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A CONTINENTAL
SHIFT IN
THE GLOBAL
ECONOMY
83
Summer 2016
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PwC
PwC
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EXECUTIVE EDUCATION
COMPREHENSIVE MANAGEMENT LEADERSHIP STRATEGY
FINANCE MARKETING SOCIAL ENTERPRISE
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YOUR BUSINESS
CHALLENGE IS THE
SUBJECT.
comment
editors letter
editors letter
Islands of Certainty
Even more than usual, I see a lot of
uncertainty in the news these days.
Nobody is sure whats going to happen next with the U.S. presidential
election, the European Union, or
Asian economies. And yet, as the articles in this issue remind us, there
are some aspects of the future we
can count on. The development may
not always be positive. But there are
islands of certainty that stand as
beacons to guide our way through
the murky swells of the unknown.
In the cover story, Global
Power Shift, Dennis Chesley, Miles
Everson, and John Garvey outline
three inevitable aspects of the future
that few are prepared for: an increasingly multipolar global economy led
by the U.S. and China, the continued evolution of state-controlled
corporations, and dramatic reactions as companies face technological disruption (page 44). One such
disruption is cyber-attacks, which
are certain to increase in both frequency and ferocity. But David Burg
and Tom Archer describe a related
certainty: the effectiveness of cloud
computing in preventing intrusion
(page 36).
We can be sure that the convergence of robotics, sensors, data ana-
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leading ideas
6
76
12
16
19
16
22
essays
GLOBAL PERSPECTIVE
24
Social Entrepreneurship by
the Billions
Roger L. Martin, Sally R. Osberg, and Jennifer Riel
An audacious effort to provide digital ID numbers
throughout India illustrates the potential for
large-scale change.
INNOVATION
30
36
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features
44
GLOBAL PERSPECTIVE
INTERVIEW
96
Daniel Gross
52
TECHNOLOGY
64
BOOKS IN BRIEF
104
106
108
110
Dan Bricklin
Boardroom Brawlers
Jill Priluck
Elizabeth Rosenzweig
Joseph Kaeser
112
INNOVATION
76
Moores Lawman
Jeffrey E. Garten
Intels Andy Grove pioneered high-stakes, highspeed, high-tech manufacturing and made the
computer age possible.
OPERATIONS & MANUFACTURING
86
A Strategists Guide
to Industry 4.0
Reinhard Geissbauer, Jesper Veds, and
Stefan Schrauf
Global businesses are about to integrate their
operations into a seamless digital whole, and
thereby change the world.
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strategy+business (ISSN 1083-706X) is published quarterly by certain member firms of the PwC network. 2016 PwC. All rights reserved. PwC refers to the
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GAME PLAYER
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leading ideas
Leading
Ideas
Your Next
Board
Member
Should
Be a Geek
Why companies need
directors with
technological expertise.
by Chunka Mui, Toby Redshaw,
and Olof Pripp
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leading ideas
spots in areas of strategic importance; these include analytics, cybersecurity, and digital fabrication.
And even experts who keep up with
particular technologies may miss
the general effects of rapid technologically driven change on core
products, business models, and customer preferences.
Many board members are aware
of these deficiencies. They know that
their companies will either embrace
technological change and claim the
markets of the future or be put out
of business. In 2015, a PwC global
survey of large-company directors
found that 85 percent of the respondents were dissatisfied with the way
their companies were anticipating
the competitive advantages enabled
by technology. Almost as many, 79
percent, said their boards did not
sufficiently understand technology.
The pervasiveness of the problem is troubling for anyone who
cares about these companies but
it also represents an enormous opportunity. At the board level, there is
a need for knowledgeable, incisive
geeks: independent directors with
experience and perspective in putting technology to use. In the past,
many boards have compensated by
relying on management or external
consultants for strategic advice. But
the stakes are now too high to take
that approach.
Boards can no longer duck the
responsibility for the companys digital transformation. They must take
real ownership by ensuring that they
are equipped to fully understand this
part of the board agenda. Otherwise, how can they adequately oversee their companys strategy, investments, and expense base? How can
they guide profitability, manage risk,
assess management performance,
and ensure proper talent supply? Be-
4/18/16 3:31 PM
sb83_006-022_LeadingIdeas_fin.indd 8
Chunka Mui
chunka.mui@devilsadvocategroup.com
is a business advisor and coauthor of
The New Killer Apps: How Large Companies
Can Out-Innovate Start-Ups (with Paul B.
Carroll; Cornerloft Press, 2013).
Toby Redshaw
toby@kevingtonadvisors.com
is CEO of Kevington Advisors and former
global chief information officer of Aviva
PLC and American Express.
Olof Pripp
olof.pripp@kornferry.com
is vice chairman, board and CEO services
EMEA, at Korn Ferry.
strategy+business issue 83
leading ideas
8
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leading ideas
Bank has delivered impressive profits in Botswana, Namibia, and Swaziland, based largely on its innovations in such areas as mobile
applications and online banking.
Such features are popular in these
countries, where income is higher,
infrastructure is more robust, and
penetration of banking and mobile
phone services is greater than in
many other African countries.
Countries with high income and
weak institutions have pockets of
wealth, and therefore purchasing
power. But their lack of institutions
places greater demands on companies. They will need strong capabilities in managing relationships with
4/18/16 3:31 PM
Tunisia
Morocco
Algeria
Libya
Egypt
Western Sahara
(Morocco)
Mauritania
Mali
Senegal
Gambia
Guinea-Bissau
Guinea
Sierra Leone
Liberia
Ivory Coast
Sudan
Eritrea
Djibouti
Nigeria
Central
African
Republic
Gabon
Rwanda
Burundi
Angola
Zambia
Weak
institutions
High income
Botswana
South
Africa
Somalia
Uganda
Kenya
Tanzania
Malawi
Zimbabwe
Namibia
Middle income
Low income
Ethiopia
South
Sudan
Democratic
Republic of
the Congo
Congo
KEY
Strong
institutions
Chad
Burkina
Faso
Ghana
Togo
Benin
Cameroon
Equatorial
Guinea
10
Niger
Madagascar
Mozambique
Swaziland
Lesotho
Note: Map excludes the following island nations: Cape Verde, Comoros,
Mauritius, Sao Tome and Principe, and Seychelles.
Source: World Bank (2014 data on GDP per capita, at constant 2005 US$);
the World Bank's "Doing Business 2015" Index
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strategy+business issue 83
leading ideas
Africas Markets
4/14/16 11:40 AM
sb83_006-022_LeadingIdeas_fin.indd 11
leading ideas
11
Jorge Camarate
jorge.camarate@strategyand.za.pwc.com
leads the financial-services practice
for the African continent for Strategy&,
PwCs strategy consulting business.
He is a partner with PwC South Africa in
Johannesburg.
Peter Hoijtink
peter.a.hoijtink@strategyand.nl.pwc.com
focuses on transformational strategies
for Strategy&. He is a director with PwC
Netherlands and is currently based in
Amsterdam. He was previously based in
Nairobi and Johannesburg.
Miles Puttergill
miles.puttergill@strategyand.za.pwc.com
specializes in strategy, M&A, and emerging
markets for Strategy&. He is a senior
manager with PwC South Africa, and is
based in Johannesburg.
This article is adapted from the authors
Strategy& white paper, Creating Value
in Africa, Nov. 2015.
4/14/16 11:40 AM
Stanfords Adina
Sterling on the pros
and cons of relying on
relationships in the
hiring process.
by Laura W. Geller
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Adina Sterling
leading ideas
12
Social
Network
Effects
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leading ideas
13
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WhiteWalls
Magnetic Whiteboard
Steel Wall Panels
WhiteWalls.com
4/14/16 11:40 AM
sb83_006-022_LeadingIdeas_fin.indd 14
Laura W. Geller
geller_laura@strategy-business.com
is senior editor of strategy+business.
strategy+business issue 83
leading ideas
14
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EXECUTIVE
EDUCATION
excel
WhExecEd_Strat+Bus_Summer2016_AMP-EDP.indd 1
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4/15/16 10:34 AM
16
hat happens when governments lack the resources to respond immediately to a natural disaster?
When Japan was struck by a 9.0
magnitude earthquake and 100foot tsunami in 2011, it was the
worlds third-richest economy. But
at the time, the countrys public
debt stood at more than twice the
level of its GDP, and its real interest
rates were negative. Japans leaders
found themselves with little in their
economic arsenal to quickly draw
down for emergency assistance. In
the months after the disaster,
national production faltered, Japans supply of goods contracted by
an estimated 20 percent, and the
countrys stock market and credit
rating plummeted.
Weve seen similar scenarios in
Italy, after the LAquila earthquake
in 2009; in New Zealand, after the
Christchurch earthquake in 2011;
and in the U.S., after Superstorm
Sandy in 2012. All three were developed nations that, most experts assumed, could self-finance their recovery. Yet each suffered deeply
when disaster struck and outstripped
its state capacities.
In a recent study of these and
other low-probability, high-magnitude disasters calamitous black
swans during the previous two
decades, we found that business has
sb83_006-022_LeadingIdeas_fin.indd 16
strategy+business issue 83
leading ideas
Corporate First
Responders
4/14/16 11:40 AM
leading ideas
ter aid has gone to low-income countries, such as Haiti after its 2010
earthquake or Nepal after its 2015
earthquake. (We are categorizing
countries using World Bank definitions; low-income nations have a
GNI per capita of US$1,045 or less.)
Middle-income economies (those
with a GNI per capita of between
$1,046 and $12,736) such as Chile
and Mexico received just 8 percent
of multilateral public disaster relief,
and high-income economies (those
with a GNI per capita of $12,737 or
more) such as Japan and the United
States, less than 2 percent.
But the well-documented struggles of developed countries to finance fast and efficient recovery
efforts have made clear that economic development is a poor indicator of social need; it fails to cap-
17
4/18/16 3:31 PM
corporate disaster giving (for example, removing debris, delivering supplies, and rebuilding schools) affects
recovery. The ratio of in-kind to
monetary giving varies across industries and countries. But our analyses
revealed that when at least 30 percent of post-disaster business assistance to a country comes in the
The entire system is in trouble: The inflationadjusted annual cost of natural disasters
worldwide nearly quintupled between 1980 and
2012, from $54 billion to $250 billion.
four post-disaster weeks than they
do when corporate intervention is
less than 5 percent of total aid. In
other words, when corporate aid has
arrived with substantial magnitude,
the assistance has reached the
ground faster.
This is significant, because
most experts on disaster management agree that the time that elapses between the occurrence of a
shock and the provision of essential
goods (water, food, medicine, and
housing, as well as the rapid restoration of such staples of the economic infrastructure as communication and transportation) largely
determines the degree of disruption. And studies on disaster risk
management suggest that whether a
natural shock morphs into a fullfledged catastrophe or not depends
greatly on the promptness of the
response. For example, consider the
impact of Hurricane Katrina on
New Orleans in 2005: The consequences of the hurricanes physical
destruction were made far worse by
the governments inability to quickly deliver relief to victims.
Another sign of the business
communitys ability to meet local
needs is the extent to which in-kind
sb83_006-022_LeadingIdeas_fin.indd 18
Luis Ballesteros
luisf@wharton.upenn.edu
is a doctoral candidate in management
at the University of Pennsylvanias Wharton
School.
Michael Useem
useem@wharton.upenn.edu
is a professor of management and the
director of the Leadership Center at the
Wharton School.
strategy+business issue 83
leading ideas
18
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leading ideas
Small Customer
Today, Revenue
Giant Tomorrow
19
4/14/16 11:40 AM
TIER 1A
VALUE
TIER 1B
HOT
SPOT
NEED
Source: Strategy&
sb83_006-022_LeadingIdeas_fin.indd 20
TIER 1
CUSTOMERS
identify growth trends and key market indicators that would encourage
them to shift to your higher-growth
product offerings, or they are not influential enough to sign off on working with you.
In other words, the Tier 1b customer clearly needs your services or
your products, and the products
themselves are at a high value. But
because of various ingrained processes or mind-sets, key stakeholders
dont realize this value or arent empowered to act on it. You may have
to invest significant time up front in
changing that behavior, helping
them see things from your perspective, before you make your sales
pitch. But odds are, that investment
will pay off.
Targeting Your Top Tier
strategy+business issue 83
leading ideas
20
4/18/16 3:31 PM
th
e
G
o!
particularly important for the customers in Tier 1b, who need your
products but may not yet have realized it or may not have the ability to
act on that need. Account managers
leading ideas
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GLOBAL
TOTAL
Overregulation
Geopolitical uncertainty
0%
10%
20%
40%
50%
60%
70%
GLOBAL
TOTAL
Technology
Speed of technological
change
Technology
Banking & Capital Markets
Insurance
Entertainment & Media
Namit Kapoor
namit.kapoor@pwc.com
is a leading practitioner in sales and
marketing strategies for Strategy&, PwCs
strategy consulting business. He is a
principal with PwC US, based in Chicago.
Insurance
Energy
Engineering & Construction
Cyber-threats
High or volatile
commodity prices
Lavanya Manohar
lavanya.manohar@pwc.com
is an advisor to executives in sales and
marketing strategies for Strategy&. She is
a manager with PwC US, based in Chicago.
Consumer Goods
Chemicals
Energy
Metals
Consumer Goods
Retail
Entertainment & Media
Consumer Goods
Transportation & Logistics
Energy
Chemicals
Metals
High or volatile
energy costs
0%
10%
20%
30%
40%
50%
sb83_006-022_LeadingIdeas_fin.indd 22
60%
70%
strategy+business issue 83
leading ideas
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4/15/16 10:34 AM
24
Social Entrepreneurship
by the Billions
An audacious effort to provide digital ID numbers
throughout India illustrates the potential for largescale change.
by Roger L. Martin, Sally R. Osberg,
and Jennifer Riel
sb83_024-028_ESY_SocialEntrprnshp_fin.indd 24
GLOBAL PERSPECTIVE
4/14/16 1:09 PM
A Unique Identity
sb83_024-028_ESY_SocialEntrprnshp_fin.indd 25
25
4/14/16 1:09 PM
26
The paradox of social transformation is that one has to truly understand the system as it is before any
serious attempt can be made to
change it. Yet those who understand
the status quo best are often those
most deeply invested in it, whereas
those who see the imperative for
change most clearly tend to sit outside the system. Effective social
entrepreneurs acknowledge this dynamic and find a way to navigate it.
The process of equilibrium
change therefore begins with a commitment to understanding a particular status quo, how it came to be,
and the forces that hold it in place.
The process entails the successful
negotiation of three characteristic
tensions: abhorrence of the status
quo versus an essential appreciation of why it persists; application of
expertise from another context versus willingness to apprentice in the
specifics of the context in question;
and an openness to experiment with
possibilities versus knowing when to
commit to and drive forward a specific solution.
Nilekani knew what the problem was he had written about the
lack of ID as a fundamental challenge to an equitable and prosperous
India. He also knew why the problem existed the substantial structural, political, and economic barriers to logging each persons identity.
And he understood that traditional
sb83_024-028_ESY_SocialEntrprnshp_fin.indd 26
methods of documenting identity, including home-to-home census taking, were far too expensive,
too time-consuming, and too susceptible to fraud to be of use in
his context.
As a brand-new government
appointee, Nilekani was a novice
bureaucrat. He refused to give in
to the inertia that can characterize
government agencies. But as an experienced engineer and technology
CEO, he also recognized that he had
much to learn about the key players
in the system, and the specifics of
identity. He balanced a willingness
to learn in areas outside his domain
with a commitment to applying his
expertise to a new field.
2. Envisioning a new future. To
make a positive difference, every
change agent needs to set a direction. Successful social entrepreneurs
place the bar high and envision fundamental equilibrium change. This
strategy+business issue 83
4/14/16 1:09 PM
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27
executive.mit.edu/sb
4/19/16 3:43 PM
sb83_024-028_ESY_SocialEntrprnshp_fin.indd 28
Roger L. Martin
martin@rotman.utoronto.ca
is a writer, a strategy advisor, and former
dean and current institute director of the
Martin Prosperity Institute at the Rotman
School of Management at the University
of Toronto.
Sally R. Osberg
sosberg@skoll.org
is CEO of the Skoll Foundation, a philanthropic organization that invests in social
entrepreneurship worldwide.
Jennifer Riel
jennifer.riel@rotman.utoronto.ca
is managing director of strategy and
innovation at the Martin Prosperity
Institute at the Rotman School.
Reprinted by permission of Harvard
Business Review Press. Adapted from
Getting Beyond Better: How Social
Entrepreneurship Works. Copyright 2015
Roger L. Martin and Sally R. Osberg.
All rights reserved.
strategy+business issue 83
4/14/16 1:09 PM
BREAKING
CONVENTION
SPARKING
INVENTION
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executive.mit.edu/sb
4/15/16 10:34 AM
30
sb83_030-035_ESY_WillYouBeMineDigital-fin.indd 30
essay innovation
INNOVATION
4/14/16 1:13 PM
sb83_030-035_ESY_WillYouBeMineDigital-fin.indd 31
essay innovation
about a third involved a non-technology, non-telecom buyer, according to Strategy&s analysis. (The total deal count excludes investments
in digital properties made strictly for
the purposes of getting a financial
return, including investments made
by venture capital and private equity
firms.) These deals fit into three basic categories.
31
Automotive
% digital
deals
2015
10.0
Natural Resources
8.9
11%
7.8
Hospitality
16%
21%
7.1
9%
Consumer Products
6.4
12%
6.4
24%
Financial Services
6.2
Chemicals
13%
6.0
Entertainment
10%
5.7
21%
Healthcare
5.2
12%
5.1
7%
Basic Manufacturing
4.8
Pharmaceuticals
11%
3.5
7%
3.4
8%
Construction
3.3
8%
Utilities
Machinery and Equipment
Aerospace and Defense
4
7%
2.3
15%
1.3
25%
2.1
2
10
Note: Data excludes investments by venture capital and private equity firms.
Source: Dealogic data for January 2011December 2015, Strategy& analysis
4/14/16 1:13 PM
sb83_030-035_ESY_WillYouBeMineDigital-fin.indd 32
strategy+business issue 83
essay innovation
32
technology that would help it identify the best patients for clinical trials of cancer drugs. BBVA was certainly thinking about its value chain
in 2015 when the bank bought
Madiva for its speedy mortgageapproval software. Targets 2014
purchase of Powered Analytics was
driven by a desire to give customers
interactive recommendations and
guidance when they were shopping
in Targets retail stores. And a steady
stream of acquisitions in the Internet of Things arena, particularly of
sensor and cloud technologies, is
offering traditional manufacturers
a way to track their products in the
aftermarket and play a bigger role in
service and support.
To some extent, the deals in
the value chain category are related
to IT investments that traditional
companies have been making for
years, including investments in
products like SAP. This makes deals
in this category less experimental, in
a sense, and increases the likelihood
of a fast payback.
4/14/16 1:13 PM
2016 PwC. All rights reserved. PwC refers to the US member firm or one of its
subsidiaries or affiliates, and may sometimes refer to the PwC network. Each member
firm is a separate legal entity. Please see www.pwc.com/structure for further details.
sb83_ad_layout_fin.indd 33
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discontinuing a free food or beverage benefit may have a subtly crushing effect on morale. Yet an acquirer
also needs to be sensitive to the impact on the broader organization if it
allows an acquired unit to continue
to operate by its own, more flexible
or more generous rules.
In short, integrating even a
small digital property requires a
considerable amount of thoughtfulness on the part of a traditional
company. And it isnt only the
managers or executives doing the
deal who must be committed to
strategy+business issue 83
essay innovation
34
And in some situations, strategic value leads to prices that simply dont make sense for traditional
companies. For instance, suppose a
commercial security company sets
its sights on a startup specializing
in optical recognition, perhaps in
hopes of using the startups technology to create a product that would
control access to buildings. At $10
million or $20 million, that might
be capital well spent. But if Facebook sees the technology as something it could run across all the
photos its 1.5 billion users upload
and decides to enter the bidding, the
contest is likely to become one the
traditional company should quit. As
the CFO of a Fortune 500 company
once said to us, you have to know
your walk-away price.
We think traditional companies
largely understand this dilemma.
And it helps explain why at this relatively early stage of their digital deal
making, they tend to emphasize
small deals over large ones. They
understand the need to take a little
leap of faith, but dont want to be
foolish about it.
Talent retention. How can we
make sure the team stays? When
AstraZeneca bought Definiens, it
gained access to Gerd Binnig, a
physics Nobel laureate who had
founded the company. Walmart, in
buying Adchemy, acquired the services of a former engineering lead at
WebEx and a former head of search
innovation at Yahoo.
In digital-on-digital acquisitions, these exceptionally talented
scientists and technologists sometimes do stay. Nathan Myhrvold
came to Microsoft after the company bought his startup for $1.5
million and played a prominent
role at the software company during its dominant run in the 1980s
4/18/16 4:01 PM
Motivated Sellers
sb83_030-035_ESY_WillYouBeMineDigital-fin.indd 35
essay innovation
Joerg Krings
joerg.krings@strategyand.de.pwc.com
is an advisor to executives in the automotive and industrials sectors for Strategy&,
PwCs strategy consulting group. He is a
partner with PwC Germany based in
Munich. His focus is organic and M&A
growth strategies.
J. Neely
j.neely@strategyand.pwc.com
is a thought leader in M&A transformation
with Strategy&. He is a principal with PwC
US based in Cleveland. His specialty is
mergers and restructurings in consumer
products and industrial sectors.
Olaf Acker
olaf.acker@strategyand.de.pwc.com
is a leading practitioner in digital services
and technology strategy for Strategy&.
He is a partner with PwC Germany based
in Frankfurt. His focus is technology and
digital transformation.
utppublishing.com
4/14/16 1:13 PM
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essay technology
TECHNOLOGY
4/14/16 1:24 PM
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essay technology
37
4/14/16 1:24 PM
essay technology
38
Romans
Aqueducts
Strategy that works
builds empires.
2016 PwC. PwC refers to the PwC network and/or one or more of its member
rms, each of which is a separate legal entity. See www.pwc.com/structure.
sb83_036-043_ESY_SafetyInCloud_fin.indd 38
4/14/16 1:24 PM
The Model T
essay technology
39
2016 PwC. PwC refers to the PwC network and/or one or more of its member
rms, each of which is a separate legal entity. See www.pwc.com/structure.
sb83_036-043_ESY_SafetyInCloud_fin.indd 39
4/14/16 1:24 PM
essay technology
40
The best way to begin is by analyzing how your organization operates, both internally and externally.
Identify how the key people you
need to protect, including the customers and employees whose sensitive information you handle, work
and communicate. Where are they
usually located? Where are they
traveling to? Youll want to secure
those locations. Whos coming to
work, and in which offices? Look at
the devices they use to connect with
you, the systems in your own back
office, and the communication patterns of everyone involved.
One primary goal of this analysis is to set up early indicators of
intrusion. Hackers can often be
recognized through their entry credentials, machine identification,
geolocation, and (increasingly) bio-
Better Health
those logistics? What kinds of efficiencies will arise as you look for
ways to streamline your contacts
with outsiders?
You can also integrate cybersecurity with insights into customer
behavior and preferences. The task
of monitoring intruders efforts to
break into your online systems is
very similar to the task of authenticating legitimate entrants as they
log in and move around your websites. A single cloud-based analytics
system can monitor the activity of
customers, employees, and intruders simultaneously. The resulting
insights can enable your company
to paint a picture of all the activities
going on in your systems, good and
bad. This picture will become ever
more detailed as the system gathers
more data by tracking online behav-
Big Data
Strategy that works
improves lives.
2016 PwC. PwC refers to the PwC network and/or one or more of its member
rms, each of which is a separate legal entity. See www.pwc.com/structure.
sb83_036-043_ESY_SafetyInCloud_fin.indd 40
4/14/16 1:24 PM
they pose. With a cloud-based system, this can be done without compromising anyones secure data, and
it can be set up in a way that benefits
the entire knowledge base shared by
cloud participants.
One industry that relies on integration is healthcare, wherein concerns about cybersecurity and legal
Strategy& creates
strategy that works.
essay technology
41
2016 PwC. PwC refers to the PwC network and/or one or more of its member
rms, each of which is a separate legal entity. See www.pwc.com/structure.
sb83_036-043_ESY_SafetyInCloud_fin.indd 41
4/14/16 1:24 PM
sb83_036-043_ESY_SafetyInCloud_fin.indd 42
strategy+business issue 83
essay technology
42
4/14/16 1:24 PM
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essay technology
43
David Burg
david.b.burg@us.pwc.com
is a principal with PwC US. Based in
McLean, Va., he leads PwCs global and
U.S. cybersecurity practice. He helps corporate clients, law firms, and the U.S. government in matters involving cybercrime
investigations, complex data analysis, and
operational initiatives.
Tom Archer
thomas.archer@us.pwc.com
is a partner with PwC US and serves on
the board of partners for the global PwC
network. Based in Silicon Valley, he is
PwCs leader for its global alliance with
Google. He was previously the U.S. leader
of the PwC technology industry practice,
and has advised multinational technology
companies for more than 25 years.
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44
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PowerShift
Global
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In short, a new global economic order is now emerging to replace the one that has existed since the end of
World War II. For the foreseeable future, the global
economy will be defined by a complex and continuously shifting set of economic relationships. They will be
increasingly interconnected, to be sure, but with everchanging rules for conducting business across borders.
As a business leader, how can you manage this complexity? How can you cross the threshold to the next
economic order with confidence and skill? The most effective way is to pay attention to three basic trends: the
dispersion of economic power, the continuing evolution
of state-directed growth models, and the accelerating
disruption felt by business from technological change.
These trends may seem self-evident. But none of them
is quite what it seems to be at first glance. Further, they
will continue to evolve along uncertain paths. None is
likely to progress simply as a continuation of what we
have seen in the past few years. By looking at these
trends closely, you can help your organization take the
substantive steps needed to thrive in the new global
economic order.
45
4/14/16 1:51 PM
Miles Everson
miles.everson@pwc.com
is PwCs U.S. advisory
business leader, overseeing
the U.S. firms capabilities
in consulting, deals, and
forensics. Based in New York,
he is a principal with PwC
US and the advisory leader
for PwCs Asia, Pacific, and
Americas cluster.
A fundamental change is taking place. The U.S. dollar is losing its exclusive position as the worlds reserve
currency. For the next few decades, no single country
will be able to dominate the balance of payments as the
United States has done for more than 70 years.
The last time something like this happened was at
the end of World War II, and it was catalyzed by the
1944 Bretton Woods Conference. At that session and in
its aftermath, the United States brokered international
agreements to keep financial affairs running smoothly.
It has embraced a global leadership role ever since. The
multilateral institutions that emerged then, such as the
World Bank, the World Trade Organization, and the
International Monetary Fund (IMF), were subject to
strong U.S. influence, and they worked fairly well for
a long time. That isnt to say the sailing was always
smooth. When the U.S. unilaterally abandoned the gold
peg in 1971, for example, the Nixon Shock set off two
years of negotiations before major economies agreed to
float their currencies against the dollar. But throughout
the postwar period, the U.S. generally sat at the head of
the table with other large economies in making key decisions, with the intent of mutual gain among friendly,
mostly democratic, liberalized economies.
During the 70 years after Bretton Woods, the economic prominence of the United States was based on four
strong pillars. The first two were its burgeoning postwar
economy and the trade networks that the U.S. established
and dominated. These were also the engines of global
growth. The other two pillars were the dollars status as
a global reserve currency and U.S. influence over multilateral institutions. These provided stability to the global
economy and a platform for international cooperation.
sb83_044-051_FEA_GlobalPowerShift-fin.indd 46
John Garvey
john.garvey@pwc.com
is the U.S. banking and capital
markets leader for PwC, and
the financial-services advisory leader for PwCs Europe,
Middle East, and Africa cluster.
He is a principal with PwC US,
based in New York.
strategy+business issue 83
Dennis Chesley
dennis.l.chesley@pwc.com
is the global risk leader
for PwC. Based in Washington,
DC, he is a principal with
PwC US.
4/14/16 1:51 PM
sb83_044-051_FEA_GlobalPowerShift-fin.indd 47
dent Xi Jinping, as quoted by the state-sponsored Xinhua News Agency in February 2015, said that the AIIB
will finance Chinas ambitious One Belt, One Road
initiative to build overland and maritime infrastructure
linking East Asia, the Middle East, Africa, and Europe.
The resulting New Silk Road, as it has been dubbed,
will help develop emerging economies, increase trade between China and the rest of the world, and make use
of excess capacity in the Chinese domestic economy. It
will also support Chinas political and economic interests
around the world.
To be sure, these efforts may be tempered by the
recent decrease in the rate of Chinese economic growth.
The U.S. economy remains strong, and the legacy of
its postwar economic dominance continues to influence
the behavior of many globally focused multinational
companies and investors. Investors are also waiting
for Chinas capital account to open further before they
adopt the RMB. And capital market investors are cautious about China because they dont yet see its business
environment as friendly enough to their interests.
Nonetheless, the creation of a new global economic
order is inevitable. Although China will not replace
the United States, the U.S. will find it increasingly difficult to regain its position of global economic dominance. Dont forget that other economies are building
their power and influence, too. India, the worlds thirdlargest economy by purchasing power, is forecast by the
IMF to grow fastest among G20 economies in 2016.
It will emerge as an influential economic actor with its
own interests.
In this world of dispersed economic power, stability
will be more prized than ever. But the nature of that stability will not be dictated by one or two major players.
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Accordingly, governments will have to calibrate their actions, much as they have with foreign exchange markets
in the past, to balance the intended objectives of intervention with the potential impact on economic growth.
The second technology-related development is the
shifting geopolitics of energy. The power of oil-producing nations has been evident at least as far back as the
oil crisis of 1973. Now, technologies designed to recover
unconventional sources of oil and gas have overturned
the balance of supply and demand. The U.S. Energy Information Administration estimates that the U.S. could
become a net exporter of energy as early as 2019, on the
strength of the fracking revolution. Even if oil prices rebound somewhat, the increasing use of renewables will
reduce the geopolitical importance of oil producers.
It should come as no surprise that the two largest
oil-consuming nations, the U.S. and China, are also the
biggest investors in renewable energy. Another sign of
the shift in fortunes is the Breakthrough Energy Coalition announced by Microsoft cofounder Bill Gates and
Facebook CEO Mark Zuckerberg in November 2015.
This multibillion-dollar research partnership between
the public and private sectors is not just a war on climate change. It is an effort by information technology
industry leaders, including Gates; Zuckerberg; Amazon
CEO Jeff Bezos; Salesforce.com founder Marc Benioff;
Hewlett-Packard CEO Meg Whitman; and venture
capitalists John Doerr, Vinod Khosla, and Reid Hoffman to carve a position of influence over the energy
supply for the technology industry.
The third important technology-related trend is the
geographic distribution of technological developments,
which are no longer limited to developed economies.
Technology innovators are more distributed around
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than tax and regulatory compliance. And those alignments will change over time, requiring companies to develop a more adaptive approach to cross-border business.
49
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failure. This no longer applies solely to regulated industries such as banks and utilities, but to all organizations.
Geopolitical risk management, government stakeholder
management, and the ability to master publicprivate
partnerships will become requirements for companies
that want to prosper on a global basis.
4. Manage effectively in a multipolar world. Start by
assessing how your business or policy objectives are affected by the economic and political power shift to a
multipolar world, particularly in Asia, where China will
increasingly compete for dominance and India is rapidly evolving. You will also need to prepare your organizations logistics capabilities, so that you can move supplies, goods, services, capital, and talent across spheres
of influence.
5. Cultivate talent wherever you do business. The
local knowledge and language skills of the workforce,
particularly the management team, must reflect your
business footprint and opportunities around the globe.
Although global rotations will still be valuable, differences between markets under various spheres of influence will require more local or regional talent development. In addition, governance models will need to
adapt, carefully balancing local decision making with
regional and global considerations and requirements.
6. Nurture innovation everywhere. Competitive dynamics in this rapidly evolving world could easily be
disrupted by upstart companies whose leaders anticipate trends and get ahead of them. To fight back, incumbents will need to establish an innovation culture
that spans the globe. The savviest companies will establish innovation centers with a relatively open-ended
brief, to keep the company thinking ahead, regularly
looking five years into the future. These efforts will extend beyond simple technological disruptors. Work together with other enterprises to develop complex new
industrial ecosystems.
As you put all these practices into place, maintain
an intense focus on your own distinctive goals in
part to balance the pressures of near-term volatility. Be
mindful that it takes time to build institutions and
even longer to build trust in them. Yet those institu-
Resources
Barry Jaruzelski, Kevin Schwartz, and Volker Staack, Global Innovation
1000: Innovations New World Order, s+b, Oct. 27, 2015: Asia is now
the top regional destination for R&D spending, a dramatic example of
the issues described here.
51
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52
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4/14/16 2:12 PM
From
theOut
sideIn
by DeAnne Aguirre, Per-Ola Karlsson, and Gary L. Neilson
53
In September 2015, Ralph Lauren, founder and chief executive officer of the
fashion empire that bears his name, made news by announcing he would step
down from his post as CEO. His decision to hand off the reins of his company
wasnt surprising Lauren was about to turn 76, and the companys financial
performance had been slipping. Rather, the announcement was noteworthy
because Lauren is known for favoring continuity in his clothing design and in
management. During his nearly 50 years at the company, he had made it a
practice to promote from within. And yet Laurens handpicked successor would
be a newcomer to the firm, Swedish retail executive Stefan Larsson. Larsson
had not lived and breathed Polo. And his prior experience was at discountoriented retailing brands. But he was nonetheless a rising star in the business
of fashion. Larssons accomplishments include driving successful international
expansion over a 15-year career at H&M, and engineering an impressive
turnaround of Gaps Old Navy division, of which he was named president in 2012.
sb83_052-063_FEA_OutsideIn-fin.indd 53
4/14/16 2:12 PM
DeAnne Aguirre
deanne.aguirre@pwc.com
is an advisor to executives
on organization topics for
Strategy&, PWCs strategy
consulting business. She
is a San Franciscobased
principal with PwC US.
Per-Ola Karlsson
per-ola.karlsson@
strategyand.ae.pwc.com
leads Strategy&s organization
and leadership practice in the
Middle East. He is a partner
with PwC Middle East.
Gary L. Neilson
gary.neilson@pwc.com
is a thought leader on
organization design and leadership for Strategy&. Based
in Chicago, he is a principal
with PwC US.
1,200
300
748
800
600
400
560
949
78%
83%
200
150
86%
50
14%
200407
17%
213
42%
57%
200811
43%
58%
74%
22%
201215
sb83_052-063_FEA_OutsideIn-fin.indd 54
183
281
26%
100
200
0
250
FORCED turnover
PLANNED turnover
200407
200811
201215
strategy+business issue 83
1,000
4/14/16 2:12 PM
CEO Turnover
in 2015
and practice.
in another region.
CEO in 2015.
The telecommunication services
20%
and 2013.
Planned turnovers in 2015 were
78 percent of the total not related
sb83_052-063_FEA_OutsideIn-fin.indd 55
16%
M&A
12%
55
Forced
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8%
Planned
4%
0%
2000
2005
2000
2015
4/14/16 2:12 PM
sb83_052-063_FEA_OutsideIn-fin.indd 56
boards and senior leaders can bring them into the fold
to give them the best chance of succeeding.
The Outsider Trend
strategy+business issue 83
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enterprises continue to be
statistically significant.
analysis.
sb83_052-063_FEA_OutsideIn-fin.indd 57
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6%
4%
57
2%
0%
2005
2010
2015
4/14/16 2:12 PM
sb83_052-063_FEA_OutsideIn-fin.indd 58
strategy+business issue 83
corporate governance. In 2015, according to the Spencer Stuart Board Index, 84 percent of all board directors
of S&P 500 companies were independent, and 29 percent of boards had a truly independent chair, up from
9 percent in 2005. The idea of separating the board of
directors from company management has taken hold
around the world, and the days of the 20th-century
imperial CEO presiding over a board made up of insider directors are fading. The share of incoming CEOs
also named board chair has fallen precipitously over the
last 12 years, and hit a record low of 7 percent in 2015.
This sea change in board independence has
brought greater diversity to the way boards evaluate
CEO candidates. Company insiders are often unable to
imagine that anyone from outside the company could
understand or manage the business better than insider
managers, particularly when the board chair was once
the CEO. Outside directors, by contrast, look at the
universe of potential future CEOs through a wider aperture. (There is one area in which diversity seems to be
in retreat, however: gender. See 2015: Not the Year of
the Woman CEO, page 57.)
Another reason boards have become more independent and, we would argue, more professional is
shareholders demand that they do so. Institutional
shareholders have become more willing to use their
power and their voices to push for changes in governance, strategy, and leadership. Since the 1990s, large
public employee pension funds have become more active, and more recently, hedge funds have become a
force for shareholder activism. In 2015, according to
Activist Insight, 551 companies around the world were
subjected to public demands by activists, up 16 percent
from 2014. Almost half the companies at which an
activist investor gains a board seat replace their CEO
within 18 months, according to SharkWatch, the corporate activism database of FactSet Research Systems.
Our data shows that the background of the incumbent CEO also affects the likelihood of choosing
an outsider. We found that the longer the tenure of an
outgoing CEO was, the less likely it was that the successor would be an outsider. When the outgoing CEO
4/14/16 2:12 PM
2000
2005
sb83_052-063_FEA_OutsideIn-fin.indd 59
2010
2015
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Geographic Range
59
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60
55%
LOW-performing companies
HIGH-performing companies
47%
40%
40%
30%
34%
26%
20%
10%
0%
Western Europe
BRIC/Other
Emerging
U.S./Canada
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strategy+business issue 83
4/14/16 2:12 PM
92%
Telecom Services
77%
Healthcare
75%
Energy
70%
Consumer Staples
64%
Information
Technology
58%
Materials
56%
Industrials
44%
Consumer
Discretionary
Utilities
41%
28%
sb83_052-063_FEA_OutsideIn-fin.indd 61
have expertise in the areas where the company faces future challenges. In some cases, the board may be specifically looking for a background in the companys industry. Among financial-services companies, for example,
risk management and regulatory requirements are highly specific to the industry and require deep knowledge
of products and business practices. For that reason, 92
percent of the industrys incoming outsider CEOs from
2012 to 2015 came from other financial-services companies. But in other industries where technological
discontinuity or industry convergence is an issue experience in a different industry may be more important. In the utilities industry, where unbundling and
regulatory liberalization are changing the competitive
context, 72 percent of incoming outsiders from 2012 to
2015 came from other industries (see Exhibit 4 ).
In addition, many boards will want a candidate
with prior experience as a CEO, and will have a strong
view of the kind of management style they deem necessary for the company and its future success. Boards
may also want to test potential future CEOs by recruiting them first to senior positions on the leadership team
(such as chief operating officer or chief financial officer)
or as members of the board of directors. This affords an
opportunity for the potential candidate to get exposure
to the company and its culture, and for the board to get
to know the candidate.
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Utility companies were the most likely to hire outsider CEOs who came
from a different industry.
61
The boards work is not over once it has made a selection. It must also carefully consider the way the outsider
CEO is introduced to the public, to the management
team, and to the rank and file. When an outsider is
brought in to deal with discontinuous change, the new
4/14/16 2:12 PM
Methodology
62
2015, and cross-checked data using a the succession. Outside press reports
wide variety of printed and electronic and other independent sources were
executives departure.
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4/18/16 4:09 PM
4. Continually engage the board as a strategic partner. Given the pressure being placed on todays boards,
and the level of accountability expected from them,
board members need to take part in the strategic conversation as it develops. The CEOs responsibility is to
lead the board to be bolder than it otherwise might be
in challenging the companys leadership and direction.
Boards today also provide complementary skills by design, with specific members offering guidance in their
areas of expertise, such as finance, compensation, operations, or markets. The CEOs relationship with the
board can leverage that expertise.
CEO transitions remain a difficult and perilous
task. But our years of conducting this study have made
us optimistic. We have seen that corporate governance
sb83_052-063_FEA_OutsideIn-fin.indd 63
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Resources
Strategy&s 2015 CEO Success study, strategyand.pwc.com/
chiefexecutivestudy: The full report and data analysis of this years study.
63
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Illustration by eBoy
by Elizabeth Rosenzweig
Several years ago, a brilliant engineer devised a new software tool for
augmenting decision making. He was justifiably proud of it and immediately released it for use among a small group of colleagues in his company.
He assumed that they would take it up, use it to transform their work, and
develop innovative breakthroughs accordingly.
The program might have achieved all this, but it was too hard to figure
out. Even its inventor struggled at times to remember how to make it work.
Nonetheless, he did not empathize with his users. He blamed them. He actually told me he thought they werent smart enough to use it. He didnt say
this to be harsh; it was simply an observation, grounded in a common cognitive error. Most of us expect everyone to think and feel the same way we do.
But peoples reactions vary, especially in response to subtle cues like those in
user interfaces.
One day, after much prodding, I got the engineer to visit my usability
lab at Bentley University. For the first time, he stood behind a one-way window and watched people trying out his software. They had been told that
their work would help improve the product for other users, so they were
willing to invest their time. The engineer was sure, before coming in, that
some people the smarter ones would jump right in and succeed with
it. And he didnt care about the rest.
sb83_064-075_FEA_NinthCircle-fin.indd 65
feature technology
Beyond
the Ninth
Circle
of Help
65
4/14/16 2:58 PM
Elizabeth Rosenzweig
erosenzweig@bentley.edu
is a principal consultant at
the User Experience Center
at Bentley University in
Waltham, Mass. She holds
four patents in intelligent user
interface design and is the
founder and director of World
Usability Day. She is the author
of Successful User Experience:
Strategies and Roadmaps
(Morgan Kaufmann, 2015).
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4/14/16 2:58 PM
and again?
forums?
plications?
idiosyncrasies?
previous screens?
to the next?
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will do?
Answer yes or no to each question.
67
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by Dan Bricklin
feature technology
elsewhere.
working at desks.
68
need to adapt.
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strategy+business issue 83
Radical
Intimacy and the
Smartphone
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and retrieve.
user experience.
few or many; and what the land is like, bilities of the smartphone to capture
.com/tabletforms.htm.)
use safely.
69
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features title
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technology
of the article
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actually profound.
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Dan Bricklin
danbricklin@bricklin.com
is the chief technology officer of
Alpha Software Corporation and president
of Software Garden. He is the co-creator
of VisiCalc, the pioneering electronic
spreadsheet released in 1979. His other
innovations include the prototyping
tool Dan Bricklins Demo Program (1985),
the website creation tool Trellix (late
1990s), and the handwriting capture
app Note Taker HD for the iPad (2010).
strategy+business issue 83
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1
Why Good UX Works
These examples, drawn
from historical research and
from our work at the Bentley
University User Experience
Center, show how user experience overcomes complexity.
They are from customerfacing systems, but the
principles apply to internal
systems as well. Indeed,
bringing employee systems
up to par with the systems
facing consumers should be
seen as a priority for engaging
and retaining talent.
2
TurboVote Home Page
This voter registration and
reminder site created by
Democracy Works was
instigated by a graduate
student in public policy who
kept missing elections. It puts
the most-needed essentials
at the center, including a
call to action (What are you
waiting for? and a prominent
Get started button).
Lower-priority options and
information are placed around
the periphery.
feature technology
2
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6
Medicare Nursing Home
Search Page
The images of happy people
benefiting from the services
described here provide an
emotional boost, and direct the
visitors gaze left to the most
critical element for a nursing
home search: location.
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Resources
Frank Burkitt, A Strategists Guide to the Internet of Things, s+b, Nov.
10, 2014: The digital interconnection of billions of devices is todays most
dynamic business opportunity.
75
Don Norman, The Psychology of Everyday Things (Basic Books, 1988; later
republished as The Design of Everyday Things): How pleasure and usability
go hand in hand.
Elizabeth Rosenzweig, Successful User Experience: Strategies and Roadmaps
(Morgan Kaufmann, 2015): A hands-on guide for pulling together a UX
strategy, informed by an ethic of simplicity and clarity.
Christopher A.H. Vollmer, Matt Egol, and Naseem Sayani, Reimagine
Your Enterprise, s+b, Apr. 14, 2014: How to make human-centered
design the heart of your companys digital agenda.
Nielsen Norman Group website, www.nngroup.com: Source of articles
on usability by two leaders in the field, Jakob Nielsen and Don Norman,
and their colleagues.
PwC Digital IQ study, 2015, pwc.to/YourDIQ: Developing your UX
(and other digital) capabilities.
World Usability Day website, www.worldusability.org: Point of contact
for design efforts aiming at simplicity and accessibility (Nov. 10 in 2016).
More thought leadership on this topic:
strategy-business.com/technology
4/14/16 2:58 PM
feature innovation
strategy+business issue 83
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feature innovation
Moores
Lawman
by Jeffrey E. Garten
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the semiconductors, the transistors, the integrated circuits, the microprocessors that drove the consumer
electronics revolution. And he gave us a vivid picture
of how to survive and thrive in business when the only
constant is mind-bending change.
Grove became famous for urging his staff to maintain an attitude of acute paranoia toward Intels rivals.
He traced his natural anxiety to his experience as a
child. For he was born Andrs Grf on September 2,
1936, in Budapest, an inauspicious time to be a Jew
in Hungary. In 1942, Andrss father, George Grf,
a partner in a small dairy business, was conscripted
by the fascist Hungarian government, which sent
him to the Russian front. For years, Andrass mother
Maria shuttled her son between their apartment and a
friends house in the countryside, trying to avoid the
war between the Germans and the Russians, not to
mention the German search to round up Jews for eventual extermination.
At the age of 4, Andrs had contracted scarlet fever, which permanently damaged his hearing. To compensate, he learned to lip-read and would always sit in
the front of the class. Over the next 20 years, he would
undergo five reconstructive ear operations. In the postwar years, Grf developed into a good student, and was
interested in pursuing journalism. But after 1952, when
the Soviets began clamping down on free expression,
Andrs turned his interest to chemistry, a profession less
susceptible than journalism to capricious interference
from Communist mandarins.
In 1956, after Soviet tanks rolled into Budapest to
crush an incipient revolution, Andrss aunt, an Auschwitz survivor, urged her nephew to escape immediately. George gave him the name of a cousin in the United
strategy+business issue 83
Jeffrey E. Garten
teaches courses on the
global economy at the Yale
School of Management,
where he was formerly the
dean. He has held senior
positions in the Nixon, Ford,
Carter, and Clinton administrations, and was a managing
director at the Blackstone
Group. His website is
www.jeffreygarten.com.
4/14/16 2:57 PM
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able devices in large quantities. Worse, Shockleys autocratic and narcissistic temperament led him to ignore or
reject any proposal that was not his own.
Noyce and Moore started looking to break away
and start another company. Sherman Fairchild, an eccentric, wealthy playboy and entrepreneur who had
founded the Fairchild Camera and Instrument Corporation, agreed to bankroll the defectors. They set up
Fairchild Semiconductor about two blocks from Shockleys operation. The defectors from Shockley came to be
known in Silicon Valley as the Traitorous Eight.
It was an ideal time to start a new technology
business. In 1957, the space race between the United
States and the Soviet Union had elevated the microelectronics business to national prominence. Fairchild
began to achieve pioneering breakthroughs, including
the discovery of a process that could produce complex
microelectronic devices far more cheaply, and radical
advances in the operation of transistors. Working separately and unbeknownst to one another, Jack Kilby of
Texas Instruments and Robert Noyce both invented
what became known as the integrated circuit, a silicon
chip that replaced first hundreds and then millions
of transistors.
As Fairchild became the largest semiconductor
company in the world, with 11,000 employees and sales
of more than US$150 million per year, the organizational culture began to change, much to the dismay of
Noyce and Moore. Fairchilds corporate headquarters
in New York imposed an East Coasttype bureaucracy
on the company. Noyce was being forced to assume a
senior management role that he did not want or enjoy.
In addition, Fairchild had not solved the quality problems that were endemic at Shockley. Years later, Grove
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margin and high volume, as Fairchild did, Intel wanted to get so far ahead of the competition that it could
sell its products in high volumes for high margins. Although the market was driven by Americas powerful
defense establishment, Noyce and Moore also saw the
rapidly growing opportunities in consumer markets.
At the time, the number of transistors that worked
relative to the number produced was often well under
20 percent an obscenely low proportion. Even making a small batch was highly complicated, a task that
has been aptly compared to doing surgery on the head
of a pin, in circumstances where the slightest impurity in the air or on the material would kill the patient.
Workers could not eat, smoke, or even wear cosmetics on the job. Noyce and Moore had to find a tough
manager who could run this operation while overseeing an organization that would have to be preeminent
in research and development, marketing, and after-sales
service all the while being ruthlessly competitive.
They chose Grove, with whom they had worked closely
at Fairchild.
A Surprise Choice
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would recall, The research lab and the manufacturing location were seven miles apart. Those seven miles,
from the standpoint of collaboration, could have been
7,000 miles.
The critical importance of these organizational
flaws began to come into focus after April 1965, when
Gordon Moore presented a paper in Electronics magazine that described what others would later call Moores
Law. Its essence was that the number of transistors that
could be placed on an integrated circuit could double
at regular intervals every 18 months to two years.
Moores Law pointed to the mind-blowing opportunity,
or perhaps the inevitability, of sustained exponential
growth of computer technology. To maintain the pace
of progress, a company would have to combine the freewheeling open-plan creativity of Fairchilds early years
with a level of organizational discipline that had never
been achieved in any company in the transistor era.
In 1968, Noyce and Moore decided to leave Fairchild. They wrote a three-page business plan, describing their intention to build one corner of the transistor
business the one focused on computer memory
into an industry. Within 48 hours they had raised $2.5
million over the phone.
A month after leaving Fairchild, Noyce and Moore
established Integrated Electronics Intel for short
in a half-abandoned 30,000-square-foot concrete
building one hour south of San Francisco. At the time,
big mainframe computers were storing information in
crude devices called magnetic cores. Noyce wanted to
replace them with tiny transistors that could store more
information in much less space, accelerating the speed
of the entire computer by allowing different parts to
communicate more quickly. Rather than go for low
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next four decades, Grove was the person most responsible for putting Moores Law into practice.
In the early days at Fairchild, Grove, who was assistant director of research and development, had a reputation for being extremely well organized and direct,
sometimes abrasive. Noyce and Moore were gracious
and low-key. But Grove could yell, pound the table, and
intimidate anyone. But there was a deeper difference.
The two bosses would give instructions and assume
they would be followed. There were no penalties for ignoring them. Not so with Grove. He imposed consequences on every employee and action in the company,
wrote journalist and historian Michael S. Malone. And
he ruthlessly enforced cost accountability on every office at Intel Grove did not accept excuses for a failure
to hit ones numbers.
Grove became Intel Employee Number Three. Unlike Noyce and Moore, he did not identify himself as
a self-starting, job-hopping entrepreneur. The position
was terrifying, he later recalled. But Grove quickly
found the secret to solving Shockleys quality problems.
He taught himself the manufacturing techniques that
would dominate the computer age. It came down to
shaping and inspiring a workforce that functioned and
adapted smoothly and swiftly enough to keep up with
the accelerating speed of the computer chip.
In 1969, Intel introduced its first chip, which could
store 64 numbers (and was called a 64-bit DRAM, for
dynamic random-access memory). Within a year, Intel could store 256 numbers in a chip, and within two
years it could store 1,024 in a chip (called the 1103) that
was smaller and more energy-efficient than its predecessor. Thanks to Groves relentless refining of the manufacturing process, the 1103 became the answer to the
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Facing Competition
The company saw yearly revenues grow from $9 million (with a profit of $1 million) in 1970 to $854.2 million (with a profit of $96.7 million) by the end of the
decade. It was in the 1970s, too, that Intel expanded
operations around the United States and the world,
eventually to have facilities in several parts of California, in Oregon and Arizona, and in Malaysia. But by
the end of the 1970s, Intel would start to face serious
rivals for technological leadership in memory chips at
home and abroad.
The domestic threat came from the Motorola
68000, which many experts declared superior to Intels latest model, the 8086. Determined not to relinquish Intels global lead in the memory business, Grove
launched Operation Crush. He mobilized the sales and
marketing force, offering rich bonuses to every staffer
who could keep an Intel customer or potential
customer from choosing Motorola. After a year of
trench warfare, Intel had won, preserving its lead and
reputation in the field. Operation Crush was the per-
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Intel stands out not only because its product sits at the
core of the computer revolution but because Grove did
so much to define and spread the management ideals
that are now at the core of many other technology companies throughout the U.S., Europe, and Asia. Groves
influence came equally from his business achievements,
from his capacity to communicate his thoughts and experiences via his teaching and writing. He helped create
a corporate culture that cultivated individualism, egalitarianism, innovation, and miraculously in light of
all that exquisite teamwork.
Moreover, Grove defined a management process
that continues to generate the production of computer
chips that are ever smaller, cheaper, and more powerful.
Between 1971 and 2011, Intel increased the number
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Resources
Andrew Grove, Only the Paranoid Survive: How to Identify and Exploit
the Crisis Points That Challenge Every Business (Currency Doubleday,
1996): The best-selling memoir/high-tech management manual by the
longtime CEO of Intel.
Art Kleiner and Juliette Powell, Bran Ferren on the Art of Innovation,
s+b, Oct. 21, 2015: A celebrated proprietor of R&D ateliers explains how
companies can cultivate the rare people who create miracles.
Michael S. Malone, The Intel Trinity: How Robert Noyce, Gordon Moore,
and Andy Grove Built the Worlds Most Important Company (Harper
Business, 2014): A definitive account of Intels origin story by a veteran
chronicler of Silicon Valley.
Michael Schrage, Genius Is a Team Effort, s+b, Aug. 1, 2014: A look at
collaborative charisma and a review of Michael S. Malones Intel Trinity.
More thought leadership on this topic:
strategy-business.com/innovation
4/14/16 2:57 PM
86
42
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A
Strategists
Guide to
Industry
4.0
by
Reinhard Geissbauer,
Jesper Veds, and
Stefan Schrauf
sb83_086-095_FEA-Industry4.0_finR.indd 87
Global
businesses
are about to
integrate their
operations
into a seamless
digital whole,
and thereby
change
the world.
Industrial revolutions
are momentous events.
By most reckonings,
there have been only
three. The first was
triggered in the 1700s
by the commercial
steam engine and the
mechanical loom. The
harnessing of electricity and mass production
sparked the second,
around the start of
the 20th century. The
computer set the third
in motion after World
War II (see Moores
Lawman, by Jeffrey E.
Garten, page 76).
It might seem too
soon to proclaim that
the fourth industrial
revolution, spurred by
interconnected digital
technology, has begun.
But Henning Kagermann, the head of
the German National
Academy of Science and
Engineering (Acatech),
did exactly that in 2011,
when he used the term
Industrie 4.0 to describe
a proposed governmentsponsored industrial
initiative.
87
4/18/16 4:16 PM
Jesper Veds
jesper.vedso@dk.pwc.com
is a partner with PwC
Denmark, based in Copenhagen. He is part of PwCs
leadership team for the
industrial products sector, and
is responsible for the firms
global Industry 4.0 survey.
He advises leading industrial
and transportation companies
on how they can incorporate
Industry 4.0 principles in their
business models.
sb83_086-095_FEA-Industry4.0_finR.indd 88
Stefan Schrauf
stefan.schrauf@
strategyand.de.pwc.com
is a leading practitioner
with Strategy&, overseeing
its Industry 4.0 practice for
Germany. He is a partner
with PwC Germany, based
in Munich. He advises global
corporations on developing
operations capabilities and
becoming digital enterprises.
strategy+business issue 83
Reinhard Geissbauer
reinhard.geissbauer@
strategyand.de.pwc.com
leads the Industry 4.0 practice
in Europe, the Middle East, and
Africa for Strategy&, PwCs
strategy consulting business. Based in Munich, he is
a partner with PwC Germany.
He supports industry leaders
in developing digital product
and service portfolios, digital
ecosystem solutions, and
strategies and applications
for smart supply chains and
smart manufacturing.
4/14/16 5:17 PM
NOW
IN FIVE YEARS
45%
Electronics
77%
32%
76%
35%
Industrial Manufacturing
76%
32%
Chemicals
75%
38%
72%
28%
71%
30%
69%
41%
Automotive
65%
31%
Metals
62%
89
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here are, of course, many challenges associated with Industry 4.0. It requires openness
with data and collaboration, to an extent that
feels uncomfortable at many companies. The
requisite technological capabilities and human
skills are often in short supply. It involves new and unfamiliar ways of organizing production. And, perhaps
most daunting, it represents a leap of faith; investments
must be made today, while many of the products and
processes involved in the approach are still unknown.
Nonetheless, companies that hold back, waiting
to see how it all turns out before investing, will fall
behind. As World Economic Forum founder Klaus
Schwab put it in his recent book The Fourth Industrial
Revolution (World Economic Forum, 2016), Contrary
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strategy+business issue 83
to the previous industrial revolutions, this one is evolving at an exponential rather than linear pace. It is not
only changing the what and the how of doing things,
but also who we are.
A small group of companies 71 of the respondents to our survey, representing only 4 percent of the
total have chosen to lead the way. These first movers say they have invested 6 percent or more of their
revenues since 2013 in Industry 4.0 efforts, and also
claim high levels of digitization and competitive advantage. They appear to be finding rapid payoffs in efficiency, cost savings, and opportunities for innovation;
more than half are among the group expecting to see
rapid business returns on their investments.
Some of the advantage enjoyed by first movers
has to do with the virtuous circle they kick off when
they move more quickly than competitors. If first movers can realize their expected cost savings and revenue
gains, they will generate more capital to reinvest in their
Industry 4.0 strategies, enabling them to improve their
operational performance and increase their lead over
competitors even further. As a result, the investment
required for laggards to catch up will grow. Advanced
implementation of Industry 4.0 may provide enough
competitive advantage that it will be seen by investors
as a qualifier for funding.
A still more compelling factor is the platforms that
first movers create. A platform is a nexus of exchange
and interoperable technology that allows a wide range
of vendors and customers to seamlessly interact. The
most successful first movers of the software and Internet
industries Amazon, Apple, eBay, Facebook, Google,
and Microsoft among them all cemented their position with powerful and distinctive platforms. Apple and
Google, for example, collect 30 percent of the revenue
for apps sold in their app stores.
First movers on Industry 4.0 will seek a similar advantage. GE and Siemens are already moving to solidify
their position as platform providers. Each has developed
a cloud-based system for connecting machines, devices,
and systems (such as enterprise resource planning systems) from a variety of companies facilitating trans-
4/14/16 5:17 PM
s the fourth industrial revolution binds companies and countries ever more tightly together through worldwide supply chains and
sensor networks, it will increasingly promote
globalization. At the same time, it will link
closely to local companies. That helps explain why the
survey results differed considerably by region. Asian
companies, especially those based in Japan and China,
expected the greatest gains from the digitization of Industry 4.0, followed by companies in the Americas, and
then Europe and the Middle East. Japanese companies
are already the most advanced in this field, followed by
those based in the U.S. and then Europe. Companies
in all regions expect to catch up within five years (see
Exhibit 2).
As Industry 4.0 takes hold around the world,
emerging nations probably have the most to gain. They
can leverage digitization to gain efficiency in their hori-
sb83_086-095_FEA-Industry4.0_finR.indd 93
zontal integration, working with the global manufacturers to whom they supply all manner of raw materials, parts, and components. The more closely they align
with the platforms of Industry 4.0, the more potential
customers they will be able to reach.
This great integrating force is gaining strength at
a time of political fragmentation when many governments are considering making international trade
more difficult. It may indeed become harder to move
people and products across some national borders. But
Exhibit 2: Expectations for Industry 4.0, by Region
Respondents from three major regions were asked: What cumulative
benefits from digitization [in the context of an Industry 4.0related survey]
do you expect in the next five years? Asia-Pacific had the largest
percentage of companies with high expectations.
100%
Efficiency Gains
Lower Costs
Additional Revenue
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80%
MODEST GAINS
Companies expecting
gains between
10% and 29%
60%
40%
20%
SUBSTANTIAL GAINS
Companies expecting
gains greater than
30%
Europe, Africa,
Middle East
Americas
Asia-Pacific
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Resources
Frank Burkitt, A Strategists Guide to the Internet of Things, s+b,
Nov. 10, 2014: The three types of companies described here
enablers, engagers, and enhancers are all active in an Industry
4.0 ecosystem.
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THOUGHT LEADER
thought leader
96
sb83_096-103_TL_JosephKaeser-fin.indd 96
Cilegon, Indonesia, to a software development center in Bangalore, India; from an ultrasound equipment
manufacturing facility in Plymouth
Meeting, Penn., to a wind turbine
plant in Cuxhaven, Germany.
Every business talks about becoming more digital. Buzzwords
like 3D printing, the Internet of
Things, mass customization, and big
data are bruited at conferences and
populate the fundraising decks of
startups. But these concepts and
the broader notion of digitizing
manufacturing have a particular
meaning for Siemens. It is in the
midst of its own digital transformation. The company is putting lots of
time, effort, and talent into marrying information technology to the
process by which it designs, builds,
and delivers its highly sophisticated
products. The companys own manufacturing is already largely conducted in fully digital factories.
Steering Siemens through the
next industrial revolution is the mission of Joseph Kaeser, who joined
the company in 1980 and rose
through the ranks of the semiconductor divisions and then into central management as chief financial
officer. In August 2013, he was
named president and CEO.
BY DANIEL GROSS
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thought leader
97
4/14/16 4:23 PM
Daniel Gross
gross_daniel@
strategy-business.com
is executive editor
of strategy+business.
thought leader
98
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thought leader
99
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thought leader
100
sb83_096-103_TL_JosephKaeser-fin.indd 100
worth going the extra mile and giving my extra five cents? The way
weve been defining the purpose at
Siemens is that we are a business to
society enterprise.
We created that term business to society because we have
B2C (business to consumer) and
B2B (business to business) offerings.
But we are a business that contributes to societys development in the
world, through becoming carbon
neutral by 2025 (were the biggest
company in the world that has committed to doing that); or saving lives;
or providing people with reliable,
safe power; or giving people a more
livable life in cities. Our employees
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thought leader
101
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thought leader
102
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thought leader
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4/14/16 4:23 PM
Boardroom Brawlers
by Jill Priluck
Dear Chairman: Boardroom
Battles and the Rise of Shareholder Activism, by Jeff Gramm,
HarperCollins, 2016
M
books in brief
104
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Books in Brief
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books in brief
105
4/14/16 4:44 PM
by Nancy A. Nichols
The Confidence Game: Why We
Fall for ItEvery Time, by Maria
Konnikova, Viking, 2016
books in brief
106
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strategy+business issue 83
Among her many tales is the alarming story of a physics professor in his
60s who became so convinced of a
young bikini models love for him
that he was tricked into smuggling
drugs for her.
The unfortunate
and super-smart physics professor was suffering after a recent divorce. He went online
seeking romance but
instead found himself
involved in a drugtrafficking operation.
Konnikova makes it
clear that technological changes, such as the kind of online dating sites where the professor
connected with the model, are opening up new avenues for scam artists
4/14/16 4:44 PM
sb83_104-111_BIB_fin.indd 107
Nancy A. Nichols
nancy@greatideasstudio.com
is a former senior editor of the Harvard
Business Review and founder of the
Great Ideas Studio.
books in brief
107
4/14/16 4:44 PM
by Mark Stahlman
Throwing Rocks at the Google
Bus: How Growth Became the
Enemy of Prosperity, by Douglas
Rushkoff, Portfolio, 2016
books in brief
108
he publisher of Douglas
Rushkoffs excellent new
book, Throwing Rocks at
the Google Bus, compares the author
to Thomas Piketty and Erik Brynjolfsson both of whom are noted
economists. But Rushkoff, a media
analyst who has become known for
his insights on technology, is no
economist. Whats more, he explicitly rejects both of these thinkers.
He dismisses Pikettys preferred solution to inequality, redistribution.
And Rushkoff is equally sure that
there will not be a second machine
age, as Brynjolfsson projects.
The reason for his disagreement
is expressed in the books subtitle,
How Growth Became the Enemy of
Prosperity. Its a theme that builds on
Rushkoffs earlier work, including
Life Inc. (Random House, 2009)
and Program or Be Programmed (OR
Books, 2010). Rather than focusing
on the economic and technological
factors driving the future of humanity, however, Rushkoff turns the lens
around in Throwing Rocks at the
Google Bus. The title, of course, is
a reference to recent incidents in
which some San Franciscans have
demonstrated their anger at Googles
private transportation system, which
sb83_104-111_BIB_fin.indd 108
strategy+business issue 83
ferries well-paid workers from gentrifying neighborhoods to the companys suburban campus. In the
book, Rushkoff unabashedly promotes human values, which, he
steadfastly claims, are
the same as digital values. As he puts it, The
word digital itself refers to digits the 10
fingers we humans use
to build, to count, and
to program computers
in the first place. In
this important and
useful polemic, Rushkoff puts forth a bold
thesis: We need to understand that
digital technology allows us to install a new social operating system
to replace the old industrial one that
tried to eliminate the incalculable
messiness of human life. Its about
time someone said this and made
the argument stick.
Rushkoff starts with the premise that the pure economic analysis
promulgated by the digerati has
failed to help us understand how the
future is unfolding. Rather than
wholeheartedly embracing the market logic of unfettered technology,
or calling for a regime of regulation
that will halt technological progress,
he advocates a third way: digital
distributism. Distributism is an approach to economics based on the
principle of subsidiarity, which
simply means that every entity,
whether corporation or government
agency, should be as big or small as it
needs to be to accomplish its pur-
4/14/16 4:44 PM
majority of countries most notably in China approaching economic development without a recognition of the vital importance of
growth is a nonstarter. As Rushkoff
puts it, we seriously need a new operating system.
We need it, he argues, because
for the first time, automation is fundamentally reshaping our economic
prospects. As economist Lawrence
Rushkoff unabashedly
promotes human values, which,
he steadfastly claims, are the
same as digital values.
sb83_104-111_BIB_fin.indd 109
Mark Stahlman
mark@tmtstrategies.com
is president of the Center for the Study
of Digital Life.
books in brief
109
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by Zachary Karabell
The Only Game in Town: Central
Banks, Instability, and Avoiding
the Next Collapse, by Mohamed
A. El-Erian, Random House, 2016
books in brief
110
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strategy+business issue 83
Twilight of the
Central Bankers
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books in brief
111
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end page
112
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HBR.org/books
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