Insigniam Quarterly Fall 2016 — Disruption

TRANSFORMING THE PRACTICE OF 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
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“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.

quarterly.insigniam.com | INSIGNIAM QUARTERLY 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.
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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

GAMECHANGERS
EVOLVEORDIE
DBS Bank knew embracing
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

“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

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

insigniamquarterly.com | INSIGNIAM QUARTERLY 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

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.

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.

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

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%

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

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%

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.”

“[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

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.)

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?

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.

“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

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

“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

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.

“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

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.

“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

ChangeKaiser Permanente CEO Bernard J. Tyson is
transforming outdated patient-doctor models
to deliver affordability—and better care.
BY JOSEPH GUINTO PORTRAITS BY WINNI WINTERMEYER
AHealthy
Doseof

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.

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.

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

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

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

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

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.

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.

Expand
Your
Strategic
Horizons
Do not settle for 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

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.

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.

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

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.

Oil’s Big Change

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.

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

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.

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

Insigniam Quarterly Fall 2016 — Disruption

Insigniam Quarterly Fall 2016 — Disruption

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Insigniam Quarterly Fall 2016 — Disruption