Author: Marta Re Ferrè

Entrepreneurship in an interconnected world: now online the new issue of SOMeMagazine

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SOMe Issue #2 has been released.

SOMe is the eMagazine of our School born to share stories, points of view and projects around key themes of our mission.

The title of this issue is “Being entrepreneurial in a high tech world“, in which we discuss the change of approach to entrepreneurship in an increasingly interconnected world, but also dealing with the most serious health crisis of the last century.

First we present an interview with Andrea Sianesi, President PoliHub, Innovation District and Startup Accelerator of Politecnico di Milano, who tells us how entrepreneurship is evolving in this scenario and how the role of incubators is changing.

We then deal with some specific elements – such as strategy, leadership and business models – with editorials by Federico Frattini, Antonio Ghezzi, Roberto Verganti.

Finally, we tell stories of Alumni who turned their ideas in successful business initiatives.

To read SOMe’s #2 click here.

To receive it directly in your inbox, please sign up here.

Previous issues of SOMe:

• # 1 “Sustainability – Beyond good deeds, a good deal?”
• Special Issue Covid-19 – “Global transformation, ubiquitous responses”

Entrepreneurial Strategy: how to navigate the new pandemic and digital normal

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Entrepreneurship arises from the recognition of an explicit or hidden problem, often from exogenous shocks. But an entrepreneurial mindset is not enough: it needs an overall strategy, a framework and the tools to navigate this new pandemic and digital normal. In the end, it is a process based on a scientific and experimental approach.

 

Antonio Ghezzi, Associate Professor of Strategy & Marketing, Hi-tech Startups and Digital Business Innovation
School of Management Politecnico di Milano

 

Entrepreneurship is commonly defined as a constant search for new business opportunities.

What’s an opportunity? Opportunities can arise when exogenous shocks reveal competitive imperfections which leave some space open for intervention and action. They might also happen when resources and competencies, owned by you or some else, appear or acquire a new value (such as when they are recombined to deliver a new solution or when old problems are resolved in new ways). Sometimes, opportunities are created by visionary minds who challenge common assumptions or who see a light in the darkness.

How do you take advantage of an opportunity once it is discovered or created?

Taking advantage of an opportunity involves creating new organisations. These may be traditional new ventures or more highly innovative start-ups, which build viable business models around the business opportunities. Entrepreneurs must formulate an entrepreneurial strategy, by: defining their vision, mission and purpose; creatively analysing industries, looking within and outside traditional market boundaries using a Blue Ocean Strategy or using a lean start approach by designing innovative business models and validating them on the market by acquiring customer feedback through experimentation.

These are the main entrepreneurial steps, which make it a restless force that challenges and creates traditional industries, and constitutes the major growth thrust in mature economies like Italy’s.

What is the relationship between today’s mega trends and exogenous conditions and entrepreneurship? How do the “new normal”, born of a fast-spreading pandemic and a growing digitalisation trend, affect entrepreneurial action? And can entrepreneurial action help overcome current threats?

Entrepreneurship is born and naturally thrives in uncertain market conditions and turbulence. New ventures and start-ups either emerge from discontinuities or create them, through disruptive initiatives and business models. You need an entrepreneurial mindset when sailing troubled waters.

Entrepreneurship is about turning threats into opportunities. As a common saying goes, in entrepreneurship everything starts with “pain” which is the recognition of an explicit or hidden problem, that the entrepreneurial team strives to solve in an original and effective or efficient way. This is something we clearly experienced when investigating start-up responses to the COVID-19 crisis. Not only did several start-ups perform interesting pivots of their business models to restore viability, but others were created to help overcome the crisis.

Entrepreneurship constantly looks to design and bundle new tools into compelling value propositions that can rapidly scale. This is the case with digital technologies, which display a strategic and entrepreneurial side beyond their technological dimension and should be seen as enablers for new products, services, business models and whole industries.

Embracing an entrepreneurial mindset to catalyse entrepreneurial action and make it practical within an overall entrepreneurial strategy provides the framework and tools to navigate the new pandemic and digital normal. This applies to start-ups and innovative projects inside well-established organisations, where “intrapreneurial” endeavours are needed for business renewal.

At Politecnico di Milano’s School of Management, our close ties with the Italian and international startup ecosystem allow us to design theoretically sound as well as practice-oriented research, and convey its main takeaways into an enriching and action-learning teaching experience.

This theory-teaching-practice virtuous loop allowed us to address a key point often puzzling would-be entrepreneurs: entrepreneurship can be taught and learnt.

Entrepreneurship is not only about individual creativity and passion: it’s a process based on and sustained by an experimental and quasi-scientific approach that can be framed and transferred.

Will learning this process result in a bulletproof recipe for undisputable success? For sure it won’t. But whenever going through the famous – or better, infamous – startup’s Valley of Death, with failure rates as high as 90%, be knowledgeable of the right models and approaches will definitely come in handy.

 

Disruption? No, thanks. Innovation and Leadership in the New Normal

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Whatever the post-Covid future, the new normal will require a fundamental change in the leadership of companies. What kind of mentality should leaders have to do business and innovation in a world that will be completely different? In a period in which the temptation will be to be increasingly competitive due to the scarce resources available, learning to share may be the only strategy that can guarantee survival.

 

Roberto Verganti, Professor of Leadership and Innovation
School of Management Politecnico di Milano, Stockholm School of Economics, Harvard Business School

 

Many executives wonder about a fundamental question: how to get ready for the “new normal”? How markets will look like when the main wave(s) of the Covid-19 pandemic will recede? How to redesign products, services and operations to address potential structural shifts?

The start line to rethink how we operate is getting close. Those who get ready now, will start with the right foot. Those who wait, will look like dinosaurs from an old era (though that era was just a few months earlier).

Magazines, futurists, consultants, organizations. Everyone is trying to picture how the scenario will look like as people open up their doors to a new normal life. And everyone agrees on two things: first, the world will look different than before. Second, this transformation will not be temporary. Even when Covid-19 will be fully defeated (and hopefully it will be), our attitude towards socialization, our openness towards the world, our need for health (and anxiety for new infections), will be radically different, for the bad, but also for the good.

Yet, as we move closer and try to get into the details of how life will look like, how markets and operations will work, the real challenge emerges: the phenomenon we are facing is so unprecedented, disproportioned, and swift that capturing the essence of what will happen is implausible. A simple figure to explain the rapidity and magnitude of the discontinuity: in March 2020 more than 7 million Americans have filed for jobless claims per week. This is about tenfold compared to what happened during the financial crisis in 2008. So, regardless to the intelligence and effort we invest to predict what will happen, we need to admit that the answer to the question “how the world will look like?” is: no one really knows. This is a bit of a dismay for the classic way we picture leaders (and experts), who are supposedly those who always know. Yet, in this context, “pretending to know” is the most dramatic mistake we could do.

Amy Edmondson illustrates in her book The Fearless Organization that when a person admits that she does not know, then she opens the doors to learning. To understand how to do business in the new normal the mindset we need therefore is not to guess how it will be, but to get prepared to learn.

How? Being the context completely new, we cannot rely on past experience. We will need to learn “on the fly” through continuous experiments and adaptation. There are two ways to experiment and learn: by competing (learning by trying) or by collaborating (learning by sharing).

Learn by Trying. This the classic way of learning. The purpose here is to learn by yourself in order to beat your competitors. In this approach, organizations compete by conducting different experiments. Each organization tries its own ideas, fail, learn, adjusts the direction, and iterate. As companies aim to disrupt their competitors, they do not share their findings and insights with other organizations, nor the data that fuel the learning. This implies that every time an organization has an idea, it needs to explore it by only relying on its own resources.

Learn by Sharing. In this approach organizations conduct again different experiments. They generate their own ideas and iterate. However, they share the data and findings of their experiments. Why? Because this way they can leverage the trials of other players. If an idea has already been tested, and fails, others can avoid this unpromising path and focus on other options. And if the idea succeeds, others can build on top of it, instead of having everyone starting from scratch. Of course, this path reduces distances among competitors. Disruptions with one big winner and many losers are less likely to happen. But the advantage, however, is that that this approach requires less resources (individual and collective) and less time to get to good solutions. This increase in overall productivity and speed facilitates the growth of demand for solutions, which fuels returns to each player. In other words, this mechanism of learning replicates the mechanisms of the prisoner’s dilemma: cooperation between players leads to higher yields than what players would earn if they would maximize their own individual returns.

Learn by Trying is the kind of learning that has been prized in the past decade by many innovation thinkers and epitomized by the motto “fail often to succeed sooner”. It worked as long as the environment changed rapidly but in a linear fashion, so that learning from one experiment could be applied to the next one without the context being changed dramatically meanwhile. The change we are facing now with Covid-19 is however discontinuous and unprecedented. If in this context everyone conducts experiment by itself, each player has not sufficient time to explore this uncharted space of solution and then iterate before the context evolves again.

To innovate in the new normal we need to learn by sharing. This strategy is the only one that can guarantee sufficient scope, speed and productivity of the experiments. In fact, data sharing enables a larger community of players to participate to the experiments, from a larger variety of settings. And the sharing of findings enables to avoid unproductive trials.

Learning by sharing is already practiced in scientific research connected to Covid-19. Foer example, PostEra, a start-up based in Santa Clara, CA, and London, UK, is coordinating a massive collaborative project, Covid Moonshot to rapidly develop effective and easy-to-make anti-Covid drugs. The focus of the project is to design inhibitors of the SARS-CoV-2 main protease (the enzyme that enables the virus to replicate). The project leverages data shared by experiments conducted in a synchrotron radiation facility, Diamond Light Source, that has identified 80 fragments of molecules that might attach to the protease. A community of scientists and manufacturers use those data to design compound inhibitors, which are submitted through the PostEra website. The start-up then runs machine learning algorithms in the background to check for duplications and prioritize candidates for testing. More than 3’600 molecules designs have been submitted with only 32 duplications in the designs.

Shared learning is getting its way also in ordinary business not connected to Covid-19. Microsoft has recently launched an Open Data Campaign. The Open Data movement promotes the sharing of data, similarly to what Open Source does for sharing of software code. Microsoft will develop 20 new collaborations built around shared data by 2022, including, for example, publishing a Microsoft’s dataset around broadband usage in the US.

Note that shared learning does not imply that different players collaborate on the same idea or solution, like in consortia. On the contrary, organizations explore different ideas and experiments. This enables to explore the entire space of solutions. What is shared, instead, are the data that feed the experiments, and/or the insights and findings they generate.

Learning by sharing is built on a will to cooperate. Which is not easy to achieve. Especially in a period of scarce resources. The temptation is to look inward, and behave even more competitively, to secure the few things left, instead of focusing, collaboratively, on building more. What kind of culture and mindset will innovation leaders need to promote learning by sharing in their own organizations?

Whatever the future will look like, the new normal will require a fundamental change in the way we create innovation and lead our organizations. Whereas the innovation mantra of the pre-Covid era was to “disrupt competitors”, this is not really the moment to disrupt. This is rather the moment to collectively re-build a new economy and a new world. The real heroes, in business and society, will not be the disruptors, but those catalysts who will foster a cooperative mindset. Which, in innovation, it means to share data and learnings from the experiments everyone conducts. Organizations will need to try different competing ideas, but they will also benefit from sharing insights, in order to avoid unpromising avenues, improve collective productivity, and rapidly build a new society. Covid-19 is the moment of truth for leaders: where they can prove their authentic orientation to lead organizations around purpose and meaning.

The future of business schools between innovation and entrepreneurship

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International business schools are competing in a situation which is undergoing a profound and rapid transformation. The need for increasingly specialised managerial training, competition from new players and building a more inclusive and sustainable future, requires a rethink of operating and business models.
What are the transformations required for greater entrepreneurship and innovative capacity of business schools?

 

Federico Frattini, Dean MIP-Graduate School of Business, Politecnico di Milano

 

International business schools are competing in a situation which is undergoing a profound and rapid transformation. This requires a thorough rethink of business schools’ “standard” business and operating models.

Some of the trends that have recently emerged are the shift in demand for managerial training from “general management” programmes to “specialist” programmes, and stronger competition in the management training market owing to the entry of new players. Consulting and executive search companies are expanding their service to include training for the development of human capital. New “edtech” players are entering the training market, and global technology giants (e.g. Microsoft, Google, Amazon) and increasingly seeing the training world as a possible new frontier to sustain their growth.
The demand for life-long learning services is growing rapidly, due to the fast obsolescence of skills that are learned in “standard” management training courses. Extra-curricular activities and what we call “campus life” are becoming increasingly important in students’ choices. Finally, there is a “crisis” of academic institutions’ social value as they swiftly lose reputation, especially in the eyes of the younger generations.

In addition to these transformations, there are others that have been profoundly accelerated by the consequences of the Coronavirus health emergency. Business schools need to redefine their purpose and clarify their contribution toward building a more inclusive and sustainable future. But they cannot delay the start of a deep digitisation of their processes, teaching methods and approaches.

Responding to these challenges requires a profound rethink of business schools’ business model. Some of the relevant changes that should be carefully considered by international business schools’ leadership include moving from “disciplinary” to “transversal” skills, including entrepreneurship, digital skills, sustainability, critical thinking. There needs to be a move from “separate from practice” training models to “hands-on” training based on a growing interaction with managerial and entrepreneurial practice. Undifferentiated approaches for training for “homogeneous populations of students” need to move to “customised” training, in a “one-to-one” perspective from “intermittent” and time-concentrated training to “on-demand” training, and continuously mixed with students’ professional activity and private life. We need to move from Face-to-face vs. digital training to “omnichannel” training models. The focus on the production of knowledge through research and its transfer through a portfolio of training products must change to the research and integration of knowledge available outside the business school boundaries (for example availability of high-quality training content on MOOCs – Massive Online Open Courses platforms).

These transformations have a scope and potential impact that clash with the “bureaucratic” culture of business schools, their consensus-building processes, and governance mechanisms that require time to approve decisions fail to meet the above conditions. It is essential for international business schools’ leadership to promote a transformation of organisational culture, processes, staff skills, and organisational structures for greater entrepreneurship and innovative capacity. This means borrowing the management solutions and approaches which business schools teach and applying them to their management models. For example, to manage “radical” innovation projects, which require profound changes to established routines and operating models (e.g. the launch of distance learning platforms, or life-long learning services enabled by digital technologies), many business schools are creating spin-offs to place these projects in a more agile and entrepreneurial organisational background. Many business schools are creating positions among their Chief Innovation Officer (CIO) staff to promote a process of continuous digital innovation and transformation of operations and training. Coopetition models in business schools are becoming widespread. These aim at reaching a higher critical mass and sharing the risks and costs that radical innovation projects entail (such as the development of innovative Learning Management Systems).

Many of these transformations will take time to manifest in the world of business schools, but they will be fundamental to sustain their competitiveness over time and ensure their survival.

Being entrepreneurial in a high-tech world

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We talk with Andrea Sianesi, Executive Chairman PoliHub, Innovation District and Startup Accelerator Politecnico di Milano
Professor of Logistics and Production Systems Management, School of Management

 

Andrea, you are in charge of an incubator, so you embrace new business ideas which are still in development. What characteristics does a good entrepreneur have at this moment in history?

Firstly courage. This is the same answer I would have given before the Covid-19 crisis. Entrepreneurial initiative is a leap into the void and committing resources and time to develop ideas requires a cool head.
In addition to courage, I believe correcting one’s mistakes and make the most of the “obstacles” along the way is fundamental.

There is a need to have technical and technological knowledge about your enterprise. The entrepreneur who goes through PoliHub, has a solid technological expertise, but lacks business world knowledge. Entrepreneurs must be open to partnerships with other people who can bring complementary skills to the company, such as the ability to develop the market, or knowledge of the regulatory framework.
One must always be willing to get help.

PoliHub is a university incubator: why does the university need it?

The university ecosystem is a fundamental asset for those who want to do business. At Politecnico di Milano, we guarantee access to the business school, POLI.design and Cefriel innovation hubs, thousands of professors and researchers, laboratories covering engineering disciplines, and which are fundamental for transforming an idea into a product.

We are not just a place that hosts start-ups, we are unique compared to other incubators. In deep tech start-ups, it is necessary to carry out experimental activities in laboratories that are only found in universities, and there are companies that, following technological developments in different sectors, have detached some of their departments to join us. This allows them to work and interact with start-ups and have the same ease of access to the entire hub.

This makes the difference and the figures confirm it. Let me give you an example: Politecnico di Milano’s PoliHub, together with the Technology Transfer Office (TTO), manages the “Switch To Product” competition every year. This programme enhances the market value of innovative solutions, new technologies and business ideas suggested by students and graduates (up to three years after graduation), researchers, alumni and professors of Politecnico di Milano, offering financial resources and consulting services to support the development of innovation projects through technological validation and entrepreneurial acceleration. This year we saw a 20 per cent increase in applications. This is an incredibly significant growth, which gives us hope for an increase in new successful companies.

Covid-19 has turned the tables and changed boundaries and business ecosystems, with short or long-term effects, what have you noticed about this situation?

Recently we feared that the pandemic could wipe out the start-up world as they were unable to access forms of subsidy available to other business and professional categories. The problem is real: start-ups today find themselves in greater difficulty than companies that are already well established, but for the moment the system is holding up and showing encouraging signs.

An unexpected effect has been an increase in demand to access incubation services. There is a strong demand to enter the business world, perhaps due to the realisation that it is necessary to know how to get back into the game, even for those who have a well-established career, creating new income opportunities where job stability is lacking.

The demand increase for services comes not only from potential start-ups, but established companies, who decide to relocate to smaller and leaner offices located next to centres of excellence. This new trend is perhaps facilitated by the spread of smart working, which makes it easier to manage small offices than larger ones.

You are describing a scenario with different opportunities on the horizon. What are Polihub’s future plans?

The challenge for us is to find resources that can accompany the start-ups from the idea, and the university, with its resources related to European projects and grants, funds and investors willing to support them throughout their growth phase.

I like to picture the process as crossing a valley. Start-ups need a “bridge” between the two phases that allows them to have the necessary resources to make their idea interesting for investors.
For the idea to be interesting it needs to prove that it is solid and technically verified and has a target market.

Often the technical tests already require considerable investment and are lengthy. We are committed to making this “bridge” effective, and as short as possible, compared to the objectives.

Our future project is to find institutional investors and venture capital, but with a wide-ranging international approach and not just a domestic exposure for our start-ups.
We think with an international logic, not only financially, but using every asset made available by the global network of incubators of excellence.

We are certain that pooling these capabilities will enable us to make a real difference.

 

 

Tiresia Research Center among the winners of the EIC “Blockchains for social good” Award

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Tiresia, the research centre on innovation, entrepreneurship and social finance of the School of Management of the Politecnico di Milano, is among the six winners of the European Commission’s EIC Horizon “Blockchains for Social Good” award, which will receive a total of 5 million euros for the application of Distributed Ledger technologies to face the major challenges of our society.

While the potential of blockchain technology has been tested in the financial field, its applications in the social and sustainability fields are still underdeveloped. The aim of the “Blockchains for Social Good” award is to support innovators and civil society in exploring the possible applications of blockchain technology for digital social innovation.

Tiresia is partner of the consortium led by Aalto University (Finland) which won in the “Financial inclusion” category, with the project GMERITS (Generalised Merits for Respect and Social Equality), which will be financed with one million euros.
GMERITS is a large-scale experiment to evaluate alternative economic structures, analysing the most effective governance schemes and different compensation models.

Tiresia’s role is to investigate the importance that data and technology can play as enablers of generation and impact management. In addition, it will be an assessor of the social impact generated by the experimental applications within the project.
The consortium also includes three social-tech business initiatives in Europe (REC in Barcelona, Me Sensei in Helsinki and Merits in Milan).

The award, launched with funds from the Enhanced European Innovation Council (EIC) is an integral part of the European Next Generation Internet (NGI) initiative that supports innovators, entrepreneurs, SMEs and researchers to develop their ideas, through funding, networking and coaching activities, and to explore the potential of the Blockchain in new areas of application, in particular for identifying solutions to local and global sustainability challenges.

 

 

 

 

Amazon Innovation Award 2020 – PrimePeerz, an innovative and sustainable project

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Five students in their second year of the Master’s Degree in Management Engineering have won first prize in the Amazon Innovation Award 2020, with the PrimePeerz project.
Giorgio Damuzzo, Nicola De Giusti, Simona Esposito, Fulvio Gargiulo and Romain Lerouge faced the competition as an integrative project during the Logistics Management course held by Professors Alessandro Perego and Riccardo Mangiaracina, going up against 300 other students from Italian and French universities.

They decided to work on sustainability: they were tasked with devising an innovative solution for the processes of product pick-up, packaging, shipping and returns, which would be as efficient as possible and at the same time would result in a reduction of CO2 emissions, an issue which is very important for Amazon at the moment.

The team’s idea focuses on “last mile” delivery, the core concept is the relational economy of human beings, with the intention of exploiting the existing social ties between Amazon’s large customer base in order to reduce the company’s environmental impact.
PrimePeerz aims to establish further consolidation points in the downstream logistics network, by aggregating orders from customers that are linked to each other, thereby reducing the number of shipments, the resulting transport costs and greenhouse gas emissions.

“We are very pleased with the victory, because it shows that we have managed to capture both academic interest and recognition from Amazon, and for us this means we have reasoned in the right way.”

The award, postponed due to the current epidemic, includes a trip to Seattle, where our students will present their idea to managers at Amazon’s headquarters.

Amazon has selected their project to represent the Politecnico di Milano at the national finals, in competition with the Politecnico di Torino and Rome Tor Vergata. In the final, which took place remotely on April 17, Amazon then decreed their project as the winner of the contest.

“It was a shame for us not to be able to celebrate the victory all together physically and to be able to meet Amazon’s representatives in person. We hope to make our dream come true and visit Amazon’s headquarters in Seattle once the health containment measures are completed.”

Industry 4.0 and relocation choices: do digital technologies reduce the need for internationalisation of efficiency-seeking firms?

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There is evidence that Industry 4.0 technologies, offsetting the low-cost or high-productivity advantages of some foreign countries, may be a valid alternative to internationalisation for efficiency-seeking firms, which in some cases happen to reshore. Will Covid-19 contribute to boost this trend?

 

Stefano Elia, Associate Professor of International Business
School of Management Politecnico di Milano

 

For several decades, firms have offshored manufacturing activities to countries offering low-cost labour and cheaper raw materials (Kedia & Mukherjee, 2009; Mudambi, 2008). Cost reductions were the primary reasons for US firms offshoring to Mexico and other emerging countries (Lewin & Couto, 2007) and for the enormous transfer of manufacturing activities by Western European firms to Eastern Europe (Fratocchi et al., 2015; Kinkel & Maloca, 2009; Schmeisser, 2013). As a result, more fragmented and geographically dispersed value chains emerged globally (e.g. Gereffi & Lee, 2012) and regionally (e.g. Arregle et al., 2009; Asmussen, 2009; Rugman & Verbeke, 2004).

While this trend is not over, we are witnessing the spatial reconfiguration of these supply chains driven by the emergence of new low-cost and high-productivity destinations, and of different cost and quality factors between countries, which modifies their relative attractiveness (Ellram, Tate, & Petersen, 2013). Companies’ intentions to change their manufacturing source is shifting from “offshore” being the predominant option, to “relocating to third countries” (i.e. moving from a first to a second host country) and “back-reshoring” (i.e., moving from the host to the home country) being viable alternatives to offshore (The Economist, 2013). Barbieri, Elia, Fratocchi, & Golini (2019) recently provided evidence that relocating to third-party countries was a preferred option for efficiency-seeking firms and suggested that by moving manufacturing between countries they adopted a “footloose” relentless search of locations to minimise costs and enhance productivity.
This trend has begun to be challenged and (at least partially) inverted by the new disruptive phenomenon. Industry 4.0, dubbed the Fourth Industrial Revolution, which denotes the emergence and diffusion of new, integrated digital industrial technologies that are widely acknowledged to hold a disruptive potential on manufacturing systems, products, and business models (Frank, Dalenogare, & Ayala, 2019; Strange & Zucchella, 2017). Industry 4.0 provides efficiency-seeking firms with a unique opportunity to use valuable digital technologies to offset the low-cost or high-productivity location advantages of some foreign countries and provide a valid alternative to internationalisation. Recent research undertaken by Politecnico di Milano in partnership with the University of Bologna (prof. Paolo Barbieri) and the University of L’Aquila (prof. Luciano Fratocchi) has provided empirical evidence of this phenomenon. Based on a sample of 118 European firms, the research showed that the development of a firm-level Industry 4.0 competitive advantage (based on the digital technology patenting) could reverse the propensity of the cost-saving firms to relocate to third-party countries, and encourage back-reshoring. Conversely, productivity-enhancing firms increase their tendency to undertake back-reshoring only when their home country adopts Industry 4.0 policies, i.e. a set of national initiatives to transform the production system by adopting digital technologies across several firms and industries.

The reasons behind the asymmetry in the drivers of back-reshoring decisions for cost-saving and productivity-enhancing firms can be found in the location advantages that are searched by these two types of firms. Firms investing abroad to save on costs are likely to exploit the lower cost of labour offered by some host locations. The development of Industry 4.0 technologies by cost-saving firms is a strategy to substitute for low-skilled labour with technology (Ancarani et al., 2019). This situation offers the extraordinary opportunity to switch from a host country-level cost-based comparative advantage to a firm-level competitive advantage based on Industry 4.0 technology intensity. Such a firm-level competitive advantage is likely to increase the degree of freedom of the firm in its relocation choice, including making it possible to return home. After obtaining similar (or a superior) level of cost-savings with digital technologies, the firm can afford back-reshoring to exploit Industry 4.0-based competitive advantages without facing internationalisation burdens such as coordination and transportation costs, institutional and cultural differences etc. (Stentoft et al., 2016; Wiesmann et al., 2017).

Firms investing abroad to enhance their productivity are likely to rely on other advantages than merely the exploitation of low labour costs while still pursuing conditions that can make them competitive on price. The primary mechanism such firms can use to enhance their productivity via cross-border investment is to “learn-by-interacting”. This occurs by gaining access to different international business networks that expose the firms to the various technological, managerial and organisational capabilities that are available in the foreign country’s ecosystem (Alcácer et al., 2016; Bertrand & Capron, 2015). In other words, firms can enhance their productivity by sourcing knowledge, resources and experience from the foreign production system by establishing economic relationships with the networks of suppliers, buyers, competitors, partners, associations and labour markets (Alcácer et al., 2016; Alcacer & Oxley, 2014; Johanson & Vahlne, 2009; Oxley & Sampson, 2004; Oxley & Wada, 2009; Pisano & Shih, 2009). This is possible when there is a technological and competitive gap between the host and the home country (Bertrand & Capron, 2015, p. 644). Introducing an Industry 4.0 policy in the home country could enable the host economy to fill any gaps as policies can be designed for many companies and attempt significant changes within the production system that increase competitiveness and technological intensity. This offers firms located abroad for productivity-enhancing reasons the opportunity to implement their learning-by-interacting strategy in the home country, reducing the need to relocate to third-party countries in favour of the probability of returning home. This allows a policy implication to emphasise the crucial role of Industry 4.0 not only in transforming the national production system but re-attracting the productivity-seeking firms located abroad and contribute to the return of manufacturing within Europe.

The Covid-19 outbreak is expected to boost the relocation phenomenon further. According to UNCTAD, this health emergency might have a potential long-term effect on the reconfiguration of the Global Value Chains (GVCs). The pandemic is demonstrating how having too many interconnected and distant countries might become a critical issue for global production networks. This is especially true when they are also dependent on one main manufacturing centre (such as China), and all nodes are asynchronously subject to an emergency that stops production activities and shuts down the entire GVC for some time. This worldwide health emergency might lead to a reconfiguration of the GVCs, and a partial relocation or de-concentration in fewer or closer countries that were less affected by the pandemic or which could ensure faster and more coordinated recovery of the production activities and the value chain. Hence, Covid-19 is expected to further accelerate some trends that were already happening, i.e. decoupling (or loosening) of GVC ties and relocation across countries, which were prompted by other forces such as the trade wars and the challenges posed by climate change. All these forces demand more regional, resilient and sustainable supply chains (Economist, 2020). This goal can be reached only through widespread adoption of digital technologies, which facilitate the reconfiguration and partial reshoring of the GVCs, and provide a strategic tool to redesign the firms and countries’ competitive advantages.

Covid-19 impact on Luxury Industry

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How the pandemic will change luxury consumers behavior

 

Prof. Alessandro Brun, Professor of Quality Management, Director of the Master of Global Luxury Goods and Services Management (MGLuxM)
Coauthor Cecilia Castelli Extended Faculty MIP Graduate School of Business
School of Management Politecnico di Milano

 

Last week, luxury groups posted their Q1 2020 results and – not surprisingly – numbers are confirming that even the industry that doesn’t know crisis capitulated to the effect of Covid-19 outbreak. Hermes proved to be “the” evergreen luxury, with “just” a single digit reduction in Q1 revenues (-6.5% vs Q1 2019). Double digit losses for LVMH (-15%), Kering (-15.4%); Moncler posted a -18%, after 24 consecutive quarters of double-digit growth.

In this scenario, brands are reflecting upon the future of luxury industry after the pandemic.

The most important reflection is that the lockdown is changing the habit of people globally. I think that, after the emergency will be over, some of the luxury consumers will change their spending pattern permanently.

  • Wealth, not income – If before the outbreak, HENRYs (High-Earning, Not Rich Yet) would spend a considerable fraction of their disposable income in luxury goods and experiences, after the lock-down several families may have limited cash availability for superfluous spending, while HNWI (High Net Worth Individuals) may have their spending capacity unaffected.
  • For those who will stay home – people will travel less – especially flights will be affected – due to governmental restriction, fear of infection, companies organizing more efficient conference calls in place of face-to-face meetings. This will impact negatively on some channels (especially Travel Retail), specific destinations (e.g. Las Vegas), specific customer segments in the flagship stores of world’s fashion capitals (Chinese visiting Milan, London, Paris, and exploiting tax free shopping), and product categories (suitcases and luggage). On the contrary, many people are rediscovering the joy of cooking (in March 2020, Bread machines was the second fastest growing category in eCommerce after disposable gloves, according to a Stackline study1), Hence, with the reopening, socialization occasions may happen at home, and categories such as Art de la Table may benefit.
  • Hedonistic experiences – After the sacrifices of lock-down, customers will crave for hedonistic products and services to satisfy the need of self-indulgence and personal pampering – shifting away from the “band-wagon effect” and moving into the “luxury as a personal affair” area. Premium beauty products, but also home-spa and home-wellness, and intense sensorial experiences in the fine food and drinks territory, could benefit.
  • Responsible luxury – The pandemic outbreak stimulated deep societal reflections around the main theme of “where is humanity going?”. Consumers will be even more aware of sustainability, and brands and product categories allowing “responsible consumption” will be privileged. Giorgio Armani penned an open letter to WWD, in which he challenged the current fast-fashion mindset, saying he believes in an “approach to the design and making of garments that suggests a way of buying them: to make them last”2.
  • Looking for discounts – if, on the one hand, we could expect a wave of anti-consumerism, the habit of waiting for end-of-season sales and doing pilgrimages to Factory Outlets and buying from off-price channels will be further strengthened by the self-appeal to frugality. If brand and retailers would resort to significant discounts to get rid of the unsold SS20 collection, they would risk to foster the vicious circle of off-price and bargain hunts. A recent McKinsey study revealed that special promotions were the main reason for purchasing clothing during the crisis for 56% of consumers3.
  • Online is the new normal – the transition to a life in the digital world was accelerated as through a time warp, and customers are buying more online as well as consuming more digital content. This represents a major change in paradigm. When we started designing the first “Master in eFashion” at MIP, 15 years ago, the online penetration in the Personal Luxury Goods segment was only 1%. In 2013, according to a McKinsey study, 44% of the 220B€ total luxury sales were influenced by digital – yet the perspective was still that the brick and mortar retail was the “normal” way to make business. Whether the perspective in the post-pandemic will turn 180 degrees, so that the online will be the norm and the brick and mortar will be a way to “support” it’s hard to say. But one think is unquestionable: a brand without a strong online presence, today, is a non-existing brand in the eyes of many a consumer.
  • When your own initials are enough – Economic theories say that after a “quarantine of consumption” (as Li Edelkoort defined this unprecedented period of forced fast from conspicuous consumerism4), consumers may switch “revenge spending”5.

But after the lockdown is over, the world will enter into a “stage 2” of the war, in which the Covid enemy will still be there in the battlefield, thus reducing the appetite for conspicuous consumption. Before the crisis, brands with a very bold visual identity (such as Gucci) were performing extremely well thanks to the enthusiasm of brand sensitive customers – but in a climate of “social thriftiness”, luxury consumers could steer towards the quality and intimacy of “no-logo brands”, as they are finally understanding the meaning of Bottega Veneta payoff (“When your own initial are enough”: there’s room for feel-good purchases even without a big flashy logo on your t-shirt).

  • A renewed pride for local producers – this may vary in strength on different markets and for different product categories, but we are already witnessing the first signs that are forewarning the rise of full-fledged “buy local” movements.

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1 J. Styrk. The top 100 fastest growing and declining categories in eCommerce. Stackline, March 31st, 2020

2 L. Zargani. “Giorgio Armani writes open letter to WWD”. WWD, April 3rd, 2020

3 Amed, Berg, Balchandani, Hendrich, Rölkens, Young, Jensen. The State of Fashion 2020: Coronavirus Update. BoF e McKinsey&Company

4 M. Fairs. “Coronavirus offers ‘a blank page for a new beginning’ says Li Edelkoort”, Dezeen, March 9th, 2020
https://www.dezeen.com/2020/03/09/li-edelkoort-coronavirus-reset/

5 N. Gopalan. “Revenge is a dish that’s off the china menu”, Bloomberg, April 21st, 2020
https://www.bloomberg.com/opinion/articles/2020-04-20/china-luxury-revenge-spending-surge-is-likely-to-fade

Privacy and Covid: the real questions to ask ouserselves

Posted on | by Marta Re Ferrè | Leave a Comment on Privacy and Covid: the real questions to ask ouserselves

Applications that track citizens’ movements to prevent the uncontrolled spread of contagion raise several concerns about privacy. Yet every day we voluntarily expose and give away our data without realizing it.

Tommaso Buganza, Professor of Leadership and Innovation
Daniel Trabucchi, Assistant Professor of Leadership and Innovation
School of Management Politecnico di Milano

 

We are living in an unprecedented situation. The global pandemic shown in many Hollywood movies is now a reality and – without popcorns– it looks quite different.
In Italy – as hopefully will soon happen in other countries – the rate of diffusion started finally to decrease. The discussion is now moving to the management of “Phase 2”. What will “the new normal” look like? What will it be like to live in a world in which the virus is under control, but still present?

Digital experts are proposing possible “futuristic scenarios” in which mobile applications will track us to immediately inform potentially exposed people and interrupt the transmission chain (see, for example, the Pan-European Privacy-Preserving Proximity Tracing project). Recently – on April 17th – the Italian government signed a contract for the voluntary tracing app “Immuni”, aiming at developing contact tracing using the Bluetooth technology.

Meanwhile, Google is already sharing anonymous data to identify people who are breaking the lockdown (Giuffrida, 2020; Hamilton, 2020) and partnered up with Apple to develop a contact tracing technology (Apple, 2020). At the same time, the world is starting to look ahead, asking “how” – since “if” is no longer an option– this global emergency will change our lives in the years to come. In an article recently published on the Financial Times, Yuval Harari describes the possible downsides of using available technologies to track people movements and behaviors. On the one hand this would help the sustainability of the national health-care systems, but, on the other hand, the cost could be a “new normal” where our vital functions are constantly measured, stored and analyzed. It is easy to imagine how this huge data base, along with the increasing knowledge about human biomechanics and the impressive advancement of AI, might lead to a reduction of democracy and civil rights in our countries (Harari, 2020).

Humans looks frightened, not only by the pandemic but also by the loss of privacy (Brody and Nix, 2020). Are we slowly but inexorably losing our freedom?

But what do we already know about data? Data is the new oil, being considered a precious resource to be exploited. Data is valuable because they allow us to understand things that we wouldn’t otherwise. They show us something we don’t know, both as individuals and as a community. They show us things that are there, but that are too complicated for individual human brains to see.

Think about Netflix, one of the services many of us enjoy most in these lockdown days. Choosing a new movie, or a new series is an epic adventure. That’s true. But you might not know that Netflix already made it a lot easier for you. Probably you noticed that the “match score” (the percentage indicating how likely you should appreciate the content) is often very high. That’s because Netflix tracks all your behaviors, previous shows, frequency of watching and then, leveraging AI, proposes you only movies and series you should like. You can try a little experiment if curios. Search the whole catalog, you will discover many more contents…and probably don’t like them!

This is just one example of services that many of us use everyday…but the list is long. Spotify can suggest songs, Amazon products, our fitness app –Runkeeper, Runtastic, Freeletics… the next training session optimized using the data we provided through previous ones.
This may sound like something unique of the app economy, but it’s not. Google built its empire on a data-driven business model, targeting ads on the search engine, using players to tag images (with the game Google Image Labeler) and captcha to detect addresses (Perez, 2012) or street view images…possibly to help self-driving cars (Kid, 2019). Even Starbucks – a brick and mortar company – uses the data from its mobile app to get insights on their customers’ habits and tastes (Gallea-Pace, 2020).

We all know these stories but now, all of a sudden, we find ourselves more fearful and privacy sensitive. We are afraid of the impact that technology may have on our lives, but we fail (again) in recognizing that this already happened.
Major digital companies know us perfectly, they know a lot more about us than we imagine. And some of them, over the years, became extremely good in profiting and capturing value from data (Trabucchi et al., 2017, 2018).
They “pay” us back with more personalized services or, in some cases, with free services…which we like even more.
Companies – of course – must respect all privacy laws, and GDPR in Europe has played a huge role in this. However, companies can do a lot with the data we provide them because we accept the terms of use… usually without reading them.

Curiously, this isn’t even the first time that the privacy issue violently explodes. Two years ago, all the social media of the world were filled with the #LeaveFacebook movement.
The Cambridge Analytica scandal highlighted Facebook’s data-based business model and its implications for our privacy, and even the impact that data can have on our lives through micro-targeting and similar phenomena (Cadwalladr, 2019). In those days, it seemed like the world realized what had been there for years: data is valuable, companies use it. Looking at Mark Zuckerberg wearing a suit and tie in front of the US Congress, many of us thought that Facebook would become as empty as our cities are today. The reality is that it didn’t happen. After the clamor, we went back to our habits… we enjoy our free digital services too much to bother considering we actually pay them with our data currency.

And here we are again. In this unique historical moment, we think a lot about how the “new normal” will be like. If we really care about our privacy, we should ask ourselves: will our near future be different only in terms of social relationships and physical movement or will it also put into discussion our well-established digital life?
We can still get our privacy back… if we want.
But, are we ready to give up those wonderful services provided by Netflix, Waze, Amazon, Spotify, Instagram, Facebook, TikTok, Twitter, Snapchat, and all the others?

So, this is our point: is this sudden upheaval around privacy connected to the use of personal data to protect public health really justified? Perhaps we should rather accept that the “new normal” is posing even more frightening questions.

Do we value free services more than public health?
Do we trust private companies more than our governments?