think - Roland Berger

CRISIS MANAGEMENT: What companies can learn from the natural world p. 12 

Volume 2 Issue 2 

August 2005 

The executive magazine by Roland Berger Strategy Consultants 

IBM 

Pfizer 

The third dimension 

Intel 

DaimlerChrysler 

AOL 

It takes a strategy to build a brand 

Success with style: 

Umberto Angeloni 

Building Europe’s 

knowledge society: 

Soumitra Dutta 

The economy’s 

ecology: 

Homa Bahrami

SHANGHAI OFFICES, ROLAND BERGER INTERNATIONAL MANAGEMENT CONSULTANTS LTD., 

23rd Floor, Shanghai Kerry Center, 1515 Nanjing West Road, Shanghai 200040, China, 

Phone: +86 21 5298-6677, Fax: +86 21 5298-6660, E-Mail: office_shanghai@rolandberger.com

think: act the executive magazine by roland berger strategy consultants volume 2 august 2005 first views f 

Profitable and sustainable growth 

formed the central concepts of previous editions of 

think: act. Topics that we have addressed include best 

practices from the most capable organizations and 

recipes for success from the world’s oldest companies. 

We have analyzed the necessary balance between 

flexibility and firmness in management, and we have 

examined the current trend toward decentralization 

This issue continues the discussion of crucial business 

questions, presenting the enormous potential of 

strategic marketing. Detailed articles provide concrete 

examples of the practice of strategic marketing—from 

the successes of CEOs who have made marketing a 

top priority to instruments that help change the 

introduction and management of brands from an 

intuitive practice to a quantifiable business discipline. 

The “Best of European Business” is another highlight of this issue. Strong companies need 

strong domestic markets. With that thought in mind, we worked together with the Financial 

Times and high-ranking businesspeople, as well as strong partners from the media and 

academia, to discover Europe’s best companies. In October, the winners will be recognized at 

seven ceremonies in European capitals. At the end of the year, representatives from these 

companies and decision-makers from both business and politics will discuss conclusions from 

the competition at a European summit. We are looking forward to finding encouraging 

examples, and we will keep you abreast of developments in the competition. 

I hope you enjoy the issue. 

Sincerely, 

Dr. Burkhard Schwenker 

CEO Roland Berger Strategy Consultants 

3

p contents 

Sir Peter Jonas, opera director with experience in London, Chicago 

and Munich, is sometimes amazed at how companies work. His opera house 

could never get away with such sloppiness. Page 10 

Conglomerates such as the Japanese company Mitsui can adapt so 

perfectly to market conditions that they become unrecognizable. More 

examples of biological principles applied to the business world. Page 12 

The Best of European Business was sought by Roland Berger 

Strategy Consultants and the Financial Times in a wide-ranging 

competition. Top firms in seven EU countries made the cut. Page 8 

Silicon Valley, with its flexible network of highly qualified knowledge 

workers, should serve as a structural model for more businesses, according 

to Berkeley economist Homa Bahrami. Page 52 

4

contents f 

food for thought 

6 A brake on growth? 

Measuring productivity in the 

United States and Europe. 

8 Foundation for growth 

Roland Berger and the Financial 

Times look at Europe’s most 

competitive companies. 

10 ‘We’re more exacting than industry’ 

Sir Peter Jonas explains why 

timing is so much easier in 

business than in opera. 

12 The bio-logic of competition 

What managers can learn from 

the swarm intelligence of ants. 

20 The right to Internet access 

Soumitra Dutta on building a 

European knowledge economy. 

dossier 

24 The face of the brand 

Bring on the Chief Branding Officer. 

Strategic brand management often 

means making branding a top-level 

responsibility. 

28 ‘As honest as the pomegranate’ 

Six key executives describe how 

their brands live from authenticity 

and integrity. 

30 Minimalists, maximalists 

Analytic brand management— 

how the rb Profiler translates 

values into added value. 

34 Brioni and the style gene 

Umberto Angeloni, president of 

Brioni, on Hollywood glamour, the 

perfection of the suit and branding 

as an executive matter. 

business culture 

52 ‘Like being in the rain forest’ 

Modern companies regulate 

themselves like an ecosystem, says 

Berkeley economist Homa Bahrami. 

56 Learning from Macedonia 

Honda’s expansion in the 

United States followed strategies 

that were first developed by 

Alexander the Great. 

59 The Swiss defense 

Twelve teams from 10 countries will 

compete in the 2007 America’s Cup. 

60 Megatrend Mandarin 

China a superpower? Futurist 

John Naisbitt and his 1995 

bestseller Megatrends Asia. 

Dossier 

Brand management: 

Why companies need brand 

management now more than ever. 

Starting on page 23 

industry report 

40 New ideas, new revenues 

From newspaper publisher to 

multimedia vendor—how the 

Sueddeutsche Verlag has 

weathered the media storm. 

44 Efficiency by government order 

Innovative approaches to financing 

public goods. 

48 More success in a tough market 

German Federal Labor Agency’s 

director on the job of reform. 

regulars 

3 First views 

50 The shape of things to come 

62 Service | Credits 

5

p food for thought 

productivity 

A brake on growth? 

Are Americans more productive than Europeans? Not necessarily, because the statistical 

methods used to measure productivity in the two regions differ. In any event, 

high labor productivity can hide the fact that total working hours also contribute to growth. 

Productivity: GDP per hour 

In terms of pure labor productivity—measured as GDP 

per hour worked—Americans and Europeans score about 

the same. Belgium has the most efficient workers; Japan 

lags far behind. However, productivity per hour may be 

high in particular countries because the weekly total of 

hours worked is low. 

Total productivity may be more meaningful 

The measurement of labor productivity shows only one side of the coin—namely, how efficiently firms use labor. 

Productivity also increases when companies lay off workers, investing more capital in the workplace while cutting jobs. 

In other words, to know how efficiently companies employ both production factors—labor and capital—it is necessary 

to look at Total Factor Productivity (TFP), which measures overall productivity. Between 1996 and 2003 TFP increased 

more quickly in the United States than in the EU as a result of greater corporate investments in IT. 

Belgium 

France 

Ireland 

Netherlands 

USA 

Germany 

Euroland 

110 

109 

104 

101 

100 

93 

92 

USA 

Euroland 

Ireland 

Greece 

France 

Germany 

1.4 % 0.8 % 4.4 % 1.8 % 1.4 % 0.8 % 0.6 % 0.1 % –0.8 % 

Belgium 

Italy 

Spain 

Italy 

92 

Average TPF growth per year from 1996 to 2003 Source: OECD 2004, DB Research 2004 

Spain 

Japan 

Greece 

Source: OECD 2003 

80 

71 

61 

4.4 %Source: 

GDP increase in the United States in 2004 

outstripped the increase in the European 

Union, where growth only reached 2.3 percent. 

EU Commission 2005 

Productivity—just one factor among many 

Is labor productivity—GDP 

per hour—really the engine of 

a country’s economic growth? 

Only partly. Although productivity 

is an important 

component of GDP, there are 

additional factors that affect 

economic output just as 

directly as productivity. These 

factors include components 

that show how well labor is 

used, such as working hours 

per employee, the employment 

rate and total population. 

For comparison purposes, 

between 1998 and 2002 

total working hours dropped 

significantly in Europe, particularly 

in Germany—which 

Population 

Workforce 

participation 

Employment 

rate 

Hours worked 

per employee 

Labor 

productivity 

1.2% 0.0% 0.1% 0.0% 

did not happen in the United 

States—and that put a significant 

brake on GDP growth. 

In addition, workforce participation 

is dropping throughout 

Euroland, the countries 

that are using the EU’s single 

currency. Because of demographic 

changes, the number 

of Europeans between the 

ages of 16 and 64 is decreasing. 

As a result, the negative 

effects of falling working 

hours, rising unemployment, 

and demographic changes are 

having a stronger effect on 

growth in Europe than in the 

United States—in spite of significant 

growth in European 

productivity. 

3.2% 

1.8 % 

USA 

GDP 

Labor 

productivity 

Employment 

rate 

1.8 % 0.2% 0.3% 

1.8 % 

Euroland 

GDP 

Hours worked 

per employee 

Population 

Workforce 

participation 

–0.5% –0.1% 

Growth components between 1991 and 2002; average yearly changes (percentage) Source: OECD 2004, German Council of Economic Advisors 2004 

6

united states versus euroland 

food for thought f 

0% 

The American productivity miracle revisited 

The speed with which labor productivity rose in the United 

States in terms of GDP per hour worked between 1996 and 

2003 has been celebrated by politicians in Washington as a 

“productivity miracle.” Over this period, Europe fell behind. 

However, this picture is somewhat oversimplified. The 

models and methods used to determine economic growth in 

the two regions are vastly different. For example, when 

measuring productivity, the Europeans include all of GDP, 

while the Americans leave out the public and agricultural 

sectors. Using the same methodology, the US advantage 

over the EU shrinks to three-quarters of 1 percent. Nevertheless, 

even a difference of just three-quarters of 1 percent 

can translate into a considerable advantage over time. 

Euroland 

1.3 % 

Average annual growth in labor productivity 

between 1996 and 2003 (percentage) 

Source: OECD 2004, DB Research 2004 

Greece 

3.0% 

France 

2.2% 

Belgium 

1.2% 

Ireland 

5.1% 

Germany 

1.8 % 

Italy 

1.1% 

Spain 

–0.3% 

USA measured 

according to US methods 

3.1% 

USA measured 

according to EU methods 

2.1% 

0% 1% 2% 3% 4% 5% 6% 

7


best of european business 

Diversity Unified: Comprising all the colors of the 

25 member countries’ national flags, the European 

flag was developed by Rem Koolhaas’s architecture 

firm OMA and its associated think tank AMO. 

Foundation for growth 

To be competitive, Europe needs innovative, high-performance companies. Roland Berger Strategy 

Consultants and the Financial Times will present the inaugural “Best of European Business” awards 

for the continent’s top performers. The jury consists of CEOs from all across Europe. 

: 

Consider the state of the global pharmaceutical 

industry. “When it comes to biomedical 

research, Europe has not invested 

continuously and to the same degree as the 

United States,” says Daniel Vasella, CEO of 

the Swiss pharmaceutical group Novartis. 

“For that reason, Europe’s ability to compete 

has decreased.” 

Seventy percent of all European biotech 

researchers who went to the United States 

have stayed there permanently. For example, 

Novartis built its new $250 million 

research and development center near 

Boston, Massachusetts, because of the city’s 

proximity to world-class universities, particularly 

the Massachusetts Institute of Technology 

(MIT). Vasella justifies the corporate 

decision quite directly, saying, “We go to 

where the talent is.” 

Standings in the annual World Competitiveness 

Yearbook issued by the IMD international 

business school, based in Lausanne, 

Switzerland, show that Europe has room for 

improvement in other areas besides the 

pharmaceutical industry. The US held the 

top spot in the 2005 rankings. Hong Kong 

came in second and Singapore third, followed 

by Iceland, Finland and Denmark. 

The highest ranking achieved by one of the 

bigger EU countries was Great Britain, in 

22nd place. Except for its Scandinavian 

members, the EU lags far behind the US and 

Asia in terms of dynamic growth. “Europe 

needs to face up to the competition,” warns 

Guenter Verheugen, the EU’s Industry Commissioner. 

“We always need to be one idea 

ahead of the others.” 

Competitive companies—the innovative, 

profitable, well-managed, high-performance 

firms—positioned at the top of their sectors 

are especially sought after. To find them, 

Roland Berger Strategy Consultants and the 

Financial Times created the “Best of European 

Business” competition. 

Roland Berger CEO Burkhard Schwenker 

explains the motive. “Anyone who wants to 

be competitive on the world market needs a 

strong position in the domestic markets,” he 

says. “We want to identify companies that 

are front-runners in Europe to thereby generate 

momentum for success on the global 

market.” The competition is meant to highlight 

companies exemplifying success that 

“motivates others and should clearly demonstrate 

the framework European companies 

are expecting from national policies.” 

THE JURORS DETERMINE 

WHICH COMPANIES WILL MOVE 

EUROPE FORWARD 

The competition’s national awards consist 

of seven qualifying events in France, United 

Kingdom, Italy, Portugal, Poland and Spain. 

Companies are rated in the core areas of 

sales, growth and innovation. A fourth category 

evaluates the best business strategies 

for a “new” Europe and includes the eight 

new EU member countries from Central 

and Eastern Europe; candidate countries 

Romania, Bulgaria, Turkey and Croatia; as 

well as Russia and Ukraine. 

The competition’s jury comprises exclusively 

of individuals highly prominent in 

economic, professional and corporate 

realms. These illustrious personalities 

include: Lord Browne of Madingley (BP), 

Igor Chalupiec (PKN Orlen), Fulvio Conti 

(Enel), Guillermo de la Dehesa (Goldman 

Sachs/Banco Santander Central Hispano), 

Klaus Kleinfeld (Siemens), Anne Lauvergeon 

(Areva), Murteira Nabo (Galp), Kai-Uwe 

Ricke (Deutsche Telekom), Jean-Cyril 

Spinetta (Air France) and Daniel Vasella 

(Novartis). 

The European competition is sponsored 

by major national media partners, such as 

manager magazin in Germany, the Polish 

newspaper Rzeczpospolita, the Italian economic 

daily newspaper Il Sole 24 Ore and 

the French newspaper Les Echos. 

Each category has separate prizes for medium- 

and large-scale companies and for the 

various industry sectors. Awards will be 

given in the fall at seven national events, 

with a European summit capping the competition 

in Brussels on November 17, 2005. 

Winners with the best performance in the 

categories of growth, added value and 

corporate governance within Europe will 

be announced at that time. Bestowing the 

award for the “Best European Company” 

will cap the event program. 

The event’s organizers intend for the Brussels 

summit to serve as a “starting gun” for 

European business. In addition to commending 

exemplary corporate performances, 

the competition is also meant to stimulate 

other European companies to do their 

very best. And that requires a politicoeconomic 

climate characterized by a desire 

to grow and optimism about progress. 

8

‘Politicians need to get 

out of the way!’ 

Andrew Gowers, editor-in-chief of the Financial Times, on 

strategies for increasing European companies’ competitiveness. 

THINK: ACT Mr. Gowers, your newspaper is a media partner and one of the co-organizers of 

the “Best of European Business” competition. What is the underlying idea behind this event? 

ANDREW GOWERS The basic idea is that in Europe, companies are the leaders in creating a 

competitive environment, and it’s the policies that are limping behind. 

What standards are you using in rating the companies? 

A whole series of them ranging from growth figures to profitability to innovations. 

Companies both big and small will be rated in various categories. We would like to find 

great performances that we wouldn’t have expected. It would be boring if all awards 

only went to known, established companies. 

What do Europe’s politicians need to change in order to free up the continent’s potential? 

In a nutshell, they need to get out of the way! I find that the main problem in many European 

countries is the assumption that things can be improved by reaching into the bottomless money 

bag. The government intervenes too much, especially in Germany and France. For that reason, 

we need to create a general framework by which companies can achieve prosperity with a minimal 

amount of bureaucracy. 

Could the Airbus A380 ever have been built without subsidies? 

That only applies because the previously dominant supplier in the sector, 

Boeing to be exact, had received substantial support from the American 

government. It was totally understandable that Europe required the 

public sector to support a core investment in aviation-related high technology. 

However, I believe that Airbus is now a mature company and 

should be able to stand on its own two feet. 

How can we improve the competitiveness of European companies? 

In this world where competition continues to intensify, we need more deregulated 

job markets in which a highly qualified workforce can find 

jobs, as well as a growing and flourishing service industry. 

The manufacturing industry is migrating to the Far East 

due to a combination of cost and qualification advantages. 

It has become impossible for the US or Europe to even 

keep up. So we have to find ways to employ the workforce 

in a new and more flexible manner. And we need to 

promote and reward the advantages we possess, like 

our brainpower and technical capabilities. 

ANDREW GOWERS has been the 

editor-in-chief of the Financial Times 

in London since 2002. The paper sells more 

than 440000 copies daily worldwide.

‘We’re more exacting than industry’ 

Sir Peter Jonas swears by the discipline of classical theater. Managers-to-be can learn from the 

world-renowned director and arts manager just how important precision is for cultural enterprises. 

Jonas is known for his innovative staging and marketing concepts. 

THINK: ACT Sir Peter, how many productions 

are you and your co-workers able to put on 

stage each year at the Bavarian State Opera? 

SIR PETER JONAS Next year we will feature 

73 productions overall—20 ballets and 53 

operas. Among them are nine new productions 

with 53 performances. No other opera house in 

the world does that. 

So, you’re an art manager then? 

No, art can’t really be managed. It can only be 

supported, and that’s our job. 

However, you do make sure that the environment 

is highly creative. Can corporate 

leaders learn anything from the way an 

opera house is run? 

Thinking laterally is crucial to our success. In 

my role as theater manager, in every meeting I 

challenge the department directors to look 

beyond their own spheres of responsibility and 

become involved in everything that concerns 

our institution. Otherwise we won’t create any 

synergies. Another issue is precision. I am 

always amazed as to how imprecise and sloppy 

industry actually is. 

What do you mean? 

More often than not, businesses are satisfied 

with a 90 or 95 percent effort. Such an attitude 

would be a complete disaster for any opera 

house. Here we have a completely different 

way of thinking. When the orchestra plays, 

each musician must give 100 percent and play 

with complete precision. Whether the performance 

is beautiful or not, that’s another matter. 

But precision and engagement have got to be 

100 percent. Students from various institutions 

of higher learning, business schools and management 

programs often come to observe what 

we do. They’re a bit taken aback when glared 

at for coming in three minutes late. Precision 

and punctuality are crucial factors to us— 

everything has to function to the split second. 

It is very important to master this seemingly 

old-fashioned theatrical discipline. Even if it 

may seem a bit militaristic. 

Are there factors that will make an opera 

successful? 

For a number of reasons, it’s impossible to give 

only a single answer to this question. By definition, 

the staging of an opera is an innovation. 

There are no prototypes and there are no real 

test runs. While admittedly having to cope with 

a certain amount of complexity as well, BMW, 

for example, has it relatively easy when it comes 

to its next 8 or 5 series—the carmaker works 

from approximately 100 prototypes, has an 

ample development budget, and tests its cars in 

Arizona or Alaska for a year before bringing 

them to market. And then there’s another factor 

of uncertainty in an opera house. About 900 

10

culture needs industrial partners 


SIR PETER JONAS 

became Director of the Bavarian 

State Opera in 1993. Previously, 

he was Artistic Director 

of the Chicago Symphony 

Orchestra and for nine years 

the General Director of the 

English National Opera. In 

addition, Sir Peter teaches 

culture management in 

St. Gallen, Switzerland. 

ROLAND BERGER 

Strategy Consultants has 

supported Sir Peter Jonas for 

several years in transforming 

a tradition-bound institution 

into an innovative, successful 

opera of today. Currently, 

artists and consultants are 

collaborating on “Festspiel+,” 

an avant-garde festival in 

Munich. One of the collaborative 

art projects is dedicated 

to the idea of “innovation.” 

people work on a premiere, and then the entire 

enterprise can fall apart or at least go fatally 

wrong as a result of two absurdly small muscles 

in the throat of a vocalist who sings a major 

part and happens to fall ill at that moment. 

Are prominent directors and stars necessary 

on the stage? 

No, all you need is the interest of the public, 

and a staging that’s interesting. It’s a little like 

a restaurant. You serve meat, fish and vegetables; 

everything is newly composed and interpreted. 

People either come or they don’t. In the 

opera, the audience is also seeking a certain 

amount of provocation. It does not want to 

leave completely satisfied, but to experience a 

somewhat gladiatorial atmosphere. It is no different 

here in Munich than it was in Chicago 

and London, where I worked before. 

The reasons for why a restaurant is successful 

are fairly easy to understand—carefully 

selected ingredients, a good cook, an attractive 

setting… 

Well, it may be simple for a restaurant to 

define the ingredients for success. But in a theater 

the selection is much more varied, more 

varied even than in industry. For an opera, it’s 

not enough to be artistically and economically 

successful. The opera’s reputation, its “on dit,” 

is just as important. This is not only true for 

the public at large, the media and opera professionals, 

but in the world of politics as well, 

down to backwater politicians who’ve never 

even been to the opera. To use the language of 

management—our target groups are more 

complicated. Customer satisfaction is harder to 

define because it is more subjective. Music, 

after all, is a matter of personal taste. 

So how do you deal with loud boos along 

with the applause at a premiere? 

It can’t be avoided. On the contrary, we’re not 

afraid to provoke a negative reaction—for 

example, by staging unusual interpretations. 

And we’re not afraid of critics or opera freaks 

who have already lost all objectivity even 

before the premiere simply because the direction 

is a bit too adventuresome in their eyes. In 

fact, that’s what we are supporting. There is 

only one thing that we may never do—we can 

never afford to be the arbiters of what is good 

and what is not good. In fact, we can’t even 

venture to predict whether the premiere will be 

a success based on a well-done dress rehearsal. 

In your opinion, how much tradition is 

needed for not driving the audience away? 

A difficult question. The “chemistry” between 

the director and the public plays a very important 

role in our industry. Either it’s there or it 

isn’t. This doesn’t mean that any artistic effort 

must always be praised or even liked. It’s 

enough to be accepted. But there are plenty of 

examples of this occurring in industry as well. 

Eccentric companies such as Porsche that have 

steadfastly held their course have achieved 

tremendous success. 

You cultivate and promote close collaboration 

between business and the arts. What 

are your hopes for corporate collaboration? 

For us, such partnerships have two important 

advantages. Naturally, we, like almost all 

artistic institutions, appreciate the financial 

support. Then again, this partnership is a good 

thing because it symbolizes solidarity between 

business and culture, thus giving us a lobby. 

And make no mistake, we need a lobby. We 

need our cultural partners, particularly during 

hard times when support for the arts is 

increasingly coming into question. In that 

regard, partnerships are also a symbol for 

politicians, signaling that cultural institutions 

are not isolated entities but an integral part of 

society and supported by businesses that are 

beholding the future of society. 

11

in the economy, competition fills the role of natural selection 


The bio-logic of competition 

In times of crisis, economists are looking all over for solutions, including from nature. The concept 

of swarm intelligence in particular has made possible some completely new management 

approaches. It treats businesses as systems that together are smarter than the sum of their parts. 

: 

When times get tougher, tasty field 

plants are in short supply or environmental 

conditions simply undergo massive 

changes, the proverbial fertility of rabbit 

colonies no longer lives up to its reputation. 

The animals stop reproducing, and their 

population declines. Until times improve, 

the rabbits are practicing natural contraception: 

no sex, please. 

A similar form of crisis strategy can also be 

observed in the everyday life of business. 

Downsizing or the elimination of jobs and 

unprofitable production sites may ensure 

the survival of the company. Nature as a 

model—in the search for new management 

strategies, an increasing number of economists 

are now looking at the world of flora 

and fauna. Can the “most successful business 

of all times,” in the words of Matthias 

Noellke, author of So managt die Natur 

(“How Nature Manages”), reveal underlying 

principles that may also be valid for the 

economy? Especially the concept of understanding 

an enterprise as a living system 

makes completely new approaches to management 

theory possible. 

MANY ANIMAL SPECIES DEVELOP THEIR 

INTELLIGENCE NOT AS INDIVIDUALS, 

BUT ONLY AS PART OF A GROUP 

Eric Bonabeau, physicist and former 

France-Telecom engineer, is one of the 

prophets of “swarm intelligence.” Companies, 

his thesis says, can take organizational 

forms from the world of birds, fish or 

insects as a model and use them to be successful 

in the market. As an example, he 

cites the way ants are looking for food. The 

animals secrete a chemical substance— 

pheromone—that serves as a communications 

tool. When two ants go out to look for 

food, they leave a scent track behind them. 

The ant that has found the shortest way to 

the food source returns to the nest first, so 

its track smells stronger. This entices other 

ants to use the same path, which thus smells 

increasingly stronger and attracts even 

more nest dwellers to the food source. 

While the individual animals follow two 

simple behavior patterns—secreting 

pheromones and following the path that 

smells stronger—as a social group they 

develop highly efficient behavior in search 

for food, thus, in fact, what amounts to 

swarm intelligence. 

Among the first companies that consciously 

used the concept of swarm intelligence was 

Southwest Airlines. Shortly before the millennium, 

the US discount airline was facing 

some serious problems with regard to its 

freight management. Although the actual 

utilization ratio of Southwest cargo space 

amounted to only 7 percent on average, 

there were repeated bottlenecks at various 

airportsn and in some cases schedules could 

not be met. Southwest used a computer program 

featuring virtual ants to help it find 

the most efficient path for individual freight 

items. The result of the computer analysis 

was that it would often be more advantageous 

not to send a package the shortest 

way and have it transferred from one plane 

to another several times but to instead put it 

on a plane that might initially be flying in 

the wrong direction but would eventually 

go straight to the right destination. By using 

the program, Southwest Airlines was able 

to reduce its reloading rate by 80 percent, 

and this resulted in a total savings of about 

$10 million per year. 

AN ORGANIZATION THAT MANAGES ITSELF 

IS MORE RESISTANT TO CRISES THAN 

ONE MANAGED IN AN AUTHORITARIAN WAY 

Bonabeau: “The most important conclusion 

we can deduct from swarm intelligence is 

that complex group behavior can result 

from individuals following simple rules. 

Social insects are so successful—they are 

found virtually everywhere—because of 

three characteristics: flexibility, robustness 

and self-organization.” They adapt very 

quickly to a changed environment. Even if a 

number of individuals are missing, the 

group can still perform its tasks. Its activities 

are not tracked either centrally or locally. 

As early as the early 1990s, American organization 

expert Margaret J. Wheatley insisted 

that companies should no longer be viewed 

as machines that are regulated by push button, 

but rather as living systems that regulate 

themselves—without central control. 

“This is not laissez-faire management disguised 

as new biology,” she warns against 

any misinterpretations of her thesis. “The 

path of self-organization can never be known 

ahead of time. Executive leaders must 

therefore begin with a strongly focused 

goals, but not with a set of action plans.” 

Accordingly, it is the task of management to 

make sure that things move as smoothly as 

possible. In this context, Wheatley is fond of 

quoting Chilean biologist, philosopher and 

neuroscientist Francisco Varela: “You can 

13

‘System error’ 

If everything stays the same, progress is impossibe. Enterprises 

must therefore allow for mutations, says Alberto Gandolfi. 

ALBERTO GANDOLFI, 38, teaches 

business management at the Tessin 

Technical University in the Swiss town of 

Lugano. He studied biology and biotechnology 

at the Swiss Federal University of 

Technology in Zurich (ETH) and earned 

his doctorate in business management. 

In his best-known book Von Menschen 

und Ameisen (“Of People and Ants”), 

published in 2001, he takes the reader 

on a voyage of discovery through the 

world of complexity research. 

THINK: ACT Why is a look at nature also 

valuable for managers? 

ALBERTO GANDOLFI Enterprise leaders can 

learn a great deal from the natural sciences— 

even though the findings cannot be directly 

transferred from nature to the business world. 

Just think about the pioneers of aviation. 

When they attempted to copy birds and 

strapped on wings that moved up and down, 

they crashed. 

What kinds of principles can the economy 

actually adopt from biology? 

In nature, there are underlying mechanisms: 

mutation and selection. First, various options 

are created and then the ones that survive 

best are selected. The basis for improvement is 

provided by mutations, which in fact are 

errors. If nothing changes, progress is not possible. 

If the environment changes, we are not 

able to adapt. That applies to nature as much 

as to the economy. 

So should we really be treating crises as 

opportunities? 

Yes. An enterprise is evolving as nature 

does. This is a process that does not happen 

in a straight line but rather in sudden 

leaps. There are long periods of stability, 

which for evolution can be a duration of 

millions of years, but for companies usually 

only a few years. And then comes the test, 

the crisis. This crisis must be used productively. 

Suddenly anarchy and chaos 

reign. Everything else depends on how the 

organism or the enterprise responds. 

What does that mean for employees? 

Any crisis offers employees an unexpected 

opportunity for sudden career advancement. 

Employees leave the company, 

departments are abolished and the doors to 

new markets are opened up. Those employees 

who act cleverly during a crisis have 

good career chances indeed. 

never direct or steer a living system. You 

can only disturb it.” 

Yet even a smoothly functioning organization 

will have to prove itself in the market 

sometime. When sales decline and then 

profits—does Mother Nature offer any ideas 

in that area as well? Absolutely, suggests 

German behavioral scientist and Sinologist 

Klaus Dehner, co-author of Die BioLogik des 

Erfolgs (“The BioLogic of Success”) and 

based in Heidelberg, Germany: “One such 

strategy would be to seek niches.” The classical 

example is the Darwin finches on the 

Galápagos Islands. They have developed 

extremely varied beak forms, and each one 

specializes on a particular kind of food. That 

is just what is being accomplished by the 

“Hidden Champions” of Germany—the midsize 

companies that are suppliers to the 

auto and machine tools industries. These 

businesses are extremely specialized in a 

competitive market, and in their sector they 

are often the technology leaders. Dehner’s 

conclusion: “Similar to the Darwin finches, 

you must invest in innovation.” 

Where might such investments pay off, 

however, and where don’t they? Oxford 

University–based zoologist Alexander 

Kacelnik has long been studying the subject 

of risk assessment and decision-making. 

Just as starlings have to decide as to when 

they should leave an area in which they 

find fewer and fewer earthworms, managers 

have to be clear about when to 

assume the risk of leaving one business area 

and attempt to conquer another. 

Kacelnik has concluded that not only birds 

make their decisions unconsciously. Managers 

also often rely on their gut feeling, 

even when they have hard facts available 

that would recommend a rather different 

decision. Again, Kacelnik refers to the fundamental 

law of evolution: “Animals and 

plants were formed by natural selection 

and have developed very sophisticated 

methods for reacting to opportunities that 

may be available.” In the economy, competition 

is assuming the responsible role for 

selection; especially times of crisis bring 

about consolidation. The principle of 

growth, meanwhile, is nowhere more obvious 

than in colony-building insects. Ant and 

bee colonies grow only to a certain size. 

Then the colony divides up, thereby creating 

a spinoff. “Interestingly,” says Eric 

Bonabeau with amazement, “there doesn’t 

seem to be an equivalent to a merger in the 

insect world.” Nature seems to be telling us 

that mere size does not constitute a competitive 

advantage. 

Those who believe connections between 

evolution and competition too academic 

can visit a ranch in Valley Ford, California. 

On Ariana Strozzi’s ranch, American managers 

are seeking secrets of good practice. 

Whether in the paddock or the large corner 

office—leadership is subject to the same 

principles. “Horses can be motivated by 

clearly recognizable goals and the desire to 

achieve them,” says the zoologist and author 

Strozzi. Authoritarian behavior does not 

accomplish much with either horses or people, 

she says. There are already some 300 

similar ranches in the United States where 

managers can practice leading the herd. 

14

crisis management 


[Car industry] 

WOLF 

[CANIS LUPUS] 

When Ferdinand Piëch was appointed the CEO 

of Volkswagen in 1993, he had only limited 

opportunities to lower costs. One of the main 

shareholders in VW is the German state of Lower 

Saxony, with the works council traditionally very 

powerful. So Piëch—the alpha wolf—hired a 

henchman to do the heavy lifting—an attack 

wolf. He pulled cost killer José Ignacio López as 

head of purchasing away from GM. In record time, 

the Spaniard was able to lower supplier prices up 

to 30 percent, and “the Lopez effect” became a 

familiar expression among midsize auto industry 

suppliers. Recently, the fairly new VW head Bernd 

Pischetsrieder hired a cost-cutter of his own, former 

Mercedes manager Wolfgang Bernhard.



[Conglomerates] 

CHAMELEON AND CO. 

[VARIOUS KINDS] 

Mimicry, a proven principle in nature, is also a 

recipe for business success. It calls for rapid 

adaptation to constantly changing environmental 

conditions, customer requirements and market 

mechanisms. Sometimes, adaptation makes the 

original company unrecognizable. For example, 

the roots of Japan’s Mitsui group go back to the 

17th century, when an unemployed samurai tried 

his hand at being a brewer of sake. Today, Mitsui 

is a conglomerate with shares traded on the stock 

exchange and consists of some 800 individual 

firms that manufacture just about everything, 

from hand mixers to container ships and computer 

games. Yet even today, Mitsui is hardly known as 

a brand. It posesses perfected mimicry.



[Tourism] 

STARLING 

[STURNUS VULGARIS] 

One of the most difficult decisions facing management 

anywhere: What point in time marks a 

market exhaustion? Exactly when does it pay to 

switch over to a new one? Starlings must make 

this crucial decision every day, and their survival 

depends on it. Are there still enough earthworms 

in a field to make it worth staying there? Or 

should the flock afford the expense—including 

the energy cost—and move elsewhere? 

When Preussag AG, of Hanover, Germany, recognized 

at the end of the 1990s that the steel industry 

would hardly have a future in Germany, it 

quickly transformed itself into the travel firm TUI. 

With its 58000 employees, TUI today is one of 

Europe’s leading travel companies.



[Advertising] 

FRILLNECKED LIZARD 

[CHLAMYDOSAURUS KINGII] 

In order to scare off enemies, one effective way is 

to make oneself a little bigger than life. In the 

advertising industry, fake want ads are a daily 

occurrence, especially during periods of crisis. 

The purpose of such job offers is to simply suggest 

to the competition that more staff is needed, 

thus signaling economic prosperity. The principle 

recurs throughout history: Prince Potemkin built 

the villages named after him. In 1944, before the 

actual D-Day invasion of Normandy, the Allies set 

up regiments of plywood tanks to fool German 

reconnaissance. The Australian frillnecked lizard 

has long used a similar technique. Whenever it 

senses danger, its collar enlarges to make the 

animal look bigger and more frightening.



[Air freight] 

ARMY ANTS 

[DORYLINAE] 

Ants communicate primarily using chemicals 

called pheromones. This approach allows them 

to utilize a so-called swarm intelligence that 

makes it possible, for example, for ants to design 

virtual streets—like this colony of army ants 

on the African savanna. The American discount 

airline Southwest Airlines learned from the concept 

of swarm intelligence in order to fix its airfreight 

utilization problems. By using software 

and virtual ants, the company simulated possible 

freight transport routes. The result: The shortest 

route to the final destination was not always the 

most efficient one, because of frequent freight 

transfers. Using this program, Southwest was 

able to reduce its reloading rate by 80 percent.

Former Soviet republic, now an 

EU member state. Estonia is 

changing at a breathtaking pace.

enchmarking european countries 


The right to Internet access 

Estonia has experienced an almost dizzying economic rise. Within only a few years, the former 

Soviet republic on the Baltic has leapt into the vanguard of the digital revolution. In information and 

communications technology (ICT), this tiny country is one of Europe’s top 10. 

: 

When Estonia’s ministers get together 

for their weekly cabinet meetings, they 

could easily do so without talking. And completely 

without paper. Each seat at the conference 

table is equipped with a flat-screen 

monitor and is digitally networked. Ministerial 

presentations are accessible in a matter 

of just seconds. 

The government exhibits more than a little 

pride when it half-jokingly refers to the 

country as “E-stonia” in one of its promotional 

brochures. Time certainly flies. When 

Estonia regained its independence amid the 

collapse of the Soviet Union in 1991, the 

country lagged far behind European standards. 

Today, this little country on the Baltic, 

whose territory is barely larger than 

Switzerland and whose population is a 

mere 1.3 million, has taken a place among 

Europe’s digital trendsetters. 

ALWAYS A MOUSE CLICK AHEAD: 

IN THE FUTURE, ESTONIA’S 

CITIZENS WILL VOTE ONLINE 

“We had to modernize our economy and administrative 

apparatus from the ground up 

because Estonia was down and out,” is how 

ex-premier Mart Laar explains the new spirit 

of innovation. “This made it easier for us 

to follow new paths and introduce modern 

technology from the very beginning.” 

Today, approximately 63 percent of all 

Estonians use the Internet; by 2007 this 

figure will be 90 percent, according to government 

projections in Tallinn. And Estonia 

is well on its way. All schools and 80 percent 

of all companies have Internet access. Free 

access to the Internet is a basic right of the 

Estonian population. Anyone who cannot 

afford a connection can use any of the 700 

public Internet stations in post offices or 

libraries—for example, for e-banking or 

electronic government business. And most 

Estonians even file their taxes online. Estonia 

is the first country to switch to an electronic 

administrative system. 

This year, the computer-friendly republic 

will cast electronic ballots in national elections 

for the first time. They are the only 

country in the world to do so. Just as advanced 

is the introduction of a new multifunctional 

personal ID with integrated 

smartcard that can be used as an insurance, 

banking and general services card. 

According to a recent study conducted by 

the international business school INSEAD 

in Fontainebleau, France, Estonia today 

has the most highly developed infrastructure 

in the area of information and communications 

technology in all of Central and 

Eastern Europe. 

Estonia has converted this technological 

advantage into an attraction for foreign 

companies, particularly in the sectors of 

mechanical engineering and electronics. At 

last count, annual per capita investments to 

the tune of €5160 poured into the country— 

tops among the new EU member states. In 

terms of ICT and Internet use, the “Baltic 

Tiger” has even passed countries such as 

Belgium, Spain, France and Italy. According 

to the INSEAD study, Estonia already meets 

all the criteria set forth in the EU action 

plan “eEurope 2005.” 

A knowledge-based 

economy in Europe 

Soumitra Dutta, a professor at 

INSEAD, presented the results 

of an exclusive EU-wide study. 

In March 2000, EU heads of state and government 

agreed on an ambitious goal: making 

the EU “the most competitive and 

dynamic knowledge-based economy in the 

world, capable of sustainable economic 

growth with more and better jobs and 

greater social cohesion.” 

In particular, they agreed that to achieve 

this goal, an overall strategy should be applied 

to prepare the transition to a knowledge-based 

economy and society by 

fostering better policies for the information , 

21


leaders sometimes call the country “e-stonia” 

SOUMITRA DUTTA is Roland Berger 

Professor of Business and Technology at the 

European Institute for Business Administration 

(INSEAD) in France. The Indian-born expert 

in information systems and e-business is Dean 

of Executive Education. 

The “eEurope 2005” program, started 

by the European Commission in 2002, aims to 

make the European Union the “most competitive 

and knowledge-based” region in the world. 

While its predecessor program, “eEurope 2002,” 

concentrated on creating a knowledge-based 

society by developing Internet access in Europe, 

eEurope 2005 seeks to turn increasing Internet 

connection rates into business activity and thus 

generate economic growth. Services such as 

e-government, e-health and e-education all now 

receive a higher priority, in addition to the 

efforts to promote e-commerce. 

Denmark in the lead 

In a comparison among EU member states and two 

candidates, Denmark has the highest ICT development 

level in Europe, with an eEurope index score of 1.30. 

Country Score ∅ EU-15=0.47 

1 Denmark 1.30 

2 United Kingdom 1.06 

3 Sweden 0.95 

4 Finland 0.93 

5 Germany 0.84 

6 Netherlands 0.83 

7 Austria 0.82 

8 Belgium 0.62 

9 Ireland 0.41 

10 Estonia 0.37 

11 Luxembourg 0.29 

12 France 0.18 

13 Spain 

-0.04 

14 Italy 

-0.11 

15 Portugal -0.26 

16 Greece -0.41 

17 Slovenia -0.44 

18 Lithuania -0.71 

19 Latvia 

-0.71 

20 Czech Republic -0.72 

21 Poland -0.78 

22 Slovakia -0.80 

23 Romania -0.92 

24 Hungary -1.10 

25 Bulgaria -1.42 

Source: INSEAD 2005 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 

society and R&D. In addition, they decided 

to speed up the structural reforms needed 

to increase competitiveness and innovation, 

and to complete the European Union’s internal 

market. Since then, these topics have 

only gained in importance as the result of 

EU expansion last year and the entry of 

10 new member states. 

Information and communications technology 

is critical for the development of a competitive 

and dynamic knowledge-based 

economy in Europe. Not only does ICT form 

the basis of rapid and effective communication 

at all levels, individual, business and 

government, but it also serves as the infrastructure 

for commercial transactions. ICT 

is also playing an increasing role as an enabling 

mechanism for the delivery of efficient 

and effective government services. 

European governments and regulators continue 

to see progress in ICT as fundamental 

to national progress. Policies are being put 

in place to increase ICT penetration in society 

and to reduce the digital divide. Tariffs 

continue to be reduced and levels of competition 

increased to provide incentives for 

businesses to invest effectively in ICT. 

THE INSEAD STUDY IS A USEFUL 

GUIDE FOR ECONOMIC AND 

POLITICAL DECISION-MAKERS 

Based on its analysis of surveys, INSEAD 

compared the level of ICT adoption and 

usage in the EU member states in light of 

the eEurope 2005 framework. Two out of 

the 10 new member states, Cyprus and 

Malta, as well as candidate Turkey, could 

not be considered in the analysis, due to 

limited availability of data. 

The overall breakdown of the results shows 

Denmark leading all other EU members, 

closely followed by Great Britain and Sweden 

(see graph, left). With a score of 0.37 on 

the eEurope Index (0 = standard average 

value), Estonia finished tenth. This Baltic republic 

is clearly the front-runner among the 

new EU member states that joined in 2004. 

In keeping with the eEurope 2005 framework, 

the INSEAD evaluation was based on 

five categories that, when combined, indicate 

how well a country is presently meeting 

the eEurope goals. 

Compared were (a) the degree of access to 

the Internet and the use of the Internet by 

individuals and companies, including costs 

for access; (b) the availability and use of 

public online services (e-government, 

e-learning, e-health); (c) the level of e- 

commerce and the willingness to engage in 

e-business; (d) the security of Internet access 

and online business; and (e) the availability 

and use of broadband services. 

An evaluation broken down by individual 

factors also provides insights: In Internet access 

by individuals and companies, the 

Netherlands, Finland and Sweden post the 

best results. For “public online services,” on 

the other hand, Denmark is the leader and 

the Netherlands and the United Kingdom 

take second and third places. The United 

Kingdom, followed by Scandinavian countries 

Denmark and Sweden, represents a 

particularly “dynamic e-business environment.” 

The UK also takes first place for the 

“secure information infrastructure” indicator, 

with Ireland and Italy second and third. 

The study looks at the development of the 

information society in Europe from multiple 

perspectives: social cohesion, electronic 

business carried out in the EU and current 

e-government practices. A case study of 

Finland demonstrates a successful transition 

from an economy based on natural resources 

into one based on technology and 

innovation. Taken together, these multiple 

perspectives provide useful guidelines. Political 

leadership is vitally important in setting 

and driving the ICT agenda in nations. 

Governments need to provide strong, highprofile 

momentum and set clear strategies 

and targets for leveraging ICT in different 

parts of the economy. 

22

Dossier #03 

STRATEGIC 

BRAND MANAGEMENT 

INTEGRATED, UNIFIED BRAND LEADERSHIP BEGINS WITH 

PRODUCT DEVELOPMENT—AND IS BY NO MEANS FINISHED 

WITH SALES AND SERVICE. THAT MEANS BRANDING 

HAS TO BE A TASK FOR EXECUTIVE MANAGEMENT.

DOSSIER #03 Brand Management 

nHENKEL 

Henkel improved from 26th place to 

18th place in the “Imageprofile” study 

after the Duesseldorf, Germany-based 

manufacturer of cleaning and 

cosmetics products established an 

international umbrella brand strategy. 

Source: manager magazin 

50% of all 

Germans trust Nokia 

mobile telephones 

more than any other 

brand of phone. 

Source: European Trusted Brands 2004 

»The foundation of 

our brand is service, 

service, and still 

more service.« 

WOLF HENGST, PRESIDENT AND COO, 

FOUR SEASONS HOTELS 

10 MOST VALUABLE BRANDS 

Rank 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

Brand 

Coca-Cola 

Microsoft 

GE 

IBM 

Intel 

Disney 

McDonald’s 

Nokia 

Toyota 

Marlboro 

Brand value ($ billions) 

67.39 

61.37 

53.79 

44.11 

33.50 

27.11 

25.00 

24.04 

22.67 

22.13 

In 2004, Toyota joined the list of the 

world’s 10 most valuable brands. 

The ranking is reported and published 

each year by the American magazine 

BusinessWeek. 

The face of the brand 

BRANDING IS AN EXECUTIVE FUNCTION—AND DOES NOT BEGIN WITH MARKETING, BUT IN PRODUCT 

DEVELOPMENT. MORE AND MORE CHIEF EXECUTIVES ARE ACTIVELY INVOLVED IN SHAPING 

THEIR COMPANY’S CORE BRAND, OR THEY VEST THIS RESPONSIBILITY IN A CHIEF BRANDING OFFICER. 

s 

BY THE EARLY 1990S, Chairman Lee Kun-Hee 

had recognized that as a conglomerate and a manufacturer 

of low-cost electronics, Samsung would not 

be able to go head to head successfully over the longterm 

with an increasingly competitive China. After 

a damning report about the company’s design center, 

Lee read his employees the riot act, challenging them 

to “change everything—right down to your wives 

and children!” But it took the deep economic crisis 

of 1996–97, during which the company’s debt rose 

to three times its capital, for this message to truly 

sink in and take root. 

That was when Lee made his move. Among 

other things, he sold the company’s unprofitable auto 

factories to Renault and concentrated on computer 

chips, telecommunications and entertainment electronics. 

He pressed his managers to pay particular 

attention to quality management, efficiency and 

branding. By 2000, Samsung Electronics was to have 

transformed itself into a premium manufacturer. In a 

symbolic move, Lee Ki Tae, head of the mobile telephone 

division, was forced to watch as 150 000 

mobile telephones that did not meet the new quality 

standards were bulldozed. 

“OUR FUTURE DEPENDS ON the value of our 

brand,” the new CEO, Yun Jong Yong, recognized. “If we 

continue to sell low-end products, we will simply 

damage the image of the company.” Because the 

product life cycle for consumer electronics was getting 

ever shorter, Yun emphasized the need to be 

close to the market. “Even the most expensive fish 

starts to stink after a few days,” he said. What applies 

to sashimi shops applies equally to the digital industry. 

High inventories are a drag. “Speed is everything,” 

said Yun. To respond quickly to market and customer 

needs, close to one-quarter of the company’s 88000 

employees are involved in development. 

Leading engineers, designers and marketing 

professionals all come together in a five-story 

research center—known as the VIP Center within the 

company—located on the edge of Seoul, to work on 

new products. Whereas Nokia comes out with two 

dozen new mobile phones each year, Samsung will 

bring as many as 100 to market. First they are tested 

in the domestic market, because mobile phones 

are a digital status symbol for electronics-crazy South 

Koreans. As a result, folding telephones were popular 

in Seoul schoolyards long before they made a splash 

in the United States. 

FOR SAMSUNG, YUN’S STRATEGY of being an early 

bird in the marketing of technology has paid off. 

Today, the company is among the world leaders in 

color televisions as well as in high-end mobile phones 

and B2B products such as computer chips. The company 

has doubled its sales since 1999; profits have 

risen by a factor of 20. Between 2001 and 2004, Samsung 

climbed from 42nd place to 21st place on the 

BusinessWeek list of the most valuable brands in the 

world—and it is now making a run at Sony. 

As the example of Samsung shows, brand construction 

is not limited to classical advertising, TV 

spots and print ads—a common misconception. On 

the contrary, marketing communications comes at 

the end of the branding process, not at the beginning. 

Service, sales and product development—all of these 

customer-related areas come together in the brand. 

24

Brand Management DOSSIER #03 

The essence of the company—its values as well as 

the expectations and desires of its customers—are all 

mirrored in the company brand. 

GIVEN THE GROWING SIGNIFICANCE of branding, it 

seems obvious that brand leadership should become 

an executive responsibility. “All the threads need to 

converge on one desk,” says Kai Howaldt, a partner 

with Roland Berger Strategy Consultants. “What is 

needed is a single head who is able to unite all the categories 

of a brand across the board. The ideal person 

would be a Chief Branding Officer who is able to 

assume responsibility for overall marketing.” 

That it pays to concentrate brand leadership in 

an executive is confirmed by Geoffrey Frost. A former 

Nike manager, Frost assumed the position of Chief 

Branding Officer at Motorola in 2003 and initiated a 

real cultural revolution in the 75-year-old electronics 

manufacturer. Until then, Motorola had a reputation as 

an “engineering academy,” according to Forbes magazine. 

The company developed pathbreaking technologies 

such as the first 32-bit chip and the first 

practical mobile telephone, but frequently left the 

marketing of these products to its competitors. 

To change this, Frost, who was responsible 

for Nike’s legendary ad campaigns involving Michael 

Jordan and Tiger Woods, flew nine students, ages 18 

to 24, to the company headquarters in Chicago. Their 

job was to test the companies mobile telephones. The 

results were sobering. “Motorola’s problem is, Samsung 

kicks ass,” one of the students said, looking the 

executives straight in the eye. 

“THESE WELL-DESERVED KICKS in the rear sent 

the company back to the drawing board,” commented 

Forbes. “And that was exactly what Frost wanted.” The 

ex-Nike man threw open the doors to the outside 

world and began to align development, design, 

sales—and of course marketing—with the desires of 

the consumer. And so Motorola signed a contract with 

Wimbledon winner and popular culture icon Maria 

Sharapova, and initiated a collaboration with MTV. 

Frost’s credo: “The end device that we used to call a 

mobile telephone is now a wireless entertainment 

portal that connects us with the music, artists and 

videos we love, and the information we want.” 

When the chief executive does not want to hire 

a Branding Officer, David A. Aaker, Professor of Marketing 

at UC Berkeley, says that the CEO should be 

responsible. Branding must be the core of a business 

strategy, says Aaker. “A CEO must understand that his 

brands are strategic assets; he must develop them 

continually.” One of his models is the Executive Brand 

Council at Kodak, where the company heads of the 

most important departments regularly consult on all 

processes relevant to the brand—including acquisitions, 

product launches and licensing. 

During times of over-saturated markets that 

are dominated by the buyers, not the sellers, the 

brand is often the most important means of differentiation 

from the competition. Over the last third of the 

20th century, there was a dramatic shift in many 

markets from material to nonmaterial assets. “Frequently, 

the value of the brand exceeds the value of 

the actual merchandise, which means that it becomes 

the most important asset,” according to a publication 

from the Center for Brand Equity and Competition at 

the University of Mainz, Germany. A classic example 

is the 1988 acquisition of Kraft Foods by Philip Morris 

for $12.9 billion. An estimated $11.6 billion of that 

value consisted of the value of the brand, according 

to the Center for Brand Equity. 

A NUMBER OF METHODS of brand analysis have 

been developed by economists, as well as by advertising 

and marketing research companies, in an 

attempt to put an exact figure on such assets. To 

date, however, none of these models has become 

standard, even though the need for quantitative brand 

analysis continues to increase. For example, as of 

2005 publicly listed companies are obligated to state 

acquired brand values as nonmaterial assets, in 

accordance with the regulatory standards of both the 

US GAAP and IAS/IFRS. 

According to the rankings published each year 

by BusinessWeek in its “World’s Most Valuable 

Brands,” Coca-Cola is the most valuable brand in the 

world at $67.39 billion. The name alone is more valuable 

than the sum total of all other facilities, properties 

and factories that the Atlanta-based company 

lists on its balance sheet. The 118-year-old Coca-Cola 

brand contributes more than half of the Coca-Cola 

25


nNIVEA 

enjoys greater trust in Europe than 

any other German brand. The cream 

landed in first place in a skin-care 

category in 12 countries. 

Source: European Trusted Brands 2004 

APPLE was the 

brand with the greatest 

global impact 

in 2004 

Source: readers choice from brandchannel.com 

»Branding is a 

multilayered task— 

an executive 

responsibility.« 

PROFESSOR MAURICE PEDERGNANA, INSTITUTE 

FOR FINANCIAL SERVICES, ZUG, SWITZERLAND 

BRAND VALUE 

Share of publicly traded companies’ market capitalization 

arising from the value of the brand (in percent, 2003) 

Coca-Cola 60 

Microsoft 23 

IBM 33 

General Electric 14 

Intel 16 

Nokia 36 

Disney 62 

McDonald’s 77 

Marlboro 21 

Brand equity’s contribution to public 

companies’ market capitalization has 

been increasing for decades. Today 

it is approximately two-thirds for firms 

such as Disney and Coca-Cola. 

Source: Center for Brand Equity and Competition 

»A CEO must understand 

his brands as 

strategic assets.« 

PROFESSOR DAVID A. AAKER, BERKELEY 

Company’s market capitalization, according to the 

brand valuation model developed by Interbrand 

Agency. Microsoft, with a $61.37 billion brand valuation, 

is right at Coca-Cola’s heels. In media companies 

like Disney, the brand’s contribution to the value of 

the entire company is eveb a bit higher, at 62 percent. 

THIS SHIFT IN VALUE WAS RECOGNIZED at the 

beginning of the 20th century by John Stuart, one of 

the founders of the Iowa-based grain product manufacturer 

Quaker Oats, which now belongs to PepsiCo, 

Inc. “If the business were split up, I would take the 

brands, trademarks and goodwill, and you could have 

all the bricks and mortar—and I would do better than 

you,” Stuart reportedly said in 1901. 

A COMPANY WITHOUT A BRAND, by contrast, will 

be reduced to the role of a no-name or—even worse— 

will become dependent, as a supplier for potential 

competitors. If the company attempts to get out of 

the subordinate role of OEM producer and build its 

own brand, it has to expect consequences. For example, 

the Taiwanese company Acer lost an enormous 

contract with Motorola for the production of several 

million mobile phones to spinoff BenQ, which recently 

took over the mobile phone division of Siemens. 

Half of all microwave ovens and a third of all 

televisions sold in the world come from Chinese hightech 

conglomerates, although consumers rarely know 

the names of the companies behind them. For example, 

household appliance giant Haier—the most valuable 

company in China, according to Famous Brand 

Evaluation in Beijing—has a market value of about 

$8 billion. That is why the Chinese are, much like 

BenQ, doing everything they can to correct their market 

weaknesses by acquisitions (the PC division of 

IBM acquired by Lenovo) or joint ventures (between 

TCL and the French TV manufacturer Thomson). 

Because, “at the present, Chinese firms are not in a 

position to construct their own global brands,” concludes 

Vincent Yan, Export Director at TCL. 

THE FACT THAT MARKETING cannot afford to limit 

itself to communications, that a company must 

instead be market-based, was recognized by Harvard 

professor Ted Levitt more than 40 years ago in his 

well-known article “Marketing Myopia.” In 1960, he 

wrote in the Harvard Business Review that “management 

should not understand itself as a manufacturer 

of products, but must create and satisfy customer 

needs.” Only marketing can create or increase 

demand. That’s why Levitt wanted marketing to be a 

core business function. From there to the position of 

Chief Branding Officer is merely a conceptual hop, 

skip and jump. 

SO, NOTHING NEW UNDER THE SUN? Particularly 

in the B2B area and in nonmaterial services there is 

still a need to catch up. Maurice Pedergnana at the 

Institute for Financial Services in Zug, Switzerland, 

points to the largely unused branding potential of 

many banking institutions in his book Banks & 

Brands. A Chief Branding Officer should actually 

remain in office longer than the Chief Executive 

Officer, Pedergnana recommends. The reason is that 

every good brand will survive any given CEO—and 

not the other way around. 

In Pedergnana’s view, the CBO must work 

together with all of a bank’s division heads, from the 

public-oriented business and product units through 

central production and logistics to standard departments 

such as marketing services, human resources, 

legal services and compliance management. The 

international financial services companies ING and 

UBS have already developed in this direction. In 

both of these companies, the CBO is a member of 

the expanded top management team. “Branding,” 

Pedergnana stresses, “is not an insulated marketing 

discipline, but an interdisciplinary, multilayered 

task—an executive responsibility.” 

“Brand management has more in common 

with dictatorship than with democracy,” Anssi 

Vanjoki, Executive Vice President at Nokia, says 

provocatively. As a result of continuity in a fast-paced 

industry—“connecting people,” the claim formulated 

by Grey Advertising in 1994, has not changed—Nokia 

has managed to become Europe’s mobile phone brand 

No. 1, according to the Reader’s Digest study “European 

Trusted Brands.” 

The approach to branding has undergone a 

change in thinking in many companies, as James R. 

Gregory, CEO of the US-based CoreBrand Agency, 

26


Bring on the brand masters! 

By Alan Mitchell 

has observed. “We’re currently seeing a strong trend 

toward naming Chief Branding Officers,” he says. 

Personal responsibility on the part of an executive 

for corporate branding ensures continuity in brand 

leadership, according to Gregory, author of the book 

Marketing Corporate Image: The Company as Your 

Number One Product. 

Nike founder Phil Knight surely exhibited the 

courage of consistency when he—in accordance with 

the iron marketing rule “Never touch the logo”—kept 

his fingers off of his then-unpopular logo. Knight had 

bought the now-ubiquitous swoosh, which represents 

the sportswear manufacturer without the need for 

verbal anything, for $35 from a design student. His 

comment at the time was “I don’t love it, but it will 

grow on me.” 

THAT’S A SPONTANEOUS GUT decision that really 

only the founder of a firm can make. But in companies 

that are not led by their owners, analysis-supported 

brand management, such as that offered by brand 

profilers from Roland Berger, is the norm. “Companies 

in increasingly tight markets have to carve out 

precise positions for themselves,” says Bjoern 

Bloching, a partner in Roland Berger Strategy Consultants 

in Hamburg. “It’s becoming increasingly more 

important to build brand management on a fact-based 

quantitative foundation.” 

One example: Roche Diagnostics, one of the 

leading international diagnostics companies. In collaboration 

with Roland Berger, Roche developed a new 

brand strategy starting in spring 2002. After the company 

had brought numerous products to the market 

under different names, Roche decided to implement 

a global umbrella brand, Cobas, which has been very 

well-received by customers. A global brand management 

organization was introduced to achieve an integrated 

look in different countries. 

The fact that the contribution of the brand to 

value creation can hardly be overestimated is an idea 

that is increasingly getting through in the businessto-business 

sector. “Successful B2B concepts take 

central control of a brand and allow for very little 

regional influence,” says Bloching. Even manufacturers 

of camshafts or providers of facilities services can 

profit from a strong brand. 

TWO SCHOOLS OF THOUGHT concerning 

brands are currently battling it out in the 

marketplace for dominance. One school 

sees the creation of brands as a simply 

mechanical process, a media-based discipline. 

In this view, building a brand is 

basically a craft that is tactically important 

but one that has little influence on 

the strategic direction of a company. The 

proponents of this approach try to make a 

product as attractive as possible through 

naming, packaging, design and advertising. 

As a result, consumers are swamped 

with advertising campaigns. 

THE SECOND SCHOOL ACCEPTS the 

fact that everything that a company does 

is a form of communication. The way that 

a company is perceived by its customers—including 

their readiness to buy 

or recommend its products and services—is 

the result of interaction at many 

points: product, customer service, sales, 

help desk, employees, marketing communications, 

etc. Messages are constantly 

being sent about a company 

through each of these points of contact. 

ALAN MITCHELL was a marketing 

correspondent for the British daily 

newspaper The Times and today works 

as a freelance publicist. 

This approach to building a brand directly 

relates to the culture and behavior of a 

company. It is strategic because it defines 

a company’s direction and ways of doing 

business. The challenge in this broader 

view of branding consists in constantly 

striving to set up corporate forms that 

exert a powerful attraction for customers 

and potential business partners. 

TODAY, COMPANIES HAVE TO be able 

to understand not only the needs of the 

consumer, but also the experiences of 

customers in their interactions with the 

company. This situation makes it imperative 

for companies to change not only 

their internal processes but also their 

external communications. Departments 

and teams must work together seamlessly 

to create an integrated and excellent 

experience for the customer. 

Because the organization of most 

companies is oriented around operational 

activities with common characteristics 

such as marketing, sales and customer 

service—and not around customer experience—no 

single department or group is 

responsible for the overall picture. The 

consequences inclue internal rivalries 

and battles over competencies. 

THIS IS WHY COMPANIES NEED TO 

introduce a new executive function: the 

Chief Branding Officer. All customer-related 

activities, and the messages that communicate 

them, must in the final analysis 

be that officer’s responsibility—across all 

points of customer interaction. To be able 

to act effectively, a branding officer must 

have the same degree of authority as the 

financial officer. Together with the chairman 

of the board, they for a triumvirate 

that will determine the direction and 

culture of a company, and lead it in its 

day-to-day business activities. 

27


»As honest as the pomegranate« 

HOW DO SUCCESSFUL BRANDS DISTINGUISH THEMSELVES? THEY SELL VALUES AND EXPERIENCES, NOT PRODUCTS. THEY LIVE 

BY AUTHENTICITY AND INTEGRITY, NOT ADVERTISING SLOGANS. ON THAT POINT, SIX TOP EXECUTIVES AGREE. 

»The Mandarin 

Oriental brand 

reflects our Asian 

origins—including 

the design.« 

MICHAEL HOBSON 

GROUP SALES AND MARKETING DIRECTOR, 

MANDARIN ORIENTAL HOTEL GROUP 

Mandarin Oriental is a leading luxury hotel 

chain that owns 21 hotels—10 in Asia, 

seven in North America and four in Europe. 

The Group intends to establish The Landmark 

Mandarin Oriental in Hong Kong as the most 

»A big question mark hangs over 

most brands because they are so 

predictable. They chase after trends 

instead of strengthening them.« 

PETER ARNELL 

CHAIRMAN AND CHIEF CREATIVE OFFICER, THE ARNELL GROUP 

Peter Arnell’s agency specializes in integrated branding strategies 

and communications solutions. The boss himself has 

filmed attention-grabbing videos with Céline Dion for Daimler- 

Chrysler and for DKNY with the Statue of Liberty. He put Tina 

Turner into Hanes pantyhose, which was positive for sales, and 

he transformed a boring piece of electronics into a sexy brand 

with his “Simply Samsung” campaign. “From the perspective of 

»Branding is 

about integrity. 

Our product is 

about experiencing 

health; it's not 

just a drink.« 

LYNDA RESNICK 

CO-CHAIRMAN, ROLL INTERNATIONAL CORP. 

Even the ancient Egyptians already 

believed that it could prolong life. 

With only little advertising investment 

but innovative viral marketing, 

Lynda Resnick created a brand 

from this fruit: Pom Wonderful, a 

name derived from the word “pomegranate.” 

The Pom Wonderful brand 

is selling 1.5 million liters of juice 

luxurious hotel in Asia. “We firmly believe in 

branding,” emphasizes Marketing Director 

Michael Hobson. “Our brand is based on a 

strong entrepreneurial culture that seeks to 

inspire our guests through outstanding service.” 

The most important thing is to sell 

guests an experience that expresses value 

in the physical product itself and in guest 

service. “Whether you are staying in London, 

Munich or Geneva—you will always see an 

Asian touch in our design,” says Hobson, a 

British national. “Our international marketing 

campaign is linking the Group’s well-known 

symbol—the fan—with international personalities 

such as the American model Jerry Hall 

and Asian martial arts star and actress 

Michelle Yeoh, who regularly stay at our 

hotels and consider themselves to be fans of 

the Mandarin Oriental Hotel Group.” 

the brand, it is important to ask whether you’ve created anything 

that can surprise,” says Arnell, who has also worked on 

product and store design. “The people will come back because 

surprises exert a tremendous attraction. In the final analysis, 

our job is to inspire people and to extend an invitation. Perhaps 

the word ‘brand’ should be banished and transformed into 

something that says evolution.” Products should be measured 

by their contribution to culture and society, he says. 

per week in the United States, and 

in body-conscious Southern California, 

the juice is faring better in 

terms of sales figures than any 

other premium fruit drink. “We 

intend to be as honest as the pomegranate 

itself,” says Resnick, who 

is known in the American press as 

the Pom Queen. “Our product is honest 

and healthy. We would never 

use artificial additives.” 

28


»Our customers are not just 

looking for meal ingredients, 

but for ingredients that 

suit their lives. We offer 

them lifestyle solutions.« 

BRIAN CORNELL 

CHIEF MARKETING OFFICER, SAFEWAY INC. 

Safeway, the third-largest grocery chain in the 

United States, with sales of more than $30 billion, 

has transformed 450 of its stores into 

lifestyle centers for the upper middle class— 

with fine wood shelves, sophisticated lighting, 

»We’re marketing 

an experience. And 

that changes from 

time to time. If a 

restaurant isn’t doing 

well, we tear it down.« 

J. TERRENCE LANNI 

CHIEF EXECUTIVE OFFICER, MGM MIRAGE 

If there were a king of Las Vegas, his name would be 

J. Terrence Lanni. The chief executive of the casino and 

hotel empire MGM Mirage is ruling over 46 percent of all 

the beds in the gaming metropolis and 40 percent of all 

one-armed bandits. MGM Mirage owns properties in all 

categories—from simple slot-machine casinos on the 

Strip to the elegant Bellagio with its own fine-arts gallery. 

»If you do things 

that your 

customers value, 

your brand will 

profit. In the end, 

only authenticity 

counts.« 

JOE REDLING 

CHIEF MARKETING OFFICER, AMERICA ONLINE 

inlaid floors, sushi bars, and in-house bakeries 

and butchers. In order to communicate the new 

claim, “Ingredients for Life,” Safeway initiated 

the largest marketing campaign in its history— 

to the tune of more than $100 million. 

“Until now, grocery sales have been fairly undifferentiated,” 

reports Chief Marketing Officer 

Brian Cornell. “Our customers want a genuine 

shopping experience, however. They’re looking 

for a relaxed and pleasant atmosphere. And 

they love outstanding service.” That is why 

Safeway completely changed its product portfolio 

and its point-of-sale appearance. “We've 

brought more brand products into our program 

and improved the incentives that our markets 

offer,” says Cornell. “Our new campaign, which 

we began in April 2005, is much more than just 

marketing. We’re creating a new brand, thus differentiating 

ourselves in the marketplace.” 

An integrated brand can not be created out of such diversity—and 

that is not what the group is after anyway. 

“We expanded the MGM Mirage Group within 10 years 

from one hotel to 22,” reports Lanni. “We run hotels and 

casinos in the lower, middle and upper segments, and we 

don’t want someone going into a hotel casino on the 

main road in Las Vegas and thinking that it belongs to 

the same people who also happen to own the Bellagio.” 

According to Lanni’s own credo, no one who comes into 

one of his casinos will see a sign that has the MGM 

Mirage name on it. “It is our intention that people deal 

only with individual brands.” 

The sheen had worn off Internet pioneer 

AOL, because an increasing 

number of users switched from 

modem to broadband. “The AOL brand 

is currently undergoing a transformation,” 

says Chief Marketing Officer 

Joe Redling. “We were the market 

leader in the Internet dial-up segment.” 

As it became outmoded as a 

result of broadband, AOL also began 

to lose out. “We weren’t quick enough 

in switching over to the new world of 

broadband along with our customers,” 

says Redling. From a customer 

survey, the provider realized 

that fraudulent e-mails and viruses 

are a priority for users. Since then, 

Redling has known one single focus: 

“Online customers want to be better 

protected; they want to be warned 

when trouble is looming, and they 

want it automatically.” The hope is 

that this focus on Internet security 

will give AOL back some of its old 

brand clout. Redling: “We’re going to 

position ourselves as an advocate for 

security on the Internet.” 

29


NIKE 

E 

E- E+ 

Passion 

Thrill & Fun 

Fair 

Vitality 

Classics 

Nature 

Carefree 

- 

Purism Tranquil 

Clanning 

New&Cool 

Service 

+ 

24/7 Protech 

ALLIANZ 

E 

E- E+ 

Passion 

Thrill & Fun 

Fair 

Vitality 

Classics 

Nature 

Carefree 

- 


Clanning 

New & Cool 

Service 

+ 

24/7 Protech 

Smart Shopping 

Quality 

Personal Efficiency 


Quality 


Proven 

Total Cost 

Customized 

R 

R- R+ 

LUFTHANSA 

E 

E- E+ 

Passion 

Thrill & Fun 

Fair 

Vitality 

Classics 

Nature 

Carefree 

- 


Clanning 

New&Cool 

Service 

+ 

24/7 Protech 

Proven 

Total Cost 

Customized 

R 

R- R+ 

SONY 

E 

E- E+ 

Passion 

Thrill & Fun 

Fair 

Vitality 

Classics 

Nature 

Carefree 

- 


Clanning 

New & Cool 

Service 

+ 

24/7 Protech 


Quality 



Quality 


Proven 

Total Cost 

Customized 

R 

R- R+ 

Proven 

Total Cost 

Customized 

R 

R- R+ 

The Brand Profiler makes it possible to represent consumption-relevant values and 

perception patterns visually—as if on a topographical map. Many high points mean 

significant deviations, with red standing for negative and blue for positive intensities, 

E for emotional decisions and R for rational behaviors. For example, Nike buyers do not 

care much about “nature” but identify that much more with thrills and fun. For conservative 

Allianz customers, on the other hand, thrill is a negative; they consider nature 

and fairness, but also quality and service to be important. 

Values Chart 

E 

R 

+ 

- 

= emotional 

= rational 

= more 

= less 

Fair 

= Favorable 

= Negative 

= Consumer view 

of the value 

30


RB PROFILER: 

EIGHT ARCHETYPES 

AND THEIR 

CONSUMPTION PROFILES 

Minimalists, maximalists 

TO SUCCESSFULLY POSITION A BRAND TODAY REQUIRES AN ANALYTICAL FOUNDATION. 

THE RB PROFILER MAKES IT POSSIBLE TO CATEGORIZE CONSUMERS IN GROUPS THAT THINK 

AND CONSUME ALIKE—AND THUS PREFER PARTICULAR PRODUCTS. 

s 

EVERY TUESDAY EVENING just after nine, Berlin’s 

hippest young women meet at the Sage Club, a converted 

subway station in the city’s Mitte district, to do 

something that women in discotheques otherwise 

seldom do—they watch TV. With mojitos, margaritas 

and other cocktails in hand, they follow the sorrows 

and pleasures of shoe- and shopping-addicted New 

York sex columnist Carrie Bradshaw and her friends. 

TV network SevenOne, sponsor of the Sage Club 

events, hosts regular “Sex and the City” parties in 

12 German cities. 

Results from rb Profiler, a brand assessment 

tool from Roland Berger Strategy Consultants, had 

made it clear to the network executives that the 

demographic for the TV series—high-earning, highspending, 

urban, single women—a group that is 

extremely attractive to advertisers, needs to be 

addressed directly by events. Accordingly, they were 

tempted with a glamorous appearance at the Sage 

Club by the “L’Oréal Styling Lounge” featuring the company’s 

top-of-the-line hairdressers. 

Peter Christmann, Sales and Marketing Director 

of SevenOneSat.1 Media AG, emphasizes the analytical 

power of the rb Profiler. “The fact that we use 

this tool exclusively within the TV landscape gives us 

a competitive advantage in an intensely competitive 

industry,” he says. 

INSTRUMENTS LIKE THE RB PROFILER reflect a 

paradigm shift in brand management. In the place 

of the intuitive marketing that remains the rule in 

owner-led companies, there now is mathematical, 

market research–based brand analysis. This approach 

sees brands from the perspective of customers and 

consumers, and helps managers make marketing 

decisions on a quantitative basis. 

Roland Berger Strategy Consultants developed 

this psychographic tool some 10 years ago. Since then, 

the rb Profiler has been used in 15 countries and on 

some 100 projects, involving major firms such as 

Coca-Cola, Yahoo, MasterCard and Agip. André Witschi, 

Executive Director of Accor Hotellerie Deutschland, is 

full of praise. “The rb Profiler is an excellent instrument 

with a very good methodology,” he says. “We 

found it to be extraordinarily helpful in making an 

objective evaluation of a very complex brand merger 

and also conducting our repositioning, co-branding 

and re-branding process.” 

The data underlying the profile is obtained from 

professional surveys of 1500 to 2000 representative 

persons per country, based on a combination of psychological 

and sociodemographic information. The 

analysis makes as much use of hard information, 

such as the income category of the respondent, as 

of “soft” information, such as values and personal 

consumption patterns. 

By combining these elements, the rb Profiler 

exploits the insights gained from consumer research 

since the late 1970s that it is not enough to classify 

consumers just by basic sociodemographic data. The 

shift to group characterization according to attitudes 

and lifestyles has, for example, shown up in the 10 

“Sinus communities” developed by the Franco- 

German Sinus Sociovision Institute. In this grid, 

consumers are classified as, for example, “modern 

performers” or “consumption materialists.” 

“THE FACT THAT YOU ARE A WOMAN or have a 

bachelor’s degree and earn between €1500 and 

€2000 a month is not enough to determine buying 

habits,” claims the Infratest marketing research institute, 

which is a subsidiary of TNS Group, of London. 

“You do not choose a brand because you’re 14 to 49 

years old and live in a midsize city. You choose a 

brand because it represents values that you would 

like to associate yourself with.” Accordingly, the 

Rationalist (19%) technocrat, elitist, 

pro-technology, performance oriented, 

mature, established, responsible, 

rational consumption style 

Altruist (14%)ethically oriented, 

communal, involved, harmony, timeless 

elegance, sophisticated lifestyle, 

health- and price-conscious 

E 

E- E+ 

- + 

R- R+ 

R 

Maximalist (14%) progressive, hedonistic, 

premium brands, egocentric, 

secure about style, rejects thrift 

Emotionalist (13%) idealistic, socially 

involved, environmentally conscious, 

fun, lower income, pleasure 

without regrets 

Egocentric (9%) strong individualists, 

spontaneous, trend-conscious, 

carefree, young but cost-oriented, 

new technologies 

Minimalist (9%) price-conscious, 

thrifty, need-oriented, orderly, rejects 

status symbols, skeptical of brands 

Traditionalist (8%) relaxed, low-risk, 

aware of traditions and environment, 

past- and need-oriented, thrifty, 

price-sensitive 

Nonconformist (8%) strong, independent, 

rejects mainstream values, 

risk-taker, adventurous, prefers 

functional products 

Source: Roland Berger Strategy Consultants 

31


Global Brands 

HOW THREE FIRMS SUCCESSFULLY 

INTEGRATED THEIR COMMON 

BRANDS AFTER TRANSNATIONAL 

MERGERS AND ACQUISITIONS 

Market globalization poses new 

challenges for brand management. 

It is not just that the balancing 

act between global branding 

and national particularities 

requires tact. Mergers and acquisitions 

mean that setting the 

future course of the affected 

brands can be changed instantly 

by a new business environment. 

Here are three fundamental 

branding decisions: 

pAfter oil company BP acquired 

the Aral brand in 2002, the company 

decided immediately to 

re-brand its 650 German BP gas 

stations with the blue diamond 

logo of the subsidiary. This was a 

smart move, as the “European 

Trusted Brands” consumer study 

reports, because Aral ranks first 

in the gasoline category, while its 

yellow and green parent is placed 

well down in the middle of the 

overall standings. 

pAfter French hotel operator 

Accor took over Dorint, it adopted 

a co-branding strategy. The Accor 

brand stays in the background on 

the German market, while elsewhere 

the Dorint name was combined 

with Accor brands like Sofitel 

or Novotel. Future top-class 

sites will be called “Dorint Sofitel,” 

while the three- and four-star 

business class hotels continue to 

use the “Dorint Mercure” and 

“Dorint Novotel” banners. 

pWhen Deutsche Telekom 

bought small US cell phone service 

provider Voicestream (then 

only number six in the American 

market), the company tested the 

name T-Mobile in July 2002 in 

Nevada and California. The test 

was a success. Just a few months 

later, the Voicestream brand had 

disappeared from the market in 

the rest of the United States. 

rb Profiler is able to describe the clusters of consumers 

that share certain behavior patterns and sets of values. 

Using this approach, Roland Berger Strategy Consultants 

have identified eight archetypes: rationalists, 

altruists, maximalists, minimalists, emotionalists, 

egocentrics, traditionalists and nonconformists (see 

page 31). The largest of the eight groups, accounting 

for 19 percent of consumers, is the rationalists, who 

can be distinguished by their elitist, pro-technology 

and performance-oriented attitudes. 

Based on a grid of some 19 consumer desires 

and values, the rb Profiler determines the brand 

awareness of the consumer and thereby creates an 

intelligent basis for discussion for everyone within a 

company who participates in brand management. 

“What constitutes [the Profiler’s] strength is that the 

quantitative/rational and qualitative/emotional perspectives 

of a brand complement each other and 

result in a holistic picture of the competitive context,” 

says Tom Ramoser, Head of the Global Strategic Brand 

Development Group at Roland Berger. “The more an 

individual’s personal value system corresponds to the 

values embodied in a brand, the more probable—and 

the more regular—that person’s decision to purchase 

the brand will be.” 

The rb Profiler has proven to be especially useful 

in developing markets where the structure of the 

customer base is still substantially unknown. An 

example is China, where it has been used by Li Ning, 

the sporting goods manufacturer, and China Telecom. 

The Profiler is already considered the leading instrument 

for market analysis. With the help of the Profiler, 

Roland Berger discovered that in the metropolitan 

regions of China, 21 percent of the population can be 

classified as belonging to the egocentric archetype. 

This category is known for a progressive, hedonistic 

orientation that rejects traditional value patterns. 

Implications for consumer products are clear. 

THESE ARCHETYPES ARE NOT ONLY detected and 

quantified by rb Profiler but—even more usefully— 

they are visualized. This aspect makes the approach 

easier to use and thus likely to be popular in practice, 

according to Amitava Chattopadhyay, marketing professor 

at the Singapore INSEAD, the Asian branch of 

the Paris management school. The two-dimensional 

representation form responds to decision-makers’ 

needs for quick applicability of theoretical insights. “In 

practice, simpler is usually better,” notes Chattopadhyay. 

After all, not every CEO has studied statistics. 

Unlike the demoscopic analysis process offered by 

market- and consumer-research institutes, which is 

as tedious as it is expensive, the rb Profiler offers 

quick results for orientation and implementation. This 

analysis tool also works very well in very fast-moving, 

intensely competitive markets—like the media. 

SevenOneSat.1 Managing Director Peter 

Christmann uses rb Profiler, among other things, for 

the complementary, typological positioning of his four 

TV channels. He differentiates the channels, each of 

which is aimed at quite a different target group— 

SevenOne for young people, Sat.1 for families, Kabel1 

for an older movie-audience—and steers the various 

programs, along with how they are represented to the 

public (publicity and trailers) through pilot testing to 

the production of their own formats. 

By so doing, the broadcasting group prevents 

its channels from cannibalizing their own audiences 

and supports advertisers in finding brand-positive 

contexts. German viewers, Christmann’s market, are 

bombarded by nearly 8400 television advertising 

spots every day. In the face of this overload, accurately 

addressing the right targets is the be-all and 

end-all of efficient media planning. 

LIKE ALL PIONEERS in uncharted scientific territory, 

Roland Berger consultants must also deal with 

unanswered questions. Marketing expert Chattopadhyay 

notes, for example, that traditional methods have 

difficulties measuring the unconscious content of a 

brand or the unarticulated needs of consumers. 

“There are still no segmentation tools that penetrate 

into the human unconscious,” says the market 

expert. Market research is thus still in its early stages. 

“We don’t yet have a full understanding of how the 

human brain works.” 

Only deep psychological and/or X-ray neurological 

approaches, such as those made possible by 

MRIs, may open the subconscious to the detection of 

brand impact. But until research can look directly into 

a consumer’s brain, a successful firm will hardly be 

able to avoid using the rb Profiler. 

32

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DOSSIER #03 Interview

Interview DOSSIER #03 

Brioni and the style gene 

“EVERYTHING IS ABOUT BRANDS, WHETHER WE LIKE IT OR NOT,” SAYS UMBERTO ANGELONI. EXCLUSIVELY IN THINK: ACT, 

THE CEO OF BRIONI EXPLAINS WHY BRAND MANAGEMENT MUST BE A TOP MANAGEMENT MATTER. 

THINK: ACT Signore Angeloni, how much time do 

you invest in choosing your outfit each day? 

UMBERTO ANGELONI It can take a long time. Yet I 

don’t take all that time just because my job 

would force me to. I do it because it is an instinctive 

need for me. Since I am traveling quite a bit, 

I usually choose my wardrobe for the next day 

the night before, especially when I have to take 

a trip that lasts longer than one or two days and 

takes me across several time zones. I also make 

my decisions based on whether my meetings 

are formal or more casual in character. Before I 

can pack my suitcase, I have to sit down for one 

or two hours to pick out what I will wear on each 

day of my trip. 

Does the fact that you grew up in Somalia wearing 

a loincloth contribute to your great care in 

selecting your attire? 

The African name for the cloth is “futa.” It is the 

typical garment from my time in Somalia, where 

the futa is everyday wear for men. I learned to 

knot it correctly, which is just as important as 

learning how to properly knot a tie. The knot has 

to hold, to prevent the futa from falling off. 

So a piece of cloth makes the man in Somalia. In 

our region, does the same principle apply to a 

tailored suit by Brioni? 

Would you like to know what I think about quality 

men’s clothing? The better a man is dressed, the 

more a suit expresses the things that should 

really make a man, such as strength and masculinity, 

with a certain amount of creativity. The 

worse a man dresses, without a tie and jacket, 

like you see in a lot of action films, the more of 

his masculine appeal he loses. I believe that 

women understand this principle and will always 

prefer a man who knows how to dress well. 

So Brioni is the clothing brand for real men? 

For real gentlemen, not the macho types. 

We can probably observe with confidence that 

your dressing the most famous gentleman there 

is, meaning James Bond as portrayed by Pierce 

Brosnan, has so far been the biggest coup for 

your brand management. 

At first I didn’t want Brioni to be associated with 

James Bond. But then it became clear to me that 

I’m not clothing a spy, I’m clothing a legend. 

Bond is the epitome of the bon vivant. He knows 

how to dress, what to drink, the right places to 

go and how to handle women. He is the ideal 

man to demonstrate that the Italian style is the 

most important, the most universal, in men’s 

clothing today. 

An English legend, helping to complement the 

image of an Italian brand. Surely that is reason 

for disgruntlement for your sartorial colleagues 

on London’s Savile Row. 

The British are tailoring their kind of suits, and 

we make ours. Cooperating with James Bond 

actually was very helpful for us, but not because 

we are exploiting a British icon. Bond represents 

a younger, attractive man, for whom simply 

everything is bespoke. In the early 1990s we 

had an issue because our brand was aging a bit 

with its customers. 

The glamour of the Hollywood stars who wore 

Brioni had faded. 

Unfortunately, that’s how it was. In the ’40s and 

’50s, when Brioni was a new company, you had 

icons of elegance—English aristocrats and Hollywood 

stars like Gary Cooper and Cary Grant. 

They were living role models, ideals, whom 

everyone wanted to emulate. They all wore 

Brioni suits. Bond gave our brand that glamour. 

Suddenly we heard from hundreds of people 

who wanted to have a suit just like his. 

You make suits for Kofi Annan, Nelson Mandela, 

Prince Andrew and DaimlerChrysler boss 

Juergen Schrempp. What’s special about Brioni? 

It all boils down to this: We don’t sell suits, we 

sell a lifestyle. Our customers expect the best 

tailoring, and they get it. Many private customers 

also receive personal consultations, 

which I handle myself. This personal relationship 

contributes to making Brioni more than just 

a supplier of clothes and fabric. 

You are often called the “king of good taste”... 

I am not really a king, issuing decrees and making 

laws, and I don’t want to be one. When you 

develop your own style, you shouldn’t follow any 

rules. You should know the basic elements and 

guidelines and be in a position to adapt them 

and even create something new. That’s why I 

don’t really like it when I see men copying an 

outfit. That is not what it’s all about. 

Still, when you advise your customers on style, 

you have a direct influence on their appearance. 

I don’t force anything on anyone; I just try to 

bring them closer to the joy that is a tailored 

»I believe in marketing that 

adresses the individual 

customer. I believe in the 

cultivation of customer loyalty. 

Because our customers are 

all unique, we are obligated to 

be unique as well.« 

35

DOSSIER #03 Interview 

1 Umberto Angeloni with Kofi Annan, 1997 

2 Travel jacket with a total of 16 pockets, 1968 

3 Rock Hudson in the 1950s 

4 Brioni Suite at the Milan Four Seasons Hotel 

5 Brioni patterns 

6 Master Tailor Checchino Fonticoli and Pierce Brosnan, 1995 

7 Lining of a half-finished jacket 

suit—the advantages it offers in terms of complementing 

your own shape and when appearing 

in public. I restrict myself to helping people 

develop their own personal style. Being welldressed 

is a serious business. It’s a way to show 

respect for yourself and others. 

So what style of clothing do you recommend to 

executives? 

The classical men’s suit in gray or blue, in all its 

limitless shades. It is just as appropriate during 

the day as for formal events in the evening. You 

can vary the suit a hundred times—through 

your selection of a shirt, the cufflinks, or with a 

cultivated necktie. 

Those are unusual words coming from someone 

with a degree in economics. 

Yes, I did study economics, business and for 

some time even taught at the university level. 

Getting into fashion was not a premeditated 

decision. Rather, the change was thrust upon 

me: I married into the family that owns Brioni. I 

then became part owner and had an opportunity 

to bring in a certain intuition and vision, an 

entrepreneurial spirit. In doing so, I depend on 

theoretical tools from the world of economics. 

This puts me in a position to take the business 

to the next level, accommodate the latest trends 

and promote organic growth. It’s never been 

about choosing between economics and fashion. 

With my fondness for poetry, whiskey, art, 

wellness and music, I do not feel like an 

ordinary economist. 

In any case, you have managed to increase the 

revenues of Brioni sixfold since 1990, when you 

assumed the position of CEO. And you accomplished 

this despite the fact that there have 

been no noteworthy innovations in men’s clothing 

for decades. 

More than that, the suit as we know it today 

has not really changed in the last 200 years! 

You see, today we have reached a point where 

there is a perfect method for defining today’s 

society, culture and even human development. 

It consists in the analysis of how people dress. 

The men’s suit represents the final step in the 

development of male garments, and it cannot be 

improved upon. Its function is to clothe an individual, 

while allowing total freedom of movement. 

The suit can accomplish this in a natural 

and elegant fashion and does not hinder its 

wearer in any way. In addition, the classic suit 

embodies power in every detail. It is the outfit of 

a man with power, not of a powerless one. 

So power and success are integral parts of the 

Brioni brand. Is that why even American rappers 

love to wear your suits? 

When a rapper puts on one of our suits, he is trying 

to express his power, whether it is economic 

power or the power to communicate and seduce 

his fans. In that moment, he is wearing a power 

suit and not a rapper suit. 

Don’t rappers present a problem for your brand? 

They are not really your target customers. 

People who come to us to have a suit tailored do 

not belong to any group—not a cultural one, a 

national one or a professional one. The customers 

that we want to appeal to are everywhere. 

We are looking for a certain approach: 

The deliberate search for a suit with the best 

workmanship, which customers use to express 

their individual personality. And this attitude is 

often found in men who are in positions of 

power. Therefore, I cannot say that my customers 

should be 25, 30 or 40 years old; or be 

whit;, or come from England, Germany or Italy; or 

be in a specific profession. My customers should 

be very diverse. What I am truly not interested 

in are people who buy the suits just because of 

the status or those who are just spending their 

money out of boredom. I prefer customers for 

whom beauty is a necessity. 

But many top-level executives use focus-group 

surveys to back up their decisions about a 

brand’s direction. Is that too crude for you? 

It is popular to define customers according 

to demographics and based solely on their 

purchasing power. For example, that they own 

two homes, three cars, and are spending this 

and that amount of money on traveling. That is 

devoid of sense. 

What is your brand philosophy? 

I believe in a brand that focuses on individual customers. 

I believe in the cultivation of customer 

loyalty. I believe in customer lifetime value, in the 

maximum value of the customer, my customer. 

Our advertising slogan is “one of a kind.” I strive to 

be unique, because our customers are unique. 

And ideally our marketing is tailored to each customer 

personally. I think that is important and 

appropriate for a company like Brioni. Any other 

method would be wrong, or could even do damage. 

Our target customers would either completely 

ignore such advertising, or it might even be 

kind of offensive to them. You shouldn’t be useless 

or offensive: That is certainly more costly. 

Do you consider that to be your special role as 

an ambassador, as the top representative of the 

Brioni brand: to be unique? 

Today, the entire world is revolving around brand 

management. The brand is everything, whether 

we like it or not. I think that unfortunately brands 

are advertised too much today, it’s like they are 

being forced on people. Recently, I read an interesting 

marketing study from the United States, 

which is conducted every 10 years, most recently 

last year. The subjects of the study were shown 

various trademarks to find out how many of them 

they recognized. How high do you think the 

recognition rate was? 

You would think that participants would recognize 

more brands after 10 years. 

In fact it was quite the opposite—they recognized 

fewer of them! If you bombard people with 

too many messages, they tend to limit the 

amount of information that they actually absorb 

or retain. That is, and this is important, why 

companies are fighting so hard to win the attention 

of customers. Nowadays brands are advertised 

independently of the actual products. 

36


1 

7 

THE BRIONI BUSINESS rose from 

a simple tailor’s shop to the status of an 

exclusive textile manufacturer within only a 

half-century. The company was founded in 

1945 by Nazareno Fonticoli and Gaetano 

Savini. They opened their first shop on the 

Via Barberini in Rome, where the company’s 

headquarters are still located. The founders 

named their company after the Brioni 

Islands in the Adriatic Sea, which once were 

an exclusive resort area for European aristocrats 

and business tycoons. They planned to 

manufacture suits that were just as elegant 

as the society people who amused themselves 

there. Since 1990, when Umberto 

Angeloni took over as CEO, Brioni has been 

following a global strategy. The exclusive 

brand is now sold in two dozen company 

shops from Milan to New York and in 500 

high-fashion boutiques. Making a handfinished 

Brioni suit requires about 160 production 

steps. Customers who are willing to 

pay €4000 or more for an exclusive 

outfit will have one custom-tailored. 

2 

3 

6 

5 

4 

37

DOSSIER #03 Interview 

UMBERTO ANGELONI assumed his 

current position as CEO of the Roman family 

business Brioni in 1990. Under his leadership, 

the company has developed into an international 

fashion group with 2000 employees. 

Originally, the 53-year-old studied economics 

in Rome and also Canada, graduating with an 

MBA. Angeloni began his professional career 

at a bank in Chicago. In 1978, he married 

the granddaughter of Nazareno Fonticoli, the 

founder of Brioni. The couple has five children 

and lives in Rome. 

So you think brands are becoming more and 

more interchangeable? 

Often it is no longer clear what a logo represents: 

a hotel, jewelry, a watch? And tomorrow—fashion? 

I think it’s wrong, especially for 

a brand like Brioni. Every brand depends on a 

particular product that embodies outstanding 

quality and gets its identity from its own origin 

and history. I believe that you take all of that 

away from a brand when a luxury product is no 

longer made in France, for example, but in 

Romania, although the brand name is a French 

one. In my eyes the brand loses equity that 

way. When it comes to Brioni, I want everyone 

to know its core, primary brand, target group 

and its key sales methods. Every company 

should guard and protect this principle. If the 

product happens to be Italian, the core item 

should be manufactured in Italy and promoted 

in an Italian fashion. 

In contrast to other fashion companies, you 

advertise your products in a very low-key way. 

We communicate with a very small group of customers. 

Advertising all over the television, radio 

and newspapers would be a real waste. In addition, 

it would even send the wrong message to 

our target customers. 

So your message is and remains uniqueness. 

Just think about our ad with the airplane, a 

Falcon 900. It symbolizes modern design, timelessness, 

power, quality. The quality in execution—something 

that is one of a kind. You just 

see the airplane, very simple in black and white. 

The motive signifies the idea: Be unique. Brioni. 

And that’s all. 

You are convinced that strategic brand management 

is a deciding factor in the evolution and 

demise of a company. Do you also support having 

a brand specialist on your management 

board, a Chief Branding Officer? 

Very good point. That is exactly what I mean. 

Especially when the CEO himself cannot sufficiently 

focus on the brand or doesn’t want to do 

so—although in the end he or she is the one who 

has the responsibility for it. 

Companies have long had heads of marketing ... 

That is true, but brand management must be 

handled at the top executive level. After all, it’s a 

matter of values, corporate identity, the brand 

and the product. That is why these values must 

be upheld. As a rule, the CEO should be responsible 

for this, because in the ideal case, it’s his 

duty; he should understand the brand, its origin 

and its future direction from the ground up. That 

is often not the case, however. 

A significant failure on their part. What effect do 

you think this has on the competition? 

I have noticed that brands are fought over harder 

than ever these days. The struggle is over 

brand awareness and extensions, where brands 

are nothing more than meaningless logos and 

names. This is the case more and more often. It 

used to be that the battle raged around only one 

thing: My product is better, I offer better service, 

my company has a longer history, I have greater 

expertise, a better image. Now it’s just: I’m bigger, 

I have more stores, more products, a greater 

market share than you. 

So Brioni prefers not to get involved in these 

kinds of skirmishes. 

In my opinion, in the luxury sector we should 

always concentrate on what the brand represents 

and which product is the brand’s core product. 

And we should always plan the design, the development 

of new products, advertising, the company 

image, communication, and sales and marketing 

with this core in mind. Once you have defined 

what the actual core is and what the brand represents, 

what remains to be done is just a controlled 

expansion. With most brands people don’t 

understand what the core product is, versus what 

defines an accessory, what’s original or an extension, 

what’s real and what’s false. 

So according to your philosophy it is best to 

increase the range, the coverage of a product 

38


our products. They are merely a potential extension 

of the Brioni brand. 

while reducing the number of core products. 

Who is not doing it right? 

Gucci is a classic example of how far off track 

you can get because it wanted to use massmarketing 

techniques. Right now it is just selling 

as a brand, as a hotel, on a bicycle, as a perfume 

or a cigarette. 

And in the meantime tradition gets lost? 

Yes, because customer loyalty is also reduced. I 

will remain loyal to a brand only if it is clear 

what the brand stands for, whether it’s understandable, 

clearly defined and endures. If customers 

at first impact find a brand to be too 

expensive, that’s too bad. But the customers 

must believe that there is no alternative. Or 

they will appreciate the quality they receive 

and that they have paid for. 

What role does pricing play in this? 

For the core business of a true luxury brand, 

price is no obstacle. The more I work to protect 

the core of my brand, the better I am able 

to fetch the highest selling prices, thus establishing 

limits of exclusivity, and increasing 

my equity. If you artificially lower prices, you 

weaken everything. 

Have any companies shown an interest in the 

Brioni brand? Have you any concerns about a 

possible merger or takeover? 

No, I am actually not concerned about other 

forces that threaten a niche company such as 

Brioni, and also other similarly structured companies 

in other industries. However, I am definitely 

thinking about the problem of family 

succession. It can turn out to be a rather 

destructive force, especially after the third generation. 

We have seen it happening with several 

fashion brands. 

Will any of your family be managing Brioni at a 

certain point in time? 

That is impossible to predict. My children would 

be the fourth generation. Nobody can control 

that. But the top management has to stay alert: 

Sometimes directors don’t give up until it is too 

late for the company. There are no other forces, 

however, that pose a threat to Brioni. The market 

and target audiences are growing all the time. 

Every day there are new rich people. Every 

minute at least one person somewhere in the 

world becomes a millionaire. 

Don’t you need to expand and develop acquisition 

strategies for the future? 

No, as far as our core production goes, we have 

already acquired a sufficient number of companies. 

We produce exclusive men’s clothing and 

everything associated with it. A few years ago 

we added matching leisure and ladies’ collections. 

Yet handbags and perfume are still not 

You have once said that your customers are biologically 

different from others. Isn’t that a fairly 

bold statement? 

There is no scientific evidence for it of course. 

But I do have the conviction that my customers 

have a certain gene that allows them to dress, 

live and also express their personality in a much 

better fashion than other people. Perhaps they 

have inherited it from earlier generations for 

whom style was still a matter of course. I actually 

do imagine that a talent for good taste, a special 

sense of style and culture, an ability to combine 

and interpret simple things in new, 

provocative and original ways is passed on 

genetically. That’s why I think: The customers of 

Brioni must have a gene with a name that is still 

unknown to us. Maybe it’s the Brioni gene; it 

could happen that it will be discovered soon. In 

any case, I myself have come across it even in 

places like Malaysia and Alaska. 

An archipelago off the Croatian coast lent 

its name to the Brioni brand. Umberto 

Angeloni intends to restore the erstwhile 

high-society resort area to its former 

luster, in particular through organizing 

golf and polo tournaments. 

39

p industry report 

sueddeutsche zeitung 

 

 

 

 

 

 

40

dramatic shortfall in the employment market 

industry report f 

New ideas, new revenues 

Advertising revenue? Through the floor. Cash reserves? A fond memory. The Sueddeutsche 

Verlag had its back against the wall. But that was then. Today the Munich company is cleaning 

up with lucrative tie-ins. A complete turnaround. 

:“We’ve never had a director who made 

as many enemies in so short a time as 

you have!” a respected journalist at the 

Sueddeutsche Zeitung (SZ) growled at Klaus 

Josef Lutz during a brief encounter in the 

lobby in early 2003. Lutz had recently been 

tapped to rescue the newspaper’s badly battered 

publisher and corporate parent, the 

Sueddeutsche Verlag (SV). 

Could a newcomer to the industry who had 

cut his teeth in information technology, and 

whose only previous experience with the 

media had been as general manager of a 

large printing company, be able to turn 

Sueddeutsche Verlag around? 

SUEDDEUTSCHE VERLAG WAS IN THE 

RED FOR THE FIRST TIME SINCE 

ITS FOUNDING IN 1945 

The Sueddeutsche, based in the Bavarian 

capital of Munich, is not just any newspaper. 

It is one of two, or possibly three, serious 

daily newspapers that are distributed 

throughout Germany and whose articles 

and editorials shape national debate. The 

paper was the first in southern Germany to 

be awarded a publishing license by Allied 

occupation authorities after the end of the 

Second World War. Before the war, Berlin 

had been the uncontested capital of German 

media. The country’s division meant that 

the Sueddeutsche, whose prewar predecessor 

had a mainly local readership, could rise to 

national prominence. 

Recently, however, the company had been 

sliding into ever deeper trouble as a result 

of the economic decline caused by the bust 

of the New Economy and the collapse of 

Germany’s tech stock market, the Neuer 

Markt. “No brakes—and heading for the 

wall,” was the headline of an article on SV 

in a leading weekly news magazine. Another 

leading German news magazine wrote of 

“naked panic” at the publisher. 

The company was in the red for the first 

time in its postwar history—€76.6 million 

in losses in 2002. Dramatic drops in advertising 

revenue—especially in its primary 

profit center, help wanted ads—high-cost 

supplements and depleted financial reserves 

had brought the media company to 

the brink of collapse. The company’s flagship 

enterprise, the Sueddeutsche Zeitung, 

lost 20 percent of its advertising pages in 

2002, and help wanted ads dropped by half. 

Tried-and-true revenue models were 

dropped overnight. In addition to the cyclical 

economic crisis, the company faced a 

structural crisis—important classified sections 

such as automobiles, real estate and 

jobs began to migrate to the Internet. The 

fact that competitors such as the Frankfurter 

Allgemeine Zeitung, another national paper, 

recorded huge losses (€60 million) as well 

was little comfort. 

SV, which had since 1945 been held by five 

families, the heirs of the original licensees, 

had only two months to make some crucial 

initial decisions. “This was no time for longterm 

strategic considerations; what was 

needed was quick fixes,” Lutz recalls. The 

partners in the company developed their 

rescue strategy with the help of a team of 

consultants headed by Karl Ulrich, a partner 

in Roland Berger Strategy Consultants. 

THE BANKS KEPT QUIET DURING THE 

HARD TIMES, MAKING IT POSSIBLE 

TO FIND A NEW PARTNER 

That is when things really started to happen: 

Cost-cutting across all SV departments, 

including layoffs; about 20 percent of the 

jobs in the company slashed; negotiations 

with the company’s banks. For the company, 

it was particularly important that “the banks 

kept silent during the hard times, which 

made it possible to look for and find a new 

partner,” says Hanswilli Jenke, CFO and 

deputy general manager of SV. 

By the end of 2002 they had found a sixth 

partner who brought urgently needed fresh 

capital into the company. The media holding 

company Suedwestdeutsche Medienholding 

(SWMH) immediately bought an 

18.75 percent share in Sueddeutsche Verlag. 

SWMH belongs to publishers Dieter 

Schaub and Eberhard Ebner, both of whom 

own regional newspapers. 

This move meant an enormous transformation 

in the corporate governance of a company 

that until then had been family-owned. 

The partners and management, which were 

41


top position in non-core businesses 

“ Newspapers simply have to be more profitable 

and lose less money.” 

Serge Dassault, publisher of Le Figaro 

given a freer hand to act because of the crisis, 

set up a three-person steering committee 

to oversee operations and to speed up 

the decision-making process. 

Among the most painful decisions made by 

the SV leadership was to close down a successful 

but costly daily regional supplement 

for Germany’s most populous state, North 

Rhine–Westphalia, after only 14 months of 

operation and an estimated investment of 

between €5 million and €6 million. 

This was where the company strategy really 

came under the magnifying glass. “Nobody’s 

interests are served by cost-cutting the editorial 

side into the ground,” the steering 

committee wrote to an understandably disquieted 

team in a March 2003 letter. Behind 

the scenes they were already working on a 

new direction for the media house. Top 

management announced the results in June 

2004 in a comprehensive 250-page white paper. 

One thing was clear—simply cutting 

costs would not save the company; other 

ways would have to be found to maintain 

and increase revenue. 

INTELLIGENT SERVICES WITH A 

SUBSCRIPTION BASE SHOULD 

FURTHER INCREASE REVENUE 

“At no time did we view the turnaround 

process solely as a cost-cutting issue,” says 

Ulrich. “From the very beginning, the 

process was market-driven and predicated 

on maintaining existing business and 

expanding into other areas.” Such an approach 

had not previously been the SV way 

of doing business. 

For the Sueddeutsche Zeitung this meant 

focusing on its national position and, in 

particular, on taking care of its brand. The 

paper’s business section was expanded and 

a stand-alone science magazine was developed. 

A youth version is in the works. On 

the other hand, a new idea for a daily supplement 

for the youth market was set aside 

because there was simply too little demand 

among advertisers. “It’s not that our quality 

has suffered; we just aren’t able to afford to 

do all the things used to do to make the 

newspaper more attractive,” says editor-inchief 

Hans Werner Kilz. 

The SZ is not alone. “Newspapers simply 

have to be more profitable and lose less 

money,” says Serge Dassault, publisher of 

France’s Le Figaro, commenting recently on 

the current crisis in the newspaper publishing 

industry. “If ad revenues rise 5 percent a 

year, and circulation revenues are flat for 

five to 10 years,” asked an analyst at at the 

July Mid-Year Media Review in New York, 

“where’s the increase in shareholder value?” 

In other words, publishers must reduce 

their dependence on advertising and find 

new sources of revenue. 

And that is precisely what the Sueddeutsche 

Zeitung has done—at the suggestion of one 

of its employees who was inspired by the 

approach taken by Italy’s La Repubblica. 

SV began a tie-in business in books, CDs, 

and DVDs. A book line consisting of licensed 

sets of 50 well-known 20th-century novels 

sold 80000 complete sets and 10 million single 

books. This was followed by a CD collection 

of piano works and a DVD collection 

consisting of 50 movies, of which—at last 

count—more than 20000 complete sets have 

been sold. Its latest project, the SZ-Diskothek, 

is a 50-piece CD set of popular music that 

launched in June. The overall editorial and 

creative concept comes from SZ Magazine, 

which coordinated the launch with a pop 

special and a series of articles. 

“This is a unique concept, and I’m sure that 

SZ-Diskothek will be every bit as successful 

as our other lines,” Lutz says. “It solidifies 

our leading position in the market for products 

that tie in well with our main business, 

newspapers.” Looking forward to 2007, management 

has identified a total of 25 prospective 

projects. Last year, the newspaper saw 

sales of its tie-in products rise to roughly 

€26 million; the company projects sales of 

€50 million in 2006. This represents a completely 

new way of doing business for the 

company, which is increasingly transforming 

itself from a classical newspaper publisher 

into a modern multimedia provider. 

According to Ulrich, in the future, this tie-in 

business of unique products will develop 

“in the direction of intelligent services with 

a subscription base.” 

PROFITS ARE PROJECTED, BUT 

THE ICE IS THIN—AND THE 

ECONOMIC CLIMATE IS NOT HELPING 

The company’s problem areas remain in 

specialist information, which includes journals 

for specific professional groups such as 

physicians, machinists or advertising. Selling 

this part of the business seems to be off 

the table, however, since they are also operating 

in the black. According to Lutz, an 

“optimization strategy” has been developed 

for specialist information, which includes 

“portfolio cleansing from a return-on-investment 

perspective.” On the other hand, 

acquisitions are planned for the profitable 

parts of the business. 

At company headquarters the mood is optimistic, 

reflecting the fact that the company’s 

new course has already borne fruit. For example, 

in 2004 SV was able to increase sales 

and profits significantly—in the face of an 

42

estructuring is normal business 


“A time of high drama” 

Klaus Josef Lutz has been managing director of the 

Sueddeutsche Verlag for two years. With consulting support, 

he has steered the Munich-based media company out of crisis. 

unchanged difficult media market. Profits 

rose to €37.1 million, in contrast to only 

€0.6 million the previous year. Sales rose 

by 6.3 percent to €664.8 million. “We have 

demonstrated that the turnaround is sustainable,” 

says Lutz. “We are right on course, 

but the ice is very thin. And the economic 

climate is not helping at all,” says Lutz, after 

inspecting the last balance sheet. He is particularly 

optimistic about developments at 

SZ. The company’s journalistic flagship had 

an average daily circulation of 440467 papers 

during the first quarter of 2005, which 

was 3343 more than the previous year. This 

enabled the paper to cement its position as 

Germany’s leading national subscription 

daily newspaper. 

Over the medium term, top SV management 

expects adjusted profits of 10 percent before 

taxes, write-offs and interest. Given the 

volatile advertising market, this projection 

will have to remain provisional. The Munich 

publisher is pleased nonetheless. The SZ 

journalist cited at the beginning of this article 

has since revised his judgment of Lutz. 

Witnesses report hearing him tell Lutz, “If 

you leave the company now, I’ll have to 

write terrible things about you.” 

THINK: ACT You came to SV at the end of 

2002 as a turnaround specialist. What was 

the situation like when you arrived? 

KLAUS JOSEF LUTZ As bad as you can imagine. 

We recognized that our liquidity was not 

sufficient for a sustainable restructuring 

program. We brought Roland Berger Strategy 

Consultants on board, talked our creditor 

banks and secured fresh funds by taking on a 

new partner. It was a very dramatic situation. 

We asked almost every day whether we 

would be able to continues as a business. 

Was there a key moment for you? 

Well, the book project was very controversial 

inside the company. At first, I was rather 

skeptical. But after consultation, I figured, 

what is there to lose? With reasonable cost 

control, probably not much. And we’d be able 

to do something for the brand. Looking back, 

I’m glad that I allowed myself to be pressured 

by my colleagues into supporting the project. 

That was a very important experience for me. 

The SZ brand name is front and center in 

your publishing house’s overall approach. 

First of all, it is important that the publisher 

and editors work more closely together in 

defining projects and bringing them to 

fruition. Second, it is an absolute must that 

the publisher not tamper with content. Here 

SV managing director Klaus Josef Lutz 

at the SZ, the editors shepherd the project 

through the content phase, and the publisher 

markets the finished product as professionally 

as possible. Third, the authenticity, credibility 

and independence of the SZ name must 

be protected. We only do projects that fit with 

the overall SZ identity. 

Have you finished restructuring? 

Well, the hard part at least. But restructuring 

has now become a completely normal part of 

business. There is no acute danger for the 

company, but we’re still skating on thin ice. 

NEWSPAPER MARKET UNDER PRESSURE 

With a total daily circulation of approximately 21.7 million, the German newspaper market is by far 

the largest in Western Europe. Worldwide, China, Japan and the United States are the largest markets. 

Germany is in fifth place, behind India. European newspaper publishers have cause to look 

with dismay across the Atlantic. Over the last few quarters, their American counterparts have 

endured the highest readership losses since 1995. The Internet, digital television and a general 

sense of malaise about established mass media have put the print sector under increasing pressure. 

The Audit Bureau of Circulations’ latest figures show that the total circulation of daily newspapers 

in the United States has dropped by 2 percent in the past six months in comparison with 

the year before. The large newspapers are the most adversely affected. Sixteen of the top 20 

newspapers in the United States showed losses. The downward trend in print media affects 

not only circulation, but advertising as well. There, the newspaper slice of the entire US advertising 

pie dropped from 22.4 percent in 1994 to 17.7 percent today.


public-private partnerships 

Efficiency by government order 

Transformation processes and partnerships between government and the private sector 

prove that both sides of the public-private line can learn from each other and complement 

each other in joint projects—to the benefit of government and business.

privately operated prisons—current practice in england 


: 

Very few go to Doncaster willingly. True, “ 

the city of 80000 in central 

England has an amusement park, shopping 

district and racetrack to call its own. But 

more than 1100 adults and teenagers know 

these attractions at best from seeing them 

through a window fitted with bars: They are 

there to serve time in the local prison. 

Her Majesty’s Prison Doncaster looks like 

many of the world’s other prisons, and it 

would scarcely be worth mentioning if it 

were not for one special feature of the United 

Kingdom’s penal system. The Doncaster 

complex is one of what are now 11 privately 

operated prisons in the country. Premier 

Prison Services Ltd., a private service 

provider in the prison business, built the 

facility in Doncaster in 1994. The government 

provided the general framework, 

including minimum cell size. The rest was 

decided on its own by the company, a subsidiary 

of the Serco Group plc, which is 

based in the UK city of Hook. 

PRIVATE OPERATORS SAVE THE 

GOVERNMENT MONEY AND 

BEAR THE BUSINESS RISK 

Doncaster is only one of many British examples 

of the close cooperation between the 

public and private sectors, which are known 

in the UK as private finance initiatives (PFI). 

There have been nearly 500 such projects 

undertaken since 1995, including roads, 

bridges, schools and hospitals. They were 

all planned, built, operated and financed 

by private companies that put up nearly 

£23 billion. The advantage for the publicsector 

client is that the financial risk is outsourced. 

If construction or operation of a 

prison or hospital costs more than expected, 

it is not a problem for the government but 

for its private partner. 

Recent cooperation between government 

and business in the form of public-private 

partnerships has not benefited just public 

budgets, students and patients. Companies 

In view of the long lifetime of a facility, costing contracts for 

public-private partnerships is often like gazing in a crystal ball.” 

Professor John Bennett, Brunel Business School 

that take part in executing a project obtain 

access to lucrative business opportunities. 

The World Bank has estimated that by 2010, 

more than $1.3 billion will have been spent 

worldwide on infrastructure projects that 

include private-sector participation. Experts 

estimate that at least 15 percent of public 

investment will be made through publicprivate 

partnerships. According to data from 

the London Institute for Public Policy 

Research, the United Kingdom—Europe’s 

most developed PPP market—has already 

reached the 20 percent mark. 

The construction firm Bilfinger Berger, 

which is based in Mannheim, Germany, has 

already secured itself a piece of this pie. Its 

Bilfinger Berger BOT subsidiary, based in 

Wiesbaden, Germany, is increasingly involved 

in PPP projects. The industry giant 

built the new British embassy in Berlin for 

the UK government—while at the same time 

assuming responsibility for operating the 

building. In Australia, through their local 

subsidiary Baulderstone Hornibrook, the 

German firm was awarded the contract for 

the construction and 30-year operation of 

a road tunnel under downtown Sydney. 

The two-kilometer long tunnel has kept 

some 95000 cars a day off city streets since 

opening in summer 2005. The company invested 

€520 million in the project, and in 

return, it receives the tolls collected from 

the tunnel’s users. 

When government coffers are empty, such 

a toll system benefits both sides, explains 

Liam Forde, the CEO of Baulderstone 

Hornibrook. “The government can have 

roads built it couldn’t afford out of its own 

budget, with the risk borne by us, the 

private sector,” says Forde. “And the government 

obtains valuable infrastructure at 

bargain prices. At the end of a specified period 

of time, the facility returns to the government.” 

Besides security in planning, 

there is another benefit—greater solidity 

in execution. Gerhard Becher, General Manager 

of Bilfinger Berger BOT, points out, “If 

you not only build a structure but also operate 

it for 30 years, you pay special attention 

to quality and efficiency, not just to keeping 

down construction costs.” Based on these 

benefits, Becher expects his business to 

keep growing, worldwide. “It is obvious that 

many countries are going to follow the examples 

of the UK and Australia,” he says. 

PPP PROJECTS ARE NOT ONLY 

LESS EXPENSIVE—THEY ARE ALSO 

MORE EFFICIENT AFTERWARD 

The ball began rolling during the Thatcher 

government in the UK during the 1980s. At 

that time, the focus was the total privatization 

of public property, especially British 

Railway’s “Railtrack.” Thatcher’s successors 

at Downing Street continued the path begun 

by the Iron Lady. 

No wonder, given the enormous cost advantage. 

The European Investment Bank has 

calculated that across sectors, public-private 

partnerships are 10 percent to 20 percent 

cheaper than project execution by the government 

alone. Added to this is the greater 

efficiency of the process. 

According to data from the UK National 

Audit Office in 2003, some 76 percent of all 

public-private construction projects in 

Britain surveyed were completed on time. 

Only 8 percent of projects were not yet finished 

two months after the originally scheduled 

completion date had passed, in part 

because of the substantial penalties charged 

by the government. 

45


privately financed projects can increase overall welfare 

That is exactly where the risk for the participating 

companies lies. “Costing PPP contracts 

is often like gazing in a crystal ball,” 

says Professor John Bennett of the Brunel 

Business School in London. “It is inevitable 

that during a facility’s lifetime that can often 

be decades long, there will be developments 

that could not have been foreseen.” 

The public sponsor, on the other hand, risks 

giving away a bit of its sovereignty. Nevertheless, 

the question is not whether there 

will be further expansion of public-private 

partnerships, but merely how. 

STRATEGICALLY PLANNED TRANSFORMATION 

SHOULD MAKE THE ARMED 

FORCES FIT FOR NEW CHALLENGES 

It is now clear that well-prepared private 

financing models add to the overall welfare 

of society. This is because in addition to the 

acceleration of projects and improvements 

in their quality, in concrete infrastructure 

projects, there is a transfer of know-how to 

the public sector. Greater accountability 

and participation in decision-making for 

employees, a higher degree of specialization, 

and better-defined goals and rigorous 

auditing controls are the most important 

elements of the know-how transfer. 

“Obviously, the rules in a government 

agency are different than in a private business,” 

explains Adrian Ritz, member of the 

executive leadership of the Competence 

Center for Public Management at the University 

of Bern, Switzerland. “Nevertheless, 

a transformation can massively increase 

efficiency within an agency.” 

Such a transformation is currently under 

way in the German Army (Bundeswehr). 

The reforms introduced by the Minister of 

Defense are intended to redesign outmoded 

structures, processes and training methods, 

so that they can efficiently meet the real 

challenges of future decades. 

Essentially, the task involves transforming 

the Bundeswehr from an army geared 

SUCCESS CRITERIA FOR PPP 

CONSENSUS ON GOAL Every public-private 

partnership requires clear definitions of the 

services to be provided. For the client, quality 

is most important; for the contractor, top priority 

is yield; and for both, maximum efficiency. 

LIFE-CYCLE CONCEPT All costs for the service 

agreed upon should be calculated over the 

project’s lifetime and made transparent. 

RISK MANAGEMENT Who pays follow-on costs, 

if, for example, there are new regulatory conditions 

or a change in use? Generally, the “originator 

pays” principle applies. However, risk 

avoidance is very important for success. 

KNOW-HOW TRANSFER With PPPs a surprising 

amount of innovation and management knowledge 

can be transferred to public agencies. 

toward defense of the home territory into a 

strike force that can be sent anywhere in 

the world. Public-private partnership projects 

that save on operating costs are intended 

to make sure that there are additional 

funds available for investment in new capabilities 

for the armed forces. 

The advantages offered by a strategically 

planned transformation process can be seen 

from the example of the United States Internal 

Revenue Service (IRS). The trigger for 

the reform project was a wave of criticism 

that crashed over the American tax collectors 

during the 1990s. Taxpayers complained 

massively about incomprehensible 

tax returns and unsatisfactory information 

from the service’s 118000 employees. In response, 

the American Congress set up a 

number of commissions to investigate the 

problems. The experts quickly came to the 

conclusion that the IRS needed to be thoroughly 

modernized. So in 1998, the legislators 

passed a law that forced the IRS to take 

some strong medicine. 

Seven years later, the IRS has changed so 

much it is barely recognizable. Its new 

head, Charles Rossotti, has completely restructured 

what was previously a decentralized 

organization. Instead of hiring 

generalists in the regional and local offices 

who could not possibly know every detail 

of the tax system, he set up centers of 

competence organized on completely different 

principles. There are now independent 

business units that concern themselves 

exclusively with employees, small businesses 

or self-employed people. Rosotti’s conclusion: 

“We have kept the same number of 

employees but sharply improved service 

to taxpayers.” 

When agencies or international organizations 

require assistance from the private 

sector for their projects, there are interesting 

development opportunities not only for 

government agencies but also for businesses. 

For example, in early 2004, Heidelberger 

Druckmaschinen AG—a printing machine 

maker based in Heidelberg, Germany— 

joined forces with German development 

agency Gesellschaft fuer Technische Zusammenarbeit 

(GTZ) to set up a training center 

in the Afghan capital of Kabul. Here up to 16 

Afghans per course learn how to operate 

modern printing equipment. The GTZ funds 

the trainers and materials while Heidelberg 

provides the machinery. 

THROUGH A TRAINING CENTER 

HEIDELBERG POSITIONS ITSELF ON 

THE AFGHAN MARKET 

Heidelberger Druckmaschinen, which is the 

world market leader in printing equipment, 

does not consider this project simply its 

humanitarian duty. That’s because the training 

center has made it possible for the company 

to gain rapid access to the small but 

extremely fast-growing Afghan market. 

“The demand for printed matter in 

Afghanistan is enormous,” reports Michael 

Outschar, Eastern Europe Manager at Heideldberg 

who is responsible for the training 

center in Kabul. Qualified specialists are 

scarce in Afghanistan. “Without a training 

center, it would be virtually impossible to 

sell our products,” he says. According to 

Outschar, the investment in Kabul paid for 

itself after only one year: Heidelberg is the 

clear market leader in Afghanistan. 

46

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frank-juergen weise on germany’s largest public-sector transformation 

More success in a tough market 

Germany’s Federal Labor Agency has been under sustained political attack, including demands 

for its abolition. Its chairman, Frank-Juergen Weise, remains opposed—and he points to successes in 

reforming his mammoth agency, a Roland Berger client. In Weise’s view, there’s no alternative. 

THINK: ACT Herr Weise, over the last year 

and a half, you have been responsible 

for the largest reform of a public agency in 

Germany, as head of the Federal Labor 

Agency (FLA), based in Nuremberg. What 

has changed during that time? 

FRANK-JUERGEN WEISE We are attempting to 

achieve several goals simultaneously by reforming 

the FLA: greater effectiveness for our 

customers and better use of our funding. At the 

same time, we also want to improve customer 

relations. A precondition for this is an engaged 

and well-qualified workforce. 

In the fall of 2003, we introduced a newly 

developed electronic control system to improve 

the effectiveness and economic viability of 

the FLA. Its use has already had a positive 

effect. Measurable successes, for example in 

significantly lower federal contributions to 

our budget, have confirmed the FLA in the 

approach we have taken. 

In spite of virtually stable unemployment figures 

during the course of 2003 and 2004, and 

a reduction in the number of employees who 

are paying social security taxes, we were able 

to integrate more people into the labor market 

than in the previous year. In the process, the 

costs associated with each person’s integration 

decreased significantly. 

In 2004, each placement specialist at the 

Federal Labor Agency found regular employment 

for an average of 1.4 unemployed 

persons per month—for a total of 208,000, 

which was 26 percent less than in 2003. What 

was the problem? 

The raw figures in and of themselves tell us 

only part of the story of how our labor agencies 

support integration of job seekers into the labor 

market. Activities along these lines include 

entering job vacancies into the FLA’s Internet 

job exchange, or tracking down jobs that are 

open with the help of a job robot. Intensive consultation 

with clients with regard to individual 

labor market opportunities often promotes 

their more rapid integration back into the 

labor market. 

But none of that is considered if we only look 

at the raw data. What is left out is that the 

FLA has supported many unemployed people 

financially, enabling them to become more independent 

so that they can get off unemployment. 

According to current studies, the FLA 

has increased the quality of our job placement: 

The success rate of those seeking positions 

through our agencies has increased from approximately 

30 percent in 2002 to more than 

45 percent in 2004. 

With such a gigantic agency how do you 

intend to achieve your oft-cited customer 

orientation? 

This year, all federal labor agencies will be 

transformed into client centers. We will also 

introduce a new telephone service. Our clients 

will then be able to get answers to all their 

questions by phone. Long trips to the labor office 

will largely be a thing of the past. 

We will also facilitate more effective job placement 

by having fixed consultation schedules. 

This will do away with the interminable 

waiting lines at the agency’s offices. With a 

standard operating procedure, placement specialists 

will be able to help individual clients 

better and reach agreement on appropriate 

actions. On the other side of the equation, the 

needs of employers will also be front and center 

again. They will now have someone to talk to. 

A commitment to service standards will guarantee 

high quality and, we hope, a higher success 

rate in filling positions. 

This transformation in the Federal Labor 

Agency is occurring at a time of high unemployment 

in Germany. What can your placement 

specialists really do when increasing 

numbers of job seekers are finding fewer 

positions available? 

It is undeniable that there are considerably 

fewer open positions in Germany today. But if 

you compare only the number of unemployed 

with the current number of open positions, you 

miss the actual dynamic in the workplace. On 

the one hand, about 7 million people become 

unemployed over the course of the year; but 

almost exactly the same number found jobs 

during this same period. 

I would like to point out something that is 

often forgotten: The FLA can not create jobs. 

All it can do is to contribute to shortening the 

length of unemployment given the overall 

economic situation at the time. 

Companies generally run more efficiently 

than state agencies. What private-sector 

principles have you been able to adapt to 

your public agency? 

It’s true that private companies are subject 

to completely different pressures and administrative 

mechanisms than are state agencies. 

Companies may freely select their own fields 

of endeavor and strive for growth using their 

core competencies. In a bureaucracy, the goals 

are established from the outset by legislators, 

48

eforming germany’s federal labor agency 


FRANK-JUERGEN WEISE has been the 

Chairman of the Board of the Germany’s Federal 

Labor Agency, which is based in Nuremberg, since 

February 2004. He is thus responsible for its transformation 

into a modern service-oriented organization. 

The 53-year-old heads an agency with 90,000 

employees throughout the country. Before his 

predecessor, Florian Gerster, tapped him to head 

the giant agency in Nuremberg in May 2002, Weise 

ran Microlog Logistics, a software company he 

co-founded in 1997. He began his career in 1972 in 

the Bundeswehr, Germany’s armed forces, where he 

received officer training and became a parachutist. 

He later studied business administration while still 

serving in the Bundeswehr. A trained auditor, Weise 

is an uncompromising proponent of cost accounting, 

efficiency and lean management. 

and to that extent there is no entrepreneurial 

freedom. The direct pressure on a public 

agency to finance itself is not as great as in the 

private sector. In addition, a profusion of legal 

regulations hem us in, so that people can 

easily come to see us as overly bureaucratic. 

Would the pressure of external competition 

be helpful? 

The private-sector concept of competition can 

be mapped onto a public agency only in a limited 

manner. However, competition in terms 

of service is certainly possible. It could be set 

up to mimic the marketplace. Comparable 

interagency approaches have been common 

for many years, and we are trying to foster a 

sort of operational internal competition among 

all labor agencies within the Federal 

Labor Agency with our electronic oversight 

system. Competition drives performance. We 

are currently introducing cost and performance 

accounting, and we have developed 

targeted programs for our client groups. We 

are closely monitoring their success. 

Politicians are demanding that the 

Federal Labor Agency be completely 

privatized. Why shouldn’t it be? 

As far as the questions regarding how unemployment 

insurance, employment services and 

employment promotion should be organized 

are concerned, these are matters for the legislature. 

What is under the purview of the state, 

and what is not? How should it be financed? 

But I see no alternative to the Federal Labor 

Agency. And the reforms that the FLA is 

undertaking mean that there will be no need 

to fear comparison with alternatives. 

49


trends and sectors 

The shape of things to come 

Nanoshells are burning up cancer cells, Ireland’s cinemas are converting to digital projection 

technology, and companies are adopting Voice over IP (VoIP) technology in a big way. 

nano-oncology 

Nanomaterials are revolutionizing cancer treatment. 

The market is still small, with global revenues of $1.23 

billion, but market researchers at Kalorama Information, 

of New York, expect rapid growth. They have published 

a study that projects annual revenue growth rates of up 

to 15 percent through 2010. cancer nano-therapies 

Scientists at Charité University 

Hospital in Berlin 

have been able to halt the 

growth of certain tumors 

with iron nanoparticles. A 

high-frequency magnetic 

Year 

2004 

2005 

2006 

2007 

Sales 

($ bn) 

1.10 

1.23 

1.38 

1.55 

Growth 

(in %) 

– 

11.8 

12.2 

12.3 

field causes these particles 2008 1.78 14.8 

2009 2.05 15.2 

to oscillate with such force 

2010 2.36 15.1 

that the heat they generate 

burns up the cancer. Naomi 

Halas, a professor of electrical engineering at Rice 

University, in Houston, Texas, uses a similar principle. 

She is experimenting with nanoshells made of silicon 

dioxide and gold that bind with cancer cells. The shells 

have a diameter of 130 nanometers and are heated by 

infrared light to 55° C, which is deadly for tumors. 

Source: Kalorama Information 

voice over ip 

The Internet Protocol (IP) is conquering the world of 

voice communication. Long promised, Voice over IP 

(VoIP) systems are now making serious inroads with 

corporate customers. By using the Web, companies can 

lower their telephone bills over the long term. With 

VoIP, calls are no longer made via temporary user-touser 

connections as with ISDN. Instead, the caller’s 

voice is converted to digital packets, sent piece-by-piece 

via the Internet or other network, and then reassembled 

before reaching the recipient’s phone. Phone calls have 

finally joined the list of communication forms—such as 

e-mail, SMS messages and videos—with formats that 

allow digital exchange. 

Three classes of system court customers’ favor: traditional 

(ISDN), IP-compatible (ISDN/IP) and pure IP. 

According to Gartner Inc., of Stamford, Connecticut, 

more IP-compatible telephone systems than traditional 

systems were sold in Western Europe in 2004. “Traditional 

systems will disappear from the market completely by 

2012,” predicts Gartner analyst Christopher Lock. 

number of telephone systems sold in western europe, 1999–2006 

Year 1999 2000 2001 2002 2003 2004 2005 2006 

Total telephone systems 899 559 910 763 741824 645182 639 290 701305 739 200 768 028 

Traditional telephone systems 864 507 804 872 599 595 434 827 377 901 311380 248 600 195133 

IP-compatible telephone systems 34 967 105 439 140 082 203 277 245 271 363 780 445 914 500104 

Pure IP telephone systems 70 452 2147 7078 16118 26145 44 686 72 812 

Source: Gartner Dataquest (May 2004) 

50

trends and sectors 


Digital cinema 

functional food 

In the past, food conglomerates such as Unilever 

and General Mills have had the steadily growing 

market for functional food all to themselves. But now 

pharmaceutical companies are getting into the act. 

Novartis has begun a joint venture with Quaker Oats, 

a division of PepsiCo, Inc. The company, Altus Foods, 

produces health-promoting grain products. 

Nestlé estimates that by 2050 half of all products 

will be enriched with various health-promoting substances—including 

old standbys such as vitamins and 

fiber. They will be joined by newcomers such as 

polyphenols, which can be derived from green tea 

and are believed to prevent cancer, and phytosterols, 

stinging nettle extracts that are thought to lower cholesterol. 

“This remains an interesting market for the 

functional food 

Year Sales Growth 

($ mn) (in %) 

2002 25 856 – 

2003 28 601 10.6 

2004 31144 8.9 

2005 33 097 6.3 

2006 34 913 5.5 

2007 36 586 4.8 

2008 38141 4.3 

2009 39 577 3.8 

Based on 2004 prices 

Source: Euromonitor 2005 

food industry, although 

development costs are 

many times higher than 

those for traditional food 

products,” says Baerbel 

Matiaske, a health-care 

specialist at the GfK 

Group, a German marketresearch 

institute. After 

all, consumers will pay 

substantially more for 

functional food. 

Unwieldy reels of 35-millimeter film are a thing of 

the past on the Emerald Isle; Ireland’s movie theaters 

are using digital technology. Why is Ireland, of all 

places, with a population of 4 million, on the forefront 

in this industry? “Eighty percent of the films 

shown in Irish cinemas come from Hollywood,” 

explained Kevin Cummins, of technology provider 

Digital Cinema Limited. “And it’s an English-speaking 

country. That makes Ireland an ideal choice.” 

Digital cinema offers better picture quality 

because the films remain free of scratches, even after 

the 1000th showing. Lower post-production costs are 

an additional advantage. A blockbuster such as the 

latest Star Wars opens in the United States with more 

digital cinemas 

Year Number Growth (%) 

2003 200 – 

2004 398 99.0 

2005 1482 272.4 

2006 2759 86.2 

2007 4221 53.0 

2008 5724 35.6 

Source: Dodona Research 2004 

than 3000 copies, which 

have to be made from the 

original at a hefty price. 

Copying a film digitally 

costs next to nothing. In 

addition, this method 

increases the availability 

of films, increasing the 

flexibility of an industry 

where distribution has 

been rather rigid. Small cinemas can get their hands 

on films sooner, because they no longer have to wait 

on the film reels from their larger competitors. New 

copies can be made of independent films very quickly 

to serve a larger audience if initial showings indicate 

a film will be successful. 

For the near future, experts anticipate unheard-of 

marketing opportunities, such as interactive showings, 

in a film industry that is completely digitalized 

from camera operator to moviegoer. Hans Bloss, an 

image technology researcher at the Fraunhofer- 

Gesellschaft Institute in Erlangen, Germany, says, 

“This opens up new business models that will have 

an impact on the entire media and leisure market.” 

51

p business culture 

homa bahrami

the lowest common denominator of business is complexity 

business culture f 

1. The economy is developing into an ecosystem in which people, information 

and ideas also move beyond company borders. 

2. The challenge of controlling the increasing complexity of this ecosystem 

mostly through self-organization has become a critical issue. 

3. Management has the responsibility of systematically launching 

transformation processes and leading organizations to “super-flexibility.” 

Remarks by Homa Bahrami, Senior Lecturer, Haas School of Business, University of California 

‘Like being in the rain forest’ 

Our economy is a self-regulating ecosystem says the dogma of the disciples 

of bionomics. Yet what can companies really learn from the organizational principles 

found in nature? A lot, suggests Berkeley economist Homa Bahrami. 

THINK:ACT In the mid-1990s, Michael 

Rothschild of the Bionomics Institute applied 

principles of biology to the world economy. 

How relevant are these ideas today? 

HOMA BAHRAMI Indeed, it is a paradigm shift 

that still works today. Metaphorically speaking, 

the image of an economic machine with 

gears that function according to rigid mechanical 

principles is out of date. It has been replaced 

by the idea of a constantly evolving ecosystem, 

more like a tropical rain forest in its specialization, 

interdependence and self-regulation. 

Such biological concepts are often 

considered neoliberal, even Darwinistic. 

No, this is not about the pros and cons of government 

intervention in the economic process, 

but rather very reasonable attempts to explain 

economic systems. As a matter of fact, networks 

seem to me to be the only organizational form 

that can deal with the pluralism and complexity 

of our technologically determined age. It is 

Darwinistic in that it implies “survival of the 

fittest” and being “fit” is a function of being able 

to adapt to transformational changes. 

What conclusions can be drawn from this 

view about the organization of a business? 

Our economic context is highly complex and 

dynamic, requiring super-flexible approaches 

to strategy-making, organizational design and 

leadership. The transformation of sectors such 

as high tech, publishing and financial services 

has been particularly pronounced. Meeting the 

challenge of adaptation and reinvention is 

becoming leadership’s central task and a potential 

threat to the survival of many organizations. 

How can we better manage the problem 

of growing complexity? 

We need to create super-flexible approaches 

that enable an enterprise to address the paradox 

of stability on the one hand, and transformation 

on the other. Our world is too complex 

and uncertain for binary, either-or solutions. 

Is such a super-flexible organization even 

manageable anymore? 

Now more than ever, it is vital to develop the 

capacity for self-direction. Think of a flock of 

birds, in which countless individual creatures 

move easily through the air and yet somehow 

seem to be guided by an invisible hand, even 

though we perceive no external influence. Leaders 

have to focus on creating both the “physical 

infrastructure” and the “climatic conditions” 

within which self-regulation can take place. 

Meaning a company today must form up 

similarly to—and as decentralized and flexible 

as—a flock of birds? 

That is precisely the point. Many companies 

are still structured like medieval castles, surrounded 

by high defensive walls. In the future, 

we will experience a more open system of 

knowledge exchange, a system in which people, 

information and ideas constantly circulate— 

as they do in an ecosystem. Here in Silicon 

Valley, we already have thousands of firms 

with extremely permeable walls. Employees 

are continuously changing their jobs, competitors 

may become partners overnight, and former 

suppliers turn into customers. To that 

extent, this entire region really appears to me 

as a laboratory for the globally designed cooperation 

of companies. 

53


managing implicit knowledge needs a different approach 

How can Silicon Valley of all places offer a 

blueprint for the business structure of 

tomorrow? It hasn’t yet overcome the collapse 

of the New Economy, and there is no 

sign of another job miracle. 

Silicon Valley has been, and remains, a constantly 

adaptive knowledge ecosystem. It has 

been through many ups and downs during the 

past 30 years—and so far it has always managed 

to get back on its feet. At the moment, the 

area is striving to become a center for life sciences, 

biotechnology and high-tech medical 

innovation. 

More concretely: What special capabilities 

provide the basis for your optimism? 

Because Silicon Valley’s business climate is 

characterized by pragmatism, pioneering, 

entrepreneurial spirit, can-do initiative, 

seeking behavior and a tolerant attitude 

towards failure. It is a laboratory for many 

different business experiments, and it has the 

built-in capability to recalibrate these characteristics 

based on market feedback. 

Viewing the immense talent pool of Silicon 

Valley as a bubbling primordial soup? 

That’s quite a lovely image. Just remember 

that markets ultimately consist of individual 

organizations that are like organisms and 

must adapt to their environment as in evolution—or 

fail. Business leaders have to create 

the “context” or the “climate” in which individuals 

and entities in the market can regulate 

and manage themselves. 

Is knowledge management still the primary 

method of gaining advantages in the 

competitive battle? 

The primary method for gaining advantage is 

the effective application of relevant knowledge 

to address evolving customer needs and competitive 

realities. We argue that much depends 

on a firm’s ability to be super-flexible and present 

five core principles that knowledge enterprises 

can deploy to become super-flexible. 

HOMA BAHRAMI is a Senior Lecturer in 

Organizational Behavior and Industrial Relations at 

the University of California, Berkeley. She is an 

internationally recognized expert in knowledgebased 

organizations. Her research focuses on 

the transformation of organizational structures 

and the challenges facing the knowledge society. 

Jointly with Harold Leavitt, Bahrami wrote the standard 

work Managerial Psychology: Managing 

Behavior in Organizations (University of Chicago 

Press, fifth edition, 1989). Her most recent book, 

Super-Flexibility for Knowledge Enterprises 

(Springer, 2005), co-written with Stuart Evans, discusses 

how companies can combine the entrepreneurialism 

of a startup with the stability of established 

firms. Born in Iran and raised in England, 

Bahrami is the joint founder of Pedagogy Inc., an 

executive development company in Menlo Park. 

She also is on the board of directors at a number of 

Silicon Valley–based companies. 

How should companies today approach the 

challenge of documenting their know-how 

and making it available to their employees? 

By now, businesses differentiate very carefully 

between knowledge that can be systematically 

codified, structured and stored by utilizing 

information technology and knowledge that is 

spontaneous and intuitive. While explicit 

knowledge can be codified and distributed, 

“managing” implicit knowledge needs a different 

approach: an environment within which 

knowledge workers can have creative conversations, 

develop emotional connectivity and build 

relationships of trust. 

What actual successes are you able to point 

out currently? 

Because of the systematic management of its 

patent portfolio, Dow Chemical is saving tens 

of millions in administrative costs every year 

and at the same time earns an additional $100 

million in new revenues. 

What do these changes mean for management? 

Will computers make the strategic 

decisions in the future? 

Not at all. Even the best software cannot make 

the decision for a CEO whether the proposed 

takeover of a competitor is going to be advantageous 

in the long term or if expansion in the 

Chinese market is a good idea. There’s no question 

that some amount of intuition will always 

be necessary. But decisions today are so 

complex that no matter how clever they are, 

CEOs cannot decide everything on their own, 

merely based on their wealth of experience. 

What else do they need to lead a company? 

They need complementary teams, trustworthy 

advisors and partners, peer-to-peer leadership 

practices, modular and accountable organizational 

units, and a maneuverable portfolio of 

business strategies. 

What does that sort of knowledge 

management look like? 

Instead of focusing on databases, we need 

a kind of knowledge ecology, enabling employees 

to develop their creativity and their abilities 

as well as promoting the transfer of knowledge 

and best practices on an organizational level. 

Sounds good. But does it actually work in 

practice? Give us an example. 

No company I know of is super-flexible in its 

entirety. Some, like Cisco, leverage what we call 

the “connective” component, leveraging codified 

knowledge, bringing global teams together regularly 

and focusing on key initiatives that can 

be reinforced and tracked. Others, like NetApp, 

emphasize virtual, technology-enabled communication 

and the creation of a modular organizational 

architecture, in an attempt to create 

an interactive and aligned “global community.” 

What kind of top executive wants to have 

the really important decisions taken away? 

Most knowledge companies today strive to 

create multi-dimensional structures that are 

54

homa bahrami 

business culture f 

vertical and horizontal, top-down and bottomup. 

The vertical hierarchy is about setting a 

clear direction and creating the ground rules 

within which others can operate flexibly. I have 

no doubt, however, that we are moving towards 

multi-polar structures. Distributed knowledge, 

network-like cross-connections, international 

cooperation—all these make it impossible to 

maintain the monolithic, centralized hierarchy. 

Nevertheless, some of the companies you 

mentioned appear from the outside like 

monolithic blocks. That appearance does 

not actually fit very well with the picture 

of ecosystems. 

It depends. Many of our traditional monoliths 

are in a state of transition and transformation. 

Some are more monolithic than others. But we 

do have major success stories. Take IBM for 

example. Its successful transition from hardware 

producer to a leading technology services 

company has been the result of effective leadership 

from the top, as well as many front-line 

initiatives that have coalesced over time. It is a 

clear example of a traditional company that is 

striving to become super-flexible: developing 

stable core values and strategic imperatives, 

coupled with many dynamic front-line initiatives 

and experiments. 

What were some of these initiatives and 

experiments like? 

Talented employees formed groups and regularly 

went beyond their official authority. That 

was how they made ideas into the most important 

currency within the company. Now, the 

regained flexibility means that new ideas are 

permanently bubbling up within the organization. 

Another example is the development of the 

new cell processor, the result of cooperation 

between IBM, Sony, Toshiba and many other 

technology partners. Because of its complexity, 

this development would not have been possible 

for any of them on their own. Its progress 

shows how rigid enterprise borders are gradually 

breaking down. 

55


alexander the great 

Learning from Macedonia 

What do Honda, Dell and Virgin have in common? They were able to take over markets 

despite much bigger competitors. Alexander the Great can teach managers how. 

By Partha Bose 

: 

To many historians, the Greek historian 

Thucydides, who lived more than 2500 

years ago, remains the greatest historian 

who ever lived. He fought in the Peloponnesian 

Wars, the ancient world’s Great War 

that was fought between Athens, and a 

group of Greek city-states supporting it, and 

Sparta and its allies. Thucydides chronicled 

the war, and wrote The Peloponnesian Wars, 

because, as he wrote in the introduction to 

his book, human nature being what it is, “the 

events of the past, will, at some time or the 

other, be repeated in the future.” 

It’s a very sobering thought: Everything we 

do today or will do someday in the future 

has happened in the past. This is why many 

military generals and strategists from Julius 

Caesar, Frederick the Great, Napoleon and 

George Washington, to modern generals 

such as Dwight Eisenhower, Bernard Montgomery 

and Norman Schwarzkopf remain 

avid students of Alexander. This is also why 

ALEXANDER CHANGED THE WORLD 

WITH A TOTALLY NEW 

TYPE OF WARFARE 

many business strategists from J. Pierpont 

Morgan, who founded JP Morgan, and many 

of today’s great business leaders such as 

FedEx founder and chief executive Fred 

Smith and CNN founder Ted Turner study 

the strategies and tactics of Alexander. 

The reason anyone with an interest in strategy 

ought to study Alexander is simply that 

he was really the first strategist, and everything 

we understand today as strategy and 

approach and practice—it derives directly 

from him. Before Alexander, nations 

expanded and fought wars purely on tactics. 

Even the Chinese philosopher Sun Tzu’s 

writings on warfare, which predate Alexander 

by about 150 years, are not really about 

strategy. They are interesting ways to think 

about wars. Alexander was the first general 

and leader who demonstrated to us what 

strategy is all about, and showed by example 

how smaller armies (and competitors) could 

defeat much larger ones, and even conquer 

the entire world. 

Alexander was the first leader to ever conquer 

the entire known world—from today’s 

Greece to the entire Balkans, North Africa, 

and all of Asia to northwest India. He conquered 

it within seven years of setting out 

from his native Macedonia—a feat no one 

before and no one since has ever achieved. 

Most important, he did it in a way such that 

most of the people he conquered preferred 

to live within his empire than in the empires 

they had lived in before. For 300 years after 

his death in 323 BC, the world saw a growth 

in international trade and commerce and a 

flourishing of education, arts and sciences 

that we would not witness until the Medicis 

of Florence—also great students and followers 

of Alexander—were to invent it in the 

form of the Renaissance. 

As an example of Alexander’s strategic 

insights, consider the Battle of Chaeronea, 

fought in 338 BC between the Macedonians 

led by King Philip II, and his 18-year-old son 

Alexander, and a joint army of two of 

Greece’s greatest city-states—Athens and the 

mighty city-state of Thebes. Most great 

strategists consider this battle to be one of 

the most significant battles of the ancient 

world because it was here that Alexander 

and his father laid the foundations of what 

THE BATTLEFIELD: TERRAIN 

THAT ALLOWS FOR FAST 

AND FLEXIBLE ATTACKS 

we consider strategy. For the Macedonians, 

winning against the much more powerful 

armies of Athens and Thebes would entirely 

depend on three key elements that underpinned 

their strategy—selecting where to 

fight, deciding how to fight and choosing 

when to fight. These elements remain the 

foundations of modern strategy. 

The Macedonians could have engaged the 

Athenians anywhere in Greece, but chose 

Chaeronea because the open plains would 

offer the greatest flexibility for their massive 

infantry phalanxes and high-speed cavalry 

charges. Mountains on all sides surrounded 

Chaeronea, so the action would be confined 

to the plains, and retreat would be impossible 

for the two city-states’ forces. Alexander 

was aware that Athens and Thebes’ armies 

would occupy a ridge, which, being above 

the Macedonians’ position on the plains, 

would give the city-states an edge. He also 

knew that advantage could be removed by 

an initial charge, which would definitely 

unleash a counter-attack from the Athenians 

and the Thebans. A quick Macedonian 

retreat would get the city-states to leave 

their position on the ridge. Another Macedonian 

attack would follow, which would 

decimate the city-states’ armies. That is 

56

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p p p h h h h h h h h p p p 

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Strategy as an art 

Alexander the Great fundamentally 

changed how battles are fought. He showed 

that with the right strategy, a smaller army 

can be victorious over a larger one. In the 

famous battle of Issos in 333 BC, his fast 

cavalry advanced behind enemy lines and 

cut the commander off from his army. 

That proved to be the beginning of the end 

for Alexander’s opponents.

p busines culture 

alexander the great 

exactly what the Macedonians did, and they 

won. Athens lost its independence for more 

than 2000 years after Chaeronea. 

Now consider the Honda Motor Company in 

1959. It was a small motorcycle and moped 

company in Japan, with little or no experience 

of international markets. It had recently 

developed a 50-cc moped, but it wanted to 

focus on the large-motorcycle market. Everyone 

advised it to go somewhere close to its 

manufacturing base in Japan, but founder 

Soichiro Honda had his heart set on the 

United States. Like Alexander, who took on 

the two mightiest armies of the time, Honda 

wanted to take on the highly respected 

US motorcycle manufacturers like Harley- 

Davidson and British makers Norton and 

Royal Enfield. Like Chaeronea, which took 

the battle to the enemy’s backyard, Honda 

chose Los Angeles to base his company—not 

only was the city famous for its big freeways 

but films of Marlon Brando and James Dean 

had popularized a life style where big 

motorbikes were fashion statements. 

THE TIME OF BATTLE: 

AFTER THOROUGH PREPARATION, 

SURPRISE THE ENEMY 

Just like the battle of Chaeronea, Honda’s 

approach shows a full-frontal attack on the 

big motorcycles in the US, then a retreat, 

followed by a major attack with the mopeds, 

whose success then Honda went on to replicate 

in the small-engine automotive market. 

The rest, as they say, is history. 

The Macedonians made the Athenians and 

the Thebans wait for almost a year before 

finally attacking them. In all these months 

they planned, they conquered little towns 

and villages, making an Athenian or Theban 

retreat impossible or cutting off their supply 

routes. So when the Macedonians entered 

the plains of Chaeronea they were immensely 

well prepared to wage battle—and on 

their own terms. A lot of what they did was 

PARTHA BOSE is the author of the 

management book Alexander the Great’s Art 

of Strategy. The Indian-born writer studied 

engineering and economics at Columbia 

University and MIT. Bose divides his time 

between London and Boston, Massachusetts. 

build perception about their strengths and 

military prowess that was well beyond their 

real capabilities. Indeed, Alexander was a 

master at deception and guile. Many of 

his later battles would become models for 

future generals, especially in the use of 

deceptive strategies. 

Because of its focus—and success—in the 

United States, Honda had taken its eyes off 

other Japanese motorcycle competitors such 

as Yamaha, which had been winning market 

share in Japan. Honda ignored the threat, 

until 1981 when Yamaha announced a range 

of models and a production capacity that 

would propel it well past Honda as the 

world’s largest motorcycle maker. Honda 

decided to attack. 

Because it was a leader in flexible production, 

Honda could announce plans to not 

only increase the number of models it offered 

to 120—twice Yamaha’s range—but also to 

modernize and upgrade each and every one 

of its models. Yamaha’s customers deserted 

in droves for Honda, so much so that the 

unsold inventory and excess production 

capacity took years to consolidate. 

Part of Honda’s attack was managing customer 

perception: They would often keep 

the base machine the same, but equip it 

with so many new components and designs 

that to a customer it would look entirely 

new and different. 

To erase the Greek city-states’ superiority in 

numbers, as well as the fact that they were 

fighting on their own soil, the Macedonians 

THE TYPE OF BATTLE: 

FIGHT THE ENEMY EXACTLY 

WHERE THEY ARE STRONGEST 

decided on an attack-retreat-attack strategy. 

They also used speed. So quick was Alexander’s 

cavalry charge that the Theban heavy 

cavalry had barely got started before it was 

completely surrounded. The Macedonians 

also targeted the strongest points of the 

enemy’s formation to attack with amazing 

force. This was counter-intuitive because 

military maneuvers had always been about 

attacking the enemy’s weak spot. Not the 

Macedonians. They knew that if they could 

defeat the enemy where it was the strongest, 

the weaker parts would melt away or surrender. 

Good strategy in war or business 

remains very much about attacking the 

enemy’s strong points. 

When Virgin Atlantic launched itself as an 

airline, it did not choose to attack British Airways 

or any of the other big airlines on their 

smaller routes: They went for the most profitable 

and competitive segment: London to 

New York. When Dell entered the PC business, 

it took on the highest-margin businesses 

of IBM and Compaq. Successful attackers 

always focus on the most profitable parts of 

the competition. Then they attack those segments 

with everything they have, while not 

forgetting what it is that makes them different 

and distinctive to customers, employees 

and suppliers. Moreover, they achieve their 

strategic objectives in ways that are not 

clearly decipherable to most people at the 

start, and yet, before competitors know it, 

they have arrived and taken over their market. 

For better understanding of how to do 

that, reading the strategies and tactics of 

Alexander the Great is a good beginning. 

58

more countries than ever before have entered the america’s cup 2007 competition 


The Swiss defense 

Sails have been hoisted, as teams from 10 nations battle on the 

waves for America’s Cup 2007. The spectacular competition is a 

billion-dollar business. First-time entrants including Africa and 

China have planned their campaigns like startup companies. 

: 

Experienced personnel are scarce. 

With 12 teams from 10 countries, the 

America’s Cup in 2007 will have the most 

participants in the race’s 154-year history. 

Twelve syndicates from ten countries, 

among them first-time teams from Africa, 

China and Germany, will sail to the starting 

line for the 32nd America’s Cup competition. 

By the time the finals start in 2007, the teams 

will have had to prove themselves in a number 

of preliminary regattas. 

The competition is an almost $2 billion business 

that functions much like auto racing’s 

Formula 1—the same types of teams, marketing 

and sponsors. Public attention is 

guaranteed because the America’s Cup has 

become a global media event. During the 

2003 Cup competition, hundreds of television 

stations from all around the world dedicated 

almost 3000 hours of broadcasting 

time to the race. And this time, millions of 

people will follow the regatta as well. They 

are fascinated by a sport that stands for 

time-honored values such as teamwork, 

honesty and innovation. 

BY 2007, THE CREWS WILL HAVE HAD 

TO PROVE THEMSELVES IN 

SEVERAL PRELIMINARY REGATTAS 

Companies view the high-tech boats as ideal 

advertising media and lavish large amounts 

of money on their teams. Among the most 

important financiers is the Swiss biotech 

billionaire Ernesto Bertatelli. It is estimated 

that the budget for his team, Alinghi, will 

run to more than $100 million for its defense 

of the cup in the 2007 cycle of competition. 

As the last Cup winner, the Swiss team was 

permitted to choose the site for their title 

defense. They selected Valencia, Spain, in 

particular because of its favorable winds. 

The port city, which has long felt neglected 

by the central government in Madrid, was 

elated by the decision. Not only does the 

America’s Cup ensure worldwide publicity, 

but increased revenue as well. The race is a 

real economic factor. 

FOR THE REGATTAS, VALENCIA 

TRANSFORMED A PART OF ITS 

PORT INTO A MODERN CUP BASIN 

The sailing event almost started without a 

German entry. Willi Kuhweide, Commodore 

of the German Challenger Yacht Club, submitted 

all the necessary documentation at 

the very last moment. The participation of 

the United Internet Team Germany was prepared 

according to a precise business plan— 

initially without sponsors, but with that 

much more élan and daring. Jesper Bank, a 

Dane who is one of the world’s top professional 

sailors, was charged with recruiting a 

strong crew for the startup team. 

What does the America’s Cup mean to him? 

“Doing everything to perfection all at once: 

organization, management, development, 

sailors, sponsors,” he says. “It’s an enormous 

undertaking.” And Roland Berger Strategy 

Consultants supports the planning of this 

undertaking all the way, concentrating 

particularly on organizational tasks and 

project management. 

Sailing teams from 10 nations will make the 

America’s Cup regattas a gripping race. The Swiss 

Alinghi team, which won in 2003, will defend its title in 

2007 at Valencia, Spain. 

59


ten years after 

Megatrend Mandarin 

In his best-selling Megatrends Asia (1995), John Naisbitt predicted that Asia would 

become the world’s pre-eminent economic region. However, we are still waiting for the 

fall of the West and the triumph of the Chinese language—which he also predicted. 

:“If I were 20, I would learn Mandarin and 

head for China,” says John Naisbitt. Now, 

however, he is 75. But despite his age, the 

US-based trend researcher travels to China, 

where he holds a chair at the University of 

Nanjing, several times every year. Only 

learning Mandarin has proved too much, 

even though he wrote in 1995,in his widely 

respected book Megatrends Asia, that 

Mandarin Chinese would in time rise to 

become a world language. 

Naisbitt did his first longer stint in Asia in 

1967. Back then, he worked for IBM, but he 

took a year off to advise the Thai government 

on agricultural development in the 

LIKE EUROPE IN THE 19TH CENTURY AND THE 

UNITED STATES IN THE 20TH CENTURY, 

ASIA WILL COME TO DOMINATE OUR TIMES 

northeast part of the country, a poor and 

traditionally backward region. Naisbitt, a 

former sub-cabinet official and assistant to 

American presidents John F. Kennedy and 

Lyndon B. Johnson, soon became convinced 

that the largest and most populous continent 

would shape the 21st century much as 

Europe had shaped the 19th century and 

North America the 20th. 

Naisbitt summarized his hypotheses in 

Megatrends Asia. Addressing the importance 

of Asia’s rise, he wrote, “Not one stone will 

remain upon another”—the rapid rise of 

Asia would question the West’s pre-eminent 

role in world affairs. On the other hand, 

Naisbitt recognized and reported early on 

some of the unexpected opportunities that 

both Europe and the United States would 

be able to find in Asia. 

China’s long-term rise as a superpower 

Naisbitt considered a done deal. He ascribed 

particular importance to the network of 

overseas Chinese, whose collective economic 

power is already comparable to that of a 

major national economy. In contrast, he saw 

Japan’s place in the global economy as 

endangered, as no sector of the island’s 

economy was showing growth in 1995. 

Ten years later, the central tenets of 

Naisbitt’s forecasts have been confirmed. 

China is the country driving economic 

growth in Asia, not Japan, or the Asian tigers 

such as South Korea or Singapore. With an 

annual average growth rate approaching 

10 percent over more than two decades, the 

Middle Kingdom has been the motor behind 

the continent’s growth. 

The World Bank estimates annual economic 

growth in China will continue at an average 

of 5.5 percent for the years from 2011 to 2020. 

However, this epochal development has 

JOHN NAISBITT, born in 1930, is one of 

the best-known trend researchers in the world. He 

studied at Harvard, Cornell and the University 

of Utah, and was later a top manager at IBM and 

Eastman Kodak. Under John F. Kennedy, he 

was made Assistant Secretary of Education, and 

Lyndon B. Johnson tapped him as a Special 

Assistant to the President. Naisbitt has taught at 

Harvard and in Moscow; he is currently a professor 

at the University of Nanjing in China, and is a muchsought-after 

speaker. His Megatrends (1982) was 

at the top of the New York Times best-seller list for 

more than two years; it has since been published in 

57 countries and sold more than 8 million copies. 

Other books include Global Paradox (1994) and 

Megatrends Asia (1995). 

occurred much more smoothly than Naisbitt 

predicted in his book. In the mid-1990s, he 

warned that “the West could be left behind 

as a result of the economic rise of Asia.” 

Soon, he wrote, the United States and 

Europe would have to play second fiddle in 

the world. However, 10 years after the book 

appeared, the United States remains the 

most important player on the world stage, 

both politically and economically. According 

to Deutsche Bank Research projections, 

China will not manage to become the largest 

economy in the world by 2020 either. 

IF CHINA WANTS ITS TRANSFORMATION TO REMAIN 

PEACEFUL, IT MUST DISMANTLE THE ECONOMIC 

DISPARITY BETWEEN CITY AND COUNTRYSIDE 

Naisbitt’s prognostication that China will be 

transformed from an export-based economy 

into a domestically driven market for consumer 

goods seems in no hurry to be realized—even 

if economic growth in the region 

is heating up private consumption. The average 

income in China will rise by approximately 

4.5 percent per year through 2020, 

according to economic estimates. At that 

point, it will have reached approximately 

the same level as Brazil. 

What may prove to be decisive for peaceful 

development in the region—and not only in 

China—is whether the economic disparities 

between city and country incomes can be 

leveled. Naisbitt himself pointed this out as 

early as 1995. At present, 70 percent of the 

poorest people in Asia live in the largest and 

fastest-growing economies in the region, 

according to the Asian Development Bank 

60

“ Over the past several decades we have seen how hundreds of millions of people have emerged from 

poverty—particularly in China. This is, above all, a consequence of globalization in the world economy.” 

John Naisbitt, futurist 

(ADB). Should that overall economic growth 

rate falter, political instability may well be 

an unwelcome consequence. 

“In some parts of the continent, threequarters 

of the adult female population can 

neither read nor write,” notes ADB President 

Haruhiko Kuroda. In some Asian countries, 

infant mortality is 20 times higher than in 

the industrialized nations. 

A further hazard for future development on 

the continent is intra-Asian conflict, such as 

the dispute between Japan and China over 

how World War II should be viewed. 

According to Naisbitt, such areas of conflict 

should have already been overcome. “A new 

commonwealth is currently developing out 

of the economically symbiotic and complementary 

nations,” he wrote in 1995. “For the 

first time in the history of Asia we can speak 

of a will to cooperate among the individual 

countries, of a common desire to help each 

other to economic growth.” 

But in spite of all the potential conflict zones, 

“Asia is no longer at the periphery of the 

world economy,” says Kuroda. “It has assumed 

a central role in the economic process.” Just 

as Naisbitt prophesied in 1995. On the other 

hand, his warning that the meteoric rise of 

the region would completely overrun 

shocked Western societies now seems less 

acute. But as a production site and export 

market, Asia is a crucial priority for Western 

corporations. The megatrend holds. 

61

p service 

credits 

Additional 

insight 

Our essay writers and interviewees are also 

authors of management-related books (see 

book titles at right). In addition, three studies 

conducted by Roland Berger Strategy 

Consultants help companies deal with current 

challenges: “Growth through trust” 

shows how companies can successfully harmonize 

their goals of growth and restructuring; 

“Overcoming the limits to growth” discusses 

how economies of scale can be 

exploited more efficiently; “A straightforward 

look at China” bases its analysis of the 

rising economic power on hard facts. 

DAVID A. AAKER: 

Brand Portfolio Strategy 

PARTHA BOSE: 

Alexander the Great’s 

Art of Strategy 

SOUMITRA DUTTA, 

A. LOPEZ-CLAROS: 

The Global Information 

Technology Report 04/05 

service@think-act.info 

Do you have any questions for the editor 

or editorial team? Would you like to learn 

more about studies from Roland Berger 

Strategy Consultants? 

Write to us at service@think-act.info 

STUDY: 

Growth through trust 

STUDY: 

Overcoming the limits 

to growth 

STUDY: 

A straightforward 

look at China 

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picture; p. 51 Vincent Knapp/Stockfood; 

pp. 52–55 Anne Hamersky; p. 57 John- 

Patrick Morarescu; p. 59 Carlo Borlenghi 

ACM; p. 61 Hans Scherhaufer/images.de; 

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