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The Mix That Matters

Only one of Coca-Cola’s last six CEOs grew up in the United States. Deutsche Telekom set out to increase the representation of women in its management ranks in 2010, and now 40% of the people on its supervisory board are female. The Japanese beverage company Suntory didn’t promote an insider when it was looking for a new president to oversee a geographic expansion effort; it recruited the former chairman of Lawson, Japan’s second-largest convenience store chain.

When companies undertake efforts to make their management teams more diverse by adding women and people from other countries, industries, and companies, does it pay off? In the critical area of innovation, the answer seems to be yes. A study of 171 German, Swiss, and Austrian companies shows a clear relationship between the diversity of companies’ management teams and the revenues they get from innovative products and services. (See “Study Methodology.”)

Study Methodology

The study comes at a time when diversity’s business benefits have become a topic of intense discussion. In the past, the indirect benefits of diversity were sufficient—an expansion of the job candidate pool at all levels, or an increase in social and political status for the company. Direct financial benefits weren’t needed to justify diversity initiatives—no one could even say for sure if such benefits existed. This study shows that they do.

BCG and the Technical University of Munich conducted an empirical analysis to understand the relationship between diversity in management (defined as all levels of management, not just executive management) and innovation. (See “How Diversity and Innovation Are Defined in This Report.”) Although the research is concentrated in a particular geographic region, we believe that its insights apply globally. The following are the major findings:

  • The positive relationship between management diversity and innovation is statistically significant, meaning that companies with higher levels of diversity get more revenue from new products and services.
  • The innovation boost isn’t limited to a single type of diversity. The presence of managers who are female or from other countries, industries, or companies can cause an increase in innovation.
  • Management diversity seems to have a particularly positive effect on innovation at complex companies—those that have multiple product lines or that operate in multiple industry segments. Diversity’s impact also increases with company size.
  • To reach its potential, gender diversity needs to go beyond tokenism. In our study, innovation performance only increased significantly when the workforce included a nontrivial percentage of women (more than 20%) in management positions. Having a high percentage of female employees doesn’t do anything for innovation, the study shows, if only a small number of women are managers.
  • At companies with diverse management teams, openness to contributions from lower-level workers and an environment in which employees feel free to speak their minds are crucial in fostering innovation.

Five Work Environment Factors That Amplify Diversity’s Impact

Our study provides clear evidence that having a diverse management team is a valuable asset when it comes to innovation. But as with any valuable asset, it needs to be developed to reach its potential.

Diversity has the greatest impact on innovation at companies that reinforce diversity through five conditions in the work environment:

  • Participative Leadership Behavior. When managers genuinely listen to employees’ suggestions and make use of them, diversity’s benefits multiply. Swarovski, the Austrian manufacturer of cut crystal, uses what it calls nudges to remind executives that their meetings will be more productive if attendees actively participate instead of deferring to those who are more senior. The nudges take different forms, including posters in hallways and whiteboard reminders in conference rooms.
  • Openness to Cognitive Diversity. This describes a dynamic in which employees feel free to speak their minds. The German cable company Unitymedia, which participated in our survey, supports openness to cognitive diversity by encouraging opposing ideas and “constructive conflict,” in discussions both among peers and between employees and managers. A culture where change starts with a question, not a decision, “allows us to capture the potential of diversity,” an HR executive at Unitymedia told us in a follow-up interview.
  • Strategic Priority. At some companies, diversity has considerable top management support. An example is France’s Airbus Group, whose Balance for Business initiative (aimed at increasing gender diversity at the largely male aeronautics company) has been endorsed by the top executive team, including the company’s CEO.
  • Frequent Interpersonal Communication. When companies find ways to facilitate dialogue between people with different backgrounds, it can provide a creative spark and bolster innovation. Google does this through its cafés, which allow for spontaneous conversations among people who may have different educational, work, and national backgrounds, as well as vastly different levels of expertise.
  • Equal Employment Practices. There’s nothing new or complicated about this concept, but it is still not universally implemented. Some companies are further ahead than others, however. The US apparel company Gap, for example, has won praise for eliminating the pay differences between its female and male employees. The apparel company’s commitment to gender diversity is also evident in the number of women on its senior leadership team and in the fact that a majority of its store managers are female.

By Rocío Lorenzo , Nicole Voigt , Karin Schetelig , Annika Zawadzki , Isabelle Welpe , and Prisca Brosi

More: www.bcg.com

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Will AI connect brands to consumers or create a chasm between them?

Some brands won’t survive the rise of AI. Others will use it to form a much deeper relationship with consumers.

Artificial intelligence (AI) has already transformed multiple industries to the benefit of consumers. Yet when it comes to how consumers actually experience the world, AI is still in its infancy. Today we can talk to our phones or smart devices around the home, but it’s often a frustrating experience, and the functionality is limited. Nonetheless, even in these early stages of the AI revolution, it’s clear that the way consumers engage with brands is going to change fundamentally. The question is, how?

Five implications for consumer products companies

  1. Brands can win from the rise of direct to consumer (D2C), if they invest in the right infrastructure. AI will become a significant bridge between brands and consumers. This is a huge opportunity for brands that can sell direct to consumers. To take advantage of it, they need to build infrastructure, especially fulfilment logistics and customer services.
  2. Companies will form unexpected alliances to master last-mile fulfillment. Future consumers will expect fulfillment to happen in a way that suits them, at no extra cost. Brands will have to work with logistics firms, retailers and other suppliers to aggregate the delivery of goods and services. Without these alliances – some of which could involve competitors working together or directly with “brand ambassadors” – it will be impossible to satisfy the consumers’ fulfillment expectations at a profit.
  3. Everyone can become a brand ambassador, and be rewarded for their influence. Smart companies will value future consumers not just by how much they spend, but by their ability to influence other people. Today, brand ambassador roles – and the benefits that come with them – are limited to celebrities and social media stars with obvious influence. In future, brands will be able to measure and engage the influence-power of every consumer. The ability to mobilize a mass of micro-influencers will be key to marketing success.
  4. Brands will have to choose how they play in a world where shopping and buying are different activities. Future consumers will trust their chosen AI platform to buy most of what need; they’ll only consciously “go shopping” for a select few products and services. Future consumers will expect whatever they purchase to meet their exact needs and expectations, even when their AI bot is doing the buying. Engaging a human shopper and meeting the purchase criteria of an AI bot will require very different business models. The former is about premium services and immersive brand experiences that reflect the values and purpose of the target consumer. The latter is about the strength of the algorithm, the best value proposition, efficient fulfillment and minimal marketing or packaging costs. One brand can’t thrive in both spaces.
  5. Subscription models will grow. Consumers will likely buy fewer goods “on demand.” Instead they’ll prefer subscription services. Products may become secondary to the services or experiences that frame them. To play in this space, companies will need to give the consumer end-to-end support for the lifespan of their relationship.

By Helen Merriott, EY UK&I Consumer Industries Advisory Leader

More in: www.ey.com/

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Machines increasingly complement human labor in the workplace

Automation and artificial intelligence (AI) are transforming businesses and will contribute to economic growth via contributions to productivity. They will also help address “moonshot” societal challenges in areas from health to climate change.

At the same time, these technologies will transform the nature of work and the workplace itself. Machines will be able to carry out more of the tasks done by humans, complement the work that humans do, and even perform some tasks that go beyond what humans can do. As a result, some occupations will decline, others will grow, and many more will change.

While we believe there will be enough work to go around (barring extreme scenarios), society will need to grapple with significant workforce transitions and dislocation. Workers will need to acquire new skills and adapt to the increasingly capable machines alongside them in the workplace. They may have to move from declining occupations to growing and, in some cases, new occupations.

This executive briefing, which draws on the latest research from the McKinsey Global Institute, examines both the promise and the challenge of automation and AI in the workplace and outlines some of the critical issues that policy makers, companies, and individuals will need to solve for.

  1. Accelerating progress in AI and automation is creating opportunities for businesses, the economy, and society
  2. How AI and automation will affect work
  3. Key workforce transitions and challenges
  4. Ten things to solve for

More: McKinsey Global Institute

Authors: James Manyika is chairman and director of the McKinsey Global Institute and a senior partner at McKinsey & Company based in San Francisco. Kevin Sneader is McKinsey’s global managing partner-elect, based in Hong Kong.

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Tackling the 1.6-Billion-Ton Food Loss and Waste Crisis

The scale of the problem is staggering. Each year, 1.6 billion tons of food worth about $1.2 trillion are lost or go to waste—one-third of the total amount of food produced globally.1 To put the figure in perspective, that is ten times the mass of the island of Manhattan. And the problem is only growing: BCG estimates that by 2030 annual food loss and waste will hit 2.1 billion tons worth $1.5 trillion.

This massive misuse of resources is emerging as a critical global issue, with the UN’s Sustainable Development Goals setting a target of halving food loss and waste by 2030. The urgency reflects the fact that the food waste disaster has far-reaching implications. According to the UN’s Food and Agriculture Organization and the World Resources Institute, it accounts for 8% of global greenhouse gas emissions. And it is difficult to imagine solving the hunger problem—some 870 million people around the world are undernourished—when so much of the global food supply is lost between the farm and the table.

The challenge is enormous, but there is a clear way forward. On the basis of an extensive analysis of the food value chain from production through retail and consumption, BCG has identified five drivers of the problem, issues that—if addressed—could reduce the dollar value of annual food loss and waste by nearly $700 billion and create major progress toward hitting the SDG target. Certainly no one group, government, or company can make this happen. Rather, real headway will require commitment and coordinated action from consumers, governments, NGOs, farmers, and companies.

Companies that play a major role in the food value chain in particular can be catalysts for change. Through our research, we have identified 13 concrete initiatives companies can take to address those five drivers and help slash the amount of food lost and wasted every year.2 This is not only a chance to help the world—it is a compelling business opportunity. Recent research by BCG has found that companies that are effective at addressing societal challenges tend to be rewarded with higher margins and higher TSR. Companies that play a role in the food value chain stand to reap tangible business benefits such as lower costs, the opening of new markets, and new revenue opportunities. Just as important, these companies can burnish their brand and improve their ability to attract and retain talent as they tackle a daunting global challenge.

A Growing Problem—and a $700 Billion Opportunity

Food loss or waste occurs at all steps in the value chain—but it is most pronounced at the beginning (production) and at the end (consumption). (See Exhibit 1.) In developing countries, the problem is largely a function of the production and transportation of food from farms, while in developed countries it is most prevalent in the consumption phase, among both retailers and consumers

To understand the scale and scope of the problem, BCG created a food loss and waste model. (See “Quantifying the Food Waste Challenge.”) That work reveals a disturbing upward trend line: BCG projects the volume of food loss and waste will rise 1.9% annually from 2015 to 2030 while the dollar value will rise 1.8%.3 Food loss and waste are projected to increase in most regions around the world, with a significant spike in Asia in particular.

More: /www.bcg.com/

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Shaking up the value chain

Data and digitization are creating a growing array of value-creation choices in industries as diverse as pharmaceuticals, mining, and energy.

During the 1980s, McKinsey’s Fred Gluck and Harvard Business School professor Michael Porter began writing about the interrelated activities through which companies create value for their customers. Executives have always had choices about how to perform the activities in this “business system” (Gluck’s words) or “value chain” (Porter’s). In the digital age, as information disrupts the nature of value creation in many industries, the range of choices available to senior business leaders has increased. For example, digital platforms in the pharmaceutical industry now make it possible to aggregate massive amounts of data on diseases—potentially accelerating the discovery and design of new drugs and challenging the industry’s legacy processes. In energy production and mining, although companies have long outsourced some functions in efforts to drive down costs, digital requires a new approach. Using data, suppliers can offer incumbents an expanded range of capabilities and productivity gains—alluring possibilities that are accompanied by the risk that sharing too much data could shut off areas of future growth. This type of flux in value chains will only intensify across industries, forcing leaders to grapple with existential questions about core competitive strengths in an environment where destabilizing technologies will be the norm.

Will digital platforms transform pharmaceuticals?

Start-up companies are combining genetic information and new therapies to transform drug discovery and development—at greater speed and scale.

Product innovation is at the heart of the pharmaceutical industry’s value chain. Long, capital-intensive development cycles and legacy processes, though, have made it difficult to exploit the full potential of emerging digital technologies to deliver faster, more agile approaches to discover and develop new drugs. Indeed, McKinsey research shows that the industry’s digital maturity lags that of most other industries.

A new current is forming in one area of the industry: start-up companies that are creating biomolecular platforms around cellular, genetic, and other advanced therapies.1 The platforms marshal vast amounts of data on the genetics of diseases, such as cancer, and combine that with patients’ genetic profiles and related data. They zero in on key points along the information chain—for example, where there are linkages between DNA and proteins, and then cells—to “design” new drugs. Much like software developers, the platforms engineer disease therapies built upon the “code-like” DNA and RNA sequences within cells (Exhibit 1).

These techniques have significant implications for the treatment of many life-threatening illnesses that are outside the reach of standard therapeutic approaches. They could also disrupt the industry’s value chain as they speed up drug discovery and development, with the potential for a single platform to scale rapidly across a range of diseases (Exhibit 2).

In one example of a biomolecular platform, for a disease that results from a mutation in DNA that codes for a needed enzyme, the platform models the disease from medical and genetic data to arrive at an enzyme “optimized” to correct for the mutation. The platform then designs a sequence of genetic material to treat the disease, as well as a delivery vehicle to get it to the target cells. In another example, for CAR-T2 therapies, the platform modifies a patient’s T cells (an immune-system cell), which are then deployed to attack a cancer.

A new competitive landscape

Optimized biomolecular platforms have the potential to accelerate the early stages of R&D significantly. For example, it can take as little as weeks or months to go from concept to drug versus what’s often many months, if not years, of trial and error under conventional discovery methods. This is achieved by routinizing key steps (such as preparing a drug for preclinical testing) and using common underlying elements in the design of the drug (such as drug-delivery vehicles that are similar). In the past five years or so, a number of start-ups have formulated dozens of drugs that are in clinical trials and, in some cases, drugs that have already been approved. The large information base behind therapies helps identify the right targets for preclinical and clinical trials.

By Olivier Leclerc and Jeff Smith

More: https://www.mckinsey.com