing for the session, I spent significant time interviewing a broad cross-section of employees to understand their perspectives on the greatest challenges the business was facing, which opportunities were abundant and not being capitalized on, and what challenges and priorities had been seemingly overlooked in previous strategies that were critical to success. The results were powerful.

I can still recall sitting across from the CEO at the retreat as he and his senior staff read and reflected on the employee feedback prior to beginning our session. He said, “Shawn, we’ve been doing this a long time and it simply never dawned on me to get this kind of feedback from our employees…powerful stuff.”

Powerful indeed.

Because I often work with clients to create highly productive and collaborative environments, I have seen that empowerment reaches far beyond business strategy. Collaboration can be used to create a new and more committed approach to continuous improvement, and it can spawn new levels of innovation. Our collective pursuit to change organizational culture is simply unfounded and wrong.

It’s time to move away from the belief that investments in new technology and equipment are the key contributors to improvements in operational performance. We must realize that the performance of a business lies solely in the hands and minds of its employees. All we have to do is ask to use them. AQ

Shawn Casemore has spent 17 years in leadership roles in operations, business improvement, and supply chain management with organizations including Magna International, Arvin Meritor, Bellwyck Packaging, and Bruce Power. His consultancy, Casemore & Co. Inc., near Toronto, offers strategy and business planning, succession planning, and business performance improvement.

There’s a new kind of smarts in business. It’s called cultural intelligence, and if you master it, you can easily lead and communicate with anyone, anywhere —

coworker, vendor, customer, or partner. Leading with Cultural Intelligence details a pow-erful four-step model for becoming adept at under standing and managing across cultures. This new edition features fresh research, case studies, and statistics on the ROI of improving your “CQ.”

Praise for Livermore’s previous book, The Cultural Intelligence Difference:“ Livermore spells out a persuasive argument as to why your CQ (Cultural Intelligence) is essential to succeeding in today’s global and interdepen dent business world.”

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“iQ” is imPortant. “CQ” gets you business suCCess.


Do you know anything about the city of Tianjin in China? Perhaps you did not until August, when a series of explosions at a warehouse

that handled the export of chemicals killed 150 people and injured more than 700. But executives at companies that already do business in China are aware of Tianjin. Tianjin is one of the largest ports in

China—in fact one of the busiest in the world—and by 2025 is expected to have a GDP on par with the entire country of Sweden. For many Western companies doing business in China, the explosions in Tianjin were of concern. Fortunately, most of them were able to resume operations or put contingency measures in place, according to the Wall Street Journal (“Tianjin Explosion Creates Logistical Hurdles in Chinese Port City,” 8/14/2015). Their managers were able to quickly determine workarounds when needed, and in many cases operations were not affected.

The explosions in Tianjin could have had a greater effect on business around the world. However, companies with facilities that were affected initially, such as Chevron Corp., were able to quickly get these facilities back to work as well-trained managers were not left flatfooted by the disaster. In cooperation with the Chinese government, which had customs clearing running again quickly, these managers helped communicate what was going on to their home offices and everyone was able to strategize.

In today’s VUCA world, communication between local teams and international offices is crucial. The ability to work and manage across cultures quickly and without getting mired in cultural differences can make an incredible difference in how agile and successful your organization is. With our footprint in every region of the world—in more than 76 cities in over 20 countries—AMA can deliver customized content quickly and uniformly across your international locations. Whether you’re in Beijing or Brussels, Singapore or São Paulo, AMA delivers consistent customized content with experienced faculty capable of adapting it to local languages and culture.

We cannot remove the volatility, uncertainty, complexity, or ambiguity from the increasingly challenging business environment, but we can help you ensure that your people are equipped with the communication skills, the analytical capability, the confidence to face challenges, and the leadership needed to be decisive and effective. We have been doing it for generations.

Training Holds True When Disaster Strikes

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Edward T. ReillyPresident and CEOAmerican Management Association

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