think: act magazine No. 17 - Size Matters - Roland Berger

world. There’s no point having detailedexpert knowledge unless it can beshared with everyone within a verylarge organization.So what would you say is the perfectsize? Is it possible to lay down hardand fast rules?Götz Werner (right):“If you’re successful, yougain a customer base,and then you grow.”Werner: You always strive for theoptimal, and everything you dois sub-optimal. Once you realizethere’s a difference between the two,you move on to a new stage in yourdevelopment, so growth comes fromoutside, not from inside. If you’resuccessful, you gain a customer base,and then you grow.That’s the logic of growth. But whycan’t you say: “We have a veryprofitable company, let’s staythat way”?Wittig: I’m a strong advocate of growth,both for businesses and economies,because it creates more opportunitiesfor more people. If you try to stopChina from growing, you’re excludinga large proportion of the world’spopulation from prosperity. We haveto live with that and find ways ofdealing with the consequences ofgrowth. But I think we should alwayshave a growth component to ourphilosophy, because if you don’t grow,you stand still. Growth is the onlyway of coming up with new ideas andtrying out new concepts.Werner: I prefer to say developmentrather than growth. Growth is prettysuperficial, it’s about numbers, but ifyou have a company culture that sayspeople must develop themselves, that’sclearly about quality. Quantitativegrowth is the logical consequence ofdevelopment.Wittig: The automobile industry isa good example of that. In terms ofnumbers, western markets are largelysaturated, and electric cars haverelatively low development potentialcompared to the industry as a whole.But in quality terms, it’s a completelydifferent picture; there’s still a lot ofpotential in personalizing products toindividuals’ needs.Werner: We have 1.2 million customers,and we could always provide a betterservice to them all.In terms of customer focus, howimportant is it to give branches alot of autonomy, and are there instanceswhere a good old-fashionedhierarchy works better, even if it’sless socially acceptable?Wittig: Nearly all industries andservices have completely differentorganizational models, and centralizedTHINK Act september 2011 5

One-on-one with Wittigand decentralized models can workequally well. If you look at a company’smaturity curve, you can see thatexpanding companies tend to bemanaged on a decentralized basis.That’s the case with the automobileindustry when it’s moving into newmarkets, and with logistics and otherservice providers. These are usuallydeveloped in a decentralized way bylocal companies.As a company continues to develop,there’s a tendency toward centralization,with specific areas of the business beingcombined in accordance with centralguidelines. Nearly all companies stillhave hierarchies, and chaos is rarelysuccessful as an organizational principle.Of course there are very differentdegrees of guidelines, and you haveto decide what’s going to work on acase-by-case basis, which has a lot todo with the company’s history andculture. There’s one big Chineseretailer I know that’s organized in analmost military fashion; the employeeshave to attend a morning videoconferenceand roll call. It sounds weirdto us, but it works for them.Werner: You have to see managementin its cultural context. When I wasyoung, there was one successfulentrepreneur I knew who had a faxmachine in every branch, and heused to send them instructions everymorning. Times and people change,and so must methods.I think the most successful peopleare those who have their finger onthe pulse of the time. Of course youcan be successful with old-fashionedmethods, but then the question is:are you succeeding because of, or inspite of them?If a company like dm gives itsbranches so much freedom doesn’tthat make it harder to implementdifficult strategic change from thecenter?Werner: That’s a good question, andit’s one we’ve discussed many times inGötz WernerBiographyGötz Wernerwas born in1944, andopenedhis firstdrugstore inKarlsruhe in 1973. Today, hiscompany, dm-drogerie markt,has around 2,500 branchesand employs nearly 40,000people across Europe. Wernerheaded the entrepreneurshipinstitute at the KarlsruherInstitut für Technologie fromOctober 2003 to September2010. He is a strong believer incorporate social-responsibility,and has for many years publiclycampaigned for a basicliving wage.our history. Our culture is one of veryslow change. Change is a very difficultprocess, you can only implement it insmall steps, and having a hierarchydoesn’t help. You must always bewilling to question paradigms. Forexample, we don’t just want customersto be loyal, we want a close, long-termrelationship with them, and thatrequires a completely new form ofmarketing. So do you put pressureon them, or do you make yourselfattractive so that you take them withyou? In my experience, taking themwith you works better if you’re goingto develop sustainably.So how do you get them onside?Wittig: In our own business, we doit using trust. To us, marketing isabout building relationships of trustwith decision makers, and the bestadvertising is word of mouth. Ifyou’re in a competitive situation,a lot of your products and services6 THINK Act september 2011

One-on-one with Wittig“People who apply to us oftenask how they can use thecompany to do good. That justwasn’t an issue ten years ago.”Martin Wittigare similar to other companies’. Ofcourse, one good example of gettingcustomers onside is Apple; theydon’t push their products in theirstores, but people are still happy towait for them. They get customersonside by creating needs that theywant to satisfy.But a lot of business models are stillbased on scaling and push. Howdo you move away from just massproducingthings towards a morecustomer-centered approach?Werner: We’re obviously a massmarketprovider, but if you don’twant to push all the time, you needstable performance. It’s a question ofattitude. Do you want rapid success,or long-term relationships with yourcustomers? In the old days, we had aslogan, “Big brands, small prices,” but18 years ago, we changed it to “I’m anindividual here, this is where I shop.”This was a major turning point. Ourmarketing strategy begins: “We wantregular customers who make a pointof shopping with us because they’reconvinced they’ve done the rightthing.” Often, the first mistake istalking about customers when youshould be talking about people.That’s a people-centered approach,but is it suitable for a company that’svery growth – and profit – oriented?Werner: The better you know people,the better you can respond to theirneeds. If you can gain a better understandingof what drives people, youcan be a better manager, know yourcustomers and suppliers better, andpredict the future more effectively.Wittig: I think having a transparentvalue system is an important part ofmanaging a company, particularlywhen it’s about the long-term survivalof the business.You don’t have a bonus system fordm employees. Why not?Werner: We do things because theymake sense, not because I’ve promisedmy wife a Christmas bonus.Wittig: I don’t think bonuses and thewhole pull idea are a contradictionin terms. Bonuses are a pull for employees,not a push. If they don’t geta bonus, I’m not punishing them, I’mgiving them the chance to earn one.Werner: I’m with you on that. Idon’t believe in extrinsic motivation;management must create a situationin which employees are intrinsicallymotivated – I’d even go so far asto say that bonus systems penalizeworkers. Employees need an incomeso they can live, and they need theirwork so they can grow.You’re also trying to remove thelink between work and income, andyou’ve been publicly campaigningfor a basic living wage for years.Why, as an entrepreneur, are youso involved in social issues?Werner: Because entrepreneursneed to see the forest for the trees.If a company’s sole raison d’être ismaking society better, it must havean interest in how society develops.Social involvement is one of the mostimportant roles of an entrepreneur,particularly when you get older. Allentrepreneurs should aim to createscope for people within the businessto become active outside of it.Wittig: People who apply to us oftenask how they can use the company todo good, for example, by volunteeringand taking sabbaticals. That justwasn’t an issue ten years ago, buttoday it’s a pull, and as a company,we have to be socially involved ifwe’re going to attract young people.Our charitable trust is an exampleof this; we spend around 2% ofour sales on these forms of socialinvolvement, and I think this is awonderful trend.This interview was conducted by Thomas RamgePhotos Frank BauerTHINK Act september 2011 7

RubRik hieRBRIEFtHINKSankei ShimbunOsaka/TokyoJapan2,757Canako XiaoxiBeijing, China2,627 Nihon Keizai ShimbunTokyo, Japan4,635The Asahi ShimbunTokyo, Japan12,121Yomiuri ShimbunTokyo, Japan14,067Chunichi ShimbunNagoya, Japan4,512BildBerlin, Germany3,867London, UK3,516The SunLondon, UK3,149Mainichi ShimbunTokyo, Japan5,587The world’sknowledge isin the northernhemisphereThe world’s fivetop-selling dailynewspapers areall Japanese.wHere Is tHe wOrlD’s KNOwleDGeconcentrated? That’s the question posedin The Geography of World Knowledge,published by two think-tanks, Convoco andthe Oxford Internet Institute. In the midst ofa new media revolution, the publication mapsthings like worldwide Internet use, newspaperreadership and centers of academic knowledge,and even includes a revealing breakdown ofthe geographic distribution of geocoded photographsuploaded to Flickr. In almost every case,the knowledge is concentrated in Europe andNorth America – which are also the regionswhere the largest number of Wikipediabiographies are written.+www.oii.ox.ac.ukIdeas for crisis-riddencompaniesNO twO BUsINess CrIses are tHe same. Sometimes you just needto tweak your strategy; sometimes it’s time to call in the receivers.In nearly all cases, turning a company around demands a holisticapproach that carefully considers all recovery options. Drawing up arestructuring plan that identifies the causes and possible solutions isjust as important as complying with the relevant legal requirements.This review by Roland Berger Strategy Consultants’ BerndBrunke, Sascha Haghani and Thomas Knecht, entitled “Restructuringand Re-launching Crisis-Ridden Companies,” is a sound, up-todateand comprehensive guide on the subject. It takes into accountcurrent statute and case law, and discusses the latest approaches tovarious 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 AresTrUcTUrING pLANTHAT IDeNTIFIes THecAUses AND possIbLesoLUTIoNs Is JUsT AsImporTANT As compLYINGWITH THe reLevANTLeGAL reQUIremeNTs.”“Restructuring and Re-launching crisis-Ridden companies”8 THINK AcT sepTember 2011

Project 2012Global Wind of Change?2012 wIll Be a BUmper Year for elections worldwide.Voters in the world’s two biggest economies, theUnited States and China, will go to the polls – thoughone election will be rather more democratic than theother. Russia and France will elect new presidents, andIndia, Spain and Mexico will also be voting.If the balance of power shifts in any of these keynations, it will happen at a difficult time. With issueslike 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, acooperative consultancy platform for companies andpoliticians, providing support to top decision makerswhose agendas could be affected by the poll resultsover the coming year.The project will develop scenarios allowing businessesto prepare for a variety of possible outcomes.Roland Berger is working in close partnership withuniversities and think-tanks around the world, includingthe Yale World Fellows Program and HEC Paris,and will present the results of the project as a series ofstrategic proposals during the coming year. There isalso a wiki for anyone wishing to be involved in thisproject. If you are interested, please register at+www.theproject2012.orgRussia11 March 2012France5 May 2012chinaOctober 2012USa6 November 2012It’s still not clear who will be contending innext year’s presidential elections. IncumbentDmitry medvedev will probablystand for a second term, but the possibilityof a job swap with prime ministervladimir putin is still under discussion.France is likely to shift rightwards, withPresident nicolas Sarkozystanding for reelection. polls indicatethat marine Le pen, the right-wing FrontNational candidate, will attract a significantshare of the vote.President hu Jintao and prime ministerWen Jiabao are expected to pass ontheir respective batons at the 18 thnational party congress in october. Theirpotential replacements are Xi Jinpingand Li Keqiang.President Barack obama wantsa second term in the White House.Among the potential republican challengersare michele bachmann andrick perry.Dmitri medwedewnicolas Sarkozyhu JintaoBarack obamaphotos: DpA (2)Up for re-election:Fourglobal electionsleadersthatwhocouldcould changebe out of thea job.world economy

Think: NudgeSometimes you needa little pushTwo leading US academics say that small pushes in the right directioncan overcome people’s natural inertia and bring about large-scalesocial change; they call this effect nudge theory. Barack Obama is a bigadvocate of nudge theory, and it is catching on in companiesBy Anne Hansen Illustration Lutz WidmaierIt was a simple yet groundbreakingexperiment. Three hundred householdsin San Marcos, California weredivided into two groups. Half were sentnormal electricity bills and the otherhalf had a smiley face on their bills iftheir consumption was below average,and a frowning face if their usage washigher than average.The results could not have been more conclusive:within the group with faces on theirbills, high users reduced their electricity consumption,and low users consumed even lessthan before.The difference was a little yellow circle ona piece of paper, but it had a big effect. USacademics Richard Thaler and Cass Sunsteincite the smiley experiment as a simple exampleof their theory that people can be gently encouragedto behave in socially desirable ways.Likewise, even small incentives can improveemployees’ productivity. The two researchers callit nudge theory, quietly shepherding people inwhat, to the nudger at least, is the right direction.Why should society need a nudge in the firstplace? Thaler and Sunstein question one of themajor assumptions of neoclassical economictheory, homo economicus, which is the idea thathumans act in an enlightened and rational wayto maximize their wellbeing, with emotionsplaying no part in their behavior. This construct,say the two scientists, is like Mr. Spockin Star Trek. This person would have the brainof Albert Einstein, the data storage capacity of a10 THINK Act september 2011

Think: Nudge“We are all Homer Simpson, but littlethings, like other people interferingever so slightly in our lives, can help topush us along the right path”supercomputer, and the patience of Mahatma Gandhi – whichis all very well, but bears no relation to reality.Real people are more like Homer Simpson. They smoke eventhough they know it’s bad for them, and they eat junk food eventhough it makes them fat. They buy unsuitable insurance policiesand fail to save for their old age. There are lots of words youcould use to describe humans, but rational isn’t one of them.This is the central thesis of behavioral economics, whichdisagrees with the neoclassical model and asserts that emotionis an important factor in market behavior. It asserts thatpeople make decisions on the basis of gut feelings rather thancareful analysis of all the available options.Also, they’re lazy. People could save money by switching toanother electricity provider, but they can’t be bothered. Theycould personalize their cell phones, but they stick with thefactory settings for years on end because reading the instructionmanual is too much trouble. Sunstein freely admits thathe’s no exception; for decades, he’s received newspapers heno longer wants, simply because he hasn’t gotten around tocanceling his subscription.Comparing people to Homer Simpson may not be themost positive view of humanity, but Thaler and Sunstein areoptimists. Little things, like other people interfering ever soslightly in our lives, can help to push us along the right path.Nudge theory isn’t just about helping Californians to saveenergy, it has many applications. For instance, if employeessmell cleaning products on the tables in common or breakareas, they will keep these areas cleaner. If you announce (asthe Internal Revenue Service did in Minnesota) that 90% ofpeople have paid their taxes in full and on time, the other 10%are more likely to pay up as well. The 10% were procrastinatingbecause they assumed everyone else was.Libertarian paternalism: it’s not for everyoneSo far, so good – but nudging can also be an intrusion intosomeone’s personal life. In Austria, people have to opt out oforgan donation by specifically stating that they do not wanttheir organs removed when they die. Other countries follow anopt-in system, in which you carry a card stating that you wishto donate your organs. The opt-out method is problematic froman individual moral perspective, but it significantly increasesthe number of donor organs.Nudge theory follows the principles of libertarian paternalism.People must be free to make their own decisions – that’sthe libertarian bit – but it’s also OK to influence theirbehavior in a paternalistic way. Freedom and paternalismare not contradictory terms. Displaying fruit at eye levelin a cafeteria to encourage people to eat better is a nudge.Removing burgers from the menu, say the theorists, isunacceptable interference. Carrots are a good thing (tocontinue the healthy eating theme), but sticks are bad. It allsounds pretty simple, but is life really this black and white?12 THINK Act september 2011

Think: NudgeActMake it easy! That’s the mantra of nudge theorist andObama adviser Richard Thaler, who admits that evenhe needs motivation sometimes.Mr. Thaler, why do you love nudging other people?Because it’s fun (laughs). No, mainly because it helpspeople. In some situations you need help making adecision – and that’s what we call a nudge.To critics, nudging often crosses intothe realm of manipulation. The nudgers saythey’re acting in the public interest and tryingto make the world a better place, but do theyreally know what individuals want? Drivingto work is not very good for the environment,but it’s considerably more comfortable than asweaty, crowded subway. Cigarettes will killyou in the long run, but they’ll give you a buzzfor five minutes. Shouldn’t people be able toachieve their own balance between short andlong-term happiness? Could a well-intentionednudge overstep the boundaries; could someoneend up getting hurt?In spite of the criticism, libertarian paternalismis the flavor of the month. Richard Thaler,who lectures at Chicago University, is an advisorto Barack Obama’s economics team. CassSunstein, one of the country’s most high-profilelawyers, is Head of the Office of Informationand Regulatory Affairs at the White House.The Democrats have jumped enthusiasticallyonto the nudge-theory bandwagon becauseit provides a theoretical justification for stateintervention. In a positive way that is, like asmiley on your electricity bill.What kind of nudges are there?There are many possibilities. But all nudges have onecharacteristic in common: we want things to be as easy as possible foreveryone. If you want people to eat healthier food, then the nudge isquite simple: place the healthy food more prominently in the cafeteria. Ifyou want people to exercise, make the stairwell more inviting. There was agreat experiment done about this in Stockholm. Each step made a soundonce you stepped on it. The result: people took the stairs instead of theelevator 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 tomotivate employees. Motivation and nudging are in some ways the samething. What behavioral economics brings to the table is a longer list ofmethods one can use to motivate people… Sometimes people will workharder to win a nice holiday trip than an amount of money of equivalentvalue. 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 thepower of the default option. If you want employees to take out a pensionplan, make it so that they automatically have one and that they have toactually 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 wayto prevent procrastination on a project was to commit to giving a presentationof 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 willsoon start asking about my progress, so I better get back to work.THINK Act september 2011 13

RubRik hieRThe top ten countries from which migrants remit money (in USD bn)-8.1 -9.9 -10.6 -12.6 -13 -15.9 -18.6 -19.6 -26 -48.3NetHerlaNDsKUwaItlUXemBOUrGspaINItalYGermaNYrUssIaswItZerlaNDsaUDI araBIaFollow the money:Rich relativesMigrants feed many families in their home countries, and playa major part in economic development. Many poor countries earnmore from remittances than from aid and foreign investmentmeXICOpHIlIppINesUsaFraNCeGermaNYBaNGlaDesHBelGIUmspaINNIGerIaCHINaINDIa14 THINK AcT sepTember 2011

RubRik hieR+55 +51 +22.6 +21.3 +15.9 +11.6 +11.1 +10.4 +10.2 +10Remittance economiesThe top ten countries to which migrants send money (in USD bn)improved working conditionsglobalizationThe boom in saudi Arabia and theUnited Arab emirates has attractedhundreds of thousands of guestworkersfrom southeast Asia. According to Humanrights Watch, around 600,000 migrantsfrom that region work in the UAe alone,300,000 of them in Dubai. by far themajority work in construction andunskilled jobs, and both groups oftensuffer poor pay and living conditions.The problems often begin with therecruitment process: agencies in theworkers’ home countries chargecommissions. The cost of flights, visasand medical tests must also be takeninto account. saudi Arabia and Indonesiahave taken steps to improve the workingconditions of Indonesian workers, andthere are also changes afoot in AbuDhabi, which has set up an independentemployment regulatory body.states with thehighest proportionsof immigrants,2010states where remittancesaccount for the highestproportion of GDp,2009QATAr moNAco UTD. ArAbemIrATesTAJIKIsTAN86.5 71.6 70.035.028.0 25.0ToNGA LesoTHoimmigrants and emigrantsin these countries (million)Immigrants+10.8+5.4+6.7+6.9inDiachinamEXicoPhiLiPPinESFRancEGERmanYBanGLaDEShBELGiUm SPainniGERiaemigrants-4.3-8.3-5.4-11.4-11.9THINK AcT sepTember 2011 15sfd 2009 / 2010 source: World bank, Illustration: Jörg block

Think: in-MeMORy-cOMputingPower tothe ProcessorsSAP claims to have found something as big as client-server architecturewas 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 inbusiness intelligenceJim Hagemann Snabe, tell us aboutyour killer app. Can you give us anexample that demonstrates the fullpotential of in-memory technology?Take the financial crisis. The lack ofreal-time risk measurement by banks,and the failure to track its causes,made the system, as a whole, toorisky and eventually it broke down.Traditional risk management systemsneed to evaluate vast amounts ofdata, but much of this is only collectedat night and then analyzed in themorning.What if you could do this in realtime? What if you could do this everytime a transaction happened? Thiswas virtually impossible with previoustechnology, since you needed to readmillions of items of data to aggregatethe total risk of a bank. Today, inmemorycomputing allows you tocomplete this analysis in one second.Does that mean that in-memorycomputing could have preventedthe financial crisis?We can’t prove this, of course, but I’mconvinced that it would have helpedus find solutions earlier.Impressive. But in-memory computingis not just for banking, correct?To put a technological trend into abusiness context, things have alwaysbeen relatively unpredictable, and theystill are. But a recent developmentis that companies must manageresources according to expectationsno matter what happens. As wewitnessed following the devastatingtragedy in Japan, companies are nowexpected to manage and respond toextreme situations, which has notalways been the case. For example,after 9/11, the world stood still for amoment. Nowadays we can’t allowanything to stand still. This meansincreased pressure on businesses topredict what’s going to happen, andto be much faster in responding tochanges in the market.As a consequence, you have to be ableto analyze very large volumes of datain real time. I noticed this ten yearsago when I was doing a lot of costaccounting and financial consulting.Many companies were alreadyconsidering moving away fromannual planning and had rollingquarterly plans. This trend has nowbeen taken to extremes.How is this possible?Traditional systems store data ona disk, and the disk is a relatively slowmedium. Data stored in the mainmemory of a computer canbe read ten thousand times faster.Today we even have parallelprocessing, which enables you toread data simultaneously onhundreds of processors and alsoallows you to read billions of recordsin just one second. This means thatyou can do on-the-fly calculationsinstead of calculating pre-aggregateddata stored on disks. For the sake ofvisualization: in the time it takesyou to carry a piece of information ona disk a distance of one meter,16 THINK Act september 2011

Rubrik hierBig Data, big business. SAP CEO Jim Hagemann Snabe wants to analyze the world in real time.THINK Act september 2011 17

Think: In-MeMORy-cOMputing“We urgently need better forecasts to respond morequickly to change. So we need to analyze very largequantities of data in real time.”Jim HagemannSnabeBiographyJim HagemannSnabe, born inDenmark in 1965,has been co-chiefexecutive of SAP AGwith American BillMcDermott sinceFebruary 2010. Hebegan his career withthe German softwaregiant after graduating,and worked invarious managementpositions in sales anddevelopment consultancy.He workedfor Ibm Denmark fortwo years, and thenbecame a director ofSAP in 2008. As anIT manager, he has aparticular interest intechnology trends.you can carry it to Mars and back againwith in-memory computing.All thanks to the falling price ofmemory?In technology, sometimes several trendscome together and suddenly you have awhole new basis for innovation. The trendsthat coincide here are the falling price andincreasing size of memory, combined withprocessing power and unique technologythat allows us to compress information.All this together makes things unbelievablyfast. The business impact of this isthat you can start to do very advancedanalytics, and you’re more able to anticipatethe future based on statisticalinformation. And, most importantly, youcan start simulating the future. If you onlyhave one second of response time, you caneasily look at various scenarios.The ability to forecast seems to be crucialto in-memory technology. Can youexplain how and why?I’ll give you an example. One of the maindifferences between a successful productand an unsuccessful one is productionmanagement: which product you chooseto make, at what price and at what time.It’s proven that 80% of production planningis not productive. The demand isoften higher or lower than expected, andyou end up with either a shortage of supplyor full warehouses. The ability to predicta trade promotion and its impact bylocation and product will make the differencebetween successful and unsuccessfulconsumer goods companies.Have you carried out any studies onhow in-memory computing can improvethat rate?We’re actually working with some of theleading consumer product companies inthe world – SAP customers. They’re usingthis new technology to reinvent managementand planning. What used to take acouple of hours now happens in seconds,so you can start optimizing price and volumefor any given product. Early adoptersof the technology are reporting significantbenefits and, on average, companies thathave implemented such systems are seeingrevenue gains of 21% and cost reductionsof 19%.Is it true that you can now balanceyour supply chain management to theextent that you eliminate the need foradditional storage?Yes, one of our clients is doing so now.What we consider to be a major consequenceof this is what I would call ademand-driven supply chain. So far,the human interaction in this processhas been putting information into thesystem. Now it’s all about optimizing thesupply chain within companies and reactingquickly to changing demand.What makes you so certain that inmemorytechnology can really changethe game?The whole thing started as a technologicalPhoto: SZ Photo18 THINK Act september 2011

Think: In-MeMORy-cOMputinginnovation. What convinced me waswhat happened when we took thetechnology to fifty customers. Weworked on very different scenarioscustomer by customer, industry byindustry. And their feedback? “Thisis beyond belief.” They were stunnedthat you can simply push the enterbutton and get an immediateresponse to users’ reactions. In thepast this would have taken hours ofcalculation.This was a real ‘wow’ moment forall of them. We recently presentedin-memory computing to a wholeseries of companies who have nowseen a massive increase in theiropportunities, be it in productionmanagement or probability analysisby product. One utility companythat employs dynamic pricing forelectricity can now predict whencapacity will be needed on itsnetwork. This saves the utilitycompany a lot of money and helpsconsumers to minimize their useof electricity.This technology is clearly a musthave.What are the downsides?Implementation, perhaps?I wouldn’t call it a downside, it’smore of a challenge. If you don’thave consistent data, it doesn’thelp that you can analyze it in onesecond. Many of the stories aboutthe difficulty of implementingSAP technology are related to thefact that the SAP system requiresa high degree of data consistency.We’ve been developing our systemto acquire that consistency.If there aren’t any big drawbacksand the technology is so powerful,then why have only a few decisionmakersin business heard about it?Initial conversations about inmemoryfocused exclusively ontechnology, making it irrelevant forbusiness people. It’s only recently,with the results from those fiftycustomers, that we can communicatehow this technology cansolve business problems that werepreviously unsolvable. Also, there’sa lot of confusion about the topic.Many people talk about in-memorycomputing, but they all mean differentthings. We’re working onthis. In-memory computing is atechnological advance that we’renow translating into distinct businessvalue. We can articulate howthis will change the game in everysingle industry. This is the momentthat it becomes relevant to businesspeople, and then they need to try it,because most of them can’t believeit’s true. I’ve been in the industry for20 years and sometimes I’ve seentechnology improving cost effectivenessby a factor of 5. With this,we’re talking about a factor of 200.It’s not only about reporting muchfaster: it’s about solving problemsthat you couldn’t solve before.What comes after in-memorycomputing?In the next five to ten years, we’llsee similar developments to thosethat followed our introductionof the client-server system in the1990s, when networks becamefaster and more powerful. Nowwe’re riding the wave of in-memorycomputing combined with multicoreprocessors. Google has taughtthe world how to search for information,but we still haven’t learnedhow to find it. This technology canbring us much closer to finding notonly the hay in the haystack, butalso the needle.Five years from now, how muchof the SAP portfolio will involvein-memory computing?All of it.Interview by Thomas RamgeIllustration SmetekACTThe digital revolution istransferring more andmore data onto companydatabases.The more data there is,the harder it is to analyzeusing traditional IT methods.With time in increasinglyshort supply, managerswith rapid access to databasedanalysis can achievea significant competitiveadvantage. In-memorycomputing promises toanalyze the business worldin real time, since dataretrieval is no longer limitedby the relatively slow speedof hard disks.Instead, information isanalyzed by increasinglypowerful memory chips.This is not just a nerdy ITissue; data-based processesare increasingly importantto the success or failure ofbusinesses in a growingnumber of sectors. Big datais a huge opportunity, butonly for those who can sortthe wheat from the chaff anddraw the right conclusions.THINK Act september 2011 19

think: baiLOutSactkeynes is back, butprobably not for long.in a recession, financialdecision-makers shouldrealize that:1/ monetary policy andthe stabilizing role oftax and transfers are thebest way to smooththe economic cycle.2/ Few governmentsare able to reduce debtcreated by deficit spendingonce the good timesreturn.3/ structural problemsneed structural solutions.how does debt add value?Similar analysis of other countries’ economic programs hasalso been positive. In spite of all the imponderable variablesinvolved, the bottom line is that without government intervention,the collapse in output would have been even moredramatic, and the job losses even greater. So what does thisconclusion mean for future economic policy? In 2009, thehistorian and Keynes biographer Robert Skidelsky publishedan 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 thatthe success of recent bailouts was “the last hurrah of Keynesianism.”In the foreseeable future, he says, the huge increase ingovernment debt will limit fiscal room for maneuver.Sachs may well be right. Many OECD economies are in anabysmal state, and there are three other reasons why Keynesianismis unlikely to make a lasting comeback:First, empirical research indicates that cyclical highs andlows can be smoothed out by a combination of monetarypolicy and the stabilizing effects of tax and transfers. Bailoutscan be counterproductive if they’re slow to take effect, andin some cases they can actually make the troughs deeper.Second, during the postwar decades, Keynesian policiesusually failed in good times to reduce debt caused by deficitspending in bad times. Third, current and future challengeslike emissions and demographic change are primarily structural,and structural problems need structural solutions.So the message is a nuanced one. During the normal economiccycle, governments should rely on monetary policy, taxand transfers to improve their finances. Big bailouts shouldbe an absolute last resort for serious recessions.photo: Amin Akhtar (2), Getty (2)nils aus dem mooreColumnistNils heads the policy and communicationsdepartment at theberlin office of the economicresearch body rWI essen.He was formerly an associateof the stiftung Neue verantwortung,and worked withrWI president christoph m.schmidt on the bundestag’scommission of inquiry ongrowth, prosperity and qualityof life. From 2005 to 2007, ausdem moore edited the businesssection of the politicalmagazine cicero, and this yearhe won the Ludwig erhardbusiness journalism prize forhis columns in the magazine.

REPORTSize matters inthe modular economy

RepORt: the MODULAR ECONOMYTHE MODULAR ECONOMY The division of labor in the worldeconomy continues apace. Small, agile, networked entities areincreasingly successful, but big industrial giants are also profitingfrom the de-linking of the supply chain. In many sectors, clearlydefined interfaces make cooperation with suppliers and serviceproviders much easier than it used to be. The age of business ecosystemshas begun. It is an age of collaboration between companies of verydifferent sizes, and resurrecting one of the oldest questions in business:“How big should my company be?” There is no one-size-fits-allsolution; rather, there are many different approaches to answering it.By Thomas Ramge Illustration & photos Sarah IllenbergerSmall versus big?A whole new army of Davids is on the rampage, someGoliaths are being slain, and small is the new big.US journalist, law professor and star blogger, GlennReynolds, has raised this subject a couple of times onhis blog, instapundit.com. During the middle of thelast decade, he pointed out that digital technologyand the Internet were creating new opportunitiesfor small businesses. Geeky students could run flourishingonline businesses from their dorm rooms, andmicrobreweries were taking significant market sharefrom giants like Miller and Budweiser.Reynolds described how 20th-century massproduction, with its obsessive quest for economiesof scale, no longer met the needs of 21st-century customers.Small was suddenly cool and, as he pointedout somewhat immodestly, a small blog founded in2001 could attract more readers in a day than manybig local papers attracted in a week.The army of Davids began making inroads intobig business. The image caught on, and in 2006Reynolds summarized his thoughts on the shift ofpower from big to small organizations in a small,pamphlet-like book, The Army of Davids. Thispromptly became a bestseller, and Reynolds becamethe chief exponent of a new economic philosophy;small is beautiful again, and the inexorable marchof big corporations since the industrial revolutionappears to have been halted. Economies of scaleare no longer compatible with economies of scope.The mantras of 20th-century manufacturing werepast their sell-by date, Reynolds said. In the past,if you doubled the number of items you made, youreduced your unit costs by 20 to 30%, but what’sthe point when nobody wants to buy mass-producedgoods any more, and the act of consumption isbecoming increasingly individual? For Davids, tailormadeproducts are where the big opportunities lie.One man, millions in profitsThe list of small-company-made-good stories is along and rich canon. In 2007 the dating websiteplentyoffish.com, based in its Canadian creator’shome office, became what may have been the firstone-person company to make an operating profit ofmore than USD 10 m.24 THINK Act september 2011

Rubrik hiersmallversus bigSmall is beautiful... again. Theinexorable rise of big organizationssince the industrial revolutionseems to have come to a temporaryhalt. Today, equipped with thesophisticated tools of the digitaleconomy, and with limitedoverheads, small businesses can dothings that were once done only bybig corporations.THINK Act september 2011 25

Rubrik hierONE MAN – millions in profitsTiny companies are everywhere you look. They marketthemselves globally, have almost no capital and, thanks to theInternet, can market their products and services worldwide.26 THINK Act september 2011

Rubrik hierUNTANglINgthose transaction costsTo every action, there is an equal and opposite reaction.The online world is populated not only by tiny businesses, but alsoby juggernauts like Google, Facebook and eBay. The economiesof scale apply just as much to clicks-and-mortar business models.Sports like kite surfing, which is enjoying a rapidworldwide increase in popularity, are supplied almostexclusively by small companies. Much of theinnovation is being driven by fans rather than bigdesign departments. Elsewhere, sales at the world’sbiggest online platform for handicrafts, etsy.com,are approaching USD 500 m. Smaller manufacturersare enjoying a renaissance throughout the Westernworld. Anyone can buy Gucci, but true connoisseurscan make a statement by buying an ethical fashionlabel from Amsterdam.You might expect the world’s biggest seller ofDarjeeling tea to be Unilever or some other foodgiant, yet it’s the Berlin company Teekampagne,founded by a professor of entrepreneurship and runby a handful of people. Perhaps the most impressivevictory over the industry giants has been by amultitude of small and medium-sized companieswith no names; over 50% of the world motorcyclemarket is now controlled by a network of suppliersand assemblers in China. Even the biggest are notexactly household names – Qingqi, Jialing, Zhejiang,Jincheng, Xindazhou – but these companies makevery good bikes at affordable prices and sell themunder eminently forgettable brand names. In thedeveloping countries, they easily outsell the Japanesegiants Yamaha, Honda and Kawasaki.Untangling those transaction costsIn a standardized, networked world of flat hierarchies,small companies can often fight way above theirweight class. It’s also an appealing idea, since DavidsTHINK Act september 2011 27

RepORt: the MODULAR ECONOMY“When should companies outsource parts of theirproduction to others who do certain things better,than they do?”have traditionally attracted more sympathy thanGoliaths. Of course, Glenn Reynolds’ opinions aregeneralizations. Yes, these success stories do exist,and technological standardization and the Internetmake life easier for small businesses, but the army ofDavid’s theory is based largely on anecdotes.Look more closely and you soon realize thatmass production and distribution are expandinginexorably. The online world is dominated by behemothslike Amazon, Google, Facebook and Zynga,and they’re getting bigger by the month. Offline,car manufacturers form alliances with big playersin the electrochemical industry, and the insuranceindustry continues to consolidate, McDonald’shas cruised out of the doldrums and is expandingglobally, and many big banks are riding the crestof a wave again.Reynolds’ opinions are still thought-provoking.They prompt us to ask an old but important businessquestion from a new perspective: how verticallyintegrated do companies need to be in order tocollaborate effectively in ecosystems? Or to put itanother way, when should they outsource part oftheir production to others who do a better job?One person who tried to answer this questionwas awarded a Nobel Prize for his efforts. TheBritish economist Ronald Coase won the NobelPrize in 1991 for his essay The Nature of the Firm,written more than fifty years prior in 1937. In hiswork, he expressed doubts about the Ford businessmodel, which involved doing everything in-housefrom start to finish. In those days, Ford didn’tjust concentrate on building good cars; it made itsown steel, generated its own power, made its ownwindshield glass, and sold cars directly to customers.To a socialist economist, this was inefficient, andthe solution was the Coase theorem, a milestone ineconomic history.The theorem says that there are always transactioncosts involved in the division of labor and thatthese can be divided into categories. There are searchcosts, the cost of finding things such as employees,capital, materials, and information about productionprocesses; there are contract costs, the costsof negotiating agreements, such as lawyers’ fees;finally, there are coordination costs which are thecosts of the effort involved in ensuring that everyoneinvolved works together efficiently. Coase concludedthat companies would always seek vertical integrationif their bottom-line external transaction costswere higher than the cost of the employees doingthe job in-house.The Power of small partsThe one thing that has changed since Coase analyzedFord’s vertically integrated production is transactioncosts. 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 has28 THINK Act september 2011

Rubrik hierTHE POWERof small partsThe supply chainhas gone modular.Today‘s technology andbusiness processes arehighly standardized.This opens up bigopportunities for largeand small organizationsworking togetherin ecosystems.THINK Act september 2011 29

RepORt: the MODULAR ECONOMYbeen organized in an increasingly modular waybecause the cost of working with other businesseshas become so low. Count the components of yourcell phone, and you’ll find out how many suppliers wereinvolved in its production. Battery, microphone, antenna,display, chip, SIM card; each comes from ahidden champion in one particular industry.In a modular world, interfaces are increasinglywell defined: technological, logistical, legal, andadministrative. Hard disks fit any laptop, products andparts arrive on time, and contracts and processes arestandardized. Transferring money between almostany two countries on Earth is no longer a barrierto trade.At the same time, companies can now rely onbusiness-to-business providers for almost any stagein their production process. A company with half adozen workers like Teekampagne can become theworld’s biggest seller of Darjeeling by outsourcingnearly all of its processes, including its call center,accounts, packing and dispatch – all done byoutsiders.In the networked world, Davids can have theircake and eat it. It’s never been easier to supplymodules such as cell phone antennas to the Goliathecosystem, and you can even assemble the modulesyourself as medium-sized locomotive builders do.If you play your cards right, and are sufficiently flexible,you can often be extremely competitive with anoverweight Goliath.David Teece, director of the Institute of Management,Innovation and Organization at the Universityof California, Berkeley, says that in the modulareconomy, a clever David can orchestrate a network.It can score points with its dynamic capabilitiesand its ability to respond to market change, but itcan also get knocked out. These capabilities, Teecebelieves, are the key to a business’ success or failure.The ideal sizeTake a few steps back, and it’s clear that the debateabout big or small, insourcing or outsourcing, hierarchiesor networks, has been going on since longbefore the Internet was invented. “The issue of theideal business size crops up more and more often,”observes management scientist Stefan Kühl. “Sometimesthe management pendulum swings one way,sometimes the other.”THINK Act september 2011 31

RepORt: the MODULAR ECONOMY“In a market economy, only the Goliaths canshoulder the big risks – though this won’t stopthe army of Davids from coming up with lotsof good ideas”Traditional hierarchies do have their advantages,he points out. They can help organizations to makeand implement decisions more quickly. They allowcertain forms of behavior to be sanctioned and theyare less susceptible to one of the key problems ofnetworked systems: everyone wants to profit, butno one is willing to contribute money upfront. Also,in many sectors, innovation is a capital-intensiveprocess; Davids cannot build the networks ofhydrogen fuel stations needed to make environmentfriendlyfuel-cell vehicles more popular, nor canthey afford the expensive and uncertain process ofobtaining drug licenses. In a market economy, onlythe giants can shoulder the big risks – though thiswon’t stop the army of Davids from coming up withlots of good ideas.This brings us back to the crux of the matter;what is the ideal size for a company? This is one ofthe eternal questions of business, and it’s impossibleto generalize; however, because today’s interfacesare so clearly defined, the supply chain so highlysegmented, and outsourcing so much more effectivethan it used to be, it has never been easier to set upa successful new business with limited capital. Thatsaid, the David versus Goliath image is misleading.Big and small at the same timeBig and small are not a contradiction in terms,either from a business or a macroeconomic point ofview; you can be both simultaneously. For example,you can insource your administration and productionto take advantage of economies of scale, andoutsource your innovation and value creation. If youdo this successfully, it resolves a classic managementconflict: hierarchies are no longer a barrier toinnovation and customer focus, and decentralizationdoes not stop you from profiting as a resulteconomies of scale.At the macro level, a healthy economy needsa mix of small, midsized and large companies.“We just need to make sure that less small,innovative companies get gobbled up by big onesthat are short of ideas themselves,” commentsRoman Boutellier, professor of technology andinformation management at the EidgenössischeTechnische Hochschule (ETH) in Zurich. He saysthere is a tendency, particularly in the United States,for innovative entrepreneurs to cash in their chipstoo early, which poses another systemic obstacle totechnological progress.To use Glenn Reynolds’ image, many Davidshave stopped trying to make friends with the Goliathsin their particular industries and markets –though they still get excited if a Goliath holds outa hand of friendship to them. Others successfullydevelop long-term relationships with Goliaths, andbecome an integral part of their ecosystems. Everynow and then a David decides to become a Goliath,complete with its own ecosystem, lots of Davids asbusiness partners, and all the pros and cons of abig organization.32 THINK Act september 2011

Rubrik hierBIG and Smallat the same timeBig and small don‘t have to be a contradictionin terms. In an increasingly networked andinterdependent economy, healthy markets needbig and small players.THINK Act september 2011 33

RepORt: eSSayThe debate about alternatives to GDP is a red herring – we needmore growth. By Prof. Dr. Burkhard Schwenker, Chairman of the supervisoryboard, Roland Berger Strategy Consultants“If resources are declining,growth is allthe more important”IBelIeVe IN GrOwtH! Like competition, it has positiveconnotations for me. It’s about change, dynamism, innovation,it’s not always comfortable and sometimesit’s downright unpleasant, but there’s no alternative.Let me explain why.In the 1970s, the Club of Rome published a controversialbook entitled The limits to growth. At firstsight, its basic premise made sense; resources are finite,and the more we grow, the faster we consume them. Itsfour authors sparked a great deal of debate about the harmfuleffects of growth, but their doomsday predictions failed tomaterialize, partly because they underestimated the pace oftechnological progress.Who could have guessed, even twenty years ago, theextent to which business would be dominated by theInternet, medicine by biotechnology, or materials science bynanotechnology? Who could guess how many resources still layundiscovered? Take gas, for example. Predictions that reserveswould be exhausted in decades have been disproved. Energycompanies are extracting gas from shale, and new crackingand drilling technology means that reserves can be profitablyexploited for hundreds of years.However, technological progress of this kind is dependenton growth. Companies can only invest in research anddevelopment if they grow and generate cash flow. Even statesubsidizedresearch needs resources to be generated first, andzero growth would act as a brake on innovation; cutting costshas never led to new and innovative ideas.On the other hand, expecting technological innovationto continue at its present rate may be too much to hopefor. What’s the alternative? It might sound like a risky beton the future, but we need to encourage growth preciselybecause we consume resources. That way, there’s more chanceof inventing technology that finds new uses for existingresources, 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 toour theoretical dilemma, but it will only succeed if we regardclimate change, raw materials shortages and demographicchange as growth opportunities. This requires industrialstrength, since the only way of dealing with limited resourcesis to speed the pace of productivity growth using automation,new production processes, intelligent transport, energyefficiency and green energy.The debate about nuclear power and new types of energyshows the importance of innovative technology. We have theability to change our energy mix quickly because Europe is theworld leader in green technology. From an economic viewpoint,it’s simply a combination of mechanical, plant and electricalengineering, and high-tech services; precisely the kind of thingsthat our manufacturers excel at.The same is true of demographic change, which we cansee either as a threat or an opportunity for industrial growth.In a highly industrialized country, the fewer people there areof working age, the more you must increase productivity tomaintain economic competitiveness, so our manufacturingknow-how is a significant asset.We need to look at things from a different perspective.Scarce resources don’t inhibit growth; they give it addedleverage. Instead of thinking about alternative ways of34 THINK AcT sepTember 2011

RepORt: eSSaymeasuring growth, we must createthe right conditions for sustainable,industrially driven growth: internationalfree trade, equal access toraw materials, effective protectionof intellectual property, and stricterregulation of the financial markets.We need tangible objectives, like theEuropean Union’s targets of a 20 %reduction in greenhouse gases, a20 % increase in renewable energyusage, and a 20 % improvement in energy efficiency.It is dangerously arrogant to see growth in negative terms,because we are not alone in the world. History shows thatonly economic growth leads to greater prosperity, and thebooming economies of China, India, Brazil and SoutheastAsia are evidence that this correlation still holds true. Economicgrowth creates employment, which generates income,which makes people’s lives better.This is perfectly compatible with the economic theory ofhappiness, which states that the marginal benefit of incomedecreases above a certain level. The Nobel prize-winningUS economist Daniel Kahnemann quantifies this magicnumber as USD 75‚000. If someone earns more than thisit won’t make them any happier. This figure is far removedfrom reality in the developing countries and will remain sofor many years to come.However, this understandable and legitimate desire formaterial growth does not exist in isolation. We live in anetworked global economy, and the constantly increasingcompetition we face is a result of this desire to better ourselves.If we scale back our economic ambitions, we also scaleback our competitiveness – with unpredictable consequencesfor our wellbeing.So is gross domestic product still an adequate reflectionof growth, prosperity and economic strength, or should we,as the EU proposed in 2007, start thinking “beyond GDP?”“Who could haveguessed, even twentyyears ago, the extentto which businesswould be dominatedby the internet,or medicine bybiotechnology?”Clearly, all traditional econometricsmisuse the concept of “public goods”and fail to take sufficient accountof external factors like pollution.They use the “polluter pays” principle,which is why we should tryeven harder to price these factorsinto the equation, just as we do withCO 2certificates.Clearly, alternative indices haveso far been unsatisfactory. “The conceptof happiness is intangible, so there’s not much point intrying to define it,” says economist Bruno Frey, a specialistin this area. So how do we quantify feelings, let alone usethem as a basis for economic policy? This is why, despite itsweaknesses, GDP should remain the primary measure ofgrowth and wellbeing.Harvard economist Benjamin Friedman rightly contendsthat 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 ofhaving to choose between growth and morality, we achievemorality through growth. The two are interconnected, andafter a financial and economic crisis caused by an obsessionwith growth, one of the key questions we must askourselves is whether social justice is compatible with growthand profitability.Theoretically, this question has no convincing answer,but maybe some statistics will help to counter excessivelyambitious growth targets. Over the last 30 years, the worldeconomy has grown by an average of 3 % per year, big manufacturershave achieved growth between 4 % and 7 %, andcapital returns on the world’s leading markets have beenno more than 7 %. This doesn’t mean that there cannot bemore growth in the short term; there is a wide range ofscenarios, but at least the numbers give an idea of whatmight be possible.THINK AcT sepTember 2011 35

Facebook‘s Palo Altoheadquarters has chill zones,where staff can play GuitarHero on the Xbox 360 orcatch up on a quick game ofchess.36 THINK act september 2011

RepORt: the future of wORkNice house,nobody homeAs people work less in the office, the way in whichorganizations operate is changing fundamentally. Will thisbenefit smaller companies? How should big corporationsrespond? Professor Alexi Marmot, an expert in workplacestrategy, shares her insightsPhotos: Emily Shur / Gallery StockAlexi, you’re one of the mastermindsbehind IBM’s flexible office structureand have more than 20 years of experienceshaping the new world of work.Can you give us a quick rundownon how work life has changed inrecent times?Management gurus ponder the end oflong-term employment security, theneed for portfolio careers, the end ofjob specifications (people just knowwhat work needs to be done), the relativeshortage of young workers due todemographic change, employmentequality, the need to work way beyondconventional retirement age, the growthof technology, and so on.Meanwhile legislation introduced inresponse to political demands, employeeavailability, and the concept of humancapital has introduced many forms offlexible working. This is especially importantas a way of balancing work life withchildcare or care for the elderly. Flexibleemployment contracts cover a wide rangeof different assumptions about the timeand place associated with work. Perhapsthe most prevalent arrangement is outsourcingor offshoring, in which the workof whole departments within a largecompany is transferred to another organization,possibly in a country far away.Does this increasingly mobile andflexible way of working benefit smaller 37

RepORt: the future of wORk“The vast infrastructure of large firms can nowbe mimicked by intelligent networks of peopleworking alone or within formal companies”companies? Can they – by usingfreelancers, modern technology,and falling transaction costs – dothings that in the past only largecorporations could do?There is no question that ITdevelopments empower new entrantsto the world of work. Indeed thestories of recent start-up companieslike Google, Skype, Facebook, andTwitter are all about bright youngkids forging an idea, developingsoftware, becoming billionaires,creating new verbs – such as “tweet”or “google” – and supplantingconventional methods of work, howwe access information, and howwe think.The vast infrastructure of largefirms can now be mimicked by intelligentnetworks of people workingalone or within formal companies.Technology costs continue toplummet while delivering morepower, faster processing, and accessto hitherto undreamed of quantitiesof information. Search enginesidentify what we need to know inmilliseconds. Branding and marketingyour service via an impressivewebsite to attract customers is nolonger difficult or expensive. Theoverhead cost of an office is unnecessaryif work can be done fromhome or from a third location andsold anywhere in the global market.This suggests that micro firms canfollow, and probably beat, the giantsthrough competitive advantage andcost savings.So small is now beautiful?Not necessarily. Because at the sametime, a multitude of new laws andregulations stop all but large, wellestablishedcompanies from beingallowed to operate. Excellent motivationslie behind the new tyrannyof procurement. The vision of opentrade across international boundarieshas created the monstrousEuropean procurement system thatdemands open advertisement acrossall EU countries for almost all governmentpurchases.This adds more time and effort tothe process of winning work. Onlythe very largest firms can bear thecost of tendering and only theystand a chance of meeting all theprocurement criteria. For example,only large firms can afford the timeneeded to gain accreditation forthe environmental performance orquality management that is increasinglyrequested. Brave clients areneeded to risk buying from smallnew players.Is there a perfect size for a corporationtoday?Perfect size? No way, let a multitudeof corporation sizes bloom. Newmicro-sized entrants together withgigantic mature companies can, anddo, flourish in the global economy.One change is the hollowing out ofthe center, leaving nano-firms andgigantic corporations at the two endsof the size spectrum. Most industriesare characterized by a small numberof dominant players, oligopoliesthat may sometimes exert too much38 THINK Act september 2011

RepORt: the future of wORkcontrol over their markets and customers.Petroleum, banking, accounting,pharmaceuticals, and car manufacturersall have their giants built up over manyyears of organic growth and acquisition.The challenge for the giants is to act likethe nano-players by being quick to act,innovative, light on bureaucracy, treatingall employees as valued individuals,and letting all customers feel they arerespected.How does the trend towards openinnovation and mass collaborationtransform corporate structures?Arguably, open innovation beyondcorporate walls is the death of thecompany as we know it. Intellectualproperty ownership, on which so manyorganizations flourish, is impossible tocontrol in an open innovation environment.Problems within the recording,publishing, and newspaper industriesbear witness to this. Open innovationwithin a company can work well aslong as the people with the best ideasare rewarded.What else must big corporations do torespond to the new world of work?Forward-thinking companies such asBP and IBM have long understood thecompetitive advantages of providingtheir staff with some flexibility regardingcontracts, time, and place of work.In this way, they can retain skilled andloyal employees who otherwise mightneed to leave due to changing jobs orpersonal circumstances such as movinghouse, or having children.The necessary infrastructure for doingso consists of combining the offerings ofHR, IT, and Estates, as well as agreeingwhat is needed with business managers,organizing effective management ofchange, and monitoring the resultanteffects on staff, on customers, and onthe business. Effective line managementis essential for this to work. Managersmust ensure that their team membersare producing by results and not bybeing present, and managersneed to trust their team members.By separating the job people do from theconcept of a permanent place in whichto do it, it is possible to strike a balancebetween the needs of the individualemployee and the needs of the company.But how can any organization functionif its employees are scattered allover the globe, working in airportlounges, cafés, and from home?Data drawn from tens of thousandsof office employees shows that, at thebusiest times of the year, most peopleare not at their desks about 63% of theworking day and are not present in theoffice building for about 46% of the day.This is one of the reasons that telecommunicationscompanies first inventedvoicemail, and that fixed handsets havebecome irrelevant compared to mobilephones that actually reach the personand not the desk. In other words, mostoffice work is in fact about working invirtual teams that are rarely together intime and place.What does this mean for our idea ofthe typical workplace?The results can be unusual. Corporatebuildings can be filled with peopleworking for many different departmentsand with people from outsourced firmswho need to be present, for example,to operate IT or the facility itself.People not employed directly by theorganization can transmit corporateculture and image.How should managers deal with this?The solution is to schedule regularmeetings, allow attendance by teleconferenceand videoconference, usemany forms of media to communicate– email, instant messaging, telephone,text, websites, social networking – andabove all, ensure all team membersknow what they have to do, by whenand to what standard.Interview Markus AlbersAlexi MarmotBiographyAlexi Marmot is Professorof Facility and EnvironmentManagement, Vice Deanof Teaching and Learning,and Head of School atthe Bartlett School ofGraduate Studies, UniversityCollege London. She isalso a visiting professor atSheffield Hallam University.Alexi established AMAAlexi Marmot Associatesin 1990 to help organizationsmake the best use oftheir buildings by applyingevidence-based design.Her clients include largemultinational corporations,government and educationalbodies, non-profitorganizations includingthe Bill and Melinda GatesFoundation, British Airways,bbc, BP, HSBC, IBM, MorganStanley, Nationwide, andWWF, and many collegesand universities.THINK Act september 2011 39

RepORt: ViRginBrandingVenture CapitalVirgin’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 bethe underdog – at least, that’s its marketing lineby hilmar PoganatztHe smaller, tHe Better. British billionaireRichard Branson likes to keepthings simple; for many years, VirginGroup board meetings were held in hisLondon villa. “I was working in his son’sbedroom, and he was working from hisbedroom,” recalls the former CEO ofVirgin Direct, Rowan Gormley. Thiswas a lot more space than during the 15-year period whenBranson ran the Virgin empire from his houseboat. Andit was positively cavernous compared to the office of thestudent magazine Branson edited as a teenager, buried inthe crypt of a church, with a desk made from “an old marbleslab laid across two gravestones.” Branson’s talent for anecdoteis legendary.However, you can’t argue with numbers; in four decades,Virgin has created more than 300 companies, and employsapproximately 50,000 people in 30 countries. It startedwith Virgin Records, continued with Virgin Atlantic andeventually became a global empire, the Virgin Group, investingin businesses as diverse as mobile phones, transport,travel, finance, media, music and fitness. In 2009, sales ofVirgin brands totaled around EUR 13 bn, and the companywas worth just over EUR 3 bn. Branson, now 61, stillholds true to the maxim he learned as a student journalist,formulated by economist E.F. Schumacher in 1973: smallis beautiful.Be small. “The philosophy of Virgin was that as soon as anybusiness got big – and that originally meant more than20 employees – then you should try and break it up intosmaller units.” Rowan Gormley learned this at one of hisfirst 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 efficient, manageablesize,” says Branson. In 1992, for example, VirginMusic consisted of fifty subsidiaries, none employing morethan sixty people. Robert M. Grant, professor of strategicmanagement at Milan’s Università Bocconi, says Virgin has“very little hierarchy, offering short lines of communicationand flexible response capability.”“The companies were all independently financed,” Gormleysays. “Everybody had their own reporting structure;photos: DDp, Imago, mauritius Images (2)40 THINK AcT sepTember 2011

Space Ship one & two:spaceflights withvirgin Galactic couldbecome a reality this yearRepORt: ViRginlifestylevirgin Active fitness clubs in sixcountries, a party planningorganization and a Formula one teamMedia & Mobilmobile phone andbroadband providersin seven countries,mostly under thevirgin mobile brandPeople & PlanetThe UsD 25 m earth challengeprize for greenhouse gas removaltechnology, and branson‘scharitable organization virgin Unitevirgin colawas launchedin 1994.the Virgin MosaicMoneyThe financial services provider virginmoney in the UK, Australia andsouth Africa, and the onlinefundraising site virgin money GivingEntrepreneurbranson‘s startupincubator torecruit new virginentrepreneursTravelvirgin Atlantic, three airlines in Australia,stakes in Air Asia and Air Nigeria, virginTrains in the UK, balloon and spaceflights,underwater expeditions, virgin Holidaysin the UK and its Us counterpart virginvacations, Limited edition boutique hotels,motorcycle taxis in London, and a NorthAmerican limousine service41

RepORt: ViRgin“We want every Virgin subsidiary to bean efficient, manageable size.” The Virginempire consists of 300 small companiesyou sent Virgin one page of numbers and that was that.”Senior managers were treated like independent entrepreneursand given share options for added motivation, while Grantsays the rest of the workforce were happy to work for “quitemodest salaries”.Be aggressive. With this armada of bellicose admirals andemaciated crews, Virgin launched an all-out assault on amultitude of seemingly random markets. Singer Peter Gabrielreportedly 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, drinkVirgin Cola, and fly to America with Virgin Atlantic.”But most Virgin Group startups follow a pattern that’sanything but random. Whether establishing airlines, insurancecompanies, or mobile phone providers, Virgin alwaysmarkets itself as the jaunty newcomer, competing withestablished companies who annoy their customers withbad service or unnecessarily high prices. Branson enjoys“turning industries upside down” but, as he emphasizes onthe Virgin website, that doesn’t mean that he chooses newmarkets by tossing a coin.Brad Rosser, Branson’s corporate development director until1998, says that a new project had to tick at least four of fiveboxes. “It must be innovative, challenge authority, offer value formoney 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’smarketing, in spite of the fact that Virgin Atlantic has anannual income of almost EUR 3 bn. As Rowan Gormleywryly puts it, “Virgin has managed to build some pretty bigunderdogs.”Be cautious. Branson is well aware that new ventures are risky,and upstarts often end up with bloody noses. Author and managementconsultant Des Dearlove says, “He’s always managedto use other people’s property for his own adventures.” Asa businessman who’s had to shut down more than 100 ofhis creations, Branson has learned to hedge against risk.When he sets up new companies, he prefers joint venturesto bank loans. His biggest asset is the brand name; Virginactually refers to itself as a “branded venture capital organization,”and Branson aims to expand it into a global lifestylebrand. Eventually, he wants to turn lots of small companiesinto one vast business.Be big. Small fish get eaten unless they swim with the shoal.The Virgin Group looks after its companies, and each is financiallyindependent of the others, so that if one fails, itdoesn’t affect the others. “They don’t just protect one another,they have symbiotic relationships,” Branson says. “We havea presence in 300 different sectors, and we’re the underdogin all of them.”If Virgin is a giant with lots of little feet, surely the Davidand Goliath idea is a bit far fetched? “Virgin can still get awaywith appearing to be a much smaller company than it reallyis because in every sector we are still the small guy, taking onthe big guy,” Branson points out. “We’re not dominant in oneparticular sector like, say, Google in the online market. We’rein 300 different businesses and, in each, we’re the underdog.”To his former fellow travelers, this sounds similar to Branson’smarketing spiels back in the 1970s. Brad Rosser says,“The ambition of Virgin companies was to make them asbig as possible.” Gormley claims that the Group decided tobecome a big player in the 1990s; “Virgin has become moreconventional, more old-fashioned, and just bigger. Thereis now a huge Group HR department, a huge Group legal,Group brand department, and all the rest.”The days of managing businesses from houseboats andcrypts are ancient history, but tombstone desks still makegood stories. As Rosser puts it, “I don’t think that Richardhas ever felt that small is beautiful.”42 THINK AcT sepTember 2011

BRIEFaCtRubRik hieRWorld trade reboundsRoland Berger’s study: Switchpoints for the Future of logisticsphoto: Tom Nagya Deep reCessION aND a rapID reCOVerYhave shown that we live in volatile times.With seemingly stable trends suddenlyturned on their heads, and whole sectorsof the industry still in decline, logisticsremains one of the best barometers ofvolatility. The recession hit logisticsTHINK AcT sepTember 2011 43

act: bRiefthe world’s top ten logistics companiesBy revenue in billions euro, in 2010dhLcompanies badly, leaving trucks, freightcars and container ships gathering dust formonths on end. Now that the recovery isin full swing, these businesses are havingtrouble expanding their capacity rapidlyenough.While these holdups bode well for theimmediate future, the logistics industry mustlearn to cope more effectively with marketfluctuations. These are uncertain times,and many questions remain unanswered.A recovery is taking place in some countriesand sectors, but how long will it last? Doesthe crisis in the Eurozone presage anotherrecession? How will sharply rising oil pricesaffect business models? Is globalizationcontinuing apace, or are regional supplychains making a comeback? Will the trendtoward green logistics be regulation ormarket-driven?The increasingly rapid pace of changemakes markets more unstable, and decisionmakingin the logistics industry moredifficult. If you base your future strategy oncurrent forecasts, you ignore a multitude ofimponderables. The two key questions facingthe industry are: “How do you identify theswitchpoints when things could move in onedirection or the other?” and “How do youprepare for them strategically?”Roland Berger Strategy Consultants andthe department of logistics management atSt. Gallen University in Switzerland haveproduced a study that seeks to answer thesequestions. It examines the long-term effectsof various short-term future trends andidentifies switchpoints that will affect theindustry. Unlike trends, which evolvecontinuously, switchpoints mark changesof direction that have technologicalimplications.+www.logistik.unisg.chdb Schenkerunion pacificthe top three Europeancountries in the logistics marketIn Europe by volume, in 200944 THINK AcT sepTember 2011bnSfkühne+nagelnippon expressSncf geodiscSX corporationnorfolk Southern26.9 18.9 12.8 12.7 2.2 11.4 8.9 8 7.2 6.8source: companies’ own figures€ 200billionGermany€ 113.8billionFrance€billion98.1Great Britainsource: Fraunhofer Isthe recovery in container transshipmentsISl world container transshipment index220 monthly transshipments200180160140120100source: IsL – Institute of shipping economics and LogisticsceVa1Q 20033Q 20031Q.20043Q.20041Q.20053Q.20051Q.20063Q.20061Q.20073Q.20071Q.20083Q.20081Q.20093Q.20091Q.20103Q.2010

act: bRiefNew series of e-publicationsfrom early 2012Eight billionopportunitiesIN 2030, there will be 8.3 billionpeople on Earth – that’s nearly20% more than today. Ninety sixpercent of this increase will comefrom the developing countries.Unequal population growth willdrastically change the economicbalance of power: if a countryhas more people producing moregoods and services, its economicgrowth will also accelerate.A Roland Berger study for the german industryand technology ministryHealth:A growth marketaCCOrDING tO a stUDY by business research specialist RB, the worldwidehealth care market looks set to grow more quickly than other sectors over thecoming years. Per capita spending is expected to increase, with a growing andaging population ensuring high rates of growth. The market is currently expandingby 8.8% per year and health expenditure is rising faster than GDP inmost countries. Global GDP growth will also increase the purchasing power ofbillions of people.With governments in Africa and Southeast Asia expanding their healthinsurance programs, there is likely to be more money available to the industry.Health is likely to become an increasingly important issue in the future, withthe main growth drivers being demographic change and the rise in chronicdisease. Ultimately, more people will be spending more money on health care.In 2030, around55%of worldwide GDPwill come from thedeveloping countries.Per capita health costsIncrease from 2000 to 200820002008Growth11.8 % 5.8 %11.3 % 11.9 % 6.6 %7.4 %A team of experts from RolandBerger analyzes how internationalcompanies can win newniche markets on the back ofthis trend – for example, findingout what newly affluent consumerswant, and then buildinginfrastructure and developinginnovative services for thesemarkets. The team interviewssenior managers and local marketexperts, and recommendspossible strategies.UsD 34UsD 83UsD 1,8422902 Us$UsD 20UsD 47UsD 931UsD 2,283UsD 92UsD 153UsD 484UsD 854For more information, contacteightbillionopportunities@rolandberger.comafrica america Southeast asia EuropeAt average exchange rate, cAGr 2000-2008source: WHo world health statistics 2011Easternmediterraneanworldwide45

RubRik hieRThe real“World Bank”The Young global leaders’ “Restoring Ocean Health” initiative regards theprotection of the world’s seas as an economic challenge. kristin Rechberger,Enric Sala, Jayne Plunkett and Marco Fiorese lobby politicians andbusinesspeople to create marine protected areas – and Sala says keepingthe oceans healthy is a good investmentby Guido walter photos Björn Göttlicher, Enric Salathe world‘s coral reefs46are slowly dying. Here,the erosion process isTHINK AcT sepTember 2011just starting.

ACT: young global leadersThe Young Global Leaders’ task forcesTHE FISHING BOat GAVINA hoversperilously close to the shore of MedaGran, one of the Medas, a group ofseven uninhabited islands off theCatalan fishing port of L’Estartit. Thesize of the island is almost 47 acres.A ring of buoys marks the area wherefishing is allowed; the Medas havebeen designated as a marine protected area (MPA) tohelp their flora and fauna to recover. Dr. Miquel Sacanell,35, throttles the engine, and his boat glides silentlytowards the shore. “People just don’t realize what atreasure we have here,” he says. “If fish aren’t stressed,they grow in natural conditions. There are more fish, andeach one is bigger.”Sacanell is a biologist and fisherman. He began hiscareer as a professional diver, but in 2003 he beganfishing, and kept a record of his catches. After two years,he realized that bream and red mullet populations werefalling sharply, and no one was doing anything about it.“The administration gets its statistics from sales in thefish auction halls, but the figures are wrong because thefish 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 manyyears researching species variety in the Mediterranean anddiving near submarine cliffs and coral reefs. He studiedwith Sacanell at Barcelona University and, along withKristin Rechberger, Jayne Plunkett and Marco Fiorese,Sala was named a Young Global Leader by the WorldEconomic Forum. Together, they set up the RestoringOcean Health task forces. “Our approach to restoringocean health goes beyond environmental care,” Sala says.“The maintenance of the ecosystem is a good investment.”Miquel Sacanell knows that getting this message acrossto other fishermen is an uphill task. Another boat appearsbeside the Gavina, and the young man at the helmwaves. “That’s Joan,” Sacanell says. “He’s just taken overthe boat from his father, and as far as he’s concerned, agood 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 localfishermen’s association, but when Sacanell presents themwith his statistics he receives little sympathy. “They’llonly accept change if there’s something in it for them,”THINK Act september 2011 47

ACT: young global leadersRestore Ocean HealthYoung Global Leaders – Task Force“If fish aren’t stressed, theygrow in natural conditions.There are more fish, andeach one is bigger”Miquel Sacanell, biologist and fishermanEnric SalaEnric Sala was born inGirona, Spain. His boyhoodhero was JacquesCousteau, and he decidedto explore the oceans forhimself. He studied biologyin Barcelona, and is now a world-renowned marinebiologist. In June, Sala and film director JamesCameron were named explorers-in-residence bythe National Geographic Society (NGS).Kristin RechbergerAs vice-president ofcorporate partnerships atthe National GeographicSociety, Rechberger workswith scientists to developmarine protectionprograms and maintains valuable contacts withNGOs and donors on behalf of the task force.She joined the society in 1998, and began byexpanding its television interests.Marco FioreseMarco Fiorese, a graduateof Harvard BusinessSchool, co-founded theMonaco-Asia Society, ahumanitarian organization,and Codima Group, aninvestment company operating in Europe and Asia.His main responsibility with the task force is settingup marine protected areas (mpAs) in East Timor.Jayne PlunkettJayne Plunkett is a mathematicianwith over 17 years‘experience in the insuranceindustry, where she hasheld various technical andmanagement positions. Sheis now employed by the world‘s biggest reinsurancecompany, Swiss Re, and is based in Hong Kong. Herrole in the task force includes developing finance programsfor people who make their living from fishing.he continues. “There should be a biologist at every meeting toadvise them.”Meanwhile, he is pursuing his own personal ocean healthstrategy; when he catches a rodaballo, a rare species of sole, hethrows 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 fishingwill come to an end before 2050,” says Kristin Rechberger, vicepresidentof corporate partnerships at the National GeographicSociety. It will be the end of an industry that employs 200 millionpeople and generates around USD 90 bn a year. “The oceans areour true World Bank,” she says. “The difference is that everybodywithdraws and nobody makes a deposit.”Enric Sala compares industrial fishing to Bernie Madoff’smoneymaking techniques. “Ponzi schemes tend to work as longas you can find new investors. When you run out of investors thesystem collapses. That’s the case with fishing. What will we dowhen we run out of untapped fishing grounds?”The YGLs (Young Global Leaders) are pursuing a worldwidecampaign for the creation and expansion of MPAs; fishing,48 THINK Act september 2011

RubRik hieRthe periphery of the medasislands marine protected area.only small-scale fishing by boatsfrom L’estartit is allowed in themarine protected area.marine protected area.professional fishingis banned.L’EstartitillesmedesFRancESPainBarcelonamallorcathe village of L’Estartit, on thecosta brava in northwesterncatalonia, was once entirelydependent on fishing. It is nowalso a vacation resort with its ownmarina, and is home to around2,000 people.aquaculture and dredging will be temporarily or permanentlybanned. Activities such as swimming, boating and divingare normally allowed within an MPA. “The protected areaaround the Medas islands is only one kilometer wide, buttourism brings EUR 6 m in income each year. That’s 20times more than fishing can make in this area.”Expanding existing mPas makes senseMiquel Sacanell steers his way between Meda Gran andMeda Petit, in the company of two diving vessels and aglass-bottomed boat. Thanks to the wealth of fish, divingis booming, and local fishermen are doing fine. Sacanellphones Cofradia to report that he has no nets out; the areaoff L’Estartit is relatively small and easy to patrol.On the high seas, this is almost impossible. Governmentsoften feel that regulation is not their responsibility, and thefishing industry opposes it – concerned by the possibility ofshort-term losses. When fishing comes to a halt, fish-stocks alsorecover on the periphery of MPAs, where fishing is allowed.A study by the Partnership for Interdisciplinary Studies ofCoastal Oceans examined biological changes in 124 protectedareas. Biomass increased by an average of 446%, thenumber of animals by 166%, and animal body size increasedby 28%. Numbers like these help Rechberger and Salademonstrate the economic benefits of MPAs.Restoring Ocean Health has ambitious aims; thetask forces wants 20% of the world’s oceans to be givenprotection. “With every new marine protected area, we buytime,” says Sala. In April, for example, he met Chile’s presidentSebastián Piñera and reported on his expedition to theSalay Gómez islands. Piñera showed an interest in expandingthe MPA around the island, and as a result it now includes8% of Chilean sovereign waters.The next few years could see the creation of the world’sbiggest MPA, in the Southern Line Islands, part of the Pacificstate of Kiribati. Sala met with President Anote Tong, andrecommended setting up a 1.4 km protected area. Kiribatiis home to the world’s largest untouched coral reefs, and ifthese valuable ecosystems are ruined by a combination ofover fishing and sewage, they could bear out Jules Verne’sTHINK AcT sepTember 2011 49

Predators are important for the healthof the marine ecosystem.Rubrik hier“Because 90% of large predatory fish have disappeared,the number of organisms at the bottom of the food chainincreases faster and faster”Enric Sala, biologistprophecy 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 chainincreases faster and faster,” Sala says. “We’re changing froma blue sea with predators into a sea of jellyfish and microbes.”Sacanell agrees, “If the ecosystem is to remain healthy, theremust be predators.”The Gavina bobs at anchor outside the protected section ofthe Medas Islands, in the 2,000 acres where only boats fromL’Estartit are allowed to fish. Seagulls screech in a cloudlesssky, and the sea is quiet, almost motionless. Sacanell locksthe rudder.The Gavina is ten meters long, with a tiny cabin, fendersaround its sides, and a deck covered in nets. Sacanell boughtit five years ago, along with a VW bus to take his catch tomarket, at a total cost of EUR 18,000. His fellow fishermenrespect his practical outlook, and he wins the occasional smallvictory in his battle for sustainable fishing.In L’Estartit, he successfully fought for cuttlefish to becaught in handmade baskets containing mastic branches.However, he is worried about illegal harpoon fishing and bigfishing fleets. “It would help us if they were only allowed tofish with dragnets below 200 meters.”Microcredit can tip the balanceModern surveillance technology is being put to good use inthe battle against dragnets and other destructive techniques,which continue illegally in some areas. One of the objectivesof the Restoring Ocean Health information campaign is tospotlight such abuses.Meanwhile, YGL Jayne Plunkett is developing financingmodels for the creation and operation of MPAs. “Our earlyideas include setting up a funding mechanism which couldcover the income of professional fishers during the timethey’re not fishing in the MPA. Eventually the area outsideof the MPA will produce more fish than ever before, and theprofits of this additional fishing will give a payback on the50 THINK Act september 2011

ACT: young global leadersThinkCan marine protected areashelp to combat poverty?investment. The investment plan can be protected from weatherevents through an insurance product.”Kristin Rechberger is using this year’s Volvo Ocean Race as anopportunity to lobby decision makers at events along the route. Shewill be focusing on China, since this year’s YGL Summit is beingheld in Dalian, and says the task force will be persuasive if it canshow tangible benefits.Fellow YGL Marco Fiorese is the cofounder and vice-presidentof the Monaco-Asia Society, a humanitarian organization whosehonorary president is Prince Albert II. Fiorese is working to set upMPAs in East Timor.“We’re already working on microcredit projects supporting a localNGO that works with remote villages in East Timor,” he says. “We’renow financing cooperatives of local fishermen who fish sustainably,and we’re supporting diving and tourism in the MPAs. The finalgoal is to benefit the fragile local village economies, and to createnew 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 subsidiesfor industrial fishing. “When you’re spending EUR 10,000 a weekon fuel, you have to catch a lot of fish to break even. If you don’t getsubsidized fuel, it just doesn’t work.”As he speaks, the Gavina chugs gently into the little harbor ofL’Estartit. Sacanell believes the future lies in buyers’ co-ops; as abiologist, he sees the rapid growth of organic food shops in Spain asa sign of changing public opinion – and perhaps one day the fishingindustry will get the idea.To assess the economic benefitsof MPAs, scientists from theNature Conservancy interviewed1,000 fisherman in Fiji (Navakavu),the Solomons (the Arnavonislands), Indonesia (Bunaken)and the Philippines (Apo Island).The survey found that the overspillof fish from MPAs into fishing zonessignificantly helped to reducepoverty. In Navakavu, the averagehousehold income was USD 251per month, more than twice ashigh as in similar unprotectedareas. The MPAs created new jobs,mainly in tourism, and in Bunaken,people who switched to the touristindustry earned an average ofUSD 114 per month, compared toUSD 44 for fishermen.As the fish population increased,fisherwomen in Navakavu faredparticularly well. An investmentof less than USD 12,000 in MPAshelped to double the incomes ofaround 600 people.THINK Act september 2011 51

Break the Rule!Ground your employeesBritish startup WorkSnug has banned its employees from flying– even though it’s a thriving international business. Food for thought…By Christian Meier Illustration Theresa GriebenFor INterNet STARTUps, the United States isthe promised land; nowhere else will you findso many potential investors, great businessideas, and sources of capital. To succeed, thetwo main things you need are the art of persuasionand an airplane ticket.Richard Leyland, 34, started his own business in Londonin the summer of 2009. WorkSnug is an online-ratingsdatabase of free Internet-access locations. In May this year,WorkSnug had around 100,000 registered users, detailsfor 35,000 locations, and a smartphone app to help peoplefind the nearest one.Leyland and his colleagues have yet to make any salestrips across the pond. Leyland is a former marketing manager,he has big international expansion plans, and is planninga visit in October – but he won’t be flying. He’ll bespending nine days on the high seas, running his businessfrom aboard a ship.Why take the slow route? Is this a PR stunt? No, saysLeyland, definitely not; it’s one of WorkSnug’s ten guidingprinciples, which also include being “human”, “useful”, and“a community.” Principle number 7 is “We don’t fly” – for anew small business employing a handful of full-timers andfreelancers, keeping your feet planted firmly on the grounddoes make you stand out from the crowd.“For us, this has an experimental and a symbolic dimension,”Leyland explains. “It’s experimental becausewe’re building a startup without flying, and it’s worked52 THINK Act september 2011

ACT: FLying BANvery well so far. But it’s also a symbolic principle, because onesmall company not flying isn’t going to make a whole lot ofdifference to carbon emissions.”Leyland hopes other companies will want to follow suit. Asan active member of Britain’s Green Party, he’s deeply concernedabout the effects of climate change, and has undergone a Damasceneconversion since his jet-setting days when he worked fora variety of technology companies. “A lot of business flights areinefficient and expensive, and a lot of meetings are a completelyunnecessary waste of time.”The flying ban also ties in nicely with the purpose of Leyland’sbusiness, giving workers, freelance or otherwise, thefreedom to leave their homes and offices for a different, lessrestrictive environment. The technology WorkSnug uses couldhelp reduce business travel and its impact on the environment.So how does the flight ban work in practice? WorkSnug worksclosely with Internet telephony service Skype, which plays animportant part in its business and is currently carrying out afree trial of Cisco’s TelePresence teleconferencing service. InEurope, employees take the train to meetings; Leyland hasalready been to a dozen countries, from Norway to Spain, whichhas entailed buying a lot of expensive tickets and spending alot of time on station platforms at 5 a.m.How it works“There’s no real modus operandi for having a company wherenobody flies,” Leyland says. “You just don’t do it.” He doesn’thave a written strategy, he doesn’t employ consultants to tellhim how to do it, and if it has caused problems, he’s not awareof them. He’s not worried about missing out on business opportunitiesas a result, and potential foreign business partnersare sympathetic when he explains why he can’t meet them faceto face. “Of course, Skype and TelePresence aren’t as effectiveas meeting people in the flesh, and technology can’t reproducethe feeling of direct human contact.”Last April, nine British investors contributed EUR 130,000to expansion funding, and Leyland has just rented an office inLondon. Ironically, the office is still largely empty; he’s tryingto abolish the workplace as we know it.Isn’t there a risk that WorkSnug could end up like any othercompany, complete with watercoolers and airmiles? Well, itseems unlikely at the moment. Leyland’s principles did comeunder fire once, when he wrote a guest article for the websiteTechCrunch.com in July 2010. “If a global company doesn’t fly, itwon’t crash land,” he said. There were some positive comments,but other readers were furious, accusing Leyland of hubris. Onewrote: “If the idea of a flying ban is really so important, youshould think about the hardware you developed your app for,and how it got to you and your users.” Richard Leyland is anidealist, but he’s also enough of a realist to know that you can’tsolve all the world’s problems all at once.ThinkWorking smarter – Richard Leyland’sgolden rules for mobile workingWork isn’t a place you go to, it’ssomething you do. Here are some ofthe principles that WorkSnug follows:1/ Being aware is more important than beingdisciplined. Office workers work 9 a.m. to 5 p.m. andare always available, but they can work smarter.• Identify your most productive times, and structureyour day accordingly.• Be willing to dip in and out of work severaltimes a day.• Tell your colleagues when you’re available and whennot to disturb you.• Learn when and how to take breaks. Many mobileemployees let their work control them. Switch offyour phone or computer and take a walk, useseparate cell phones for home and work, changeinto a different outfit when you finish for the day.2/ Selling your time, efforts and presence for moneyis a hopelessly outdated business model. Trust iswhat matters most.• Be prepared to judge and be judged by others onthe 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? Achievingthe right work-life balance is an important part ofthe deal.• Trust your colleagues. There are no half measureswhere trust is concerned, and that trust must bemutual.3/ Be part of the community. If you’re lucky enoughto escape the institutionalized office environmentand emerge blinking into the big wide world, thenget involved. Use online and offline networks toconnect and work with others, get used to the ideaof 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 lostthe office-based social structures that make boringwork tolerable, you’re going to have problems.You can’t create all of your own motivation – someof it must come from others.THINK Act september 2011 53

Rubrik hierA sea of yellow: Dortmund fans54 enjoy world-class football from a teamTHINK Act september 2011with sound finances.

Act: Turn-aROund BVBThe businessof goalsIn 2005 Borussia Dortmund was on its last legs, its team was broken, its financeswere EUR 180 m in the red. Six years later, after a successful turnaround plan,Borussia Dortmund is the German league champion – proving that moneyalone doesn‘t score goals, but good management doesBy Constantin WissmannPhotos: Michael RogoschAPRIL 30, 2011. It‘s a Saturday afternoon,and 1. FC Köln is playing athome against Bayer Leverkusen,Borussia Dortmund‘s only remainingrival for the Bundesliga championship.At 4:53 Köln scores, handingthe title to Dortmund. In Dortmund‘ssold-out stadium forty-fivemiles away, the crowd explodes with joy: when the whistlegoes, Borussia Dortmund are the league champions, and thecity 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 onthe shoulder, still intent on the pitch. These are the architectsof Borussia‘s success: coach Jürgen Klopp, chief executiveHans-Joachim Watzke, and president Reinhard Rauball.Rauball later says that at this crucial moment, he wasthinking back to the winter of 2004-2005, when the clubwas more than EUR 180 m in debt and he feared for itssurvival. Dortmund‘s 2011 championship win makes senseonly when you look at its last championship in 2002. Inthose days, the team was a veritable constellation of stars,coached by the plain-talking Matthias Sammer; the clubplayed no-frills football designed to get results. There wasjust one problem; the players were so expensive that theynearly bankrupted the club.Today, Borussia has a dream team of young, hungry players,comprised mostly of locals from its own youth squadwho kick the ball with more grace and power than almostany side in German history. Their coach drives them withthe perfect mix of powerful emotion and shrewd analysis.A few years ago, the club was synonymous with everythingthat was bad about football: arrogance, commercialism anddelusions of grandeur. Today, everyone calls it the Black andYellow Miracle.Miracle is an overused word in football, but in this caseit fits perfectly. Borussia‘s sporting revival is no happy accident;it is the result of a precisely planned restructuringprogram born from the philosophy that a football club is justlike any other medium-sized business. This outlook has beenslow to catch on in the Bundesliga. It is ironic that it hasworked best for a club regarded as the heartbeat of Germanfootball, where calm calculation has, until recently, been lowon its list of priorities.At the turn of the century, Borussia was still riding highon its sporting successes. It overtook Bayern München towin the Champions League in 1997, but despite its lessthan-glamorousroots in the Ruhrgebiet, the club wantedto emulate the likes of Real Madrid and AC Milan. So managementstarted taking financial risks.The club was the first in Bundesliga history to float on thestock exchange, netting EUR 143 m, but exorbitant players‘wages and a stadium expansion soon left it short of capi-THINK Act september 2011 55

Rubrik Act: Turn-aROund hier BVBMichael Blatz, partner, Roland Berger; Hans-Joachim Watzke, chief executive,Borussia Dortmund; Pat Lynch, managing director, Morgan Stanley; RainerBalensiefer, principal, Roland Berger; Oliver Kehren, executive director, MorganStanley; Thomas Treß, finance director, Borussia Dortmundtal again. It could only survive as long as it won matches,and when it lost its additional income from the ChampionsLeague (and in 2005, the Europa League) the prospect ofcollapse loomed large.Enter Reinhard Rauball, a lawyer who had already beenthe club‘s president once during the 1980s, and Hans-Joachim Watzke, an entrepreneur. The chances of savingBorussia were slim, but they thought there was no harm intrying, and a window of opportunity opened when Watzkecame into contact with Oliver Kehren of the investmentbank Morgan Stanley.Kehren had already helped several medium-sized companiesstave off disaster, and felt that Borussia was no different.However, there was one key exception: „You can bepretty confident about your annual income, because thingslike price fluctuations and collapsing sales don‘t happento football clubs. Your income from tickets, sponsorship,TV and merchandising are largely set in stone, and so areyour expenses, particularly players‘ salaries. If you‘ve gotall of these reasonably in balance, there‘s not much thatcan go wrong.“Watzke told him all about the club‘s venerable traditions,its coal-mining roots and dramatic past successes, but Kehrenwas not particularly interested in any of this. However,one thing did catch his attention: despite the club‘s financialcollapse and waning fortunes on the field, gate receipts wereactually increasing.Fast and furious footballThat was all Kehren needed to hear. He summoned RolandBerger Strategy Consultants and a team of lawyers and auditorswho drew up a recovery and refinancing plan. The club‘screditors and other liabilities would be restructured and itscapital increased – the consultants pointed out that its mostimportant assets were its four million German fans. It alsohad a huge stadium, described by the Times of London asthe world‘s best football arena, and was doing some excellentwork with young players.Buying back the shares in the stadiumthat the club had sold off to an investmentfund, and to start nurturing in-house talentbecame the priorities, with one reinforcingthe other. Dortmund fans love young localplayers, and the enthusiasm in the standsresonates through to the team. The club alsodeveloped a match strategy based entirely onan attacking style of play.In the summer of 2006, Dortmund refinanced€ 125 m of liabilities in cooperationwith Morgan Stanley. It bought back thestadium, freeing up resources to invest inthe team, since the consultants had decidedthat these were the minimum preconditions for a lucrativeinternational business.„Of course you can‘t plan league placing, but you can predictprobabilities over time,“ says Roland Berger principalRainer Balensiefer. The investment in the team would bemoderate but continuous, and most importantly the club‘sfinances – liquidity in particular – would not be dependenton the countless imponderables of football, like referees‘ decisions,injuries, and fluke goals.Much of the investment was spent to buy back the stakein the stadium, but it put Borussia back in charge of its owndestiny. Watzke and the club‘s new finance director, ThomasTress, began cutting costs. The stadium name was sold, andthe team started going to all away games by bus.The two began skillfully implementing a series of complexrescue measures, gradually regaining investors‘ confidence.„The way they achieved that was brilliant,“ Kehren says. InFebruary 2007, Watzke announced an operating profit of € 10m, 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 andtalented team needed a coach who was also a mentor – oneof the guys, someone who understood their lives, but wasalso an authority figure, an expert on strategy, and a humanbeing. The man they needed was Jürgen Klopp.Klopp‘s arrival from Mainz caused a huge buzz. At his firstpress conference, he promised that from then on, Dortmundgames would be fast and furious, and he kept his word. Fanswere electrified by his playing strategy, which was all aboutthe 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 consultantshad planned, and it showed in the club‘s league placing.In 2009, Borussia barely missed European qualificationbecause of a referee‘s decision. In 2010 it made the EuropaLeague, and in 2011 the Champions League, which aloneguarantees an additional income of around EUR 20 m.The club increased its staffing budget by only EUR 5 m;56 THINK Act september 2011

Act: Turn-aROund BVBPhotos: Dominik Asbach, Asbach / Laifinstead of buying expensive players, it concentrated on creatingand retaining its own stars, and succeeded. The onlyexception was midfield strategist Nuri Sahin, who transferredto Real Madrid, and national player Mats Hummelswho extended his contract with Dortmund in spite of ahandsome offer from FC Bayern. „We‘ve got something reallyspecial in Dortmund, and this may be the only timein my career that I experience it,“ he said. „We all want tohang on to it for as long as it lasts.“Think“We chose the sustainable route.” think acttalks to Borussia Dortmund chief executive Hans-Joachim WatzkeMr. Watzke,is BorussiaDortmund justlike any othermedium-sizedbusiness?In terms ofemployeesand sales figures, definitely. Theyneed a well-defined managementstructure with clear-cut hierarchiesand decision-making processes,and so do we. That’s somethingwe’ve done here in Dortmund,unlike many other Bundesligateams. But the Borussia Dortmundbrand has the global resonance ofa DAX company, which makes theclub much more valuable than thefigures suggest. Another factor,of course, is that we have a hugegroup of fans hanging on our everydecision.What special skills does the CEO ofa football club need?You need an entrepreneurial spirit,you need talent, and most importantly you need to understandfootball. I understand the processesthat go on with our team, and Iunderstand the inner structure ofthe game, so I can assess the rec-ommendations made by the coachand the sports director.When you took over in Dortmund,the club was clinically dead.When I took over this job, we wereliving from day to day, every spareeuro went to the creditors, andnobody wanted to lend us a singleeuro – it just wasn’t a solid investment.Both financially and from asporting point of view, we werefacing a long, slow death.And then there was the creditcontract with Morgan Stanley.That saved our lives; there are notwo ways about it. We had morefreedom to make our own businessdecisions, albeit within a clearlydefined framework, and we wereable to start looking to the futureand developing a strategy to get theclub back on its feet.How did you get along with themafter that?At first there was skepticism onboth sides, but once we had aproper financial framework and newsponsorship contracts with goodcompanies, we regained the bank’strust. Some people in the club hadconcerns that, to put it bluntly, wewere being taken over by someAmerican asset stripper, but theywere quickly disabused of thatview. my colleagues and I were veryimpressed by the longterm financialstrategy, and the understandingof the sports business, that Morganstanley and Roland Berger Strategyconsultants showed in puttingtogether the recovery plan. Theydid a great job. We were all clearthat we needed to work togetherto get the business back on its feet,and there was a lot of mutual trust,respect, and professionalism.One cornerstone of the recoveryplan was winning matches. Is thatsomething you can plan for?No, you can’t plan for it, but you cancreate the right framework. MichaelZorc, the club’s manager, and I developeda philosophy in Dortmund,which was that the team needed toplay vertically, put the other sidepermanently under pressure andjust go for it. Then we selected theplayers – it’s easier to do with youngplayers – and we found the idealcoach in Jürgen Klopp.Probably every club in the Bundesligawould like to have anintegrated sporting and businessphilosophy. Why does this so rarelysucceed?The key people have to understandand trust each other, andthere mustn’t be too many ofthem. That’s not easy in football,because there are always so manypersonal vanities involved. If youdon’t have a clear managementstructure, you never know whereyou are or what you’re doing.From a business viewpoint,what did you learn from the successfulrestructuring of BorussiaDortmund?In this club, we only spend moneythat 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 ChampionsLeague won’t change that.THINK Act september 2011 57

The man who tookPSA PeugeotCitroën for a rideA visit with Philippe Varin at Europe’s second biggest car maker

ACT: PeugeotPSA PEUGEOT CItrOËN has undergone a massive transformation since Philippe Varin took overas CEO of Europe’s second-largest automaker in June 2009. The Group has strengthened itsmanagement team, invested heavily to boost its presence in China, Russia and Latin America, andvowed to become more profitable. All of these steps are turning the proud 200-year-old Frenchcompany from a Europe-focused automaker into a global competitor capable of challenging giantssuch as Toyota, General Motors and Volkswagen. Philippe Varin speaks about his leadershiptraits, his vision for the Group’s future, and how he sees 2011 developing for the automaker andthe auto industry as a whole, in an interview with Roland Berger Strategy Consultants’ seniorpartner Max Blanchet and Automotive News Europe managing editor Douglas A. Bolduc.Photos: SipaMr. Varin, what lessons from yourprevious life in the aluminum andsteel industries have been mosthelpful to you at PSA PeugeotCitroën?I spent 31 years in those industriesbefore joining PSA Peugeot Citröen.I spent 25 years in the aluminumbusiness with Pechiney and six yearsin the steel industry with Corus. Ilearned that you have to be amongthe global leaders, because if youare not, at some point in time, therewill be difficult issues to contendwith. I discovered that at Pechiney.When I joined Pechiney the companyhad a global reach, but over time itdisappeared from the radar screen.The company’s core business wasaluminum but it wanted to get biggerand bigger, so it diversified intochemicals, steel and packaging, andthat destroyed the core business. Thatwas the problem. With the benefit ofhindsight, the solution would havebeen to keep focused on our corebusiness and forget about the rest.I also learned a lot from the turnaroundwe achieved at Corus. Whena company is on the bottom, it hasfantastic potential for change. Interms of turnaround management,I learned that things must be keptvery simple, otherwise they will notget done.Until 2009, you spent the whole ofyour working life in the aluminumand steel industries. Has it beendifficult to make the transition intothe automotive sector?The first thing I did when I joinedPSA was to listen; the employeesof the Group have a huge amountof knowledge – much more than Ihad at the time. Then I focused onsimple priorities, the first of whichwas to set up a leadership team. Thiswas critical, because the team wasessential to the company’s success.After completing that, together withthe team and the one hundred topmanagers, we defined the ambitionand the strategy we wanted for thecompany. We called it our vision andwe shared it with all employees acrossthe company.What is this Group’s vision for thefuture?First of all, we want to be a globalplayer. We want 50 % of our sales tocome from outside Europe by 2015,compared with 34 % in 2009 and39 % in 2010. That means reachingcritical mass in China, which is nowthe world’s biggest car market, as wellas other Asian markets and LatinAmerica. We’ve decided to place amember of our managing board,Grégoire Oliver, in China, which wasa first for PSA.We aim to increase our share of theChinese market from 3 % to 8 % by2020 and we’ll be investing morethan EUR 1 bn in production capacityof nearly one million vehicles toreach that goal with our Chinesejoint venture partners. In LatinAmerica we’re investing EUR 700 mto increase market share from 5.4 %to 7 % by 2015.Secondly, we want to have a competitiveadvantage, what we refer to asbeing a step ahead, in areas such asdesign, CO 2, and the services we offerto customers. Carbon reduction isa big challenge for our industry. Weaim to meet that challenge with arange of technologies. We think thatby 2020, electric vehicles, hybridsand plug-in hybrids will make uparound 15 % of the market, and we’llhave products in all of those categories.We’ve also introduced a “mobilitycredit” service for both the Peugeotand Citroën brands, which allowscustomers to choose what mode oftransport they want – be it a bicycleor seven-seater car – and when theywant it. In the near future, by whichI mean next year, we aim to produceone million cars with CO 2emissionsof less than 120g/km.What are your plans in terms ofoperational efficiency?We need to increase if we’re goingTHINK Act september 2011 59

act: peugeOtto be one of the best in class. This iswhy we developed our PSA ExcellenceSystem, which is based on two pillars:individual intelligence and collectivemeasures to simplify and slim downour processes. Implementing thesystem must increase our profits. Ifyou’re not earning enough money ina competitive global environment,you’ll die sooner or later.A company needs cash to grow. Ifwe’re going to make all of these improvements,we must be a pioneer ofsustainable and responsible development.In the 200 years of its existence,the Group has developed strongvalues, and we need to ensure thatthese are respected and promotedamong our employees and in relationshipswith all stakeholders, bothinside and outside the business.Why have you put such a strongemphasis on profitability?I was really shocked by whathappened at Pechiney. I saw whathappens when a company’s marketvalue is not where it should be. Ithink value creation is absolutelycritical; what we do must createvalue for employees as well as forshareholders. We have long-termshareholders who make long-termdecisions. This is a good situation.When I’m asked if our company isbig enough to develop and succeedin a global world, my reply is that bigis not always beautiful. It’s not onlya matter of size, even if size clearlymatters; it’s how you create value.how would you describe yourselfas a leader?What I can bring is the ability to workwith a team, help to define a visionand to make it happen every day. Thisdoesn’t work if you do your managers’jobs for them. It’s better to let themdo their jobs and be there to help themmake things happen. As for me, I likebeing on the floor to see for myself howthings are going – what is working andwhat isn’t.I’m very practical. The second thing Ibring is an international perspective.In the two years before I joined PSA Ispent half of my time in India becauseI was with Tata, which had becomethe owner of Corus. I also spent nearlytwo years in Chicago when I was inthe aluminum industry. I’ve had a lotof interaction with people on a worldwidebasis.has the time you’ve spent at PSaPeugeot citröen changed the wayyou lead?I don’t have the answer to thatquestion yet. What I hope I canbring to the culture of the companyis an ability to help all employeesembrace a single vision. This will onlyhappen with the support of all thepeople in the company. When a newmanager enters a company that is ona “burning platform”, like at Coruswhere we were about to go brokeand had no credit facility, things canchange pretty quickly.There was a kind of “burning platform”when I joined the Group; theautomotive industry suffered a majorcrisis after the failure of the financialsystem in mid-2008, and that resultedin very heavy losses and hugeoperational challenges. Things arebetter now, but I still believe we canmaintain a feeling of “burning platform”among our employees.how did you find the Group whenyou arrived?When I joined the company Iwas not very surprised, because Iexpected to find fantastic technicalpotential and great engineers. Whatsurprised me was the key role of thedesign teams. I didn’t realize theimportance customers place on styleand design today compared with thepure technical performance of theengines or suspension. I also foundthat we have a very cohesive company,very homogenous from a culturalstandpoint. But we must encourageour managers to develop andnew hybridPeugeot 3008The diesel hybrid version of thepeugeot 3008 was launched inmarch 2011. The 2.0-litre, 120-kW(163-hp) HDi engine operates thefront axle, and the 27-kW (37-hp) electric engine powers therear axle. It has an average fuelconsumption of 3.8 liters per 100kilometers, and co 2emissions of99 grams per kilometer.Rear-mountedelectric enginedrive control60 THINK AcT sepTember 2011

act: peugeOtfront-mounteddiesel engineautomaticstop/startSix-speedgearboxhigh-voltage batteryimprove their leadership skills further. Beingglobal, being excellent operationally and in ourcustomer service, and promoting innovation toremain a step ahead, are all things that matter agreat deal to me.Was the company under a lot of stress?The Group was being forced to deal with theglobal crisis and severe management issuessimultaneously.It was also a big shock for this company tohave to take a EUR 3 bn loan from the FrenchState. If you see the glass as half empty, itwas a traumatic time, but if you see it as halffull, it gave us the opportunity to answer thequestions: “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 createdby the crisis.how do you keep people motivated?What our people want is success, becausesuccess is what drives them. People whoare part of a winning team and personallyrewarded for success – not only with money butby 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 atPSa Peugeot citröen since you joined?If a company wants to be global it has to takesome big steps. We focused on China becauseit’s the key market for growth. We already hadone joint venture partner and we reinforcedour partnership by setting up an R&D centerin China. The turnaround had started beforeI joined. However, I think we’ve moved thingsfurther ahead by establishing a new relationshipwith Dongfeng Motor Group.At the same time, we’ve negotiated a secondjoint venture with Changan Auto Group. Ourmarket share today has to be closer to 8 % comparedto 3 % previously. We can go from 3 % to5 % with Dongfeng and we can get another 3 %with Changan.We’ve set goals and told our people that these arewhat we want to reach for. When we say 50 %of our sales will come from outside Europe by2015, it’s more than just a concept; people seethat we can do it. Another success story is ourstep ahead with CO 2-reducing technology.We’ve launched our Citroën C-Zero andPhilippe VarinBiographyAfter graduating from theelite École polytechniqueand École des mines,philippe varin joinedpechiney in 1978. He heldexecutive posts in thecompany’s r&D, strategy,audit and project managementdepartments beforebeing appointed as headof the rhenalu division in1995. Four years later, varinwas promoted to seniorexecutive president ofaluminum and became amember of the executivecommittee.In April 2003, beforepechiney’s acquisition bycanadian rival Alcan, varinjoined the Anglo-Dutchsteel maker corus as ceo.Following the merger ofKoninklijke Hoogovensand british steel in 1999,the company was facinga difficult situation, butvarin turned the hardshiparound and orchestratedits merger with Tata steelin march 2007.varin was appointedchairman of the managingboard of psA peugeotcitroën in June 2009. He is58, married, and the fatherof four children.THINK AcT sepTember 2011 61

ACT: Peugeot“It has to translate intopricing power rather than tobe the champion of rebates”Peugeot iOn electric cars, and we’llhave the world premiere of our Peugeot3008 HYbrid4 diesel this year.Success is coming.What’s your sales outlook for theEuropean and global markets?In 2011, the market in Europe shouldbe flat compared with 2010. Thatis not great news, but last year wasbetter than expected because wethought the market would be downby 10 % and it was down by only5 %. The situation will continue toimprove in the United States withits significant growth of 10 %. Chinagrew strongly in 2010 and shouldachieve percentage growth in thelow teens in 2011. Latin Americawill grow by the high single digitsthis year and Russia also will growsubstantially. In summary, flat inEurope and growth everywhere else.What about the 2011 prognosis forthe Group?We took market share in Europe lastyear. We were helped by incentivesthat encouraged people to buy smallcars. It will be more difficult this yearbecause those incentives have cometo an end in the French market, sothere will be more focus on prices.We want to scale-up our two brandswhen it comes to pricing power. Iwon’t give market share targets for2011, however, we are introducing anumber of new models this year; wewant to optimize our profitabilityand get the best value that we can.We expect recurring operating profitfrom our automotive division toimprove from last year, assisted bya contribution of more than EUR1 bn from our performance plan.The terrible events in Japan havecaused us some difficulties in gettingshipments of electronic components,and we estimate this will have anegative impact of about EUR 150 min the first half of the year. Obviously,we’ll continue to track the situationvery carefully.Ford is following a similar strategyof trying to avoid incentives tomaintain profitability. Is thissomething that should be importantfor all automakers?What I can say is that it’s especiallyimportant for us because our visionis to be a step ahead and to createvalue. Being a step ahead is not justa nice catchphrase, it has to translateinto pricing power rather thanbeing the champion of rebates. I’mconfident in our ability to improveour pricing power thanks to thesuccessful upscaling of both of ourbrands. We now have the premiumCitroën DS line, made up of the DS3with the DS4 and DS5 coming soon.There are no rebates on the DS3,and there will be none on the otherDS cars. Meanwhile at Peugeot we’redeveloping models, such as the RCZ,that command premium prices. Atthe end of the day, we have to stick tothis approach very strongly.Do you need more alliances?We have so much value to create byleveraging the Group’s potential. Wesold 3.6 million vehicles last yearand we’ll continue to grow this year.Obviously it would be great to havea higher scale, but there is muchmore to gain immediately if we rollout the full modular approach in ourcomponents. This means that thecars in the model range will havefewer unique components, so thatthe Group can order much largerquantities of common parts, whichis more cost-efficient for PSA andsimpler for the component suppliers.There’s a lot we can do personally toremain a robust stand-alone business.At the same time, there is no doubtthat we have to deepen our strategicpartnerships to achieve the step aheadthat we desire, such as CO 2reductions.We want to be in electric cars,hybrids and conventional combustionengines, and with our scale, involvementin all of these areas requiresus to have partnerships. We have apartnership with BMW in which wework on gasoline engines and we’venow set up a promising joint venturebased on the components of the hybridtechnology. We have cooperationwith Ford on diesel vehicles and withMitsubishi on electric cars. We wantto create value, so we have to adjustour allocation of capital to put itwhere it will maximize returns, whichmeans cooperation is key. Of course, ifthere are opportunities to make alliancesthat make real sense and bringlong-term synergies, we’re open tothem. But let’s be pragmatic, it’s notnecessary today.62 THINK Act september 2011

ACT: BankingregulationsThis gives a total capital requirement of between 8% and9.5%, as opposed to the 7% applying to all banks underBasel III. The IMF has calculated that even 7% wouldcreate an additional requirement of USD 360 m for theworld’s 62 largest banks.The exact surcharge depends on which of the four categoriesof systemic importance the institution falls into. Thefinancial institution’s balance-sheet total is one yardstick,and the Basel committee has recommended that four additionalbenchmarks be used: interconnectedness, globalreach, complexity, and substitutability by other providers.In the United States, the Dodd-Frank Act defines a bankthat is “too big to fail” as one with a balance-sheet totalof over USD 50 bn. Below this level, it is not systemicallyimportant. At the international level, a more complex formulahas been used which takes different business modelsinto account, and is compatible with the Basel III rules.Although SIFIs initially rejected the criteria, they willnow have to exceed them and they are starting to get usedto their newfound status. Of course, increased solvencyrequirements will erode their margins, but this could beoffset by the advantages of refinancing.The calculation is that as highly stable SIFIs, financialinstitutions will earn better ratings and achieve lower riskpremiums than banks with less capital, thereby establishingthemselves as safe havens for investors in bonds andcertificates. There are also benefits for deposit-taking businessbecause, as Deutsche Bank CEO Josef Ackermann pointsout, customers “would rather invest their money with SIFIs.”At first, shareholders were alarmed by the prospectof their companies retaining profits to create additionalbuffers or increase capital. Now they are starting to seethe silver lining – this will make their investments moreattractive and lower-risk.Dodd-Frank Act attracts widespread praiseWhatever people think about Basel III and SIFIs, there is nodoubt that the industry’s situation will change drastically –not just for SIFIs, but for all providers. There will be nogenerous transition periods; it will happen immediately.Banks without adequate capital and financing could beforced to withdraw from previously attractive areas of themarket and pass on their expensive refinancing costs toclients, which will reduce their competitiveness. Conversely,the changes would create additional opportunities forfinancial services providers that revalue their businessesto allow for risks as part of an overall banking strategy.“It’s potentially quite a simple question,” says UdoBröskamp, head of Roland Berger Strategy Consultants’Competence Center financial services. “How do I makethe best use of my capital in the future?”It’s potentially a simplequestion: “How do I makethe best use of my capitalin the future?”However, he says, the answer is more complicated becausebusinesses need to take into account the indirect effects of thenew rules and their own national laws. “Some countries havealready pressed ahead on banking regulation, while otherswill take their time implementing it, possibly making creativeuse of the SIFI criteria to give domestic banks a temporarycompetitive advantage.”Adopting such an approach to industrial policy coulddo more harm than good. Non-SIFIs may think that lowerequity requirements have given them a head start, but sooneror later they could be forced to maintain higher voluntarybuffers to signify their solvency to the market, where theinvestors will not necessarily know how institutions havebeen classified by regulators.For example, big banks whose business is primarilydomestic could have huge balance sheet totals but still beplaced in lower categories, or left out of the equationaltogether. If the experience of the recent financial marketscrisis is indicative, it seems likely that a big domestic bankwith its fingers in lots of pies could cause just as muchdamage as a SIFI if it crashed.There have been dire warnings that banks could simplyshift their business to regions with more relaxed rules;however, this is largely a ploy by lobbyists. “In reality, there’slimited scope for regulatory arbitrage,” Bröskamp says. “Firstin terms of time, because rules tend to converge as the yearsgo by, and secondly, geographically, because you can’t justmove and take your customers with you.”64 THINK Act september 2011

Rubrik hierFrankfurt: for banks in Germany’s financial center, size and importance are relative.Photos: ImagoBröskamp believes that consistent global rules would be undesirablebecause they ignore conditions in specific markets. For example,Switzerland’s very high capital requirements send out a strong signal aboutthe stability of its extremely powerful financial sector, which contributesaround 12% of the country’s GDP.In the United States, the Dodd-Frank Act, which focuses on financialmarkets and SIFI regulation, was passed into law in July 2010, and hasattracted a lot of positive comments from observers. They believe it tacklesthe root causes of the financial market crisis, bolsters Wall Street againstfuture downturns, reduces the country’s exposure to systemic risk,and creates greater transparency and clearer responsibilities. As withany form of regulation, there has also been criticism of the downsides.This criticism is sometimes tinged with exaggeration, though it doeshighlight some of the long-term management effects of current bankingand financial market regulation. Restrictions on proprietary trading havealready caused departments to close, though some of this business hasbeen shifted to hedge funds. Other banks are considering incorporatingtheir own account operations into their asset management business,which could make client-driven fund management and market-makingmore competitive.“Like Basel III, Dodd-Frank is having massive effects on the managementof capital, liquidity, risk and financing, process models and ITsystems,” emphasizes Roland Berger partner Holger Dümler. “Thanksto the long lead times, banks were able to assess the attractiveness oftheir businesses in the new regulatory environment long before it actuallyhappened. Armed with this knowledge, they could decide well inadvance whether to adapt their strategies or shut down specific areasof their business.”ThinkThe Dodd-Frank ActThere is a great deal of overlapbetween the 849-page,541-article US act and thefuture Basel III rules in areaslike liquidity requirements,refinancing, and maximumleverage. both systems seekto make derivatives-tradinga regulated, centrally clearedmarket, but Dodd-Frank placesmore emphasis on rescuing thebig banks, or at least allowingthem to die quietly.THINK Act september 2011 65

looking fORwardSimple questions are often difficult to answer. What is here to stay,and what’s next? think act asks some of the world’s leading futurologistsJeremy RifkinWhat is here to stay?The laws of thermodynamicsWhat’s next?The Third Industrial RevolutionThe first law of thermodynamics states that all energy inthe universe is constant, that it cannot be created or destroyed;only its form can change. The second law statesthat energy can only be changed in one direction, that is,from usable to unusable, from available to unavailable, orfrom ordered to disordered. Everything in the universe,according to the second law, began as available concentratedenergy and is being transformed over time to unavailable,dispersed energy. Entropy is the measure of the extent towhich available energy in any subsystem of the universe istransformed into an unavailable form.Societies are organized and maintained byconverting the available energy from theenvironment into energy to sustain humanexistence.Every great economic era is marked bythe introduction of a new energy regime.In the beginning, the extraction, processing,and distribution of the new energy areexpensive. Technological advances andeconomies of scale reduce the costs andincrease the energy flow until the onceabundantenergy becomes increasinglyscarce and the entropy bill from pastenergy conversion begins to accumulate.The oil era followed this curve over thecourse of the twentieth century, peakingin 2006.Most economists fail to understand thatall economic activity is borrowing againstNature’s energy and material reserves. Ifthat borrowing draws down Nature’sbounty faster than the biosphere can recyclethe waste and replenish the stock, theaccumulation of entropic debt will eventuallycollapse whatever economic regimeis harnessing the resources.Jeremy RifkinBiographyhe teaches at the Wharton School’sexecutive education program. Hisforthcoming book is ‘The ThirdIndustrial Revolution: How LateralPower is Transforming the Economyand Changing the World’.Our industrial civilization is at a crossroads. Oil and the otherfossil fuel energies that make up the industrial way of life are sunsetting,and the technologies made from and propelled by theseenergies are antiquated. The entire industrial infrastructurebuilt on the back of fossil fuels is aging and in disrepair. Worse,climate change from fossil fuel–based industrial activity loomsominously on the horizon. Our scientists warn that we face apotentially cataclysmic change in the temperature and chemistryof the planet, which threatens to destabilize ecosystems aroundthe world. It is becoming increasingly clear that we need a neweconomic narrative that can take us into amore equitable and sustainable future.The great economic transformations inhistory occur when new communication technologyconverges with new energy systems.The new forms of communication becomethe medium for organizing and managingthe more complex civilizations made possibleby the new sources of energy.Today, we are on the cusp of a new convergenceof communication technology andenergy regimes. Internet technology and renewableenergy are merging to create a powerful“Third Industrial Revolution” that willchange the way we work and live in the 21stcentury. In the coming era hundreds of millionsof people will produce their own greenenergy in their homes, offices, and factories,and share it with each other using an “energyInternet,” just like we now create and shareinformation online.The Third Industrial Revolution infrastructurewill create thousands of businessesand millions of jobs. This revolution will usherin a new economic age which will bring withit a fundamental reordering of human relationships– from hierarchical to lateral power.Illustration: Frank Hoppmann66 THINK Act september 2011

ImprintPUBLISHERRoland Berger Strategy Consultants GmbHHigh Light Towers, Mies-van-der-Rohe-Str.6D-80807 München, tel.: +49 (0) 89-9230-0DIREctoRDr. Katherine NöllingEDitoRiaL ADVISORY BoaRDRoland Berger Strategy ConsultantsPUBLIShinG COMPanYAxel Springer AGAxel-Springer-Str. 65, 10888 Berlin, GermanyTel: +49 (0)30 2591-74718Fax: +49 (0)30 2591-74710newbusiness@axelspringer.dewww.axelspringer.deMANAGEMEnt (NEW BUSinESS)Frank Parlow, Lutz ThalmannEDitoRSThomas Ramge (Management), Guido WalterAUthoRSMarkus Albers, Max Blanchet, Douglas A. Bolduc,Anne Hansen, Hilmar Poganatz, Christian Meier,Nils aus dem Moore, Burkhard SchwenkerDESIGN AND PRODUctionRethink GmbHBrian O’Connor (Management), Helge Hoffmann, Henrike Noetzold,Andrea Schumacher (Managing Editor), Jana Hallberg, Jennifer BresslerIMAGE EDitinGTwentyfour Seven GmbHPRINTERFirmengruppe APPL, aprinta Druck GmbHSenefelderstraße 3-11, 86650 WemdingCOPYRIGHTThe articles in this magazine are copyright.All rights reserved.NOTICEOpinions expressed in the articles of this magazine do notnecessarily reflect the views of the publisher.Do you have any questions for the editor or the editorial team?Would you be interested in learning more about studiesby Roland Berger Strategy Consultants?Just send an email to: service@think-act.info

Rubrik hier68 THINK Act september 2011