insigniam quarterly fall 2016 — disruption

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TRANSFORMING THE PRACTICE OF MANAGEMENT AND LEADERSHIP Volume 4 Issue 4 | Fall 2016 | quarterly.insigniam.com AND KAISER PERMANENTE CEO BERNARD J. TYSON IS MEETING IT HEAD ON PAGE 24 DISRUPTION IS HERE STRATEGIC FRONTIERS: CREATE NEW MARKETS AND A NEW WORLD OF CUSTOMERS PAGE 36 FORMER BP CEO LORD JOHN BROWNE ON ANTICIPATING DISRUPTORS PAGE 46 DBS BANK’S PIYUSH GUPTA PREPARES FOR A NEW FINANCIAL SERVICES LANDSCAPE PAGE 56

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Page 1: Insigniam Quarterly Fall 2016 — Disruption

TRANSFORMING THE PRACTICE OF MANAGEMENT AND LEADERSHIPVolume 4 Issue 4 | Fall 2016 | quarterly.insigniam.com

AND KAISER PERMANENTE CEO BERNARD J. TYSON IS MEETING IT HEAD ON PAGE 24

DISRUPTION IS HERE

STRATEGIC FRONTIERS: CREATE NEW MARKETS AND A NEW WORLD OF CUSTOMERS PAGE 36

FORMER BP CEO LORD JOHN BROWNE ON ANTICIPATING DISRUPTORSPAGE 46

DBS BANK’S PIYUSH GUPTA PREPARES FOR A NEW FINANCIAL SERVICES LANDSCAPEPAGE 56

Page 2: Insigniam Quarterly Fall 2016 — Disruption

“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.

Page 3: Insigniam Quarterly Fall 2016 — Disruption

quarter ly. insigniam.com | INSIGNIAM QUARTERLY 1

Shideh Sedgh BinaFounding Partner, Insigniam

EDITOR IN CHIEFShideh Sedgh [email protected]

EXECUTIVE DIRECTORNathan Owen Rosenberg [email protected]

CHIEF FINANCIAL OFFICERJeff [email protected]

MANAGING DIRECTOR OF INSIGNIAM QUARTERLYAlexes [email protected]

PUBLISHERJames [email protected]

EXECUTIVE VICE PRESIDENT & CHIEF CONTENT OFFICERKim Caviness

EXECUTIVE VICE PRESIDENT, DESIGNDouglas Kelly

VP, EDITORIAL DIRECTORCyndee Miller

EXECUTIVE EDITORSJeremy GantzKelley Hunsberger

EDITORSBecky MaughanJulie Ortega

SENIOR ART DIRECTORHugo Espinoza

CONTRIBUTING WRITERSJonathan Ball, Stacey Closser, Sarah Fister Gale, Samuel Greengard, Joseph Guinto, Novid Parsi, Rebecca Rolfes

Insigniam Quarterly is a thought leadership publication committed to transforming the world of business by offering content relevant to the C-suite and their executive teams at large, complex, global enterprises.

Insigniam Quarterly is published by Imagination, 600 W. Fulton St., Suite 600, Chicago, IL 60661, (312) 887-1000, www.imaginepub.com. No part of this publication may be reproduced in any form or by any means without prior written permission of the publisher and Insigniam. Printed in the U.S.A. Magazine patents pending. For subscriptions, please visit quarterly.insigniam.com.

Insigniam and its publisher, Imagination, distribute this editorial magazine to share the opinions and insights of companies and their leaders on impactful global business issues. Insigniam Quarterly’s inclusion of a company or individual does not indicate that they are a client of Insigniam. Remuneration is not provided for editorial coverage. Individuals appearing in Insigniam Quarterly have done so with direct consent, or provided consent by a designated authorized agent in addition to being disclosed on the magazine’s audience and purpose. The INSIGNIAM QUARTERLY mark is a registered trademark in the United States, European Union, and other foreign countries.

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.

DO NOT FEAR THE DISRUPTOR—EMBRACE IT

Page 4: Insigniam Quarterly Fall 2016 — Disruption

GAME CHANGERSEVOLVE OR DIE DBS Bank knew embracing digital was the only way to thrive in the new world of banking.By Kelley Hunsberger

THE STATE OF CYBERATTACKSTo protect company systems and data, executives need to be proactively innovative. By Samuel Greengard

BEWARE THE DIGITAL TRAP“Going digital” may be a step in the right direction, but it is not an enterprise transformation.By Guillaume Pajeot

Contents

COVER STORYA HEALTHY DOSE OF CHANGEInnovation is at the center of Kaiser Permanente CEO Bernard J. Tyson’s mission to turn the health care industry upside down. By Joseph Guinto

10 DISRUPTIVE FORCES IN HEALTH CARETo achieve continued growth in a changing marketplace, health care leaders will need to address these factors head on.By Shideh Sedgh Bina

OIL’S BIG CHANGEMajor industry shifts will force oil companies to completely rethink their operating models.By Don Durand and Daniel

Shapiro

YOUR PATH TO THE FUTUREExecutives who explore and align with their organizations’ strategic frontiers will have a significant competitive advantage.By Jon Kleinman and Robert E.

Johnston

STILL ON TOPCEO 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

Page 5: Insigniam Quarterly Fall 2016 — Disruption

“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 CoverBernard J. Tyson, CEO of Kaiser Permanente, Oakland, California

Photo by Winni Wintermeyer

Q&A: GET OUT OF YOUR COMPANY’S BUBBLE PAGE 46

04 THE TICKERNews and trends affecting the C-suite

08 NUMBERSDisruption by the numbers

12 BROWSER HISTORYReviews on books, websites, videos and more

76 IQ BOOSTDo you have the traits of a transformational leader?

16 BLOOD, SWEAT & TEARSAfter realizing his Chevron refinery was suffering from low employee engagement, Steven Parker took transformative action.

20 FROM THE BOARDROOMBoard members are in a unique position to identify and navigate impending disruption.

72 PERSPECTIVESWhen new players transform an entire product category, incumbents should think ‘slow and steady.’

DEPARTMENTS

INSIGHT

PHO

TO B

Y J

ON

EN

OC

H

Page 6: Insigniam Quarterly Fall 2016 — Disruption

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 TIPPING POINT

“We see a world that is video first, with video at the heart of all of our apps and services.”— Mark Zuckerberg, CEO, Facebook

Page 7: Insigniam Quarterly Fall 2016 — Disruption

ins igniamquarter ly.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

Page 8: Insigniam Quarterly Fall 2016 — Disruption

6 INSIGNIAM QUARTERLY | Fal l 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.”

MAKE WAY FOR 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.

Page 9: Insigniam Quarterly Fall 2016 — Disruption

quarter ly. insigniam.com | INSIGNIAM QUARTERLY 7

INDIA’S POWER SURGEWhen 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 OFFPokémon 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.

Page 10: Insigniam Quarterly Fall 2016 — Disruption

8 INSIGNIAM QUARTERLY | Fal l 2016

0

20

40

60

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 CHANGEMore than three-quarters of executives see disruption as constant and likely increasing.

FINTECH’S FUTUREThe financial services industry is ripe for disruption, according to a global survey of CFA Institute members.

MAKE NO LITTLE PLANSA majority of entrepreneurs see themselves as changing business as usual.

A NEW KIND OF REALITYVirtual reality will likely disrupt much more than just the video game sector.

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%

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 BOARDROOMMost 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%

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.”

*Due to rounding, numbers do not add up to 100.

How do consumers want to use virtual reality?

The portion of entrepreneurs viewing themselves in these ways varies by location:

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…

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%

Asset management

Banking Securities Insurance Other None of these

2%8%16%

52% 13%identified as disruptors

described themselves as innovators

1 YEAR FROM NOW?

5 YEARS FROM NOW? U.S.

16% 13%Germany

10% 5%

Australia21% 14%

India22% 17%

Japan5% 3%

Brazil19% 25%

China18% 12%

Sub-Saharan Africa14% 7%

OF THE TOP

THREATS AND RESPONSESDisruptive change is accelerating across today’s business world—and many executives are just trying to keep up.

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

Middle East/North Africa23% 5%

Canada14% 16%

U.K.22% 8%

France22% 16%

*Due to rounding, numbers do not add up to 100.

7%12%

54%

NUMBERS

Page 11: Insigniam Quarterly Fall 2016 — Disruption

quarter ly. insigniam.com | INSIGNIAM QUARTERLY 9

0

20

40

60

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 CHANGEMore than three-quarters of executives see disruption as constant and likely increasing.

FINTECH’S FUTUREThe financial services industry is ripe for disruption, according to a global survey of CFA Institute members.

MAKE NO LITTLE PLANSA majority of entrepreneurs see themselves as changing business as usual.

A NEW KIND OF REALITYVirtual reality will likely disrupt much more than just the video game sector.

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%

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 BOARDROOMMost 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%

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.”

*Due to rounding, numbers do not add up to 100.

How do consumers want to use virtual reality?

The portion of entrepreneurs viewing themselves in these ways varies by location:

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…

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%

Asset management

Banking Securities Insurance Other None of these

2%8%16%

52% 13%identified as disruptors

described themselves as innovators

1 YEAR FROM NOW?

5 YEARS FROM NOW? U.S.

16% 13%Germany

10% 5%

Australia21% 14%

India22% 17%

Japan5% 3%

Brazil19% 25%

China18% 12%

Sub-Saharan Africa14% 7%

OF THE TOP

THREATS AND RESPONSESDisruptive change is accelerating across today’s business world—and many executives are just trying to keep up.

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

Middle East/North Africa23% 5%

Canada14% 16%

U.K.22% 8%

France22% 16%

*Due to rounding, numbers do not add up to 100.

7%12%

54%

Page 12: Insigniam Quarterly Fall 2016 — Disruption

10 INSIGNIAM QUARTERLY | Fal l 2016

0

20

40

60

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 CHANGEMore than three-quarters of executives see disruption as constant and likely increasing.

FINTECH’S FUTUREThe financial services industry is ripe for disruption, according to a global survey of CFA Institute members.

MAKE NO LITTLE PLANSA majority of entrepreneurs see themselves as changing business as usual.

A NEW KIND OF REALITYVirtual reality will likely disrupt much more than just the video game sector.

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%

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 BOARDROOMMost 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%

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.”

*Due to rounding, numbers do not add up to 100.

How do consumers want to use virtual reality?

The portion of entrepreneurs viewing themselves in these ways varies by location:

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…

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%

Asset management

Banking Securities Insurance Other None of these

2%8%16%

52% 13%identified as disruptors

described themselves as innovators

1 YEAR FROM NOW?

5 YEARS FROM NOW? U.S.

16% 13%Germany

10% 5%

Australia21% 14%

India22% 17%

Japan5% 3%

Brazil19% 25%

China18% 12%

Sub-Saharan Africa14% 7%

OF THE TOP

THREATS AND RESPONSESDisruptive change is accelerating across today’s business world—and many executives are just trying to keep up.

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

Middle East/North Africa23% 5%

Canada14% 16%

U.K.22% 8%

France22% 16%

*Due to rounding, numbers do not add up to 100.

7%12%

54%

NUMBERS

Page 13: Insigniam Quarterly Fall 2016 — Disruption

quarter ly. insigniam.com | INSIGNIAM QUARTERLY 11

0

20

40

60

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 CHANGEMore than three-quarters of executives see disruption as constant and likely increasing.

FINTECH’S FUTUREThe financial services industry is ripe for disruption, according to a global survey of CFA Institute members.

MAKE NO LITTLE PLANSA majority of entrepreneurs see themselves as changing business as usual.

A NEW KIND OF REALITYVirtual reality will likely disrupt much more than just the video game sector.

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%

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 BOARDROOMMost 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%

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.”

*Due to rounding, numbers do not add up to 100.

How do consumers want to use virtual reality?

The portion of entrepreneurs viewing themselves in these ways varies by location:

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…

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%

Asset management

Banking Securities Insurance Other None of these

2%8%16%

52% 13%identified as disruptors

described themselves as innovators

1 YEAR FROM NOW?

5 YEARS FROM NOW? U.S.

16% 13%Germany

10% 5%

Australia21% 14%

India22% 17%

Japan5% 3%

Brazil19% 25%

China18% 12%

Sub-Saharan Africa14% 7%

OF THE TOP

THREATS AND RESPONSESDisruptive change is accelerating across today’s business world—and many executives are just trying to keep up.

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

Middle East/North Africa23% 5%

Canada14% 16%

U.K.22% 8%

France22% 16%

*Due to rounding, numbers do not add up to 100.

7%12%

54%

Page 14: Insigniam Quarterly Fall 2016 — Disruption

12 INSIGNIAM QUARTERLY | Fal l 2016

BROWSER HISTORY

FORCES OF CHANGEA 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.

CROCODILE IN THE YANGTZE

As an insider- outsider, Mr. Erisman refers to himself as an “American fly on a Chinese wall.”

Page 15: Insigniam Quarterly Fall 2016 — Disruption

quarter ly. insigniam.com | INSIGNIAM QUARTERLY 13

“[C]ustomers are expecting things now, which earlier they did not expect. It is for banks to respond to those customer needs in the innovative, disruptive manner; otherwise, they are not going to exist.”

—Chanda Kochhar, CEO of ICICI Bank

Disrupted: My Misadventure in the Start-Up Bubble by Dan Lyons. Hachette Books, 2016. This nonfiction account made major waves when—and even before—it was released in April. If you have yet to read it, make the time. Fifty-something author Dan Lyons goes into often-painful detail about his year as a marketing fellow at Massachusetts-based startup HubSpot. In his author’s note, Mr. Lyons says he wrote the book “to provide a more realistic look at life inside a ‘unicorn’ startup and to puncture the popular mythology about heroic entrepreneurs.” He goes on to label HubSpot’s leadership “a pack of sales and marketing charlatans who spun

a good story about magical transformational technology and got rich by selling shares in a company that still has never turned a profit.”

Mr. Lyons does not mince words. But while Disrupted may sound like a scorned ex-employee looking to air dirty laundry, Mr. Lyons also delves into some deeper topics like corporate surveillance, writing, “If your plumber or pool installer or local appliance store uses HubSpot software, HubSpot may be holding information about you, without you even knowing it. We figure we’re safe when we use online services. We figure we can trust the people that run them not to snoop on us. I used to believe that. I don’t anymore.”

“We’re going to disrupt ourselves, and we are disrupting ourselves, so we’re not trying to preserve a model of yesterday.”

—Mary T. Barra, CEO of General Motors

“[Disruptors] are what psychologists call disagreeable—they do not require the approval of their peers in order to do what they think is correct.”

—Malcolm Gladwell, author of The Tipping Point and Blink

“Oracle has grown and advanced because we’ve been consistently willing to cannibalize ourselves. We will be unrecognizable five or 10 years from now, just like no one would have believed when Oracle went public in 1986 that it would be the company it is today.”

—Safra Catz, CEO of Oracle

Page 16: Insigniam Quarterly Fall 2016 — Disruption

14 INSIGNIAM QUARTERLY | Fal l 2016

BROW

SER

HIST

ORY

iPod

Af

ter t

he iP

od d

e-bu

ted,

the

mus

ic in

dust

ry

(and

App

le) w

ere

neve

r the

sa

me.

Des

pite

man

y at

tem

pts,

no o

ther

com

pany

coul

d co

me

close

to co

mpe

ting

with

th

ose

iconi

c whi

te

head

phon

es.

Skyp

e Sk

ype

spea

rhea

ded

the

rise

of vo

ice o

ver

inte

rnet

pro

toco

l (Vo

IP)

tech

nolo

gy, w

hich

allo

ws u

sers

to

mak

e ca

lls a

ll ov

er th

e wo

rld fo

r fre

e. N

ot g

ood

news

for t

elec

om

com

pani

es u

sed

to m

akin

g m

oney

on

long

-dist

ance

te

leph

one

calls

.

Fa

cebo

ok

The

ubiq

uito

us so

cial m

edia

pl

atfo

rm to

ok d

own

MyS

pace

and

ch

ange

d th

e w

ay th

e wo

rld co

nnec

ts,

com

mun

icate

s, co

nsum

es co

nten

t and

vi

ews p

rivac

y. An

d th

ere

is no

end

in

sight

. As M

ark Z

ucke

rber

g on

ce sa

id,

“If w

e do

n’t cr

eate

the

thin

g th

at

kills

Face

book

, som

eone

el

se w

ill.”

Yelp

Th

e so

cial r

evie

w

site’s

influ

ence

span

s a

plet

hora

of i

ndus

tries

, fro

m re

tail

to re

stau

rant

s to

heal

th ca

re. I

t ha

s res

hape

d ho

w co

nsum

ers m

ake

purc

hase

s and

how

bus

ines

ses a

re

mar

kete

d—w

hile

boo

stin

g th

e re

venu

es o

f com

pani

es th

at

rece

ive g

ood

revi

ews.

Ki

ndle

Am

azon

’s fir

st K

indl

e so

ld

out i

n le

ss th

an si

x ho

urs.

It ch

ange

d th

e w

ay m

any

arou

nd

the

world

read

and

was

one

fa

ctor

cont

ribut

ing

to th

e do

wnf

all o

f big

-box

bo

okst

ores

.

Net

flix

The

com

pany

’s st

ream

ing

mod

el is

wha

t tru

ly m

ade

it a

disr

upto

r, pu

tting

the

final

nai

l in

Bloc

kbus

ter’s

coffi

n an

d in

spiri

ng a

st

ring

of co

mpe

titor

s. W

ith it

s for

ay

into

orig

inal

pro

gram

min

g, it

st

arte

d di

srup

ting

the

TV a

nd

cabl

e in

dust

ry.

Ube

r Th

e rid

e-sh

arin

g se

rvice

dire

ctly

chal

-le

nged

the

taxi

indu

stry

’s bu

sines

s mod

el a

nd is

now

ex

pand

ing

into

new

re

alm

s suc

h as

food

de

liver

y.

Bu

zzFe

ed

The

med

ia o

utle

t’s st

rate

gy

was

des

igne

d fo

r the

socia

l m

edia

age

: Pub

lish

cont

ent

desig

ned

to g

o vi

ral, a

nd ca

sh

in w

ith n

ative

adv

ertis

ing.

It

cont

inue

s to

expa

nd in

to

new

coun

tries

and

bu

sines

s lin

es.

iP

hone

The

iPho

ne u

sher

ed in

th

e sm

artp

hone

age

and

the

app

econ

omy,

and

cont

inue

s to

driv

e a

shift

in u

ser p

ref-

eren

ces f

rom

des

ktop

to

mob

ile co

nten

t.

Zipc

ar

Zipc

ar ch

ange

d th

e w

ay

we re

nt ca

rs a

nd h

elpe

d to

spaw

n a

busin

ess m

odel

th

at in

spire

d fu

ture

dis-

rupt

ors l

ike A

irbnb

an

d Ub

er.

21ST

- CE

NT

URY

D

ISR

UPT

ION

A

look

at s

ome

of th

e co

mpa

nies

, pro

duct

s an

d se

rvice

s tha

t hav

e di

srup

ted

the

way

we

do b

usin

ess,

cons

ume,

co

nnec

t and

live

sin

ce th

e ye

ar 2

000.

(U

nsur

prisi

ngly,

mos

t of

them

hav

e be

en

fuel

ed b

y th

e ris

e of

the

inte

rnet

and

tech

nolo

gy.)

Page 17: Insigniam Quarterly Fall 2016 — Disruption

quarter ly. insigniam.com | INSIGNIAM QUARTERLY 15

A

irbnb

Tw

o wo

rds:

Shar

ing

econ

-om

y. Ai

rbnb

not

onl

y he

lped

fo

rm a

new

way

of d

oing

bu

sines

s, it

also

disr

upte

d th

e m

ultib

illio

n-do

llar h

otel

and

tra

vel i

ndus

tries

.

Bl

ockc

hain

Th

is te

chno

logy

, a le

d-ge

r-bas

ed d

atab

ase,

whi

ch ke

eps

reco

rds o

f tra

nsac

tions

that

are

ex

trem

ely

diffi

cult

to a

lter o

r rem

ove,

w

as fi

rst d

evel

oped

for b

itcoi

n. It

co

uld

fund

amen

tally

chan

ge th

e w

ay p

eopl

e ha

ndle

mon

ey, im

-pa

ctin

g m

ore

than

just

the

finan

cial i

ndus

try.

W

arby

Pa

rker

The

prim

arily

onl

ine

eyeg

lass

de

signe

r and

reta

iler r

eim

agin

ed

the

way

the

prod

uct i

s sol

d by

cu

tting

out

the

mid

dlem

an

to re

duce

cust

omer

pr

ices.

WeC

hat

Wha

t mak

es th

is Te

ncen

t-ow

ned

app

so

gam

e-ch

angi

ng is

its c

apab

il-iti

es b

eyon

d m

essa

ging

. Onc

e in

side,

use

rs ca

n pe

rform

mul

tiple

ta

sks,

from

pay

ing

bills

to h

ailin

g a

cab.

It a

lso a

llows

use

rs to

cr

eate

thei

r ow

n ap

p w

ithin

an

app.

M

usic

St

ream

ing

Stre

amin

g se

rvice

s like

Spo

tify

and

Deez

er m

ay n

ot m

ake

mon

ey (y

et),

but t

hey

have

revo

lutio

nize

d th

e m

usic

indu

stry

. CDs

and

dig

ital d

ownl

oads

ar

e be

com

ing

hist

ory.

In 2

015,

for t

he

first

tim

e, m

usic

stre

amin

g su

r-pa

ssed

dow

nloa

ds in

term

s of

reve

nue.

El

ectr

ic

Vehi

cles

(EV

)EV

s hav

e ye

t to

be a

dopt

ed

by th

e m

asse

s bec

ause

of c

ost,

but t

hat c

ould

soon

chan

ge a

s Ge

nera

l Mot

ors a

nd Te

sla

unve

il af

ford

able

op

tions

.

3-D

Prin

ting:

The

mos

t re

cent

ly e

xplo

red

appl

icatio

ns o

f 3-

D pr

intin

g ar

e in

car c

usto

m-

izatio

n an

d fin

e di

ning

, but

the

tech

nolo

gy’s

pote

ntia

l acr

oss a

ll in

dust

ries i

s unl

imite

d.

Ezet

ap: T

his I

ndia

-bas

ed

paym

ent d

evice

mak

er w

ants

to

turn

the

coun

try’s

1 bill

ion

cellu

lar p

hone

s int

o m

obile

po

int-o

f-pur

chas

e te

rmin

als

and

serv

e a

larg

e un

bank

ed

popu

latio

n th

roug

hout

em

ergi

ng

coun

tries

.

Tele

med

icin

e: E

lect

roni

c co

mm

unica

tions

adv

ance

men

ts

have

mad

e it

poss

ible

for d

octo

rs

to in

tera

ct w

ith a

nd tr

eat p

atie

nts

via

phon

e, e

mai

l and

web

cam

. Th

e re

cent

bre

akth

roug

h ha

s the

po

tent

ial t

o va

stly

incr

ease

glo

bal

acce

ss to

hea

lth ca

re a

nd lo

wer

patie

nt co

sts.

Driv

erle

ss C

ars:

In a

few

sh

ort y

ears

, car

s san

s driv

ers c

ould

be

a co

mm

on si

ght o

n st

reet

s ar

ound

the

world

. The

tech

nolo

gy

is fo

reca

st to

disr

upt e

very

thin

g fro

m a

uto

man

ufac

turin

g to

hea

lth

care

.

Virt

ual R

ealit

y (V

R):

Expe

rts p

redi

ct th

at V

R co

uld

be a

n $8

0 bi

llion

indu

stry

by

2025

. Fro

m

shor

t sta

r-stu

dded

film

s to

“mixe

d re

ality

,” ne

w p

ossib

ilitie

s for

VR

are

cons

tant

ly b

eing

exp

lore

d.

Gene

The

rapy

: Re-

sear

cher

s are

test

ing

diffe

rent

ap

proa

ches

to th

is ex

peri-

men

tal t

reat

men

t met

hod

for g

enet

ic di

sord

ers t

o de

ter-

min

e ho

w a

nd w

heth

er it

can

be sa

fe a

nd e

ffect

ive.

Spac

e To

uris

m:

Exec

utive

s suc

h as

Elo

n M

usk

(with

Spa

ceX)

and

Jeff

Bezo

s (w

ith B

lue

Orig

in) a

re w

ork-

ing

to p

rove

that

com

mer

cial

spac

e tra

vel i

s pos

sible

—an

d af

ford

able

.

Live

-Str

eam

ing:

Pla

t-fo

rms l

ike Fa

cebo

ok Li

ve a

nd

Peris

cope

allo

w u

sers

to m

ake

the

news

them

selve

s, th

ereb

y re

mov

ing

med

ia o

rgan

izatio

ns

from

the

equa

tion.

Som

e ha

ve

sugg

este

d liv

e-st

ream

ing

coul

d do

to T

V br

oadc

astin

g w

hat n

ews w

ebsit

es d

id to

pr

int j

ourn

alism

.

Art

ifici

al

Inte

llige

nce

(AI)

: AI

is a

lread

y be

ing

used

in

seve

ral i

ndus

tries

, but

as m

ore

inve

stm

ents

are

mad

e, th

e bi

gges

t disr

uptio

n m

ay b

e in

th

e la

bor m

arke

t. Th

e W

orld

Ec

onom

ic Fo

rum

says

AI,

alon

g w

ith o

ther

disr

upto

rs, c

ould

co

ntrib

ute

to a

net

loss

of o

ver

5 m

illio

n jo

bs in

dev

elop

ed a

nd

emer

ging

eco

nom

ies b

y 20

20.

Cogn

itive

Com

put-

ing:

IBM

chie

f Gin

ni R

omet

ty

belie

ves t

hat b

y 20

21 co

gniti

ve

com

putin

g, w

hich

inclu

des

appl

ied

AI, m

achi

ne le

arni

ng

and

the

fam

ous W

atso

n, w

ill

impa

ct e

very

bus

ines

s dec

ision

m

ade

in in

dust

ries s

uch

as

educ

atio

n, m

anuf

actu

ring

and

finan

cial s

ervi

ces.

4-D

Prin

ting:

Re

sear

cher

s at i

nstit

utio

ns

such

as M

IT an

d Ha

rvar

d ar

e wor

king

on te

chno

logy

th

at w

ould

allo

w 3-

D pr

inte

d ob

jects

to ch

ange

shap

e ove

r tim

e.

Smar

t Mat

eria

ls:

In Ju

ly, W

ashi

ngto

n St

ate

Unive

rsity

rese

arch

ers d

e-ve

lope

d m

ater

ial w

ith sm

art

capa

bilit

ies s

uch

as sh

ape

mem

ory,

light

-act

ivat

ed

mov

emen

t and

self-

heal

ing.

WH

AT

IS N

EXT

?

Page 18: Insigniam Quarterly Fall 2016 — Disruption

16 INSIGNIAM QUARTERLY | Fal l 2016

oon after Steven Parker took the helm at Chevron’s Burnaby refin-ery in British Columbia, Canada, in 2013, something began to wor-ry him. On the surface, the facility ran like a well-oiled machine. But festering resentments from em-ployees at all levels of the organi-zation threatened future success.

The plant, which produces up to 57,000 barrels of product every day—including gasoline, asphalt, and diesel and jet fuels—consistently reported positive bottom-line results. But employee satisfaction was bottoming out. The facility’s 300 employees had a lower level of engagement than any other Chevron business unit in the world, according to the latest employee survey taken in 2012.

It was a problem that Mr. Parker could not allow to continue.

“If people aren’t working together in a very positive relationship, there’s a safety risk,” he says.

There was also a major business risk. In an industry already contending with a multitude of potential threats and disruptions—from escalating cyberattacks to volatile fuel prices to a decreasing number of skilled employees—Mr. Parker knew that ultimately, productivity hinged on happiness.

“We needed to have a workplace environment where people liked and respected each other, and as a result were prepared to go the extra yard,” he says. “We will never win just because of our equipment. We will win because we have a capability that’s better than any of our competition. If people come to work and do just what’s required and nothing more, that would risk the success of the whole business.”

So Mr. Parker set about transforming the culture from one that put profits above people to one that viewed the safety and

satisfaction of the workforce as a key to continuous positive performance. “A manager manages for the moment. But as a leader, you’re leading from one place to another,” he says. “You can easily get overwhelmed by managerial, short-term necessities, but if you get consumed by that, you don’t invest enough time in future viability.”

THE ROOT OF THE PROBLEMBefore 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.

REFINING EMPLOYEE ENGAGEMENTWhen 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

QUICK HITSThe 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.

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“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 FOUNDATIONWithout 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

PHO

TO C

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Y O

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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 ACTIONMr. 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

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“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 IMPROVEMENTWhile 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

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ON THE LOOKOUTBoard 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

WIn 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.

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“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

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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.

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“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 OPPORTUNITIESThere 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

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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

A Healthy Dose of

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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.

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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 AllNo 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 ToolMuch 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

Annual health spending in the United States is projected to jump an average of 5.8 percent through 2025.

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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 billion net income, 2015

14%AT A GLANCEKaiser 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

38Medical Offices and Other Outpatient Facilities

626Physicians

18,652Nurses

51,010

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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 InnovationMr. 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 know their views are valued. I want them to have the same sense of ownership for the success of

A History of InnovationEven 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

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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 MandatoryTransformational 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.

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Health Care

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Through 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:

1 Transition to Value-Based Reimbursement: More Affordable,

Higher-Quality Care at Lower Reimbursement RatesHospital 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.

3 Moving 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.

DisruptiveForces

in

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34 INSIGNIAM QUARTERLY | Fal l 2016

5 Acceleration in Introduction of Digital Health Tools, Advanced Medical Tech-

nology and Medical Models Telemedicine and personalized medicine will become (are becoming) accepted models of care, likely driving higher levels of patient en-gagement in their own health management. Diagnosis and treatment is preventative, im-age-based and, therefore, less invasive.

6 Shifting Demographics: Older, More Diverse, Larger Income Disparities,

Greater AccessProviders 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.

Insigniam 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.

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1 IndispensabilityA 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 ExperienceWork 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.

3 New Revenue CycleDevelop a highly effective, productive

and efficient (i.e. simplified) revenue cycle.

4 Diversified Yet Integrated SpecializationOptimize a physician network with

strong physician leadership, collaboration, di-versity of specialization and alignment.

5 Mindset of Well-BeingCreate 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.

6 New HorizonsExpand 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.

7 Embedded InnovationEmbed in the organization a competency

for creativity to continually innovate and rap-idly execute innovation and change.

8 Leveraging New TechnologyEstablish a strong capability and

capacity to leverage information technology, including but not limit-ed to mobile and web technology.

9 Transformational LeadershipLeaders 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.

10 Culture 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.

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Expand YourStrategicHorizons

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. JOHNSTONILLUSTRATION BY KLAUS MEINHARDT

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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 TransformationalExploring 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): Creates near-term growth

by extending current customers and products 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.

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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 HorizonsWhich 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.

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40 INSIGNIAM QUARTERLY | Fal l 2016

pany created a set of criteria, mandating that potential strategic frontiers must have $100 million ROI potential, be based on global mar-ket reach, use the company’s proprietary tech-nology and change the basis of competition.

Four years after the shift in investment pri-orities, the CEO valued growth opportunities borne from this process at $6 billion. His suc-cessor likewise saw the value and immediately upped the ante, dedicating 25 percent of R&D dollars to the transformational horizon.

This example is not unique. Stories can be found throughout history of organiza-tions investing in transformational strate-gic frontiers and finding incredible ROI and breakthrough performance.

What Is PossibleThere is an added benefit of focusing first on the transformational and working back: It challenges the team tasked with exploring

Opening yourself up to new frontiers means living 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 shift away from strictly “sustai ning the fortress” management.

Measuring the

Success of New

Frontiers

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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 FrontiersOpening yourself up to new frontiers means

Opening yourself up 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 productn New product categoryn New distribution channeln New manufacturing processn New positioningn New sourcing strategyn New technology

n Franchisingn Globalizationn JIT manufacturingn Mass customizationn Outsourcingn Partnershipsn Patent exploration

n Artificial intelligencen Biotechnologyn Genomicsn Internet of Thingsn Nanotechnologyn Smart materialsn Automation

Company-Specific Company-Generic Marketplace

to the future. It requires a shift away from strictly “sustai ning the fortress” management.

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Oil’s Big Change

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Big 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 securing oil reserves and production volumes—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

35 by 2035, demand for oil will actually decline.

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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 RethinkHistory 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-ruptors represents more than just ebbs and flows. 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 ActivitiesCORE 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 (pumping oil from wells)

n Divesting and/or decommissioning wells

n Logistics and complex project management

n Refining

n Marketing and distributing the finished product

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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 reservesn Any specialized technical capabilities and

knowledge throughout the value chainn Its global extraction and transportation assetsn 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.

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Get Out of Your Company’s BubbleFormer 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

In 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

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different ways. Getting that understanding without someone saying, “Well, they would say that, wouldn’t they, because that’s the way they make a lot of money and put it in their pockets,” therein lies the issue.

IQ: How can executives overcome this type of distrust? JB: There is a very strong corporate sense that problems should be repelled rather than leaned into. I think, to use Sheryl Sandberg’s phrase, leaning into all problems is the way to go. This requires you to actually engage with your stakeholders, with different bits of soci-ety, and actually engage rather rapidly.

Everyone knows that everything anybody does is inspected by millions of people who communicate with each other. Yet companies tend to think that they can create their own world. They can’t. They have to really lean into the problem and do the right thing and do it in a very independent way.

In Connect, we share an example of BP’s radical engagement in Tangguh, Indonesia, a country that was abused by so many people. There were terrible human rights problems,

I do think the big players should be involved in the change”—he also now looks to edu-cate business leaders about the importance of embracing disruptors stemming from so-cial change. In his latest book, Connect: How Companies Succeed by Engaging Radically with Society, Lord Browne argues, “Businesses sometimes think they control the world. They don’t. They are controlled by the world. Busi-ness is there as a servant.”

IQ interviewed Lord Browne—who last year became executive chairman of L1 Ener-gy, the $10 billion oil and gas investment arm of LetterOne Holdings—to uncover his think-ing about disruption and his advice to business leaders on how to be more aggressive in the pursuit of change.

IQ: You talk in Connect about the impor-tance of engaging with society to build a sustainable business strategy. Why is that important?Lord John Browne: When I was at the Stan-ford Graduate School of Business, I made the observation that while business is one of the most important motors of human progress, societies have consistently demonstrated dis-like of many parts of business. They don’t like businesspeople because they appear to be doing things simply for their own self-benefit, not for the benefit of anybody else.

We’ve seen it again and again over the course of history, and it continues today. I have been a great advocate for the highly re-sponsible use of hydrocarbons in the light of risks of climate change since the mid-’90s, but there are still a lot of people who say, “It doesn’t matter what happens. We just have to stop using hydrocarbons.” That sort of debate isn’t useful because the fact is that we do need to use hydrocarbons for quite a long time, but we need to use them more efficiently and in

“In business it’s easy to say, ‘Look.

We’ve invented

something that’s great. It’s good for

you. Have it.’ It needs to be the other way

around. We have to say to people, ‘What do you want?

How can we help you?’”

—Lord John Browne

PHO

TO C

OU

RTES

Y O

F T

HE

CLI

MA

TE

GRO

UP

Lord John Browne stands behind the podium at the 2006 Climate Change conference hosted by BP.

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externally it didn’t change things overnight. But soon people figured out that the commis-sion was actually independent, and it made everything possible.

IQ: Why do many companies struggle to anticipate disruptive threats?JB: In the end, to deal with disruption you have to do just a few things. First, you’ve obvi-ously got to be acutely aware of your context. You can’t exist in a bubble. So many compa-nies—and I’ve been there and done it—get caught up in the stuff going on internally that they live in a bubble. Sometimes you’re sur-rounded by people who live in a bubble.

An understanding of the wide context is so crucial. It is very uncomfortable to think about as well because you actually have to think about existential threat. That’s not easy for people to discuss. That’s a very big thing.

Secondly, you really have to keep reminding yourself of purpose in life. Purpose is not ful-ly satisfied by simply thinking of shareholder returns. Shareholder returns are an outcome, a very important outcome, but the purpose has to be higher than that. Otherwise you will

tribes were at war, and people had overfished the bay and cut down some of the rain forest for palm oil. Then here comes BP, a company with the right intention, who bought a gigan-tic gas field that was inconveniently located under a couple of villages.

Initially, the engineers said, “It’s obvious. We need to move the villages.” It made sense from an engineering standpoint, but it was a bizarre idea when you think about the context of operating in a community where nobody trusted anybody. Instead, we worked around the villages, which was more difficult but bet-ter for the community. We also gave prefer-ence for employment to local people, and set up employment centers away from the villag-es to prevent carpetbaggers from coming in.

It was a wonderful plan, but no one believed it. So we set up an independently financed monitoring commission, led by former U.S. Sen. George Mitchell, to monitor what BP was doing. A critical rule for the monitoring program was that he would write reports that would not be reviewed by BP before they were published. That was the radical bit. Internally, of course, this did not go down that well, and

Lord John Browne

speaks during the 2016 IHS

CERAWeek conference in

Houston.

“Shareholder returns are

an outcome, a very important

outcome, but the purpose

has to be higher than

that.” —Lord John Browne

IHS

CER

AW

EEK

PH

OTO

BY

F. C

ART

ER S

MIT

H/B

LOO

MBE

RG V

IA G

ETT

Y IM

AG

ES

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50 INSIGNIAM QUARTERLY | Fal l 2016

look for a real solution together has to be the way to go.

IQ: How can companies identify the social disruptors they should focus on? JB: First every company has a specific skill or skills. They’ve got to think about the piec-es that are good for them today and for to-morrow. In the case of Pepsi and Coke, for instance, they have to worry about obesity; Anheuser-Busch has to worry about alcohol-ism. I think oil companies and utilities have to worry about climate change. There are a whole variety of these big social issues that neatly fall into the purview of a company.

The second consideration is the impact of the changes in technology and consumer be-havior, whether that is how people live in cities or what can be done by machine-aided activity that would otherwise have been done by peo-

probably suboptimize and not produce the right shareholder return.

IQ: How do executives need to change their way of thinking when approaching disruption? JB: In business it’s easy to say, “Look. We’ve invented something that’s great. It’s good for you. Have it.” It needs to be the oth-er way around. We have to say to people, “What do you want? How can we help you? You’re part of this society we’re serving. How do we get on with you?” That’s about engagement, I think.

The same is true with the big debate on climate change, which is still raging with the big oil and gas companies. I do think that resisting, which is what most of the oil and gas companies are doing, is actually fu-tile in this area. Engagement with society to

“Flexibility costs money, but it actually costs less than totally restructuring when you build something that is wrong for the future.” —Lord John Browne

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experience was Intel. I had the great privi-lege of serving on the board of Intel Corp. under the chairmanship of Gordon Moore when Andy Grove was the CEO. That com-pany moved from memory into micropro-cessors when leadership saw a disruption coming, and it got there before anybody else. It was absolutely amazing. It is one of the great examples of realizing what was happening in the marketplace and creating the disruption for the future.

IQ: Are there any companies that you think are great examples of doing it wrong?JB: No, I’ve never met anybody who does it to-tally wrong. The major disruptions at the mo-ment are based in both the sharing economy and the virtual economy. Those disruptors are reaping both the reward and the consequenc-es of it. The reward is growth; people want to have that flexibility. The consequences are a great rumbling of the regulators, like we’ve seen with Uber (see “When a Disruptor Meets Regulators,” at left).

It’s important for the companies to tend to all these things because you never know. If you bury a volcano, it may just blow up one day. So while these organizations are certainly dis-rupting and doing it pretty well, there’s a lot of unattended business. Of course, as they’re disrupting, every disruptor creates an opportu-nity to be disrupted themselves.

IQ: What advice do you have for CEOs about identifying and dealing with disruptions that are on the horizon?JB: I would say that the most important thing is to recognize that every single industry is dis-rupted at one time in its life. The best thing is to surround yourself with people who don’t think like you, and get out of the bubble that inevitably is created around you. IQ

ple. That’s unstoppable. In my whole business career going back to the ’60s, that’s been an impact. It just gets faster and faster and faster. We have to think through, “Where does the disruption take us, and what do we want to do? What are we building today to meet that need? Can we maintain flexibility?” Flexibility costs money, but it actually costs less than to-tally restructuring after you build something that is wrong for the future.

In the case of oil and gas, for example, I think people do have to think about the fol-lowing: If we are to burn oil and gas, we need to do something to limit the amount of car-bon dioxide that goes into the atmosphere. Can we capture it? Can we use it? Can we store it? It’s the same with methane, natural gas. You can’t let natural gas go into the at-mosphere. It’s much more damaging in terms of impact on climate change than CO2. You’ve got to keep it tightly stored even in transporta-tion. Do we have the right technology? Do we have the right monitoring?

Third, what else do we do with all these [disruptors and skills]? What other business should we be in? For example, if you’re in oil and gas, should you create a business strategy to produce electricity from renewables?

Finally, specifically for oil and gas, you real-ly have to think very carefully about how to at-tract great people into an industry that many young people view as substandard. That, I think, is a very important challenge. Young people want to go to startups. They want to go to a bunch of other places in Silicon Valley or Silicon Roundabout in London and create a startup, create an app, do something different for the future.

IQ: Can you give an example of a company that handles disruption well? JB: The very best example in my personal

Sometimes quintessential disruptors find themselves on the defensive. Take Uber, which is seeing regulators ban or partially ban its service in countries around the world. While it is unlikely the company’s rapid growth can be easily slowed, it has undoubtedly hit a few speed bumps. Lord John Browne says Uber needs to tread carefully.

“It is this real question about how to engage with regulators,” he says. “When do you actually reject what they say and contest it? When do you cooperate? When do you concede? When do you work with them to change regulation in a transparent way?”

“I’m not trying to buy the regulator cooperative,” he continues. “I think it’s a very important consideration that all industries should think about. Every industry has regulations that ensure fair play between the people who are competing or has set standards for the safety of the general public. I think those choices by CEOs are very critical.”

When a Disruptor Meets Regulators

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Booking.com CEO Gillian Tans says her company can deflect all threats by doing what it h as always done: empowering employees

a nd focusing on continuous improvement.

BY SARAH FISTER GALE

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If you were going to choose a poster child for modern business disruption, Airbnb would certainly make the short list. According to The Wall Street Journal, the com-pany currently has a $25.5 billion valuation. To put that in perspective, Marri-ott, which manages more than 4,000 hotels, is valued more than $4 billion lower.

Airbnb’s rapid incursion and the growth of the broader home-sharing economy have companies acting fast to grab a portion of the market: Last No-vember, Expedia made its biggest-ever corporate ac-quisition, purchasing holiday rental platform HomeAway for $3.9 billion.

None of this seems to worry Gillian Tans, CEO of the world’s largest accom-modation booking website, Booking.com. The company has been around since the dawn of the internet age (see “A History of Disrup-tion” on Page 54) and is con-fident that its long-standing innovation-oriented culture of employee empowerment and commitment to re-search-based decision-mak-ing gives it an advantage over competitors new and old.

“It is important as a busi-ness to always stay agile,” says Ms. Tans, who was named CEO in April. “The marketplace is always changing, and if you aren’t agile enough to respond, you won’t be able to change with the times.”

An Empowered CultureOne of Booking.com’s key tenets is to create a frictionless experience for each and every customer who uses its service. According to Ms. Tans, delivering on that goal has meant developing a culture where employees are encouraged to continuously look for ways to improve the customer experience at every point in the travel journey.

The company’s recruiting team actively

Booking.com CEO Gillian Tans says her company can deflect all threats by doing what it h as always done: empowering employees

a nd focusing on continuous improvement.

BY SARAH FISTER GALE

“The marketplace is always changing, and if you aren’t agile enough to respond, you won’t be able to change with the times.” —Gillian Tans, CEO, Booking.com

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seeks out entrepreneurial employees who are not afraid to constantly suggest what they could do better—and then to do it. “It’s all about empowerment,” Ms. Tans says. Booking.com has a relatively flat hierarchy of self-steering teams expected to make their own decisions. “We try to put decision-mak-ing as low as possible in the organization so we can move quickly,” she says. “If you have to go all the way to the top to approve every decision, it slows everything down.”

This decentralized approach can lead to failures, but Ms. Tans sees that as essential to what Booking.com does as a tech company. “The quickest way to innovate successfully is to make lots of little mistakes on your way to getting it right,” she says. “If you’re afraid of failure or getting it wrong, you’ll never truly innovate or disrupt the market. You’ll never test out those crazy, off-the-wall ideas that may actually be genius and make your product better for your customers. We cel-ebrate failure at Booking.com because it’s a moment for us all to learn.”

This empowered culture also helps recruit tech professionals, who can be notoriously difficult to attract in the current war for IT talent. “It helps that we aren’t based in Sili-con Valley, where everyone is fighting for the same people,” Ms. Tans says. The compa-ny’s chief technology officer says he spends roughly 30 percent of his time on recruiting efforts to be sure the company can find and keep the best people.

Booking.com’s global recruiting efforts have resulted in a workplace with more than 85 nationalities at the Amsterdam headquar-ters alone. “Our diverse and international workforce is representative of our business,” Ms. Tans says. The company has also invested in having local talent on the ground to build partnerships with accommodation providers.

Booking.com began in the Netherlands in 1996, offering online accommodation booking to Dutch travelers. When CEO Gillian Tans joined the company as COO in 2002, it had just a handful of employees—mostly software engineers—and about 300 customers, mostly in Holland. But from the start, Booking.com took a different approach than most of the booking websites of the day (or even of today) by adopting an agency (pay at the property) model of service instead of the merchant (pay upon booking) model.

According to travel news and information site Skift, “Using a Booking.com extranet, hotels could set their own rates and room allocations, and collect payment from guests at the property. Commissions to Booking.com started at 12 percent instead of the 25 per-cent to 30 percent margins given to the other [online travel agencies] and having to wait months to collect on prepaid bookings.”

This helped the company skip cumber-some negotiations between properties, which, according to Skift, often led to disagreements and lengthy discussions over issues such as brand standards, rate parity, search results display and room allocations.

“We’ve always been disruptive,” says Ms. Tans, pointing to the fact that Booking.com began online in 1996 when everyone else was still brick and mortar. This approach is what ultimately made it an attractive acquisition for the Priceline Group. In 2005, the company was acquired for $135 million by the U.S.-based organization. Today, Booking.com is the largest accommodation booking site in the world and Priceline’s biggest brand by far. In fact, the acquisition of Booking.com is largely credited for Priceline’s current success—its profits grew from $10 million in 2003 to $9.2 billion by 2015. Boasting relationships with more than 970,000 properties, Booking.com books almost twice as many rooms per night as its next biggest competitor, Expedia.

A History of Disruption

“We try to put decision-

making as low as possible in

the organization so we can move

quickly. If you have to go all

the way to the top to approve every decision,

it slows everything

down.” —Gillian Tans

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quarter ly. insigniam.com | INSIGNIAM QUARTERLY 55

wanted the site to feature videos showing off their properties. But during testing, customers did not watch them. “It made sense based on how long people want to spend on the site,” Ms. Tans says. Not only did the testing help Booking.com determine video was not a good choice for the business model, but it also helped them prove to property owners that video was not the best way to drive business.

“Even if you think you know what the cus-tomer wants, you need to follow what they actually do to be sure,” she says. “When you make decisions based on data, you can trust that you’ve made the right choice.”

Ultimately, this self-driving culture and data-driven approach shapes Booking.com’s home-sharing offerings. Ms. Tans says Book-ing.com has a smoother booking process than sites like Airbnb, with features such as instant-ly accessible room availability so customers can book on demand rather than have to wait to hear from property owners whether their shared space is open. That is especially im-portant in a mobile booking environment, she says. “If you are booking a room via mobile, you don’t want to wait around.”

Today, Booking.com offers more than 6.6 million bookable rooms in “non-hotel” options, including villas, homes and apart-ments, compared to Airbnb’s 2 million loca-tions. Yet, despite these numbers, Booking.com cannot afford to rest on its laurels. The competition remains fierce. “In terms of the global market for accommodation, there are still so many amazing stays out there to bring to our customers,” Ms. Tans says. “The key to powering our ongoing growth and ex-ceeding traveler expectations is to leverage technology to innovate in new ways so that we can continue to source diverse accom-modation options of every possible kind in a smart, scalable way.” IQ

Global Dominance For the fourth year in a row, Booking.com is the world’s most popular website for booking accommodation. Here is the breakdown across select countries. Thailand1. Booking.com2. Agoda.com3. Expedia4. Hotelbeds5. GTA

United Kingdom1. Booking.com2. Expedia3. TheBookingButton4. LateRooms.com5. Agoda.com

Spain1. Booking.com2. Expedia3. Hotelbeds4. GTA5. Grupo Hotusa

Germany1. Booking.com2. HRS3. Expedia4. Hotelbeds5. TheBookingButton

Australia1. Booking.com2. Expedia3. TheBookingButton4. Wotif5. Agoda.com

These teams are better able to understand the unique cultural demands of travelers from different countries and discuss ideas for how each website can and should work for those different countries and cultures.

Test to Be SureTo ensure all the choices being made by its self-governing project teams align with strate-gic goals, the company relies on technology and data analytics.

Booking.com tests every choice it makes on the site, Ms. Tans says, from big decisions about which properties to feature on the home page and what kinds of content to of-fer travelers, to smaller choices like where to put a button on the page and what color that button should be. Ms. Tans estimates the de-velopment team runs up to 1,000 such experi-ments on the site daily. “We didn’t just build a beautiful website and put it online,” she says. “We are constantly looking for ways to im-prove it. It’s important to always focus on data and what is measurable.”

Every choice starts with an A/B testing ex-periment: Two options are tested on the site, then data is tracked regarding how customers responded to each option and analyzed to de-termine which one (if either) led to “positive conversions”—i.e., whether one choice drove more bookings than the other. This test meth-odology is critical, Ms. Tans says. “If you have 10 good ideas, but only one of them is going to succeed, the chance that you will make the wrong decision is pretty big. We have always believed that it is better to take a lot of small steps to see what works.”

Some seemingly good ideas just do not pass the tests. For example, early on, executives were convinced the site needed a live chat fea-ture, but when they tested it on the site, no one used it. Similarly, many partnering properties

Even if you think you know what the customer wants, you need to follow what they actually do to be sure. When you make decisions based on data, you can trust that you’ve made the right choice.” —Gillian Tans

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GAME CHANGERS

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Digital technology could mean the end of traditional bank branches, so Singapore-based DBS Bank built a plan that rides the wave.BY KELLEY HUNSBERGER

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he f u tur e o f f inancial ser v ices is p lay ing

ou t in a ra ther mundane ac t car r ied ou t

by mi l l ions o f people ar ound the wor ld

ever y day: or der ing fas t f ood. A small but forward-thinking shift occurred last year after Singapore-

based DBS Bank unveiled an app allowing customers to submit and pay for an order at their local fast food joint. When the food is ready, users head straight to the counter to pick it up. No lines, no waiting. This type of service is not especially novel. Starbucks, for example, offers a similar app-based service for its customers. But it is the first for a bank and represents where the industry is headed, says Piyush Gupta, CEO of DBS Bank.

“I keep coming back to this general idea that banking as a separate activity could disappear and get embedded in the things people do,” Mr. Gupta says. “Why are libraries not as popular? Because people did not want the libraries, people just wanted the information. If Google can give you the information a hundred times a day, then you don’t need the library. Similarly for CDs. CDs are a means to listen to music, but if we can get it on Spotify or iTunes, why do you need a CD?”

Such disruption seems unlikely in an industry so essential to everyday life. Yet there are powerful harbingers that a day of reckoning is on the horizon for financial services.

Part of the existential threat traditional banks face involves a booming private fintech industry that in the first quarter of 2016 saw $5.7 billion in funding poured into different efforts. Despite that massive cash influx, Mr. Gupta foresees the biggest source of competition for DBS coming from outside the industry.

“It’s the companies like the Alibabas or the Facebooks—that have hundreds of millions of customers on a platform—that would find it easier to introduce the digital set of financial services and products to their existing customer bases,” he says. “Take Apple, with Apple Pay.

Quick HitsThe Challenge: Facing extreme disruption—and competition from inside and outside of the financial services industry—CEO Piyush Gupta knew DBS Bank had to thrive, not simply survive.

The Plan: DBS would transform by shifting its culture to truly em-brace digital and focus squarely on serving customer needs.

The Execution: The company encouraged employees to map out customer needs, desires and context, and embedded digital into everything.

The Result: DBS has gained market share in several key areas and won multiple awards for its innovation.

“I keep coming back to this general idea

that banking as a separate activity

could disappear and get embedded in the

things people do.”—Piyush Gupta,

CEO, DBS Bank

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quarter ly. insigniam.com | INSIGNIAM QUARTERLY 59

Its ability to get global traction will be much larger principally because it has the customer profile and customer base.”

Unsurprisingly, disruptive paths are also being paved by the notoriously disruptive millennials. More than 30 percent of them predict they will not use banks in the future, according to a three-year survey released in 2014 by Scratch, a unit of Viacom. Indeed, nearly three-quarters of millennials said they would be more excited about a new offering in financial services from Google, Amazon, Apple, PayPal or Square than from their own nationwide bank, according to the survey.

To battle this potential disruption, Mr. Gupta knows DBS must change. Since he signed on as CEO in 2009, the company has been in full-on transformation mode backed by three core pillars:

1. A shift in the companywide culture2. A repositioning of the role of digital 3. A greater focus on how the bank can best serve its customers

O n L e a d e r s h i pPiyush Gupta, CEO of DBS Bank, discusses leadership in an age of extreme disruption.

IQ: How do you stay on top of your game as a leader?Piyush Gupta: I read a lot and listen a lot. I think reading is an underrated activity. I read about what’s happening around the world, and I talk to a lot of people, including other bank CEOs and people in other industries, just to keep learning what’s happening. I also talk to a lot of the young people at DBS through an anonymous email process. People can write to me about what they think is wrong and what they think we should be doing.

IQ: What keeps you up at night? PG: A lot of investors are beginning to ques-tion whether financial services is an appropri-ate sector to invest in. On top of that, you have the Alibabas of the world eating your lunch. If you do not get this transformation right, you will neither get investor capital nor frankly be able to have any kind of good strategy. That’s the single biggest challenge we have.

IQ: What advice do you have for CEOs when it comes to disruption? PG: We had a conference a year ago, and one of the younger people who runs a B2B platform in China said the word should not be “disruption,” it should be “transforma-tion.” His point was that disruption assumes that some of the young startups are going to come and eliminate you, but really there’s nothing that a young startup can do that you can’t do. You have more resources, you have access to the same technology. Nothing is different. But your capacity to transform is massive if you’re willing to take on the challenge.

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It is a transformation Mr. Gupta sees as too big to fail. “You have to have the consummate belief that if you don’t do something, you’re going to die.”

Spreading the JoyDBS’ current mission is to make banking joyful. At the heart of the seemingly Disney-esque goal is a stat Mr. Gupta often references: Nearly three-fourths of millennials would rather go to the dentist than listen to what banks are saying. “That’s a terrible place to start,” he says. “But if we can figure out a way to make banking joyful and DBS a joy to be with, then we can competitively position ourselves in a very different way from anybody else.”

Living up to that mission means changing the DBS culture into one that makes every decision based on what is best for the customer. “When people compare us to the startups or even the Googles or Apples, it really boils down to, ‘You’re conservative, you’re fuddy-duddies, you’re old-fashioned and you’re inward-looking.’ So how do you change the culture to be more like Google and Facebook?”

DBS started by implementing a process-improvement agenda, its own version of the five-day GE Work-Out framework through which groups gather to discuss specific process improvements. In doing so, DBS landed on the notion of customer journeys. By mapping customer needs, desires and context, DBS would create a better experience. Mr. Gupta says the approach “galvanized” the company.

“Our people found a very easy rubric for [when to innovate and suggest change]. It was simple: If it made sense for the customer, it’s probably okay to try and do it,” he says.

Today, DBS has an executive director who heads all customer journey design and development. All managing directors

D B S B a l a n c e S h e e tHeadquarters: Singapore

Total Assets (2015): SGD$458 billion

Annual Income: SGD$10.8 billion

Branches: 280+

Institutional Banking Customers: 200,000+

Customers: 6 million+

Key Markets: Singapore, Hong Kong, China, Taiwan, India, Indonesia

Source: DBS Annual Report 2015

“ D i s r u p t i o n a s s u m e s t h a t s o m e o f t h e y o u n g s t a r t u p s a r e g o i n g t o c o m e a n d e l i m i n a t e y o u , b u t r e a l l y t h e r e ’ s n o t h i n g t h a t a

y o u n g s t a r t u p c a n d o t h a t y o u c a n ’ t d o . ”

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company expanding the concept into other large markets, including Indonesia and China.

“In the past, you would have to build out a large brick-and-mortar network if you wanted to go to these countries. And the truth is you’d be competing with banks that have 10,000 or 15,000 branches,” Mr. Gupta says. “To build that kind of retail distribution network takes a payback of 20 to 25 years. In today’s economic environment, nobody has those pockets, and no investor has the appetite to give you the leeway to do that.”

Only the BeginningDBS is starting to show signs of breaking away from the traditional financial services pack, scoring multiple banking innovation awards in 2015 and gaining on the competition. “For a long time, DBS was stagnating, and most of the first decade of the century we gave up market share in most of our key lines of business,” Mr. Gupta says. “In the last few years, especially in our core markets—Singapore and Hong Kong—we started to gain market share in most business-to-consumer and other areas.”

More encouraging to Mr. Gupta and other executives is that DBS employees are adopting the transformation agenda. “We embarked on a very different approach, which was to really capitalize change across the entire company,” he says. “And today I feel quite good about the fact that we’re really seeing a hundred flowers bloom in the company. Individuals are stepping up.”

Despite these wins, Mr. Gupta is quick to point out that DBS is still learning. “We’re embracing the challenge, but that’s by no means to suggest that we have won the game. … To me, the bulk of the disruption is ahead of us.” IQ

who report to the C-suite have taken on an innovation target and are required to either map a customer journey themselves or take their team through one.

Mr. Gupta also challenged his talent development team to engage the rest of the company in thinking through the role digital can play in improving the customer journey. From there, the talent development team landed on the idea of hackathons as a sandbox for experimentation. The hackathon typically kicks off with a workshop that reiterates the importance of the digital mindset. Participating employees are partnered with startups to develop apps focused on customer engagement. “Then we basically threw them into a warehouse for a week with pool tables and beer and rave music. They worked 72 hours around the clock with the intent of coming up with an app.” The expectation was not necessarily to add any of the apps into the bank’s product rotation, Mr. Gupta says, but instead to free employee minds. “The hackathon energized a lot of people into believing, ‘Hey this can be done. I know how to do this.’”

Let the Revolution BeginBecoming a customer-centric organization required radical changes to the role of digital within DBS. The company’s leadership realized it needed to embrace the fact that digital has knocked down barriers to entry in markets where it competes with more established institutions. So earlier this year, the bank expanded in India to include retail banking. Instead of relying on physical branches, DBS is using a mobile-based digibank that caters to customers with 24/7 assistance and the ability to open an account without any paperwork.

If DBS can make this branchless banking work in India, Mr. Gupta envisions the

“If we can figure out a way to make banking joyful and DBS a joy to be with, then we can competitively position ourselves in a very different way from anybody else.” —Piyush Gupta

—Piyush Gupta

“ D i s r u p t i o n a s s u m e s t h a t s o m e o f t h e y o u n g s t a r t u p s a r e g o i n g t o c o m e a n d e l i m i n a t e y o u , b u t r e a l l y t h e r e ’ s n o t h i n g t h a t a

y o u n g s t a r t u p c a n d o t h a t y o u c a n ’ t d o . ”

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The State of

Cyber attacks

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Digital security moves from the IT department to the C-suite.BY SAMUEL GREENGARD

Cyber attacks

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ore than 200,000 homes in the Ukraine were left without power for hours last December when a group of hackers took 30 regional substations offline. It was the first major power network to be taken down by a cyberattack—and is an unsettling example of the escalating impact of cyberattacks in recent years.

The list of targets breached in the past two years alone reads like a veritable “who’s who” of business and government: MySpace, eBay, Bangladesh Bank, British Airways, Facebook, Japan Airlines, the Korea Credit Bureau and the Australian Immigration Department, just to name a few. The message seems clear: No organization is safe. Including yours.

According to the World Economic Forum’s Global Risks Report 2016, business leaders in eight countries, including Japan, Germany and the United States, view cyberattacks as the top operational risk. “While traditional

industries are using digital systems to introduce greater automation and efficiencies, hackers and attackers are using the same technology to completely revolutionize the way crime takes place,” says Raj Samani, CTO for EMEA at Intel Security and a member of Europol’s Cybercrime Centre advisory group. “Malware and USB sticks have replaced guns.”

The average annualized cost of cybercrime for an organization is $7.7 million globally, according to a report from the Ponemon Institute

and Hewlett-Packard. But cyberattacks trigger indirect costs as well. According to cybersecurity leader FireEye, 76 percent of U.S. consumers are likely to stop purchasing from a company if a data breach is found to be linked to a failure to prioritize cybersecurity. More than half have a negative perception of companies that suffer a breach.

The New Threat Landscape

Only a decade ago, computer viruses and other malware were usually little more than a nuisance. An infected system might display erratic behavior or lock up. In most cases, antivirus software could fix the problem and restore operations to normal. However, over the last few years, the nature and danger of threats has changed dramatically. “Attackers and threats are much stealthier,” says Troels Oerting, group

Support a proactive security strategy: 32%

Build a security culture: 17%

Have security program oversight: 11%

Recruit security personnel: 9%

Ensure financial support: 9%

Balance security with productivity: 8%

Collaborate with external entities: 6%

Support security across silos: 4%

Have security crisis management in place: 4%

What is the most important thing the C-suite/board can do to support data security?

Source: Economist Intelligence Unit, Data security: How a proactive C-suite can reduce cyber-risk for the enterprise, 2016

Page 67: Insigniam Quarterly Fall 2016 — Disruption

chief information security officer (CISO) at U.K.-based Barclays. “They are focusing higher up the food chain and looking to inflict major damage.”

So-called “low” and “slow” attacks—which may involve cybergangs lurking in systems for weeks, months or even years—are designed to collect data and information drip by drip until the perpetrators have what they need to carry out a theft or attack. “We have moved from noisy and easy-to-detect attacks with a large and obvious footprint to methods that are more difficult to detect,” says Joshua Goldfarb, vice president and CTO at FireEye.

No less disconcerting is the fact that some of today’s critical infrastructure relies on old and often obsolete systems and software. This makes modern protections, such as data encryption, malware detection and security patches and upgrades, difficult to implement. Until IT system upgrades are made, attackers see easy targets.

Even HVAC systems in modern buildings might pose a threat for intrusion. In some cases, criminals may enter these systems and, if they are tied into a primary computer network, break into data stores and files.

It is a simple yet profound concept. “Basically, any time you put anything on the network, you are giving people access to that device or that object,” Mr. Goldfarb says. And the risks increasingly extend beyond mobile phones and direct network connections. “Connected Internet of Things devices can now serve as the launch point for attacks.”

Start With Security in the C-SuiteClearly, the external threat facing companies is real and growing. But there is an internal threat as well: complacency. Despite a plethora of cautionary tales, many organizations still fail to

“While traditional industries are using digital systems to

introduce greater automation and efficiencies, hackers and attackers are using the same technology to completely

revolutionize the way crime takes place. Malware and USB sticks have replaced guns.” —Raj Samani, CTO for EMEA at Intel Security and

member of Europol’s Cybercrime Centre

advisory group

Facebook headquarters

PHO

TO C

OU

RTES

Y O

F FA

CEB

OO

K

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66 INSIGNIAM QUARTERLY | Fal l 2016

proactively respond to the looming threat of cyberattacks. According to a 2016 report by Barclays and the United Kingdom’s Institute of Directors, 91 percent of business leaders believe cybersecurity is crucial, but only 57 percent say they have a formal strategic framework in place to protect their organization.

“Our report shows that cyber must stop being treated as the domain of the IT department and should be a boardroom priority,” Richard Benham, author of the report and CEO of the United Kingdom’s National Cyber Management Centre, said in a statement.

In fact, support and awareness from both the C-suite and the boardroom are crucial factors when it comes to successfully impeding security breaches. Growth of cyberattacks and breaches was reduced by more than 50 percent in companies that had a security strategy backed by a fully engaged C-suite and board of directors, according to a 2016 report by The Economist Intelligence Unit.

“It’s difficult to obtain funding for essential systems and training if you don’t have the support and buy-in of the C-suite and the board of directors,” Mr. Goldfarb says. Adds Mr. Samani: “It’s impossible to

There is no panacea for all cyber-security threats—and that means companies must be willing to try innovative approaches to battle unseen digital foes. One such approach on the rise is bug bounty programs, in which organizations pay white-hat hackers to identify weaknesses in their cybersecurity systems.

Standard-fare tech companies such as Yahoo, Google, Facebook, Mozilla/Firefox and Microsoft have well-established bug bounty pro-grams. Collectively they have paid out more than $13 million in fees to hackers for finding vulnerabilities.

Over the past couple of years, however, new players and non-tech giants—including Deutsche Telekom, Samsung, Tesla, Star-

bucks, General Motors, the U.S. Department of Defense and Spo-tify—have been getting into the game. According to crowdsource cybersecurity agency Bugcrowd’s State of Bug Bounty 2016 report, “Overall, organizations from more ‘traditional’ indus-tries have seen year-over-year growth [in bounty programs]of over 217 percent on average, including financial services and banking, automotive, health care, education, telecommunications, hospitality, real estate, utilities and consumer goods.”

In August, Apple said it would pay rewards of up to $200,000 to researchers who find critical security bugs in its products.

And earlier this year, Uber

announced it was launching a bounty program, offering fees of as much as $10,000 for critical issues. The ride-sharing company also provides the hackers with a “treasure map” that clues them in to some of the more vulnerable components of the system.

“Uber’s in 70 countries around the world now, so a one-size-fits-all model is definitely never going to work for us,” Samantha Davison, manager of security awareness at the company, said at this year’s Infosecurity Europe conference.

Yet despite the apparent surge in bug bounty interest, Bugworld’s report found that 94 percent of companies on the Forbes 2000 have yet to launch a vulnerability disclosure or bug bounty program.

Cyber Pest Control

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eliminate all risk. But the ability of all business leaders to understand risk in real-world ways typically translates into a better security framework.”

Waqas Akkawi, CISO at global relocation and moving services provider SIRVA, agrees. “The common approach is to view security technology as discrete tools and systems,” he says, adding that organizations must instead adopt a more integrated approach. “They must be smarter about understanding threats and building out a risk-based cybersecurity framework. It must be built into every business venture, project and process, and involve business and supply chain partners.”

For a growing number of organizations, bridging the gap between top leaders and the tech and IT teams has led to the creation of chief security officer or CISO roles in the C-suite. The U.S. government is following suit: President Barack Obama announced in February his intention to hire the country’s first CISO.

These top IT executives do more than just assess risk and design risk-based frameworks. They also provide regular briefings to the C-suite and the board, interface with business leaders across the enterprise and serve as the champion for security in everything they do. And, importantly, they understand the need to balance cybersecurity bells and whistles with what is most critical for a particular organization.

“There is no way any organization can build out a cybersecurity framework that will deliver 100 percent protection,” Mr. Goldfarb says. “No enterprise has unlimited resources. So it’s important to prioritize dangers, systems and alerts by understanding the top risks for an industry and a specific business.”

Know Thy EnemiesBefore organizations can decide how to best battle cyberattacks, they must first identify the enemy. At Barclays, combating cyberattacks starts with an assessment of the organization’s adversaries and their potential intent and motivations. “We use this analysis to estimate probabilities and impact of attacks,” says Mr. Oerting, who is also a member of Interpol’s Global Cybercrime Expert Group, where he advises the general secretariat on cybersecurity programs and operations.

Once that assessment is complete, Mr. Oerting and his team look at their defense, assessing vulnerabilities and controls. “In our response, we run 24/7 security and attack monitoring including incident response, coordination and defense,” he says. “We focus on securing our ‘crown jewels’ and controlling those with privileged access to our most valuable assets.”

For most organizations, a strong defense means implementing a multilayered approach using a group of technologies combined with

“It’s difficult to obtain funding for essential systems

and training if you don’t have the support and buy-in of the C-suite and the board of directors.” —Joshua Goldfarb, vice president and CTO, FireEye

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68 INSIGNIAM QUARTERLY | Fal l 2016

the right controls and processes. This includes traditional tools such as firewalls, antivirus systems, endpoint security, data loss prevention and desktop virtualization.

At a most basic level, Mr. Goldfarb says it is crucial to reduce the number of privileged accounts and establish strong authentication, including the use of two-factor authentication, to reduce the odds of a breach. “It is one of the most effective protections possible, and it’s a highly effective tool when cyberthieves have obtained a password through social engineering or other methods,” he explains. “If they are unable to provide the rolling code or other token through another device, they cannot get into the network.”

Companies should also use end-to-end encryption whenever possible, while data is both at rest and in transit. However, if an attacker steals an employee’s credentials and uses them to log in, it will be possible for him or her to gain access to the system and view decrypted data. That is why, as basic as it sounds, organizations need to institute a policy to de-provision old accounts promptly to prevent former employees from retaining access to files and data.

“Former employees and disgruntled employees are a serious, often-underestimated threat,” Mr. Oerting explains. One global cybersecurity firm, Stroz Friedberg, has made headlines with its new software SCOUT, which aims to detect insider threats before they happen. At the behest of executives, SCOUT will comb through a company’s emails using an algorithm based on linguistic tells and flag employee emails containing indicators of serious security threats. Although Stroz declines to identify most clients, it has reported working with companies such as Target, Neiman Marcus, Facebook and Google, according to Fortune.

Yet perhaps the most crucial piece of the cybersecurity defense puzzle is simply making sure employees and others using systems have adequate training on security best practices. That includes how to spot phishing emails, manage authentication and passwords, and protect laptops and mobile devices that can easily be stolen or compromised.

“It’s important to have critical controls in place so that people can’t download and install toolbars and apps that represent a real risk,” Mr. Akkawi says. “But it’s also important for employees and contractors to understand how and when they are engaging in dangerous behavior.”

Next-Gen ProtectionBeyond using currently available cybersecurity tools, organizations are now sizing up the defensive powers of an emerging slate of new technologies.

One promising area is analytics and behavioral analysis,

Source: Economist Intelligence Unit, Data security: How a proactive C-suite can reduce cyber-risk for the enterprise, 2016

How do boards/C-suites in organizations with higher growth in cyberattacks compare to those with lower growth in cyberattacks?

n Firms with higher growth in cyberattacks

n Firms with lower growth in cyberattacks

Security is a standing

board agenda item

The C-suite/board feels

it gets sufficient

information

22%

44%

There is a standing

board com-mittee on data

security

There are regular

“state of security”

reports

Security is factored

into board strategic decisions

The C-suite/board has necessary

expertise in data security

21%

33%

14%

27%

17%

24%

17%

31%

13%

14%

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quarter ly. insigniam.com | INSIGNIAM QUARTERLY 69

including advanced persistent threat analytics. Banks and credit card companies have used predictive analytics to detect unusual behavior and fraud for the last decade, and the technology is steadily expanding into cybersecurity as many traditional network-monitoring security tools gain more advanced analytics capabilities. The technology is also starting to utilize machine learning and artificial intelligence. Predictive analytics “can view patterns that are otherwise imperceptible to humans,” Mr. Goldfarb says. “It’s an area of great promise.”

Earlier this year, MIT and machine-learning startup PatternEx cre-ated a platform called AI2 that can predict 85 percent of cyberattacks. The system scours data for suspicious activity by grouping it into meaningful patterns. Those patterns are then presented to human an-alysts who confirm the accuracy of the identified cyberattacks, and the machine uses the feedback to improve its analysis.

IBM is similarly taking on cybersecurity with the help of AI—specifically its Watson supercomputer. The company plans to partner with eight universities that have advanced cybersecurity programs, including the University of Ottawa and the University of Waterloo, to train Watson in the language of cybersecurity before the cognitive cloud-based service is launched in beta form later this year.

Perhaps the most anticipated new tool, however, is blockchain—a data structure that uses cryptography to create a digital ledger of transactions and share it in a secure way among a distributed network of computers. Originally created to support the virtual currency bitcoin, the technology is now being adopted and tested by a growing number of companies, including 40 of the world’s top financial institutions, according to The Wall Street Journal. But banks are not the only ones expressing interest. In May, a U.S. panel on cybersecurity and cyberspace appointed by President Obama heard testimony on the technology from experts at IBM, and the United Kingdom recently inked a deal with cybersecurity firm Guardtime to develop blockchain solutions for critical infrastructure systems in the country.

Despite these promising solutions, there is no quick fix for cybersecurity threats on the horizon. Every company needs to approach the challenge with a unique tool set. A combination of end-user security awareness, simulations, ongoing testing and more advanced and integrated solutions spanning everything from mobile devices to applications is the best recipe for strengthened security. As Mr. Samani says: “It’s all about developing a framework and the right tools and technologies for minimizing risk.” IQ

“It’s impossible to eliminate all risk. But the ability of all business leaders to understand

risk in real-world ways typically translates into a better security framework.”

—Raj Samani

Predictive analytics are increasingly being used to combat cybersecurity threats.

IBM’s Watson supercomputer

Page 72: Insigniam Quarterly Fall 2016 — Disruption

The rate of change to the business landscape caused by the proliferation of digital is unlike anything we have ever seen.

As digital permeates almost every aspect of the way we live, work, consume and communicate, this new world order has the majority of organizations racing to embrace digital as quickly as possible—so much so that the term “digital transformation” has become a buzzword across all industries.

In fact, 80 percent of C-suite respondents view digital transformation as an important part of their company’s overall business strategy, according to a survey by the Technical University of Munich and SAP.

But while integrating digital technologies is certainly essential to thriving in today’s business context, it is shortsighted to think of it as transformative in and of itself. “Going digital” alone will not lead to breakthrough performance, improve your organization’s dominance over competition or ensure its future relevance. That is because digital is a tool, not a transformation.

“Going digital” is not a transformation—and it is time to stop thinking of it that way. BY GUILLAUME PAJEOT

True enterprise transformation, as Insigniam has been defining it for more than 30 years, is about reinventing what your company will be and what it will provide to the market in the future.

Push Beyond the Here and NowAn enterprise consists of a network of conversations. Its reputation, the way employees use business processes, its marketing position, its strategy, its client service, and every interaction each employee has, internal and external to the organization—these are all conversations. Therefore, the journey of digital transformation would seemingly begin with the question, “How can digital help us improve these conversations?”

This question, however, is a trap. It only looks at what already exists in an organization—the way it currently works and serves clients—and aims to adapt technologies to improve only what is currently being done. While this might produce some improved performance or efficiencies, it is not transformation. It is simply an upgrade, a change.

True transformations have a much more

significant impact. They require unhooking from the prevailing conversations that

influence how your organization has

Beware the Dig ital Trap

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operated in the past, creating a new vision, forging a new path, establishing goals that go beyond what is currently predictable, implementing new values and bringing every employee along for the journey. Instead of starting with “How can digital help?” transformations require grappling with a deeper set of questions, including:n How are we going to maintain competitive

advantages in the future? n Who are our customers of the future? n How are we going to talk to them? n How are we going to listen to them? n What do we exist for?

If you do not go beyond the here and now of your organization and start by addressing these questions, you will not achieve true transformation.

What Transformation Looks LikeImagine you are the CEO of a bank specializing in short-term mortgages. You decide it is time for an in-depth digital transformation, so you replace all paperwork with digital documents. You shutter branches and develop a sophisticated website and mobile application for clients to access those documents. You replace television and billboard ad campaigns with website banner ads. Your internal decisions and validation processes are integrated into a brand-new enterprise resource planning (ERP) system.

Have you transformed the company?That depends. For example, have you

responded to your clients’ expectations for transparency in the mortgage rates offered and accessibility to your staff ? Is the ERP

system more efficient, and does it help your employees

radically transform how they serve your

clients? If the answer is

“no,” then you

have simply digitized your business, not fundamentally transformed it.

Offering documents on a screen rather than in your hand will not give you a competitive edge against a bank that first reinvents its value proposition and the nature of its work to focus more on the clients than on internal procedures.

However, that does not mean digitization has no role in an enterprise transformation. Here is an example drawn from my time working in the insurance industry. A common client pain point was reconciling how home and auto reimbursements were calculated. To combat the problem, the company decided to become more transparent with its processes. It set up committees, each made up of a group of client peers, to review claim data and act as juries for settling claim challenges. In this way, frustrated clients would not find themselves debating the company.

Because all parties could not be expected to meet in person, the company decided to create a new digital platform—and that made all the difference in the program’s effectiveness. If the company had approached this need by asking, “How can digital help us?” and then looked at what was available in its existing digital toolbox, it would have missed this transformation opportunity. The online platform had yet to exist; the company had to invent it—but only after leadership unhooked from its previous way of working and set a commitment to being transparent at a totally new level.

What this company realized is a lesson for all to heed: There is transformation and there is “going digital.” These two concepts may often meet, especially in our tech-saturated world, but one does not beget the other. Transformations recreate the future. Digital simply supports that effort. IQ

Guillaume Pajeot is a partner with Insigniam.

“Going digital” alone will not lead to breakthrough performance, improve your organization’s dominance over competition or ensure its future relevance.

Beware the Dig ital Trap

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72 INSIGNIAM QUARTERLY | Fal l 2016

DEEP DISRUPTIONWhen a challenger transforms an entire

product category, incumbents are especially vulnerable. Survivors understand that being

first is not always the best idea.

By Rebecca Rolfes

ome victories presage deeper failures. Take BlackBerry. Just three years ago, the smartphone maker seemed to be hitting its stride. The BlackBerry Messenger application for iOS and Android could boast 10 million downloads in its first 24 hours. Its device was jocularly dubbed the “CrackBerry.” And

the company had 85 million subscribers worldwide. But that turned out to be the peak: BlackBerry now has fewer than 25 million subscribers and is in the hands of turnaround specialist John Chen.

What happened? In short, BlackBerry misperceived a brewing storm of disruption.

When the iPhone and Google’s

S

PERSPECTIVES

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Android mobile operating system were introduced in the late 2000s, Ontario, Canada-based BlackBerry did not see them as fundamental challengers. Apple was a computer company, not a mobile phone company. Android was a technology platform developed by Google. Neither was worthy of the name “competitor” as far as BlackBerry was concerned.

Instead, in response BlackBerry added some of the features these new products brought to the table, including camera, video, web browsing and music capabilities.

According to Joshua Gans, professor of strategic management at the University of Toronto’s Rotman School of Management, BlackBerry’s mistake was to think the iPhone and Android devices constituted demand-side

disruption: new features and functionality that changed what consumers would desire in a product or service.

In reality, however, it was not the demand that had been disrupted, but the supply. BlackBerrys did one thing very well: text communication. But Android and iPhone ushered in a completely new telephony architecture—emailing and texting became just one of many applications on smartphones. This process split the customer base into those who wanted a general-purpose hand-held computer and those who wanted primarily text-based mobile messaging. Unfortunately for BlackBerry, the market for the former turned out to be much bigger. The entire category of internet-enabled phones had been blown up, and BlackBerry had been left behind.

“The numbers are staggering,” says Mr. Gans, whose latest book, The Disruption Dilemma, was released this year. “When BlackBerry’s fall came, it came very quickly.”

While BlackBerry’s fate is not yet sealed—last November the company launched its Priv Android device and two more smartphones are expected to be announced later this year—it does serve as a cautionary tale for how detrimental supply-side disruption can be if executives do not have strategies in place to insure against such dramatic shifts.

SUPPLY-SIDE SHOCKSSupply-side disruption tends to initiate from a completely unexpected source. It is an “Uber moment,” a bolt from the blue. Mr. Gans says that in these cases, disrupted companies often accelerate their own downfall by focusing too narrowly on what their customers want. “Companies think, ‘Of course, I should ask my customers before spending a lot of money developing something,’” he says.

“If you want to last forever, you have to sacrifice the short term.” —Joshua Gans, professor of strate-gic management, University of Toronto’s Rotman School of Management

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74 INSIGNIAM QUARTERLY | Fal l 2016

“But when you ask your customers, ‘Do you want these new things that my competitor is offering?’ they will say no because they’ve never seen those things before and can’t imagine needing them.”

When new entrants come onto the scene, it is easy for incumbents to adopt an attitude of superiority because the new player is likely not as good as the existing market leader, and its idea may not be fully formed. “What customers first see is sort of crappy,” Mr. Gans says. “But eventually, customers want that instead. For example, the original iPhone was a terrible phone, so companies like Nokia didn’t worry about it.” That is what can make supply-side disruption so difficult to predict and so potentially devastating.

With demand-side disruption, “you can eventually claw your way back,” Mr. Gans says. “You can adapt and catch up. Supply-side disruption can really kill you. It’s very hard to claw your way back.”

Clayton Christensen, author of the seminal 1997 book The Innovator’s Dilemma, which focuses on demand-side disruption dynamics, says the prescription for surviving disruption is to form autonomous internal teams that work on disruptive innovation. In research for The Disruption Dilemma, however, Mr. Gans found very little evidence that this approach can insulate against supply-side disruptions.

Supply-side disruption can come from anywhere; no company can anticipate every eventuality. Even when organizations do manage to make predictions about potential supply-side disruptors, no amount of R&D will ensure that they get it right. “Google thought Facebook would be a threat to search, so they set up Google+. But Facebook has never become a search

competitor,” Mr. Gans says. “Google+ was a waste of time and resources.”

To combat potentially fatal supply-side disruptions, Mr. Gans offers three prescriptions: n Do not strive for first place at all costs.

The best example is Canon. It was never a market leader but was reliably No. 2 or 3; it survived. As the photolithographic industry moved from one new architecture to another, Canon invested in different generations of technology and made sure key personnel were experienced in each. Learning from each new generation and launching new products took time, but Canon effectively relinquished first-mover advantage in favor of longevity.

n Own a feature important to the end user. Mergenthaler Linotype is hardly a household name and is burdened with the completely outdated reference to “linotype,” but it survived massive disruptions in photographic processes and digital technology. The key was that Mergenthaler owned something that mattered to the end user regardless of technology: fonts. A publication with a signature design had to purchase certain proprietary fonts from Mergenthaler. That reliable revenue stream bought the company the 10 years it needed to develop a new machine with up-to-date technology.

n Have a strong sense of corporate identity. Fujifilm never led the market in photographic film. So how did it survive while Kodak faltered? Fujifilm exploited its strong corporate identity while transforming itself from a film company into an image company. “That required a very different organizational structure,” Mr. Gans says. Once it made structural changes, “Fujifilm could see potential opportunities that would never be open to Kodak. They

“Google thought Facebook would be a threat to search, so they set up Google+. But Facebook has never become a search competitor,” Mr. Gans says. “Google+ was a waste of time and resources.”

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ins igniamquarter ly.com | INSIGNIAM QUARTERLY 75

Demand-Side DisruptionNew entrants offer product

innovations that end up felling incumbents with blind spots.

Supply-Side DisruptionInnovations redefine the entire architecture of a product rather

than just certain features. Blindsided, incumbents often fail to face up to fatal threats.

Source: The Disruption Dilemma, Joshua Gans, 2016

had a more diversified portfolio. They were much more resilient than Kodak.”

SLOW AND STEADY WINS THE RACEThe overarching lesson: Companies have a choice between being fast and first, or slow and surviving.

“That’s why I call it a dilemma,” Mr. Gans says. “Executives can either lead for the short- and mid-terms or choose to be there for the long term. If you want to last forever, you have to sacrifice the short term.”

This does not mean slow organizations cannot lead, however. For example, no one

“Supply-side disruption can really kill you. It’s very hard to claw your way back.” —Joshua Gans

would ever think of Apple as a slow-moving company lacking dynamism. “They take a year or two to do things,” Mr. Gans says, “but then they do them very, very well. They wait and wait until they understand what they want to do. They finally unveiled a stylus for the iPhone, for instance, when the stylus has been around forever.”

Companies that choose to lose the first-mover advantage may not be as efficient every step of the way, but they do survive. This means CEOs have a choice: Go after profitable market positions even though they are usually transient, or organize for sustainability. IQ

Page 78: Insigniam Quarterly Fall 2016 — Disruption

1. They create bold futures. Transformative leaders do not let the future happen to them. They take a stand and determine what they want the future to be, and then make it so.

2. They act in the face of uncertainty. When visibility is clouded or roadblocks materialize, transformative leaders do not fade away and give up. Instead, they push forward—never reck-lessly—to seek out their goal, even if they are not sure it is the “right” way forward.

3. They blaze trails. They do not limit themselves to what has been done. Instead, they understand they must forge a new path in the marketplace to create breakthrough results.

4. They bring others along. Transformative lead-ers do not enter the future alone, nor do they force people to follow or comply with them. They enroll oth-ers in their vision, gaining their commitment to the cause through conversation and authenticity.

5. They create order out of chaos. Innovation is unpredictable and can often lead to chaos. Transforma-tional leaders must navigate that complexity, simplify it and turn it into clear direc-tion for their organization and teams.

6. They are forever curi-ous. Transformative leaders do not limit their perspec-tive to one industry or even just business topics. They are always reading, always learning, always broadening the knowledge base they pull from when making decisions or composing opinions.

7. Their frame of reference is the future, not the past. By focusing on the past, we often limit ourselves because we tend to put too much credence in previous failures or try to copy past successes. Transformational leaders do not limit future endeavors with the beliefs or assump-tions established by past experiences.

8. They are action-ori-ented. They do not just think differently, they act differently. As INSEAD professor Herminia Ibarra writes in her book Act Like a Leader, Think Like a Leader, “We try something new and then observe the results—how it feels to us, how others around us react—and only later reflect on and perhaps internalize what our experience taught us. In other words, we act like a leader and then think like a leader.”

Shideh Sedgh Bina and Nathan O. Rosenberg Sr. are founding partners at Insigniam.

TRANSFORMATIONAL TRAITS What sets great leaders apart in an age of disruption.

By Shideh Sedgh Bina and Nathan Owen Rosenberg Sr.

IQBOOST

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. Instead, executives need to focus on the traits that define transformational leaders:

Page 79: Insigniam Quarterly Fall 2016 — Disruption

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