A questionable fascination with size

Recently there was news that U.S. researchers have presented a large project in the field of brain research. A few weeks ago, Ecole Polytechnique Fédérale de Lausanne (EPFL), part of the Swiss Institute of Technology, also announced a major project in the same field. Both projects are budgeted to cost billions.

Surely one must hope that the more money (and minds!) is invested in a research project, the greater the chance to achieve breakthrough results. The anticipated output may therefore justify these large expenses. In addition, there are areas of research that require big projects because a large and expensive infrastructure is necessary, as for for example the CERN (Conseil Européen pour la Recherche Nucléaire) in Geneva.

But one should not ignore the flip side of this:

First, size is no guarantee for success. How many scientific discoveries have been made by individuals or, more recently, by small research teams? Small groups can stimulate and combine leading representatives of a field in good harmony, complementing each other without needing billions.

Major projects also carry the risk of binding financial and human resources that then lack elsewhere. "Peripheral areas of research" are neglected. This phenomenon is well known from pharmaceutical companies, where research often focuses on profitable "me-too" products, while little or no research is done on rare diseases (orphan drugs). Thus, the diversity of research can be at stake.

Furthermore, we must not forget the prestige effect of large projects. Only those who have a major project gain status in the scientific community. The ranking of universities might soon be done according to how many major research projects an institution has, and how big these are. The statement of someone involved in a major American project that the label "large project" is a major sales pitch, catches one’s attention in any case.

Finally, one must not forget that a large project also  requires a great coordination and control effort. If, for example, a hundred or more million francs are spent as in the above mentioned projects, no one can afford not to make annual or even quarterly rigorous controls, reports and justifications. Thus considerable resources and precious research time are used for administrative work and coordination meetings. In addition, administrators begin to influence projects and results.

One should therefore not be blinded by the publicity large projects get. "Big" is not automatically "great".

Sybille Sachs

Looking back

While clearing up my library recently, I came upon a book by K.R. Andrews, "The Concept of Corporate Strategy" (1971). Looking through the text over 40 years later, I am amazed how current Andrews’ considerations are. Andrews was Professor for Strategic Management at the Harvard Business School. He became well known for a number of things, among them a case study on the Swiss watch industry. In this study he demonstrated how a small firm can compete with larger ones strategically, sustainably and successfully.

In his Concept of Strategy, Andrews argued on the basis of the SWOT analysis - which is his “invention" by the way - that a firm always needs to seek an economic strategy that is aligned to the moral concepts of its leaders (p.38): "Personal values, aspirations, and ideals do, and in our judgment quite properly should, influence the final choice of purpose". In this way the manager’s sense of responsibility as human being and not as homo oeconomicus is addressed ("his own standards of right and wrong") (p.118). For Andrews, strategy is always "a human construction; it must be responsive to human needs" (p.117). Andrews goes even further and argues in the spirit of modern Stakeholder Theory that strategic decisions also need to always have the well being of society as a whole in mind. He writes: "By ‘social responsibility’ we mean the intelligent and objective concern for the welfare of society that restrains individual and corporate behavior from ultimately destructive activities, no matter how immediately profitable, and leads in the direction of positive contributions to human betterment, variously as the latter may be defined." (p. 120) Unfortunately this thinking, on Strategy Theory and the practice of strategic action, was completely buried in the 80s by narrow and inflexible economic thinking. Ironically, his colleagues Porter and Jensen, also at the Harvard Business School, were forceful promoters of the economic model. Decisive factors were Shareholder Value as the primary goal and hard competition; homo oeconomicus determined practices. This led to unreal abstractions with dangerous consequences. For these reasons, the “ultimately destructive activities” that Andrews addresses in the above quote came about in the financial crisis of 2008. And the subsequent debt crisis confirms his warning: "Business cannot remain healthy in a sick community; ultimately no corporation is an island."

Today scientific work in Strategic Theory places great emphasis on the latest literature. However, sometimes it would also be good to refer to old classics; they often challenge “modern” theories and accepted practice! In any case, Andrews can be regarded as a forerunner of a stakeholder-oriented view of strategy.

 Edwin Rühli

 

 

 

The "Yes" to the fat cat initiative and the destruction of the social contract in Switzerland

 

Switzerland was for once progressive: it said yes to the so called fat cat initiative (“Abzocker-Initiative”) which gives shareholders more binding say over company executive compensation. The day after the vote media around the world reported about the decision in the tiny country. This shows that the verdict of Swiss voters hit the nerve of an issue of global interest.

Before the ballot economic-liberal commentators of the country described the fat cat initiative as a danger for the Swiss social contract between citizens and elite which consists of a highly liberal economic regulation. They acknowledged that the dismantling of the contract had begun when the economic elite started to pay exorbitant compensations to managerial top-shots which legitimised this with a hint to realities of the global economy. They also understood that such and similar behaviour (e.g. high risk strategies of banks) completely ignored the deeply anchored culture of egalitarianism and disliking pomposity in Switzerland.

 

Despite this, the elite omitted to approach the issues appropriately. In approvals to proposals like the fat cat initiative these commentators see the price the elite now have to pay for its ignorance: a further dismantling of the social contract in the form of more economic regulation. This probably all is true. But beyond this, citizens seem to have realised that the time has come to go new ways. The worldwide interest in the yes to the initiative supports this: it shows that the issue of the behaviour of detached economic elite is not a specific Swiss concern. And the yes indeed was not primarily a yes to strengthen shareholders’ rights but a yes to stop the detached behaviour of the elite.

 

It is key that the elite realises that it can hold no longer on obsolete practices and to preserve the “ancient régime” if it wants to retain the social contract providing liberal economic conditions. Only if the elite are willing to understand moderation and the role of companies primarily to serve the society not as a local competitive disadvantage but as a global necessity the specific Swiss social contract without much regulation can be renewed.

Besides all this it would be negligent not to consider shortly the fact that the fat cat initiative reinforces the rights of shareholders. But even if one considers the enforcement of these rights as appropriate, the question about the interests of the other stakeholders stays largely unanswered by the initiative. Indeed, the initiative requires pension funds to vote in the interest of their insurants. But this alone is insufficient. Shareholders, of course, are also stakeholders. But they have specific interests and are a part of the economic elite (at least the larger ones). Switzerland has to go further down the road and the elite have to participate if it wants that the reforms do not come exclusively in the form of new regulations. Because the time is ripe for corrective measures reforms will come anyway, in either form (regulative or liberal). And because the issue is global in nature also the other countries are under pressure to reform.

 

Claude Meier

Caring about the customer

 

 

In stakeholder management customers are regarded as primary stakeholders of the firm but also many a firm not pursuing general stakeholder management, does think it should be customer oriented. “Usability”, “ergonomics” and “human centred design” are no longer exceptions in strategic considerations. The customers are moving toward the core focus of business, which I think is a good development, because traditional customer orientation is not enough. A deeper and more honest relationship to the people who are buying your goods is necessary. As I see it, the primary focus should not be on how to sell more of a company’s products, but on what the person buying the product really wants (also resulting in selling more products).

I would like to illustrate this think shift: Many people like to eat healthy food. A snack company spots this customer need, puts some milk into the product and praises it as being a healthy snack, even though most nutritionists would assess the product to be of the contrary (heavily sugared and fatty). So just by recognizing and addressing the consumer need doesn’t make a customer centred firm. Another example: Consumers like the look of dark red meat (not grayish meat) because they have built the mental shortcut (heuristic) that intense color in food is a sign of freshness. This is why market research study participants would prefer the dark red meat to a grayish meat product. A company that follows what the consumer actually wants, will not sell the consumer a meat that was treated with a gas that keeps it red (but doesn’t keep it fresh), it will sell the consumer fresh meat. This is not only a shift in strategy, this will have wide implications for a company’s daily business in distribution, packaging, communication and so on.

 

We use these mental shortcuts (here: intense color equals fresh food) because they mostly lead us to making good decisions (read publications by Gerd Gigerenzer for more on this topic). Shortcuts make life easier; especially in this fast paced, information-overloaded environment. These heuristics are good because they are often based on experience and implicit knowledge. But the shortcut only works if it is not tampered with by others. Robert Cialdini, a social psychologist, wrote several books on persuasion, summarizing his findings based on many experiments he had made in his research on e.g. selling tactics. But he states “Just because a given [powerful psychological] principle is successful does not mean we are ethically entitled to commission its persuasive power to create change.” I think this misusing psychological mechanisms such as heuristics is not only unethical it is also a strategy that won’t lead to sustainable business success. A company that shares its purpose (the “why” of a company) with its customers and therefore wants the same thing, will be able to engage the people they call their customers and conquer the challenges (such as resource scarcity) together in an innovative way, and of course sell their products.

 

Vanessa McSorley

The Separation of Work and Life

To illustrate complex issues, I frequently draw on the work-life balance as a relevant and timely problem affecting virtually everybody. Usually, conversations are about how to find effective private strategies and good public policies to facilitate an individual and sustainable balance between the two parts of how people spend their time: work and life. There are many different practices applied or perspectives taken, and, for the sake of complexity, I would like to add another question: Is a separation of work and life always meaning- or purposeful (another more logical question would be, if comparing work and life is somewhat similar to make a distinction between apples and fruits…)?

By using the expression "work-life balance", we are implicitly relying on the idea that work and life are something different, something separated from each other. Aside from the logical fact that life includes work, I think it is a worthwhile exercise to question this tacit assumption of a dichotomy between those domains. Quite often, the separation of work and life is regarded as healthy or generally good in an imperative and moral manner. "You should enjoy your leisure time!" or "Could you please stop talking about work during your recreational activities?" are common expressions in this context. I hope that the pressure to enjoy one’s leisure time is not as high as the pressure to separate work and life…

My point is that life and work cannot easily be separated. Do you think that activities like working, living, loving, being a soccer fan, having your friends’ messages on your mobile, chatting privately during work time, having a swim during lunchtime, and so on, are easily separated into the work-life dichotomy? The domains of work and life influence each other and we are not machines being able to throw a lever to shut off life while working.

If the domains of work and life interact, why do we always assume that work negatively affects life? Could it not be that work is positively affecting life, for example by giving meaning and sense through purposeful actions? Many persons define themselves through their professions, while having their personal identities at stake when talking about work.

I think the best way to think about the relationship between work and life is to perceive these two domains as mutually supportive. Bringing in parts of one’s personal skills and knowledge, personalities, even problems, into the work domain enriches the professional environment. On the other hand, there is also a transfer of professional benefits to worker’s private lives. Competencies learned during working time can be used quite effectively in different settings related to the private domain.

Therefore, a separation between life and work does not further the search for a meaningful balance between the two domains. In my opinion, the two domains have to be integrated into a holistic perspective that brings in the best of both worlds under a common purpose. Life will be much easier and more meaningful if we do not have to separate work and leisure time obsessively. 

A doctoral student’s view on plagiarism affairs

Yesterday, a scholarly commission of a German university has decided to revoke the doctorate of the country’s education minister and a close confidante of the chancellor on the basis of plagiarism.1 What seems to be the latest instance of a series of similar affairs not only raises again questions about the integrity of involved, mostly high-ranking individuals of public or political interest, but also about the justness of stripping academic titles most often earned decades ago. Without being a legal expert, it seems convenient to me to turn this discussion into a rudimentary trial, presenting incriminating evidence and exonerating circumstances as judged by a protagonist and stakeholder theorist’s point of view.

Provided that the authors knew what they were obliged to do when writing scientific pieces in which they relied on the ideas of others (intent?), there is undeniably ethical ambivalence behind “…systematically and deliberately faking a mental performance throughout the entire dissertation…”.2 The driving force of misbehavior can comprehended to a certain extent; metaphorically think of a school kid who decides to take on the risk of cheating at an exam in hope of getting away with it and gaining the respect of his/her mates for being the best in class. Also the personal choice to jeopardize one’s sincerity and take on the burden of living with and even building a career upon a skeleton in the closet could be acceptable as long as nobody else is harmed and consequences are taken if it does come out.

From a broader and more stakeholder-oriented perspective, the quality and originality of single research efforts is certainly of interest for a wider range of involved individuals and institutions (failure to render assistance?). Ultimately, the reputation and trust in academic education and the community itself is at stake. In my opinion, the setting in which such major research projects are developed is essential in preventing misbehavior. By actively striving after adherence to scientific principles, the set of stakeholders should provide an enabling context including ethical values. However, it seems also evident that such a setting cannot be characterized by an ever-growing pressure on young scholars to perform along one single dimension, namely the quantity of peer-reviewed publications.

Last but not least, one needs to be aware of the fact that the act of crime is in most cases several decades ago (prescription?). At that time, research was carried out and dissertations were written under nowadays inconceivable circumstances - the World Wide Web and Google & Co. did not exist. But also the means to rigorously check for plagiarism were missing, so the inhibition level for copy/paste was presumably much lower. To draw a comparison between now and then seems pointless in that regard.

The bottom line is (sentence!) that it would be wrong if long-ago decisions of individuals to violate the principle of intellectual property in order to boost their ego leads to negative sentiments towards contemporary science and the involved stakeholders.

Marc Moser

References

1 Cottrell, C. 2013. "University Revokes German Official’s Doctorate", in The New York Times, viewed on 5 February, http://nyti.ms/12wwcxN.
2 Bleckmann cited in Cottrell (2013)

After the Occupy Movement

Danach – After the Occupy Movement, After Capitalism?

The Occupy movement, originating on Wall Street, rapidly swept through the US, Europe and Latin America, reaching also Asia and Africa, albeit with less fervor. Under the banner of “Occupy Paradeplatz” the protest planted itself in the middle of the Swiss financial heart right in front of the headquarters of the two largest Swiss banks, the UBS and Credit Suisse. After being politely told by the police to move, they set up camp in the Lindenhof Park overlooking the old town of Zurich, where they held out until the police once again cleared the terrain after some weeks.

What happened since then? Was this just a momentary venting of outrage, gone as soon as the emotional waves waned? Whereas this may have been the case with some of the participants, the action has taken root in numerous ways. Behind the scenes a lot is buzzing, including a first Symposium (http://www.danach.info/) which united leading thinkers and doers. Anything but reactionary, I was impressed by the well-reasoned, nuts-and-bolts approach to shedding light on our current financial system and what to do about it so as to avoid a complete crash (although, as the title “Danach”, German for “Afterwards”, suggests, most shared the conclusion that it will crash before truly significant change will make its way also through the political and economic systems).

One of the most fascinating insights I gleaned was just what money is and how it was created in today’s economy. What precisely money is, is not based on some kind of natural law, but is what we have made it to be. Thus we can deliberate about how we want to employ it and what precisely we want it to do for us. Conventional economic wisdom (and what I was taught in my undergrad economics course) has it that when I or you deposit our money into a bank account the bank makes good use of it by pumping it back into the economy in the form of loans for businesses or home owners. In reality, they do not even require such deposits but rather are able to “create” their own money pretty much out of thin air or simply go to the central banks where they get it for next to nothing. Thus, as claims positivemoney.org, some 97% of all money in circulation in the UK is “created out of nothing” by private banks (see http://www.positivemoney.org.uk/).  The problem with this scenario is that there is a complete detachment of this kind of money with the real economy, real value creation and real wealth. Moreover, since money creation is so easy, it inexorably leads to various financial bubbles and to rising personal and public debts.

To solve this problem, the concept of “positive money” or, a similar initiative in German called “Vollgeld” (http://vollgeld.ch/) , has been promoted. The basic underlying idea is that there should be a complete separation between speculative money (loans, bonds, stocks, derivatives etc.) and the “real money” that is deposited by people in a savings account.

Since these speculative investments would no longer be insured by the government, it would consequently solve the “too big to fail” dilemma, all the while also attributing the real burden of risk on such investors in search of superior returns. Since simple savings accounts would no longer be subject to being dragged into a bank failure due to the speculative investment part of the bank, the risk of bank runs would be largely mitigated. One version of this would make simple bank deposits no longer be part of the bank’s balance sheet and no longer reaping any interest rates.  Only savings accounts, with which the bank makes direct loans, would still reap interest rates. Moreover, through the introduction of “Vollgeld” there could be a one-time write off of all state debt as banks  are required repay their credits to the national banks. (For a detailed explanation of this, in German, take a look here: http://tinyurl.com/cn7c5lt )

Numerous other interesting insights were presented, including the notion of the use and/or misuse of interest rates and how interest rates force economies to keep on growing in order to not collapse (an impossible proposition in a finite world).

The simple take-home message was quite clearly that the current financial system is not sustainable and bound to collapse sooner or later unless fundamental changes of how our money is created and organized are undertaken. Current remedies, beginning with financial transaction taxes, the Volcker rule, Basel III and all the way to the separation of investment and deposit banking, fail to get at the systemic problems inherent in the current system. As always, the jury is out on just what will transpire. But I think it’s safe to say that it can’t remain “business as usual” or even “business more or less as usual” forever for the financial institutions of the world.

Manuel Heer Dawson

Two further very interesting links regarding this matter:

http://neweconomicsinstitute.org/

http://www.monetary.org/

In search for positive narratives of leadership

Within the context of our new research project “Towards positive narratives of leadership”, we have recently been in contact with numerous professional colleagues, leaders in firms and public enterprises. In this process we have seen that a large number of managers are looking for new paths for reliable and sustainably successful leadership behavior, after the many years of crisis as well as market and management failure. They don’t believe that yesterday’s mindset can solve the problems of tomorrow.

For many leaders the negative headlines have clouded the view of positive role models. However a positive role model is just what we were able to witness at the beginning of the New Year: hardly anyone believed in the end that the US would be able to negotiate the fiscal cliff. Thanks to their joint positive effort, Biden and McConnell managed to find a solution. Clearly what we need most are positive narratives for leaders that they are able to develop mutual solutions.

What do we mean by “positive narratives for leadership”? Five ideas come to mind:
First, it means that the firm is not understood as a selfish fighter against all other individuals or institutions in markets as well as in society, trying to reap profit from others by every legal and not so legal means. The firm is not outside but part of society, for which it must have positive regard and from which it must accept limitations and regulations. In a positive perspective, firms are required to act as economic and societal institutions. Thereby not only the leaders in firms are challenged but also those in society.

Second, leaders have to be aware that in a global and knowledge intensive society, the interactions with highly qualified and indispensable stakeholders are the key to superior value creation. These stakeholders are always human beings and have to be accepted and treated as such. They have to be accepted with their distinct knowledge, experience, values etc. All stakeholders, not only selected managers or shareholders, deserve respect and trust in providing firm specific engagement.

Third, short term profit maximization has to be replaced by the principle of economic and social value creation with and for stakeholders. This includes that contributing stakeholders get a fair share of the value created. The one-sided consideration of selected investors or managers in value distribution has to be avoided.

Fourth, the firm is always part of a complex and dynamic network of contributors and not the dominator. This embeddedness in a stakeholder network opens opportunities for mutual stimulation and positive developments for both the firm and the stakeholders.

Fifth, we also have to take a fresh look at competition. Gaining and maintaining a monopolistic competitive advantage towards others is not part of a positive mindset. The real values created for all relevant stakeholders must be transparent so that customers, investors, ranking agencies etc. can decide which firm creates the most value in an economic and social dimension.

It is a fascinating but also an urgently needed requirement to search for positive narratives of leadership that can serve as role models for leaders.

Sybille Sachs