Trust & Competitive Advantage: An Integrated Approach to Governance, Risk and Compliance

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Learn how a comprehensive governance, risk, and compliance strategy can help your organization rebuild and strengthen stakeholder trust through honesty, accountability, transparency, and consideration of others' business interests. SAP can help.

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Trust & Competitive Advantage: An Integrated Approach to Governance, Risk and Compliance

  1. 1. Trust and Competitive Advantage: 1 An Integrated Approach Executive Summary improve relations with stakeholders and, ultimately, facilitate trust and competitive advantage. BURNED BY ENRONESQUE ACCOUNTING scandals, investors and governments are imposing rigorous reporting requirements to keep companies on the straight 1.0 Corporations Need to and narrow. Rebuild and Strengthen Stakeholder These reactions are a symptom of a fundamental force Trust in the economy: a crisis of trust among stakeholders of corporations. Stakeholders are not only a company’s In business, “trust” is the twofold expectation that the shareholders, but also customers, employees, business other party will deliver value and that they will behave in partners and communities, and in recent years their trust a way that’s consistent with four core values (see has been profoundly shaken. Naturally, they are now Figure 1): trying to protect themselves, often via legislation. • Honesty. The company is truthful, accurate, and But companies that scramble reactively to implement complete in communications with stakeholders. one-off responses to each new set of compliance • Accountability. The company makes clear regulations won’t rebuild stakeholder trust—they’ll just commitments and abides by them. spend a lot of money on shortsighted solutions. • Consideration of others’ interests. The company Companies committed to gaining stakeholder trust, as well as better planning and decision making are, instead, taking understands and shows regard for the interests, an integrated approach to the related issues of governance, desires, and feelings of others. risk management, and compliance (GRC). The approach • Transparency. Stakeholders have access to comprises of people, processes, corporate culture, and company information that affects their interests.1 especially systems. Technology provides affordable Transparency, which underpins the three other core mechanisms for information sharing that can scale values, has been an important trigger for the current crisis globally. Automation not only reduces expensive “human of trust. The expression “What are they hiding?” middleware” but also offers entirely new collaborative and demonstrates the relationship between transparency and analytical possibilities. Integrated GRC solutions help trust. As I’ve argued, “trust depends on transparency and Figure 1 The Four Core Values Master Data Management Understanding customers and Better visibility into the firm Honesty forecasting markets Single version of the truth Fair labor relations through consistent compensation Enterprise planning Accountability Ensuring integrity across the business web Effective scorecarding Performance management Consideration Transparency Better, more accurate reporting Valid non-financial information Supply chain transparency Employee portals Customer relationship applications © 2006 New Paradigm Learning Corporation
  2. 2. Trust and Competitive Advantage: 2 An Integrated Approach transparency depends on trust. Indeed, as people learn to a variety of dimensions (see Figure 2)—and lack the collaborate well over time, transparency and trust coherence needed to engage in consistent trustworthy reinforce each other, generating a virtuous cycle.”2 Until behaviors towards ever growing collections of recently though, the ability to be transparent has been stakeholders. An integrated approach to fulfilling the core limited to small business ecosystems. Think of it this way: values that facilitate trust allows everyone across the firm many rural businesses extend credit to locals. Word gets to act in concert and live up to internal and external around in a small community, and everyone knows who standards (see: “An Integrated Approach to Transparency can be trusted to pay their tabs and make good on their is Essential,” below). promises. It’s not blind faith, because everyone’s behavior Corporations must combat the fragmentation that is visible (i.e., transparent). But village community separates their people, processes, and data. Three systems don’t scale easily to big cities. In places where significant challenges stand out: participants’ behavior isn’t easily visible to others, businesses traditionally ask for guarantees: a letter of 1. Think and act globally. Accustomed to setting policies credit or a lien on an asset, for example. And for other locally, companies now juggle complex regulations stakeholders (consumers, suppliers, communities), it’s that vary from one country to the next. Imagine that a been a matter of gathering whatever information was European distributor has asked its manufacturers to available and hoping for the best. eliminate all lead soldering circuitry in a product to comply with environmental standards like RoHS. The manufacturers willingly comply, but no one tells them “If you’re going to be naked, you’d that they also need to eliminate cadmium coatings on better be buff.” components. The distributor and the manufacturers end up stuck with piles of product that neither can sell. Or But now, thanks to exponentially greater access to consider currency risks—mitigation often requires information, we can track information, rules, global coordination to carefully manage local contracts accountabilities, processes, and behaviors on any scale. and commitments. Stakeholders of all types now have unprecedented 2. Bridge corporate silos. A corporation is an visibility into the behavior, performance, management, increasingly complex body of moving parts: assets, and operations of companies. The optimistic old adage, products, employees, relationships, information “you do well by doing good” is coming to life. It used to systems, contracts, and transactions. In the absence of be that a lot of companies did very well by being bad— integration, many day-to-day actions and interactions creative accounting, unfair labor practices, and shady are at best suboptimal—and at worst create openings to environmental behaviors could help beef up the bottom illegal or even criminal behavior. Does design know line. But thanks to increasingly sophisticated the impact of materials substitutions on warranty costs? communication technologies and the interconnectedness Does legal know the cost of a day’s delay in finalizing of business webs, stakeholders now quickly uncover the a contract? Is the sales team aware of how contract rogues—and warn others against them. Like it or not, terms affect the ability to book revenue? Silos make it corporations are becoming naked, and as I’ve said before, difficult to determine who has ultimate responsibility if you’re going to be naked, you’d better be buff. Fitness for compliance or overall risk management. is no longer merely optional. 3. Use technology to improve information flows. 2.0Pervasive Fragmentation Organizations are locked into the technology of the past, running collections of incompatible systems that Complicates the Pursuit of communicate imperfectly with one another. Disconnects multiply with the volume and complexity Stakeholder Trust of the information within and beyond the enterprise, At the same time that stakeholders have the means and and the tools have not been able to cope. As recently as interest to scrutinize corporate behavior, fast growing a decade ago, the computational enormity of analyzing global firms find it ever more challenging to build and all this information was overwhelming. Glenn Wegryn, maintain trust. These firms are typically fragmented across Associate Director, Global Analytics at P&G, says, © 2006 New Paradigm Learning Corporation
  3. 3. Trust and Competitive Advantage: 3 An Integrated Approach Figure 2 Fragmentation Inhibits Consistent Approaches People Data Global disconnects Corporate silos Technology islands Processes “we didn’t have the technology to really harness and on its own—can accomplish little. Royal Caribbean Cruise optimize the capability ten years ago.” Computers at Lines learned this the hard way. In 1998, the company the time were inadequate.3 pled guilty to conspiracy and obstruction of justice and had to pay fines of $9 million for repeatedly dumping Fragmentation is hard to fix. Every day, people make enormous quantities of waste oil into the ocean. Its bad decisions because of bad information. When people or employees had been bypassing waste water filtration departments don’t trust the data or can’t get the data they equipment and deliberately dumping the contaminated need, they create their own versions or make suboptimal water into the ocean. Jack Williams, the company’s new choices, which not only wastes effort, but also further president, issued a statement saying the company accepted fragments information across the organization. Stranded full responsibility for its acts and promised that it would information islands, from corporate databases and design never happen again. drawings to Excel spreadsheets, create a tangled mess of untrustworthy information that impairs customer service, A month later, another Royal Caribbean ship was caught destroys market opportunities, and exposes the dumping untreated waste water. Williams blamed a group organization to risk. of employees who refused to comply with company policy, and argued that the company’s enforcement was at Convinced yet? Most executives are: they see the fault, not its commitment to environmental laws. The importance of building and maintaining trust; they agree courts were not moved by the distinction. The company that transparency is essential; and they understand that was slapped with another $18 million in fines. geographical, organizational, and systems fragmentation complicates the problem. These leaders are committed to This example shows that espousing a set of values making sure that their company isn’t the next Enron or means nothing if the company isn’t structured to fulfill WorldCom. those values. In Royal Caribbean’s case, it turned out that compensation policies and environmental policies weren’t Unfortunately, commitment isn’t enough: a company integrated—in fact, they were in conflict. It costs the may have the best intentions, but fragmentation on the company hundreds of thousands of dollars a year to filter scale we’re seeing today means that the will to change— © 2006 New Paradigm Learning Corporation
  4. 4. Trust and Competitive Advantage: 4 An Integrated Approach water and carry oil waste back to port for disposal. The remove the guard for better visibility and freedom bonus structure rewarded cost control, and therefore of movement anyway. The manufacturer doesn’t rewarded employees for bypassing the oil-water separators hear about this product defect and is unaware of the and dumping dirty water at sea.4 The president could product liability it poses. make a commitment to change, and mean it sincerely, but • A director of corporate social responsibility has the company’s DNA countered that commitment. As a made remarkable progress forging relationships result, Royal Caribbean had to go back to the drawing with NGOs by striking frank and honest dialogue on board and make fundamental changes to its processes, difficult issues. In 2005, one of the employee’s systems and culture to ensure its values drove the behavior well-intentioned editorials published misleading of everyone. Today it is a world leader in this regard. data about CO2 emissions (the internal sources he used turned out to be estimates, not actual data). 3.0Beyond a “License to Unfortunately, the editorial counts as “commercial speech” (see: Nike Inc. v. Kasky)7 and places the Operate”: Trust Contributes to company at considerable legal risk. Competitive Advantage • After months of negotiation, a star salesperson Building trust is expensive—AMR Research estimates finally receives the go-ahead on a major deal. that in 2007 companies will spend $27.9 billion5 on Excited to seal the deal, a contract template is compliance, and 32% of that will go to technology.6 But modified to reflect the negotiated terms (with it’s not all bad news and cautionary tales—trust makes approval from legal). Unfortunately, the terms of business sense. Organizations that invest strategically in payment included a seemingly trivial concession compliance not only protect their “license to operate,” but that, it turns out, will delay booking of revenue for also gain competitive advantage over companies that take accounting purposes. a haphazard approach to compliance. It all goes back to • A circuit board manufacturer negotiates component the essential ingredient of trust: transparency—and, pricing with suppliers and builds the project at specifically, information liquidity, which I define as razor-thin margins. Because the manufacturer access, by those who need it, to integrated, accurate, and doesn’t maintain an inventory of the board’s timely organizational data in a manner that respects the components, they’re unaware of the regulatory interests and privacy of stakeholders. It’s about visibility issues affecting them (e.g., material/contents or that cuts across the organization, and it increases your export restrictions), and aren’t tracking the impact corporate metabolism. of changing market prices (e.g., suppliers could be making huge margins following drops in component “It’s not all bad news and cautionary prices). tales—trust makes business sense.” • Third parties sometimes take existing products and innovate in unexpected ways (e.g., BASF foam Internally, organizations are already asking for the same insulation, FedEx boxes, the Toyota Prius transparency that reporting and regulatory requirements diagnostics port, Apple’s laptop motion sensor).8 demand. But the internal demand has less to do with WiFi fans even use coffee cans and other product compliance and more to do with competitive advantage. containers to create powerful home brewed Within the firm, transparency is a strategic imperative— microwave antennas.9 Is this a potential marketing easier access to information facilitates continuous opportunity, or time to print a warning label about improvement, innovation, and collaboration. Information hazardous microwave exposure? Unaware of how liquidity can have a significant business impact, as these their products or services are being consumed, many examples demonstrate: companies fail to react at all. • A customer purchases a table saw that’s prone to Information liquidity helps bind enterprises more tightly jamming whenever she uses it. But when she calls and creates a path for continuous improvement. From the the store they say it’s a common problem with the introduction of the assembly line and Just-in-Time blade guard and that many woodworkers prefer to manufacturing to Triple Bottom Line reporting and the © 2006 New Paradigm Learning Corporation
  5. 5. Trust and Competitive Advantage: 5 An Integrated Approach Balanced Scorecard, firms have looked for ways to individual firms and among enterprises—depends on improve their coordination. These tools strive to maximize reliable shared data. Erik Degn, Novo Nordisk’s vice- transparency and the flow of information (assembly lines president of IT System Management, says, “it’s a lot share information via tight synchronization that quickly easier to collaborate in a model where you have consistent exposes bottlenecks or fragility along the production line; data that is integrated and accessible and trustworthy. Balanced Scorecards map the causes and effects that We’re starting to see the benefits of having one shared contribute to enterprise value creation). And just as a information source for business intelligence, and that’s conveyor belt closely synchronizes the activities of a very valuable in steering the business today.”13 At eBay or production line, information technology and transparency any other organization, the trust that accrues from can unite the activities of the organization. transparency drives down the risk and cost of collaboration. • Novo Nordisk uses Triple Bottom Line accounting to balance economic performance with environmental and social considerations. The “Just as a conveyor belt closely company now publishes an integrated report that synchronizes the activities of a merges a CSR report and traditional annual report production line, information into a single document.10 technology and transparency can unite • P&G uses an ERP system to share information that the activities of the organization.” improves inventory management. In the past, each store of inventory was managed autonomously, but now advanced analytics and visibility into multiple Better information flows between an organization and its inventory stores allows new inventory reductions. stakeholders are the key to minimizing transaction costs: Says Glenn Wegryn, “We're applying advanced not production or transport costs, but the costs of entering analytical techniques to how we analyze those into and managing relationships, which some economists multiple piles of inventory. To reduce total estimate account for up to 50% of GDP.14 Where inventory you must replace uncertainty with the transactions provide opportunities for misrepresentation, visibility of information.”11 Today, similar analytics noncompliance, or fraud, mutual trust reduces the can also be performed to optimize tariff treatment contracting costs associated with formal agreements.15 through savvy logistics, or even model complex Today, every percentage of efficiency counts, and regulatory, labor, product approval, materials information-enabled collaboration is a powerful way to pricing, and tax considerations to support drive out inefficiencies. Lower transaction costs also allow investment decisions (e.g., choosing a site for a new firms to expand their networks and to unearth new talent manufacturing facility). and new opportunities for innovation. In the business web—the emerging collaborative business model— • Steve Swartzenberg, Business Review Lead at individual companies are a part of a business system, and manufacturer NIBCO, explains that information the system’s success depends on every participant’s ability systems have helped expose fragmentation within to deliver. Success or failure affects everyone, so it’s in the firm: “What you find out is no part of the every participant’s best interests to share critical business organization is disconnected from another. It’s all information. You can’t innovate in silos, says Dell connected; the processes are all integrated. If one Chairman Michael Dell: “Collaborative R&D between IT part falls out, it doesn't link up.”12 buyers, vendors, and partners is central to future In short, information technology can help connect and innovation.”16 Often, critical information sharing doesn’t harmonize stranded enterprise data, people, and processes. happen soon enough. For example, AMR Research has found that by the time a product is designed, Trust and transparency are essential for any type of approximately 70% of its costs have already been collaboration. At eBay, feedback ratings from other users determined. Says Samsung CEO Jong-Young Yun, “It’s a improve the buying decisions of auction participants. In cooperation between product development, product the stock market, confidence in the accuracy of financial planning, and marketing from the very beginning, which statements helps remove uncertainty for investors. adds speed overall.”17 Collaboration—increasingly important both within © 2006 New Paradigm Learning Corporation
  6. 6. Trust and Competitive Advantage: 6 An Integrated Approach Today, there’s little competitive advantage to be gained resolve their issues of concern. As he points out, funding through physical assets but tremendous benefit to having decisions are often the result of sudden senior panic: the best customer relationships, the most efficient “somewhere at the top levels of the executive ranks they coordination, and the most accurate business intelligence. realize that if they have a problem related to compliance David Newman, research vice-president at Gartner, sees it’s a catastrophe.”20 But this approach is ad hoc and corporate data issues as “a symptom of a much broader reactive. The company hasn’t worked through the business problem: how to use information and how to manage case for transparency—it’s simply about crisis avoidance. information more strategically.”18 While many compliance Executives in the organization see governance, risk initiatives started out as burdens, many companies have management, and compliance as costs, rather than found that their compliance efforts have forced them to opportunity to trump the competition. The irony is that improve data quality. For many organizations, better this approach is both enormously inefficient and less information management has improved business effective than an integrated approach. After all, narrowly intelligence and optimized decision making.19 focusing on each new set of regulations doesn’t lead to better business practices any more than hitting the brakes 4.0An Integrated Approach to when you see a police car makes you a better driver. An integrated governance, risk management, and Transparency is Essential compliance strategy becomes in itself a differentiator. To achieve transparency and the competitive benefits that Companies that bake integrity into their bones grow faster accrue from it, organizations must embed the appropriate because they have better trust and better reputations, behaviors into the organization’s culture, processes, and which lead to lower transaction costs and overall lower systems. To do so, they need a comprehensive approach to cost structures. A study published in the Quarterly governance, risk management, and compliance. Let’s Journal of Economics analyzed data from 1,500 clarify what we mean when we use these terms: companies and found that companies with the best governance (shareholder rights) performed 8.5% better • “Governance” refers to rules, systems, processes, annually than their poorly ranked counterparts. The study and structures that ensure the corporation operates concluded: “firms with stronger shareholder rights had in accordance with its defined policies and higher firm value, higher profits, higher sales growth, procedures, and engages with legitimate lower capital expenditures, and made fewer corporate stakeholders to meet their expectations. acquisitions.”21 According to institutional investors • “Risk Management” refers to the systems and surveyed by McKinsey, shares of well-governed procedures in place to proactively evaluate risk and companies can also be worth a premium—in the U.K. and to minimize or mitigate losses. U.S., investors were willing to pay 18% more for shares of these companies.22 • “Compliance” refers to the tactical approaches to following the rules—the systems and processes that enable stakeholders to evaluate the extent to which “Narrowly focusing on each new set of companies conform to their interests. regulations doesn’t lead to better In a networked economy, these three elements are as business practices any more than interdependent as the legs of a stool. But we’ve hitting the brakes when you see a traditionally had different languages, taxonomies, and police car makes you a better driver.” semantics for each one, which makes it nearly impossible to determine who is responsible for making governance, risk management, or compliance decisions. Such an integrated approach requires a company-wide effort, and if we go back to the four values that make up Potentially even worse is the non-strategy of reacting to trust, it’s clear that there’s an important role for integrated reporting rules piecemeal. Many companies, motivated by IT and information sharing: an overwhelming need to comply, jump on each new issue • Honesty. Leaders can’t be sure they’re being honest as it arises. George Young of professional services firm Kalypso deals with companies that are struggling to if they don’t have access to a single version of the © 2006 New Paradigm Learning Corporation
  7. 7. Trust and Competitive Advantage: 7 An Integrated Approach truth. Honesty means not only having “true” data, While integrating governance, risk management, and but also avoiding mixed messages—a mistake compliance may require more time and effort up-front, it Royal Caribbean made when orders from the top offers several significant long term advantages (see contradicted a compensation system that encouraged Figure 3): dysfunctional behavior. 1. Avoids the expense of a piecemeal approach. While an • Accountability. You can’t fulfill commitments issue-by-issue approach may suffice for companies unless you know what they are and you track dealing with just a few regulatory issues, all signs point them—integrated strategy needs scorecarding and toward more, not less, regulation. And as compliance performance management systems that link strategy requirements multiply, companies will find themselves and execution. Accountability ensures that tackling the same issues over and over again. A commitments are captured and acted upon. Clear coordinated approach today can help reduce duplicated lines of responsibility make it harder to pass the effort. buck. • Consideration of others. It’s hard to consider the 2. Leverages your existing information technology interests of others without engaging them to learn investments. Information sharing is critical to business who they are and what they want. If you’re running performance, and integration within and beyond the dozens of fragmented legacy systems, it’s difficult walls of the firm simply makes good business sense. In to assemble a complete picture of stakeholders and cases where integrated systems and processes exist, it act upon their needs. makes sense to “plug into” this infrastructure to help coordinate your GRC efforts. Baking these practices • Transparency. The organization can’t be transparent into regular business activities is easier and less unless it has systems that enable the communication disruptive to your business. of pertinent information to stakeholders in an accessible format. Figure 3 The Benefits of an Integrated Approach Lower costs Enhance Leverage innovation Integrated investments Approach Enable Scale collaboration capacities © 2006 New Paradigm Learning Corporation
  8. 8. Trust and Competitive Advantage: 8 An Integrated Approach 3. Makes your efforts scalable. Manual point solutions route less effective and more expensive. The scrutiny are ad hoc and difficult to scale. But an integrated itself is merited and necessary: the public’s belief that effort helps illuminate common processes and firms can “do well by doing good” has been shaken, and approaches suitable for lower-cost automation. That every industry must address the resulting crisis in trust. kind of scale and integration facilitates decision In this environment, the firms that prosper provide value making. Normally, it’s cost-prohibitive to bring and—most important—demonstrate the right set of values. together all the information you need to make a For these firms, new levels of transparency, information decision—so most decisions, made with incomplete liquidity, clear rules, lines of accountability, and the right information, yield sub-optimal results. An integrated processes are already making a difference. Rejecting approach scales decision making, which lowers the piecemeal “solutions,” these firms have established a cost of information retrieval and allows users to make holistic approach that marries business considerations with sound decisions based on actual data.23 stakeholder interests. Companies such as P&G and Novo 4. Enables new types of collaboration. Building rules, Nordisk are as conversant with financial, social, and information, and processes into software enables environmental considerations as they are with customer heretofore impossible collaboration and coordination. and business needs. These companies speak a common At P&G, complex analytics model inventory and language internally and externally, and they’ve integrated supply chain processes in unprecedented detail. their people, processes, and systems to coordinate more Enormous libraries of rules and policies can be effectively, reduce transaction costs, and act with embedded in software to allow complex interaction integrity. tracking that would be impossible to manage manually. The result is an integrated approach to governance, risk 5. Spurs innovation. Technology can enable collaborative management, and compliance that has several benefits: innovations by removing transaction costs, reducing lower costs, better leverage of existing investments, new friction and increasing the metabolism of collaboration scale for information sharing initiatives, support for new within organizations. The result is better/faster innovations, and unprecedented levels of collaboration innovations from a much broader range of and coordination. Some say that the crisis in trust means stakeholders. Hanne Schou-Rode, vice-president, corporations should bear down on their compliance Corporate Relations, Business Strategy and initiatives to avoid a misstep. Our point of view: missteps Governance of Novo Nordisk recognizes the benefit of occur because companies take too narrow a view of their stakeholder engagement: “in terms of knowledge, new compliance efforts. A broader appreciation of all ideas derive from interaction—especially from the stakeholder interests improves compliance and reduces stakeholder and customer dialogue.”24 User innovation risk—plus, it just makes good business sense. is a significant phenomenon: users in a variety of settings are developing innovations for their own use (depending on industry, 9.8% to 37.8% of users report doing so).25 5.0 Conclusion The piecemeal approach to compliance, risk management, and governance is beginning to catch up with many companies. It might once have been easier and less expensive to respond to corporate and social responsibility issues as they arose, but higher levels of scrutiny and global competitive environments have made the “ad hoc” © 2006 New Paradigm Learning Corporation
  9. 9. Trust and Competitive Advantage: 9 An Integrated Approach I am grateful to Denis Hancock, Erin Lemon and Alan Majer of the New Paradigm Team for help in researching this paper and I also thank SAP for their financial support of this White Paper series. However, the views expressed are my own and my company New Paradigm takes responsibility for the opinions expressed herein. Don Tapscott, Chief Executive and Founder, New Paradigm DON TAPSCOTT, one of the world's leading authorities on business strategy, is Chief Executive of New Paradigm, which he founded in 1993. He is an internationally sought authority, consultant and speaker on business strategy and organizational transformation. His clients include top executives of many of the world's largest corporations and government leaders from many countries. The Washington Technology Report called him one of the most influential media authorities since Marshall McLuhan. He is the author of twelve widely read books about information technology in business and society including Growing Up Digital, which established him as one of the leading thinkers about the Net Generation. His new book, written with Anthony Williams, is WIKINOMICS: How Mass Collaboration Changes Everything. He is also Adjunct Professor of Management, Joseph L. Rotman School of Management, University of Toronto. He has a master's degree in Research Methodology, and two (Hon) Doctor of Laws. Research assistance for this report provided by Denis Hancock, Erin Lemon and Alan Majer. www.newparadigm.com © 2006 New Paradigm Learning Corporation
  10. 10. Trust and Competitive Advantage: 10 An Integrated Approach Endnotes Samsung Electronics. 1 18 See Don Tapscott and David Ticoll, The Naked Corporation: Interview with David Newman, research vice-president, How the Age of Transparency Will Revolutionize Business, Gartner Group, conducted by Alan Majer, Bob Tapscott, and 2003, pp. 74-77. Brendan Peat, December 8, 2005. 2 19 Ibid, p. 77. Interview with Pamela Szabo, CIO, Stone Bond Technologies 3 Interview with Glenn Wegryn, Associate Director, Global and Gretchen Weis, Weis Communications, conducted by Alan Analytics, Procter & Gamble, conducted by Denis Hancock and Majer, March 8, 2006. 20 Alan Majer, March 23, 2006. Interview with George Young, founding principal of Kalypso, 4 See Don Tapscott and David Ticoll, The Naked Corporation: conducted by Alan Majer and Bob Tapscott, January 12, 2006. 21 How the Age of Transparency Will Revolutionize Business, Quarterly Journal of Economics, “Corporate Governance and 2003, pp. 255-256. Equity Prices,” Gompers, Ishii, and Metrick, February 2003, pp. 5 The $27.9 billion spending on compliance is a 2007 value; 107-155. 22 however, the 32% is a 2006 estimate. The 2006 percentage has Paul Coombes and Mark Watson , “Three surveys on been extrapolated onto 2007 spending. corporate governance,” The McKinsey Quarterly, 2000, 6 Number 4. John Hagerty and Fenella Sirkisoon, AMR Research. 23 “Spending in an Age of Compliance, 2006,” July 25, 2007, Interview with Peter Storti, principal at Kalypso, conducted http://www.amrresearch.com/Content/View.asp?pmillid=19239. by Alan Majer, January 6, 2006. 7 24 “Nike and the Free-Speech Knot,” Wall Street Journal, June Interview with Hanne Schou-Rode, vice-president, Corporate 30, 2003, A16, http://www.law.ucla.edu/volokh/nike.htm. Relations, Business Strategy and Governance of Novo Nordisk, 8 March 20, 2006, conducted by Alan Majer and Erin Lemon. BASF’s Basotect® foam insulation is used in P&G’s Mr. 25 Clean Magic EraserTM, Eric von Hippel, “Horizontal innovation networks—by and http://www.corporate.basf.com/basfcorp/img/stories/wipo/fruehj for users,” MIT Sloan School of Management Working Paper, ahrsputz/MagicEraser_engl.pdf; FedEx boxes are converted into June 2002. furniture, http://www.fedexfurniture.com; <http://www.hybridinterfaces.ca/index.html> sells hardware that taps into the diagnostic port of the Toyota Prius for new diagnostic and display features; and Apple’s PowerBook motion sensor has been hacked to create a new type of input device, http://www.kernelthread.com/software/ams2hid/ams2hid.html. 9 See: “802.11 Homebrew WiFi Antenna Shootout,” http://www.turnpoint.net/wireless/has.html. 10 See companion case study to this paper: “Novo Nordisk: Transparency Champion.” 11 Interview with Glenn Wegryn, Associate Director, Global Analytics, Procter & Gamble, conducted by Alan Majer and Denis Hancock, March 23, 2006. 12 Carol V. Brown, Ph.D. and Iris Vessey, Ph.D., “NIBCO’s Big Bang,” 2000. 13 Interview with Erik Degn, vice-president of IT System Management, Novo Nordisk, conducted by Erin Lemon and Alan Majer, March 20, 2006. 14 http://www.encycogov.com/B11ResearchTraditions/TCE/ Stat_Growing_Imp_Of_TCE.asp. 15 See Don Tapscott and David Ticoll, The Naked Corporation: How the Age of Transparency Will Revolutionize Business, 2003, p. 105. 16 Stewart McKie, “Collaborate to Innovate,” Intelligent Enterprise, March 2004. 17 Erick Schonfeld, “The Master of Gadgets,” Business 2.0, November 1, 2005, interview with Jong-Young Yun, CEO, © 2006 New Paradigm Learning Corporation

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