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  • 1. OurView’10 An exclusive collection of articles by the Bocconi Faculty on the world economy, society, environment, technology and more.Bocconi. Empowering talent.
  • 2. Contents*World EconomyGlobal Recession Is Affecting the World Food Program 3by Leonardo BorliniEU vs US over Open Skies 5by Stefano RielaOf Organic Apples and Oranges 7by Enzo BaglieriThe Underground Economy Slows Down the Integration of Immigrants 9by Carlo DevillanovaFive Months of Electoral Campaign in One of the Worlds Largest Democracies 11by Antonella MoriChina Rising 13by Carlo FilippiniA Dangerous Country with an Uncertain Future 15by Giorgio BrunettiWhat If Obama Were the New FDR? 17by Giuseppe BertaManagementMedia Coverage Is for Sale 21by Diego Rinallo______________________________________* Our View is a selection of articles previously published in the Bocconi Newsletter. Articles are available on the web on ViaSarfatti25.eu,the Bocconi online newsmagazine, at the following address: www.viasarfatti25.eu.Translations by Office of International Communication.
  • 3. Europe Will Also Be Affected by US Healthcare Reform 23by Giovanni FattoreChampions of Earnings 25by Dino RutaDrop the Mantras of Contemporary Management 27by Francesco CastellanetaThe Profile of Companies Weathering the Crisis 29by Giovanni ValentiniGetting Back to Basics Is Getting Business Back on Its Feet 31by Paolo PretiCompanies Are Still Investing in Promising Resources 33by Claudia TamarowskiIts Not Only about Low-Cost: Prices Are Polarizing 35by Sandro CastaldoWorking as Business Innovation Manager 37by Silvia ZamboniSuper-Sponsored Sports 39by Paolo GuenziInstitutional Factors and Competitiveness Determine Where Cars Are Made 41by Carlo Alberto Carnevale MaffèBringing Craftsmanship Back into Fashion 43by Stefania SavioloThe Lone Man at the Top Doesnt Come Out on Top 45by Beatrice Bauer and Massimo MagniIntangible Assets: You Cant Touch Them, but They Make the Difference 47by Francesco PerriniGoing to the Beach on the Other Side of Globe 49by Magda Antonioli
  • 4. Invention: Learning by Doing 51by Raffaele Conti, Alfonso Gambardella, Myriam MarianiEurope, America, China: Each is Global in Its Own Way 53by Margherita PaganiRevealing Secret Recipes 55by Giada Di Stefano and Gianmario VeronaEntrepreneurs, Listen to Lao Tzu 57by Thanos Papadimitriou and Brett MartinSociety and CultureWork Turns Liquid and Overflows 61by Vincenzo PerroneMoms Are Public Opinion 63by Paola DubiniEuropean Museums: A Common Idiom for the Contemporary 65by Stefano Baia CurioniStagnating? Certainly Not Culture! 67by Anna MerloPolitics as a Profession in Italy 69by Alex Turrini and Giovanni ValottiSickness and Health Are Becoming Global 71by Eduardo MissoniArt: The Usual Exaggeration 73by Stefano Baia CurioniOnce upon a Time There Was Photojournalism 75by Marina NicoliItaly Lags Behind in Women at Work 77by Paola Profeta
  • 5. The Economics of Influenza 79by Guido Alfani and Alessia MelegaroEnergy, Environment & InfrastructureClimate Change: Everybody Waiting 83by Luigi De PaoliItalian Infrastructure: Priorities for North and South Are Not the Same 85by Lanfranco SennRenewables, Golden Opportunity 87by Clara Poletti and Arturo LorenzoniOil Safety: Lessons from the Nuclear Industry 89by Emanuele BorgonovoTechnology and InnovationIf Users No Longer Generate Content 93by Luigi ProserpioCollaboration Is Now Making Hardware Easier 95by Emanuela Prandelli and Gianmario VeronaControl Freaks Fail Online 97by Silvia VianelloNow that the E-book Is Here, Lets Make Books 99by Paola DubiniWeb 2.0 and Gen Y: the Hidden Truth 101by Leonardo Caporarello and Giacomo Sarchioni
  • 6. FinanceOverly Expansionist Sovereigns 105by Carlo FilippiniDo We Really Know How to Measure Family Wealth? 107by Stefano GattiWhy Young People No Longer Trust in the Honesty of Accountants 109by Mara Cameran e Ariela CaglioThe Altruism of Saving 111by Brunella BrunoThe Phenomenology of Business Scandals 113by Alessandro ZattoniCalculating Regret 115by Alessandra CilloHow to Hedge Your Bets for a Toast of Burgundy Pinot Noir 117by Claudio ZaraLawThe Crisis Has Broken a Convergent Path 121by Maurizio del ConteMade in Italy Protected by Law 123by Giorgio SacerdotiThe Union Has Only Blunt Tools to Impose Budget Discipline 125by Claudio DordiCan I Upload or Not? 127by Oreste Pollicino
  • 7. WorldEconomy
  • 8. World EconomyGlobal Recession Is Affecting the World Food Programby Leonardo Borlini After being in the limelight for much of the 2000s, the attention lavished on the UN program against planetary hunger and malnourishment seems to have vanished, as donor countries are retreating from their commitments.The silence of global media has fallen over the implementation of the commitments made by countries withinthe scope of the UN World Food Program, which was established a decade ago to face the food crisisaffecting a growing share of the world population. The lack of news over the last year is problematic. Althoughthese are unilateral commitments by UN members and are at best forms of soft law, media gave the WorldFood Program attention until mid-2007.Also, job applicants to international development agencies, including the World Bank, were interviewed onthe content and reach of the World Food Program. Fishing for data, one finds a telling figure: given the billionsand billions of dollars spent to rescue banks and counter the financial crisis, the original $12.3 billion pledged tofight world hunger are being downscaled because of the macroeconomic difficulties many donor countriesare facing.What can be done to reduce to a minimum the likelihood of another crisis as damaging as this one? JacquesAttali, George Soros and Joseph Stiglitz, i.e. a grand commis, a global financier and philantropist, and a Nobeleconomist, respectively, concur on a fairer distribution of income and wealth as the main preventive measureto be taken in order to avoid the recurrence of a world recession. A less unequal income distribution wouldobviate the need to take on large quantities of debt (which is then repackaged and sold by others on globalfinancial markets) to finance primary needs.This would be a forward-looking policy to be collectively decided and widely implemented at theinternational level, along with the reforms in global governance listed by the recent UN Conference on theWorld Financial and Economic Crisis and Its Impact on Development. However, the political mechanismsleading to a collective framework orienting individual economic decision-making and self-interest have yet tobe found. Recent UN reports are not even making the news, but they say the governments of donor countriesare suspending the implementation of the program to feed the world’s hungry. The World Food Program was 3
  • 9. World Economylaunched long before the global recession to guarantee one of the four fundamental freedoms listed byFranklin Delano Roosevelt in 1941: freedom from want.The AuthorLeonardo Borlini teaches International and European Law at Bocconi. From Bocconi Newsletter no. 82/2010 4
  • 10. World EconomyEU vs US over Open Skiesby Stefano Riela In the highly competitive global market for commercial aircraft, the clash between Boeing and Airbus inevitably ended up in the WTO court. An initial ruling was issued, but the transatlantic rivalry could end up providing a new framework agreement stipulating rules valid for all players.The aircraft market is special because of its huge size and level of concentration. It’s also interesting for beingat the center of a long-running feud between an American and a European company.The recently tested 787 Dreamliner by Boeing has been the American answer to Airbus A330, which has soldover 600 units to date and is being upgraded into the A350. The Airbus family has planned for an expansion ofits offer, which includes the A380, the world’s biggest airliner and direct competitor of the best-selling Boeing747, which is also being upgraded.The transatlantic battle started in the 1980s when Boeing acquired McDonnell Douglas. The Federal TradeCommission approved the deal, while the European Commission did only very partially. Brussels wanted moretransparency and less reliance on government support, especially for military procurements, in order toprevent the abuse of market position on the European market by the new player.After Airbus was born, it soon emerged that the tie linking Boeing to the US federal government was as tight asthe budding relationship between the new aircraft company and major European governments, so much thata bilateral agreement in 1992 committed both parties to reductions in government subsidies: Airbus should notreceive aid in excess of one-third of the production costs for the new models, while indirect government aid toBoeing should not exceed 4% of its receipts.This threshold has been surpassed by Airbus, Boeing claims, for the manufacturing of certain components ofthe A300 family, since various EU countries gave subsidies for $4.7 billion to the aircraft maker. On 6 October2004, Boeing decided to take Airbus and the EU to the WTO court. This occurred at the moment when Airbus 5
  • 11. World Economywas surpassing Boeing both in terms of orders (256 more in the 1998-2004 periods) and deliveries of new planes(59 more in the 2003-2004 period).It is true that the public-private nature of Airbus is self-evident. It a company regulated by French law which isowned by EADS, a Franco-German group (with lesser Spanish involvement) in which private companies andpublic actors (including the French and Spanish governments) hold stakes. In September 2009, the WTO sent itsconfidential ruling to the EU and the US. According to media leaks, the WTO appellate body ruled in favor ofthe claimants, the US and Boeing, in 30% of the instances and against government aid received by Airbus. Soat halftime, Boeing seems to be ahead in the game.But this could end up being a pyrrhic victory, because the US company is seriously behind schedule with itsnew projects, by two years in the case of the Dreamliner, which could cost heavy penalties on its 800 orders.But the second half still needs to be played and final ruling has not yet been made. The game could even gointo overtime, if Airbus appeals.On the same day that the US deposited its complaint, the EU fought back by denouncing the subsidies thatthe federal government is giving Boeing through NASA, the Department of Defense, the Department of Trade,several other government agencies, and also through export subsidies (forbidden by the WTO), taxexemptions, and the financing of infrastructure and product development.The lengthy process to arrive at a final WTO judicial ruling could favor the renegotiation of the 1992 bilateralagreement, by making it more flexible. The new agreement could go beyond the transatlantic relation andset rules for other countries currently developing their domestic aircraft industries. For instance, Canada’sBombardier and Brazil’s Embraer are winning market share in the regional aircraft segment hitherto dominatedby Boeing and Airbus, while Japan, Russia, and China are developing ambitious projects. Summing up: theduopoly ruling over global skies is alive and well, but new players are coming to the fore on the political andeconomic scene.The AuthorStefano Riela teaches European Economic Policy at Bocconi. From Bocconi Newsletter no. 84/2010 6
  • 12. World EconomyOf Organic Apples and Orangesby Enzo Baglieri Localism and organic labelling are causing a lot of confusion, making it difficult even for the most scrupulous consumers to evaluate the overall environmental, health and community impact of their produce purchases, whether at the farmers’ market or the supermarket.The fear of animal pathologies, higher sophistication in food purchases, the return to forms of local identity areall driving the demand for “sustainable” forms of consumption. For instance, “Zero-kilometer markets”, wherelocal produce is exclusively sold are being introduced in the Veneto Region, under the sponsorship ofColdiretti, Italy’s biggest farmers’ organization. This has favored the emergence of a zero-kilometer supplychains and networks of producers, and many are pondering the introduction of a “sustainability label” in thisregard. The Regional Law 7/2008 favors the purchase of local foods to feed nurseries, schools, hospitals, andthe like. However, one should not consider “local” a synonym for “sustainable.”Over the last 50 years traditional methods of cultivation and rearing have been outmoded by the strongmechanization of agriculture, reliance on artificial fertilizers and chemical pesticides, selection of varieties foraesthetic appeal and transportability. These developments have been pulled by the need of higherproductivity to supply supermarkets and urban and suburban consumers. The growth in large-scale retailinghas in turn favored a globalization and concentration of agricultural suppliers, while supermarket chains haveseen their bargaining power increase vis-à-vis agricultural producers.There is however no guarantee that a local product is by definition sustainable, because there only fewproducers that don’t rely on tractors and hydrocarbon-based fertilizers. Also “organic” food (biologico, inItalian) is not necessarily sustainable, if distribution chains are long and logistics is heavy in fossil fuels. The rise offarmer’s markets and home delivery of local foods will continue to blur the distinction between territoriality andsustainability, as long as an objective certification of the sustainability of the processes and technologies ofcultivation, grazing, manufacturing and transportation is not available.The emphasis should those go on designing controls for zero-kilometer produce that have the same standardsof safety and quality that the longer supply chains of agribusiness must satisfy, albeit at the cost of a lesser 7
  • 13. World Economyfreshness and tastiness of their products. However, the consumer must also play her/his part in ensuring thatproduction, transportation and distribution are sustainable, by not demanding cherries in January and orangesin June, for a start.The AuthorEnzo Baglieri is Assistant Professor of Corporate Economics and Management at Bocconi and Head of SDABocconi’s Operations and Technology Management Unit. He received the ITP diploma from the Stern Schoolof Business of New York University, N.Y. (USA) and was Visiting Professor at the University of São Paulo (Brazil) in2002.Research AreasManagement of technological innovation processes. Management of new product development processes.Project management. Strategic management of relations with suppliers. From Bocconi Newsletter no. 86/2010 8
  • 14. World EconomyThe Underground EconomySlows Down the Integration of Immigrantsby Carlo Devillanova Immigrant workers are present in every region of Italy. Scattered empirical evidence points to a certain territorial disparity in integration processes. The imbalance could be due to the heterogeneity of social polices and to sharp differences in local tax bases.Little has been written about territorial differences in integration among Italian immigrants. Recent eventssuggest that there are significant differences between the North and the South of the Peninsula. This impressionseems to find confirmation in a recent study edited by Cesareo and Blangiardo on the “Indicators ofintegration”, which shows that an integration index displays lower values on average in Southern provinces.The factors behind territorial specificities in integration processes are manifold. One could be the difference inthe ethnic composition of immigrants in various Italian regions. Very relevant are also disparities in social policy,both in general terms and relative to the plea of refugees, which are delegated to local administrations andare therefore an expression of their political decisions, as well as differences in tax bases.As far as I’m concerned, I’m persuaded that the integration of immigrants in its various dimensions is stronglyfavored by a correct entry into the labor market, in jobs that employ their skills and facilitate upward socialmobility. It is worth noting that overeducated job candidates are much more frequent among immigrants thanItalians. Recent ISTAT estimates that 12% of the labor force works under irregular or unlawful conditions; thisfigure doubles when referred to the South. Off-the-books, underground labor pushes immigrants toward low-skill, underpaid jobs and negatively affects their integration, in terms of housing, health, access to educationand culture.Being an informal worker means not to have access to papers guaranteeing a legal presence on the territory,thus perpetuating conditions of irregularity. These in turn often generate blatant phenomena of socialexclusion. This is all the more true in the areas of the country where the underground economy is morewidespread. 9
  • 15. World EconomyConcluding, I think that reducing informal labor can facilitate integration processes and, at the same time,reduce territorial differences in this domain.The absence of realistic channels of legal immigration into Italy, the emphasis on border controls, the stronglink between having a labor contract and maintaining regular immigrant status, the recent introduction of thecrime of clandestinity are all measures that make foreign workers easily vulnerable to blackmail on the labormarket, with grave consequences for all other aspects of integration. The culture of the respect of labor lawsmust be heavily strengthened, increasing the number of workplace controls and devising a system ofsanctions that provides an incentive for the immigrant (or Italian) irregular worker to cooperate with stateauthorities.The AuthorCarlo Devillanova is Associate Professor of Economics at Bocconi. He has also taught Macroeconomics for theMaster of Business Administration at SDA Bocconi, and has worked as a researcher in Finance at the Universityof Trieste and an Associate Professor at the Pompeu Fabra University, Barcelona.Research AreasPublic economics. Migration. Economics of labor. From Bocconi Newsletter no. 87/2010 10
  • 16. World EconomyFive Months of Electoral Campaignin One of the World’s Largest Democraciesby Antonella Mori Brazil is projected to grow by 5% in 2010, but Lula is having problems projecting his personal popularity onto his own party’s candidate to succeed him. This difficulty allows the opposition candidate to make the unusual claim that change will bring continuity.It will take months of fierce campaigning to win the minds of 130 million Brazilian voters in the presidentialelections scheduled for October 3, 2010. The electoral contest is between Dilma Rousseff, candidate for thePT, Lula’s Workers’ Party, and José Serra, candidate of the PSDB, moderate social-democrats, the mainopposition party.Polls have been consistently giving Serra an advantage, although the gap has closed in the last few weeks.Now Serra leads by 5 to 10 percentage points. But the opposition will have to fight hard to score a victory.Dilma Rousseff is Lula’s candidate, and Lula has 80% approval ratings. Brazil was among the last economies tobe hit by the recession and among the first to resume growth: GDP grew by 1% in 2009 and is forecasted togrow by 5% in 2010.It’s not only good economic news that support the president’s popularity. Since the start of his mandate, Lulahas put the struggle against poverty and social exclusion at the center of his government’s program. Hiswelfare programs have had a huge impact on 11 million of Brazilian poor families. It’s only logical he wants totransfer this political capital to Rousseff: it’s not yet sure if and when it will occur.Serra presents himself to voters as the candidate that can ensure that Brazil stays on the growth path blazedby Lula (“Brazil can do more” is his slogan). Although in the opposition, Serra styles himself as a continuitycandidate, building on his good record as governor of the Paulista state. Lula and the Workers’ party are tryingto persuade voters is that the results obtained depend on a progressive political philosophy that only DilmaRousseff can carry on. Lula is in fact highlighting the gulf separating him from his predecessor Cardoso, who 11
  • 17. World Economybelonged to same party as Serra. In order to show his penchant for leftist policies, Lula could energize industrialand social policy.There are growing signs of this in the last few months: the Vale mining company has been pressured intobuying Brazilian steels and ships for its production needs; the proposal is on the table to constitute a sovereignfund fueled by oil receipts and investing in education and social and environmental protection. It’s not bychance that on March 29, just before Rousseff resigned from Lula’s cabinet (as the electoral law requires), Lulaannounced the second phase of the Program for Accelerating Growth (Pac2), which calls for infrastructuralinvestment to the tune of $880 billion, 60% spent over the 2011-2014 period. If elected, Rousseff would be incharge of Pac2, after overseeing the first phase launched in 2007.The next presidential elections are also very important for Italy, not only for the cultural links connecting thetwo countries (30 million Brazilians have Italian origins), but also because on January 1, 2011, the year devotedto “Italy in Brazil” will start, together with the new presidency. It will be unique opportunity to strengthen theeconomic and cultural relations between the two countries.The AuthorAntonella Mori is a Researcher in Economics at Bocconi at the Department of Institutional Analysis and PublicManagement and the ISLA Center for Latin-American Studies and Transition Economies. She is part of theteaching faculty of the Master in Diplomacy at ISPI, the Institute for International Political Studies in Milan. From1995 to 2001 she taught Macroeconomics at the SDA Bocconi MBA.Research AreasInternational economics. Economic development. Latin America. From Bocconi Newsletter no. 89/2010 12
  • 18. World EconomyChina Risingby Carlo Filippini The country’s regained hegemony in East Asia is the latest chapter in its historical rivalry with Japan. From the promotion of an alternative economic model to the assertion of strategic and military security, China is re-establishing the leading position it has held over the millennia.Eight hundred years ago China tried to consolidate its influence on Japan. It demanded that the neighboringnation pay a tribute and acknowledge imperial authority. In those times, that was the way of manifestingpolitical and economic hegemony. But a typhoon – kamikaze, the divine wind –dispersed its fleet.Three hundred years later, it was the turn of Japan, just reunited, to attempt conquering China. This attemptalso failed for a similar reason: failure to control the sea. The two great powers of East Asia have always haddeep but competitive relations: China was the source of culture, philosophy, religion (ideograms, the arts,Buddhism, Confucianism). However Japan never really imported or copied them; it always adapted them toits mentality and needs.We can think of the “rewritten” ideograms, which became a new script of its own, while in other tributarynations of China they were left unvaried and used by cultivated elites in parallel to the vernacular. Since theend of the 1800s, the roles have been inverted: Japan fused Western techniques with the Japanese spirit,becoming the second economic power of the world. This rapid growth has almost cancelled the former senseof cultural dependence.Over the last years, China has been impetuously regaining the position of hegemonic power it occupied forcenturies, historically in Asia and foreseeably in the world. Many are the symptoms of growing Chineseregional and global influence: the study and reappraisal of Confucius, of Mao, the system of socialist valueswith Chinese characteristics all underline the growing confidence in its cultural identity which accompaniesthe progressive distancing from either political (Marxism-Leninism) or economic (capitalism or the free market)ideologies imported from the West. 13
  • 19. World EconomyThe Western democratic model (a bit tarnished by the current crisis) is challenged by the Orientaldevelopmental model of Confucian origin, where the boundaries between market and government, publicand private are grey and uncertain: power must promote the welfare of subjects, and these in turn must giveobedience to authorities.The concrete expression of such sentiments is the opening of hundreds of Confucius Institutes all over the worldwith the aim of spreading the knowledge of the Chinese language and promoting cultural, educational, andeconomic cooperation between China and overseas communities; the institutes are generously funded byChinese authorities.At the opposite extreme there is the strengthening of the military navy and the creation of the “necklace ofpearls”, installations of various kinds from China to the Suez Canal, which have the objective of securing thesupply of oil and raw materials, without which China would see its growth strangled: as of 2009, half of China’soil was imported.Countries and even continents that until recently had been considered hunting grounds reserved for Westernpowers, such as Africa, or even Latin America, now see a rapidly growing Chinese presence: the medium-lowtechnological level of Chinese products seem to better fit the needs of African consumers; Chineseinvestments are not constrained by conditions on workers’ rights or the environment (unlike internationalorganizations and Western nations investing there).Other aspects of the emerging Chinese leadership are better known and certainly more important: the extentof its foreign currency reserves, the size of its domestic market and its export capabilities. In the near future, aChinese could well sit in the IMF’s control room. Naturally, today the world has become multipolar, and thereare several strategic players. Right now a system with China at the center and a periphery of tributary states isunthinkable, but a few decades down the road...The AuthorCarlo Filippini is Full Professor of Economics at Bocconi, where he was Director of ISESAO, the Center for EastAsian Economic and Social Studies and MEc, the Master in Economics. He is a Professor of Economics at SDABocconi, as well as a member of their Advisory Committee. He has also taught at Universtià degli Studi inTrento. He is a member of the American Economic Association, the Royal Economic Society, the ItalianSocietiy of Economists and Christ’s College in Cambridge, UK.Research AreasEconomic development. Technical progress. The Japanese economy. Economic integration of Southeast Asia. From Bocconi Newsletter no. 93/2010 14
  • 20. World EconomyA Dangerous Country with an Uncertain Futureby Giorgio Brunetti Guatemala: the Central American country is still under the uncomfortable influence of the United States, as can seen by its fleets of ancient American cars and buses. Drug trafficking and gang warfare have provoked more than 10,000 dead: more than its long civil war.In Guatemala, the tormented republic in the heart of Mesoamerica, the casual visitor is struck by the quantityof yellow school buses roaring across the country’s roads. The foreign traveler could be led to believe that thisis an expression of the national fight against illiteracy and poverty plaguing the country: nothing could befarther from the truth! These are vehicles bought on auction by enterprising individuals who refurbish them inorder to provide rides at competitive rates to the general population.These former US school buses are then leased to drivers who push them to the max in order to take home amodest wage. They are jokingly called “chicken buses”, because peasants often bring their poultry on boardin this predominantly rural nation.In addition to school buses, Guatemalans buy used cars from the US. They clog the roads of the country, whichare perennially being repaired, especially in the plateau where landslides are frequent. From Puerto Barrios-Izabal, Guatemala’s only port on the Caribbean, they are imported into the country by locals and foreignersalike. These are noisy, polluting wrecks which feed a whole related industry, consisting of repair shops andspare parts resellers.Two maya kids being photographed by a gringo. This image sums up well the country’s position vis-à-vis theUnited States, which is not only a source of used buses and cars, but much else besides. The strong presenceof US capital in the archetypal banana republic is one thing. Then there is the accumulated US demand forcocaine, since drug traffickers use the eastern regions of the country to transfer the product from Colombia upnorth. Not coincidentally, these are the regions that appear less poor. Lastly, the US is a prime destination forGuatemalan immigrants and a precious source of dollar remittances. The Obama administration is crackingdown on illegal immigration, with the unstated aim of containing the growing Latino presence. 15
  • 21. World EconomyOther problems worsen the country’s already precarious predicament. One is human trafficking, especially ofwomen and children, which is as frequent as drug trafficking. According the UN, it will soon surpass the illegaldrug and arms trade. Another is gang warfare, a bitter leftover of the civil war, which left behind many menwhose only skill is firing weapons. On the side of the law or against it. In 2009, almost 10,000 murders werecommitted, more than the deaths caused by the civil war, which ended in 1995.Guatemala has long been prey of multinationals and businessmen with few scruples. The country is still a taxhaven. After tourism and oil, coffee is the main export. Even Illy buys Guatemalan coffee.While Colombia and Venezuela are making strides, a solution to this country’s huge economic and socialproblems is not in sight. Guatemala suffers from a fragile and corrupt state, which is unable to fulfill itsresponsibilities in terms of democratic security and education of the younger generations. From Tegucigalpa,the future looks uncertain and dangerous!The AuthorGiorgio Brunetti is Professor Emeritus of Corporate Strategy and Policy at Bocconi, where he has taught since1992. Up to then, he spent most of his academic career at the University of Ca’ Foscari in Venice, where hegraduated in 1960. He has taught at SDA Bocconi, training companies and organizations such as CUOA,Politecnico of Milan, FIAT-Isvor, IFAP and IRI Management. He has also acted as a corporate consultant atlarge companies in leading industrial and banking groups, as well as board member for several companies.Research AreasEconomics of small and medium enterprises. Corporate governance and controls. Policies of assistance forsmall and medium enterprises. Application of networking technologies by district. From Bocconi Newsletter no. 96/2010 16
  • 22. World EconomyWhat If Obama Were the New FDR?by Giuseppe Berta The task force led by Steven Rattner to rescue the American auto industry has parallels with the age of Franklin Roosevelt’s New Deal, as it encourages collaborative interdependence between business, labor and government rather than imposing regulation from the top down.Are there traces of the New Deal in the current US administration? President Obama, so often reprimanded forhis economic interventionism by the republican opposition to to the point of being accused of socialism, canhe be seen as a heir of Franklin Delano Roosevelt? At first sight, the parallels are not obvious. The New Deal didnot match the current Fed’s expansionary stance in monetary policy, and Obama, unlike FDR, has notlaunched major public spending programs. However, attitudes and proclivities of the Obama administrationhave elements of that tradition, since it revives the great democratic tradition of the 20th century.The latter aspect emerges from the pages of the book that describes the modus operandi of the Obamateam, looking at the forms of government intervention achieved during the trough of the crisis. The book inquestion was authored by Steven Rattner and is titled Overhaul. An Insider’s Account of the ObamaAdministration’s Emergency Rescue of the Auto Industry (Boston-New York, Houghton Mifflin Harcourt, 2010).Rattner, a former journalist who went to work on Wall Street, where he became a successful investmentbanker, is the man chosen to lead the task force appointed by Obama at the start of his mandate to rescuetwo of Detroit’s Big Three: General Motors and Chrysler, whose survival was seriously threatened.Rattner was put in charge of an agile organization with a time-limited mandate created within the Treasury,whose mission was to organize and manage the $82 billion bailout: the largest in US postwar history. It was avery difficult task which Rattner successfully accomplished, who renounced to a Wall Street’s million-dollarbonuses and burdened himself with huge responsibilities for a modest government salary. What puts theautomotive industry task force in the tradition of the New Deal is the fact that it was a special agency, actingin relative autonomy with respect to the presidential administration and thus capable of rapid and flexibledecision-making. Also, Rattner in a sense revived that triangular structure between Big Government, BigBusiness and Big Labor that was a feature of the New Deal, since he had to maneuver between the GM andChrysler executives and the still powerful UAW, the union of auto workers born during the New Deal that had 17
  • 23. World Economyhelped Obama win the election in the Midwest. And there were furious car dealers, stockholders andbondholders to be appeased, as they feared to lose everything.The system was not one of direct government regulation or control. It was in effect a system of bargainingamong the various actors brokered by the task force. It was a method that stressed interdependence ratherthan coercive regulation. A forward-looking vision of an organized and dynamic pluralism, which revives thegreat lessons of the liberal tradition of the 1900s.The AuthorGiuseppe Berta is Associate Professor of Contemporary History at Bocconi, where he is Director of the ENTERCenter for Research on Entrepreneurship and Entrepreneurs. He was one of the founders of ASSI Associazionedi Storia e Studi sull’Impresa where he was President from 2001 to 2003. He was head of the Fiat HistoricalArchive from 1996 to 2002. He is also part of the steering committee of the Biographical Dictionary of ItalianEntrepreneurs, edited by the Italian Encyclopedia Institute.Research AreasHistory of industry. History of the economic élite and representation of interest. Business and politics. From Bocconi Newsletter no. 98/2010 18
  • 24. Management
  • 25. ManagementMedia Coverage Is for Saleby Diego Rinallo Fashion: the back door to high visibility. Buying ads warrants press attention and gets you on the front page.The media pay attention to many categories of products and services, and the generated visibility significantlyinfluences consumers and their spending behavior, since media are acknowledged as having informationneutrality. If, however, we consider that most of media revenues are generated by paid ads, it’s natural towonder whether decisions are free from bias within these organizations when they cover the products andservices of advertisers. It’s a vital issue that impinges upon freedom of the press, the autonomy of journalistsand objectivity in newsreporting.In to a recent study with Suman Basuroy of the University of Oklahoma, we have explored a sample of 291Italian fashion companies, for which we have gathered data on advertising spending and editorial visibility inthe magazines published by 123 Italian, French, English, German, and US publishers, in addition to a host ofcontrol variables.The findings point beyond doubt to the fact that corporate advertisers receive preferential treatment andobtain media visibility that is approximately proportional to their investment.The phenomenon is more marked in specialized fashion magazines. Apparently, general media are a bit freerin their editorial choices, because their advertising base is wider. There are however significant differencesamong various brands in their ability to obtain visibility for a given level of investment. It’s harder for smallerfirms to be out there, even if they spend a lot for advertising. Conversely, more innovative firms getproportionately broader media coverageThe implications of the study are manifold. Firstly, in capitalistic economies advertising is a major force able toshape media content. This does not necessarily damages the consumer, though. If big spenders, as it oftenhappens, market good-quality products, consumer welfare could even be improved because of this. Only 21
  • 26. Managementwhen inferior products enjoy high levels of “compensatory” advertising, are consumers penalized. The studyalso suggests that the impact of advertising on sales is probably underestimated. Insofar as media coveragedrives sales, advertising campaigns have a direct effect on sales plus an indirect effect via media hype.Looking at managerial implications, firms have several strategies at hand to maximize media visibility for agiven level of investment in advertising. Firstly, media pay greater attention to innovative products, which area better source of news. It’s smaller firms that stand to benefit the most from this hunger for constant novelty.Secondly, firms should consider that there are differences among media outlets in terms of advertisers’influence. Companies focusing on specialized media are likely to get more coverage, especially in certainmarkets: for instance, per euro spent, Italian companies got more extensive coverage in US fashion magazinesthan in French magazinesThe AuthorDiego Rinallo is Assistant Professor of Corporate Economics and Management at Bocconi, where he is also ananalyst for CERMES, the Center for Research on Markets and the Industrial Sector and a faculty member ofMiMec Master of Marketing and Communication.Research AreasMarketing communications and branding. Marketing events. Fashion trade events. Theory of consumerculture. From Bocconi Newsletter no. 81/2010 22
  • 27. ManagementEurope Will Also Be Affected by US Healthcare Reformby Giovanni Fattore If Obama’s reform passes, universal coverage models will be rule among advanced economies, making it more likely that emergent economies will also embrace universal healthcare systems. However, Big Pharma raises the spectre of a drop in R&D spending due to lower prices.Obama’s proposal for healthcare reform addresses two critical aspects of the US health system: controllingspending, which has gone out of control, and the absence of any form of health coverage for 15% of thepopulation. Both issues are complex, and if Obama manages to solve both he will have pulled off anastounding feat and will have secured a place in American social history. On the other hand simpleaccounting shows that a system that spends 15% of GDP and leaves 40 million uninsured, is not only unfair, it’shighly inefficient. First of all, comparatively higher spending does not translate into comparatively betterhealth. Higher US spending is mostly due to higher administrative and insurance costs, costlier factors ofproduction (skilled labor, medical technologies and pharmaceuticals) and malpractice lawsuits (doctors needto buy costly insurance to protect themselves from them). It’s also a waste providing health care to uninsuredpeople, who often have to be treated in emergency rooms at a higher cost.If common sense suggests that a reform is necessary, the analysis of the entrenched interests at play givespause for thought. 15% of GDP going to healthcare also means that one seventh of the country’s incomescome from there, which means that enormous political stakes are involved. The majority of physicians, insurers,hospitals, pharma companies and medical suppliers are doing all they can to block the reform or diminish itsimpact. It also must be remembered that the uninsured are the poorer minority of the population, having littlevoice and less clout in American politics. On the other hand, the fear that the quality of healthcare provisionwill be lowered among those already insured makes many in the middle classes hostile to any vision ofsolidarity, which is traditionally not very strong in most of the United States.However, US healthcare not only has domestic repercussions, but also international implications. If Obamasucceeds the policy spillovers could be considerable. If Obama were to warrant universal coverage inhealthcare, the symbolic effect would be considerable, since the last bastion of private healthcare among 23
  • 28. Managementadvanced countries would fall. Universal systems would thus become the models to be imitated by emergenteconomies. For Europe, the effect would be to sanction existing government-funded universal healthcaresystems to the detriment of those in Eastern Europe who still favor privatized healthcare.A second international effect would be on global health industries, Big Pharma in particular, which claims thatthe high prices it secures on the US market are vital to fund R&D. If Obama were to succeed in controllingprices, would it negatively affect biomedical research? Would there be repercussion on the prices of drugs onthe European market? It’s hard to make forecasts on the global effects of Obama’s reform, but one thing it’ssure: it will have significant repercussions on the rest of the world.The AuthorGiovanni Fattore is Associate Professor at the Bocconi Department of Institutional Analysis and PublicManagement. He was Director of MIHMEP, the Master in International Healthcare Management Economics &Policy from 2002 to 2008. He is a member of the faculty of the PhD in Business Administration & Managementand a Professor in the Public Management and Policy Department at SDA Bocconi. He is a member of theManagement Committee of CERGAS, the Center for Research on Health and Social Care Management andthe Carlo F. Dondena Center for Research on Social Dynamics. He is also member of the editorial board atPharmacoeconomics Italian Research Articles and Politiche Sanitarie and is currently President of the ItalianAssociation of Healthcare Economics.Research AreasHealth management. Health policy. Comparative analysis of health systems. Pharmaceutical policy. Cost-effectiveness and cost-benefit analysis. Research methods for management. Performance management inpublic institutions. Governmentablity. From Bocconi Newsletter no. 83/2010 24
  • 29. ManagementChampions of Earningsby Dino Ruta Winter Olympics in Vancouver: What will remain after 2010? The economic potential of sport has multiplied thanks to media and sponsors. The globalization of sports is big business, but the social and urban benefits of hosting games should not be underestimated.In late months of 2009, notwithstanding the crisis, 1,000 delegates attended the London Sport Conference.Polls conducted on them have shown that revenues are on the increase, particularly sponsorships. Sports arriveever more easily into people’s homes and each sporting event maximizes its economic return by exploiting thevisibility of its protagonists. Sport is used a platform for national and international communication. For instance,Liverpool will promote Spain as “Official destination partner”, since its manager is a Spaniard, and so are manyof its players.UEFA has just signed a €32 million agreement to broadcast the Champions League in Croatia, although thecountry does not have very strong football clubs. Giro d’Italia is internationalizing its appeal with sites andathletes that are well-known around the world to stimulate media purchases.The value of sporting events has grown dramatically with TV rights and the global popularity of certain sportswhose appeal was recently only local. The globalization of sports events, which started with Olympic Gamesand the Soccer World Cup, is now spreading to other competitions. The study on the potential economicimpact of having a Formula 1 Grand Prix in Rome, cites €1 billion in terms of value added and 10,000 jobscreated. Rome recently hosted the World Swimming Championships and has made €45 million in revenues justfor having hosed the Champions League finals last May.Hosting a major sport event requires large investments in infrastructure and often involves the revitalization ofcities and neighborhoods. The planned investment of Chicago, had it won the competition to host the 2016Olympic Games, would have been €3.3 billion, generating revenues for €3.8 billion. Milano was European sportcapital in 2009, hosting 60 sport events where athletes from 120 nations competed. 25
  • 30. ManagementSport events not only generate economic returns, but yield additional urban, social, and political benefits. The2009 edition of the Tour de France was physically followed by 15 million people. After the Olympics, it is theworld’s favorite live sport event. Milano’s candidacy to Expo 2015 is a byproduct of Olympic planning. Turinafter the 2006 Winter Olympics has become specialized in managing big sport competions.Summing up, one need to look not only at the economic impact, but needs to consider the intangible effectsthat remain on the ground after the event is over. Vancouver, host of the currently unfolding 2010 WinterOlympics, has seen the foundation of “2010 Legacy now”, the first organization of its kind working ondeveloping sustainable heritage in terms of sports, arts, entertainment, philanthropy. These are opportunitiesfor cultural managers that are attentive to the needs of stakeholders. Of course they shall not forget that whenit comes to sport, l’important c’est de participer.The AuthorDino Ruta is SDA Bocconi Professor of Organization and Human Resources Management and ScientificDirector of the International Master in Management, Law and Humanities of Sport (FIFA Master). He is alsoAssistant Professor of Organization and Human Resource Management at Bocconi, and Director of theMasterOP, Master in Organization and Human Resources Management.Research AreasStrategic HR. Sport management. From Bocconi Newsletter no. 83/2010 26
  • 31. ManagementDrop the Mantras of Contemporary Managementby Francesco Castellaneta Re-read classics by past experts like Peter Drucker, if you want to make sense of the current crisis and understand the unchanging elements of good corporate governance. Or follow management fashion and risk damage down the road to the company, shareholders and stock value.Over the last two decades, management has been a bit like high fashion. From one year to the next you haveto throw away expensive clothes because they have gone out of style.Management mantras end up being adopted by the majority of companies, but then fall out of fashion, andsometimes out of luck. The latest version of management by mantra says stock options and executive bonusesare bad, rather than understanding why and when have been misused or wrongly designed.Many managers, tired and disillusioned by management fads, have started to re-read last century’smanagement classics like Peter Drucker. One of his fundamental statements is that the objective function of afirm should be neither the shareholders’ nor the stockholders’, not any other simple objective: “The search forone objective is essentially a search for a magic formula that will make judgment unnecessary. But theattempt to replace judgment by formula is always an irrational act.”The compass for managers should be pursuing the good of the company, which means its short-term survivaland long-term prosperity. The good of the firm must be should by looking at “what it’s right for the firm”, ratherthan what it’s right for shareholders, employees, or stockmarket value. If a decision is not right for thecompany, it is also not right for its stakeholders.Over twenty years ago, Drucker lambasted top management salaries that went beyond a 40:1 ratio withrespect to wage-earners. Too large differences in personal earnings push executives to take decisions basedon “partial optimizations” on a too-limited time horizon, thus endangering the long-term corporate health.When Drucker died in 2005, this ratio had skyrocketed to 400:1. He had come to believe such inflatedcompensations had become detached from the real value produced and had lost any relation with business 27
  • 32. Managementmeasurements and long-term performance, and in the end would end up damaging shareholdersthemselves.Drucker’s most famous contribution to business literature, management by objectives, is based on the idea oflinking compensation to performance. However this required a careful balancing of short-term profitability andlong-term objectives. “Predictions concerning five, ten, fifteen years ahead a are always ‘guesses’. Still, there isa difference between an ‘educated guess’ and a ‘hunch’, between a guess that is based upon a rationalappraisal of the range of possibilities and a guess that is simply a gamble.” Annual bonuses de-linked fromlong-term performance have pushed many managers to gamble with the money of shareholders.Eighteen months into the crisis, the nefarious consequences of management by mantra are clear for all to see.To get out of the present predicament, good advice for executives would be to re-read two fundamentalbooks by Peter Drucker The practice of management (1954) and The effective executive (1966). Have a goodread!The AuthorFrancesco Castellaneta is a PhD candidate in Business Administration and Management at the Bocconi PhDSchool. From Bocconi Newsletter no. 85/2010 28
  • 33. ManagementThe Profile of Companies Weathering the Crisisby Giovanni Valentini Europe: the results of a poll conducted on 500 medium and large firms. Those who are managing to overcome the crisis have long invested in R&D as part of their corporate culture. Plus, a well-governed growth process appears more benefical than fast growth itself in resisting the downturn.The crisis has been with us for a year and a half at least. Some say it is over, some fear it is not. It isunquestionable however that some companies have fared better than others, obtaining satisfactoryeconomic performance where others are sinking. What makes them different from the rest? Which factors canexplain their relative success and adaptability?With Laura Sobrero, I have looked at a sample of 500 medium-to-large European companies. Their 2008profitability was put into relation with the strategic choices made by those firms over the previous four-yearperiod.Checking for industry-related differences, we have found that regression analysis shows that two major factorsare at the basis of these companies’ ability to weather the crisis. Firstly, the study highlighted the importance ofsustaining sizable investments in R&D through time. It’s not enough to invest in R&D, even a lot, if it’s not part ofa protracted effort. In fact, companies having lower variance in their investments have obtained better results.This means that innovation should not be limited to introducing a new product or a new service having anever briefer lifespan on the market, but to develop internal skills over a longer period of time. This makes firmsbetter able to withstand economic shocks. R&D must be a company policy which becomes a company’sculture.Secondly, more profitable companies have followed a peculiar growth path. One could be led to thinkingthat fast-growing companies prior to the crisis performed better than companies posting lower growth. Theformer could count on higher liquidity and stronger financial resources. Our research shows that there is anoptimal growth rate for sales, beyond which negative effects prevail. There is a non-linear relationshipbetween earnings and previous sales. The highest profitability is recorded for intermediate growth rates. 29
  • 34. ManagementGrowing beyond mere survival is important, but growth is not the objective that should be maximized.Paradoxically, excessively high growth can undermine the bases of sustainable growth in the near future.These findings are useful in constructing strategies to steer business organizations out of the present crisis andbe ready to face the next round of economic difficulties.The AuthorGiovanni Valentini is Assistant Professor of Strategy at Bocconi.Research AreasCompetitive strategy. Innovative strategy. From Bocconi Newsletter no. 85/2010 30
  • 35. ManagementGetting Back to BasicsIs Getting Business Back on Its Feetby Paolo Preti When financial giants bite the dust, land onwership is restored to its former status and the value of quality basic products returns to the fore. A Sardinian shepherd turned entrepreneur shares some pearls of wisdom that tie into recent changes in the agricultural economy.It was last September. As I was vacationing in Sardinia, I had found in a magazine the address of a farm shopwhich according to Slow Food was among the best on the island. The directions were sketchy: the turn-off forPortobello di Gallura was all I got at the phone, but was favorably impressed after talking to the owner.My wife and I got in the car for a 40-kilometer drive to what I thought was a normal retailer. We got lost and Ihad to call back a few times to ask for the way. When I found myself in the midst of nowhere and day wasturning to dusk, I was finally told I was only a kilometer away. Behind a curve on the road, a lamp-post lit atwo-floor building with a stocky man standing outside. On a wooden board, a hand-painted sign said: “AntichiSapori di Sardegna” [Ancient Flavors of Sardinia].Mario Usai is one of those entrepreneurs – although he would probably disagree with the definition – who arefun to meet. It wasn’t a shop, but a house of his property hosting one of his three retail points. Briefly, he toldme his story. Sixty years of age, married to an accountant, eleven children ranging from thirty-two to twelveyears. Usai lost both his parents as a child. With his grandfather (who went on to live until 107) he went to workas a servant-shepherd in remote Barbagia at the age of 14. He returned to Gallura years later with 25 sheepthat were all his property.Today, he owns 200 hectares of pasture, and leases as many, 2000 milk sheep producing 300,000 liters of milk,60,000 kilos of cheese, 250 cows, 50 goats, 30 horses, hundreds of pigs. The whole business, which includes abutchery, employs fifteen people and is worth a few million euros. In addition to a punitive work schedulesince he was young, he followed two rules in life. One he heard from his grandfather: “Remember you have to 31
  • 36. Managementbuy either gold or land”, while the second he teaches to his children: “Value means your customers and thequality of your product.”With the crisis of tertiary sector, the primary sector is back in fashion: with financial markets at historical lows,ownership of the land goes back to its former status, not only in an economic sense but in a traditional sense. Abrilliant agriculture minister, active farmers’ associations, firms run by young agricultural entrepreneurs, newmodes of distribution such as “farmers’ markets” which match producers’ supply with consumer demand andyield significant savings, a renewed attention to service and product traceability, heightened interest inhorticulture and organic vegetable gardens, which Michelle Obama has made highly fashionable, all theseelements are driving a return to basics that is boosting the fortunes of the agricultural sector.The AuthorPaolo Preti is Professor of Organization and Human Resources Management at SDA Bocconi and AssociateProfessor of Corporate Organization at the University of Valle d’Aosta.Research AreasOrganization of small and medium enterprises. Human resources management in SMEs. Entrepreneurship.international agreements. Growth and development of SMEs. Generational succession. Relations betweenfamilies and companies. From Bocconi Newsletter no. 86/2010 32
  • 37. ManagementCompanies Are Still Investingin Promising Resourcesby Claudia Tamarowski Managerial education: a look at the evolution of business schools and their relations with companies, according to SDA Bocconi School of Management, which is in the top echelon of European executive education. The trend is toward tailor-made Corporate Master courses.Companies increasingly demand managerial education which is both versatile and tailored to their specificneeds: the necessity is to homogenize skills, deepen innovation and valorize talents.The common objective, via the personalization of content, is to give managers the right tools to deal withproblematic situation, interpreting available data and information to support timely business decisions.One of the elements of tailored business education initiatives is the initial assessment conducted across thevarious corporate functions and continuous fine-tuning with the participants, aimed toward the facilitation oflearning processes and the absorption of the models proposed.Usually, the first level of tailored business education is represented by non-specialist courses, which have theobjective of creating an organizational culture oriented toward economic management. At the second level,there are educational tracks that are oriented to the various business professions and top managers. At thislevel, the stated objective of corporations is to develop long-term skills in managerial profiles. An indication ofthis development is the growing interest for Corporate Masters, the so-called Academies, i.e. long-terminternational programs having very ambitious objectives. These programs to develop corporate skills areusually two years in duration, and delve into interfunctional issues with tutored on-the-field projects.Corporate Masters are attraction and retention initiatives which show how, even during an economic crisis,companies are still willing to invest in their more promising human resources. An example is provided by ChiesiFarmaceutici SpA, a company which has decided to invest in customized executive education to cover theskills gap of its managers and make them more accountable with respect to economic performance. Thus, 33
  • 38. ManagementSDA Bocconi has strongly focused on the specificities of the pharma industry, by customizing issues andcontents of the program accordingly.The Chiesi experience is a case in point about the value of continuous education, which is successful when it isstimulating, diffuse, and calibrated to the needs of the people and the requirements of the industry.The AuthorClaudia Tamarowski is a Researcher in Corporate Finance and Financial Analysis at Bocconi and a Professor ofAccounting, Control, Corporate and Real Estate Finance at SDA Bocconi.Research AreasCorporate finance. Project financing. Asset allocation. Shareholders value. Financial communication. From Bocconi Newsletter no. 88/2010 34
  • 39. ManagementIt’s Not Only about Low-Cost: Prices Are Polarizingby Sandro Castaldo Market share of more expensive products is growing: in 2009, one out of three goods was priced 30% more than the average. In a context where cheap discount distribution is also gaining share, the middle ground is shrinking as consumer loyalty is courted by the extremes.The logic of low-cost permeates many sectors of our economy. Low-cost has captured the growing interest ofcustomers for no-frills goods and services. All you buy is an airplane ride: all other services are proposedseparately (e.g. food, drinks), according to the logic of unbundling.In marketing, the phenomenon has been studied in terms of retail pricing policies, contrasting the Every DayLow Price (EDLP) with the High-Low (Hi-lo) pricing approach. The first characterizes the supply of retailers suchas Wal-Mart, who have made low prices a key to their positioning. This way, long-term loyalty of consumers isusually encouraged, improving the company’s consumer levels. High-Low pricing is based on price promotion,by placing a discount premium only on certain products for a limited period of time.Hi-Lo rests on a weak assumption, though. It is about attracting customers with a few well-known brandedproducts, often sold below cost, seeking to expand their in-store purchases on other, fully-priced products. Thispricing policy could turn out to be dangerous for distributors and manufacturers if it is not well managed, sinceit rewards consumer opportunism and the segment of so-called cherry-pickers, who somehow benefit fromvalue created by loyal customers. Cherry-pickers only buy products that are on sale, and thus maximize theiradvantage vis-à-vis the retailer. Summing up, the Hi-lo approach risks motivating infidels and demotivatingloyalists. Over the long term, it negatively affects customer loyalty and business performance.In 2009, Nielsen highlighted the fact that more than 25% of the products sold by large-scale retailers where soldwith price promotions, reaching 30% in giant supermarkets (hypermarchés).The EDLP approach instead offers the client a proportional return on the value of his/her purchases, warrantinga good deal on each and every product, thus creating a solid and stable relationship of loyalty. This is the 35
  • 40. Managementreason pushing many firms to adopt low-cost pricing policies. Another element highlighted by marketingstudies is the apparent paradox of a low-cost economy. In fact, empirical studies show a polarization ofmarkets, in which both low-cost goods and services and premium priced products expand their market share,with a consequent reduction of market share for the medium-priced ranged.Looking at mass consumption items, and setting at 100 the average price of each category, one can see thatthe market share of products priced at less than 70 represented 12.6% of the sales volume, while products withprices higher than 130 account for 30% of total sales. We can thus finally talk about product differentiation,from no frills to full frills good and services, which expands the consumer’s freedom of choice and his/herwelfare. It is also good news for firms, which can innovate by knowing that customers will be able to seize onthe elements of differentiation being offered.The AuthorSandro Castaldo is Full Professor of Management at Bocconi. Between 2004 and 2009 he was Director of theSDA Bocconi Marketing Department, where he taught in various programs, including the Full Time MBA andthe EMMS, the Executive Master in Marketing & Sales.Research AreasTrust in market relations. Industry-distribution relations and channel policies. Analysis of consumers andpurchase processes. Innovation and new product development. E-commerce, loyalty and privacy. From Bocconi Newsletter no. 89/2010 36
  • 41. ManagementWorking as Business Innovation Managerby Silvia Zamboni Change is the norm nowadays, but pushing rather than following new events is a challenge every company faces. So this job position is meant to deal with the issues of change management: stimulating new ideas, interpreting market trends, negotiating path-breaking deals.In a business environment ever more complex and competitive, it can be a significant challenge fororganizations to give rapid answers to market changes. This involves issues like establishing a web of relationsthat exceeds the boundaries of the firm, and creating, organizing and managing the virtual links between thefirm, its employees, external collaborators, suppliers, and customers.Innovation is not only about developing a new product or service: innovation embraces all business processes.It can be about either process or organizational innovation, in order to foster business growth by entering newmarkets and/or expanding existing ones, by introducing new and better products and services andimplementing new ways of working.Thus in large companies the need has emerged to have a specific role devoted to the promotion andmanagement of innovation, by creating the ad hoc position of Chief Innovation Officer (CIO), in Italy betterlabeled as Business Innovation Manager (BIM).That of the manager of innovation is an established company position in Anglo-Saxon countries which iscurrently emerging also in the Italian and European context. It originates from the evolution of other functionalor process-related corporate functions, depending on the driving factor of innovation within the firm.According to this perspective, the BIM pushes business innovation through good strategic thinking and arelated ability for economic and financial planning. This job profile calls for good organizational capabilities, inorder to manage change and negotiate the projects and processes of innovation in a structured andcontinuous way, by favoring the emergence of a creative and forthcoming company environment. He/shemust also possess high level marketing skills, in order to locate gaps in the existing supply range, stimulate thegeneration of new ideas and the market transfer of technological innovations, so that they can generate 37
  • 42. Managementvalue for the customer and the firm. As corollary, a solid knowledge of ICT and its potential to establish internaland external collaborations complete the challenging profile of a desirable BIM.Over the last year, a research study conducted by SDA Bocconi School of Management, in collaboration withProgetti Manageriali (a service company owned by Federmanager), has looked into the skills required to fillthis new job profile and considered whether existing managerial profiles managing innovation processespossess them. The study highlighted certain areas of comparative weakness with respect to the managementof teams and external relations, in the dynamic management of core competence and competitiveintelligence, and in the organization of the innovation process in a multi-project environment. The question ofwhichone will tend to be the career path for this new job position remains open, especially in Italy wheremanagerial careers tend to be strictly vertical and specialized.The AuthorSilvia Zamboni is Professor of Operations and Technology Management at SDA Bocconi.Research AreasModels of network innovation and open innovation. Research, design and development management.Collaboration with customer and suppliers in new product development processes. Project management insettings of research and development of new products/services. Process analysis and management. Serviceinnovation and operations management. Facility management and services’ purchasing management. From Bocconi Newsletter no. 90/2010 38
  • 43. ManagementSuper-Sponsored Sportsby Paolo Guenzi 86% of sponsorships are about sports, so huge marketing investments have been made for the 2010 World Cup. But the sponsorship sector in Europe differs widely from one country to another as soon as the discussion moves away from soccer and motor sports.Europeans are very much into sports. In the five major countries of the Old Continent, 25% of the people polledsay they are “very interested”. Add to that the “interested” 35%, and you have 6 out of 10 Europeans whowatch sports. Such interest has led to ever-growing investments to sponsor teams, athletes, and wholecompetitions.In Europe, according to International Marketing Reports, sponsorships involve sports in 70% of the cases, andsport sponsorships account for 86% of the total value of sponsorship agreements. The growth of the sportsbusiness has led the development of investments in the industry by media and companies. According to manyobservers, sports sponsorships have reached a stage of maturity in Europe.Looking at sponsorship typologies, team sports weigh in for 62% of the total, followed by events (23%) andindividual athletes (12%). Naming rights contracts for facilities such as stadiums and coliseums are spreading,buy they account for only 2% of the total. In the Old Continent, the sponsors focus on two sports: soccer (38%)and motoring (32%). Other sports get a lot a less in spite of their popularity: for instance, tennis is liked by 23% ofthe population, but attracts only 3% of sponsorships. Such a lower pulling factor is explained by theheterogeneity of interest into various sports across different European markets. In fact, while soccer, car andmotorcycle racing are liked everywhere, track and field is appreciated by 30% of French, but only by 14% ofItalians.Thus there are marked cultural and local specificities that heavily influence business potential for differentsports in various countries. Other social profiles also matter. For instance, basketball is very much liked bypeople under 30, while skiing is uniformly liked by all age brackets. The concentration of interest in specificcustomer segments, while limiting investment opportunities for generic investors, offers the possibility of moretargeted communication for potential sponsors, which is attractive for companies aiming at selected publics. 39
  • 44. ManagementFor example, sailing attracts a lot of money from the fashion business, which is almost completely absent fromother sports. Looking at the industry of provenance, among sponsoring firms dominate financial services (13%of the total value of sponsorship contracts), automotive companies (12%) and telecommunication firms (10%).The main challenges for the actors involved in sponsorships (the sponsor and the property owner) areoptimizing return on investment for all side of the deal and improving the measuring of performance. To reachthese objectives, ever more articulated and specialist marketing and brand management skills are required tooptimize sponsors’ outlays. Market research needs to be deepened to gain a better understanding of sportsconsumers and their reactions to sponsorship initiatives.The AuthorPaolo Guenzi is Associate Professor of Corporate Economics and Management at Bocconi and Professor ofMarketing at SDA Bocconi, where he is director of the courses on sales.Research AreasSales management. Relationship marketing. Marketing of leisure. From Bocconi Newsletter no. 91/2010 40
  • 45. ManagementInstitutional Factors and CompetitivenessDetermine Where Cars Are Madeby Carlo Alberto Carnevale Maffè FIAT and the others: the industry is changing; a careful balancing of institutional relations and production priorities is now the rule of the game. The national identity of a product is complicated by global supply chains, brand loyalty versus territorial presence and new twists in labor relations.When somebody says “Made in Italy”, I say “Not so fast”. In the years of galloping globalization, the “Made in”concept underwent profound changes in cultural and economic terms: its territorial identity was progressivelyeroded, as it turned into an almost accidental organizational option, embedded into a complex andgeographically distributed logistical chain. The corporate brand, this was the mantra of marketing, mustreplace geographic origin denomination as guarantee of quality: Made in had to become Made by; thereference was no longer a nationality and a territory, but a brand and an organization. But the worsteconomic crisis in years, with its pangs of protectionism and mercantilism, has taught sharp-minded managersto consider manufacturing labor as a fundamental arbitrage factor in national and international maneuveringfor fiscal aid and company subsidies.For major manufacturing firms, today more than ever, labor is a bargaining chip in the institutional and politicalgame. The great industrial challenge is to marry the constraints imposed by economies of scale andrationalization of production with the renewed role of national governments in protecting employment.The case of the auto industry is exemplary. During the period of most acute economic crisis, France, Germany,and then the other European counties, have come to the rescue of the national car industries with direct orindirect subsidies, blatantly disregarding EU regulations prohibiting government aid to business companies: theinfluence of competition authorities was effectively neutralized by global financial emergency. In an industrydeeply in crisis, the protection of the “Made in” has become the political justification to shelter employment.In Italy, FIAT. dealing with a crisis too large to be compensated by the intervention of a too small nationalstate, has immediately seized on the opportunity, with the acquisition of Chrysler, to propose a risky institutional 41
  • 46. Managementdeal to the US government, offering technological synergies and maintenance of employment levels inexchange for a company share with a total control option. And in recent weeks, with the “Fabbrica Italia”initiative illustrating the new industrial plan, Sergio Marchionne put on the table the doubling of car productionin Italy, in exchange for the unions signing for additional flexibility on the assembly line. This smart move in termsof industrial relations is accompanied by the choice of unremitting standardization of car components, thesharing of technological platforms and modules and the pursuit of economies of scale through industrialcollaborations that are global in scope.In car-making, however, the share of value added represented by the final assembly of the vehicle – i.e. whatis considered “Made in” – has steadily declined through the years, to the benefit of upstream stages ofmanufacturing (components and platforms), as well as downstream stages such as selling formulas andfinancing schemes. In the automotive industry, the Made in Italy is reinventing itself: it will more and more beconstituted by the optimal minimum perimeter of processes to ensure the right compromise between, on oneside, the level of industrial relations and the national identity of the product, and on the other therationalization imperatives of an irreversibly global production chain.The AuthorCarlo Alberto Carnevale Maffè is part of the teaching faculty in the Strategic and EntrepreneurialManagement Department at SDA Bocconi, where he was also coordinator of the Master in CorporateStrategy (2003-2007).Research AreasCompetitive intelligence. Non competitive strategies and international strategies. Strategies of technologicalinnovation. Industry focus: technology, media, telecommunications, luxury goods. From Bocconi Newsletter no. 91/2010 42
  • 47. ManagementBringing Craftsmanship Back into Fashionby Stefania Saviolo The Italian touch is about acknowledging the value that artisans, tailors and seamstresses bring to the fashion product. Not easy in a globalized economy, but one company is putting craftspeople in its stores to show customers just how skilled a true artisan can be.The current crisis has made the customer more selective on price and quality. Italian fashion companies canseize on this opportunity, by exploiting traditional values and skills, which today need to be re-emphasized withnew vigor. Much of the debate on Made in Italy fashion has been on the traceability of production, aprinciple which was embodied in recent legislation. But in order to give real content to the Made in Italyinitiative, underlying factors of craftsmanship, innovation and taste, the factors that have made Italian fashiongreat, need to become more apparent and better supported.High-end companies thus have a different role from mass-market companies. In mass fashion, the customerlooks at the price and seeks emerging style trends. In high-end fashion, the customer expects high quality, interms of creativity, touch, luscious materials, and connection to a country or landscape. Celebrating thesophisticated skills that are behind a fashion brand has recently become the communication strategy ofchoice for major fashion houses.“Forever now” is the claim of Gucci’s advertising campaign for 2010. It highlights the role of its artisans ininterpreting the quality and tradition of the fashion firm. At Gucci’s Rome boutique, one can find the “ArtisanCorner”, a project which will soon go the world round, where the artisanal process of making purses andaccessories is made visible to the clients. Gucci has recently stated that its products will continue to be made100% in Italy, and that it will continue to invest into the craftsmen that work for the company (7,000 in Tuscanyalone).At their latest fashion show, Dolce & Gabbana have joined the trend toward a higher appreciation ofcraftsmanship, by showing the expert female hands of a tailor making an iconic D&G jacket. 43
  • 48. ManagementBut there are companies that have always put the product and the human touch at the heart of theirstrategy. Brunello Cucinelli and Tod’s have always linked excellence of the product to excellence of theterritory. Cucinelli received the 2010 Confindustria Award for Excellence as best company for territorialvalorization. Cucinelli calls his employees “my 500 thinking souls.” Tod’s runs the biggest Western shoe factory,located in Italy, and puts the “Italian touch” at the heart of its brand philosophy.The crisis caused by the sorcerer’s apprentices of finance will perhaps give a renewed role to those artisanalmasters whose creations can give new shine to the Italian fashion miracle. This would be the veritableinnovation in a country where the factory shopfloor and artisanal labor have never been given their due. Butit’s not a return to the past. Craftsmanship is today aided by technology and must find its niche within complexglobal chains of production and exchange. The new Made in Italy must offer value to the global customer,balancing tradition with innovation.To do this, two major problems still need to be solved. Firstly, we must make this culture attractive to our youngpeople. In order to attract them toward these jobs of craft and skill, we need new forms of education andtraining and an adequate social status for those working in them. Secondly, business ethics needs to berestored in Italian fashion. The drive for lower costs, higher flexibility, and quicker time of delivery has generateda mass of subcontractors working under conditions of dubious legality, in order to be able to survive. It wouldbe a paradox if the Made in Italy were to based on underground labor in clandestine sweatshopsThe AuthorStefania Saviolo is a Lecturer in the Department of Management and Technology at Bocconi and Co-Directorof SDA Bocconi’s MAFED, the Master in Fashion, Experience and Design Management. She is also Professor ofStrategic and Entrepreneurial Management at SDA Bocconi.Research AreasManagement of fashion firms. Brand management. Internationalization strategies. From Bocconi Newsletter no. 92/2010 44
  • 49. ManagementThe Lone Man at the Top Doesn’t Come Out on Topby Beatrice Bauer and Massimo Magni The model of the male manager taking all the decisions and overstressed by too many activities and too little time is not working. A Bocconi questionnaire outlines this managerial style and finds that the remedy for isolated individualism and poor communication is teamwork.Over the last few years, more and more managers realize they don’t have the necessary skills to deal withproblematic situations and abrupt changes, and are unable to face stressful situations with a cool andbalanced mind. A recent research study conducted by the Bocconi Institute of Organization and InformationSystems highlighted the fact that 56% of interviewed managers think they have too many activities to perform,while 57% feels they don’t have sufficient time to deal with all their tasks.It’s not surprising that the creation of a good team capable of overcoming exasperated individualism andintegrating different skills and attitudes is one of the problems that are absorbing leaders’ energies. Leadershipbased on the image of the strong man who imposes his ideas and obtains uncritical obedience from his teamis no longer a factor for success.Today, aside from knowledge of the market and of one’s business, it has become a fundamental quality for aleader to be able to stimulate the energy, participation and proactivity of his/her collaborators, in a carefulbalance between himself/herself and the others. This aspect is often given scant attention: leaders don’t knowhow to transmit their collaborators their vision for the future, are unable to express the objectives to bereached in an attractive way, often limiting themselves to defining the individual actions to be performedwithout providing a larger understanding of the context. From the results of our research, it emerges that 36%of the difference in the ability to innovate and 44% of the ability to face the unexpected by teams isattributable to the team leader.But what are the secrets of a leader who is able to manage a team effectively? The findings point towardcertain essential elements which help the leader act with the right style at the right moment. First of all, self-knowledge. Good team leaders exhibit a high level of self-awareness regarding their own strengths andweaknesses. This aspect is important, because it leads the leader to realize when something is beyond his/her 45
  • 50. Managementabilities, and understand what are the complementary skills that need to be brought on board to deal withhighly complex situations.Secondly, scouting is essential. The team leader must be able to activate his/her network of relations tounderstand where the necessary expertise lies to build a good team on short notice, having the right mix ofdiversity and abilities to deal with complex problems.Thirdly, modulation. Self-knowledge and scouting are necessary but not sufficient conditions. In fact, the mosteffective team leaders are those that are able to modulate their style of leadership rapidly and coherentlydepending on the context, alternating between centralization and empowerment. The ability to modulateone’s own behavior is not innate and requires experience, exercise and constancy, above all because thetendency is to replicate the behavior of the “preferred style”.To test your own leadership style, the reader can compile the following online questionnaire:http://www.sdabocconi.it/leadingteams (available in Italian only). You will get real time feedback: a concisereport offering an individual evaluation of his/her style of team leadership, and highlighting the contexts wheresuch behavioral qualities are most effective.The AuthorsBeatrice Bauer teaches Organization and Human Resources Management at SDA Bocconi.Research AreasCognition and behavior during change. Resistance to change, assertiveness, stress, health, andpsychosomatic disorders. Leadership and team building in complex situations, organizational changes anddevelopment of organizations able to stimulate behavioral change, empowerment.Massimo Magni is Assistant Professor in the Department of Management and Technology at Bocconi. He was aVisiting Research Scholar at the University of Maryland and a Visiting Instructor at the University of Texas, Austin.Research AreasImplementation and development of IT systems. Organizational behavior in the IT area. From Bocconi Newsletter no. 93/2010 46
  • 51. ManagementIntangible Assets: You Can’t Touch Them,but They Make the Differenceby Francesco Perrini Strategy: the positive repercussions on the system of company relations that derive from adopting standards that are higher than what is required by law. A company’s endowment of human, intellectual, social, symbolic, and organizational capital is hard for competitors to imitate.It is undeniable that in current competitive markets, value creation is the result of the strategic managementof intangible skills and assets. The basic assumption on the superiority of intangible capital in ensuring lastingand sustainable competitive advantage is intuitive. Physical and financial tangible assets are only able togenerate a modest return on investment, because they represent forms of capital that are common andeasily reproducible.Only rare, valuable, hard-to-imitate resources, configured so that they can be effectively used within aspecific business organization give rise to a positive return differential. And it’s precisely intangible assets thatpossess such characteristics. They thus are at the basis of value generation in modern economies.It is in the progressive strategic and organizational integration of CSR practices can make the difference.Adopting social and environmental standards that are higher than the legal norm must be motivated not somuch by improving the bottom line, but rather as inevitable consequence of complex, dynamic system ofrelations that links the firm to its social environment. The step between socially responsible behaviors andstrategies and the accumulation of intangible capital is not hard to make. The more the economic, social andenvironmental dimensions are integrated in long-term business processes, the more it will gain legitimacy withand approval by various categories of stakeholders, thus augmenting its stock of immaterial resources basedon trust and good relations.Recent studies have shown that the accumulation of immaterial assets is the key to adopting CSR strategiesthat benefit the firm. According to this approach, relational assets (customer relations, labor relations andrelations with other types of stakeholders), structural assets (the capacity to innovate through the 47
  • 52. Managementdevelopment of technical abilities that are coherent with the corporate mission and culture) and intellectualassets (the set of behavioral, professional, cultural skills of employees) are the missing links between socio-environmental and economic-financial performance.One can think of how the implementation of programs and strategies geared toward the reduction ofenvironmental impact requires the development of new corporate skills, which, by increasing the stock ofintellectual and structural capital, in turn yield positive results in terms of operational efficiency and companyresults. Also, by improving stakeholder relations, firms are often able to venture into new markets and haveaccess to new business opportunities.The necessary condition for this to happen remains the conviction that social responsibility be understood asintegral part of corporate strategies and policies, by interacting with the management of all the otherfunctional areas: production, marketing, human resources, corporate governance. Thus the point forcompanies is not so much to move generically toward CSR, but to understand the meaning and value of CSRof a specific firm and translate it into objectives that can be monitored, thus leading to concrete activities andmeasurable results.The AuthorFrancesco Perrini is Full Professor of Economics and Business Administration at Bocconi, where he holds the SIFChair of Social Entrepreneurship and Philanthropy Management and is also Director of CRESV, the Center forResearch on Sustainability and Value and the Program Director for the Bachelor of Business Administration andManagement. He teaches in the Corporate Finance and Real Estate Department at SDA Bocconi, where hehas been co-director of the development of Corporate Social Responsibilities since 2002. He has taughtEconomics and Corporate Management at the Accademia della Guardia di Finanza of Bergamo and wasVisiting Professor at EAE - Escuela de Administraccion de Empresa of Barcellona and at the Universidad deChile in 2000-2001. He was also founder of the Finetica Observatory with the Pontificia Università del Laterano,Vatican City.Research AreasDecision analysis. Investment, start-up and corporate evaluation. Stock exchange listings. Project financing.Financial strategies for the development of SMEs. Ethical finance and ratings. Corporate social responsibility.Corporate governance. Social entrepreneurship. From Bocconi Newsletter no. 94/2010 48
  • 53. ManagementGoing to the Beach on the Other Side of Globeby Magda Antonioli Europe’s share in the global market for tourism has decreased from 55% to 45% over thirty years as new destinations became available. In this fully globalized market, it’s niche customers that matter, and mastery of online marketing is crucial to identifying them.The globalization of tourism has raised the issue of national competitiveness. Over the last few years, newdestinations have emerged on the global market, and more traditional destinations, while still growing, haveseen their share of global tourist flows decline. This is the case of Italy and the rest of Europe, which accountedfor more than 55 % of tourist destinations in the 1970s and now accounts for 45% of global tourism.A similar evolution calls for an understanding of the market structure, which in turn leads to assessing theconfiguration of the roles of business actors, such as air carriers and the development of web tourism, and ingeneral all those who work with tourism (public agencies, operators, companies, as well as complementaryindustries such as culture, entertainment, sports etc).The first implication of globalization is that different societies, cultures and economies are increasingly linkedand interrelated. Technological change, the liberalization of the world trade in goods and services, andheightened personal mobility have reduced, although not abolished, the barriers of space and time.Demographic change, especially in advanced countries, has led to the progressive aging of the population.This implies higher leisure and income, but also different needs in terms of destinations, products, services.Internet and personal communication technologies (cell phones, GPS) have changed the way of retrievinginformation and taking decisions.A higher supply of products and services makes it difficult for consumers to gauge their relative qualities. Thusthey seek other factors on which they can base their choices and are increasingly attracted by solutions thatare tailored to their individual needs and desires. It is thus harder to identify homogeneous targets formarketing campaigns. In other terms, we’re evolving toward ‘niche tourism’. 49
  • 54. ManagementThere’s also growing demand for sustainable tourism, either ecologically, socially, or economically. The trendhas been strengthened by recent legislative initiatives the provide incentives for individuals and societies toact in more sustainable ways. Both the Kyoto Protocol and recent EU directives set guidelines that affectagriculture, transport, and tourism. Also, the demand for health and well-being as leisure activities is growing, inorder to compensate our increasingly sedentary lifestyle.Finally, the success of low-cost entrepreneurial models has reshaped the market, by reducing products andservices to their basic components. Such business models work next to the more traditional models in theindustry.China, India, Brazil are rapidly gaining ground both as “importers” and “exporters” of tourists. Operators mustcome to terms with the reality of a growing weight for emerging countries in world tourism. Europe is losingmarket share (see United Nations World Tourism Organization). China, for instance, in 2006 overtook Italy tobecome the fourth most visited country in the world. If Hong Kong is also factored in, then France sees itstraditional position as the world’s leading destination threatened.The biggest challenge for many Italian and European firms is IT. Market fragmentation and the dominance ofsmall companies do not help. Still, savvy web marketing and a good online reputation are major competitiveassets for anybody operating in the tourism industry.The AuthorMagda Antonioli is Associate Professor of Economic Policy at Bocconi, where she is Director of the Master ofEconomics of Tourism and head of the tourism section at CERTeT, the Center for Research on RegionalEconomics, Transport and Tourism. She has taught at the Universities of Brescia, Venice and Florence and wasVisiting Professor at the University of Kyoto (Japan, 1995), Chulalongkorn University in Bangkok (Thailand, 1999),ESADE in Barcelona (Spain, 1998) and the University of Federico Santa Maria in Santiago (Chile, 2001-2002). Sheis also Director of MIUR and CNR research project units, head of research projects for the EU and member ofthe Educational Council of the WTO.Research AreasEconomics and policy of tourism. Environmental issues in economic policy. Industrial economics. From Bocconi Newsletter no. 94/2010 50
  • 55. ManagementInvention: Learning by Doingby Raffaele Conti, Alfonso Gambardella, Myriam Mariani Young researchers tend to produce the most disruptive concepts, but senior scientists produce more ideas. Should management invest in the chance of a quick big breakthrough, or support a gradual process that could lead stepwise to similarly important results?Most inventions are incremental and have limited technological value. Only a few inventions are truly radical,i.e. they constitute the basis for future innovation. Is an inventor learning from past experience when heproduces new inventions? In other words, what’s the role of learning by doing in radical innovation?Our article (Learning to be Edison? The Effect of Individual Inventive Experience on the Likelihood ofBreakthrough Inventions) shows that the amount of experience of an inventor (i.e. the number of inventions hemade in the past) has a two-sided effect. On the one hand, it diminishes the probability for a given inventionto be radical; on the other hand, it makes inventors more productive. The reason for this is that moreexperienced inventors tend to replicate what they have done in the past; for them it will be easier to makenew inventions, but these will tend to be incremental, since they resemble past innovations. However, sinceradical breakthroughs are hard to predict, making many inventions is the safest method to achieve one. As aconsequence, inventors who have acquired more experience are more likely to generate radical inventions,thanks to their higher productivity.In order to quantify the impact of past experience, it is possible to state that a 1% increase in the stock ofinventive experience determines an almost proportional increase (around 1%) in the likelihood of an investorgenerating a breakthrough invention.Relevant managerial implications are not hard to see. Many firms invest major resources to generate radicalinventions. The distribution of the economic value of invention is very skewed: there are many incrementalinnovations of little value or none, and very few radical inventions that have very significant value. For smallfirms and start-ups, to be able to make a radical invention means creating competitive advantage andpotentially subtracting market share from major firms. But for the big corporation making a radical inventionmeans maintaining competitive advantage and giving new impulse to its activities, as well entering newmarket segments. 51
  • 56. ManagementHow do you then increase your chances of generating radical innovation? Our article suggests that in thecase of a company having to choose among more than one invention, as happens in technology markets, it’sbetter to bet on the ideas of inexperienced inventors, which are more likely to be radical. However the adviceis turned onto its head in the case of a company having to decide which inventor to hire, or which inventor tofavor in the allocation of internal resources. In this case, the company would do better to invest in moreexperienced inventors. In fact, although each of their inventions has a lesser probability to be radical, expertinvestors are more likely to generate radical inventions, just because they are more productive.The AuthorsRaffaele Conti is a PhD candidate in Management at the Bocconi PhD School.Alfonso Gambardella is Full Professor of Corporate Management at Bocconi, where is Dean of the PhD School.He is editor of the European Management Review and serves on the editorial board of the Academy ofManagement Review, Global Strategy Journal, Industrial and Corporate Change, Research Policyand Strategic Management Journal.Research AreasCorporate economics and management. Industrial economics. Economics and management of technology.Myriam Mariani is an Associate Professor in the Department of Institutional Analysis and Public Management atBocconi, where she is Vice Director and member of the Scientific Advisory Board of the KITES Center,Knowledge, Internationalization and Technology Studies.Research AreasEconomics and policy of innovation. Life cycle of inventors. Spillovers of knowledge, economies ofagglomeration and international opening of European regions: analysis of the economic effects. From Bocconi Newsletter no. 96/2010 52
  • 57. ManagementEurope, America, China: Each is Global in Its Own Wayby Margherita Pagani E-commerce is driven by digital technology, but different markets display widely varying consumer use of a number of devices as vehicles for purchasing. A good e-marketing strategy must start with consumer specificities to reach the machines they use.Digital technologies, by cutting distance and costs, enable and intensify globalization. Information andtelecommunication technologies continuously, almost instantaneously, transfer enormous quantities ofinformation, further integrating economies and opening new markets and supply channels to the firms of theworld. The globalization of goods and services, designed and manufactured to be sold all over the world, isparticularly marked the in online world. Data on the global growth of electronic commerce show that digitaldistribution (Web, TV, cell phones) allows firms to increase their reach in terms of markets and their richness interms of the catalog offered. The electronic market has offered new opportunities to existing firms to marketand sell beyond national borders, and has led to the emergence of a whole new category of operators, likeDell or Amazon, exclusively selling online.Small and medium firms benefit from the possibilities the Web offer in terms of customer relationshipmanagement: lower cost and higher diffusion of promotional campaigns, more precise consumer targetingdown to the level of one-to-one marketing, and more. Traditional and new media are expanding theglobalization opportunities of small firms and big corporations alike. In addition to the Web, new digital TVshopping channels also allow the consumer to comfortably shop from home. QVC, the US shopping channel,is well established in Japan and Germany and is now being launched in Italy. Over the last year, QVCreceived more than 181 million phone calls in the US and sold over 166 million products in the world for totalsales of $7 billion. Many firms are also exploiting the marketing potential of social networks like Facebook,MySpace, Twitter.While digital technologies are drivers of globalization on the supply side, it must be noticed that the consumeris not equally global in his/her patterns of technology use and consumption, so that global firms shouldcarefully consider their strategic choices in terms of online commerce. 53
  • 58. ManagementAccording to an ongoing study by Università Bocconi and Northeastern University, significant cross-culturaldifferences emerge in the consumer’s adoption of technology in the three major economic regions of theworld: America, Europe and China. The relative weight of individual vs collective values affect the attitudetoward and use of technology. The perceived risk of online transactions biases purchasing behaviors andhighlights a difference between the US and the EU. Differences also emerge in technology use: the USconsumer is more PC-centric, while Europe is more TV-centric. The new wireless technologies are offering newopportunities for e-commerce in Europe and Asia.Technology is driving the globalization of many firms, but a correct e-marketing strategy should look atconsumer specificities in terms of adoption and use of digital technologies in the various areas of the world.The AuthorMargherita Pagani is Assistant Professor of Marketing at the Bocconi Department of Marketing. She is anAffiliate at MIT Massachusetts Institute of Technology and a member of the Executive Faculty at the LorangeInstitute of Business – Zurich. She was also Visiting Scientist at the MIT Sloan School of Management (2008),Visiting Scholar at the Massachusetts Institute of Technology (2003-2007) and Visiting Professor at the Universityof Redlands (California, 2004). She is associate editor the Journal of Information Science and Technology andmember of the editorial review board for Industrial Marketing Management, the European Journal ofOperational Research, the Journal of Interactive Marketing, the International Journal of Human-ComputerStudies and the International Journal of Cases on Electronic Commerce (IJCEC).Research AreasConsumer behavior. Adoption models in the digital domain (digital TV, wireless web). E-marketing. Economicsof digital media. System dynamics. Mobile wireless. Interactive digital advertising. From Bocconi Newsletter no. 97/2010 54
  • 59. ManagementRevealing Secret Recipesby Giada Di Stefano and Gianmario Verona Social norms protect more than legal norms, especially in cases like the intellectual property of something as hard to copyright as a recipe. New forms of information exchange have emerged, each with its own strategic implications and set of checks and balances.Over the last few years, we witness the growing media exposure of gourmet cuisine. To quote a famousMilanese chef: “Twenty years ago it wasn’t like today. The chef’s activity was not valorized and the finalconsumer was unable to appreciate all the research and effort that went into the dish served at the table.”Increasingly, the world of high cuisine is shown in books, symposia, and especially on dedicated cable andsatellite channels. This growing media exposure has led to an interesting phenomenon: an intense privatecommunication between chefs, who are more often than not competitors, right down to hitherto jealouslyprotected recipes, cooking techniques and food suppliers. In certain cases, there are even swaps of waitingand kitchen personnel.This exchange among competing firms is a double paradox. On one side, competitive advantage in theindustry largely depends on the uniqueness of good creations and continuous renewal of the supply offered toconsumer. Exchanging information with competitors, or making it public, could potential undermine a chef’screation of value. On the other hand, the industry in question is marked by the impossibility of securingintellectual property rights. As a highly regarded chef remarks: “How can you copyright your creation, whenjust a superficial recipe change can ward off any sanctions?”. Once it is out of the firm’s boundaries,information easily falls prey to imitators, losing value.In spite of this, information exchange is increasingly frequent. As one haute cuisine chef recounts: “Once chefskept their recipes hidden. Today there’s constant interchange. There are events where we share the samekitchen and prepare the most renowned dishes side by side.” How can this phenomenon be explained? Andwhat makes it sustainable? Answering these two questions has important implication for many high-innovationsectors. First of all, for those sectors characterized by low protection of intellectual property, which areprecisely those where Italy excels: fashion, publishing, design. Secondly for those industries where the 55
  • 60. Managementtraditional protection of intellectual property rights no longer works, due to the speed of innovation (healthcare) or the growing involvement of third parties in the innovation process (software and the Web).In our work Kitchen Confidential? Knowledge Transfer and Social Norms in Gourmet Cuisine, co-authored byAndrew A. King of the Tuck School of Business, we provide two alternative explanations, on the basis of anexperimental questionnaire which interviewed more than 500 Italian chefs included in the 2009 MichelinGuide.Chefs confirm the existence of an alternative system of intellectual property protection based on social norms.Chefs have developed a code of conduct which dictates behaviors for anyone wanting to be consideredworthy of respect by his or her own peers. Faced with the exchange of a recipe, a technique, the informationon an ingredient, chefs know what is allowed and what is not.There’s also the implementation of strategies that minimize the eventual damage coming from an improperuse of information. Think about a very innovative chef: the value of a single recipe will be undoubtedlydecrease in the case of copying. Or consider two chefs that share the same cuisine philosophy and want topromote it. In this case the exchange of information benefits both sides, enriching the knowledge of both andmutually supporting the new approach. Summing up: yes to the transfer of knowledge, but as a function ofthe transaction in question, of the competitive position occupied, and of the strategic value of the exchange.The AuthorsGiada Di Stefano is a Research Fellow at the Bocconi Department of Management and Technology.Research AreasTechnology and innovation management. In particular: intellectual property rights, social norms, andknowledge transfer.Gianmario Verona is Full Professor of Economics and Business Administration and Director of the PhD in BusinessAdministration and Management at Bocconi. He is a Professor in the Marketing Department at SDA Bocconiand holds the role of Program Chair of the Competitive Strategy Division of the Strategic ManagementSociety. He teaches at the Tuck School of Business at Dartmouth College. He is also a member of the editorialboard of the Strategic Management Journal and Vice Director of the journal Economia & Management.Research AreasTechnology and innovation management. Dynamic capabilities. Knowledge integration. User innovation andentrepreneurship. From Bocconi Newsletter no. 97/2010 56
  • 61. ManagementEntrepreneurs, Listen to Lao Tzuby Thanos Papadimitriou and Brett Martin A survey conducted by the Harvard Business Review shows that entepreneurs often do not know how to delegate. Thanos Papadimitriou (SDA Bocconi) and Brett Martin (entrepreneur) quote Lao Tzu: “Give a man a fish, feed him for a day. Teach a man to fish...”Experienced entrepreneurs know full well that the secret of a successful start-up lies in its implacable capabilityto execute, according to a short and tight list of priorities. After all, it’s their relentless focus that allows newentrepreneurs to compete with vastly larger market incumbents.Let’s consider the case of MaritimeX (fictive name for a veritable shipping company). Built from scratch by twoGreek childhood friends, Aris and Stavros, MaritimeX had grown from an office staffed by two people to asizable company with 25 employees. There was only one problem: after sales had reached $9 million threeyears earlier, they had plateaued. Although they overworked themselves to exhaustion, the two founders wereunable to go beyond the ten-million-dollar mark.A quick glance at MaritimeX’s workflow would have revealed where the problem was. Each individualcustomer order had to be assessed by one of the two founders first. Since it would take at least one week ortwo before Aris or Stavros could complete their evaluation, often potential customers gave up beforesomebody at MaritimeX seized the chance. Although they devoted themselves full-time to evaluatecontracts, they could only manage a few at a time. So founders unintentionally ignored whole markets, lettingthe possibility of offering lucrative special transport services slip by. Aris and Stavros had become thebottlenecks of their own company!Entrepreneurs are obstacles to their own success, when their drive for perfection becomes enemy of thegood, i.e. implementing the necessary steps for growth. When people asked them why they wanted toevaluate every single activity in person, the owners of MaritimeX answered that the task was incrediblycomplex and that it required a sophisticated understanding of costs and a lawyer’s knowledge ofinternational law. The two founders were quicker and faster in identifying the better business propositions. Howcould they stand aside and let sloppy evaluations prevail? 57
  • 62. ManagementAris and Stavros had to take important decisions from a financial and personal point of view. Did they want togrow, and risk jeopardizing the quality of service and relations so jealously held? Or did they prefer to staysmall but successful, while impressing their customers with their personal touch? What was more important forthem: growth or control?Actually, one thing does not necessarily exclude the other. A look at the more common excuses formicromanaging one’s own company reveals the mistaken thinking that holds back many successfulentrepreneurs: “As final decision-maker, I must do everything, because I’ve got to know everything”.Entrepreneurs should not refrain from getting their hands dirty, but decisions and information gathering shouldbe delegated every single time it’s possible, so that the entrepreneur can devote himself/herself to activitiesnobody else can do in his/her place, such as imagining new business scenarios.“Delegating to people less competent than me leads to inferior results”. Every founder hates seeing theircollaborators making “avoidable” errors, but good entrepreneurs know that the best is enemy of the good,and in many cases of growth. Knowing your employees’ shortcomings is no excuse to do everythingpersonally. Successful entrepreneurs know that the best was to employ their time is to prepare their employeesto face difficulties and help them learn from mistakes.Many new entrepreneurs assert: “The time spent training your collaborators is time wasted (and cannot beinvoiced)”. Lao Tzu instead said: “Give a man a fish, feed him for a day. Teach a man to fish, feed him for alifetime”. Letting one person taking all decisions is source of delays and ultimately unsustainable. In a survey wehave conducted with Harvard Business Review (http://bottlenecksurvey.chefsnotbakers.com), an astonishing41% of respondents revealed that their business would “collapse”, or at best “slowly decay” without them!Even if you’re the best at what you do, it does not mean you should do everything. An entrepreneur who failsto refashion his/her style of management from “executor” to “educator” will never tap into available resourcesto seek new business opportunities.The AuthorsThanos Papadimitriou is Professor of Operations and Technology Management at SDA Bocconi.Research AreasOperations. Information systems. Entrepreneurship.Brett Martin is an entrepreneur. From Bocconi Newsletter no. 98/2010 58
  • 63. Societyand Culture
  • 64. Society and CultureWork Turns Liquid and Overflowsby Vincenzo Perrone The boundaries between work and leisure fade, but choice about one’s own time is an illusion if the office takes over the household.2010 is the year of jobs. Jobs to cling to, jobs to be found, jobs to be sought. Social mobility, never strong inItaly, could decrease even further. To their dismay, young people could find they have to postpone yet furthertheir hopes of being hired, while middle-aged people who have lost their jobs stand to suffer the most. Buteconomic uncertainty will also affect those who haven’t been laid off: the crisis is making work ever moreliquid and pervasive.Work is expanding in the lives of many. Like a liquid, it has lost its shape and structure, since its time and spacehave lost their predictability. Downsizings and restructurings force those who stay to do more with lessresources. Thus the intensity of work grows and grows. At FIAT, many managers have accumulated a numberof tasks they have to perform on both sides of the Atlantic. Flattened hierarchies and direct reporting arechildren of the idea by which only managers, and their direct vision and first-hand experience, can make abusiness grow. Whoever is entrusted with even minimal responsibility is expected to put in overtime, offercomplete remote availability, take work home, and do weekend meetings. Work has long broken the 9-to-5shackles which mores and unions had imposed after WWII. Aided by technology, work is intruding into timesand spaces hitherto considered private and sheltered.We have seconded this trend out of fear, convenience, and sometimes out of boredom. Job uncertaintymakes it more likely to give in to employers’ demands for higher commitment and productivity. But if it’s truethat work encroaches on private life, the opposite is also valid. With respect to the past, today it’s technicallypossible and tacitly tolerated to organize one’s vacations by using the Internet connection at the office, aswell as chatting online and making a few personal calls. In this mishmash of work and non-work, office life andprivate life, we gain from having more flexibility in the use of time, but we risk underestimating the price we arepaying. Having become multitasking jugglers, we risk to be plagued by a sort of attention deficit syndrome, i.e. 61
  • 65. Society and Culturethe inability to focus on one issue at the time, and devote all our energies in addressing it. We also risk losingour ability to navigate a complex world: the taste for fine distinctions, for patience, and listening.2010 could well be the year of reckoning. People are already reacting. Those who understand that, in order torule one’s life, one needs to master his/her own time, are downshifting toward jobs that allow a less franticpace of work. Others are rediscovering the taste for working the land and growing produce. Another option isthe one described by Richard Sennett, according to which there is a rediscovery of craftsmanship and theappreciation of skillful, autonomous manual labor.However 2010 won’t be the year of radical change, which we invoked when the crisis was more threateningand the folly of the system we have built was exposed in all its irrationality. Bankers, consultants, managers andentrepreneurs have started to go back to business as usual. Sarkozy’s idea that GDP had to shelved in favor ofan indicator of human happiness no longer commands attention. But any complacence would be mistaken.What if the nightmarish scenario described by Matrix were not so distant from our everyday reality? How muchhappiness are we producing for ourselves, others, and the planet? These are uncomfortable questions, butthey mark the difference between awareness and stupor. Working in the new world requires people with openeyes. So, do you want the blue or the red pill?The AuthorVincenzo Perrone is Full Professor of Organization Theory at Bocconi, where he holds the position of Vice Rectorfor Research. He has been a member of the editorial board of Organization Science since 2003 and ad hocreviewer for the Journal of International Business Studies, the Academy of Management Journal, and theAcademy of Management Review. From 1992 to 1994 he taught and conducted research at the CarlsonSchool of Management of the University of Minnesota (USA), as a Visiting Professor. He held the chair ofCorporate Organization in the Business and Labor Department of the Università degli Studi di Cassino from1994 to 1999 and was director of the SDA Bocconi Organisation and Human Resources ManagementDepartment from 1995 to 2001. He is the editor of Economia & Management, a SDA Bocconi journal, andeditor-in-chief of Ticonzero - Knowledge and Ideas for Emerging Leaders.Research AreasCorporate theory. Relationship between strategy and organization. Organization networks. Changemanagement. Organizational behavior. The role of trust in inter-organizational relations. From Bocconi Newsletter no. 81/2010 62
  • 66. Society and CultureMoms Are Public Opinionby Paola Dubini In a media context of constant and confusing information bombardment coming from many directions, it’s mothers who select news. They accompany children in their life choices and are responsible for filtering information flows and picking media sources.Many studies on information, media and entertainment industries focus on the supply side. They look at newproduct configurations, intellectual property regimes, the sustainability of business models, and the like. Whensuch changes are analyzed from the demand side, they need to be embedded in a wider analyticalframework that explores the changes in the formation of public opinion.The more the availability of media sources grows, the more their interchangeability increases during the day,the bigger the number of media aggregators and active users in the spreading of information, and the morethe consumer must have an accurate knowledge in relation to media content in a day that can’t exceed the24 hours allocated.More information does not necessarily make you more more informed. The dizzying increase in the availabilityof news and information has not gone hand in hand with a corresponding growth in public awareness andability to select among news items. More often than not, information redundancy leads to media fatigue, andeven close-mindedness. The unprepared consumer thus becomes the victim of media bomdardment andbecome less informed, as his/her attention falls prey to the latest piece of news. Conversely, if the consumer isan active user, information redundancy turns into a wealth of choices and each source provides specificpossibilities to enlarge one’s information and knowledge.In the new media context, it is particularly interesting to study the behavior of moms. Mothers are very muchaware of the effects that their choices have on the welfare of the household. They often are the familymembers who filter and preselect information, advising their children on media choices. Also, they usually arethe critical decision-makers over purchases and are used to exchange, verify, and administer information in aselective manner within small groups of people. Even if they don’t use the Internet, moms are very much Web2.0 in relation to content and people. 63
  • 67. Society and CultureA first study on the management of information redundancy conducted over a sample of 720 moms sociallyand culturally equipped to deal with a wealth of information stimuli show a correlation between the degree ofinformation awareness and the consumption of information. Mothers who are better able to deal withredundancy are also those who consume comparatively more information coming from more disparatesources. More than half of the moms interviewed exhibit a proactive behavior vis-à-vis informationredundancy, even if they differ about information strategies. However, even in a sample made by educatedwomen using various media sources, we have found consumer profiles that betray a certain difficulty indealing with growing information flows, so that defensive information strategies emerge.This is a sign that the research trail on people’s attitudes with respect to information flows is more promisingthan comparing different media types, and that apprehending the processes by which information isgathered and shared, by moms and within the family, is crucial when thinking about the evolution ofinformation supply in the near future.The AuthorPaola Dubini is Associate Professor of Business Administration at Bocconi, where she is Director of the ASK (Art,Knowledge and Science) Center. She is a senior faculty member of the SDA Bocconi Strategic andEntrepreneurial Management Department, where she is also a fellow of the DIR Claudio Dematté ResearchCenter. In addition, she teaches Economics of Culture and Economics of Editorial Companies at the Universitàdegli Studi of Milan faculty for Literature and Philosophy and Coordinator of the Economics section of theMaster for Publishers, offered by the Università degli Studi of Milan, the Italian Publishers Association, and theMondadori Foundation.Research AreasBusiness models in the in information and communication industries. Economics of firms working in the arts,culture and tourism sectors. Attractiveness and competitiveness of territories. Entrepreneurship. BusinessAdministration and Business/Corporate Strategy. From Bocconi Newsletter no. 82/2010 64
  • 68. Society and CultureEuropean Museums: A Common Idiomfor the Contemporaryby Stefano Baia Curioni Over the last ten years, more than 250 museums have opened in Europe, often in buildings of great historical and urban prestige. Differences between creative activities and other forms of production and exchange should occupy the minds of social scientists, if they are to fully understand the contemporary age.Art is fashionable and is fashion, too. Over the last ten years, more than 250 museums and art centers haveopened in Europe. Often set in costly and flashy buildings, these sites tell of overarching political, cultural, andurban ambitions. Art is being overexposed. It is often seen as a taumaturgic remedy vis-à-vis contemporarydemoralization, as well as spur to economic recovery. Art is supposed to mend social illnesses and provideincentives to cognitive advancement. It is symbol and trait of an economy where wealth and beauty almostmagically merge.At the same time, art is known extremely superficially. It is all too often treated as luxury and trophy toadvance pitiless patterns of social competition and political dominance.But one should not be moralistic about this: the essential transformation of art into commodity is a problematictrait of modernity, that has been part of European society since the late 19th century. It is very important toinvestigate why such an ancient and risky expressive activity has undergone such a transformation. Wheneverart mutates, this is a signal of far-reaching processes of social change.Social sciences can play an important role in acknowledging and conceptualizing this process, and in settingtemplates for art institutions and cultural policy. It is not a foregone conclusion, but a patient process ofconstructing a common research field.Engaging with art has been part of the intellectual history of economics, sociology and anthropology. At thesame time, the complexity of the creative act and the structuring of dominant paradigms have led to acertain reductionism and consequent marginalization of the issue. 65
  • 69. Society and CultureThis is the reason a major thread of debate has been started revolving around “Arts and social sciences” whyat the Bocconi Art Science Knowledge (ASK) research center. It attracts geographers, urban planners andsociologists, economists, art historians and economic historians to the problem of finding a common groundaround questions such as: how do arts change? What determines their transformation? What are theconditions for their development or decadence?A central point is to consider the difference of art with respect to other forms of production and exchange.This is a distinction that tends to be underplayed in social science, but which is strongly emphasized in criticalstudies.It’s not about the subjectivity of perception. On the contrary, investigating what is specific about art couldhelp art transcend subjectivity and overcome paradigmatic constraints separating the various socialdisciplines, so that a common language can be found to do research on the contemporary.The AuthorStefano Baia Curioni is Associate Professor of Economic History at Bocconi, where he is Program Director of theMaster of Science in Economics and Management in Arts Culture, Media and Entertainment, as well as VicePresident of the ASK (Arts, Science and Knowledge) Center, where he acted as Director between 2004 and2009. He was General director of the ERGA Foundation, created by Università Bocconi and the ScuolaNormale Superiore di Pisa, from 2005 to 2009, and a member of the advisory board of Palazzo Te in Mantovafrom 2008 to 2009. He was also a part of the Commission for the Valorization of Italian Heritage, appointed bythe Italian Ministry for Artistic and Cultural Goods and Activities.Research AreasHistory of thought. Analysis of institutional development of Stock Markets in Italy. Cultural goods and activities. From Bocconi Newsletter no. 84/2010 66
  • 70. Society and CultureStagnating? Certainly Not Culture!by Anna Merlo Creative industries: certain definitions have been made obsolete in a post-industrial world. Purely quantitative assessments are fine for judging industrial productivity, but it is high time to restore value to the many contributions made by culture and the arts.Stagnating productivity: this was the diagnosis put forward in the mid-1960s by two US economists in the FordFoundation to define the productive capacity of the cultural sector as opposed to the productive capacity ofthe manufacturing sector. The two economists defined the latter as “progressive” because of its larger role inincreased efficiency and technological advances. These kinds of progress do not affect artistic production,since it is characterized by manual skills and craftsmanship, and is thus less efficient in sheer quantitative terms.Low productivity, which, combined with high and rising costs generates a pathological relation betweenrevenues and costs: as production grows, margins shrink. From an economic point of view this is a dangerouslyunsustainable situation, if external funders don’t step in. The low-productivity stigma does not only affect artsand culture, but also other industries where minds, hands and human bodies, rather than machines, areproducing: crafts, sports, education, research, health, personal services.Isn’t it about time to change perspective on this issue? Only by looking at culture in purely quantitative termscan industrial sectors be seen as “dynamic”, as opposed to “stagnating” creative industries. But does it makesense in this post-industrial age to look only at quantity and efficiency? Shouldn’t we rather think in terms ofeffectiveness, quality, innovation and - why not - sustainability? We have to consider these new dimensions inthe objectives being pursued, in the skills and resources commanded, in the complexity of processesemployed, and in the standards for evaluating the results being obtained.Creative industries are among the most qualitatively important and innovative sectors: they are challenging,intriguing, and thus strategically competitive. Conversely, it’s the manufacturing industries now stagnating dueto negative environmental externalities and the global crisis. 67
  • 71. Society and CultureMaybe the moment has come to stop seeing creative industries as characterized by “stagnating productivity”and start giving back their due after a century of industrialization, in terms of quality, innovation,competitiveness and economic value. Summing up, as we wait for the market to acknowledge and pay forthe historical, social, and human value of culture and the arts, let’s stop refering to them as sectors withstagnant productivity.The AuthorAnna Merlo is coordinating supervisor of MASP, the Master in Entertainment Industry Management at Bocconi,Professor of Public Management and Policy at SDA Bocconi and Tenured Researcher at the Università of Valled’Aosta.Research AreasSocial economics. Non-profit organizations. Cultural organizations and public services. Entrepreneurship andresponsibility. From Bocconi Newsletter no. 89/2010 68
  • 72. Society and CulturePolitics as a Profession in Italyby Alex Turrini and Giovanni Valotti Members of the Italian Senate and Parliament tend to be old, male professional politicians, leaving women and the young generally under-represented. A Bocconi study paints an unflattering portrait of a system that needs to change.The latest report by the Bocconi Observatory on Change in Public Administration tries to sketch a profile ofItalian parliamentarians, by drawing upon secondary sources to look at the individual characteristics of MP’sand Senators over the last 10 legislatures.Results show that the typical Italian parliamentarian has significantly aged over the last 35 years. In the VIIlegislature the average age of senators and representatives was 49.7, while in the last (XVI) legislatureconsidered, the mean age had risen to 52.8.In particular, younger generations are grossly under-represented. While the share of the Italian populationhaving less than 40 years of age is 23.6%, in Parliament only 8.4% of members are youngish.And it’s not because experience counts. Only about half (45.6% over the whole sample) of parliamentarianshave previously served in lower-level institutional posts. But once elected, it’s likely the MP will stay in the Housefor additional legislatures: senators stay on average for two terms, and representatives even more than that(2.26).Another aspect concerns gender and income differences among parliamentarians. The research studyhighlights the fact that the share of women in Parliament has only reached 20% in the last legislature, while ofcourse women are more than 50% of the Italian population. Women are even more under-represented inItalian businesses: in corporations with sales over €10 million, women comprise only 14% of those sitting oncompany boards.Lastly, apart from gender factor, the study highlights the fact that working as parliamentarian can bring grossearnings of as much as €200,000 (including bonuses and reimbursements). Paraphrasing Max Weber, it seemsthat in Italy Politik als Beruf is eminently possible: Italian parliamentarians can make a living off politics (so 69
  • 73. Society and Culture“plutocratic” recruitment of the political class seems a distant possibility), but in certain sectors of thepopulation (youth and women) the sentiment of disaffection toward politics seems to be growing, limiting theirwillingness to pursue political careers, even for a limited period of time.The reasons for this phenomenon certainly depend on the existing mechanisms to select the members of theItalian political class (both in terms of training and electoral processes). As these are seriously biased, thereneeds to be reform and renewal concerning these crucial aspects.The AuthorsAlex Turrini is Assistant Professor of Public and Non-Profit Management at Bocconi and Professor ofManagement and Policy at SDA Bocconi.Research AreasPublic networks, public governance, collaborative management (PNG). Behavior and demand of publicpolicies. Policy fields: arts and education, social care. Public management reforms (PMR).Local government studies. Arts policies and management. Social policy and communication.Giovanni Valotti is Full Professor of Public Management at the Department of Institutional Analysis and PublicManagement at Bocconi, where he is Dean of the Undergraduate School. He is Professor of PublicManagement and Policy at SDA Bocconi, where he was Director of the Master Division. He is a member of theadvisory board of the journals Azienda Pubblica and Management delle utilities.Research AreasStrategic management of local governments, public administrations and public utilities. Definition ofinstitutional organization, evolution strategies and strategies for organizational models of publicadministrations. Analysis of forms of collaboration between private and public organizations. Innovativeformulas for management of public institutions. Revision of personnel policies in public administrations and inpublic utilities. Personnel performance evaluation in public administrations. Control systems on results andquality of public services. Evaluation of the impact of decentralization processes in the public sector.Internationalization processes of public administrations. Modernization of the public sector in Europeancountries. From Bocconi Newsletter no. 92/2010 70
  • 74. Society and CultureSickness and Health Are Becoming Globalby Eduardo Missoni Is human health really considered a fundamental right all over the world? With the increase in human connectivity, governance of healthcare systems is becoming more complex and interdependent and a new discipline emerges that analyzes solutions to international healthcare policy.The increase in human connectivity on a worldwide scale has produced an exceptional acceleration in theglobalization process, with incredible consequences that are also relevant for human health.Health is recognized as a fundamental human right, inseparable from all human rights and interdependent onthem. As such it is at the basis of the World Health Organization’s constitution, that defines it as “a state ofcomplete physical, mental and social well-being and not merely the absence of disease or infirmity.”Recognizing its great variety of social motivators helps understand the interdependence between the right tohealth and all other fundamental rights, whose pursuit is the responsibility of society as a whole.Health makes up not only one of a person’s most intimate and vital goods, it is also a global and inalienablepublic good, such as the environment, the climate, security and peace, to which health is very connected.There are many elements for concern that bring about the necessity of a careful analysis of the relationshipbetween globalization and health: new pathologies emerge and spread, a reduction of human resources forpublic healthcare and a crisis in healthcare systems is observed, access to treatment is more limited and theright to healthcare is often placed under discussion by opportunistic approaches and strong economicinterests.In a general overview stressing the inequalities between the North and South of the world, in terms of healthand other issues, the role of the World Health Organization has progressively decreased. The WHO isinstitutionally in charge of the promotion of health as well as, more in general, United Nations developmentprograms and agencies. The relative weight of the actors traditionally active in the healthcare sector has 71
  • 75. Society and Culturechanged, along with national and international public policies. Such policies are now more careful in creatingenvironments favorable for investments instead of effects on the population’s conditions of life and health.Instead of being considered as an intrinsic value and one of the prerequisites for personal freedom andhuman development, health is often considered only one variable in the economic and financial system, aweight for the scales, an opportunity for the markets. Consequently, healthcare policies adopted in pastdecades, often dependent on macroeconomic policies of structural adjustment, have contributed toaggravating the situation in many parts of the world. Such as in many countries in Africa, where lifeexpectancy has regressed after over a century of almost generalized improvement of the indicator.Given their importance, the effects of the process of globalization on human health have become the objectof study for so-called “global health.” Along with social, economic and political motives for health, thisemerging discipline also analyzes international and transnational solutions implemented on a political,strategic and operative level, considering their complex and intricate governance as well as the interaction ofthose processes with local and national healthcare and development systems.Managing global health requires the acquisition of new analytical and interdisciplinary abilities that transcendskills, as well as traditional public healthcare research and learning areas. Hence its natural inclusion as aresearch area at CERGAS and the need to introduce the subject in various university study programs, includingeconomic studies, as has occurred this year at Bocconi.Along with new skills, future managers of global healthcare will need to also acquire the understanding thathealth should be defended and promoted as a fundamental human right and a common global good.The AuthorEduardo Missoni, a physician specialized in tropical medicine, is Coordinator of the Research Group on GlobalHealth and Development at CERGAS, the Center for Research on Health and Social Care Management atBocconi. He was Secretary General for the World Organization of the Scout Movement (WOSM) from 2004 to2007. He also teaches at Università Bicocca in Milan and is Visiting Professor of Ethics and InternationalOrganizations at the IOMBA of the Université de Genève (Geneva).Research AreasGlobal health and development. Management of international non-profit organizations and institutions.Development cooperation. From Bocconi Newsletter no. 95/2010 72
  • 76. Society and CultureArt: The Usual Exaggerationby Stefano Baia Curioni An analysis of the three drivers for growth in the contemporary and modern art system after the recession. How things have changed in the market, how they’ve returned back to normal and why a tendency for unbelievable records is returning once again.Blackout. When the financial crisis was exposed in 2008, the art market went from frenzied to petrified, as if ithad looked Medusa in the eye. Liquidity dissolved in New York and London, but especially in emergingmarkets: it stopped. In 2009 ArtBasel was a triumph of small proposals and gallery owners unofficially halvedprices for the great masters. Then the markets rediscovered a tendency for records and the “normalexaggeration” of international capitalism. Prices of tens of millions of euros reappeared for the work ofindividuals such as the Transylvanian Andy Warhol, the champion of a despairing and irredeemablemarginality who is today on the altars of a value devoid of humanly comprehensible parameters.Is everything back to normal? Maybe, but was it normal before? Maybe not. The framework of the pre-recession contemporary and modern art system was characterized by three main drivers of change.Increase in demand: the number of collectors has changed over the past decade, along with their economicavailability and their choices. The nouveau riche in finance and emerging countries have come into thelimelight: first promoting European and American art and then projecting new artists from various countries toskyrocketing values. Market dynamics caused new actors (funds) to be created that emphasized thefinancialization of the art system.Transformation of the brokerage system: an increase in demand occurred along with technologies that coulddisintermediate the system’s traditional gatekeepers, that is, galleries, museums and critics. The particularnature of the art system has prevented this disintermediation from reducing the length of chains of distribution,increasing market efficiency. On the other hand, the role of galleries has increased with the creation of largeinternational organizations capable of integrating production and promotion by increasing the overall supplyof works. If other intermediaries capable of hybridizing museum and commercial areas have been developed 73
  • 77. Society and Culturethey are trade fairs. Their presence on an international scale has multiplied, producing opportunities fordramatic presentations, collectors imitating behaviors, and new forms of expression.The third driver is the concentration on repertoire and icons. The complexity of the system that has increasedboth in size and the extent of its range of action in a short time has concentrated collective attention on anarrow repertoire of global icons, simplifying greatly.All three of these transformational elements are still active today. What has changed is the overall system,because the recession has reacted differently on the private sector of galleries compared to what hashappened in the public area of museums. The scarcity of resources touches upon the public sector – partlydue to the sheer number of institutions (over 200 new buildings in ten years) – much more drastically and lessreversibly.In the medium term the system will be more private and more oriented toward the market. Will this be positiveor negative? Research projects and experiments will plausibly focus on larger museums or they will get lost inindependent projects with low budgets. Cultural institutions will be more bound to tasks of sophisticatedentertainment.But the main challenge will remain in the background because the art market is not simply a trade system. It isa way of establishing art in the contemporary, making art possible and making it able to withstand (at least alittle) the fierce game that extracts art from the artistic and philosophic fields. This reduces it to a simulacrum ofthe possibility of redeeming the interchangeable and provisory nature of the meaning of life, part of a time inwhich all metaphysical substances, from objects to everyday gestures, tend to be uprooted.Therefore, the question for the future is: Can the market be a cure for nihilism? For the answer, we have to waitfor the fall sales...The AuthorStefano Baia Curioni is Associate Professor of Economic History at Bocconi, where he is Program Director of theMaster of Science in Economics and Management in Arts Culture, Media and Entertainment, as well as VicePresident of the ASK (Arts, Science and Knowledge) Center, where he acted as Director between 2004 and2009. He was General director of the ERGA Foundation, created by Università Bocconi and the ScuolaNormale Superiore di Pisa, from 2005 to 2009, and a member of the advisory board of Palazzo Te in Mantovafrom 2008 to 2009. He was also a part of the Commission for the Valorization of Italian Heritage, appointed bythe Italian Ministry for Artistic and Cultural Goods and Activities.Research AreasHistory of thought. Analysis of institutional development of Stock Markets in Italy. Cultural goods and activities. From Bocconi Newsletter no. 95/2010 74
  • 78. Society and CultureOnce upon a Time There Was Photojournalismby Marina Nicoli Is anyone still willing to show us children harmed by napalm and the tanks of Tiananmen Square? Some would like to, but traditional print media no longer fund pictorial reportage because new technologies and business models have changed the whole game.When talking about photojournalism, we cannot help but remember the images which contributed tocreating our visual historical memory: the child harmed by napalm in Vietnam, the student in TiananmenSquare standing in front of the tanks, or the survivors of 9/11 covered in a shroud of powder.We live in an age which is saturated with images, with a constantly expanding market (it is estimated that in2013 the digital photo market will come close to 213 billion dollars), and yet paradoxically photographs seemto have become background noise. Photographic language in daily newspapers and magazines has beenconfined to simple characters, illustrations or space-fillers. Less frequently, editors will assume the risk ofinvesting in the production of new photo reportage, since the web allows us to access an enormous databaseof images whose costs are a joke.According to the research study, The Commoditization of Images: The Changing Landscape ofPhotojournalism, the fact that some of the most important agencies have closed over the last few years(Gamma, Sygma, bought by Corbis, L’Oeil Public, Grazia Neri), competition from an increasing number ofamateur photographers, and the spread of stock sites and royalty free offers (where one is able to buy animage for an infinite number of uses for less than 50 euro) have caused experts in the sector to sing the “deprofundis” (psalm of penitence) with respect to the photojournalism profession, while they report that the visualinformation offered to readers is progressively worse in terms of quality.The state of crisis in the market for informational photography is generalized at the international level and is theresult of changes that registered in the 90’s, when the technological standard moved to digital technology.While digital technology has both increased image production and beaten down development timeframesand costs, internet has also encouraged the speed of circulation. 75
  • 79. Society and CultureAt the same time, the market has seen the birth of new kinds of online intermediaries like Getty, Corbis andJupiter, which have progressively bought control of the market by offering images at competitive prices andtaking over some of the most important traditional agencies. During the twentieth century, agencies played afundamental role not only in intermediation between photographers and editors, but also in guaranteeing thequality of photojournalistic services. The editorial crisis then added another element to the story: a decrease inreaders, the collapse of the press’ economic support base (classified ads) and the growing role of digitaljournalism as the main source of information all contributed to justifying the cuts which editorial teams madeon staff photographers and on new reportage production. The questions which arise from such transformationsare at the center of the debate about the future of photojournalism and more in general about traditionalmedia: what will substitute all that we are losing? Will new information media guarantee that the iconographiccontent offered is reliable? Are photographic agencies still valid intermediaries or can that role be carried outby new technologies on the web?In order to survive agencies have tried to adapt themselves, sparking a price war which has brought about anincreasing lower investment in the production of new photographic content. After some agencies closed theirdoors several alternatives have begun to sprout, which could represent the new economic model forphotojournalism in the twenty-first century. These include the birth of photographic collectives, crowdfunding(financing through micro-donations), and financing offered by non-profits. So maybe it is time that we askourselves this question: Is photojournalism dead?The AuthorMarina Nicoli is a Research Affiliate at the ASK (Art, Science and Knowledge) Center at Bocconi. From Bocconi Newsletter no. 96/2010 76
  • 80. Society and CultureItaly Lags Behind in Women at Workby Paola Profeta In Europe, only Malta does worse than Italy when in comes to female employment, so Lisbon’s objectives in terms of activity rates remain distant. And within Italy, great differences persist between North and South when it comes to matters of gender equality and social attitudes.Italy trails behind in gender equality at work. The female employment rate is only 46%, next before last inEurope: only Malta does worse. Thus the objective, set in Lisbon, of a 60% employment rate by 2010 remainsdistant. Furthermore, the 75% objective for men’s and women’s employment rates by 2020 seems a mirage.But Italy is mixed and cross-regional gaps are large: while the North has a female employment rate of 56%,which is not too far away from the Lisbon targets, the South stays at a paltry 31%. However North-Southdifferences are not as large when it comes to male employment rates. The same can be said for educationrates. In South as in the North, women with a college degree have outnumbered men and the percentage ofpeople having a university degree are similar in the two areas of the country. So it would seem that in theSouth there are factors holding women back and leading to low female employment and lack of valorizationof their talent and educational capital. What are these factors?In my research studies with Alessandra Casarico, collected in the book Donne in attesa: l’Italia delle disparitàdi genere [Women in Waiting: Italy and Gender Disparity], published by Egea this year, in addition to featuresof the labor market and the role of institutions, we investigate the family factor: in Italy the division of laborwithin the couple is very unbalanced, with women devoting a lot more time to domestic labor and familycare, while men are engaged in the labor market. This pronounced sexual division of labor depends oncultural values and social norms which tend to reproduce it and are daily reaffirmed in the attitudes ofindividuals and firms.We thus asked ourselves if the heterogeneity of gender employment differentials could be explained, in partat least, by cultural factors. It’s what we have done in a research study that draws data from the Italianprovinces (Campa, Casarico, Profeta, Gender Culture and Gender Gap in Employment, CESifo Economicstudies, forthcoming). In the study we tried to measure gender culture by using two complementary indicators. 77
  • 81. Society and CultureThe first attempts to capture individual preferences and is based on the answers given to questions of theWorld Values Survey: To be a homemaker is as satisfying as to be in employment? Does a preschooler sufferwhen the mother works? When work is scarce, should men be given priority over women? Higher percentagesof affirmative responses indicate a more women-adverse culture. To get an idea, 81% of Italians answered yesto the first question against a European average of 50%, with much higher percentages in the South withrespect to the North. The second measure was based on the planned hirings and gender preferences in asample of firms taken form each province, as polled by Excelsior for Unioncamere. According to the data,41.4% of Italian firms state they’d rather hire men, only 17.4% prefer women, and the rest is indifferent. Again,the percentage of gender-neutral firms is much lower in the South than in the North of Italy.Our econometric analysis shows that, after controlling for a series of relevant factors (labor marketcharacteristics, availability of part-time jobs, socio-demographic characteristics, institutional context), in theprovinces where cultural indicators show openness to working women, gender employment differentials arelower. This is true when we consider both our indicators for culture, showing that the result is rather robust. TheSouth is saddled with a culture which is more adverse to women in employment: people would rather maintainthe division of labor within the couple, and firms are less ready to hire women. There’s still a long way to go forwomen to prove their worth at work.The AuthorPaola Profeta is Associate Professor of Public Finance at Bocconi.Research AreasPublic economics. Welfare systems (pension, education). Gender economics. Comparative analysis oftaxation systems. From Bocconi Newsletter no. 98/2010 78
  • 82. Society and CultureThe Economics of Influenzaby Guido Alfani and Alessia Melegaro Global pandemics: it’s by looking at the past that you can plan for effective intervention, keeping in mind the differences between a deadly disease like bubonic plague and relatively benign maladies – as the swine flu turned out to be.The word pandemics has caused much confusion during the recent crisis provoked by so-callled swine flu(A/H1N1). Alerted by the World Health Organization in June 2009 that pandemic contagion was in the making,the planet’s inhabitants were left to wonder how many victims the influenza would take. In fact, the etymologyof the word pandemic refers to an epidemic potentially able to spread its contagion across all peoples in allcontinents.The historical record provides no comfort. In Italy, the 1347-49 Black Plague killed between 30% and 60% of thepopulation. The 1630 bubonic plague portrayed by Manzoni in The Betrothed killed two million people in theNorthern part of the peninsula only. The relatively benign 1918 influenza, now used as reference for the worst-case scenario of influenza pandemic, caused 300-400,000 deaths.What was to be expected from swine flu, then? Immediately after the alarm, people scrambled to stock upantivirals or organized swine flu parties to get immunization before the presumed breakdown of the healthcare system. In the end, the final death count did not go beyond a few hundred victims in Italy: less than thosecaused each year by the common winter flu.In fact, pandemic does not mean high mortality, but rather high diffusion of a disease. In this sense, the swineflu was really pandemic, with 7 million cases between July 2009 and July 2010 only, mostly caused by theA/H1N1 virus. However, after the experience of last year, there is debate about the appropriateness ofgrouping lethal and non-lethal diseases in the same category. Separating them could avoid spreadingunjustified alarm, which sows panic among the population and damages the economy.If the last pandemic had a radically different demographic impact with respect to medieval plagues, thesame can be said about economic impact. The black plague caused a paralysis in economic activity and 79
  • 83. Society and Culturepermanently altered ownership structures and economic mindsets; it sharply increased levels of inequality. Italso a had a somewhat positive effect, insofar as it increased per capita resources. But even discounting thesecountervailing effects, the huge drop in economic activity is nowhere comparable with that caused by thepig flu.However, if we look at the amount of resources invested by health authorities and governments to face globalpandemic threats, and we compare it with the real level of risk faced by each individual during the crisis, theswine pandemic stands out for the enormity of invested resources with respect to a risk which turned out to bemodest. True, influenzas are unpredictable and caution was certainly recommended. But the larger questionof assessing, especially in times when the economy is not florid like today, whether existing national andinternational intervention strategies are economically sustainable remains open.The AuthorsGuido Alfani is Assistant Professor of Economic History at Bocconi, where he is also Fellow at the Carlo F.Dondena Center for Research and Social Dynamics and IGIER, the Innocenzo Gasparini Institute for EconomicResearch. He is head of the RDB Bocconi Distribution and Concentration of Wealth in Historical Perspective, aswell as a member of the international research project Mobilités, Populations et Familles (MPF). He is ChiefEditor of Popolazione e Storia and member of the editorial board of the journal Genus, as well as co-founderand organizer, along with Vincent Gourdon, of the international scientific network Patrinus.Research AreasDistribution and concentration and of wealth in the modern age. Economic and social inequality. Economictrends in pre-industrial Italy. Social alliance systems and social networks. Practices of god-parenthood andname-giving. Geography of customs. History of careers. Historical demography (history of plagues andfamines).Alessia Melegaro is Research Fellow at the Carlo F. Dondena Center for Research on Social Dynamics atBocconi.Research AreasDesigning effective and cost-effective control programs against infectious diseases. Mathematical modeling,statistical and economic analysis, sociological studies in order to understand how individuals mix and thus howeffective they are in transmitting infections. Focus on real-world problems to enable decision-makers tooptimize the design-makers of public-health control programs. From Bocconi Newsletter no. 99/2010 80
  • 84. Energy,Environment& Infrastructure
  • 85. Energy, Environment & InfrastructureClimate Change: Everybody Waitingby Luigi De Paoli At the COP15 in Copenhagen in December 2009, an international agreement was reached to limit the increase of mean global temperatures to +2°C. But nobody knows the amount of greenhouse gas emissions this corresponds to, and so everybody is waiting for someone else to act.Every year, the countries that have signed the 1992 UN Framework Convention on Climate Change meet todiscuss its implementation. The number of countries (i.e. the “parties”) now convening is 196.The 15th Conference of Parties (COP15) gathered in Copenhagen in December, attracting the attention ofthe world’s media. The climate summit ended with the signing of the so-called Copenhagen Accord (somehave dubbed it the “Copenhagen Discord” because the Conference was marred by disagreements).The concluding document says that the increase in global temperature must not exceed 2 °C; thatcooperation must be strengthened for the peak in emissions to be reached as soon as possible (so that theactual decrease can start), acknowledging the fact that developing countries need extra time; that by theend of January 2010 OECE and EIT countries were supposed to set emissions targets.The accord foresees financing to reduce deforestation in developing countries and the a 30 billioncommitment over the 2010-2012 three-year period, which would reach $100 billion by 2020, to help lessdeveloped countries to adapt to climate change. Finally there is the creation of a Copenhagen GreenClimate Fund to manage the finance of climate aid.However this commitments are vague and have not been followed by concrete acts. Let’s start with themoney promised to LDCs: who pays? Who will be the actual beneficiaries?Secondly, what’s the level of concentration of CO2 that corresponds to +2°C? We don’t know for sure, andthe Copenhagen Accord, lacking operational aspects, doesn’t help to do something about that, either. 83
  • 86. Energy, Environment & InfrastructureLet’s take the Kyoto Protocol, which at least contains targets for emissions reductions. To date, no industrializedeconomy has presented emission reduction plans, as they were supposed to do, at the end January 2010.Neither have LDCs. It shows that the COP15 approach has led negotiations into a dead end, where nobody iswilling to give concessions, if others don’t move first.The conclusion of the United Nations Climate Change Conference in Copenhagen has reasserted a fewconcepts. All countries must be involved in fight against climate change. Everybody must give its contribution,and the solution cannot be left to voluntary initiative of individual countries. Addressing climate changecomes at a cost.But it can’t be 200 actors deciding what to do. It makes sense to restrict the number of key players to themajor powers, and then aggregate the others. Europe could have shown strength in unity by sticking to itsplan of a 20% reduction in greenhouse gases by 2020. However, when push came to shove, it made a show ofits disunity in Copenhagen. European countries had better mend their ways, if the EU is to emerge as a keynegotiator in climate policy.The AuthorLuigi De Paoli is Full Professor of Applied Economics at Bocconi. In the past he has taught at the University ofPalermo, the University of Padova, Université des Sciences Sociales in Grenoble and SPRU, the University ofSussex in Brighton (UK).Research AreasEconomics and policy of energy. Industrial regulation and policy. Public services. Economics of state-ownedenterprises. Environmental economics. From Bocconi Newsletter no. 85/2010 84
  • 87. Energy, Environment & InfrastructureItalian Infrastructure: Priorities for North and SouthAre Not the Sameby Lanfranco Senn Public works respond to different needs according to the territory: roads, bridges and railways are usually built to match emerging demand. If the political imperative is to accelerate regional growth, proper sets of incentives need to be devised, with an eye on production and consumption levels.The role of infrastructure in economic development is still controversial: there are research studies pointingtoward very positive impact, and others that tend to demonstrate that infrastructure has almost no economicimpact.In Italy the debate has focused on the appropriateness of investing more in infrastructure either in the South,because of its relative backwardness, or in the North, because it’s relatively more advanced and in need ofremoving external diseconomies that affect its international competitiveness. No matter if you talk transport,energy, water resources or telecommunications, infrastructure in the North and in the South respond to twodifferent sets of development objectives. While in North the emphasis is on removing constraints impedingfurther development, in the South built infrastructure serves to create conditions of economic attractiveness forfirms and citizens alike.However infrastructure alone is not able to accelerate Southern development in a self-sustaining process:highways and airports, harbors and railways do not trigger a virtuous circle if demand coming from productionand consumption entities is insufficient. Betting on the development of infrastructure in the South must thus beaccompanied by public incentives in terms of the cost of setting up and doing business, of security, goodadministration, services to companies and households. Otherwise the risk is to build infrastructure irrespective ofthe implicit or explicit demand for the services the local economy can express (for example, in relative terms,the South has a larger endowment of transport infrastructure than the North!).On the other hand, in the North reducing congestion and pollution in road networks, achieving security inenergy supplies at reduced costs, better quality in water services are important for business competitiveness. In 85
  • 88. Energy, Environment & Infrastructurethis case, demand is already existent and infrastructure aims at qualitative rather than quantitativeimprovement. Malpensa airport already exists and the challenge is not to build a new airport, but making itsterritory more accessible for global destinations; the high-speed train network must ensure faster internationalinterlinking; development of clean energy sources must satisfy the objectives of environmental sustainabilityand lower energy costs, and so on. It is thus hard to imagine a single, common set of priorities between Northand South in terms of infrastructure.What’s needed is to set distinctive objectives and deploy the right tools to evaluate them. For instance, cost-benefit analysis only makes sense in relative terms, but its usefulness is very limited if the political objective is toaccelerate the economic development of a less advanced region. Otherwise the North will always end upbeing favored, and the South being penalized. We need more sophisticated tools, such as multi-criteriaanalyses, to frame the priorities for infrastructure in terms of the larger development needs of the country.The AuthorLanfranco Senn is Full Professor of Regional Economics at Bocconi and Director of CERTET, the Center forResearch on Regional Economics, Transport and Tourism. He is Professor of Economics at SDA Bocconi, wherehe has held the position of Director of the Economics Department. He has also taught at the Universities ofTrento, Bari, Bergamo and Università Cattolica in Milan, as well as Visiting Professor at ETH Zurich and theUniversity of Hitotsubashi in Tokyo. He is a member of the governing committee of Università della SvizzeraItaliana in Lugano. He is an expert on regional and transport policies of the European Union and President ofMetropolitana Milanese Spa.Research AreasRegional economics. Urban economics. Economics of transport. Economics of services. Valuation of regionalpolicies. Input-output analysis. Public utilities. From Bocconi Newsletter no. 87/2010 86
  • 89. Energy, Environment & InfrastructureRenewables, Golden Opportunityby Clara Poletti and Arturo Lorenzoni New energy sources: business and regions still have to set their minds to meet the 2020 EU objectives. The biggest potential for growth of renewables lies precisely where Italy needs most to see economic development - the sunny, breezy South.According to EU commitments, Italy will have to increase the share of energy obtained from renewablesources from 5% in 2005 to 17% by 2020. This is a major technological and economic challenge, requiringsignificant investments across the national territory. Regional administrations will have to be directly involved,since it falls on them to regulate investment outlays according to principles of rationality and sustainability.If we look at the distribution of natural resources, we see that Central and Southern Italy have the biggestpotential for wind and solar energy. The 2020 target could be a unique growth opportunity, as well, since itrelies on local input (labor, capital, know-how). However, if we look at investment outlays we see that growthin renewables has not occurred in the most potentially favorable regions. Take for example photovoltaic solarenergy: Northern regions show a more marked investment activity. In fact, Trentino-Alto Adige has by far thehighest per capita wattage installed, thanks to a forward-looking policy which has spread skills and fosteredentrepreneurial initiatives and administrative innovation.Soft factors, rather than technological factors, thus account for the relative diffusion of renewables. Thoseinclude the ability to seize new opportunities, readiness to adapt to the cultural change that needs toaccompany the shift to a new energy model. In order to meet EU targets on renewable energy and emissions,firms will not be the only key actors. Administration, finance, the whole of civil society will determine the finaloutcome, by creating, or not creating, a favorable business environment.Although virtuous examples are more frequent in the North, a Southern region like Apulia was perfectly able toseize the advantages afforded by the new industry. The region has set a national standard to follow, whilethere are several Northern regions that are missing out.It is likely there will be cross-regional competition to attract investment in renewables. The extra capacity willhave to be installed somewhere (the EU demands it), and more efficient and adaptive regional 87
  • 90. Energy, Environment & Infrastructureadministrations will come out on top. Investment in solar and wind energy will generate major spillovers in hostregions, in terms of labor, knowledge, return on capital. It’s a chance that Southern regions, especially, cannotafford to miss.The AuthorsClara Poletti is Director of IEFE, the Center for Research on Energy and Environmental Economics and Policy atBocconi. She was Director of the Markets and Competition Division for the Authorities for Electricity and Gas.Research AreasRegulation. Electricity markets design.Arturo Lorenzoni is Director of Research at IEFE, the Bocconi Center for Research on Energy and EnvironmentalEconomics and Policy and Associate Professor of Energy Economics and Electricity Market Economics at theDepartment of Electrical Engineering at Università di Padova. He is a consultant for various organizations andoperators in the sector (Authorities for Electrical Energy and Gas, ENEA, the Association of Producers ofRenewable Resources, Unindustria, the National Association of Real Estate Builders, Kyoto Club, variousMunicipalities and various companies), and he collaborates with a number of journals in the sector.Research AreasEconomics applied to the energy sector and its regulation. Development of renewable energy resources.Management of the electric power sector. From Bocconi Newsletter no. 88/2010 88
  • 91. Energy, Environment & InfrastructureOil Safety: Lessons from the Nuclear Industryby Emanuele Borgonovo After the accidents at Three Mile Island and Chernobyl, nuclear plants adopted the philosophy of defense in depth. The British Petroleum oil platform disaster in the Gulf of Mexico could provide a useful push in a similar direction for safety in the oil industry in general.History is punctuated by processes of learning and re-learning, no doubt. Early this summer, during a Senatedebate on the sadly notorious British Petroleum platform, George Apostolakis, Commissioner of the NuclearRegulatory Commission, testified.When asked what were the differences in terms of safety measures between the oil industry and the nuclearindustry, he replied “The principle of defense in depth”. This principle establishes safety as the founding axiomfor every operator in the nuclear field, and one of the ongoing debates that currently pervades nuclear riskanalysis in North America centers on how to measure “safety culture”. How can we find indicators that will tellregulators whether an organization is truly dedicated to safety as a basic value, or if it is backsliding on theidea of defense in depth.We must note that the actions of American safety authorities are fully transparent. In the case of nuclearenergy, attention to safety is obligatory, in view of the catastrophic consequences of an accident.I mentioned learning and re-learning because 30 years ago, after the disastrous accident at Chernobyl, thenuclear industry was the object of the same questions being asked of the oil industry today about safety. Theproblem with risk management is to find management answers that are large-scale and, if possible, definitive.Among risk managers, a joke that commonly circulates goes like this: A guy says to his friend “Yesterday Icrashed my car into a tree, but I learned my lesson. From now on, when I go that way I’ll swerve and avoid it.”And his friend says, “But when you swerve, look out for all the other trees.”Sound advice. But the absence of major accidents in the last 20 years would seem to indicate that the terriblynegative lessons of Chernobyl and Three Mile Island have been learned and transformed into deep re-thinkingof nuclear risk management. This disaster-free record is also positively affecting public opinion to the point 89
  • 92. Energy, Environment & Infrastructurewhere some speak of a nuclear rennaissance, as several countries, including the USA, UK, Germany and Italy,prepare to review their policies.With respect to other countries, Italy finds itself in a position at once privileged and disadvantaged. Theprivilege consists in starting over from scratch, with the chance to apply current best practice to the wholesystem from the outset. The disadvantage lies in the scale of the undertaking for a system of Italy’s size. Thetechnological complexity involved would require the restructuring of the entire system, from the establishmentof a safety authority to the management of the nuclear waste. Such a program must feature totaltransparency, both in the step-by-step communication of the decision to return to nuclear energy and in themanagement and regulation of its functioning.The American experience of the Yucca Mountain nuclear waste site, a $9 billion project blocked at near-completion by local opposition, is another learning moment: without transparency, you cannot expect peopleto trust and accept nuclear power.The AuthorEmanuele Borgonovo is Associate Professor at the Department of Decision Sciences at Bocconi and Directorof ELEUSI, Center for Research on Analysis and Systematic Use of Information. He is an honorary member of theSigma XI, the Scientific Research Society of North America and Alpha Nu Sigma, the Honorary Society of theAmerican Nuclear Society. He is a member of the editorial board of the International Journal of Mathematicsin Operational Research and he collaborates with the editorial board of the European Journal of OperationalResearch. He is a referee for Risk Analysis, Annals of Operations Research, the European Journal of OperationalResearch, Theory and Decision, the International Journal of Production Economics, Finanza Marketing eProduzione, Reliability Engineering and System Safety, IIE Transactions, the International Journal of NumericalMethods in Engineering, the Journal of Risk and Reliability, and the International Journal of GeographicalInformation Science.Research AreasMathematical methods for analysis of local and global sensitivity. Uncertainty analysis. Risk analysis. Financialmodeling. Investment evaluation. Real options. Project financing. Decision theory. From Bocconi Newsletter no. 95/2010 90
  • 93. Technologyand Innovation
  • 94. Technology and InnovationIf Users No Longer Generate Contentby Luigi Proserpio Without a Google-like search engine for amateur content, users could end up fleeing the social web.The evolution of the Internet risks a setback, if users reduce the amount of content they contribute to the web.The highly-touted Web 2.0 is intimately linked to user-generated content, or UGC, in jargon. Let’s do a thoughtexperiment in which users decrease or even cease posting videos, comments, pictures: this could underminemany of the social processes that are at the basis of the second age of the Internet.Today, UGC generates most of the information mass available daily on the Net and are behind most of theemotional involvement generated by new medium. However, the sheer mass of content makes Web usehard, or simply frustrating. In theory, the Internet is a mine for niche subjects that are absent from mainstreammedia. In practice, it’s hard to assess the quality of sources and, more importantly, existing search tools areinadequate for the job.Four variables could determine a drastic drop in contributed contents. First of all, the low quality and visibilityof content generated by users. The excess noise present on the Web submerges UGC and prevents its fullvalorization. It’s not a problem if navigators are mature enough not to expect large pay-offs from their Internetuploads. But it could be a danger if it frustrates users who feel shortchanged by their pro bono contributions.Too many lo-fi videos cause quality videos to stand out, but it can also lead people to subsequently overlookuser-generated videos because they’re usually bad. Since a large amount of content generates commentsthat are distributed according to a long-tail pattern, if frequency decreases, quality could soon follow.Secondly, it’s increasingly difficult to search for UGC online. Google’s algorithmic search is not a panacea,since it obviously underrates UGC with respect to more organized and institutional online presences. Andsearch based on users’ tags and bookmarks is still in its infancy.Thirdly, there is the question of the non-erasability of digital identities. Digital reputation and digital identity areboth opportunities and dangers. Many of the messages posted online do not share the audacity of oral 93
  • 95. Technology and Innovationconversations. As Jimmy Wales, Wikipedia’s founder, writes in his preface to Throwing sheep in the boardroomby Fraser and Dutta, you shouldn’t fence in users because you fear their behavior will be negative orunethical. However, this optimistic position does not consider the fact that when users damage their owndigital identity, it’s hard to patch it up. Many display lower care for their digital identity with respect to theirphysical identity, and this also has an impact on office life, when colleagues find out about your onlinebehavior off the job. Scorn is permanent, when it is memorized in social networks.Lastly, the decreasing appeal of social networks, which are becoming less attractive also to younger users.Internet users write a lot, but the tools that generate involvement are still rudimentary. If you are a recentFacebook user, and you have a sufficient number of friends, you get a positive feeling of augmented reality.But after a few months, the thing gets boring because of the quantity and repetitiveness of the informationgenerated by “friends”. The so-called “Facebook suicide” (deleting one’s profile) has become rather frequentas of late, because the application no longer manages to generate the warmth and freshness that leads tousers’ involvement.On the Internet the search is on for a new Google, for a search engine that can really add value to contentgenerated by users. If this occurs, we could well be facing many more years of Internet prosperity anddevelopment. If it doesn’t, times could get bleak fast.The AuthorLuigi Proserpio is Assistant Professor at the Department of Management and Technology at Bocconi andProfessor of Organization and Human Resources Management at SDA Bocconi.Research AreasGroupware. Distance learning. Knowledge management. Organizational change driven by information andcommunication technology. From Bocconi Newsletter no. 81/2010 94
  • 96. Technology and InnovationCollaboration Is Now Making Hardware Easierby Emanuela Prandelli e Gianmario Verona New forms of collaborative innovation are breaking down the barriers of physicality and making open source philosophy applicable to hardware inventions. The design component of material products can be easily shared, enabling broad-based input for improvement.Collaborative Innovation has been considered best practice in innovation for a few years now. By CI, wemean a philosophy for the design and development of products and services that abandons both traditionalvision of the innovative start-up that enjoys temporary monopoly power on its innovations: The company thusovercomes the fears raised by sharing sensitive industrial information. In fact, this is a form of innovation thatembraces the opportunities afforded by the sharing of information and knowledge.CI made its debut in R&D labs in the design and marketing functions of the companies that have been moreopen to change both locally and globally. Cases range from co-design occurring through a web of alliances(such in Big Pharma) or in industries where innovation occurs through customers and researchers sharingexperience and knowledge (Procter & Gamble and L’Oreal), to integrally co-created forms of innovation(InnoCentive, Threadless and Lego) or co-creation by communities orchestrated by the users themselves (suchas in Linux). Thus CI seems to have taken an irreversible path of industrial diffusion.Today there are only two factors slowing down diffusion: the cultural outlook of many operators and thematerial nature of products. Overcoming fears and risks associated with the sharing of a valuable asset suchas innovation represents a challenge that will require many years to be metabolized. CI imposes theabandonment of the purely economic logic of exchange (as the 2009 Nobel Prize for Economics, ElinorOstrom teaches), in favor of an approach linked to less rational aspects, which are not easy to accept for ageneration used to a proprietary notion of innovation. The second aspect concerns instead the constraints oninteraction affecting tangible products. The words that enable people to co-innovate on Wikipedia, and thecodes that enable Linux to appropriate the knowledge of multiple users, are a lot more amenable to CI thanthe products and services of traditional industries. One of the first cases of Open Source Hardware (OSH) helpsus understand how to overcame the latter obstacle. 95
  • 97. Technology and InnovationOSH is an emergent practice in the development of various products, from synthesizers to cell phones.Hundreds of hardware inventors have started to publish their product specifications, giving life to a stream ofinnovations unimagined at the source. From OSH new entrepreneurial ventures have emerged. One isArduino, the first open-source microcontroller. The firm that created Arduino (http://tinker.it) makes availableonline all the commercial secrets of this new type of electronic circuit: in addition to software, the companymakes available to users the specifics and original blueprints of the electronic parts. By downloading them,anybody can build an Arduino by themselves and customize it to implement it within their own product, be it apersonal robot or a car engine.This way, OSH has characterized itself for being that process which enables the separation of the physicality ofthe object from its design component. You work starting from a source code which is then adapted to avariety of products for which a solution can be imagined. CI works by stimulating the creativity andentrepreneurship of individuals. Thanks to OSH, collaborative innovation starts enjoying credibility also inindustrial contexts hitherto inaccessible because of physical constraints. By doing so, it opens yet other gatesto the future of innovation.The AuthorsEmanuela Prandelli is Associate Professor of Management at Bocconi, where she is Vice Director of the KITESCenter, Knowledge, Internationalization and Technology Studies, as well as Professor of Marketing at SDABocconi.Research AreasInternet marketing and e-commerce. Impact of digital technology on innovation processes. Fashionmanagement. Management of publishing companies.Gianmario Verona is Full Professor of Economics and Business Administration and Director of the PhD in BusinessAdministration and Management at Bocconi. He is a Professor in the Marketing Department at SDA Bocconiand holds the role of Program Chair of the Competitive Strategy Division of the Strategic ManagementSociety. He teaches at the Tuck School of Business at Dartmouth College. He is also a member of the editorialboard of the Strategic Management Journal and Vice Director of the journal Economia & Management.Research AreasTechnology and innovation management. Dynamic capabilities. Knowledge integration. User innovation andentrepreneurship. From Bocconi Newsletter no. 82/2010 96
  • 98. Technology and InnovationControl Freaks Fail Onlineby Silvia Vianello Winter Olympics in Vancouver: What will remain after 2010? The economic potential of sport has multiplied thanks to media and sponsors. The globalization of sports is big business, but the social and urban benefits of hosting games should not be underestimated.Online brand communities that put consumers in relation with companies and among companies arepowerful marketing tools, if correctly managed.However, many brand communities fail in their intent, because in their segmentation-targeting-positioningprocess they define an ex ante excessively restrictive target. Also, they emphasize discussions strictly correlatedwith existing products. In fact, the level of control over these communities by companies is often very high,with moderators that prevent consumers from posting comments if they do not meet rules that are just toostringent.The net result is that consumers participate (if they do at all) in these online communities for purely selfishpurposes, i.e. if they have a problem from a product or stand to gain from a product promotion. Often in thiscontext there is no bonding or formation of relations with customers and among them, so the collaborativeenvironment that characterizes productive communities is no longer there.Conversely, consumer-managed communities are more effective, since there are no conflicts of interest (acompany could hide product defects or the details of a product launch, for instance) they empowerparticipants to express themselves more freely about a company’s goods as well as the competitors’. Theyalso employ less technical language, which makes them more attractive to unspecialized users. Higherfreedom of expression, higher user potential, incentives to users by managers to engage in a wider spectrumof activities are all conditions that facilitate community formation. In other words, consumers are more likely toparticipate in these communities, because they are passionate about the brands, for emotional reasons, aswell as for socializing.A veritable online community is a boon for marketing purposes, at a very low cost. You can easily test productinnovation, supply high-quality post-sale services, educate consumers and increase their brand loyalty. If 97
  • 99. Technology and Innovationcompanies want to benefit from such advantages, they will have to learn that the best online communitiesare those directly run by consumers. Otherwise they stand to lose out in a big way.The AuthorSilvia Vianello teaches E-Marketing and E-Commerce at Bocconi and is Assistant Professor of Marketing at SDABocconi.Research AreasDigital marketing. Pricing. Pharmaceutical marketing. Strategic marketing. Green marketing. From Bocconi Newsletter no. 83/2010 98
  • 100. Technology and InnovationNow that the E-book Is Here, Let’s Make Booksby Paola Dubini Five centuries after the dawn of printing, the publishing industry is undergoing radical changes. What is the future of e-books, on what devices will we read them and how will the writing, publication, sale and dissemination of books be affected by digitization?With respect to other industries, the publishing industry has undergone slow transformations. Until now. Thetraditional and still dominant technology has consolidated over the space of five centuries extremely versatilesupport for three forms of fruition, which are now possible with specialized devices: relaxed reading (fictionand trade non-fiction), mobile reading (paperback travel reading), and interactive reading (research andlearning).The recent diffusion of increasingly functional devices is bound to make reading on paper less and lessappealing. Unitil recently I was skeptical of the potential of e-books, but there are now several trends pointingtoward a fundamental discontinuity that alters the trajectory of the industry.The first is the emergence of “neutral” publishing formats enables the publisher to treat texts for reading acrossdifferent platforms. Then there is the digital transformation of newspaper publishing and of classroomeducation, which are more potent agents of social and economic change, and push firms and consumers toride the wave of innovation. And of course we see the marketing of dedicated readers and thus of catalogsof e-book titles creating market opportunities that force various actors in the supply chain to realign theirbehavioral patterns toward a new direction of business development.All this could be not enough, though. Certainly, the iPad will be the cool present of Christmas 2010, andpublishers know it well, and they have filled their catalogs with fall e-book titles. Still, we shold keep in mind thathalf of the population doesn’t even read one book per year (school textbooks excluded). And half of thosewho read buy no more than three titles a year, hardly a justification to purchase a dedicated costly productwhich doesn’t provide a sustantially superior “relaxed” reading experience with respect to an e-reader. But ifthe only advantage of the e-book is letting the voracious reader carry with him dozens of texts without havingto lug a heavy briefcase, then the change won’t be radical enough. But if we think about all the digital 99
  • 101. Technology and Innovationservices that can enrich a travel guide or a college textbook, then the e-book opens the gates to a future ofinnovation and market expansion.It will take time to see written works that fully seize the opportunities offered by the new devices, but I think thetime has come for a different economics of book publishing. Amazon and Apple have done their share. Nowit’s for publishers to make their move. Or Google.The AuthorPaola Dubini is Associate Professor of Business Administration at Bocconi, where she is Director of the ASK (Art,Knowledge and Science) Center. She is a senior faculty member of the SDA Bocconi Strategic andEntrepreneurial Management Department, where she is also a fellow of the DIR Claudio Dematté ResearchCenter. In addition, she teaches Economics of Culture and Economics of Editorial Companies at the Universitàdegli Studi of Milan faculty for Literature and Philosophy and Coordinator of the Economics section of theMaster for Publishers, offered by the Università degli Studi of Milan, the Italian Publishers Association, and theMondadori Foundation.Research AreasBusiness models in the in information and communication industries. Economics of firms working in the arts,culture and tourism sectors. Attractiveness and competitiveness of territories. Entrepreneurship. BusinessAdministration and Business/Corporate Strategy. From Bocconi Newsletter no. 94/2010 100
  • 102. Technology and InnovationWeb 2.0 and Gen Y: the Hidden Truthby Leonardo Caporarello and Giacomo Sarchioni The mere possession of a larger number of electronic gadgets doesn’t necessarily indicate better knowledge of them. In fact, a Bocconi study shows that technical understanding among younger users is surprisingly low - what’s new is their openness to interaction.Talk of Web 2.0 has been around for a few years now. Newspapers, TV, Internet sites employ this termrepeatedly. With respect to the 1.0 version, Web 2.0 represents a different mode of network behavior basedon the active participation of and interaction among its users. There’s also a widespread view that individualsbelonging to so-called Generation Y, also known as Millennials, i.e. people now having between 20 and 35years of age, hold the key to the secrets of the new Web: but is it really so?At SDA Bocconi’s Learning Lab, we decided to conduct a study to verify the level of knowledge of the 2.0phenomenon held by Gen Y youngsters. A preliminary analysis of the data gives pause for thought. First of all, itemerges that respondents have a rather superficial knowledge of the Web 2.0 pheonomen. They were able tocorrectly recognize logos of famous social networks, tell the difference between 1.0 and 2.0, what is meant bycloud computing, and what is a wiki collaborative environment, for instance. But regarding some typical 2.0tools, such as RSS feeds and Google Docs, the percentage of correct answers dropped below 20% of thesample.We then asked interviewees to what extent they were equipped with digital technology. In particular, weasked whether they had: high-speed Internet (81.5% did), 3G/UMTS cell phones (74%), USB Internet access(63%), LCD/Plasma screens (67%), Pay-Per-View TV (48%). Is there a relation between the amount of techologyyou own and the level of Web 2.0 knowledge?To better answer this question, we divided the respondents in two groups, according to number of correctanswers given, which we called “pioneers” and “traditionalists”. The interesting datum is that there is nocorrelation, as might have been expected, between the fact of belonging to one of the two groups and thenumber of technologies to which one has access. In other words, owning a lot of technology does notnecessarily imply fluency in Web 2.0. 101
  • 103. Technology and InnovationThis result was also reported by a 2009 Nielsen study, according to which the always online Gen-Yer is but awidespread myth. Also, the same study stated that young Americans in the 12-24 age bracket, although theyhave access to broadband in the vast majority (90%) of cases, they spend online an amount of time (13 hoursper month) which is less than half the time spent on the Internet by Generation X (aged between 35 and 54,who on average spend 40 hours per month online). The image of the always connected young person doesnot seem to mirror reality. Another interesting result of our study was that pioneers tend to practice morehobbies and leisure activities (travel, culture, sports) than traditionalists.The preliminary evidence points to the fact the being 2.0 is more a type of behavior based on onlineinteraction than an actual knowledge of 2.0 tools. The typical iPhone-equipped twentysomething who isperennially on Facebook could turn out to be a lot less 2.0 than expected.The AuthorsLeonardo Caporarello teaches Organization and Human Resources Management and is Director of theLearning Lab at SDA Bocconi.Research AreasAnalysis and business process reengineering. Organizational planning and development based on thebusiness strategic objectives. Organizational change. Organizational behavior in the new technologiesimplementation process.Giacomo Sarchioni is a Collaborator at the SDA Bocconi Learning Lab. From Bocconi Newsletter no. 97/2010 102
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  • 105. FinanceOverly Expansionist Sovereignsby Carlo Filippini International finance: the IMF and OECD have supplied guidelines on sovereign wealth funds. Along with many other countries, Italy harbors growing fears about the expanding role of these funds that manage huge sums and are controlled either by China or the Gulf states.The news has recently been reported that in early 2010 the managers of the CIC sovereign fund will visit Italy toassess the acquisition of companies and evaluate forms of collaboration with the Italian Treasury (Cassadepositi e prestiti) to co-finance large projects and small and medium firms.China Investment Corporation, this is its full name, is an equity fund controlled by the Chinese government, i.e.by a sovereign state, hence the name “sovereign fund”. Its task is to invest profitably China’s huge reserves offoreign currency. CIC started its operations on 29 September 2007 with an initial endowment of $200 billion (itswealth has now grown to almost $300 billion). CIC has invested in financial holdings, oil and mining concerns,without taking on a direct management role. It has also invested in US bonds. The general idea is that it isinterested in companies that either have strong ties with their governments or have made sizable investmentsin China.CIC is among the youngest of sovereign funds. The earliest sovereign wealth fund, Kuwait’s, was established in1953. In the mid-1970s, Singapore, Abu Dhabi, and the State of Alaska joined the fray. CIC also has an elderand more influential brother: Safe Investment Company controlled by the Chinese Central Bank.Sovereign wealth funds are born to invest either oil-generated revenues (Kuwait, Abu Dhabi, Alaska) or chronictrade surpluses (Singapore, China). Thus, they fulfill the useful function of augmenting international liquidity.However, oil and many other raw materials soon will soon hit their supply peak. Since sudden wealth is often acause of inflation and waste, it can easily turn into a curse if not used with a long-term horizon. Sovereign fundsare a financial innovation akin to petrodollars thirty years ago, which were mostly put back into theinternational financial circuit by US banks. 105
  • 106. FinanceOn the surface, sovereign funds act like traditional investment funds, seeking favorable opportunities and highreturns. In this period of economic crisis, they are often invoked as white knights who come to the rescue ofailing firms. At the end of 2008, these funds managed almost $4 trillion and it is estimated this amount willdouble by 2015.There are however serious reservations about sovereign funds: their culture of low transparency, if not secrecy,and the fact that geopolitical objectives often prevail over financial ones. There have been cases wherecontrol of strategic industries was sought for political reasons. Thus there are qualms in letting sovereign fundsinvest freely in sensitive sectors such as defense, energy, ICT, airlines, and essential raw materials. It is alsofeared that proprietary technological or commercial information might be unlawfully and detrimentallydisclosed.In May 2008, the Working Group on Sovereign Wealth Funds was started. It is managed by the IMP and hasalready produced a document setting voluntary rules for investors. Also the OECD has published guidelines forrecipient countries, emphasizing the need to avoid financial protectionism and promote impartial andtransparent behavior. The EU has taken a similar stance, reaffirming free capital movement but encouragingthe adoption of rules by sovereign funds.The AuthorCarlo Filippini is Full Professor of Economics at Bocconi, where he was Director of ISESAO, the Center for EastAsian Economic and Social Studies and MEc, the Master in Economics. He is a Professor of Economics at SDABocconi, as well as a member of their Advisory Committee. He has also taught at Universtià degli Studi inTrento. He is a member of the American Economic Association, the Royal Economic Society, the ItalianSocietiy of Economists and Christ’s College in Cambridge, UK.Research AreasEconomic development. Technical progress. The Japanese economy. Economic integration of Southeast Asia. From Bocconi Newsletter no. 84/2010 106
  • 107. FinanceDo We Really KnowHow to Measure Family Wealth?by Stefano Gatti The alternatives to GDP to measure the wealth of nations are growing, and national statistical agencies are taking note. Some take into account a broader notion of well-being that considers social and environmental factors as well as income and other standard economic indicators.ISTAT president Enrico Giovannini recently said that the share of national wealth not going to households andgoing to banks has doubled between 1999 and il 2008, while the share going to firms has gone down by athird. Giovannini gives us the chance to discuss two current issues: changes in Italy’s financial balances amongsectors; and the appropriateness of measuring a country’s welfare with an indicator such as GDP. Financialbalances measure the saving capabilities of various institutional sectors (households, firms, financial holdings,public administrations and rest of the world) and the sectors where savings are invested.According the data of the Bank of Italy, Italian households have seen their financial balance going from 4.5%to 2.8% of GDP from 2005 to 2008. The balance with the rest of the world goes down from -0.8% to -3.1% of GDPover the same period, while firms see their negative balances similarly increase, from -2.1% to -3.6%.Using 2008 data limits the impact of the global recession over statistical data, since it was virulent in 2009.Summing up, Italian households show lesser saving propensity, firms have larger financial needs and the Italianeconomic systems must rely more heavily on the rest of the world to attain internal financial equilibrium. Withrespect to households, Giovannini argues the GDP has grown more than disposable income over the 1999-2008 period. Setting 1999 equal to 100, the GDP index reached 111 at the end of the period, while familyincome only grew to 107.By looking at GDP, we thus record a decrease in the welfare of Italian households. However, GDP as anindicator of social welfare is being increasingly contested. French president Nicolas Sarkozy has established acommittee, presided by Joseph Stiglitz, Amartya Sen and Jean-Paul Fitoussi to study alternative solutions to the 107
  • 108. Financemeasurement of economic performance, aggregate welfare, environmental conservation, and socialsustainability.The three economists have drafted 12 recommendations to make governments improve welfare in terms thatare wider than those measured by GDP. The first recommendation is that any assessment of well-being shouldbe more based on income and consumption (as well as accumulated wealth) than on production. Familyincome and family consumption are more direct indicators to evaluate the welfare of citizens. Also, medianrather than average values should be employed to capture representative situations. In addition, thecommittee proposes to also take into consideration quality of life indicators, such as the sense of personalsecurity, the degree of political representation and social inequality, as well as environmental well-being.The AuthorStefano Gatti is Associate Professor of Financial Intermediaries and Intermediaries at Bocconi, where he isProgram Director of the Bachelor of Economics and Finance, and member of the faculty board for the PhD inFinance. He is an official member of the SDA Bocconi MBA faculty and the TACIS Banking Management –European Economic Community program for former states of the USSR. He was Visiting Fellow at theInternational Finance Corporation, the World Bank Group, Washington DC, in 2000. He also took part in the ITPInternational Teachers Program, Manchester Business School, 2003.Research AreasMerchant and investment banking. Infrastructure and corporate assessment. Benchmarking. Projectmanagement and BPR. From Bocconi Newsletter no. 86/2010 108
  • 109. FinanceWhy Young People No Longer Trustin the Honesty of Accountantsby Mara Cameran and Ariela Caglio Accounting: the findings of a poll of 1,700 students and professionals are cause for thought. People who work in accounting have a limited sense of correctness with respect to norms, while many outside the field suspect that accountants’ technical skills alone are not sufficient for the task.Recent accounting scandals have placed the issue of ethics squarely on the table: what impact havebloated balance-sheets, managers devoid of moral scruples and swindled investors had on the publicperception of professionals in business administration? Is the the profession still perceived as able to protectand serve the public interest?To such questions, which are vital for the survival of the profession itself, some answers come from a recentstudy conducted through a questionnaire completed by over 1,700 university students and professionalaccountants.At first glance, the association between ‘accountants’ and ‘corruption’ is marginal among interviewees (3% ofthe sample). Scandals seem not to have dragged the reputation of the profession into the mud. Is all well,then? Honor is preserved and accountants are off the hook?A more attentive analysis highlights the fact that most opinions are close to neutrality (on a scale from 1 to 5, 3is the indifference point and the mean of the sample is 3.3) and that opinions vary for subsets of the samplewith respect to the accountants’ perceived integrity. For instance, women’s answers, when compared tomen’s, give a more positive image of the profession, while older people tend to have a more favorableperception than younger people.Also, those who have studied accounting in high school are more sensitive to the ethical issue that those havestudied accounting in college. Such evidence stresses the need to address the issue of professional ethics in amore explicit fashion, with the aim of providing tools to recognize morally ambiguous situations and act 109
  • 110. Financeaccordingly. Lastly, those who have longer experience working in accounting have a less favorable opinion ofthe profession compared to those who have just started working in business administration. Is this a matter ofhands-on experience? Anyway, the signal is that ethics should the object of educational emphasis andcontinuous retraining.The study also looked into actual spheres of behavior that are associated with the abstract notion of ethics. Atthe aggregate level of the sample, these aspects not surprisingly include respect of the law, confidentialityand commitment to work. There is however a perception gap among those who are practitioners and thosewho are not. For instance, for those who work for auditing consultancies, to be ethical means respecting thelaw and being honest. However those who do not practice and do not have the intention of practicingaccounting have a larger view of what it means to be ethical, adding personal traits that go beyond ageneric call for the respect of norms.What’s being questioned is the idea of professionalism and correctness linked to the command of technicaland specialist skills, as people underline the necessity of certain soft skills, such as team-building and the abilityto share information and knowledge, to be put at the service of the rest of society.The AuthorsMara Cameran is a Researcher in Financial Accounting at Bocconi where she is Director of the SpecializedMaster Program MAAC (Master in Accounting, Auditing and Control). She is a member of the advisory boardof EARNet (European Auditing Research Network) and an editorial board member for Auditing: A Journal ofPractice & Theory and Issues in Accounting Education. She is also a referee for the International Journal ofAuditing, European Accounting Review, Family Business Review, The Service Industries Journal, Rivista deiDottori Commercialisti, and the journal Financial Reporting (formerly Revisione Contabile).Research AreasThe Italian auditing market with particular reference to the analysis of the dynamics between supply anddemand and prices of services. The reputation of auditing firms in Italy. The image portrayed by accountants.Ariela Caglio is Assistant Professor and part of the teaching faculty of Planning and Control at Bocconi.Research AreasManagement accounting in networks and in hybrid organizational forms. Cost measurement andmanagement in supply chains. The impact of information technologies and communication on administrativesystems and administrative professionalism. The business plan. From Bocconi Newsletter no. 87/2010 110
  • 111. FinanceThe Altruism of Savingby Brunella Bruno Recent studies have shown Italian savings rates on the decline, along with other economic indicators. But it is precisley in this time of crisis that we need to remember the social and moral benefits of saving, quite apart from economic factors.Saving is income not spent, or deferred consumption. Savings have been under the spotlight since the crisis.Those most heavily affected by the global crisis were the individuals, companies and nations who had savedless. The tale of the ant and the grasshopper says as much: it’s in tough times that the grasshopper findsneither food nor shelter.In its latest reports, Bankitalia says the net position of Italian households is worth 2.8% of GDP, down from 4.5%three years earlier. Similarly, the drop in investment has not reduced the indebtedness of firms, which hasinstead climbed to 3.6% of GDP at the end 2008, from 2.1% at the end of 2005. In the spring of 2009, as theylooked into the macroeconomic causes of the crisis, the Bank for International Settlements and FinancialServices Authority highlighted the existence of global imbalances expressed by the differential in savingpropensities between emerging economies (such as China) and advanced economies (such as the US).This imbalance in terms of saving rates led to capital movements from emerging economies toward capital-rich industrial economies, and consequently to an excessive current account deficit in the latter. Thisphenomenon, combined with low interest rates, triggered a credit boom which also involved the share of thepopulation with low incomes and/or zero savings. Thus credit became a substitute for savings for the purchaseof real estate property and the financing of consumer goods.Until a few years ago the emphasis, also in relatively parsimonious economies such as Italy, was onconsumption. Even after the crisis, governments have highlighted the importance of consumption in drivingdomestic demand. To this day, there are those who are perplexed by economies (such as Germany) whichdefend their choice to save and refuse to take the place of the US as drivers of world demand.It is as if the act of saving were synonymous with a closed and selfish economic model, and the act ofconsuming signaled altruism and progress. However article 47 of the Italian Constitution states that the 111
  • 112. FinanceRepublic protects savings and favors popular access to home ownership for families, and property of the landfor farmers, and to the direct and indirect investment in the big production complexes of the country. Thisconstitutional principle lends itself to the following comment: in a society such as ours, where the unspent partof cashed incomes goes into the financial system and thus is reinvested into the economy, individual savingsdo have the highest social meaning.The decision to save is inherently moral. To save means to care about your dear ones and to care about thefuture, which means fearing worse times and hoping for better times. In their first course in finance, studentsare taught that savings are worthy of protection, because they drive credit and economic growth. Financialsavings are not about selfishness. To the contrary, they are about the future and about concern for oneselfand the others, your family and your nation.The AuthorBrunella Bruno is Tenured Researcher in Financial Markets and Institutions at Bocconi and teaches in theBanking and Insurance Division at SDA Bocconi.Research AreasBanking. Credit risk management. Credit risk transfer. Art as investment. From Bocconi Newsletter no. 90/2010 112
  • 113. FinanceThe Phenomenology of Business Scandalsby Alessandro Zattoni Six traits of corporate behavior can be warning signs of potential wrongdoing; among them are artificially fast growth, financial trickery, short-term thinking and plain old greed. It is easy to pinpoint such faults after a crisis, but regulators should monitor them as a preventive measure.When a business scandal hits a major company, public opinion points the finger at models of corporategovernance and calls for new legislation to strengthen ex ante controls and ex post sanctions. However, ittakes only few years for other companies to become enmeshed in financial crisis. Illicit behavior seems to beable to escape all controls by becoming ever more sophisticated. Also, if corporate controls are pushed toofar, they will end up stifling the animal spirits that propel companies toward growth.Is it then impossible to prevent mismanagement and fraud? No, it’s not. But the analysis of corporate scandalsexhibits certain typical traits, whose presence should ring the bell for supervisory bodies.Firstly, rapid corporate growth by means of acquisitions. M&As are often disastrous for company accounts, butit takes years for their effect to become evident to investors. Also the blind pursuit of size can distractmanagers from current operations and the core business. Finally, acquisitions make a company’s balancesheet murkier and harder to compare with the past.Secondly, the heavy recourse to financial markets. Iffy companies often use financial leverage to feedcorporate growth and achieve astounding short-term results on their stock. The enthusiasm of business analystsand the halo of success hovering over management push investors to buy stocks without asking too manyquestions and loosen the supervision of corporate governance.Thirdly, the excessive power of top management. Such companies are usually run by professional managers ormajor stockholders who dominate the decision-making process. They usually identify the company’s fortuneswith their own personal success, personalize relations with stakeholders and are richly compensated inexchange. They care about reputation, but only because financial markets are skittish about it. Onlyaterwards do the nefarious effects of their excessive ambition become evident. 113
  • 114. FinanceFourthly, lack of independence and competence among the supervisory board. Listed companies are subjectto a multiplicity of controls that should stave off gross misbehavior. But the many cases of companies goingbust because of financial wrongdoing show that this is not the case, because conflicts of interest preventsupervisors from working effectively. Supervisory boards require mutual collaboration and trust with respect tomanagement. Excessive deference vis-à-vis top management can determine a breakdown of the wholesystem of controls.Fifthly, a company culture based on greed and strong emphasis on financial speculation. Not all scandals andwrongdoings amount to corporate crimes. Often risky moves are made in the hope that a difficult businesspredicament can improve in the near future. But once the bounds of legality are crossed, it’s hard to go back.The last telling factor is the overemphasis on short-term value and earnings, and the pressure on managers toachieve them quickly. Under such circumstances, corporate executives can be tempted to cut corners andpursue illicit solutions, in order to maintain performance and reputation. However, the prolonged fall ofmarkets and stagnation of the economy makes all too evident the reckless moves made to prevent acorporate crisis from becoming apparent. In the end it’s the financial markets themselves, which, afterfacilitating its meteoric rise, hasten the downfall of corporate hubris, with devastating effects on allstakeholders.The AuthorAlessandro Zattoni is the Director of the Strategic and Entrepreneurial Management Department at SDABocconi and Full Professor of Business Administration at Università Parthenope in Naples.Research AreasStrategic management. Strategic management of small and medium enterprises. The business plan.Corporate governance, focusing on institutional organization of companies, corporate groups, board ofdirectors and stock options. From Bocconi Newsletter no. 92/2010 114
  • 115. FinanceCalculating Regretby Alessandra Cillo An experiment published in Management Science shows that emotions and regret play a surprisingly important role in decision making. But is it really possible to quantify just how much these irrational factors influence the choices of investors or managers?The processes behind decisions, particularly financial decisions, are extremely complex. Rarely decisions aresolely based on reason. Fear, anxiety and regret are come of the emotions that come into play when wehave to make important decisions. Choices are made based on both economic and emotional evaluations:this explains why decisions are rarely optimal, or rather, different from what sound economic models wouldpredict.Look at the current financial crisis: if investors had acted as rational agents the crisis would have probablynever happened. Growing evidence suggests that decisions are also influenced by emotions. A recurrentphenomenon is this: investors are reluctant to take losses and want to make gains. There’s nothing wrong withthis, save for the fact that this makes people hold on to a stock longer than necessary when its value drops (inthe hope it might climb again) and, conversely, to sell it at the beginning of a steep rise, i.e. too early.Various studies have sought to uncover decision models able to capture this phenomenon. The theory ofregret is one of these. Developed in the 1980s, this theory argues that the choice among alternatives springsfrom the minimization of regretting over choices wrongly made. Leaving philosophical considerations over thenature of rationality aside and whether emotions are part of it, there is a basic fact: most of the empiricalevidence shows that emotions play a major role in decision-making.A practical question then emerges: if emotions play a key role, who can we quantify them? Although a hardand counterintuitive task, we have to try to calculate emotions. In a recent article, “A QuantitativeMeasurement of Regret Theory”, which I co-authored on Management Science with Han Bleichrodt if theErasmus School of Economics and Enrico Diecidue of INSEAD, we have managed to measure the effects ofregret. The research study propounds a methodology, by gathering and analyzing data coming fromexperiments conducted on economics students. 115
  • 116. FinanceThe theory of regret is able to provide a rationale for attitudes that violate the transitivity property in preferencetheory (if I prefer A to B, and B to C, then I must prefer A to C). Investors that violate transitivity are moreexposed to the phenomenon of so-called money pumps, i.e. dynamics that subtract money from thedecision-maker without improving his situation, but rather leaving him in the initial situation. Consequently, amethodology able to measure regret, is also able to inform investors about the risks of making choices biasedby it.The AuthorAlessandra Cillo is Assistant Professor at the Bocconi Department of Decision Sciences.Research AreasTheory and experiments in decision under risk and intertemporal decision making. Risk-value modeling. From Bocconi Newsletter no. 99/2010 116
  • 117. FinanceHow to Hedge Your Betsfor a Toast of Burgundy Pinot Noirby Claudio Zara Weather derivatives are useful financial tools for protecting income in climate-sensitive industries. The case of the wine- making sector is instructive for any agricultural area that is subject to non-insurable weather risks, such as prolonged drought or an early frost.There is a particular category, in the cauldron of derivatives, the financial instruments that have been accusedof being the trigger cause of the financial crisis, which could be fundamental to protect income in weather-sensitive industries (30% of world GDP, source: WRMA). It’s weather derivatives.An example is provided by the wine-making industry. In vineyards, open-sky wine factories, the climate has asignificant impact on the quality and quantity of grapes and thus affects wine production.In the context we are developing, there are two kinds of risks linked to climate events: catastrophic risk, i.e. amajor-impact random event (e.g. hail), and systemic risk, which is highly recurrent (temperature variations withrespect to the forecasting model. Catastrophic risk, when possible, is defrayed through an insurance contract(such as insurance against hail risk). Normally, systemic risk cannot be reduced through an insurance contractdue to its being a recurrent hazard.Currently, wine-making firms can develop strategies to hedge against risk by implementing non-financialstrategies, for instance installing irrigation systems to offset the lack of rain, or planting vineyards in areas thathave complementary pedoclimatic conditions (for example, the region of Trento DOC in Italy or Napa Valleyin California). These can run against constraints, both in terms of territorial limits which prevent geographichedging (such is the case of Franciacorta DOCG), and in terms of the amount of investment that needs to besustained.An alternative could be coverage against climate risk by using a hedging strategy based on the purchase ofa weather derivative, as I proposed in an article of mine which was recently published on The International 117
  • 118. FinanceJournal of Wine Business, titled “Weather derivatives in the wine industry” and focusing on the production ofworld-famous Pinot Noir grapes in Burgundy. What type of risk per hectare linked to temperature andprecipitation did a Burgundy vintner incur in the 1998-2008 period? Eight years out of eleven (i.e. in 73% ofcases) the bioclimatic index which summarizes temperature and rain trends recorded occurrences whichwere significantly different from optimal values. This situation had effects in terms of actual with respect totheoretical yields, and of lower quality of the wine made. In economic terms, it translated into a loss of €3,354per hectare and in the high volatility of yields. As a consequence, remaining uncovered meant not only losingmoney with respect to expected returns, but to be subjected to year-to-year variability of yields, creatinguncertainty and undermining the planning of investment.A hedging strategy that employs weather derivatives provides coverage against temperature, rain, and windhazards. In the case studied, a potential economic gain of €91 per hectare and a -21.43% decrease in yieldvolatility could be envisaged by purchasing a weather derivative.In particular, the financial coverage provided is optimal under the following combination of productionfactors: homogenous terrain and a single grape variety. The same strategy can be extended to other high-value-added harvests, such as fruit production, to stabilize agricultural income.Finance can thus supply a high-value service to weather-sensitive industries, because it is able to contribute tohigher business income stability, and, consequently, to more favorable scenarios in terms of a firm’smanagement and development.The AuthorClaudio Zara is a Researcher of Financial Markets and Institutions at Bocconi and Professor of Banking andFinance at SDA Bocconi. She was a Visiting Fellow at the Research Bureau of the Warwick Business School,University of Warwick, and the Department of Accounting and Finance of the National University of Singaporeand has completed the ITP Program at the London Business School.Research AreasCorporate and investment banking. Financial analysis, corporate valuation and intangible assets. Organizationand management of financial investors. From Bocconi Newsletter no. 99/2010 118
  • 119. Law
  • 120. DirittoThe Crisis Has Broken a Convergent Pathby Maurizio del Conte Since 2008, employment has dropped in the Southern regions, where the employment rate was already comparably lower. Without a concerted effort to rebuild labor relations and create incentives for manufacturers, the North-South gap will only widen.Recent Italian labor force data put into stark relief the dramatic social gap between the Northern and theSouthern regions of the peninsula. The slow progress toward convergence between North and South wasbrusquely interrupted with the crisis that started in 2008. As a result, employment dropped sharply in theSouthern regions, three times faster than in the rest of Italy. And the employment rate was already dangerouslylow there before the crisis: in 2007, it was 46.5% in the South (people between 15 and 64 years of age)compared to 65.4% in the Center and Northern regions.The historical backwardness of the South can be seen by looking at the existing wage disparity, wherebywages are 20% lower than in the North. In this regard, the Bank of Italy has recently commented that “highunemployment and the informal economy suggest that the cost of labor, although lower than in the North, isstill too high to balance labor demand and supply, given the accumulated productivity lag. In the absence ofwage flexibility, migration is the force driving the equilibrium between supply and demand.” The problem isthat today migration drains the more highly educated human resources from the South, while reinforcing thevicious circle of quantitative and qualitative depreciation of the “Mezzogiorno’s” labor and production assets.The symbol of South’s industrial decline is FIAT’s decision to shut down the Termini Imerese car assemby plant inSicily, and to drastically downsize Pomigliano d’Arco in Campania, while at the same announcing €8 billionworth of investments, mostly going to the plants in Northern Italy. FIAT’s disengagement from the South is thetip of the iceberg of a much larger movement away from the region affecting small and medium firms. Thecountry’s economy just can’t afford that.What is to be done, then? Since the political horizon still seems clouded, there needs to be a positive supplyshock affecting the Southern manufacturing base, so that struggling companies can be allowed to survive. 121
  • 121. DirittoIndustrial relations are key in this respect. Before the crisis many had observed that unions were a thing of thepast, linked to the phase of large-scale manufacturing.But the current crisis shows that good industrial relations are fundamental to finding viable and effectivesolutions to the crisis. The problems of the South can only be solved by a new system of labor relations thatbinds private investment and public incentives to the local territory and experiments with new forms ofmanufacturing and compensation flexibility. It takes incentives to make employment in the South attractive tothose seeking it. It takes unionists and managers that are less attentive to political factors and more focusedon collective bargaining.All this requires that labor unions and associations of industrialists stop being paternalistic about the South andstart delegating decision-making powers to their territorial actors, in the key areas of wages, labor organizationand on-the-job training.The AuthorMaurizio Del Conte is Associate Professor of Labor Law at Bocconi. Previously, he worked in the Department ofEducation Sciences at the University of Milan-Bicocca. He was International Visiting Professor for theComparative Labor Law program at the University of Richmond, School of Law (Virginia) in 1999-2000 and2001-2002. He has also taught at the University of Tokyo, the University of Kyoto and the University of Kobe. He iseditorial coordinator of the journal, Orientamenti della giurisprudenza del lavoro and a member of theeditorial board of the journal Diritto delle relazioni industriali.Research AreasLabor law. Trade union law. Comparative labor law. Private law. From Bocconi Newsletter no. 88/2010 122
  • 122. DirittoMade in Italy Protected by Lawby Giorgio Sacerdoti Legislation has been passed to guarantee the origin of upscale Italian products, but it could end up having some unintended consequences. It also signals a siege mentality, a protectionist frame of mind that could ultimately run against the market priorities of Italian exporters.The Italian Parliament has passed the Reguzzoni-Versace-Calearo bill, which responds to the pressing callscoming from Made in Italy manufacturers to obtain protection for high-quality goods manufactured in Italy.Producers are exposed to low-cost competition from developing countries, not to mention the threat ofcounterfeiting. The request was thus to introduce the compulsory labeling of imported goods to signal theirorigin to the consumer. This what many other advanced countries, including the US, require by law. It ishowever a matter of EU competence, and major economies such as the UK and Germany are resolutelyopposed to such a move. Only an intervention of MEPs, recently empowered on the issue by the Lisbon Treaty,could break the stalemate.This is why Rome has taken a different route to compulsory labeling. On the one hand, the new law introducesa system of labeling for finished products in textile, leather and shoes, highlighting their origin at each stage ofproduction and ensuring their traceability, according to modalities to be specified by implementationdecrees. On the other hand, in a more precise and innovative way, the law reserves the “Made in Italy” labelfor those shoes, suits, dresses, belts, purses, couches etc., where at least two major stages of production havetaken place in Italy.After so much discussion, Made in Italy is now finally protected. The objective is to enable consumers todistinguish between domestic and imported products; fake labeling will be severely punished. The implicit ideais that a higher price corresponds to higher “Italian quality”, which can then be advertised and marketed, inItaly and abroad.There are however two reasons for caution. The law will come into effect on October 1st, in order to give theEuropean Commission the time to express its opinion on the compatibility of the new Italian legislation with EUlegislation. Although the Italian Parliament has steered clear of imported products, its traceability requirements 123
  • 123. Dirittocould go against European constraints. Also, there is the risk the that the Made in Italy label turns out to beeither a boomerang or a flop, because of the complexity of managing the scheme or for market reasons.Products made by our companies abroad are not protected by the label and will thus be discriminatedagainst.Furthermore, sporting a Made in Italy label is not tantamount to a guarantee of quality! Why should theconsumer be wary a priori of products that are Made in China or Made in Peru? The idea that only a domesticproduct is worthy of purchase and that prices are secondary variables signals a protectionist frame of mind,which ends up losing in the long term. And the new legislation is introduced at the very time when many Italianproducers are outsourcing and complaining of the trade barriers that many emergent economies areerecting against Italian exports in various sectors, including many not listed by the law.The AuthorGiorgio Sacerdoti is Full Professor of International Law and holds the Jean Monnet Chair in European Law atBocconi. He is a member of the Committee on International Trade Law of the International Law Association.He was President of the Appellate Body of the World Trade Organization, of which he was a member from2001 to 2009. He has taught as a Professor of International Law at the University of Milan, the University ofBergamo, the University of Bari and the University of Urbino. He was International Fellow at the Aspen Institute(1985) and Visiting Professor at the Institut des Hautes Etudes Internationales at the University of Paris (1987). Healso taught at the Academy of International Law in The Hague (1994) and was Vice President of the OECDWorking Group on Bribery in International Business Transactions (1989-2001).Research AreasInternational law. EU law. International trade. Investments. Arbitration. International contracts. From Bocconi Newsletter no. 90/2010 124
  • 124. DirittoThe Union Has Only Blunt Toolsto Impose Budget Disciplineby Claudio Dordi A number of factors contributed to the Greek financial crisis, most of them linked to the EU’s weak governance. Convergence of fiscal and budget policies among member nations was left to wishful thinking rather than enforceable policy, and the results are plain to see.One cannot but concur with former Italian Prime Minister Giuliano Amato, when he highlighted the four majorfactors behind the Greek crisis: the Greek governments, which cooked the national accounts in the past tomask a worrisome budgetary situation; Germany, which was reluctant to grant financial assistance forelectoral reasons; the EU itself, because it lacked adequate norms and procedures to deal with moments ofcrisis; and rating agencies, which were benevolent toward toxic assets, but strict toward the sovereign debt ofa EU member.However, the main responsibility lies with all member countries, which have been reluctant about introducingin the EU Treaty adequate control mechanisms and sanctions to ensure convergence in fiscal and budgetpolicies. The Maastricht system, left unchanged by the Lisbon Treaty, says that convergence should beensured by the rules that constrain government budget deficits (the so-called “procedure for excessivedeficits”) and by coordination of national economic policies. But, as we have seen it’s possible to trick Eurostatinto publishing faulty national statistics, and recent EU experience show how hard it is to impose sanctions onunruly members. The point is that the European Court of Justice has no sway over political controls agreedamong member states.It was thought more virtuous states would impose discipline on spenders. In practice, national governmentsprefer to ignore lack of compliance with Maastricht rules. In 2003, Germany and France avoided the well-deserved sanctions for breaking their budget promises, due to the absence of political consensus in theEuropean Council, the organ where national governments discuss policy-making. That circumstance had infact led to a revision of the stability pact to make the procedure more flexible. 125
  • 125. DirittoAlso, coordination of macroeconomic policies has been more nominal than real: states remain fully in controlof their fiscal prerogatives, and the worst they can get is that EU policy recommendations to an erringgovernment be made public (!).The economic and financial crisis has unveiled all the weaknesses in EU governance. To add insult to injury,rating agencies, which have been accomplices in triggering the worst post-war crisis, still manage to influencefinancial market operators with their judgments on the quality of the debts of various actors, includingsovereign states. But also in this case the EU has only itself to blame: why was no independent, publicly owned,credible European rating authority created?The AuthorClaudio Dordi is Associate Professor of International Law at Bocconi, where he is a member of the FacultyBoard for the PhD in International Law and Economics. He is also head of the Economics of International Lawprogram at LIUC in Castellanza. He has worked as Visiting Professional Fellow at Georgetown Law School,Washington DC and as a member of the faculty at the World Trade Institute in Bern. He has also taughtInternational Trade at the University of Brescia.Research AreasInternational law (international commerce and international monetary relationships). EU law. Publicinternational law. Law of international organizations. From Bocconi Newsletter no. 91/2010 126
  • 126. DirittoCan I Upload or Not?by Oreste Pollicino After the Google ruling issued by the Court of Milan, one must secure the consent of featured third parties before putting a video online. Questions of privacy and the applicability of EU law on a foreign-based company have been called into play in a sector that is hard to control.The ruling of the Court of Milan, whose motivations have recently become known, which found three Googlemanagers guilty of six months of imprisonment for the unlawful handling of private data, has been hotlydebated.The facts are known: an autistic child is verbally and physically abused by some schoolmates who film thewhole thing with a cell phone and then upload it on Google Video. The video stays online for two months andgets to the top ten of the most fun videos (sic), before being removed due to the intervention of the ItalianPostal Police. But what are the implications of the Italian judicial decision?The first is possibly the least interesting. It just confirms in what kind of esteem the giant from Mountain Viewholds our institutions. The comment by CEO Eric Schmidt on the Financial Times speaks for itself: “The judge wasflat wrong. So let’s pick at random three people and shoot them. It’s bullshit. It offends me and it offends thecompany.” He didn’t take it well, did he?But Schmidt and others are in error when they dismiss the whole thing as a blunder made by Mr Magi, theMilanese judge. In fact, an important effect of the decision is that from now on it will be much harder forGoogle to elude the obligations imposed by Italian and EU regulations by claiming the principle of “no server,no law”. According to this principle, the fact the Google’s servers are located in Silicon Valley shelters themfrom Italian laws for the protection of privacy. The judge found that the laws are applicable and that theItalian judge is competent whenever the handling of personal data takes place in Italy, such as with thediffusion of videos on Google Italy.But if Italian and European norms are applicable, then providers from now own will have to take theirobligations seriously when it comes to dealing with sensitive date. But the judge did not list among these 127
  • 127. Dirittoobligations the preventive control of all the uploaded materials, contraary to what some have claimed. Notonly because this is technically impossible, but because it would go against Italian and EU law which exemptsInternet providers from the duty of surveillance on user activity. What Google should have done and should dois to make clear to users who want to upload videos where third persons are featured, that they must firstobtain their written authorization before doing so.In spite of the rhetorical tones which have portrayed the decision of the Court of Milan as an attack on thefreedom of expression, at the root of the case there is the problem of rebalancing a whole business model. Inother words, how approriate and cost-effective is it for Google to spend more to respect Italian and EU law onthe protection of personal data?Two considerations now, one legal, the other economic - knowing full well I’m swimming against the tide. First, Idon’t think the exemption of responsibility of ISPs extends to all Google services. How can you say that Googlevideo (and now YouTube) with its sophisticated systems of indexing and filtering have no control on the dataof the service provider? Second, it’s likely that the e-commerce directive adopted in 2001 and which statesthe principle of the exemption of responsibility had in mind those ISPs which supplied a connection to the webin exchange for a fee, and not those, like Google, who make their money not from the connection service,which is free, but from the advertising hosted on the platform.The AuthorOreste Pollicino is Associate Professor in Comparative Public Law at Bocconi. He is a member of the steeringcommittees for Diritti comparati, comparare i diritti fondamentali in Europa (http://www.diritticomparati.it) andthe International Journal of Communications Law and Policy (http://www.ijclp.net) and is on the editorialboard for Diritto Pubblico Comparato ed Europeo (http://www.dpce.it), Osservatorio sul rispetto dei dirittifondamentali in Europa della Fondazione “L. Basso” (http://www.europeanrights.org), and Panoctica, RevistaEletrônica Acadêmica de Direito (http://www.panoptica.org).Research AreasEuropean constitutional law. Media law. Internet law. From Bocconi Newsletter no. 93/2010 128