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![4 INSIGNIAM QUARTERLY | Summer 2015
hen Democratic members of the U.S. House of
Representatives staged a sit-in in June on the House floor
in an attempt to force legislative action on gun control,
they not only made political history, they also made live-
streaming history. As House Republicans realized what the
group was up to, they called a recess, which automatically
cut the video feed broadcasting around the world via
C-SPAN. In response, legislators took to Periscope and
Facebook Live to live-stream the sit-in themselves.
“It was an unprecedented, milestone moment,” C-SPAN
Communications Director Howard Mortman told Mashable.
It was also a moment that exemplified the brave new world of news that
live-streaming is helping to create—one that challenges the dominance of
traditional media companies. Facebook’s more than 1.5 billion users are
effectively all citizen journalists. Former CNN President Jonathan Klein told
The New York Times, “[T]hey’re capable of doing things that a cable news
network could only dream of doing.”
Mr. Klein’s point was tragically epitomized in July when Diamond
Reynolds live-streamed the aftermath of the fatal shooting of her boyfriend
by a police officer in Minnesota. The video was viewed 5.7 million times from
her Facebook page, uploaded to YouTube and broadcast by television outlets
around the world.
Facebook is welcoming this new era with a key shift in its approach to
content. As USA Today reported, “In the beginning on Facebook, there was
text. Then images spread throughout the News Feed. Now Facebook says
video will soon consume the lion’s share of attention of its 1.7 billion users.
And it’s making aggressive moves to get people to make and view more
video, whether from friends and family or from professionals.”
Facebook has even indicated interest in jumping into the TV network
game by obtaining exclusive streaming rights from ABC and NBC for sporting
and political events. The goal is to tap into television advertising budgets,
which are larger than typical digital and social ad budgets.
It is a move that CEO Mark Zuckerberg sees happening across all channels:
“We see a world that is video first, with video at the heart of all of our apps
and services.”
W
THE
TICKER
LIVE-STREAMING’S
TIPPINGPOINT
“We see a
world that is
video first,
with video
at the heart
of all of our
apps and
services.”
— Mark Zuckerberg,
CEO, Facebook](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-6-320.jpg)
![quarterly.insigniam.com | INSIGNIAM QUARTERLY 7
INDIA’S
POWERSURGE
When the World Health Organization released
its 2016 list of the world’s most polluted cities,
four of the top seven (and 22 of the top 50)
were in India. It was not all that surprising, but
India is now striving for a much cleaner future
by turning to solar power.
In 2015, Prime Minister Narendra Modi
announced the government’s goal of
upping India’s solar energy capacity from
the previous target of 20 gigawatts (GW) to
100GW by 2022. Since 2014, the country has
already made strides by more than doubling
its solar energy capacity and increasing its
renewable capacity target to 175GW with the
help of other renewable sources, according to
The Economic Times.
While there are still major challenges ahead
for India, including dealing with an outdated
power grid, the dropping cost of solar power
production will surely help the country pivot
away from energy sources like coal, which
contribute to air pollution. According to
the Bloomberg New Energy Outlook 2016, solar
and wind will become the cheapest ways of
producing electricity in many countries during
the 2020s and in most of the world by the
2030s. The report also estimates that the cost
of solar photovoltaic cells will fall 60 percent
globally by 2040, accounting for 29 percent of
India’s new power capacity.
In June, the nation’s efforts received a buoy
of more than $1 billion from the World Bank
Group. “India’s plans to virtually triple the
share of renewable energy by 2030 will both
transform the country’s energy supply and
have far-reaching global implications in the
fight against climate change,” World Bank
President Jim Yong Kim said in a release.
AUGMENTED REALITY TAKES OFF
Pokémon GO took the world by storm this
year—delighting and annoying millions. But
even if you are not a fan of the gaming app,
you should be paying attention. While the
game is just another reason for our tech-ad-
dicted world to be glued to smartphones, it
has also introduced the masses to aug-
mented reality (AR) and is a harbinger of an
industry on the rise.
Microsoft CEO Satya Nadella told CNBC
the craze could be good for his company
as it prepares to roll out the HoloLens AR
headset. “I think it’s fantastic to see these
augmented reality applications getting built,
because the best thing that can happen
when you’re creating a new category is for
applications that
are these killer
apps, whether it
be game or in the
industrial scenario,
to get invested in,”
he said.
Pokémon GO
is “creating a lust
for [augmented
reality] that hasn’t
existed outside some niches in the U.S.,”
Ryan Pamplin, vice president of sales and
partnerships at AR startup Meta Co., told
The Wall Street Journal. In the same article,
Mike Rothenberg of Rothenberg Ventures
compared it to the
large wave of virtual
reality investments af-
ter Facebook acquired
Oculus VR in 2014.
But even if the suc-
cess of Pokémon GO
did not signal the start
of something big for
AR, Apple’s surprise
recent announcement
surely did. During a quarterly earnings call,
CEO Tim Cook revealed the company is “high
on AR for the long run,” adding, “[W]e think
there’s great things for customers and a
great commercial opportunity.”
Since 2014,
India has
more than
doubled its
solar energy
capacity.](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-9-320.jpg)
![quarterly.insigniam.com | INSIGNIAM QUARTERLY 13
“[C]ustomers
are expecting
things now,
which earlier they
did not expect.
It is for banks to
respond to those
customer needs
in the innovative,
disruptive
manner;
otherwise, they
are not going to
exist.”
—Chanda Kochhar,
CEO of ICICI Bank
Disrupted: My Misadventure in the Start-Up
Bubble by Dan Lyons. Hachette Books, 2016.
This nonfiction account made major waves
when—and even before—it was released in
April. If you have yet to read it, make the
time. Fifty-something author Dan Lyons
goes into often-painful detail about his year
as a marketing fellow at Massachusetts-
based startup HubSpot. In his author’s
note, Mr. Lyons says he wrote the book “to
provide a more realistic look at life inside a
‘unicorn’ startup and to puncture the popular
mythology about heroic entrepreneurs.” He
goes on to label HubSpot’s leadership “a pack
of sales and marketing charlatans who spun
a good story about magical transformational
technology and got rich by selling shares in a
company that still has never turned a profit.”
Mr. Lyons does not mince words. But while
Disrupted may sound like a scorned ex-employee
looking to air dirty laundry, Mr. Lyons also
delves into some deeper topics like corporate
surveillance, writing, “If your plumber or pool
installer or local appliance store uses HubSpot
software, HubSpot may be holding information
about you, without you even knowing it. We
figure we’re safe when we use online services.
We figure we can trust the people that run them
not to snoop on us. I used to believe that. I don’t
anymore.”
“We’re going
to disrupt
ourselves,
and we are
disrupting
ourselves, so
we’re not trying
to preserve
a model of
yesterday.”
—Mary T. Barra,
CEO of General
Motors
“[Disruptors]
are what
psychologists call
disagreeable—
they do not
require the
approval of their
peers in order
to do what they
think is correct.”
—Malcolm Gladwell,
author of The Tipping
Point and Blink
“Oracle has grown and
advanced because
we’ve been consistently
willing to cannibalize
ourselves. We will be
unrecognizable five or
10 years from now, just
like no one would have
believed when Oracle
went public in 1986
that it would be the
company it is today.”
—Safra Catz, CEO of Oracle](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-15-320.jpg)
![quarterly.insigniam.com | INSIGNIAM QUARTERLY 19
“A manager manages for
the moment. But as a leader,
you’re leading from one place
to another. You can easily get
overwhelmed by managerial,
short-term necessities, but
if you get consumed by that,
you don’t invest enough time
in future viability.”
—Steven Parker
the procedures and then told their teams to
abide by them. “Then we would be scratching
our heads for years afterward wondering why
people were not fully adopting the change,”
he says. Instead, the supervisors solicited
their teams’ opinions on the existing system’s
strengths and weaknesses.
“You have to bring all the ideas to the table
and say, ‘Here’s a better way of working,’ and
then listen to people’s reactions so that they
buy into the change,” he says. “If you don’t
do that change management, you get passive
resistance.”
While such a project typically would
have taken only a couple of months, the
new permit-to-work system took almost
a full year to create. “During this process,
Mr. Parker and his leadership team listened
to input on and suggested modifications to
the permit system. Including the employees
in this process made the difference,” Mr.
Durand says.
Mr. Parker adds, “It might take longer to
deploy it the right way, but you get all that
back by not getting pushback for years to
come. People got behind the change—and
that’s been a common theme throughout the
[entire refinery].”
CONTINUOUS IMPROVEMENT
While driving Burnaby’s transformation,
Mr. Parker knew he also had to manage
expectations about how much could be
achieved—and how quickly. “If I went out and
said, ‘Here are the gap areas, and we’re going
to fix them in one or two years,’ everyone
would be disappointed,” he says. Instead, he
let his employees know that change would be
an evergreen, continuous process.
“Now people say things are getting better.
Is it perfect? No. But it’s on an upward trend,
rather than downward,” Mr. Parker says.
“That’s a critical change.”
It is a measurable change, too: From 2012
to 2015, Burnaby’s employee workplace
satisfaction shot up 31 points—from 57
percent to 88 percent.
And as Mr. Parker had predicted, improved
engagement led to improved performance.
Each year, Chevron refineries’ balanced
scorecards indicate performance in areas
such as safety, reliability, profitability and cost
management. A score of 1,000 indicates that a
plant has outperformed comparable Chevron
plants. Over the past decade, Burnaby’s
scorecard came in as low as 300. But in 2014, a
year into Mr. Parker’s tenure, Burnaby scored
just over 1,000. In 2015, the plant scored
1,210—its highest grade ever.
“For the first time in the history of the
plant, we have had two consecutive years of
winning performance,” he says. What makes
that feat even more impressive is that the
criteria get tougher as the facility gets better.
The higher a facility’s score, the harder it is
to maintain.
“People like to be on a winning team,” Mr.
Parker says, “but a true winning team doesn’t
just win once—it puts together back-to-back,
consecutive years of performance.” IQ](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-21-320.jpg)
![quarterly.insigniam.com | INSIGNIAM QUARTERLY 21
“The tendency
of good
management is
to explain away
events that
are occurring.
Boards can be
an effective
counterweight to
that. ”
—Ray Gilmartin,
member of the board,
National Association of
Corporate Directors
Borders’ story is not unique. Many in-
cumbents fail to realize that change is taking
place, according to Ray Gilmartin, former
chair, CEO and president of Merck & Co.
and a former director for both Microsoft and
General Mills. He argues the board, however,
is uniquely positioned to spot those unfore-
seen and slow-growing threats and act in the
face of that change. “Boards have no real
emotional commitment to the current direc-
tion of the firm. They are in a position to be
more objective about what is happening. The
tendency of good management is to explain
away events that are occurring. Boards can be
an effective counterweight to that. Through
their objectivity they can explore [disruptive
innovation] a little differently.”
BEYOND ‘REVIEW AND CONCUR’
In the five years since Borders went under,
the boardroom has changed. Disruption
is now a ubiquitous term, and boards are
putting more time and focus on strategy.
According to KPMG’s September 2015 Global
Boardroom Insights, 53 percent of directors say
their board’s involvement in the formulation
and consideration of strategic alternatives has
increased in the past two to three years. And
24 percent say boards are spending more time
testing the ongoing validity of the fundamen-
tal assumptions that help to form strategy.
Mr. Gilmartin, who is now a member of
the board for the National Association of
Corporate Directors, adds that most boards
are moving away from a “review and concur”
approach, toward one in which strategy dis-
cussions are a continual process throughout
the year. This provides more opportunity
for boards to discuss and advise on potential
threats.
But first directors must be able to recog-
nize disruption—and that means understand-
ing what it is, and what it is not. It is tempting
to label any business variable or unforeseen
market upset as a disruption, which is why
Mr. Gilmartin recommends boards create a
framework from which to view challenges.
Being on the same page in identifying these
forces is the first step to being in sync when
the board and management team address
them, he says.
The biggest disruptions can stem from](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-23-320.jpg)
![quarterly.insigniam.com | INSIGNIAM QUARTERLY 27
zation to meet the needs of millions of people
in the future.”
For Kaiser Permanente, that means noth-
ing short of a revolution in traditional doctor-
patient dynamic.
“The entire health care industry was built
on the idea of people coming to our space for
care,” he says. “Whether that’s a medical of-
fice, a hospital or a pharmacy, we’ve designed
the health system for people to come in to us
for their health needs. For the future, what
we have to do is push care out to where the
patient or member is. That’s our reimagined
idea—care anywhere. What we’re trying to do
now—what we will do—is turn this industry
upside down.”
Affordability Above All
No matter how forward-thinking the vision,
Mr. Tyson will not get very far without mak-
ing cost control priority No. 1. Nearly 58 per-
cent of U.S. consumers surveyed said rising
health insurance rates add financial strain to
them or their family, according to a May 2016
TransUnion survey. And three in four are ex-
tremely or somewhat concerned about in-
creased costs from health insurers’ 2017 rate
proposals.
“Affordability is the single biggest issue
in the industry today,” Mr. Tyson says. “The
work we have in front of us in the industry is
to build a more affordable system that covers
and cares for the American people.”
Kaiser Permanente’s integrated system—
which includes a network of providers, hos-
pitals and insurers—gives it a jump-start
on controlling costs, Mr. Tyson says. Most
of the industry works off an input model,
where money flows to health care compa-
nies when patients do things like visit the
doctor, take tests or buy prescription drugs.
Providers in that case are incentivized to
maximize those inputs so as to maximize
revenue. Meanwhile, insurers, which typical-
ly hold the “first dollars” from patients, are
incentivized to limit inputs to limit expenses.
But because Kaiser Permanente is respon-
sible for the entire health care dollar and has
a say in where it goes, Mr. Tyson and his lead-
ership team are free to do things differently.
For instance, they can reward doctors and
nurses and other caregivers through year-end
bonuses tied to improving clinical outcomes
for patients.
“[Trying new things] is part of who we are,”
he says. “It goes back to the day when [found-
ers] Henry Kaiser and Sidney Garfield didn’t
want to build this organization with the mind-
set of a sick care system when what people re-
ally want to do is live healthy, happy, productive
lives. Today the question is, how do we build
that kind of system while serving as a model for
the entire health care industry by dealing with
the issue of affordability?”
Mr. Tyson fires off a one-word answer:
“Innovation.”
“We have an internal saying here,” he says.
“We say, ‘We want to be the best at getting
better.’ That calls for a disciplined approach of
improvement that is continuous. It’s not about
looking for a silver bullet. It’s not about look-
ing for a big bang.”
Tech as a Tool
Much of Kaiser’s continuous improvement in
health care affordability ties back to its strate-
gic use of technology. The organization em-
ploys nearly 200,000 people, with about 6,000
in IT, and focuses each year either on tech
upgrades or entirely new systems. (It spent
a whopping $4 billion alone to implement
“Kaiser Permanente HealthConnect,” a com-
prehensive health information system that
gives doctors and patients access to electronic
“What we’re
trying to do
now—what we
will do—is turn
this industry
upside down.”
—Bernard J. Tyson,
chairman and CEO,
Kaiser Permanente
AnnualhealthspendingintheUnitedStatesisprojected
tojumpanaverageof5.8 percentthrough2025.](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-29-320.jpg)
![quarterly.insigniam.com | INSIGNIAM QUARTERLY 51
experience was Intel. I had the great privi-
lege of serving on the board of Intel Corp.
under the chairmanship of Gordon Moore
when Andy Grove was the CEO. That com-
pany moved from memory into micropro-
cessors when leadership saw a disruption
coming, and it got there before anybody
else. It was absolutely amazing. It is one of
the great examples of realizing what was
happening in the marketplace and creating
the disruption for the future.
IQ: Are there any companies that you think
are great examples of doing it wrong?
JB: No, I’ve never met anybody who does it to-
tally wrong. The major disruptions at the mo-
ment are based in both the sharing economy
and the virtual economy. Those disruptors are
reaping both the reward and the consequenc-
es of it. The reward is growth; people want
to have that flexibility. The consequences are
a great rumbling of the regulators, like we’ve
seen with Uber (see “When a Disruptor Meets
Regulators,” at left).
It’s important for the companies to tend to
all these things because you never know. If you
bury a volcano, it may just blow up one day.
So while these organizations are certainly dis-
rupting and doing it pretty well, there’s a lot
of unattended business. Of course, as they’re
disrupting, every disruptor creates an opportu-
nity to be disrupted themselves.
IQ: What advice do you have for CEOs
about identifying and dealing with
disruptions that are on the horizon?
JB: I would say that the most important thing
is to recognize that every single industry is dis-
rupted at one time in its life. The best thing
is to surround yourself with people who don’t
think like you, and get out of the bubble that
inevitably is created around you. IQ
ple. That’s unstoppable. In my whole business
career going back to the ’60s, that’s been an
impact. It just gets faster and faster and faster.
We have to think through, “Where does the
disruption take us, and what do we want to
do? What are we building today to meet that
need? Can we maintain flexibility?” Flexibility
costs money, but it actually costs less than to-
tally restructuring after you build something
that is wrong for the future.
In the case of oil and gas, for example, I
think people do have to think about the fol-
lowing: If we are to burn oil and gas, we need
to do something to limit the amount of car-
bon dioxide that goes into the atmosphere.
Can we capture it? Can we use it? Can we
store it? It’s the same with methane, natural
gas. You can’t let natural gas go into the at-
mosphere. It’s much more damaging in terms
of impact on climate change than CO2. You’ve
got to keep it tightly stored even in transporta-
tion. Do we have the right technology? Do we
have the right monitoring?
Third, what else do we do with all these
[disruptors and skills]? What other business
should we be in? For example, if you’re in oil
and gas, should you create a business strategy
to produce electricity from renewables?
Finally, specifically for oil and gas, you real-
ly have to think very carefully about how to at-
tract great people into an industry that many
young people view as substandard. That, I
think, is a very important challenge. Young
people want to go to startups. They want to
go to a bunch of other places in Silicon Valley
or Silicon Roundabout in London and create a
startup, create an app, do something different
for the future.
IQ: Can you give an example of a company
that handles disruption well?
JB: The very best example in my personal
Sometimes quintessential
disruptors find
themselves on the
defensive. Take Uber,
which is seeing regulators
ban or partially ban
its service in countries
around the world. While it
is unlikely the company’s
rapid growth can be
easily slowed, it has
undoubtedly hit a few
speed bumps. Lord John
Browne says Uber needs
to tread carefully.
“It is this real question
about how to engage
with regulators,” he says.
“When do you actually
reject what they say and
contest it? When do you
cooperate? When do
you concede? When do
you work with them to
change regulation in a
transparent way?”
“I’m not trying to
buy the regulator
cooperative,” he
continues. “I think
it’s a very important
consideration that all
industries should think
about. Every industry
has regulations that
ensure fair play between
the people who are
competing or has set
standards for the safety
of the general public. I
think those choices by
CEOs are very critical.”
When a
Disruptor
Meets
Regulators](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-53-320.jpg)
![54 INSIGNIAM QUARTERLY | Fall 2016
seeks out entrepreneurial employees who
are not afraid to constantly suggest what
they could do better—and then to do it. “It’s
all about empowerment,” Ms. Tans says.
Booking.com has a relatively flat hierarchy
of self-steering teams expected to make their
own decisions. “We try to put decision-mak-
ing as low as possible in the organization so
we can move quickly,” she says. “If you have
to go all the way to the top to approve every
decision, it slows everything down.”
This decentralized approach can lead to
failures, but Ms. Tans sees that as essential to
what Booking.com does as a tech company.
“The quickest way to innovate successfully is
to make lots of little mistakes on your way
to getting it right,” she says. “If you’re afraid
of failure or getting it wrong, you’ll never
truly innovate or disrupt the market. You’ll
never test out those crazy, off-the-wall ideas
that may actually be genius and make your
product better for your customers. We cel-
ebrate failure at Booking.com because it’s a
moment for us all to learn.”
This empowered culture also helps recruit
tech professionals, who can be notoriously
difficult to attract in the current war for IT
talent. “It helps that we aren’t based in Sili-
con Valley, where everyone is fighting for the
same people,” Ms. Tans says. The compa-
ny’s chief technology officer says he spends
roughly 30 percent of his time on recruiting
efforts to be sure the company can find and
keep the best people.
Booking.com’s global recruiting efforts
have resulted in a workplace with more than
85 nationalities at the Amsterdam headquar-
ters alone. “Our diverse and international
workforce is representative of our business,”
Ms. Tans says. The company has also invested
in having local talent on the ground to build
partnerships with accommodation providers.
Booking.com began in the Netherlands in
1996, offering online accommodation booking
to Dutch travelers. When CEO Gillian Tans
joined the company as COO in 2002, it had
just a handful of employees—mostly software
engineers—and about 300 customers, mostly
in Holland. But from the start, Booking.com
took a different approach than most of the
booking websites of the day (or even of
today) by adopting an agency (pay at the
property) model of service instead of the
merchant (pay upon booking) model.
According to travel news and information
site Skift, “Using a Booking.com extranet,
hotels could set their own rates and room
allocations, and collect payment from guests
at the property. Commissions to Booking.com
started at 12 percent instead of the 25 per-
cent to 30 percent margins given to the other
[online travel agencies] and having to wait
months to collect on prepaid bookings.”
This helped the company skip cumber-
some negotiations between properties,
which, according to Skift, often led to
disagreements and lengthy discussions over
issues such as brand standards, rate parity,
search results display and room allocations.
“We’ve always been disruptive,” says Ms.
Tans, pointing to the fact that Booking.com
began online in 1996 when everyone else
was still brick and mortar. This approach
is what ultimately made it an attractive
acquisition for the Priceline Group. In 2005,
the company was acquired for $135 million by
the U.S.-based organization. Today, Booking.
com is the largest accommodation booking
site in the world and Priceline’s biggest brand
by far. In fact, the acquisition of Booking.
com is largely credited for Priceline’s current
success—its profits grew from $10 million
in 2003 to $9.2 billion by 2015. Boasting
relationships with more than 970,000
properties, Booking.com books almost twice
as many rooms per night as its next biggest
competitor, Expedia.
A History of
Disruption
“We try to
put decision-
making as low
as possible in
the organization
so we can move
quickly. If you
have to go all
the way to the
top to approve
every decision,
it slows
everything
down.”
—Gillian Tans](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-56-320.jpg)
![60 INSIGNIAM QUARTERLY | Fall 2016
It is a transformation Mr. Gupta sees as too
big to fail. “You have to have the consummate
belief that if you don’t do something, you’re
going to die.”
Spreading the Joy
DBS’ current mission is to make banking joyful.
At the heart of the seemingly Disney-esque
goal is a stat Mr. Gupta often references: Nearly
three-fourths of millennials would rather go to
the dentist than listen to what banks are saying.
“That’s a terrible place to start,” he says. “But
if we can figure out a way to make banking
joyful and DBS a joy to be with, then we can
competitively position ourselves in a very
different way from anybody else.”
Living up to that mission means changing
the DBS culture into one that makes every
decision based on what is best for the customer.
“When people compare us to the startups
or even the Googles or Apples, it really boils
down to, ‘You’re conservative, you’re fuddy-
duddies, you’re old-fashioned and you’re
inward-looking.’ So how do you change the
culture to be more like Google and Facebook?”
DBS started by implementing a process-
improvement agenda, its own version of the
five-day GE Work-Out framework through
which groups gather to discuss specific
process improvements. In doing so, DBS
landed on the notion of customer journeys.
By mapping customer needs, desires
and context, DBS would create a better
experience. Mr. Gupta says the approach
“galvanized” the company.
“Our people found a very easy rubric for
[when to innovate and suggest change]. It was
simple: If it made sense for the customer, it’s
probably okay to try and do it,” he says.
Today, DBS has an executive director
who heads all customer journey design
and development. All managing directors
DBS Balance Sheet
Headquarters: Singapore
Total Assets (2015): SGD$458 billion
Annual Income: SGD$10.8 billion
Branches: 280+
Institutional Banking Customers: 200,000+
Customers: 6 million+
Key Markets: Singapore, Hong Kong, China,
Taiwan, India, Indonesia
Source: DBS Annual Report 2015
“Disruption assumes that some of
to come and eliminate you,
young star tup can](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-62-320.jpg)
![66 INSIGNIAM QUARTERLY | Fall 2016
proactively respond to the looming threat of cyberattacks. According
to a 2016 report by Barclays and the United Kingdom’s Institute of
Directors, 91 percent of business leaders believe cybersecurity is crucial,
but only 57 percent say they have a formal strategic framework in place
to protect their organization.
“Our report shows that cyber must stop being treated as the domain
of the IT department and should be a boardroom priority,” Richard
Benham, author of the report and CEO of the United Kingdom’s
National Cyber Management Centre, said in a statement.
In fact, support and awareness from both the C-suite and the
boardroom are crucial factors when it comes to successfully impeding
security breaches. Growth of cyberattacks and breaches was reduced by
more than 50 percent in companies that had a security strategy backed
by a fully engaged C-suite and board of directors, according to a 2016
report by The Economist Intelligence Unit.
“It’s difficult to obtain funding for essential systems and training
if you don’t have the support and buy-in of the C-suite and the board
of directors,” Mr. Goldfarb says. Adds Mr. Samani: “It’s impossible to
There is no panacea for all cyber-
security threats—and that means
companies must be willing to try
innovative approaches to battle
unseen digital foes. One such
approach on the rise is bug bounty
programs, in which organizations
pay white-hat hackers to identify
weaknesses in their cybersecurity
systems.
Standard-fare tech companies
such as Yahoo, Google, Facebook,
Mozilla/Firefox and Microsoft have
well-established bug bounty pro-
grams. Collectively they have paid
out more than $13 million in fees to
hackers for finding vulnerabilities.
Over the past couple of years,
however, new players and non-
tech giants—including Deutsche
Telekom, Samsung, Tesla, Star-
bucks, General Motors, the U.S.
Department of Defense and Spo-
tify—have been getting into the
game. According to crowdsource
cybersecurity agency Bugcrowd’s
State of Bug Bounty 2016
report, “Overall, organizations
from more ‘traditional’ indus-
tries have seen year-over-year
growth [in bounty programs]
of over 217 percent on average,
including financial services and
banking, automotive, health care,
education, telecommunications,
hospitality, real estate, utilities
and consumer goods.”
In August, Apple said it would
pay rewards of up to $200,000
to researchers who find critical
security bugs in its products.
And earlier this year, Uber
announced it was launching a
bounty program, offering fees of
as much as $10,000 for critical
issues. The ride-sharing company
also provides the hackers with a
“treasure map” that clues them
in to some of the more vulnerable
components of the system.
“Uber’s in 70 countries around
the world now, so a one-size-fits-
all model is definitely never going
to work for us,” Samantha Davison,
manager of security awareness at
the company, said at this year’s
Infosecurity Europe conference.
Yet despite the apparent surge
in bug bounty interest, Bugworld’s
report found that 94 percent of
companies on the Forbes 2000
have yet to launch a vulnerability
disclosure or bug bounty program.
Cyber Pest Control](https://image.slidesharecdn.com/insigniamquarterlydisruption-160921181321/85/Insigniam-Quarterly-Fall-2016-Disruption-68-320.jpg)
Insigniam Quarterly Fall 2016 — Disruption
The document provides an overview of the consulting firm Insigniam and discusses topics related to disruption and transformational leadership. Specifically, it introduces Insigniam as a firm that helps large organizations generate breakthroughs through innovation consulting. It also previews several articles in the issue that discuss how leaders at companies like Kaiser Permanente, DBS Bank, and BP have navigated disruption by embracing innovation and transforming their organizations. Additionally, it highlights Insigniam's services and solutions for strategic transformation and growth.
More Related Content
Similar to Insigniam Quarterly Fall 2016 — Disruption
Insigniam Quarterly Fall 2016 — Disruption
- 1. TRANSFORMING THE PRACTICEOF MANAGEMENT AND LEADERSHIP Volume 4 Issue 4 | Fall 2016 | quarterly.insigniam.com ANDKAISERPERMANENTECEOBERNARDJ.TYSON ISMEETINGITHEADONPAGE24 DISRUPTION ISHERE STRATEGICFRONTIERS: CREATENEWMARKETS ANDANEWWORLDOF CUSTOMERS PAGE36 FORMERBPCEO LORDJOHNBROWNE ONANTICIPATING DISRUPTORS PAGE46 DBSBANK’SPIYUSH GUPTAPREPARESFOR ANEWFINANCIAL SERVICESLANDSCAPE PAGE56
- 2. “Disruptive leadership is redundant.The essential practice of leadership is disruptive, especially in today’s business environment, where leaders must often reject the status quo and set forth a transformative new trajectory.” —SHIDEH SEDGH BINA AND NATHAN OWEN ROSENBERG SR., FOUNDING PARTNERS, INSIGNIAM Over 30 years ago, Insigniam pioneered the field of organizational transformation. Today, executives in large, complex organizations use Insigniam’s consulting services to generate breakthroughs in their critical business results. Insigniam’s innovation consulting enables enterprises to identify and cross into new strategic frontiers to rapidly generate new income streams. Insigniam provides executives of the world’s largest companies with management consulting services and solutions that are unparalleled in their potency to quickly deliver on strategic imperatives and boost dramatic growth. Insigniam solutions include Enterprise Transformation, Strategy Innovation and Innovation Projects, Breakthrough Projects, Transformational Leadership and Managing Change. Offices are located in Philadelphia, Laguna Beach, London, Paris and Hong Kong. For more information, please visit www.insigniam.com.
- 3. quarterly.insigniam.com | INSIGNIAMQUARTERLY 1 Shideh Sedgh Bina Founding Partner, Insigniam EDITOR IN CHIEF Shideh Sedgh Bina sbina@insigniam.com EXECUTIVE DIRECTOR Nathan Owen Rosenberg Sr. nrosenberg@insigniam.com CHIEF FINANCIAL OFFICER Jeff Mullican jmullican@insigniam.com MANAGING DIRECTOR OF INSIGNIAM QUARTERLY Alexes Fath afath@insigniam.com PUBLISHER James Meyers jmeyers@imaginepub.com EXECUTIVE VICE PRESIDENT & CHIEF CONTENT OFFICER Kim Caviness EXECUTIVE VICE PRESIDENT, DESIGN Douglas Kelly VP, EDITORIAL DIRECTOR Cyndee Miller EXECUTIVE EDITORS Jeremy Gantz Kelley Hunsberger EDITORS Becky Maughan Julie Ortega SENIOR ART DIRECTOR Hugo Espinoza CONTRIBUTING WRITERS Jonathan Ball, Stacey Closser, Sarah Fister Gale, Samuel Greengard, Joseph Guinto, Novid Parsi, Rebecca Rolfes Insigniam Quarterly is a thought leadership publication committed to transforming the world of business by offering content relevant to the C-suite and their executive teams at large, complex, global enterprises. Insigniam Quarterly is published by Imagination, 600 W. Fulton St., Suite 600, Chicago, IL 60661, (312) 887-1000, www.imaginepub.com. No part of this publication may be reproduced in any form or by any means without prior written permission of the publisher and Insigniam. Printed in the U.S.A. Magazine patents pending. For subscriptions, please visit quarterly.insigniam.com. Insigniamanditspublisher,Imagination,distributethis editorialmagazinetosharetheopinionsandinsights of companiesandtheirleadersonimpactfulglobalbusiness issues. InsigniamQuarterly’sinclusionofacompany or individualdoesnotindicatethattheyareaclientof Insigniam.Remunerationisnotprovidedforeditorial coverage.IndividualsappearinginInsigniamQuarterly havedonesowithdirectconsent,orprovidedconsentbya designatedauthorizedagentinadditiontobeingdisclosed onthemagazine’saudienceandpurpose.TheINSIGNIAM QUARTERLYmarkisaregisteredtrademarkintheUnited States, EuropeanUnion,andotherforeigncountries. LETTER FROM THE EDITOR Disruptors loom on the horizon, threatening to upend more industries every month. No incumbent company is safe: From banking and retail to automotive and insurance, the cost of complacency keeps growing. If you are tired of all the disruption talk, I understand. But chief executives have good reason to be wary of external threats, and it is understandably keeping many awake at night. According to a recent global C-suite survey by IBM, the rise of an unlikely competitor outside of their industry was the biggest concern for executives, with 54 percent expecting to deal with this type of competition. In face- to-face interviews conducted for the survey, many C-suite occupants revealed that encountering their own “Uber moment” was their biggest fear. Fear is the wrong way to view disruption, however. Yes, it breaks down the stalwarts and destroys the status quo. But it also ushers in new innovations that can transform a product, a business, a consumer base or an industry. Companies that embrace innovation have the opportunity to win big. In fact, the best leaders know they have to be agile—standing still is not an option. Ford, for example, recently launched a spinoff venture to explore its biggest existential threats: autonomous cars, electric vehicles and mobility. CEO Mark Fields declared to The Verge, “Our approach is to first disrupt ourselves.” And Lockheed Martin recently announced it would be investing in the development of hypersonic planes, which can go from six times the speed of sound to more than 20. “The technology could also enable hypersonic passenger flights, and even easier access to space,” CEO Marillyn Hewson said. “Now is the right time. We know we must continue to disrupt ourselves before our competitors do.” In the face of fast-paced change, these leaders realize the only way to thrive (and in some instances, survive) is to embrace the opportunity of disruption. The alternative is to merely react to change—which is a recipe for failure. Piyush Gupta, CEO of DBS Bank, recognized this, and refocused his organization’s culture on the customer in time to survive. Likewise, former BP CEO Lord John Browne chose to ride the wave of climate change, committing to reducing carbon emissions against the tide of popular industry opinion. In the end, transformative leaders must be willing to stand for something that has not yet been tried or proven. They must put fear aside to create their own future. So as game changers come your way, I encourage you to face them head on. You may be surprised by what you can achieve. DONOTFEARTHE DISRUPTOR—EMBRACEIT
- 4. GAMECHANGERS EVOLVEORDIE DBS Bank knewembracing digital was the only way to thrive in the new world of banking. By Kelley Hunsberger THESTATEOFCYBERATTACKS To protect company systems and data, executives need to be proactively innovative. By Samuel Greengard BEWARETHEDIGITALTRAP “Going digital” may be a step in the right direction, but it is not an enterprise transformation. By Guillaume Pajeot Contents COVERSTORY AHEALTHYDOSEOFCHANGE Innovation is at the center of Kaiser Permanente CEO Bernard J. Tyson’s mission to turn the health care industry upside down. By Joseph Guinto 10DISRUPTIVEFORCESIN HEALTHCARE To achieve continued growth in a changing marketplace, health care leaders will need to address these factors head on. By Shideh Sedgh Bina OIL’SBIGCHANGE Major industry shifts will force oil companies to completely rethink their operating models. By Don Durand and Daniel Shapiro YOURPATHTOTHEFUTURE Executives who explore and align with their organizations’ strategic frontiers will have a significant competitive advantage. By Jon Kleinman and Robert E. Johnston STILLONTOP CEO Gillian Tans shares Booking.com’s secrets to deflecting threats. By Sarah Fister Gale 24 32 36 42 52 56 62 70 FEATURES FALL 2016
- 5. “Flexibility costs money,but it actually costs less than totally restructuring when you build something that is wrong for the future.” —Lord John Browne, former CEO, BP On the Cover Bernard J. Tyson, CEO of Kaiser Permanente, Oakland, California Photo by Winni Wintermeyer Q&A:GETOUTOFYOURCOMPANY’SBUBBLEPAGE46 04 THETICKER News and trends affecting the C-suite 08 NUMBERS Disruption by the numbers 12 BROWSERHISTORY Reviews on books, websites, videos and more 76 IQBOOST Do you have the traits of a transformational leader? 16 BLOOD,SWEAT&TEARS After realizing his Chevron refinery was suffering from low employee engagement, Steven Parker took transformative action. 20 FROMTHEBOARDROOM Board members are in a unique position to identify and navigate impending disruption. 72 PERSPECTIVES When new players transform an entire product category, incumbents should think ‘slow and steady.’ DEPARTMENTS INSIGHT PHOTOBYJONENOCH
- 6. 4 INSIGNIAM QUARTERLY| Summer 2015 hen Democratic members of the U.S. House of Representatives staged a sit-in in June on the House floor in an attempt to force legislative action on gun control, they not only made political history, they also made live- streaming history. As House Republicans realized what the group was up to, they called a recess, which automatically cut the video feed broadcasting around the world via C-SPAN. In response, legislators took to Periscope and Facebook Live to live-stream the sit-in themselves. “It was an unprecedented, milestone moment,” C-SPAN Communications Director Howard Mortman told Mashable. It was also a moment that exemplified the brave new world of news that live-streaming is helping to create—one that challenges the dominance of traditional media companies. Facebook’s more than 1.5 billion users are effectively all citizen journalists. Former CNN President Jonathan Klein told The New York Times, “[T]hey’re capable of doing things that a cable news network could only dream of doing.” Mr. Klein’s point was tragically epitomized in July when Diamond Reynolds live-streamed the aftermath of the fatal shooting of her boyfriend by a police officer in Minnesota. The video was viewed 5.7 million times from her Facebook page, uploaded to YouTube and broadcast by television outlets around the world. Facebook is welcoming this new era with a key shift in its approach to content. As USA Today reported, “In the beginning on Facebook, there was text. Then images spread throughout the News Feed. Now Facebook says video will soon consume the lion’s share of attention of its 1.7 billion users. And it’s making aggressive moves to get people to make and view more video, whether from friends and family or from professionals.” Facebook has even indicated interest in jumping into the TV network game by obtaining exclusive streaming rights from ABC and NBC for sporting and political events. The goal is to tap into television advertising budgets, which are larger than typical digital and social ad budgets. It is a move that CEO Mark Zuckerberg sees happening across all channels: “We see a world that is video first, with video at the heart of all of our apps and services.” W THE TICKER LIVE-STREAMING’S TIPPINGPOINT “We see a world that is video first, with video at the heart of all of our apps and services.” — Mark Zuckerberg, CEO, Facebook
- 7. insigniamquarterly.com | INSIGNIAMQUARTERLY 5 50 MILLIONUsers who have downloaded Chinese live-streaming app Ingkee 120 MILLIONMonthly active users on Chinese live-streaming app Douyu 200 MILLION+Broadcasts that have streamed across Periscope’s 10 million accounts LIVE-STREAMING BY THE NUMBERS Sources: Periscope, The Wall Street Journal, Variety, Adweek 110 YEARSworth of live video watched every day on Periscope
- 8. 6 INSIGNIAM QUARTERLY| Fall 2016 THE TICKER It is 7 a.m. on a Monday and your work commute is about to begin. But instead of bracing yourself for a morning of white- knuckle traffic, you open an app and order two driverless cars. The first will take you to work. During the hands-free drive, you will have time to catch up on emails, prepare for your first meeting of the day or read the latest news. The second car will take your children to school. And later, you can order the same service to chauffeur them to various after-school activities. This vision of the future has many tech companies jumping in to compete with automotive giants to lead what could amount to the biggest disruption in recent history. Apple, for example, code-named its autonomous car endeavor “Project Titan,” and the Google X laboratory has already accrued more than 1.5 million test miles on roads in California, Washington, Arizona and Texas with its own driverless car technology. Some tech companies, Apple and Google included, are pairing up with automakers and transportation companies to bring together the best of both worlds. In the last year alone, partnerships in the driverless car space have been announced between BMW, Intel and Mobileye; Google and Fiat Chrysler; Apple and Didi Chuxing; Volkswagen and ride-hailing startup Gett; and Alibaba and SAIC Motor. These partnerships could ultimately usher in a dramatic shift in the standard owner- driver model. General Motors and Lyft, for example, have forged a partnership to develop an autonomous fleet of cars that, in the long term, will allow users to skip buying a car altogether and instead hail a vehicle from a pool on an as-needed basis. “We’re growing in places where we’ve been less strong historically and putting ourselves right at the forefront of this change,” Dan Ammann, president, GM, told National Public Radio. “Our view is the change is going to happen. We want to be driving it and leading it.” MAKEWAYFOR DRIVERLESS VEHICLES “We’re growing in places where we’ve been less strong historically and putting ourselves right at the forefront of this change.” —Dan Ammann, president, General Motors Google’s self- driving cars are tested in Mountain View, California.
- 9. quarterly.insigniam.com | INSIGNIAMQUARTERLY 7 INDIA’S POWERSURGE When the World Health Organization released its 2016 list of the world’s most polluted cities, four of the top seven (and 22 of the top 50) were in India. It was not all that surprising, but India is now striving for a much cleaner future by turning to solar power. In 2015, Prime Minister Narendra Modi announced the government’s goal of upping India’s solar energy capacity from the previous target of 20 gigawatts (GW) to 100GW by 2022. Since 2014, the country has already made strides by more than doubling its solar energy capacity and increasing its renewable capacity target to 175GW with the help of other renewable sources, according to The Economic Times. While there are still major challenges ahead for India, including dealing with an outdated power grid, the dropping cost of solar power production will surely help the country pivot away from energy sources like coal, which contribute to air pollution. According to the Bloomberg New Energy Outlook 2016, solar and wind will become the cheapest ways of producing electricity in many countries during the 2020s and in most of the world by the 2030s. The report also estimates that the cost of solar photovoltaic cells will fall 60 percent globally by 2040, accounting for 29 percent of India’s new power capacity. In June, the nation’s efforts received a buoy of more than $1 billion from the World Bank Group. “India’s plans to virtually triple the share of renewable energy by 2030 will both transform the country’s energy supply and have far-reaching global implications in the fight against climate change,” World Bank President Jim Yong Kim said in a release. AUGMENTED REALITY TAKES OFF Pokémon GO took the world by storm this year—delighting and annoying millions. But even if you are not a fan of the gaming app, you should be paying attention. While the game is just another reason for our tech-ad- dicted world to be glued to smartphones, it has also introduced the masses to aug- mented reality (AR) and is a harbinger of an industry on the rise. Microsoft CEO Satya Nadella told CNBC the craze could be good for his company as it prepares to roll out the HoloLens AR headset. “I think it’s fantastic to see these augmented reality applications getting built, because the best thing that can happen when you’re creating a new category is for applications that are these killer apps, whether it be game or in the industrial scenario, to get invested in,” he said. Pokémon GO is “creating a lust for [augmented reality] that hasn’t existed outside some niches in the U.S.,” Ryan Pamplin, vice president of sales and partnerships at AR startup Meta Co., told The Wall Street Journal. In the same article, Mike Rothenberg of Rothenberg Ventures compared it to the large wave of virtual reality investments af- ter Facebook acquired Oculus VR in 2014. But even if the suc- cess of Pokémon GO did not signal the start of something big for AR, Apple’s surprise recent announcement surely did. During a quarterly earnings call, CEO Tim Cook revealed the company is “high on AR for the long run,” adding, “[W]e think there’s great things for customers and a great commercial opportunity.” Since 2014, India has more than doubled its solar energy capacity.
- 10. 8 INSIGNIAM QUARTERLY| Fall 2016 DIGITAL DECISIONS incumbents in every industry will be replaced by digital disruption by 2020, according to business leaders around the world. But only a small number of companies are being proactive about these threats. RESPONDING TO CHANGE More than three-quarters of executives see disruption as constant and likely increasing. 42%Cut operating expenses 31%Improve data capture and analytics 30%Invest in talent How do executives plan to respond and adapt?* The biggest sources of potential disruption they see, in order of impact: 0 20 40 60 Regulatory and legislative complexity and increasing rules 71% Shifts in security, including an emphasis on cybersecurity 63% Instantaneous and ubiquitous data access 60% Digital/mobile- enabled workforce and consumers 58% Global access to talent and skills 49% NEARLY 1/3 are taking a “wait and see” approach, hoping to emulate successful competitors. 43% either have not acknowledged the risk of digital disruption or have not addressed it sufficiently. 45% of companies do not view digital disruption as worthy of board-level attention. ONLY 25% describe their approach to digital disruption as proactive—meaning they are “willing to disrupt themselves in order to compete.” OF THE TOP THREATS AND RESPONSESDisruptive change is accelerating across today’s business world—and many executives are just trying to keep up. *Due to rounding, numbers do not add up to 100. NUMBERS
- 11. quarterly.insigniam.com | INSIGNIAMQUARTERLY 9 The world’s fastest-growing organizations are investing in the right talent and technologies: Fastest-Growing Firms Slowest-Growing Firms More than 80%of directors of public companies surveyed say cybersecurity is discussed at almost every board meeting. THE VIEW FROM THE BOARDROOM Most directors lack confidence in their company’s ability to prevent cyberattacks. 72% Finding and hiring people with the right skills 57% Ability to leverage key technologies (cloud, mobile, analytics, etc.) 43% Ensuring the security of new products and services 34% Allocating budgets and personnel for new product initiatives 9% Developing an Internet of Things strategy 5% Other But one in ten say it is only discussed after an internal or industry incident. The major barriers directors see that prevent keeping up with security innovations: 66% Less than confident 29% Confident 4% Very confident Industry-specific technology advancements Talent with emerging technology expertise Talent with industry expertise Cloud computing Upgrading legacy enterprise systems 0 10 20 30 40 39% 29% 34% 17% 30% 18% 25% 19% 25% 34%
- 12. 10 INSIGNIAM QUARTERLY| Fall 2016 0 20 40 60 FINTECH’S FUTURE The financial services industry is ripe for disruption, according to a global survey of CFA Institute members. *Due to rounding, numbers do not add up to 100. Which sector do you think will be most affected by automated financial advice tools?* Which technology do you see as having the greatest impact on the financial services industry… Asset management Banking Securities Insurance Other None of these 2%8% 16% 1 YEAR FROM NOW? 5 YEARS FROM NOW? 37% Robo-advisers 40% Robo-advisers 30% Blockchain technology 11% Crowdfunding 2% Other 23% Marketplace/ Peer-to-peer lending 13% Marketplace/ Peer-to-peer lending 15% Crowdfunding 11% Blockchain technology 2% Other 7%12% 54% NUMBERS
- 13. quarterly.insigniam.com | INSIGNIAMQUARTERLY 11 MAKE NO LITTLE PLANS A majority of entrepreneurs see themselves as changing business as usual. A NEW KIND OF REALITY Virtual reality will likely disrupt much more than just the video game sector. How do consumers want to use virtual reality? The portion of entrepreneurs viewing themselves in these ways varies by location: Sources: Global Center for Digital Business Transformation, Digital Vortex: How Digital Disruption Is Redefining Industries, 2015; KPMG, Succeed in Constant Change, 2015; KPMG, Harnessing Disruption for Growth, 2015; NYSE Governance Services, Cybersecurity in the Boardroom, 2015; CFA Institute, Fintech Survey Report, April 2016; EY Global Job Creation Survey 2016; Futuresource Consulting, Virtual Reality—Niche or Mass Market?, 2016; BusinessWire.com. 0 10 20 30 40 Television and music Educational content SportsGamesMovies 39% 38% 26% 26%27% Global total: Percent in most disruptive category 17% Percent in most innovative category 13% 52% 13%identified as disruptors described themselves as innovators U.S. 16% 13% Germany 10% 5% Australia 21% 14% India 22% 17% Japan 5% 3% Brazil 19% 25% China 18% 12% Sub-Saharan Africa 14% 7% Middle East/North Africa 23% 5% Canada 14% 16% U.K. 22% 8% France 22% 16%
- 14. 12 INSIGNIAM QUARTERLY| Fall 2016 BROWSER HISTORY FORCESOFCHANGEA roundup of books, videos and other resources from and for the C-suite. The Third Wave: An Entrepreneur’s Vision of the Future by Steve Case. Simon & Schuster, 2016. AOL co-founder Steve Case knows a little something about the internet. In this book, inspired by Alvin Toffler’s 1984 narrative with the same name, Mr. Case lets us in on some of that knowledge, describing what he views as the three waves of technological progress. Right now, we are on the cusp of the third wave, he says, during which the internet will increasingly become seamlessly entwined with everything we do. Along with telling the remarkable story of Mr. Case’s journey from online pioneer to successful entrepreneur, The Third Wave looks back at the progress of the internet to offer a powerful outlook for technological innovation and disruption in the years to come. If you want to know and prepare for what is ahead, this is not a bad place to start. As vice president of Alibaba.com and Alibaba Group starting in 2000, Porter Erisman realized he was witnessing a revolution. At the time, Alibaba was just a startup run by a former English teacher in his apartment. Now, of course, it is one of the world’s largest e-commerce organizations. Crocodile in the Yangtze tells the story from Mr. Erisman’s point of view: how founder Jack Ma clawed his way to the top, starting as a man with a dream and ending up head of a major technology disruptor that ultimately set itself up to compete with the likes of Amazon and Baidu. Introduced at film festivals in 2012, the documentary’s story is timeless. We learn how the company bounced back from failure and navigated the tension between serving investors and customers. As an insider- outsider, Mr. Erisman refers to himself as an “American fly on a Chinese wall.” It is a unique vantage point from which to illuminate one of the greatest business successes of our time. CROCODILEIN THEYANGTZE As an insider- outsider, Mr. Erisman refers to himself as an “American fly on a Chinese wall.”
- 15. quarterly.insigniam.com | INSIGNIAMQUARTERLY 13 “[C]ustomers are expecting things now, which earlier they did not expect. It is for banks to respond to those customer needs in the innovative, disruptive manner; otherwise, they are not going to exist.” —Chanda Kochhar, CEO of ICICI Bank Disrupted: My Misadventure in the Start-Up Bubble by Dan Lyons. Hachette Books, 2016. This nonfiction account made major waves when—and even before—it was released in April. If you have yet to read it, make the time. Fifty-something author Dan Lyons goes into often-painful detail about his year as a marketing fellow at Massachusetts- based startup HubSpot. In his author’s note, Mr. Lyons says he wrote the book “to provide a more realistic look at life inside a ‘unicorn’ startup and to puncture the popular mythology about heroic entrepreneurs.” He goes on to label HubSpot’s leadership “a pack of sales and marketing charlatans who spun a good story about magical transformational technology and got rich by selling shares in a company that still has never turned a profit.” Mr. Lyons does not mince words. But while Disrupted may sound like a scorned ex-employee looking to air dirty laundry, Mr. Lyons also delves into some deeper topics like corporate surveillance, writing, “If your plumber or pool installer or local appliance store uses HubSpot software, HubSpot may be holding information about you, without you even knowing it. We figure we’re safe when we use online services. We figure we can trust the people that run them not to snoop on us. I used to believe that. I don’t anymore.” “We’re going to disrupt ourselves, and we are disrupting ourselves, so we’re not trying to preserve a model of yesterday.” —Mary T. Barra, CEO of General Motors “[Disruptors] are what psychologists call disagreeable— they do not require the approval of their peers in order to do what they think is correct.” —Malcolm Gladwell, author of The Tipping Point and Blink “Oracle has grown and advanced because we’ve been consistently willing to cannibalize ourselves. We will be unrecognizable five or 10 years from now, just like no one would have believed when Oracle went public in 1986 that it would be the company it is today.” —Safra Catz, CEO of Oracle
- 16. 14 INSIGNIAM QUARTERLY| Fall 2016 BROWSER HISTORY iPod AftertheiPodde- buted,themusicindustry (andApple)wereneverthe same.Despitemanyattempts, noothercompanycouldcome closetocompetingwith thoseiconicwhite headphones. Skype Skypespearheaded theriseofvoiceover internetprotocol(VoIP) technology,whichallowsusersto makecallsallovertheworldfor free.Notgoodnewsfortelecom companiesusedtomaking moneyonlong-distance telephonecalls. Facebook Theubiquitoussocialmedia platformtookdownMySpaceand changedthewaytheworldconnects, communicates,consumescontentand viewsprivacy.Andthereisnoendin sight.AsMarkZuckerbergoncesaid, “Ifwedon’tcreatethethingthat killsFacebook,someone elsewill.” Yelp Thesocialreview site’sinfluencespansa plethoraofindustries,fromretail torestaurantstohealthcare.It hasreshapedhowconsumersmake purchasesandhowbusinessesare marketed—whileboostingthe revenuesofcompaniesthat receivegoodreviews. Kindle Amazon’sfirstKindlesold outinlessthansixhours.It changedthewaymanyaround theworldreadandwasone factorcontributingtothe downfallofbig-box bookstores. Netflix Thecompany’sstreaming modeliswhattrulymadeita disruptor,puttingthefinalnailin Blockbuster’scoffinandinspiringa stringofcompetitors.Withitsforay intooriginalprogramming,it starteddisruptingtheTVand cableindustry. Uber Theride-sharing servicedirectlychal- lengedthetaxiindustry’s businessmodelandisnow expandingintonew realmssuchasfood delivery. BuzzFeed Themediaoutlet’sstrategy wasdesignedforthesocial mediaage:Publishcontent designedtogoviral,andcash inwithnativeadvertising.It continuestoexpandinto newcountriesand businesslines. iPhone TheiPhoneusheredin thesmartphoneageandthe appeconomy,andcontinues todriveashiftinuserpref- erencesfromdesktopto mobilecontent. Zipcar Zipcarchangedtheway werentcarsandhelped tospawnabusinessmodel thatinspiredfuturedis- ruptorslikeAirbnb andUber. 21ST- CENTURY DISRUPTION Alookatsomeofthe companies,products andservicesthathave disruptedthewaywe dobusiness,consume, connectandlive sincetheyear2000. (Unsurprisingly,most ofthemhavebeen fueledbytheriseofthe internetandtechnology.)
- 17. quarterly.insigniam.com | INSIGNIAMQUARTERLY 15 Airbnb Twowords:Sharingecon- omy.Airbnbnotonlyhelped formanewwayofdoing business,italsodisruptedthe multibillion-dollarhoteland travelindustries. Blockchain Thistechnology,aled- ger-baseddatabase,whichkeeps recordsoftransactionsthatare extremelydifficulttoalterorremove, wasfirstdevelopedforbitcoin.It couldfundamentallychangethe waypeoplehandlemoney,im- pactingmorethanjustthe financialindustry. Warby Parker Theprimarilyonlineeyeglass designerandretailerreimagined thewaytheproductissoldby cuttingoutthemiddleman toreducecustomer prices. WeChat Whatmakesthis Tencent-ownedappso game-changingisitscapabil- itiesbeyondmessaging.Once inside,userscanperformmultiple tasks,frompayingbillstohailing acab.Italsoallowsusersto createtheirownapp withinanapp. Music Streaming StreamingserviceslikeSpotifyand Deezermaynotmakemoney(yet), buttheyhaverevolutionizedthemusic industry.CDsanddigitaldownloads arebecominghistory.In2015,forthe firsttime,musicstreamingsur- passeddownloadsinterms ofrevenue. Electric Vehicles(EV) EVshaveyettobeadopted bythemassesbecauseofcost, butthatcouldsoonchangeas GeneralMotorsandTesla unveilaffordable options. 3-DPrinting:Themost recentlyexploredapplicationsof 3-Dprintingareincarcustom- izationandfinedining,butthe technology’spotentialacrossall industriesisunlimited. Ezetap:ThisIndia-based paymentdevicemakerwants toturnthecountry’s1billion cellularphonesintomobile point-of-purchaseterminals andservealargeunbanked populationthroughoutemerging countries. Telemedicine:Electronic communicationsadvancements havemadeitpossiblefordoctors tointeractwithandtreatpatients viaphone,emailandwebcam. Therecentbreakthroughhasthe potentialtovastlyincreaseglobal accesstohealthcareandlower patientcosts. DriverlessCars:Inafew shortyears,carssansdriverscould beacommonsightonstreets aroundtheworld.Thetechnology isforecasttodisrupteverything fromautomanufacturingtohealth care. VirtualReality(VR): ExpertspredictthatVRcouldbean $80billionindustryby2025.From shortstar-studdedfilmsto“mixed reality,”newpossibilitiesforVRare constantlybeingexplored. GeneTherapy:Re- searchersaretestingdifferent approachestothisexperi- mentaltreatmentmethod forgeneticdisorderstodeter- minehowandwhetheritcan besafeandeffective. SpaceTourism: ExecutivessuchasElonMusk (withSpaceX)andJeffBezos (withBlueOrigin)arework- ingtoprovethatcommercial spacetravelispossible—and affordable. Live-Streaming:Plat- formslikeFacebookLiveand Periscopeallowuserstomake thenewsthemselves,thereby removingmediaorganizations fromtheequation.Somehave suggestedlive-streaming coulddotoTVbroadcasting whatnewswebsitesdidto printjournalism. Artificial Intelligence(AI): AIisalreadybeingusedin severalindustries,butasmore investmentsaremade,the biggestdisruptionmaybein thelabormarket.TheWorld EconomicForumsaysAI,along withotherdisruptors,could contributetoanetlossofover 5millionjobsindevelopedand emergingeconomiesby2020. CognitiveComput- ing:IBMchiefGinniRometty believesthatby2021cognitive computing,whichincludes appliedAI,machinelearning andthefamousWatson,will impacteverybusinessdecision madeinindustriessuchas education,manufacturingand financialservices. 4-DPrinting: Researchersatinstitutions suchasMITandHarvard areworkingontechnology thatwouldallow3-Dprinted objectstochangeshapeover time. SmartMaterials: InJuly,WashingtonState Universityresearchersde- velopedmaterialwithsmart capabilitiessuchasshape memory,light-activated movementandself-healing. WHATISNEXT?
- 18. 16 INSIGNIAM QUARTERLY| Fall 2016 oon after Steven Parker took the helm at Chevron’s Burnaby refin- ery in British Columbia, Canada, in 2013, something began to wor- ry him. On the surface, the facility ran like a well-oiled machine. But festering resentments from em- ployees at all levels of the organi- zation threatened future success. The plant, which produces up to 57,000 barrels of product every day— including gasoline, asphalt, and diesel and jet fuels—consistently reported positive bottom- line results. But employee satisfaction was bottoming out. The facility’s 300 employees had a lower level of engagement than any other Chevron business unit in the world, according to the latest employee survey taken in 2012. It was a problem that Mr. Parker could not allow to continue. “If people aren’t working together in a very positive relationship, there’s a safety risk,” he says. There was also a major business risk. In an industry already contending with a multitude of potential threats and disruptions—from escalating cyberattacks to volatile fuel prices to a decreasing number of skilled employees—Mr. Parker knew that ultimately, productivity hinged on happiness. “We needed to have a workplace environment where people liked and respected each other, and as a result were prepared to go the extra yard,” he says. “We will never win just because of our equipment. We will win because we have a capability that’s better than any of our competition. If people come to work and do just what’s required and nothing more, that would risk the success of the whole business.” So Mr. Parker set about transforming the culture from one that put profits above people to one that viewed the safety and satisfaction of the workforce as a key to continuous positive performance. “A manager manages for the moment. But as a leader, you’re leading from one place to another,” he says. “You can easily get overwhelmed by managerial, short-term necessities, but if you get consumed by that, you don’t invest enough time in future viability.” THE ROOT OF THE PROBLEM Before any transformation could begin, Mr. Parker had to uncover the factors leading to such dismal engagement numbers. He started by establishing an employee engagement team. Together the team combed through the comments from the latest employee survey and sat down with workers to develop an employee engagement matrix that identified “what gets in the way” of engagement. “We set up team engagements with every single work group, no matter what the function, to break down those areas and engage each team to say, ‘What would a step in the right direction look like for you?’” Mr. Parker says. “Each group worked the common themes, but the actual to-do items that they developed were tailored to the needs of each group, so that is how we broke it up and defined what we could do.” In the end, the engagement team determined there were four primary barriers to worker happiness: communications, professional development, support and work- life balance—or, as Mr. Parker calls it, work- home balance. (“Work is part of your life,” he says.) From there, Mr. Parker set about addressing each barrier individually. But he did not simply dictate the changes to be made and expect everyone to fall in line. Instead, this transformation required him to enroll and inspire employees at all levels to change their mindsets and ways of working. REFININGEMPLOYEEENGAGEMENT When poor employee engagement threatened the long-term success of one of Chevron’s refineries, the plant’s lead instituted a cultural transformation. By Novid Parsi S INSIGHT BLOOD, SWEAT & TEARS QUICKHITS The Challenge: Employees at Chevron’s Western Canada refinery had a lower level of engagement than any other Chevron business unit. It was a threat to both the facility’s overall employee safety and its productivity. The Plan: Steven Parker, the plant’s general man- ager, decided to launch a culture change that would position employee satisfaction as a driver of the plant’s long-term viability. The Execution: The transformation focused on four areas: effective communication, work- home balance, supervisor support and professional development. An engage- ment team developed an employee-driven engagement matrix to identify key roadblocks in these areas. The Result: From 2012 to 2015, employee satisfaction shot up 31 points—from 57 percent to 88 percent—and the plant received the highest result ever on its annual balanced scorecard, which indicates performance in areas such as safety, reliability, profitability and cost management.
- 19. quarterly.insigniam.com | INSIGNIAMQUARTERLY 17 “When I started out, it was about the authoritarian personality—a command-and- control structure,” says Mr. Parker, who is originally from Australia and has been in the industry for nearly four decades. “You try to lead that way today, and you won’t have an organization. You have to be more attuned to the needs of a diverse group of individuals and engage people in an authentic way.” LAYING THE FOUNDATION Without the bedrock of good communications, Mr. Parker felt that any other change efforts would flounder. So he focused his energies in that domain at the start. According to the engagement matrix, employees felt effective communication was inhibited by the organization’s siloed structure and the lack of voice they were given in decision-making processes. To change these dynamics, Mr. Parker championed effective two-way communication. He advised his direct reports and all front-line supervisors to seek input from and listen authentically to their teams. Under Mr. Parker’s guidance, supervisors began to have more open and respectful dialogues with their teams. “We want everyone to speak their minds, to debate, to have differences of opinion,” he says. “One of the things we established in the early days is that organizational performance and contentment comes down to the quality of conversations,” says Don Durand, an Insigniam consultant who worked with Mr. Parker on this transformation at the Burnaby refinery. “An inhibitor of effective communication was the assumptions each of the work groups held about other work groups. We examined these assumptions, which helped to re-establish more effective relationships and communication.” In addition to opening the channels of communication, Mr. Parker expanded the modes of communication. He understood that his employees, who span several generations, had different communication preferences. So the Burnaby plant began utilizing a wide array of communication methods—emails, memos, videos, large town hall-style assemblies and face-to-face conversations. “If I’m offering a webcam conference and only one in 10 employees sees it, that’s good. No one mode of communication is one-size-fits-all,” he says. “We found all the diverse ways people like to engage in communications.” This newly open and transparent atmosphere had a bonus effect: It helped Mr. Parker shed light on past grievances many employees were holding onto. Chief among those complaints was the handling of Burnaby’s 2003 transition from a fairly autonomous facility to a business unit controlled by Chevron’s U.S. headquarters. That change had not been adequately managed, and promises were made that were ultimately not kept, Mr. Parker says. So in the years following, even when Chevron’s head office presented perfectly “When I started out, it was about the authoritarian personality—a command- and-control structure. You try to lead that way today, and you won’t have an organization.” —Steven Parker, general manager, Chevron’s Burnaby refinery Chevron’s Burnaby refinery in British Columbia, Canada PHOTOCOURTESYOFCHEVRON
- 20. 18 INSIGNIAM QUARTERLY| Fall 2016 sound ideas to the Burnaby facility, they were met with resistance. “What seemed to be a center of gravity of resentment was a corporate promise not kept eight years earlier,” Mr. Durand says. “In the absence of real information and the real reason why the promise was revoked, many interpretations were made and henceforth were a reason to not trust senior management. I’ll never forget the work session when Mr. Parker shared the real reasons for the revocation of the promise. One of the employees said, ‘I wish we had that information eight years ago. It would have made a difference.’” With improved communication practices now the norm, Mr. Parker and his team felt they could tackle this issue along with the other problem areas they had identified. For work-home balance, employees indicated there was often not enough time to finish assigned tasks, so the leadership team worked to establish guidelines for meeting frequency and conduct, freeing up more time during the workday to finish those duties. Mr. Parker also realized that some individuals with critical expertise knew they might receive an emergency call at any time of day or night, so they felt constantly on call. To curb that practice, leadership established distinct on- call periods for every employee so they would not have to worry about being summoned back into work at any given point of the day. Mr. Parker also began to clarify what professional development at Chevron would look like for every employee, from administrators to engineers. That involved writing down and making available the steps employees needed to take to grow their careers. From there, each employee was given a development goal and offered opportunities for one-on-one coaching. To provide more support, Mr. Parker made sure all supervisors had received training in administration and management. “If you are a supervisor and you’re working on how to allocate vacation or how your team members manage their time, we have to make sure all supervisors are proficient in the basic administration of their jobs,” he says. “If you don’t do that, you create a lot of dissatisfaction because someone says, ‘I’ve been treated differently than another group.’ It’s amazing how much work that creates if people feel aggrieved by some inequity. So part of our training is to make sure all supervisors know the bread and butter basics of managing their teams.” And when supervisors indicated that their lack of support or involvement stemmed from a lack of time to interact with teams, he offered up resourcing help to free up that space on their calendars. NEW CULTURE IN ACTION Mr. Parker saw the fruit of his labor during a project to create a new permit-to-work system—the procedures for performing any task in compliance with safety regulations. If he had instructed his supervisors to execute it the old way, they would have simply published “An inhibitor of effective communication was the assumptions each of the work groups held about other work groups. We examined these assumptions, which helped to re-establish more effective relationships and communication.” —Don Durand, Insigniam consultant INSIGHT BLOOD, SWEAT & TEARS
- 21. quarterly.insigniam.com | INSIGNIAMQUARTERLY 19 “A manager manages for the moment. But as a leader, you’re leading from one place to another. You can easily get overwhelmed by managerial, short-term necessities, but if you get consumed by that, you don’t invest enough time in future viability.” —Steven Parker the procedures and then told their teams to abide by them. “Then we would be scratching our heads for years afterward wondering why people were not fully adopting the change,” he says. Instead, the supervisors solicited their teams’ opinions on the existing system’s strengths and weaknesses. “You have to bring all the ideas to the table and say, ‘Here’s a better way of working,’ and then listen to people’s reactions so that they buy into the change,” he says. “If you don’t do that change management, you get passive resistance.” While such a project typically would have taken only a couple of months, the new permit-to-work system took almost a full year to create. “During this process, Mr. Parker and his leadership team listened to input on and suggested modifications to the permit system. Including the employees in this process made the difference,” Mr. Durand says. Mr. Parker adds, “It might take longer to deploy it the right way, but you get all that back by not getting pushback for years to come. People got behind the change—and that’s been a common theme throughout the [entire refinery].” CONTINUOUS IMPROVEMENT While driving Burnaby’s transformation, Mr. Parker knew he also had to manage expectations about how much could be achieved—and how quickly. “If I went out and said, ‘Here are the gap areas, and we’re going to fix them in one or two years,’ everyone would be disappointed,” he says. Instead, he let his employees know that change would be an evergreen, continuous process. “Now people say things are getting better. Is it perfect? No. But it’s on an upward trend, rather than downward,” Mr. Parker says. “That’s a critical change.” It is a measurable change, too: From 2012 to 2015, Burnaby’s employee workplace satisfaction shot up 31 points—from 57 percent to 88 percent. And as Mr. Parker had predicted, improved engagement led to improved performance. Each year, Chevron refineries’ balanced scorecards indicate performance in areas such as safety, reliability, profitability and cost management. A score of 1,000 indicates that a plant has outperformed comparable Chevron plants. Over the past decade, Burnaby’s scorecard came in as low as 300. But in 2014, a year into Mr. Parker’s tenure, Burnaby scored just over 1,000. In 2015, the plant scored 1,210—its highest grade ever. “For the first time in the history of the plant, we have had two consecutive years of winning performance,” he says. What makes that feat even more impressive is that the criteria get tougher as the facility gets better. The higher a facility’s score, the harder it is to maintain. “People like to be on a winning team,” Mr. Parker says, “but a true winning team doesn’t just win once—it puts together back-to-back, consecutive years of performance.” IQ
- 22. 20 INSIGNIAM QUARTERLY| Fall 2016 ONTHELOOKOUT Board members can and should act as a company’s disruption antennae. By Stacey Closser hen Borders shuttered its doors in 2011, then-CEO Mike Edwards released the following statement: “We were all working hard to- ward a different outcome, but the headwinds we have been facing for quite some time, including the rapidly changing book industry, e-reader revolution and tur- bulent economy, have brought us to where we are now.” That makes the company’s bankruptcy sound inevitable. The truth was, Borders’ management—including a boardroom that saw five directors resign in 2009—had failed to transform in the face of major disruption. INSIGHT FROM THE BOARDROOM W In the early 2000s, Amazon was growing, e-readers were making a splash and digital downloads were eating into CD and DVD sales. In the face of these shifts, Barnes & Noble, Borders’ biggest competitor, invested heavily in its website, launched an e-reader and diversified its revenue streams. Borders, on the other hand, outsourced its web presence to Amazon to manage, waited too long to join the e-reader trend (it released its version three years after Amazon and a year after Barnes & Noble) and added more brick-and-mortar stores to its lineup. By the time the company acknowledged it would need to expand its website and e-book foot- hold, cut down on inventory and differentiate the customer experience to survive, it was too late.
- 23. quarterly.insigniam.com | INSIGNIAMQUARTERLY 21 “The tendency of good management is to explain away events that are occurring. Boards can be an effective counterweight to that. ” —Ray Gilmartin, member of the board, National Association of Corporate Directors Borders’ story is not unique. Many in- cumbents fail to realize that change is taking place, according to Ray Gilmartin, former chair, CEO and president of Merck & Co. and a former director for both Microsoft and General Mills. He argues the board, however, is uniquely positioned to spot those unfore- seen and slow-growing threats and act in the face of that change. “Boards have no real emotional commitment to the current direc- tion of the firm. They are in a position to be more objective about what is happening. The tendency of good management is to explain away events that are occurring. Boards can be an effective counterweight to that. Through their objectivity they can explore [disruptive innovation] a little differently.” BEYOND ‘REVIEW AND CONCUR’ In the five years since Borders went under, the boardroom has changed. Disruption is now a ubiquitous term, and boards are putting more time and focus on strategy. According to KPMG’s September 2015 Global Boardroom Insights, 53 percent of directors say their board’s involvement in the formulation and consideration of strategic alternatives has increased in the past two to three years. And 24 percent say boards are spending more time testing the ongoing validity of the fundamen- tal assumptions that help to form strategy. Mr. Gilmartin, who is now a member of the board for the National Association of Corporate Directors, adds that most boards are moving away from a “review and concur” approach, toward one in which strategy dis- cussions are a continual process throughout the year. This provides more opportunity for boards to discuss and advise on potential threats. But first directors must be able to recog- nize disruption—and that means understand- ing what it is, and what it is not. It is tempting to label any business variable or unforeseen market upset as a disruption, which is why Mr. Gilmartin recommends boards create a framework from which to view challenges. Being on the same page in identifying these forces is the first step to being in sync when the board and management team address them, he says. The biggest disruptions can stem from
- 24. 22 INSIGNIAM QUARTERLY| Fall 2016 companies that are not even considered com- petitors. For example, Mr. Gilmartin says a potential disruptor may be at work on your customer base but not included in competitor analysis because of its unfamiliar business model, small size or outsider status. By the time management sees the threat, “incum- bents either respond too late or by leveraging their strengths, which don’t apply to the new marketplace.” Boards should be on the look- out for red flags such as flat growth in their company and industry despite gains in the economy, he says. It is also important for board members to have an in-depth understanding of industry trends as a way to spot potential disruptors. Prior to joining the boards of Southwest Airlines and Honeywell, Grace Lieblein served as vice president of global quality at General Motors. She says management would take their board of directors to auto shows to see firsthand what competitors and others in the industry were doing. Not only do such events promote knowledge, but they INSIGHT FROM THE BOARDROOM “Just because there’s some shiny new object out there does not mean you have to pursue it.” —Grace Lieblein, member of the board, Southwest Airlines and Honeywell 53%of directors say their board’s involvement in the formulation and consideration of strategic alternatives has increased in the past two to three years.
- 25. quarterly.insigniam.com | INSIGNIAMQUARTERLY 23 “I haven’t been on any boards where disruptions have been judged as good or bad. Disruption just is; it’s a fact.” —Ireena Vittal, independent board director, Wipro, Compass Group and Tata Global Beverages also foster a greater consensus among board members about where an industry is headed and the company’s place in it. Ireena Vittal, an independent board director for several billion-dollar global corporations, including Wipro, Compass Group and Tata Global Beverages, recom- mends directors seek to understand the industry from various perspectives, such as serving on boards in different sectors or geographies and seeing global operations at work in person. According to the New York Stock Exchange’s survey What Direc- tors Think 2016, 83 percent of directors say industry experience is their No. 1 criterion when vetting potential new board mem- bers—even more than financial experience or CEO experience. “Make sure you belong to different worlds, make sure that you’re seeing it and not just reading about it,” Ms. Vittal says. For exam- ple, if you have mining operations in China, visit those sites and tour the facilities. And if necessary, hire or bring in people who have experience in those different worlds to edu- cate other board members. RISKS AND OPPORTUNITIES There are those who will respond to disrup- tion in an effort to “not lose,” while others will be in the game to win. This is a vital distinction. When a management team wants to explore a new frontier caused by disruption, the board should ensure it is for the right reasons. “Just because there’s some shiny new object out there does not mean you have to pursue it,” Ms. Lieblein says. The board’s role is to remove any emotion and proceed from a point of data and analysis, asking: Does it align with company strategy? What is the risk of not pursuing this line of business? What are our competitors doing? The decision of whether to transform in the face of disruption is something Ms. Vittal contends with on one of her current boards. The company has dominated the middle market for 20 years, she says, but consumer preferences have changed, and people are migrating to premium products. The ques- tion is: Should the company reinvent itself as a premium brand and risk its established position, or stay with its existing market and risk a premium brand moving into its turf down the road? Ms. Vittal says the board is working to focus the lens on the “new normal” and offer perspective, but ultimately it is the leadership team’s responsibility to make the call. “I’m not supposed to have the answers. My role is to ask the questions” and keep the conversa- tion going, she says. Once an organization does decide to in- vest capital in a disruptive line of business, the board should ask the hard questions there as well, such as, “How would we approach this market as a startup in this space?” “Be very careful about controlling costs initially as you learn and prove the business model,” Mr. Gilmartin says. “Once it’s prov- en, accelerate the resources.” In the end, disruption needs to be ap- proached with some caution, but boards need not be apprehensive about it. “I hav- en’t been on any boards where disruptions have been judged as good or bad. Disrup- tion just is; it’s a fact,” Ms. Vittal says. “I’m not sure disruption should evoke a nega- tive emotion.” By viewing disruption as an inescapable part of doing business, a board can help man- agement get over any surprise or fear and focus on what they are going to do about it. “The really successful boards are those that treat disruption as an opportunity for transformation,” Ms. Lieblein says. “Look at disruption as an opportunity to make an or- ganization stronger.” IQ
- 27. ChangeKaiser Permanente CEOBernard J. Tyson is transforming outdated patient-doctor models to deliver affordability—and better care. BY JOSEPH GUINTO PORTRAITS BY WINNI WINTERMEYER AHealthy Doseof
- 28. 26 INSIGNIAM QUARTERLY| Fall 2016 Now his ability to evolve is being put to the ultimate test, leading Kaiser Permanen- te through unprecedented change as the U.S. health care system faces an onslaught of dis- ruption while simultaneously trying to curb rising costs. Annual health spending in the United States, where Kaiser Permanente does all of its business, is projected to jump an av- erage of 5.8 percent through 2025. That is 1.3 percentage points faster than growth of the gross domestic product—and would represent 20.1 percent of the total economy by 2025, ac- cording to the U.S. Department of Health and Human Services. Mr. Tyson, along with every health care exec- utive in the country, needs a compelling vision. “There is a reason why you become the CEO. You have value to add,” he says. “My value-add is determining how to best position the organi- ernard J. Tyson is not one of those CEOs who just talk about change. He embraces it. He advocates for it. He even cheers it on. Throughout his career at integrated health care provider Kaiser Permanente, Mr. Tyson has been willing to challenge business as usual—as he reimagined the organization’s brand image from sterile HMO to health and wellness partner, as he championed diversity across the workplace and as he rolled out new processes to improve efficiency and care.
- 29. quarterly.insigniam.com | INSIGNIAMQUARTERLY 27 zation to meet the needs of millions of people in the future.” For Kaiser Permanente, that means noth- ing short of a revolution in traditional doctor- patient dynamic. “The entire health care industry was built on the idea of people coming to our space for care,” he says. “Whether that’s a medical of- fice, a hospital or a pharmacy, we’ve designed the health system for people to come in to us for their health needs. For the future, what we have to do is push care out to where the patient or member is. That’s our reimagined idea—care anywhere. What we’re trying to do now—what we will do—is turn this industry upside down.” Affordability Above All No matter how forward-thinking the vision, Mr. Tyson will not get very far without mak- ing cost control priority No. 1. Nearly 58 per- cent of U.S. consumers surveyed said rising health insurance rates add financial strain to them or their family, according to a May 2016 TransUnion survey. And three in four are ex- tremely or somewhat concerned about in- creased costs from health insurers’ 2017 rate proposals. “Affordability is the single biggest issue in the industry today,” Mr. Tyson says. “The work we have in front of us in the industry is to build a more affordable system that covers and cares for the American people.” Kaiser Permanente’s integrated system— which includes a network of providers, hos- pitals and insurers—gives it a jump-start on controlling costs, Mr. Tyson says. Most of the industry works off an input model, where money flows to health care compa- nies when patients do things like visit the doctor, take tests or buy prescription drugs. Providers in that case are incentivized to maximize those inputs so as to maximize revenue. Meanwhile, insurers, which typical- ly hold the “first dollars” from patients, are incentivized to limit inputs to limit expenses. But because Kaiser Permanente is respon- sible for the entire health care dollar and has a say in where it goes, Mr. Tyson and his lead- ership team are free to do things differently. For instance, they can reward doctors and nurses and other caregivers through year-end bonuses tied to improving clinical outcomes for patients. “[Trying new things] is part of who we are,” he says. “It goes back to the day when [found- ers] Henry Kaiser and Sidney Garfield didn’t want to build this organization with the mind- set of a sick care system when what people re- ally want to do is live healthy, happy, productive lives. Today the question is, how do we build that kind of system while serving as a model for the entire health care industry by dealing with the issue of affordability?” Mr. Tyson fires off a one-word answer: “Innovation.” “We have an internal saying here,” he says. “We say, ‘We want to be the best at getting better.’ That calls for a disciplined approach of improvement that is continuous. It’s not about looking for a silver bullet. It’s not about look- ing for a big bang.” Tech as a Tool Much of Kaiser’s continuous improvement in health care affordability ties back to its strate- gic use of technology. The organization em- ploys nearly 200,000 people, with about 6,000 in IT, and focuses each year either on tech upgrades or entirely new systems. (It spent a whopping $4 billion alone to implement “Kaiser Permanente HealthConnect,” a com- prehensive health information system that gives doctors and patients access to electronic “What we’re trying to do now—what we will do—is turn this industry upside down.” —Bernard J. Tyson, chairman and CEO, Kaiser Permanente AnnualhealthspendingintheUnitedStatesisprojected tojumpanaverageof5.8 percentthrough2025.
- 30. 28 INSIGNIAM QUARTERLY| Fall 2016
- 31. quarterly.insigniam.com | INSIGNIAMQUARTERLY 29 medical records.) “We have tech embedded in almost everything we do,” Mr. Tyson says. “We’re digital all the way.” And yet he is quick to point out that his organization never integrates a technology just because it is shiny and new. Any time Mr. Tyson meets with IT staff, he also includes doctors, medical center executives and/or workers from other departments—anyone who might be affected by the changes being discussed. “Technolo- gy plays a great role in the efficiency and effi- cacy of health care,” he says. “But I also believe that it will nev- er replace the human touch. Technology has to be a tool enabling better interactions be- tween humans.” Those tools are helping Mr. Tyson be- gin to deliver on his promise of “care any- where.” Kaiser Per- manente recently in- vested more than $10 million in a company called Vidyo, which cre- ates real-time platforms that virtually connect doctors with patients through smartphones and tablets as well as more advanced video conferencing systems—all of which Kaiser Permanente now makes available to its mem- bers. The organization has also recently set up private kiosks in the offices of large, corporate employers. There, members can see a physi- cian virtually after being guided through the process of checking their own blood pressure and other vital signs. Kaiser Permanente had more than 59 mil- lion virtual telehealth visits last year, compared “A big part of driving change as a leader is demonstrating your vulnerability as well as your confidence that the organization has what it takes to go to the next level.” —Bernard J. Tyson Healthy Growth $61 billion revenues, 2015 $1.9 billionnet income, 2015 14% AT A GLANCE Kaiser Permanente is a not-for-profit health care organization headquartered in Oakland, California. Increase in revenues since 2013, when Bernard J. Tyson became CEO Note: Physician, nurse and employee numbers are approximate. Physician numbers are accurate as of December 2015. Nurse and employee numbers are accurate as of March 2016. Employees 189,302 Hospitals 38 Medical Offices and Other Outpatient Facilities 626 Physicians 18,652 Nurses 51,010
- 32. 30 INSIGNIAM QUARTERLY| Fall 2016 to the 45 million doctor’s office visits its mem- bers made. To put that in context, consider that a June 2016 survey of U.S. consumers by the Council of Accountable Physician Practices found that only 5 percent of patients overall are able to engage with their doctors via video. “We’re investing in technological infra- structure that will better leverage the brain- power of our physicians,” Mr. Tyson says, “allowing them to interact more regularly with each other and with patients without physical limitations.” In Search of Innovation Mr. Tyson knows no CEO can go it alone. He believes in constantly gathering information— from employees, purchasers, members and governmental officials—on how the world is changing and how the organization should re- spond to those changes. “I get a great deal of intelligence personal- ly, as well as through the formalized feedback systems within the organization, on what’s happening, what can be different, how we can improve,” he says. Mr. Tyson calls his style of communication “high-touch,” meaning he is committed to not only hearing ideas from anyone in the organi- zation, but also “touching” or acting on many of those ideas. He visits each region the orga- nization does business in at least once a year, trying to make it to as many of the 38 Kaiser Permanente hospitals as possible, and always keeps his eyes open for ideas worth spreading. “A big part of driving change as a leader is demonstrating your vulnerability as well as your confidence that the organization has what it takes to go to the next level,” Mr. Tyson says. “Change is hard work. I don’t sugarcoat that. But I do try to create an environment where people knowtheirviewsarevalued.Iwantthemtohave the same sense of ownership for the success of A History of Innovation Even before Bernard J. Tyson took the lead at Kaiser Permanente in 2013, the organization had a reputation for bucking conventional wisdom to lead the industry. The not-for-profit health care provider headquar- tered in Oakland, California, got its start as a Depres- sion-era 12-bed hospital serving industrial workers in the Mojave Desert. In its more than 70-year history, it has pioneered the prepayment system, become one of the first U.S. health care providers with racially integrated hospitals and led the adoption of IT systems such as electronic health records. Today, the $61 billion organization is a vertically integrated network of insurance, health care providers and hospitals with nearly 11 million mem- bers in eight states and the District of Columbia. The model has long provided a competitive edge for Kaiser Permanente, according to Mr. Tyson. “I’m seeing more and more health care organiza- tions trying to figure out how to shift to our kind of model because the economics of health care have become so fragmented,” he says. Ezekiel Emanuel, M.D., Ph.D., chair of the depart- ment of medical ethics and health policy at the Univer- sity of Pennsylvania and a former health policy adviser in President Barack Obama’s administration, has called it “the Kaiserfication” of the U.S. health care industry. Contractors General Hospital, circa 1935 “We’re not changing just for the sake of changing. We’re changing because we must change.” —Bernard J. Tyson
- 33. quarterly.insigniam.com | INSIGNIAMQUARTERLY 31 the organization as I do. I want to create a sense of shared leadership across the enterprise.” Seemingly small innovations can yield ma- jor organizationwide improvements. On one of Mr. Tyson’s visits, a staff member told him about a patient safety program called Code As- sist that the hospital had just adopted. When- ever a caregiver needed help moving a patient, say, from a bed to a chair, he or she would send out a “Code Assist” message to the entire floor and any staff member not with a patient would be asked to immediately respond. Mr. Tyson liked the idea so much that he pushed it out to all Kaiser Permanente hospitals. Patient falls with injuries have dropped approximate- ly 40 percent at the organization during Mr. Tyson’s tenure, an improvement attributed at least in part to the program. To keep good ideas like Code Assist percolat- ing, Mr. Tyson has instituted several operational and management changes to embed innovation into the organizational culture, including: n Establishing dozens of cross-department innovation councils that work to solve dif- ferent issues at the regional or national lev- els or in individual medical centers. n Holding monthly innovation seminars as well as an annual, multiday innovation meeting open to select company innova- tion leaders and front-line employees. n Sponsoring an annual innovation awards ceremony. n Launching (and spending) a $2 million annual innovation fund. Anyone in the organization may submit an idea, and an interdisciplinary board makes the final call on which ideas will move forward. To date, about 15 percent of all ideas submitted have received funding. When Transformation Is Mandatory Transformational organizational change will inevitably frustrate some people. So Mr. Tyson and the leadership team work hard to explain the rationale and make people feel like they are part of the process. “We’re not changing just for the sake of changing,” he says. “We’re changing because we must change. So we all need to en- gage with how to improve quality, service and affordability because a lot of the expertise to do that is in the individuals who work here.” All the transformations Kaiser Permanen- te has made have resulted in happier patients and a boost to the bottom line. Revenues are up 14 percent since Mr. Tyson took over as CEO in 2013, and an increasing number of Kaiser Permanente hospitals make the U.S. News & World Report Best Hospital rankings each year. “Rethinking the patient experience has re- ally opened up the imagination here,” he says. But as far as Mr. Tyson is concerned, the journey has just begun. “After 30-plus years of having the privilege of working at Kaiser Permanente, my level of confidence in this organization, my level of trust in what we do every single day that impacts millions of lives, is extremely high,” he says. “We’re going to keep our mission, our values and our business model. But I’m pushing even harder for a pa- tient-centric, consumer-centric view to take us to the next level.” IQ Kaiser Permanente chairman and CEO Bernard J. Tyson (far left) participates in a roundtable with (from left to right) Intel president Renee James, U.S. President Barack Obama, Stanford University president Dr. John Hennessy and Apple CEO Tim Cook. PHOTOBYNICHOLASKAMM/AFP/GETTYIMAGES
- 34. 32 INSIGNIAM QUARTERLY| Fall 2016
- 35. quarterly.insigniam.com | INSIGNIAMQUARTERLY 33 T hrough extensive research into the thought-leading literature on the industry, as well as interviews with executives, physicians, policymak- ers and other stakeholders at the heart of the matter, Insigniam has distinguished 10 disruptive forces in health care, which health care leaders will need to address in their strategies if they intend to realize con- tinued growth in the significantly changing marketplace. These 10 disruptive forces are: 1Transition to Value-Based Reimbursement: More Affordable, Higher-Quality Care at Lower Reimbursement Rates Hospital systems are now health care sys- tems that also provide wellness and pre-emp- tive care, rather than merely sick acute care, which necessitates population health man- agement methods, processes and protocols. 2 Shifting Volumes and Lower Reimbursements Most systems will need to reduce costs by 20 to 40 percent while acting to maximize and creatively optimize the reconstituted utiliza- tion of all systems. 3Moving from Caring for Sick Individuals to Managing the Health of a Population Ambiguity is high with defined parameters for care and reimbursement still being developed. The law focuses on prevention and primary care to help people stay healthy and to man- age chronic medical conditions before they become more complex and costly to treat. 4 Advances in Health Information Technology (HIT) Electronic health records allow for clinical in- tegration, and full optimization requires de- veloping analytics that leverage and optimize big data. Health Care To thrive in this ever-changing, ever-growing industry, leaders will need to factor these shifts into their strategy. BY SHIDEH SEDGH BINA This article originally appeared in the Spring 2014 issue of Insigniam Quarterly. Disruptive Forces in
- 36. 34 INSIGNIAM QUARTERLY| Fall 2016 5 Acceleration in Introduction of Digital Health Tools, Advanced Medical Tech- nology and Medical Models Telemedicine and personalized medicine will become (are becoming) accepted models of care, likely driving higher levels of patient en- gagement in their own health management. Diagnosis and treatment is preventative, im- age-based and, therefore, less invasive. 6 Shifting Demographics: Older, More Diverse, Larger Income Disparities, Greater Access Providers need to be able to provide the ap- propriate care in the patient’s cultural context and offer a wide range of health needs based on segments. 7 Projected Provider Shortages Creating the proper match be- tween the necessary type of care needed for each specific case and the provider best suited to provide it be- comes more challenging as care shifts from more being delivered by care providers other than doctors. 8 Informed and Involved Patients Providers must be able to sup- port patients in adhering to care plans, especially as an increasing number of patients are cared for in post-acute set- tings and have greater access to varied medical opinions, patient consensus on best practices and efficacy metrics through increased use of the internet. 9 Increasing Government Regulation Deteriorating trust between bio-pharma- ceutical companies, device manufacturers and the FDA results in slower, more complex approv- al processes while the FDA considers regulating health care IT systems, thereby increasing its in- volvement in care delivery. 10 Shrinking Availability of Capital Perceived unpredictability of government regulation dampens investment in medical technology and care providers while financial difficulties limit debt capacity for many hospitals. I nsigniam has identified a set of criti- cal success factors that provide clear opportunities for elevating the like- lihood of success in the marketplace and significantly impacting the suc- cess of a health care system moving in the future. In a 1984 Sloan Management Review article titled “An Assessment of Critical Success Fac- tors,” A.C. Boynton and R.W. Zmud write: Critical success factors are those few things that must go well to ensure success for a manager or an organization, and, therefore, they represent those managerial or enterprise areas that must be given special and continual attention to bring about high performance. CSFs include issues vi- tal to an organization’s current operating activi- ties and to its future success. As the authors assert, critical success fac- tors must be given special attention in order to bring about the impact and results the lev- eraged critical success factors represent. If em- ployed and fulfilled, these leverage points pro- vide the necessary foundation for impacting the mammoth industry of health care, as well as those elements of health care that have been traditionally reinforced and have rewarded the way it is. These critical success factors rely on a com- mitment and capacity for reinvention and health care innovation: Critical Success Factors for the Future of Health CareTelemedicine and personalized medicine will become (are becoming) accepted models of care, likely driving higher levels of patient engagement in their own health management.
- 37. quarterly.insigniam.com | INSIGNIAMQUARTERLY 35 1 Indispensability A health care system must make itself in- dispensable with an offering that healthy com- munity residents, patients and payers cannot (and wish to not) avoid or go around. 2 Reinvent Patient Experience Work with patients to re-engineer core patient processes to leverage technologies and drive dramatically better patient engagement and experience. There is a major distinction between understanding the role of the patient in health care and actually working with the patient to redesign health care. 3New Revenue Cycle Develop a highly effective, productive and efficient (i.e. simplified) revenue cycle. 4Diversified Yet Integrated Specialization Optimize a physician network with strong physician leadership, collaboration, di- versity of specialization and alignment. 5Mindset of Well-Being Create a mindset for patient care that looks from a broad view of the overall patient’s health and well-being across a continuum of care. 6New Horizons Expand patient care beyond physi- Shideh Sedgh Bina is a founding partner at Insigniam and editor in chief of Insigniam Quarterly. cian-centered and hospital-located acute care delivery. 7Embedded Innovation Embed in the organization a competency for creativity to continually innovate and rap- idly execute innovation and change. 8Leveraging New Technology Establish a strong capability and capacity to leverage information technology, including but not limit- ed to mobile and web technology. 9Transformational Leadership Leaders must be able to envision and execute on new, unprecedent- ed futures while being highly skilled in the interpersonal skills needed to partner with physicians and care pro- viders and to support and encourage creativi- ty while maintaining discipline. 10Culture of Responsibility and Accountability In order to drive demonstrated value, both patients and providers will need to operate at higher levels of accountability. Organizational and clinical culture, processes and structures must be organized to institutionalize account- ability and responsibility. IQ A health care system must make itself indispensable with an offering that healthy community residents, patients and payers cannot (and wish to not) avoid or go around.
- 38. Expand Your Strategic Horizons Do not settlefor status- quo growth. Push into new strategic frontiers to reach markets and customers that do not currently exist. BY JON KLEINMAN AND ROBERT E. JOHNSTON ILLUSTRATION BY KLAUS MEINHARDT
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- 40. 38 INSIGNIAM QUARTERLY| Fall 2016 In a letter sent to S&P 500 and large European corporations on the topic, Mr. Fink issued a stern warning that “many companies contin- ue to engage in practices that may undermine their ability to invest for the future.” But his message is not getting through. Many executives cannot seem to resist the siren call of quarterly results that please investors, spending extra cash on stock buy- backs to reach immediate goals. Japan’s Tokyo Stock Exchange set a record earlier this year, with more than 280 companies announcing buyback plans totaling ¥3.9 trillion, accord- ing to The Financial Times. The S&P 500 and Europe’s STOXX 600 are seeing similarly high rates of buybacks. Yet the reality is that investments in inno- vative growth, not stock buybacks, are what create new value for the customer, help shield companies from disruption and fuel the fu- ture. The challenge is identifying those rich unexplored areas of potential evolution that lie between today’s business and tomorrow’s possibilities. These areas are a company’s stra- tegic frontiers: the markets, products, technol- ogies or processes that are found just beyond the current corporate strategy or business model. To push past average performance and growth, companies must be brave enough to venture into these new horizons. Seek Out the Transformational Exploring and executing on strategic frontiers will align senior leadership, key stakeholders and potentially the entire organization on the path toward the future by defining what is next. How big that future will be, however, de- pends on where you concentrate your efforts. There are three horizons of strategic fron- tiers that span a wide spectrum of business opportunities: 1. Core (Horizon 1):Createsnear-termgrowth byextendingcurrentcustomersandproducts 2. Adjacent (Horizon 2): Fuels growth by find- ing emerging opportunities and building capabilities and new businesses adjacent to current customers and offers 3. Transformational (Horizon 3): Focuses on seeding options today for future prof- itable growth in markets and customers completely new to the enterprise or even to the industry. Transformational frontiers represent breakthroughs that can be in- dustry changing and require a substantial investment of time and resources. The core and adjacent horizons are quicker wins because they are closer to existing oper- ations. But they will not produce dramatic re- sults or revenue increases. That requires think- ing—and then acting—radically. By starting with the transformational horizon, you will gain access to all three horizons at once. Consider Apple: It was strictly a computer company until it made its foray into the mu- sic business with the launch of the iPod and iTunes, which led to vast new revenue streams BlackRock CEO Laurence D. Fink has a message for chief executives around the world: Resist the short-termist phenomenon plaguing corporate behavior. Forget the pressures for immediate returns and look to the future.
- 41. quarterly.insigniam.com | INSIGNIAMQUARTERLY 39 and reinvigorated the core business. Or take Netflix’s pivot to produce original, award-win- ning programming (later copied by Hulu and Amazon), which brought in more viewers— and subscribers. Each of these transforma- tional opportunities cascaded backward to fuel existing products and markets. As an Insigniam client at a global man- ufacturer of household cleaning supplies has often said, “If you start with possibility and come back to reality, you’ll end up with something bigger than if you start with re- ality and try to figure out what’s possible.” Research shows ROI is higher in horizon three. Managing Your Innovation Portfolio from the Harvard Business Review contends that investments in strategic horizons should be al- located with 70 percent in the core horizon, 20 percent in the adjacent and 10 percent in the transformational. The ROI on these invest- ments will be inverse: 10 percent from the core horizon, 20 percent from adjacent and 70 percent from the trans- formational. We believe the transformational invest- ment should be even larger. Insigniam has seen firsthand what is possible when compa- nies commit to achieving breakthroughs by in- vesting beyond the recommended 10 percent. Case in point: Executives at a U.S.-based multinational conglomerate with a century’s worth of history were concerned that their growth horizons were too heavily focused on horizon one. The CEO decided to redistribute 20 percent from the global R&D budget to the horizon two and three pipelines for new growth opportunities. In doing so, the com- Strategic Horizons Which frontier are you looking to in order to spur growth in your business? Horizon 1: Core: Provide more, better and different products to the same customers. Horizon 2: Adjacent: Bring adjacent markets and customers into the opportunity portfolio. Horizon 3: Transformational: Invent markets and create customers that don’t currently exist. Visible Opportunities Visionary New Markets © Copyright 2016 INSIGNIAM All rights reserved.
- 42. 40 INSIGNIAM QUARTERLY| Fall 2016 pany created a set of criteria, mandating that potential strategic frontiers must have $100 million ROI potential, be based on global mar- ket reach, use the company’s proprietary tech- nology and change the basis of competition. Four years after the shift in investment pri- orities, the CEO valued growth opportunities borne from this process at $6 billion. His suc- cessor likewise saw the value and immediately upped the ante, dedicating 25 percent of R&D dollars to the transformational horizon. This example is not unique. Stories can be found throughout history of organiza- tions investing in transformational strate- gic frontiers and finding incredible ROI and breakthrough performance. What Is Possible There is an added benefit of focusing first on the transformational and working back: It challenges the team tasked with exploring Opening yourself up Every organization’s innovation infrastructure must include a way to measure the value generated. Although there is no standardized template, metrics are the only way to track the ROI of all your efforts pursuing new frontiers. Otherwise, returns from innovation run the risk of getting lost in everyday gap accounting and lumped into regular income. strategic frontiers to leap beyond false as- sumptions that act as constraints on how the company might create and deliver new value in the future. Because while you may have ideas about where opportunities lie, the goal of horizon three is to push beyond the conventional— and that requires exploring opinions from a variety of sources. In The Power of Strategy Innovation, J. Doug- las Bate and Robert E. Johnston (also a co-au- thor of this article) describe the first phase of a strategic frontiers effort as developing a Discovery team. Typically with eight to 12 members, this team conducts reconnaissance, exploring the future and reporting back the business opportunities they find there. The best candidates for this team are people capa- ble of making observations in new environ- ments and contexts as well as people excited by this type of work. to the future. It requires a “sustai Measuring the Success of New Frontiers
- 43. quarterly.insigniam.com | INSIGNIAMQUARTERLY 41 With this team in place, you must identify closely held working assumptions about the future—and then break them down. As man- agement consultant Gary Hamel once said, to their detriment companies often use a rear- view mirror to inform the future. In Insigniam’s experience, this is all too true. We typically have found that: n One-third of assumptions are accurate. Through a process of examination, they are understood in new ways. This is a powerful aligning experience. n One-third of assumptions are somewhat off. Often, they must be modified or re- framed in a certain way—but again, that process has a powerful aligning effect. n One-third of assumptions are flat-out wrong. This is the most important out- come when identifying assumptions about the future, as it enables you to replace false assumptions with new ones. The most powerful tool for breaking down assumptions is to convene a thought leader panel, in which world-leading thinkers chal- lenge the status quo and long-held beliefs within your organization. Whether focused on demographic trends, technology or regulations, panelists should play the role of provocateur, not consultant. They should offer their views of the future based on their area of expertise. But they are not offering answers; instead, the executives should be the ones stimulating fresh thinking and fostering changes in alignment based on newly acquired knowledge. Leading to New Frontiers Opening yourself up to new frontiers means to new frontiers means living up living up to the future. It requires a shift away from strictly “sustaining the fortress” manage- ment (aka managing for today). That tends to be a numbers-driven, company-centric and linear practice that extends current values from today into the future. And while it might seem pragmatic, in today’s highly dynamic market landscape, this approach is more like leaving the door open for an invasion. If Apple had not launched the iPod and later its revo- lutionary iPhone business, it would have seen the continual erosion of its original core com- puter market with less and less software being written for its products. The only way to survive the future is to cre- ate it. And that requires changing the way you think. Once you commit to the exploration of strategic frontiers, meeting quarterly revenue targets becomes a byproduct of success, not a driver of it. IQ Source: The Power of Strategy Innovation, Robert E. Johnston and J. Douglas Bate Note: Company-specific frontiers are aimed at elements of the company’s business model. Those elements become frontiers only when the organization considers major changes in those areas that will result in significant new value creation and growth. Types of Strategic Frontiers n New product n New product category n New distribution channel n New manufacturing process n New positioning n New sourcing strategy n New technology n Franchising n Globalization n JIT manufacturing n Mass customization n Outsourcing n Partnerships n Patent exploration n Artificial intelligence n Biotechnology n Genomics n Internet of Things n Nanotechnology n Smart materials n Automation Company-Specific Company-Generic Marketplace shift away from strictly ning the fortress” management.
- 44. 42 INSIGNIAM QUARTERLY| Fall 2016 Oil’s Big Change
- 45. quarterly.insigniam.com | INSIGNIAMQUARTERLY 43 B ig Oil is on the cusp of disruption, and it is going to be even more far-reaching than many in the in- dustry anticipate. The impending transforma- tion stems from supply-side and demand-side forces that are threat- ening to lay waste to Big Oil’s cur- rent operating context. Executives will have to dramatically rethink how and why they do business over the next few years if they want to remain a competitive part of the game. Oil companies have long operated in a world where oil reserves were constantly threatened—eventually running out and dry- ing up. Companies have thus organized their value-creation activities around replacing and securingoilreservesandproductionvolumes— which is the enduring formula for reward in the industry. And for a long time these actions have been appropriate given this operating context of “find, replace and grow oil reserves.” But times are changing. Despite the fact that (depending on which study you read) energy demand is expected to grow near- ly 35 percent by 2035, demand for oil will actually decline because of demand- and supply-side disruptors. Oil’s biggest demand-side disruptors include: Environmental Regulations: At the Paris Cli- mate Conference (COP21) in December 2015, 195 countries adopted the first universal, legal- ly binding global climate agreement. Called the Paris Agreement, this deal sets out an ac- tion plan to mitigate dangerous climate change by reducing carbon outputs and limiting global warming to 2 degrees Celsius, the goal set by the United Nations. To ensure the world limits the temperature increase, the Intergovernmen- tal Panel on Climate Change warns that carbon emissions must peak by 2020, reducing steeply thereafter so total emission amounts are cut in half by 2040. To see that change through, there will need to be a dramatic increase in the use of renewables, which will render some planned oil and gas projects unnecessary—to the tune of $2 trillion in stranded assets, according to Carbon Tracker, a financial think tank focused on the energy sector. This fundamentally calls into question the oil industry’s traditional value-creation model. Competitive Alternatives: Alternative energy sources for the production of electricity are becoming more affordable, which will only further their use. The International Energy Agency says renewable energy will represent the largest single source of electricity growth through 2020. According to the U.S. Depart- ment of Energy’s Lawrence Berkeley National Laboratory, the cost of solar power projects has dropped by more than 50 percent since 2009. And the New Energy Outlook from Bloomberg New Energy Finance estimates that onshore wind energy costs will fall 41 per- cent by 2040, thanks predominantly to improv- ing capacity factors. Increased Transportation Efficiency: Six- ty-four percent of oil is produced for use in vehicles, aircrafts and ships, according to Forbes. While the industry has always assumed demand will continue to grow, ongoing tech- nological advances in transportation efficiency have put this assumption at risk. According to a study from the Frankfurt School, global elec- tric vehicle sales increased nearly 60 percent last year, bringing the total number sold since 2011 to just over 1.1 million. The falling costs of lithium-ion batteries (which are expected to drop as much as 50 percent by 2020, accord- ing to PV Magazine) will only help to grow that market further. Impending disruptors will put the oil industry on a downward trajectory unless executives are prepared to make a major paradigm shift. BY DON DURAND AND DANIEL SHAPIRO Despite the fact that (depending on which study you read) energy demand is expected to grow nearly 35by 2035, demand for oil will actually decline.
- 46. 44 INSIGNIAM QUARTERLY| Fall 2016 Short-term supply-side forces are increasing the industry’s cost curve, further compounding the effects of these long-term demand disrup- tors. And although current low oil prices are ex- acerbating the cash crunch, this increase in cost existed well before the recent price drop began. The top four short-term supply-side sources of disruption in the oil industry include: Ever-Increasing Extraction Complexity: Companies have gone from drilling for oil in wells that were 69 feet below ground to now drilling as deep as 40,000 feet on land and 11,000 feet below the ocean’s floor. This rep- resents an inherent problem for all extraction industries: The further and deeper the dig- ging, the higher the cost per barrel. Resource Challenges: Despite decades of technological innovation in exploration technology, the results have been disappoint- ing. Between 2010 and 2013, the cost of ex- ploration and development by oil and gas companies increased from less than $200 bil- lion to more than $600 billion, according to the U.S. Energy Information Administration. However, discovery rates have remained stagnant. The ROI on this activity is going in the wrong direction. Growing Megaproject Challenges: A core competency of Big Oil is to execute techni- cally challenging projects efficiently. But be- tween 2005 and 2010, 49 percent of completed projects managed by major oil companies ran over budget by a median of $2.7 billion, and 52 percent missed their deadlines, according to research firm IHS. The median delay was three years and three months. Increased Stakeholder Demands and Expec- tations: Tightened environmental and health and safety regulations have also contributed to increased supply-side complexity. “Oil and gas exploration, transportation and production contain inherit risks.... These risks, and specif- ic recent incidents, have resulted in increased demands and expectations from stakeholders (internal and external) for faster, safer, more reliable, more resilient and environmentally sound production,” EY said in its 2015 report Driving Operational Performance in Oil and Gas. Time for a Radical Rethink History might delude shortsighted industry in- siders into saying this situation is simply cycli- cal—the industry has been through boom and bust cycles before. But this emerging crop of dis- ruptorsrepresentsmorethanjustebbsandflows. Even with high crude prices, company margins were eroding. While oil was on average about $100 from 2012 to 2014, net profits declined by 30 percent. So in fact, these disruptors represent a dramatic shift in the assumptions upon which Big Oil has thrived for some time—they now find themselves in a new operating context. To survive these disruptors, oil companies need to completely transform how they create value. Companies must critically examine the assumptions that are embedded (and maybe hidden) in the century-long success formula. In the process, executives can unhook them- selves from the limits the past imposes on them in order to think newly and invent a new operating context. Inside this new context new actions and results can emerge. To survive these disruptors, oil companies need to completely transform how they create value. Executives must think “energy” and not “oil.” Big Oil’s Core Assets and Core Activities CORE ASSETS n Unique set of global relationships with govern- ments and owners of national resources n Global oil reserves n Specialized technical capability and knowledge throughout the value chain n Global extraction and transportation assets n Global refining facilities CORE ACTIVITIES n Exploration n Drilling and discovery n Production(pumpingoilfromwells) n Divesting and/or decommissioning wells n Logistics and complex project management n Refining n Marketing and distributing the finished product
- 47. quarterly.insigniam.com | INSIGNIAMQUARTERLY 45 Executives must think “energy” and not just “oil.” This will mean a transformation in their core activities—“the activities that have historical- ly generated profits for the industry,” according to Anita M. McGahan, a professor at the Rot- man School of Management at the Universi- ty of Toronto. For oil, these core activities are exploration, drilling and discovery, production (pumping oil from wells), logistics and complex project management, refining, and marketing and distributing the finished product. At the same time, executives must rethink how they can maximize the value of core assets—“the resources, knowledge and brand capital that have historically made the organization unique,” according to Professor McGahan. For an oil company, these include: n Its unique set of global relationships with governments and owners of national re- sources n Its global oil reserves n Any specialized technical capabilities and knowledge throughout the value chain n Its global extraction and transportation assets n Its global refining facilities In a world where industry core assets appre- ciate in value or are not under siege, threats to core activities on their own could be managed through innovation—which the oil industry has been appropriately doing. But with the likely destruction of future oil demand, the value of core assets, especially oil reserves, may be facing obsolescence. Innovation and advances in core activities will not be enough. Therefore, the industry will have to shift away from focusing on core assets like oil reserves to focus on renewable technologies, and industry core activities will need to center on develop- ing that new set of assets. These new core ac- tivities must include shedding oil exploration and discovery activities; exploiting current reserves to the last drops; and shifting inno- vation, engineering and project management capabilities to efforts that aid the advancement of renewable energies, including solar fields and wind farms. There are already signs that Big Oil knows these changes are ahead. In April, Saudi Arabia, one of the biggest crude exporters in the world, announced it was selling off state-owned petro- leum assets to invest $2 trillion in sources other than fossil fuels. France-based oil and gas com- pany Total announced last year it was spending €200 million to convert an unprofitable oil refin- ery into a biofuels operation. Moving forward, the company plans to invest $500 million a year in renewables, according to The Guardian. Shell is likewise reportedly investing more than a billion dollars in a green energy line of business. Investments like these offer a window into what the future of this industry is beginning to look like. Companies that fail to act quickly to reinvent themselves will eventually be left behind. IQ Don Durand is an Insigniam consultant. Daniel Shapiro is professor of Global Business Strategy and Dean Emeritus, Beedie School of Business, Simon Fraser University.
- 48. 46 INSIGNIAM QUARTERLY| Fall 2016
- 49. quarterly.insigniam.com | INSIGNIAMQUARTERLY 47 GetOutofYour Company’sBubble Former BP CEO Lord John Browne on why CEOs must remain cognizant of their company’s true global context. BY SARAH FISTER GALE PORTRAITS BY JON ENOCH I n the face of disruption, CEOs must be willing to take a stand. As CEO of BP, Lord John Browne did just that. When the debate surrounding climate change escalated in 1997, Lord Browne became the first oil company chief to acknowledge the effect climate change could have on the industry and the en- vironment. Despite criticism from his colleagues, he changed BP’s tagline from “British Petroleum” to “Beyond Petro- leum,” committed to reducing the com- pany’s carbon emissions and began re- searching alternative sources of energy. “Lord Browne has always been con- troversial,” says Bill Broussard, a con- sultant with Insigniam. “Since working with him in the 1990s, Lord Browne has remained one of my favorite leadership icons. In part because he grew and trans- formed one of the world’s giant energy companies but mostly because he’s a fu- turist, unconventional traditionalist, so- cial anthropologist and philosopher at heart.” Today, nearly a decade since Lord Browne left BP, climate change is more than a potential disruptor; its effects have arrived. Major orga- nizations around the world are trying to make their footprint more environmentally friendly. And while Lord Browne still advocates for holdouts to get on board—in a recent article for The Financial Times, he declared, “If society is saying it is time to change our energy mix, “Businesses sometimes think they control the world. They don’t. They are controlled by the world. Business is there as a servant.” —Lord John Browne, former CEO, BP
- 50. 48 INSIGNIAM QUARTERLY| Fall 2016 different ways. Getting that understanding without someone saying, “Well, they would say that, wouldn’t they, because that’s the way they make a lot of money and put it in their pockets,” therein lies the issue. IQ: How can executives overcome this type of distrust? JB: There is a very strong corporate sense that problems should be repelled rather than leaned into. I think, to use Sheryl Sandberg’s phrase, leaning into all problems is the way to go. This requires you to actually engage with your stakeholders, with different bits of soci- ety, and actually engage rather rapidly. Everyone knows that everything anybody does is inspected by millions of people who communicate with each other. Yet companies tend to think that they can create their own world. They can’t. They have to really lean into the problem and do the right thing and do it in a very independent way. In Connect, we share an example of BP’s radical engagement in Tangguh, Indonesia, a country that was abused by so many people. There were terrible human rights problems, I do think the big players should be involved in the change”—he also now looks to edu- cate business leaders about the importance of embracing disruptors stemming from so- cial change. In his latest book, Connect: How Companies Succeed by Engaging Radically with Society, Lord Browne argues, “Businesses sometimes think they control the world. They don’t. They are controlled by the world. Busi- ness is there as a servant.” IQ interviewed Lord Browne—who last year became executive chairman of L1 Ener- gy, the $10 billion oil and gas investment arm of LetterOne Holdings—to uncover his think- ing about disruption and his advice to business leaders on how to be more aggressive in the pursuit of change. IQ: You talk in Connect about the impor- tance of engaging with society to build a sustainable business strategy. Why is that important? Lord John Browne: When I was at the Stan- ford Graduate School of Business, I made the observation that while business is one of the most important motors of human progress, societies have consistently demonstrated dis- like of many parts of business. They don’t like businesspeople because they appear to be doing things simply for their own self-benefit, not for the benefit of anybody else. We’ve seen it again and again over the course of history, and it continues today. I have been a great advocate for the highly re- sponsible use of hydrocarbons in the light of risks of climate change since the mid-’90s, but there are still a lot of people who say, “It doesn’t matter what happens. We just have to stop using hydrocarbons.” That sort of debate isn’t useful because the fact is that we do need to use hydrocarbons for quite a long time, but we need to use them more efficiently and in “In business it’s easy to say, ‘Look. We’ve invented something that’s great. It’s good for you. Have it.’ It needs to be the other way around. We have to say to people, ‘What do you want? How can we help you?’” —Lord John Browne PHOTOCOURTESYOFTHECLIMATEGROUP Lord John Browne stands behind the podium at the 2006 Climate Change conference hosted by BP.
- 51. quarterly.insigniam.com | INSIGNIAMQUARTERLY 49 externally it didn’t change things overnight. But soon people figured out that the commis- sion was actually independent, and it made everything possible. IQ: Why do many companies struggle to anticipate disruptive threats? JB: In the end, to deal with disruption you have to do just a few things. First, you’ve obvi- ously got to be acutely aware of your context. You can’t exist in a bubble. So many compa- nies—and I’ve been there and done it—get caught up in the stuff going on internally that they live in a bubble. Sometimes you’re sur- rounded by people who live in a bubble. An understanding of the wide context is so crucial. It is very uncomfortable to think about as well because you actually have to think about existential threat. That’s not easy for people to discuss. That’s a very big thing. Secondly, you really have to keep reminding yourself of purpose in life. Purpose is not ful- ly satisfied by simply thinking of shareholder returns. Shareholder returns are an outcome, a very important outcome, but the purpose has to be higher than that. Otherwise you will tribes were at war, and people had overfished the bay and cut down some of the rain forest for palm oil. Then here comes BP, a company with the right intention, who bought a gigan- tic gas field that was inconveniently located under a couple of villages. Initially, the engineers said, “It’s obvious. We need to move the villages.” It made sense from an engineering standpoint, but it was a bizarre idea when you think about the context of operating in a community where nobody trusted anybody. Instead, we worked around the villages, which was more difficult but bet- ter for the community. We also gave prefer- ence for employment to local people, and set up employment centers away from the villag- es to prevent carpetbaggers from coming in. It was a wonderful plan, but no one believed it. So we set up an independently financed monitoring commission, led by former U.S. Sen. George Mitchell, to monitor what BP was doing. A critical rule for the monitoring program was that he would write reports that would not be reviewed by BP before they were published. That was the radical bit. Internally, of course, this did not go down that well, and Lord John Browne speaks during the 2016 IHS CERAWeek conference in Houston. “Shareholder returns are an outcome, a very important outcome, but the purpose has to be higher than that.” —Lord John Browne IHSCERAWEEKPHOTOBYF.CARTERSMITH/BLOOMBERGVIAGETTYIMAGES
- 52. 50 INSIGNIAM QUARTERLY| Fall 2016 look for a real solution together has to be the way to go. IQ: How can companies identify the social disruptors they should focus on? JB: First every company has a specific skill or skills. They’ve got to think about the piec- es that are good for them today and for to- morrow. In the case of Pepsi and Coke, for instance, they have to worry about obesity; Anheuser-Busch has to worry about alcohol- ism. I think oil companies and utilities have to worry about climate change. There are a whole variety of these big social issues that neatly fall into the purview of a company. The second consideration is the impact of the changes in technology and consumer be- havior, whether that is how people live in cities or what can be done by machine-aided activity that would otherwise have been done by peo- probably suboptimize and not produce the right shareholder return. IQ: How do executives need to change their way of thinking when approaching disruption? JB: In business it’s easy to say, “Look. We’ve invented something that’s great. It’s good for you. Have it.” It needs to be the oth- er way around. We have to say to people, “What do you want? How can we help you? You’re part of this society we’re serving. How do we get on with you?” That’s about engagement, I think. The same is true with the big debate on climate change, which is still raging with the big oil and gas companies. I do think that resisting, which is what most of the oil and gas companies are doing, is actually fu- tile in this area. Engagement with society to “Flexibility costs money, but it actually costs less than totally restructuring when you build something that is wrong for the future.” —Lord John Browne
- 53. quarterly.insigniam.com | INSIGNIAMQUARTERLY 51 experience was Intel. I had the great privi- lege of serving on the board of Intel Corp. under the chairmanship of Gordon Moore when Andy Grove was the CEO. That com- pany moved from memory into micropro- cessors when leadership saw a disruption coming, and it got there before anybody else. It was absolutely amazing. It is one of the great examples of realizing what was happening in the marketplace and creating the disruption for the future. IQ: Are there any companies that you think are great examples of doing it wrong? JB: No, I’ve never met anybody who does it to- tally wrong. The major disruptions at the mo- ment are based in both the sharing economy and the virtual economy. Those disruptors are reaping both the reward and the consequenc- es of it. The reward is growth; people want to have that flexibility. The consequences are a great rumbling of the regulators, like we’ve seen with Uber (see “When a Disruptor Meets Regulators,” at left). It’s important for the companies to tend to all these things because you never know. If you bury a volcano, it may just blow up one day. So while these organizations are certainly dis- rupting and doing it pretty well, there’s a lot of unattended business. Of course, as they’re disrupting, every disruptor creates an opportu- nity to be disrupted themselves. IQ: What advice do you have for CEOs about identifying and dealing with disruptions that are on the horizon? JB: I would say that the most important thing is to recognize that every single industry is dis- rupted at one time in its life. The best thing is to surround yourself with people who don’t think like you, and get out of the bubble that inevitably is created around you. IQ ple. That’s unstoppable. In my whole business career going back to the ’60s, that’s been an impact. It just gets faster and faster and faster. We have to think through, “Where does the disruption take us, and what do we want to do? What are we building today to meet that need? Can we maintain flexibility?” Flexibility costs money, but it actually costs less than to- tally restructuring after you build something that is wrong for the future. In the case of oil and gas, for example, I think people do have to think about the fol- lowing: If we are to burn oil and gas, we need to do something to limit the amount of car- bon dioxide that goes into the atmosphere. Can we capture it? Can we use it? Can we store it? It’s the same with methane, natural gas. You can’t let natural gas go into the at- mosphere. It’s much more damaging in terms of impact on climate change than CO2. You’ve got to keep it tightly stored even in transporta- tion. Do we have the right technology? Do we have the right monitoring? Third, what else do we do with all these [disruptors and skills]? What other business should we be in? For example, if you’re in oil and gas, should you create a business strategy to produce electricity from renewables? Finally, specifically for oil and gas, you real- ly have to think very carefully about how to at- tract great people into an industry that many young people view as substandard. That, I think, is a very important challenge. Young people want to go to startups. They want to go to a bunch of other places in Silicon Valley or Silicon Roundabout in London and create a startup, create an app, do something different for the future. IQ: Can you give an example of a company that handles disruption well? JB: The very best example in my personal Sometimes quintessential disruptors find themselves on the defensive. Take Uber, which is seeing regulators ban or partially ban its service in countries around the world. While it is unlikely the company’s rapid growth can be easily slowed, it has undoubtedly hit a few speed bumps. Lord John Browne says Uber needs to tread carefully. “It is this real question about how to engage with regulators,” he says. “When do you actually reject what they say and contest it? When do you cooperate? When do you concede? When do you work with them to change regulation in a transparent way?” “I’m not trying to buy the regulator cooperative,” he continues. “I think it’s a very important consideration that all industries should think about. Every industry has regulations that ensure fair play between the people who are competing or has set standards for the safety of the general public. I think those choices by CEOs are very critical.” When a Disruptor Meets Regulators
- 54. 52 INSIGNIAM QUARTERLY| Fall 2016 Booking.com CEO Gillian Tans by doing what it h a
- 55. quarterly.insigniam.com | INSIGNIAMQUARTERLY 53 If you were going to choose a poster child for modern business disruption, Airbnb would certainly make the short list. According to The Wall Street Journal, the com- pany currently has a $25.5 billion valuation. To put that in perspective, Marri- ott, which manages more than 4,000 hotels, is valued more than $4 billion lower. Airbnb’s rapid incursion and the growth of the broader home-sharing economy have companies acting fast to grab a portion of the market: Last No- vember, Expedia made its biggest-ever corporate ac- quisition, purchasing holiday rental platform HomeAway for $3.9 billion. None of this seems to worry Gillian Tans, CEO of the world’s largest accom- modation booking website, Booking.com. The company has been around since the dawn of the internet age (see “A History of Disrup- tion” on Page 54) and is con- fident that its long-standing innovation-oriented culture of employee empowerment and commitment to re- search-based decision-mak- ing gives it an advantage over competitors new and old. “It is important as a busi- ness to always stay agile,” says Ms. Tans, who was named CEO in April. “The marketplace is always changing, and if you aren’t agile enough to respond, you won’t be able to change with the times.” An Empowered Culture One of Booking.com’s key tenets is to create a frictionless experience for each and every customer who uses its service. According to Ms. Tans, delivering on that goal has meant developing a culture where employees are encouraged to continuously look for ways to improve the customer experience at every point in the travel journey. The company’s recruiting team actively says her company can deflect all threats as always done: empowering employees nd focusing on continuous improvement. BY SARAH FISTER GALE “The marketplace is always changing, and if you aren’t agile enough to respond, you won’t be able to change with the times.” —Gillian Tans, CEO, Booking.com
- 56. 54 INSIGNIAM QUARTERLY| Fall 2016 seeks out entrepreneurial employees who are not afraid to constantly suggest what they could do better—and then to do it. “It’s all about empowerment,” Ms. Tans says. Booking.com has a relatively flat hierarchy of self-steering teams expected to make their own decisions. “We try to put decision-mak- ing as low as possible in the organization so we can move quickly,” she says. “If you have to go all the way to the top to approve every decision, it slows everything down.” This decentralized approach can lead to failures, but Ms. Tans sees that as essential to what Booking.com does as a tech company. “The quickest way to innovate successfully is to make lots of little mistakes on your way to getting it right,” she says. “If you’re afraid of failure or getting it wrong, you’ll never truly innovate or disrupt the market. You’ll never test out those crazy, off-the-wall ideas that may actually be genius and make your product better for your customers. We cel- ebrate failure at Booking.com because it’s a moment for us all to learn.” This empowered culture also helps recruit tech professionals, who can be notoriously difficult to attract in the current war for IT talent. “It helps that we aren’t based in Sili- con Valley, where everyone is fighting for the same people,” Ms. Tans says. The compa- ny’s chief technology officer says he spends roughly 30 percent of his time on recruiting efforts to be sure the company can find and keep the best people. Booking.com’s global recruiting efforts have resulted in a workplace with more than 85 nationalities at the Amsterdam headquar- ters alone. “Our diverse and international workforce is representative of our business,” Ms. Tans says. The company has also invested in having local talent on the ground to build partnerships with accommodation providers. Booking.com began in the Netherlands in 1996, offering online accommodation booking to Dutch travelers. When CEO Gillian Tans joined the company as COO in 2002, it had just a handful of employees—mostly software engineers—and about 300 customers, mostly in Holland. But from the start, Booking.com took a different approach than most of the booking websites of the day (or even of today) by adopting an agency (pay at the property) model of service instead of the merchant (pay upon booking) model. According to travel news and information site Skift, “Using a Booking.com extranet, hotels could set their own rates and room allocations, and collect payment from guests at the property. Commissions to Booking.com started at 12 percent instead of the 25 per- cent to 30 percent margins given to the other [online travel agencies] and having to wait months to collect on prepaid bookings.” This helped the company skip cumber- some negotiations between properties, which, according to Skift, often led to disagreements and lengthy discussions over issues such as brand standards, rate parity, search results display and room allocations. “We’ve always been disruptive,” says Ms. Tans, pointing to the fact that Booking.com began online in 1996 when everyone else was still brick and mortar. This approach is what ultimately made it an attractive acquisition for the Priceline Group. In 2005, the company was acquired for $135 million by the U.S.-based organization. Today, Booking. com is the largest accommodation booking site in the world and Priceline’s biggest brand by far. In fact, the acquisition of Booking. com is largely credited for Priceline’s current success—its profits grew from $10 million in 2003 to $9.2 billion by 2015. Boasting relationships with more than 970,000 properties, Booking.com books almost twice as many rooms per night as its next biggest competitor, Expedia. A History of Disruption “We try to put decision- making as low as possible in the organization so we can move quickly. If you have to go all the way to the top to approve every decision, it slows everything down.” —Gillian Tans
- 57. quarterly.insigniam.com | INSIGNIAMQUARTERLY 55 wanted the site to feature videos showing off their properties. But during testing, customers did not watch them. “It made sense based on how long people want to spend on the site,” Ms. Tans says. Not only did the testing help Booking.com determine video was not a good choice for the business model, but it also helped them prove to property owners that video was not the best way to drive business. “Even if you think you know what the cus- tomer wants, you need to follow what they actually do to be sure,” she says. “When you make decisions based on data, you can trust that you’ve made the right choice.” Ultimately, this self-driving culture and data-driven approach shapes Booking.com’s home-sharing offerings. Ms. Tans says Book- ing.com has a smoother booking process than sites like Airbnb, with features such as instant- ly accessible room availability so customers can book on demand rather than have to wait to hear from property owners whether their shared space is open. That is especially im- portant in a mobile booking environment, she says. “If you are booking a room via mobile, you don’t want to wait around.” Today, Booking.com offers more than 6.6 million bookable rooms in “non-hotel” options, including villas, homes and apart- ments, compared to Airbnb’s 2 million loca- tions. Yet, despite these numbers, Booking. com cannot afford to rest on its laurels. The competition remains fierce. “In terms of the global market for accommodation, there are still so many amazing stays out there to bring to our customers,” Ms. Tans says. “The key to powering our ongoing growth and ex- ceeding traveler expectations is to leverage technology to innovate in new ways so that we can continue to source diverse accom- modation options of every possible kind in a smart, scalable way.” IQ Global Dominance For the fourth year in a row, Booking.com is the world’s most popular website for booking accommodation. Here is the breakdown across select countries. Thailand 1. Booking.com 2. Agoda.com 3. Expedia 4. Hotelbeds 5. GTA United Kingdom 1. Booking.com 2. Expedia 3. TheBookingButton 4. LateRooms.com 5. Agoda.com Spain 1. Booking.com 2. Expedia 3. Hotelbeds 4. GTA 5. Grupo Hotusa Germany 1. Booking.com 2. HRS 3. Expedia 4. Hotelbeds 5. TheBookingButton Australia 1. Booking.com 2. Expedia 3. TheBookingButton 4. Wotif 5. Agoda.com These teams are better able to understand the unique cultural demands of travelers from different countries and discuss ideas for how each website can and should work for those different countries and cultures. Test to Be Sure To ensure all the choices being made by its self-governing project teams align with strate- gic goals, the company relies on technology and data analytics. Booking.com tests every choice it makes on the site, Ms. Tans says, from big decisions about which properties to feature on the home page and what kinds of content to of- fer travelers, to smaller choices like where to put a button on the page and what color that button should be. Ms. Tans estimates the de- velopment team runs up to 1,000 such experi- ments on the site daily. “We didn’t just build a beautiful website and put it online,” she says. “We are constantly looking for ways to im- prove it. It’s important to always focus on data and what is measurable.” Every choice starts with an A/B testing ex- periment: Two options are tested on the site, then data is tracked regarding how customers responded to each option and analyzed to de- termine which one (if either) led to “positive conversions”—i.e., whether one choice drove more bookings than the other. This test meth- odology is critical, Ms. Tans says. “If you have 10 good ideas, but only one of them is going to succeed, the chance that you will make the wrong decision is pretty big. We have always believed that it is better to take a lot of small steps to see what works.” Some seemingly good ideas just do not pass the tests. For example, early on, executives were convinced the site needed a live chat fea- ture, but when they tested it on the site, no one used it. Similarly, many partnering properties Even if you think you know what the customer wants, you need to follow what they actually do to be sure. When you make decisions based on data, you can trust that you’ve made the right choice.” —Gillian Tans
- 58. 56 INSIGNIAM QUARTERLY| Fall 2016 GAME CHANGERS
- 59. quarterly.insigniam.com | INSIGNIAMQUARTERLY 57 Digital technology could mean the end of traditional bank branches, so Singapore-based DBS Bank built a plan that rides the wave. BY KELLEY HUNSBERGER
- 60. 58 INSIGNIAM QUARTERLY| Fall 2016 he future of financial services is playing out in a rather mundane act carried out by millions of people around the world every day: ordering fast food. A small but forward-thinking shift occurred last year after Singapore- based DBS Bank unveiled an app allowing customers to submit and pay for an order at their local fast food joint. When the food is ready, users head straight to the counter to pick it up. No lines, no waiting. This type of service is not especially novel. Starbucks, for example, offers a similar app-based service for its customers. But it is the first for a bank and represents where the industry is headed, says Piyush Gupta, CEO of DBS Bank. “I keep coming back to this general idea that banking as a separate activity could disappear and get embedded in the things people do,” Mr. Gupta says. “Why are libraries not as popular? Because people did not want the libraries, people just wanted the information. If Google can give you the information a hundred times a day, then you don’t need the library. Similarly for CDs. CDs are a means to listen to music, but if we can get it on Spotify or iTunes, why do you need a CD?” Suchdisruptionseemsunlikelyinanindustrysoessentialtoeveryday life. Yet there are powerful harbingers that a day of reckoning is on the horizon for financial services. Part of the existential threat traditional banks face involves a booming private fintech industry that in the first quarter of 2016 saw $5.7 billion in funding poured into different efforts. Despite that massive cash influx, Mr. Gupta foresees the biggest source of competition for DBS coming from outside the industry. “It’s the companies like the Alibabas or the Facebooks—that have hundreds of millions of customers on a platform—that would find it easier to introduce the digital set of financial services and products to their existing customer bases,” he says. “Take Apple, with Apple Pay. Quick Hits The Challenge: Facing extreme disruption—and competition from inside and outside of the financial services industry—CEO Piyush Gupta knew DBS Bank had to thrive, not simply survive. The Plan: DBS would transform by shifting its culture to truly em- brace digital and focus squarely on serving customer needs. The Execution: The company encouraged employees to map out customer needs, desires and context, and embedded digital into everything. The Result: DBS has gained market share in several key areas and won multiple awards for its innovation. “I keep coming back to this general idea that banking as a separate activity could disappear and get embedded in the things people do.” —Piyush Gupta, CEO, DBS Bank
- 61. quarterly.insigniam.com | INSIGNIAMQUARTERLY 59 Its ability to get global traction will be much larger principally because it has the customer profile and customer base.” Unsurprisingly, disruptive paths are also being paved by the notoriously disruptive millennials. More than 30 percent of them predict they will not use banks in the future, according to a three-year survey released in 2014 by Scratch, a unit of Viacom. Indeed, nearly three- quarters of millennials said they would be more excited about a new offering in financial services from Google, Amazon, Apple, PayPal or Square than from their own nationwide bank, according to the survey. To battle this potential disruption, Mr. Gupta knows DBS must change. Since he signed on as CEO in 2009, the company has been in full-on transformation mode backed by three core pillars: 1. A shift in the companywide culture 2. A repositioning of the role of digital 3. A greater focus on how the bank can best serve its customers On Leadership Piyush Gupta, CEO of DBS Bank, discusses leadership in an age of extreme disruption. IQ: How do you stay on top of your game as a leader? Piyush Gupta: I read a lot and listen a lot. I think reading is an underrated activity. I read about what’s happening around the world, and I talk to a lot of people, including other bank CEOs and people in other industries, just to keep learning what’s happening. I also talk to a lot of the young people at DBS through an anonymous email process. People can write to me about what they think is wrong and what they think we should be doing. IQ: What keeps you up at night? PG: A lot of investors are beginning to ques- tion whether financial services is an appropri- ate sector to invest in. On top of that, you have the Alibabas of the world eating your lunch. If you do not get this transformation right, you will neither get investor capital nor frankly be able to have any kind of good strategy. That’s the single biggest challenge we have. IQ: What advice do you have for CEOs when it comes to disruption? PG: We had a conference a year ago, and one of the younger people who runs a B2B platform in China said the word should not be “disruption,” it should be “transforma- tion.” His point was that disruption assumes that some of the young startups are going to come and eliminate you, but really there’s nothing that a young startup can do that you can’t do. You have more resources, you have access to the same technology. Nothing is different. But your capacity to transform is massive if you’re willing to take on the challenge.
- 62. 60 INSIGNIAM QUARTERLY| Fall 2016 It is a transformation Mr. Gupta sees as too big to fail. “You have to have the consummate belief that if you don’t do something, you’re going to die.” Spreading the Joy DBS’ current mission is to make banking joyful. At the heart of the seemingly Disney-esque goal is a stat Mr. Gupta often references: Nearly three-fourths of millennials would rather go to the dentist than listen to what banks are saying. “That’s a terrible place to start,” he says. “But if we can figure out a way to make banking joyful and DBS a joy to be with, then we can competitively position ourselves in a very different way from anybody else.” Living up to that mission means changing the DBS culture into one that makes every decision based on what is best for the customer. “When people compare us to the startups or even the Googles or Apples, it really boils down to, ‘You’re conservative, you’re fuddy- duddies, you’re old-fashioned and you’re inward-looking.’ So how do you change the culture to be more like Google and Facebook?” DBS started by implementing a process- improvement agenda, its own version of the five-day GE Work-Out framework through which groups gather to discuss specific process improvements. In doing so, DBS landed on the notion of customer journeys. By mapping customer needs, desires and context, DBS would create a better experience. Mr. Gupta says the approach “galvanized” the company. “Our people found a very easy rubric for [when to innovate and suggest change]. It was simple: If it made sense for the customer, it’s probably okay to try and do it,” he says. Today, DBS has an executive director who heads all customer journey design and development. All managing directors DBS Balance Sheet Headquarters: Singapore Total Assets (2015): SGD$458 billion Annual Income: SGD$10.8 billion Branches: 280+ Institutional Banking Customers: 200,000+ Customers: 6 million+ Key Markets: Singapore, Hong Kong, China, Taiwan, India, Indonesia Source: DBS Annual Report 2015 “Disruption assumes that some of to come and eliminate you, young star tup can
- 63. quarterly.insigniam.com | INSIGNIAMQUARTERLY 61 company expanding the concept into other large markets, including Indonesia and China. “In the past, you would have to build out a large brick-and-mortar network if you wanted to go to these countries. And the truth is you’d be competing with banks that have 10,000 or 15,000 branches,” Mr. Gupta says. “To build that kind of retail distribution network takes a payback of 20 to 25 years. In today’s economic environment, nobody has those pockets, and no investor has the appetite to give you the leeway to do that.” Only the Beginning DBS is starting to show signs of breaking away from the traditional financial services pack, scoring multiple banking innovation awards in 2015 and gaining on the competition. “For a long time, DBS was stagnating, and most of the first decade of the century we gave up market share in most of our key lines of business,” Mr. Gupta says. “In the last few years, especially in our core markets— Singapore and Hong Kong—we started to gain market share in most business-to- consumer and other areas.” More encouraging to Mr. Gupta and other executives is that DBS employees are adopting the transformation agenda. “We embarked on a very different approach, which was to really capitalize change across the entire company,” he says. “And today I feel quite good about the fact that we’re really seeing a hundred flowers bloom in the company. Individuals are stepping up.” Despite these wins, Mr. Gupta is quick to point out that DBS is still learning. “We’re embracing the challenge, but that’s by no means to suggest that we have won the game. … To me, the bulk of the disruption is ahead of us.” IQ who report to the C-suite have taken on an innovation target and are required to either map a customer journey themselves or take their team through one. Mr. Gupta also challenged his talent development team to engage the rest of the company in thinking through the role digital can play in improving the customer journey. From there, the talent development team landed on the idea of hackathons as a sandbox for experimentation. The hackathon typically kicks off with a workshop that reiterates the importance of the digital mindset. Participating employees are partnered with startups to develop apps focused on customer engagement. “Then we basically threw them into a warehouse for a week with pool tables and beer and rave music. They worked 72 hours around the clock with the intent of coming up with an app.” The expectation was not necessarily to add any of the apps into the bank’s product rotation, Mr. Gupta says, but instead to free employee minds. “The hackathon energized a lot of people into believing, ‘Hey this can be done. I know how to do this.’” Let the Revolution Begin Becoming a customer-centric organization required radical changes to the role of digital withinDBS.Thecompany’sleadershiprealized it needed to embrace the fact that digital has knocked down barriers to entry in markets where it competes with more established institutions. So earlier this year, the bank expanded in India to include retail banking. Instead of relying on physical branches, DBS is using a mobile-based digibank that caters to customers with 24/7 assistance and the ability to open an account without any paperwork. If DBS can make this branchless banking work in India, Mr. Gupta envisions the “If we can figure out a way to make banking joyful and DBS a joy to be with, then we can competitively position ourselves in a very different way from anybody else.” —Piyush Gupta —Piyush Gupta the young star tups are going but really there’s nothing that a do that you can’t do.”
- 64. 62 INSIGNIAM QUARTERLY| Fall 2016 The State of Cyber
- 65. quarterly.insigniam.com | INSIGNIAMQUARTERLY 63 Digital security moves from the IT department to the C-suite. BY SAMUEL GREENGARD attacks
- 66. 64 INSIGNIAM QUARTERLY| Fall 2016 ore than 200,000 homes in the Ukraine were left without power for hours last December when a group of hackers took 30 regional substations offline. It was the first major power network to be taken down by a cyberattack—and is an unsettling example of the escalating impact of cyberattacks in recent years. The list of targets breached in the past two years alone reads like a veritable “who’s who” of business and government: MySpace, eBay, Bangladesh Bank, British Airways, Facebook, Japan Airlines, the Korea Credit Bureau and the Australian Immigration Department, just to name a few. The message seems clear: No organization is safe. Including yours. According to the World Economic Forum’s Global Risks Report 2016, business leaders in eight countries, including Japan, Germany and the United States, view cyberattacks as the top operational risk. “While traditional industries are using digital systems to introduce greater automation and efficiencies, hackers and attackers are using the same technology to completely revolutionize the way crime takes place,” says Raj Samani, CTO for EMEA at Intel Security and a member of Europol’s Cybercrime Centre advisory group. “Malware and USB sticks have replaced guns.” The average annualized cost of cybercrime for an organization is $7.7 million globally, according to a report from the Ponemon Institute and Hewlett-Packard. But cyberattacks trigger indirect costs as well. According to cybersecurity leader FireEye, 76 percent of U.S. consumers are likely to stop purchasing from a company if a data breach is found to be linked to a failure to prioritize cybersecurity. More than half have a negative perception of companies that suffer a breach. The New Threat Landscape Only a decade ago, computer viruses and other malware were usually little more than a nuisance. An infected system might display erratic behavior or lock up. In most cases, antivirus software could fix the problem and restore operations to normal. However, over the last few years, the nature and danger of threats has changed dramatically. “Attackers and threats are much stealthier,” says Troels Oerting, group Support a proactive security strategy: 32% Build a security culture: 17% Have security program oversight: 11% Recruit security personnel: 9% Ensure financial support: 9% Balance security with productivity: 8% Collaborate with external entities: 6% Support security across silos: 4% Have security crisis management in place: 4% What is the most important thing the C-suite/ board can do to support data security? Source: Economist Intelligence Unit, Data security: How a proactive C-suite can reduce cyber-risk for the enterprise, 2016
- 67. chief information securityofficer (CISO) at U.K.-based Barclays. “They are focusing higher up the food chain and looking to inflict major damage.” So-called “low” and “slow” attacks—which may involve cybergangs lurking in systems for weeks, months or even years—are designed to collect data and information drip by drip until the perpetrators have what they need to carry out a theft or attack. “We have moved from noisy and easy-to-detect attacks with a large and obvious footprint to methods that are more difficult to detect,” says Joshua Goldfarb, vice president and CTO at FireEye. No less disconcerting is the fact that some of today’s critical infrastructure relies on old and often obsolete systems and software. This makes modern protections, such as data encryption, malware detection and security patches and upgrades, difficult to implement. Until IT system upgrades are made, attackers see easy targets. Even HVAC systems in modern buildings might pose a threat for intrusion. In some cases, criminals may enter these systems and, if they are tied into a primary computer network, break into data stores and files. It is a simple yet profound concept. “Basically, any time you put anything on the network, you are giving people access to that device or that object,” Mr. Goldfarb says. And the risks increasingly extend beyond mobile phones and direct network connections. “Connected Internet of Things devices can now serve as the launch point for attacks.” Start With Security in the C-Suite Clearly,theexternalthreatfacingcompaniesisrealandgrowing. But there is an internal threat as well: complacency. Despite a plethora of cautionary tales, many organizations still fail to “While traditional industries are using digital systems to introduce greater automation and efficiencies, hackers and attackers are using the same technology to completely revolutionize the way crime takes place. Malware and USB sticks have replaced guns.” —Raj Samani, CTO for EMEA at Intel Security and member of Europol’s Cybercrime Centre advisory group Facebook headquarters PHOTOCOURTESYOFFACEBOOK
- 68. 66 INSIGNIAM QUARTERLY| Fall 2016 proactively respond to the looming threat of cyberattacks. According to a 2016 report by Barclays and the United Kingdom’s Institute of Directors, 91 percent of business leaders believe cybersecurity is crucial, but only 57 percent say they have a formal strategic framework in place to protect their organization. “Our report shows that cyber must stop being treated as the domain of the IT department and should be a boardroom priority,” Richard Benham, author of the report and CEO of the United Kingdom’s National Cyber Management Centre, said in a statement. In fact, support and awareness from both the C-suite and the boardroom are crucial factors when it comes to successfully impeding security breaches. Growth of cyberattacks and breaches was reduced by more than 50 percent in companies that had a security strategy backed by a fully engaged C-suite and board of directors, according to a 2016 report by The Economist Intelligence Unit. “It’s difficult to obtain funding for essential systems and training if you don’t have the support and buy-in of the C-suite and the board of directors,” Mr. Goldfarb says. Adds Mr. Samani: “It’s impossible to There is no panacea for all cyber- security threats—and that means companies must be willing to try innovative approaches to battle unseen digital foes. One such approach on the rise is bug bounty programs, in which organizations pay white-hat hackers to identify weaknesses in their cybersecurity systems. Standard-fare tech companies such as Yahoo, Google, Facebook, Mozilla/Firefox and Microsoft have well-established bug bounty pro- grams. Collectively they have paid out more than $13 million in fees to hackers for finding vulnerabilities. Over the past couple of years, however, new players and non- tech giants—including Deutsche Telekom, Samsung, Tesla, Star- bucks, General Motors, the U.S. Department of Defense and Spo- tify—have been getting into the game. According to crowdsource cybersecurity agency Bugcrowd’s State of Bug Bounty 2016 report, “Overall, organizations from more ‘traditional’ indus- tries have seen year-over-year growth [in bounty programs] of over 217 percent on average, including financial services and banking, automotive, health care, education, telecommunications, hospitality, real estate, utilities and consumer goods.” In August, Apple said it would pay rewards of up to $200,000 to researchers who find critical security bugs in its products. And earlier this year, Uber announced it was launching a bounty program, offering fees of as much as $10,000 for critical issues. The ride-sharing company also provides the hackers with a “treasure map” that clues them in to some of the more vulnerable components of the system. “Uber’s in 70 countries around the world now, so a one-size-fits- all model is definitely never going to work for us,” Samantha Davison, manager of security awareness at the company, said at this year’s Infosecurity Europe conference. Yet despite the apparent surge in bug bounty interest, Bugworld’s report found that 94 percent of companies on the Forbes 2000 have yet to launch a vulnerability disclosure or bug bounty program. Cyber Pest Control
- 69. quarterly.insigniam.com | INSIGNIAMQUARTERLY 67 eliminate all risk. But the ability of all business leaders to understand risk in real-world ways typically translates into a better security framework.” Waqas Akkawi, CISO at global relocation and moving services provider SIRVA, agrees. “The common approach is to view security technology as discrete tools and systems,” he says, adding that organizations must instead adopt a more integrated approach. “They must be smarter about understanding threats and building out a risk-based cybersecurity framework. It must be built into every business venture, project and process, and involve business and supply chain partners.” For a growing number of organizations, bridging the gap between top leaders and the tech and IT teams has led to the creation of chief security officer or CISO roles in the C-suite. The U.S. government is following suit: President Barack Obama announced in February his intention to hire the country’s first CISO. These top IT executives do more than just assess risk and design risk- based frameworks. They also provide regular briefings to the C-suite and the board, interface with business leaders across the enterprise and serve as the champion for security in everything they do. And, importantly, they understand the need to balance cybersecurity bells and whistles with what is most critical for a particular organization. “There is no way any organization can build out a cybersecurity framework that will deliver 100 percent protection,” Mr. Goldfarb says. “No enterprise has unlimited resources. So it’s important to prioritize dangers, systems and alerts by understanding the top risks for an industry and a specific business.” Know Thy Enemies Before organizations can decide how to best battle cyberattacks, they must first identify the enemy. At Barclays, combating cyberattacks starts with an assessment of the organization’s adversaries and their potential intent and motivations. “We use this analysis to estimate probabilities and impact of attacks,” says Mr. Oerting, who is also a member of Interpol’sGlobalCybercrimeExpertGroup,whereheadvisesthegeneral secretariat on cybersecurity programs and operations. Once that assessment is complete, Mr. Oerting and his team look at their defense, assessing vulnerabilities and controls. “In our response, we run 24/7 security and attack monitoring including incident response, coordination and defense,” he says. “We focus on securing our ‘crown jewels’ and controlling those with privileged access to our most valuable assets.” For most organizations, a strong defense means implementing a multilayered approach using a group of technologies combined with “It’s difficult to obtain funding for essential systems and training if you don’t have the support and buy-in of the C-suite and the board of directors.” —Joshua Goldfarb, vice president and CTO, FireEye
- 70. 68 INSIGNIAM QUARTERLY| Fall 2016 the right controls and processes. This includes traditional tools such as firewalls, antivirus systems, endpoint security, data loss prevention and desktop virtualization. At a most basic level, Mr. Goldfarb says it is crucial to reduce the number of privileged accounts and establish strong authentication, including the use of two-factor authentication, to reduce the odds of a breach. “It is one of the most effective protections possible, and it’s a highly effective tool when cyberthieves have obtained a password through social engineering or other methods,” he explains. “If they are unable to provide the rolling code or other token through another device, they cannot get into the network.” Companiesshouldalsouseend-to-endencryptionwheneverpossible, while data is both at rest and in transit. However, if an attacker steals an employee’s credentials and uses them to log in, it will be possible for him or her to gain access to the system and view decrypted data. That is why, as basic as it sounds, organizations need to institute a policy to de-provision old accounts promptly to prevent former employees from retaining access to files and data. “Former employees and disgruntled employees are a serious, often- underestimated threat,” Mr. Oerting explains. One global cybersecurity firm, Stroz Friedberg, has made headlines with its new software SCOUT, which aims to detect insider threats before they happen. At the behest of executives, SCOUT will comb through a company’s emails using an algorithm based on linguistic tells and flag employee emails containing indicators of serious security threats. Although Stroz declines to identify most clients, it has reported working with companies such as Target, Neiman Marcus, Facebook and Google, according to Fortune. Yet perhaps the most crucial piece of the cybersecurity defense puzzle is simply making sure employees and others using systems have adequate training on security best practices. That includes how to spot phishing emails, manage authentication and passwords, and protect laptops and mobile devices that can easily be stolen or compromised. “It’s important to have critical controls in place so that people can’t download and install toolbars and apps that represent a real risk,” Mr. Akkawi says. “But it’s also important for employees and contractors to understand how and when they are engaging in dangerous behavior.” Next-Gen Protection Beyond using currently available cybersecurity tools, organizations are now sizing up the defensive powers of an emerging slate of new technologies. One promising area is analytics and behavioral analysis, Source: Economist Intelligence Unit, Data security: How a proactive C-suite can reduce cyber-risk for the enterprise, 2016 How do boards/C-suites in organizations with higher growth in cyberattacks compare to those with lower growth in cyberattacks? n Firms with higher growth in cyberattacks n Firms with lower growth in cyberattacks Security is a standing board agenda item The C-suite/ board feels it gets sufficient information 22% 44% There is a standing board com- mittee on data security There are regular “state of security” reports Security is factored into board strategic decisions The C-suite/ board has necessary expertise in data security 21% 33% 14% 27% 17% 24% 17% 31% 13% 14%
- 71. quarterly.insigniam.com | INSIGNIAMQUARTERLY 69 including advanced persistent threat analytics. Banks and credit card companies have used predictive analytics to detect unusual behavior and fraud for the last decade, and the technology is steadily expanding into cybersecurity as many traditional network- monitoring security tools gain more advanced analytics capabilities. The technology is also starting to utilize machine learning and artificial intelligence. Predictive analytics “can view patterns that are otherwise imperceptible to humans,” Mr. Goldfarb says. “It’s an area of great promise.” Earlier this year, MIT and machine-learning startup PatternEx cre- ated a platform called AI2 that can predict 85 percent of cyberattacks. The system scours data for suspicious activity by grouping it into meaningful patterns. Those patterns are then presented to human an- alysts who confirm the accuracy of the identified cyberattacks, and the machine uses the feedback to improve its analysis. IBM is similarly taking on cybersecurity with the help of AI— specifically its Watson supercomputer. The company plans to partner with eight universities that have advanced cybersecurity programs, including the University of Ottawa and the University of Waterloo, to train Watson in the language of cybersecurity before the cognitive cloud-based service is launched in beta form later this year. Perhaps the most anticipated new tool, however, is blockchain—a data structure that uses cryptography to create a digital ledger of transactions and share it in a secure way among a distributed network of computers. Originally created to support the virtual currency bitcoin, the technology is now being adopted and tested by a growing number of companies, including 40 of the world’s top financial institutions, according to The Wall Street Journal. But banks are not the only ones expressing interest. In May, a U.S. panel on cybersecurity and cyberspace appointed by President Obama heard testimony on the technology from experts at IBM, and the United Kingdom recently inked a deal with cybersecurity firm Guardtime to develop blockchain solutions for critical infrastructure systems in the country. Despite these promising solutions, there is no quick fix for cybersecurity threats on the horizon. Every company needs to approach the challenge with a unique tool set. A combination of end-user security awareness, simulations, ongoing testing and more advanced and integrated solutions spanning everything from mobile devices to applications is the best recipe for strengthened security. As Mr. Samani says: “It’s all about developing a framework and the right tools and technologies for minimizing risk.” IQ “It’s impossible to eliminate all risk. But the ability of all business leaders to understand risk in real-world ways typically translates into a better security framework.” —Raj Samani Predictive analytics are increasingly being used to combat cybersecurity threats. IBM’s Watson supercomputer
- 72. T he rate ofchange to the business landscape caused by the proliferation of digital is unlike anything we have ever seen. As digital permeates almost every aspect of the way we live, work, consume and communicate, this new world order has the majority of organizations racing to embrace digital as quickly as possible—so much so that the term “digital transformation” has become a buzzword across all industries. In fact, 80 percent of C-suite respondents view digital transformation as an important part of their company’s overall business strategy, according to a survey by the Technical University of Munich and SAP. But while integrating digital technologies is certainly essential to thriving in today’s business context, it is shortsighted to think of it as transformative in and of itself. “Going digital” alone will not lead to breakthrough performance, improve your organization’s dominance over competition or ensure its future relevance. That is because digital is a tool, not a transformation. “Going digital” is not a transformation—and it is time to stop thinking of it that way. BY GUILLAUME PAJEOT True enterprise transformation, as Insigniam has been defining it for more than 30 years, is about reinventing what your company will be and what it will provide to the market in the future. Push Beyond the Here and Now An enterprise consists of a network of conversations. Its reputation, the way employees use business processes, its marketing position, its strategy, its client service, and every interaction each employee has, internal and external to the organization—these are all conversations. Therefore, the journey of digital transformation would seemingly begin with the question, “How can digital help us improve these conversations?” This question, however, is a trap. It only looks at what already exists in an organization—the way it currently works and serves clients—and aims to adapt technologies to improve only what is currently being done. While this might produce some improved performance or efficiencies, it is not transformation. It is simply an upgrade, a change. True transformations have a much more significant impact. They require unhooking from the prevailing conversations that influence how your organization has Beware the Dig
- 73. quarterly.insigniam.com | INSIGNIAMQUARTERLY 71 operated in the past, creating a new vision, forging a new path, establishing goals that go beyond what is currently predictable, implementing new values and bringing every employee along for the journey. Instead of starting with “How can digital help?” transformations require grappling with a deeper set of questions, including: n How are we going to maintain competitive advantages in the future? n Who are our customers of the future? n How are we going to talk to them? n How are we going to listen to them? n What do we exist for? If you do not go beyond the here and now of your organization and start by addressing these questions, you will not achieve true transformation. What Transformation Looks Like Imagine you are the CEO of a bank specializing in short-term mortgages. You decide it is time for an in-depth digital transformation, so you replace all paperwork with digital documents. You shutter branches and develop a sophisticated website and mobile application for clients to access those documents. You replace television and billboard ad campaigns with website banner ads. Your internal decisions and validation processes are integrated into a brand-new enterprise resource planning (ERP) system. Have you transformed the company? That depends. For example, have you responded to your clients’ expectations for transparency in the mortgage rates offered and accessibility to your staff? Is the ERP system more efficient, and does it help your employees radically transform how they serve your clients? If the answer is “no,” then you have simply digitized your business, not fundamentally transformed it. Offering documents on a screen rather than in your hand will not give you a competitive edge against a bank that first reinvents its value proposition and the nature of its work to focus more on the clients than on internal procedures. However, that does not mean digitization has no role in an enterprise transformation. Here is an example drawn from my time working in the insurance industry. A common client pain point was reconciling how home and auto reimbursements were calculated. To combat the problem, the company decided to become more transparent with its processes. It set up committees, each made up of a group of client peers, to review claim data and act as juries for settling claim challenges. In this way, frustrated clients would not find themselves debating the company. Because all parties could not be expected to meet in person, the company decided to create a new digital platform—and that made all the difference in the program’s effectiveness. If the company had approached this need by asking, “How can digital help us?” and then looked at what was available in its existing digital toolbox, it would have missed this transformation opportunity. The online platform had yet to exist; the company had to invent it—but only after leadership unhooked from its previous way of working and set a commitment to being transparent at a totally new level. What this company realized is a lesson for all to heed: There is transformation and there is “going digital.” These two concepts may often meet, especially in our tech-saturated world, but one does not beget the other. Transformations recreate the future. Digital simply supports that effort. IQ Guillaume Pajeot is a partner with Insigniam. “Going digital” alone will not lead to breakthrough performance, improve your organization’s dominance over competition or ensure its future relevance. ital Trap
- 74. 72 INSIGNIAM QUARTERLY| Fall 2016 DEEPDISRUPTION When a challenger transforms an entire product category, incumbents are especially vulnerable. Survivors understand that being first is not always the best idea. By Rebecca Rolfes ome victories presage deeper failures. Take BlackBerry. Just three years ago, the smartphone maker seemed to be hitting its stride. The BlackBerry Messenger application for iOS and Android could boast 10 million downloads in its first 24 hours. Its device was jocularly dubbed the “CrackBerry.” And the company had 85 million subscribers worldwide. But that turned out to be the peak: BlackBerry now has fewer than 25 million subscribers and is in the hands of turnaround specialist John Chen. What happened? In short, BlackBerry misperceived a brewing storm of disruption. When the iPhone and Google’s S PERSPECTIVES
- 75. quarterly.insigniam.com | INSIGNIAMQUARTERLY 73 Android mobile operating system were introduced in the late 2000s, Ontario, Canada-based BlackBerry did not see them as fundamental challengers. Apple was a computer company, not a mobile phone company. Android was a technology platform developed by Google. Neither was worthy of the name “competitor” as far as BlackBerry was concerned. Instead, in response BlackBerry added some of the features these new products brought to the table, including camera, video, web browsing and music capabilities. According to Joshua Gans, professor of strategic management at the University of Toronto’s Rotman School of Management, BlackBerry’s mistake was to think the iPhone and Android devices constituted demand-side disruption: new features and functionality that changed what consumers would desire in a product or service. In reality, however, it was not the demand that had been disrupted, but the supply. BlackBerrys did one thing very well: text communication. But Android and iPhone ushered in a completely new telephony architecture—emailing and texting became just one of many applications on smartphones. This process split the customer base into those who wanted a general- purpose hand-held computer and those who wanted primarily text-based mobile messaging. Unfortunately for BlackBerry, the market for the former turned out to be much bigger. The entire category of internet- enabled phones had been blown up, and BlackBerry had been left behind. “The numbers are staggering,” says Mr. Gans, whose latest book, The Disruption Dilemma, was released this year. “When BlackBerry’s fall came, it came very quickly.” While BlackBerry’s fate is not yet sealed— last November the company launched its Priv Android device and two more smartphones are expected to be announced later this year—it does serve as a cautionary tale for how detrimental supply-side disruption can be if executives do not have strategies in place to insure against such dramatic shifts. SUPPLY-SIDE SHOCKS Supply-side disruption tends to initiate from a completely unexpected source. It is an “Uber moment,” a bolt from the blue. Mr. Gans says that in these cases, disrupted companies often accelerate their own downfall by focusing too narrowly on what their customers want. “Companies think, ‘Of course, I should ask my customers before spending a lot of money developing something,’” he says. “If you want to last forever, you have to sacrifice the short term.” —Joshua Gans, professor of strate- gic management, University of Toronto’s Rotman School of Management
- 76. 74 INSIGNIAM QUARTERLY| Fall 2016 “But when you ask your customers, ‘Do you want these new things that my competitor is offering?’ they will say no because they’ve never seen those things before and can’t imagine needing them.” When new entrants come onto the scene, it is easy for incumbents to adopt an attitude of superiority because the new player is likely not as good as the existing market leader, and its idea may not be fully formed. “What customers first see is sort of crappy,” Mr. Gans says. “But eventually, customers want that instead. For example, the original iPhone was a terrible phone, so companies like Nokia didn’t worry about it.” That is what can make supply- side disruption so difficult to predict and so potentially devastating. With demand-side disruption, “you can eventually claw your way back,” Mr. Gans says. “You can adapt and catch up. Supply- side disruption can really kill you. It’s very hard to claw your way back.” Clayton Christensen, author of the seminal 1997 book The Innovator’s Dilemma, which focuses on demand-side disruption dynamics, says the prescription for surviving disruption is to form autonomous internal teams that work on disruptive innovation. In research for The Disruption Dilemma, however, Mr. Gans found very little evidence that this approach can insulate against supply-side disruptions. Supply-side disruption can come from anywhere; no company can anticipate every eventuality. Even when organizations do manage to make predictions about potential supply-side disruptors, no amount of R&D will ensure that they get it right. “Google thought Facebook would be a threat to search, so they set up Google+. But Facebook has never become a search competitor,” Mr. Gans says. “Google+ was a waste of time and resources.” To combat potentially fatal supply-side disruptions, Mr. Gans offers three prescriptions: n Do not strive for first place at all costs. The best example is Canon. It was never a market leader but was reliably No. 2 or 3; it survived. As the photolithographic industry moved from one new architecture to another, Canon invested in different generations of technology and made sure key personnel were experienced in each. Learning from each new generation and launching new products took time, but Canon effectively relinquished first-mover advantage in favor of longevity. n Own a feature important to the end user. Mergenthaler Linotype is hardly a household name and is burdened with the completely outdated reference to “linotype,” but it survived massive disruptions in photographic processes and digital technology. The key was that Mergenthaler owned something that mattered to the end user regardless of technology: fonts. A publication with a signature design had to purchase certain proprietary fonts from Mergenthaler. That reliable revenue stream bought the company the 10 years it needed to develop a new machine with up-to-date technology. n Have a strong sense of corporate identity. Fujifilm never led the market in photographic film. So how did it survive while Kodak faltered? Fujifilm exploited its strong corporate identity while transforming itself from a film company into an image company. “That required a very different organizational structure,” Mr. Gans says. Once it made structural changes, “Fujifilm could see potential opportunities that would never be open to Kodak. They “Google thought Facebook would be a threat to search, so they set up Google+. But Facebook has never become a search competitor,” Mr. Gans says. “Google+ was a waste of time and resources.”
- 77. insigniamquarterly.com | INSIGNIAMQUARTERLY 75 Demand-Side Disruption New entrants offer product innovations that end up felling incumbents with blind spots. Supply-Side Disruption Innovations redefine the entire architecture of a product rather than just certain features. Blindsided, incumbents often fail to face up to fatal threats. Source: The Disruption Dilemma, Joshua Gans, 2016 had a more diversified portfolio. They were much more resilient than Kodak.” SLOW AND STEADY WINS THE RACE The overarching lesson: Companies have a choice between being fast and first, or slow and surviving. “That’s why I call it a dilemma,” Mr. Gans says. “Executives can either lead for the short- and mid-terms or choose to be there for the long term. If you want to last forever, you have to sacrifice the short term.” This does not mean slow organizations cannot lead, however. For example, no one “Supply-side disruption can really kill you. It’s very hard to claw your way back.” —Joshua Gans would ever think of Apple as a slow-moving company lacking dynamism. “They take a year or two to do things,” Mr. Gans says, “but then they do them very, very well. They wait and wait until they understand what they want to do. They finally unveiled a stylus for the iPhone, for instance, when the stylus has been around forever.” Companies that choose to lose the first- mover advantage may not be as efficient every step of the way, but they do survive. This means CEOs have a choice: Go after profitable market positions even though they are usually transient, or organize for sustainability. IQ
- 78. 1. They createbold futures. Transformative leaders do not let the future happen to them. They take a stand and determine what they want the future to be, and then make it so. 2. They act in the face of uncertainty. When visibility is clouded or roadblocks materialize, transformative leaders do not fade away and give up. Instead, they push forward—never reck- lessly—to seek out their goal, even if they are not sure it is the “right” way forward. 3. They blaze trails. They do not limit themselves to what has been done. Instead, they understand they must forge a new path in the marketplace to create breakthrough results. 4. They bring others along. Transformative lead- ers do not enter the future alone, nor do they force people to follow or comply with them. They enroll oth- ers in their vision, gaining their commitment to the cause through conversation and authenticity. 5. They create order out of chaos. Innovation is unpredictable and can often lead to chaos. Transforma- tional leaders must navigate that complexity, simplify it and turn it into clear direc- tion for their organization and teams. 6. They are forever curi- ous. Transformative leaders do not limit their perspec- tive to one industry or even just business topics. They are always reading, always learning, always broadening the knowledge base they pull from when making decisions or composing opinions. 7. Their frame of reference is the future, not the past. By focusing on the past, we often limit ourselves because we tend to put too much credence in previous failures or try to copy past successes. Transformational leaders do not limit future endeavors with the beliefs or assump- tions established by past experiences. 8. They are action-ori- ented. They do not just think differently, they act differently. As INSEAD professor Herminia Ibarra writes in her book Act Like a Leader, Think Like a Leader, “We try something new and then observe the results—how it feels to us, how others around us react—and only later reflect on and perhaps internalize what our experience taught us. In other words, we act like a leader and then think like a leader.” Shideh Sedgh Bina and Nathan O. Rosenberg Sr. are founding partners at Insigniam. TRANSFORMATIONALTRAITS What sets great leaders apart in an age of disruption. By Shideh Sedgh Bina and Nathan Owen Rosenberg Sr. IQ BOOST Disruptive leadership is redundant. Theessential practiceof leadershipis disruptive, especiallyintoday’s business environment,whereleadersmustoftenrejectthestatusquoand set fortha transformativenewtrajectory. Instead, executives needto focus onthetraits that definetransformationalleaders:
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