periodical #17 periodical - stern stewart & co · drivers of automation. the main common...

PERIODICAL #17

January 2018 The Sound of Silence

In this issue:

Dorothee Blessing J.P. Morgan

John Defterios CNN

Béatrice Guillaume-Grabisch Nestlé

Benjamin Hermann Zoi

Ludger Heuberg Arvos

Hartmut Jenner Kärcher

Dr. Peter Laier Knorr-Bremse

Joachim Limberg thyssenkrupp

Markus Pertl The Stern Stewart Institute

Patrick Pouyanné TOTAL

Wolf-Henning Scheider MAHLE

THE SOUND

OF SILENCE

PERIODICAL#17

Plus:The Stern Stewart Institute’s Annual Summit Review and Poll Results

I have become addicted to the title of a song. Not just a song. A “Hall of Fame” song from the time before I was born. The lyrics however, hit a point, they are quite up to date.“Hello darkness my old friend, I’ve come to talk to you again, Because a vision softly creeping, Left its seeds while I was sleeping.”Simon & Garfunkel told the story about the daily struggle between overcoming the usual and the resisting the new. We all want to reinvent ourselves and pray to the masters of disruption – but have hard times in treading really new paths. Even before we start, we consider all available facts…and before we have drawn a vision, we have factored in all problems.It’s time to recall that men only hit what they aim at. I therefore strongly recommend to go with the American Philosopher Thoreau: “Even though men should fail immediately, they had better aim at some-thing high.”To overcome the usual, you need to have belief and courage. To take the risk to go down with an idea – having the own house of cards tumbling.In today’s business assessment one easily forgets that the winners of today’s revolution went through a calm before they conquered the storm – and some will go the other way. But they all aimed at something very high.What could be more telling than a true anecdote? Especially from where you think you know all. But you don’t: In 2006, Tesla made it. When the first product

series was almost final, obviously, the first owners should be an elected circle: the board of manage-ment.The excitement was huge, bringing the first chapter to a happy end. And indeed, the car resembled more a giant computer, something which might have come out of Back to the Future. After the cars had been distributed, one of the board members finally dared to raise a question: What…what happens if the car suddenly stops moving somewhere?You can imagine this sound of silence…Since there were definitely no garages available to fix, also Tesla’s head of R&D grew nervous seeing the pene-trating look of the founder. But instead of blaming and show stopping, Elon Musk came up with a prag-matic solution: cell phones in the glove compart-ment. The idea of the flying doctor was born!Welcome to this 17th issue of our periodical. Our authors are masters in their attempt to listen and shape the sound of silence.

I wish you an inspiring read.

Yours,

Gerhard NenningExecutive Director of The Stern Stewart Institute

Gerhard Nenning Editorial Comment

Gerhard NenningExecutive Director of The Stern Stewart Institute

THE SOUND OF SILENCE

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ContentContent

3The Sound of SilenceEditorial Comment

Gerhard Nenning, Executive Director of The Stern Stewart Institute

6Digitalization Hits the Road – Automated Driving Generates

Societal Opportunities and Entrepreneurial Risks

Dr. Peter Laier, Member of the Executive Board,

Knorr-Bremse

12Digitized Logistics – Hidden Hero

of the Digital TransformationJoachim Limberg,

CEO, thyssenkrupp Materials Services

16Resetting a Lived-out Company Philosophy

Hartmut Jenner, CEO, Kärcher and Benjamin Hermann, Managing Director, Zoi

22From a Traditional Company

to a Digital Enterprise Béatrice Guillaume-Grabisch,

CEO, Nestlé

28“It is becoming

increasingly difficult to run a rigid regime…”

InterviewJohn Defterios, Anchor & Emerging Markets Editor,

CNN together with Patrick Pouyanné, CEO, TOTAL

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ContentContent

34Paths to Low-carbon Mobility –

Thoughts on the upcoming automotive transformation

Wolf-Henning Scheider, CEO, MAHLE

40Angie for a Day!

Markus Pertl, Chairman of The Stern Stewart Institute

44Renewed European Optimism

Should Be Used to Reinvigorate the Capital Markets UnionDorothee Blessing, Regional Head

Germany / Austria / Switzerland, the Nordics, Ireland and Israel and Vice Chairman of Investment

Banking, EMEA, J.P. Morgan

48Profitable Growth in Mature Markets

Ludger Heuberg, CFO, Arvos

54The Stern

Stewart Institute Annual Summit

2017Review

66Imprint

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Digitalization Hits the RoadAutomated Driving Generates Societal

Opportunities and Entrepreneurial Risks

Cars that can park themselves, buses that carry their passengers with no driver on board, trucks maneuvering in mines in automated mode – automated driving is already with us. The growing digitali-

zation of not only vehicles, but also the traffic infrastructure is driving the trend toward fully autonomous means of transportation. At the same time, ever shorter development cycles and over-the-air software updates are stepping up the pace at which new functionalities become available.

The challenge facing the automobile industry is that much of the nec-essary technology – big data analytics, connectivity, self learning algo-rithms, super-fast and fail-operational computer systems – are not their traditional core competencies. Start-ups and new players are often the ones which develop the software that adds a new piece to the puzzle on the road to the fully autonomous vehicle. This leaves established compa-nies with a clear alternative: Engage with the changes or maybe find your-self in commodity environment in the future transportation scenario.

The process of digital transformation has already revolutionized many different sectors. Among the first to be affected were book and media

publishers, along with the photography, music, and film industries. Now, with improved sensor technology and computing power,

digitalization is impacting automobile manufacturers as well. So, where are we right now, and what can we expect to see in the years ahead?

Dr. Peter LaierMember of the Executive Board

Knorr-Bremse AG

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Dr. Peter Laier Digitalization Hits the Road

The role of the brakes in the future of transportation

So, what exactly does Knorr-Bremse, one of the leading manufacturers and suppliers of commercial vehicle systems, with more than a century of experience as a system supplier for Truck and Railway business, bring to the table to deal with this development? Well, along with all aspects of foundation brakes, brake control and the necessary actuators, the breadth of expertise now available across the Group extends from transmission control all the way to steering systems. This means that Knorr-Bremse has an in-house command of the most important actuators required for highly automated driving. By way of illustra-tion, in the second half of 2016 we presented an ‘Autonomous Yard Maneuvering’ system whereby a 40-ton truck can maneuver safely around an extensive depot with no driver in the cab.

So, as demonstrated, automated driving is possible as well for heavy trucks but there are many reasons why it is going to take time before fully automated vehicles take to the public roads, and one thing is for sure: Prog-ress in this direction is going to be incremen-tal, but fast, too.

Step by step to full automation – Assistance systems climb the learning curve

Decades have passed since the automotive industry first started developing assistance systems. ABS, EBS, traction control, and auto matic transmissions were first on the scene, and today they are all on the syllabus for every learner driver.

And progress is ongoing and fast. Adaptive Cruise Control, for example, not only enables you to maintain a steady speed, but also adapts the speed to maintain a safe distance from the vehicle in front. The Lane Departure Warning system alerts you if you’re about to drift out of lane. Emergency Brake Assist is on hand to help when danger looms. And all of these are incremental steps along the road to the fully automated vehicle. Peu à peu, one functionality at a time, the driver’s tasks are being at first assisted and later on handed over to the machine.

The vehicle perceives its environment with sensors, with the collected data and the desired direction received from the naviga-tion system and the motion planner the tra-jectory is calculated in the motion controller, and, finally, the actuators execute the calcu-lated driving maneuvers (Figure 1).

Today, there is widespread agreement in the automotive industry on the definition of a six-level model that describes the gradual transition to full automation (Society of Au-tomotive Engineers International) (Figure 2).

3.ACTUATION

1. PERCEPTION

2. DECISION

Figure 1: The three functional blocks in the automated driving process

FOR COMMERCIAL VEHICLE OPERATORS

THE SAFETY BENEFITS GO HAND-IN-HAND WITH A REDUCTION IN THE TOTAL COST

OF OWNERSHIP.

Figure 2: The six levels of driving automation

Source: Society of Automotive Engineers International

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DRIVER ASSISTANCE

A driver assistance system can

sometimes assist the human driver,

e.g., steering or acceleration/deceleration

using information about the driving environment with

the expectation that the human

driver performs all remaining driving

tasks.

NO AUTOMATION

The human driver performs all

aspects of the dynamic driving

task.

PARTIAL AUTOMATION

A driver assistance system can conduct some driving tasks,

e.g., steering and acceleration /deceleration

using information about the driving environment with


driver performs all remaining driving

tasks.

CONDITIONAL AUTOMATION

An automated system can conduct some driving tasks

and monitor the environment with


driver will respond appropriately

to a request to intervene.

HIGH AUTOMATION

An automated system can conduct

the driving tasks and monitor the

environment, even if a human driver does not respond

appropriately to a request to

intervene.

FULL AUTOMATION

The automated system can conduct

all driving tasks under all roadway and environmental conditions that can

be managed by a human driver.

1

0

2

3

4

5

DRIVER FULLY RESPONSIBLE DRIVERS NOT PERMANENTLY RESPONSIBLE

Automated driving system monitors driving environmentHuman driver monitors driving environment

SAE level 3 and above: responsibility is

transferred from the driver to the vehicle


Progress is not driven by comfort and convenience

As the above examples show, it is not comfort and convenience features such as rain sensors for the windshield wipers that are the key drivers of automation. The main common denominator in the car and truck sectors is the resultant increase in safety and specifi-cally in the truck sector in addition the cost reduction opportunities. Studies suggest that going driverless could reduce the rate of acci-dents by 70 – 90 percent in the next decades. Driver-assistance systems like Turning Assist, which in the future will prevent trucks turn-ing off if, for example, a cyclist is alongside, will play a decisive part in defusing typical urban accident scenarios. Automated driving functions like Platooning Pilot allow trucks to follow each other at reduced distance on the highway thereby lowering fuel consump-tion and preventing rear-end collisions.

For commercial vehicle operators, the safety benefits go hand-in-hand with a reduc-tion in the total cost of ownership. Easing the load on the driver and increasing the lifetime of the truck as asset invested finally lead to an increase in the time the truck can spend on the road. Fuel-efficient driving makes for lower fuel consumption, and reduced risk levels mean lower insurance premiums. With optimized vehicle availability, the logistics chains can be managed more efficiently and, last but not least, the role of the driver becomes more attractive as the number of monotonous activities decreases.

The long-term effects of highly automated road traffic also include a massive increase in the usage of the capacity of the existing road network. Traffic flows will become smoother, gaps between vehicles can be radically re-duced and the number of traffic jams falls.

Cars and trucks – Two separate breeds

As far as the new technologies are concerned, car and truck manufacturers are all in the same boat. In order to build highly automat-ed vehicles, they need very fast and reliable sensors, extremely powerful computer sys-tems, artificial intelligence that can analyze the huge volumes of data in fractions of a second, flawless map material, learning algo-rithms, and the list goes on. In this particular area, we can expect to see a lot of dynamic in the industry in the coming years.

This, however, is where the common ground ends. Critical safety functions cannot simply be transferred from cars to trucks. In view of the huge diversity in terms of types of vehicle, the situation in the truck sector is far more complex. Vehicle lengths, numbers of axles, rigid or articulated, number of drive or steer axles, load distribution, height of the center of gravity, and so on have major im-pacts on the vehicle dynamics and how to control them. In trucks, the range of possible configurations is enormous.

As a manufacturer of electronic braking systems and driver assistance systems, Knorr-Bremse has amassed a vast pool of knowl-edge, e.g. the related dynamic vehicle model in the commercial vehicle sector. A firm command of the expertise required to control the longitudinal and lateral dynamics of the various commercial vehicle configurations is absolutely fundamental to the development of the highly automated truck.

The next step in the evolution ary process from driver assistance to automated driving

In technical terms the logical next step for many of the existing driver assistance systems in trucks is to integrate the steering as it is already realized in cars. The Lane Departure Warning System, for example, currently gets by without a steering functionality. It simply warns the driver as soon as the vehicle is leav-ing its lane. In a next step, the system emerges to Lane Departure Prevent, i.e. when the vehicle intends to leave its lane, it is actively steered back. In this case, integration of the steering functionality is another step toward greater safety. Later on in a highly automated driving mode lane change maneuvers will be realized based on that experience as well with active steering systems and automated driving.

Redundancy requirement in automated vehicles

Then there is the question of the back-up systems for the automated driving system and the key actuators like e.g. steering. What happens, for example, if the steering system fails in automatic driving mode just when the driver has decided to take a nap? The vehicle needs a second technical solution that takes over if the primary one goes down. Fitting a wholly redundant second steering system would be most probably expensive, particu-

Figure 3: Steering by braking

10 PERIODICAL #17


larly when we consider that in trucks we can make use of a system that is already installed. By applying the brakes on individual wheels, it is possible to guide the vehicle around a corner just as safely and firmly as with the ac-tual steering system. This way, in the event of a system failure, the truck can be brought safely to a standstill at the roadside ( Figure 3). So intelligent interaction between the rele-vant actuators combined with a redundant electric architecture in the vehicle will be the way forward to keep cost under control.

But smart vehicles are only one part of the full road traffic complex. In order to be able to control overall traffic flows more effec-tively, for example, the remaining traffic in-frastructure needs to become smarter too, keeping pace with the in-vehicle advances. Communication networks also need to ex-tend their coverage. Only then will the indi-vidual vehicle become an organic part of a wider logistical system. Only then will the seamless intermodal organization of passen-ger and freight transportation routes become feasible. But above all, policymakers need to take action at the cross-border level and put in place a harmonized legal framework for the utilization of highly automated vehicles. Only then will it be possible to leverage the

full spectrum of benefits that automated driving has the inherent ability to offer. Right now, it seems that technology is ahead of the legislation.

The man and the machine

Evidently, automated driving poses a chal-lenge to the human driver. The fear of not being in control of the vehicle and losing to-day’s freedom might lead to a rejection of the technology at the beginning. However, look-ing to airline and rail traffic, automation is already in use and has been accepted for many years. Thus, it will be similar with auto-mated driving that a common acceptance will be achieved with a gradual introduction of automated functions. Therefore, it is impor-tant to develop and implement robust auto-mated driving functions that increase road safety demonstrably, e.g. on the highway.

Furthermore, the automotive industry, politics, and legislation, on the one hand, need to align with each other and establish an adequate environment for automated driving and, on the other hand, have to convince society with a concerted argumentation of the advantages of automated driving.

Figure 4: With connected and automated vehicles the network infrastructure will be enhanced.

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Digitized Logistics – Hidden Hero of the Digital Transformation

The path a product takes to its customer has to be as short and as fast as possible. Now more than ever, efficiently designed inter-

logistics and intralogistics are advancing to become the crucial success factor for manufac-turing and commercial enterprises, and config-uring them in line with the market in the context of the Industrial Internet is becoming a key competitive advantage.

Logistics has literally gone through a whirl-wind of change. Virtually no other interdisci-plinary field has undergone such profound up-heavals in recent years, transitioning from an operative corporate function to a strategic core area. The days have long since passed when it was just about enhancing processes and process chains. Now, it is about the big picture. How can today’s world of value creation and that of the future be designed to be efficient and intelligent and networked with each other to best satisfy new and continuously evolving customer demands? That is the key question.

Joachim LimbergCEO

thyssenkrupp Materials Services

It is pointless to mull over whether it is customer demands that are becoming more diverse or whether it is the variety of new

technological possibilities that is generating more customer demands. The fact is that today we can do a lot more and we want a lot more.

And it is also a fact that everything is becoming much faster as a result of digitalization.

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Joachim Limberg Digitized Logistics – Hidden Hero of the Digital Transformation

It starts with customer demand

The customer is king. This adage is as old as the hills and couldn’t be truer today. With the customers’ notions of increasingly more individualized products and services, not only are demands growing, but so is the challenge. At thyssenkrupp Materials Services, the division for dis-tributing materials globally and technical and infrastruc-ture services in the diversified industrial group network at thyssenkrupp, we are working every day on mastering these challenges a little more proactively. Each year around 250,000 customers from a range of industrial sec-tors including the metalworking industry, the automotive sector, the mechanical engineering business, the aviation industry, and the energy sector place orders for 14 mil-lion items, including highly specialized service and pre-processing services for customers, meaning 14 million items which have to be handled in keeping with customer wishes both in terms of quantity and quality. Today, that means being smart, fast, flexible, and yet efficient. Intelli-gent logistics is becoming a strategic competitive advan-tage; it is becoming the hidden hero.

Intelligent flow is essential

The logistics sector is incredibly varied and is no longer clearly defined. As a result of technological innovations like autonomous systems, robotics, additive manufactur-ing, and new information technology systems and pro-cesses, horizontal and vertical value processes are becom-ing increasingly linked in the wake of the Industrial Internet. More and more, logistics and production capa-bilities are converging, and everything is connected to everything. Minimal changes in one area can lead to huge changes in the entire system. Physical flows of goods from A to B to C and beyond have to be directed in a way that is as intelligent as possible. The solution for this lies in data streams which are collected, analyzed, networked, and controlled in real time.

Data: The raw material of the 21st century

The real treasure of digitized logistics lies in obtaining and using data. This is a treasure which holds gigantic potential for the commercial segment of thyssenkrupp, and one which we are leveraging a little more every day.

In the last two years alone, the dynamics in our corpora-tion has gained enormous momentum as a result of the numerous internal digitization initiatives and partner-ships. These include new, agile approaches and new forms of exchange and collaboration within the company.

The big challenge now and in the future lies in acquir-ing a new, data-driven understanding and in creatively designing interlogistic and intralogistic processes. It is about developing and implementing modular, autono-mous, and, simultaneously, networked and scalable sys-tems along the entire supply chain. And it is about flexi-bility because as a result of changing planning logic, frag-mentation is on the rise in procurement. The centralized needs assessment was a thing of the past.

Everything is (not) possible

At thyssenkrupp Materials Services we are addressing this challenge with a two-pronged, targeted strategy which involves pursuing sustainable cost leadership in the dis-tribution business and proven quality leadership in the service business. For both strategies the digital transfor-mation en route to an integrated, global, resilient and, at the same time, flexible supply chain network is running at full speed. And for both strategies we are well equipped thanks to our high product and process capabilities, our distinctive subject-matter expertise, and the skill sets of our employees.

But how exactly can the strategy and goals be turned into reality? How do demands become reality in light of such complex technological revolutions like the ones we are currently experiencing and, ultimately, promoting? We can achieve this by thinking holistically and by start-ing quite pragmatically on a small scale.

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Joachim Limberg Digitized Logistics – Hidden Hero of the Digital Transformation

Think big, start small, scale fast

“Alice & Bob” are our guides. Inspired by a start-up, end-to-end approach from the e-commerce sector, Alice and Bob stand for the front end (sales) and the back end (IT). Both are self-sufficient and can be advanced structurally independent of each other, but, in the process, have to coordinate with each other. The reason for this is that Alice cannot function without Bob just as the operative cannot function without IT support. And so, while each of the large business models at thyssenkrupp Materials Services is already digitized operatively, the global, tech-nological, and scalable bases for the digital transforma-tion are being created simultaneously. Specifically, we are allowing ourselves to be guided by the following question: Where can we enhance our front-end processes with the help of digital technologies and which technological bases do we have to create for this in the back end? In so doing, we have already implemented successful pilot projects for our central business model clusters, which are now gradually going to be rolled out globally and scaled.

In the case of the distribution business model these projects are, for instance, interactive customer apps, soft-ware-supported analysis of demand patterns by the selec-tive use of algorithms, or the ongoing expansion of paper-less processing along the entire delivery chain. Or let’s look at the other end of the supply chain, namely, pro-

curement. The more digitally networked and automated pur-chasers and suppliers are with each other throughout the en-tire work process, from the initial de-mand to invoicing, the greater the trans-parency, the more

flexible the cooperation, and the smoother the logistics. Intelligent cloud structures, which network our distribu-tion and service centers in record time with the right pro-viders for materials that just happen to be in demand on the market, are the answer here. From many networked points the overall picture emerges, from many small breakthroughs a comprehensive one emerges.

At the same time, Bob is establishing the digital foundation for the entire business activity. And here, too, we have achieved a few impor-tant milestones, such as our internally-developed Industrial Internet of Things (IIOT) platform “toii”. With the help of “toii”, machines from a variety of manufacturers and model generations can commu-nicate with each other. And not just among each other, but also with IT systems. Scheduling and intralogistic processes are coordinated with each other in a smart and flexible way across company sites and around the world. In several pilot projects “toii” has already proven itself to be a solid and durable system, it networks band saws and edging machines in keeping with the “Internet of Things”, but also high-bay warehouses or vehicles like forklifts and complex produc-tion facilities. The next milestone for digitized logistics is waiting in the wings. In the future, the platform can also predict when mainte-nance should be performed using Predictive Maintenance. This will bring a significant boost to efficiency in the production processes and, ultimately, also in the delivery chain.

Quiet heroes with a vision

There is no question that we still have a long way to go. Moreover, we also have demanding goals in digitized logistics because our areas of work in the value chain should ideally grow in keeping with the inter-est of our customers and their demands. Our customers should be able to focus on their core competencies and enjoy reliable logistics – enhanced and controlled by thyssenk rupp Materials Services – around the world. The operative term here is Extended Supply Chain Management. In the future, we are going to orchestrate not only demands, capacities, logistics, and production costs in the respective value creation stages. We are also going to en hance end-to-end and, depending on priorities, the decision-making with the help of artifi-cial intelligence and smart simulation models.

The Extended Supply Chain Management business model is per-fectly complemented by thyssenkrupp’s latest project called the TechCenter Additive Manufacturing. The additive manufacturing – industrial 3D printing – is a process which enables a high-grade digi-tized process from the order processing to the manufacturing right up to logistics and delivery. This makes additive manufacturing a fine example for the Industrial Internet. It allows for particularly stream-lined processes and big advantages with a view to the value and deliv-ery chains. This means that very complex structures which also hap-pen to be extremely light and stable can be manufactured with mini-mal material costs, the smallest of lot sizes can be achieved with high variability at reasonable unit costs, and storage can be drastically reduced.

The path a product takes to a customer has to be as short and as fast as possible. As part of the Industrial Internet, smart logistics holds untapped potential. It is the “hidden hero” for manufacturing and commercial enterprises.

THE NEXT MILESTONE FOR DIGITIZED

LOGISTICS IS WAITING

IN THE WINGS…

15 PERIODICAL #17

Zoi is a newly-formed innovative company founded in 2017. We specialize in developing sophisticated software systems and pro-viding guidance to companies for the use and application of the

cloud. We recognize the need to use new technologies and to always work closely with the customer to ensure objectives are met as stan-dard. Despite being a recent entry to the market place, we possess a great deal of know-how and remarkable knowledge of the industry. Zoi is the abbreviation for Zero One Infinity – underpinning the essence of IT together with our ethos and drive. The definitive be-tween 1 and 0 or yes or no, for example. We pride ourselves on clear decisions while also being aware that there is no time for standing still, and that there is no such thing as a standard solution. We have reset everything to zero in order to resurface again within our new company. We can facilitate this reset within our customer base so that progress and success can be created moving forward.

At Zoi, we transformed an existing work structure into a new com-pany by performing a complete reset. Today, I would like to present our philosophy using five key indicators and explain how fruitful it can be to place service and the company philosophy on an equal footing.

Resetting a Lived-out Company Philosophy

A reset is done when a system is no longer functioning properly. But what about when the system involved is an existing

company ecosystem, and the reset is equivalent to starting over completely? And what does “properly” mean anyway?

This is a plea for more courage to use the reset button.

Hartmut JennerCEO

Kärcher

Benjamin HermannManaging Director

Zoi

17 PERIODICAL #17

Hartmut Jenner / Benjamin Hermann Resetting a Lived-out Company Philosophy

Entering into partnerships

An essential part of our transformation was and continues to be our partnership with Kärcher. This is an absolute win-win situation for both parties. Kärcher profits as the investment partner of a new, con-stantly developing team and from a large pool of knowledge that is partly fed by previous and existing business relationships with Kärcher. So, how do high-pressure cleaners and cloud computing, ar-tificial intelligence, etc. fit together? First and foremost, we are really involved in keeping the cloud-computing sector up-to-date at all times which is crucial for a global market leader. Secondly, and more importantly, we are an ideal sparring and operational partner for pro-moting the digitization of Kärcher’s portfolio. We had our first “ sandbox” and Kärcher had its “wild youth”; it was also addressing its digital structures in a controlled and courageous manner.

Since then, we have been noticeably influencing each other’s com-pany cultures and profiting from an open exchange of information – helping both of us to grow.

An example of this is our new perspective on product manage-ment. We start with a simple, reduced product and put it in the hands of our users, while using existing MVP approaches in the process. We gather data on the use of these products on every possible channel. Code and cloud are the basis of this. We also use AI, which helps us to discern from all our user feedback those additional functions in our product which will bring the greatest benefits to customers. This takes place in an open dialog. In this way, we can be assured that our prod-ucts are as relevant to the customer as possible: The products are de-cisively influenced by the usage behavior of the customer.

Encourage your team

“Get out of your comfort zone!” While this may sound like the shrill whistle call of a run-of-the-mill fitness trainer, for me and my current business partner, Dr. Daniel Heubach, it was this uneasy feeling that was our main motivation. We have both worked in similar company structures and, ironically, around 20 of our current employees have also experienced the same kind of working environment that was not creating the culture that led to a productive, creative, and forward- thinking workforce. Together, we shared our experiences and encour-aged each other to break out of our comfort zone, to transform it, and, most importantly, to digitize it. We all believed and still believe in the entrepreneurial force of new technologies in the corporate environ-ment. And yet, in the old prevailing structures, there was little room for our technological vision to unfold and be implemented. We em-boldened each other and had faith in the successes that we had already accomplished together. We set our sights on new goals, which we de-fined as a team. This made it possible for us to extract the synergistic part of the team from existing work structures and agree on how to start over as a new company. We pushed the reset button ourselves.

1 TRU ST

2 SYN ER GY

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User AI

Data

CODECLOUD


A disruptive new beginning according to plan

Zoi is growth-oriented, both nationally and internationally. Our team is projected to double by the end of the year. By the end of 2018, it is our goal to have around 100 employees. To accomplish this, we are pursuing three main pillars in our strategy, because the absence of a plan will take the wind out of our sails. We are investing in intensive recruiting and HR measures in order to network with university graduates and young professionals. We are looking for idealists, digi-tal heroes, and visionaries who – just like us – believe in the potential of digitalization. We currently have two main locations in Germany and more are planned. Our main location in Stuttgart is closely linked and networked with the successful medium-sized company structure of this region, including prominent international relationships. Our newest, second location was recently opened in Berlin, where we are

closest to Digital Generation 2.0. We call them “digital creatives” – a self-confident generation that handles digital possibil-

ities creatively, intuitively, and holistically. In addition, we also outsource process-limiting tasks and use

cost-efficient alternatives, for example, like those available from partners in India or China. Another important strategic point is the deci-sion to pursue more balanced collaboration with all important cloud players in the indus-try. In this way, we make ourselves and our customers independent.

3 STRA TEGY

WE CALL THEM “DIGITAL CREATIVES” – A SELF-CONFIDENT GENERATION THAT

HANDLES DIGITAL POSSIBILITIES CREATIVELY, INTUITIVELY, AND HOLISTICALLY.

1 TRU ST

19 PERIODICAL #17

Living out diversity

Our company growth is inextricably linked to cultural growth. Our team was already interdisciplinary at the time the company was founded. This is both a valuable position as well as a powerful re-source for us because a tailor-made cloud solution includes our ability to accept very different points of view. In addition to classic IT techs, we also employ biologists, mathematicians, and physicists, with our team being rounded off by lateral entrants from the agency sphere. We are proud of the fact that we have employees who are able to as-sume and apply an entrepreneurial mindset themselves. The develop-ment of the individual is very important to us, since we are striving for a continuously evolving development process and all want to be proactively ahead of the curve. Some 20 percent of the contractually arranged working hours are always available to our employees for em-pirical and methodical “experiments”. We know how important per-sonal fulfillment is and at the same time how important the accom-plishment of successes apart from the normal “Zoi day-to-day” is. This often leads to great ideas and performance transfers. In this way, we are creating our own interactive knowledge pool that all employ-ees can fall back on at any time. Even young start-up entrepreneurs are very welcome in our ranks. They can lean on our team for their ideas, pick up new skills, and complement our projects with their know-how at the same time. Simultaneously, our team profits from new impulses, revitalization, and an ongoing exchange of ideas. We work remotely and have employees based in different countries. This is nothing terribly new, but it is a novel approach for us.


4 EM POWER MENT

WE DO NOT WANT TO BUILD CASTLES IN THE SKY TO

REFRAIN FROM DE CEIVING OUR CUSTOMERS OR OURSELVES.

20 PERIODICAL #17

Hand-in-hand with our service

This point is the most important one and pervades every aspect of our reset. We do not want to build castles in the sky to refrain from de-ceiving our customers or ourselves. We are open and transparent in our very nature and in our approach to business and systems. Disrup-tions always start with yourself. We not only want to preach this, but also practise it ourselves. Our work compelled us to change structures radically. Since the very first day of our company, we have been well aware of the extent of the opportunities, system, and power inherent in a new beginning. We are therefore able to incorporate this knowl-edge, this certainty, and this self-confidence in all of our projects, thereby making both our employees and customers just as strong and self-confident.

“What would you do if you could start all over again?” This ques-tion, found frequently on cards adorning student refrigerators, is one that we actually asked ourselves and put into practice. We had a func-tioning team and functioning customer structures – in short, an envi-ronment in which we thrived. It not only gave us courage, but, above all, security. In addition to the many years of experience in the indus-try, our team profited greatly from the accompanying customer rela-tionships. This worked for us as a stable base, a kind of foundation for our reset. We started anew because we wanted to, not because we had to. This step also goes hand-in-hand with a great deal of gratitude, which we owe to both our team and our customers.


5 AUTH ENTI CITY

21 PERIODICAL #17

This is roughly how the Nestlé study of the future, How Will Germany Be ( Eating) in 2030?, outlines our life in

approximately 15 years.1 You do not have to be a prophet to predict that much of this will become reality. Even today, we have to deal with various mega social trends throughout the world, which will ultimately end up in the described scenarios. These include global-ization, urbanization, increasing mobility and, at the same time, rapidly aging western societies.

These developments are accompanied and accelerated by digitalization, which has since infiltrated every nook and cranny of our daily routine and is in the process of fundamen-tally altering the entire value-added chain from the production of goods, the offer of services, and the manner in which we absorb and process information.

1 Nestlé study of the future: Wie is(s)t Deutsch-land 2030 (How Will Germany Be (Eating) in 2030?) Publisher: Nestlé Zukunftsforum, 2015.

Game changers in the food sector

A company which operates globally, such as Nestlé, is affected by these revolutions in many ways. Internal production and organi-zational processes have to be revised due to digitalization, and our customers and con-sumers have entirely new demands on our brands and products. For example, a few years ago, it was enough to be present in the food retail market with high quality prod-ucts. Today, this is only one prerequisite for a successful business. In addition, we have to accompany people at all relevant touch points, remain in constant dialog, and recog-nize their needs as early as possible. For this reason, we adopted a roadmap a few years ago. Nestlé, a company with a long-standing tradition and history of some 150 years, will change with the times and go from being a mere food producer to a digitally savvy com-pany providing a broad portfolio ranging from the culinary to the health sector and

From a Traditional Company to a Digital Enterprise

Our environment is completely interconnected.

Sensors and chips are integrated into our world that observe our behavior

and arrive at intelligent conclusions about the

heating setting or the music or lighting that suits our

mood at the time. Most people live in cities, and many of them work remotely without a fixed

place of work. Shopping is done predominately online.

Béatrice Guillaume-GrabischCEO

Nestlé

23 PERIODICAL #17

Béatrice Guillaume-Grabisch From a Traditional Company to a Digital Enterprise

which will comprehensively assist people with their individual nutrition issues.

This shift is characterized by numerous game changers. The impact factors span from a changing understanding of nutrition and new offers right up to an entirely new shop-ping behavior.

Nutrition has to promote healthA recent study on nutrition conducted by the TK health insurance shows that people in Germany attach great importance to a healthy and tasty diet. Some 45 percent of the respon-dents state that more than anything a meal has to be healthy.2 Various analyses also prove that a healthy and balanced diet is con-sidered the prerequisite for an active life well into old age. Even young people are con-vinced of this fact. Therefore, food has to do much more than just satisfy an appetite.

This changed approach to nutrition and health is enhanced by digitalization. For ex-ample, Google has 180 million hits for “health” . Every second person obtains infor-mation on personal issues from the internet. At the same time, the entire e-health sector is growing. Extensive vital data can be estab-lished and evaluated via smartphones and wearables, which monitor health, fitness, resting, and waking and sleeping phases. An international study shows that as many as 41 percent of people between the ages of 30 and 39 regularly check their health with an app.3

2 TK Nutritional 2017: “Iss was, Deutschland”. https://www.tk.de/tk/themen/gesundheit/ ernaehrungsstudie-2017/932276

3 BASF Human Nutrition. GfK 2016. Health and fitness tracking

Eating is becoming a personal statementThis fact is associated with changing values. People no longer eat what is cheap. The food and drink we consume also stand for self- realization, self-awareness, and, increasingly, self-presentation. The origin of food, its preparation, vegan or vegetarian content are just as important for consumers as the trans-parency of the value-added chain, which ex-tends to the verification of the cultivation method and the payment of fair wages. The so-called “quality eater” is gaining ground. For quality eaters, eating expresses a personal statement and is an indication of an individ-ual’s lifestyle. For food companies, this means their brands can take on the function of being a beacon if they are able to fulfil the expected trust of consumers. The ecological footprint becomes a part of the company’s brand value.

Mobility promotes snacking cultureChanges in lifestyle as characterized by more mobility and a hectic and face-paced lifestyle are not without consequences in terms of eat-ing habits in the broader sense. While the warm meal is frequently becoming a social event for family and friends, the relatively fixed rhythm for meals has evolved into a snacking culture even in conservative fami-lies. More and more, small snacks between meals are gaining in popularity. This has al-lowed the fast food and convenience industry in Germany to grow. According to figures from the BVE (Federation of German Food and Drink Industries), consumer spending in

this sector increased by 3.6 percent to €24.2 billion over the past year. In any case, Germans are dining out with greater fre-quency. All in all, spending in this sector rose to €75.8 billion (plus 3.1 percent).4

The reorganization of work, constant availability, high flexibility, lack of time, and tough professional competition not only in-crease the desire to live on a healthy and per-formance-boosting diet. These factors also lead to an ever-increasing demand for conve-nience products. Food should be readily available at all times and its preparation should not take too long because this time could be used for more important things.

Consumers want individual productsSince 2004, the personalized diet has become a research focal point of Nestlé. The so-called “Personalised Health Science Nutrition” ap-proach is based on the fact that very specific nutrition strategies can be realized from sci-entific findings and food can be enriched with micro-nutrients. This results in the fact that different cultures, but also genetic dispo-sitions can be considered for individual nu-tritional styles. “For example, people particu-larly sensitive to salt can reduce their blood pressure merely by omitting salt. If this sensi-tivity to salt does not exist or is not as dis-tinct, the omission of salt in terms of possible hypertension remains without effect. For this reason, nutrigenomics is increasingly trying to identify biomarkers for certain physical characteristics and information about a

4 Food and drink industry 2017. BVE. http://www.bve-online.de/presse/infothek/ publikationen-jahresbericht/ bve-statistikbroschuere2017

24 PERIODICAL #17


change in diet. This scientific work is the ac-tual revolution in the life sciences sector,” ex-plains former Chairman, Peter Brabeck- Letmathe, in his book “Ernährung für ein besseres Leben” (Nutrition for a Better Life).5The option of nutritional personalization is reinforced by the social trend for individual-ization. Be it vegetarians, allergy sufferers, or athletes, they can already take advantage of a wide range of food which is geared to their specific requirements. This offer will con-tinue to grow in the years to come, as digita-lization considerably simplifies production processes. Even today, customers can order products from various manufacturers in the required quantities and variations. Cus-tomers regularly inject suggestions for flavors or design into the production process using social media, which leads to more variety.

5 See: P. Brabeck-Letmathe, Ernährung für ein besseres Leben, page 124 cont.

Shopping online for food is becoming the normPeople in Germany take advantage of the op-tion of ordering goods and services over the internet and having the food delivered to their home. The Handelsverband Deutsch-land (HDE, German Retail Federation) as-sumes that the turnover generated online will achieve €48.8 million this year, which would be an increase of eleven percent.6

However, e-commerce is still underdevel-oped in the fast-moving consumer goods (FMCG) sector, particularly in the case of food and drink. Merely 0.8 percent of the turnover in the food sector was generated on-line in 2015. This year, it is expected to rise to at least one percent.7 The expectation is that the revenue will soon advance to relevant di-mensions once logistical issues such as cold chain and fast delivery are clarified. Amazon could initiate a change in trend. The e-com-merce giant entered the business with Amazon Fresh in May this year. Since then, customers from Berlin and Potsdam can chose from a range of approx. 85,000 prod-ucts and order them online. Also chains such as Rewe, Kaufland, and dm are currently in-vesting massively in online shopping.

6 http://www.einzelhandel.de/index.php/ presse/zahlenfaktengrafiken/item/ 110185-e-commerce- umsaetze

7 http://www.einzelhandel.de/index.php/ presse/zahlenfaktengrafiken/item/ 122835-lebensmittel- aus-dem-netz

New companies are entering the marketAs a result of these developments, players who to date are unknown are also entering the market. Restaurants and fast food chains are merging as supply chains, or they bundle this service in new companies. Through or-der platforms such as lieferheld.de, lieferan-do.de, or deliveroo.de, it is possible to order, pay for, and arrange for home delivery of pizza, sushi, salad, or burgers by mouse click or with a smartphone. At the same time, the market is expanding with more business con-cepts which would be inconceivable without the digital transformation. These include the company HelloFresh, which offers cooking boxes for consumers with prepared ingredi-ents and recipes online and dispatches them. However, this also led to a series of interest-ing food-tech start-ups (e.g., Infarm, Crusta Nova, Food Tracks), which were launched in recent months with a view to establishing a niche in the emerging market and achieving mid-term commercial success with the pro-duction of new consumer packaged goods, innovative food production processes and technologies, and the usage of biotechnology.

THE IMPACT FACTORS SPAN FROM A

CHANGING UNDERSTANDING OF

NUTRITION AND NEW OFFERS RIGHT UP TO

AN ENTIRELY NEW SHOP PING BEHAVIOR.

25 PERIODICAL #17


How is Nestlé meeting the challenges?

With some 2,000 brands, Nestlé is active in almost 200 countries and employs roughly 340,000 people. It is part of the company’s heritage to recognize fundamental changes in the market at an early stage and to react in an innovative way. Being prepared for constant change is deeply rooted in the DNA of Nestlé.

Incorporating a start-up spirit in the companyStill, the great speed of the digital transfor-mation marks a turning point. Innovations or changes are now happening at a speed which leaves no time for lengthy adaptation. It therefore has to be the objective to imple-ment an organizational structure which al-lows for maximum agility. A change manage-ment process is not enough. Transforming into an agile enterprise can only be successful if a euphoric spirit spreads throughout the company and a start-up mentality prevails which involves all employees, regardless of division, hierarchical level, or age.

A digital network is the driver of change at Nestlé Deutschland. This currently includes some 120 employees with digital expertise from various divisions. Together with the digital unit, an expert team with members from data analytics, technology, e-commerce, and digital marketing is coordinating the dig-ital change in the entire company across all business sectors and functions by discovering

new trends, initiating innovative forms of collaboration, and developing novel work methods. The unit thus takes on a central role on the path to the Digital Enterprise Trans-formation (DET), which also includes new models such as the Reverse Mentoring Pro-gram. Here, young, digitally savvy colleagues take on the role of a mentor and train long-term employees, often also top managers.

In 2016, Nestlé Deutschland launched the Digital Acceleration Team (DAT). DAT is both a multiplier and “digital laboratory”. In DAT, employees from the entire company are trained to become digital experts over the course of several weeks. Then, they return to their own divisions as ambassadors and share their knowledge. DAT thus acts as an acceler-ator of the digital transformation within the organization, which simultaneously – similar to a start-up – works on novel business con-cepts by managing projects which provide business value for the divisions.

New partnerships and forms of collaborationIt would be naive to assume that all chal-lenges can be managed successfully simply by internal impulses. In order to procure the necessary external impulses, Nestlé estab-lished far-reaching strategic partnerships with leading companies such as Facebook, Google, Amazon, and Samsung. In addition, distribution channels with special e-com-merce products are tested with e-commerce Pure Players as well as classic retailers.

This context of innovative partnerships signifies further initiatives of our company. For example, Nestlé is present in Silicon Valley with its own office, maintains contact to start-ups, and establishes partnerships to interesting digital companies in order to col-lect ideas for new business models. One of these ideas is the Open Innovation Platform for start-ups, called “Henri”. Here, young companies can work on projects with experi-enced Nestlé experts and develop transna-tionally. Numerous new ideas have already been developed on the Nestlé Campus at the German headquarters in Frankfurt. This also houses the Nestlé Competence Centre, which is a dialog platform for customers, con-sumers, suppliers, and employees and regu-larly organizes guided tours, workshops, and events.

INNOVATIONS ARE NOW HAPPENING AT A SPEED WHICH LEAVES NO TIME

FOR LENGTHY ADAPTATION.

26 PERIODICAL #17


One of the main topics discussed here is the question of what the future POS and the “kitchen of the future” might look like in 2030. For this purpose, cooperative efforts with kitchen appliance manufacturers has been developed.

Customers receive direct contact to our brandsRecently, Nestlé reopened its legendary Maggi Kochstudio (Maggi Cooking Studio) in the heart of Frankfurt. The Maggi Koch-studio is an important touchpoint, providing Nestlé with direct contact to its customers to find out more about their needs. Social media plays an important role in the process. For example, the Maggi brand is active on digital platforms such as maggi.de, Facebook, YouTube, Instagram, and Pinterest. Last year, some 50 million intensive brand experiences were imparted through these digital chan-nels. And this number is constantly increas-ing. Currently, almost 300,000 people obtain inspiration from Maggi on these channels every day. Visitors can exchange recipes and cooking tips with Germany’s first digital chatbot in the culinary category, and bloggers can take professional videos and post them on their social media channels.

Digital connectivity initiates role changeThe close exchange between company and consumers on social media channels is one facet of digital connectivity which will only increase in the years to come. Soon, life- logging systems will monitor the daily rou-tine of users and protocol their steps from getting up to going to bed. Nestlé’s role could be to analyze this data and process it so peo-ple receive nutrition recommendations tai-lored to their needs.

The other facet of connectivity is the tech-nical link, described as the “Internet of Things” (IoT) or “Industry 4.0” . This allows the exchange of data using various devices and gives companies the opportunity to de-velop new products which allow for a high level of food personalization. For example, it might be possible to use a sensor to record how many calories an individual has con-sumed. This data can be subsequently matched with specific information regarding health, which allows for a specific data-based analysis of calories and nutrients for the next meal.

Here it is key to systematically cross-link and exchange the assets already available in the company with each other. Thus, it may be possible to improve the quality of data and its application and increase the positive effects for the consumer.

Is this too far off in the future? Not neces-sarily. The technological and social environ-ments are already providing numerous op-portunities for Nestlé to develop new busi-ness models and contribute to the quality of life. However, it is a prerequisite that progress represents a recognizable benefit for the con-sumers’ quality of life and that it is possible to communicate it successfully. This is how Nestlé can improve life and help design a healthier future for individuals, families, communities, and the environment.

TRANSFORMING INTO AN AGILE

ENTERPRISE CAN ONLY BE SUCCESSFUL

IF A EUPHORIC SPIRIT SPREADS THROUGHOUT THE COMPANY.

27 PERIODICAL #17

In an interview with CNN’s Emerging Markets Editor/Anchor and Stern Stewart Institute Board Member, John Defterios, Patrick Pouyanné, CEO of the French multinational integrated oil and gas company TOTAL, speaks about the oil price, political and social developments in Saudi Arabia and the future of e-mobility during the ADIPEC oil and gas forum in Abu Dhabi.

“IT IS BECOMING INCREASINGLY DIFFICULT TO RUN A RIGID REGIME…”

28 PERIODICAL #17

29 PERIODICAL #17

Interview “It is becoming increasingly difficult to run a rigid regime…”

Pouyanné worked in politics for several years and became Minister of Industry in 1989. Four years later he became technical advisor

to Prime Minister Édouard Balladur, and later he worked for François Fillon in other positions. From 1997 onwards, he was in the oil business, initially with Elf, as general secretary for the Angolan subsidiary. After joining the Total group in 2000, Pouyanné retained his position before progressively advanc-ing within the company until he was appointed CEO at the end of 2015. In the same year he was also appointed Knight of the Legion of Honour.

Patrick Pouyanné (left) John Defterios (right)

30 PERIODICAL #17


John Defterios: The first thing I wanted to talk to you about is the condition of the oil market. We put on about eight dollars in the last thirty days between mid-October to mid-November. At the level that we are at right now, would you say this rally is sustain-able or is it just built in with some political risk in the region as well?

Patrick Pouyanné: I think there is still volatility in the market. You know, $44 in August, $65 today. Of course, this does not mean that everyone is satis-fied. You are right, the geopolitical factors must not be ignored. Kurdistan first, then Saudi Arabia. The market is a little bit nervous. I would not say that it is stable, and I think people do have to be cautious because this is the period of the year where demand is strong, inventories are driving down. Any time soon, demand will be lower, and inventories could go high, which would drive the price down again. So, I hoped that the OPEC agreement could be renewed for the full year of 2018, because the market needs a signal of stability.

John Defterios: In fact, we are amid rebalancing, but you are among those who believe that this agreement should be extended to the entire year 2018. Do you think the Russians are in line with the Saudis on this? At least I know that there is a desire for this.

Patrick Pouyanné: I am quite sure. I think, President Putin was very clear when he met King Salman and I am positive about Saudi Arabia, as well. Both states have a common interest here. A price of over $60 is better for them than one of $50, particularly with a daily production of 10 to 12 million barrels. The point is to send a signal of stability. I am very confident that both Russia and Saudi Arabia are seriously committed to this plan. And a difference of $15 means a lot of money. Moreover, the agreement was only confirmed by both countries in November before the meeting in Vienna.

John Defterios: I saw you at the Future Investment Summit in Riyadh. There was great enthusiasm of all these international investors in place in Riyadh. Just then there was a strong signal against corruption in

the country. What do you think? Do you believe that Mohammed bin Salman, the Crown Prince, is he pushing too far here?

Patrick Pouyanné: I think, he has a vision, which is a full modernization of the economy, diversification and a restructuring of the society. We live in the 21st century, and he’s still a young man himself. He lives in the age of social media. It is becoming increas-ingly difficult to run a rigid regime, as was previously possible. So, we see some modernization tenden-cies, such as the fact that women are now allowed to drive cars. This sends a signal to the youth in the country. And of course, with such profound changes he will also encounter resistance. After all, I also encounter resistance when I hit on new things within my company. But I think he has a strong will and it is, globally speaking, very welcome if Saudi Arabia continues to modernize.

John Defterios: I see things a little differently. To me, this seems like an overreach. A crack down on opponents within society to make sure he can have a firm grip on power, on the fight on corrup-tion. Wouldn’t you agree?

Patrick Pouyanné: All that is the same. Of course, there is a huge amount of money at work, a large and influential royal family. But in fact, I think he is a rather strong leader today and he wants to maintain a momentum. Of course, there is resistance, but they must learn to deal with that. If they are willing to do it, I think it’s doubly good to see some modernization.

John Defterios: And it doesn’t scare you off, I mean, as an international investor in Saudi Arabia? When you think of the aggressive nature of his actions so far.

Patrick Pouyanné: No, absolutely not. If you have less corruption, it’s good for everybody. Of course, people can say, “There isn’t stability.” But, we cannot ask for new economic patterns. And one should not assume that a fundamental change can be achieved without difficulty. Loyalty is important in this type of Middle Eastern country. So, to be able to continue to

31 PERIODICAL #17


invest when they have difficulties is also a sign of loyalty and they recognize that. People love to speak about partnership, but partnership will only prove itself as such when there are difficulties.

John Defterios: You see the alliance between the United States and Saudi Arabia, does it give you second thoughts about your gas deal in Iran? Will you back off at all or do you proceed despite this process in U.S. Congress today?

Patrick Pouyanné: This one is an alliance between the U.S. and Saudi Arabia, we knew about before we signed. So that is not new. What is new is President Trump. President Trump and the Congress are revisiting the framework of sanctions. Either we can do the deal legally, revise a legal framework, and then we will proceed. If we cannot do that for legal reasons, maybe we have to revisit it. But, today we are working on the project. The EPC contracts should be ready by January. So I hope by that time Congress will have an answer to the President and the President will have to renew all notes and certifi-cations. Let’s wait and see.

John Defterios: Does it make a difference what the United States does or not to you or do you stay in anyway?

Patrick Pouyanné: Of course, it makes a difference. If there is a sanctions regime, we must look at it carefully. We are a big company. And we work in the U.S. We have assets in the U.S. and we just acquired more of them in the U.S. So, we are accredited both to Iran and to the U.S. and to Saudi Arabia. But, we know we are a commercial company. And it’s not for me to choose who is right and who is wrong.

John Defterios: Right now, we are looking at a special for my programme Marketplace Middle East, on when peak demand for oil will arrive. I was wonder-ing how you factor this in as an oil company. You are investing in renewables. Have you given thought as to when peak demand arrives for you?

Patrick Pouyanné: I’m not sure. It’s very difficult to anticipate that question. What is sure is that funda-mentally, you will have more renewables. But, we will still have in 20 years, 30 years oil and gas. The lesson for us, is that we should focus on what I call low cost oil, low break-even oil. Because this oil, which has lower cost like the one which is produced here in Abu Dhabi. So, let’s concentrate on assets, on the oil which is most affordable for the custom-ers. If it’s affordable because of low cost, then it will be produced. I’m convinced of that.

John Defterios: Are you excited about electric vehicles or is there too much hype behind it? Because the infrastructure is not there, and you’ll probably need gas to power those electric plants.

Patrick Pouyanné: And that is exactly, why I have no problem with it, you know. Of course, it will be EV, but you need to have power. Where does the power come from? It’s coming either from gas or from renewables. If it’s coming from coal, it’s bad because in this case it would not bring any benefits for climate protection. However, we are well posi-tioned in the gas market and are working on further growth in this area.

John Defterios: It’s fascinating, you are investing less than a billion dollars a year in the renewables. For Total, it’s not a lot of money. What keeps you from investing more?

Patrick Pouyanné: It may be not that big, but it’s one billion. Do you know many companies investing a lot of billions in renewables? It doesn’t matter what we do, we’re always criticized. At the same time, we could not invest anything at all and say that we are in the gas business and that we are not doing anything at all; but we are not doing so. We’re investing some-where between 500 million and 1 billion dollars, which is a lot of money, I think. That is why I do not accept this criticism.The battery business is the same. Two years ago, we were asked why we are investing in batteries. Today we know that it was a very good decision.

32 PERIODICAL #17


In the whole area of low CO2 energy are assets which could deliver growth, which could participate to better revenues for our shareholders.

John Defterios: Fast forward 20 years in the Middle East, particularly the low-cost producers of the gulf states. Will it be radically different because of the drop in oil demand or are they going to ride this through because they are indeed the lowest cost producers in the world?

Patrick Pouyanné: They are the lowest cost producer. Which does not mean they should not think like us and diversify their economy. It’s not good to rely only upon one product, oil and gas. It’s better for diversi fication. But, I’m quite sure that we’ll be there in 20 years, they will still be the largest producer of oil, because it’s the energy with the lowest cost. That is why we should not oppose this kind of energy. We need it to provide affordable energy to the billions of additional people that will be on our planet in 20 years’ time. We need oil, we need gas. Even though coal today is usually regarded as the energy of the past, we will not be able to get by without coal very quickly. So, it’s not again green against oil, gas. That is why it is not a question of using green energy against fossil fuels. We must all develop in the best viable way.

John Defterios: Ok, one last point. What do you think about the last mile covered by the combustion engine for the truck. Do you see any sort of technol-ogy there that is going to be a major breakthrough for the big semi-trucks and those delivering to the cities?

Patrick Pouyanné: That’s a good question. I’m think-ing gas, hydrogen gas. Of course, it is not ideal to let these huge trucks drive into the cities at all. So, we can imagine having a fleet of motor trucks to deliver in cities, and gas or hydrogen gas could be the technology of choice. And for smaller trucks, it could also be batteries.

I think, however, that governments should not sim-ply say, “Electric vehicles or on foot”. Instead, they should set a target and say, “We want no emission.” I think it is very important that there should be no over- regulation by imposing certain technologies.

John Defterios: They shouldn’t pick and choose the technology?

Patrick Pouyanné: No, I think, it’s a mistake. They take on a huge responsibility. For example, nobody’s speaking about recycling all the batteries needed for expanding e-mobility. Nobody wants to discuss it. It’s much better in terms of innovation dynamics. But it would be much better if we set a target instead. It would also be better in terms of economic efficiency, to set a target when deciding what could be a viable technology to reach this goal. But you take responsibility and maybe we’ll discover in 20 years’ time that it had been a mistake all along.

John Defterios: Thank you, Mr. Pouyanné, it has been a pleasure talking with you as always.

33 PERIODICAL #17

With discussions on possible bans of the internal combustion engine in several European cities and countries, it is more than obvious that things are changing fast in one of the

world’s most important industry branches – and that this industry needs to prepare for the mobility of the future. At MAHLE, we have a clear vision of the path to clean mobility and, equally, of the regula-tory framework that can make the upcoming transition a success.

MAHLE prepares for the future of mobility via a dual strategy

The ambitious climate targets set in Paris in 2015 call for drastic emis-sion reductions in the transport sector. At MAHLE, we are deter-mined to contribute by pursuing a “dual strategy”. On the one hand, we are convinced that the internal combustion engine (ICE) has a clean future. With technology innovations increasing efficiency even further and the use of alternative fuels, there is still plenty of reduc-tion potential to be exploited, eventually leading to climate neutrality.

Paths to Low-carbon MobilityThoughts on the upcoming automotive transformation

Wolf-Henning ScheiderCEO

MAHLE

From an automotive industry perspective, it is safe to say that the year 2017 has been an interesting one.

35 PERIODICAL #17

Wolf-Henning Scheider Paths to Low-carbon Mobility

On the other hand, MAHLE is also fostering e-mobility, by offering products and solutions for all forms of hybrid-ization, full battery electric vehicles (BEV), and alterna-tive propulsion concepts, including fuel cell technology.

We strongly believe that both technology paths need to be pursued simultaneously if we are to reach interna-tional climate objectives. Today, the ICE-based power-train is dominant in the global car fleet. Tomorrow, de-spite a significant uptake of electrification, this will still be the case – at least in 2030, and most certainly looking at the then-existing vehicle fleet on the roads. Therefore, it is crucial that we continue to optimize the ICE and clear the way for alternative fuels, such as CNG and synthetic fuels.

With our MEET concept car, MAHLE shows one key path to low-carbon mobility

Clearly, electric mobility is an important part of the fu-ture powertrain mix. One of the main challenges lies in the trade-off between long-range extension and cheap batteries. Range comes with larger batteries, but this is

associated with higher costs and, crucially, increased life-cycle emissions due to high emissions linked to cell production.

To address these conflicting objectives, MAHLE has developed an urban concept car that presents one possi-ble way to low-carbon mobility: A vehicle that is dedicat-ed to the modern urban mobility of larger cities where consumers need individual transport opportunities with-out the burden of size and weight of vehicles for long dis-tance travel. At MAHLE, we believe that this new vehicle class will emerge with the rise of “zero emission zones”. With its 48V drive unit and small battery, MEET ( MAHLE Efficient Electric Transport) excels in affordability, energy efficiency, and in cutting carbon emissions. What is more, MAHLE’s expertise in the field of thermal management contributes to an extension of cruising range – all without increasing battery size and hence overall carbon foot-print. MEET demonstrates that electric mobility can re-duce CO2 emissions. But let us not pretend that this is the case for any electric car because this depends on the elec-tricity mix and, crucially, battery size. If we want electrifi-cation to succeed, we need to have an open debate on its advantages and disadvantages from the start. Otherwise, we risk disappointment and a backlash.

Billion cars

>90% >75%

2030 2040

2.0

1.5

1.0

0.5

Alternative Drives Internal Combustion Engine

Figure 1: Expected future powertrain mix of existing vehicle fleet

36 PERIODICAL #17


For European industry, the transition will be challenging – but there is no alternative to proactively driving it

The last century has witnessed the formation of a close-knit cluster of European manufacturers, suppliers, uni-versities, and research institutions, all clustered around the combustion engine. This includes the mechanical en-gineering industry, which produces the machinery neces-sary for ICE production. According to recent research by the Ifo Institute for Economic Research, 15 percent of Germany’s overall industry production (or a production value of €212.8 billion) is directly or indirectly linked to the future of the combustion engine. Paradoxically, it is the strong position in ICE technology that offers the fi-nancial basis for the high upfront investments into elec-trification.

For this cluster, the transition will no doubt be a chal-lenge – technologically, financially, socially and, not least, mentally. But instead of burying our heads in the sand, we must take a proactive stance in our companies – and ask political decision-makers for realism on the efforts and time required so that the transformation does not be-come a disruption.

2a 4a 6a 8a 10a

30

25

20

15

10

5

30 tCO2

23 tCO2

20 tCO2

11 tCO2

6 tCO2

15,000 km/a, 15.4 kWh/100 km, Vehicle 5 tCO2eq, Batt ery 150 gCO2eq/Wh

ICE Fossil

BEV 40 kWh (560 � 390 gCO2eq/kWh) German Electricity Mix

BEV 40 kWh (0 gCO2eq/kWh)

CNG Monovalent Fossil CNG Monovalent E-Fuels

ICE: Internal Combustion EngineBEV: Batt ery Electric VehicleCNG: Compressed Natural Gas

tCO2

Figure 2: The CO2 footprint of the battery and electricity production

EU regulation has been a success – but the current regulatory approach has reached its limits

As a supplier of innovative technologies, MAHLE appre-ciates the innovation stimulus that can come from legisla-tion. In the past, however, EU legislation focused on test cycle performance, resulting in cars being clean in the test but polluting in the real world. When it comes to pollut-ant emissions, the lesson has been learned, and the Real Driving Emissions (RDE) test procedure has been intro-duced. When it comes to CO2, however, we risk repeating past mistakes.

37 PERIODICAL #17


Example 1 HVAC: Heating, ventilation, and air con-ditioning are important energy consumers that are not considered in the existing regulation, although their effi-ciency can cut CO2 emissions from combustion engines and extend the range of electric vehicles (EVs). If this re-mains the case, the discrepancy between test and real consumption values should come as no surprise. Credits for efficient systems as part of the revised CO2 regulation could transform the market, offering a win-win for indus-try and the environment.

Example 2 Plug-in Hybrids: The emissions are only reflecting the real conditions if the owner uses the vehicle mostly in electric mode. A condition that is not always fulfilled in real life and should in the medium-term lead to a review and a more realistic classification of this vehi-cle type.

But this alone will not suffice, since the underlying problem is more fundamental. Currently, the EU CO2 regulation is following a so-called “tank-to-wheel” ap-proach, focusing on tailpipe emissions only. This means that emissions from phases other than the use phase are not included in the calculation of a vehicle’s emissions, which brings about two important shortcomings.

First of all, as any engineer will tell you, this approach fails to compare different technologies in a fair manner. This is because the regulation completely neglects the un-derlying national energy mix. Hence, EVs are credited with zero emissions even if they are charged with electric-ity from coal-fired power plants. To make matters worse, the approach ignores high emissions linked to cell pro-duction. And to those who claim that those emissions are already covered under the EU emissions trading scheme, please double check where in the world cells are produced.

Secondly, the current regulatory framework inhibits investments in alternative fuels. This is particularly un-fortunate since synthetic fuels can actually turn the con-ventional powertrain into a climate-neutral technology.

Take synthetic gas for example. When produced with regenerative electricity, burning such gas is nearly CO2-free over the life-cycle (as CO2 that was extracted from the air during production is released again during com-bustion). But the regulatory logic will penalize such a car even though it performs better than an EV with respect to its life-cycle emissions (unless the electricity used for running and producing the EV is “green” – an aspect foreign to EU legislation). This blocks investments into CO2-saving solutions by both the automotive and the fuels industry.

A smart regulatory framework can help make the transition a success.

For the reasons discussed above, the EU should use the opportunity of the upcoming revision of the CO2 legisla-tion to create a holistic regulation that eliminates the ob-vious current shortcomings. However, besides following a technology-neutral approach, there are several other ways in which politics can facilitate the industry’s transi-tion process. For instance, one could initiate specific R&D projects, offer attractive training and qualification measures for (present and future) employees, or support the creation of new industrial clusters through test facili-ties for e-mobility solutions. And if we also want to make the transition a success in the labor market, a beneficial long-term strategy could put an emphasis on hybrid vehi-cles, thereby gradually electrifying the global car fleet and avoiding labor market disruption to the extent possible.

AN AMBITIOUS EUROPEAN REGULATION SCHEME IS NECESSARY

IF WE ARE TO REACH THE INTERNATIONAL CLIMATE GOALS.

38 PERIODICAL #17

ALTERNATIVE FUELS

INTERNALCOMBUSTION

ENGINE

ELECTRICDRIVES

Goal < +2°C


Conclusion: Learn from past mistakes and prepare for the future

The Paris Agreement has set off a far-reaching transfor-mation process to which the industry needs to respond – the sooner the better. MAHLE is all set to be an active player in this transformation with our dual strategy. At the same time, industry and society need a regulatory framework that allows more than one path to climate- neutral mobility. This includes not only electrification, but also alternative fuels and efficiency improvements of engine components.

All of the above suggests that the discussions in some European countries are no example to follow. Banning

the combustion engine means banning one possible path to clean mobility.

Instead, a smart regulatory framework needs to promote electrification in a sensible way

and, in addition, clear the path for an internal combus-tion engine that is climate-neutral. Whatever way you look at it and despite the expected increase in electrifica-tion, ICE technology will continue to account for the lion’s share of the global powertrain mix throughout the next decades.

Clearly, an ambitious European regulation scheme is necessary if we are to reach the international climate goals. But EU regulation should push automotive suppli-ers like ourselves to reduce overall emissions – instead of forcing us to narrowly focus on tailpipe emissions. Other-wise, I fear Europe has learned little from recent scandals and risks making past mistakes all over again.

Figure 3: Paths to low-carbon mobility in a technology-neutral scenario

39 PERIODICAL #17

Angie for a Day!

Of course there are obstacles. You need a coalition partner. Only in nightmares, could I imagine

another grand coalition. The final death-blow for all visionary change. A free ride for the positioning of the extreme right and left-wing parties down the road.

No. Imagine yourself running a minor-ity government. You have to come up with great proposals. Ideas that every time have to convince. The people. And some other parties.

What is really missing, for Merkel, or for you in her shoes, is a vision, are some dreams. But, of course, the night will end. Reality will force concrete decisions.

I tried to challenge you with a poll. More than 100 most senior decision-makers shared their views. What did I ask? Money talks.

The German government earns and spends roughly €1.5 trillion. What would in power you change?

Does Angie still have dreams? Just imagine you were in her shoes. Just imagine you yourself could give it a try. Nothing really to lose.

But this unbelievable opportunity to finally have an impact on a different scale.

Markus PertlChairman

The Stern Stewart Institute

What should the next German government aim for?

First the ground rules! 87 percent of you clearly state that in these good

times, government should achieve a balanced budget or create

a surplus. There goes the dream of unlimited resources.

To invest more or at least not reduce budgets

To lower or at least not raise taxes

Balanced budget is not a priority

To achieve a balanced budget

To create a surplus and reduce the total level of debt

57% 30%13%

52% 48%

What would you prioritize?

Imagine a surplus: Would you invest more or lower taxes? Imagine

a deficit: Would you cut budgets or raise taxes? 50/50! Clearly not all of

you are republican. You are not dogmatic. We have to make it more

concrete.

40 PERIODICAL #17

Markus Pertl Angie for a Day!

How would you reallocate spending?

So, how exactly would you allocate your spending? Let’s start with big money. Pensions, healthcare, social welfare. 100, 92, 93…percent of you would like to cut or at least keep stable.

You clearly don’t care about reelection. Ok, you are independent. But I am not sure if you and I still share the same world?

What about demographics? Pensions and healthcare costs are not on the rise? Realisti-cally? What about technology and the winner takes it all? Do you really think that we will cope with less distribution of our nation’s wealth? I have my doubts.

Education: Luckily, here we all agree. Significantly more investments will be needed.

90 percent of you believe that we have to spend more or at least not less on defense. Of course, in the case of Germany we are not talking about big money anyway. Interesting though, I also asked a sample of young people. They disagree and many want to spend less. Maybe, they don’t watch the news. Take freedom of course for granted.

Now you and the group of young people agree again on more money for police. So, even young people are scared of refugees. Just not of Putin. He is cool.

At 0 percent interest rate, debt service does not really matter. Less for agriculture more for the digital infrastructure. Pocket change. Let’s switch to tax collection!

Significantly less No change Significantly more Young Professionals

Pensions (€282bn)

70%30% 0%

64%28%

Healthcare (€211bn)

8% 40%53%

Social welfare and unemployment

(€202bn)

7%

Subsidies for agriculture and industry

(€30bn) 0%

11%89% 87%

Rail, road and digital infrastructure (€28bn)

0%13%

64%36%

Police and civil protection (€18bn)

0%

Education (€117bn)

92%8%

0%

42%

48%

37% 36%

27%

Defense (€37bn)

10%

41 PERIODICAL #17


How should the German government change tax income?

Significantly less No change Significantly more

Social security contributions (€490bn)

66%

32%

2%

< €40,000 income (€46bn)

63%35%

2%€40,000 – €125,000 income

(€131bn)

57%43%

0%

€125,000 – €500,000 income (€64bn)

71%

18%11%

> €500,000 income(€29bn)

57%

12%31%

Value-added tax (€217bn)

72%14%

14%

Corporate tax (€40bn)

67%31%

2%

12% 6%82%

Wealth tax (currently not

existing)

60%16%

24%

Capital gains tax (€6bn)

Inheritence tax (€7bn)

50%22%28%

42 PERIODICAL #17


Where do you get your money from? I guess, it’s good to know which cows are used to being milked.

Employees of course! 50 percent of all state income comes from social security and income taxes.

Not even half of you believe we have to lower taxes for income below €100,000. I dare to disagree. Right now, unemployment really is not an issue. But 10 years down the line it might be.

Investments in technology are really cheap. Financing right now feels almost free. But labor is completely overpriced. What is the logic? What incentive is it, to make work expensive? Or worse not worthwhile for the employee? Why are we even talking about a general income “Grundeinkommen” before we have even eliminated tax on lower income?

One third of you want to increase tax on income above €500,000. I could imagine that was the entrepreneurs participating in the poll. They don’t mind if managers pay more than 50 percent in taxes. Managers, who do all the work. On the other hand, of course, let’s keep free lunch for wealth and inheri-tance!

Less than 1 percent of the total tax income comes from wealth, inheritance or capital gains. But still two-thirds of the poll participants don’t want a change.

So lots of taxes on the thousands and the millions, but no taxes on the billions. Some times it feels to me as if we are culturally stuck. Stuck somewhere between monarchy and socialism. It is ok to be born rich. But we are skeptical about who wants to become rich. Don’t touch wealth. But envy the success of an achiever.

The other relevant source of income is the VAT. The lower the income of people, the higher their relative share of consumption. In other words, there is a limit to an increase of the VAT.

And finally, corporate tax. One third in our poll demand lower taxes. But maybe more now, after Donald Trump has succeeded in lowering corporate taxes in the States. But it is not as big an issue as one might think. Only 3 percent of total tax income.

Should German nationals be taxed in Germany regardless where they live ( just like US nationals)?

As a foreigner, I also wanted to know what is the value of a German passport? 80 percent of you believe not much. It is ok to be a German and pay no or little taxes somewhere else. Personally, I put so much value on the opportu nity Germany gives to me everyday. At least, 50 percent of the young people agree with me.

Do we qualify?

To sum it up, we all are qualified. Qualified as good politicians. Because the math does not add up. Lower taxes, more investments, less spending where it is not realistic and still a balanced budget. A good accountant is all we need.

No Yes Young Professionals

72%

28%

48%

52%

43 PERIODICAL #17

Renewed European Optimism Should Be Used to Reinvigorate

the Capital Markets Union

The Brexit decision slowed the project down, but con-fidence in Europe is returning: The recent election results in France and Germany showed that – despite

undeniable Eurosceptic trends – a majority of voters share the European vision. This new optimism should be used to reinvigorate the Capital Markets Union. It will help European companies grow and create jobs and will broaden the horizon of investment opportunities in Europe.

Since the European project kicked off 60 years ago, cooperation among European member states has accom-plished great feats. The integration of 28 economies into a single market has created one of the strongest economic areas in the world by creating jobs and increasing the in-come of European citizens. In this process, financial market integration came only relatively late to the game.

Intra-European capital controls were only abolished in the late eighties, after which the introduction of the euro and the creation of the Financial Services Action Plan in 1999 sped up a process that only briefly levelled off during the sovereign debt crisis which started in 2008.

Still, as the European Commission rightly concluded in 2015, Europe has a long way to go in reaping the full bene-fits of a fully integrated capital market. That year, it launched the Capital Markets Union Action Plan, with the objective of fostering the contribution of market-based finance to European economic growth. Note that capital markets in the EU are only about one-third as developed as the US market, relative to GDP. Companies predominantly rely on bank financing, making the region particularly vulnerable for shocks to the banking sector.

The second largest economy in the world still lacks a fully integrated capital market. In 2015, the European Union was determined to bridge

that gap. An action plan was launched to improve market-based financing conditions for European companies and foster economic growth.

Dorothee BlessingRegional Head Germany / Austria / Switzerland,

the Nordics, Ireland and Israel Vice Chairman of Investment Banking, EMEA

J.P. Morgan

45 PERIODICAL #17

Dorothee Blessing Renewed European Optimism Should Be Used to Reinvigorate the Capital Markets Union

Easier access to capital to spur growth and innovation

The positive economic impacts of a Capital Markets Union (CMU) for Europe have been widely recognized. They include having more diversified financing opportu-nities for companies of all sizes, and better investment opportunities for investors, which will in turn lead to more innovation and increased economic growth across all EU economies. The CMU will provide a platform for market-based financing also for start-ups, small and medium- sized companies (SMEs) by facilitating their access to capital markets. Right now, for example, many smaller European companies avoid the capital markets as a source for financing due to rather complicated require-ments for publishing a prospectus for their bond is suances. One aspect of the CMU would be to relax these requirements, making it less complicated for SMEs to issue a bond and diversify their financing sources.

European companies and investors stand to benefit

Since 2015, the Commission has been launching numer-ous laudable initiatives including a modernization of the EU prospectus regulation and a legislative proposal to kick-start the securitization market. Furthermore, the EC’s ‘Better Regulation’ agenda has helped to create an environment where legislation balances the objective of economic growth with the need for financial stability thereby enabling financial institutions to better perform their intermediating role in capital markets.

Regrettably, the UK’s decision to leave the EU seems to have led to a loss of momentum behind the Capital Markets Union. This was partly due to the perception that the spoils of the project were mostly intended for the City of London. However, the reverse is true.

As the New Financial think tank demonstrated in a recent study, companies in the EU27 (i.e. the EU without the UK) rely on bank lending for just under 80 percent of their debt funding, compared with 55 percent in the UK. Long-term pools of capital (such as pension fund assets) represent just two-thirds of GDP in the EU27, compared with nearly 200 percent in the UK.

This represents a huge potential opportunity for the EU27 economy. If capital markets in the EU27 were as deep relative to GDP as in the EU28 today, it would mean an additional €2 trillion in long-term capital that could be put to work in the EU27 economy, while reducing reli-ance on bank funding.

The majority support for pro-EU parties in the French and German elections has led to some resurgence of trust in the European project. Judging from his recent State of the Union speech, European Commission President Juncker seems intent to translate this trust into concrete policy action.

THE UK’S DECISION TO LEAVE THE EU SEEMS TO HAVE LED TO A LOSS OF MOMENTUM

BEHIND THE CAPITAL MARKETS UNION.

46 PERIODICAL #17

Dorothee Blessing Renewed European Optimism Should Be Used to Reinvigorate the Capital Markets Union

Liquidity, third-country access and a single rule book as elements of success

The time is right for a CMU, but it also needs to be done the right way. The success of the project does not only hinge on measures that facilitate access to capital market financing, such as simplified prospectus requirements, but includes a number of additional considerations, in order to reap the various benefits: ❱ First, the European Commission should strive with

renewed energy to converge the supervisory ap-proaches in the European member states. The consis-tent application of a single rulebook across the EU will lead to more efficient and integrated capital markets. Each such harmonization should be considered on its own merits, and in the context of global consistency, with a view to converging towards a globally consis-tent approach. European Supervisory Authorities play a crucial role in promoting supervisory convergence. To ensure that they are well equipped for this task, careful consider-ation should be given to their governance, resourcing, mandates, and responsibilities, as well as their interac-tion with market participants. The recently published legislative proposals to review the powers of the European Supervisory Authorities set an important step in that direction.

❱ Secondly, there is reason to be concerned that the cumulative impact of interest rate dynamics, changes in regulation, and market structure is having a damp-ening effect on market liquidity. Market participants report that they have experienced a reduction in liquidity in normal times. Investors feel less able to trade their desired size without materially impacting the price. As we move into the next phase of CMU, it will be crucial for the European Commission to seek ways to use policy to add liquidity back into markets. For instance, the special role of market makers, who put their own capital at risk by providing liquidity to their clients, should be recognized and fostered by legislation.

❱ Thirdly, the CMU’s objective of removing barriers and reducing the cost of deploying capital across the EU can only be fully achieved if it becomes a template for wider market access. The ability for American or Asian sources of financial capital to be deployed within the EU, to aid economic development and em-ployment growth, is dependent on the ability of third-country financial services firms to access the European market on comparable terms to EU firms and investors. The involvement of non-EU financial service providers will contribute to the success of the Capital Markets Union by stimulating competition and financial product innovation in the provision of capital to EU firms. While the European Commission recognized the im-portance of this international component to the CMU in its 2015 Action Plan, the Brexit decision has in-creased sensitivities around Europe’s approach to third countries. Although this is understandable, it is im-portant that European policymakers continue to look outward if they are to reap the full benefits of market- based finance to the European economy. A CMU that does not facilitate third-country access will reduce competition, innovation, and ultimately the flow of capital into the EU.

❱ Fourthly, the CMU is an excellent opportunity to further benefit from the opportunities offered by Financial Technology. Innovation and digitization have the potential to increase the range of products on offer in capital markets, as well as the availability of these products and the speed and cost of execution. With these opportunities, though, come new risks, and it is important that these risks are monitored care-fully. These risks include cybersecurity, the impor-tance of which has increased with the further digitiza-tion of financial services. There are a number of prin-ciples which could help policymakers achieve a balance between supporting innovation and maintain-ing customer protection and financial stability. Policymakers should think globally, as financial tech-nology is not limited by geographic boundaries or by legal and regulatory regimes. There is value in flexibil-ity – a one-size-fits-all or overly prescriptive approach could slow technology innovation. Finally, policy should be ‘activity-based’, as certain technologies may have a broad range of applications that could be con-strained by ‘technology-based’ regulatory schemes. To conclude, a CMU offers real gains for Europe’s

customers and consumers. The opportunities offered by the recent resurgence of trust in the European Union should now be used to finalize this important project.

POLICYMAKERS SHOULD THINK GLOBALLY, AS FI NANCIAL TECHNOLOGY

IS NOT LIMITED BY GEO GRAPHIC BOUNDARIES OR BY LEGAL AND

REGULATORY REGIMES.

47 PERIODICAL #17

Profitable Growth in Mature Markets

What are we talking about?

There are large companies in the steel manufacturing, coal min-ing, engineering and plant engineering, and petrochemical pro-duction sectors, and so on, where the overall supply has been

exceeding the overall demand for quite some time now. Manufactur-ing was outsourced and off-shored some time ago, and the next wave of restructuring is now affecting the outsourcing and the off-shore facilities. Manufacturing is almost always asset heavy. And demand, if not on a long-term downward trend, is volatile, making it difficult to earn the cost of capital plus returns through the cycle. Now digitaliza-tion is the new wave, disrupting classical business models in an even faster way. This wave is offering more options for IT platforms and big data companies like Alphabet and Facebook, for technology compa-nies like Apple, and for 3-D printing companies, which offer the com-bination of big data, logistics, and customer service, like Amazon. Overall, the wave is posing more of a threat to established companies in the heritage business sectors. Is this unsurmountable?

These days, start-ups, especially in the technology sector, are everybody’s darling, while the big items of the past, large and medium-sized companies in the industrial

sectors of B2B business, are standing on the sidelines. They mostly operate in mature markets with no positive dynamics and real growth potential, and with

downward restructuring. But that does not necessarily have to be the case.

Ludger HeubergCFO

Arvos

49 PERIODICAL #17

Ludger Heuberg Profitable Growth in Mature Markets

1 2 3 COMMODITIZATION

OF PRODUCTS IN MATURE INDUSTRIES IS A REAL THREAT, BUT OFTEN THERE ARE WAYS OUTThe usual trend is at work here. What was an innovation years ago and came with a sub-stantial premium has become more common over time and is finally becoming a commod-ity with strong competition for the lowest price. But in many cases, there are other options, even in B2B businesses. The main question is how to generate additional cus-tomer benefit in several different ways. The commoditized product function has to be a given in every product of that sector, but: ❱ Is it possible to achieve a longer product

life with longer maintenance cycles? ❱ What about higher efficiency of the cus-

tomer’s product or plant facility with a better engineered product of one’s own ?

❱ Are there options for other benefits to the customer from the product that is cur-rently fully commoditized?Even in an industrial sector like the supply

of components for power plants, successful R&D activities are possible, and product de-velopment is delivering benefits to the cus-tomer which include overall higher efficiency of the power plant, higher environmental friendliness, and a longer product life for the supplied component. As a result, there are not only pricing options, but there is also and especially the ability to increase the market share and to organize growth in a non-growth environment.

LEVERAGE OF TECHNICAL EXPERTISE AND TECHNOLOGY FOR OTHER PRODUCTSThis is, of course, the silver bullet – if it is possible. In some cases, there are ways to use the technology or the technical expertise for one product or technical process in one in-dustrial sector for another product or in an-other industrial sector. This is not easy. The few prosperous examples started their suc-cess mainly with workshops and intense thinking and discussions outside the box to-gether with internal and external experts. Sometimes, acquiring a company in the tar-get product sector or market provides the necessary drive or dynamic to enter into the new market.

There are obvious limits to transferring technology to other sectors. Sometimes, the additional investment for facilitating that technology transfer is just too high, doesn’t pay off or cannot be paid off, and sometimes the accepted cost level of a technology or technical process in one sector would be completely unacceptable in another one which would mean that the transfer would possibly, in principle, never generate appro-priate returns.

But it is worth the effort. There are exam-ples from several sectors where substantial market volumes could be added to the usual one.

DIGITALIZATION IS NOT NECESSARILY THE DEATHBLOW FOR THE OLD HEAVY METAL B2B COMPANIES

When looking at the most powerful and valu-able companies of the world and even when looking at the valuation of small-sized start-ups on the stock exchange, the perception is that the experienced companies of the past don’t have a real chance of winning the race. They are moving too slowly, are thinking about protecting their business models, while the fast-paced disruption of business models is the new norm. These companies can never create the same dynamic environment of the fast movers of today. A look at many compa-nies shows this to be true. But there are options.

If we take engineering and plant engineer-ing businesses as an example, it is by no means a given that manufacturing and selling manufactured products is the only or even the main form of business. Apart from the added spare parts business, there are almost always additional service options. What about making all data available for smart pre-dictive maintenance, offering drone inspec-tion to customers in areas of their facility which are difficult to access for inspectors while the facility is in operation, or servicing customers with faster delivery of tailored spare parts by 3D-printing close to the cus-tomer in the near term. This is not only about customer retention, but also about the com-bination of long-standing technical expertise and a new digital approach which will attract new customers to the organization.

50 PERIODICAL #17


4 5 IDENTIFICATION AND MANAGEMENT OF “WHITE SPOTS”Identifying white spots means identifying not just which geographical regions are not cov-ered by the company. It also and more impor-tantly involves understanding which geo-graphical parts of the markets and which niche market sectors are undermanaged. Some industrial markets are extremely trans-parent, most of the markets are very non-transparent. Assumptions about market sizes, especially about several niches, are very usual. The distribution of market shares are rough estimates, drivers for the purchase de-cision of customers are guided assumptions. In this environment, it is not always easy to assess whether different parts of the markets are exploited to the extent possible for one’s own company.

In all of the respective projects about the exploitation of the relevant markets, the out-come was clearly that there are still market segments where we can do more if we adapt better to the needs of this particular market and its customers, accept the specific market-ing and service requirements, follow up on adverse project decisions by customers, and make more of an effort with very capable local sales teams. This does not generate the necessary level of return in every case, but in many cases it is an option to generate profit-able growth for one’s company in an overall market which is not growing.

M&A CAN SUPPORTAcquiring a business obviously generates growth for one’s own company. But in most cases, there is a heavy price to pay for the ac-quired asset. The acquisition can only pay off if market, engineering, manufacturing, and administrative synergies can be generated, or if the acquired asset was undermanaged be-fore and can now be managed better with one’s own resources. This way the acquisition can support the growth strategy in different ways. Buying and integrating a technology company can substantially increase the pace of the technological development of one’s own company and be an important trigger for growth. Buying and integrating a bold on-target company can increase the impor-tance of the business for the customer even if the acquired business stands for a different product offering or it is able to extend the geographical reach and can provide cus-tomers with seamless service worldwide.

In many cases it might also be possible to establish these options from scratch with one’s own resources. But, often the acquisi-tion of a well-placed target company is the only way to substantially increase the pace, be the first mover, and exclude competitors from keeping up.

This generates additional growth oppor-tunities over and above the mere adding of revenues and profits of the target company. Needless to say, business combinations can generate important economies of scale with substantial cost advantages, especially if they come together with a clear footprint optimi-zation.

THE PERCEPTION IS THAT THE

EXPERIENCED COMPANIES OF THE PAST DON’T HAVE A

REAL CHANCE OF WINNING THE RACE.

51 PERIODICAL #17


MATURE MARKETS DEMAND AN EXCELLENT, MATURE MANAGEMENTStart-up businesses, new technology compa-nies, and the like are sometimes in the com-fortable situation where one single and very compelling product or service concept drives all growth and is the one and only real suc-cess factor and pays ultimately all the dues.

These businesses have to defend their model against fast followers, and they have to tackle the huge growth requirements and adapt to changing demand items.

But generating growth in a mature envi-ronment, maintaining a consistent level of cost control, generating competitive advan-tages at all times but with a limited budget demands a very disciplined, skilled, and mature management which still allows and supports an appropriate level of creativity and innovation.

7 6 COST CONTROL IS A MUST

Cost control is another extremely obvious and important point. But there are important differences. In start-ups and very fast- moving sectors, speed, innovation, and coping with growth are real crucial factors, and cost con-trol is of lesser importance. In mature market sectors, cost control is of utmost importance. These are the reasons why: ❱ Despite all the differentiation in product

and services, making digitalization oppor-tunities a driver and so on, there is still going to be a certain element of commod-itization in mature markets – loss of cost control will not be forgiven.

❱ In fast-growing sectors, there is some pos-sibility to grow out of the cost trap. Not having very capable people on board is the real threat to fast-growing companies, that capable people may be more expensive is less of an issue. The exact opposite applies in mature sectors where companies don’t have the same option to respond to cost issues with fast growth.

52 PERIODICAL #17


Conclusion

Even in markets which are not growing or only growing very slowly, there are options to generate growth for an entrepreneur: ❱ Digitalization can ignite additional competition, but at the same

time it offers additional growth opportunities for one’s own com-pany, especially in the service part of the industrial sector.

❱ Product and service differentiation which are not a target them-selves, but which are directly linked to the benefits of the customer are probably the most serious drivers for additional growth in mature markets.

❱ The leverage of one’s own technology and technical expertise is the most difficult, but sometimes the most rewarding option to gener-ate growth opportunities.

❱ In almost every company there are “white spots” or areas which are not well known and are undermanaged. By focusing on these areas and providing the right resources this will add growth, even in non-growing markets.

❱ M&A is not always the best option to generate growth, but it can support growth in mature market-sector companies, especially if the targeted assets are not just adding their revenues and profits. M&A can trigger additional benefits like increased importance to the customers, extended geographical reach, and completeness of the products and services on offer, etc.Disciplined cost controls and mature management are not a

growth driver per se. These are much more the pre-conditions for a successful company in a mature market – and for picking the limited but existent growth opportunities.

53 PERIODICAL #17

THE STERN STEWART INSTITUTE ANNUAL SUMMIT 2017

REVIEW

One year after the election of Donald J. Trump as President of the United States of America, there is hardly any political pundit who would not try to make sense of these twelve months. What

were his most important achievements, what were his shortcomings? What is left from his bragging about the wall between the US and Mexico; the Muslim ban? What about the trade war with China which at one time seemed to esca-late, just as the nuclear war with North Korea? Was this all just rhetoric and are we only now, more than 300 days into office, seeing the real President Trump?Interestingly enough, the public and the political sphere over here in Europe seem just as polarized as their counterparts in the US. It is difficult to say whether this is because it reflects in many ways developments in Europe or whether it is because some Europeans have only become aware of the value of transatlantic relations through the rise of Trump.However, as was to be expected, the effects of the new American foreign policy also played a prominent role at the annual meeting of the Stern Stewart Institute at Schloss Elmau. That being said, the new US foreign policy did not overshadow our other topics of discussion. Rather, we should speak of an overlap. The Brexit and the related uncertainty of British relations with the European Union, but also the continuing conflicts in Syria or Ukraine may disappear from public consciousness for a while, but an end to these issues can not be foreseen in any of the above-mentioned cases.Nevertheless, it is important to warn against focusing too much on individual issues, whether political or economic, so as not to lose sight of the big picture. For this reason, the Stern Stewart Institute always puts topics on the agenda of our Annual Meeting that at first glance do not appear to be among the burning issues of public discourse. These tend to include political questions such as the expected developments after Brexit and Trump. What answers have traditional companies found to the challenges posed by the digital economy? What about China and free trade?

The threat posed to traditional businesses by agile digital companies is not a new discussion topic. What is new, however, is the impression that this development is increasingly moving from B2C to B2B. How serious is this threat to be taken? What strategies can actors use to defend themselves against it? How long will it take them to find answers? The panel’s opponent argued above all that it is becoming increasingly dif-ficult for the old business to differentiate itself from the competition solely through its products. The focus is still on hardware, and no one really knows how the digital business works. But with this “do-it-yourself mental-ity”, it is no longer possible to survive in today’s competition.

On the credit side, however, and this was stressed several times on the panel, there is still the know-how, a mature in-frastructure, and, above all, intellectual property that no one could dispute. However, in the future it will depend more and more on how these assets are handled. It has also been emphasized several times that an openly confrontational approach is not effective. “Rather than fighting them – open up and embrace the challenge.” This year’s survey showed that all these developments are generally based on longer periods of time. To the question of how long it will take to reverse OEM dominance in indus-

trial aftermarket businesses, 62 percent considered a period of five years to be probable, while 31 percent assumed that this will never be the case.As to why B2B is now becoming susceptible to digital ecosystems, the opin-ion of the respondents is even clearer: 78 percent answered that it is due to an “insufficient mindset change”, followed by “Lacking know-how would be better. Missing can also be ‘lost’” (30 percent), and to an “unrecognized threat” (26 percent). The fact that only 9 percent of those surveyed think it is due to financial restrictions cannot be comforting here, because it is clear that the challenges facing companies are enormous (see Figure 1).

Why are B2B businesses vulnerable to the attack of digital ecosystems?

78%

26%Unrecognized threat

Insufficientmindset change

9%Financial constraints

Lacking know-how

30%

Figure 1

WHEN ECOSYSTEMS BEAT OEMS: A NEW DIGITAL THREAT SPILLING OVER FROM B2C TO B2B?

Review The Stern Stewart Institute Annual Summit 2017

56 PERIODICAL #17

One of the key questions in the Old Economy’s approach to the New Economy is the question of innovation. How are the new ideas born? Where do new products come from? The lack of agility and flexibility of many analog companies is mainly due to the fact that: they have more to lose than small start-ups. But there are further advantages of the New Economy, which are well-known but still need to be remembered and they include: no governance and a culture that better accepts failure. In view of this challenge, one could expect a confrontational view of start-ups from the established companies, a willingness to fight and enter into conflict. However, in the next few years it will primarily be a matter of recog-nizing the opportunities arising from possible cooperation.For too long, this has meant one-sided investments and the acquisition of start-ups according to some in the panel. Today, it has been recognized that it is more a matter of interacting at eye level and that partnerships need to be two-directional.The survey proves this point and refers to another aspect. Thus, “partner-ing with external sources” is considered the most effective method of sup-porting innovation within enterprises (81 percent), followed by “network type of organization” (67 percent), and “key hires” (53 percent). On the other hand, only 7 percent of respondents still favor a more efficient allocation of research and development funds (see Figure 2).Nevertheless, time will tell whether these announcements are feasible ideas, whether the will and the ability to implement them are there, and whether some of these declarations of intent are not just the proverbial whistle in the dark.

What is an effective way to empower corporate innovation?

Higher R&D investments

Flexible allocation of R&D time

Key hires

Incubator set up

Network type of organization

Partnering with external sources

12%7%

53%39%

67%81%

Figure 2

YOU AIN’T NO START-UP, MY FRIEND – HOW TO RE-ENERGIZE CORPORATE ENTREPRENEURSHIP AND INNOVATION?


57 PERIODICAL #17

The continuing rise of China as an economic superpower has, in the opinion of many experts, a name that would not neces-sarily have been associated with it a year ago: Donald J. Trump.As ambiguous as the new US administration’s protectionist pol icy may be, it has already led to the fact that the US in the eyes of many people has lost international influence and that China is only too willing to fill this void, both politically and eco-nomically. The one-sided view of China as a threat to international trade, even if it is particularly pronounced in view of the large American trade deficit, does not withstand closer examination. China experts point out time and again that the self-perception of the country is completely different from the image of the aggressive trading giant. Pride in the performance of the Chinese economy is hardly recognized in the West.Mention has been made of the frequent comparison of free trade and pro-tectionism and the countries associated with these concepts, namely China and the United States. However, this is only part of the truth. After all, since the People’s Republic of China’s trade is at least half, if not completely state-run, it can hardly be considered a champion of free trade.And it is precisely in this area that the main obstacles for a level playing field with China are also seen in our survey: 59 percent of respondents consider bureaucracy and regulation to be the main obstacle, almost half still cite unrestricted market access (45 percent) (see Figure 3). Since only 8 percent of all respondents assume that changes can be ex-pected in the protectionist trade policy of the People’s Republic of China over the next 12 months and almost a third believe that the country will be even more closed to the interests of other states (29 percent), it is almost certain that it is not the last time that we have dealt with the relationship between China and the West on this issue.

CHINA SCHIZOPHRENIC… TALKING FREE TRADE, WALKING CALCULATED ECONOMIC WAR?


What are the main obstacles being on a level playing field with China?

Unrestricted market access

Legal stability

Cultural differences

Nothing

45%24%31%2%

Bureaucracy and regulation59%

Figure 3

58 PERIODICAL #17

CHINA SCHIZOPHRENIC… TALKING FREE TRADE, WALKING CALCULATED ECONOMIC WAR?

FINALLY A NEW DEAL? HOW WILL EUROPE SHAPE ITS CORE AFTER BREXIT, USAXIT AND OTHER POISONS?

But what about Europe? The last time we met, many people in Europe were still under the shock of Brexit, and Trump was not even president…How have develop-ments confirmed the fears of that time? Although precise assessments of the future impact of Brexit may differ, it is likely to be agreed that the current man-agement of exit negotiations is not opti-mal, and that there is more uncertainty

on both sides of the Channel about the further development and economic framework conditions of the future Europe than would be desirable.Some people on the panel expressed the expectation, or at least hope, that these secessionist movements could lead to the rest of Europe moving closer together. Good cooperation between Macron and Merkel, as well as gradual economic recovery in southern Europe were cited as the most crucial factors that gave rise to this hope.The extent to which developments in Britain and the USA could boost nationalist and populist movements in Europe was examined in the survey. When asked what the economy’s contribution to the fight against populism could be, about two-thirds re sponded with “creating jobs” (67 percent) or “education” (66 percent), but other means were also considered, suggesting that the problem is rec-ognized as such and taken seriously (see Figure 4).

How can business help undermine populists movements?

Creating jobs

67%

Education

66%Reducing income

inequalities

24%

Others:Political engagementSpeak up on political issuesStay in touch with societyExplain business to people

CSR activities�8% No influence�

2%

Figure 4


59 PERIODICAL #17

First things first: The impact of the new US administration is much less than initially assumed or feared. Despite all the rhetoric, it was repeatedly pointed out not only on the panel that a tweet alone was not a law; the survey also made this impressively clear: almost three quarters of the respondents suspected “little impact” (73 percent), 25 percent a positive effect when asked how they would assess the influence of Trump’s “ America first” policy on their company.

Nevertheless, Donald Trump is not really a President like any other before him. For never has there been an incumbent in office where, after less than a year, one in five respondents thought that the President’s term would probably end with an impeachment proceeding. Although the clear majority think that he will complete his first term of office (79 percent), virtually no one believes that there will be a second term (1 percent) (see Figure 5).Despite a few nuances on individual issues, there is widespread agree-ment on how to deal with a President Trump, which can be summed up with a few key words: not to be taken too seriously, wait and see, business as usual.

How will Donald Trump proceed with his presidency?

Impeachment Finalize his term 2nd term

1%79%

20%

Figure 5


AMERICA FIRST – GLOBAL ECONOMIC DOWNTURN NEXT? HOW TO REACT TO TRUMP’S PROTECTIONISM.

60 PERIODICAL #17

At first glance, the headline may seem surprising, even alarming. Shouldn’t the time for a status quo be over? Shouldn’t the Old Economy have been busy fighting the tech giants for a long time? Yes and no. Yes, because in fact some years have already passed, which could be used by the companies from Silicon Valley to gain a perhaps unassailable advantage in certain fields. No, because the advantages that traditional companies have to offer also imply in part that they need more time for certain decision- making processes. An important hint that has been given is to avoid throwing all tech giants into the same pot. After all, the business models of Facebook and Google are hardly comparable to those of Amazon. Only the latter can be described as disruptive.Several factors were also mentioned in favor of the Old Economy. For exam-ple, the enormous opportunities that the Internet of Things can offer tradi-tional companies. In addition, it was pointed out that the collection and possession of enormous amounts of customer data is not a value in itself. It is not the ownership of these assets that will be at stake in the future, but the access which is also possible for traditional companies.All these plus points probably led to the results of the survey on this topic. A majority of respondents do not yet consider the race between traditional companies and the data economy to be de cided (57 percent). Some 67 per-cent see the trust of traditional com-panies regarding data security as a competitive advantage (see Figure 6). And 82 percent of respondents pre-dict that in less than ten years, up to a quarter of their business revenue will be gener ated through a third-party digital service provider, such as Amazon or Alibaba (see Figure 7).

AMAZON, GOOGLE & FACEBOOK RULE SUPREME – WHERE IS THE PLACE FOR TRADITIONAL CORPORATIONS IN THE DATA ECONOMY?

Will trust and credibility for data protection be a competitive advantage for traditional companies?

10 1

11

0

0 0 1

1

10 1

11

0

0 0 1

1

10 1

11

0

0 0 1

11

0 111

0

0 0 1

1

101 10

001101

11

0

001

1

101

11

0

001

1

101

11

0

001

1NO33%

67%YES

Figure 6

What share of your company’s revenue will be sold via a third-party platform – like Alibaba or Amazon by 2025?

Share of�revenue

13% 5% 0%

82%

0 – 25% 25 – 50% 50 – 75% 75 – 100%

Figure 7


61 PERIODICAL #17

RAGE AGAINST THE MACHINE? WHEN WILL ARTIFICIAL INTELLIGENCE HAVE EATEN ALL THE JOBS AND HOW TO PRESERVE SOCIAL COHESION?What is artificial intelligence (AI) and how many people will lose their jobs because of it? In variation of a German bestseller, the above question could be exaggeratedly varied. In spite of the great progress made in the field of artificial intelligence, many questions about concrete applications and the expected effects remain unanswered. However, some predictions can be made with a clear conscience.In terms of jobs, lower income and lower skilled workers will suffer more than better qualified people. The latter will even benefit from AI. This inevitably raises the question of how AI will affect social co-hesion in societies. The panel also discussed this, pointing out, among other things, that the answer to this question should not be left to politicians alone, even it if was mainly the politicians who failed in the past to prepare people sufficiently for techno-logical change.Only 25 percent of respondents believe that AI will eventually reach a stage of development where it can control people. More interesting, however, are the answers to other questions. Just as many participants predict the creation of new jobs as do massive job losses (27 percent, respectively). And participants predict that 26 percent of workplaces will be replaced by auto-mation. (see Figure 8).

What share of your company’s jobs will be automated by 2025?

26%

Figure 8


62 PERIODICAL #17

Legacy Businesses are something that most start-up companies are unfamiliar with. How should the Old Economy deal with them? Is it more of an advantage or a disadvantage for the Old Economy to have legacy businesses?Yes and no seem to be the panel’s answer.

Legacy businesses offer advantages when it comes to the trust of investors with a long-term focus on security. However, this is often counterbalanced by slow decision-making processes, which in turn deter risk-related investors. The main problem of legacy businesses is probably the unbroken attraction of start-up storytelling. The fascination of the tales from rags to riches, from the garage into the penthouse seems to have lost none of its attraction. And this also applies to investors, whose patience with start-ups is often endless. And yet the discussion warned against staring at start-ups only as competi-tors like hypnotized rabbits. Because only those who fall for the storytelling of start-ups are bound to replace strategic thinking with mere tactics. Long-term stakeholder models and permanently adjusted metrics are therefore in demand to react to changes in the business environment at any time.The survey also underlines the immense importance of Group companies within the economy. Why is it that legacy businesses become problems? The survey gives a clear answer to this question: 70 percent of the respondents blame the lack of in-novation, followed by an insufficient manage-ment focus (56 percent) and a varnish of risk-tak-ing (41 percent) (see Fig-ure 9). Are the legacy businesses punished here for not being start-ups…?

FIX IT, SELL IT, SHUT IT – HOW TO DEAL WITH LEGACY BUSINESSES?

What is the root cause of problematic legacy businesses?

56% 11%70% 41% 10%

Insufficientmanagement

focus

Misalignmentof managementcompensation

Lackinginnovation

Lack ofrisk taking

Capitalmarket

valuation

Figure 9


63 PERIODICAL #17

THE END OF TRADITIONAL ORGANIZATIONS? ARE NETWORKS THE INEVITABLE ANSWER TO BUREAUCRACY AND FLUCTUATING TALENT… OR ARE THEY ITS FINAL DEATHBLOW?When reviewing everything that has been said so far, perhaps a completely new way of thinking is needed? Do the structures need to be fundamentally rethought and adapted to today’s challenges? And if so, are networks the answer we are looking for?Networks have drawbacks. What about IP? If it is no longer clearly regulated, who has access to the company’s intellectual property and in what way? Are networks suitable for all industries and busi-ness models? Is communication within companies really becoming freer through networks or do they not often apply stricter rules than traditional corporate communications? Many questions and still few answers. And yet, some of the contribu-tions to the discussion suggest that traditional companies may even be forced to turn to the network structure. Otherwise, it seems to be becoming increasingly difficult for them to attract talent. In any case, 67 percent of our survey participants think companies have the ability to organize themselves in networks (see Figure 10).

Can large international corporates organize themselves in networks?

33%67% YES

NO

Figure 10


64 PERIODICAL #17

Even stronger is the belief that sharing human capital in net-works will enhance companies’ agility: 79 percent of respon-dents say that a more efficient allocation of human capital will also lead to higher agility (see Figure 11).But perhaps, as the discussion also suggested, the networks will be seen less as a threat if we do not construct an absolute contradiction between them and the traditional companies, but instead take a hybrid, complementary approach. But even to ac-complish this, it will take a lot of psychological per-suasion to make many experienced employees forget what they have learned in the past.

Will companies share significant human capital in networks that accelerate agility?

YES 79%

NO 21%

Figure 11


65 PERIODICAL #17

Imprint

About this publicationThe periodical of the Stern Stewart Institute

17th Edition, January 2018Published half-yearly

Publisher and Chief EditorGerhard Nenning

Board of The Stern Stewart InstituteMarkus Pertl Gerhard Nenning

Managing EditorAnja Deucker

Design Production and ArtworkKW NEUN Grafikagentur

PrintingIndustrie-Druck Haas

The opinions, beliefs and viewpoints expressed by the various authors in this publication do not necessarily reflect the opinions, beliefs and viewpoints of the editorial staff or of The Stern Stewart Institute. The publisher accepts no responsibility for errors, omissions or the consequences thereof.

The Stern Stewart Institute e.V.

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Salvatorplatz 480333 MunichGermanyT +49 89 242071 0F +49 89 242071 11E [email protected]

sternstewartinstitute.comtssi.org

Picture CreditsFrédéric Poussin (p. 30); fotolia / Haz (p. 1);istockphoto / GlobalP (p. 1), Miyuki-3 (p. 2), imnoom (p. 6), from2015 (p. 16), AlexRaths (p. 22), swisshippo (p. 28/29), jeremyiswild (p. 33), fotofermer (p. 34), Panama7 (p. 44), AM-C (p. 46), alengo (p. 48), PJ66431470 (p. 52/53); shutterstock / jamesteohart (p. 11).All other images are property of the authors or companies.Illustrations by Eva Singler for KW NEUN Grafikagentur.

66 PERIODICAL #17

PERIODICAL #17

January 2018 The Sound of Silence

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