Exponential - Sept 6th 2015

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Exponential 

The business & strategy press summarized and analyzed 

Do tech giants need 

to care more? 

In this issue: 

: 

September 6 th 2015 

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• Getting the circular economy into motion 

• It’s complicated: Organic brands and Big 

Brand Food 

• Tesla Motors’ new model: The Handbag 

• The Global Round Up 

• 5 Business Must Reads in 30 seconds. 

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Exponential the Skillbridge Magazine 

The global round-up 

KPMG’s London club 

KPMG launches a private members’ 

club this month in London’s Mayfair 

district, a magnet for the global super 

rich: thought to be the first venture of 

its kind by a corporate. Partners and 

clients will enjoy access to the 

decedent and luxurious five-story 

townhouse at No. 20 Grosvenor 

Square, which boasts business and 

washroom facilities and a restaurant, 

but clients will need to be 

accompanied by a KMPG staff 

member to get a drink at the bar 

Spanish firms visit Iran 

waklingsf via 

flickr 

Spain is sending an economic 

delegation to Tehran next week 

comprising representatives of 70 

Spanish companies, to discuss 

infrastructure projects and cooperation 

in the energy sector in the 

wake of July’s nuclear deal. This 

follows visits by top French, German, 

Italian and UK firms 



Google to return to China 

Google is set to return to mainland China, 

five years after it fell out with the 

Chinese government over hacking 

allegations. The company reportedly 

expects approval to launch a Google Play 

App store for the Chinese market as early 

as this fall, enabling it to sell software for 

Android devices including wearables 

Drive for more female Japanese 

business leaders 

Japanese legislators have approved a 

law requiring companies of more than 

300 employees to set and publicise 

targets for hiring or promoting women 

as managers. Prime Minister Shinzo 

Abe, who has declared his 

commitment to increasing the share of 

women in leadership positions to 30%, 

says he wants Japan to be a society 

where "women shine” 



Do tech firms need to show a 

more caring side? 

• Tech’s big guns including Amazon, Google, Spotify and Netflix under fire 

• Amazon accused of making employees cry at their desks 

• McKinsey: “it will be action – not spin – that builds strong reputations” 

‘Don’t be Evil’ 

: 

The darlings of the technology world are finding their message 

is unsettling employees, politicians and customers alike. In 

recent weeks, Amazon came under fire after The New York 

Times’ ‘revelations’ about demands on its white collar workers, 

allegedly driving some to cry at their desks. Google’s ‘Don’t be 

evil’ ethics were again questioned as it faced EU anti-trust 

charges and rejects the essence of them. But does this negative 

coverage of their business practices affect their bottom line? 



Do perceptions really matter? 

Some commentators argue that these issues of perception don't 

matter in the scheme of things. An analysis of the matter in 

Fortune points out that for every malcontent at Amazon there are 

others who think they’re “doing something worthwhile, perhaps 

even revolutionary”. Others say that the drive for growth means 

tech firms can't afford to be kind. The fantastic impracticality of 

many of Google’s projects now arrayed in the Alphabet “man 

cave” shows how it confounds the rules ordinary companies 

cannot opines the FT, but it goes on to argue, if you appear nasty 

or arrogant, "it is bad business. Powerful people, particularly 

politicians, have an incentive to hurt you”. 

A reputational House of Cards 

Google’s perceived arrogance has perhaps made it the target of 

politicians around the world, notably the Indian government and 

the EU which are actively pursuing anti-trust cases. The search 

giant aggrieved the EU by complying with "right to be forgotten” 

laws in a way that to the bureaucrats’ eyes seemed to undermine 

the spirit of the privacy legislation. Consumers too are raising 

their voices: angry protests followed Uber’s surge pricing during 

Hurricane Sandy leading to legislative pressure, which forced a 

cap on pricing after natural disasters. Even the benefits they offer 

employees are publicly scrutinised – Netflix, by offering their 

white-collar workers "unlimited" parental leave, was slammed by 

petitions and even a derogatory House of Cards spoof by women’s 

rights advocates for failing to give its low-paid workers the same. 

What the brains think… 

Tech disruptors appear somewhat vulnerable to perception 

issues on a number of fronts as their core assets are human - few 

want to work at a company that is perceived negatively. “Now 

more than ever, it will be action—not spin—that builds strong 

reputations” concluded a McKinsey report on corporate 

reputation. The trends it described - growing influence of 

indirect stakeholders such as NGOs, greater scrutiny through 

online platforms, declining trust in business – have grown more 

pronounced. The FT concludes, “they need to learn to deploy the 

emollient, tactical culture” of “stuffy multinationals”. Arguably 

this is by improving stakeholder management, not just 

shareholder management. 

Key Reading 

• FT: Silicon Valley's 

young guns 

• New York Times: 

Google Antitrust 

Inquiries Spread 

Over Globe, With 

India the Latest 

Problem 

• Fortune: Amazon: 

Dystopian nightmare 

or just another 

successful tech 

company? 

• McKinsey: 

Rebuilding corporate 

reputations 



Getting the circular 

economy into motion 

• By 2030, a circular economy could benefit by €1.8 trillion a year in the EU alone 

• The US is also embracing the idea, with Ford and Dell leading way 

Heavenly circles 

: 

The circular economy is an alternative to the current linear 

“take–make–dispose economy” embedded in most industrial 

operations. In contrast, it looks at products through their lifecycle 

and seeks to see the resources that get put into products, 

such as embedded materials, energy, and labor be re-used in 

some shape or form, such as refurbishment, recycling or 

repurposing of components. A new McKinsey report estimates 

that by 2030, a circularised economy could benefit by €1.8 

trillion a year in the EU alone: a 7% GDP increase on present 

forecasts. 



What’s driving the circular economy? 

In the US the economic advantages around cost and carbon 

efficiency are making companies like Ford embrace this model. 

The Michigan based auto giant cites insulation from oil price 

volatility as a driver. Dell in implementing a ‘closed loop plastic 

recovery’ system, points to cost savings given their use of 10m kg of 

plastic a year. Environmental certifications such as LEED 

advocate practices harmonious to the principles of a circular 

economy and are helping drive the movement. However, questions 

remain over how easy it will be to push businesses to take on extra 

costs by changing processes, even if promised long-term savings. 

Both Startups and Corporates are driving innovation. 

Examples of companies starting to embrace this model are 

visible today. Leasing and take-back schemes or in-store 

collection programs are common. Swedish chain H&M’s 

‘Garment Collecting Scheme’ puts old clothes out for “rewear, 

reuse or recycling”. Designing products using the purest 

materials, as Dutch carpet manufacturer Decco does, facilitates 

reuse. More aggressive initiatives include the work of US startup 

Evocative, which makes packaging out of bio-waste and the 

fabric of mushroom root networks and is working on mushroombased 

insulation and grow-it-yourself kits. The ‘internet of 

things’ trend is seen as a boon to the circular economy movement, 

by making it easier to monitor and track components in use. 


The potential benefits of getting away from a linear conception 

of industry are massive, as McKinsey’s Markus Zils argues. In 

2014, McKinsey estimated global savings on materials alone 

from a circular economy at scale to be $1 trillion. However, 

maximising circularity requires huge changes in business 

culture – better reverse network management capabilities; 

companies co-operating in the pre-competitive sphere. It also 

needs "a lot of players to change simultaneously" (and ideally 

governments to take the lead with procurement) writes Philips 

CEO Frans van Houten. And that, he admits, is "a chicken-andegg 

problem". 

Key Reading 

• McKinsey: Europe's 

circular-economy 

opportunity 

• FT: Sustainable 

innovation: shaped 

for a circular 

economy 

• The Guardian: How 

the circular economy 

is taking off in the US 



It’s Complicated: Organic 

Brands and Big Brand Food 

• Sales of organic-certified packaged foods up 14.7% in 2014 while other 

packaged food sales flatline 

• Laurie Demeritt, Hartman Group: “Consumers don’t outright believe big 

brands are bad” 

The organic boom 

: 

US demand for organic and “natural” foods is booming, creating 

opportunities for start-ups and Big Food alike. Retail sales of 

organic-certified packaged foods jumped 14.7% in 2014 and 

those labeled "natural" 11.7%, while packaged food sales as a 

whole grew just 1.4%. Facing declining market share, big brands 

have responded by adjusting their own recipes, acquiring small 

organic food companies - Campbell's buying Bolthouse Farms; 

General Mills purchasing Annie's Homegrown - and offloading 

lines of frozen and processed foods such as General Mills’s sale 

of Green Giant last week. 



A bad taste in the mouth 

But corporate buyer beware. Kellogg's experience with Kashi 

which it acquired in 2000 shows potential pitfalls for big 

brands. When run autonomously, Kashi prospered with sales 

growing 42% annually on a compound basis in the first 8 

years. Around 2007, Kellogg HQ appeared to start exerting 

more control over decisions and imposed its own sales team. 

Kashi lost its deft, innovative edge. Then a grocery store 

owner posted online that he removed some Kashi products as 

he had discovered they contained GMO ingredients. 

Shoppers who had been buying a "natural" product felt 

misled, in a nation where some 92% of people think food 

containing GMOs should be labelled as such. Sales fell from 

around $600 million in 2008 to $398.3 million last year. 

Complicated office politics 

While Kellogg announced it would remove GMOs from 

selected Kashi products, the scandal was given fresh impetus 

when it emerged that Kellogg helped fund a campaign 

against mandatory GMO labelling in California. A former 

executive has been brought back and the plan is to return to 

Kashi’s early 2000s product strategy to win back customers. 

That may be tricky given the trust gap that has opened up, 

suggests the Wall Street Journal. 


“Consumers are demanding more information, but they don’t 

outright believe all big companies are bad” says Laurie 

Demeritt of The Hartman Group. “About 10%-12% feel like 

that. The vast majority...want to know your story, and so long 

as you’re authentic and communicate, then great”. She adds 

most shoppers have no idea which companies own which 

lines. Organic-only start-ups may be best positioned to 

become the next generation of big brands. Referring to 

organic conglomerate Hain Celestial, a 2012 KPMG report 

observes that "with revenues of $1.13bn, it's living proof that 

it is possible to monetize organic, given time". 

Key Reading 

• WSJ: Inside 

Kellogg's effort to 

cash in on the health 

food craze 

• Guardian: Big food is 

going green, but will 

consumers buy in? 

• Guardian:Is the era 

of Big Food coming to 

an end? 

• Fortune: The war on 

big food 



Tesla’s way to bag 

more business 

Thanks for Buying a $100,000 Tesla. Want a Tote Bag 

With That? 

Tesla has launched a refresh of its 200 retail stores 

around the world, where it sells products from its own 

fashion line such as a $300 tote bag and $100 sheepskin 

driving gloves; cycling jerseys are to go on sale in 

October. The stores, along with the hiring of former 

Burberry executive Ganesh Srivats as head of North 

American sales, are part of a luxury brand- building 

strategy to seduce new customers and keep current ones 

loyal ahead of the first deliveries of the Model X SUV 

later this month. 



Winners and Losers 

Bad Week For: Glencore 

Bad Week For: Moscow trips 

Good Week For: Facebook 

The social media giant announced that for the first time, 

one billion users had logged in on a single day, Monday 24 

August. This represents one in seven of the world’s 

population, or two-thirds of Facebook’s 1.49 billion active 

monthly users. As of midday EST Sunday, 211,400 users 

had “liked” Mark Zuckerberg’s post announcing the news. 

Shares in the mining conglomerate registered their biggest 

weekly decline since the company went public in 2011, 

falling 17%, as anxieties around the Chinese metals market 

continue. Glencore has seen half its market value wiped off 

the charts this year. 

Good Week For: ZTE 

The Chinese company is now ranked fourth among 

smartphone makers in the US, behind Apple, Samsung 

and LG with around 8 per cent of the market. With its 

products the cheap phones of choice for 3 of the big 4 US 

carriers, ZTE’s next challenge is to convert high sales into 

high revenues 

The Russian capital has been voted the world’s unfriendliest 

city by Travel + Leisure readers out of 266 contenders, for the 

“aloofness” of its citizens. It also came bottom for quality of 

food. Close behind it for surliness were Atlantic City and LA. 


The Briefing 


Five key reads 

aiigle_dore via flickr 

Economist: Faster, cheaper fashion 

APPAREL– Irish discount retailer Primark arrives in the US this 

week with a store in Boston, to be followed by seven others. With 

its ultra-fast fashion approach it sells more clothes than any other 

retailer in the UK, undercutting rivals such as H&M by twothirds, 

and its share of the world apparel market has quadrupled 

over the past decade. “Consumers shop at Primark differently,” 

says Bernstein’s Jamie Merriman. “It’s almost like shopping at a 

Costco, where you’re thinking about it in terms of volume.” The 

chain is betting on elastic demand for clothes and on the 

“Instagram effect”, but may find unexpected challenges in the US 

market, and its lack of online business may lessen its impact if 

there is a trend towards buying clothes through social networks. 

Bloomberg : Emerging markets are still the future 

GLOBAL ECONOMY – World financial meltdown may not be on 

the cards after all, argues Michael Schuman. In spite of investors 

pulling $900 billion out of the world's 19 largest emerging 

economies in 13 months, in expectation of US interest rates rises, 

nations such as Indonesia have weathered the outflows without 

fully-fledged economic crisis. Neil Shearing of Capital 

Economics reasons they have lower levels of foreign currency 

debt than historically, making them more resilient. Michele 

Mazzoleni of Research Affiliates points to historical evidence 

showing that when rates rise on the news of a strong US 

economy, as would be the case now, capital flows into developing 

markets. Longer term, we should direct our focus on the fact that 

consumption in developing countries is on course to be twothirds 

of the world's total by 2050. 



The Briefing 

Economist: Why a universal flu vaccine may soon be a reality 

VACCINES - Two groups of scientists in the US may be a step 

closer to creating a universal flu vaccine, offering protection for 

years or possibly a whole lifetime against the influenza virus. 

Current vaccines work by triggering immunity against a protein, 

hemagglutinin, but the head of this molecule mutates readily, 

changing from one flu strain to the next. Both research groups 

have now found a way of isolating and holding together the 

harder-to-reach molecule stem so that this can be presented to 

animals’ immune systems. A universal vaccine would end the 

problem of seasonal jabs that fail to match the most virulent flu 

strains that year, and improve protection against flu pandemics, 

against which human populations have little or no immunity. 

HBR: The emotions that make us more creative 

WORK ENVIRONMENTS - “Odd how the creative power brings 

the whole universe at once to order” remarked Virginia Woolf. 

Research by Christina Fong at Carnegie Mellon University now 

suggests that the confusing sounding state of “emotional 

ambivalence” - simultaneously feeling emotions not typically 

experienced together, as might happen during organizational 

recruitment and socialization processes - signals a sensitivity to 

unusual associations that contributes to creativity. University of 

Pennsylvania psychologist Scott Barry Kaufman suggests that 

managers look beyond simplistic ideas of encouraging positive 

employee emotions to promote innovation, and pursue emotional 

ambivalence and other metrics such as motivational intensity to 

“embrace the inherent messiness of the creative process” 

Time: Lack of sleep dramatically raises risk of getting sick 

SLEEP - A study in the journal Sleep finds that those who get less 

than six hours of sleep a night are four times more likely to catch 

a cold than those who get more than seven hours, and that 

amount of sleep is one of the strongest predictors of getting sick, 

even more than a person’s age, body mass or stress levels. Lead 

author of the study Aric Prather says shortened sleep seems to 

alter the inflammatory response, which in ordinary 

circumstances helps our bodies clear out viruses. 



We heart h charts 

Trane de Vore via flickr 

Life expectancy 

Data adjusting life expectancy at birth 

for the number of years of good 

health. Improvements in longevity in 

the US have been at such a slow rate 

that the average Iranian man born 

today is expected to live longer than 

his counterpart in the US 

Source: The Economist 

Largest companies across the US 

Can you guess which is each state’s 

top company by revenue, if you locate 

the firms to the address of their 

corporate HQ? There are some 

surprises, perhaps: no McDonald’s, 

CocaCola, Target, Apple or Microsoft 

to be found 

Source: Broadview Networks 

Emerging Bear Markets 

Following China’s rate cut, last week 15 of 

the 30 largest equity markets of emerging 

economies dipped from their peaks by 20 

percent or more – the traders’ definition 

of a bear market 

Source: CB Insights

Exponential - Sept 6th 2015

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