CRM Archive

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The Cyber-Organisation and the New World of Work

The Cyber-Organisation and the New World of Work: Advocating a twin governance and collaborative intelligence solution to overcome a constant disruptive business context

By Mario Raich, Simon L. Dolan, Dave Ulrich and Claudio Cisullo

This paper explores the concept of the cyber-organisation and, in particular, the so-called cyber-enterprise and its functionality in a business context that is constantly generating disruption due to rapid technological advances and a shift in the definition of work. The cyber-enterprise is, and will be, operating in this fast-changing context driven by artificial intelligence. We argue that cyber-reality will change the fundamental roles of all stakeholders, be they employees, suppliers, customers, investors, partners, associations or governmental agencies, and will require corresponding changes in the governing bodies of organisations. Today, we are living in a world in transition and transformation(1). There are three powerful converging megatrends that may explain the shaping of the new world of work: globalisation, digitalisation and creation / destruction. Add to this the rise in cyber-reality, artificial intelligence (AI), global connectivity, as well as hybrid reality, hybrid work and business entity, and, finally, new, disruptive technologies like quantum computing, blockchain, neurotech and robotics, and you will understand that a new form of cyber-organisation is emerging. It is not a luxury; it is a vital necessity in order to survive and sustain business. We propose a new structure of twin boards to deal with this new business environment strategically and operationally.

Beyond contexts related to business, we are also facing global challenges threatening our sheer existence: demographics and global migration; environmental deterioration through global pollution; climate change; asymmetric conflicts and wars. Other contributing factors that are shaping, or will shape, the cyber-enterprise include the emerging new “Intelligent Internet” (including the Internet of Things), combined with machine learning, mobile technology and new technologies encompassing people, artefacts and cyber-entities (CE)1, which is on the way to becoming the first autonomous cyber-entity existing and acting in hybrid reality.

Beyond digital reality, a new, much-more-potent and disruptive revolution is surfacing: cyber-reality (CR). Cyber-reality is a powerful configuration of elements from digital reality, augmented reality and virtual reality. Together with artificial intelligence (AI), it will lead to a far more radical transformation than anything we have seen before. In fact, digitalisation is just one step, albeit a necessary one, in the transition towards virtual reality (VR). The progress of VR is tightly linked to the development of computer technology and artificial intelligence.

More: https://www.europeanbusinessreview.com

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Allianz: Shipping losses at record low, but Covid-19 impact and political tensions cloud the horizon

  • Safety & Shipping Review 2020: 41 large ships lost worldwide in 2019, down by more than 20% year-on-year and almost 70% over a decade.
  • Number of shipping incidents (2,815) is up, as are claims from machinery issues. Ro-ro vessel safety is a growing concern.
  • Consequences of coronavirus and a sustained economic downturn could threaten long-term safety improvement and trigger an uptick in losses from cost-cutting measures, fatigued crew, idle vessels and weakened emergency response.
  • Rising geopolitical tensions, emissions rules and de-carbonization targets, mis-declared cargo and fire incidents continue to pose risk challenges.

Large shipping losses are at a record low having fallen by over 20% year-on-year, according to marine insurer Allianz Global Corporate & Specialty SE’s (AGCS) Safety & Shipping Review 2020. However, the coronavirus crisis could endanger the long-term safety improvements in the shipping industry for 2020 and beyond, as difficult operating conditions and a sharp economic downturn present a unique set of challenges.

“Coronavirus has struck at a difficult time for the maritime industry as it seeks to reduce its emissions, navigates issues such as climate change, political risks and piracy, and deals with ongoing problems such as fires on vessels,” says Baptiste Ossena, Global Product Leader Hull Insurance, AGCS. “Now the sector also faces the task of operating in a very different world, with the uncertain public health and economic implications of the pandemic.”

The annual AGCS study analyzes reported shipping losses over 100 gross tons (GT) and also identifies 10 challenges of the coronavirus crisis for the shipping industry which could impact safety and risk management. In 2019, 41 total losses of vessels were reported around the world, down from 53 12 months earlier. This represents an approximate 70% decline over 10 years and is a result of sustained efforts in the areas of regulation, training and technological advancement, among others. More than 950 shipping losses have been reported since the start of 2010.

Coronavirus challenges

The shipping industry has continued to operate through the pandemic, despite disruption at ports and to crew changes. While any reduction in sailings due to coronavirus restrictions could see loss activity fall in the interim, the report highlights 10 challenges that could heighten risks. Among these are: 

  • The inability to change crews is impacting the welfare of sailors, which could lead to an increase in human error on board vessels.
  • Disruption of essential maintenance and servicing heightens the risk of machinery damage, which is already one of the major causes of insurance claims.
  • Reduced or delayed statutory surveys and port inspections could lead to unsafe practices or defective equipment being undetected.
  • Cargo damage and delay are likely as supply chains come under strain.
  • The ability to respond quickly to an emergency could also be compromised with consequences for major incidents which are dependent on external support.
  • The growing number of cruise ships and oil tankers in lay-up around the world pose significant financial exposures, due to the potential threat from extreme weather, piracy or political risks. 

“Ship-owners also face additional cost pressures from a downturn in the economy and trade,” says Captain Rahul Khanna, Global Head of Marine Risk Consulting at AGCS. “We know from past downturns that crew and maintenance budgets are among the first areas that can be cut and this can impact the safe operations of vessels and machinery, potentially causing damage or breakdown, which in turn can lead to groundings or collisions. It is crucial that safety and maintenance standards are not impacted by any downturn.”

More: AGCS Marine Risk Consulting

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The eight essentials of innovation

It’s no secret: innovation is difficult for well-established companies. By and large, they are better executors than innovators, and most succeed less through game-changing creativity than by optimizing their existing businesses.

Innovation and creativity

In this engaging presentation, McKinsey principal Nathan Marston explains why innovation is increasingly important to driving corporate growth and brings to life the eight essentials of innovation performance.

Yet hard as it is for such organizations to innovate, large ones as diverse as Alcoa, the Discovery Group, and NASA’s Ames Research Center are actually doing so. What can other companies learn from their approaches and attributes? That question formed the core of a multiyear study comprising in-depth interviews, workshops, and surveys of more than 2,500 executives in over 300 companies, including both performance leaders and laggards, in a broad set of industries and countries (Exhibit 1). What we found were a set of eight essential attributes that are present, either in part or in full, at every big company that’s a high performer in product, process, or business-model innovation.

Since innovation is a complex, company-wide endeavor, it requires a set of crosscutting practices and processes to structure, organize, and encourage it. Taken together, the essentials described in this article constitute just such an operating system, as seen in Exhibit 2. These often overlapping, iterative, and nonsequential practices resist systematic categorization but can nonetheless be thought of in two groups. The first four, which are strategic and creative in nature, help set and prioritize the terms and conditions under which innovation is more likely to thrive. The next four essentials deal with how to deliver and organize for innovation repeatedly over time and with enough value to contribute meaningfully to overall performance.

By Marc de Jong, Nathan Marston, and Erik Roth

More: McKinsey; About the authors: Marc de Jong is a principal in McKinsey’s Amsterdam office, Nathan Marston is a principal in the London office, and Erik Roth is a principal in the Shanghai office.

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Oil and gas after COVID-19: The day of reckoning or a new age of opportunity?

he oil and gas industry is experiencing its third price collapse in 12 years. After the first two shocks, the industry rebounded, and business as usual continued. This time is different. The current context combines a supply shock with an unprecedented demand drop and a global humanitarian crisis. Additionally, the sector’s financial and structural health is worse than in previous crises. The advent of shale, excessive supply, and generous financial markets that overlooked the limited capital discipline have all contributed to poor returns. Today, with prices touching 30-year lows, and accelerating societal pressure, executives sense that change is inevitable. The COVID-19 crisis accelerates what was already shaping up to be one of the industry’s most transformative moments.

While the depth and duration of this crisis are uncertain, our research suggests that without fundamental change, it will be difficult to return to the attractive industry performance that has historically prevailed. On its current course and speed, the industry could now be entering an era defined by intense competition, technology-led rapid supply response, flat to declining demand, investor scepticism, and increasing public and government pressure regarding impact on climate and the environment. However, under most scenarios, oil and gas will remain a multi-trillion-dollar market for decades. Given its role in supplying affordable energy, it is too important to fail. The question of how to create value in the next normal is therefore fundamental.

To change the current paradigm, the industry will need to dig deep and tap its proud history of bold structural moves, innovation, and safe and profitable operations in the toughest conditions. The winners will be those that use this crisis to boldly reposition their portfolios and transform their operating models. Companies that don’t will restructure or inevitably atrophy.

A troubled industry enters the crisis

The industry operates through long megacycles of shifting supply and demand, accompanied by shocks along the way. These megacycles have seen wide swings in value creation.

After the restructurings of the early 1980s, the industry created exceptional shareholder value. From 1990 to 2005, total returns to shareholders (TRS) in all segments of the industry, except refining and marketing companies, exceeded the TRS of the S&P 500 index. Oil and gas demand grew, and OPEC helped to maintain stable prices. Companies kept costs low, as memories from the 1980s of oil at $10 per barrel (bbl) were still acute. A new class of supermajor emerged from megamergers; these companies created value for decades. Similarly, the “big three” oil-field service equipment (OFSE) companies emerged. Political openings and new technologies created opportunity for all.

From 2005 to January 2020, even as macro tailwinds such as strong demand growth and effective supply access continued, the global industry failed to keep pace with the broader market. In this period, the average of the oil and gas industry generated annual TRS growth about seven percentage points lower than the S&P 500 (Exhibit 1). Every subsegment similarly underperformed the market, and independent upstream and OFSE companies delivered zero or negative TRS. The analysis excludes companies that were not listed through this period (including some structurally advantaged national oil companies, and private companies).

Exhibit 1

In the early years of this period, the industry’s profit structure was favorable. Demand expanded at more than 1 percent annually for oil and 3 to 5 percent for liquefied natural gas (LNG). The industry’s “cost curves”—its production assets, ranked from lowest to highest cost—were steep. With considerable high-cost production necessary to meet demand, the market-clearing price rose. The same was true for both gas and LNG, whose prices were often tightly linked to oil. Even in downstream, a steep cost curve of the world’s refining capacity supported high margins.

Encouraged by this highly favorable industry structure and supported by an easy supply of capital seeking returns as interest rates fell, companies invested heavily. The race to bring more barrels onstream from more complex resources, more quickly, drove dramatic cost inflation, particularly in engineering and construction. These investments brought on massive proved-up reserves, moving world supplies from slightly short to long.

Significant investment went into shale oil and gas, with several profound implications. To begin with, shale reshaped the upstream industry’s structure. As shale oil and gas came onstream, it flattened the production-cost curve (that is, moderate-cost shale oil displaced much higher-cost production such as oil sands and coal gas), effectively lowering both the marginal cost of supply and the market-clearing price (Exhibit 2).

More: https://www.mckinsey.com

About the authors: Filipe Barbosa is a senior partner, Scott Nyquist is a senior adviser, and Kassia Yanosek is a partner, all in McKinsey’s Houston office. Giorgio Bresciani is a senior partner in the London office, where Pat Graham is a partner.

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Reimagining stores for retail’s next normal

As the COVID-19 pandemic erupted, hundreds of thousands of stores across the United States shut their doors, unsure as to when they would reopen. Retail workers have been furloughed or laid off en masse, causing widespread economic pain and deepening the devastation of an unprecedented public-health crisis.

At some point, stores will reopen and people will return to work, as evidenced in countries like China where the pandemic has passed its peak. The timing is uncertain and will differ across US markets, but what’s certain is that stores can’t simply pick up where they left off. COVID-19 has changed consumer behavior, perhaps permanently, and retail stores will need to take these new behaviors into account.

To maximize their potential when they emerge from the crisis, retailers must factor in the realities of the post-coronavirus world. In this article, we share a perspective on the trends that will affect US apparel and specialty retail stores postcrisis and the strategic imperatives that will enable them to thrive in the “next normal.”

How the crisis has changed consumer behavior

Consumers have altered their shopping and buying behavior during the pandemic. For one, loss of income and declining consumer confidence have driven decreases in discretionary spending. In an April 6–12 survey of US consumers, 67 percent of respondents said they expect to spend less on apparel in the near future than they typically do.

A potentially longer-lasting behavioral change is the accelerated adoption of e-commerce. Even before the pandemic, consumers were increasingly browsing and buying online. In the recovery period, retailers could see spikes in online shopping even in categories that in the past were primarily store-based (such as makeup). It’s also possible that e-commerce will attract consumer segments that previously preferred to shop offline, such as baby boomers and Gen Zers. Post-pandemic, apparel executives expect up to a 13 percent increase in online penetration, according to a survey we conducted in early April. Indeed, retailers in Asia—where precrisis online penetration was much higher than in the United States—are expecting a “sticky” increase in online penetration of three to six percentage points as they reopen stores.

These trends will shape the industry’s next normal and could have profound implications on a retailer’s P&L. Store sales could plummet, fiercer competition and increased operational complexity due to workforce disruptions could contribute to margin compression, and the migration of sales from stores to e-commerce (typically a lower-margin channel for retailers) could further hurt profitability. To illustrate: if online penetration increases by ten percentage points and gross margin falls by one percentage point, driven by increased pricing pressure, retailers could expect store profitability to decline by up to five percentage points (exhibit). A hit to profitability of this magnitude could push a significant number of brick-and-mortar stores into loss-making territory.

About the authors: Praveen Adhi and Andrew Davis are both partners in McKinsey’s Chicago office, where Jai Jayakumar is a consultant; Sarah Touse is an associate partner in the Atlanta office. The authors wish to thank Colleen Baum and Althea Peng for their contributions to this article.

More: https://www.mckinsey.com/industries/retail/