WBD here I come!!

Yesterday I got an unexpected call from Germany with the incredible news that I was granted a sponsorship in order to attend the 13th World Business Dialogue. As the several posts about different topics in this blog were the reason for granting me the sponsorship, I decided that the most reasonable thing to do was to thank for it here, in my blog.

I am really looking forward to discussing all the topics in this blog (and many others) with students from all around the world. I'm sure that a fertile exchange of ideas is the best way to get to innovative solutions for complex problems. I want to be part of a global solution and this is a great opportunity to start walking seriously through that path.

Firstly, I want to thank the sponsors that allow people that can not afford the flight to the conference to attend it, making possible the intelectual and personal development of these individuals (including me!). Secondly, I want to thank the organizing team who dedicated long hours taking care of every detail in order to get important speakers, numerous sponsors and carefully preparing what I am sure is going to be an unforgetable experience.

Once again, thank you all!

Intrapreneurship: An interesting Trend

This is just a quick post about this attractive alternative to combine rigid, well-known structures with creative and innovative entrepreneurs. The idea is that big corporation have some people that work as entrepreneurs for them but they do not have to worry about expenses that does not have to do with the core of their business (administrative, legal, accountant, etc.) because the big company can deal with that plus the advantage of economies of scale.

In my next post, I will go a little bit deeper about this idea, but I believe that it is worth thinking about it as a possible alternative to give rigid corporations a doses of flexibility in order to survive (and be sustainable, ideally) in an ever changing environment.

I just want to leave you with the following extract:

September 30, 1985, interview with Stephen Jobs in Newsweek: "The Macintosh team was what is commonly known as intrapreneurship-only a few years before the term was coined - a group of people going in essence back to the garage, but in a large company".

I will enlarge this idea, shortly. Have a nice weekend!

Global Crisis, Local Effects: How does the financial crisis affect Argentina and other developing countries?

Note: this post was originally written for the World Business Dialogue official blog (not online yet, but I'll let you know when it is). That's why you may find it a little longer and more technical than usual posts.

We are all aware of the fact that the current crisis (probably the worst since the
Great Depression) started in the US financial market which is the center of a network of interconnected financial systems. As a consequence, the crisis spread rapidly and became global in nature. Nevertheless, the impacts and effects of the crisis vary from country to country because they have different institutions, economic structures, idiosyncrasies and histories which condition the macroeconomic outcomes. Today, I will discuss a little bit how the crisis affects developing countries in general and Argentina in particular.

To begin with, there is a fundamental difference in the way financial crises arise in developed and developing countries. In developed countries, they follow a classical Minskyan boom-and-bust cycle governed by endogenous recurring elements which are the agents’ risk perceptions and expectations (this model successfully explains how the current crisis was originated in the US). On the other hand, in developing countries, there is an important differentiating aspect which is that the booming cycle is not triggered by internal financial innovations. Instead, it is driven by macroeconomic policies that promote speculation and arbitrage between domestic and foreign assets. A typical example of these policies is the predetermination of exchange rates which triggered the Argentinean financial crisis in 2001. Nevertheless, we have already stated that the current crisis was originated in the US. As a consequence, this point is not strictly relevant for the current analysis but should definitively be taken into account when adopting measures towards global sustainability.

Another crucial aspect to analyze is the way the current crisis was transmitted from US to developing countries. Probably the main transmission channel for developing countries that specialize in manufacturing and services was the contraction of the world trade volume. Other countries that specialize in primary industries (such as Argentina with its cattle farming and agriculture) were strongly affected by the decreasing trend of commodities’ prices particularly since the end of the commodity price boom in the middle 2008. In the financial field, we have the combined effect of the clash of multinational companies that bring down stock prices all over the world plus the rapid spread atmosphere of uncertainty created by the partial failure of big investors’ portfolios. A last transmission channel for the crisis (not important in Argentina but with some relevance in smaller countries of Latin America) are the remittances. With this I mean that with a less active US economy, the money that immigrants can send to their families in their home countries decreases, consequently affecting these countries’ economies.

In addition, there is an essential difference between developed and developing countries concerning governments’ capabilities to conduct stabilization policies once the financial crisis is made evident. In developed countries, the crisis generally entails an increase in the demand for money and public bonds which are considered safer assets than risky banks, shares or stock options. Hence, the financing of public expenditure towards economic reactivation is promoted. Whereas in developing countries, the people do not consider their domestic public bonds and money as safe assets, so they demand developed countries’ money and bonds. Thus, the recent financial crisis led to an outflow of capital from developing to developed economies.

Particularly in Argentina, this decrease in domestic capital for economic reactivation and other public expenditures with more political objectives, led the government to take a set of decisions which exacerbated the effects of the crisis to fields outside the economic and financial ones. To start with, an increase in the withholding taxes to the agro industry provoked a massive strike causing the exportation of the national main industry to cease for months, entailing unfavorable effects for the whole economy and some social tension as well. Moreover, the public office in charge of statistics lied about the inflation index in order to maintain the virtual value of the domestic money but instead brought a popular disbelief in the official information. In addition, these policies and others were taken directly by the executive power (because they were considered “emergency measures”) and did not follow the conventional legislative path. This brought unreal division of powers, causing an institutional crisis and a regulatory environment too unstable to attract foreign investors.

In the near future, Argentina and many other developing countries have to work really hard on different aspects if they want to emerge in a relatively favorable position from this crisis. Among the most important aspects to work on, I would highlight the need to improve the external image by serious long term political planning and solid institutions that will attract foreign investors. Furthermore, in a world were the Keynesian concepts in contexts of uncertainty are regaining prominence, economies should rethink the relevance of domestic markets and regional integration (such as Argentina in the MERCOSUR). Nevertheless, in order to reach an effective integration, regional political conflicts must be overcome once and for all.

The Fun Theory

Throughout the different posts, we’ve been discussing different aspects of sustainability and the various stakeholders involved in it: different parts of the company, government, non-profitable organizations, suppliers, consumers, etc. One of the common conclusions of this analysis is that changes must be achieved. Some of these changes may be achieved through political regulations, others by managerial decisions and other by changing the mental models in the average consumer. Today, I want to share with you an innovative way of modifying people’s behavior called “The Fun Theory”.

"Fun can obviously change behavior for the better.
We call it the Fun Theory"

This is an initiative of Volkswagen in which people are made to choose the better alternative by making it more fun. For example, making it fun to take the stairs over the escalator; or making it fun to recycle instead of throwing bottles to the trash. The interesting thing is that in the last post I wrote about this company that makes people to recycle by paying them. Here people recycle because it is fun, another big engine of human behavior.

These two different points of view may be combined towards a way of modifying effectively the behavior of individuals towards collective sustainability.

One important difference between the two points of view is that giving people money will be effective with no dependence on time while the fun theory is highly time dependant. With this I mean that people will always need discounts in the grocery store while the “piano staircase” may lose its “fun component” with time. So, the fun theory must be dynamic and reinvent itself with time. Nevertheless, I believe that by combining the main characteristics of the two perspectives (and some more) true changes may be achieved.

If you are interested in continue reading about the fun theory, go to http://www.thefuntheory.com/

Getting People to Recycle

As I commented on the past post, I will present to you a brief case about RECYCLE BANK (RB) that changed the perspective about recycling with very good results in some US cities (probably other companies did the same in other parts of the world but I will refer to RB as representative of them all). It is important to remind the reader that when I mention “sustainability” in the blog it refers to a broader concept than just recycling, nevertheless, it is important to mention this case because some points may be extrapolable.

Before the RB concept, recycling was for romantics in the sense that the average family with three kids and both parents having a day job didn’t have time to think about it. So if you asked people that recycled why did they do it, the common answers mentioned the environment or future generations; something really deep and important, but definitively not for everyone. But there is a more important question. If you ask people that do NOT recycle the following question: “If I pay you a reasonable amount to recycle, would you recycle?” more than 90% say yes. As a consequence of this undeniable fact, RB acts as a link between four important players in this game. The city, that reduces garbage related costs and the recurrent trouble of waste disposal places. The treating plants, that increase their flux of product. Local businesses willing to enhance their environmental friendly image and people willing to get discounts in these businesses.

So, the system is pretty simple: depending on how much each household recycles, they get points to use as discounts in the businesses engaged. And the company gets money sharing the earnings with the city and with the treating plants. It’s easy, clear and people are getting paid to recycle.

How can the same thing be done towards true sustainability?

“I’ve got the power” by the Consumer

Starting a new year, same topic but a different subtopic. Today, I will like to talk a little bit about a very important (the most?) shareholder of every company: the consumer (note that “consumer” refers to goods’ consumers and also services’ customers). Each and every one of us acts like a consumer at some point. Keep in mind that every other shareholder of a company is also a consumer (of that company or of another one). So, what can we do towards sustainability from our “consumer” position?

First, we must realize that we are very powerful. Obviously, the power of the consumer varies with the industry we are talking about (recall Porter’s five forces), but, in general terms, the consumers are the ones that decide which companies will survive and which ones won’t. So, in an ideal world, we can choose to consume from sustainable companies and that will solve the problem. But, of course, this is completely utopic since consumers would need a lot of information in order to make the right choice (long term policies of the company, environmental care, developing plans) which is difficult to access or demands more time than what consumers are willing to spend. Therefore, there should be a way to motivate consumers to choose “sustainable products” when faced with a decision. (In the next post I will talk about how “Recycle Bank” faced this problem).

We learned in microeconomics courses that perfectly rational consumers (an idealized model) make decisions based on price and satisfaction. In the short term, it is probable that prices from sustainable companies may be a little higher due to research costs, environmentally friendly product and processes and commitment to human resources. So, in order to get consumers to pick “sustainable products”, the satisfaction of choosing them must be increased as well. In some developed countries, consumers are starting to evaluate some things at the decision moment (if it has biodegradable packaging or the condition of the workers in the factories in Asia) that were unthinkable 20 years before. This is a good start but these consumers are not representative of the mean “Consumer”. Therefore, efforts must be made in thinking about how to get the “Average Joe Consumer” to pick the sustainable offer.

Social Networking Services for Businesses (PART TWO)

So, I will continue going through some common characteristics of these types of services and outlining their advantages (as I see them).

One important feature is that every member of the organization has one profile with professional and personal information. This creates more personal communication since you are not sending a message to an email address but to a person that you know his face, his age, etc. Besides, common hobbies or tastes among members of the company can create a better relation between them that may increase the collaboration within the organization. The fact that anyone in the company may find out quickly how many daughters the president has or if the CEO is a fan of sailing, impacts the sense of belonging to the company which increases satisfaction and productivity.

There is also a calendar feature that mostly works similar to Google Calendars in the sense that anyone uploads their availability (that can be seen by anyone else) and if I want to arrange a meeting between some members of the company, it automatically tells me which are the possible time slots to hold it. This makes things fasters, avoiding long email chains to adjust the time to everyone availability.

When a new worker enters the company, the SNS plays a very important role. It grants the newcomer with instant access to working info in all the company. He or she can rapidly find out what his or her office mate is working on and other similar stuff. This entails a faster adjustment of new members and a quicker learning curve about companies’ procedures.

The SNS is also a very valuable tool for managers since it can give very relevant info. For example, the SNS can output in an ordered fashion which are the most active workers or the most popular projects within the company (by using a rating system similar to the “like it” in Facebook). Furthermore, managers can also find out the amount of internal communication between workers and can team together workers that easily communicate between them, increasing team productivity.

Finally (although the list can be made much longer), the SNS gives everyone easy access to past files that may be useful for future projects. It is easy to find spread sheets designed by someone

else and change the data (not to invent twice the same thing) or to access to past databases fast and efficiently by a simple search engine. This decreases the amount of duplicated work, increasing productivity within the company.

Well everyone, that’s it for today. Have a wonderful New Year’s Eve, enjoy it with friends and family, and I wish a more sustainable 2010 for everyone!!

Social Networking Services for Businesses (PART ONE)

To continue with the internal communication in more horizontal and flexible companies, we are going to talk a little bit of this new trend called Social Networking Services (SNS).

In order to highlight the benefits of this concept, let’s start by describing the current situation in lots of companies. Imagine that a good friend of ours, Sophie, wants to start a new project in the company she works for. So, she sends an email to her future coworkers letting them know about the project and rapidly they start a long chain of emails. There are lots of files emailed to everyone entailing two main disadvantages. Firstly, there is a copy of each file in every email account consuming lots of unnecessary virtual disk space. Secondly, it is hard to know which is the last and updated version. So people may work in different files and do the same work twice. Completely inefficient. Furthermore, there might be communication going on between some members of the group that Sophie can not see. It is also more difficult to track who is doing more work since redoing the emailed timeline is hard and time consuming and the information is not directly accessible.

Is there a better way to do this? YES. The answer is SOCIAL NETWORKING SOFTWARE (SNS) FOR BUSINESSES. So, let’s consider a similar situation but under the scope of SNS. Sophie wants to start her project, so she looks up for the best coworkers in the internal net. She can see past performance, availability, special aptitudes and more. As a consequence, the team forming (essential for success) is done with more information and in an objective way and not based in subjective personal opinions about past performance or skills. File sharing on the network is also more efficient. There is only one file copy that everyone can access, saving disk space and making sure that everyone can see the latest version of it. Dashboard communication (kind of facebook’s status updates) also brings some advantages. People can post what they are working at, and other team members can comment on it and collaborate in real time even though they might be in different parts of the world, creating a world wide workplace. This is just the tip of the iceberg of the advantages that this software can bring. I will continue to explore the rest in the next post.

Shifting from Orchestras to Jazz Bands (PART THREE)

Improving internal communication is a crucial aspect towards increasing productivity and obtaining sustainability. As a consequence, the full potential of the “Jazz Bands” companies can not be reached with traditional ways of internal communication such as e-mail.

Social Networking Services (SNS) such as Facebook and Twitter have changed how people connect and share information with their friends and family. They have largely replaced traditional forms of electronic communication with status updates and tweets. People prefer to be constantly connected to their communities through short, frequent, real-time updates.

The world of personal electronic communication technology has changed dramatically. However, there are only a few business applications that have responded to this environmental change. Traditional communication tools such as email are lagging behind the needs and expectations of a these flexible companies with horizontal structures.

If you expect your company to work like a network, a self organizing mechanism, it is imperative that every node in the network is connected with each other and that they can access each other information (excluding some confidential data, of course). With e-mails this is impossible or highly inefficient (you should send cc to everyone in the company). With social networking, this is easy, because people in your company may enter your profile or see your status updates and see what you are working on, and comment on it, or collaborate with you. This is the current trend in business technology and in the next post I will explain the main aspects of this kind of software.

Shifting from Orchestras to Jazz Bands (PART TWO)

How can we achieve the improvisation needed in “Jazz Bands”? Learning. We need more courses that focus on this area in related university degrees and other teaching centers. Part of these courses could be afforded by the government (with investment returns that go beyond the imaginable) and the rest by companies wishing to have flexible and proactive managers.

The horizontal organizational structure mentioned in the previous post could be also promoted by the government. For example, it can give tax benefits to companies that present less hierarchical structures. Of course, the “ideal structure” (if there is something like this) would vary from one industry to another (it is reasonable for a manufacturing company to have a more hierarchical structure than a service company). Therefore, the state can propose “ideal structures” for each industry and give tax benefits to companies that are close to these ideals analyzing different parameters such as the salary distribution, for example.

One last comment, we need to abandon the old conceptions of planning. In a world where some scientists say that in less than a century half of the world would be inhabitable due to climate changes and others say that a couple of decades from now, artificial intelligence will surpass human’s; it is impossible (if not stupid) to make predictions with horizons ten years from now and make strategic decisions based on these. Instead, we need to create organizations that function as autonomous structures that can adapt to drastic changes with flexible plans and variable time horizons.

Shifting from Orchestras to Jazz Bands (PART ONE)

We have mentioned several times before that a sustainable corporation must be flexible. One internal issue which is directly related to the flexibility is the organizational structure.

There is an imperative necessity worldwide to shift to more horizontal, network-like structures for several reasons. These kind of structures promote the idea exchange between all the levels of the organization entailing the following inevitable advantages: coherency between strategic, tactical and operative goals and decisions; attraction and retention of young talents reducing the emigration rates in developing countries; transparency in the activities since everyone is connected to every other; increase in productivity due to “Pygmalion effect” because the whole organization is depending on your work and not only your team or your boss; and the list can go on and on. Furthermore, in the past years, lots of people have learned about the benefits of network communication in social networking sites (facebook, myspace, twitter, etc), why can´t we use the benefits of these platforms to enhance corporation collaboration? In fact, there are very big developers (Google and Microsoft being the biggest) trying to build this kind of platform. If anyone is interested, I am also engaged in the business development of a platform of similar nature (called ATOM).

I found a nice analogy (first proposed by John Clarkeson in 1990) to illustrate this shift. A vertical structure is like an orchestra where the director tells everyone what to play and when to do it. Whereas an horizontal structure is more like a jazz band where integration, communication and improvisation are fundamental pieces in order to achieve success. We need more jazz players in a world in which the job of the orchestra directors is getting more difficult each day with intricate musical scores, changing beats and six-lined pentagrams.

Just to close this post (the same topic will be continued next time) I must clarify that the directive sphere of an organization must still exist but its activity must only be constrained to take decisions that the whole network can’t take in an autonomous way due to its wide and integrative nature. For example, entering new markets or firing people (the list can be really extensive).

Scenario Planning: A very useful tool

Scenario Analysis is generally used for strategic planning. With this tool, we can define flexible long-term strategies and not rigid goals that can become impossible (or even useless) to achieve in a constantly changing environment. The original idea was created in military intelligence and then migrated to organizations in general and businesses in particular. The pioneer corporation in the introduction of this method was Shell. The idea is to generate different possible future scenarios combining facts and assumptions in different dimensions (social, technical, economic, environmental, etc). The method is pretty formal and strict in the steps that you need to follow, but here we are only going to focus on the advantages and how can this method be useful towards sustainability within the business.

Where does the value of scenario planning reside? There are two main advantages associated with scenarios. To illustrate them, let’s assume that the presidential elections are approaching and our business depends a lot on the outcome. So, we did three possible scenarios and we have been working on the best strategies associated with each one. The first advantage is that when reality takes one of the three possible paths, we are already advanced in the learning curve of the strategy associated with it, which gives us an advantage in comparison with our competitors. The second advantage has to do with the fact that human beings find easier to manage the uncertainty between different possible paths compared to total ambiguity. This is to say, if I think “Oh no, the elections are coming, everything can happen!”, handling this would be much more difficult than saying “Ok, elections are coming, so this or this or this may occur, which will imply that or that or that consequences”.

Does scenario planning have something to do with sustainable businesses? Of course. Sustainable companies have strong values in which they are based, but flexible structures that can be modified according to the external changes. And scenario planning is a good way of achieving that flexibility!

UN Global Compact: a World-Wide Initiative towards Sustainability

So, most of you must be wondering, what is UN Global Compact? If you enter their website, you’ll see clearly, “The United Nations Global Compact is a strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption.”

United Nations seem to understand that financial markets' obsession with short-termism over long-term considerations played an important role in destabilizing markets and taking us to the recent crisis. Furthermore, there has been a total absence of global guidelines that merge both commercial and ethical dimensions. Therefore, UN is proposing to build “market legitimacy and political support based on sound ethical frameworks”.

That sounds really appealing but, will it work in the real world? The Global Compact participation is based in the fact that “Never before have the objectives of the international community and the business world been so aligned.” And the idea is to create a co participation of companies, governments, civil society, labour, the United Nations, and other key interests.

The difficulty here is to make companies to effectively engage in the program. What are the benefits for the companies in this program? You can read the whole list in the UN website, but they have to do with communication with other companies with the same sustainability standards, sharing best practices and so on. Therefore, for companies that care about sustainability seem like a good offer. But, how can we attract the companies that do not care about sustainability in the first case? Maybe with marketing opportunities. With this I mean that being part of the UN Global Compact may be a competitive advantage in the eyes of consumers which have a tendency to worry more and more about the environment. But I’m sure there have to be more tangible advantages to attract more companies. I’m sure there have to be something more …

What is a Sustainable Company?

From the very useful feedback from readers, I found out that I haven’t clearly defined what a sustainable company is. We talked about sustainable economies in which a steady growth would be followed instead of the cyclic ups and downs we currently go through, so, one can say that a sustainable company is the fundamental piece of a sustainable economy. Still, this is quite vague and it is not an intensive and useful definition.

We can start asking a simpler question. What is sustainability? In 1987, at the World Commission on Environment and Development, sustainability was defined as “the ability to meet today’s global economic, environmental and social needs without compromising the opportunity of future generations to meet theirs.” Following the same line that these people started more than 20 years ago, we can say that a sustainable company is one that integrates economic, environmental, ethical and social objectives into their long term business strategies. This is a pretty popular topic nowadays and if anyone is interested I may refer you to a book, that I haven’t read completely but the chapters I read are pretty clear and concise, called “The Sustainable Company” by Chris Laszlo.

Laszlo and other authors talk about a “Logic of Sustainability”. This means that to create an effective sustainable environment, five particular dimensions have to converge into a common point. These dimensions are: scientific (eg: making people aware of greenhouse effect’s consequences), regulatory (eg: green bonds), political (eg: international environmental treaties), moral (eg: consideration to future generations) and market (eg: focus on stakeholders and not only on shareholders).

Furthermore, the interest of shareholders in sustainability should go beyond religious or moral issues. They must realize (and some companies already did) that in a highly interdependent global economic system, their interests are increasingly related with the interests of society and the environment. Business’, society’s and nature’s health are closely linked.

“Global companies have no future if the Earth has no future”!