Video: Think ahead and succeed!

Milon Gupta - Think ahead and succeed

 

 

The video presents selected parts of a keynote speech by Milon Gupta on how to think ahead and succeed. It features the effective use of thought patterns, the importance of imagination, and how to use your intuition. In addition, Milon Gupta shares some thoughts on his approach to speaking, training, and coaching.

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What The Brexit Means For Your Business

BrexitOn 23 June 2016, 51.9% of the British electorate voted in a referendum for leaving the European Union. The consequences of this vote for Brexit, short for ‘British exit’, are not yet fully clear. Many open questions remain, like, for example:

  • When will the British government invoke article 50 of the EU treaty on withdrawing from the Union?
  • Will the British government do it at all?
  • Will there be a second referendum on staying or leaving?
  • Will Scotland have a referendum on leaving the UK and remaining in the EU?
  • Provided the UK will withdraw from the EU, what terms will be negotiated for the EU-UK relationship after the two-year negotiation period?

While these questions have not been clarified to date, one thing is clear: the Brexit vote has already increased volatility and uncertainty in the market. And this will have an impact on the business strategy of every company in the UK, the EU, and beyond.

There are four economic areas that are directly affected by a Brexit: exchange rates, trade, direct investment, and employment.

Exchange rates

GBP-Euro exchange rate, 22-24-06-2016

Exchange rate of GBP to EUR, 22-24 June 2016 (source: European Central Bank)

The exchange rate of pound sterling to US dollar went down 8.1% on the day after the Brexit vote. At the same time the pound lost 5.1% to the euro, while the euro lost 2.8% to the US dollar.

In the short term, central banks all over the world will do their best to stabilize exchange rates. However, in the mid- to longer term, market forces may be expected to put continued pressure on pound sterling and euro.

Export-oriented business may get short-term benefits from this. However, the longer-term effects of more volatile exchange rates and increased import costs may outweigh any export benefits.

Trade

It is difficult to predict how trade would develop after Brexit, as this depends on the results of the negotiations between the UK and the EU-27. Depending on what agreement is reached, trade would not necessarily have to suffer. However, the negotiation period of two years would create significant uncertainty and might have a negative effect on trade relationships between the UK and the EU-27. Especially export-oriented companies that had close ties with the UK could suffer. This would particularly affect the car industry.

Direct investment

The Brexit is likely to have to effects on direct investment: re-allocation from the UK to the EU-27, and overall reduction due to uncertainty over the future economic relationship between Britain and the EU. Especially companies in the finance sector are expected to re-allocate offices from London’s financial center and move them to Frankfurt or Paris. Investments in new industrial plants and offices are likely to be either postponed in the transition period, or they will be shifted to suitable EU-27 Member States.

Employment

Employees of branch offices of continental firms in the UK as well as EU-27 citizens working in the UK are facing significant uncertainty in regard to their future career in Britain. The British Leave campaign particularly focused on curbing immigration from EU-27 countries. While this may have been largely campaign rhetoric, the uncertainty remains. The moving of branch offices to continental Europe alone could lead to loss of jobs in the UK and the creation of new jobs in some regions of the EU-27.

Companies that are active on the British market will be forced to make decisions about their non-UK staff within the next two years. In the best case, from an economic perspective, the negotiations will result in the UK joining the European Economic Area (EEA). This would include free movement of persons, goods, services and capital between the UK and the internal market of the European Union (EU). However, it is not clear, if such an agreement would be politically feasible in the UK, as particularly the free movement of persons was one of the features of the EU that the Leave proponents rejected.

Conclusion

Business Vision - Strategic ThinkingThe implications of the Brexit for companies in Europe will be to a varying degree significant. Independently how close the business ties with the UK are, companies should better take Brexit and its effects into account for their business strategies. It seems that most companies in the EU have failed to do so by now.

A survey by British law firm Pinsent Masons, which was conducted in May 2016, revealed that only about a quarter of the interviewed firms had a plan for dealing with Brexit.

Pinsent Masons had asked senior decision makers at over 1,000 businesses across the UK, France and Germany. Only 26% of firms had a tangible plan in place for dealing with the risks arising from the Brexit vote. Just over half (53%) of respondents added that there had been no board level discussion about the potential commercial impacts of the referendum.

If your company is among those who have not considered the implications of Brexit on business strategy and operations, I would strongly recommend that you do. Contact me, if you have questions on how to perform an analysis of the Brexit impact on your business and review your corporate strategy in view of the changing European context.

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The 3 Best Ways to Avoid Bad Decisions Caused by Groupthink

Swissair plane

Swissair – From ‘flying bank’ to business crash due to groupthink [Photo: Roland Zumbühl (2000). License: Creative Commons Attribution-ShareAlike 3.0 Unported (CC BY-SA 3.0)]

Do you remember Swissair? In the 20th century, this airline used to be as economically solid as a Swiss bank, which is why some people called it the “flying bank”. And yet, it was the first airline to collapse in the crisis of 2001.

Researchers Aaron Hermann and Hussain G. Rammal from the University of Adelaide argue in their paper ‘The grounding of the “flying bank”‘ (2010) that a major factor contributing to the demise of Swissair was bad strategic decision making resulting from groupthink.

Let us have a closer look at what groupthink is and what companies can do to prevent it.

Causes and Results of Groupthink

Groupthink happens, when a group of people jointly makes worse decisions than each group member would have done on their own. The causes for this irrational behaviour are based on group dynamics driven by mutual pressure for homogeneity and conformance to real or perceived group values as well as a hierarchical group structure where the leader is always right and everyone else conforms quickly to what he said he wants or what they guess he might want.

Too much homogeneity can lead to groupthink

Too much homogeneity can lead to groupthink [Copyright: fotolia/cartoonresource]

The result of groupthink is that only a limited number of options are considered, sometimes even just one, and that no open and thorough discussion of the pros and cons is happening, as the group quickly converges on one option. It may be either due to a dominating leader or the group tendency towards harmony over decision quality. Especially for complex strategic decisions, the result of groupthink is usually a bad decision in terms of the gap between the intended and the actual outcome.

The economic cost of bad decisions based on groupthink can be enormous, as examples from Enron to Swissair and more recently Volkswagen show. Allowing groupthink to happen when high-stake decisions are taken is completely unacceptable, as the methods for avoiding groupthink have been known for at least four decades. Irving Janis, the research psychologist from Yale University who first explored the phenomenon scientifically, already presented a number of useful methods in his book “Victims of Groupthink”, first published in 1972.

How to Prevent Groupthink

There are three methods that I consider best for preventing groupthink. They are simple, but no always easy to implement. Here they are:

Method 1: Diversity of Minds

Homogeneity of group members in terms of their professional background and corporate socialisation is usually favouring groupthink. It usually does not make a big difference, if you have ethnic and gender diversity in a group. People who have been exposed to the same corporate culture on a similar hierarchical level for a long time will typically have a tendency to converge in their thinking.

Thus, for making important corporate decisions, it is advisable to foster the diversity of minds by including some people with contrarian views and different career paths in the process. If you pick someone from a lower hierarchical level than the rest of the group, it is important to make sure that power differences between members are irrelevant in the discussion, which should focus on the subject and the merits of different arguments.

Method 2: Effective Facilitation

In order to achieve a free flow of arguments and an open discussion uninhibited by considerations of hierarchical power and departmental interests, it is important to have an unbiased facilitator who neutrally enforces the rules like a referee in football.

What happens quite often is that the CEO is chairing the meeting. Apart from the fact that he is already the most powerful person in the room, his role is further strengthened by the fact that he can steer the discussion in whatever direction he likes. Ideally, the facilitator should be an executive who is well-respected by his peers and who is adequately trained in group facilitation, or alternatively an external professional facilitator who has the authority to lead a meeting of senior executives.

Method 3: A Devil’s Advocate

Devil's Advocate

A devil’s advocate can help prevent groupthink. (photo – copyright: fotolia/cartoonresource)

Methods 1 and 2 might already do the job. However, there could still be a risk that participants avoid a controversial discussion and converge too quickly on a decision before they have properly explored a number of options. It is thus advisable to include a devil’s advocate in the discussion. His main job is to challenge assumptions, detect weaknesses in the majority-supported option, and defend unconventional options.

Ideally, the devil’s advocate should be an external facilitator or coach who has no personal stake in the decision and who is well versed in group dynamics and decision making processes. The devil’s advocate should not dominate the discussion, but just give impulses to the discussion when everyone else is converging too quickly on a certain option without sufficiently exploring all relevant options.

Conclusion

Groupthink is a major scourge of executive boards and supervisory boards. The three recommended methods can help avoid groupthink and enable a higher quality of executive decisions in companies of all sizes. Consider hiring an external facilitator and an external devil’s advocate for meetings on major strategic decisions. Apart from reducing the risk of groupthink it would also help avoid organisational blindness.

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5 Reasons Why You Need Strategic Thinking On All Levels Of Your Organisation

Generally, the assumption still prevails that strategy and strategic thinking are an exclusive domain of a company’s executives. This assumption is historically well founded. And it is wrong in today’s business environment.

Greek strategist Pio Clementino

The ‘strategos’ in ancient Greece had the license to think strategically

The Greek word “strategos”, of which the term “strategy” is derived, means “general”. And the general in ancient Athens as well as in the classical structure of the military up to the 20th century designed the battle plans and gave orders. Soldiers were required to follow blindly and think as little as possible, not to speak of questioning orders.

When at the end of the 19th century the term strategy, together with strategic concepts, entered companies, the meaning was basically similar: the boss thought, planned, and gave orders, the employees executed. In quite some companies it works more or less like that until today.

There are, however, good reasons, why this structure and distribution of roles is ineffective in today’s economy and why it has negative impact on a company’s competitiveness. Or, to put it positively: if you would like to keep your company competitive in the mid-term, you should promote strategic thinking of employees at all levels. In my view there are five substantial reasons for this:

1. The high complexity of companies and markets

Already in medium-sized enterprises processes heavily based on the division of labor have reached a degree of complexity that neither a CEO nor department heads alone could understand and centrally plan.

In strategic planning as well as in strategy implementation it is necessary to have not just people who work, but also people who think. Only if you consider the big picture in your operational work, the gap between corporate strategy on executive level and strategy implementation on the operational level can be closed.

In many companies this doesn’t work properly, with the result that the board is every year surprised why the employees don’t properly execute their ingenious corporate strategy.

2. Pressure to adapt due to strong dynamics of change

The job of executives has become much more challenging and demanding since the times of the economic miracle in the 1950s. This is supported by increased complexity and the high dynamics of change caused by global economic processes and technical innovations.

The rapid pace of change can easily lead to a situation, where the corporate strategy from the beginning of the year has become obsolete at the end of the year through new developments.

Many of these new developments will be first registered at the touchpoints, where company and customers come into contact. However, in most cases executives are not at the touchpoints, but rather normal employees, like salespeople or customer service staff. If employees think ahead proactively and register changes which they communicate to the board level, it can significantly accelerate the adaptation of corporate strategy to changed market realities.

3. The cost of hierarchical corporate structures

Centrally-managed hierarchical companies bring considerable costs due to efficiency losses.
They are caused by the permanent strain of executives who have to take all strategic decisions, as well as all the important operational decisions without getting the decision-relevant information by employees.

Employees, on the other hand, are frustrated by decisions, which are frequently decoupled from their reality at the operational level. If, in addition, there is a corporate culture in which proactive thinking is not rewarded, that can lead to frustration, and in extreme cases to passive resistance against the plans from the top.

4. The necessity of agile organisational structures

Many successful companies, like for example Alphabet (formerly know as Google) or Lego, have discovered how important it is to create and sustain agile organisational structures.
Only through agility can enterprise respond appropriately to fast changes caused by innovative technologies, changed customer needs, and new competitors.

However, an agile organisation can only function with employees who think strategically.
If the horizon of employees ends at the borders of their own work area, fast adaptations are hard to implement. Agility requires that change cannot only be started from the top, but also from the bottom, from employees at the grass-roots level.

5. Qualification and motivation of employees

In today’s knowledge economy, companies depend on highly qualified employees.
In recent decades, low-qualification jobs have been systematically transferred to low-wage countries.

During the advanced phase of industrialisation in Germany at the end of the 19th century it would have been hardly destined for success to expect proactive thinking from workers at the production line. Because the work processes were designed in a way that it was not desirable and necessary.

In the meantime the work processes and skills profiles have changed considerably.
Today, in developed industrial nations like Germany there are predominantly well qualified employees, who are aware of their qualification. And they often have more expectations towards their work than to get money into their account at the end of the month.

An executive who wastes this huge potential of qualification and motivation runs the risk that employees go inter inner resignation with the effect that the company loses competitiveness. This can be prevented by engaging employees at all levels in the strategy process. It could be in the planning phase as “sensors” for market developments or in the implementation phase as proactively thinking “intrapreneurs”. Employees could intelligently and self-controlled adapt corporate strategy in their work area to the operational realities.

Conclusion

There are many good reasons to promote strategic thinking not only for executives but also for employees at all levels. Those who understand and consequently implement this can sustainably strengthen the competitiveness of their company.

The promotion of strategic thinking includes the creation of adequate structures and an open corporate culture. Specifically, this means that strategy workshops should not only be performed for the top management level. It is rather advisable to perform on all levels of a company educational measures which promote strategic thinking.

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Success and Failure of Strategic Management in 2015 – Part 2

In part 1 of “Success and Failure of Strategic Management in 2015” I had presented three cases of what I consider good strategic management. In part 2, I will now focus on examples of bad strategic management that emerged in 2015.

Business Failure - Strategic ThinkingBad Strategic Management

Usually, bad strategic management only becomes visible to the public when it is too late, i.e. when serious damage has already happened as a consequence. There is certainly a risk to conclude from every business failure that bad strategic management must have preceded. While this may be true more often than not, it is not automatically the case. With that caveat, it is still fair to say that the year 2015 offered some spectacular cases of bad strategic management. I picked three that in my view stood out.

Volkswagen

In September 2015, the US Environmental Protection Agency, EPA, revealed that Volkswagen Group had circumvented environmental regulations of NOx emissions. This was done via “defeat devices” in its diesel engines of the 2009-2015 models of Volkswagen and Audi cars (see my earlier blog article “Five Strategic Lessons from the Volkswagen Emissions Scandal”).

The systematic violation of environmental regulations in the US and other countries dramatically revealed an approach to strategic management that lacked an appropriate sense of risk and values. It also revealed deficiencies in the leadership culture of the world’s biggest car maker. The scandal reduced the stock value of VW within days by half. As a consequence, Volkswagen chief executive officer Martin Winterkorn resigned.

Until the scandal emerged, VW was extremely successful, and there were only few doubts about its strategic management. Volkswagen stood for the good image of German engineering across the world. Through a dangerous combination of ignorance, complacency and haughtiness, this icon of German industry created a serious crisis. The unconvincing behavior of the VW leadership under its new CEO Matthias Müller did not help to contain what could be the worst crisis in the history of the company. The financial damage and the detrimental effect on VW’s reputation can be attributed to bad strategic decisions and shortcomings of a hierarchical leadership culture which needs to be revised, if Volkswagen wants to return to its former success.

RadioShack

Two decades ago, US electronics retailer RadioShack was the largest seller of consumer telecommunications products in the world. In February 2015, 94 years after it was founded, the company filed for bankruptcy protection. This was the result of a long decline, which started around the beginning of the new millennium. It is a textbook case of bad strategic management.

RadioShack failed to respond in due time to key trends affecting its business, ranging from e-commerce and the entry of competitors like Best Buy and Amazon.com to the resurgence of the maker movement. Once the decline was in full swing, it was hard to stop. RadioShack is a cautionary example of what can happen, if you ignore technological trends and fast rising competitors. At the root of this development is the failure of creating a corporate structure and a strategic approach, which would have enabled RadioShack to discover, reflect and adapt to emerging opportunities and threats when there was still sufficient room to maneuver.

Quirky

In contrast to RadioShack, which mainly failed due to a combination of complacency, ignorance and lack of adaptability, Quirky is an example of a completely different kind of strategic failure.

The invention platform Quirky was founded in 2009 and immediately attracted millions of startup funding. Altogether, Quirky raised 156 million euro in seven years from firms like Norwest Venture Partners LP, RRE Ventures, General Electric Co.’s GE Ventures LLC, and Andreessen Horowitz Fund LP.

It is easy to understand why so many respectable investors believed in Quirky’s business idea to connects inventors through a platform with companies that specialized in a specific product category. And the interest by inventors and companies was overwhelming: by August 2015, 280,000 inventions had been registered via the portal; business partners included General Electric, Mattel, Harman, and PepsiCo.

What made the business model very risky was that Quirky manufactured and marketed the inventions that it considered promising while paying royalties to the inventors. Initially, it seemed to work – first products like the Pivot Power, a flexible power strip that sold more than 1.5 million units, turned out to be successful.

However, Quirky did not really have a plan B in case of less fortunate product choices, like the digital egg tray that told consumers how many eggs were left in the refrigerator. The ensuing losses ate up capital at a frightening speed, as its roster of products grew from 34 to 150. Quirky’s rapid expansion of its operations was not matched by a coherent product development approach.

In early 2015, Quirky decided to get out of the product development business. However, this did not solve the liquidity problems of the company. When Quirky CEO Ben Kaufman was fired in August 2015, it was already too late to change the downhill course or Quirky – the company filed for chapter 11 bankruptcy in September 2015.

Quirky highlights the risks for investors betting on a brilliant but risky business idea. Good risk management and flawless strategy implementation are hallmarks of good strategic management. Quirky showed what can happen to a promising business idea, if risks are not addressed appropriately in time.

Most startups fail. From that perspective, Quirky would not have been special. What made it special was the huge amount pumped into the company by over-optimistic investors who ignored the requirements of good strategic management.

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Success and Failure of Strategic Management in 2015 – Part 1

For many businesses, the year 2015 was challenging. At first glance, the opportunities outweighed the threats. Cheap money and cheap oil stimulated the business of many companies. However, not every company was able to benefit from the opportunities.

Business Success - Strategic ThinkingThe year 2015 saw interesting examples of success and failure, which were significantly influenced by the quality of strategic management. While some executives were able to reap the fruits of their good strategic decisions, others had to suffer the consequences of bad strategic decisions in the past.

I picked three examples each for good and for bad strategic management in 2015, which could offer interesting insights for your business in 2016 and beyond.

In the first part, let us have a look at examples of good strategic management.

Good Strategic Management

Good strategic management starts at the top. It is, thus, no surprise that the three companies I selected each have CEOs with extraordinary strategic acumen.

Novo Nordisk

Danish multinational pharmaceutical company Novo Nordisk has a simple and, so far, successful strategy: 85% of Novo Nordisk’s business is based on drugs and devices for diabetes treatment. The decision to focus on diabetes was taken under Lars Rebien Sørensen, who has been the company’s CEO since 2000.

The diabetes-focused strategy paid off – Novo Nordisk has a market capitalization of 136 billion euro and is ranked number 46 in terms of market value on the Forbes list. In 2015, Harvard Business Review selected Mr Sørensen as Best-Performing CEO of the Year, based on his enduring success.

Clear strategic focus and excellent strategy execution make Novo Nordisk a role model of strategic management. However, the diabetes-focused strategy may not work forever in view of new emerging treatments that could render Novo Nordisk’s products obsolete one day.

Pfizer

In contrast to Novo Nordisk, US-based pharmaceutical company Pfizer has a very diversified product portfolio. Pfizer has expanded this portfolio in recent years through skillful, yet not always successful acquisitions. In 2014, the attempted acquisition of UK-based AstraZeneca was rejected by the AstraZeneca board. In 2015, Pfizer went on a shopping spree again, which might turn out more successful.

In February 2015, Pfizer and Hospira agreed that Pfizer would acquire Hospira for approximately 14 billion euro. Hospira is the world’s largest producer of generic injectable pharmaceuticals. The deal gives Pfizer access to Hospira’s portfolio of generic acute-care and oncology injectables, biosimilars, and integrated infusion therapy and medication management products. According to Ian Read, Pfizer’s Chairman and CEO, Hospira’s business aligns well with Pfizer’s pharmaceutical business.

And later that year Mr Read presented an even bigger deal: on 23 November 2015, Pfizer and Allergan, formerly known as Actavis, announced their intention to merge for an approximate sum of 160 billion US dollars, making it the largest pharmaceutical deal ever, and the third largest corporate merger in history. As part of the deal, Pfizer’s CEO, Ian Read, would become CEO and chairman of the new company, to be called “Pfizer, plc”, while Allergan’s CEO, Brent Saunders, would becoming president and chief operating officer.

The Allergan deal is expected to be completed in the second half of 2016. However, there are still some caveats, as the deal is subject to US and EU approval, approval from both sets of shareholders, and the completion of Allergan’s divestiture of its generics division to Teva Pharmaceuticals.

Pfizer’s strategic acquisition moves in 2015 deserve praise for their calculated risk-taking and could result in catapulting Pfizer to the top in the pharma business. That said, a failure of the Allergan deal is still possible and could seriously hurt Pfizer. Thus, Mr Read’s courageous strategic management could finally still result in failure. However, good strategic management involves a certain degree of risk-taking and is no guarantee for success.

Slack Technologies

Slack Technologies is a software startup founded in 2009 under the name Tiny Speck, which provides an innovative cloud-based team collaboration tool called Slack. Slack Technologies has become the record-holder for fastest achieving a billion-dollar valuation – by the end of 2015 it had a 2.8 billion dollar valuation. Ten thousands of teams are already using Slack, and the user base is fast-growing. Due to its stunning growth and success, Slack was awarded the title “Company of the Year” by Inc. magazine.

Slack Technologies CEO Stewart Butterfield, who also co-founded Flickr, has taken Slack from idea to fast-growing software company in just over three years. The simple, but hard-to-copy recipe behind Slack’s success is an easy-to-use product that fulfills the growing need for team collaboration. According to Inc., “Slack is the exemplar of a trend analysts have dubbed the consumerization of enterprise technology.”

Like similar products, Slack is based on a Freemium model with free basic services and special enterprise services at a fee. What makes Slack’s business strategy special is that their marketing and sales are entirely based on word of mouth. It works because of a product that is well designed and very easy to use. Somehow in the process, Slack turned from user-friendly to user-adored, the dynamics of which are similar to the success of the iPhone, yet hard to copy.

Despite its huge startup success, it is still possible for Slack to fail later. However, up to 2015 it definitely has been a role model for strategic management of a startup.

Read in part 2 of “Success and Failure of Strategic Management in 2015” about examples of bad strategic management.

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Why Climate Change is Relevant for Your Business

When the 2015 United Nations Climate Change Conference ended with the Paris Agreement on 12 December, one of the first to comment was Paul Polman, CEO of multinational consumer goods company Unilever. In a statement published on the same day, Polman praised the agreement as “a clear path to decarbonise the global economy”. He considers the envisioned zero emissions economy to be “the greatest business opportunity of the century”.

Global Warming - Strategic ThinkingPolman’s position is not shared by everyone in business. Benjamin Sporton, Chief Executive of the World Coal Association, is not in a hurry to decarbonise the global economy. In his view, the Paris Agreement leaves room for the coal industry to grow. He wants to reduce CO2 emissions from coal use via efficient, low-emission coal technologies and carbon capture and storage.

Effects of climate change on business

Whatever you think about decarbonising the economy, one thing is sure: climate change will sooner or later, directly or indirectly, affect your business – if it has not done so already.

A recent article lists 22 devastating effects of climate change. Many of the predicted effects will occur whatever action for CO2 reduction is taken after the Paris Agreement. In other words, even if the ambitious goal of limiting the rise of the global temperature to well below 2 degrees Celsius is achieved, climate change and its effects on the environment, on people, and on business will happen in any case.

Assuming a temperature rise of 2 degrees Celsius by 2100, a number the IPCC has suggested we are “more likely than not” to exceed, the sea level will rise by 0.5 meters in the same period – with severe effects. In this scenario, a number of coastal cities, like Calcutta and Miami, will be in big trouble. Everyone else should get ready for extreme weather conditions and a decline in wheat and maize production, which are only a few selected effects.

In a globalized economy, this will sooner or later have an impact on every business – including yours. The major strategic question for every executive and business owner should be now, how to respond to the challenge of climate change.

Three principal responses to climate change

There are three principal responses to climate change: ignore, adapt, contain.

Ignore

Ignoring climate change has worked fine for many businesses so far. However, this will change in the next years, and businesses that are not prepared for the effects of climate change will be surprised about the negative effects. This could be, for example, production bottlenecks at suppliers in Asia due to extreme weather conditions, seasonal water shortages, or increasing energy costs.

Adapt

Adapting to climate change has two major aspects: firstly, preparing for the effects of climate change and their impacts on business, and secondly, finding and exploiting business opportunities that climate change may bring. Adaptation will be partly forced by increasing regulation, for example in regard to permitted CO2 emissions and energy efficiency. From regulation and the need for energy-efficiency, opportunities for innovative products, services and processes emerge. Whoever spots and exploits them first, may gain a competitive advantage.

Contain

While adapting to climate change is more a reaction to it, the third option entails proactive efforts for containing CO2 emissions beyond regulatory requirements. While, for example, investments in energy-efficient processes may lead to increased costs in the short term, the mid-term and longer-term effects will be not only environmentally, but also economically beneficial for your enterprise. In addition, serious commitment in the fight for containing climate change will have positive reputation effects in the eyes of customers, which could help sales.

Conclusion

Climate Change is relevant for every business. Companies who understand this and consider it in their business strategies will create benefits for themselves and for society. Or in the words of Paul Polman: “If we don’t tackle climate change, we won’t sustain economic growth or end poverty”.

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5 Reasons Why Every Company Needs a Cybersecurity Strategy

It happened on Saturday, 14 November 2015: unknown hackers accessed the app store database of VTech, a global supplier of electronic learning products with headquarters in Hong Kong. The hackers captured a significant amount of user profile data of children and their parents, as BBC News reported. The profile data included name, email address, encrypted password, secret question and answer for password retrieval, IP address, mailing address and download history.

Cybersecurity | Strategic Thinking-500x647Why do I tell you this? I believe your company could be next, if you don’t have a comprehensive cybersecurity strategy. I am aware that most medium-sized and large companies have an IT department and a set of IT security processes. However, a comprehensive cybersecurity strategy should go beyond that. Here are the five main reasons why I think, every company should have a comprehensive cybersecurity strategy for preventing and mitigating cyber attacks.

1. A growing part of business is happening via the Internet

More and more business is happening in cyberspace. Every sector and every business of any size is affected by digitization. Businesses and customers have moved at high speed to the Internet. There are over 3.2 billion Internet users today, about 40 percent of the global population, according to Internet Live Stats. More and more business transactions are done via mobile devices, like smartphones and tablets. Out of 3.65 billion mobile users, 1.9 billion are using smartphones (source: Statista). Accordingly, the value of global e-commerce via mobile devices is growing rapidly – in the second quarter of 2014 it amounted to 130 billion dollars (source: Statista).

As e-commerce is further growing at a rapid pace, the importance of making sure e-commerce is secure is increasing. The relevance of cybersecurity is growing even further, if you think of emerging business trends like the smart connected home and e-health.

2. Number and intensity of cyber attacks are increasing

In parallel to the growing number of Internet users and e-commerce transactions, number and intensity of cyber attacks have increased as well. There are no reliable, comprehensive data. However, data from surveys confirm this statement. In a survey conducted in 2014 by ISACA, the Information Systems Audit and Control Association, 77 percent of respondents said that cyber attacks increased between 2013 and 2014, and 82 percent consider it likely or very likely that their enterprise will be attacked in 2015.

According to the same study, cyber threats in 2014 originated mainly from cyber criminals (46 percent), non-malicious insiders (41 percent), hackers (40 percent) and malicious insiders (29 percent).

The cost of these attacks for the affected companies is substantial. A study by the Ponemon Institute gives an average cost of 7.7 million dollar per organization per year,
with a range from 0.31 million dollar to 65 million dollar.

3. Customer trust is based on the integrity of their data

Every business is built on the trust of its customers. In the case of business done via the Internet, this trust is basically built on the integrity of customer data and how well these data are protected by companies. Put yourself in the shoes of a customer: would you rather buy from a company that was recently hacked, like VTech, or from one that hasn’t been hacked?

In view of emerging business scenarios around the Internet of Things, where you have lots of connected devices in your household and your workplace, having an effective cybersecurity strategy in place is a pre-condition for keeping or building the required customer trust, no matter if it is B2C or B2B.

4. Cybersecurity is more than a task for the IT department

In a number of companies, cybersecurity is treated mainly as a task for the IT department. Through technical measures, IT professionals are expected to ensure that the digital business of their companies are protected from cyber attacks.

However, this approach is fundamentally flawed. Leaving it to the IT department to sort out cyber threats is not enough. Cybersecurity is a challenge for the boardroom and not just the IT room.

Cybersecurity affects the whole company and should be treated accordingly.

5. Employees could either be a security risk or an asset

Cybersecurity is as much an issue of personnel as it is an IT topic.

Many cybersecurity risks are created or increased by inattentive employees. Take for example the loss of mobile devices, which constitutes a major security risk, as data found on those devices could provide access to sensitive company data. In the ISACA survey already mentioned, 83 percent of companies provide their employees with mobile devices, and 91 percent of these companies reported a loss of mobile devices in 2014.

This example shows that the behavior of employees is a major security factor that needs to be to be considered for a comprehensive cybersecurity strategy. In such a strategy, awareness building, user training and incentives for employees to behave responsibly when dealing with digital data and communication devices should be included.

There should also be procedures and safeguards against the effects of the occasional employee, who creates deliberately or inadvertently a cybersecurity threat. In practice, you will not be able to achieve 100 percent secure behavior by all employees all of the time. Thus, you need to have safeguards and procedures for mitigating any risk.

Conclusion

In the area of cybersecurity, complacency is dangerous, and a certain level of paranoia healthy. It is important to have a holistic view on cybersecurity and to develop a comprehensive cybersecurity strategy. It should be a topic handled on boardroom level, and not just in the IT department. This will require executives to get a better understanding of IT systems and of IT professionals in the organization to get a better understanding of business processes.

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How to Cope with Business Complexity

Business complexity has globally increased in the last three decades. Scope and diversity of products, services, processes and stakeholder relationships have significantly grown.

Business Complexity | Strategic ThinkingThe growth of complexity has come at a price: The world’s largest companies are on average losing more than 1 billion dollar each due to unnecessary complexity. At least this is what the Simplicity Partnership and Warwick Business School found out in a study conducted in 2011. [Mick James: Putting a price on complexity, Consultant News, 17 March 2011]

Factors Driving Complexity

A number of factors have contributed to surge of business complexity. The main drivers have been the growing interdependence of companies and markets in a globalized economy as well as digitization and the Internet, which have enabled globalization and accelerated the pace of global business.

The ability to cope with complexity has become a central success factor for all businesses. What makes it challenging is that complex systems do not behave in a linear predictable way, but are rather non-linear and unpredictable. That makes decisions in a complex environment rather difficult.

The American computer scientist Alan Jay Perlis (1922 – 1990) half-jokingly summarized the options people choose for dealing with complexity as follows: “Fools ignore complexity. Pragmatists suffer it. Some can avoid it. Geniuses remove it.”

All responses mentioned by Perlis usually don’t work in today’s economy. Ignoring business complexity comes at the price of lower effectiveness and competitiveness. Just suffering and not doing anything about it leads to the same result. Avoiding complexity is practically impossible for most businesses. And removing complexity is next to impossible as well, even for geniuses.

In order to better understand the options businesses have for dealing with complexity, it is important to first understand the different types of complexity. There are basically two.

Internal and External Complexity

Internal complexity means the complexity inside a company as distinct from external complexity, which relates to complexity outside of a company in a business sector, country, or region.

Factors driving internal complexity include organizational structure, type and number of processes, a silo-oriented corporate culture, and business activities like product and service development and mergers & acquisitions.

External complexity, on the other hand, is often caused by regulation, new technologies, and market developments as well as environmental and political changes. In contrast to internal complexity, executives even of large companies usually only have very limited influence they could leverage for reducing external complexity, for example by softening regulation impacting their business activities.

Internal complexity, however, can be directly influenced and reduced through executive decisions on structures, processes, personnel, and products. Especially in large companies, restructuring has often led to unnecessary complexity which negatively impacted the bottom line.

Strategies for Dealing with Complexity

In order to cope with complexity, you need to define and implement adequate strategies.
There are three basic strategies you could apply for dealing with internal and external complexity:

  1. Avoid increasing complexity
  2. Reduce complexity
  3. Adapt to complexity

Let us have a closer look at how to apply these basic strategies in practice.

1. Avoid increasing complexity

Imagine you are the CEO of a small company that is growing quickly in terms of turnover and employees. At some point, you will no longer be able to make all major decisions and need to rethink your company structure. This is the point, where quite often unnecessary organizational complexity is added. Do you really need another management layer? Consider an alternative that avoids increasing complexity, like, for example, empowering team leaders to take more far-reaching business decisions instead of inserting a middle manager between them and you. There is no universal solution to this challenge. Just make sure you avoid adding unnecessary complexity.

2. Reduce complexity

One of the major problems Nokia had until recently was that its product portfolio in the mobile phone domain was too large and diverse. It added huge organizational complexity, undermined marketing, and confused consumers. Apple, in comparison, just offered one mobile phone, the iPhone. It kept the organization focused and facilitated branding.

3. Adapt to complexity

In many cases, you will not be able to contain external complexity. In this case, the best option you have is to adapt to it. Take, for example, environmental standards in manufacturing. If your company is not one of the big global industry players, your chances of influencing regulation are rather slim. The only reasonable choice you have is to know and understand regulatory changes early in advance and adapt your production processes and outputs accordingly. Adapting early and efficiently to external complexity that you cannot control will give your company a competitive advantage compared to those industry players who are dragging their feet in implementing new regulation.

Conclusion

It is up to you, whether you allow complexity to undermine the effectiveness and profitability of your organization by letting things happen, or if you choose to take the bull by the horns and actively tackle complexity. Companies like Apple that have demonstrated how to conquer complexity can serve as benchmark for your own strategies for coping with complexity. To a certain extent, complexity is inevitable in a globally networked economy. Where you establish a competitive advantage is in how much of the unnecessary complexity you can avoid or remove.

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