The European Business. Review

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ISBN: 1754-5501

Year: 2024

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How to Innovate Without
Changing your Product
......................................................
When to Enter a Business
and When to Exit
......................................................
Arrogance, Hubris, and Narcissism:
The Over-Confident Leader
......................................................
Cultivating Executive Trust in
the Age of AI Governance

March - April 2024
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magnetic

empowering communication globally

CRAFTING EFFECTIVE
LOYALTY PROGRAMMES
THAT ATTRACT AND
RETAIN CUSTOMERS

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Business Review

empowering communication globally
MARCH – APRIL 2024

cover story
4

BRAND LOYALTY

Magnetic Loyalty: Crafting Effective
Loyalty Programmes that Attract and
Retain Customers
Klaus Heine and Vanessa Brunner

INNOVATION

Smells Like Patchouli!
How to Innovate without Changing Your Product
Fernanda Arreola and Johann Vitrey

EDITOR'S PICK

NEGOTIATIONS

A Winning Deal: How Biculturals Can Supercharge
Your International Business Negotiations
Priyan Khakhar and Jasmina Najjar

GENDER EQUALITY

Taking a Stand against the Gender Gap
in Workplace Flexibility
Fiona Wylie

SUPPLY CHAIN

A Practical Guide to Kick-Starting your
Cyber Supply Chain Risk Programme
Kamil J. Mizgier

ARTIFICIAL INTELLIGENCE

A New Business Leadership Paradigm to
Understand Signals and Timing: When to
ENTER a Business and When to EXIT
Peter Lorange and Karin Mugnaini

Generative AI Update for 2024
Ray Schroeder and Katherine Kerpan

Where FICO Gets Its Data for Screening
Two-Thirds of All Card Transactions
Eric Siegel

LEADERSHIP

Trust-Me: A Concept and Metric to Embed
in Leaders, Enhancing their Effectiveness
Simon L. Dolan, Kyle Brykman
and Shay S. Tzafrir

PSYCHOLOGY

Arrogance, Hubris, and Narcissism:
The Overconfident Leader
Adrian Furnham

AI GOVERNANCE

Cultivating Executive Trust in the
Age of AI Governance
Luca Collina and Ben Warnes

LEADERSHIP AND MANAGEMENT

Aligning Organisational Ecosystems
to be Fit for Purpose
Jonathan Trevor and Kazuhiro Asakawa

80
86

ENTREPRENEURSHIP

You did not Fail! You are just Rebounding!
Olimpia Modorcea and Fernanda Arreola

ESG

The Fungibility of Environmental, Social,
and Governance Reporting
Tim Bovy and Ian Hodges

SUSTAINABILITY

Partnership and Technology: Solving
Municipal Solid Waste Management in
Developing Economies
Sahan J. Fernando and Ambika Zutshi

DIGITAL TRANSFORMATION

Change or Transformation
Nina Mohadjer

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BRAND LOYALTY

MAGNETIC LOYALTY:
CRAFTING EFFECTIVE LOYALTY
PROGRAMMES THAT ATTRACT
AND RETAIN CUSTOMERS
by Klaus Heine & Vanessa Brunner
Most brand managers today see room
for improvement in their repurchase
rates, particularly as Generation Z tends
to exhibit lower brand loyalty amidst
intensifying competition. As it is more
difficult to acquire new customers
than to retain existing ones, loyalty
programmes stand out as a promising
tool. This article outlines a sevenstep decision process to create loyalty
programmes that are effective because
they align with consumer psychology
and the brand’s overall purpose.

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ccording to a McKinsey study (2020), members of loyalty
programmes are 30 percent more likely to spend more on the brand
after subscribing. Even more, Ourself, a beauty brand recognised
for its tech-centric products, attributes 40 percent of its sales to its rewards
programme (Morris 2023). Research shows that loyalty programmes are
also a crucial step in enhancing the share-of-wallet (Leenheer et al., 2007).
Many brand managers have yet to fully realise the great potential of loyalty
programmes, given the significant number of brands that resort to unoriginal, standard loyalty approaches like basic point-collection systems for
discounts, which may not engage consumers effectively.
The cosmetics industry represents a vital area for studying loyalty
programme usage, as it remains ahead of many other industries in digital
marketing innovation. While smaller companies can greatly benefit

MARCH - APRIL 2024

from well-designed loyalty programmes, they face the
challenge of competing with established programmes
from major players like Sephora, as consumers often
hesitate to engage with multiple loyalty schemes. This
article aims to persuade brand managers of the critical
role loyalty programmes play in accelerating business
growth and provides advice on effective implementation.
While the focus is on luxury beauty, the findings are
applicable across various consumer markets.

and overly focused on marketing, which can contradict
efforts to foster a sense of “community”.
A valuable branding technique involves the use
of brand puns, which utilise creative wordplay with
the brand name to generate a distinctive name for
the loyalty programme. For instance, NARS makeup
named its loyalty programme “NARSissist Rewards”,
RéVive skincare uses “RéVive RéWards”, and La Mer
uses “Waves de La Mer”. Brand puns help make the
name more memorable and relatable to consumers
while conveying the brand identity, making the loyalty
programme stand out from the competition.
COMPARATIVE ANALYSIS OF LOYALTY
Even more promising is the use of community-driven
PROGRAMMES
names. Approximately a third of loyalty programmes
(17 brands) incorporate terms such as “club”, “society”,
We conducted a comparative analysis of loyalty
“circle”, or “insiders” into their names. For example,
programmes in the high-end beauty segment. To create
Valentino Beauty offers the “Valentino Beauty Dreams
a representative sample, we gathered all brands availClub”. Our analysis revealed some innovation in rarity
able on the websites of the three most prestigious retail
marketing, with four brands labelling their programmes
stores in the Western world: La Samaritaine Paris,
as “VIP” or “VIC” rewards programmes, like Armani
Bergdorf Goodman New York, and Harrods London.
Beauty’s “VIP Beauty Programme”. Such names leverage
Our objectives were to gain insights into the usage rates
the rarity principle, implying the opportunity to join an
and designs of loyalty programmes.
exclusive association not open to everyone.
Our findings revealed that
Instead of emphasising
the high-end beauty segment
This article aims to persuade exclusivity, Furtuna Skin calls
is driven by 247 entry-prestige
its programme “La Famiglia”
to ultra-luxury beauty brands. brand managers of the critical (Italian for “The family”),
Among these, a quarter of the role loyalty programmes
reflecting their slogan “family
brands are owned by major
Communityplay in accelerating business isdriveneverything”.
parent companies, while roughly
names tap into the
16 percent belong to parent growth and provides advice
passion principle, suggesting that
companies that own four or on effective implementation.
consumers are deterred by overly
fewer brands. Another 58% of
commercialised marketing and
them are independent brands.
are instead drawn to brands that genuinely enjoy and
Usage Rate of Loyalty Programmes: From all
believe in what they do. Drawing from social identity
247 brands that were covered, only about a quarter
theory, loyalty programme memberships offer customers
(60 brands) have put a loyalty programme in place.
a sense of social identity aligned with their desired selfHowever, an additional two-thirds of the brands (63%)
concept, becoming a source of pride and self-esteem.
employ other loyalty-building initiatives, such as
inviting customers to subscribe to newsletters or create
customer accounts. Only 13% (31 brands) do not offer
SEVEN KEY DECISIONS IN LOYALTY
any loyalty-building initiatives at all.
PROGRAMME DESIGN
Naming of Loyalty Programmes: The biggest
part of loyalty programme names (66%) includes
The next step was to gain a general understanding of
words like “rewards” or “loyalty program”. While this
the loyalty programme designs. Most programmes,
approach ensures that customers easily understand
specifically 45 out of 60 (75%), employ a straightforward
the programme’s purpose, it often sounds commercial

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BRAND LOYALTY

design that aligns with how customers expect
and know loyalty programmes. They typically
offer either status tiers or loyalty points that
customers can either climb to achieve a higher
status or redeem for rewards as a way to incentivise brand loyalty. These insights underscore
that customers tend to favour a simple design
that is easy to understand and works well –
which is one of the key success factors for
loyalty programmes.
To develop a basic loyalty provgramme
design, it is recommended to follow a seven-decision process, which is illustrated in Figure 1
and also outlines the main options available to
brands at each stage.
DECISION 1

FIGURE 1 The Seven-Decision Loyalty Programme Design

Involves choosing between a solo or coalition
strategy: Will the programme be operated
independently or in partnership with other
brands? Most luxury beauty brands prefer to

operate an independent loyalty programme to
preserve their distinct identity. The primary
challenge of coalition programmes is the risk
that consumers might develop loyalty to the
programme itself rather than to individual
brands. As a result, all the beauty brands we
analysed have chosen to run independent
programmes. However, the potential of the
coalition strategy remains largely untapped.
The significant advantage lies in crosspromotion opportunities. Instead of competing
individually, coalition partners can actively
promote each other and leverage their
respective customer bases for the benefit of
the entire coalition. To avoid collaborating with
direct competitors, there are (1.) affinity groups,
which unite like-minded entrepreneurs sharing
a common interest or affiliation, (2.) sectorspecific programmes, such as those in travel or
hospitality, and (3.) multi-partner programmes
spanning different industries.

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

DECISION 2

Entry Requirements: What are the requirements for
joining the loyalty programme? Some brands such as
Sephora have minimal entry requirements. Consumers
can simply sign up for free without the need to make any
purchases and gain instant access to the Beauty Insider
Community, including its beauty classes. Sephora's
advantage lies in collecting detailed contact information
from potential future clients. On the other end of the
spectrum, the highest level of entry requirements may be
an invitation-only membership to a hidden community
that the general customer is not even aware of.

of brands (57%, or 34 brands) prefer a three-tiered
approach, which seems to be the most suitable and
proven choice. This aligns with research indicating that
a three-tier structure is the most favoured hierarchical
structure (Nunes & Dréze, 2009).
Drawing from the Pareto Principle, tiered structures
DECISION 3
allow companies to reward the 20% of customers
Membership Fees: Does the loyalty programme require
responsible for 80% of their profits. The top tier must be
a membership fee? A recently emerging trend is the
relatively small because the fewer people are granted
development of paid loyalty programmes. According to
elite status, the more superior these people will feel.
a McKinsey survey on loyalty programmes, members of
Adding a subordinate elite tier enhances the status
paid loyalty programmes are 60 percent more likely to
among consumers in the top tier because being ranked
increase their spending on the brand after subscribing.
above other elites feels better than being above the
Furthermore, they drive higher purchase frequency,
masses. However, the research did not find evidence
basket size, and brand affinity compared to free loyalty
that adding a third elite tier would significantly enhance
programmes. The landscape of paid
the perceived status of the top tier.
loyalty programmes today is small but
Tiered programmes feed people’s
Standard
loyalty
rapidly expanding. Among the brands
desire for status. An interesting strategy
we analysed, only the fragrance
is to show members what percentage
programmes are
brand Bond No. 9 offers a paid loyalty
typically divided into of the total members are in each tier.
programme. Convincing people to
This can make elite members feel more
tiers, with members
invest $950 annually for entry-level
special and trigger the competitive
membership ensures a dedicated
desire to reach the next higher tier.
advancing through
customer base committed to regular
How much do consumers need to
these tiers based on
purchases. Besides generating a
spend to become a member of the top
their
spending.
new revenue stream, it enables the
tier? The highest limit, at €5000, is set
funding of unique, bespoke, highby Charlotte Tilbury (with 6 tiers) and
value rewards, cultivating an exclusive community and
Joanna Czech (with 4 tiers). Nevertheless, the industry
an air of distinction among its members. Paid loyalty
average for the highest tier threshold is around €1500.
programmes are particularly well-suited for competing
DECISION 5
in highly fragmented markets, such as luxury beauty.
Programme Currency: How many points should a
DECISION 4
member receive per euro spent? The standard option
Number and Type of Tiers: How many and what
is “1 point per €1 spent”. The big advantage of this
types of tiers does the programme offer? Standard
option is its simplicity and ease of understanding.
loyalty programmes are typically divided into tiers, with
In categories with relatively low prices, the
members advancing through these tiers based on their
promising option of “multiple points per €1 spent”
spending. Approximately 35% of brands use no tiers, 8%
often translates to ‘‘10 points for each € spent”. This
employ a four-tier approach, and only the makeup brand
approach makes the accumulation of points appear
Charlotte Tilbury adopts a six-tier system. The majority
faster and more rewarding for consumers, thereby

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FIGURE 2 Types of Rewards

BRAND LOYALTY

having a greater perceived value. Conversely,
in high-value categories, an appropriate option
is “fractional points per €1 spent”, such as 0.5
points per € spent.
DECISION 6

Points Earning Criteria: How can members earn
points? In the beauty industry, loyalty currencies
are a common framework. Approximately 75
percent of loyalty programmes (44 brands)
employ loyalty currencies, with points being
the most frequent form (also called miles,
stars, pearls, etc.). Typically, companies inform
customers of the number of points needed to
redeem certain rewards, which may include a
specific product or a selection of products from
which they can choose. The problem is that this
prevents any surprise moments – which are a
standard tactic in the luxury industry and a key
driver of customer delight.
In contrast, some brands opt not to have a
loyalty currency, choosing instead to keep the
details of their rewards secret. This lack of visible
benefits might initially deter consumers from

THE EUROPEAN BUSINESS REVIEW

signing up for any programme, but such “secret”
rewards offer unique advantages. Customers are
pleasantly surprised with (personalised) gifts,
reflecting a gift scheme based on the purchase
price. This strategy employs the norm of reciprocity, suggesting that people are inclined to
return favours. Unlike typical rewards that are
perceived as part of the transaction, surprise
gifts create a stronger emotional bond and a
sense of obligation for further purchases.

NON-MONETARY REWARDS LEAD
THE WAY
Loyalty point programmes allow customers to
accumulate points, which can be redeemed for
various rewards. The nature of these rewards is
critical, as it significantly influences subscription rates and active engagement with the
loyalty programme. Figure 2 presents an overview of the types of rewards that brands can
offer their members.

MARCH - APRIL 2024

Traditional rewards often include various discounts.
Create Sunk and Switching Costs: A crucial success
Research indicates that consumers perceive non-monfactor is designing loyalty programmes in a way that
etary rewards as “gaining something extra”, whereas
encourages regular purchases while deterring members
monetary rewards are seen as “losing less than usual”.
from leaving. Prospect theory suggests a guiding
In essence, non-monetary rewards are framed as gains,
principle: People exhibit loss aversion, meaning that
and monetary rewards as reduced losses. This framing
losses loom larger than gains. Members should feel
suggests that non-monetary rewards are generally
that leaving the programme would result in signifiviewed more favourably and tend to be more effective
cant loss, particularly in terms of status. Common in
(Shelper et al. 2023). Therefore, it is advisable to shift
frequent flyer and hotel loyalty schemes, this approach
from offering discounts to
generates
switching
providing free goods or addicosts for members who
Traditional rewards often include
tional product quantities.
have attained elite tiers,
various discounts. Research
McKinsey research indicates
particularly in the form
that such hard-value beneindicates that consumers perceive of status and convenifits are particularly effective
ence benefits that would
non-monetary rewards as “gaining be lost. Glow Recipe
in convincing consumers
something extra”, whereas
to sign up for loyalty
adapted this concept for
programmes, while experithe beauty segment: The
monetary rewards are seen as
ential and status benefits are
points earned per unit
“losing less than usual”.
increasingly important for
spent increase with each
retaining subscribers.
tier – from just 1 point
per unit in the first tier to 3 points in the top tier. This
is particularly effective when consumers realise the
substantial time and money required to attain similar
KEY SUCCESS FACTORS IN BUILDING
benefits should they rejoin the programme. Groups
LOYALTY PROGRAMMES
are harder to leave when consumers have invested
Award Points for Non-Purchase Activities: There is a
trend that people want to use points in new ways and earn
points in new ways (Shelper et al. 2023). For example,
‘‘My Lancôme Rewards’’ offers additional points for
activities like signing up for text messages or newsletters, writing reviews, referring friends, and completing
a virtual service such as makeovers, skin consultations, beauty tutorials or interactive quizzes. Other
common activities include event participation, profile
completion (which aids in collecting consumer data),
and social media engagement like tagging the brand or
using specific hashtags. Awarding points for non-purchase activities makes the loyalty programme more
dynamic and interactive, which in turn significantly
boosts active participant engagement. Furthermore, it
can direct participant motivation towards new product
offerings and foster a sense of community, particularly
as non-purchase points can encourage sustainable or
healthy choices, aligning participants with the brand’s
overall purpose.

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BRAND LOYALTY

significant financial, cultural, and social capital.
Such sunk costs can be established through one-time
membership fees and, more effectively, through social
benefits. Glow Recipe ensures that participants feel
part of a community, fostering a sense of belonging and
possibly status among peers. Leaving the programme
would mean losing these social benefits.
Gamify Programme Features: When evaluating
a programme design, consider whether it enhances
(1) repeat purchases, (2) upselling and cross-selling
opportunities, (3) active member participation, and
(4) alignment with the brand’s values and purpose.
The latter two criteria are crucial for evolving a loyalty
program into a community. Gamification is a key driver
of active participation, yet currently underutilised,
with only five (8.4%) out of 60 programmes employing
it. NARS, for example, opts for subtle passive gamification elements like game-inspired avatars and a progress
tracker, which keeps customers engaged in earning
and checking points, adding fun to the programme.
Chanel’s ‘‘La Collection’’ card game is a role model for
interactive gamification elements, originally designed
for video games. Purchases and different tasks unlock
new cards and rewards, creating a sense of anticipation
and surprise.
Provide a Sense of Purpose: Two powerful techniques to increase emotional commitment are often
underestimated. Firstly, giving consumers an excuse
or justification for consumption can motivate those on
the fence to make a purchase, especially when linked
to value-based rewards. For instance, Louis Vuitton
launched a campaign highlighting their commitment to donate a portion of purchase revenues to the
Red Cross. In the Mugler Circle loyalty programme,

participants can ‘‘engage with the planet’’ and earn
450 points by refilling their perfume bottles instead of
buying new ones. Secondly, people are most motivated
when contributing to something larger than themselves that they believe in. Brands have the opportunity
to achieve dual goals: striving for a higher purpose
beyond making money while convincing consumers
that their purchases are contributing to a good cause.
Research shows that resistance to leaving a programme
is maximised when participants identify with the
values and imagery of a brand (Shelper et al. 2023).
Without such emotional commitment, consumers are
more likely to switch to competitors when a better
product is available.

REFERENCES:
1 Leenheer, J., van Heerde, H. J., Bijmolt, T. H. A. &
Smids, A. (2007). Do Loyalty Programs Really Enhance
Behavioral Loyalty? International Journal of Research
in Marketing: 42(1): 31-47.
2 McKinsey (2020). Coping with the Big Switch: How
Paid Loyalty Programs Can Help Bring Consumers Back
to Your Brand, https://www.mckinsey.com/capabilities/
growth-marketing-and-sales/our-insights/copingwith-the-big-switch-how-paid-loyalty-programs-canhelp-bring-consumers-back-to-your-brand.
3 Morris, M. (2023). Building a Rewards Programme
That Keeps Fickle Customers Coming Back, January
8, https://www.businessoffashion.com/articles/
direct-to-consumer/rewardsprogramme-to-keep-ﬁckle-customers-coming-back/.
4 Nunes, J. C. & Dréze, X. (2009). Feeling Superior: The
Impact of Loyalty Program Structure on Consumers’
Perceptions of Status. Journal of Consumer Research,
35 (6), 890-905.
5 Shelper, P., Lyons, S., Savransky, M., & Harrison, S.
(2020). Loyalty Programs: The Complete Guide, Loyalty
& Reward Co Pty Ltd: London.

ABOUT THE AUTHORS

Klaus Heine is a marketing professor at Emlyon Business School and has collaborated with
numerous luxury houses in both Europe and Asia. He helps entrepreneurs ﬁnd out what they
want their brands to stand for – to build high-end brands with a higher purpose.

Holding an MSc in Luxury Management and Marketing, Vanessa Brunner specialises in
enhancing brand-customer relationships in the luxury sector. Her experience and insights from
her thesis on loyalty in luxury beauty equip her to guide luxury brands towards customercentric strategies, fostering devoted brand advocates.

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

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onefourzerogroup.com

INNOVATION

Innovation is essential, yet
not always easy. This article,
based on lessons from the
perfume industry, discusses
how to innovate in business
sectors where differentiation
is difficult to achieve.

SMELLS LIKE

PATCHOULI!
HOW TO INNOVATE
WITHOUT CHANGING
YOUR PRODUCT
by Fernanda Arreola
and Johann Vitrey

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

rance holds a unique position as the
epicentre of the perfume world. This is
thanks to its historical heritage that has
helped build an empire of luxury and mainstream brands that proudly present the citation of
Paris on their bottles. Throughout history, people
from all corners of Europe have turned to these
perfume houses for the latest elegant fragrances,
made possible by them capturing scents from
flowers, wood, and spices, but most importantly, thanks to nonproduct-related innovation.
The roots of French perfumery can be traced
The fragrance legacy continued over
back to Louis XIV, known also as
time, despite a halt as a result of the
the Sun King, who played a pivotal
Gaining inspiration
French Revolution. The execution of the
role in its development. Renowned
for constructing the opulent Palace
from what is done in perfumed nobility led perfumers to scale
of Versailles, Louis XIV established
the perfume industry down operations and conceive new ways
to impulse the popularity of perfumes.
what would later be known as
can help you look
Over time, France’s perfume industry
the perfumed court1. Historians
narrate that Louis XIV was scared
experienced a resurgence, evolving into
at your product’s
of bathing, believing that doing so
one of the largest creators and suppliers
commercialisation
would make him sick and spread
of perfumes. Today, it caters to a diverse
and communication
disease. Therefore, the members
audience, ensuring that everyone, not
of his court were encouraged to
just the nobility, enjoys a fresh and
efforts differently.
spray themselves with perfume
fragrant experience.
upon entering the vicinity of the palace.
This particular hygienic belief made
perfumery to be treated almost as a science,
THE NON-SO-INNOVATIVE
implicating the idea that fragrances also have
NATURE OF FRAGRANCES
medicinal benefits. As a result, both men and
women incorporated substantial amounts of
Parfums are made of 2 base notes, middle (heart)
fragrant elixirs into their grooming routines.
notes, and top notes. Base notes include patchFragrances were even sprayed on furniture and,
ouli, vanilla, sandalwood, and musk. Heart notes
as rumours suggest, the fountains.
are made of floral notes, spices, and herbs. Top
notes include citrus, fruity notes, and certain
herbal notes like basil. After mixing these ingredients, perfumers must apply fixatives (amber
or resins) and modifiers (they can give a fresh
or cleaner note to the fragrance). Once the
perfumer has made a choice, he or she will carefully blend the ingredients to create a fragrance.
However, not all fragrances are pleasant to
our senses. We are also not all equally sensitive to the sometimes-infinite differences in
ingredients between one parfum and another.
Perfumers want to evoke in us a sense of

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INNOVATION

reusable, washable). A recyclable example of a
container in perfumes is Bois Imperial3, the bottles
are made of glass, without a case, with a sustainable approach. Other examples include SEXY by
Honoré des Prés4 with original packaging that
exudes authenticity and the charm of yesterday.
We can also take the example of Angel by Mugler5,
the pioneer of bottle refills.

proximity, and other fragrances lost in our
memories, which makes it more likely that they
will include aromas that were popular in the
past. For example, patchouli, a base note, has
been used since ancient times. To this date, it is a
largely used base note that is included in a wide
range of fragrances. Some people even simply
use patchouli oil. Yes, we often smell patchouli
in our daily lives.

CONCEPT:
The concept proposed by the product can be
altered by simply changing its colour and how it
addresses a community (gay pride, cancer survivors, nationality, etc.). An example
is Blood Concept6, a brand where
choose the blood type you
positioning can you
want to wear.

IF IT IS NOT THE PRODUCT,
THEN WHAT?
Gaining inspiration from what is
done in the perfume industry can
help you look at your product’s
commercialisation and communication efforts differently. Most
importantly, it can give you hints on
how to innovate in sectors where
competitors propose very similar
products and where product innovation is unlikely to provide an edge
for differentiation.

A product’s
be based on the messaging
around it, the discourse a
vendor uses to present it,
or even the concept that
the buyer is searching for.

CONTAINER:
If you cannot change the product then you can
change its packaging. Furthermore, this packaging can change in nature (box, bottle) but even
in terms of the raw material it uses (recyclable,

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

COMMUNICATION:

This consists of changing the
messaging. For instance, if you
can’t make people smell your
product, how do you make them
buy it? You can for example evoke
other things that can give a sense
of the sensorial emotions that will be experienced once used. For example, the candle
company Promenade à Auvers7 bases scents on
the original scenery that Vincent Van Gogh used
to inspire his paintings. As for storytelling, we
can also find the incredible job of Eight & Bob8
which comes packaged as a book.

RETAIL:
A product’s positioning can be based on
the messaging around it, the discourse
a vendor uses to present it, or even the
concept that the buyer is searching for.
The Nose perfume diagnosis9 allows you to
create your olfactive portrait and receive
personalised recommendations.
TECHNOLOGY:
Industrial innovation can help producers
innovate the processes around the manufacturing of your products. Furthermore, it
can make your product available otherwise.
A great example is the sniffing device, P’tit
Sniff10. Le P’tit Sniff is a mini personal olfactory diffuser to take with you everywhere,
adjustable according to your desires thanks
to interchangeable cartridges.
NETWORK:
People rely more and more on where they
find the product as a basis for their decision to purchase or not. It is not only about
selling online but also about who the distributor is. Perfumist11 is the first collaborative
perfume advisory application, created by
perfume enthusiasts, to help you discover
fragrances that best suit you.

REFERENCES
1.

LOUIS XIV: ‘THE SWEETEST-SMELLING KING OF ALL’. THE PERFUME SOCIETY. HTTPS://
PERFUMESOCIETY.ORG/HISTORY/LOUIS-XIV-THE-SWEETEST-SMELLING-KING-OF-ALL/

TOP, HEART, BASE - WHAT DOES IT ALL MEAN?!. 07 FEBRUARY 2021.
SHAY AND BLUE. HTTPS://WWW.SHAYANDBLUE.COM/BLOGS/JOURNAL/
TOP-HEART-BASE-WHAT-DOES-IT-ALL-MEAN

BOIS IMPERIAL BY QUENTIN BISCH. ESSENTIAL PARFUMS HTTPS://WWW.ESSENTIALPARFUMS.COM/PRODUITS/BOIS-IMPERIAL-2/

SEXY ANGELIC. HONORE DES PRES. HTTPS://HONOREDESPRES.COM/STORE/HONOREDES-PRES/21-MON-PARFUM.HTML

ANGEL EAU DE PARFUM REFILL. MUGLER. HTTPS://WWW.MUGLER.FR/PARFUM/
ANGEL/M020604263.HTML

BLOOD CONCEPT PARFUMS. INSTAGRAM. HTTPS://WWW.INSTAGRAM.COM/
BLOODCONCEPT/

PROMENADE A AUVERS HTTPS://INTERPRET-LAB.COM/COLLECTIONS/
PROMENADE-A-AUVERS

EIGHT & BOB. HTTPS://EIGHTANDBOB.COM/

THE OLFACTORY DIAGNOSTIC. NOSE PARIS. HTTPS://NOSEPARIS.COM/EN/
LE-DIAGNOSTIC-OLFACTIF-NOSE/

10.

ACCUEIL – LE PTIT SNIFF. HTTPS://WWW.LEPTITSNIFF.PARIS/EN/

11.

PERFUMIST - YOUR PERSONAL FRAGRANCE GUIDE. HTTPS://PERFUMIST.FR/

ABOUT THE AUTHORS

Fernanda Arreola is a Professor of Strategy, Innovation,
and Entrepreneurship at ESSCA and a researcher
focusing on service innovation, governance, and
social entrepreneurship. Fernanda has held numerous
managerial posts and possesses a range of international
academic and professional experience.
Johann VITREY-TARDIF is a lecturer at ISC Paris, IESEG
Paris, Paris Perfume School and Thelma Business
School in Dakar (Senegal), teaching Luxury Marketing,
International Trade and Cross Cultural Communication.
He is the founder and CEO of SESAME, an expert in
olfactive marketing and olfactive identity. He also owns
two niche perfumeries in France. Late deafened, he is
the President of the French OHNS Ethics Committee.

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EDITOR'S PICK

A NEW BUSINESS LEADERSHIP PARADIGM
TO UNDERSTAND SIGNALS AND TIMING:

WHEN TO ENTER
A BUSINESS AND
WHEN TO EXIT
In business, as in a host of other contexts, timing is everything. While sensing the
optimum moment for a given course of action may require more art than science,
we can at least be aware of the indicators that we should be looking out for.

by Peter Lorange and Karin Mugnaini

n businesses’ quest for profitability, in a
world that seems to be more and more
demanding, and also in a journey where
achieving success is increasingly challenging
for most business leaders – high competition,
rapid technological changes, various sorts of
crises (economic, political, health, …) and so
on, to be able to better understand and obtain
a certain excellence in timing could the most
promising way to secure a reasonable profit
margin. To know when to accelerate one’s
engagement in a business, as well as when to
decelerate, appears key. It seems to be a matter
of skill regarding “ins and outs”.
It is also important to consider that these
“ins and outs” are not only about entering and
exiting a business, but rather can also refer to
turning on or off a "business dial", which can
be more another type of action, e.g. opening
or closing a division, changing or upscaling or
phasing out a product, growing or stabilising a

THE EUROPEAN BUSINESS REVIEW

revenue stream, spending or saving, etc. There
are signals out there for all of those types of
decisions, too. Perhaps by concentrating more
broadly on “ins and outs” and its classical
reference to only entering and exiting a business, we are thinking too narrowly. We suggest
considering timing, breakpoints, and signals
in different contexts depending on significant
business decisions.

Lorange, P.
Mugnaini, K., (2024),
The Future Ready
Leader, Springer
Nature.

MARCH - APRIL 2024

All businesses are different. This implies
that each business leader must develop their
own lead indicators. Our book The Future
Ready Leader (Lorange and Mugnaini, 2024)
provides support when it comes to this. In our
work we have reviewed some 70 books and also
conducted around 21 high-level interviews.
While none of these explicitly identify lead indicators for guiding “in/out” decisions, they all
seem to have been developed in this spirit. Thus,
many authors whose works we have reviewed,
as well as most of the executives interviewed,

ENTER OR EXIT?

seem to have had a central concern for lead indicators, i.e., how to perceive indicators and better
forecast various types of decisions. Accordingly,
leaders might be inspired by our book to establish
their own tailored factors.

that person or entity, ideally before others see
similar or comparable indicators. Our aim, with
our book, has been to contribute towards this.

To explore how to find such “weak” signals
for guiding in/out decisions, we thus surveyed
So, how can leaders come
70 books, written by a wide
up with better ways of doing
array of practitioners totalling
this? Are there factors that
To know when to accelerate some 15,000 pages. Further,
leaders might follow which
we interviewed some 21 senior
one’s engagement in a
might signal that there is time
leaders from business and polibusiness, as well as when
for action? And such signals
tics. The result is summarised
may have value only if they can
in The Future Ready Leader. In
to decelerate seems key. It
be considered to be exclusive
following, we shall discuss
seems to be a matter of skill the
for a given decision-maker. If
how these learnings could
regarding “ins and outs”
the signal-reading is available
help leaders to improve timing
to all, in contrast, there could
decisions. We shall offer a
be relatively little to gain. In
conceptual scheme for coming
such cases, it can be unrealistic to come up with
up with lead indicators, based on inputs from our
better timing decisions, at least those that others
book. Further, we will aim to illustrate how our
in the market would not have picked up on. The
approach might work when applying this to three
trick will be to identify factors that are unique to
specific businesses.

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EDITOR'S PICK

We tout the importance of intuitive and counterintuitive thinking, creative thinking, and ways that
recognise that weak signals are just as valid or important
as strong ones. In other words, learn by the not-so obvious,
learn through the “side door”, learn through daily nuggets,
not necessarily from the established teacher or guide but
also from learners or the unexpected. Thus, it may become
critical for an executive to be willing to break typical
learning patterns and go beyond what may be at first the
most obvious of lessons. In many large organisations,
perhaps particularly in significant, bureaucratic ones,
it could be particularly important to keep this in mind.
Impact from support entities might tend to be particularly
“frozen” in many established organisations.

A CONCEPTUAL SCHEME FOR
BETTER TIMING
We have developed a four-step conceptual scheme for
coming up with better lead indicators, to make better
in/out decisions. Every business is, of course, unique. A
senior leader must thus be prepared to strive to identify
their own lead indicators, tailored to their own distinctive
business, within their relevant market/s. While our book
provides valuable inputs in such a process, it is absolutely
fundamental that further tailoring of factors take place,
such as “combining” the content from our book with the
conceptual scheme below:

Step 1 : Identify a preliminary set of critical
success factors, based on a senior executive’s
understanding of their business.
Step 2 : List what might influence (“drive”) these
critical success factors. Are there other critical success
factors that might have been overlooked initially?
(Draw on our book).

from the decision-maker, so as to create revised
inputs. In the following, we shall attempt to
illustrate how this process might work through
discussing four examples. While all examples are
disguised, they nevertheless represent real cases
taken from one of the authors’ experiences.
There are several bases for support when it
comes to this type of exit decision in our book.
Particularly, the interview with Kristian Jebsen
(Part 4) is useful. Also, the interviews with Jan
Jenisch (Part 5) and of Morten Hannesbo (Part
5) are helpful. In addition, many of the book
reviews seem relevant, especially several of
those in Parts 4 and 5.

Step 3: Develop several scenarios for how one’s
critical success factors might evolve (again, drawing
on the book).

EXAMPLE: OFFSHORE SHIPPING
Step 4 : Select measurable surrogates for each of
these factors to track the development of the scenarios.
This process is, of course, both interactive and iterative. There may be iterative loops, triggered by initiatives

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MARCH - APRIL 2024

Offshore supply shipping basically consists of
two major segments, anchor-handlers, to assist
the redeploying of oil rigs, and platform supply
ships (PSVs), to transport supplies to offshore

rigs (provisions, drilling mud, pipes,…). In
addition, there are several smaller, specialised,
niches (diving support, ROV, …). However, in this
example, we shall focus solely on PSVs.

Timing decisions (“ins” as well as “outs”) should typically
be taken by the CEO alone. If group-based decision-making
is at work, then subsidiary factors, such as protecting one's
job, safeguarding one's turf, etc., will easily lead to inaction.
Also, more decision-makers involved can naturally risk
slowing down the speed to decision.

After considering several factors for how to
decide where to order new PSV ships, and when
It follows from the above that these types of decisions
to sell, we came up with the following simple
often tend to be relatively unpopular. A robust CEO is
paradigm, that also was easy to track: tonnage
therefore needed. They must be ready to make unpopular
of the PSV fleet presently “in the water", relative
decisions, anticipating questions, preparing replies, etc.
to new tonnage on order. When new tonnage
on order shot up, it
was perhaps time to
sell. When there were A senior leader must thus be
EXAMPLE: A MEDICAL
relatively few new
prepared to strive to identify his/
TESTING FIRM
ships on order on
the other hand, then her own lead indicators, tailored to
A decision to go public was
it might be time to his/her own distinctive business,
raised by several minority shareorder new buildings,
within his/her relevant market/s.
holders, but this was rejected by
or to buy secondhand
the majority shareholder. For the
tonnage.
majority owner, a more extreme long-term focus seemed
acceptable, setting aside aspiration to take advantage of shortAt one point, new building orders could be
er-term positive movement in the firm’s share-value cycle.
rapidly rising. And the secondhand price for
So how might one come up with lead indicators for a more
PSVs would thus also tend to be good, as might be
specific indication of what may be good timing then, still as
expected, since the market would still be strong,
seen from the vantage point of the minority shareholders?
with nothing of the new tonnage yet depressing
the market. One might want to sell.
Here are some inputs that might be taken from our
book. The book by Rosling (Part 3) offers important analytBut there might be objections, say, from
ical support. And Sethi’s book (Part 4) discusses several of
employees. Here are two factors to consider
these issues directly. Carryou’s book is also relevant.
when it comes to exit decisions:

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EDITOR'S PICK

One important assertion should be made at this stage,
namely that it is important that a firm’s top leadership be
in a position to actually act when an opportunity comes up.
The counterpoint might be more fundamental disagreement
among leading stakeholders, such as between various shareholder groupings, top management, the board, and so on.
Again, it is important that there is someone at the helm with
clear decision-making authority.

EXAMPLE: A LAND-OWNING FIRM

a pool of ships designated to the transportation of
chemicals. There seemed to be signals that it was a
good time to enter, with the price of the ship being
relatively low, a somewhat low new-building order
book, as well as an apparent global uptake for the
transportation of chemicals.
The reviews and interviews in Part 5 could shed
important light on the issues affecting the attractiveness of chemical shipping. Several of the book
reviews in Part 3 are also relevant, perhaps above
all that of Siilasmaa’s book.

The local political authorities have
A portfolio strategic perspectentatively approved the building
tive is also important here,
of several semi-detached dwell- Cycle management is a
however, that there should be
ings on around one-third of a land key concept here too,
enough free cash available to
parcel outside a European capital
execute attractive investments.
namely, to anticipate low
city, and the land-owning firm has
In-decisions/in-opportunities
provisionally sold this land parcel parts of a cycle, and to “get typically come about rather
to a developer. A main condition in”, as well as upper parts
randomly. Cash is needed to be
from the local political authority
to act when such opportuof a cycle, and to “get out”. ready
to allow the construction to take
nities arise.
place, however, is a requirement
that the local access road should be improved. While the cost
of this rests on the local community and county, there might
CONCLUSIONS
be relatively low willingness by the authorities to go ahead, due
to other, competing priorities for them. A large development
As we are always stressing, it is especially critical
project nearby seems to have led to increased pressure to start
to be able to anticipate so-called breakpoints, to
the road-improvement project, however. But when could the
be able to take timely actions, typically ahead of
road construction take place, triggering the land development
“the rest of the flock”. By breakpoints, we mean
firm to receive its sales compensation from the developer?
While there are many inputs from our book that might
shed light on this issue, several of the books reviewed in
Part 1 may be particularly relevant. Andrew McAfee’s book
appears to be particularly so. Also, the book by Sam Zell
(Part 8) is also helpful.

EXAMPLE: PURCHASE OF A
CHEMICAL TANKER
There was an opportunity to purchase a part of a secondhand
chemical tanker, which was to be operated by a well-represented shipping group, considered to be a world leader with

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MARCH - APRIL 2024

doctors, economists, and even security experts or detectives, are examples of professions whose work relies heavily
on their ability to look for signals and breakpoints.
So, a "new" managerial discipline is emerging – the sensing
of signals regarding breakpoints, not only strong, but also weak
ones. Effective leaders must develop an approach to understand these themselves. For each business leader, these will
be different! Business schools might also be useful here, by
focusing more on (typically weak) signals; how to gain understanding and how to measure. But, in the end, it is all about the
effective leader him- or herself. Observation, listening, reflection are part of this critical process and mindset.
business interruptions that can arise from a variety
of reasons, including environment, process,
people, and so on. Some breakpoints are expected,
others not. For those not anticipated, being in tune
with or alert to the not-so-easy-to-see data points or
the weak signals can help leaders to catch them.

In summary, in-out decisions can yield success if made
with the highest degree of observation of patterns, capture
of signals, analysis, and solid doses of clear decision-making.
We must not only ask our teachers and guides to help us to
acquire these skills, but we ourselves must shift our leadership mindsets to that of a “signal sensitivity” mindset.

Cycle management is a key concept here too,
namely, to anticipate low parts of a cycle and to
“get in”, as well as upper parts of a cycle, and to “get
out”. In most types of shipping, for instance, this
is particularly important. Cycle management does
of course apply to many other business areas, too.
And we can turn to successful investors who have
turned this almost into a science, for inspiration.
Breakpoint understanding represents a central
premise for successful cycle management!

REFERENCE
Lorange, P. Mugnaini, K., (2024), The Future Ready Leader ,
Springer Nature.

Do not ignore the weak signals that indicate the
existence or probability of breakpoints. In quickpaced environments, we acknowledge how critical
speed is. Yet we suggest that you can be fast, and
focused (see the review of Hoffman and Yeh’s book
in particular – Part 5). You can accelerate forward,
you can build an awareness level in such a way that
even small, minute impulses can serve as moments
of transformation.
Weak signals can indicate that change can
occur, for example in leadership. While strong
signals may stream almost automatically into
actions, tiny data points, weak signals are often
unseen, set aside or misinterpreted. Scientists,

ABOUT THE AUTHORS

Peter Lorange, Honorary President, IMD, is
a successful entrepreneur and the former
owner of a highly diversiﬁed family investment
company. He is regarded as one of the
world’s foremost business school academics,
having held the position of President at IMD,
Lausanne (Switzerland) for 15 years, having
also been President of Norwegian School of Business, as well
as a Professor at Wharton and at Sloan School (MIT). He has
had several positions on various boards. His entrepreneurial
journey spans key areas such as education, shipping,
investments, and real estate businesses.
Karin Mugnaini is the Head of the International
Alumni Association at IMD (Lausanne,
Switzerland), and has been involved in
international business since 1989, with
engagements across the United States, Europe,
Hong Kong, and currently in Switzerland.
She has held numerous leadership positions
in corporations as well as in startups, with a particular
emphasis on new business initiatives. Ms. Mugnaini was
formerly President & COO of the Lorange Network, working
closely with Peter Lorange.

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LEADERSHIP

A CONCEPT AND METRIC TO EMBED IN LEADERS,
ENHANCING THEIR EFFECTIVENESS
by Simon L. Dolan, Kyle Brykman and Shay S. Tzafrir

Every leader needs to inspire trust in their
followers, employees, and stakeholders. Trust is
one concept that binds all efforts at relationshipbuilding together, leading to business success.
In this article, three experts in business
management discuss how leaders can build trust.

INTRODUCTION
Trust is the foundation of any successful relationship, whether it be personal or professional.
Building trust requires effort and time, but the benefits of a trustworthy relationship are immeasurable.
Trust can lead to increased communication, better
collaboration, and a stronger sense of community.
In this article, we will explore the strategies and
techniques available to leaders that can be used to
establish trust in their relationships.

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MARCH - APRIL 2024

Trust is an essential concept in many of the articles, books, and research focus of the coauthors
of this article. Dolan (2011 and 2020), for example,
refers to TRUST as the “Super-Value”, the “Value
of Values” or the “Mother of all Values”.1 Garti and
Tzafrir (2022), in a recent book, suggests trust to be
a powerful concept for synchronising work-family
relationships.2 As researchers, consultants, and
change agents, we argue that a leader who wishes
to be effective in his/her role needs to embed the
triple anchors in his/her toolbox: 1) A clear definition of what trust means (and what trust is not), 2) a
clear methodology to assess trust, and 3) evidencebased tool (or tools) to assess the genuine level of
trust that he/she experiences. We therefore believe
that the time is ripe to explore these three components, which we have been researching for over 20
years. This is needed because managers, leaders,
and employees across organisations frequently

use the term trust, even though it is not very well
The objective of this paper is threefold: (1) to
understood, and neither is it clear as to how to
shed light on what trust means in organisational
build it and what measures/tools are available to
contexts (2) to describe a 360o methodology to
assess the leaders´ trust (ranging from self-trust,
enhance it.
subordinates´ trust in the leader, and colleagues´
Enhancing trust in organisations is a complex
trust in the leader), and (3) to describe the latest
and challenging process that requires a well-planned
applications of the TRUST-ME
methodology and effective
tools to achieve success. Trust
Trust can mean different things tool that can be used as a
gamification tool and online
is the foundation of any healthy
assessment.
and productive relationship. to different people. For some,
Without trust, employees can it may be about reliability
feel disengaged and unmotiand consistency. For others,
vated— resulting in a decline
SO, WHAT EXACTLY
in productivity or quitting it may be about honesty and
IS TRUST?
the organisation. It may also transparency. And for others
lead to overall poor organisastill, it may be about a sense of Trust is about having confidence
tional performance.
in someone or something. Trust
However, enhancing trust connection and understanding.
is about believing that they will
within an organisation is not
do what they say they will do, it is the ability to reduce
an easy task. It requires a significant investment of
uncertainty as a result of a shared positive history,
time and effort, along with the right “know-how”.
and that they have your best interests at heart.3
Leaders must not only be committed to creating
However, trust can mean different things to different
a culture of trust and be willing to make diffipeople. For some, it may be about reliability and
cult decisions to achieve this goal, but also have
consistency. For others, it may be about honesty and
a firm understanding of how to do so and what
transparency. And for others still, it may be about a
works against trust. Additionally, trust takes time
sense of connection and understanding. One clear
to build, and it can be easily lost if not nurtured
thing, though, is that trust is vital to any relationship,
and maintained.
whether it is personal or professional. Without trust,
it is difficult to build strong, lasting connections with
others and hard to feel secure and confident in your
interactions with them.
Some regard or consider trust as a concept
with two components: trustfulness and trustworthiness. This approach combines the attitude of one
actor with the characteristics of another. A host of
scholars stress the importance of being trustful.
In the idealistic tradition, faith and social education nurturing positive expectations are the keys
to trust and cooperation. However, trustworthiness can play a major role in this attitude. Overly
optimistic or deceitful promises will fool and disappoint the trustful actor, making him/her distrustful,
while the experience of trustworthy partners will
enhance further cooperation. Hence, the degree
of trustworthiness is the central factor for whether
trust increases or decreases.4

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LEADERSHIP

Mind you, trustfulness refers to the willingness
to trust others and to believe in their intentions and
actions without questioning them. It is a positive
trait that allows individuals to build strong relationships and foster collaboration. Trustfulness is
often associated with openness and vulnerability,
as it requires individuals to let their guard down
and rely on others. On the other hand, trustworthiness refers to the ability to be trusted, and to act in
a reliable and honest way that inspires confidence
in others. It is a character trait that is built over
time through consistent behaviour and actions.
Trustworthiness is often associated with integrity
and responsibility, as it requires individuals to be
accountable for their actions and to follow through
on their commitments. It also involves compassion and benevolence, as one needs to believe that
others will act with kindness and with their best
interest in mind.
While trustfulness and trustworthiness are
both important, they are not interchangeable.
Trustfulness can be a positive quality, but it can also
be risky if it is not accompanied by discernment
and caution. Blindly trusting others, unconditional
trust, can lead to disappointment and even harm
if the other person proves to be untrustworthy. On
the other hand, trustworthiness is a foundational

quality that underpins all healthy relationships.
Without trustworthiness, trust cannot be built or
maintained. Trustworthiness requires individuals
to be honest, reliable, and consistent in their behaviour, even when it is difficult or inconvenient.
All in all, research shows that leaders who display
trust, create a positive culture which makes a huge
difference in terms of the commitment and productivity of members of the organisation (See Exhibit 1).

Exhibit 1:

Some tangible consequences connected
to leaders who generate trust

Enhance

Report

Productivity

74%

106%

Less waste

by about

less

and enhance

40%

Stress

energetic

Experience
Over

40%

Resource Savings

at work

Source: https://esp.6seconds.org/2017/08/24/
la-neurociencia-de-la-sala-al-directorio/

THE SPIRITUAL DIMENSION
OF TRUST
Is there such a thing as spiritual trust? The answer
is yes. Among the types of trust, it focuses on faith
and religious doctrine. People with this type of
trust believe in the spiritual energy that surrounds
human beings. It is a very subjective trust that
depends on the context and culture.
The phrase “In God We Trust” is a well-known
and significant motto in the United States. It is
printed on its currency, displayed in government
buildings, and has been a part of the US national
identity for over 150 years. Despite its origins in
wartime and Cold War politics, the motto has
endured as a symbol of American values and identity. Regardless of one’s personal beliefs, the phrase
“In God We Trust” remains an important part of
the US national heritage. It represents its history,
values, and commitment to a higher power. And it
serves as a reminder that, even in times of hardship

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MARCH - APRIL 2024

and division, one can find strength and unity in
one’s faith. Moreover, the phrase is a testament to
the importance of faith and spirituality in American
life. It acknowledges that religion and spirituality
are not just personal beliefs, but also a fundamental
part of the nation's heritage and culture. It is a call
to embrace one's faith and to seek guidance from a
higher power in times of need.

THE BIOLOGICAL AND
NEUROSCIENCE BASE OF TRUST
We are born to trust — to engage with others and
rely on them for survival. This innate human condition served critical evolutionarily purposes in early
hunter-gatherer societies that depended on collaboration and concern with non-familial members.
The neuroscience base of trust is a fascinating
topic that explores the intricacies of the human
brain and its ability to build and maintain trust. The
neuroscience of trust is based on the understanding
of the brain's reward system, which is responsible for
regulating our emotions and behaviours. Studies
have shown that when we trust someone, our
brains release oxytocin, a hormone that is associated with social bonding and attachment. This
chemical reaction creates a sense of warmth,
closeness, and intimacy, which reinforces the
bond of trust between individuals.
Furthermore, the prefrontal cortex, a region
of the brain responsible for decision-making
and social behaviour, is also involved in the
process of building trust. This area of the brain
is responsible for evaluating social cues and
determining whether someone is trustworthy.
When we encounter someone who displays trustworthy behaviour, the prefrontal cortex sends
signals to the reward system, which reinforces the
bond of trust.
However, the neuroscience base of trust is not
limited to the reward system and prefrontal cortex.
Other regions of the brain, such as the amygdala,
play a crucial role in the process of building and
maintaining trust. The amygdala is responsible for
processing emotions, particularly fear and anxiety,

which can have a significant impact on our ability
to trust others. When we encounter a potential
threat, the amygdala sends signals to the prefrontal
cortex, which evaluates the situation and determines whether it is safe to trust the other person.
In conclusion, the neuroscience base of trust
is a complex and multifaceted topic that involves
a combination of cognitive, emotional, and social
processes. It highlights the importance of social
bonding and attachment in human relationships and
provides insight into the mechanisms that underlie
trust. By understanding the neuroscience of trust, we
can develop a greater appreciation for the power of
trust in our lives and work towards building stronger,
more meaningful relationships with others.5

Studies have shown that when we trust
someone, our brains release oxytocin, a
hormone that is associated with social
bonding and attachment. This chemical
reaction creates a sense of warmth,
closeness, and intimacy, which reinforces
the bond of trust between individuals.

THE COSTS AND CONSEQUENCES
OF MISTRUST IN AN
ORGANISATION´S LEADER
Today, mistrust has become a pervasive issue
that has far-reaching consequences. In organisations, mistrust can create an environment of
fear, doubt, and uncertainty. The costs of mistrust
are significant, as it can lead to a breakdown in

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LEADERSHIP

communication, a lack of collaboration, and ultiperformance. When employees are unhappy in
mately, a loss of productivity.
their jobs, it can also lead to increased absenteeism
In the workplace, mistrust can be equally
and presenteeism, which can further impact the
damaging. It can create a toxic environment where
organisation's bottom line.
employees feel suspicious of one another, and where
collaboration is difficult to achieve. Mistrust can lead
to a lack of innovation and creativity, as employees
THE PARADOX OF EMPLOYING
are hesitant to share their ideas and opinions for fear
“INWARD-TRUST¨ BUT
of being judged or criticised. It is difficult to recover
“OUTWARD- ZERO TRUST”
from mistrust, as research shows that it takes approximately six trust-building actions to compensate for
So far, we have argued that trust is a valuable
one act that breached trust.6
Mistrust in the workplace can have serious consecommodity. It is especially important to nourish it
quences for both employees and the organisation.
within the people that work in the same team or organFirstly, mistrust can lead to a toxic work environisation. We call it “inward trust”. But, with the rise
ment. When employees don't trust their leader, it
of cyber-attacks and political turmoil, it is becoming
creates a culture of suspicion and paranoia. This
increasingly difficult to rely on others. That's where
leads employees to feel isolated and unsupported,
the concept of “Zero Trust” comes in. This approach
which can have a negative impact on their mental
to security is gaining popularity in both international
health and well-being. A toxic leader
politics and the digital security sector.
can also lead to high turnover rates,
The idea behind Zero Trust is simple:
Mistrust can lead to a
as employees may feel compelled to
trust no one. This means that every
lack of innovation and
escape the negative atmosphere.
user, device, and application must
Secondly, mistrust in the leader- creativity, as employees be verified and authenticated before
ship of an organisation can decrease
being granted access to a network
are hesitant to share
productivity. When employees don't
or system. It also means that access
trust each other, they do not collaborate their ideas and opinions
is granted on a need-to-know basis,
or communicate effectively leading to for fear of being judged
rather than blanket permission.
avoidable mistakes. When employees
While the concept of Zero Trust
or
criticised.
don't feel comfortable working with
may seem extreme, it is becoming
their leaders, they may also be less likely to ask for
necessary in today's world. Cyber-attacks and polithelp, which can further decrease productivity.
ical turmoil are on the rise, and trust is becoming
Thirdly, when employees lack trust in their
harder to come by. Zero Trust provides a solution to
leader, they feel unsupported and undervalued.
these problems by ensuring that every user, device,
This leads to a lack of motivation and enthusiasm
and application is verified and authenticated before
for their work, which ultimately impacts their
being granted access. This is a small price to pay

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MARCH - APRIL 2024

for the security of sensitive information and the
protection of our democracy.

compass. The consequence is simple: the more
a leader uses the word trust (without precision),
the more the followers and companions will lose
interest in listening to him/her and it will naturally
lead to disappointment in our leaders.
For this reason, at the beginning of the 2000s, we
began to study trust in work settings, in a rigorous
and systematic way. In 2004, we published for the
first time an article where we identified the three
key dimensions of the concept of trust (acronym
RCH), as we refined the tools to measure it. The
three dimensions that emerged from the numerous
scientific studies were:

LEADERSHIP AND TRUST: THE
USEFULNESS OF THE TRUST-ME
SCALE AND TOOLS
When it comes to measuring trust, it is important
to consider the various factors that contribute to
its formation. To measure trust, various concepts
and scales have been developed. These include the
Trust Scale, the Trust in Organisations Scale, and
the Interpersonal Trust Scale, among others. These
scales are designed to assess different aspects of
trust, such as trust in specific individuals, trust in
organisations, and trust in oneself.
Many of the conflicts in organisations arise
because leaders cannot generate and/or sustain
trust. How can a leader have followers if they do not
trust him/her? Unfortunately, research suggests that
in more and more companies (families included
if we use it as a metaphor for an organisation), it
seems that people have lost trust in their leaders
and their peers. We note this lack of trust in businesses, government agencies, education, and even
in our churches (you only must listen to the scandals that are published on the corrupt behaviour of
some priests). This general distrust in our leaders
points to a cultural breakdown. The problem is
not a lack of leaders but a lack of a climate of trust
where leadership is possible.
Unless followers feel confident in the fairness and reliability of their leaders, they will not
continue following them. Trust can significantly
alter individual and organisational effectiveness.
Trust, more than power and hierarchy, is what
makes an organisation work effectively.
So, if we know that trust is a prerequisite for any
attempt by the leader to change the organisational
culture and to sustain the reliability, motivation,
and behaviour of the followers, why don’t we help
leaders to improve trust? In our opinion, people use
the word trust too often in making a generic reference and therefore until we have a clear metric to
measure it, we will continue to operate without a

R eliability, Concern, and Harmony (See Exhibit 2).
Let´s elaborate a bit on each of these dimensions:
•

Reliability is a leader’s competence that shows that he/she
is true to his/her words, makes him/her do what they say,
and does it consistently. This dimension is connected to the
efﬁciency of performance.

•

Concern is equated with the interest that the leader displays
in interacting with his/her subordinates. The leader is
involved affectively and emotionally in the relationship and
shares common and complementary goals. It also shows
that the leader is concerned and manifests genuine interest
in problems that his/her followers and companions might
have and shares values such as empathy or sympathy.

•

Harmony occurs when there is an ethical–social bond
between the leader and his follower. That means that there
are elements such as integrity, respect, and other ethical–
social facets.

Exhibit 2: Tzafrir and Dolan RCH model of Trust7

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LEADERSHIP

TRUST ASSESSMENT: A DEMONSTRATION OF TOOLS THAT ARE BASED ON (A)
GAMIFICATION (B) DIGITAL ONLINE
Entrusting my leader assessment and calculating the trust scores in each dimension is provided in Exhibit 3.
Entrusting You: A Scale for measuring the level of trust I have in my Leader/Manager/Boss

Exhibit 3:

Here are 21 statements that demonstrate dimensions of trust that you have in your manager/leader/boss (select a
focal person). The scale is based on the works of Tzafrir and Dolan, 2004).8
Indicate the degree to which you agree with each statement by using the following scale.

Disagree strongly

Disagree

Neither agree nor disagree

Agree

Strongly Agree

Think about yourself and the person in your organisation that you wish to assess. This can be a direct manager, a colleague
at work, a leader or the so-called Boss. For each statement, write the number that best describes how much you agree or
disagree with each statement.

Item #

Score
(1-5)

Statement

Card Label

My needs and desires are very important to both of us.

Shares needs & desires

I can count on my manager/leader to help me if I experience difﬁculties.

Lends a hand at difﬁculties

My manager/leader is sensitive and quite open-minded when he /she has to deal with me.

Open up

People around me succeed because my manager/leader does not let conﬂicts arise (he/
she does not let people step on each other).

Resolves conﬂicts

My manager/leader keeps the promises he/she makes.

Keeps promises

My manager/leader looks out for me to ensure that I get what I deserve.

Ensures equity

My manager/leader has lots of knowledge about situations that we are in together and
knows what needs to be done.

Have knowledge and
competence

My manager/leader is known to be successful in the things he/she attempts to
accomplish.

Success track

If I make a mistake, my manager/leader will “forgive and forget” in order to not upset me.

Forgives unintentional
mistakes

My manager/leader´s actions and behaviours are supportive and harmonious.

Harmonious action

My manager/leader´s actions are consistent with their words (he/she “walks the talk”).

Walks the talk

My manager/leader is known to generate comfort and thus I feel unthreatened in sharing
personal or intimate information with him/her.

Generates comfort

There is a lot of warmth and caring in the relationships between my manager/leader
and myself.

Warmth & Caring relationships

My manager/leader makes personal sacriﬁces for me to maintain the relationship.

Engages in personal Sacriﬁces

My manager/leader expresses his/her true feelings about important issues that
concerns us.

Manifest true feelings

My manager/leader brings the best of his /her humanistic traits in order to
sustain our good relationships.

Brings the best human
character

My manager/leader shows genuine concern for my needs and qualities.

Shows concern

All in all, my manager/leader is a reliable person.

Exhibits reliability

My manager/leader focuses on the message, (not on his messenger status),
to ensure that he/she is aligned with his/her promises.

Consistent actions

My manager/leader is often collaborative and cooperative with me.

Collaborates

My manager/leader makes an extra effort to maintain harmonious relationships
between us.

Maintains harmony

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MARCH - APRIL 2024

THE TRUST KIT 9

Interpreting the results
Calculate your total score by adding the following items.

Entrust
Dimension

Items

Reliability

2, 5, 7, 8, 11, 18, 19

Harmony

4, 10, 12, 14, 16, 20, 21

Concern

1, 3, 6, 9, 13, 15, 17

The Trust Kit was developed to perform
the same exercise as in Exhibit 3 but in
a fun and interactive fashion. Research
shows that this gamification approach
tends to yield more effective results than simple
explanations of principles by tapping into psychological and motivational aspects of human behaviour.
The Trust Kit contains 21 cards (in alignment with
the 21 questions), each of which corresponds with
a dimension of the RCH model, with a distinct
colour background. Seven cards are Red (representing Reliability), 7 Cards are Green (representing
Concern), and 7 cards are Blue (representing
Harmony). Players select cards in accordance with
the person being assessed (boss, manager, or leader)
and place it on the mate (Exhibit 4).

Total Score

• Please retake the scores obtained before and place
them respectively for each dimension in column 2.
• Take your score and divide it by 7 and then multiply
each by 2, then place each of them in Column 3
respectively. This will generate a ﬁnal score on a
scale ranging from 1-10 to be used in the Template.

Score obtained
before

Final calculated score
on a scale of 1-10 to
be placed on the
template

1
Trust Dimension

Exhibit 4: The mate of Trust based on the RCH model

Reliability
Harmony

The Trust Mate

Concern

#2
• Now, mark your ﬁnal score on each of the
corresponding dimensions in the threedimensional ENTRUST template. Once marked,
connect the dots with a straight line. Please
shade the area. This is your perceived TRUST
zone with the person that you are assessing.

Charting your perceived three-dimensional
zone of Trust
Reliability
10

Concern
8

0 1 2 3 4 5 6 7 8 9 10

Harmony

Lands a hand at
difﬁculties

#8
Has a success
track

#1
Shares needs &
desires

#9
Forgives
unintentional
mistakes

#4
Resolves
conﬂicts

#14
Demonstrate
personal
sacriﬁces

#5
Keeps promises

Is knowledgeable
and competent

#11

#18

#19

Walks the talk

Exhibits
reliability

Shows consistent
actions

Is open minded

Ensures equity

#13

#15

#17

Display warmth
& caring

Manifest
true feelings

Show concern

#10

#12

Promotes
harmonious
actions

Generates
comfort

#16

#20

#21

Demonstrate
humanistic
character

Great
Collaborator

Maintain
harmony

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LEADERSHIP

Exhibit 5a:

An example of a leader assessing the level of
Trust he/she generates with a subordinate.

A DIGITAL ONLINE TOOL TO ASSESS
TRUST IN THE ORGANISATION

R-zone
7

7
0

C-zone

H-zone
7
My Leader Trust zone in his/her self assessment
Results show that this leader thinks he/she is perfect
in displaying trust. He/she is a: 7 7 7 leader.

An example of a leader being assessed
Exhibit 5b: by his/her subordinate.

R-zone

•

Leader's self-assessment of the level of trust they
generate. (RCH model)

•

Subordinates (one or many) aggregate assessment
of the leader's level of trust (RCH Model).

•

Aggregate assessment of leaders' "peers" (RCH
Model), and

•

Aggregate assessment of the leader's superior(s)
(RCH Model)

•

At the end of this process, an elaborate
automatic (AI-based) report is generated which
indicates (a) the diagnosis, (b) the gaps, and
(c) the areas for improvement to enhance this
important phenomenon of building mutual trust.

7
0

C-zone

H-zone
7
My Trust zone with my leader
Results show that this is a 7 2 5 leader.

When you compare the two assessments, and can also
see the gap visually, you get an idea of what needs to
be worked on to improve the level of trust between a
leader and a subordinate. You can add more assessment in the 360o patterns, to identify more gaps (with
a team, with peers, etc.,) thereby improving the diagnosis. This will be a cumbersome process, and this is
the reason for the development of the digital tool that
is described in the next section.

The Digital Trust Assessment has been developed
as part of a programme and philosophy called
“Leadership by Values®”. This programme provides
stakeholders with the ability to evaluate their leaders
in three areas: 1) assess their core values and measure
how well they fit with the organisation's culture,
2) assess their competencies and leadership skills
for future success (9 skills total), and 3) assess their
overall state of trust. The programme, which incorporates some features of Artificial Intelligence, assesses
each of these leadership skills in a 360-degree degree,
and uses information on:

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

A FUTURISTIC NOTE AND
PREDICTION ABOUT THE ROLE
OF TRUST

foster global trade and enable individuals from
different corners of the world to interact and
engage in mutually beneficial exchanges.
Moreover, in a future where virtual reality and
augmented reality become more prevalent, trust
will be vital to foster meaningful connections. As
we immerse ourselves in digital realms, we will rely
on trust to distinguish between genuine interactions
and deceptive simulations. Trust will be the bridge
that allows us to form deep and authentic relationships, whether they are virtual or physical.
Furthermore, trust will be the backbone of
governance and societal systems. In a world
where data is the new currency, individuals will
need to trust that their personal information is
handled responsibly and transparently by governments and corporations. Trust will be crucial to
maintain social harmony and ensure that power
is not abused.

In a futuristic vision, the importance of trust in our
lives will be more crucial than ever before. As we
progress into an era of advanced technology and
interconnectedness, trust will shape the very fabric
of our society, economy, and personal relationships.
One aspect where trust will play a significant
role is in the realm of artificial intelligence (AI)
and automation. As machines become increasingly integrated into our daily lives, trust will be
essential for us to embrace and fully benefit from
these advancements. We will need to trust that
AI systems are reliable, secure, and make ethical
decisions. Trust will enable us to delegate tasks to
machines without fear of them malfunctioning or
causing harm.
In economic terms, trust will
be the foundation of a thriving
digital marketplace. With the rise
In a future where virtual reality and augmented
of decentralised technologies like
reality become more prevalent, trust will be
blockchain, trust will be inherent
in every transaction. People will
vital to foster meaningful connections. As we
have the confidence to engage in
immerse ourselves in digital realms, we will
online commerce, knowing that
rely on trust to distinguish between genuine
their personal and financial information is secure. This trust will
interactions and deceptive simulations.

Ultimately, in this futuristic vision, trust will
be the currency that fuels progress and enables us
to navigate the complexities of an interconnected
world. It will determine our ability to embrace
technological advancements, participate in the
digital economy, form meaningful connections,
and maintain a just and equitable society.
In short, trust will be the cornerstone of our
lives in the future. Its importance will extend
beyond personal relationships, permeating every
aspect of our existence. As we navigate a world
shaped by advanced technology, trust will be the
glue that holds our society together and allows us
to fully embrace the opportunities and challenges
of the future.

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LEADERSHIP

CONCLUSION
In this article, we explored the concept of trust in all its
complexities. We wish to reiterate that trust is one of the
most widely used constructs around the world, but it is poorly
understood, defined, and measured.
We were trained to think that if any concept is missing
these qualities (definition, methodology on how to use it,
and metrics) it is useless. An attempt was therefore made to
define trust, to look at its dimensions, and to show clearly
how it can be applied. We have decided to adopt the RCH
three-dimensional Trust model because it was based on
empirical research and seems to be used by thousands of
researchers around the world.
In the article, we introduced the essence of the RCH
model and explored its potential use wherever leadership
is called for: at home, at work and in the community. And
finally, we introduced three tools for measuring trust, which
can all be used in different contexts, and, if necessary, in
3600. This allows you to measure your leader's trust either
manually, or via the use of a gamification tool or digitally.
Gaps between the leader and other stakeholders can be
easily detected, displayed, and discussed resulting in the
preparation of strategic solutions to enhance trust, which in
the end, is a win-win outcome.

8.
9.

ABOUT THE AUTHORS

REFERENCES
1.
2.
3.

4.
5.
6.
7.

Dolan S.L. (2011). Coaching by Values. iUniverse; Dolan S.L. (2020).
The Secrets of Coaching and Leading by Values. Routledge.
Garti, A., & Tzafrir, S. (2022). Work–Family Triangle
Synchronization: Employee, Manager, and Spouse. De Gruyter.
See: Tzafrir, S. S., & Dolan, S. L. (2004). Trust Me: A Scale for
Measuring Manager-Employee Trust. Management Research:
Journal of the Iberoamerican Academy of Management, 2(2),
115-132.
See: Tullberg J., (2008) Trust—The Importance of Trustfulness
versus Trustworthiness, The Journal of Socio-Economics, Vol
37(5): 2059-2071
In January-February 2017, Harvard Business Review published an
amazing article by Paul J. Zak who covers with great details the
neuroscience of trust. Highly recommended reading.
Baumeister, R., Bratslavsky, E., Finkenaur, C., & Vohs, K. (2001).
Bad Is Stronger Than Good. Review of General Psychology
323–370.
This model was published for the ﬁrst time in 2004 but was
studied in other contexts many times by Tzafrir and Dolan
and many other collaborators. It was tested in many cultures
and sectors. Recently; ResearchGate has advised the authors
that over 9000 researchers have downloaded and/or used this
model in their own research; it seems that of all alternative
models of trust, this one has become the most popular
and most cited. To read more: Tzafrir S., Dolan S.L. (2004)
Trust me: A Scale for Measuring ManagerEmployee Trust,
Management Research: Journal of the Iberoamerican Academy
of Management, Vol. 2(2):115–132, https://do i.org/10.1 108/1
53654 30480 00050 5; Dolan S.L., Tzafrir S., Baruch Y. (2005)
Testing the Causal Relationships between Procedural Justice,
Trust, and Organizational Citizenship Behavior, Revue de gestion

THE EUROPEAN BUSINESS REVIEW

de ressources humanies, Vol. 57:79–89; Mach M., Dolan S.L.,
Tzafrir S. (2010)The Differential Effect of Team Members’ Trust
on Team Performance: The Mediation Role of Team Cohesion,
Journal of Occupational and Organizational Psychology, Vol.
83(3):771–794 (https://d oi.or g/10. 1348/09631 7909X 47390 3);
Chaluz H., Tzafrir S., Dolan S.L. (2015). Actionable Trust in Service
Organisations: A Multi-Dimensional Perspective, Journal of Work
and Organizational Psychology, Vol. 31(1):31–39; Capell B., Tzafrir
S., Enosh G., Dolan S.L. (2018) Explaining Sexual Minorities’
Disclosure: The Role of Trust Embedded in Organizational
Practices, Organization Studies, Vol. 39(7):947–973 https://journal
s.sag epub. com/d oi /fu ll/10 .1177 /0170 84061 77080 00.
Tzafrir and Dolan 2004. Op. Cit.
More information on the Trust Kit is available at: www.
learningaboutvalues.com

MARCH - APRIL 2024

Simon L. Dolan is a full professor and
senior researcher of HRM and Work
Psychology at Advantere School of
Management (afﬁliated with Comillas,
Duesto and Georgetown Universities). A
former Future of Work Chair at ESADE
Business School, he has published 85
books (in multiple languages) and over
150 articles in referees’ journals. He is also the co-founder
and President of the Global Future of Work Foundation.
His work, consulting and research are about values,
leadership, coaching, stress management and resilience
as well as issues connected to the future of work. He is
a member of the editorial board of half a dozen scientiﬁc
journals. His full bio at: www.simondolan.com
Kyle Brykman is an Assistant Professor
of Management and the VPRI Early
Career Research Chair in Leadership
at the Odette School of Business,
University of Windsor. Kyle's mission is
to help people lead happier, healthier,
and more productive lives, which he
accomplishes through high-quality
research, evidence-based teaching, and engaging training
and coaching. Kyle's research focuses on employee voice
and interpersonal team dynamics. He holds a PhD in
Management (Organizational Behavior) from Smith School
of Business at Queen's University, an MSc in Management
from Wilfrid Laurier University, and an HBA from Ivey
School of Business.
Shay S. Tzafrir is the dean of teaching
and professor at the School of Business
Administration, University of Haifa. A
former director of the Center for the
Study of Organizations & Human Resource
Management, he received his Ph.D. and
M.Sc. in behavioural science from the
Technion – Israel Institute of Technology and earned a
B.A and M.A. in political science, as well as LLB, all from
the University of Haifa. He serves as a member of the
Editorial Review Board in Human Resource Management.
He specialises in issues of people management and trust,
focusing on the efﬁciency aspects of human capital. His
current research interests include the role trust plays in
various organisational factors such as strategic human
resource management, organisational performance, and
service quality.

PSYCHOLOGY

ARROGANCE, HUBRIS,
AND NARCISSISM: THE
OVERCONFIDENT
LEADER
by Adrian Furnham

here is Freudian psychological and psychiatric business literature on narcissism. We
are now used to discussing our politicians as well
as business leaders, movie stars, and models in this
terminology. The PR-hungry narcissistic CEO and
politician is clearly driven to gain power, glory, and
the admiration of others. They can be visionaries and
risk takers, seeing the big picture while downplaying
the rules, laws, and conventions which handicap
them. They can also be amazingly self-absorbed,
deluded, and destructive.
Narcissists can be energetic, charismatic, leader-like, and willing to take the initiative to get projects
moving. They can be relatively successful in management, sales, and entrepreneurship, but usually
only for short periods. However, they are arrogant,
vain, overbearing, demanding, self-deceived, and
pompous, yet they are so colourful and engaging that
they often attract followers. Their self-confidence is
attractive. Naively, people believe that they have to
have something to be so confident about.
Narcissism, like all the personality disorders,
must be understood as a spectrum, not a type. It is
a matter of degree: confident, very confident, overconfident, sub-clinically narcissist, pathological
narcissist. Confident – good (if an accurate assessment of talents); narcissism – bad. When they have
some insight and self-awareness of their preferences
and abilities and which organisation forces are in
place to restrain them, they can act as great forces
for positive change and advancement. If articulate
and educated as well as physically attractive, they

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

can become great leaders. But many are insufferably
egotistical, self-absorbed, and deluded.
Several versions of the myth of Narcissus survive.
They are warnings about hubris and pride. At the
heart of the myth is the caution of misperception and
self-love, the idea that inaccurate self-perceptions
can lead to tragic and self-defeating consequences.
There appears to be a moral, social, and clinical
debate about narcissism. The moral issues concern
the evils of hubris, the social issue the benefits or
otherwise of modesty, while the clinical debate is
about the consequences of misperceptions.

NARCISSISTIC PERSONALITY
DISORDER
Many researchers list narcissism-arrogance in their
terms as the first (probably major) cause of why
CEOs fail. It is a case of “I’m right but everybody else
is wrong”, a blinding belief in your own opinions.

So, many have a diminished capacity to learn from
others or previous experience.
They show an outright refusal (ever) to be accountable and, hence, responsible. They are resistant to
change because they know that “my way” is best
and always show an inability to recognise their
(manifold) limitations.
Narcissists seem never to be defensive or
embarrassed about their ambition and supremely
confident in their ambitions. However, because
they are so aware of, comfortable with, and grateful
for, their strengths, they are easily and profoundly
wounded by any suggestion that they have serious
weaknesses or shortcomings.
At work, they tend to be high-energy, outgoing,
and competitive. They seem instinctively drawn to
office politics and how to find and use power. They
will charm those in authority or those from whom
they believe they have something to gain.

The psychiatric manuals list
the manifestations of this disorder:
Reacts to criticism with feelings of rage,
shame, or humiliation (even if not expressed)
Interpersonally exploitative; takes advantage of
others to achieve their own ends
Grandiose sense of self-importance, e.g.,
exaggerates achievements and talents, and
expects to be noticed as “special” without
appropriate achievement

It is important to differentiate between two
rather different types of narcissists: grandiose (e.g.,
manipulative, egotistical, exhibitionist, psychopathic) and vulnerable (e.g., craving, thin-skinned,
hyper-vigilant, shy). Grandiose narcissism is associated with immodesty, interpersonal dominance,
self-absorption, callousness, and manipulativeness; they are confident and suffer little stress.
Vulnerable narcissists are often distressed, with
low self-esteem and feelings of inferiority, yet also
egocentric and hostile.
Narcissists overall are boastful, pretentious,
and self-aggrandising. They overestimate their
own abilities and accomplishments while simultaneously deflating others. They compare themselves
favourably to famous, privileged people believing
that their own discovery as one of them is long
overdue. They are surprisingly secure in their
beliefs that they are gifted and unique and have
special needs beyond the comprehension of ordinary people.
Paradoxically for some (the vulnerable, as
opposed to the grandiose narcissist), their selfesteem is fragile, needing to be bolstered up by
constant attention and admiration from others.
They expect their demands to be met by special
favourable treatment. In turn, they often exploit
others, because they form relationships specifically
designed to enhance their self-esteem. They need
worshippers and acolytes.

Believes that their problems are unique and
can be understood only by other special people
Preoccupied with fantasies of unlimited
success, power, brilliance, beauty, or ideal love
Sense of entitlement; unreasonable
expectation of especially favourable treatment,
e.g., assumes that he or she does not have to
queue
Requires constant attention and admiration,
e.g., keeps ﬁshing for compliments
Lack of empathy; inability to recognise and
experience how others feel
Preoccupied with feelings of envy

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PSYCHOLOGY

They are also paradoxically envious of others
They may try to “buy” themselves into exclusive
and begrudge them their success. They are well
circles. They often require excessive admiration
known for their arrogance and their disdainful,
and respect from people at work for everything
patronising attitude. As managers, their difficultthey do. This is their most abiding characteristic.
to-fulfil needs can lead them to have problematic
They usually have a sense of entitlement, that is,
social relationships and make poor decisions.
unreasonable expectations of especially favourMany are exceptionally sensitive to setbacks,
able treatment or automatic compliance with
feeling both degraded and humiliated. They
their manifest needs. They are unsupportive but
mask this with defiant counterattacks
demand support for themselves. All
and rage. They may withdraw from
are unwilling to recognise or identify
Narcissists overall are
situations that led to failure or try to
with the feelings and needs of others
boastful, pretentious,
mask their grandiosity with an appearin and out of work. They have desperance of humility.
ately low emotional intelligence.
and self-aggrandising.
At work, narcissistic individuals
Essentially, narcissism is a
They overestimate
have a grandiose sense of self-impordisorder of self-esteem; it is essentheir own abilities
tance (for example, they exaggerate
tially a cover-up. People with NPD
their achievements and talents, and
self-destruct because their self-agand accomplishments
expect to be recognised as superior
grandisement blinds their personal
while simultaneously
without commensurate achievements).
and business judgement and manadeﬂating others.
Inevitably they believe that they rightly
gerial behaviour. At work, they
deserve all sorts of markers of their
exploit others to get ahead, yet
specialness: bigger offices and salary, inflated job
they demand special treatment. Worse, their
titles, a bigger budget dedicated to their needs,
reaction to any sort of criticism is extreme,
more support staff, and greater liberty to do as
including shame, rage, and tantrums. They aim
they wish.
to destroy that criticism, however well-intenMost individuals with NPD are preoccupied
tioned and useful. They can be consumed with
with fantasies of unlimited success, power,
envy of, and disdain for, others, and are prone to
brilliance, and money. They believe that
depression as well as manipulative, demanding,
they are “special” and unique and can
and self-centred behaviours. Even therapists
therefore only be properly underdon’t like them.
stood by, or should associate with,
Many researchers have tried to “unpick” the
other special or high-status
essence of the paradoxical, fragile self-esteem
people (or institutions).
of the narcissist. The narcissist’s self-esteem is
at once unstable and defensive. It seems that
their self-esteem is utterly contingent on others’
feedback. Further, it is dissociated between
explicit (overt) and implicit (covert) views.
What is most distinctive about narcissists
is their self-assurance, which often gives them
charisma. They are the first to speak in a group
and they hold forth with great confidence, even
when they are wrong. They so completely expect
to succeed, and take more credit for success
than is warranted or fair, that they refuse to
acknowledge failure, errors, or mistakes. When
things go right, it is because of their efforts; when
things go wrong, it is someone else’s fault. This is

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a classic attribution error and leads to problems with truth-telling,
because they always rationalise and reinterpret their failures and
mistakes, usually by blaming them on others.
Narcissists handle stress and heavy workloads badly, but seemingly with ease; they are also quite persistent under pressure and
they refuse to acknowledge failure. As a result of their inability
to acknowledge failure or even mistakes and the way they resist
coaching and ignore negative feedback, they are unable to learn
from experience.

Oldham and Morris note four tips for working with narcissists:
Be absolutely loyal. Don’t criticise or compete with them. Don’t
expect to share the limelight or to take credit. Be content to
aspire to the number-two position.
Don’t expect your self-conﬁdent boss to provide direction.
Likely, he or she will expect you to know what to do, so be sure
you are clear about the objectives before you undertake any
tasks. Don’t hesitate to ask.
You may be an important member of the boss’s team, but don’t
expect your self-conﬁdent boss to be attentive to you as an
individual. Don’t take it personally.
Self-conﬁdent bosses expect your interest in them, however.
They are susceptible to ﬂattery, so if you’re working on a raise
or a promotion or are trying to sell your point of view, a bit of
buttering-up may smooth the way.

This is advice for those working with narcissists. It clearly takes an
optimistic perspective, never considering that a narcissistic boss could
be both abusive and deeply incompetent.

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PSYCHOLOGY

THERE ARE MANY MARKERS OF
NARCISSISM. HERE IS A CHECKLIST FOR
SOMEONE YOU MIGHT SUSPECT OF NPD:

manipulate, ply, shape, beguile, machinate, or manoeuvre
the feelings or opinions of others.

EXPLOITATIVENESS
Assessing a tendency to exploit, take advantage
of, and use others for their own gain.

REACTIVE ANGER
Concerning anger and rage in response to perceived
slights, criticism, failure, or rebuke.

SHAME
Concerning shame or humiliation in response to
perceived slights, criticism, failure, or rebuke.

INDIFFERENCE
In response to perceived slights, criticism, failure,
or rebuke.

NEED FOR ADMIRATION
Involving a sense of inner weakness, uncertainty,
and insecurity with respect to a desired or perceived
greatness.

EXHIBITIONISM
A seeking of constant admiration, showing off when
in the presence of others, and attention-seeking, without
reference to feelings of insecurity.

THRILL-SEEKING
Assessing a tendency to engage in high-risk behaviour
for the sake of thrills and excitement.

AUTHORITATIVENESS
Assessing a tendency to take charge of situations, to
authoritatively take responsibility for making decisions,
and to perceive oneself as a leader.

ENTITLEMENT
Involving feelings and actions of entitlement,
presumptuousness, not being satisfied until they get what
is perceived to be deserved, or expectation of favourable
treatment.

ARROGANCE
Assessing haughty, snobbish, imperious,
pretentious, conceited, pompous, and disdainful beliefs
and behaviours.

LACK OF EMPATHY
Assessing the extent to which the person fails to
be aware of, appreciate, or acknowledge the feelings of
others, displaying attitudes that are generally uncaring
and unsympathetic.

ACCLAIM-SEEKING
Assessing narcissistic aspirations, working toward
acclaim, and an excessive driving ambition to achieve.

THE NARCISSISTIC LEADER
It should not be assumed that narcissism is necessarily a
handicap in business. Indeed, the opposite maybe true. If
a manager is articulate, educated, and intelligent, as well

GRANDIOSE FANTASIES
Assessing fantasies of grandeur and success,
preoccupation with fantasies of future glory, and a
tendency to distort reality to achieve an overly positive
view of past, current, or future accomplishments.

CYNICISM / MISTRUST
Assessing a sense of cynicism and mistrust concerning
the motives, intentions, and reliability of others.

10
38

MANIPULATIVENESS
Assessing a tendency to skilfully and characteristically

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as good-looking, their (moderate) narcissism may be seen
to be acceptable.
Bright-side narcissists can be good delegators, good
team builders, and good deliverers. They can be good
mentors and genuinely help others. However, subordinates soon learn that things go wrong if they do not follow
certain rules.
•

•

Everyone must acknowledge who is boss and
accept rank and hierarchical structure.
They must be absolutely loyal and never
complain, criticise, or compete. They
should never take credit for something but
acknowledge that success is primarily due to
the narcissist’s talent, direction, or insights.

•

They should not expect the narcissist to
be interested in their personality, issues, or
ambitions but they must be very interested in
the narcissist’s issues.

•

They have to be attentive, giving, and always
ﬂattering. They need to be sensitive to the
whims, needs, and desires of the narcissistic
manager, without expecting reciprocity.

•

Narcissistic managers can be mean, angry, or
petulant when crossed or slighted, and quickly
express anger, so subordinates have to be
careful when working with them.

•

They must ask for help, directions, and clarity
about objectives when they need it.

•

They need to watch out that a narcissistic
manager’s self-preoccupation, need for
approbation, and grandiosity do not impede
their business judgement and decision-making.

•

They need to ﬁnd ways of giving critical
feedback in such a way that the manager both
understands it and does not get offended.

The dark-side narcissistic manager tends to have shallow,
functional, uncommitted relationships. Because they are
both needy and egocentric, they tend not to make close
supportive friendship networks in the workplace. They can
often feel empty and neglected as a result.
Narcissistic leaders may have short-term advantages
but long-term disadvantages, because the narcissist’s

consistent and persistent efforts are aimed at enhancing
their self-image, which leads to group clashes.

Whilst a “touch” of narcissism
can be good for leaders, it can
be problematic in the long run,
particularly if the problem is severe.

FREUDIAN CONTRIBUTIONS
The business psychoanalyst Manfred Kets de Vries
believes that a certain degree of narcissism is essential, a
prerequisite for leadership. Narcissism is traced to childhood. It is seen as a problem associated with two related
issues – how they perceive themselves, as well as salient
others, and, more specifically, how they come to cope
with the reality that one is neither omnipotent or omniscient, and nor are parents powerful and perfect. The
child’s life-long quest for admiration and approbation is
often a mask for self-doubt or hatred, or feeling that one
is never properly loved for one’s own sake alone.
Whilst a “touch” of narcissism can be good
for leaders, it can be problematic in the long run,
particularly if the problem is severe. Because of their
selfishness and egocentricity, narcissistic managers are
more committed to their own welfare than that of their
team or, indeed, the whole organisation.
Followers of narcissistic leaders encourage two
types of behaviours in their leaders which are very bad
for both leader and follower. First, there is the process
of mirroring, where followers use leaders to reflect what
they want to see. Narcissists get the admiration they
crave and there occurs mutual admiration. Second,
there is idealisation, in which followers project all their

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PSYCHOLOGY

hopes and fantasies on to the leader. Thus, leaders
find themselves in a classic hall of mirrors, which
further reduces their grip on reality.
Where narcissistic leaders become aggressive
and vindictive, Kets de Vries claims that some
followers, in order to stave off their anxiety, do
identify with the aggressor. Followers impersonate
the aggressor, becoming the tough henchman of the
narcissistic manager. Inevitably, this only exacerbates the problem and begins to explain the vicious
cycle of narcissistic management failure.
The central question is how they can set up
processes, apart from careful selection, that help
prevent narcissistic-induced management failure
occurrences.
Can one reduce the possibility of appointing,
promoting, or encouraging narcissistic managers?
Clearly, this has a great deal to do with selection
policies. However, Kets de Vries offers three other
strategies that may help to “downsize” the narcissist.

•

Ensure distributive decision-making to ensure checks
and balances. Do not combine roles like CEO and
chairman.

•

Educate the CEO and board to look out for signs of
narcissism and to have strategies to put in place
when they do spot the signs. This involves clear
systems of accountability and involving shareholders
in crucial decisions.

•

Offer coaching and counselling to those clearly
identiﬁed as reactive narcissists, although few seem
willing to accept help, because, by deﬁnition, they
rarely take personal responsibility for their failure.

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Perhaps certain organisations attract narcissists more
than others. It is therefore highly recommended that
these organisations become aware of the psychological processes associated with narcissism and be
willing and able to do something about them.

HUBRIS AND NEMESIS IN
POLITICIANS
A British politician (once foreign secretary) and
a trained doctor, Lord David Owen, has paid
particular interest to narcissism in politicians.
Rather than use the term “narcissism” or “megalomania”, he used the word “hubris” (overconfidence
and exaggerated pride, and a contempt for others).
He noted that the unique features of the hubris
idea are fourfold. First, a very strong identification
with a group (“my people”), be they an institution,
nation, or organisation. Second, a related conspicuous tendency to speak in the (royal) third person.
Third, an unrealistic, yet unshakeable, belief that
any (dodgy) action will be vindicated in any court.
Fourth, a strong assertion that their moral rectitude should and does override mundane, trivial,
and often legal considerations.
In his writings, he has provided a long list
of behaviours considered typical of the hubris
syndrome. Think of some high-profile politicians at
the moment. The behaviour is seen in a person who:

1 Sees the world as a place for self-gloriﬁcation
through the use of power

2 Has a tendency to take action primarily to
enhance personal image

3 Shows disproportionate concern for image and
presentation

4 Exhibits messianic zeal and exaltation in speech
5 Conﬂates self with nation or organisation
6 Uses the royal “we” in conversations
7 Shows excessive self-conﬁdence
8 Manifestly has contempt for others
9 Shows accountability only to a higher court
(history or God)

10 Displays the unshakeable belief that he or she
will be vindicated in that court

11 Loses contact with reality
12 Resorts to restlessness and impulsive actions
13 Allows moral rectitude to obviate

CONCLUSION
Many researchers have pointed out that the paradox
of narcissism at work is that many traits and processes
associated with narcissism can seem positive and beneficial, while others are the precise opposite. This paradox
has been “solved” by trying to distinguish between the
adaptive and maladaptive narcissist, though it is not clear
whether this is merely a linguistic tautology. Could one
call a constructive narcissist a “narcissist”? In this sense,
it is also an oxymoron.
Conceiving narcissism as a self-esteem trait disorder
does imply, as many personality psychologists have
argued, that there is a clear continuum between healthy
and unhealthy. However, the issue remains where to
draw the line.
REFERENCES
•

Dotlich, D & Cairo, P. (2003). Why CEOs Fail. New York:
Jossey Bass.

•

Furnham, A. (2016). Backstabbers and Bullies: How to
Cope with the Dark-Side of people at Work. London:
Bloomsbury

•

Hogan, R., Hogan &, J. & Kaiser, R. (2009). “Management
derailment”. In S. Zedeck (ed.), American Psychological
Association Handbook of Industrial and Organizational
Psychology. New York: APA.

•

Kets de Vries (2012). “Star Performers: Paradoxes wrapped
up in Enigmas”. Organisational Dynamics, 41, 143-82.

•

Miller, J.D., Gentile, B., Wilson, L., & Campbell, W.K.
(2012). “Grandiose and vulnerable narcissism and the
DSM-5 pathological personality trait model”. Journal of
Personality Assessment, 95(3), 284-90

•

Oldham, J. M., & Morris, L. B. (2000). New Personality Self
Portrait. New York: Bantam Book.

•

Owen, D. (2009). In Sickness and in Power. London:
Methuen

•

Wright, K., & Furnham, A. (2014). “What is Narcissistic
Personality Disorder? Lay theories of narcissism”.
Psychology, 5(9), 1120-30

consideration of practicality, cost, or outcome

14 Displays incompetence, with disregard for the
nuts and bolts of policy-making.

Perhaps certain organisations attract
narcissists more than others. It is
therefore highly recommended that
these organisations become aware of
the psychological processes associated
with narcissism and be willing and
able to do something about them.
ABOUT THE AUTHOR

Adrian Furnham is in the
Department of Leadership and
Organisational Behaviour at the
Norwegian Business School.

www.europeanbusinessreview.com

AI GOVERNANCE

AI has still to earn its spurs as a reliable tool in the locker of business.
So what guidelines are available to executives to aid in determining the
appropriate level of trust to apply towards AI systems? To date, different
jurisdictions' regulatory frameworks vary in their approach.

CULTIVATING
EXECUTIVE TRUST
IN THE AGE OF
AI GOVERNANCE
by Luca Collina & Ben Warnes

s artificial intelligence becomes more
embedded across sectors, governments
respond with new regulations to manage risks
while enabling innovation. However, complex
and fragmented regulatory approaches could
undermine trust in AI among key decision-makers. This analysis compares emerging AI governance laws and regulations in the EU, US,
and UK, specifically examining their potential
impact on trust for executives, managers, and
workers adopting AI systems.
The EU’s AI Act categorises risks and sets
rules to protect rights while enabling innovation. The US has an AI Bill of Rights and order
for safe AI, but no comprehensive laws yet. The
UK takes a pro-innovation approach with guidelines for responsible AI use overseen by existing
regulators.

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BUILDING TRUST IN AI
EU: The EU Act promotes accountability and
transparency in AI. This can help executives
trust AI more through audits to check processes.
Managers have duties around monitoring
systems to ensure progress and compliance.
Restrictions on problematic AI protect workers
while allowing innovation, although some uses
could still undermine rights.

US: Over 90 per cent of AI executives say that AI
improves their decision-making confidence, but
others lag. Academic research shows that ethics
shape trust in AI. Companies would use AI more
with guidelines for fairness, explainability,
and privacy. However, common values across
industries do not yet exist.

UK: In the UK, the rules want companies to

Regulations can build leaders’ trust in
AI, but balancing risks and progress has
trade-offs.

feel good about using AI if it’s open on how it
works and is fair. However, there are lots of
complicated regulations between industries,
which is confusing. This may stop executives
from adopting AI. There are worries about the
economic impact, too. Pros and cons mean
boosting or preventing AI trust for executives.
A deeper analysis and interpretation of the
different laws and regulations among the countries and continents needs to focus on the pros
and cons of executives’ trust in AI for adopting it.

The EU prioritises responsibility through limited
innovation. The US enables unfettered development yet breeds uncertainty. The UK is confused,
with complex, sparse oversight. Striking the
optimal equilibrium to sustain trust requires
measured governance for principled AI expansion, not drastic swings between overbearing
restrictions versus little accountability, which
deter adoption. As priorities diverge locally,
FIGURE 1

EU
+
Rules to check AI
responsibly used
make AI's governance
more trustable

Limits on new ideas
bring anger over
missed chances

Rules on risky AI ease
leader worries

Compliance workload is seen as
excessive

Rules match leader
Stopping some AI
values for trustworthy blocks hopes for
AI
moving ahead

US
+

UK
+

Flexibility allows
more innovation
opportunities
Rights protections
address public scepticism about freeng
adoption
Safety guidelines
answer calls to ease
concerns

Uncertainty around
future laws increase
reluctance
Working together
takes too much
leader time and
focus
Internal trust gaps
undermine executives' conﬁdence

Rules for careful AI
make a way for leaders
to adopt and use it
Pro-innovation
approach aligns with
companies' enthusiasm
for AI
Conﬁdence building
supports executive
moves to AI

Regulatory complexity
is confusing on
compliance
With little oversight,
leaders bear the trust
issues alone
Economic impact pressures make workforce
planning challenging

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AI GOVERNANCE

executives must weigh their context amidst
competing aims. Steps upholding ethical standards, welfare, and technological advancement
stand the best chance of motivating cross-regional public investment and leadership buy-in.

(National Artificial Intelligence Research
Resource) to make AI tools and resources more
available, secure, compatible, and accessible for
everyone to learn.1 This can be seen as an additional support for management.

Regulations through elements related
to trust and further actions expected by
executives.

Why are further actions expected from US
managers?
Top executives already trust AI to improve
decisions. The problem is with the employees’
trust. Most staff lack confidence in the technology’s fairness and transparency. Without shared
ethical guardrails in place across sectors, uncertainty persists.
Managers must translate high-level AI principles into understandable workplace policies and
training. Openly addressing concerns about bias
and job loss rather than ignoring them expands
trust in AI. Cross-industry collaboration to
align core values, cementing transparency and
accountability, can give employees confidence
that AI will be applied ethically.

FIGURE 2
EU
Regulations –
• Accountability and transparency provisions
elements
related to trust • Restrictions on problematic AI to protect rights
Additional
executive
actions

• Set clear guidelines for ethical AI practices aligned with EU values
• Foster a culture embracing responsible innovation through training
• Proactively assess risks of systems to workers and mitigate concerns

Why are further actions expected from the
EU’s managers?
EU executives must take additional actions
to build trust in AI beyond regulations due to
two considerations:
The EU AI Act establishes accountability and
restrictions to manage risks. However, achieving
genuine adoption and confidence from executives requires further cultural leadership and
commitment to ethical AI.
While regulations provide an oversight framework, progress depends on executives driving
change through active capability building, risk
management, and internal governance. Going
beyond rules to instil ethical AI across operations
builds authentic trust and acceleration.

FIGURE 3
UK
Regulations –
• Guidelines promote responsible AI development
elements
related to trust • Rules aim to build public trust and conﬁdence
Additional
executive
actions

FIGURE 4
US
Regulations –
• The AI Bill of Rights outlines critical protections
elements
related to trust • An executive order establishes standards for safe, trustworthy AI
Additional
executive
actions

• Champion building trust in AI through strong ethics policies
• Increase openness and staff education on AI to bridge internal
trust gaps
• Collaborate with others to develop fundamental trust principles

A piece of recent positive news about Biden’s
AI Bill of Rights is related to the initial pilot
applications from the research done by NAIRR

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• Advocate for straightforward AI regulations in your industry
• Assess and be transparent about potential workforce impacts
• Lead in developing solutions to distribute the gains from AI
broadly

The UK’s rules aim to make companies confident
in using AI by promoting transparency, accountability, and other trust-building principles. However,
regulatory complexity across sectors could reduce
this confidence. There are also concerns about
economic impacts. On the other hand, the generative AI framework for HM Government,2 even if
directed to the public sector, supplies an additional
point of reference for supporting businesses in
topics related to the adoption and implementation
from make or buy, to ethics, data and privacy.
Why are further actions expected from UK
managers?
The UK wants people to feel good about
using artificial intelligence by being open about

how it works and ensuring that it’s fair. But lots
Key steps include policies for ethics, training
of complicated rules between industries are
on AI, evaluating job impacts, and talking to
confusing. This could make executives afraid to
officials about rules. If leaders visibly care
adopt AI. While the goals are good, too much red
about people through these concrete moves, it
tape and most rewards going to companies that
shows inside and outside the company that AI
use AI early on may slow things down.
helps more than it harms.
Thus, managers need to ask for simpler regulations in their field. Checking how the technology
Set organisational policies and culture
will impact workers and being honest about it
focused on ethical AI - Leaders spelling out
counters fears. And taking the lead to spread AI’s
guidelines for fair AI in a company rulebook
money-saving powers more
proves to all that they want selfevenly brings everyone along.
checking rules, not just fast money.
Removing obstacles this way Regulations are not to be
Provide extensive training
helps get wholehearted buy-in condemned or used to
and internal guidance
across British businesses.
justify further delays in
resources on AI - Leaders paying
We discussed some of the
for their whole company to take
new rules that different govern- adopting AI because they
classes on AI risks shows that they
ments make for using artificial can undermine executive
worry that AI could harm people by
intelligence responsibly. These
trust;
many
regulations
are
accident without learning.
rules help make company
leaders feel OK about putting part of a strategic approach
Proactively evaluate workthe technology to use. However, to AI adoption anyway.
force impacts and address
while regulations set intenemployee concerns - Leaders
tions, putting principles into
studying how AI changes jobs, with care for
practice presents challenges. Having explored
staff livelihoods, makes employees feel that
high-level policy impacts, we now transition
higher-ups don’t just coldly ignore their welfare
to additional considerations for responsible AI
for profits.
adoption.

Beyond regional differences, what
are the common executive actions to
include in an AI systems strategy?
Company leaders can directly act beyond laws
to make staff and stakeholders trust AI more.

Collaborate with regulators and other
stakeholders on sensible ground Leaders respectfully meeting with them about
practical new AI laws builds public trust more
than ignoring worries.

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AI GOVERNANCE

Leaders put visible effort into the steps above
specific regulations emerge, view compliance
to show that they walk the walk. Rules that are
as a floor rather than a ceiling for responsible
shown to be genuine build trust. Staff knowing
innovation.
that leaders invest to avoid AI harm means a lot,
When leaders show care for impacts on
too. Evaluating work changes with heart gains
people rather than uncaring profits, staff and
loyalty when profits still matter, too. And fair rules
society reward the care by trusting leaders’
forged together end suspicion. These concrete
judgement on using AI moving forward. So
moves towards responsiresponsible foundations laid
bility make the public and Regulations alone do not ensure with care then open doors to
employees cheer executives
confident progress. Leaders
forward on using AI to aid lives. executive trust; organisational
get trust once trust is earned,
EU policymakers could culture and policies matter.
boosting their confidence in
further compel internal audits
AI systems.
on existing models while requiring accountability for automated decisions. US leaders might
“Earn trust, earn trust, earn trust. Then you
demand rapid course-correction abilities if
can worry about the rest.” 3
Responsible AI relies on earning trust through
systems display unfair performance deviations
ethical practices and inclusive governance.
post-deployment. UK governance could authorise
Organisational adoption hinges on leadership
external ethical inspectors to halt dubious
approaches within companies as well.
projects based on mounting evidence.
How executives steer emerging technologies
Collaborate across sectors to align on AI
proves critical for stakeholder confidence. The
best practices guided by shared values. Where

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specific leadership styles implemented around AI
strategy internally shape acceptance across levels.
Examining common models aids constructive analysis regarding systemic trust factors.

LEADERSHIP ESSENTIALS FOR
SUCCESSFUL AI ADOPTION
Every workplace’s AI journey will differ. What
are the key areas for leaders?
• Share the compelling vision.
• Enable ongoing learning.
• Role-modelling values-based behaviour.
• Empower accountable decisions.

ALIGNING AI TO VISION
“Greatness is not a function of circumstance.
Greatness is largely a matter of conscious choice.” 4
Keep aims bold but diligently embed ethics.
Prioritise infrastructure and controls over

aggressive AI deployment. Track quantifiable
indicators – business returns, algorithmic bias,
data quality, and stakeholder sentiment. Rapid
innovations should align with unchanging ethics
like fairness and transparency. Major achievements often come through small, steady efforts,
such as adding community reps to boards and
iterative data tweaks.

FOSTER LEARNING CULTURE AND
PSYCHOLOGICAL SAFETY
“Team learning happens when team members
suspend assumptions and enter into genuine
thinking together.” 5
Frame AI as an ongoing learning journey with all
staff playing roles that uphold ethics and minimise harm. Welcome diverse voices in decisions,
supportively respond to challenges, and enable
collaborative troubleshooting without blame.
Model openness about incomplete AI knowledge.
Task cross-functional groups to identify risk
controls; support experimenting with audits and
oversight. Provide resources for employees to
share literacy skills and stay updated.

LEADING ETHICALLY
“A leader knows the way, goes the way, and shows
the way.” 6
Admit limitations in AI literacy and seek multi-disciplinary input to enable debate. Proactively
surface potential biases, risks, or inequities in
AI systems. Assess sociotechnical challenges;
conduct impact redress when necessary, slowing
rapid deployment. Prioritise ethics and people
over trends or quick wins. Build connections to
gather community perspectives on appropriate
AI uses – accountability spans boundaries.

ENABLE STAFF FOR GOVERNANCE
“The best executive is the one who has sense enough
to pick good men to do what he wants done, and
self-restraint to keep from meddling with them while
they do it.” 7
Emphasise staff governance roles. Share
challenges openly, not only policies. Allow
individuals to be AI-fluent and involve stakeholders in co-creating policies to distribute,

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AI GOVERNANCE

FIGURE 5

From Regulations to AI Trust

Leadership “essentials”
Leaders’ actions
Regulations

then responsibility. Provide team authority to
halt questionable deployments via accessible
feedback systems enabling agile responses.
Sustained, transparent communication and
inclusive decisions distribute capabilities across
an empowered workforce to uphold ethics.

Policies
Share
and
compelling
culture
ethic
vision
based

Learning
culture

Training
and
guidance

AI
TRUST
Workforce
impacts &
address
concerns

CONCLUSIONS

Leading
Ethically

As new rules come out to oversee AI, leaders
must take steps to allow people to trust the
technology. Laws alone don’t
build trust; company cultures
matter, too. If leaders show they Leadership commitment to
care about being responsible with transparency, ethics, and
AI, it helps staff and stakeholders
staff empowerment builds
gain confidence.
Rules for AI differ by country, trust for AI adoption.
but some worries and hopes are
the same everywhere – like wanting AI to be
fair, looking out for workers, and still seeing
progress. Leaders across borders can work
together to make balanced guidelines.
REFERENCES

Enable
Staff for
Governance

Work with
regulators
& stakeholders

There is still a lot to figure out
on the best ways to balance new
AI and accountability. Moving
forward calls for balanced new
rules, not drastic swings back and
forth. As laws take shape, leaders
must weigh trade-offs but stick to
ethics. With care and wisdom, AI
can be trusted.

Inside companies, leaders need to:
• Share an inspiring vision for using AI.
• Encourage ongoing learning about AI.
• Set a good example of values with AI.
• Give staff the power to question AI systems.

Joe Biden’s big AI science project gets pledges from Microsoft,
Nvidia, and others; https://www.theverge.com/2024/1/24/24049467/
national-science-foundation-ai-research-biden-eo
2
https://assets.publishing.service.gov.uk/media/65a806bf94c997000daeb98e/6.8558_
CO_Generative_AI_Framework_Report_v7_WEB.pdf
3
Seth Godin - https://seths.blog/2014/02/the-most-important-question/ 4
Jim Collins - Good to Great
5
Peter Senge - The Fifth Discipline: The Art and Practice of the Learning Organization
6
John C. Maxwell
7
Theodore Roosevelt

ABOUT THE AUTHORS

Luca Collina’s background is as a
management consultant in Italy in
supply chain and manufacturing. In
the UK, since 2012, he has managed
transformational projects also at
international level (Tunisia, China,
Malaysia, Russia). He now helps
companies understand how GEN-AI technology impacts
business, use technology wisely, and avoid problems.
He has an MBA in Consulting, has received academic
awards for his research, and is a published author.
Thinkers360 named him one of the Top Voices, Globally
and EMEA in 2023. Luca continuously upgrades his
knowledge with experience and research to transfer
it. He recently developed interactive courses on “AI &
Business” and “Human Centric with AI”.
48

THE EUROPEAN BUSINESS REVIEW

After earning a postgraduate degree in
marketing in 1995, Ben Warnes worked in
corporate communications before co-founding
an NYC design and build ﬁrm in 1999. Returning
to the UK, he worked as a consultant in
communications for various blue-chip companies. Moving into construction, he created his
design and built a high-end construction company. He attained
MCIOB status in the construction industry, managing over £150
million in construction projects. Ben now runs a property investment fund. In 2020, Ben founded LMA Coaching 2020 to pursue
his passion, drawing on 25+ years of experience and insights.
He specialises in helping leaders foster purpose-driven cultures
centred on psychological safety and intrinsic motivation. Ben
holds an MBA in Leadership Management. His research on remote
work guides organisations in ﬂexible models.

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LEADERSHIP AND MANAGEMENT

In the first of a two-part series, we explore how firms
are reaping the benefits of leveraging a network
of external resources for enhanced performance
and innovation, but only when their organisational
ecosystems are strategically aligned and fit for purpose.

ALIGNING
ORGANISATIONAL
ECOSYSTEMS TO BE
FIT FOR PURPOSE
by Jonathan Trevor and
Kazuhiro Asakawa

anaging organisations to be highly
aligned and capable of implementing
their chosen strategy is an age-old challenge. It
has only become harder now that many firms and
public sector organisations embrace ecosystem
principles in their organisational design.
Because they are more open, flexible, and
integrated than the industrial-age hierarchy, ecosystem-based organisations can leverage external
resources (think partners) to offer customers
enhanced value upstream (think novel product
and service development) and downstream (think
flexible delivery) than they ever could be if relying
upon internal resources alone.1 However, published
research indicates that up to 75% of ecosystems
are considered failures.2 The leaders we spoke
to acknowledge the considerable potential of
ecosystem thinking for their businesses but also
expressed concern over the complexity of organising along such lines.
We studied a sample of leading international
and Japanese firms with a stated ecosystem strategy
to understand how they strategically align their

THE EUROPEAN BUSINESS REVIEW

JULY - AUGUST 2023

organisational ecosystems to be fit for purpose
and high performing. Strategic alignment, in
this context, refers to the careful arrangement
of the different components of an organisational
ecosystem — from its purpose (its raison d’etre) to
its strategy and structure — required to leverage
external resources for strategic value successfully.3
Each component represents a strategic choice.
Ecosystem leaders must select from various options
the one that suits their circumstances best. All
components should be highly aligned, ideally.
Whether to create or participate in ecosystems,
our study helps managers work through these critical strategic choices and improve their chances
of success. First, we organise ecosystem purpose,
strategy, and structure into first, second, and
third-order strategic choices. Second, we present
a practical framework to help ecosystem leaders
choose between their various options at each stage.
The first and second-order choices are the focus
of this article, Part A. Third-order choices and the
unique implementation challenges presented by
organisational ecosystems are the focus of a second
linked article, Part B.

realignment, IBM renewed its emphasis on its
partner ecosystem and Kate Woolley to provide a
single point of leadership. IBM also doubled down
on technology and consulting services, spinning
out its managed service business to form Kyndryl,
arguably to allow it to focus on its ecosystem and to
remove managed services as a business and avoid
causing tension with prospective partners.
The IBM ecosystem serves three key purposes
centred around exploiting external resources to
achieve strategic outcomes that would not be possible
by relying upon internal resources alone. These
include partners selling IBM technology (via a
channel business), partners building on or with
IBM technology (project-based partnerships), and
strategic service partners who use IBM technology
to build a bespoke managed service solution for
their clients or to enhance their existing service
offerings. In other words, IBM has one ecosystem
operating under one leader but actively pursues
three different ecosystem strategies simultaneously.

Good choices establish an organisational ecosystem (ecosystem) as a functioning equilibrium
capable of high performance, regardless of field.
Poor choices create misalignment and dysfunction,
perhaps explaining the reported high failure rate.

FIRST ORDER CHOICE — FOR
WHAT PURPOSE?
Firms within our study sought to leverage external
resources for one or more of the following three strategic reasons:
A. Enhanced technical innovation,
B. Enhanced customer offerings in the form of
product and service design and delivery, and
C. Enhanced channels to market. Broadly,
these correspond to upstream and
downstream innovation.
Consider the example of blue-chip multinational
IBM. IBM has had a long journey with its ecosystem,
now considered a single business division and
its fastest growing. As part of a wider corporate

As part of a broader corporate
realignment, IBM has doubled down
on creating strategic partnerships
with other industry-leading ﬁrms
to pool resources and offer new and
enhanced services to the market.
For a long time, IBM has operated an external
network in the form of its channel business
(think reseller network). Comprising thousands
of vendors, the channel business aims to provide
an efficient channel to market for IBM technology
products. As part of a broader corporate realignment, IBM has doubled down on creating strategic
partnerships with other industry-leading firms
to pool resources and offer new and enhanced
services to the market. Woolley says, “I think of
partner ecosystems as one of the most powerful forces in
technology. That’s where companies come together to
solve the toughest business problems”.4
Or consider the example of the Development
Bank of Japan (DBJ), a wholly-owned subsidiary

www.europeanbusinessreview.com

LEADERSHIP AND MANAGEMENT

of the Japanese Ministry of Finance.
Created immediately post-World War
II to facilitate Japan’s economic and
social reconstruction, DBJ occupies a
unique role in Japanese society, and
its remit extends internationally, with
offices in London, Singapore, Beijing,
and New York. Through loans, investment, asset management, and advisory
services, DBJ supports the development
of nationally important industries, infrastructure, technologies, and
social concerns. For instance,
ecosystem back in the 1990s to
In our experience, ecosystems tap into state-of-the-art French
during COVID-19 and the
dramatic decrease in travel
fragrance knowledge through
are often referred to
and the potential collapse of
informal collaboration with
generically
under
a
single
the inbound tourism sector,
fragrance experts in France.5
Whatever the reason for
DBJ provided emergency loans
concept. A better way is
adopting
ecosystem principles,
to small and large businesses
to recognise that there are
it should be clear and compelto help them weather the
different types of ecosystems, ling to all concerned, including
storm, even in cases where it
was unprofitable.
each representing a distinctive (perhaps especially) external
stakeholders, partners and
In the long term, a key role
strategy with unique
clients. Every year, IBM invests
of DBJ’s financial experts is
implementation
challenges.
considerably in enhancing the
to create and support ecosysvalue of its relationships and
tems
between
different
networks across its entire ecosystem to create alignment with its
industry actors to encourage economic
purpose. Its primary vehicle is an event, ‘‘IBM Think’’. Before COVIDdevelopment. For example, DBJ convenes
19, the IBM Think conference hosted audiences of 40,000 people in
various aviation industry players, from
one location annually. Today, it is a hybrid event, including a smaller
airlines, unions, manufacturers, airports,
global in-person event for 5,000 invited employees, partners, clients,
and regulators, to transform the sector
and even competitors; and a ‘‘Think on Tour’’ series of events in key
to be more sustainable in line with stated
geographies designed to bring “IBM, partners and clients together locally
national targets for compliance with UN
in the market where they do business.”
Sustainability Development Goals. DBJ
IBM Think creates a ‘‘melting pot’’ environment for its stakerepresents a focal organisation, sitting
holders to engage with the technology company and its upstream and
atop an ecosystem of potentially disparate
downstream ecosystems, including innovation partners, strategic
industry actors and encouraging collective
partners, and an extensive reseller network. According to Simon
action to transform an entire sector to be
Meredith, Principal in Strategic Partnerships at IBM, the “Assumption
more environmentally sustainable through
of protectiveness is misplaced”, even with competitors, because the
aligned incentives, reduced information
explicit purpose is to engage, learn, and co-create. Therefore, trust
asymmetry, technological collaboration,
is essential in an ecosystem working to develop strategically valuand collective action.
able social capital, reduce the transaction costs of collaborating with
However, Japan has a tradition of
external parties at scale, and mitigate the risk of conflicting interests.
embracing ecosystem principles in all
Consider four things about your own organization: Does relying
sectors. Shiseido, a leading Japanese
upon internal resources, while simpler, represent a capability trap? Do
cosmetic company, was a pioneer
you need to leverage external resources to be competitive? If so, for
among the Japanese firms in creating its

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

what purpose? Is it to develop a network as an additional marketing
channel(s) (i.e., primarily a sales network)? Or is it to capture knowledge for upstream product and service innovation, as in the case of
Shiseido? Or is it to develop downstream capability to deliver enhanced
products and services to your customers and clients, such as IBM strategic partnerships? Of course, it can be all three.

SECOND ORDER CHOICE — WHICH
ECOSYSTEM STRATEGY?
Once an organisation has committed to embracing ecosystem principles, the second-order management challenge is to choose which
ecosystem strategy represents the best option for going about doing
so. In our experience, ecosystems are often referred to generically
under a single concept. A better way is to recognise that there are
different types of ecosystems, each representing a distinctive strategy
with unique implementation challenges.
Within our sample of companies and wider research, we identified four principal ecosystem strategies according to their openness
to external actors and whether they were vertically or horizontally
integrated. A critical risk is that failing to
recognise these different types may lead
managers to sleepwalk into creating,
maintaining, or participating in ecosystems that are suitable for their purposes.

suppliers supporting McDonald’s operations around the world, the firm relies
upon a closed network of several longstanding partnerships with key suppliers.
For example, the Martin-Brower Company
has formed a key part of the US supply
chain, delivering supplies to all of
McDonald’s 15,000 restaurant locations in
North America for decades.6
Sharp’s “black box” strategy in the
1990s also falls into this category. The
Japanese consumer electronics firm
enjoyed a significant competitive advantage in LCD-TFT technology in the 1990s
by internalising the production of its
LCD-TFT TV and the LCD-TFT panels,
including partner operations, inside
the firm on its huge production site
in Kameyama, Mie-Prefecture. Sharp
created its own closed and vertically integrated ecosystem of technical innovation

Closed And Vertically
Integrated Ecosystems
are as the name would suggest, a designated
group of specialised partnering organisations operating within a closed network
under the supervision of a dominant
focal organisation. The focal organisation
appoints constituent members and coordinates efforts against explicitly mandated
targets and standards. The purpose is to
ensure efficient performance delivery
against required standards in efficient and
predictable ways.
The McDonald’s supply chain is a
good example of this type of ecosystem in
action. Serving over 70 million customers
worldwide daily, it is vertically integrated
into every link of its supply chain to ensure
it efficiently matches supply with demand.
Whilst there are thousands of third-party

www.europeanbusinessreview.com

LEADERSHIP AND MANAGEMENT

and manufacturing, which was designed to isolate
itself from other rival firms to avoid technology
leakage.7 Regardless of physical footprint, this type
of “closed” ecosystem is well established, and partnerships are often long-lived and highly stable.

which coordinates, exchanges, and encodes locally
acquired new knowledge in its product innovation
and then pushes new products out to sales and
marketing functions in those same geographically
dispersed end markets.8
One of the interesting challenges with closed
horizontal ecosystems is that they may involve
Closed And Horizontally Integrated Ecosystems
partnering between companies that might previfocus closely on membership of their ecosystem
ously have been — and still can be — competitors.
but encourage many more horizontal connections
Such ‘‘Frenemy’’ (i.e., friends who
between the focal organisation and
are also enemies) arrangements
network members and between
One of the interesting
common in ARM (described
network members directly. The role
challenges with closed are
later) and its close and long-term
of the focal organisation is less superhorizontal ecosystems manufacturing relationship with its
visory, and the nature of partnering
biggest competitor, Intel.
is less transactional. It is more about
is that they may
IBM’s key strategic partners
nourishing connections between
involve partnering
include deep commercial collaboraecosystem partners for upstream and
between companies
tions with hyperscalers (think Amazon
downstream innovation purposes.
Web Services), infrastructure partners,
An early example of this type
that might previously
and global consultancies such as Ernst
of ecosystem strategy is the fasthave been — and still
& Young. All strategic partnerships
moving consumer goods company,
can
be
—
competitors.
operate under a single internal organiNestle. Nestle has pursued a strategy
sational structure, the IBM Ecosystem,
of acquiring complementary firms
and one leader, Woolley. To reduce competias well as setting up research and development
tive conflicts and greater freedom for ecosystem
centres worldwide to act as dispersed “antennas”
engagement, IBM divested itself of its managed
to sense and source local market knowledge and
infrastructure business, Kindryl, as mentioned
creativity. Acting as a focal point for this distribpreviously. A second challenge is to find the right
uted network is Nestle’s R&D coordination unit,

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

partners and invest in the resources necessary to
form and capitalise upon productive relationships.
Open And Vertically Integrated Ecosystems
are much more open than their closed-vertical counterparts, resembling marketplaces more than supply
chains. The focal organisation acting as a platform
maintains a dominant supervisory role within the
ecosystem, but membership is much more open and
scalable, with potentially many thousands of external
actors interacting with the focal organisation and its
customer, if not with each other.
The Apple App Store is an obvious example.
The purpose is to draw upon the creative resources
of many thousands of developers to offer Apple
product users enhanced choice over applications
available through the App Store and through which
they can personalise the functionality of what
would otherwise be a standardised (albeit smart)
device. Apple, and Google, its main rival, control
over 95% of the app store market outside of China,
worth an estimated $6.3 trillion.9 Other platform
firms, from Uber to the Amazon marketplace, also
use digital platform technology to efficiently match
supply (from many thousands of drivers or sellers,
respectively) and demand from customers.
In the internal context, such arrangements
are prevalent in the form of global value chains
(GVCs), in which the different stages of production
activities are performed across different countries, each of which may be its own supporting
ecosystem made up of local partners, suppliers,
and innovators, to match local market customer
requirements. Firms often disperse value chain

activities ranging from R&D, design, production,
and marketing for this purpose.10
Extending the logic of openness even further,
some ecosystems are highly decentralised and
geared around tapping into the wisdom of the
crowd. Consider the example of the Linux community, with its many thousands of contributors.
Being a crowd-sourced development, the Linux
computer operation system relies upon individual
developers to contribute their time and expertise to
a common endeavour for free. The incentive is to
create something new, and participation is voluntary and collaborative. In that sense, Linux is open
to a virtually unlimited external talent pool.
Compared with the first two “closed” types, this
more open type of ecosystem is a recent strategy, and
the subject of considerable focus, especially in terms
of the digital transformation agenda.
Open And Horizontally Integrated Ecosystems
are characterised by their openness to many
diverse network actors and the horizontal nature
of their connection. Horizontal Open ecosystems resemble communities, where the focal
organisation provides the environment for the
discretionary effort of the many associated partnering individuals and organisations to lead
upstream and downstream innovation within a
field of technology or industry.
Consider the example of the technology company
ARM Holdings. ARM chips power 80% of the world’s
smart devices, everything from phones to tablets to
the emerging Internet of Things. Its strength is its
ability to harness the power of its network resources,
in the form of knowledge, human capital, technological expertise, and innovation capability, to design
the most powerful and efficient (think low power
consumption) chips available to the market. And
yet, ARM employs only 7,500 people, mostly located
at its headquarters in Cambridge, UK, where it originally started life in a converted farm building in the
‘‘Silicon Fen’’ cluster of high-tech start-ups around
Cambridge University. But despite its modest headcount, ARM has over 20,000 external partners within
its global innovation ecosystem.11
The same principles can apply but in a physical
location. Woven City is the Toyota Motor Company’s

www.europeanbusinessreview.com

LEADERSHIP AND MANAGEMENT

(Toyota) purpose-built innovation
Each form of ecosystem must and vertically integrated is
community located in the city
the best option. Or, if it is to
be structured appropriately
of Susono near Mt Fuji, Japan.
create an innovation commuif it is to perform its strategic nity highly aligned with your
Analogous to Silicon Valley in the
US or Silicon ‘‘Fen’’ in the UK, of
function capably as intended. product development cycle,
which ARM is a product, Woven
a select group of highly inteCity is, by design, an open ecosystem integrating the
grated strategic partnerships might be best.
delegated efforts of many thousands of partnering
Whichever ecosystem strategy is chosen, each also
companies. They operate side by side, physically
presents managers with unique implementation chaland virtually, to further Toyota’s goal of realising
lenges. Each form of ecosystem must be structured
radical new mobility technologies.
appropriately if it is to perform its strategic function
Sosei Group Corporation is a holding company
capably as intended. Designing an ecosystem strucof biopharmaceutical companies specialising in
ture to be fit for purpose is an additional — and critical
drug development. Sosei Group enters into license
— alignment consideration and the focus of Part B
agreements primarily with US, EU, and Japanese
of this series: Designing Organisational Ecosystems &
companies to market the licensed drugs in Japan
Overcoming Barriers to Implementation.
and find alternative usage for such drugs. Sosei, in
its foundation era, chose to locate itself in the UK
REFERENCES
1. Williamson, P. J., & De Meyer, A. (2012). Ecosystem Advantage: How to
to engage in R&D collaboration with local univerSuccessfully Harness the Power of Partners. California Management Review, 55(1),
sities and venture firms to tap into the innovation
24-46.
ecosystem in the UK.12 Similarly, Takeda, a leading
2. Reeves, M., Lotan, H., Legrand, J., & Jacobides, M. G. (2019). How Business
Ecosystems Rise (and often fall). MIT Sloan Management Review, 60(4), 1-6.,
Japanese pharma, adopted this type of ecosystem
3. Trevor, J. & Varcoe, B., (2017). How Aligned is Your Organization? Harvard Business
by deciding to engage in drug discovery through
Review. 7 February. Harvard Business School Publishing.
open partnerships worldwide.13
4. https://www.ibm.com/blog/qa_kate_woolley/
5. Asakawa, K, & Doz, Y. (2002) Shiseido France 1998. INSEAD Case #4934.
IBM’s “Collaboratory” strategy also falls into
6. https://www.allthingssupplychain.com/the-amazing-supply-chain-of-mcdonalds/
this type of ecosystem strategy, for the company
7. Murtha, T., Lenway, S. & Hart, J. (2001) Managing New Industry Creation: Global
engaged in open innovation even without setting
Knowledge Formation and Entrepreneurship in High Technology. Stanford
Business Books.
up its own R&D labs through active collaboration
8. DeMeyer, A. (1003) Nestle S.A., INSEAD Case, #2692.
with universities, government, and commercial
9. https://www.businessofapps.com/data/app-stores/
partners within host country ecosystems. Open
10. https://www.oecd.org/industry/global-value-chains/
and horizontal ecosystems represent the most
11. Trevor, J. (2022). Re: Align: A Leadership Blueprint for Overcoming Disruption
recent and the most complex type to emerge in
and Improving Performance. Bloomsbury Publishing.
12. Asakawa, K. & Osada, E. (2003) Sosei (A) & (B), Keio Business School Case,
theory and practice.
#20030712J.

13. Korine, H. & Asakawa, K. (2019) Takeda: The Governance of Strategic
Transformation (A) & (B), London Business School Case. #LBD
Ref: CS-18-24/25; HBP: LBS222/223.

SUMMARY
Each of the four ecosystem strategies presented
here is distinctive in its own right. Each presents
managers with unique strategic advantages. So,
which is best? It depends upon requirements, of
course. Consider, in your case, how open and integrated you need your ecosystem(s) to be.
If your purpose is to develop an efficient supply
chain, a closed and vertical strategy may be most
appropriate. Or, if it is to create a platform to fuel
a market around your product or service, open

THE EUROPEAN BUSINESS REVIEW

ABOUT THE AUTHORS

MARCH - APRIL 2024

Jonathan Trevor is a Professor of Management
Practice at Oxford Said Business School,
University of Oxford, UK.
Kazuhiro Asakawa is a Professor of Global
Innovation Management at Keio University
Graduate School of Business Administration,
Keio University, Japan.

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NEGOTIATIONS

Transform how you approach
international business negotiations
with new findings that provide a novel
contribution to the field. Discover how
embracing diversity and inclusion
through the biculturals on your team
can drive your strategic growth and
sustainable competitive advantage in
the global marketplace, thanks to their
unique gap-bridging and boundaryspanning abilities.

A WINNING DEAL:
How Biculturals Can Supercharge Your
International Business Negotiations
by Priyan Khakhar
and Jasmina Najjar

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

nternational business negotiations can be
Lebanon an ideal place to focus exclusively on
immensely challenging, but your efforts
biculturals, it makes the findings about biculdon’t have to be lost in translation. You can efturals relevant to any country, and applicable
fectively unlock the many hidden powers of the
to organisations and businesses in any sector.
biculturals on your team to navigate the choppy
And these takeaways will change how you think
cross-cultural waters and better seal the deal.
about and approach your international business
Biculturals are individuals who have internalnegotiations game with negotiators who have inised two or more cultures and they shouldn’t be
ternalised more than one culture.
confused with multiculturals, who accept cultural differences in society.1&2 Given the spike
in migrants across the globe with people movTHE GENERAL POSITIVE IMPACT
ing countries for brighter prospects, biculturOF BICULTURALS
als aren’t rare, so the chances of your already
having some on your team are rather decent. In
Regardless of whether you’re a domestic or interthe article “Biculturals in international business
national firm, having bicultural employees can
negotiations: moving away from a single culhelp your organisational
ture paradigm”, published
efficiency. How? These
in the Journal of Organizateam members may bring
tional Change Management, A prime reason that negotiations
new perspectives and ideas,
Priyan Khakhar, Hussain fail at times is not understanding
in addition to being able to
Gulzar Rammal, and Visupport new hires who are
jay Pereria3 study for the the national and unique ethnic
first time the role that bi- cultural differences between the
migrants and expatriates
culturals play specifically negotiators sitting at the table.
in adapting to your busiin international business
ness environment. If your
negotiations, sharing new To lessen this risk, ﬁrms should
firm has an entrepreneurial
findings. To uncover these select negotiators who have a solid
outlook, hiring biculturals
findings, senior managers
raises your chances of
understanding of cultural issues.
in Lebanon across diverse
success in cross-cultural
public and private sectors
settings, enhancing your
(from real estate to marketing consulting, food
competitiveness and performance. And if you’re
export and import, and NGOs) were interviewed.
a multinational enterprise (MNE), bicultural
Their cultures spanned fusions from Lebanon,
employees can assist you in traversing the bumpy
the UK, France, Australia, Canada, the USA, Arroads of the contemporary socio-political global
menia, and even Brazil. What makes this interbusiness scene. But what about international
esting is that, while Lebanon is not necessarily a
negotiations? A prime reason that negotiations
multicultural society, it has high levels of biculfail at times is not understanding the national
turalism because of the people who left during
and unique ethnic cultural differences between
the 1975-90 civil war but maintained ties with the
the negotiators sitting at the table. To lessen
4&5
and
the
rich
mix
of
religions,
languagcountry
this risk, firms should select negotiators who
es, and cultural influences from the East and
have a solid understanding of cultural issues.7
6
Biculturals fit this bill and can act as a bridge for
West. Even Hofstede wanted to treat Lebanon
differently from neighbouring countries while
communication between cultures.8 So, what’s
the bottom line? Knowing how to manage the
developing his famous cultural dimensions, but
knowledge and skills of your bicultural team
the data he received had already been merged
members is key.
with other Arab countries. All this not only made

www.europeanbusinessreview.com

NEGOTIATIONS

BRIDGING THE GAP IN
INTERNATIONAL BUSINESS
NEGOTIATIONS
Biculturals play a crucial role in bridging the
gap between parties during negotiations and
this is how they do it3:
Integrating Cultures for Results: Combining
more than one culture and accordingly shifting
identities, biculturals naturally adapt to the
cultural requirements of the negotiations at
hand. This “cultural blending” or “mixing”
sparks social integration fuelled by adaptability
and the keen ability to identify commonalities.
This beneficial superpower helps create understanding and synergy between parties with
different cultural backgrounds.

Reducing the Blow of Cultural Shock: Culture
shock can cause ripples in any international
business negotiation. Trying to close a deal
across a cultural chasm wider than the Grand
Canyon is no easy task. Misunderstandings lurk,
tension escalates, and the deal hangs precariously on a thread. Unlike negotiators who are
monocultural (individuals who predominantly
adhere to a single culture, tradition, or way of
life), who might stumble on unfamiliar terrain,
biculturals experience reduced cultural shock,
thanks to their behavioural adaptability. They
can choose appropriate behavioural strategies
based on the cultural context, so they can effectively respond to others' actions and intentions.

Engaging in Impactful Cultural FrameSwitching: Cultural frame-switching is like
having many pairs of coloured glasses for
Tapping into the Potential of Multifaceted
different situations. When you switch between
Adaptability: Imagine being able to effortlanguages or cultures, your perspective changes
lessly switch between two or three entirely
and you perceive the world from a new angle.
different ways of thinking, cultural contexts,
Biculturals display a high level of cultural framecultural frames, and perspectives. That's the
switching, especially since they can use more
cognitive adaptability that biculturals boast.
than one language to communicate effectively.
Developing general principles to
This flexibility makes it easier for them
decipher cultural cues, they can
to find common ground and connect
think strategically and, like a chame- In a tense negotiation, with negotiators from different
leon, adjust their approach based biculturals can sense
cultural backgrounds. Biculturals with
on the situation. Biculturals possess
higher cultural frame-switching skills
advantageous emotional adaptability, the emotional underare more likely to succeed in intertoo, that’s like amplified cultural currents, diffuse
national business negotiations due to
intelligence. They understand the tension, and turn the
their ability to understand, deliver,
hidden language of emotions linked
and communicate effectively with
to specific behaviours, allowing tide with empathy
other parties from different cultures,
them to navigate tricky situations and understanding.
and distinguish between cultural
and build rapport across cultural
norms, beliefs, values, and verbal and
divides. In a tense negotiation,
non-verbal behaviours. This makes
biculturals can sense the emotional underthem more prone to understanding, delivcurrents, diffuse tension, and turn the tide
ering and communicating with other parties
with empathy and understanding. Their
from different cultures in pursuit of a desirable
cultural intelligence, emotional flexibility,
agreement or deal. The result? The creation of
and high network range make them better
opportunity and better results.
at decision-making, bridging cultural gaps,
and evaluating cultural fit, hence positioning
Avoiding “Groupthink” and Generating
them to play a pivotal role in international
New Ideas: Poor decision-making. Silencing
business negotiations.
dissenting voices. Lack of creativity and

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

innovation. An unjustified sense of confidence.
Ignoring external information. “Groupthink”
comes with a tsunami of pitfalls. Luckily,
biculturals can help to avoid the dreaded
phenomenon and even generate new creative
ideas and inject creativity that help overcome
stalemates during negotiations. By bringing
diverse perspectives and thinking styles to the
table, they can facilitate innovative solutions
and consensus-building.
Possessing Valuable Tacit Cultural Knowledge:
Your organisation can strategically use biculturals' tacit cultural knowledge to mitigate
cross-cultural communication challenges and
develop trust between the negotiating sides. This
trust forms the basis for long-term relations and
successful negotiations. This is further bolstered

by biculturals' tendency to try to connect with
members of their in-group in the other party to
build a rapport.
Playing the Key Role of Boundary-Spanners:
In the intricate dance of international business, biculturals emerge as boundary-spanners,
effortlessly moving between internal networks
and external knowledge sources. They act as
conduits, ensuring effective knowledge acquisition and application, propelling teams to
unparalleled success. Think of it like this: an

organisation operates within its own well-defined network, holding valuable internal
knowledge (the “home turf”). Beyond its
walls lie vast external information sources,
each with their own cultural nuances (the
“unfamiliar territory”). Biculturals possess

www.europeanbusinessreview.com

NEGOTIATIONS

the remarkable ability to explore both worlds
simultaneously. They understand the internal
language and dynamics, translating them
seamlessly into the external context, and
vice versa. This boundary-spanning prowess
unlocks a treasure trove of knowledge,
fostering innovation and strategic decision-making that transcends cultural barriers.

IT’S NOT ALL ROSY, BUT IT'S
STILL WORTH IT
It’s worth noting that some authors argue9
that there are limitations to biculturals.
These include biculturals experiencing a
conflict between their cultural identities;
their encountering bias or prejudice from
colleagues or clients because of their mixed
cultural background, which can impact their
they are more adept at dealing with diverse
credibility and effectiveness in negotiations;
cultures, unlocking valuable knowledge,
or their struggling to fully grasp cultural
and driving innovation in comparison to
nuances, integrate into organisational
monoculturals. This is something worth
cultures, and communicate.
considering in human resource
They can also face strain from
management and your organiconstantly having to adapt to Biculturals can be your
sation's global success plans.
different cultural expectations, secret weapon for internaBeyond this, biculturals are
potentially leading to stress
an invaluable asset waiting to
and reduced performance tional business negotiations, be unlocked, thanks to their
in negotiations and organ- since they are more adept
unique mix of knowledge
and abilities which empower
isational roles. But overall, at dealing with diverse
organisations with a competithe benefits of biculturals far
outweigh the drawbacks, espe- cultures, unlocking valutive advantage in international
markets.3 Their rich social
cially since they bring a wealth able knowledge, and driving
of unique strengths and advaninnovation in comparison to interactions and experiences
tages to international business
ignite an entrepreneurial
negotiations and organisa- monoculturals.
mindset that fosters creative
solutions and innovation at
tional performance3.
your firm. Natural catalysts for
the intrapreneurial edge many firms seek,
biculturals’ distinct cultural understanding
bridges gaps, promotes collaboration, and
BEYOND BORDERS…
pushes results. Bringing merger magic
to the big picture, biculturals offer their
Biculturals can be your secret weapon for
cultural intelligence during mergers, easing
international business negotiations, since

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MARCH - APRIL 2024

REFERENCES
1. Engelsberger, A., Cavanagh, J., Bartram, T. and Halvorsen,
B. (2021), "Multicultural skills in open innovation: relational
leadership enabling knowledge sourcing and sharing",
Personnel Review, Vol. Earlycite.
2. Murdock, E. (2016), Multiculturalism, Identity and
Difference: Experiences of Culture Contact, Palgrave
Macmillan, London.
3. Khakhar, P., Rammal, H. G., and Pereira, V. (2023).
"Biculturals in international business negotiations: Moving
away from the Single Culture Paradigm". Journal of
Organizational Change Management, 36(1), 180–94. https://
doi.org/10.1108/jocm-04-2022-0110
4. Ghosn, F. and Khoury, A. (2011), "Lebanon after the Civil
War: Peace or the Illusion of Peace", The Middle East
Journal, Vol. 65 No. 3, pp. 381-97.
5. Lischer, S. K. (2005), Dangerous Sanctuaries: Refugee
Camps, Civil War, and the Dilemmas of Humanitarian Aid,
Cornell University Press, Ithaca, New York.
6. Hofstede, G. (1991), Cultures and Organizations: Software
of the Mind, McGraw-Hill, Berkshire, England.

integration and lessening cultural divides.
Acting as mentors for expats and repatriates,
they can smooth transitions and maximise
potential by alleviating the upheaval of
culture shock.3 Investing in biculturals may
open many doors for your organisation. So
think beyond borders: think bicultural.

7. Kim, M.-S. and Hubbard, A. S. E. (2007), "Intercultural
Communication in the Global Village: How to Understand
'The Other'", Journal of Intercultural Communication
Research, Vol. 36 No. 3, pp. 223-35.
8. Thomas, D. C. and Brannen, M. Y. (2010), "Bicultural individuals and intercultural effectiveness", European Journal of
Cross-Cultural Competence and Management, Vol. 1 No. 4,
pp. 315-33.
9. Rudmin, F. W. (2003), "Critical history of the acculturation
psychology of assimilation, separation, integration, and
marginalization", Review of General Psychology, Vol. 7, pp.
3-37.

ABOUT THE AUTHORS

Dr Priyan Khakhar is faculty lead of the
International Business course at Northeastern
University London and afﬁliate faculty with
the International Business and Strategy
Group at D'Amore-McKim School of Business
in Boston, Massachusetts. His vast and
eclectic international experience includes working at the Ecole
Supérieure de Commerce de Paris, the American University of
Beirut, and the American University of Bulgaria. He has also
taught within the Strategy and International Business Division
at the Alliance Manchester Business School at the University of
Manchester. His research includes impact publications such as
in the International Business Review, Journal of Transnational
Management, Critical Perspectives on International Business, and
the Journal of Change Management to name a few.

Jasmina Najjar is a Fellow
of the Chartered Institute of
Marketing (FCIM), Chartered
Marketer (CMktr), Fellow
of Advanced HE (FHEA),
academic, marketing and
corporate communications consultant, and
author. Before joining the American University of
Sharjah, she taught at the American University
of Beirut, impacting course-speciﬁc and
programme-wide development as a course
coordinator and programme coordinator, and
was a journalist, editor-in-chief, and senior
advertising creative with major pan-Arab
accounts.

www.europeanbusinessreview.com

GENDER EQUALITY

TAKING A STAND AGAINST
THE GENDER GAP IN
WORKPLACE FLEXIBILITY
by Fiona Wylie

Workplace flexibility has become a central pillar in the modern employment landscape,
reflecting a growing recognition of its importance for work-life balance, mental health,
and overall employee satisfaction. At the heart of this movement lies a persistent and
troubling disparity: the gender gap in workplace flexibility. Despite strides toward gender
equality, women continue to bear the brunt of caregiving responsibilities, a reality that
significantly impacts their professional lives and well-being.
Founded on the principles of equality and inclusion, Brand Champions emerged from
Fiona Wylie's personal experiences with the challenges of re-entering the workforce
after maternity leave. This journey inspired her to advocate for more flexible work
arrangements and address the broader issues of gender bias and inequality in the
workplace. A company’s mission should be about promoting flexibility and fostering an
environment where all employees, regardless of gender, can thrive.

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MARCH - APRIL 2024

THE GENDER GAP IN WORKPLACE
FLEXIBILITY
Research commissioned by LinkedIn, involving
over 2,000 workers and 503 hiring managers,
reveals a stark reality: 52% of women have left or
considered leaving a job due to inflexible working
conditions. This statistic is a testament to the widespread impact of rigid work cultures on women's
careers.
Moreover, a survey conducted by Brand
Champions sheds light on another dimension of
the issue: the lack of support and understanding
surrounding women's health issues in the workplace. With 61% of female respondents perceiving
a gap in support and 52% reporting increased stress
levels at work due to women's health issues, it's
clear that these challenges contribute significantly
to the gender disparity in workplace flexibility.

BEYOND GENDER:
WORKPLACE FLEXIBILITY
While women are at the epicentre of the
flexibility gap, the conversation extends
beyond gender. Mental health issues,
generational expectations, and societal
norms all play critical roles in shaping
the landscape of workplace flexibility.
We need to recognise these complexities and champion a holistic approach to
addressing them, advocating for policies
and practices that accommodate the workforce's diverse needs.

perceptions and decisions regarding flexibility and
accommodations. The result is a self-reinforcing
cycle of inequality, where women are more likely to
sacrifice their careers for caregiving duties, thereby
perpetuating stereotypes and biases.

STRATEGIES FOR BRIDGING
THE GAP
1 Recognise and challenge gender biases
2 Implement ﬂexible work policies
3 Support women's health
4 Promote equal caregiving responsibilities
Recognising and challenging gender biases
involves a systemic overhaul of how gender roles
are perceived within the workplace.

At the root of the ﬂexibility gap lies a deepseated gender bias that assigns women
a disproportionate share of caregiving
responsibilities. This bias affects women's,
and the primary caregivers', availability
and commitment to work and inﬂuences
employers' perceptions and decisions
regarding ﬂexibility and accommodations.

THE IMPACT OF GENDER BIAS AND
CAREGIVING RESPONSIBILITIES
At the root of the flexibility gap lies a deep-seated
gender bias that assigns women a disproportionate
share of caregiving responsibilities. This bias affects
women’s, and the primary caregivers’, availability
and commitment to work and influences employers’

This means moving beyond mere awareness to
promoting and practising inclusivity actively. For
instance, training programmes can be designed
to help employees and management understand
unconscious biases and their impact on decisionmaking. Organisations can create a more equitable
workspace by fostering an environment where
employees feel comfortable calling out biases and
suggesting improvements. Such efforts could lead
to a significant decrease in gender-based discrimination and increase the representation of women
in leadership roles, thereby changing the narrative

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GENDER EQUALITY

the needs of women going through menopause can
significantly reduce the stress and health-related
issues that affect women's productivity and presence in the workplace. Such support not only aids in
retaining skilled employees but also fosters loyalty
and improves overall job satisfaction.
When women feel supported in all aspects of
their health, they are more likely to engage fully
with their work, aspire to leadership positions, and
around who is deemed “fit” for certain levels of responcontribute to a positive workplace culture that values
sibility and flexibility.
diversity and inclusion.
Another critical step is implementing flexible
Lastly, promoting equal caregiving responsibilwork policies as a universal benefit rather than a
ities is essential in addressing the root cause of the
special accommodation. This approach acknowlflexibility gap. This involves policies and societal
edges that work-life balance is a universal concern,
change, encouraging all genders to share domestic and
impacting all employees regardless of their gender
caregiving duties. Employers can play a significant role
or parental status. By normalising flexible working
by offering longer paid paternity leave, flexible schedarrangements, companies can dismantle the stigma
uling for all parents, and resources for caregiving. Such
often associated with
policies not only alleviate
utilising such options,
the burden on women
Women, who are often reluctant
which disproportionately
but also challenge the
to request ﬂexibility for fear of
affects women. Women,
traditional gender roles
being perceived as less committed that perpetuate the cycle
who are often reluctant
to request flexibility for
of inequality. When men
to their careers, would beneﬁt
fear of being perceived
are equally encouraged
immensely from a culture that
as less committed to
and supported to take on
values output over hours logged.
their careers, would
caregiving roles, it diminbenefit immensely from
ishes the implicit biases
a culture that values output over hours logged. This
that often sideline women's careers.
shift enhances employee satisfaction and retention
This equal distribution of caregiving responsibiland attracts a wider talent pool, contributing to a more
ities can lead to a more balanced representation of
diverse and innovative workforce.
genders at all professional levels, reducing the gender
Supporting women’s health is pivotal in creating
gap in leadership and decision-making roles.
a workplace that recognises the unique challenges
These strategies collectively create a foundation
women face, especially concerning reproductive
for a more inclusive and productive workplace. By
health, maternity, and related medical conditions.
addressing the underlying biases, promoting flexiProviding health benefits, including support for mental
bility as a universal value, supporting women's health,
health and maternity leave, and accommodating
and encouraging shared caregiving responsibilities,

ABOUT THE AUTHOR

Fiona Wylie recognised the need for ﬂexibility in the workplace after her journey returning
to work after maternity leave and founded Brand Champions. Renowned for her "SOS"
support, Fiona offers ﬂexible marketing assistance with a quick turnaround, precisely
tailored to the evolving needs of their clients. She's heavily involved in charity work.

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MARCH - APRIL 2024

organisations can significantly close the gender
gap. This benefits women and enriches the workplace with diverse perspectives, experiences,
and talents, driving innovation and growth.
Brand Champions, under Fiona Wylie’s leadership, stands at the forefront of this movement,
advocating for a future where gender no longer
dictates one's career trajectory or access to flexibility. As we strive toward this goal, we must
remember that true progress lies in collective
action and commitment to equality for all.

References
1. LinkedIn Research on Workplace Flexibility (2023).
2. Brand Champions Survey on Women's Health
Issues and Workplace Support (2023).

www.europeanbusinessreview.com

SUPPLY CHAIN

A PRACTICAL GUIDE TO

KICK-STARTING YOUR CYBER
SUPPLY CHAIN RISK PROGRAMME
by Kamil J. Mizgier
The digitalisation of global supply chains
is unstoppable and there is no doubt about
the upside potential it brings in terms of
efficiency gains. Yet, the rapid progress in
digital technologies, artificial intelligence,
and data-driven decision-making exposes
organisations to an elevated risk of systemic
cyberattacks. And the material impact of
cyber events such as the 2020 SolarWinds
cyberattack in the US, as well as more
recent incidents like XPlain and Concevis in
Switzerland, highlights the interconnected
nature of cyber threats within global
supply chains, demanding increased
attention from business leaders and policy
makers. Against this backdrop, this article
underscores the critical need for resilient
cyber supply chain risk management
(C-SCRM) practices across industry sectors,
including those traditionally less associated
with high-profile cyber threats.

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INTRODUCTION TO SUPPLY CHAIN
CYBERATTACKS
The SolarWinds breach serves as a compelling case study,
revealing the widespread consequences of vulnerabilities
within supply chains. Drawing parallels with incidents in
Switzerland, where the financial sector remains a prime
target, this article aims to outline the complexities of
safeguarding supply chains against evolving cyber threats.
While the Swiss financial sector has responded with
comprehensive regulations, the spotlight shifts to broader
industrial supply chains where similar regulations either
do not exist or are not followed with adequate priority.
Examining examples of supply chain cyberattacks on
manufacturing companies unveils the vulnerabilities and
challenges faced by these critical sectors.
In the United States, many industries have experienced
targeted supply chain cyberattacks, disrupted operations,
and compromised sensitive data. Recent incidents have
illuminated the need for robust risk management strategies
tailored to the unique characteristics of industrial supply

MARCH - APRIL 2024

chains. For example, in 2021, Colonial Pipeline,
an oil pipeline system that carries jet fuels and
petrol, encountered a ransomware attack that
disrupted its operations, leading to a temporary
shutdown. The focal point of the attack was the
billing infrastructure, rather than the critical oil
pumping systems, which remained operational.
The decision to halt pipeline operations was
attributed to the inability to bill customers.
Colonial Pipeline took this precautionary measure
to prevent potential further attacks on vulnerable
sections of the pipeline, prompted by concerns
that hackers might possess information enabling
additional attacks. In a bid to restore network
functionality, the company ultimately opted to pay
a ransom of $4.4 million.
As depicted in figure 1, a typical supply chain
attack focuses on a third-party software provider.
The goal is to obtain unauthorized access to a
larger network of suppliers and customers. The
hackers achieve this by infiltrating the automated
update servers of the targeted software provider.
The pernicious aspect of such attacks lies in the
fact that the affected companies, those relying
on the software provider for updates, are often
unaware that they are inadvertently installing
malware onto their servers. Consequently,
the malware can then spread throughout the
network, potentially compromising the security
of numerous interconnected organisations within
the supply chain. This method allows the attackers
to exploit the trust established between the
targeted company and its software provider, using
the update process as a Trojan horse to gain access
to a more extensive supply chain network.
Hence, the lack of a proactive approach to
C-SCRM can leave organisations and their supply
chains susceptible to cyber risks, drawing attention
to the importance of industry-wide collaboration,
regulatory frameworks, and the adoption of
international standards. And despite proven
significance, the adoption of ISO certifications,
such as ISO 27001, within industrial supply chains
remains limited. This raises questions about the
readiness of organisations to confront cyber risks
head-on, especially in an era where cyber threats
continue to evolve in sophistication. Furthermore,

there are gaps in academic literature, necessitating action
from both researchers and practitioners. This article
underscores the imperative for a holistic approach to
cybersecurity, in alignment with the evolving concept of
cyber resilience.
FIGURE 1 A typical supply chain cyberattack.

LEVERAGING ISO STANDARDS AND NIST
FRAMEWORKS FOR CYBER SUPPLY
CHAIN RISK MANAGEMENT
In the intricate landscape of C-SCRM, two globally
recognised frameworks – the ISO 27001 (International
Organisation for Standardisation) standard1 and the
NIST (National Institute of Standards and Technology)
framework2 – play pivotal roles in guiding organisations
toward robust risk management practices.

1. The ISO 27001 standard
While the ISO standards do not explicitly define C-SCRM
as a standalone topic, the principles embedded in
ISO 27001 provide valuable insights for managing
risks associated with the buyer-supplier relationships.
Key considerations within this standard advocate for
comprehensive risk assessments along the entire supply
chain. This necessitates a fundamental understanding of
potential vulnerabilities and threats arising from supplier
interactions.
Furthermore, the standards outline various security
measures that organisations should implement to ensure
information security. These measures offer flexibility,
enabling adaptation to control risks associated with
supplier interaction, and sensitive information exchange.
Like customer relationship management, ISO 27001

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SUPPLY CHAIN

recommends establishing clear security requirements and
THE ROLE OF INSURANCE IN
obligations in contracts or agreements with suppliers. This
CYBER SUPPLY CHAIN RISK
ensures adherence to security measures and compliance
MANAGEMENT
standards by both parties.
Cyber insurance can help businesses in several
Regular monitoring and review of supplier and
ways to manage cyber supply chain risk. First
customer-related processes and security measures are
and foremost, it can provide reimbursement for
crucial. This proactive approach enables organisations
losses incurred due to supply chain cyberattacks,
to swiftly identify potential risks or deviations from
such as data breach notification costs, regulatory
established security protocols.
fines, and business interruption losses. However,
Finally, robust incident response plans and business
many cyber insurance providers offer risk assesscontinuity measures mitigate risks arising from supplierment services to help businesses identify and
related incidents, minimising disruptions in operations.
address vulnerabilities in their supply chains.
While the term “C-SCRM” may not be explicitly detailed
They may also provide access to cybersecurity
in ISO 27001, the principles of risk management, security
experts who can assist
controls, contractual obligations, and
monitoring can be effectively applied
Like customer relationship in developing and implementing risk mitigation
to managing risks associated within
management, ISO 27001
strategies. It can be used as a
the supply chain.
recommends establishing
tool to incentivise suppliers
clear security requirements to adopt stronger cyberse2. The NIST framework
and obligations in contracts curity practices. Businesses
NIST focuses on C-SCRM through
can require suppliers to
or agreements with
various publications. However, the
carry cyber insurance and
suppliers. This ensures
NIST Special Publication 800-161 deals
meet certain cybersecurity
with C-SCRM specifically. Key elements
standards as a condition of
adherence to security
covered in NIST publications include
doing business.
measures and compliance
guidelines for identifying, assessing,
When selecting cyber
standards by both parties. insurance coverage, busiand managing risks within the
supply chain, understanding potential
nesses should consider
vulnerabilities and threats throughout the supplier lifecycle.
several factors, including the size and complexity
The standard recommends evaluating and selecting
of their supply chain, the type of data and assets
suppliers based on their security practices, compliance
stored or transmitted within the supply chain, the
with standards, and commitment to cybersecurity. It
industry they operate in, and their overall cyberencourages information exchange and collaboration
security posture.
among supply chain stakeholders to effectively address and
mitigate emerging threats. This may include sharing best
practices, threat data, and security-related information.
The NIST approach to C-SCRM focuses on empowering
organisations to establish comprehensive cybersecurity
practices suited for dynamic and modern supply chains.
Through detailed guidelines and recommendations, the
NIST framework serves as a crucial tool for organisations
to strengthen their capabilities in identifying, assessing,
and effectively managing risks within their supply chain
environment. The NIST framework outlines a range of
factors fundamental for effective C-SCRM, with a particular
emphasis on cultural and awareness-related components.

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As cyber threats continue to evolve,
businesses must adopt cyber
insurance as a strategic shield to
safeguard their supply chains and
ensure business continuity.
Cyber insurance is an essential component of
a comprehensive supply chain risk management
strategy. By providing financial protection, risk
assessment services, and contractual leverage, cyber
insurance can help businesses mitigate the impact of
supply chain cyberattacks and protect their bottom
line. As cyber threats continue to evolve, businesses
must adopt cyber insurance as a strategic shield to

safeguard their supply chains and ensure business
continuity. Major insurance companies offer tailored
cyber risk coverage that is accessible to both global
organisations and SMEs.

BEST PRACTICES FOR IMPLEMENTING
A C-SCRM PROGRAMME
In the intricate realm of cyber threats within the supply
chain, organisations can bolster their defences by
adopting a comprehensive C-SCRM programme. These
practices, combined with the seven steps outlined in
table 1, offer a roadmap for safeguarding the supply
chain and effectively managing cyber risks associated
with suppliers.

TABLE 1 The seven steps to kick-start your C-SCRM programme.

Step

Description

Implementation

Select a comprehensive risk
management framework

Choose a robust framework, such as NIST, to structure your C-SCRM programme.
Tailor it to the speciﬁc nuances of your supply chain.

Conduct in-depth supplier
risk assessment

Perform a detailed risk analysis to identify and understand cyber risks associated
with each supplier in the supply chain. Consider factors such as their cybersecurity
posture, data handling practices, and overall risk exposure.

Deﬁne your supply chain risk
appetite

Clearly articulate your organisation’s risk appetite levels, ensuring alignment with
the diverse risks posed by different suppliers in the supply chain. Embrace economic
supply chain risk capital as your compass to guide strategic decisions.

Develop strategic mitigation
plans with key suppliers

Collaborate with suppliers to develop strategic risk mitigation plans, focusing on
proactive measures to minimise potential impacts on the supply chain.

Institute minimum
cybersecurity standards
across the supply chain

Prioritise basic cybersecurity practices throughout the supply chain. Establish
monitoring mechanisms, baseline behaviours, and multi-layered defence systems to
mitigate risks collectively.

Ensure supplier-driven
backup and recovery
protocols

Collaborate with suppliers to establish robust backup procedures that are regularly
tested and encrypted. Ensure that backup media are stored securely, avoiding
proximity to operational systems.

Strategically integrate cyber
insurance for supply chain
resilience

Leverage cyber insurance in collaboration with suppliers. Align it with risk
management frameworks and use it as a supplementary tool for ﬁnancial protection,
risk assessment, and contractual leverage within the supply chain.

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SUPPLY CHAIN

On a more technical note, initiating the process
with a basic cybersecurity questionnaire for
suppliers or harnessing the latest technologies,
such as incorporating external cyber risk scores
from firms like OneTrust or SecurityScorecard,
can significantly streamline the risk assessment
process. This is particularly beneficial for
companies dealing with a multitude of suppliers,
providing a more efficient and comprehensive
approach to evaluating and managing cyber
risks across a broad supplier base. Alternatively,
collaborating with supplier risk assessment
partners like GRMS, who provide tailored solutions
and supply chain risk analysis capabilities, is
another effective approach.

CONCLUSION – YOUR SUPPLIER’S
CYBER RISKS ARE YOUR RISKS
The examples of cyberattacks, such as the one
on SolarWinds in 2020 and similar incidents in
Switzerland in 2023, underscore the necessity
of improving cybersecurity in buyer-supplier
relationships.
The holistic approach outlined in this article,
focusing on collaborative risk management,
fundamental cyber hygiene, and the strategic
integration of cyber insurance, empowers
organisations to fortify their supply chain resilience
against evolving cyber threats. By actively engaging
with suppliers, businesses can create a robust
line of defence that protects the entire supply
chain ecosystem from potential cyber attacks.
The imperative remains unwavering – implement
known strategies to safeguard the intricate web of
the digital supply chain ecosystem.

REFERENCES:
1 Boyens, J., Smith, A., Bartol, N., Winkler, K., Holbrook, A.,
& Fallon, M. (Oct, 2021). Cybersecurity Supply Chain Risk
Management Practices for Systems and Organizations. (N.
I. Technology), access https://nvlpubs.nist.gov/nistpubs/
SpecialPublications/NIST.SP.800-161r1-draft2.pdf
2 International Standard ISO/IEC 27001. (Jan. 2022).
Information security, cybersecurity and privacy protection –
Information security management systems – Requirements
(Third edition 2022-10), access https://www.iso.org/
standard/27001

ABOUT THE AUTHOR

Dr. Kamil J. Mizgier is the former Global Supplier Relationship and Risk Management Leader
at Dow with 15 years of experience in implementing risk management strategies across
industry sectors. Before this role, he led enterprise risk modelling projects and teams,
among others, at BNY Mellon and UBS. He has published more than twenty academic
and practitioner journal articles on risk management and is a frequent public speaker. He
obtained his master’s degree in applied physics at the Warsaw University of Technology and
a PhD in supply chain management at ETH Zurich.

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Secure password
management
for business
with end-to-end encryption

ARTIFICIAL INTELLIGENCE

GENERATIVE
AI UPDATE FOR

2024
by Ray Schroeder and Katherine Kerpan
While the first full year of operation of ChatGPT, 2023, gave a
foretaste of the enormous impact that AI is going to have on
us all, 2024 shows every sign of boggling the mind even more.
Here are some things to look out for.

enAI has taken a leading role in supporting
and enhancing activities, drawing on
cognitive functions in many facets of our society.
Unlike the robotic revolution that impacted mostly
blue-collar workers in the manufacturing and
assembly industries of the end of the 20th century,
GenAI has most directly impacted white-collar and
creative workers over the past year.
OpenAI’s ChatGPT was the first major GenAI
out of the gate in late 2022. It started an avalanche
of entries in the field from start-ups to the leading
large tech corporations of Microsoft, Google, Meta,
IBM, and more. Now, with more than 100 million
weekly users, as well as more than 92 per cent of
the Fortune 500 companies,9 OpenAI remains in
the lead of this massive movement to integrate
artificial intelligence in nearly all aspects of business, industry, and commerce.

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

In one of the earliest academic studies of the
implementation of GenAI, Harvard University,
the University of Pennsylvania Wharton School,
and MIT collaborated to analyse the impact
of making the ChatGPT tool available to 758
consultants at the prestigious Boston Consulting
Group. Given 18 realistic consulting tasks, the
GenAI-equipped consultants, who used GPT-4,
completed on average 12.2 per cent more tasks,
25.1 per cent more rapidly. Additionally, 40
per cent of the trial group were judged to have
produced higher-quality results.19
Based on more than 4,700 interviews of business executives at the World Economic Forum
held in Davos, Switzerland earlier this year, 46
per cent of the leaders believed that GenAI would
boost profits in 2024. Also, 25 per cent of the chief
executives expected GenAI to lead to headcount
reductions of at least 5 per cent this year.7
Clearly, GenAI has the potential to be a gamechanger in the coming year. In this article, we
will examine a number of the key changes, challenges, and opportunities that can be expected
by the end of the year.

WHERE IS THE TECHNOLOGY TODAY AND
WHERE IS IT LEADING?

CAPABILITIES TO EXPECT IN 2024

This year, after a dizzying 2023, global business
leaders will be able to lay the required groundwork
for long-term AI adoption more thoughtfully and
intentionally. Organisations will take a step back to
evaluate and reskill their workforces, assess data
infrastructure needs, and update cybersecurity
practices in ways that consider AI needs and risks.
As dependency on AI grows, chief information
officers will play a pivotal role.13 Their expertise
will be critical to proper procurement and implementation decisions impacting legacy systems.
The generative AI landscape is shifting from
large language models towards smaller, opensource, often multimodal models that combine
text, images, video, and more.20 This is important because these new models will be better able
to specialise and solve niche use cases. This will
lower barriers to experimentation and promote
pilot testing, as these more precise and less costly
models allow businesses to innovate
faster. Market leaders across sectors will
With a focus on artiﬁcial general intelligence
harness this trend to accelerate advance(AGI), GPT-5 is expected to exhibit enhanced
ments in personalisation, supply chain
optimisation, customer service, and
cognitive abilities, enabling it to comprehend
many other business operations.2
and respond to a broader range of complex
Finally, in 2024, enterprise softqueries and tasks in a more human-like manner. ware providers will begin to integrate
generative AI capabilities and features
Any update on this technology has to carry the caveat that it
is changing day by day and that research and development
is, in most cases, months ahead of what is available to the
general public. We are now in a period of highly competitive
one-upmanship in the features, speed, security, and reliability of GenAI products. As the top dozen or so competitors
seek to build consumer and corporate markets, we will see
usage expand. Currently, business and industry has effectively applied the technology to marketing, accounting,
industry research, product development, trend analysis,
report writing, and predictive applications.
This rapidly changing environment will continue
to make retraining and updating of staff and applications a necessary practice until a level of stability is
reached. However, the changes are resulting in consistently improved performance that will make the updating
cost-effective through more efficient and expanded
performance in many cases.

OpenAI is expected to soon release a version 5 of their
GPT large language model (LLM) that will include a host
of new capabilities. Didier Hope writes in Medium, “The
transition from GPT-4 to GPT-5 is anticipated to showcase
significant advancements in generative potential, language
understanding, and contextual reasoning, further consolidating GPT-5’s position as a leading AI model in the industry.
With a focus on artificial general intelligence (AGI), GPT-5 is
expected to exhibit enhanced cognitive abilities, enabling it
to comprehend and respond to a broader range of complex
queries and tasks in a more human-like manner.”15 GPT-5
will likely be seen as an incremental step toward AGI. We are
not likely to see a robust version of AGI without a quantum
computing platform, a technology that, itself, continues to
develop and will likely host fully robust AGI. However significant developments can be expected in the coming months.

www.europeanbusinessreview.com

ARTIFICIAL INTELLIGENCE

directly into at least some of their product offerings, making
the technology’s transformative powers readily available to
the masses within tools that they are already familiar with
and use daily. Companies that leverage prepared workforces, modernised data, secure systems, and up-to-date
software tools will gain sustained competitive advantages.17

STRATEGIES TO FOLLOW IN 2024

There are many factors impacting the
decision of whether to retain workers in
the wake of signiﬁcant new efﬁciencies
and competencies afforded by GenAI.

McKinsey and Company estimates that GenAI
could contribute between $2.6 trillion and $4.4
trillion annually to the global economy by 2030.
Despite the excitement, they emphasise the
importance of companies focusing on cautiously scaling
their AI applications and undergoing fundamental organisational changes to fully and wisely leverage the benefits of
AI transformations.16
Cprime’s “Generative AI in 2024: A Strategic Guide for
Global Enterprises” explains that the economic impact
of generative AI on enterprises will be profound, redefining operational efficiencies and cost structures across
various industries such as healthcare, marketing, and legal.
It will unlock new business value and spark significant
advances across organisational functions by processing and
extracting value from unstructured data, which has been
difficult or impossible up to now.4
Apotheker and colleagues3 discuss the impacts of GenAI
on businesses based on a survey of 1,400+ C-suite executives. While GenAI is rapidly changing business operations,
90 per cent of leaders are still waiting for the hype to subside
or are pursuing only limited experimentation. The survey
reveals that 66 per cent of leaders are ambivalent or dissatisfied with their progress on AI and GenAI, and only 6 per
cent have begun upskilling meaningfully. Unfortunately,
because of the exponential speed with which these technologies are unfolding, laggards will fall behind quickly as
brave adopters jump on board.

HOW TO HANDLE YOUR WORKFORCE –
UPSKILL OR LAY OFF / TERMINATE?
Of course, there are many factors impacting the decision
of whether to retain workers in the wake of significant

THE EUROPEAN BUSINESS REVIEW

new efficiencies and competencies afforded by GenAI.
In order to best confront this decision, it may be best to
engage GenAI itself, to assist with the priority considerations in decision-making. On 8 February, I asked the
newly named Google Gemini to provide a list of considerations. Gemini prefaced its remarks with, “This is a
complex issue with ethical and financial ramifications,
so consider these factors closely.” It then proceeded to
enumerate factors including:
1. Financial Considerations
a. Cost of severance packages
b. Cost of retraining programmes
c. Long-term ROI for both scenarios
2. Skills and Adaptability
a. Assessment of impacted employees
b. Alignment of new opportunities
c. Company culture and values
3. Prioritisation of employee well-being
a. Long-term reputation
b. Employee morale
4. Ethical Considerations
a. Responsibility to employees
b. Potential bias in AI systems
c. Societal impact: What does the decision mean for the
overall community?
d. Consider how lay-offs may impact families
and the local economy
Gemini provided additional details in each of these areas
and went on to urge consultation with HR, legal experts,
employee representatives, communication transparency,

MARCH - APRIL 2024

and more. Gemini is linked to the Web and updates its
responses accordingly.10
Some may be surprised at the depth and relevancy of
responses. Gemini also provides three different responses
to the prompt. Follow-up prompts may provide even more
relevant and useful information.
As suggested by the GenAI app, there is no single answer
for this challenging aspect of successfully achieving efficiencies and competencies through inexpensive or no-cost AI.
Google Gemini does not have a monopoly on perspectives; in
confronting such situations, you may want to access multiple
apps for a further diversity of options.

understanding, a willingness to innovate, and a commitment to integrate AI solutions into business processes.
Expect cohorts attuned to AI’s risks and rewards, comfortable with constant reskilling, and motivated to direct these
technologies toward equitable ends that improve society.6
Rather than displacing roles, their biggest anxiety is not being
empowered to steer this wave of change.12 Wise leaders will
embrace their input on AI implementation, offering tailored
upskilling initiatives and collaboration opportunities.

HOW THE ECOSYSTEMS OF HIGHER ED
AND BUSINESS HAVE CHANGED
WHAT TO EXPECT FROM NEW
GRADUATES AS REGARDS AI
Beginning in 2024, we should anticipate a new generation of graduates equipped with AI skills, reshaping the
workforce.6,12 Immersed in nascent AI applications, these
graduates exhibit baseline fluency through daily use. Most
considered AI’s trajectory in selecting their majors, with
over 75 per cent factoring labour market implications into
their decision-making.6 However, doubts persist regarding
workforce automation. Many desire integrated curricula
that blend technical and humanities disciplines to prepare
them for AI collaboration and a hybrid new world.21
Reassuringly, this cohort remains hopeful about
AI’s possibilities. Unlike previous technological shifts,
these digital natives see AI as a tool to boost critical
thinking, creativity, and productivity, not a replacement
for human roles.23 As Handshake12 notes, Gen Z seeks to
drive AI initiatives within organisations, suggesting robust

Business and industry thrive on maintaining an agile,
responsive culture that is highly sensitive to the changing
needs and wants of their market; higher education is notoriously known as the “ivory tower” that is insular and slow to
change. Each of the two has a different ecosystem.
Business is dominated by serving the client or customer
while generating a profit; higher education is ruled by
serving students and, up until now, to a far lesser extent on
serving employers of graduates.
The worldwide environment has changed across the
two fields. With fewer students entering college, enrolments in Europe have declined by nearly 5 per cent over the
past decade,14 and enrolments in the US have declined by
10 per cent over the same period.24 Amid rising expenses
for college attendance, students have looked to alternative
credentials and directly entering careers in lieu of the traditional baccalaureate degree. In order to maintain tuition
and fee revenue to cover operating expenses, the colleges
and universities on both sides of the Atlantic must cultivate
greater enrolments.
Meanwhile, the advent of GenAI and associated technologies has shifted the needs of employers. The new
technologies can accomplish tasks historically handled by
middle managers, accountants, human resources specialists, supervisors, marketers, computer programmers, legal
department workers, and many more office positions. Yet,
GenAI has opened whole new areas of workers in prompt
engineering, AI trainers, sentiment analysers, AI integration specialists, AI ethicists, AI art directors, AI security
specialists, and many more.8
It is in the nexus of education and employment that these
two ecosystems merge. The interests of both universities

www.europeanbusinessreview.com

ARTIFICIAL INTELLIGENCE

and corporations are best served by successful careers for knowledge exchange fuels innovation and propels the AI
the students as they become new employees. The Boston ecosystem forward.
Consulting Group has advocated for partnerships between
The pace of AI development is relentless. As LinkedIn
higher education and busicontributors1 advise, staying
informed can be daunting.
ness: “Partnerships between The pace of AI development
Cultivate a culture of continuous
higher education institutions and is relentless. As LinkedIn
learning within your organisaemployers can be invaluable for
helping businesses respond to contributors advise, staying tion. Voracious learning in diverse
formats – from online courses and
growing talent needs. They can informed can be daunting.
conferences to hands-on experioffer employers a reliable way to Cultivate a culture of
mentation – expands competency
cultivate an educated and trained
and comfort with evolving tools.1
workforce.”18 Serving their mutual continuous learning within
interests, such partnerships will your organisation.
Invest in employee training
advance both ecosystems in the
programmes that equip your
years ahead.
workforce with AI knowledge and skills. Encourage experimentation and support internal or external “hackathons” or
innovation labs to explore emerging AI applications.
Finally, the AI Readiness Quotient, a diagnostic tool from
STRATEGIES TO STAY ON TOP
Wharton, is an invaluable resource for businesses. It helps
OF THE CHANGES
organisations assess their readiness for AI integration, identifying areas of strength and opportunities for improvement.
Forget the zero-sum-game mentality. Hamood11 advo- By understanding their current position in the AI landscape,
cates “extreme information-sharing”, particularly around companies can develop targeted strategies to enhance their
failures and challenges. Nothing is a “mistake”, as long AI capabilities, ensuring that they can effectively leverage
as learning is acquired. Fostering a culture of openness AI technologies.22
encourages cross-company collaboration, accelerates
learning, and minimises redundant efforts. Share your AI
journeys, successes, and setbacks with industry peers and
participate in open-source communities. The collective THE WORLD OF BUSINESS – MORE

THAN EVER BEFORE – BELONGS TO THE
INFORMED, AGILE, AND FEARLESS
As we progress through this second full year of GenAI,
the ways in which we work, do business, and prepare for
the future have changed. Our new tools have redefined
many of the middle management positions in accounting,
personnel, legal, customer relations, research, marketing,
sales, and more. Those businesses that have embraced the
new technologies are already reaping the benefits in more
efficient operations, more creative approaches to tasks,
more informed staff members, and new abilities to gather,
analyse, predict, project, and apply data. The upside in
operations is enormous at very low cost.
It is unprecedented that such advantageous tools
enabling such valuable information, insights, and
knowledge are available with a trivial investment. Over
time, customised applications will become available to

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

corporations at an increasing cost. However, now is the
time to take advantage of building a base of utilising GenAI
upon which the competitive future will depend. This
requires a steady source of upskilled and new employees
who have the understanding, knowledge, and experience to
optimally utilise GenAI.
Universities, more than ever in recent times, are now
pressured by declining enrolments to offer more relevant
and useful foundations to all students. The key to relevance
in today’s job market is knowledge and facility with utilising
GenAI. Clearly, partnerships between corporations and
industry associations with colleges and universities is a promising solution to the challenge of developing an AI-savvy
workforce. It is in working together that we will be able to
smoothly transition to the GenAI economy of 2024.

10.
11.

12.

13.
14.
15.

16.
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AI Could Create". Retrieved 10 February 2024 from https://www.forbes.
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chatgpt-active-user-count-openai-dev eloper-conference
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Hamood, J. (2023, September 17). "Growing With AI Not Against It: How
To Stay One Step Ahead". Informationweek.com. Retrieved 10 February
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growing-with-ai-not-against-it- how-to-stay-one-step-ahead
Handshake (n.d.). "Report: The Class of 2024 sets its sights on the
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stability, and work-life balance". Joinhandshake.com. Retrieved 10
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Hansen, B. (2023, December 22). "Generative AI Trends for 2024".
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generative-ai-trends-for-2024/
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Hope, D. (2023, November 30) "GPT-5 release date: What to expect from
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tech-trends-2024/
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research/college-enrollment-decline/

ABOUT THE AUTHORS

Ray Schroeder is a respected leader in higher
education. He is the Professor Emeritus of
Communication at the University of Illinois
Springﬁeld (UIS) and a Senior Fellow at
UPCEA, the Online and Professional Education
Association. Ray is a frequent author, speaker,
and presenter on technology in education.

Katherine Kerpan is an accomplished marketing,
communications, and product leader with over
20 years of experience driving complex initiatives at large non-proﬁts. Currently, she works
at her alma mater, Loyola University Chicago, as
a project manager on the university's enterprise
marketing and communications team.

www.europeanbusinessreview.com

ARTIFICIAL INTELLIGENCE

The detection of fraudulent credit
card transactions is an ideal
candidate for the application of
machine learning technology.
However, in order to learn how to
spot attempted fraud, such a system
needs someone to tell it which
historic transactions were OK, and
which were not.

Excerpted from The AI Playbook:
Mastering the Rare Art of
Machine Learning Deployment,1
by Eric Siegel (6 February 2024),
published by The MIT Press.

WHERE FICO GETS ITS DATA FOR
SCREENING TWO-THIRDS OF ALL
CARD TRANSACTIONS by Eric Siegel

cott Zoldi fights crime across the globe.
His superpower is data – and an unprecedented, innovative process to amass that data.
He’s got his work cut out for him. Every day,
hordes of criminals work to exploit systemic
vulnerabilities in how you and I shop. Their
relentless work chips away at the very integrity
of consumer commerce at large.
I’m talking about fraud. Crooks obtain your
card details so that they can perform a transaction and make off with the spoils. In 2021,
payment card fraud losses reached $28.58 billion
worldwide.2 The United States suffers more than
any other country, accounting for more than a

THE EUROPEAN BUSINESS REVIEW

MARCH - APRIL 2024

third of that loss. To make matters worse, fraud
increased during the pandemic, in part due to
the increase in “card not present” virtual transactions. Some called it the “scamdemic”.
Scott is FICO’s chief analytics officer. He
oversees the world’s largest-scope anti-fraud
operation. Day in and day out, his product
Falcon screens all of the transactions made with
most of the world’s credit and ATM cards – 2.6
billion cards globally. With Falcon, banks and
other financial institutions can instantly block
suspicious purchases and withdrawals.
This capability hinges on machine learning,
and it demands an impressive dataset. A

prior transactions that have been designated as
such. How do these cases get labelled? The fraudsters who perpetrated these crimes know which
are which, but they have not, so far, been cooperative. This means we need humans on our side to
manually label many examples. These labels typically make up the rightmost column of the data.
Such a data set sounds almost impossible to
acquire. It could only be sourced from multiple
banks across the globe. And even if you somehow
convinced these institutions to cooperate and
obtained a representative slew of example transactions, the fraudulent ones aren’t going to label
themselves.
To obtain this data, Scott’s got to align the stars.

Long. You need data about real transactions –
a lot of them. This list of many, many example
cases from which to learn must be a long one. And
by including a broad assortment of cases from
around the world, the data can be representative.
Each case composes a row of the data.
Wide. You need revealing information
about each case, including behavioural
characteristics of both the cardholder and the
merchant. These are the factors on which a model
will base its predictions. Since each row enumerates all these factors, the data is also wide. Each
factor composes a column of the data.
Labelled. ML software needs many known
examples of fraud from which to learn,

E-commerce

$125

Not-present

$250/day

... ... Yes

Grocery

$17

Chip

$700/day

... ... No

Clothing

$275

Swipe

$25/day

... ... No

Pharmacy

$27

Tap

$150/day

... ... Yes

Utility

$59

Not-present

$75/day

... ... No

Airline

$782

Not-present

$35/day

... ... Yes

Hotel

$1,221

Chip

$100/day

... ... No

Restaurant

$76

Tap

$40/day

... ... No

Pharmacy

$32

Swipe

$275/day

... ... No

Grocery

$112

Tap

$400/day

... ... No

E-commerce

$43

Not-present

$80/day

... ... No

Restaurant

$82

Chip

$30/day

... ... No

Utility

$26

Not-present

$100/day

... ... No

FICO CULTIVATES DATA WITHOUT
BORDERS
Scott has a PhD in theoretical physics from Duke
University. And he’s formed a team of 70 more
people with PhDs. Together, they generate the
world’s de facto system for detecting fraudulent
card transactions. You, I, and most people with
payment cards are relying on them.
Scott’s anti-fraud operation isn’t what FICO is
most widely known for. Along with another one

www.europeanbusinessreview.com

Long data has many cases

fraud-detection model must
predict well, striking a tricky
balance so that it recognises a lot of
fraud and yet does so without incurring too many
false positives.3 To this end, the data must fulfil
exacting requirements. If you visualise the data
as a simple table, just a big spreadsheet, it must
be long, wide, and labelled. Here’s what I mean:

FIGURE 1

Wide data has more information
about each case

ARTIFICIAL INTELLIGENCE

of his teams, Scott also oversees this country’s
most famous deployed model: the FICO Credit
Score. Your FICO Score determines your power
to borrow. It’s the most widely used credit
score in the United States, employed by the
vast majority of banks and credit grantors. It’s
a household name, and many understandably
feel that their FICO Score is a central part of
their identity as a consumer.
But FICO’s fraud detection, which is
normally invisible to us as consumers,
affects us much more often. Named Falcon,
this product is the biggest part of FICO’s software business and affects most of us almost
every day, every time you use your card. FICO
evaluates financial power by day, and fights
financial crime by night.
To meet this responsibility, it’s important that
the Falcon team gets the data it needs – some
long, wide, and labelled data. To do so, it collects
data from across a global network of banks.
This reliance on inter-enterprise data,
collected from multiple companies, is atypical.
Ordinarily, an ML project serves only the enterprise running the project. For such a project,
internal data suffices, since the company has
been tracking the very operations that the
project aims to improve. In contrast, FICO
isn’t a bank. It doesn’t process card transactions. Rather, it holds a rare, globally central,
entrusted role across banks.
In 1992, Falcon was born of a radical move
by a small group of banks. They decided to cooperate, rather than only compete. At the time, a
tremendous portion of all credit card transactions – almost 1 per cent – were fraudulent. The
fraud rate was only growing and threatened the
entire industry. This looming crisis convinced
financial institutions to overcome their raw
capitalistic instincts and follow a call to arms for
the universal good: to collaborate to fight crime,
improve transaction integrity, and cut losses.
Led by a company called HNC Software, they
joined their data together, thereby multiplying
their power to train fraud-detection models.
Ten years later, FICO acquired HNC Software –
and both Falcon and Scott Zoldi along with it.

THE EUROPEAN BUSINESS REVIEW

Since then, Falcon’s consortium has grown
to more than 9,000 banks globally, all continually sending in anonymised card transaction
details. FICO receives about 20 billion records,
amounting to terabytes of raw data, each month,
a petabyte every five years.
FIGURE 2

MARCH - APRIL 2024

Banks
Consortium
data

FICO Falcon fraud detection system

Machine
learning

Model

IT’S NOT OVER YET: LABELLING
THE DATA
In addition to tons of examples, Falcon’s training
data needs another ingredient: labels that correspond with the model’s intended output. Each
example transaction that makes for a row of data
is incomplete until designated as either fraudulent or not fraudulent. Those labels will guide
model training to do its job: generate a model that
can discern positive cases from negative cases.
Only humans can provide the labels. For detection, we don’t get to benefit from “time will tell”,
as we do when predicting a future event. Time
has told whether a user responded when shown
a certain ad or whether a debtor has defaulted.
In those cases, we get the label “for free”. But for
detecting a qualitative attribute for each case, such
as whether it is fraudulent, each training example’s label can only be determined by a person.
Manual labelling is labour-intensive and
expensive. The expense especially racks up
when it requires subject matter experts, such as
doctors for establishing whether each example
indicates a certain medical diagnosis.
On the other hand, problems that don’t
require special expertise, such as labelling traffic
Banks provide data to develop Falcon’s
lights within images for an autonomous-driving
fraud-detection model and Falcon deploys
project, can be outsourced on “crowd labour”
that model for each bank.
platforms like Amazon Mechanical Turk for as
Banks can’t benefit from
little as a penny per case.
Falcon without contributing The looming crisis convinced
But there’s a dark side: their
to it. To be a FICO customer ﬁnancial institutions to overcome largely unregulated working
that uses Falcon, you must
conditions “offer a bleak
also join the consortium their raw capitalistic instincts
glimpse of what could come
and share your data. Falcon and follow a call to arms for the
for a growing digital underhas become so standard universal good: to collaborate to
class”, according to Vocativ.
that, despite its cooperative
Marketplace 4 calls this “the
ﬁght
crime,
improve
transaction
new factory floor of the
nature, it’s a competitive
digital age”.
necessity. To hold their posi- integrity, and cut losses.
To make matters worse,
tion in the payment card
fraud detection requires an immense number
market, banks need Falcon’s best-inof labelled transactions, because positive ones
class fraud detection, which they can
are rare. If the fraud rate is 0.1 per cent and you
access only by cooperating. In the end,
want the data to include at least 10,000 positive
this levels the playing field. Even the
cases, then you need to label 10 million cases as
smallest bank can deploy the very best
to whether each is positive or negative.
fraud-detection model.

www.europeanbusinessreview.com

ARTIFICIAL INTELLIGENCE

This “organic” labelling process for fraud
detection, wherein people are essentially
“following the money”, prioritises bigger cases of
fraud over smaller cases. FICO treats only adjudicated fraud as positive cases, where the cardholder
has formally certified that the transaction was
fraudulent (whether it was them or the bank
who noticed it in the first place). This means that
suspected cases that never get adjudicated aren’t
labelled as positive in the training data, even if the
bank had to write off the charge. Since folks tend
to bother with adjudication more for larger-value
cases of fraud, lower-cost fraud is less often
Don’t fret! Falcon’s training data manages
correctly labelled and is therefore effectively
to sidestep this costly bottleneck by relying on
deprioritised by Falcon’s model. And that’s tolerable, since the false negative cost is lower for them.
what consumers do naturally. With card fraud,
On top of this manual labelling, many other
if the consumer sees an erroneous charge, they
positive cases are passively labelled – those
complain. We cardholders and our banks are, in
that Falcon has spotted
effect, already doing all the
automatically. A bank
grunt work to label many
using Falcon blocks an
cases of fraud in the course If Falcon was wrong – if it is a false
attempted fraudulent
of just living our lives. positive – then the cardholder,
transaction and the
A key reason that this
approach works is that, whose legitimate attempt to transact cardholder might never
even hear about it. This
with card fraud, banks can was blocked, will often take action
is almost a circular
afford to learn the hard way. to get it approved and the case will
process, since that posiSince the detection system
tive example will then
is imperfect, it allows some wind up as negative in the training
serve to train an updated
fraudulent transactions data. In that way, what the model
model for Falcon, which
to go through. This genergot wrong will serve to improve the
ates a positive training
identified the positive
case if the cardholder later next version of the model.
case in the first place.
complains about the unauHowever, once again,
thorised charge, even though it’s then typically
natural cardholder reactions help correct the
too late to prevent the fraudster’s crime. The cost
data. If Falcon was wrong – if it is a false positive
is absorbed by the bank, but the overall cycle is
– then the cardholder, whose legitimate attempt
economically satisfactory. No humans were substanto transact was blocked, will often take action
tially harmed in the process of this data creation.
to get it approved and the case will wind up as
In other domains, you can’t do it that way. The
negative in the training data. In that way, what
missed, uncaught cases – false negatives – aren’t
the model got wrong will serve to improve the
nearly as allowable for an autonomous vehicle that
next version of the model.
would drive through a red light or a medical system
Altogether, this provides plenty of posithat would miss a diagnosis. In those domains, you
tive examples for Scott’s team. The number of
often can’t avoid the need for additional manual
labelled cases of fraud that they end up with
work labelling many examples.
approaches one million.

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FICO FALCON FIGHTS FRAUD
FANTASTICALLY
I consider Falcon one of the world’s most successful
and widely impactful commercial deployments of ML.
It screens all the transactions for 2.6 billion payment
cards worldwide. That’s two-thirds of the world’s cards,
including about 90 per cent of those in the United States
and the United Kingdom. Seventeen of the top 20 international credit card issuers, all of the United States’ 100
largest credit-card issuers and 95 of the United States’
top 100 financial institutions, use Falcon.
Since its introduction, Falcon has reduced card fraud
losses by more than 70 per cent in the United States. With
the United States currently suffering around $10 billion in
annual fraud losses, that reduction is saving that country
alone something in the vicinity of $20 billion per year.

For a detailed example stepping through the arithmetic to show how much money a bank might save
by deploying a fraud detection model, see my MIT
Sloan Management Review article "What Leaders
Should Know About Measuring AI Project Value".5
For more reading on payment card fraud detection
in general, and FICO Falcon in particular, see this
collection of citations.6
This article is excerpted from the book, The AI
Playbook: Mastering the Rare Art of Machine
Learning Deployment, with permission from the
publisher, MIT Press. It is a product of the author’s
work while he held a one-year position as the
Bodily Bicentennial Professor in Analytics at the
UVA Darden School of Business. For a complete
bibliography for this article, see this PDF.7

REFERENCES
1

http://www.bizml.com/
https://nilsonreport.com/newsletters/1209/
3
https://sloanreview.mit.edu/article/
what-leaders-should-know-about-measuring-ai-project-value/
4
https://www.marketplace.org/2021/05/04/
the-human-labor-behind-artiﬁcial-intelligence/
5
https://sloanreview.mit.edu/article/
what-leaders-should-know-about-measuring-ai-project-value/
6
https://predictionimpact.com/documents/notes-for-The-AIPlaybook/The AI Playbook - notes for chapter 4.pdf
7
https://predictionimpact.com/documents/notes-for-The-AIPlaybook/The AI Playbook - notes for chapter 4.pdf
8
https://www.machinelearningweek.com/
9
https://generativeaiworld.events/
10
http://machinelearning.courses/
11
http://machinelearningtimes.com/
12
http://www.machinelearningspeaker.com/
13
https://www.machinelearningkeynote.com/predictive-analytics
14
http://www.civilrightsdata.com/
2

ABOUT THE AUTHOR

Eric Siegel, PhD, is a leading consultant and former Columbia University professor who helps
companies deploy machine learning. He is the founder of the long-running Machine Learning
Week8 conference series and its new sister, Generative AI Applications Summit,9 the instructor of
the acclaimed online course “Machine Learning Leadership and Practice – End-to-End Mastery”,10
executive editor of The Machine Learning Times,11 and a frequent keynote speaker.12 He wrote the
bestselling Predictive Analytics: The Power to Predict Who Will Click, Buy, Lie, or Die,13 which has
been used in courses at hundreds of universities, as well as The AI Playbook: Mastering the Rare
Art of Machine Learning Deployment. Eric’s interdisciplinary work bridges the stubborn technology / business gap. At Columbia, he won the Distinguished Faculty award when teaching the
graduate computer science courses in ML and AI. Later, he served as a business school professor
at UVA Darden. Eric also publishes op-eds on analytics and social justice.14

www.europeanbusinessreview.com

ENTREPRENEURSHIP

YOU DID NOT FAIL!
YOU ARE JUST

REBOUNDING!
by Olimpia Modorcea and Fernanda Arreola

Entrepreneurs make economies turn and prosper. They create a
large proportion of new jobs, take economies out of recessions,
propose disruptive innovations, and change how we live. Further,
those of us who have had the opportunity to develop a product,
service, or even a firm know the unique sense of accomplishment
and pride that comes with it.

he hidden side of such achievement is
also common to all entrepreneurs: failure.
According to the Bureau of Labor Statistics1,
in the US, at least 20% of businesses will fail in their
first two years, and up to almost 50% will do so by age
five. Therefore, we question what is there to be said
(and known) about failure, and most importantly,
what do we know about eventually coming back?

FAILURE IS MORE COMMON THAN
WE THINK
Embarking on an entrepreneurial journey is a rollercoaster ride filled with trials and triumphs. Some
entrepreneurs face unexpected roadblocks that
force them to pause or close their businesses for an
extended period. Despite the setbacks, many individuals force themselves through a process of time and
resilience that helps them reactivate themselves and
recreate ventures and careers.

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MARCH - APRIL 2024

In our research, we gathered insights from successful
entrepreneurs who navigated through business failures
and comebacks. The first example that comes to mind is
Elon Musk. The visionary behind Tesla and SpaceX faced
significant challenges in Tesla's early days. Financial
strains, production delays, and scepticism from critics
led Musk to stop production temporarily. His pivotal
lesson from this experience was the importance of
planning strategically and adapting to unpredictable
circumstances. Musk emphasises the prerequisite of
a resilient mindset, urging entrepreneurs to perceive
obstacles as opportunities for growth.
Steve Jobs, the co-founder of Apple, endured a
turbulent period when he was expelled from his
company in the mid-1980s. After his departure, Apple
faced stagnation, and its future seemed uncertain. In
1997, Apple acquired NeXT, a company Jobs founded
during his time away, leading to Jobs' return. He
introduced ground breaking products like the iPod,
iPhone, and iPad during his second tenure at Apple.
Jobs' takeaway is about the power of reinvention and
the ability to turn adversity into innovation.

Howard Schultz, the former CEO of Starbucks,
SOMETIMES, IT IS A MATTER OF
temporarily stepped down in 2000 after the company
SELF-CARE
faced a challenging period. During his absence,
For some, the need to pause their businesses arises due
Schultz realized the critical significance of staying
to personal challenges such as health issues, family
true to the brand's core values. Upon his return, his
matters, or personal crises. Arianna Huffington, the
primary focus was rejuvenating the Starbucks expeco-founder of The Huffington Post, faced a health
rience and overseeing global expansion. Schultz's
crisis in 2007 when exhaustion and burnout led to
counsel emphasises the importance of maintaining a
her collapsing from sleep deprivation. This incident
solid connection to the company's mission and values,
prompted her to reevaluate her priorities and step
especially during challenging times.
back from her role. Following her recovery, Huffington
Reed Hastings, co-founder of Netflix, faced a
became an advocate for well-being and sleep. Her
setback when the company's stock plummeted in 2011.
story underscores the significance of self-care and its
A price hike and an unsuccessful attempt to separate
impact on an entrepreneur's overall success.
the company's DVD rental and streaming services led
Richard Branson, a British tycoon and co-founder
to a substantial loss of subscribers. Hastings, neverof the Virgin Group, experienced a pause in his busitheless, demonstrated resilience by learning from
ness due to a severe health fright in 2016. A bicycle
mistakes and redirecting the company's focus towards
accident left him with severe injuries,
the streaming platform.
forcing him to reassess his work habits
Netflix became a prevalent
and priorities. Branson's journey to
force in the entertainment
Embarking on an
industry. Hastings advocates
entrepreneurial journey is recovery reinforced the importance
of resilience and a positive outlook,
pivoting, quickly changing
a rollercoaster ride ﬁlled
particularly in the face of personal chaldirection, and adapting to
with trials and triumphs.
lenges. His advice for entrepreneurs is
new circumstances.

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ENTREPRENEURSHIP

to listen to their bodies and prioritise their health.
embracing personal well-being and addressing life's
Oprah Winfrey, media mogul and founder of the
challenges head-on can lead to renewed success in the
OWN Network faced a challenging period in 2011
professional realm.
when she decided to end her iconic talk show, "The
The stories of these accomplished entrepreneurs
Oprah Winfrey Show". This significant personal and
underline the inevitability of hardships and strains
professional transition allowed her to focus on other
in the entrepreneurial world. Pausing a business for
aspects of her life and career. Winfrey's experience
an extended period may seem like a setback, but the
highlights the power of making tough decisions for
pivotal perspective is to see it as a strategic pause for
personal well-being and the potential for new opporrecalibration. Learning from industry giants like Elon
tunities to emerge from those choices.
Musk, Steve Jobs, Howard Schultz, and Reed Hastings,
Mark Zuckerberg from Meta took a two-month
entrepreneurs can adopt resilience, strategic planpaternity leave in 2015 after the birth of his first
ning, reinvention, and adaptability as essential
child. During this period, Zuckerberg prioritised his
elements in their track to success. Remember, the
family, experiencing the profound impact of a workpause is not the end, just like the theatre’s intermislife balance. His journey underscores the significance
sion is not the play's culmination. Instead, it's a time
of celebrating personal milestones. It emphasises the
for recalibration, upgrading, and rearranging the
need for entrepreneurs to prioritise their well-being
stage to prepare for the next act.
and family commitments, even amid the demands of
managing a thriving business.
This insight accentuates the holistic approach to
IS THIS A FAILURE?
success that recognises the close connection between
personal and professional aspects of life.
These examples make us question if these situations
Personal hardships can be powerful catalysts for
can be classified as failure or if we should reassess
positive change.
how we refer to unsuccessful business ventures and
Pausing a business due to health, family, or personal
recalibrations of businesses. For
issues requires a unique strength and
instance, research2 has found
self-introspection. Entrepreneurs
Personal hardships can
that 65% of novice entrepreneurs
like Mark Zuckerberg, Arianna
be powerful catalysts for
will make a comeback and try
Huffington, Richard Branson,
positive change.
their chances again at launching
and Oprah Winfrey showcase that
another business. Interestingly,
only those who do not acknowledge having failed will have limited
chances of ever trying it again.
Furthermore, when the decision
to close or pause a business arises,
what is necessary is taking time to
complete what we will define as a
rebounding cycle. From our research
and observations, for entrepreneurs
to fully reinvest themselves, they
must allow themselves to undergo the
following process.
First, they must acknowledge
the need to pause or stop. Second,
they must seek support to make such
a decision. Third, they must take

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MARCH - APRIL 2024

a step back and take time to gain perspective and
learn (this is when they need to ask why and what).
Then, they must integrate what they've learned
and prepare for a comeback. Once these steps are
completed, they can consider a comeback. What is
essential for each step is that entrepreneurs gain
awareness about the importance of undergoing
each of them consciously.

REBOUNDING CYCLE

to go through such periods to accept the situation.
As presented in our framework, the decision to
stop includes a moment of grief. Although denial
is a natural reaction that protects us from the
unknown, achieving a stage of acceptance3 is the
final point necessary to stabilise our emotions and
move on. Furthermore, research indicates that
entrepreneurs who do not accept the situation
are highly unlikely4 ever to undertake a new
entrepreneurial challenge.
•

Build psychological capital. Research shows5
that our psychological capital will help us rebuild
ourselves after difficult times. Psychological
capital6 is a collection of four psychological states
that make us feel good: hope, efficacy, resilience,
and optimism. To build this capital, entrepreneurs
can rely on specific techniques like humour or
defensive pessimism (imagining how a situation
can go wrong to prepare oneself).

•

Anchor in an entourage. If you are about to go
through a halt to your entrepreneurial career, do
not do it alone! Although not largely talked about,
there are several relevant resources that you can
use to make you better surrounded while you
are going through this difficult time. In France,
associations like 60000 rebonds7 or Second Souffle8
allow you to contact free coaches and mentors
who are there to support you and guide you. Other
events include fuckup nights9, gatherings where
other entrepreneurs in the same situation join to
share their experiences and gain perspective.

OUR HOW-TO GUIDE FOR IMPROVING
YOUR REBOUNDING CYCLE
As we said before, pausing or stopping a business
is a necessary choice to make. Either because the
business model is not working as you expected or
because of family or health issues, most entrepreneurs will face such a decision soon. Therefore, we
have conceived a five-step guide that may help you
pause, rest, and make a successful comeback!
•

Avoid denial. The first important thing to do is to
avoid denial. Life experiences include unsettling
periods, but it is necessary for our mind and spirit

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ENTREPRENEURSHIP

•

Look after yourself. Maintaining good mental health is
fundamental to developing resilience and overcoming change.
According to a recent study10 of almost 300 entrepreneurs,
70% acknowledged mental health concerns. The findings of
this study are significant because they suggest an underlying
relationship between entrepreneurship and many of the
affective, cognitive, and mental health conditions that a
stressful situation may trigger. Entrepreneurs must note this
trend and act accordingly, seeking medical help if necessary
when overcoming this moment.

•

Take time. If you need time, take it! Time will allow you to
recover psychologically and physically. It will also give you the
space necessary to complete a full cycle of rebounding, for
which learning and gaining perspective11 are required.

REFERENCES
1 Top 6 Reasons New Businesses Fail. 30
December 2022. Investopedia. https://www.
investopedia.com/ﬁnancial-edge/1010/top-6reasons-new-businesses-fail.aspx
2 Do You Plead Guilty? Exploring
Entrepreneurs’ Sensemaking-Behavior
Link after Business Failure. 5 June 2016.
Science Direct. https://www.sciencedirect.com/science/article/abs/pii/
S2352673415300093?via%3Dihub
3 The Five Stages of Grief. 07 June 2022.
Psycom. https://www.psycom.net/
stages-of-grief
4 Do You Plead Guilty? Exploring
Entrepreneurs’ Sensemaking-Behavior
Link after Business Failure. 5 June 2016.
Science Direct. https://www.sciencedirect.com/science/article/abs/pii/
S2352673415300093?via%3Dihub
5 Re-creation after Business Failure: A
Conceptual Model of the Mediating Role
of Psychological Capital. 02 March 2022.
Frontiers. https://www.frontiersin.org/
articles/10.3389/fpsyg.2022.842590/full
6 Psychological Capital: What It Is and Why
Employers Need It Now. 21 August 2023.
American Psychological Association. https://
www.apa.org/topics/healthy-workplaces/
psychological-capital
7 60,000 rebounds. https://60000rebonds.com/
8 Second Soufﬂe. https://secondsoufﬂe.org/
qui-sommes-nous/
9 Fuckup Nights. https://en.fuckupnights.com/
10 Are Entrepreneurs “Touched with Fire”? 17
April 2015. Michael A. Freeman, M.D. https://
michaelafreemanmd.com/Research_ﬁles/
Are%20Entrepreneurs%20Touched%20
with%20Fire-summary.pdf
11 Coping with Entrepreneurial Failure.
November 2007. Research Gate. https://www.
researchgate.net/publication/305889287_
Coping_with_entrepreneurial_failure

ABOUT THE AUTHORS

Olimpia Modorcea is a certiﬁed coach, therapist, and published author who brings over
25 years of international experience in corporate technology to her passion for personal
development. Dedicated to empowering professionals and business owners, she helps
them navigate and accelerate their careers with purpose, ease, and emotional stability.

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ESG

THE FUNGIBILITY OF
ENVIRONMENTAL, SOCIAL, AND
GOVERNANCE REPORTING
by Tim Bovy and Ian Hodges
For all organisations, there is the need for ESG reporting to be
interoperable because it impacts the ability of organisations to
streamline their reporting processes and communicate what is
being done to their stakeholders, effectively.

n October 2023, the
EU defeated an attempt by some of its
Members of the European Parliament (MEPs) to
water down the requirements regarding its European
Sustainability Reporting Standards (ESRS), thereby
ensuring that, through the incorporation of double
materiality, it would achieve its ultimate goal of giving
non-financial and financial reporting total parity.
Following this news, the Global Reporting Initiative (GRI)
claimed that “a high level of interoperability between the
new ESRS and the GRI Standards – already widely used
by thousands of organizations in Europe and around the
world – [had] been achieved.”1 Although the GRI acknowledged that ESRS is mandatory and the GRI voluntary,
their claim nevertheless called attention to the issue of
fungibility, implying that the GRI stood alone in providing
organisations with a truly global reporting standard. Our
view is that the issue of fungibility is more complex and
nuanced than that, while appreciating the value that the
GRI brings to the table.
Increasingly, standards set by the largest trade and
political blocks such as the EU have a degree of extra-territoriality. In the case of the EU, this means some laws
apply in specific contexts beyond the jurisdiction of

member states. This will
be the case with the new ESG reporting
standards. ESRS, for example, will apply to all non–
EU companies that were previously in the scope of
the Non-Financial Reporting Directive (NFRD), which
was the predecessor to the CSRD. As the London Stock
Exchange has noted, this includes Companies with
securities, such as stocks or bonds, listed on a regulated
market in the EU; Companies with annual EU revenues
exceeding €150 million and an EU branch with net
revenue of more than €40 million; and Companies with
annual EU revenues exceeding €150 million and an EU
subsidiary that is a large company, defined as meeting at
least two of the following three criteria: more than 250
EU-based employees, a balance sheet above €20 million
or local revenue of more than €40 million.2
Even within member states of the EU, there is
cultural and legal diversity. Across the world there
could be orders of magnitude more difference and
complexity. How large organisations address these
differences in their supply chains and international
subsidiaries will have significant implications for
their own reporting and for the success of ESRS
itself. We should not expect comparable reporting

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ESG

about finding meaningful contexts with which to
draw a moral equivalence.
A thought experiment should illustrate that point.
Let us consider a fashion brand with a European
head office and distribution, and outsourced manufacturing across the globe. One such factory is in
Bangladesh. The enterprise has publicly stated a
commitment that no employee will be paid less than
the living wage. The living wage for the most junior
staff in the distribution hub in rural Netherlands is
€20,700pa3, the living wage for a Bangladeshi textile
worker in urban Dhaka is €2,565pa4. The enterprise can audit both sites and establish if the living
wage is being paid. However, the living wage in the
Netherlands is lower than the legal minimum
wage of €23,940pa5. No one should be
across the globe to be achieved by asking
receiving less in the Netherlands. While
We should not
the same questions and scoring the
the minimum wage in Bangladesh is
answers against a common set of exem€1,258.50pa6, almost half that of the
expect comparable
living wage in Dhaka. Is it enough
plars. Instead, we should encourage
reporting across the
that Dhaka workers are paid
reporting organisations to interroughly a tenth of the income of
pret the quantitative data through a
globe to be achieved by
qualitative lens that acknowledges asking the same questions workers in the Netherlands? Are
the Netherlands workers simply
cultural, political, and geographical
and
scoring
the
answers
lucky that the statutory wage limit
differences. Metrics that in western
is set higher than the living wage?
Europe, for instance, could be seen
against a common set
Or is the enterprise obligated to
as poor or failing could be evidence of
of exemplars.
uprate the Bangladeshi incomes by a
succeeding and progressing in another
similar proportion?
part of the world.
Other examples can be found throughout
The professional judgment of auditors
the scope of the standard, such as power generamay well prove sufficient to map the differences
tion. While many of the countries most dependent
in data and interpretation across the develon coal-fired power have plans to phase down
oped world in much the same way that judging
coal, if not to phase it out altogether, many
materiality in financial reporting allows for qualare still bringing new coal-fired power
itative analysis alongside the strictly quantitative
stations online. It is estimated that
assessment of accounts. However it is done, we
somewhere between 170 GW and
should not expect specific data points plotted
270 GW of capacity will be built in
on a common scale to sufficiently describe
upcoming years7, making many
compliance to ESRS. We must allow room for a
countries´ phase down plans
four-dimensional analysis; the landscape that
look ambitious and pushing
surrounds the data now, in the past, and in the
eventual phase out further
future. Progress from a low base is still progress,
into the future. Enterprises
especially if it is achieved in adversity.
select international locations
Nothing in this approach should be taken
and venture partnerships for
as excusing the inexcusable: modern slavery
compelling business reasons
is abhorrent wherever it is found; corruption is
outside of power generation
pernicious in any circumstances. Instead it is

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but will now have to think of its consequences within the supply chain
and what mitigation measures could be meaningful.
It is questions like these that enterprises must grapple with in
addressing the requirements of ESRS reporting. It is not just data, but
what the data means and what it says about the enterprise, its values
and its impact on society and the environment.
REFERENCES

GRI, "Final Adoption of ESRS a ‘Game Changer’ for
Mandatory Reporting," 18 October 2023, available at
https://www.globalreporting.org/news/news-center/
ﬁnal-adoption-of-esrs-a-game-changer-for-mandatory-reporting/

Elena Philipova, “How Many Companies Outside the EU are Required to
Report under its Sustainability Rules?”, LSEG, June 02, 2023, available at
https://www.lseg.com/en/insights/risk-intelligence/how-many-non-eucompanies-are-required-to-report-under-eu-sustainability-rules

Netherlands Enterprise Agency https://english.rvo.nl/topics/csr/livingwage#what-is-the-living-wage%3F accessed 18 January 2024.

Global Living Wage Coalition https://www.globallivingwage.org/living-wagebenchmarks/urban-bangladesh/ accessed 18 January 2024.

Government of the Netherlands https://www.government.nl/topics/minimum-wage/amount-of-the-minimum-wage accessed 18 January 2024.

Trading Economics https://tradingeconomics.com/bangladesh/minimum-wages#:~:text=Minimum%20Wages%20in%20Bangladesh%20
remained,12500%20BDT%2FMonth%20in%202023 accessed 18 January 2024

Anadón L D, Nemet G and Verdolini E (2023). The Future Costs of Nuclear
Power using Multiple Expert Elicitations: Effects of RD&D and Elicitation
Design. Environmental Research Letters. 28 April 2023.

ABOUT THE AUTHORS

Tim Bovy has over 35
years of experience
in designing and
implementing various
types of information
and risk management
systems for major law ﬁrms such as
Clifford Chance; and for international
accountancy ﬁrms such as Deloitte.
He has also developed solutions for
organisations such as BT, Imperial
Tobacco, Rio Tinto, the Kuwaiti
government, The Royal Household, and
the US House of Representatives. Tim is
an elected member of The Royal Institute
of International Affairs, Chatham House,
an Independent Think Tank based in
Central London, and holds a BA degree,
magna cum laude, from the University of
Notre Dame, and MA and C.Phil degrees
from the University of California, Davis.
Ian Hodges has worked in
a variety of information
management roles over
a twenty-year career.
He has designed and
implemented records
and information management systems at
a national scale, developing parts of the
digital archive at The National Archives
(UK). At a corporate level he’s undertaken
information management projects with
The Royal Household and Her Majesty’s
Treasury. Ian also has information
rights expertise developing policies and
procedures for Freedom of Information and
Data Protection compliance and working
as a Data Protection Ofﬁcer. In addition
to CISM, CIPP/E and CIPM certiﬁcations,
Ian holds a BA degree from the University
of Southern Queensland, a postgraduate
diploma from Deakin University, Melbourne
and an MA from Birkbeck, University of
London.

www.europeanbusinessreview.com

SUSTAINABILITY

PARTNERSHIP AND
TECHNOLOGY:

Solving Municipal
Solid Waste
Management
in Developing
Economies
by Sahan J. Fernando and Ambika Zutshi
Can waste management be improved in developing
economies to establish sustainability and a cleaner
environment? This article discusses seven key
strategies involving all stakeholders and their
respective responsibilities.

common comparison on walking the streets of developed versus developing economies is witnessing
garbage in the streets. This is observed in the South
Asian and African regions due to weak and inadequate municipal solid waste management (MSWM) practices (Munyai &
Nunu, 2020). The global MSW generation is expected to reach
3.4 billion tons per year by 2050 (a 50% increase from the
current levels) and 53% of this growth is likely to come from
developing economies (Tiseo, 2022).

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The collectivist national culture of most
developing economies holds the key to establishing sustainable MSWM. Looking after
one another, being collective, thoughtful, and
striving for win-win solutions for all involved
should be incorporated as part of the strategies for all stages of MSWM from collection to
processing. Examples of these strategies which
can be adopted by government and private businesses involved in MSWM include:

PARTICIPATORY MANAGEMENT
Having a participatory approach in all stages
of MSWM is essential as it will encourage key
stakeholders like national and local governments, waste service providers, waste or
sanitation workers, waste pickers, households,

COLLABORATE WITH THE INFORMAL SECTOR
In most developing economies, the informal sector – waste
pickers – performs a pivotal role in the collection, separation,
transportation, and recycling of MSW. Since collection and
transfer of MSW is considered the costliest MSWM practice,
collaborating with waste pickers will be a huge financial relief
for waste service providers in developing economies which
are mostly funded by taxpayers’ money. Further, the collaboration is likely to expand the existing coverage and frequency of
MSW collection and recycling.

Citizens should be encouraged to purchase
and/or consume upcycled products thereby
making their respective contributions to
sustainable waste management.

businesses, and waste-oriented social
movements to get together in planning
and implementing MSWM policies and
practices. Such involvement will synchronise
disparate expectations of key stakeholders and
eventually deliver sustainable outcomes in
MSWM. For example, lawmakers in most developing economies produce ad-hoc regulations
that ban the production of sachets below a
particular weight to stimulate waste reduction.
Most businesses tend to bypass the restriction by manufacturing sachets at a weight
that is 1 or 2 grams higher than the stipulated
amount which jeopardises the purpose of the
regulation. If all stakeholders got together
and deliberated about the regulation and a
feasible plan to execute it, then such downfalls
could have been avoided to deliver sustainable
outcomes in MSWM.

SOURCE SEPARATION
Using audio-visual media, citizens in developing economies
should be educated on how to reduce their daily waste, along
with the benefits of putting litter in dedicated waste collection
bins, and properly segregating their waste prior to disposal.
Diversion from traditional MSWM practices such as open
burning, open dumping, and landfilling, to separation of MSW
from the source remains key for MSW reduction in the first
place. Both households and businesses – the two main waste
producers – should be encouraged to engage in source separation. However, clear guidelines for the separation of MSW
and dedicated storage bins for different waste types may need
to be provided for the effective implementation of source
separation. Further, the adoption of modern waste charge
systems that consider a frequency-based, weight-based, or

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SUSTAINABILITY

volume-based fee may encourage households and
businesses to engage in source separation (Chu et
al., 2019; Welivita et al., 2015).

RESPONSIBLE WASTE REDUCTION
AND RE-CONSUMPTION

SUPPLY CHAIN PARTNERSHIP
Businesses involved in MSWM processes should be
encouraged to modify their supply chain for circularity,
for instance by avoiding the use of single-use plastics
and polythene in their production. Governments could
also provide incentives and/or subsidies for businesses
to modernise their equipment to enhance efficiencies
during stages of MSWM. Incentives and/or subsidies send
a clear message to businesses that the government as the
key stakeholder in the supply chain is serious about waste
reduction. Regulations remain an indispensable armour
for governments, nonetheless, collaboration and working
with businesses to strive for solutions to waste stages
would lead to long-term maintenance of any implemented
strategies as opposed to a mandatory requirement solely
to tick a box or find loopholes
in the latter.

Following principles of circular economy ‘R’s’,
citizens should be encouraged to purchase and/
or consume upcycled products thereby making
their respective contributions to sustainable waste
management. Responsible citizens as such will
articulate responsible households and businesses
to reduce the generation and management of
MSW sustainably. Further,
responsible re-consumption
for upcycled products and Incentives and/or subsidies send
by-products made out of a clear message to businesses
MSW will create a market that the government as the key
demand which in turn can
become a revenue stream stakeholder in the supply chain
for waste service providers is serious about waste reduction.
and waste-preneurs.

RESPONSIBLE
PRODUCTION

The type of raw materials
used to manufacture products
remains the key to reducing
waste downstream. This will require businesses to switch
from the short-term profit-making strategy of ‘‘make-tobreak’’ to ‘‘make-to-keep’’. This change cannot happen
overnight for businesses nor without incentivisation and
regulations (which are enforced) by the industry sector
peak bodies and governments. This change will also
require educating the end consumer and switching their
mindset for instance, from buying the latest model of a
product when the older model is operating as normal.

ADOPTION OF SMART TECHNOLOGY
In this digital era, with artificial intelligence (and its synonyms technologies) infiltrating all aspects of business
decision-making, investing and using modern technologies like Wi-Fi, Li-Fi, cellular network, and drone-based
collection bin systems for MSW collection and transfer
will enable the waste service providers to overcome the
prevailing inefficiencies and ineffectiveness. The adoption
of smart technology will facilitate the timely collection
of MSW and thus reduce unnecessary fuel and time

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MARCH - APRIL 2024

consumption which in turn will harness more
sustainable outcomes in MSWM. Public-PrivatePartnerships (PPP) may be required in most
developing economies with limited financial
capacities to pursue the adoption of smart technology in MSWM so that the financial burden
and any according risk of adopting technologies
can be shared between partners.

Waste-related services in developing economies
are mostly funded by taxpayers’ money. The onus
accordingly is on all stakeholders: from a country’s citizens, government, to businesses, to work
with one another to tackle the problems of waste
management and efforts to achieve sustainable
development goals (SDGs) – 3 (Good Health and
Well-being), 12 (Responsible Consumption and
Production), and 17 (Partnerships for the Goals)
– in the coming years and beyond. Each country
has its unique set of waste types as a priority to be
resolved. Hence, the above-mentioned strategies
can act as a starting point for conversation and
partnership between stakeholders. Developed
economies also have the responsibility to share
their strategies, lessons learnt, and technologies
with their developing economies counterparts
to address the global ‘‘waste’’ problem.
References
• Chu, Z., Wang, W., Zhou, A., & Huang, W. C. (2019).
Charging for Municipal Solid Waste Disposal in
Beijing. Waste Management, 94, 85–94. https://doi.
org/10.1016/j.wasman.2019.05.051
• Munyai, O., & Nunu, W. N. (2020). Health Effects
Associated with Proximity to Waste Collection
Points in Beitbridge Municipality, Zimbabwe. Waste
Management, 105, 501–510. https://doi.org/10.1016/j.
wasman.2020.02.041
• Tiseo, I. (2022). Global Waste Generation - Statistics
& Facts. Statista. Retrieved October 5, 2022,
from https://www.statista.com/topics/4983/
waste-generation-worldwide/
• Welivita, I., Wattage, P., & Gunawardena, P. (2015).
Review of Household Solid Waste Charges for
Developing Countries – A Focus on Quantity-based
Charge Methods. Waste Management, 46, 637–645.
https://doi.org/10.1016/j.wasman.2015.08.018

ABOUT THE AUTHORS

Sahan J. Fernando is a PhD candidate
at Deakin Business School, Australia.
He holds a Bachelor of Business
Administration and a Master of Business
Administration. His research interests
include stakeholder collaboration, waste
management, institutional complexity,
and entrepreneurship. He is also a Senior Lecturer at
the University of Colombo, Sri Lanka.
Professor Ambika Zutshi holds a Bachelor
of Environmental Sciences, Master of
Environmental Management and Doctor
of Philosophy. Her current research is
focused on corporate social responsibility,
business ethics, higher education, supply
chain management, and stakeholder
relationships. She has over 100 publications in
journals and book chapters. Ambika is currently
an Australasian Associate Editor of The European
Business Review, Emerald; an editorial board member
of the International Journal of Consumer Studies;
and the Editorial Advisory Board of Management of
Environmental Quality.

www.europeanbusinessreview.com

DIGITAL TRANSFORMATION

TRANSFORMATION?
by Dr. Nina Mohadjer LL.M.
It may be said that to implement change in an
organisation takes a real leader. But, as Nina
Mohadjer contends, to carry out a transformation
calls not only for a leader but also the wholehearted
commitment of all those involved – and that, while
more challenging, can only be positive.

I is everywhere and almost everyone is frightened by ChatGPT. Sure, some are excited,
believing that AI will eliminate boring tasks
and write their emails, articles, and books. This point of
view does not consider that a system, in this case AI, aka
ChatGPT, is only as successful as we, the humans, make
it. So the question comes up of whether it will lead to
change or transformation in our business world. If you

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MARCH - APRIL 2024

look for the difference between change and transformation, you come across the following definitions. Change
is the exchange of one thing for another of similar
type. Transformation, on the other hand, is a complete
change in the appearance or character of something or
someone in a way that the thing or person is improved
(Cambridge Dictionary, n.d.). In the business environment, a change is automatically a top-down request and
an external factor, regardless of the agreement of the
people involved. A transformation, however, requires
the internal agreement of the involved, making the
transition from one stage to the next seem seamless
(Behrend, n.d).
Just like many words in the business world, these
two words are used interchangeably, and unfortunately not always in the right context.

CHANGE MANAGEMENT

TRANSFORMATIONAL MANAGEMENT

Often, when the word “change” is used in business,
Transformation needs the change, but goes one level
people connect it with discomfort. While it is supposed
deeper into the cultural system of an organisation. It
to bring positive aspects to an already-existing situation,
completely replaces one thing with another by not only
service or product, it creates an unknown, combined
changing the external perception, but by reinventing
with unease. This does not consider the fact that change
all the aspects.
in business should have two important components: (a)
Additionally the time component is not definite.
system change and (b) personal change. One is for the
Instead, a transformation aims at a continuous reinintroduction and implementation of the system, and
vention to adapt to the present state, as well as the
the second is the human individual aspect to ensure the
needs of the future. As transformation aims to reinvent
acceptance and the use of the application.
a complete situation, service, or product, it involves
The dynamic Lewin model of change indicates the
different business units and, thus, it becomes more
following three steps in order to have a successful implechallenging and more unpredictable to involve all
mentation of change: (1) unfreezing the present stage;
the parties (Golden-Biddle, 2007). The transforma(2) implementing the new behaviour; and (3) re-freezing
tion phase requires that employees step outside their
the stage (Levasseur, 2001). Within
comfort zone, but this is only
the entire process, however, the Transformation needs the
possible if the leaders are transkey success factor is timely leadand show them where their
change, but goes one level parent
ership communication. Thus, it
journey will lead. The employees
becomes the leadership's chal- deeper into the cultural
have to understand that different
lenge to select which parts to system of an organisation.
phases with the associated time
keep, and which to eliminate.
period are a necessity and will lead
It completely replaces
However, the second aspect has
to a prosperous future.
one
thing
with
another
to be considered and becomes the
It becomes automatically the
main success factor for the change by not only changing the
leader's job to motivate, engage,
management. While employees
communicate, and demonstrate
external perception, but by the urgency of the transformational
used to obey a leader’s request for
change and the leader's decision reinventing all the aspects. steps (Kotter, 1996; Kotter, 2007;
of what needs to be unfrozen,
implemented, and refrozen, today,
employees want to be part of it. As 70 per
cent of change requests fail due to employee
resistance (Ewenstein et al., 2015), management needs to respond to the employees'
question: “Why?” (Hiatt, 2006).
As Prosci (2012) indicates, change
management can only be successful if
the individuals who are obliged to use the
changed product or system or face the
changed situation understand the reason
for the change. Simultaneously the organisation has to accept that an application
will never be successful if the individuals
do not have that comprehension of the
changed vision of the desired outcome
(Ewenstein et al., 2015).

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DIGITAL TRANSFORMATION

Golden-Biddle, 2013). At this point, it also The success of a
from the top, employees as
becomes the leader's task to understand
individuals were able to see
frustrations and subsequent criticism transformation requires the the future and, thus, started
and use the feedback to re-evaluate the collective commitment of
relying on their own strength
direction. Furthermore, the leader has users, the understanding of in dealing with the crisis.
the opportunity to demonstrate the
urgency by indicating that the business the why and when, and the
will not be able to remain in the present right vision for the future.
CONCLUSION
state, but that the transformation into
the next stage is an absolute necessity.
In conclusion, transformation focuses on the future. Thus,
Lastly, transformation management is a repetitive
when we speak about digital transformation, we indicate
procedure and a never-ending circle of feedback,
that the individuals using the digital devices, system, and
comment, adjustment, and re-evaluation (Goldenproducts are involved. It will be a top and bottom relaBiddle, 2013).
tionship. A digital “change” would indicate a top-down
Why do we refer to digital transformation and not
approach, but a digital device, system, or product without
digital change? After analysing the different aspects
the involvement of the end users would be redundant in
of each, it becomes clear that a digital change would
the shortest time period.
not have room for survival. A system implementation
To quote Tanmay Vora: “Change fixes the past and
would not work without the involvement of the people
transformation focuses on the future.” (Behrend, n.d.).
who are supposed to use it. The success of a transformation requires the collective commitment of users,
the understanding of the why and when, and the right
REFERENCES
vision for the future.
1. Behrend, F. (n.d.). "The difference between change and transformation",
While senior executives have the power to request
retrieved 11 April 2021, from https://transformation.work/blog-en/insights/
the-difference-between-change-and- transformation/
a change in almost any aspect of an organisation, a
2.
Bruch,
H., & Sattelberger, T. (2001). "Lufthansa’s Transformation Marathon:
successful transformation requires a step-by-step
Process of Liberating and Focusing Change Energy", Human Resource
Management, 40(3), 249–59. https://doi.org/10.1002/hrm.1015
application with the assistance of the involved parties.
3. Cambridge Dictionary. (n.d.) "Change" and "transformation", in Dictionary
The best example is Lufthansa. In 1991 the airline, close
Cambridge.com, retrieved 10 April 2021, from https://dictionary.cambridge.org/
to bankruptcy, had to reinvent the business and create
dictionary/english/transformation.
a global aerospace partner by creating a mental change
4. Ewenstein, B., Smith, W., & Sologar, A. (2015). "Changing change management",
McKinsey Digital
in the employees. While employees were excluded
5. Golden-Biddle, K. (2013). "How to Change an Organization Without Blowing It
from the cost management and cost reduction, the
Up", MIT Sloan Management Review, 54(2), 35-41.
remainder had to be involved in a trusting relationship
6. Hiatt, J. M. (2006). ADKAR:A model for change in business, government and our
community: How to implement successful change in our personal lives and
with the airline from strategic and rental arrogance to
professional careers. Loveland, CO: Prosci Research
devolution and simplification and finally reintegration
7. Kotter, J. P. (1996). Leading change, Cambridge, MA: Harvard Business Press.
(Bruch, 2001). The airline was able to engage everyone
8. Kotter, J. P. (2007). "Leading Change: Why Transformation Efforts Fail", Harvard
Business Review, 85(1), 96–103.
not only by changing the mental state regarding the
9. Levasseur, R. E. (2001). "People Skills: Change Management Tools – Lewin’s
transformation, but had a simultaneous top-down,
Change Model", Interfaces, 31(4), 71, https://doi.org/10.1287/inte.31.5.71.9674
bottom-up approach within four weeks. By putting
10. Prosci, X. Y. (2012). Best Practices in Change Management, Loveland, Colorado:
leadership into action and not just requesting a change
Prosci Learning Centre Publications.
ABOUT THE AUTHOR

Dr. Nina Mohadjer, LL.M. has worked in various jurisdictions where her cross-border
experience as well as her multilingual capabilities have helped her with managing reviews.
She is a member of the Global Advisory Board of the 2030 UN Agenda as an Honorary Advisor
and Thematic Expert for Sustainable Development Goal 5 (Gender Equality), and a co-founder
of Women in eDiscovery Germany.

100

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