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Focus on business education in Latin America

Heads of Business Schools from Latin America discuss Business School programmes in their region and how these are developing and interacting with business. Interviews by Jack Villanueva and Kevin Lee-Simion

Jorge Talavera 
President, ESAN Graduate School of Business, Peru


What does a ‘great’ MBA programme look like?

Great MBA programmes support the best product – students. To support them, we need to provide them with the key factors for success which include knowledge, soft skills, leadership and team work.

How has international business developed in Latin America? 

To develop international business, we developed our students. We established very good connections with the business sector. We provided them with the leaders, and they told us what we have to teach in order to be relevant. 

How are MBA programmes similar across the world, and how do they differ?

In the past they were quite similar. People in developing countries followed the programmes in the US and Europe, but MBA programmers try to solve the problems in the region. So now we have to adapt programmes and develop our own, to give our students the ability to solve problems in our society. 

Do you think the MBA mindset has changed?

I don’t think so. People have always studied for MBAs because they want to lead institutions, and Schools have provided students with knowledge to lead institutions.

What are the main challenges Business Schools face? 

Coping with change in terms of technology, and dealing with competition due to globalisation. We have to compete to provide solutions for society, and good quality professionals.

Should there still be a focus on local businesses and local economies as well as the international business economy?

You have to be good in your own country first. Then you can take your success abroad and provide other societies with solutions.

How important is it for Business Schools to continue to innovate in order to compete with businesses around the globe?

Innovation is important but sometimes innovation is confused with change. Organisations change and say they are innovative because they changed – but then go bankrupt. You need to innovate and it needs to be successful, otherwise it doesn’t mean anything.

Xavier Gimbert
General Director of the Graduate Business School of Universidad del Pacifico, Professor of the GBS of Universidad del Pacifico and Professor of ESADE Business School 


How do you see the decision-making process changing over the next few years?

The decision-making process has to be strategically ongoing, because the environment is changing every day. Also, decision making is becoming more collaborative.

Decision making is the most important process in managing an organisation. If you don’t have the best people and a good process, it will be a disaster.

How are strategic models beneficial to a business?

Models are guides and their objective is to help you to think, reflect, and make decisions. In a decision process, a model gives you different steps you have to think about in order to make decisions.

How important is innovation in strategic management? 

Innovation is one of the key elements of strategic management. But do you have to innovate in order to be successful? Innovation is something a company should have the option of doing, but doesn’t always have to do. 

Do you think MBAs are learning the skills required to succeed in the future? Or do Business Schools need to evolve?

I think the content of the MBA is evolving as there are more soft skills, which are fundamental to getting a good job, managing companies, reading changes in the environment, making fast decisions, and adapting to change. These areas can’t be taught though ‘real’ content.

Why is it arguably more important than ever to create alliances?

We are in a global world and can’t do everything alone. In Latin America, it’s a way to improve, in terms of businesses and Business Schools. Alliances provide knowledge from abroad. It’s a very powerful tool. Nowadays, alliances are key and we have to see others not just as competitors, but as potential allies.

Martin Santana
Professor of Information Systems, ESAN Graduate School of Business, Peru

Should there be a greater emphasis on technology in MBA programmes?

I think there is an emphasis but it’s not significant. We are dealing with millennials, 75% of whom interact through technology. Our MBA programmes are not prepared for that, as technology is used more as a learning platform. But this is a different dimension we are talking about with the technologicalically savvy guys from the millennial generation.

How important is the role technology for Schools? 

I think technology is key and Schools are using it to gain connections around the world, to provide a leaning environment, create alliances, and persuade prospective MBAs and faculty to come to their School. 

What innovations have you seen in the world of digital business?

Change in the learning environment. It’s now an open environment with different technologies, but they are converging into one purpose for Business Schools – enhancing learning opportunities
for students. We are under pressure to create a learning environment for the millennial generation.

What are your thoughts on e-learning? How beneficial do you think it is to an MBA?

It’s very important, but I believe in a more blended methodology. A 100% online programme is not yet well accepted in Latin America as employers believe these are low-quality programmes. I believe blended programmes will be the solution but I’m not against having a 100% virtual programme.

In what ways could Business Schools use technology to
their advantage?

I think technology should be used to attract, retain, and train our students, and change the mindset of professors who are using technology for basic things.  Technology is a key component of being successful.

Do you think technology and millennials are essential for Peruvian Business?

I believe so because more than 40% of the population is made up of millennials. In the near future, the majority of the workforce will be millennials, they will be future entrepreneurs and will be running most companies.

How will millennial leadership compare to traditional leadership?

Millennials care about a lot more than just being managers. For one, they expect to have good mentors, and this will be the model they use in the companies of the future. They will become mentors and transformational leaders – focused on the person rather than the activity.

Do you think millennials lack soft skills when you compare them to previous students?

Yes, remember we are still talking about young people and they are in the process of developing. They lack social skills but it’s our job to teach them these. We can change their mindsets and help shape them so they can be successful. 

What do you think the future holds for the MBA?

There will be many different varieties of MBA programme, and they will come together with a blended methodology. This means you will be able to connect with anybody around the world, but we will have to change our methods of teaching, and our professors. 

Matthew Bird
Professor, Universidad del Pacífico Graduate School, Peru

Is there a big difference between how businesses are run and how the government is run?

There is in Latin America. There is a distrust between the government and the private sector. I believe many countries’ societies understand that they need one another, but the hard thing to do is to build the foundation for trust and identify those shared spaces for collaboration.

How important is innovation in solving social challenges?

Very important: innovation can be anything that is different and creates value. Understanding social systems creates opportunities to identify those small interventions where the government and private sector can work together.

To solve social challenges, do you think it is a one-size-fits-all solution all or is it case-by-case?

There are elements that are cross-cutting, and once you know how to tackle social issues, it’s down to harvesting local solutions to shared problems. This is one of the reasons I believe in design thinking because it really focuses people to listen, empathising first. Through that empathy, you can understand where the gaps are, and what people want, so you can collaborate better to deliver that.

In what ways will harvesting local innovative interventions solve common social challenges?

People look at social issues as problems, but people should see them as solutions. Take the informal economy. People originally viewed the informal economy as a problem. However, people were working in the informal economy. This means they were creating value through jobs, and therefore creating  income. It was a solution.

How do you think the rise in digital technologies is affecting Business Schools?

Digital technologies are already transforming the way we teach and interact with students. Technologies are creating challenges, but also opportunities. For example, with virtual education, you are creating competition between Schools, but there are also opportunities for people to overcome historical geographic barriers and push education into areas that have been traditionally harder to reach.

What are some of the biggest challenges facing Business Schools in Latin America?

The biggest challenge for Business Schools in the region is to move away from a strong focus on teaching, as there are opportunities for research. Research can still contribute to value creation, but its potential has still not been tapped.

How much of an impact does cultural influence play in economic decisions?

You define decisions and use certain frames – influenced by social cultural backgrounds – to justify them. Then you identify decision criteria, and then the choices. These choices are permeated by your culture.

Oscar Muartua de Romaña
Director de la Escuela de RR.II. y Gobierno de la UTP en Universidad Tecnologica del Peru (UTP)

How important is it for countries to work together?

It is an obligation and we have always demanded that the international community resolve these problems. The UN means there is an international community of 200 nations, and stability has a path through hard times.

Do you think volatility makes collaboration more difficult?

It is more challenging, but we can provide more effective reactions. One of the biggest challenges, but also the most fundamental aspect, is to have dialogue, because only through this will countries understand each other. Also, science and technology are providing us with enough arguments to build our future to benefit all humanity.

Do you think international relations impact business education?

Business Schools need international relations to prepare future professionals. MBAs have a moral function – they are embodying the values of society while trying to benefit society.

will it be difficult for Schools to implement the UN’s sustainable development goals?

It will be difficult to adapt to reform. But these principles are nothing new. So it is about doing as much as we can through investment in education and generalised development.

How do international relations impact Latin America? 

International relations have helped us create Schools, bring in faculty, and establish MBAs. We’ve learned how development can create good results for a country, and we made this into a reality. International relations have also helped us become aware of innovation and entrepreneurship. Business has played an important role in the growth of Latin America. 

How are Schools in Latin America preparing MBAs for the future? 

Business Schools are preparing MBAs for an open economy, and everything that has been done by Business Schools is an investment in Latin America. MBAs are also learning about the linkage between the Business School, industry, and government, and the importance of moral values.

Racheli Gabel Shemueli
Research Fellow and Professor in the Graduate School of Business of the Pacific University in Lima, Peru

What do you look for in a prospective MBA student?

We want people who are different and who acquire knowledge and implement it. They have to be responsible leaders who want to create change. We are looking to the kind of person that makes a difference. 

What are the challenges in attracting these students?

The challenge is to state that our Business School is different. We say we are looking for quality, and we are very demanding.

How important is it for MBAs to have cross-cultural experience?

When we think about inter-cultural experience, we also think about local experience because Peru is very diverse. Cross-cultural experience is not just about travelling the world, but about working with diverse people. For an MBA to be exposed to cross-cultural experiences, and know how to work with this is important, in order for them to lead.

In what ways can cross-cultural issues be addressed in the future?

In-house learning is important so we can see what our students understand. Then it is a matter of doing the exercise, and doing it in your own life.

Why is innovation important?

Learning is interactive. I am learning from my students and they are learning from me. 

Professors are now just facilitators of limited information, and as a result, knowledge comes from both sides, the students and the professor.

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Broadening students’ cultural experience

Josep Franch, Dean of ESADE Business School, Barcelona, discusses current differences between Spanish Business Schools and those in Latin America and the opportunities for Latin American Schools to attract more international students. Interview by Andrew Main Wilson

Considering the landscape of the top Spanish Business Schools compared to Latin America, what are your main observations of the differences and the similarities?

I would say that European Business Schools in general, and Spanish Schools in particular, have made significant improvements over the past 10 to 15 years. 

If you take, for example, the Financial Times Global MBA Ranking, in 2000 it was made up of 80% US Schools and 20% European Schools. If you consider the same ranking today, you’ll find 40% US schools, one third European Schools and 20% Asian Schools. 

This improvement didn’t come overnight. It started in the late 1980s and early 1990s, when European Schools began to internationalise. They started to change their reputation to attract international students and faculty. This happened 25-30 years ago and, as a result, the majority of European Schools today are probably at the forefront of internationalisation. 

When I consider Latin America, I still see it as regionally based, attracting regional talent, whereas at the majority of European Business Schools – and in the case of top Spanish Schools – we’re attracting students from all over the world in our MBA. 

We have 30% of students coming from Latin America, 30% from Asia, 25% from Europe and 15% from North America, so it’s a broad profile.

What do you think Latin American Business Schools need to do to attract more students from Spain and Portugal? 

Spain has, traditionally, been seen as the gateway to Europe for many Latin American Schools and countries. But at the same time [as a Latin American School] you need a focus on quality. 

International accreditations are the first step, but you also need to establish your brand. This can be done through publications of your key faculty who can produce and publish research in top journals. 

You need also to be relevant in the corporate world. Here, I believe Latin America has a great opportunity, with corporates coming from the regions expanding abroad. A number of [global multinationals] are seeing opportunities in Latin America. 

At ESADE, some students from Europe or Asia take our MBA because they see it as a gateway to Latin America. 

In a global world, there are lots of opportunities, but [success] doesn’t come overnight. It’s based on years of investment, publications, visiting companies, attracting people and placing graduates in
those companies. 

At the end of the day, your graduates and alumni are your best ambassadors. 

Do you think blended and online learning this will be the next step for Schools in Latin America, and will it be a struggle, in terms of investment? 

We’re all facing the same huge challenge. But, at the same time, it’s a huge opportunity. You can develop e-learning programmes anytime and anywhere, so the online revolution allows physical boundaries to disappear. I don’t see a difference between Latin American Business Schools and Schools in other parts of the world, in the sense that blended programmes are not a choice. A blended solution is something you need. It’s a percentage of your curriculum, but all programmes have to be blended. Fully-online degrees are a different issue. Schools across the world are discussing the next steps. How fast they’ll be able to go depends on how many resources they have and how fast a School moves. 

It also depends on how many risks they’re willing to take, because those that move first will bear the greatest risk. Other Schools will be playing the safe route of jumping on the bandwagon, but they’ll not be the first mover. In saying that, top Latin American Schools are coping well with, and addressing this challenge. 

You have partnerships with Schools in Chile, Colombia and Peru. What advice would you give Latin American Schools in building partnerships in Europe? 

We have a joint multinational MBA with Adolfo Ibáñez University in Santiago, Chile, and a double degree with Fundacao Getulio Vargas EAESP in Sao Paulo, Brazil. We are working with Universidad de los Andes in Colombia and Universidad del Pacifico in Peru. In Rio de Janeiro, we’re working with Fundacao Getulio Vargas on some executive education programmes. We’re working with some other universities in the region as well. 

I believe these partnerships are going to grow because they allow Business Schools to combine resources, areas of expertise and the footprint of the different partners in the same programmes. 

Partnerships also allow Schools to launch programmes that maybe they wouldn’t have launched on their own because of [limitations in terms of] size, capability, or lack of influence that they have in a
certain market. 

These partnerships are a good thing, but Business Schools have to be able to find a suitable partner. To me, one of the most important things is that you share the same approach and philosophy. A partnership is like a marriage. When you’re dating, you need to know the person and share
some things. Partnerships based on economic or financial factors are probably not the best partnerships, if you don’t share a vision, values, or if you don’t have the same ideas in terms of the programme and the education proposal for the Business community. 

What would you advise our Schools to do to encourage more Spanish and Portuguese-speaking European students to come and experience a Latin American School? 

Students have different ideas and motivations to go on exchange programmes. I’ve found very often that we might have Spanish students who prioritise going to the US or Asia because they see them as ‘cool’ destinations, rather than opting to go to Latin America. 

Sometimes, students assume – mistakenly in my opinion – that in the majority of Latin American countries, because the same language is spoken there, they cannot improve in a second language, but they can if they go to the US or another destination. 

It’s not just about the language, but also the cultural experience. If we share the same language or similar language, students can still learn different ways of doing business compared to Spain in terms of how international markets are evolving. There are fast-growing markets in Latin America with lots of opportunities. 

Some students want to go to Latin America because they want to pursue an international career and want to spend some years in that region because they will have lots of opportunities to develop themselves. We [as Business School leaders] need to keep insisting that there are plenty of opportunities [in Latin America] that students are failing to identify because they’re looking for the big names of American universities, that are attracting them to a place – rather than what they can learn.  

Josep Franch, Dean of ESADE Business School

Josep Franch has extensive teaching experience in various countries. He is an expert in international marketing and global marketing, and his main area of specialisation is brand management in multinational and global companies. He has also worked on subjects related to digital marketing and relationship marketing. 

From an educational point of view, he is one of the main European experts in the case study method. He has published more than 50 case studies in the fields of marketing and international business, some of which are available through the The Case Centre (formerly the European Case Clearing House). 

He has won the EFMD Case Writing Competition on three occasions (1999, 2001 and 2013) and also has three case writing awards at the North American Case Research Association (NACRA) Annual Conference (2004, 2010 and 2015). He regularly serves as a track chair in several case conferences and as a reviewer for different case journals and case collections, he sits on the Editorial Board of the Case Research Journal and Wine Business Case Research Journal and is one of the Co-Editors of the
Global Jesuit Case Series. He regularly delivers sessions on how to write and teach with case studies, both at
ESADE as well as for other programmes including the International Teachers Programme (ITP).

He has previous experience as marketing manager at Fuji Film and has worked as a consultant for different companies, including FC Barcelona, Interroll, Novartis, Soler & Palau, Sony and Xerox. 

He has also worked in many in-company training programmes with different companies including APM Terminals, Bunge, Desigual, Esteve, Novartis, Roca, Roland DG, Saint-Gobain, Sony, Telefónica and Tenaris.

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Why the tortoise can beat the hare in investment strategy

The benefits of low-volatility investing outweigh those of high-risk stocks, argues Pim van Vliet, in an interview with David Woods-Hale

For generations, investors have believed that risk and return are inseparable. Just ask the huge banks who invested billions in sub-prime mortgages prior to 2008. But is it time we accepted the truth: this just isn’t the case anymore? Pim van Vliet, the founder and fund manager of the multi-billion-dollar Conservative Equity funds at Robeco, has set out to rewrite the rule book on investment strategy. 

In his book, High Returns from Low Risk: A Remarkable Stock Market Paradox, van Vliet combines the latest research with stock market data going back to 1929 to prove that investing in low-risk stocks gives surprisingly high returns – significantly better than those generated by high-risk stocks.

The low-risk funds, in which van Vliet specialises, are based on academic research and provide investors with a stable source of income from the stock market. 

He is a guest lecturer at several universities, the author of numerous financial publications and travels the world advocating low-volatility investing. Together with investment specialist Jan de Koning, van Vliet has presented his counter-intuitive story as a modern upbeat stock market equivalent of ‘the tortoise and the hare’. And he explains why investing in low-risk stocks works and will continue to work, even once more people become aware of the paradox. 

But this theory flies in the face of traditional and accepted thought regarding classic investment theory – so how did he build a theory that goes against the grain?

‘High risk does not bring more return,’ he explains. ‘It’s a paradox and I want to get the message out there. Unfortunately, this is an inconvenient truth for the finance community and it’s puzzled me for half my life.

‘It’s because we define risk in the wrong way, but when I was able to reconcile the paradox and started to research and apply the knowledge I was accumulating, by managing low-risk funds for investors, we were able to generate high risk-adjusted returns by investing in low-risk stocks, which attracted billions of dollars

The concept of investing in low-risk stocks for high returns is a compelling argument, but at odds with the views of some economists. Van Vliet, outlines his own hypothesis as follows, explaining: ‘My investment hypothesis is evidence-based: any idea on investing should be validated by empirical data. Although this approach is common in the field of medicine, it’s not in the world of finance.’   

He pauses, then adds: ‘In general – at a high level – the truth still holds: more risk will equate to more return. In the long run, stocks will earn higher returns than bonds for example. But if you dig a level deeper down, this idea fails within the stock market and also within the bond market. Lower-risk stocks provide higher returns than higher-risk stocks. The slow stock beats the fast stock. I explore this at length in my book. 

‘Benchmarking provides an important explanation for this effect. If you have stocks with lower risk factors, you will be less affected by the stock market. Imagine a stock posting a fixed return of 10% per year. That stock has – in absolute terms – 0% risk. However, when adopting a relative perspective this low-risk stock would lag behind if the market is delivering a return of 40% in a year, or be well ahead of the market during a market loss of -20%. This 30% return gap – whether positive or negative – is perceived as relative risk. It is the misalignment of interest here that poses a problem, because the role of an investor is different to that of a money manager. A professional investor is paid to take risks with people’s money to generate return and if they are not taking these risks, they could be shunned. In other words: due to benchmarking low-risk stocks become unattractive.’

Van Vliet compares his investment hypothesis similar in idea to the fable of the tortoise and the hare in that ‘slow and steady’ often wins the race but there is a human nature lesson here as well as advice for financial strategy. 

‘Most people want to bet on hares,’ he says. ‘In psychology, finance and literature it’s the moves in the market that generate the most attention and they drive up prices in stocks, which in turn makes the news. Tortoises are never in the news. Volatility makes headlines – this exacerbates a culture of short-termism and people who are bullish and want a quick buck.’

Van Vliet is quick to point there is fine line between ‘bullish’ and ‘reckless’ when it comes to investment and he worries that investors in general are too quick to ‘shun’ more defensive equity funds. 

He elaborates: ‘For this reason, society is experiencing a collective sense of over-confidence [in that they want to invest in high-risk funds]. This is really good for people’s mental wellbeing but it’s bad for financial health.’ 

Tortoises, according to van Vliet, are stable companies and defensive funds that ‘never seem to go up’ in stock market terms. But, as the saying goes, at least, fortune favours the brave – and in van Vliet’s analysis, it’s those that invest in risky funds that view themselves as brave. He counters this assumption. 

Re-defining bravery

‘Low-risk investors are brave,’ he asserts. ‘They are seen as conservative, but in reality they are not following the crowd. It’s like the character in The Pilgrim’s Progress, following a tough long road, but leading to a good end result.’

To capitalise on the low-risk anomaly, a long-term investment vision is required. The advantage of a low-volatility strategy is that the stocks involved will fall less than other stocks in a declining market. Once the market recovers, low-volatility stocks have less ground to make up to recover and start yielding positive returns again. 

Citing the experiences of the world’s second-richest man as an example, van Vliet explains that Warren Buffett is inclined to take a long-term view when it comes to his investments. Instead of following the crowd, Buffett has built his career and success on seeking out undervalued investments. Although Buffett’s portfolio has lagged behind the market several times during his career, he has beaten the market average decisively over time. 

For Buffett, average is doing what everybody else is doing; to rise above the average, you need to measure yourself by what he terms the ‘inner scorecard’ – judging yourself by your own standards and rather than the world’s.

A sustainable approach

 But where do ethics fit into a low-risk investment strategy? Does van Vliet agree that a values-led, sustainable approach to investing is becoming more important in the current financial climate?

He explains: ‘Low-risk portfolios make for sustainable, long-term investments, but in terms of ethics, the key consideration is how we, as investors, take care of our clients’ money – perhaps by investing in green companies or more sustainable funds for that reason.

‘High-risk and low-risk investments have the same mechanisms. And low-risk investments drive up risky projects. I’m not saying that a degree of risk is not a good thing – but prudent decision making is more important.’ 

Does van Vliet therefore believe that would-be investors have to be finance experts to understand the intricacies of the market?

‘You can over-train for a marathon,’ he explains. ‘You need information about the markets and I’ve outlined this in my own work – but the secret to successful investment is wisdom [rather than market knowledge only]. For example, the latest “hare” in the market place is FinTech and investors are keen to invest here. The truth is that some of these FinTech organisations will win, but most will lose.’

 He sums up by adding: ‘I think a good philosophy for investment is “some risk”. Putting this into the context of diet, a moderate amount of vitamins and salt is a good thing – but not taken to the extreme. There is no such thing as “no risk” as the risk spectrum is not linear. You have to create a bit of risk to generate value. If there is no risk, your investments will be negative. I believe the ideal investment choice, is what I call the “conservative middle”, which is a situation between very high and very low risk. 

‘We often are attracted to the extremes, but ancient philosophers wisely pointed to the virtue in the middle. Too much risk hurts long-term wealth creation, but a moderate amount of stock market risk is good. There are more and more companies that live and work according to this prudent investment principle, from private equity firms to family businesses. This is the secret to sustainable investing.’

Dr Pim van Vliet is a Senior Portfolio Manager within the Quantitative Equities team of Robeco, an international asset manager with
a strong belief in sustainable investing, quantitative techniques and constant innovation. His primary responsibility is Robeco’s conservative equity strategies.

Van Vliet has published articles in the Journal of Banking and Finance, Management Science, the Journal of Portfolio Management and other academic journals, plus a book on the topic of low-volatility investing. He is a guest lecturer at several universities, advocating low-volatility investing at international seminars, and holds a PhD and
MSc (cum laude) in Financial and Business Economics from Erasmus University, Rotterdam.

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Exploring the digital marketing revolution

To create and communicate superior customer value, marketers must now combine traditional advertising with social and digital tools, argues American marketing guru Philip Kotler, in an interview with David Woods-Hale

You’ve written Marketing 4.0? What has changed since Marketing 3.0 was published in 2010?

Marketing is undergoing a digital revolution. We published Marketing 3.0 seven years ago to help companies broaden their view of how computers and the internet impact marketing theory and practice. We stressed the importance of meeting the needs of women, young people, and ‘netizens’ in carrying out company marketing activities. 

Today there is a need to pay attention to the growing role of social and digital media. Social media – such as Facebook, Instagram, Pinterest and Snapchat – create an increasingly connected world and they stimulate greater communications and sales to a wider world. Digital media is enabling artificial intelligence (AI) and the ‘internet of things’ (I0T) and increasing the rate at which robotisation and automation is penetrating business. Our aim in Marketing 4.0 is to illustrate the growing role and impact of digital marketing. I’ve also described this ‘new marketing’ in my 15th edition of Marketing Management. 

How can Marketing 4.0 help in bringing marketers up to date with the current skills required – from traditional to digital?

In the past, consumers made purchase decisions largely in retail outlets, whether in an auto dealership or in a large department store. Some consumers also used the telephone or mail order catalogues. Today, a growing number of consumers are making more of their purchases online via online retailers. In-store retailing is facing a major decline: witness, in the US, the news of Macy’s closing many stores, clothing store The Limited going out of business and shopping centres in deep trouble. 

Consumers still go into stores to sample and touch the product and then use their smartphone to see if they can a better deal elsewhere. Many retail shops are evolving into ‘showrooms’, partly charged by the company to its advertising budget. Business-to-business transactions are being increasingly conducted with digital media. Most companies list their product catalogues on the internet. Purchasing agents are happy to compare prices on the internet and are less interested in accepting sales calls. All this points to the need for companies to acquire social and digital skills before they are outclassed by more sophisticated digital competitors.

You describe ‘shifting power dynamics’ in the market. Can you explain this in more detail? 

Power has been shifting from the advertising giants who used 30-second commercials to inform and persuade consumers, to savvy consumers – who rely on their friends and acquaintances, plus online product ratings, to make their brand choices. Power has moved from companies to consumers. Companies must now develop fresh pictures of how consumers journey toward making their final purchases. It’s no longer a journey from a 30-second commercial to a purchase but from a stimulus on the internet, or from a friend, to a search for further information, to a purchase. Marketing 4.0 discusses the key steps in consumer journeys and the various touch points that will have an impact on the final purchase decision.

You explain how the rules of marketing regularly change, but this time the very customers have changed – and this is revolutionary – can you talk a bit more about this?

The basic maxim of marketing hasn’t changed. Decide on the consumer need your company wants to meet and the individuals who strongly have this need. Create a solution that meets this consumer need better than any competitor can meet it. See your job as one of creating superior customer value and communicating this value in a superior way.

What is revolutionary is the need for the company to incorporate social and digital tools to carry out this work. Companies need to collect ‘big data’ about individual consumers who have specific needs and apply sophisticated marketing analytics to arrive at consumer insights that can be converted into compelling consumer value propositions.

How do cyclical trends in the economy affect marketers? More specifically, if demand-led growth is on the decline, what single marketing effort is the most important to avoiding a loyal consumer defecting to a competitor?

Buyer behaviour obviously changes in times of market growth versus market decline. When a recession, or a fear of recession, occurs, consumers will intelligently reduce their expenditure and move towards lower-cost products. Every competitor will have a choice: increase the value of the offer, or cut the price of the offer. Normally it makes sense for the company to retain the price and better document and confirm the offer’s superior customer value. If superior value doesn’t exist, the company either has to add more value (for example, free shipment) or cut its price.

Do you think the original elements of the traditional marketing mix will still be relevant in 10 years’ time? 

The marketer’s main toolkit remains the 4Ps (product, price, place, and promotion) and STP (segmentation, targeting, positioning). Each of these elements undergoes modernisation all the time. Product includes packaging, as well as service products. Place is being redefined into omni-channel marketing but it is still place. Promotion is including digital and social communication alongside print and broadcast media. I would welcome a new marketing framework if it promised to address marketing decision problems in a more decisive way. Until then, most companies will use the traditional framework in preparing their marketing plans.

How will creative and media agencies need to evolve over the next five years to keep up with the pace of technology? 

The agency of the future will develop skills in both traditional and digital advertising. This would be better than hiring separate traditional and digital agencies because companies must connect traditional and digital advertising. A 30-second commercial may need to include a digital address showing where viewers can go for more information. The job of the ‘full-service agency’ is to find synergies between the two types of communication, so that 2 + 2 = 5, not 4.

Do you think that the chief marketing officer (CMO) role will be replaced by a combination of chief tech officer and chief analyst, or is this still a viable career path?

I’d like the CMO position to continue to manage the integration of all the elements that will impact on customer demand. The CMO should spend at least 50% of their time working with the other ‘chiefs’ in the company. The real value of the CMO will be realised when he or she is included in all the strategy planning. It would be unwise to confine marketing to designing tactical moves. The CMO is in the best position to foresee where the particular market is going economically and technologically. The CMO’s staff must include an excellent digital person and technology person. 

Do you think marketing and HR may evolve into one business function, as people leadership and organisational branding become increasingly connected, with shared goals and purposes?

I would prefer the heads of marketing and HR to work very closely together but remain separate functions. The CMO is highly interested in seeing that HR hires very service-minded people. In the hotel business, Marriott says that the first job is to hire the right employees and then the customers will come. The CMO should support the HR person to gain a sufficient budget to hire excellent employees, not just average employees. The evidence is strong that excellent employees have a productivity impact that is several times that of average employees.  

Do you think that zero-based budgeting for marketing, based on the Unilever example, will be widely adopted, to make marketing entirely accountable? How can value be measured throughout all channels since tracking is harder offline? 

Zero-based budgeting for marketing means starting each year with no budget allocated to marketing, until marketers propose specific marketing spend – along with the evidence that results will exceed costs. This is in contrast to normal budget setting where the budgets of the past year are the starting point, raised or lowered slightly. We acknowledge that some past marketing expenditures were not productive, and that from time to time, it is worth reviewing each major budget item to decide whether it should be eliminated, decreased or increased. 

The problem with zero-based budgeting for marketing is two-fold. Many campaigns need continuity and they shouldn’t be cut off before they have achieved their full impact. 

Also, it is increasingly difficult to assess the financial impact of a particular digital tool or a particular marketing channel in an increasingly complex and interactive world. 

Zero-based budgeting is a highly impractical tool for yearly budgeting. However, I grant that it could raise marketing efficiency by being introduced every few years.

Do you believe leaders across all disciplines and functions need to change their mindsets to succeed in a volatile world? 

Today’s world is increasingly characterised by volatility, uncertainty, complexity, and ambiguity (VUCA). Donald Trump’s election as US President has greatly contributed to VUCA. If Hillary Clinton had been elected (she won the popular vote by 3 million votes), we would arguably not be in a VUCA world. Events would have taken their normal course and businesses would carry normal expectations. 

But Trump sends out tweets in the middle of the night, many of which attack companies, journalists, judges, pollsters, or the voters themselves. These attacks are a sign of paranoia. Many business leaders have to think twice about any move for fear that the president will call them. Consumers are worried about their health benefits and they are no longer certain about social security and Medicare. They, and businesses, are spending their money more carefully, which slows down economic growth.

My answer to that? Business leaders must change their mindsets, in light of Trump’s erratic behaviour; he issues executive orders almost daily. His behaviour has been copied by populist leaders abroad with the effect of introducing even more instability into the world economy. 

Are there marketing skills that all MBA students and graduates need to thrive in a VUCA business world?

Most Business programmes are training their students in social and digital skills. They are also making students more aware of the effects of climate change. Professors are increasingly criticising shareholder value as the measure of business success and replacing it with stakeholder value as a more comprehensive measure of business performance. Marketing students graduate with a broader view of the factors that affect corporate image and reputation than previous Business School graduates. 

And finally, do you feel optimistic about business adaptability as the
world becomes more uncertain but also more connected? 

Business literature increasingly emphasises company agility and responsiveness to rapidly changing conditions. Companies need to monitor technological trends, political debates, and economic issues. Companies such as Unilever, Starbucks and Amazon show incredible business adaptability. But many companies are still coasting and need a few more shocks to wake up. My hope is that an increasing number of companies recognise that growing income inequality will hurt, not help them, and that they need to take a more expansive customer benefit and welfare view of what makes an economy strong.

Philip Kotler is the SC Johnson & Son Professor of International Marketing at the Kellogg School of Management, Northwestern University, Evanston, Illinois

Professor Kotler received his Master’s Degree at the University of Chicago and his PhD Degree at MIT, both in economics, conducting post-doctoral work in mathematics at Harvard University and in behavioural science at the University of Chicago.

He is the author of 57 books and has published more than 150 articles in leading journals. He was the first recipient of the American Marketing Association’s ‘Distinguished Marketing Educator Award’ (1985) and has received a host of other accolades, being inducted into the Management Hall of Fame in 2013. 

Kotler has consulted for such companies as IBM, General Electric, AT&T, Honeywell, Bank of America, and Merck in marketing strategy and planning, marketing organisation and international marketing. He has travelled throughout Europe, Asia and South America advising companies on applying economic and marketing science principles to increase competitiveness, and governments on developing the skill sets and resources of their companies for global competition.

He has been Chairman of the College of Marketing of the Institute of Management Sciences, Director of the American Marketing Association, is a member of the Board of Governors of the School of the Art Institute of Chicago and of the Advisory Board of the Drucker Foundation. 

He has received a number of honorary doctoral degrees from several international organisations.  

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What is the blockchain?

Blockchains are part of the evolving history of internet technology, so we must grasp their potential, writes William Mougayar

If you cannot understand it without an explanation, you cannot understand it with an explanation’ – Haruki Murakami

Understanding blockchains, the technology underlying cryptocurrencies, in the form of a shared digital ledger, is tricky. You need to understand their message before you can appreciate their potential. In addition to their technological capabilities, blockchains carry with them philosophical, cultural, and ideological underpinnings that must also be understood. 

In terms of defining blockchains, they are essentially digital ledgers, in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly, but unless you’re a software developer, blockchains will not be products you just turn on and use. Blockchains will enable other products that you use, though you may not know there is a blockchain behind them.

It is my belief that the knowledge transfer behind understanding the blockchain is easier than the knowledge about knowing where they will fit. It’s like learning how to drive a car. I could teach you how to drive one, but cannot predict where you will take it. Only you know your particular business or situation, and only you will be able to figure out where blockchains fit – after you have learned what they can do. Of course, we will first go together on road tests and racing tracks to give you some ideas.

Visiting Satoshi’s paper

When Tim Berners-Lee created the first World Wide Web page in 1990, he wrote: ‘When we link information in the web, we enable ourselves to discover facts, create ideas, buy and sell things, and forge new relationships at a speed and scale that was unimaginable in the analogue era.’

In that short statement, Berners-Lee predicted search, publishing, e-commerce, email, and social media – all at once, in a single stroke. The Bitcoin equivalent to that type of prescience by someone who just created something spectacular can be found in Satoshi Nakamato’s 2008 paper, Bitcoin: A Peer-to-Peer Electronic Cash System, arguably the root of modern blockchain-based cryptocurrency innovation.

The paper’s abstract depicts Bitcoin’s foundation and explains its first principles:

•
A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution. 

•
A trusted third party is not required to prevent double-spending.

•
We propose a solution to the double-spending problem using a peer-to-
peer network.

•
The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot be changed without redoing the proof-of-work.

•
The longest chain not only serves as proof of the sequence of events witnessed, but proof that it came from the largest pool of central processing unit (CPU) power. As long as a majority of CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers. 

•
The network itself requires minimal structure. Messages are broadcast on a best-effort basis, and nodes can leave and rejoin the network at will, accepting the longest proof-of-work chain as proof of what happened while they were gone. 

If you are a non-technical reader, and you focus on the italicised parts, you will start to get the gist of it. Please re-read the above points, until you have got to grips with Nakamoto’s sequential logic. 

Seriously. You will need to believe and accept that validating peer-to-peer transactions is entirely possible just by letting the network perform a trust duty, without central interference or hand-holding. 

Paraphrasing Nakamoto’s paper, we should be left with these points:

•
peer-to-peer electronic transactions and interactions 

•
without financial institutions 

•
cryptographic proof instead of central trust 

•
put trust in the network instead of in a
central institution. 

As it turns out, the blockchain is that technology invention behind Bitcoin, and what makes this possible. With Satoshi’s abstract still in your mind, let us delve deeper with three different, but complementary, definitions of the blockchain: a technical, business, and legal one. 

•
Technically, the blockchain is a back-end database that maintains a distributed ledger that can be inspected openly.

•
Business-wise, the blockchain is an exchange network for moving transactions, value, assets between peers, without the assistance
of intermediaries.

•
Legally speaking, the blockchain validates transactions, replacing
previously trusted entities.

TECHNICAL: back-end database that maintains a distributed ledger, openly

BUSINESS: exchange network for moving value between peers

LEGAL: a transaction-validation mechanism, not requiring intermediary assistance.

Blockchain capabilities = technical + business + legal.

The web, all over again

The past is not an accurate compass to the future, but understanding where we came from helps us gain an enlightened perspective and a better context for where we are going. The blockchain is simply part of the continuation of the history of Internet technology, represented by the web, as it carries on its journey to infiltrate our world, businesses, society, and government, and across the several cycles and phases that often become visible only in the rear-view mirror. 

The internet was first rolled out in 1983, but was the World Wide Web that gave us its watershed evolutionary moment, because it made information and information-based services openly and instantly available to anyone on earth who had access to the web.

In the same way that billions of people around the world are currently connected to the web, millions (and then billions) of people will be connected to blockchains. We should not be surprised if the velocity of blockchain usage propagation surpasses the historical web users growth. 

By mid-2016, 47% of the world’s 7.4 billion population had an internet connection. In 1995, that number was less than 1%. It took until 2005 to reach 1 billion web users. By contrast, cellular phone usage galloped faster, passing the number of landlines in 2002, and surpassing the world’s population in 2013. As for websites, in 2016, their total number hovered at around one billion. Quite possibly, blockchains will evolve into several flavours, and will become as easily configurable as launching a website on WordPress or Squarespace. 

The blockchain’s usage growth has an advantage on the web’s trajectory, because its starting point is amplified along four segments: web users, cellular phone users, website owners, and any ‘thing’ that benefits from being connected, becoming a ‘smart thing’. This means that blockchain usage will ride on these four categories, instead of purely seeking new users – and the possibilities are endless. 

Once you start to imagine blockchains’ possibilities on your own, without continuously thinking about trying to understand them at the same time, you will be able to move forward in terms of how you can exploit them. 

Further reading

Bitcoin: A Peer-to-Peer Electronic Cash System, https://bitcoin .org/en/bitcoin-paper.

This is an edited extract from The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology by William Mougayar (Wiley, 2016). 

WILLIAM MOUGAYAR is general partner at Virtual Capital Ventures, an early stage tech fund. He is on the board of directors of OB1, the OpenBazaar open source protocol that is pioneering decentralised peer-to-peer commerce; a special advisor to the Ethereum Foundation; a member of OMERS Ventures board of advisors; an advisory board member to the Coin Center; and founder of Startup Management.

He has been described as the most sophisticated blockchain business thinker. He is a blockchain industry insider whose work has already shaped and influenced the understanding of blockchain for people around the world, via his generous blogging and rigorous research insights.