THINK ACT

THINK ACT – September 2011 – Size Matters 

THINK 

ACT 

Magazine for Decision Makers N o 17 

Size Matters: 

the Modularization of Business 

How companies of all sizes can profit from 

even more division of labor 

RUBRIK HIER 

JIM HAGEMANN SNABE: SAP’s chief 

executive explains the real-time revolution. 

PHILIPPE VARIN: PSA Peugeot Citroën 

boss unveils his new strategy. 

JEREMY RIFKIN: A futurologist predicts 

what life will be like in the post-oil era. 

THINK ACT SEPTEMBER 2011 1

PODCASTS, VIDEOS & MORE 

WWW.THINK-ACT.COM 

Password: rolandberger

Photos: Titel: Sarah Illenberger, Inhalt: Frank Bauer, Laif, SAP 

4 One-on-one with Wittig 

the founder of the dm drugstore 

chain, Götz Werner 


8 Brief Think 

10 The nudge theory 

Little pushes can bring big 

changes in people’s behavior 

14 Follow the money 

How remittances affect 

the global economy 

16 Real real-time 

How in-memory computing 

can add value 

20 Do bailouts work? 

THINK ACT columnist Nils 

aus dem Moore discusses whether 

recovery programs are a good thing 

REPORT 

23 Size matters 

The modular economy is creating 

opportunities for large and small 

businesses alike 

34 Believe in growth! 

Roland Berger Strategy 

Consultants chairman Burkhard 

Schwenker says there can be no 

prosperity without growth 

36 The future of work 

Alexi Marmot on the fl exible, 

mobile workplace 

CONTENTS 

4 

Control is good, 

trust is better: 

Götz Werner, 

founder of the 

dm drugstore 

chain, explains 

the importance 

of a corporate 

culture based 

on values 

The power of pricing, 

and international alliances: 

PSA Peugeot Citroën CEO 

Philippe Varin talks about the 

future of the car industry 

Real-time analysis: 

SAP chief executive 

Jim Hagemann 

Snabe tells us 

why in-memory 

computing will 

change the world 

40 The smaller, the better 

Why Virgin prefers underdog 

status to market leadership 


43 Brief Act 

46 Young Global Leaders‘ 

Task Forces 

Why protecting the oceans is 

a good investment 

52 Break the rule! 

British company WorkSnug has 

banned fl ying on business 

54 Borussia Dortmund 

In 2005 they were almost 

bankrupt; now they’re Germany’s 

football league champions. How 

the club achieved a turnaround 

on and off the pitch. 

58 PSA Peugeot Citroën 

We talk to Philippe Varin, 

CEO of Europe’s second biggest 

car maker 

63 Banking regulation 

How the new defi nition of 

“systemically important fi nancial 

institutions” is affecting the 

banking world 

66 Looking forward 

Futurologist Jeremy Rifkin: 

what’s here to stay, what’s 

coming soon 

THINK ACT SEPTEMBER 2011 3 

58 

16

One-on-one with Wittig 

The Detail 

of Retail 

The dm drugstore chain is a fast-growing, 

profitable company, with a culture based on 

trust, not control. dm Founder Götz Werner 

and Roland Berger CEO Martin Wittig talk to 

Thomas Ramge about success, and what other 

businesses can learn from dm 

Götz Werner, the theme of this issue 

of THINK ACT is “size matters”. 

You created a very big company 

made up of many small units. 

What’s the relationship between big 

and small in your business? 

Götz Werner: It depends on which 

way you look at it. Of course dm is a 

big company, with sales of more than 

EUR 5 bn, but that’s an abstraction. 

The reality of dm is a 550 square- 

meter drugstore with 25 employees 

and 1.500 to 2.000 customers per 

day, so we mustn’t lose sight of the 

individual branches, and if we do, 

we’re in trouble. As soon as we start 

thinking we’re a big company, we start 

making mistakes. It’s a fantasy image 

that doesn’t exist in reality. Retail is 

all about detail, and retailers that lose 

sight of this are doomed to fail. 

You once said: “We get hardly any 

economies of scale in our purchasing.” 

If retail is about detail, why 

do we need store chains at all? 

Mom-and-pop corner stores used 

to be very good at retailing, but 

they’ve disappeared. 

Werner: The real synergy in retail 

chains is that the individual branches 

don’t just sit there stewing in their 

own juice; they learn from the other 

branches. Mom-and-pop stores are 

often run with a great deal of passion 

at first, but this wears off as time 

goes by. Each dm store can benefit 

from the others’ ideas, provided that 

everyone is always clear regarding the 

company’s objectives. 

Wittig: That’s similar to our business; 

our economies of scale are in knowledge, 

not in buying things more 

cheaply than our competitors. With 

our flat hierarchy, we can share one 

specialist’s knowledge with the entire 

4 THINK ACT SEPTEMBER 2011

world. There’s no point having detailed 

expert knowledge unless it can be 

shared with everyone within a very 

large organization. 

So what would you say is the perfect 

size? Is it possible to lay down hard 

and fast rules? 

Götz Werner (right): 

“If you’re successful, you 

gain a customer base, 

and then you grow.” 

Werner: You always strive for the 

optimal, and everything you do 

is sub-optimal. Once you realize 

there’s a difference between the two, 

you move on to a new stage in your 

development, so growth comes from 

outside, not from inside. If you’re 

successful, you gain a customer base, 

and then you grow. 

That’s the logic of growth. But why 

can’t you say: “We have a very 

profitable company, let’s stay 

that way”? 

Wittig: I’m a strong advocate of growth, 

both for businesses and economies, 

because it creates more opportunities 

for more people. If you try to stop 

China from growing, you’re excluding 

a large proportion of the world’s 

population from prosperity. We have 

to live with that and find ways of 

dealing with the consequences of 

growth. But I think we should always 

have a growth component to our 

philosophy, because if you don’t grow, 

you stand still. Growth is the only 

way of coming up with new ideas and 

trying out new concepts. 

Werner: I prefer to say development 

rather than growth. Growth is pretty 

superficial, it’s about numbers, but if 

you have a company culture that says 

people must develop themselves, that’s 

clearly about quality. Quantitative 

growth is the logical consequence of 

development. 

Wittig: The automobile industry is 

a good example of that. In terms of 

numbers, western markets are largely 

saturated, and electric cars have 

relatively low development potential 

compared to the industry as a whole. 

But in quality terms, it’s a completely 

different picture; there’s still a lot of 

potential in personalizing products to 

individuals’ needs. 

Werner: We have 1.2 million customers, 

and we could always provide a better 

service to them all. 

In terms of customer focus, how 

important is it to give branches a 

lot of autonomy, and are there instances 

where a good old-fashioned 

hierarchy works better, even if it’s 

less socially acceptable? 

Wittig: Nearly all industries and 

services have completely different 

organizational models, and centralized 


ONE-ON-ONE WITH WITTIG 

and decentralized models can work 

equally well. If you look at a company’s 

maturity curve, you can see that 

expanding companies tend to be 

managed on a decentralized basis. 

That’s the case with the automobile 

industry when it’s moving into new 

markets, and with logistics and other 

service providers. These are usually 

developed in a decentralized way by 

local companies. 

As a company continues to develop, 

there’s a tendency toward centralization, 

with specific areas of the business being 

combined in accordance with central 

guidelines. Nearly all companies still 

have hierarchies, and chaos is rarely 

successful as an organizational principle. 

Of course there are very different 

degrees of guidelines, and you have 

to decide what’s going to work on a 

case-by-case basis, which has a lot to 

do with the company’s history and 

culture. There’s one big Chinese 

retailer I know that’s organized in an 

almost military fashion; the employees 

have to attend a morning videoconference 

and roll call. It sounds weird 

to us, but it works for them. 

Werner: You have to see management 

in its cultural context. When I was 

young, there was one successful 

entrepreneur I knew who had a fax 

machine in every branch, and he 

used to send them instructions every 

morning. Times and people change, 

and so must methods. 

I think the most successful people 

are those who have their finger on 

the pulse of the time. Of course you 

can be successful with old-fashioned 

methods, but then the question is: 

are you succeeding because of, or in 

spite of them? 

If a company like dm gives its 

branches so much freedom doesn’t 

that make it harder to implement 

difficult strategic change from the 

center? 

Werner: That’s a good question, and 

it’s one we’ve discussed many times in 

Götz Werner 

Biography 

Götz Werner 

was born in 

1944, and 

opened 

his first 

drugstore in 

Karlsruhe in 1973. Today, his 

company, dm-drogerie markt, 

has around 2,500 branches 

and employs nearly 40,000 

people across Europe. Werner 

headed the entrepreneurship 

institute at the Karlsruher 

Institut für Technologie from 

October 2003 to September 

2010. He is a strong believer in 

corporate social-responsibility, 

and has for many years publicly 

campaigned for a basic 

living wage. 

our history. Our culture is one of very 

slow change. Change is a very difficult 

process, you can only implement it in 

small steps, and having a hierarchy 

doesn’t help. You must always be 

willing to question paradigms. For 

example, we don’t just want customers 

to be loyal, we want a close, long-term 

relationship with them, and that 

requires a completely new form of 

marketing. So do you put pressure 

on them, or do you make yourself 

attractive so that you take them with 

you? In my experience, taking them 

with you works better if you’re going 

to develop sustainably. 

So how do you get them onside? 

Wittig: In our own business, we do 

it using trust. To us, marketing is 

about building relationships of trust 

with decision makers, and the best 

advertising is word of mouth. If 

you’re in a competitive situation, 

a lot of your products and services 


“People who apply to us often 

ask how they can use the 

company to do good. That just 

wasn’t an issue ten years ago.” 

Martin Wittig 

are similar to other companies’. Of 

course, one good example of getting 

customers onside is Apple; they 

don’t push their products in their 

stores, but people are still happy to 

wait for them. They get customers 

onside by creating needs that they 

want to satisfy. 

But a lot of business models are still 

based on scaling and push. How 

do you move away from just massproducing 

things towards a more 

customer-centered approach? 

Werner: We’re obviously a massmarket 

provider, but if you don’t 

want to push all the time, you need 

stable performance. It’s a question of 

attitude. Do you want rapid success, 

or long-term relationships with your 

customers? In the old days, we had a 

slogan, “Big brands, small prices,” but 

18 years ago, we changed it to “I’m an 

individual here, this is where I shop.” 

This was a major turning point. Our 

marketing strategy begins: “We want 

regular customers who make a point 

of shopping with us because they’re 

convinced they’ve done the right 

thing.” Often, the first mistake is 

talking about customers when you 

should be talking about people. 

That’s a people-centered approach, 

but is it suitable for a company that’s 

very growth – and profit – oriented? 

Werner: The better you know people, 

the better you can respond to their 

needs. If you can gain a better understanding 

of what drives people, you 

can be a better manager, know your 

customers and suppliers better, and 

predict the future more effectively. 

Wittig: I think having a transparent 

value system is an important part of 

managing a company, particularly 

when it’s about the long-term survival 

of the business. 

You don’t have a bonus system for 

dm employees. Why not? 

ONE-ON-ONE WITH WITTIG 

Werner: We do things because they 

make sense, not because I’ve promised 

my wife a Christmas bonus. 

Wittig: I don’t think bonuses and the 

whole pull idea are a contradiction 

in terms. Bonuses are a pull for employees, 

not a push. If they don’t get 

a bonus, I’m not punishing them, I’m 

giving them the chance to earn one. 

Werner: I’m with you on that. I 

don’t believe in extrinsic motivation; 

management must create a situation 

in which employees are intrinsically 

motivated – I’d even go so far as 

to say that bonus systems penalize 

workers. Employees need an income 

so they can live, and they need their 

work so they can grow. 

You’re also trying to remove the 

link between work and income, and 

you’ve been publicly campaigning 

for a basic living wage for years. 

Why, as an entrepreneur, are you 

so involved in social issues? 

Werner: Because entrepreneurs 

need to see the forest for the trees. 

If a company’s sole raison d’être is 

making society better, it must have 

an interest in how society develops. 

Social involvement is one of the most 

important roles of an entrepreneur, 

particularly when you get older. All 

entrepreneurs should aim to create 

scope for people within the business 

to become active outside of it. 

Wittig: People who apply to us often 

ask how they can use the company to 

do good, for example, by volunteering 

and taking sabbaticals. That just 

wasn’t an issue ten years ago, but 

today it’s a pull, and as a company, 

we have to be socially involved if 

we’re going to attract young people. 

Our charitable trust is an example 

of this; we spend around 2% of 

our sales on these forms of social 

involvement, and I think this is a 

wonderful trend. 

This interview was conducted by Thomas Ramge 

Photos Frank Bauer 


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The world’s 

knowledge is 

in the northern 

hemisphere 

The world’s fi ve 

top-selling daily 

newspapers are 

all Japanese. 

WHERE IS THE WORLD’S KNOWLEDGE 

concentrated? That’s the question posed 

in The Geography of World Knowledge, 

published by two think-tanks, Convoco and 

the Oxford Internet Institute. In the midst of 

a new media revolution, the publication maps 

things like worldwide Internet use, newspaper 

readership and centers of academic knowledge, 

and even includes a revealing breakdown of 

the geographic distribution of geocoded photographs 

uploaded to Flickr. In almost every case, 

the knowledge is concentrated in Europe and 

North America – which are also the regions 

where the largest number of Wikipedia 

biographies are written. 

+www.oii.ox.ac.uk 

Ideas for crisis-ridden 

companies 

NO TWO BUSINESS CRISES ARE THE SAME. Sometimes you just need 

to tweak your strategy; sometimes it’s time to call in the receivers. 

In nearly all cases, turning a company around demands a holistic 

approach that carefully considers all recovery options. Drawing up a 

restructuring plan that identifi es the causes and possible solutions is 

just as important as complying with the relevant legal requirements. 

This review by Roland Berger Strategy Consultants’ Bernd 

Brunke, Sascha Haghani and Thomas Knecht, entitled “Restructuring 

and Re-launching Crisis-Ridden Companies,” is a sound, up-todate 

and comprehensive guide on the subject. It takes into account 

current statute and case law, and discusses the latest approaches to 

various aspects of restructuring and insolvency. 

The review is aimed at company managers, bankers, other investors, 

and students and teachers of business studies and law. 

“DRAWING UP A 

RESTRUCTURING PLAN 

THAT IDENTIFIES THE 

CAUSES AND POSSIBLE 

SOLUTIONS IS JUST AS 

IMPORTANT AS COMPLYING 

WITH THE RELEVANT 

LEGAL REQUIREMENTS.” 

“Restructuring and Re-launching Crisis-Ridden Companies” 


Photos: DPA (2) 

Project 2012 

Global Wind of Change? 

2012 WILL BE A BUMPER YEAR for elections worldwide. 

Voters in the world’s two biggest economies, the 

United States and China, will go to the polls – though 

one election will be rather more democratic than the 

other. Russia and France will elect new presidents, and 

India, Spain and Mexico will also be voting. 

If the balance of power shifts in any of these key 

nations, it will happen at a diffi cult time. With issues 

like US debt and the euro crisis high on the agenda, 

elections have the potential to bring political change. 

Roland Berger has therefore set up Project 2012, a 

cooperative consultancy platform for companies and 

politicians, providing support to top decision makers 

whose agendas could be affected by the poll results 

over the coming year. 

The project will develop scenarios allowing businesses 

to prepare for a variety of possible outcomes. 

Roland Berger is working in close partnership with 

universities and think-tanks around the world, including 

the Yale World Fellows Program and HEC Paris, 

and will present the results of the project as a series of 

strategic proposals during the coming year. There is 

also a wiki for anyone wishing to be involved in this 

project. If you are interested, please register at 

+www.theproject2012.org 

Nicolas Sarkozy 

Dmitri Medwedew 

Russia 

11 March 2012 

France 

5 May 2012 

China 

October 2012 

USA 

6 November 2012 

Hu Jintao 

It’s still not clear who will be contending in 

next year’s presidential elections. Incumbent 

Dmitry Medvedev will probably 

stand for a second term, but the possibility 

of a job swap with Prime Minister 

Vladimir Putin is still under discussion. 

France is likely to shift rightwards, with 

President Nicolas Sarkozy 

standing for reelection. Polls indicate 

that Marine Le Pen, the right-wing Front 

National candidate, will attract a signifi - 

cant share of the vote. 

President Hu Jintao and Prime Minister 

Wen Jiabao are expected to pass on 

their respective batons at the 18 th 

national party congress in October. Their 

potential replacements are Xi Jinping 

and Li Keqiang. 

President Barack Obama wants 

a second term in the White House. 

Among the potential Republican challengers 

are Michele Bachmann and 

Rick Perry. 

Barack Obama 

Up for re-election: 

Four 

global 

elections 

leaders 

that 

who 

could 

could 

change 

be out of 

the 

a job. 

world economy

THINK: NUDGE 

Sometimes you need 

a little push 

Two leading US academics say that small pushes in the right direction 

can overcome people’s natural inertia and bring about large-scale 

social change; they call this effect nudge theory. Barack Obama is a big 

advocate of nudge theory, and it is catching on in companies 

IT WAS A SIMPLE yet groundbreaking 

experiment. Three hundred households 

in San Marcos, California were 

divided into two groups. Half were sent 

normal electricity bills and the other 

half had a smiley face on their bills if 

their consumption was below average, 

and a frowning face if their usage was 

higher than average. 

The results could not have been more conclusive: 

within the group with faces on their 

bills, high users reduced their electricity consumption, 

and low users consumed even less 

than before. 

The difference was a little yellow circle on 

a piece of paper, but it had a big effect. US 

academics Richard Thaler and Cass Sunstein 

By Anne Hansen Illustration Lutz Widmaier 

cite the smiley experiment as a simple example 

of their theory that people can be gently encouraged 

to behave in socially desirable ways. 

Likewise, even small incentives can improve 

employees’ productivity. The two researchers call 

it nudge theory, quietly shepherding people in 

what, to the nudger at least, is the right direction. 

Why should society need a nudge in the first 

place? Thaler and Sunstein question one of the 

major assumptions of neoclassical economic 

theory, homo economicus, which is the idea that 

humans act in an enlightened and rational way 

to maximize their wellbeing, with emotions 

playing no part in their behavior. This construct, 

say the two scientists, is like Mr. Spock 

in Star Trek. This person would have the brain 

of Albert Einstein, the data storage capacity of a 



“We are all Homer Simpson, but little 

things, like other people interfering 

ever so slightly in our lives, can help to 

push us along the right path” 

supercomputer, and the patience of Mahatma Gandhi – which 

is all very well, but bears no relation to reality. 

Real people are more like Homer Simpson. They smoke even 

though they know it’s bad for them, and they eat junk food even 

though it makes them fat. They buy unsuitable insurance policies 

and fail to save for their old age. There are lots of words you 

could use to describe humans, but rational isn’t one of them. 

This is the central thesis of behavioral economics, which 

disagrees with the neoclassical model and asserts that emotion 

is an important factor in market behavior. It asserts that 

people make decisions on the basis of gut feelings rather than 

careful analysis of all the available options. 

Also, they’re lazy. People could save money by switching to 

another electricity provider, but they can’t be bothered. They 

could personalize their cell phones, but they stick with the 

factory settings for years on end because reading the instruction 

manual is too much trouble. Sunstein freely admits that 

he’s no exception; for decades, he’s received newspapers he 

no longer wants, simply because he hasn’t gotten around to 

canceling his subscription. 

Comparing people to Homer Simpson may not be the 

most positive view of humanity, but Thaler and Sunstein are 

optimists. Little things, like other people interfering ever so 

slightly in our lives, can help to push us along the right path. 

Nudge theory isn’t just about helping Californians to save 

energy, it has many applications. For instance, if employees 

smell cleaning products on the tables in common or break 

areas, they will keep these areas cleaner. If you announce (as 

the Internal Revenue Service did in Minnesota) that 90% of 

people have paid their taxes in full and on time, the other 10% 

are more likely to pay up as well. The 10% were procrastinating 

because they assumed everyone else was. 

Libertarian paternalism: it’s not for everyone 

So far, so good – but nudging can also be an intrusion into 

someone’s personal life. In Austria, people have to opt out of 

organ donation by specifically stating that they do not want 

their organs removed when they die. Other countries follow an 

opt-in system, in which you carry a card stating that you wish 

to donate your organs. The opt-out method is problematic from 

an individual moral perspective, but it significantly increases 

the number of donor organs. 

Nudge theory follows the principles of libertarian paternalism. 

People must be free to make their own decisions – that’s 

the libertarian bit – but it’s also OK to influence their 

behavior in a paternalistic way. Freedom and paternalism 

are not contradictory terms. Displaying fruit at eye level 

in a cafeteria to encourage people to eat better is a nudge. 

Removing burgers from the menu, say the theorists, is 

unacceptable interference. Carrots are a good thing (to 

continue the healthy eating theme), but sticks are bad. It all 

sounds pretty simple, but is life really this black and white? 


To critics, nudging often crosses into 

the realm of manipulation. The nudgers say 

they’re acting in the public interest and trying 

to make the world a better place, but do they 

really know what individuals want? Driving 

to work is not very good for the environment, 

but it’s considerably more comfortable than a 

sweaty, crowded subway. Cigarettes will kill 

you in the long run, but they’ll give you a buzz 

for five minutes. Shouldn’t people be able to 

achieve their own balance between short and 

long-term happiness? Could a well-intentioned 

nudge overstep the boundaries; could someone 

end up getting hurt? 

In spite of the criticism, libertarian paternalism 

is the flavor of the month. Richard Thaler, 

who lectures at Chicago University, is an advisor 

to Barack Obama’s economics team. Cass 

Sunstein, one of the country’s most high-profile 

lawyers, is Head of the Office of Information 

and Regulatory Affairs at the White House. 

The Democrats have jumped enthusiastically 

onto the nudge-theory bandwagon because 

it provides a theoretical justification for state 

intervention. In a positive way that is, like a 

smiley on your electricity bill. 



Make it easy! That’s the mantra of nudge theorist and 

Obama adviser Richard Thaler, who admits that even 

he needs motivation sometimes. 

Mr. Thaler, why do you love nudging other people? 

Because it’s fun (laughs). No, mainly because it helps 

people. In some situations you need help making a 

decision – and that’s what we call a nudge. 

What kind of nudges are there? 

There are many possibilities. But all nudges have one 

characteristic in common: we want things to be as easy as possible for 

everyone. If you want people to eat healthier food, then the nudge is 

quite simple: place the healthy food more prominently in the cafeteria. If 

you want people to exercise, make the stairwell more inviting. There was a 

great experiment done about this in Stockholm. Each step made a sound 

once you stepped on it. The result: people took the stairs instead of the 

elevator which was right next to it. 

Is it possible to give employees a nudge to advance their motivation? 

Absolutely! Many businesses still think that money is the best way to 

motivate employees. Motivation and nudging are in some ways the same 

thing. What behavioral economics brings to the table is a longer list of 

methods one can use to motivate people… Sometimes people will work 

harder to win a nice holiday trip than an amount of money of equivalent 

value. Even adults sometimes behave like kids and have a playful instinct. 

Defaults play a major role in your theory, can you explain this? 

By nature people are lazy. That’s why they profit from a default. Actually, 

lazy may not be the right word. We are also busy, distracted, impatient, 

and sometimes confused. All these and other factors contribute to the 

power of the default option. If you want employees to take out a pension 

plan, make it so that they automatically have one and that they have to 

actually sign out if they no longer want it… Going back to my mantra: 

Make it easy. 

Are there any nudges you use in your personal life? 

Of course, we all do. As a young professor I learned that an excellent way 

to prevent procrastination on a project was to commit to giving a presentation 

of the paper at a future conference. I am still using the same tricks. 

I recently signed a book contract to write another book. The publisher will 

soon start asking about my progress, so I better get back to work. 


The top ten countries from which migrants remit money (in USD bn) 

RUBRIK HIER 

-8.1 -9.9 -10.6 -12.6 -13 -15.9 -18.6 -19.6 -26 -48.3 

INDIA 

CHINA 

SPAIN 

LUXEMBOURG 

KUWAIT 

ITALY 

NETHERLANDS 

GERMANY 

SWITZERLAND 

RUSSIA 

Follow the money: 

SAUDI ARABIA 

Rich relatives 

Migrants feed many families in their home countries, and play 

a major part in economic development. Many poor countries earn 

more from remittances than from aid and foreign investment 

PHILIPPINES 

MEXICO 

FRANCE 

SPAIN 

BELGIUM 

BANGLADESH 

GERMANY 

NIGERIA 

14 THINK ACT SEPTEMBER 2011 

USA

+55 +51 +22.6 +21.3 +15.9 +11.6 +11.1 +10.4 +10.2 +10 

Remittance economies 

The top ten countries to which migrants send money (in USD bn) 

Improved working conditions 

Globalization 

86.5 71.6 70.0 

States with the 

highest proportions 

of immigrants, 

2010 

QATAR MONACO UTD. ARAB 

EMIRATES 

28.0 25.0 

35.0 

States where remittances 

account for the highest 

proportion of GDP, 

2009 

The problems often begin with the 

recruitment process: agencies in the 

workers’ home countries charge 

commissions. The cost of fl ights, visas 

and medical tests must also be taken 

into account. Saudi Arabia and Indonesia 

have taken steps to improve the working 

conditions of Indonesian workers, and 

there are also changes afoot in Abu 

Dhabi, which has set up an independent 

employment regulatory body. 

The boom in Saudi Arabia and the 

United Arab Emirates has attracted 

hundreds of thousands of guestworkers 

from Southeast Asia. According to Human 

Rights Watch, around 600,000 migrants 

from that region work in the UAE alone, 

300,000 of them in Dubai. By far the 

majority work in construction and 

unskilled jobs, and both groups often 

suffer poor pay and living conditions. 

TAJIKISTAN TONGA LESOTHO 

Immigrants and emigrants 

in these countries (million) 

RUBRIK HIER 


+10.8 

+6.9 

+6.7 

+5.4 

Immigrants 

BELGIUM SPAIN NIGERIA 

BANGLADESH 

GERMANY 

FRANCE 

PHILIPPINES 

MEXICO 

CHINA 

INDIA 

Emigrants 

-5.4 

-4.3 

-8.3 

-11.9 

-11.4 

Sfd 2009 / 2010 Source: World Bank, Illustration: Jörg Block

THINK: IN-MEMORY-COMPUTING 

Power to 

the Processors 

SAP claims to have found something as big as client-server architecture 

was in the 1990s – in-memory computing. Never heard of it? You will soon. 

We talk to SAP’s CEO Jim Hagemann Snabe about the next big thing in 

business intelligence 

Jim Hagemann Snabe, tell us about 

your killer app. Can you give us an 

example that demonstrates the full 

potential of in-memory technology? 

Take the financial crisis. The lack of 

real-time risk measurement by banks, 

and the failure to track its causes, 

made the system, as a whole, too 

risky and eventually it broke down. 

Traditional risk management systems 

need to evaluate vast amounts of 

data, but much of this is only collected 

at night and then analyzed in the 

morning. 

What if you could do this in real 

time? What if you could do this every 

time a transaction happened? This 

was virtually impossible with previous 

technology, since you needed to read 

millions of items of data to aggregate 

the total risk of a bank. Today, inmemory 

computing allows you to 

complete this analysis in one second. 

Does that mean that in-memory 

computing could have prevented 

the financial crisis? 

We can’t prove this, of course, but I’m 

convinced that it would have helped 

us find solutions earlier. 

Impressive. But in-memory computing 

is not just for banking, correct? 

To put a technological trend into a 

business context, things have always 

been relatively unpredictable, and they 

still are. But a recent development 

is that companies must manage 

resources according to expectations 

no matter what happens. As we 

witnessed following the devastating 

tragedy in Japan, companies are now 

expected to manage and respond to 

extreme situations, which has not 

always been the case. For example, 

after 9/11, the world stood still for a 

moment. Nowadays we can’t allow 

anything to stand still. This means 

increased pressure on businesses to 

predict what’s going to happen, and 

to be much faster in responding to 

changes in the market. 

As a consequence, you have to be able 

to analyze very large volumes of data 

in real time. I noticed this ten years 

ago when I was doing a lot of cost 

accounting and financial consulting. 

Many companies were already 

considering moving away from 

annual planning and had rolling 

quarterly plans. This trend has now 

been taken to extremes. 

How is this possible? 

Traditional systems store data on 

a disk, and the disk is a relatively slow 

medium. Data stored in the main 

memory of a computer can 

be read ten thousand times faster. 

Today we even have parallel 

processing, which enables you to 

read data simultaneously on 

hundreds of processors and also 

allows you to read billions of records 

in just one second. This means that 

you can do on-the-fly calculations 

instead of calculating pre-aggregated 

data stored on disks. For the sake of 

visualization: in the time it takes 

you to carry a piece of information on 

a disk a distance of one meter, 


RUBRIK HIER 

Big Data, big business. SAP CEO Jim Hagemann Snabe wants to analyze the world in real time. 



“We urgently need better forecasts to respond more 

quickly to change. So we need to analyze very large 

quantities of data in real time.” 

Jim Hagemann 

Snabe 

Biography 

Jim Hagemann 

Snabe, born in 

Denmark in 1965, 

has been co-chief 

executive of SAP AG 

with American Bill 

McDermott since 

February 2010. He 

began his career with 

the German software 

giant after graduating, 

and worked in 

various management 

positions in sales and 

development consultancy. 

He worked 

for IBM Denmark for 

two years, and then 

became a director of 

SAP in 2008. As an 

IT manager, he has a 

particular interest in 

you can carry it to Mars and back again 

with in-memory computing. 

All thanks to the falling price of 

memory? 

In technology, sometimes several trends 

come together and suddenly you have a 

whole new basis for innovation. The trends 

that coincide here are the falling price and 

increasing size of memory, combined with 

processing power and unique technology 

that allows us to compress information. 

All this together makes things unbelievably 

fast. The business impact of this is 

that you can start to do very advanced 

analytics, and you’re more able to anticipate 

the future based on statistical 

information. And, most importantly, you 

can start simulating the future. If you only 

have one second of response time, you can 

easily look at various scenarios. 

The ability to forecast seems to be crucial 

to in-memory technology. Can you 

explain how and why? 

I’ll give you an example. One of the main 

differences between a successful product 

and an unsuccessful one is production 

management: which product you choose 

to make, at what price and at what time. 

It’s proven that 80% of production planning 

is not productive. The demand is 

often higher or lower than expected, and 

you end up with either a shortage of supply 

or full warehouses. The ability to predict 

a trade promotion and its impact by 

location and product will make the differ- 

ence between successful and unsuccessful 

consumer goods companies. 

Have you carried out any studies on 

how in-memory computing can improve 

that rate? 

We’re actually working with some of the 

leading consumer product companies in 

the world – SAP customers. They’re using 

this new technology to reinvent management 

and planning. What used to take a 

couple of hours now happens in seconds, 

so you can start optimizing price and volume 

for any given product. Early adopters 

of the technology are reporting significant 

benefits and, on average, companies that 

have implemented such systems are seeing 

revenue gains of 21% and cost reductions 

of 19%. 

Is it true that you can now balance 

your supply chain management to the 

extent that you eliminate the need for 

additional storage? 

Yes, one of our clients is doing so now. 

What we consider to be a major consequence 

of this is what I would call a 

demand-driven supply chain. So far, 

the human interaction in this process 

has been putting information into the 

system. Now it’s all about optimizing the 

supply chain within companies and reacting 

quickly to changing demand. 

What makes you so certain that inmemory 

technology can really change 

the game? 

The whole thing started as a technological 

technology trends. Photo: SZ Photo 


innovation. What convinced me was 

what happened when we took the 

technology to fifty customers. We 

worked on very different scenarios 

customer by customer, industry by 

industry. And their feedback? “This 

is beyond belief.” They were stunned 

that you can simply push the enter 

button and get an immediate 

response to users’ reactions. In the 

past this would have taken hours of 

calculation. 

This was a real ‘wow’ moment for 

all of them. We recently presented 

in-memory computing to a whole 

series of companies who have now 

seen a massive increase in their 

opportunities, be it in production 

management or probability analysis 

by product. One utility company 

that employs dynamic pricing for 

electricity can now predict when 

capacity will be needed on its 

network. This saves the utility 

company a lot of money and helps 

consumers to minimize their use 

of electricity. 

This technology is clearly a musthave. 

What are the downsides? 

Implementation, perhaps? 

I wouldn’t call it a downside, it’s 

more of a challenge. If you don’t 

have consistent data, it doesn’t 

help that you can analyze it in one 

second. Many of the stories about 

the difficulty of implementing 

SAP technology are related to the 

fact that the SAP system requires 

a high degree of data consistency. 

We’ve been developing our system 

to acquire that consistency. 

If there aren’t any big drawbacks 

and the technology is so powerful, 

then why have only a few decision- 

makers in business heard about it? 

Initial conversations about inmemory 

focused exclusively on 

technology, making it irrelevant for 

business people. It’s only recently, 

with the results from those fifty 

customers, that we can communicate 

how this technology can 

solve business problems that were 

previously unsolvable. Also, there’s 

a lot of confusion about the topic. 

Many people talk about in-memory 

computing, but they all mean different 

things. We’re working on 

this. In-memory computing is a 

technological advance that we’re 

now translating into distinct business 

value. We can articulate how 

this will change the game in every 

single industry. This is the moment 

that it becomes relevant to business 

people, and then they need to try it, 

because most of them can’t believe 

it’s true. I’ve been in the industry for 

20 years and sometimes I’ve seen 

technology improving cost effectiveness 

by a factor of 5. With this, 

we’re talking about a factor of 200. 

It’s not only about reporting much 

faster: it’s about solving problems 

that you couldn’t solve before. 

What comes after in-memory 

computing? 

In the next five to ten years, we’ll 

see similar developments to those 

that followed our introduction 

of the client-server system in the 

1990s, when networks became 

faster and more powerful. Now 

we’re riding the wave of in-memory 

computing combined with multicore 

processors. Google has taught 

the world how to search for information, 

but we still haven’t learned 

how to find it. This technology can 

bring us much closer to finding not 

only the hay in the haystack, but 

also the needle. 

Five years from now, how much 

of the SAP portfolio will involve 

in-memory computing? 

All of it. 

Interview by Thomas Ramge 

Illustration Smetek 



The digital revolution is 

transferring more and 

more data onto company 

databases. 

The more data there is, 

the harder it is to analyze 

using traditional IT methods. 

With time in increasingly 

short supply, managers 

with rapid access to data- 

based analysis can achieve 

a significant competitive 

advantage. In-memory 

computing promises to 

analyze the business world 

in real time, since data 

retrieval is no longer limited 

by the relatively slow speed 

of hard disks. 

Instead, information is 

analyzed by increasingly 

powerful memory chips. 

This is not just a nerdy IT 

issue; data-based processes 

are increasingly important 

to the success or failure of 

businesses in a growing 

number of sectors. Big data 

is a huge opportunity, but 

only for those who can sort 

the wheat from the chaff and 

draw the right conclusions. 


Do bailouts work? 

Comeback kid 

Keynes? 

Government bailouts enjoyed a worldwide renaissance during 

the recession, but what do they actually achieve? Nils aus dem Moore 

asks whether the kind of intervention favored by British economist 

John Meynard Keynes serves any purpose 

RESCUE PLANS: Do they work? There’s 

never been a better time to ask this 

question, never in human history have 

these plans been used on such a large 

scale by so many countries. On average, 

they cost around 2% of GDP in 

2009, and 1.6% in 2010. An IMF 

analysis shows that the biggest bailouts 

were in the United States, with a budgeted total of 

4.8% of GDP in 2009 and 2010, followed by China (4.4%) 

and Germany (3.4%). Another study, by the Brookings 

Institution in Washington, D.C., shows that the nature and 

size of the rescue packages varied a great deal. For example, 

Brazil and Russia relied almost entirely on tax cuts, while 

China and India focused on investment. In the European 

Union alone, over 350 individual programs had been agreed 

upon by February 2009. 

A detailed study by the Brussels think-tank Bruegel found 

that countries varied a great deal in their emphasis on the 

fi ve key components of a bailout: government investment, 

temporary or permanent tax cuts, welfare increases, employment 

programs, and aid for specifi c sectors. Germany 

implemented a large package of all fi ve, Britain relied mainly 

on a temporary reduction in VAT, Austria created permanent 

tax cuts, and Poland relied solely on infrastructure 

investment. 

So were the programs successful? At first 

sight, Germany appears to tick all the boxes; the 

Eurozone’s biggest economy saw a 5% slump 

in output during 2009, launched the EU’s 

biggest bailout at a cost of EUR 85 bn, and 

staged a spectacular comeback in 2010. Since 

then, unemployment has reached new lows 

and output has risen to pre-recession levels. 

This does not prove that the rapid recovery 

was caused by the bailout, or prove that 

the more money you put into a bailout, the 

more you get out. The United States’ experience 

has been quite different; according to the Congressional 

Budget Office, the American Recovery and Reinvestment 

Act (ARRA), passed in February 2009, will have cost USD 

830 bn by 2019. In spite of the program’s huge size, the 

recovery has been much slower than previous recoveries. 

To find out whether bailouts work, it’s not enough simply 

to compare different countries and their economies. To 

analyze their effectiveness, you have to isolate their impact 


THINK: BAILOUTS 

“Bailouts make sense 

only in historically 

exceptional situations” 

on GDP from all other factors involved; factors like 

monetary policy, the dynamics of world trade, and 

the price of key commodities like oil. 

Once you’ve broken down GDP into its 

component parts, you must analyze what 

would have happened without the bailout. 

This what-if analysis involves a degree of 

speculation, but it is the only convincing 

way of deciding whether bailouts work, so 

economists use macro models to simulate 

their effect. 

Optimistic simulations in the spring of 

2009 found that US gross domestic product 

was 3.6% higher at the end of 2010 than it 

would have been without tax cuts. Other economists 

using more downbeat assumptions concluded that it had 

increased by only 0.7% over the same period. More recent 

evaluations, using a wide variety of assumptions, have 

shown widely differing results. For example, the Congressional 

Budget Office estimates that the ARRA program 

has increased GDP by between 1.1% and 3.1% in the first 

quarter of this year, and has cut unemployment by 0.6 to 

1.8 percentage points. 

John Maynard Keynes: Return to 


favor, or last hurrah?

THINK: BAILOUTS 


Keynes is back, but 

probably not for long. 

In a recession, fi nancial 

decision-makers should 

realize that: 

1/ Monetary policy and 

the stabilizing role of 

tax and transfers are the 

best way to smooth 

the economic cycle. 

2/ Few governments 

are able to reduce debt 

created by defi cit spending 

once the good times 

return. 

3/ Structural problems 

need structural solutions. 

Nils aus dem Moore 

Columnist 

Nils heads the policy and communications 

department at the 

Berlin offi ce of the economic 

research body RWI Essen. 

He was formerly an associate 

of the Stiftung Neue Verant- 

wortung, and worked with 

RWI president Christoph M. 

Schmidt on the Bundestag’s 

commission of inquiry on 

growth, prosperity and quality 

of life. From 2005 to 2007, aus 

How does debt add value? 

Similar analysis of other countries’ economic programs has 

also been positive. In spite of all the imponderable variables 

involved, the bottom line is that without government intervention, 

the collapse in output would have been even more 

dramatic, and the job losses even greater. So what does this 

conclusion mean for future economic policy? In 2009, the 

historian and Keynes biographer Robert Skidelsky published 

an I-told-you-so tome, “Keynes, the Return of the Master,” 

proclaiming a new era of Keynesian government intervention. 

Economist Jeffrey Sachs, of Columbia University, contends that 

the success of recent bailouts was “the last hurrah of Keynesianism.” 

In the foreseeable future, he says, the huge increase in 

government debt will limit fi scal room for maneuver. 

Sachs may well be right. Many OECD economies are in an 

abysmal state, and there are three other reasons why Keynesianism 

is unlikely to make a lasting comeback: 

First, empirical research indicates that cyclical highs and 

lows can be smoothed out by a combination of monetary 

policy and the stabilizing effects of tax and transfers. Bailouts 

can be counterproductive if they’re slow to take effect, and 

in some cases they can actually make the troughs deeper. 

Second, during the postwar decades, Keynesian policies 

(2) 

usually failed in good times to reduce debt caused by defi cit 

spending in bad times. Third, current and future challenges Getty 

like emissions and demographic change are primarily struc- (2), 

tural, and structural problems need structural solutions. 

So the message is a nuanced one. During the normal eco- Akhtar 

nomic cycle, governments should rely on monetary policy, tax Amin 

and transfers to improve their fi nances. Big bailouts should 

be an absolute last resort for serious recessions. Photo: 

dem Moore edited the business 

section of the political 

magazine Cicero, and this year 

he won the Ludwig Erhard 

business journalism prize for 

his columns in the magazine.

REPORT 

Size matters in 

the modular economy

REPORT: THE MODULAR ECONOMY 

THE MODULAR ECONOMY The division of labor in the world 

economy continues apace. Small, agile, networked entities are 

increasingly successful, but big industrial giants are also profiting 

from the de-linking of the supply chain. In many sectors, clearly 

defined interfaces make cooperation with suppliers and service 

providers much easier than it used to be. The age of business ecosystems 

has begun. It is an age of collaboration between companies of very 

different sizes, and resurrecting one of the oldest questions in business: 

“How big should my company be?” There is no one-size-fits-all 

solution; rather, there are many different approaches to answering it. 

By Thomas Ramge Illustration & photos Sarah Illenberger 

Small versus big? 

A whole new army of Davids is on the rampage, some 

Goliaths are being slain, and small is the new big. 

US journalist, law professor and star blogger, Glenn 

Reynolds, has raised this subject a couple of times on 

his blog, instapundit.com. During the middle of the 

last decade, he pointed out that digital technology 

and the Internet were creating new opportunities 

for small businesses. Geeky students could run flourishing 

online businesses from their dorm rooms, and 

microbreweries were taking significant market share 

from giants like Miller and Budweiser. 

Reynolds described how 20th-century mass 

production, with its obsessive quest for economies 

of scale, no longer met the needs of 21st-century customers. 

Small was suddenly cool and, as he pointed 

out somewhat immodestly, a small blog founded in 

2001 could attract more readers in a day than many 

big local papers attracted in a week. 

The army of Davids began making inroads into 

big business. The image caught on, and in 2006 

Reynolds summarized his thoughts on the shift of 

power from big to small organizations in a small, 

pamphlet-like book, The Army of Davids. This 

promptly became a bestseller, and Reynolds became 

the chief exponent of a new economic philosophy; 

small is beautiful again, and the inexorable march 

of big corporations since the industrial revolution 

appears to have been halted. Economies of scale 

are no longer compatible with economies of scope. 

The mantras of 20th-century manufacturing were 

past their sell-by date, Reynolds said. In the past, 

if you doubled the number of items you made, you 

reduced your unit costs by 20 to 30%, but what’s 

the point when nobody wants to buy mass-produced 

goods any more, and the act of consumption is 

becoming increasingly individual? For Davids, tailormade 

products are where the big opportunities lie. 

One man, millions in profits 

The list of small-company-made-good stories is a 

long and rich canon. In 2007 the dating website 

plentyoffish.com, based in its Canadian creator’s 

home office, became what may have been the first 

one-person company to make an operating profit of 

more than USD 10 m. 


RUBRIK HIER 

SMALL 

versus BIG 

Small is beautiful... again. The 

inexorable rise of big organizations 

since the industrial revolution 

seems to have come to a temporary 

halt. Today, equipped with the 

sophisticated tools of the digital 

economy, and with limited 

overheads, small businesses can do 

things that were once done only by 

big corporations. 


RUBRIK HIER 

ONE MAN – millions in profits 

Tiny companies are everywhere you look. They market 

themselves globally, have almost no capital and, thanks to the 

Internet, can market their products and services worldwide. 


UNTANGLING 

those transaction costs 

Sports like kite surfing, which is enjoying a rapid 

worldwide increase in popularity, are supplied almost 

exclusively by small companies. Much of the 

innovation is being driven by fans rather than big 

design departments. Elsewhere, sales at the world’s 

biggest online platform for handicrafts, etsy.com, 

are approaching USD 500 m. Smaller manufacturers 

are enjoying a renaissance throughout the Western 

world. Anyone can buy Gucci, but true connoisseurs 

can make a statement by buying an ethical fashion 

label from Amsterdam. 

You might expect the world’s biggest seller of 

Darjeeling tea to be Unilever or some other food 

giant, yet it’s the Berlin company Teekampagne, 

founded by a professor of entrepreneurship and run 

by a handful of people. Perhaps the most impressive 

victory over the industry giants has been by a 

multitude of small and medium-sized companies 

with no names; over 50% of the world motorcycle 

market is now controlled by a network of suppliers 

and assemblers in China. Even the biggest are not 

exactly household names – Qingqi, Jialing, Zhejiang, 

Jincheng, Xindazhou – but these companies make 

very good bikes at affordable prices and sell them 

under eminently forgettable brand names. In the 

developing countries, they easily outsell the Japanese 

giants Yamaha, Honda and Kawasaki. 

Untangling those transaction costs 

In a standardized, networked world of flat hierarchies, 

small companies can often fight way above their 

weight class. It’s also an appealing idea, since Davids 

RUBRIK HIER 

To every action, there is an equal and opposite reaction. 

The online world is populated not only by tiny businesses, but also 

by juggernauts like Google, Facebook and eBay. The economies 

of scale apply just as much to clicks-and-mortar business models. 



“When should companies outsource parts of their 

production to others who do certain things better, 

than they do?” 

have traditionally attracted more sympathy than 

Goliaths. Of course, Glenn Reynolds’ opinions are 

generalizations. Yes, these success stories do exist, 

and technological standardization and the Internet 

make life easier for small businesses, but the army of 

David’s theory is based largely on anecdotes. 

Look more closely and you soon realize that 

mass production and distribution are expanding 

inexorably. The online world is dominated by behemoths 

like Amazon, Google, Facebook and Zynga, 

and they’re getting bigger by the month. Offline, 

car manufacturers form alliances with big players 

in the electrochemical industry, and the insurance 

industry continues to consolidate, McDonald’s 

has cruised out of the doldrums and is expanding 

globally, and many big banks are riding the crest 

of a wave again. 

Reynolds’ opinions are still thought-provoking. 

They prompt us to ask an old but important business 

question from a new perspective: how vertically 

integrated do companies need to be in order to 

collaborate effectively in ecosystems? Or to put it 

another way, when should they outsource part of 

their production to others who do a better job? 

One person who tried to answer this question 

was awarded a Nobel Prize for his efforts. The 

British economist Ronald Coase won the Nobel 

Prize in 1991 for his essay The Nature of the Firm, 

written more than fifty years prior in 1937. In his 

work, he expressed doubts about the Ford business 

model, which involved doing everything in-house 

from start to finish. In those days, Ford didn’t 

just concentrate on building good cars; it made its 

own steel, generated its own power, made its own 

windshield glass, and sold cars directly to customers. 

To a socialist economist, this was inefficient, and 

the solution was the Coase theorem, a milestone in 

economic history. 

The theorem says that there are always transaction 

costs involved in the division of labor and that 

these can be divided into categories. There are search 

costs, the cost of finding things such as employees, 

capital, materials, and information about production 

processes; there are contract costs, the costs 

of negotiating agreements, such as lawyers’ fees; 

finally, there are coordination costs which are the 

costs of the effort involved in ensuring that everyone 

involved works together efficiently. Coase concluded 

that companies would always seek vertical integration 

if their bottom-line external transaction costs 

were higher than the cost of the employees doing 

the job in-house. 

The Power of small parts 

The one thing that has changed since Coase analyzed 

Ford’s vertically integrated production is transaction 

costs. Today’s economy works on the Lego principle; 

the bricks snap neatly together, they don’t fall apart, 

and they can be combined in many different ways. 

Over the last few decades, the supply chain has 


THE POWER 

of small parts 

The supply chain 

has gone modular. 

Today‘s technology and 

business processes are 

highly standardized. 

This opens up big 

opportunities for large 

and small organizations 

working together 

in ecosystems. 

RUBRIK HIER 


RUBRIK HIER 

The ideal 

SIZE 

What‘s the ideal size for a 

company? There‘s no single answer 

to this question; it depends on the 

individual context. These days, 

small companies can quickly get 

big, and vice versa. 



been organized in an increasingly modular way 

because the cost of working with other businesses 

has become so low. Count the components of your 

cell phone, and you’ll find out how many suppliers were 

involved in its production. Battery, microphone, antenna, 

display, chip, SIM card; each comes from a 

hidden champion in one particular industry. 

In a modular world, interfaces are increasingly 

well defined: technological, logistical, legal, and 

administrative. Hard disks fit any laptop, products and 

parts arrive on time, and contracts and processes are 

standardized. Transferring money between almost 

any two countries on Earth is no longer a barrier 

to trade. 

At the same time, companies can now rely on 

business-to-business providers for almost any stage 

in their production process. A company with half a 

dozen workers like Teekampagne can become the 

world’s biggest seller of Darjeeling by outsourcing 

nearly all of its processes, including its call center, 

accounts, packing and dispatch – all done by 

outsiders. 

In the networked world, Davids can have their 

cake and eat it. It’s never been easier to supply 

modules such as cell phone antennas to the Goliath 

ecosystem, and you can even assemble the modules 

yourself as medium-sized locomotive builders do. 

If you play your cards right, and are sufficiently flexible, 

you can often be extremely competitive with an 

overweight Goliath. 

David Teece, director of the Institute of Management, 

Innovation and Organization at the University 

of California, Berkeley, says that in the modular 

economy, a clever David can orchestrate a network. 

It can score points with its dynamic capabilities 

and its ability to respond to market change, but it 

can also get knocked out. These capabilities, Teece 

believes, are the key to a business’ success or failure. 

The ideal size 

Take a few steps back, and it’s clear that the debate 

about big or small, insourcing or outsourcing, hierarchies 

or networks, has been going on since long 

before the Internet was invented. “The issue of the 

ideal business size crops up more and more often,” 

observes management scientist Stefan Kühl. “Sometimes 

the management pendulum swings one way, 

sometimes the other.” 



“In a market economy, only the Goliaths can 

shoulder the big risks – though this won’t stop 

the army of Davids from coming up with lots 

of good ideas” 

Traditional hierarchies do have their advantages, 

he points out. They can help organizations to make 

and implement decisions more quickly. They allow 

certain forms of behavior to be sanctioned and they 

are less susceptible to one of the key problems of 

networked systems: everyone wants to profit, but 

no one is willing to contribute money upfront. Also, 

in many sectors, innovation is a capital-intensive 

process; Davids cannot build the networks of 

hydrogen fuel stations needed to make environmentfriendly 

fuel-cell vehicles more popular, nor can 

they afford the expensive and uncertain process of 

obtaining drug licenses. In a market economy, only 

the giants can shoulder the big risks – though this 

won’t stop the army of Davids from coming up with 

lots of good ideas. 

This brings us back to the crux of the matter; 

what is the ideal size for a company? This is one of 

the eternal questions of business, and it’s impossible 

to generalize; however, because today’s interfaces 

are so clearly defined, the supply chain so highly 

segmented, and outsourcing so much more effective 

than it used to be, it has never been easier to set up 

a successful new business with limited capital. That 

said, the David versus Goliath image is misleading. 

Big and small at the same time 

Big and small are not a contradiction in terms, 

either from a business or a macroeconomic point of 

view; you can be both simultaneously. For example, 

you can insource your administration and production 

to take advantage of economies of scale, and 

outsource your innovation and value creation. If you 

do this successfully, it resolves a classic management 

conf lict: hierarchies are no longer a barrier to 

innovation and customer focus, and decentralization 

does not stop you from profiting as a result 

economies of scale. 

At the macro level, a healthy economy needs 

a mix of small, midsized and large companies. 

“We just need to make sure that less small, 

innovative companies get gobbled up by big ones 

that are short of ideas themselves,” comments 

Roman Boutellier, professor of technology and 

information management at the Eidgenössische 

Technische Hochschule (ETH) in Zurich. He says 

there is a tendency, particularly in the United States, 

for innovative entrepreneurs to cash in their chips 

too early, which poses another systemic obstacle to 

technological progress. 

To use Glenn Reynolds’ image, many Davids 

have stopped trying to make friends with the Goliaths 

in their particular industries and markets – 

though they still get excited if a Goliath holds out 

a hand of friendship to them. Others successfully 

develop long-term relationships with Goliaths, and 

become an integral part of their ecosystems. Every 

now and then a David decides to become a Goliath, 

complete with its own ecosystem, lots of Davids as 

business partners, and all the pros and cons of a 

big organization. 


BIG and SMALL 

at the same time 

Big and small don‘t have to be a contradiction 

in terms. In an increasingly networked and 

interdependent economy, healthy markets need 

big and small players. 

RUBRIK HIER 


REPORT: ESSAY 

The debate about alternatives to GDP is a red herring – we need 

more growth. By Prof. Dr. Burkhard Schwenker, Chairman of the supervisory 

board, Roland Berger Strategy Consultants 

“If resources are declining, 

growth is all 

the more important” 

IBELIEVE IN GROWTH! Like competition, it has positive 

connotations for me. It’s about change, dynamism, innovation, 

it’s not always comfortable and sometimes 

it’s downright unpleasant, but there’s no alternative. 

Let me explain why. 

In the 1970s, the Club of Rome published a controversial 

book entitled The Limits to Growth. At fi rst 

sight, its basic premise made sense; resources are fi - 

nite, and the more we grow, the faster we consume them. Its 

four authors sparked a great deal of debate about the harmful 

effects of growth, but their doomsday predictions failed to 

materialize, partly because they underestimated the pace of 

technological progress. 

Who could have guessed, even twenty years ago, the 

extent to which business would be dominated by the 

Internet, medicine by biotechnology, or materials science by 

nanotechnology? Who could guess how many resources still lay 

undiscovered? Take gas, for example. Predictions that reserves 

would be exhausted in decades have been disproved. Energy 

companies are extracting gas from shale, and new cracking 

and drilling technology means that reserves can be profi tably 

exploited for hundreds of years. 

However, technological progress of this kind is dependent 

on growth. Companies can only invest in research and 

development if they grow and generate cash fl ow. Even statesubsidized 

research needs resources to be generated fi rst, and 

zero growth would act as a brake on innovation; cutting costs 

has never led to new and innovative ideas. 

On the other hand, expecting technological innovation 

to continue at its present rate may be too much to hope 

for. What’s the alternative? It might sound like a risky bet 

on the future, but we need to encourage growth precisely 

because we consume resources. That way, there’s more chance 

of inventing technology that finds new uses for existing 

resources, and helps us to acquire new resources. 

When I say growth, I obviously mean sustainable growth. 

Sustainable growth is not a buzz phrase, it’s the solution to 

our theoretical dilemma, but it will only succeed if we regard 

climate change, raw materials shortages and demographic 

change as growth opportunities. This requires industrial 

strength, since the only way of dealing with limited resources 

is to speed the pace of productivity growth using automation, 

new production processes, intelligent transport, energy 

effi ciency and green energy. 

The debate about nuclear power and new types of energy 

shows the importance of innovative technology. We have the 

ability to change our energy mix quickly because Europe is the 

world leader in green technology. From an economic viewpoint, 

it’s simply a combination of mechanical, plant and electrical 

engineering, and high-tech services; precisely the kind of things 

that our manufacturers excel at. 

The same is true of demographic change, which we can 

see either as a threat or an opportunity for industrial growth. 

In a highly industrialized country, the fewer people there are 

of working age, the more you must increase productivity to 

maintain economic competitiveness, so our manufacturing 

know-how is a signifi cant asset. 

We need to look at things from a different perspective. 

Scarce resources don’t inhibit growth; they give it added 

leverage. Instead of thinking about alternative ways of 


measuring growth, we must create 

the right conditions for sustainable, 

industrially driven growth: international 

free trade, equal access to 

raw materials, effective protection 

of intellectual property, and stricter 

regulation of the fi nancial markets. 

We need tangible objectives, like the 

European Union’s targets of a 20 % 

reduction in greenhouse gases, a 

20 % increase in renewable energy 

usage, and a 20 % improvement in energy effi ciency. 

It is dangerously arrogant to see growth in negative terms, 

because we are not alone in the world. History shows that 

only economic growth leads to greater prosperity, and the 

booming economies of China, India, Brazil and Southeast 

Asia are evidence that this correlation still holds true. Economic 

growth creates employment, which generates income, 

which makes people’s lives better. 

This is perfectly compatible with the economic theory of 

happiness, which states that the marginal benefit of income 

decreases above a certain level. The Nobel prize-winning 

US economist Daniel Kahnemann quantifies this magic 

number as USD 75‚000. If someone earns more than this 

it won’t make them any happier. This figure is far removed 

from reality in the developing countries and will remain so 

for many years to come. 

However, this understandable and legitimate desire for 

material growth does not exist in isolation. We live in a 

networked global economy, and the constantly increasing 

competition we face is a result of this desire to better ourselves. 

If we scale back our economic ambitions, we also scale 

back our competitiveness – with unpredictable consequences 

for our wellbeing. 

So is gross domestic product still an adequate refl ection 

of growth, prosperity and economic strength, or should we, 

as the EU proposed in 2007, start thinking “beyond GDP?” 

“Who could have 

guessed, even twenty 

years ago, the extent 

to which business 

would be dominated 

by the Internet, 

or medicine by 

biotechnology?” 

REPORT: ESSAY 

Clearly, all traditional econometrics 

misuse the concept of “public goods” 

and fail to take suffi cient account 

of external factors like pollution. 

They use the “polluter pays” principle, 

which is why we should try 

even harder to price these factors 

into the equation, just as we do with 

CO 2 certifi cates. 

Clearly, alternative indices have 

so far been unsatisfactory. “The concept 

of happiness is intangible, so there’s not much point in 

trying to defi ne it,” says economist Bruno Frey, a specialist 

in this area. So how do we quantify feelings, let alone use 

them as a basis for economic policy? This is why, despite its 

weaknesses, GDP should remain the primary measure of 

growth and wellbeing. 

Harvard economist Benjamin Friedman rightly contends 

that increasing prosperity improves the lives not just of individuals, 

but also of whole societies. It encourages tolerance, 

openness, social mobility and democracy, so that instead of 

having to choose between growth and morality, we achieve 

morality through growth. The two are interconnected, and 

after a fi nancial and economic crisis caused by an obsession 

with growth, one of the key questions we must ask 

ourselves is whether social justice is compatible with growth 

and profi tability. 

Theoretically, this question has no convincing answer, 

but maybe some statistics will help to counter excessively 

ambitious growth targets. Over the last 30 years, the world 

economy has grown by an average of 3 % per year, big manufacturers 

have achieved growth between 4 % and 7 %, and 

capital returns on the world’s leading markets have been 

no more than 7 %. This doesn’t mean that there cannot be 

more growth in the short term; there is a wide range of 

scenarios, but at least the numbers give an idea of what 

might be possible. 


Facebook‘s Palo Alto 

headquarters has chill zones, 

where staff can play Guitar 

Hero on the Xbox 360 or 

catch up on a quick game of 

chess. 


Photos: Emily Shur / Gallery Stock 

REPORT: THE FUTURE OF WORK 

Nice house, 

nobody home 

As people work less in the office, the way in which 

organizations operate is changing fundamentally. Will this 

benefit smaller companies? How should big corporations 

respond? Professor Alexi Marmot, an expert in workplace 

strategy, shares her insights 

Alexi, you’re one of the masterminds 

behind IBM’s flexible office structure 

and have more than 20 years of experience 

shaping the new world of work. 

Can you give us a quick rundown 

on how work life has changed in 

recent times? 

Management gurus ponder the end of 

long-term employment security, the 

need for portfolio careers, the end of 

job specifications (people just know 

what work needs to be done), the relative 

shortage of young workers due to 

demographic change, employment 

equality, the need to work way beyond 

conventional retirement age, the growth 

of technology, and so on. 

Meanwhile legislation introduced in 

response to political demands, employee 

availability, and the concept of human 

capital has introduced many forms of 

flexible working. This is especially important 

as a way of balancing work life with 

childcare or care for the elderly. Flexible 

employment contracts cover a wide range 

of different assumptions about the time 

and place associated with work. Perhaps 

the most prevalent arrangement is outsourcing 

or offshoring, in which the work 

of whole departments within a large 

company is transferred to another organization, 

possibly in a country far away. 

Does this increasingly mobile and 

f lexible way of working benefit smaller 

37


“The vast infrastructure of large firms can now 

be mimicked by intelligent networks of people 

working alone or within formal companies” 

companies? Can they – by using 

freelancers, modern technology, 

and falling transaction costs – do 

things that in the past only large 

corporations could do? 

There is no question that IT 

developments empower new entrants 

to the world of work. Indeed the 

stories of recent start-up companies 

like Google, Skype, Facebook, and 

Twitter are all about bright young 

kids forging an idea, developing 

software, becoming billionaires, 

creating new verbs – such as “tweet” 

or “google” – and supplanting 

conventional methods of work, how 

we access information, and how 

we think. 

The vast infrastructure of large 

firms can now be mimicked by intelligent 

networks of people working 

alone or within formal companies. 

Technology costs continue to 

plummet while delivering more 

power, faster processing, and access 

to hitherto undreamed of quantities 

of information. Search engines 

identify what we need to know in 

milliseconds. Branding and marketing 

your service via an impressive 

website to attract customers is no 

longer difficult or expensive. The 

overhead cost of an office is unnecessary 

if work can be done from 

home or from a third location and 

sold anywhere in the global market. 

This suggests that micro firms can 

follow, and probably beat, the giants 

through competitive advantage and 

cost savings. 

So small is now beautiful? 

Not necessarily. Because at the same 

time, a multitude of new laws and 

regulations stop all but large, wellestablished 

companies from being 

allowed to operate. Excellent motivations 

lie behind the new tyranny 

of procurement. The vision of open 

trade across international boundaries 

has created the monstrous 

European procurement system that 

demands open advertisement across 

all EU countries for almost all government 

purchases. 

This adds more time and effort to 

the process of winning work. Only 

the very largest firms can bear the 

cost of tendering and only they 

stand a chance of meeting all the 

procurement criteria. For example, 

only large firms can afford the time 

needed to gain accreditation for 

the environmental performance or 

quality management that is increasingly 

requested. Brave clients are 

needed to risk buying from small 

new players. 

Is there a perfect size for a corporation 

today? 

Perfect size? No way, let a multitude 

of corporation sizes bloom. New 

micro-sized entrants together with 

gigantic mature companies can, and 

do, flourish in the global economy. 

One change is the hollowing out of 

the center, leaving nano-firms and 

gigantic corporations at the two ends 

of the size spectrum. Most industries 

are characterized by a small number 

of dominant players, oligopolies 

that may sometimes exert too much 


control over their markets and customers. 

Petroleum, banking, accounting, 

pharmaceuticals, and car manufacturers 

all have their giants built up over many 

years of organic growth and acquisition. 

The challenge for the giants is to act like 

the nano-players by being quick to act, 

innovative, light on bureaucracy, treating 

all employees as valued individuals, 

and letting all customers feel they are 

respected. 

How does the trend towards open 

innovation and mass collaboration 

transform corporate structures? 

Arguably, open innovation beyond 

corporate walls is the death of the 

company as we know it. Intellectual 

property ownership, on which so many 

organizations flourish, is impossible to 

control in an open innovation environment. 

Problems within the recording, 

publishing, and newspaper industries 

bear witness to this. Open innovation 

within a company can work well as 

long as the people with the best ideas 

are rewarded. 

What else must big corporations do to 

respond to the new world of work? 

Forward-thinking companies such as 

BP and IBM have long understood the 

competitive advantages of providing 

their staff with some flexibility regarding 

contracts, time, and place of work. 

In this way, they can retain skilled and 

loyal employees who otherwise might 

need to leave due to changing jobs or 

personal circumstances such as moving 

house, or having children. 

The necessary infrastructure for doing 

so consists of combining the offerings of 

HR, IT, and Estates, as well as agreeing 

what is needed with business managers, 

organizing effective management of 

change, and monitoring the resultant 

effects on staff, on customers, and on 

the business. Effective line management 

is essential for this to work. Managers 

must ensure that their team members 

are producing by results and not by 

being present, and managers 

need to trust their team members. 

By separating the job people do from the 

concept of a permanent place in which 

to do it, it is possible to strike a balance 

between the needs of the individual 

employee and the needs of the company. 

But how can any organization function 

if its employees are scattered all 

over the globe, working in airport 

lounges, cafés, and from home? 

Data drawn from tens of thousands 

of office employees shows that, at the 

busiest times of the year, most people 

are not at their desks about 63% of the 

working day and are not present in the 

office building for about 46% of the day. 

This is one of the reasons that telecommunications 

companies first invented 

voicemail, and that fixed handsets have 

become irrelevant compared to mobile 

phones that actually reach the person 

and not the desk. In other words, most 

office work is in fact about working in 

virtual teams that are rarely together in 

time and place. 

What does this mean for our idea of 

the typical workplace? 

The results can be unusual. Corporate 

buildings can be filled with people 

working for many different departments 

and with people from outsourced firms 

who need to be present, for example, 

to operate IT or the facility itself. 

People not employed directly by the 

organization can transmit corporate 

culture and image. 

How should managers deal with this? 

The solution is to schedule regular 

meetings, allow attendance by teleconference 

and videoconference, use 

many forms of media to communicate 

– email, instant messaging, telephone, 

text, websites, social networking – and 

above all, ensure all team members 

know what they have to do, by when 

and to what standard. 

Interview Markus Albers 


Alexi Marmot 

Biography 

Alexi Marmot is Professor 

of Facility and Environment 

Management, Vice Dean 

of Teaching and Learning, 

and Head of School at 

the Bartlett School of 

Graduate Studies, University 

College London. She is 

also a visiting professor at 

Sheffield Hallam University. 

Alexi established AMA 

Alexi Marmot Associates 

in 1990 to help organizations 

make the best use of 

their buildings by applying 

evidence-based design. 

Her clients include large 

multinational corporations, 

government and educational 

bodies, non-profit 

organizations including 

the Bill and Melinda Gates 

Foundation, British Airways, 

BBC, BP, HSBC, IBM, Morgan 

Stanley, Nationwide, and 

WWF, and many colleges 

and universities. 


REPORT: VIRGIN 

Branding 

Venture Capital 

Virgin’s Richard Branson believes in the power of small. 

His tactic: every time one unit grows large enough, create another. 

Virgin has no intention of being the market leader, and prefers to be 

the underdog – at least, that’s its marketing line 

By Hilmar Poganatz 

THE SMALLER, THE BETTER. British billionaire 

Richard Branson likes to keep 

things simple; for many years, Virgin 

Group board meetings were held in his 

London villa. “I was working in his son’s 

bedroom, and he was working from his 

bedroom,” recalls the former CEO of 

Virgin Direct, Rowan Gormley. This 

was a lot more space than during the 15-year period when 

Branson ran the Virgin empire from his houseboat. And 

it was positively cavernous compared to the offi ce of the 

student magazine Branson edited as a teenager, buried in 

the crypt of a church, with a desk made from “an old marble 

slab laid across two gravestones.” Branson’s talent for anecdote 

is legendary. 

However, you can’t argue with numbers; in four decades, 

Virgin has created more than 300 companies, and employs 

approximately 50,000 people in 30 countries. It started 

with Virgin Records, continued with Virgin Atlantic and 

eventually became a global empire, the Virgin Group, investing 

in businesses as diverse as mobile phones, transport, 

travel, fi nance, media, music and fi tness. In 2009, sales of 

Virgin brands totaled around EUR 13 bn, and the company 

was worth just over EUR 3 bn. Branson, now 61, still 

holds true to the maxim he learned as a student journalist, 

formulated by economist E.F. Schumacher in 1973: small 

is beautiful. 

Be small. “The philosophy of Virgin was that as soon as any 

business got big – and that originally meant more than 

20 employees – then you should try and break it up into 

smaller units.” Rowan Gormley learned this at one of his 

fi rst meetings as Branson’s advisor; the idea was that small, 

independent units are more customer – and employee – 

friendly, and faster to respond. 

“We want every Virgin subsidiary to be an effi cient, manageable 

size,” says Branson. In 1992, for example, Virgin 

Music consisted of fi fty subsidiaries, none employing more 

than sixty people. Robert M. Grant, professor of strategic 

management at Milan’s Università Bocconi, says Virgin has 

“very little hierarchy, offering short lines of communication 

and fl exible response capability.” 

“The companies were all independently fi nanced,” Gormley 

says. “Everybody had their own reporting structure; 


Photos: DDP, Imago, Mauritius Images (2)

Entrepreneur 

People & Planet 

The USD 25 m Earth Challenge 

prize for greenhouse gas removal 

technology, and Branson‘s 

charitable organization Virgin Unite 


Lifestyle Media & Mobil 

Money 

The fi nancial services provider Virgin 

Money in the UK, Australia and 

South Africa, and the online 

fundraising site Virgin Money Giving 

Branson‘s startup 

incubator to 

recruit new Virgin 

entrepreneurs 

Space Ship One & Two: 

Spacefl ights with 

Virgin Galactic could 

become a reality this year 

Virgin Active fi tness clubs in six 

countries, a party planning 

organization and a Formula One team 

Virgin Cola 

was launched 

in 1994. 

The Virgin Mosaic 

Travel 

Mobile phone and 

broadband providers 

in seven countries, 

mostly under the 

Virgin Mobile brand 

Virgin Atlantic, three airlines in Australia, 

stakes in Air Asia and Air Nigeria, Virgin 

Trains in the UK, balloon and spacefl ights, 

underwater expeditions, Virgin Holidays 

in the UK and its US counterpart Virgin 

Vacations, Limited Edition boutique hotels, 

motorcycle taxis in London, and a North 

American limousine service 

41


“We want every Virgin subsidiary to be 

an effi cient, manageable size.” The Virgin 

empire consists of 300 small companies 

you sent Virgin one page of numbers and that was that.” 

Senior managers were treated like independent entrepreneurs 

and given share options for added motivation, while Grant 

says the rest of the workforce were happy to work for “quite 

modest salaries”. 

Be aggressive. With this armada of bellicose admirals and 

emaciated crews, Virgin launched an all-out assault on a 

multitude of seemingly random markets. Singer Peter Gabriel 

reportedly said, “Virgin is gradually getting everywhere. 

When you wake up in the morning you listen to Virgin Radio, 

put on your Virgin jeans, go to the Virgin Megastore, drink 

Virgin Cola, and fl y to America with Virgin Atlantic.” 

But most Virgin Group startups follow a pattern that’s 

anything but random. Whether establishing airlines, insurance 

companies, or mobile phone providers, Virgin always 

markets itself as the jaunty newcomer, competing with 

established companies who annoy their customers with 

bad service or unnecessarily high prices. Branson enjoys 

“turning industries upside down” but, as he emphasizes on 

the Virgin website, that doesn’t mean that he chooses new 

markets by tossing a coin. 

Brad Rosser, Branson’s corporate development director until 

1998, says that a new project had to tick at least four of fi ve 

boxes. “It must be innovative, challenge authority, offer value for 

money by being better than the competitors, be good quality, 

and the market for the project must be growing.” 

The David and Goliath image is the focal point of Virgin’s 

marketing, in spite of the fact that Virgin Atlantic has an 

annual income of almost EUR 3 bn. As Rowan Gormley 

wryly puts it, “Virgin has managed to build some pretty big 

underdogs.” 

Be cautious. Branson is well aware that new ventures are risky, 

and upstarts often end up with bloody noses. Author and management 

consultant Des Dearlove says, “He’s always managed 

to use other people’s property for his own adventures.” As 

a businessman who’s had to shut down more than 100 of 

his creations, Branson has learned to hedge against risk. 

When he sets up new companies, he prefers joint ventures 

to bank loans. His biggest asset is the brand name; Virgin 

actually refers to itself as a “branded venture capital organization,” 

and Branson aims to expand it into a global lifestyle 

brand. Eventually, he wants to turn lots of small companies 

into one vast business. 

Be big. Small fi sh get eaten unless they swim with the shoal. 

The Virgin Group looks after its companies, and each is fi - 

nancially independent of the others, so that if one fails, it 

doesn’t affect the others. “They don’t just protect one another, 

they have symbiotic relationships,” Branson says. “We have 

a presence in 300 different sectors, and we’re the underdog 

in all of them.” 

If Virgin is a giant with lots of little feet, surely the David 

and Goliath idea is a bit far fetched? “Virgin can still get away 

with appearing to be a much smaller company than it really 

is because in every sector we are still the small guy, taking on 

the big guy,” Branson points out. “We’re not dominant in one 

particular sector like, say, Google in the online market. We’re 

in 300 different businesses and, in each, we’re the underdog.” 

To his former fellow travelers, this sounds similar to Branson’s 

marketing spiels back in the 1970s. Brad Rosser says, 

“The ambition of Virgin companies was to make them as 

big as possible.” Gormley claims that the Group decided to 

become a big player in the 1990s; “Virgin has become more 

conventional, more old-fashioned, and just bigger. There 

is now a huge Group HR department, a huge Group legal, 

Group brand department, and all the rest.” 

The days of managing businesses from houseboats and 

crypts are ancient history, but tombstone desks still make 

good stories. As Rosser puts it, “I don’t think that Richard 

has ever felt that small is beautiful.” 


Photo: Tom Nagy 

BRIEF 


World trade rebounds 

Roland Berger’s study: Switchpoints for the Future of Logistics 

RUBRIK HIER 

A DEEP RECESSION AND A RAPID RECOVERY 

have shown that we live in volatile times. 

With seemingly stable trends suddenly 

turned on their heads, and whole sectors 

of the industry still in decline, logistics 

remains one of the best barometers of 

volatility. The recession hit logistics 


ACT: BRIEF 

companies badly, leaving trucks, freight 

cars and container ships gathering dust for 

months on end. Now that the recovery is 

in full swing, these businesses are having 

trouble expanding their capacity rapidly 

enough. 

While these holdups bode well for the 

immediate future, the logistics industry must 

learn to cope more effectively with market 

fluctuations. These are uncertain times, 

and many questions remain unanswered. 

A recovery is taking place in some countries 

and sectors, but how long will it last? Does 

the crisis in the Eurozone presage another 

recession? How will sharply rising oil prices 

affect business models? Is globalization 

continuing apace, or are regional supply 

chains making a comeback? Will the trend 

toward green logistics be regulation or 

market-driven? 

The increasingly rapid pace of change 

makes markets more unstable, and decisionmaking 

in the logistics industry more 

diffi cult. If you base your future strategy on 

current forecasts, you ignore a multitude of 

imponderables. The two key questions facing 

the industry are: “How do you identify the 

switchpoints when things could move in one 

direction or the other?” and “How do you 

prepare for them strategically?” 

Roland Berger Strategy Consultants and 

the department of logistics management at 

St. Gallen University in Switzerland have 

produced a study that seeks to answer these 

questions. It examines the long-term effects 

of various short-term future trends and 

identifi es switchpoints that will affect the 

industry. Unlike trends, which evolve 

continuously, switchpoints mark changes 

of direction that have technological 

implications. 

+www.logistik.unisg.ch 

The world’s top ten logistics companies 

By revenue in billions euro, in 2010 

DHL 

DB Schenker 

Union Pacifi c 

The top three European 

countries in the logistics market 

In Europe by volume, in 2009 


BNSF 

Kühne+Nagel 

Nippon Express 

SNCF Geodis 

CSX Corporation 

Norfolk Southern 

26.9 18.9 12.8 12.7 2.2 11.4 8.9 8 7.2 6.8 

Source: companies’ own fi gures 

€ 200 billion 

Germany 

€ 113.8 billion 

France 

billion 

Great Britain 

€ 98.1 

Source: Fraunhofer IS 

The recovery in container transshipments 

ISL world container transshipment index 

220 Monthly transshipments 

200 

180 

160 

140 

120 

100 

Source: ISL – Institute of Shipping Economics and Logistics 

CEVA 

1Q 2003 

3Q 2003 

1Q.2004 

3Q.2004 

1Q.2005 

3Q.2005 

1Q.2006 

3Q.2006 

1Q.2007 

3Q.2007 

1Q.2008 

3Q.2008 

1Q.2009 

3Q.2009 

1Q.2010 

3Q.2010

New series of e-publications 

from early 2012 

Eight billion 

opportunities 

IN 2030, there will be 8.3 billion 

people on Earth – that’s nearly 

20% more than today. Ninety six 

percent of this increase will come 

from the developing countries. 

Unequal population growth will 

drastically change the economic 

balance of power: if a country 

has more people producing more 

goods and services, its economic 

growth will also accelerate. 

In 2030, around 

55% of worldwide GDP 

will come from the 

developing countries. 

A team of experts from Roland 

Berger analyzes how international 

companies can win new 

niche markets on the back of 

this trend – for example, fi nding 

out what newly affl uent consumers 

want, and then building 

infrastructure and developing 

innovative services for these 

markets. The team interviews 

senior managers and local market 

experts, and recommends 

possible strategies. 

For more information, contact 

eightbillionopportunities@ 

rolandberger.com 

A Roland Berger study for the German industry 

and technology ministry 

Health: 

A growth market 

ACT: BRIEF 

ACCORDING TO A STUDY by business research specialist RB, the worldwide 

health care market looks set to grow more quickly than other sectors over the 

coming years. Per capita spending is expected to increase, with a growing and 

aging population ensuring high rates of growth. The market is currently expanding 

by 8.8% per year and health expenditure is rising faster than GDP in 

most countries. Global GDP growth will also increase the purchasing power of 

billions of people. 

With governments in Africa and Southeast Asia expanding their health 

insurance programs, there is likely to be more money available to the industry. 

Health is likely to become an increasingly important issue in the future, with 

the main growth drivers being demographic change and the rise in chronic 

disease. Ultimately, more people will be spending more money on health care. 

Per capita health costs 

Increase from 2000 to 2008 

11.8 % 5.8 % 11.3 % 11.9 % 6.6 % 7.4 % 

USD 34 

USD 83 

USD 1,842 

2902 US$ 

USD 20 

USD 47 

USD 931 

USD 2,283 

Africa America Southeast Asia Europe 

At average exchange rate, CAGR 2000-2008 

Source: WHO world health statistics 2011 

USD 92 

USD 153 

Eastern 

Mediterranean 

USD 484 

2000 

2008 

Growth 

USD 854 

Worldwide 

45

RUBRIK HIER 

The real 

“World Bank” 

The Young Global Leaders’ “Restoring Ocean Health” initiative regards the 

protection of the world’s seas as an economic challenge. Kristin Rechberger, 

Enric Sala, Jayne Plunkett and Marco Fiorese lobby politicians and 

businesspeople to create marine protected areas – and Sala says keeping 

the oceans healthy is a good investment 

By Guido Walter Photos Björn Göttlicher, Enric Sala 

46 

The world‘s coral reefs 

are slowly dying. Here, 

the erosion process is 

just starting. 

THINK ACT SEPTEMBER 2011

ACT: YOUNG GLOBAL LEADERS 

The Young Global Leaders’ task forces 

THE FISHING BOAT GAVINA hovers 

perilously close to the shore of Meda 

Gran, one of the Medas, a group of 

seven uninhabited islands off the 

Catalan fishing port of L’Estartit. The 

size of the island is almost 47 acres. 

A ring of buoys marks the area where 

fishing is allowed; the Medas have 

been designated as a marine protected area (MPA) to 

help their flora and fauna to recover. Dr. Miquel Sacanell, 

35, throttles the engine, and his boat glides silently 

towards the shore. “People just don’t realize what a 

treasure we have here,” he says. “If fish aren’t stressed, 

they grow in natural conditions. There are more fish, and 

each one is bigger.” 

Sacanell is a biologist and fisherman. He began his 

career as a professional diver, but in 2003 he began 

fishing, and kept a record of his catches. After two years, 

he realized that bream and red mullet populations were 

falling sharply, and no one was doing anything about it. 

“The administration gets its statistics from sales in the 

fish auction halls, but the figures are wrong because the 

fish are caught in lots of different areas.” 

Dr. Enric Sala is all too familiar with this problem. 

As a Catalan fisherman and biologist, he has spent many 

years researching species variety in the Mediterranean and 

diving near submarine cliffs and coral reefs. He studied 

with Sacanell at Barcelona University and, along with 

Kristin Rechberger, Jayne Plunkett and Marco Fiorese, 

Sala was named a Young Global Leader by the World 

Economic Forum. Together, they set up the Restoring 

Ocean Health task forces. “Our approach to restoring 

ocean health goes beyond environmental care,” Sala says. 

“The maintenance of the ecosystem is a good investment.” 

Miquel Sacanell knows that getting this message across 

to other fishermen is an uphill task. Another boat appears 

beside the Gavina, and the young man at the helm 

waves. “That’s Joan,” Sacanell says. “He’s just taken over 

the boat from his father, and as far as he’s concerned, a 

good fisherman is one who catches a lot of fish. For me, 

it’s someone who fishes sustainably.” 

The issue is regularly discussed by Cofradia, the local 

fishermen’s association, but when Sacanell presents them 

with his statistics he receives little sympathy. “They’ll 

only accept change if there’s something in it for them,” 


ACT: YOUNG GLOBAL LEADERS “If fish aren’t stressed, they 

grow in natural conditions. 

There are more fish, and 

Restore Ocean Health 

Young Global Leaders – Task Force 

Enric Sala 

Enric Sala was born in 

Girona, Spain. His boyhood 

hero was Jacques 

Cousteau, and he decided 

to explore the oceans for 

himself. He studied biology 

in Barcelona, and is now a world-renowned marine 

biologist. In June, Sala and film director James 

Cameron were named explorers-in-residence by 

the National Geographic Society (NGS). 

Kristin Rechberger 

As vice-president of 

corporate partnerships at 

the National Geographic 

Society, Rechberger works 

with scientists to develop 

marine protection 

programs and maintains valuable contacts with 

NGOs and donors on behalf of the task force. 

She joined the society in 1998, and began by 

expanding its television interests. 

Marco Fiorese 

Marco Fiorese, a graduate 

of Harvard Business 

School, co-founded the 

Monaco-Asia Society, a 

humanitarian organization, 

and Codima Group, an 

investment company operating in Europe and Asia. 

His main responsibility with the task force is setting 

up marine protected areas (MPAs) in East Timor. 

Jayne Plunkett 

Jayne Plunkett is a mathematician 

with over 17 years‘ 

experience in the insurance 

industry, where she has 

held various technical and 

management positions. She 

is now employed by the world‘s biggest reinsurance 

company, Swiss Re, and is based in Hong Kong. Her 

role in the task force includes developing finance programs 

for people who make their living from fishing. 

each one is bigger” 

Miquel Sacanell, biologist and fisherman 

he continues. “There should be a biologist at every meeting to 

advise them.” 

Meanwhile, he is pursuing his own personal ocean health 

strategy; when he catches a rodaballo, a rare species of sole, he 

throws it back. The fishermen of L’Estartit just shake their heads, 

because in their eyes, the rarer the fish, the greater its market value. 

“If things keep going the way they are, much commercial fishing 

will come to an end before 2050,” says Kristin Rechberger, vicepresident 

of corporate partnerships at the National Geographic 

Society. It will be the end of an industry that employs 200 million 

people and generates around USD 90 bn a year. “The oceans are 

our true World Bank,” she says. “The difference is that everybody 

withdraws and nobody makes a deposit.” 

Enric Sala compares industrial fishing to Bernie Madoff ’s 

moneymaking techniques. “Ponzi schemes tend to work as long 

as you can find new investors. When you run out of investors the 

system collapses. That’s the case with fishing. What will we do 

when we run out of untapped fishing grounds?” 

The YGLs (Young Global Leaders) are pursuing a worldwide 

campaign for the creation and expansion of MPAs; fishing, 


aquaculture and dredging will be temporarily or permanently 

banned. Activities such as swimming, boating and diving 

are normally allowed within an MPA. “The protected area 

around the Medas islands is only one kilometer wide, but 

tourism brings EUR 6 m in income each year. That’s 20 

times more than fi shing can make in this area.” 

Expanding existing MPAs makes sense 

Miquel Sacanell steers his way between Meda Gran and 

Meda Petit, in the company of two diving vessels and a 

glass-bottomed boat. Thanks to the wealth of fi sh, diving 

is booming, and local fi shermen are doing fi ne. Sacanell 

phones Cofradia to report that he has no nets out; the area 

off L’Estartit is relatively small and easy to patrol. 

On the high seas, this is almost impossible. Governments 

often feel that regulation is not their responsibility, and the 

fi shing industry opposes it – concerned by the possibility of 

short-term losses. When fi shing comes to a halt, fi sh-stocks also 

recover on the periphery of MPAs, where fi shing is allowed. 

A study by the Partnership for Interdisciplinary Studies of 

The periphery of the Medas 

islands marine protected area. 

Only small-scale fi shing by boats 

from L’Estartit is allowed in the 

marine protected area. 

FRANCE 

Barcelona 

Mallorca 

L’Estartit 

RUBRIK HIER 

Marine protected area. 

Professional fi shing 

is banned. 

Illes 

Medes 

The village of L’Estartit, on the 

Costa Brava in northwestern 

Catalonia, was once entirely 

dependent on fi shing. It is now 

also a vacation resort with its own 

marina, and is home to around 

2,000 people. 

Coastal Oceans examined biological changes in 124 protected 

areas. Biomass increased by an average of 446%, the 

number of animals by 166%, and animal body size increased 

by 28%. Numbers like these help Rechberger and Sala 

demonstrate the economic benefi ts of MPAs. 

Restoring Ocean Health has ambitious aims; the 

task forces wants 20% of the world’s oceans to be given 

protection. “With every new marine protected area, we buy 

time,” says Sala. In April, for example, he met Chile’s president 

Sebastián Piñera and reported on his expedition to the 

Salay Gómez islands. Piñera showed an interest in expanding 

the MPA around the island, and as a result it now includes 

8% of Chilean sovereign waters. 

The next few years could see the creation of the world’s 

biggest MPA, in the Southern Line Islands, part of the Pacifi c 

state of Kiribati. Sala met with President Anote Tong, and 

recommended setting up a 1.4 km protected area. Kiribati 

is home to the world’s largest untouched coral reefs, and if 

these valuable ecosystems are ruined by a combination of 

over fi shing and sewage, they could bear out Jules Verne’s 


SPAIN

Predators are important for the health 

of the marine ecosystem. 

RUBRIK HIER 

“Because 90% of large predatory fish have disappeared, 

the number of organisms at the bottom of the food chain 

increases faster and faster” 

Enric Sala, biologist 

prophecy that after the last whale and the last seal dies, 

microbes will rule the oceans. 

“Because 90% of large predatory fish have disappeared, 

the number of organisms at the bottom of the food chain 

increases faster and faster,” Sala says. “We’re changing from 

a blue sea with predators into a sea of jellyfish and microbes.” 

Sacanell agrees, “If the ecosystem is to remain healthy, there 

must be predators.” 

The Gavina bobs at anchor outside the protected section of 

the Medas Islands, in the 2,000 acres where only boats from 

L’Estartit are allowed to fish. Seagulls screech in a cloudless 

sky, and the sea is quiet, almost motionless. Sacanell locks 

the rudder. 

The Gavina is ten meters long, with a tiny cabin, fenders 

around its sides, and a deck covered in nets. Sacanell bought 

it five years ago, along with a VW bus to take his catch to 

market, at a total cost of EUR 18,000. His fellow fishermen 

respect his practical outlook, and he wins the occasional small 

victory in his battle for sustainable fishing. 

In L’Estartit, he successfully fought for cuttlefish to be 

caught in handmade baskets containing mastic branches. 

However, he is worried about illegal harpoon fishing and big 

fishing fleets. “It would help us if they were only allowed to 

fish with dragnets below 200 meters.” 

Microcredit can tip the balance 

Modern surveillance technology is being put to good use in 

the battle against dragnets and other destructive techniques, 

which continue illegally in some areas. One of the objectives 

of the Restoring Ocean Health information campaign is to 

spotlight such abuses. 

Meanwhile, YGL Jayne Plunkett is developing financing 

models for the creation and operation of MPAs. “Our early 

ideas include setting up a funding mechanism which could 

cover the income of professional fishers during the time 

they’re not fishing in the MPA. Eventually the area outside 

of the MPA will produce more fish than ever before, and the 

profits of this additional fishing will give a payback on the 


investment. The investment plan can be protected from weather 

events through an insurance product.” 

Kristin Rechberger is using this year’s Volvo Ocean Race as an 

opportunity to lobby decision makers at events along the route. She 

will be focusing on China, since this year’s YGL Summit is being 

held in Dalian, and says the task force will be persuasive if it can 

show tangible benefits. 

Fellow YGL Marco Fiorese is the cofounder and vice-president 

of the Monaco-Asia Society, a humanitarian organization whose 

honorary president is Prince Albert II. Fiorese is working to set up 

MPAs in East Timor. 

“We’re already working on microcredit projects supporting a local 

NGO that works with remote villages in East Timor,” he says. “We’re 

now financing cooperatives of local fishermen who fish sustainably, 

and we’re supporting diving and tourism in the MPAs. The final 

goal is to benefit the fragile local village economies, and to create 

new jobs, new sources of income, and new commercial activities.” 

Microcredit provides the decisive impetus for these projects”, he says. 

Miquel Sacanell would be delighted if Spain were to cut subsidies 

for industrial fishing. “When you’re spending EUR 10,000 a week 

on fuel, you have to catch a lot of fish to break even. If you don’t get 

subsidized fuel, it just doesn’t work.” 

As he speaks, the Gavina chugs gently into the little harbor of 

L’Estartit. Sacanell believes the future lies in buyers’ co-ops; as a 

biologist, he sees the rapid growth of organic food shops in Spain as 

a sign of changing public opinion – and perhaps one day the fishing 

industry will get the idea. 

ACT: YOUNG GLOBAL LEADERS 


Can marine protected areas 

help to combat poverty? 

To assess the economic benefits 

of MPAs, scientists from the 

Nature Conservancy interviewed 

1,000 fisherman in Fiji (Navakavu), 

the Solomons (the Arnavon 

islands), Indonesia (Bunaken) 

and the Philippines (Apo Island). 

The survey found that the overspill 

of fish from MPAs into fishing zones 

significantly helped to reduce 

poverty. In Navakavu, the average 

household income was USD 251 

per month, more than twice as 

high as in similar unprotected 

areas. The MPAs created new jobs, 

mainly in tourism, and in Bunaken, 

people who switched to the tourist 

industry earned an average of 

USD 114 per month, compared to 

USD 44 for fishermen. 

As the fish population increased, 

fisherwomen in Navakavu fared 

particularly well. An investment 

of less than USD 12,000 in MPAs 

helped to double the incomes of 

around 600 people. 


Break the Rule! 

Ground your employees 

British startup WorkSnug has banned its employees from flying 

– even though it’s a thriving international business. Food for thought… 

By Christian Meier Illustration Theresa Grieben 

FOR INTERNET STARTUPS, the United States is 

the promised land; nowhere else will you find 

so many potential investors, great business 

ideas, and sources of capital. To succeed, the 

two main things you need are the art of persuasion 

and an airplane ticket. 

Richard Leyland, 34, started his own business in London 

in the summer of 2009. WorkSnug is an online-ratings 

database of free Internet-access locations. In May this year, 

WorkSnug had around 100,000 registered users, details 

for 35,000 locations, and a smartphone app to help people 

find the nearest one. 

Leyland and his colleagues have yet to make any sales 

trips across the pond. Leyland is a former marketing man- 

ager, he has big international expansion plans, and is planning 

a visit in October – but he won’t be flying. He’ll be 

spending nine days on the high seas, running his business 

from aboard a ship. 

Why take the slow route? Is this a PR stunt? No, says 

Leyland, definitely not; it’s one of WorkSnug’s ten guiding 

principles, which also include being “human”, “useful”, and 

“a community.” Principle number 7 is “We don’t fly” – for a 

new small business employing a handful of full-timers and 

freelancers, keeping your feet planted firmly on the ground 

does make you stand out from the crowd. 

“For us, this has an experimental and a symbolic dimension,” 

Leyland explains. “It’s experimental because 

we’re building a startup without flying, and it’s worked 


very well so far. But it’s also a symbolic principle, because one 

small company not flying isn’t going to make a whole lot of 

difference to carbon emissions.” 

Leyland hopes other companies will want to follow suit. As 

an active member of Britain’s Green Party, he’s deeply concerned 

about the effects of climate change, and has undergone a Damascene 

conversion since his jet-setting days when he worked for 

a variety of technology companies. “A lot of business flights are 

inefficient and expensive, and a lot of meetings are a completely 

unnecessary waste of time.” 

The flying ban also ties in nicely with the purpose of Leyland’s 

business, giving workers, freelance or otherwise, the 

freedom to leave their homes and offices for a different, less 

restrictive environment. The technology WorkSnug uses could 

help reduce business travel and its impact on the environment. 

So how does the flight ban work in practice? WorkSnug works 

closely with Internet telephony service Skype, which plays an 

important part in its business and is currently carrying out a 

free trial of Cisco’s TelePresence teleconferencing service. In 

Europe, employees take the train to meetings; Leyland has 

already been to a dozen countries, from Norway to Spain, which 

has entailed buying a lot of expensive tickets and spending a 

lot of time on station platforms at 5 a.m. 

How it works 

“There’s no real modus operandi for having a company where 

nobody flies,” Leyland says. “You just don’t do it.” He doesn’t 

have a written strategy, he doesn’t employ consultants to tell 

him how to do it, and if it has caused problems, he’s not aware 

of them. He’s not worried about missing out on business opportunities 

as a result, and potential foreign business partners 

are sympathetic when he explains why he can’t meet them face 

to face. “Of course, Skype and TelePresence aren’t as effective 

as meeting people in the flesh, and technology can’t reproduce 

the feeling of direct human contact.” 

Last April, nine British investors contributed EUR 130,000 

to expansion funding, and Leyland has just rented an office in 

London. Ironically, the office is still largely empty; he’s trying 

to abolish the workplace as we know it. 

Isn’t there a risk that WorkSnug could end up like any other 

company, complete with watercoolers and airmiles? Well, it 

seems unlikely at the moment. Leyland’s principles did come 

under fire once, when he wrote a guest article for the website 

TechCrunch.com in July 2010. “If a global company doesn’t fly, it 

won’t crash land,” he said. There were some positive comments, 

but other readers were furious, accusing Leyland of hubris. One 

wrote: “If the idea of a flying ban is really so important, you 

should think about the hardware you developed your app for, 

and how it got to you and your users.” Richard Leyland is an 

idealist, but he’s also enough of a realist to know that you can’t 

solve all the world’s problems all at once. 


ACT: FLYING BAN 

Working smarter – Richard Leyland’s 

golden rules for mobile working 

Work isn’t a place you go to, it’s 

something you do. Here are some of 

the principles that WorkSnug follows: 

1/ Being aware is more important than being 

disciplined. Office workers work 9 a.m. to 5 p.m. and 

are always available, but they can work smarter. 

��Identify your most productive times, and structure 

your day accordingly. 

��Be willing to dip in and out of work several 

times a day. 

��Tell your colleagues when you’re available and when 

not to disturb you. 

��Learn when and how to take breaks. Many mobile 

employees let their work control them. Switch off 

your phone or computer and take a walk, use 

separate cell phones for home and work, change 

into a different outfit when you finish for the day. 

2/ Selling your time, efforts and presence for money 

is a hopelessly outdated business model. Trust is 

what matters most. 

� Be prepared to judge and be judged by others on 

the basis of results. 

� Be honest about where you are at any given time. 

If you’re at the gym at 10 a.m., so what? Achieving 

the right work-life balance is an important part of 

the deal. 

� Trust your colleagues. There are no half measures 

where trust is concerned, and that trust must be 

mutual. 

3/ Be part of the community. If you’re lucky enough 

to escape the institutionalized office environment 

and emerge blinking into the big wide world, then 

get involved. Use online and offline networks to 

connect and work with others, get used to the idea 

of social capital – the value of all your connections – 

and make it a bigger part of your life. 

4/ Love your job. If it’s not fulfilling, and you’ve lost 

the office-based social structures that make boring 

work tolerable, you’re going to have problems. 

You can’t create all of your own motivation – some 

of it must come from others. 


RUBRIK HIER 


A sea of yellow: Dortmund fans 

enjoy world-class football from a team 

with sound finances.

Photos: Michael Rogosch 

The business 

of goals 

APRIL 30, 2011. It‘s a Saturday afternoon, 

and 1. FC Köln is playing at 

home against Bayer Leverkusen, 

Borussia Dortmund‘s only remaining 

rival for the Bundesliga championship. 

At 4:53 Köln scores, handing 

the title to Dortmund. In Dortmund‘s 

sold-out stadium forty-five 

miles away, the crowd explodes with joy: when the whistle 

goes, Borussia Dortmund are the league champions, and the 

city of Dortmund is a sea of happiness. 

Amid the revelry, three men remain surprisingly muted. 

As the final whistle sounds in their team‘s game against 1. 

FC Nürnberg, they quietly embrace, patting each other on 

the shoulder, still intent on the pitch. These are the architects 

of Borussia‘s success: coach Jürgen Klopp, chief executive 

Hans-Joachim Watzke, and president Reinhard Rauball. 

Rauball later says that at this crucial moment, he was 

thinking back to the winter of 2004-2005, when the club 

was more than EUR 180 m in debt and he feared for its 

survival. Dortmund‘s 2011 championship win makes sense 

only when you look at its last championship in 2002. In 

those days, the team was a veritable constellation of stars, 

coached by the plain-talking Matthias Sammer; the club 

played no-frills football designed to get results. There was 

just one problem; the players were so expensive that they 

nearly bankrupted the club. 

By Constantin Wissmann 

ACT: TURN-AROUND BVB 

In 2005 Borussia Dortmund was on its last legs, its team was broken, its finances 

were EUR 180 m in the red. Six years later, after a successful turnaround plan, 

Borussia Dortmund is the German league champion – proving that money 

alone doesn‘t score goals, but good management does 

Today, Borussia has a dream team of young, hungry players, 

comprised mostly of locals from its own youth squad 

who kick the ball with more grace and power than almost 

any side in German history. Their coach drives them with 

the perfect mix of powerful emotion and shrewd analysis. 

A few years ago, the club was synonymous with everything 

that was bad about football: arrogance, commercialism and 

delusions of grandeur. Today, everyone calls it the Black and 

Yellow Miracle. 

Miracle is an overused word in football, but in this case 

it fits perfectly. Borussia‘s sporting revival is no happy accident; 

it is the result of a precisely planned restructuring 

program born from the philosophy that a football club is just 

like any other medium-sized business. This outlook has been 

slow to catch on in the Bundesliga. It is ironic that it has 

worked best for a club regarded as the heartbeat of German 

football, where calm calculation has, until recently, been low 

on its list of priorities. 

At the turn of the century, Borussia was still riding high 

on its sporting successes. It overtook Bayern München to 

win the Champions League in 1997, but despite its lessthan-glamorous 

roots in the Ruhrgebiet, the club wanted 

to emulate the likes of Real Madrid and AC Milan. So management 

started taking financial risks. 

The club was the first in Bundesliga history to float on the 

stock exchange, netting EUR 143 m, but exorbitant players‘ 

wages and a stadium expansion soon left it short of capi- 


RUBRIK ACT: TURN-AROUND HIER BVB 

Michael Blatz, partner, Roland Berger; Hans-Joachim Watzke, chief executive, 

Borussia Dortmund; Pat Lynch, managing director, Morgan Stanley; Rainer 

Balensiefer, principal, Roland Berger; Oliver Kehren, executive director, Morgan 

Stanley; Thomas Treß, finance director, Borussia Dortmund 

tal again. It could only survive as long as it won matches, 

and when it lost its additional income from the Champions 

League (and in 2005, the Europa League) the prospect of 

collapse loomed large. 

Enter Reinhard Rauball, a lawyer who had already been 

the club‘s president once during the 1980s, and Hans- 

Joachim Watzke, an entrepreneur. The chances of saving 

Borussia were slim, but they thought there was no harm in 

trying, and a window of opportunity opened when Watzke 

came into contact with Oliver Kehren of the investment 

bank Morgan Stanley. 

Kehren had already helped several medium-sized companies 

stave off disaster, and felt that Borussia was no different. 

However, there was one key exception: „You can be 

pretty confident about your annual income, because things 

like price fluctuations and collapsing sales don‘t happen 

to football clubs. Your income from tickets, sponsorship, 

TV and merchandising are largely set in stone, and so are 

your expenses, particularly players‘ salaries. If you‘ve got 

all of these reasonably in balance, there‘s not much that 

can go wrong.“ 

Watzke told him all about the club‘s venerable traditions, 

its coal-mining roots and dramatic past successes, but Kehren 

was not particularly interested in any of this. However, 

one thing did catch his attention: despite the club‘s financial 

collapse and waning fortunes on the field, gate receipts were 

actually increasing. 

Fast and furious football 

That was all Kehren needed to hear. He summoned Roland 

Berger Strategy Consultants and a team of lawyers and auditors 

who drew up a recovery and refinancing plan. The club‘s 

creditors and other liabilities would be restructured and its 

capital increased – the consultants pointed out that its most 

important assets were its four million German fans. It also 

had a huge stadium, described by the Times of London as 

the world‘s best football arena, and was doing some excellent 

work with young players. 

Buying back the shares in the stadium 

that the club had sold off to an investment 

fund, and to start nurturing in-house talent 

became the priorities, with one reinforcing 

the other. Dortmund fans love young local 

players, and the enthusiasm in the stands 

resonates through to the team. The club also 

developed a match strategy based entirely on 

an attacking style of play. 

In the summer of 2006, Dortmund refinanced 

€ 125 m of liabilities in cooperation 

with Morgan Stanley. It bought back the 

stadium, freeing up resources to invest in 

the team, since the consultants had decided 

that these were the minimum preconditions for a lucrative 

international business. 

„Of course you can‘t plan league placing, but you can predict 

probabilities over time,“ says Roland Berger principal 

Rainer Balensiefer. The investment in the team would be 

moderate but continuous, and most importantly the club‘s 

finances – liquidity in particular – would not be dependent 

on the countless imponderables of football, like referees‘ decisions, 

injuries, and fluke goals. 

Much of the investment was spent to buy back the stake 

in the stadium, but it put Borussia back in charge of its own 

destiny. Watzke and the club‘s new finance director, Thomas 

Tress, began cutting costs. The stadium name was sold, and 

the team started going to all away games by bus. 

The two began skillfully implementing a series of complex 

rescue measures, gradually regaining investors‘ confidence. 

„The way they achieved that was brilliant,“ Kehren says. In 

February 2007, Watzke announced an operating profit of € 10 

m, and by 2010 the club had reduced its debts by € 125 m. 

From a sporting viewpoint, the club got off to a shaky start. 

In 2008, it was forced to fight relegation, and the young and 

talented team needed a coach who was also a mentor – one 

of the guys, someone who understood their lives, but was 

also an authority figure, an expert on strategy, and a human 

being. The man they needed was Jürgen Klopp. 

Klopp‘s arrival from Mainz caused a huge buzz. At his first 

press conference, he promised that from then on, Dortmund 

games would be fast and furious, and he kept his word. Fans 

were electrified by his playing strategy, which was all about 

the determination to give everything for the team. 

The fans spurred the young players on to a string of successes; 

precisely as the bank and management consultants 

had planned, and it showed in the club‘s league placing. 

In 2009, Borussia barely missed European qualification 

because of a referee‘s decision. In 2010 it made the Europa 

League, and in 2011 the Champions League, which alone 

guarantees an additional income of around EUR 20 m. 

The club increased its staffing budget by only EUR 5 m; 


Photos: Dominik Asbach, Asbach / Laif 

instead of buying expensive players, it concentrated on creating 

and retaining its own stars, and succeeded. The only 

exception was midfield strategist Nuri Sahin, who transferred 

to Real Madrid, and national player Mats Hummels 

who extended his contract with Dortmund in spite of a 

handsome offer from FC Bayern. „We‘ve got something really 

special in Dortmund, and this may be the only time 

in my career that I experience it,“ he said. „We all want to 

hang on to it for as long as it lasts.“ 


“We chose the sustainable route.” THINK ACT 

talks to Borussia Dortmund chief executive Hans- 

Joachim Watzke 

Mr. Watzke, 

is Borussia 

Dortmund just 

like any other 

medium-sized 

business? 

In terms of 

employees 

and sales figures, definitely. They 

need a well-defined management 

structure with clear-cut hierarchies 

and decision-making processes, 

and so do we. That’s something 

we’ve done here in Dortmund, 

unlike many other Bundesliga 

teams. But the Borussia Dortmund 

brand has the global resonance of 

a DAX company, which makes the 

club much more valuable than the 

figures suggest. Another factor, 

of course, is that we have a huge 

group of fans hanging on our every 

decision. 

What special skills does the CEO of 

a football club need? 

You need an entrepreneurial spirit, 

you need talent, and most impor 

tantly you need to understand 

football. I understand the process- 

es that go on with our team, and I 

understand the inner structure of 

the game, so I can assess the rec- 

ommendations made by the coach 

and the sports director. 

When you took over in Dortmund, 

the club was clinically dead. 

When I took over this job, we were 

living from day to day, every spare 

euro went to the creditors, and 

nobody wanted to lend us a single 

euro – it just wasn’t a solid investment. 

Both financially and from a 

sporting point of view, we were 

facing a long, slow death. 

And then there was the credit 

contract with Morgan Stanley. 

That saved our lives; there are no 

two ways about it. We had more 

freedom to make our own business 

decisions, albeit within a clearly 

defined framework, and we were 

able to start looking to the future 

and developing a strategy to get the 

club back on its feet. 

How did you get along with them 

after that? 

At first there was skepticism on 

both sides, but once we had a 

proper financial framework and new 

sponsorship contracts with good 

companies, we regained the bank’s 

trust. Some people in the club had 

concerns that, to put it bluntly, we 

were being taken over by some 

ACT: TURN-AROUND BVB 

American asset stripper, but they 

were quickly disabused of that 

view. My colleagues and I were very 

impressed by the longterm finan- 

cial strategy, and the understanding 

of the sports business, that Morgan 

Stanley and Roland Berger Strategy 

Consultants showed in putting 

together the recovery plan. They 

did a great job. We were all clear 

that we needed to work together 

to get the business back on its feet, 

and there was a lot of mutual trust, 

respect, and professionalism. 

One cornerstone of the recovery 

plan was winning matches. Is that 

something you can plan for? 

No, you can’t plan for it, but you can 

create the right framework. Michael 

Zorc, the club’s manager, and I developed 

a philosophy in Dortmund, 

which was that the team needed to 

play vertically, put the other side 

permanently under pressure and 

just go for it. Then we selected the 

players – it’s easier to do with young 

players – and we found the ideal 

coach in Jürgen Klopp. 

Probably every club in the Bundesliga 

would like to have an 

integrated sporting and business 

philosophy. Why does this so rarely 

succeed? 

The key people have to understand 

and trust each other, and 

there mustn’t be too many of 

them. That’s not easy in football, 

because there are always so many 

personal vanities involved. If you 

don’t have a clear management 

structure, you never know where 

you are or what you’re doing. 

From a business viewpoint, 

what did you learn from the successful 

restructuring of Borussia 

Dortmund? 

In this club, we only spend money 

that we’ve earned. That’s our paradigm, 

and that’s how it will stay. 

We’ve chosen the sustainable route, 

and even getting into the Champions 

League won’t change that. 


The man who took 

PSA Peugeot 

Citroën for a ride 

A visit with Philippe Varin at Europe’s second biggest car maker

Photos: Sipa 

Mr. Varin, what lessons from your 

previous life in the aluminum and 

steel industries have been most 

helpful to you at PSA Peugeot 

Citroën? 

I spent 31 years in those industries 

before joining PSA Peugeot Citröen. 

I spent 25 years in the aluminum 

business with Pechiney and six years 

in the steel industry with Corus. I 

learned that you have to be among 

the global leaders, because if you 

are not, at some point in time, there 

will be difficult issues to contend 

with. I discovered that at Pechiney. 

When I joined Pechiney the company 

had a global reach, but over time it 

disappeared from the radar screen. 

The company’s core business was 

aluminum but it wanted to get bigger 

and bigger, so it diversified into 

chemicals, steel and packaging, and 

that destroyed the core business. That 

was the problem. With the benefit of 

hindsight, the solution would have 

been to keep focused on our core 

business and forget about the rest. 

I also learned a lot from the turnaround 

we achieved at Corus. When 

a company is on the bottom, it has 

fantastic potential for change. In 

terms of turnaround management, 

I learned that things must be kept 

very simple, otherwise they will not 

get done. 

Until 2009, you spent the whole of 

your working life in the aluminum 

and steel industries. Has it been 

difficult to make the transition into 

the automotive sector? 

The first thing I did when I joined 

PSA was to listen; the employees 

of the Group have a huge amount 

of knowledge – much more than I 

had at the time. Then I focused on 

simple priorities, the first of which 

was to set up a leadership team. This 

was critical, because the team was 

essential to the company’s success. 

After completing that, together with 

the team and the one hundred top 

managers, we defined the ambition 

and the strategy we wanted for the 

company. We called it our vision and 

we shared it with all employees across 

the company. 

What is this Group’s vision for the 

future? 

First of all, we want to be a global 

player. We want 50 % of our sales to 

come from outside Europe by 2015, 

compared with 34 % in 2009 and 

39 % in 2010. That means reaching 

critical mass in China, which is now 

the world’s biggest car market, as well 

as other Asian markets and Latin 

America. We’ve decided to place a 

member of our managing board, 

Grégoire Oliver, in China, which was 

a first for PSA. 

ACT: PEUGEOT 

PSA PEUGEOT CITROËN has undergone a massive transformation since Philippe Varin took over 

as CEO of Europe’s second-largest automaker in June 2009. The Group has strengthened its 

management team, invested heavily to boost its presence in China, Russia and Latin America, and 

vowed to become more profitable. All of these steps are turning the proud 200-year-old French 

company from a Europe-focused automaker into a global competitor capable of challenging giants 

such as Toyota, General Motors and Volkswagen. Philippe Varin speaks about his leadership 

traits, his vision for the Group’s future, and how he sees 2011 developing for the automaker and 

the auto industry as a whole, in an interview with Roland Berger Strategy Consultants’ senior 

partner Max Blanchet and Automotive News Europe managing editor Douglas A. Bolduc. 

We aim to increase our share of the 

Chinese market from 3 % to 8 % by 

2020 and we’ll be investing more 

than EUR 1 bn in production capacity 

of nearly one million vehicles to 

reach that goal with our Chinese 

joint venture partners. In Latin 

America we’re investing EUR 700 m 

to increase market share from 5.4 % 

to 7 % by 2015. 

Secondly, we want to have a competitive 

advantage, what we refer to as 

being a step ahead, in areas such as 

design, CO 2 , and the services we offer 

to customers. Carbon reduction is 

a big challenge for our industry. We 

aim to meet that challenge with a 

range of technologies. We think that 

by 2020, electric vehicles, hybrids 

and plug-in hybrids will make up 

around 15 % of the market, and we’ll 

have products in all of those categories. 

We’ve also introduced a “mobility 

credit” service for both the Peugeot 

and Citroën brands, which allows 

customers to choose what mode of 

transport they want – be it a bicycle 

or seven-seater car – and when they 

want it. In the near future, by which 

I mean next year, we aim to produce 

one million cars with CO 2 emissions 

of less than 120g/km. 

What are your plans in terms of 

operational efficiency? 

We need to increase if we’re going 



to be one of the best in class. This is 

why we developed our PSA Excellence 

System, which is based on two pillars: 

individual intelligence and collective 

measures to simplify and slim down 

our processes. Implementing the 

system must increase our profits. If 

you’re not earning enough money in 

a competitive global environment, 

you’ll die sooner or later. 

A company needs cash to grow. If 

we’re going to make all of these improvements, 

we must be a pioneer of 

sustainable and responsible development. 

In the 200 years of its existence, 

the Group has developed strong 

values, and we need to ensure that 

these are respected and promoted 

among our employees and in relationships 

with all stakeholders, both 

inside and outside the business. 

Why have you put such a strong 

emphasis on profi tability? 

I was really shocked by what 

happened at Pechiney. I saw what 

happens when a company’s market 

value is not where it should be. I 

think value creation is absolutely 

critical; what we do must create 

value for employees as well as for 

shareholders. We have long-term 

shareholders who make long-term 

decisions. This is a good situation. 

When I’m asked if our company is 

big enough to develop and succeed 

in a global world, my reply is that big 

is not always beautiful. It’s not only 

a matter of size, even if size clearly 

matters; it’s how you create value. 

How would you describe yourself 

as a leader? 

What I can bring is the ability to work 

with a team, help to defi ne a vision 

and to make it happen every day. This 

doesn’t work if you do your managers’ 

jobs for them. It’s better to let them 

do their jobs and be there to help them 

make things happen. As for me, I like 

being on the fl oor to see for myself how 

things are going – what is working and 

what isn’t. 

I’m very practical. The second thing I 

bring is an international perspective. 

In the two years before I joined PSA I 

spent half of my time in India because 

I was with Tata, which had become 

the owner of Corus. I also spent nearly 

two years in Chicago when I was in 

the aluminum industry. I’ve had a lot 

of interaction with people on a worldwide 

basis. 

Has the time you’ve spent at PSA 

Peugeot Citröen changed the way 

you lead? 

I don’t have the answer to that 

question yet. What I hope I can 

bring to the culture of the company 

is an ability to help all employees 

embrace a single vision. This will only 

happen with the support of all the 

people in the company. When a new 

manager enters a company that is on 

a “burning platform”, like at Corus 

where we were about to go broke 

and had no credit facility, things can 

change pretty quickly. 

There was a kind of “burning platform” 

when I joined the Group; the 

automotive industry suffered a major 

crisis after the failure of the fi nancial 

system in mid-2008, and that resulted 

in very heavy losses and huge 

operational challenges. Things are 

better now, but I still believe we can 

maintain a feeling of “burning platform” 

among our employees. 

How did you fi nd the Group when 

you arrived? 

When I joined the company I 

was not very surprised, because I 

expected to fi nd fantastic technical 

potential and great engineers. What 

surprised me was the key role of the 

design teams. I didn’t realize the 

importance customers place on style 

and design today compared with the 

pure technical performance of the 

engines or suspension. I also found 

that we have a very cohesive company, 

very homogenous from a cultural 

standpoint. But we must encourage 

our managers to develop and 

New Hybrid 

Peugeot 3008 

The diesel hybrid version of the 

Peugeot 3008 was launched in 

March 2011. The 2.0-litre, 120-kW 

(163-hp) HDi engine operates the 

front axle, and the 27-kW (37hp) 

electric engine powers the 

rear axle. It has an average fuel 

consumption of 3.8 liters per 100 

kilometers, and CO 2 emissions of 

99 grams per kilometer. 

Rear-mounted 

electric engine 

Drive control 


Front-mounted 

diesel engine 

Automatic 

stop/start 

Six-speed 

gearbox 

High-voltage battery 

improve their leadership skills further. Being 

global, being excellent operationally and in our 

customer service, and promoting innovation to 

remain a step ahead, are all things that matter a 

great deal to me. 

Was the company under a lot of stress? 

The Group was being forced to deal with the 

global crisis and severe management issues 

simultaneously. 

It was also a big shock for this company to 

have to take a EUR 3 bn loan from the French 

State. If you see the glass as half empty, it 

was a traumatic time, but if you see it as half 

full, it gave us the opportunity to answer the 

questions: “Where do we want to go?” and 

“What is our vision?” This is not rocket science. 

It’s rather a matter of making things happen. 

We have to look for the opportunities created 

by the crisis. 

How do you keep people motivated? 

What our people want is success, because 

success is what drives them. People who 

are part of a winning team and personally 

rewarded for success – not only with money but 

by the way their contribution is recognized – 

will want to play a role in achieving the vision. 

This is crucial. 

What have been some of the success stories at 

PSA Peugeot Citröen since you joined? 

If a company wants to be global it has to take 

some big steps. We focused on China because 

it’s the key market for growth. We already had 

one joint venture partner and we reinforced 

our partnership by setting up an R&D center 

in China. The turnaround had started before 

I joined. However, I think we’ve moved things 

further ahead by establishing a new relationship 

with Dongfeng Motor Group. 

At the same time, we’ve negotiated a second 

joint venture with Changan Auto Group. Our 

market share today has to be closer to 8 % compared 

to 3 % previously. We can go from 3 % to 

5 % with Dongfeng and we can get another 3 % 

with Changan. 

We’ve set goals and told our people that these are 

what we want to reach for. When we say 50 % 

of our sales will come from outside Europe by 

2015, it’s more than just a concept; people see 

that we can do it. Another success story is our 

step ahead with CO 2 -reducing technology. 

We’ve launched our Citroën C-Zero and 


Philippe Varin 

Biography 

After graduating from the 

elite École Polytechnique 

and École des Mines, 

Philippe Varin joined 

Pechiney in 1978. He held 

executive posts in the 

company’s R&D, strategy, 

audit and project management 

departments before 

being appointed as head 

of the Rhenalu division in 

1995. Four years later, Varin 

was promoted to senior 

executive president of 

aluminum and became a 

member of the executive 

committee. 

In April 2003, before 

Pechiney’s acquisition by 

Canadian rival Alcan, Varin 

joined the Anglo-Dutch 

steel maker Corus as CEO. 

Following the merger of 

Koninklijke Hoogovens 

and British Steel in 1999, 

the company was facing 

a diffi cult situation, but 

Varin turned the hardship 

around and orchestrated 

its merger with Tata Steel 

in March 2007. 

Varin was appointed 

chairman of the managing 

board of PSA Peugeot 

Citroën in June 2009. He is 

58, married, and the father 

of four children. 



“It has to translate into 

pricing power rather than to 

be the champion of rebates” 

Peugeot iOn electric cars, and we’ll 

have the world premiere of our Peugeot 

3008 HYbrid4 diesel this year. 

Success is coming. 

What’s your sales outlook for the 

European and global markets? 

In 2011, the market in Europe should 

be flat compared with 2010. That 

is not great news, but last year was 

better than expected because we 

thought the market would be down 

by 10 % and it was down by only 

5 %. The situation will continue to 

improve in the United States with 

its significant growth of 10 %. China 

grew strongly in 2010 and should 

achieve percentage growth in the 

low teens in 2011. Latin America 

will grow by the high single digits 

this year and Russia also will grow 

substantially. In summary, flat in 

Europe and growth everywhere else. 

What about the 2011 prognosis for 

the Group? 

We took market share in Europe last 

year. We were helped by incentives 

that encouraged people to buy small 

cars. It will be more difficult this year 

because those incentives have come 

to an end in the French market, so 

there will be more focus on prices. 

We want to scale-up our two brands 

when it comes to pricing power. I 

won’t give market share targets for 

2011, however, we are introducing a 

number of new models this year; we 

want to optimize our profitability 

and get the best value that we can. 

We expect recurring operating profit 

from our automotive division to 

improve from last year, assisted by 

a contribution of more than EUR 

1 bn from our performance plan. 

The terrible events in Japan have 

caused us some difficulties in getting 

shipments of electronic components, 

and we estimate this will have a 

negative impact of about EUR 150 m 

in the first half of the year. Obviously, 

we’ll continue to track the situation 

very carefully. 

Ford is following a similar strategy 

of trying to avoid incentives to 

maintain profitability. Is this 

something that should be important 

for all automakers? 

What I can say is that it’s especially 

important for us because our vision 

is to be a step ahead and to create 

value. Being a step ahead is not just 

a nice catchphrase, it has to translate 

into pricing power rather than 

being the champion of rebates. I’m 

confident in our ability to improve 

our pricing power thanks to the 

successful upscaling of both of our 

brands. We now have the premium 

Citroën DS line, made up of the DS3 

with the DS4 and DS5 coming soon. 

There are no rebates on the DS3, 

and there will be none on the other 

DS cars. Meanwhile at Peugeot we’re 

developing models, such as the RCZ, 

that command premium prices. At 

the end of the day, we have to stick to 

this approach very strongly. 

Do you need more alliances? 

We have so much value to create by 

leveraging the Group’s potential. We 

sold 3.6 million vehicles last year 

and we’ll continue to grow this year. 

Obviously it would be great to have 

a higher scale, but there is much 

more to gain immediately if we roll 

out the full modular approach in our 

components. This means that the 

cars in the model range will have 

fewer unique components, so that 

the Group can order much larger 

quantities of common parts, which 

is more cost-efficient for PSA and 

simpler for the component suppliers. 

There’s a lot we can do personally to 

remain a robust stand-alone business. 

At the same time, there is no doubt 

that we have to deepen our strategic 

partnerships to achieve the step ahead 

that we desire, such as CO 2 reductions. 

We want to be in electric cars, 

hybrids and conventional combustion 

engines, and with our scale, involvement 

in all of these areas requires 

us to have partnerships. We have a 

partnership with BMW in which we 

work on gasoline engines and we’ve 

now set up a promising joint venture 

based on the components of the hybrid 

technology. We have cooperation 

with Ford on diesel vehicles and with 

Mitsubishi on electric cars. We want 

to create value, so we have to adjust 

our allocation of capital to put it 

where it will maximize returns, which 

means cooperation is key. Of course, if 

there are opportunities to make alliances 

that make real sense and bring 

long-term synergies, we’re open to 

them. But let’s be pragmatic, it’s not 

necessary today. 


Foto: TopicMedia 

SIFI rules leave Wall Street Goliaths wishing they were smaller 

RUBRIK HIER 

So, you think you are important? 

Boy, that’s gonna cost you 

Regulation of “systemically important financial institutions” (SIFIs) is taking 

shape, but its precise implications remain unclear. Experience in the United 

States has shown that banks must adapt their strategy ahead of the new rules 

to ensure that they have no undesirable side effects 

By Andreas Martin 

” 

NO WAY ARE WE A SIFI!“ That’s the new refrain 

echoing down the corridors of the 

financial services industry. Hedge funds 

think they are much too small and insurance 

companies say they present no systemic 

risk unless there’s a global catastrophe. Asset 

managers claim they just look after customers’ 

money, and banks lobbied hard to ensure 

they didn’t end up on the list of institutions 

important enough to endanger the financial 

system if they fail. 

Elevation to a “systemically important financial 

institution” status is a dubious honor 

because it imposes stricter capital requirements. 

As of August 2011, the rules required 

the 28 most important institutions to set up 

an additional equity buffer of between 1 % 

and 2.5 % of risk-weighted assets by 2019. 


ACT: BANKINGREGULATIONS 

This gives a total capital requirement of between 8% and 

9.5%, as opposed to the 7% applying to all banks under 

Basel III. The IMF has calculated that even 7% would 

create an additional requirement of USD 360 m for the 

world’s 62 largest banks. 

The exact surcharge depends on which of the four categories 

of systemic importance the institution falls into. The 

financial institution’s balance-sheet total is one yardstick, 

and the Basel committee has recommended that four additional 

benchmarks be used: interconnectedness, global 

reach, complexity, and substitutability by other providers. 

In the United States, the Dodd-Frank Act defines a bank 

that is “too big to fail” as one with a balance-sheet total 

of over USD 50 bn. Below this level, it is not systemically 

important. At the international level, a more complex formula 

has been used which takes different business models 

into account, and is compatible with the Basel III rules. 

Although SIFIs initially rejected the criteria, they will 

now have to exceed them and they are starting to get used 

to their newfound status. Of course, increased solvency 

requirements will erode their margins, but this could be 

offset by the advantages of refinancing. 

The calculation is that as highly stable SIFIs, financial 

institutions will earn better ratings and achieve lower risk 

premiums than banks with less capital, thereby establishing 

themselves as safe havens for investors in bonds and 

certificates. There are also benefits for deposit-taking business 

because, as Deutsche Bank CEO Josef Ackermann points 

out, customers “would rather invest their money with SIFIs.” 

At first, shareholders were alarmed by the prospect 

of their companies retaining profits to create additional 

buffers or increase capital. Now they are starting to see 

the silver lining – this will make their investments more 

attractive and lower-risk. 

Dodd-Frank Act attracts widespread praise 

Whatever people think about Basel III and SIFIs, there is no 

doubt that the industry’s situation will change drastically – 

not just for SIFIs, but for all providers. There will be no 

generous transition periods; it will happen immediately. 

Banks without adequate capital and financing could be 

forced to withdraw from previously attractive areas of the 

market and pass on their expensive refinancing costs to 

clients, which will reduce their competitiveness. Conversely, 

the changes would create additional opportunities for 

financial services providers that revalue their businesses 

to allow for risks as part of an overall banking strategy. 

“It’s potentially quite a simple question,” says Udo 

Bröskamp, head of Roland Berger Strategy Consultants’ 

Competence Center financial services. “How do I make 

the best use of my capital in the future?” 

It’s potentially a simple 

question: “How do I make 

the best use of my capital 

in the future?” 

However, he says, the answer is more complicated because 

businesses need to take into account the indirect effects of the 

new rules and their own national laws. “Some countries have 

already pressed ahead on banking regulation, while others 

will take their time implementing it, possibly making creative 

use of the SIFI criteria to give domestic banks a temporary 

competitive advantage.” 

Adopting such an approach to industrial policy could 

do more harm than good. Non-SIFIs may think that lower 

equity requirements have given them a head start, but sooner 

or later they could be forced to maintain higher voluntary 

buffers to signify their solvency to the market, where the 

investors will not necessarily know how institutions have 

been classified by regulators. 

For example, big banks whose business is primarily 

domestic could have huge balance sheet totals but still be 

placed in lower categories, or left out of the equation 

altogether. If the experience of the recent financial markets 

crisis is indicative, it seems likely that a big domestic bank 

with its fingers in lots of pies could cause just as much 

damage as a SIFI if it crashed. 

There have been dire warnings that banks could simply 

shift their business to regions with more relaxed rules; 

however, this is largely a ploy by lobbyists. “In reality, there’s 

limited scope for regulatory arbitrage,” Bröskamp says. “First 

in terms of time, because rules tend to converge as the years 

go by, and secondly, geographically, because you can’t just 

move and take your customers with you.” 


Photos: Imago 

Frankfurt: for banks in Germany’s financial center, size and importance are relative. 

Bröskamp believes that consistent global rules would be undesirable 

because they ignore conditions in specific markets. For example, 

Switzerland’s very high capital requirements send out a strong signal about 

the stability of its extremely powerful financial sector, which contributes 

around 12% of the country’s GDP. 

In the United States, the Dodd-Frank Act, which focuses on financial 

markets and SIFI regulation, was passed into law in July 2010, and has 

attracted a lot of positive comments from observers. They believe it tackles 

the root causes of the financial market crisis, bolsters Wall Street against 

future downturns, reduces the country’s exposure to systemic risk, 

and creates greater transparency and clearer responsibilities. As with 

any form of regulation, there has also been criticism of the downsides. 

This criticism is sometimes tinged with exaggeration, though it does 

highlight some of the long-term management effects of current banking 

and financial market regulation. Restrictions on proprietary trading have 

already caused departments to close, though some of this business has 

been shifted to hedge funds. Other banks are considering incorporating 

their own account operations into their asset management business, 

which could make client-driven fund management and market-making 

more competitive. 

“Like Basel III, Dodd-Frank is having massive effects on the management 

of capital, liquidity, risk and financing, process models and IT 

systems,” emphasizes Roland Berger partner Holger Dümler. “Thanks 

to the long lead times, banks were able to assess the attractiveness of 

their businesses in the new regulatory environment long before it actually 

happened. Armed with this knowledge, they could decide well in 

advance whether to adapt their strategies or shut down specific areas 

of their business.” 


RUBRIK HIER 

The Dodd-Frank Act 

There is a great deal of overlap 

between the 849-page, 

541-article US act and the 

future Basel III rules in areas 

like liquidity requirements, 

refinancing, and maximum 

leverage. Both systems seek 

to make derivatives-trading 

a regulated, centrally cleared 

market, but Dodd-Frank places 

more emphasis on rescuing the 

big banks, or at least allowing 

them to die quietly. 


LOOKING FORWARD 

Simple questions are often difficult to answer. What is here to stay, 

and what’s next? THINK ACT asks some of the world’s leading futurologists 

What is here to stay? 

The laws of thermodynamics 

The first law of thermodynamics states that all energy in 

the universe is constant, that it cannot be created or destroyed; 

only its form can change. The second law states 

that energy can only be changed in one direction, that is, 

from usable to unusable, from available to unavailable, or 

from ordered to disordered. Everything in the universe, 

according to the second law, began as available concentrated 

energy and is being transformed over time to unavailable, 

dispersed energy. Entropy is the measure of the extent to 

which available energy in any subsystem of the universe is 

transformed into an unavailable form. 

Societies are organized and maintained by 

converting the available energy from the 

environment into energy to sustain human 

existence. 

Every great economic era is marked by 

the introduction of a new energy regime. 

In the beginning, the extraction, processing, 

and distribution of the new energy are 

expensive. Technological advances and 

economies of scale reduce the costs and 

increase the energy flow until the onceabundant 

energy becomes increasingly 

scarce and the entropy bill from past 

energy conversion begins to accumulate. 

The oil era followed this curve over the 

course of the twentieth century, peaking 

in 2006. 

Most economists fail to understand that 

all economic activity is borrowing against 

Nature’s energy and material reserves. If 

that borrowing draws down Nature’s 

bounty faster than the biosphere can recycle 

the waste and replenish the stock, the 

accumulation of entropic debt will eventually 

collapse whatever economic regime 

is harnessing the resources. 

Jeremy Rifkin 

Jeremy Rifkin 

Biography 

he teaches at the Wharton School’s 

executive education program. His 

forthcoming book is ‘The Third 

Industrial Revolution: How Lateral 

Power is Transforming the Economy 

and Changing the World’. 

What’s next? 

The Third Industrial Revolution 

Our industrial civilization is at a crossroads. Oil and the other 

fossil fuel energies that make up the industrial way of life are sunsetting, 

and the technologies made from and propelled by these 

energies are antiquated. The entire industrial infrastructure 

built on the back of fossil fuels is aging and in disrepair. Worse, 

climate change from fossil fuel–based industrial activity looms 

ominously on the horizon. Our scientists warn that we face a 

potentially cataclysmic change in the temperature and chemistry 

of the planet, which threatens to destabilize ecosystems around 

the world. It is becoming increasingly clear that we need a new 

economic narrative that can take us into a 

more equitable and sustainable future. 

The great economic transformations in 

history occur when new communication technology 

converges with new energy systems. 

The new forms of communication become 

the medium for organizing and managing 

the more complex civilizations made possible 

by the new sources of energy. 

Today, we are on the cusp of a new convergence 

of communication technology and 

energy regimes. Internet technology and renewable 

energy are merging to create a powerful 

“Third Industrial Revolution” that will 

change the way we work and live in the 21st 

century. In the coming era hundreds of millions 

of people will produce their own green 

energy in their homes, offices, and factories, 

and share it with each other using an “energy 

Internet,” just like we now create and share 

information online. 

The Third Industrial Revolution infrastructure 

will create thousands of businesses 

and millions of jobs. This revolution will usher 

in a new economic age which will bring with 

it a fundamental reordering of human relationships 

– from hierarchical to lateral power. 


Illustration: Frank Hoppmann

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RUBRIK HIER

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