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trust and enhance the company’s REFERENCES philosophical vision. As iden- 1. Porter, Michael E., ‘How Competitive Forces Shape Strategy’, Harvard Business tified by Porter,10 governments have their role to play in such an Review, March 1979. ecosystem, notably in supporting 2. On the ethics of equilibriums and attractors in economic systems, see Dupuy, the education and hiring of these social scientists. Jean-Pierre, Pour un catastrophisme éclairé. Quand l’impossible est certain, Paris, Seuil, 2002. Contemporary business has 3. Veblen, Thorstein, The Theory of the Leisure Class: An Economic Study in the elevated the level of operational Evolution of Institutions, New York City, NY, Macmillan, 1899. complexity on different fronts 4. A recent McKinsey study rated the ‘Millennials and gen Z effect’ as the and across multiple levels. Within third-most-important disruptive trend to have modified the good consump- such a scenario, a paradigm shift tion model: Kopka, Udo; Little, Eldon; Moulton, Jessica; Schmutzler, René; is timely and necessary. To survive and Simon, Patrick, What got us here won’t get us there: A new model for the in these uncertain times and in consumer goods industry, McKinsey industry white paper, July 2020. uncharted market territories, 5. https://www.blackrock.com/americas-offshore/en/2019-larry-fink-ceo-letter. companies need to be prepared to 6. Bernays, Edward (1928), Propaganda, Brooklyn, NY, Ig Publishing, 2004. alter their market focus, commu- 7. Renan, Ernest (1882), ‘Qu’est-ce qu’une nation?’ in Renan, E., Discours et nicate in inventive and emphatic conférences, Paris, Calman Lévy, 1887. ways, and strategise using a cross- 8. Fogg, BJ, Persuasive Technologies. Using Computers to Change What We Think disciplinary perspective. and Do, Burlington, MA, Morgan Kaufmann, 2003. 9. Girard, René, Mensonges romantiques et verité romanesque, Paris, Grasset, 1961. 10. Porter, Michael E., ‘The competitive advantage of nations’, Harvard Business Review, March 1990. ABOUT THE AUTHORS Hubert Etienne is a Ph.D candidate in philosophy J. Mark Munoz is a Professor of at Ecole Normale Supérieure and Facebook AI Management and International Research. He is a lecturer in data economics at Business at Millikin University HEC Paris and a lecturer in AI ethics at Sciences and editor of the book Global Po, Polytechnique and ESCP Europe. Business Intelligence. www.europeanbusinessreview.com 51

CORPORATE GOVERNANCE Since the start of the COVID Pandemic, the world’s attention was focused on the calculation of two sets of terrifying data: one was the infection and death rate and the second was the projections of an economic recession, at the time expected to be the worst since World War Two (WW2), and possibly, ever.1 THE CORPORATE WORLD’S COMEBACK: TIME TO SEIZE THE OPPORTUNITY by Anna Saghabalyan and Paul Argenti S ince the beginning of 2021 In March, an IMF report on the IMF highlights the continued adapta- the vaccination rate allowed global economic prospects of 2021 tion of economic activity to subdued for a cautious prognosis for suggested that GDP growth in most mobility.3 As we can see, businesses the end of the health crisis, while the countries remains below pre-pandemic adapted quickly, and that adaptation, worst predictions for the economic figures, however, economic recovery apparently has been perceived by the recession never came true. Moreover, has been faster than expected. The public as a sign of competence. And it the agile adaptation of businesses to global economy is set to grow 6% as looks like this may give the corporate the new reality may even support compared to an October 2020 predic- world the public’s indulgence. the possibility of a rapid economic tion of 5.2%. Among reasons for a better recovery. History knows of many outlook, along with the advancement While most crises that emerged examples when after lengthy crises of vaccinations and fiscal support, the in the 21st century from the Enron and shock, the economy has revived scandal in 2001 to the Financial Crisis in unprecedented pace and scale. The quarter century that followed the devastation of WW2, is also known as the Golden Age of economic growth in Europe. Only 2 years after the end of the war, industrial production was back at pre-war levels at least in the victorious powers in Europe.2 Today’s more advanced corporate world with much more sophisti- cated innovation capacity has even better chances to lead the world to a new economic era after more than a decade of stagnation. 52 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

in 2008, left businesses as the main corporations, noting that the average leadership, as respondents increas- culprits of the problems in terms of reputation score of corporations ingly value sustainability initiatives.4 public perception, it looks like the (on a scale of 1-100) this year was This certainly doesn’t mean that COVID crisis was not only seen as unre- almost 75, the highest since the first businesses now are overwhelmingly lated to the possible impact of business RepTrak 11 years ago. The organiza- seen as the ultimate good, after being conduct, but according to surveys, tion notes, that a record number of accused for decades of greed and the businesses emerged as pursuit of profit at the the only institution that expense of the well-being best addressed the crisis. The COVID crisis that was of society. However, the The quick development predicted to kill business, instead shift is there and interest- of vaccines by pharma- offered the corporate world an ingly, those traditionally ceutical companies and accusing businesses of rapid adoption of new unexpected opportunity to rebuild misconduct – NGOs, media health and safety meas- what the corporate world seems and Governments, seem to ures by other industries to have lost decades ago – trust. be expected by society to were well noted and sweep their own door first. appreciated by society. Edelman, a global The COVID crisis that communications firm was predicted to kill that measures trust of business, instead offered the corpo- corporations broke into the top 100 four institutions, Businesses, NGOs, rate world an unexpected opportunity in a year of unprecedented crisis, GovernmentsandMedia,concludedthis to rebuild what the corporate world proving that businesses have rigor- year that businesses have emerged as seems to have lost decades ago –trust. ously managed their reputation by the most trusted with an average of 61% RepTrak, a reputation data and adequate behavior such as relevance of general populations in 27 countries insights company revealed in April in leading the way in productivity, trusting businesses as opposed to only the results of its Global Scoring comfort, and safety, as well as ESG 57% in the case of NGOs. Governments on the world’s 100 most reputable (Environmental, Social, Governance) and the media are the least trusted with www.europeanbusinessreview.com 53

CORPORATE GOVERNANCE 53% and 51% respectively.5 In May, declining trust for years of neglect of Social Responsibility of NGOs” we, Edelman published an update to the their ESG conduct and for failing to predicted that NGOs would start January survey and the trend seems adequately respond to critical public losing trust if they continued taking to have evolved further. For example, perceptions. But punishment by low it for granted and if they pursued the trust towards “my employer CEO” has grades is also a teaching method. And “end goal justifies the means” attitude grown even bigger than towards any businesses in most cases and with in their fight against businesses. The other institution in the last 4 article covered the inefficien- months. Since January, on the Edelman’s 2021 survey cies of Environmental NGOs other hand, NGOs, Media and in post-communist countries, the Government have lost more suggests businesses have but some of the recommenda- trust as spokespeople, when it significantly outperformed tions could well refer to NGOs comes to information about a NGOs and everybody elsewhere. company, while the most trusted In 2001, Edelman’s report spokespeople remain company else in competence. was headlined “Rising Influence experts, followed by academics, Interestingly, businesses of NGOs” with a number of peers, and employer CEOs.6 have almost reached NGOs succeeding years respond- ents naming NGOs as the most While the attribution to the success of businesses in in their ethicality. trusted. For most of the last rebuilding trust during a year decade NGOs were seen as the of crisis is somewhat clear, the ultimate good, ethical, and decline in trust towards NGOs may the exception of a number of scan- trustworthy guardians against the come as a surprise. However, this dals, have learned their lesson to live unethical behavior of businesses. was something we had warned about under close scrutiny, while gaining This year Edelman has identified in our 2017 research on the social better crisis management skills. One loss of trust towards NGOs in 11 out of responsibility of NGOs.7 vivid example may be how quickly the 27 countries. corporate world’s reaction was to the In our article back in 2017 we rapidly developing Me Too movement, recommended that NGOs need to GETTING AHEAD OF THE with more Fortune 500 companies stop making statements that cannot TRADITIONAL RIVALS hiring reputation management firms to be supported by facts and need to pro-actively handle a possible issue and invest in learning. Edelman’s 2021 adopting robust anti-harassment poli- survey suggests businesses have For the last decade businesses have cies and regulations.8 And those who significantly outperformed NGOs been grilled by NGOs and media, in have not been under the scrutiny of the and everybody else in competence. most cases, for good reasons and quite same scale – NGOs, have lost vigilance. Interestingly, businesses have almost successfully. The corporate world has In an article published more than reached NGOs in their ethicality. been punished by low reputation and 4 years ago, “Reputation at Risk: The Considering, though that none are 54 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

seen as highly ethical, NGOs, thus, appear to be ALIMA, OXFAM and Medecins Sans Frontieres.10 in a pretty shaky position, emerging as overall But are the sexual scandals the only reason for incompetent and just somewhat more ethical growing mistrust? than businesses. In the search for the answer to the question, on The decline in trust towards NGOs may be whether NGOs more often help or harm, authors attributed to a number of scandals in recent of a 2018 Washington Post article11 refer to their years. For example, in the beginning of April previous study.12 The study of several hundred this year, the UK Government suspended all academic articles on NGOs found that nearly 60 financial aid for OXFAM in the wake of a sexual percent of those articles reported solely favorable allegations scandal as OXFAM revealed it had effects of NGOs on development outcomes, while suspended 2 of its workers in the Democratic just 4 percent of articles reported that NGOs Republic of Congo as part of an investigation had unfavorable effects. The authors note that into the allegations.9 OXFAM had only become academic journals are notoriously unwilling to eligible to apply for funds in March, after having publish null results — those showing that inter- been suspended for 3 years since the previous vention of NGOs had no effect. The authors of scandal in 2018, when OXFAM was accused of the study, however, argue that negative media not only having had instances of sexual miscon- coverage is due to media attention on negative duct by employees during aid work in Haiti, but events, while most interventions studied, never- going as far as covering it up. theless, provide small, favorable benefits to the communities in which NGOs work. In another scandal last year, 51 women accused foreign aid workers of sexual abuse Interestingly, our article published prior to this during the 2018-2020 Ebola crisis in the research, not only highlighted null results but also Democratic Republic of Congo. The allegations warned against possible negative results of inef- were aimed at seven U.N agencies and a number ficient or uninformed interventions of NGOs for of NGOs including World Vision, medical NGO the communities. While negative media attention www.europeanbusinessreview.com 55

CORPORATE GOVERNANCE Businesses will need to carefully manage the growing may be explained by a literacy improvement number of sex abuse expectations and to make as a significant priority. scandals, the fact that sure the trust re-gained in a This opens a new oppor- NGOs have started to few decades of “bloodshed” tunity for business as be seen as incompe- 53% of the respondents tent, may suggest that with NGOs, media, and the believe that corporations the issue is deeper than Government is maintained. need to fill the informa- several sex scandals and tion void. may well be the result of The record low trust longer evidence of inef- towards governments, ficiency as perceived by identified by Edelman’s stakeholders. survey both in January and in May, may also be A mining project in Armenia we referred helpful to the corporate world. Interestingly, a to in our 2017 article had proposed a joint PPP McKinsey report on post-Covid recovery suggests project to OXFAM Armenia in 2012. While the businesses see Governments actions as a stum- project was initially agreed upon with the local bling block. Overregulation and uncertainty office, OXFAM headquarters then rejected it over government actions both rank in the top on the grounds that cooperation with a mining ten complaints in the US National Federation of company, (no matter how ESG compliant), would Independent Business’s most recent survey.13 cause reputation issues for OXFAM. The former Thus, if social and traditional media and NGOs Social Development Manager of the company, were causing serious problems to the reputation Nara Ghazaryan, reflects on the almost decade old of businesses in the last decades, and businesses failed cooperation attempt: “It was disappointing see Government inconsistency as one of the to see that an NGO that signed an agreement main risks, both NGOs and media are now visibly to provide much needed health awareness for losing credibility and Governments are hugely rural communities, that the company was ready mistrusted by societies. to pay for, canceled the project after a month of its onset, based on an arrogant assumption that there are industries that are just not good enough for cooperation.” Ironic, indeed. SEVERAL WINDOWS OPEN FOR BUSINESSES The COVID crisis, seemingly, opened several other windows of opportunity for businesses. According to the Edelman survey, this year marked a record low in trust in all informa- tion sources and the trend even increased from January through May 2021. Employer media emerged as the most trusted source, while owned media is the only information source that gained even more (+3%) trust since January. Societies become more worried about unreliable informa- tion and see their own information and science 56 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

This, certainly doesn’t mean that respondents in 14 countries believing BE THE ADULT IN THE ROOM businesses need to relax. For one, that their country won’t be able to because according to the Edelman overcome challenges without the help During the COVID crisis as people study, overall trust in societies of businesses. were getting frustrated by the incon- continues to decline, and the winners sistent messages and policy changes of the contest are thus far only rela- Businesses will need to carefully coming from governments, businesses tive winners [best ski slope in Holland manage the growing expectations and performed far better in providing syndrome]. And secondly, because as to make sure the trust re-gained in a information and reliable data to we have seen from what happened to few decades of “bloodshed” with NGOs, stakeholders. Capitalize on the trust the NGOs, loss of credible oversight media, and the Government is main- gained. People are hungry for reliable and scrutiny results in loss of vigi- tained. Here are a few tips on how we information and scientific data. Media lance and, eventually, loss of trust. think it can be done. has failed to improve the quality of information even in the period of Trust is not only a reward but SHOW CARE, SPEAK FROM January-May 2021, while the mistrust also a burden. While businesses, YOUR HEART towards governments has even deep- according to Edelman, are believed ened. Become the adult in the room, to have outperformed governments For years businesses were seen as show guidance to your communities in addressing almost all aspects of profit-making machines with no and stakeholders in matters that you societal challenges during this period, empathy towards societal needs. The have expertise in. Support vaccination including driving economic growth COVID crisis seems to have somewhat advancement, provide data, and as and guarding information quality, smoothed these perceptions. Society people are consistently worried about the shift has put additional pressure has appreciated business’s effort to their science literacy, help navigate in on businesses. According to the May accommodate the needs of its stake- the ocean of confusing information. update of the Edelman survey, expec- holders. This should continue after the Bill Gates’s persistence in promoting tations for businesses to lead on crisis. Deliver not just what is expected the vaccination agenda, despite a societal challenges have grown along but what has long been unexpected backlash from anti-vaxxers may be a with trust, with the highest- 60% of from corporations- empathy and care. good example, as the world advances Be passionate. That’s a space that has rapidly on vaccination and death toll long been occupied by NGOs and here’s decreases in most-vaccinated coun- a chance to take it over. Moreover, tries. Moreover, the anti-vaccine and businesses need to think and commu- anti-Gates conspiracies have even nicate like an NGO, showing care and been mocked by young social media acting to prove that they actually do. influencers and comedians.15 An example of such a communica- tions approach may be Blackrock asset LEAD THE ESG DEBATE management firm’s CEO Larry Fink’s “letter to CEOs’, where he called for People are increasingly worried not more action on behalf of businesses only about their jobs and health issues on climate change. The letter was but also about global threats like perceived as an example of passion climate change that appeared to be on and purpose driven leadership.14 the top list of fears according to the Businesses, however, need to be alert surveys. While ESG becomes increas- on not just following the trendy talk ingly important on stakeholders’ but to make sure the debate is deep and radar, people trust businesses more informed, challenging the myths, not than governments, NGOs, and media exacerbating those. Societies expect to provide competent guidance. not just passion but also competence from businesses. www.europeanbusinessreview.com 57

CORPORATE GOVERNANCE Businesses have the unique opportunity to sober solution, rather than waiting to act upon shape the agenda. However, businesses have to NGO noise or Government regulation, will keep show courage to lead a sincere dialogue. There businesses ahead of both the noise and the regu- is increasing evidence of bigger challenges lation and gain more trust as a bonus. on the road to a ‘net zero’ goal than expected by NGOs, climate activists, and media. This AS A CONCLUSION: includes growing skepticism of the efficiency PLAY IN A TEAM of quick divesting from fossil fuels16,17, the chal- lenges with the supply of metals and minerals Last December, the CEO of Innovex, an oil and needed for green energy18 as well as criticism gas company, wanted to offer a Christmas gift of the Governments of European countries to company employees and ordered 400 jackets of hypocrisy in setting unrealistic decarboni- from North Face (an American outdoor apparel zation targets, only to export their emissions company), with an Innovex logo on them. North abroad.19,20 Businesses need to be proactive in Face was ready to sell the jackets but refused to put managing unrealistic expectations instead of the logo of an oil and gas company on its product. giving in to a temptation of setting trendy goals The obvious explanation was- it would nega- and raising expectations even higher. A recent tively affect the apparel company’s reputation. example is a court ruling in the Netherlands The CEO of Innovex hit back, with a public letter against Shell, where the court decided that Shell, to the North Face CEO where he named North that previously committed to ambitious net zero Face’s own products made from petroleum. The emissions by 2050 should cut its emissions by letter went viral, with other oil industry related 45% as early as by 2030.21 Shell is set to appeal and unrelated entities and individuals pointing to the ruling against the company upon charges the hypocrisy of the apparel company selling, for brought in by a number of NGOs. Businesses example, expensive ski equipment to consumers need to team up with scientists and communi- who would then use fossil fueled transportation to cate more openly on the need to separate trendy fly to expensive ski resorts. The carbon footprint delusions from realistic goals. This is not to say of North Face looked quite impressive under this that they do not need to set ambitious goals to unexpected backlash campaign.22 tackle climate change. But the declining trust towards NGOs, media and the Governments, The moral, here, we believe, is broader who have already over-promised on the “green than the hypocrisy or successful communica- transition” goals, puts additional pressure on tions response from Innovex. Businesses will businesses. They need to provide reliable data continue to be under close scrutiny of society. and commit to achievable goals in the fight While climate change is clearly expected to against climate change. Being proactive and dominate the agenda for the coming decades, sincere in voicing the problem and offering a 58 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

the pressure on the corporations References from governments, NGOs and 1. https://www.worldbank.org/en/news/press-release/2020/06/08/ media will clearly continue to grow. To manage these expecta- covid-19-to-plunge-global-economy-into-worst-recession-since-world-war-ii tions successfully and to be able to 2. https://voxeu.org/article/recovery-and-reconstruction-europe-after-wwii maintain the promising achieve- 3. https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/ ments on the trust regained, corporations will need to team up world-economic-outlook-april-2021 and support each other in leading 4. https://www.reptrak.com/news/2021-global-reptrak-100-corporate-reputations-esg-brand/ a meaningful debate. There is 5. https://www.edelman.com/trust/2021-trust-barometer/press-release hardly any industry whose carbon 6. https://www.edelman.com/sites/g/files/aatuss191/files/2021-05/2021%20Edelman%20Trust%20 footprint wouldn’t look gigantic if traced all the way down the supply Barometer%20Spring%20Updat.pdf or up the consumption chain. But 7. https://link.springer.com/article/10.1057/s41299-017-0013-8 so is society’s as a whole, with the 8. https://www.cnbc.com/2019/01/29/fearing-metoo-allegations-companies-turn-to-reputa- over-consumption of the world’s richest countries responsible for tion-managers.html the lion’s share of GHG emissions.23 9. https://www.bbc.com/news/health-56670162 While honestly addressing the 10. https://www.reuters.com/article/us-congo-ebola-sexcrimes-unitednations-idUSKBN26M3ZY responsibility of the corporate 11. https://www.washingtonpost.com/news/monkey-cage/ world’s share, corporations are in a unique position to push for wp/2018/12/04/a-few-ngos-are-getting-a-lot-of-bad-press-whats-the-overall-track-record/ holistic and meaningful solu- 12. https://www.sciencedirect.com/science/article/abs/pii/S0305750X18302456 tions. Remember, that right now, 13. https://www.mckinsey.com/industries/public-and-social-sector/our-insights/ at least, society thinks corpora- tions are far more competent america-2021-rebuilding-lives-and-livelihoods-after-covid-19 than governments, media and 14. https://www.csrwire.com/press_releases/719731-key-insights-blackrocks-annual-letter-ceos NGOs, that have thus far driven the 15. https://www.newsweek.com/king-bach-raises-bill-gates-vaccine-conspiracy-again-comedy- debate. Businesses need to carry this precious gift from society with skit-1590027 utmost responsibility and with the 16. https://www.bloombergquint.com/wealth/ benevolence society has gener- ously attributed to businesses. bill-gates-in-new-climate-book-talks-about-finally-divesting-from-oil 17. https://www.reuters.com/business/energy/ unlike-iea-rystad-energy-sees-need-hundreds-new-oilfields-2021-05-28/ 18. https://www.bbc.com/news/science-environment-57234610 19. https://environment.leeds.ac.uk/see/news/article/5316/ nearly-half-uk-carbon-footprint-is-from-overseas-emissions 20. https://www.dw.com/en/opinion-germanys-climate-activism-is-full-of-hypocrisy/a-48292725 21. https://www.reuters.com/business/sustainable-business/ dutch-court-orders-shell-set-tougher-climate-targets-2021-05-26/ 22. https://www.newsweek.com/true-face-north-face-1576659 23. https://www.bbc.com/news/science-environment-56723560 ABOUT THE AUTHORS Anna Saghabalyan was Director of Communications for a Canadian mining company working in Armenia from 2012-2020. Prior to that she was Head of Communications for an Armenia-based NGO, The Civilitas Foundation. She spent 10 years as senior correspondent and editor at RFE/RL (1998-2008). She holds a Masters in Corporate Communications from the Rotterdam School of Management. Her thesis on the impact of NGOs in post-communist countries won the Shell Netherlands Award in 2014. Paul Argenti is Professor of Corporate Communication at the Tuck School of Business at Dartmouth where he teaches Corporate Communication, Corporate Responsibility, and General Management. www.europeanbusinessreview.com 59

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LUXURY IMPROVING THE EMOTIONAL MIX OF BUYING LUXURY by Francine Espinoza Buying luxury impacts not only consumers’ wallet, Petersen and but also their hearts. In this article, we provide Mariana Soberano a deeper understanding of the emotions that consumers feel when buying luxury and other indulgences. To create an overall more positive luxury experience, we revert to scientific research to provide managers with the tools to improve consumers’ emotional mix, maximizing the positive feelings and minimizing the negative ones. www.europeanbusinessreview.com 61

LUXURY CONSUMERS FEEL prices of luxury products, consumers might also MIXED EMOTIONS FROM feel the “pain of paying”14, 16. Finally, luxury can CONSUMING LUXURY also have a social cost: if it is seen by others as an effort to impress and gloat, instead of making luxury consumers more appealing as friends, they can actually be less preferred and be perceived as less warm9, 17. Consuming luxury has been historically BRANDS CAN DRIVE POSITIVE marketed as a path to happiness and mighty EMOTIONS BY IMPLEMENTING living. Some brands suggest their products can STRATEGIES AT SEVERAL LEVELS make consumers feel good (Canali: “I choose my Canali because it makes me feel good wherever The uncalibrated mix of emotions luxury I am in the world”) or like they have never felt consumers might feel raises challenges for before (Rolex: “a territory your emotions have brands and calls into questioning whether and never known before”). A look into the literature how can they live up their credo and make suggests that these are not empty claims and consumers feel good, overall. Based on a system- that luxury consumers indeed experience posi- atic investigation of scientific research, we derive tive feelings. At the same time, most research specific strategies that luxury brands can use to seems to agree that luxury consumption evokes enhance the positive and reduce the negative not only emotions of positive, but also of nega- emotions from buying luxury. To facilitate its tive valence, a paradox tellingly described by application, we structured these strategies into the term “guilty pleasure”1. Luxury consumers a three-tier framework anchored in a company’s can feel happy and pleased, but also guilty and product, communication, and sales (Table 1). regretful after their purchases2-4. FIGURE 1 Strategies for managing emotions in luxury consumption Hedonic indulgences, such as luxury, have been Level Strategies found to enhance positive emotions of happiness4, pride5, or excitement, driven by contexts of rare Product • Add utilitarian attributes occurrence, new milestones, when consuming • Add virtuous qualities feels special, or when they represent some- • Offer experiences or experiential products thing the consumer had previously struggled to • Infuse art or aesthetics attain6. In addition, under certain circumstances, indulging in luxury can contribute to mood Communication • Provide a reason to indulge improvement7 and personal well-being8. • Promote consumption as a goal • Manage perceived attainability There is also a considerable portion of • Motivate consumers’ pre-commitment to purchase research focusing on the “dark side of luxury”9,10. • Foster peer validation or celebrity endorsement Because luxury consumption is considered to be beyond basic needs, studies found that Sales • Build up tension before the sale luxury consumers can experience guilt, shame, • Partner with charity at the point of sale or regret, rooted in the sense of no self-control, • Motivate consumers to shop with someone irresponsible or wasteful consumption, and • Bring energy to the marketplace lack of merit or justification for indulging10-14. When luxury is regarded as an undue privilege, feelings of inauthenticity may also haunt the consumer and drive their confidence down15. Moreover, when considering the general high 62 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

2.1 PRODUCT tablets are divided in irregular shapes to depict To some extent, brands can engineer consumers’ the inequalities of wealth distribution between feelings. One way researchers have found to enhance the experience of luxury consumption is producers and farmers in the chocolate industry. to add utilitarian attributes to luxury products18. These “functional alibis” provide consumers Studies suggest that both experiences and with a justification for a seemingly unnecessary purchase and mitigate their sense of guilt. For experiential products can provide superior instance, consider the example of Mercedes Benz’s description of one of its cars: “ML350 SUV offers well-being than material goods22, 23. With these stylish proof that utility and safety can coexist enthusiastically with performance and luxury”. findings in mind, luxury marketers can create a Adding virtuous qualities to luxury purchases new dimension to their offerings by associating can provide consumers with a “license to indulge” and also alleviate feelings of guilt. Research their products with experi- suggests that luxury marketers can do this by giving consumers the option to donate to charity ences. One brand who has or volunteer for a cause19, 20. Committing to these virtuous acts before deciding to consume luxury been successfully using The uncalibrated mix can even increase consumers’ preference for this strategy to improve of emotions luxury indulging as a well-deserved treat after their noble consumers’ experience consumers might feel actions. An interesting example of the applica- and involvement with tion of this strategy can be found by looking at the chocolate brand Tony’s Chocolonely21. The brand the brand, while “trading raises challenges for is known for fighting to eradicate slavery from up” their products to a brands and calls into the chocolate industry, and not only promotes high premium level, is questioning whether this message in their marketing campaigns and Nespresso. With the crea- website, but also made sure to include a refer- ence to this goal in the design of all their products, tion of a “Nespresso Club” and how can they reminding the consumer of their cause. Instead and carefully decorated live up their credo of the classic chocolate squares, their chocolate stores with top of the and make consumers class customer service, feel good, overall. the brand has managed to elevate coffee consump- tion to a whole new experiential level. Sometimes the concepts of luxury, fashion and art seem to overlap. As illustrated by Carolina Herrera, the founder of the luxury clothing brand with the same name: “the differ- ence between fashion and art is that fashion is art in movement”24. Indeed, some luxury www.europeanbusinessreview.com 63

LUXURY Advertisement for luxury brands is known for grand goods are considered to be highly displays of success, durability, and some luxury items, one aesthetic, “artsy”, and often associated confidence, and example of this strategy could be to with fine taste and beauty25. Following social superiority. frame consumption as a good long-term this virtuous perception of luxury, Researchers investment30. Brands can also connect some researchers claim that while investigating the the luxury purchase to goals of greater utilitarian products are supposed to life satisfaction, financial well-being, or satisfy consumers, luxury is meant to well-deserved rewards. delight them26. Promoting this ideal, effectiveness of Advertisement for luxury brands is brand managers can infuse art in their this approach on known for grand displays of success, products to create a heightened sense brand perception confidence, and social superiority. of aesthetic and enhance consumers’ Researchers investigating the effec- experience and the appraisal of their found that tiveness of this approach on brand products27. Some applications of this consumers’ envy perception found that consumers’ strategy could be the use of artwork plays a role. envy plays a role31. “Benign envy” in packaging, advertisement, or in the increases desire and positive brand actual design of their products28. attitude, while “malicious envy” may 2.2 COMMUNICATION color the brand as arrogant and snob (“show-off”) and have a negative impact on brand attitude. To resolve this conflict, marketers can advertise a brand as “attainable”, Brands have been proactively telling consumers why not too dominant or aggressive, but as a reachable aspira- they should indulge, further validating their longings (for tional ideal. This can be done, for example, by advertising example, L’Oréal long-running campaign “because you’re non-threatening scenarios to which the consumer can worth it”). Indeed, it has been demonstrated that having relate, featuring a smiling couple or children playing. This a reason to consume can reduce consumers’ guilt and could be enough to generate feelings of “benign envy” and increase consumption happiness for most consumers4. produce a positive impact on consumers’ emotions and This strategy might also yield positive downstream conse- brand perception. quences, such as increased satisfaction with the purchase. Earlier we mentioned that luxury consumers might expe- In addition, framing luxuries as goals, aligned with rience guilt following their purchases. In a study on the positive long-term outcomes, seems to increase their dynamics of guilt from consumption, researchers found attractiveness and reduce aversion to luxury consump- that these negative feelings can arrive even before consump- tion29. Given the strong association between high-quality, tion31. The authors differentiated decision guilt, which comes from knowing “one will commit a guilt-inducing act” (e.g., booking an all-inclusive stay in the Bahamas), from action guilt, which is felt when carrying out the act of consumption (e.g., actually boarding the plane). Increasing the temporal gap between these two moments not only helps to ease the guilt felt while consuming, but also increases indulgent consumption while decreasing post-behavior atonement. These findings can have interesting use to advertisers. Brands can create distance between decision and action by encouraging 64 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

consumers to decide and pre-commit in advance, for hard to obtain (e.g. waiting lists). The anticipation and example by sending mailings suggesting consumers to tension generated by these tactics will foster excite- pre-order14, 32. ment in the consumer, which is in turn heightened by the feeling of competition with the remaining Peer validation or celebrity endorsement are other consumers with the same shopping goals. ways managers can promote a positive perception of the brand and generate excitement about potential Consumers also report feeling excited about purchases6. Examples of these strategies would be the their purchases when sharing the consumption use of consumer ratings, word-of-mouth, and hiring experience with others6. Interestingly, an exper- celebrities to advertise the brand or as brand ambas- iment with female participants showed that even sadors (for example Johnny Depp on Dior’s perfume with no interaction with others, just by being with Savage, or George Clooney as Nespresso’s spokesman). someone, the attention paid to luxury products was greater than when being alone35. 2.3 SALES At the marketplace, immersive excitement can be Teaming luxury products with charitable contribu- amplified by stimulating the senses and using ener- tions at the point of sale is another effective strategy getic elements such as light, sound, heat, and speed/ that gives consumers the feeling of justified or earned tempo6. Such elements can function as emotional trig- “right to indulge” in luxury, while soothing the guilt gers for surprise, trust, and joy in the consumers36. associated with the purchase33. One example of part- Through the manipulation of customers’ senses nering luxury with charity at the point of sale is the (sight, sound, smell, taste, touch), brands can collaboration between Gucci and UNICEF34. At Gucci differentiate themselves, motivate consumers to stores, customers can find specific products that engage with the brand, plus add an aesthetic and contribute to this non-profit organization and learn exciting feel to their products37. An interesting more about this collaboration. example is Louis Vuitton’s newly renovated store in west London. After being closed for more than Brands can raise consumers’ excitement about their one year for renovations, the store reopened with future purchases by building up tension until the sale6. colorful bright fixtures and a whole new concept. There are several ways brands can achieve this, either by In an interview, the architect responsible for the giving the perception that their products are scarce (e.g. project, who has been working with the brand limited stock), temporary (e.g. limited/special edition), or since 1994, adds: “there has been a real revolution towards something lighter, clearer and dare I say, happier”38. CONCLUSION When it comes to luxury, offering exceptional prod- ucts with an exquisite design might not be enough to contribute to consumers’ happiness. As luxury brands are conceptually different from others, brand managers should take special care in designing fitting luxury experiences that make consumers go from buying a “product” to buying into a “way of life”39. Considering the mix of emotions that www.europeanbusinessreview.com 65

LUXURY luxury consumers experience, it is important for brands 16. Prelec, D. and G. Loewenstein, The Red and the Black: Mental Accounting of to take an active role in making sure their offerings have a Savings and Debt. Marketing science (Providence, R.I.), 1998. 17(1): p. 4-28. positive impact on consumers’ lives. The range and depth 17. Garcia, S.M., K. Weaver, and P. Chen, The Status Signals Paradox. Social of the emotions previously mentioned depends, naturally, psychological & personality science, 2019. 10(5): p. 690-696. on a multitude of factors. But attentive brands are expected 18. Keinan, A., R. Kivetz, and O. Netzer, Functional Alibi. Advances in consumer to know their customers the best, making it in their power research, 2009. 36: p. 27. to improve how they feel. Several strategies have been here 19. Khan, U. and R. Dhar, Licensing Effect in Consumer Choice. Journal of presented to this effect, so it’s up to brands to deliberate marketing research, 2006. 43(2): p. 1. which ones to choose and adapt them to their own reality. 20. Strahilevitz, M. and John G. Myers, Donations to Charity as Purchase Incentives: How Well They Work May Depend on What You Are Trying to Sell. The References: Journal of consumer research, 1998. 24(4): p. 434-446. 1. Goldsmith, K., E.K. Cho, and R. Dhar, When Guilt Begets Pleasure: The Positive 21. our mission - Tony's Chocolonely. [cited 2021 15/07/2021]; Available from: Effect of a Negative Emotion. Journal of marketing research, 2012. 49(6): p. https://tonyschocolonely.com/int/en/our-story/our-mission. 872-881. 22. Nicolao, L., J.R. Irwin, and J.K. Goodman, Happiness for Sale: Do Experiential 2. Ramanathan, S. and P. Williams, Immediate and Delayed Emotional Purchases Make Consumers Happier than Material Purchases? 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International journal of research in marketing, 2018. 35(1): p. 170-184. 2020, Edward Elgar Publishing. 5. McFerran, B., K. Aquino, and J.L. Tracy, Evidence for two facets of pride in 26. Chitturi, R., R. Raghunathan, and V. Mahajan, Delight by Design: The Role of consumption: Findings from luxury brands. Journal of consumer psychology, Hedonic versus Utilitarian Benefits. Journal of marketing, 2008. 72(3): p. 48-63. 2014. 24(4): p. 455-471. 27. Hagtvedt, H. and V.M. Patrick, Art Infusion: The Influence of Visual Art on the 6. Pham, M.T. and J.J. Sun, On the Experience and Engineering of Consumer Perception and Evaluation of Consumer Products. Journal of Marketing Research, Pride, Consumer Excitement, and Consumer Relaxation in the Marketplace. 2008. 45(3): p. 379-389. Journal of retailing, 2020. 96(1): p. 101-127. 28. Batat, W., Transforming Luxury Brand Experiences through Artification: A 7. Atalay, A.S. and M.G. Meloy, Retail therapy: A strategic effort to improve mood. 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Advances in consumer research, 1991. 18: p. 290. 34. Gucci and UNICEF USA’s Partnership to Save and Protect Children. [cited 2021 13. Kivetz, R. and Y. Zheng, Determinants of Justification and Self-Control. 15/07/2021]; Available from: https://www.unicefusa.org/supporters/organizations/ Journal of experimental psychology. General, 2006. 135(4): p. 572-587. companies/our-corporate-partners/gucci. 14. Kivetz, R. and I. Simonson, Earning the Right to Indulge: Effort as a 35. Pozharliev, R., et al., Merely Being with You Increases My Attention to Luxury Determinant of Customer Preferences toward Frequency Program Rewards. Products: Using EEG to Understand Consumers' Emotional Experience with Journal of marketing research, 2002. 39(2): p. 155-170. Luxury Branded Products. Journal of marketing research, 2015. 52(4): p. 546-558. 15. Goor, D., et al., The Impostor Syndrome from Luxury Consumption. The 36. Thomke, S., The magic that makes customer experiences stick. MIT Sloan Journal of consumer research, 2020. 46(6): p. 1031-1051. Management Review, 2019. 61(1): p. 56-63. 37. Schmitt, B., Experiential Marketing. Journal of Marketing Management, 1999. 15(1-3): p. 53-67. 38. Levy, N., Peter Marino channels happiness for renovation of Louis Vuitton store in west London, in Dezeen. 2019. 39. Grigorian, V. and F.E. Petersen, Designing luxury experience. 2014, ESMT Working Paper. ABOUT THE AUTHORS Francine Espinoza Petersen is Associate Professor of Marketing at HEC Lausanne, University of Lausanne and an academic partner of HEC Lausanne’s Swiss Center for Luxury Research (SCLR). Her research focuses on consumer emotions and well-being. Her work aims at improving consumption experiences and deliver value via consumer experi- ence and consumer happiness. Mariana Soberano is a PhD student and Graduate Assistant in the Department of Marketing of HEC Lausanne, University of Lausanne. She holds a MSc in Innovation and Technological Entrepreneurship, a BSc in Economics, and has experience as a marketing and pricing analyst. Her research interests include consumers’ behavior and well-being. 66 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

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URBAN TRANSFORMATION What kind of urban environment would you like to live in? In this article, we critically reflect on how digital technologies are accelerating and changing the nature of urban spaces. Using examples from around the world, we identify some of the boundaries of our technology-textured living and illuminate how the creation of our urban spaces takes place at the delicate intersection of personal privacy on one hand and the dream of the utopian ‘smart’ city on the other. VEINS AND WIRES: REFLECTIONS ON URBANTECH TRANSFORMATION by Dr Mike Cooray, T he Covid-19 pandemic has food delivery, virtual healthcare and Dr Rikke Duus and clearly demonstrated how citi- online education, while digital plat- Marius Sylvestersen zens’ behaviours and priorities forms have also been a lifeline for many can change almost overnight due to to continue their work from home. restrictions on movement and sociali- zation. Across the world, citizens have We have witnessed a rapid exodus accelerated their use of digital tech- from some cities due to the global nologies to stay connected and to gain pandemic and some life returning to access to essential services, including others. Many have decided to move to quieter pastures and abandon 68 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

urban spaces, whilst others ponder and wait for spaces that heighten wellbeing and human value. new opportunities. This is a critical time to actively Concurrently, there is a race for cities to reduce re-think the evolution of the city and the role of carbon emissions towards becoming carbon technology in the design of future urban spaces. neutral and even carbon positive. These two factors Should these future urban spaces be held together have accelerated the focus on how to optimise and by veins or wires? enhance efficiency of the provision of city-based services, including healthcare, education, leisure and mobility. Such heightened aspiration has IN PURSUIT OF THE ‘SMART’ CITY attracted Big Tech to the city transformation arena. The City of Copenhagen, Denmark, was the first to announce its ambition to become carbon While there is no one-fits-all model for how neutral by 2025. This goal has guided new city to design, build and manage future cities, we transformation projects, especially in the area of have seen a rush of large technology compa- air pollution monitoring and detection. One of the nies seeking to define the narrative around how we most successful collaborative projects, Copenhagen live, work, interact and play in urban spaces1. During Air View, was undertaken by Copenhagen Solutions the last couple of decades, new transformation and Lab, the Municipality of Copenhagen, Google, regeneration projects have been spearheaded by Utrecht University, University of Copenhagen and companies such as IBM, AWS, Aarhus University. For two Alphabet/Google, Microsoft, Technology companies have years, a Google Street View Cisco, Siemens and Schneider car equipped with advanced Electric. The digital solutions long envisioned their prominent air quality monitoring tech- already in place in many cities role in driving forward city nology has measured the include smart waste collection, transformation, achieving the levels of nitrogen dioxide responsive streetlights, smart utopian ideal of truly ‘smart’ (NO2), ultrafine parti- parking and route guidance, cities that are underpinned by cles (UFP) and soot (Black real-time air pollution moni- intelligent digital technology Carbon) by driving around toring and open data platforms. the streets of Copenhagen. With measurements being In fact, technology compa- nies have long envisioned to sense, monitor and direct captured every second, this their prominent role in driving action within the city. initiative resulted in approx. forward city transformation, 6 million datasets. This is the achieving the utopian ideal of first time ultrafine particles, truly ‘smart’ cities that are underpinned by intelli- which have a negative impact on human health and gent digital technology to sense, monitor and direct wellbeing, have been measured at street level in the action within the city. There are good reasons for city of Copenhagen. The findings from the project2 this. These organisations have decades of experience can inform future policies and give direction to the in developing digital infrastructure and complex governance of the city, as it is now clear which parts technical systems combined with significant reach of the city are most affected by carbon emissions3. and opportunities to scale up new digital solutions Significantly, the findings from the project were fast. However, should it be in the hands of these made available to citizens, universities and other large technology companies to orchestrate future public and private organisations through interac- city transformations? tive city maps showing pollution at street level and As cities continue to be central hubs for soci- through the city’s Open Data platform, which gives etal interactions, this puts enormous pressure on access to the raw data. Giving access to the data public and private sector organisations to provide creates opportunities for future collaborations and essential services to all citizens and create urban democratises knowledge towards solutions for the www.europeanbusinessreview.com 69

TUERCBHANOTLROAGNYSFORMATION greater good. This is an example of a ‘smart’ city VISIBILITY OF HUMAN-TECH TENSIONS initiative with a clear purpose, which is aligned with In recent years, there have been numerous exam- governmental and municipal goals, undertaken in ples of failed city transformation projects. One of the main reasons why these projects fail is that a collaboration with diverse partners and ultimately tech-first approach is taken and attention to the human experience and willingness to live in a seeking to enhance quality of life for citizens, technology-textured environment is somewhat overlooked. Instead, those taking a lead on urban while adopting transparent processes and enabling transformation may wish to first and foremost seek to create human value. accessibility. What is particularly interesting about the less It is, however, not uncommon that technology successful, tech-first transformation projects is that they make visible the human-tech tensions, companies adopt a tech-first approach when they conflicting agendas of collaborators and their perspectives on what constitutes a liveable city. The get involved in the development of smart city transformation project of the industrial land along Toronto’s Waterfront is a prime example of these solutions. The ambition is often driven by the excite- human-tech tensions. ment and hype around the imagined possibilities of This transformation and regeneration project was announced in 2017 as a partnership between cities that ‘listen’, ‘see’ and ‘act’. Cities that extract Sidewalk Labs (subsidiary of Google’s parent-com- pany Alphabet Inc and focusses on urban innovation) behavioural, psychological and conversational and Toronto Waterfront (agency leading the regen- eration of the area) with the promise of building a data created by citizens as they interact with each new community “from the internet up”7. Waterfront Toronto is a tri-government organisation, fully other and the environment around them. This is the accountable to the governments of Canada, Ontario and the City of Toronto8. The new ‘smart’ commu- idea of the digitally interconnected, intelligent and nity was to include sensors to monitor traffic, noise, weather, energy use – and even human movement. even autonomous city4. This city is always ‘at work’, With technology embedded within the fabric of the new community the ambition was to create extracting data from millions of data points used an urban space that is more efficient, intelligent, responsive and autonomous. While the vision was to make decisions without much human super- to create a ‘happy’ place for inhabitants to thrive, the project soon met resistance from the public vision. Here, human decision-making has been due to concerns over the extensive use of digital technologies, such as AI, and what seemed like overwritten by ‘algorithmic governance’5, where widescale surveillance of citizens. Despite the rumbling from citizens, the project was given the algorithms that feed off large amounts of real-time go-ahead in 2019, although the site for development had been scaled back from 190 acres to 12 acres. data is given authority to use algorithmic classifi- Significantly, Sidewalk Labs was also requested to share any data collected from its sensors with the cations to make decisions. This type of approach to the management of urban spaces is seen in China, enabled by large technology companies, such as Alibaba, Baidu and ByteDance (creators of TikTok), and the Chinese government, who continues to invest in smart city initiatives. In 2017, Alibaba launched the City Brain project, which utilises Alibaba’s cloud technology, artificial intelli- gence (AI), machine learning and sensor technology to govern many aspects of urban life, including traffic, healthcare, local govern- ance, manufacturing and aviation. The trouble arises This city is always when these decisions can no longer be traced back ‘at work’, extracting to their origin, creating data from millions a lack of transparency of data points used and accountability. In these situations, there is to make decisions a demonstrable shift of without much agency (i.e., the ability to human supervision. act) from the human to the technology6. 70 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

What is particularly interesting about the less successful, tech-first transformation projects is that they make visible the human- tech tensions, conflicting agendas of collaborators and their perspectives on what constitutes a liveable city. city administration and this data would become a public These examples illuminate the tensions arising asset. Despite this scale back, citizens were still concerned between stakeholders who wish to convert urban spaces about a city built on tech for tech’s sake. To cement their into living data hubs and vehicles for tech sovereignty, concerns, an initial 30 Torontonians set up the ‘#Block and those who are adamant that city transformation must Sidewalk’ campaign, which steadily grew in influence take place in the ethos of ‘Privacy by Design’. In the view and impact. The primary objective of the campaign was of Ann Cavoukian9, the former Privacy Commissioner of to garner support amongst the public to prevent Sidewalk the Canadian state of Ontario, the design of cities today Labs from carrying out their redevelopment project of typically reflects one of two approaches – building ‘cities Toronto Waterfront. Instead, citizens demanded their of surveillance’ or ‘cities of privacy’. involvement through consultation to determine the future vision for this area of the city. After much controversy, It may be alarming to some that Facebook is seeking Sidewalk Labs pulled out of the smart city initiative in May to play a more intensified role in the creation of commu- 2020. Less than a year since the discontinuation of this nity engagement within urban spaces. Earlier this year, partnership, Waterfront Toronto has launched an interna- the company launched their new feature, Facebook tional competition to secure new development partners for Neighbourhoods, for users in Canada. This feature is avail- the Quayside lands. This time around, however, the focus able within the Facebook app and allows users to join is on sustainability, affordability, human connections and neighbourhood groups based on location and interests. supporting local businesses. Within these groups, users can share recommendations of places to see, restaurants to visit, vote on their favourite In the wake of this, other smart city projects that were initi- places and businesses, and chat with other users who are ated by Sidewalk Labs have also been discontinued, including part of the same neighbourhood group. This is clearly a project in Portland, Oregon, designed to track citizen Facebook’s way of responding to new citizen needs that mobility patterns. This project was used as a testing ground have emerged during the pandemic, as citizens are looking for location data software, Replica, which tracks people move- for ways to engage with their local communities, fellow ments within urban spaces. Replica subsequently became a residents and businesses. There is, of course, no Facebook spin-off venture from Sidewalk Labs, taking the lead on the without also the presence of a data- and ad-driven business project in Portland. However, an unwillingness of Replica to model. Hence, as Neighbourhoods is designed to sit within share detailed data with Portland Metro (City agency) brought Facebook’s existing app, it will, no doubt, be tracking users’ an end to the project. behaviours and interactions. www.europeanbusinessreview.com 71

URBAN TRANSFORMATION Protecting citizens from living in a surveillance society In future urban transfor- that lacks transparency governance with the aim of mation projects, it is essential and opportunities to engage creating a single market for that citizen privacy becomes a through participatory data12. Crucially, organisations fundamental and built-in pillar and other participants must that shapes the design of new respect the European privacy initiatives. Such transformation democracy, is high on the and data protection regula- projects must also build trust agenda of many governments tions. Some of the expected between citizens, local govern- and regulatory bodies. benefits of sharing data across ment and those co-creating EU Member States through the tech-infused solutions. To a single market for data are achieve this, it is critical to first advances in personalised acknowledge that data accessibility is through participatory democracy, is medicine, improved mobility, better becoming a contested area, driven by high on the agenda of many govern- policy making and upgraded public different interests, business models ments and regulatory bodies. In services. Citizens will also be empow- and future use cases. Consequently, Europe, the European Commission has ered to share information about those leading urban transforma- taken a strong stance on how AI can themselves for the benefit of society tion projects across government, be developed, adopted and applied in and wider communities. This is public and private sectors will need an ethical and transparent manner. In referred to as data altruism and could to clearly develop and define data April 2021, the European Commission accelerate advances in many parts of standards and processes related to proposed new rules and actions aiming society, for example in personalised how data is accessed, shared, stored, to turn Europe into the global hub for healthcare provision. An organisa- analysed and used within the city. trustworthy AI10. The Commission laid tion that wishes to register as a data This is already being worked on in out the first-ever legal framework on altruism organisation has to have a the Netherlands in a new initiative AI to protect the rights of people and not-for-profit character, meet specific between the cities of Amsterdam, businesses, while also encouraging transparency requirements and be Utrecht, Eindhoven, Rotterdam and innovation in AI across Europe. Using a able to safeguard citizen rights and The Hague. These cities have come risk-based approach to assess and eval- interests. together to create a new standard for uate AI-systems and their capabilities, It is not only political and public the exchange of data between cities AI-systems that are likely to be banned sector institutions that are making and shared mobility operators. The are those that are considered a “clear waves with new ethical standards output is expected to be a shared plat- threat to the safety, livelihoods and and processes for the design of form on mobility patterns (e.g., the rights of people” and which “manipu- digital innovation in the connected use of shared vehicles, traffic patterns late human behaviour to circumvent era. With the launch of the Digital and parking), which also adheres users’ free will”11. This illuminates Ethics Compass, the Danish Design to the EU’s General Data Protection the real concerns associated with Centre has used its ‘voice’ and reach Regulation (GDPR). AI-systems and their capabilities to to educate on how to design and act autonomously, disguise their trails, build new digital solutions with data and potentially generate harmful and privacy built in. COCOONING discriminatory impacts. In the new era of urban transfor- CITIZENS This legal framework for governing mation, there is little doubt that digital THROUGH LEGAL technologies will continue to play a key FRAMEWORKS the development of AI extends earlier role. However, there are clear signs that efforts by the European Commission the way digital technologies, platforms to create regulatory frameworks for how data is accessed and shared and systems are put to use within the Protecting citizens from living in a between countries in Europe. The city needs to be citizen-centric and with surveillance society that lacks trans- European Data Strategy paves the a focus on creating human value, while parency and opportunities to engage way for a ‘European way’ of data respecting individuals’ privacy. 72 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

CITIZENS AT THE CENTRE interaction between the local developer community and the public administration, which may lead to improve- Many city governments are realigning their ments in systems”14. This desire to operate with enhanced efforts to put citizens firmly at the centre of urban transfor- levels of transparency and accountability is also seen in mation. Some of the steps already taken in this direction, the way the city engages with citizens through partic- are reflected in the initiative ‘Cities Coalition for Digital ipatory democracy. The City Council of Barcelona has Rights’, launched by the cities of Amsterdam, Barcelona been using the digital platform, Decidim (“We Decide”, and New York in 2018. Since then, more than 50 cities in Catalan), since 2016 to give voice to citizens and facili- worldwide have joined the coalition. The main aim of the tate active involvement in urban transformation projects. coalition is to protect citizens’ rights, including the right Decidim enables free and open-source participatory to equal internet access, data protection, transparency, democratic processes. Consequently, the 2016 Municipal participation and open digital standards. Action Plan included nearly 7 thousand citizen proposals that were shared via the open platform. An interesting example can be seen in Barcelona, one of the ‘original’ cities for rapid urban transformation enabled The approach taken by the City Council in Barcelona to by several of the Big Tech companies. However, in 2016, the become less reliant on the Big Tech companies creates oppor- city pursued a different direction as set out in the Digital tunities for re-thinking how to wire the city, involve citizens Transformation Plan. The City Council was to become “the and obtain privacy by design. Perhaps, though, this is at the vanguard of efficiency, transparency and social innovation”13. cost of knowledge, insight and access which companies such Central to the new plan was the focus on ‘technological as Google, Cisco and Schneider Electric have accumulated sovereignty’. Spearheaded by the Chief Technology and from decades of experience in the smart city arena. Digital Innovation Officer at the time, Francesca Bria, the City Council had an aspiration to gain greater control of the CONCLUSION new digital infrastructure and solutions, including the data that underpinned these solutions and the accumulated Cities will continue to evolve, and technology will have a output from their use. In essence, this meant reclaiming strong presence in this transformation of our urban spaces. greater control of data flows within the city. Acting on With the opportunity to stand back and reflect on what kind this aspiration, the city joined the movement for open- of urban environments we wish to create for the future, we source software. According to the City Council this allows propose that urban transformation leads, policy makers and “the apparatus with which the City Council works every other ecosystem participants acknowledge the human-tech day to be audited publicly and in-depth. It also facilitates www.europeanbusinessreview.com 73

URBAN TRANSFORMATION The main aim of the coalition is to protect citizens’ rights, including tensions that already exist. If human- the right to equal tech tensions are allowed to boil over internet access, data https://insights.sustainability.google/labs/ or erupt, it will significantly challenge airquality protection, transparency,the progress that has been made so far 4. Cugurullo, F. (2020). Urban Artificial Intelligence: From Automation to Autonomy in the Smart City. Frontiers in Sustainable in urban transformation initiatives. participation and open Cities, 2:38 Adopting either a purely digital standards. 5. Curran, D. and Smart, A. (2021). Data- driven governance, smart urbanism and human-centric urban transformation risk-class inequalities- Security and social approach or a preferential tech-dom- credit in China. Urban Studies, 58(3), 487-506. 6. Duus R., Cooray, M. and Page, N.C. (2018). Exploring Human-Tech Hybridity at the Intersection of Extended Cognition and inant approach may hinder the progress we must ensure. Distributed Agency: A Focus on Self-Tracking Devices. Frontiers in Psychology, Future visions for urban transformation should not be veins 9:1432. or wires, but utilise technology and the expertise of experi- 7. Wakefield, J. (2019, May 18). The Google city that has angered Toronto. BBC. enced technology companies for the benefit of citizens and https://www.bbc.co.uk/news/technology-47815344 8. Waterfront Toronto. (2021). Who we are. https://waterfrontoronto.ca/nbe/ portal/waterfront/Home/waterfronthome/about-us/who-we-are in line with data regulations and emerging privacy para- 9. CBC. (2020, November 17). “I resigned in protest from Sidewalk Labs’ digms. Big Tech will no doubt need to play a significant role ‘smart city’ project over privacy concerns”. YouTube. https://www.youtube. com/watch?v=1t12UqYl5SA within the urban transformation agenda, but at the same 10. European Commission. (2021, April 21). Europe fit for the Digital Age: time must embrace a nuanced human-centric approach Artificial Intelligence. https://ec.europa.eu/commission/presscorner/detail/ en/ip_21_1682 that can create liveable and sustainable urban environ- 11. EU artificial intelligence rules will ban ‘unacceptable’ use. (2021, April 21). ments to drive human value. BBC. https://www.bbc.co.uk/news/technology-56830779 12. European Commission. (2020, February 19). A European strategy for data. References https://ec.europa.eu/info/strategy/priorities-2019-2024/europe-fit-digital-age/ 1. Sadowski, J. (2020). Who owns the future city? phases of technological european-data-strategy_en#projected-figures-2025 urbanism and shifts in sovereignty. Urban Studies, 1-13. 13. City of Barcelona. (2021). Digital Transformation. City Council. https://ajunta- 2. Open Data DK. (2021, May). Air View – Street View measurements of air ment.barcelona.cat/digital/en/digital-transformation quality. Copenhagen Municipality. https://www.opendata.dk/city-of-copen- 14. City of Barcelona. (2021). Open-source software. City Council. hagen/airview#resource-cav_25may2021.json https://ajuntament.barcelona.cat/digital/en/digital-transformation/ 3. Google Environmental Insights Explorer. (2021). Labs: Air Quality. Google. technology-for-a-better-government/open-source-software ABOUT THE AUTHORS Dr Mike Cooray is a Professor of Strategy & Transformation at Ashridge Executive Education at Hult International Business School. Mike is an Academic Director on the MBA and Executive Masters Programmes and designs and delivers multiple digital transformation programmes. Prior to joining academia, Mike was employed with Carlsberg, Mercedes-Benz and Siemens, working across South East Asia, Europe and the UK. Mike’s research interests are in the areas of digital transformation, strategy and urban innovation. Dr Cooray frequently publishes his thought leadership and research in leading practitioner and global media outlets. Dr Rikke Duus is senior faculty at University College London and visiting faculty at ETH Zurich. She has a deep interest in how technology affects and influences the human experience and frequently presents her work at international conferences and events. Rikke is widely published in leading practi- tioner and global media outlets. She is interested in how digital technologies facilitate the emergence of inter- and intra-industry collaborative networks; how complex digital ecosystems require new types of mindsets; and the ‘darker’ sides of data accumulation and surveillance. Marius Sylvestersen is the Chief Innovation Officer at University of Copenhagen. He has been driving sustainable change at government and city level since Denmark hosted the UN Climate Change Conference in 2009. He is the former Director of Copenhagen Solutions Lab, where he was responsible for programme management, strategy development and technology partnerships. Marius has a back- ground in social science and is a thought leader on innovation, smart city, and the green economy. 74 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

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LEADERSHIP AIM FOR THE NEW FRONTIERS OF WORK by Chris Nichols, Earlier articles in this series have introduced Team Mindfulness using the AIM Philippa Hardman model and explored how the application of the model in practice addresses and Michael important areas of organisational life. This article continues the work by Chaskalson exploring a question that will concern us all. It seems from many corporate statements that we are not all going back to the office any time soon. Many organisations have announced plans for fully remote working, others have announced radical flexibility plans. The reality is that remote and home working has proved a highly differentiated experience: not available for all, wonderful for some, a disaster for others. If it is now “wired in” for many of us as part of our future way of working, we must ask how we can do it well, to become and remain vibrant, participative and healthy human communities. We think that mindful practice using the AIM approach can be powerful, and we convened an informal “pop up” online research event to explore the question. This article summarises what we found. 76 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

SNAPSHOT TWO with between 60% and 80% of all com- We do some work that involves work- panies reporting an intention to keep shops where people come together some of this in their new normal offer. from different European regions. The groups have not been able to meet Many people report positive for some time, owing to regional outcomes from this way of working. health protection rules. Some have A World Economic Forum report on moved their work on-line and have remote working found that 90% of done very productive and creative staff reported higher trust in their work. But one group has continued to employer, and 88% reported a more defer meeting, putting off their next satisfactory working relationship as a work together until they can meet result of working from home. physically because of their exhaustion and frustration with virtual working. The pandemic brought new WHAT’S THE PROBLEM? What could be done so that this ways of working to many of us, isn’t the case? In many ways this is an accelerating digitisation and It is odd then that we still find a huge issue that is only just emerging. These flexible forms of working for many in pull towards meeting in person and new ways of working are still in forma- organisational life. Recent research doing “in the room” work in exactly tion, and people are giving each other suggests that the new ways of work- the groups these surveys reported to lots of support to be working in condi- ing are here to stay. “The virus has benefit most from the new ways of tions that are not ideal for them. But with broken through cultural and techno- working. organisations starting to make state- logical barriers that prevented remote ments about the future pattern of how working in the past, setting in motion Take these two examples from our they plan to work, we can expect these a structural shift in where work takes consulting practice: patterns to become more permanent, place” says a recent McKinsey report. and with that so will the consequences. Statements by some large corpora- SNAPSHOT ONE tions have suggested a wholesale shift What do we all need to do to make towards hybrid and flexible working We were contacted by an sure the new ways of working work existing client (a large global well for as many people as possible? corporate) about helping to design a late summer event Our “pop-up” research event for 200 global leaders. They brought 60-70 people together to were very clear – assume explore this issue and we applied the event will be a physical the AIM model to that research. This gathering. The message also article shares some of the findings asked for a “reserve option” as we saw that the applying AIM of holding a shorter virtual unearthed some very useful insights. event in case a physical event couldn’t happen. This A REMINDER OF THE is interesting. Why would you AIM APPROACH even consider flying leaders around the world, with all We don’t assume that everyone the costs and risks involved? has read the earlier articles in this Clearly, virtual is seen as series, so for anyone who needs it “second best”. Why? here is a summary of the AIM model. www.europeanbusinessreview.com 77

LEADERSHIP These AIM foundations of Allowing, Inquiry and Meta- Meta-awareness is the ability awareness were first set out in earlier research to look at the team from an discussed in an article by Michael Chaskalson and ‘outsider’ perspective and see Megan Reitz. the behaviour of the team as it is happening. It is like looking down Allowing is the practice Inquiry is the practice of at the swirling patterns of people of recognising reality for disciplined interest in opening moving around a busy railway what it is. We all spend so things up. So much of creating station from a high up balcony. much our time living in a the future involves moving The team learns to see itself “what if” world. When we beyond the ways of seeing and in action. It sees what is going are stuck in an attitude acting that have brought us on its own collective behaviour of wishing things weren’t to the problem we’re in. The and its own patterns – what it is like this or an attitude of ability to address the problem doing while it is actually doing it. denial, there is very little creatively demands that we choice available to us. It’s see the world another way. We As we discussed in our previous fruitless to spend time can only see another way if article, the three fundamentals wishing the world were we are willing to look through of AIM – allowing, inquiry and somehow different. When fresh lenses. This is where meta-awareness – can all be you’re able to allow things nurturing a team’s ability to learned and nourished. Let’s now to be as they actually then inquire really matters. see how they work in the context possibilities emerge. of the challenge of creating a more human organisation. APPLYING THE AIM MODEL example, many people noticed some TO THIS PROBLEM great benefits of virtual working, such as the ability to include people far In our research event, the first away who would never normally have conversation we facilitated focused been thought of for the team purely on what people had noticed about because of distance. One consultant adapting to virtual work. We were spoke about the power of picking surprised by the heartfelt energy exactly the right team to think about a behind some of the observations that client situation, with no limitations of emerged. Virtual working can lead to geography. Allowing for the potential powerful emotional reactions about to transcend old boundaries in order fairness and humanity. The first step to seize the potential was a potent in creating good conditions is focused message: by doing this leaders stop on allowing peoples’ realities to be seeing virtual working as a “diluted what they are. substitute” for face-to-face working, instead seeing it as a powerful We need to allow that there are new form of alchemy. But this was significant differences in people’s matched by some difficulties that can circumstances and experiences. For exist in this space. 78 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

People have different circumstances irritated at this than it is useful specific mentions in the research. You will need to know the limits of the and needs, and employers need to to be irritated about the weather. capacity of team members to work in this way and allow for these. respect this reality as a starting point. The next block of observations It is vital to allow for the human Some people are affluent and live was about being humans with bodies. need to build bonds by non-work chatter and exchange. Unless you in bigger houses with purpose built It sounds pretty obvious, but it is easy design for connection, you don’t get it. The virtual world can lack a space in workspaces. This is a very different to forget that the figures in the tiny which relationships get built “for free”. There is no coffee-break or water- reality from one where colleagues, boxes on screen are people with phys- cooler connection. Creating drop-in coffee rooms in events doesn’t do it. often younger, are in a shared house ical needs. Allowing for the diversity If this matters to you (and it should), you have to work harder to build it in. or working on a laptop on their bed. of these needs really matters. People Encouraging one-to-one walk and talk calls, perhaps outside in the park, was Expect people to have different reali- seem to find continuous virtual work one common practice that we heard about. So were shared artistic experi- ties and different reactions and needs, very demanding. So there is a need ences where the act of doing an artistic activity together seems to lead to a was one fundamental message. to allow for fluctuating energy – and different tone of conversation than a normal Zoom or teams call – there’s a This leads to another powerful to plan for plenty of comfort breaks link to one of our blogs about the expe- rience of “zen-doodling” here. insight: we may need to allow for in managed way. Some people in A final group of observations was very different ways of being profes- your team may have concerns about about the need to accept that not all conversations are the same. There are sional. Our research group members mobility or other limitations that different kinds of conversation and it is important to find a way to allow were clear that you may need to impact on them with lengthy screen them to be different. It is harder to be a critical friend in a large zoom change your expectations about how time: backs, hips, and eyes all got meeting than in a large room. Critical comments can land very flat without people look and act. the body language and tone of a quiet word in the margins of a meeting. You Allow people to turn People have different circum- may need to find a way to allow for up as they are – remote stances and needs, and the necessary critical conversations work may include cats, by signalling the supportive intention more clearly. “Making up” is hard in a children, eating, and employers need to respect zoom gathering – this is another case people at the door. It’s this reality as a starting point. where allowing for a different form is no more useful being useful, and the one-to-one walk and talk also got plaudits here. Above all the deepest message was to allow for learning: none of us are experts in creating brilliant virtual www.europeanbusinessreview.com 79

LEADERSHIP Some of the themes to be curious about leapt out of our research: • What works for us? After a few months, is it still working, what else could we do? • Are we all being heard? What exactly are our practices and ways of working helping or hindering? organisations yet. We need to allow • What counts as professional practice for us here? that we know less than we think we do • What are we noticing about power and how it plays out in the virtual - about the platforms we use and the practices we use on them. We need to world? How do we include, and perhaps inadvertently exclude, keep ourselves open and interested in people? How can we improve inclusion and make it work well for us? signs that things are going unexpect- edly well, or oddly differently, and • How do we make our diversity and inclusion intentions really leap be ready to learn from that - often as into life here? it is happening. The skills of reflec- tion have never been more needed: • How are we managing fairness? before, during and after, allow time • What do our bodies need? What is the place of space and move- for reflection and learning. ment in our virtual work? This then opens the way for • How good are we at boundaries? How are we at managing arrivals Inquiring – the act of asking better questions about our virtual experi- and departures? What’s needed to support good work for us in our ences can be a catalyst for deeply team, given our actual needs? radicalchange. Manyoftheareasabove lead naturally to themes to be curious • How do we have different types of conversations? Do we need to about. Always being interested, always design more carefully when we need to be efficient and disciplined? Creative? Have difficult conversations? • How can we allow genuine room for uncertainty and exploring in virtual work? • Do we always have to do it all together? How can we use streams of work and asynchronous working to suit people better and get the outcomes we need? looking for new insight, is a success strategy in Noticing what we are experiencing areas for exploration. This uncharted territory like this. and using that as data, rather than may seem daunting but reacting to it as truth, is gold dust. that’s what makes this so There are, of course, important. We are all going many more questions and to weave our own success from the degree to which we do this well. As you go, keep your eye on how you are doing it. This is where meta-awareness comes in – paying attention to how you are thinking and acting while you are doing it. We are all human. While we are doing this work, the joining in and the inquiring, we will be having experiences that are worth noticing. Our own reactions, physical and emotional, to virtual work and new working patterns are useful data. Noticing what we are experiencing and using that as data, rather than reacting to it as truth, is gold dust. Pay attention to your own thoughts and feelings about virtual or hybrid 80 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

processes, as you engage in them, and invite others to ABOUT THE AUTHORS voice theirs as well. That allows the processes that emerge to be rooted in lived experience, not some abstract idea of Chris Nichols is what might work well. co-founder of the specialist systems change Through continued practice to what is happening, you consulting firm GameShift, will notice more and more finely the patterns of expe- Over the past three riences, for yourself and with your team. Noticing your decades he has worked in public service, routines, noticing the language and imagery you tend to consulting, finance and academia. His work rely on. When you are trying to do something new, or to brings creative provocation and spiritual extract learning from a new situation, noticing how it is: practice to the boardroom in service of what’s easy, what’s difficult, what evokes anxiety, what do human and more than human flourishing. you resist doing? Philippa Hardman There is an infinity of things to notice. Don’t let that is co-founder with stress you, none of us can notice it all. But do try to spot Chris Nichols of what you do notice and get into the practice of comparing GameShift. She is a that to the experience and perception of others. Over time chartered accountant this will both improve your performance together and by background, with 25 years consulting develop your shared ability for team mindfulness – particu- experience including Coopers & Lybrand larly your shared curiosity, and your collective capacity to (now PwC) and PA Consulting. She was notice your thinking-in-action. It’s a form of team risk-man- previously co-leader of the strategy agement: building the peer-to-peer ability to notice traps engagement group and Director of and stuck patterns while they are happening, so that your Ashridge Consulting. ability to see “what is” becomes ever strengthened, and your capacity to create new frontiers together increases as Michael Chaskalson is you develop the ability to move beyond familiar ways of a Professor of Practice acting and reacting. In a shifting world, there is no greater at Ashridge Executive asset to have. Education at Hult International Business School and associate A FEW CLOSING WORDS at The Møller Institute at Churchill College in the University of Cambridge. A pioneer in It is certainly both a challenge and a privilege to be alive the application of mindfulness to leader- at this time of change, when whole new ways of working ship and in the workplace, he is founding and organising are being created. We are at a frontier of Director of Mindfulness Works Ltd. and a organisational form and new technologies, leading to new partner at GameShift. ways of working and all that it brings in terms of personal choice and potential cost and risk. For anyone interested www.europeanbusinessreview.com 81 in developing their leadership through a path of contin- uous learning, the frontier has never been more enticing. There is so much possibility available to breathe new ways of working into life that are good for each of us, for our organisations and for the planet. We need to take this opportunity and make it work for us. And as you step into this work, we hope that the practices and approaches of Team Mindfulness and the AIM methodology will help you and your teams to flourish for the good of all.

DIGITAL TRANSFORMATION THE CHALLENGE OF DIGITAL TRANSFORMATION by Nicolas van Zeebroeck Businesses largely agree that business transformation and Jacques Bughin through digital technologies is a necessity for incumbent firms. Still, success has remained rather elusive with more than 1 out of 2 incumbent firms acknowledging that its digital transformation fails to meet expectations2. T he typical rationale put forward for failing digital DIGITIZATION IS ABOUT GROWTH OPTIONS transformation is linked to ill-designed processes, absence of organizational commitment, and poor The majority mindset of companies is alas that their orig- digital skills. There are obvious operational mistakes-- inal strategy is good enough. Should their strategy ever but one more insidious form of failure is not that the dig- be adapted, it can only be done at the edge, -and only for ital transformation launched by a traditional incumbent defense. As our research1 demonstrates, this thinking blows to bits because of lack of skills; it is that the digital can be short-sided, –not to say that it is often wrong. In transformation is only half baked and its returns are far fact, digital “is strategy” in the sense that digitization from distinctive. implies that companies must adapt their strategy for the upside — that is, geared towards securing growth Consider that the returns of failed digital transfor- options “in the money”, as they emerge from the use mations, out of hundreds of digital transformations of digital technologies. This is where digitization pays we researched, are indeed negative or less than a few off and brings the good “bucks”. By the way, this is a percentage points, but it is clearly troubling that the luxury problem as options are often many: they can median return barely reaches between 7-10% of return facilitate the exploitation of new business model oppor- on digital capital deployed, –a return that is really not at tunities (e.g. B2C subscriptions for newspapers and all distinguishable from the weighted cost of capital of videos); they can initiate the set-up of platform-based incumbent companies. The digital investment, in other ecosystems (Deere’s service platform in agriculture), words, does not create value. they can get change old market conduct toward softer coopetition (e.g. Walmart’s open marketplace, or IBM’s But our research1 also demonstrates that a portion of Red Hat open source code sharing), or they can bring companies may build up truly outsized returns, above 50% new products and services. and more. Those companies have understood that if digital technologies are disruptive enough to kill their on-going busi- This is not theory, –but real business life. Netflix3, ness, their internal use may also require a re-thinking of the once a US-only DVD rental distributor, successfully original corporate strategy, along with applying digitization best practices into the business systems of a corporation. 82 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021 1. https://ieeexplore.ieee.org/abstract/document/9452796 2. https://hstalks.com/article/5186/ 3. https://hbr.org/2018/10/how-netflix-expanded-to-190-countries -in-7-years the-anatomy-of-successful-digital-transformation-t/

THE KEY FOR SUCCESS: GET RID OF THE TRADITIONAL EXCUSES A few other points are worth having in mind to deconstruct arguments often made by some incumbent firms: 1. “Offensive strategy may work but the cases above are too good to be true –they are exceptions and are difficult to replicate”. Our statistical analysis shows that strategic renewal leads to up to 5 points extra of revenue growth versus other companies—looking at the evidence, firms engaged in strategic renewal have grown at 8.8% a year, versus 3.8% for others stuck in their old corpo- rate strategy. Inditex is a case in point- which was able to grow its top line at 9.5% in the recent decade, while the typical fashion retail incumbent only managed to grow at about 3.5%. 2. “Returns may develop, but may take time- mean- while, risk is that self-cannibalisation hurts and destabilizes the organisation”. We concede that canni- invested in streaming to expand globally and to produce balisation is material with digitization. Yet its negative its own series. Volvo4, as a car producer, adopted mobile effect is systematically compensated by the strategic technology to invest in telematics and become the first renewal above, and in a rather short time frame. As a case connected truck related service company. Schibsted, a in point, Netflix revenues went down for two years after publishing company, leveraged web services technolo- pivoting from DVD distribution to a digital streaming gies to pivot its strategy from a regional news media to a platform, but since then, Netflix has increased its net digital classified and an e-commerce platform rivalling revenue tenfold. Its stock price evolution is even more E-bay. Cisco5, an IP router provider, recently invested spectacular, with the stock price moving from 30 USD by in the Internet of Things to successfully expand its April 2011 to 570 USD by now. hardware busi- ness to software 3. “We are to via its Fog plat- One key factor of resilience out of the prioritize our game form. Inditex6, covid-19 crisis, we found in parallel research, plan –we are first to the retailer has precisely been to invest in digital tech- be Covid-19 resil- owning the Zara ient”. Corporations brand, quickly nologies quickly (e.g. to enable remote work), have indeed been adopted digital and especially to operate dramatic pivots in facing large stress, social media strategy enabled by digital technologies. out of the covid-19 technology to pandemic. But one reposition itself key factor of resil- as a fashion ience7 out of the brand for generation Z, with fashion products co-cre- covid-19 crisis, we found in parallel research, has precisely ated on-demand. As a result, Inditex has built its been to invest in digital technologies quickly (e.g. to digital sales at twice the rate of new digital entrants enable remote work), and especially to operate dramatic such as Asos. pivots in strategy enabled by digital technologies. As a 4. http://sloanreview.mit.edu/wp-content/uploads/2017/03/61e3cde09c.pdf www.europeanbusinessreview.com 83 5. https://onlinelibrary.wiley.com/doi/10.1002/smj.3147 6. https://www.sciencedirect.com/science/article/abs/pii/S0040162521001505 7. https://europepmc.org/article/PPR/PPR362020

DIGITAL TRANSFORMATION case in point, Future Retail9 in India had followed an expan- sive brick-and-mortar strategy to differentiate from major e-commerce players like Flipkart, but alas got too vulner- able to the sudden fall of in-store shopping out of covid, and had no choice but to sell itself to Reliance. Contrast this to China Merchants Bank, which quickly expanded its online mobile banking application to morph into a platform for life services. Its strategic shift during Covid time led to an extra 100 million visits from access to food delivery, online course ridesharing, online doctor counselling, and hospital loca- tion search, in less than a month. GETTING READY If convinced to pivot strategy and go for new growth success in digital transformation have created at least enabled by digital, we often still hear a last mile fear, that two other jobs. Second, outsized digital returns are not is “Digitization kills jobs, especially new digital tech- from investing in digital architecture, and software tools, nologies such as smart automation and AI will replace – they originate from also investing in new digital capabil- jobs—we are to face strong organizational resistance”. ities for the organization. As this extra human capital10 is necessary, we learn, successful incumbent transformers We may not deny have also massively that this argument has In our research, we found that for one job invested in training some substance. But, and skill building. by the same logic of loss out of digitization, companies with Remember Inditex, the above, it is often outsized success in digital transforma- with powerful inadequate, because tion have created at least two other jobs. fashion retail brands it again misses the like Zara? Along growth option story. their successful In general, successful digital journey, digitization is precisely about growing faster—thus Inditex is investing in its base11: more than 2/3 of store increasing the “pie” and thus calls for more needs. And management jobs arise from rank of file promotions, while here is the fact: in our research, we found that for one the full workforce received no less than 3 million hours of job loss out of digitization, companies with outsized training last year. ABOUT THE AUTHORS Jacques Bughin is Professor, Chaire Gillet of Management Practice, at the Solvay Business School Nicolas van Zeebroeck at the Université libre de Bruxelles (ULB). He is is a professor of digital also the CEO of MachaonAdvisory, a top manage- economics and strategy at ment strategy consultancy. He serves as the Senior the Solvay Brussels School of Advisor for Fortino Capital and Antler, Knowledge Economics and Management Board Member at Portulans Institute, and Accenture Research, and at Université libre de STOA European Parliament. He retired from McKinsey & Company as Bruxelles (ULB). He serves on Belgium’s High senior partner and director of the McKinsey Global institute. Council for Employment and as Advisor to the President and Rector of ULB for IT and Digital. 84 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021 9. https://onlinelibrary.wiley.com/doi/full/10.1111/agec.12631 10. https://link.springer.com/chapter/10.1007/978-3-030-46143-0_14 11. https://www.inditex.com/our-commitment-to-people /our-employees/employee-development



TECHNOLOGY QUANTUM COMPUTING: by Dr. Roy J. Girasa, Distinguished Professor, Pace University, Pleasantville, NY Dr. Emilio Collar, Jr., Professor, Western Connecticut State University, Danbury, CT 86 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

In the field of physics, we have experienced the quantum revolution in the early 1900s, while in the field of information systems we have experienced the digital revolution that began in the 1960s. We have reached a point in our technological development whereby researchers and scientists are combining what we have learned from the revolutions in physics and information systems to create a new revolution: quantum computing. The authors discuss the potential of the new technology from the perspectives of business, the legal implications, and society. Keywords: Quantum computing, quantum bit, artificial intelligence, quantum revolution, transformation The Second Quantum Revolution Transformation of How Business is Conducted www.europeanbusinessreview.com 87

TECHNOLOGY INTRODUCTION Two distinct revolution we are now entering the second revolutions quantum revolution (see figure 1). Whereas The new century has ushered in techno- merge to create scientists were observers of quantum mechanics logical changes that are occurring at an the 2nd quantum in order to understand how nature works, the exponential rate. It began slowly with in- revolution. Second Revolution seeks to use the knowledge to dividuals working in garage-like atmosphere to alter how nature operates by creating new atoms, advance earlier advances in computer technolo- and sub-particles to design and utilize the accom- gy to its evolution in almost endless uses that has plishments to better the lives of others. (Dowling altered the marketplace and the lives of almost & Milburn, 2003) The latest emanation of trans- every human person globally. We have observed formational technology is that of quantum its transformation into digital currencies exem- computing which threatens, if mastered, to plified by Bitcoin that is based on blockchain cause disruption and lifestyle changes that would technology; to artificial intelligence which has make substantial progressions in the most futur- and will continue to end simpler ways of living istic movies appear trivial. In this article, we will and doing business; and to arenas whereby oc- examine the basics of quantum computing and cupations that were once secured are now in proceed to a discussion of governmental initia- mortal danger of collapse or transformation to tives and regulatory promulgations. an almost unrecognizable degree.1 1st Quantum Revolution 2nd Quantum Some authors have called the development Wave Particle Duality (early 1900s) Revolution the Second Quantum Revolution. The First Digital Revolution Quantum Quantum Revolution occurred a century ago (began in early 1960s) Computing when the concept of wave-particle duality was theorized and later proven by experimentation REVISITING CLASSIC COMPUTING which showed that particles may at times act also like light waves and light waves as particles. Classical computers operate and carry infor- Key figures of quantum mechanics were Max mation in terms of a string of binary bits of Planck, who theorized that light is emitted and 1’s and 0’s, with “1” representing “on” and “0” absorbed in discrete forms or “quanta” rather for “off” electrical switches, the total number than as a continuous electromagnetic wave; of which constitutes the state of the memory. and Richard Feynman who first proposed the Letters, numbers, even photographs with values concept “quantum computing” in 1982. The given to each pixel, are presented by 1s and 0s result of the experimentation which proved that in a sequential order. For example, using ASCII the phenomena of these discrete objects could be waves or particles at any given time is that quantum information is much more complex than the classical theory light consisting of particles. (Lloyd & Englund, 2016) The digital revolution, also described as the third industrial revolution by Jeremy Rifkin, is the shift from mechanical and analog technology to digital electronics. (Rifkin, 2013) Combining the first quantum revolution and the digital 88 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

(American Standard Code) character codes, the WHAT IS QUANTUM COMPUTING? number 4 electronically would be 0011 0100 while the letter T would be 0101 0100. A “bit” is The development of quantum computing prom- the fundamental unit. The totality of bits is the ises to be as revolutionary as the creation of size of the memory. the Internet. It is based on quantum bits which One goal of the technology underlying in turn are premised on subatomic particles. classic computers is the continual Atoms (smallest units of matter: 1x10-10 m) shrinkage of the size of the tran- Quantum computing are composed of one or more electrons sistor. In the early 1950s the size of (negative electric charge) and a nucleus a transistor was the palm of your is in its early stage of having both protons (positive electrical hand. (Gaudin, 2007) Generally development which charge) and non-electrical charged speaking, the smaller the tran- may become the most neutrons (except for hydrogen which sistor the greater the computing does not contain a neutron). The elec- power. Today we are reaching a significant scientific trons orbiting the nucleus are attracted point where reducing the size of a innovation affecting to the nucleus by an electromagnetic transistor any further will become how data is compiled, force. There are other sub-atomic parti- impossible: cles which include photons (high energy “As transistors are reduced analyzed, and utilized. sub-atomic particle), quarks (smaller to just seven nanometers long particles within neutrons and protons), [1 nanometer = 1×10-9 m or neutrinos (very small mass and no elec- 0.000000001m], engineers are fighting to keep an trical charge), gravitons (a quantum of gravity electric charge flowing in channels whose walls theory that has yet to be proven), and others, are only atoms thick. … Make the transistor any an extended discussion of which is beyond the smaller, and the electric current that powers the scope of this text. processor's calculations and logic simply jumps Quantum computing is in its early stage the channel or leaks out of the component after of development which may become the most atoms meant to contain the flow of electrons are significant scientific innovation affecting how disrupted over time.” (Loeffler, 2019) data is compiled, analyzed, and utilized. It is For computing power to continue to based on quantum theory which studies how increase, we need a new technological revolu- matter and energy interact within the atom. tion: quantum computing. Its advances, if and when made practical in www.europeanbusinessreview.com 89

TECHNOLOGY daily usage, would be able to process complex different outcomes. Thus, two qubits existing scientific and other data to an exponential as 1s and 0s can have four possible states but degree previously thought either a futuristic three qubits can have eight possible states possibility or impossible to achieve. The impor- and when the number of qubits increases, the tance of quantum computing within the mathematical equivalent states expand expo- realm of quantum information nentially.3 Three hundred qubits science is that it potentially will Among the problems would add up to more than 2 nove- expand economic and social mvigintillion possible states, or development in the fields of faced by scientists 2,037,035,976,334,490,000,000,000, microelectronics, photonics, seeking to harness the 000,000,000,000,000,000,000,000,0 material sciences, biotechnology, potential of quantum 00,000,000,000,000,000,000,000,00 magnetic resonance imaging 0,000,000,000,000,000. Needless to and other medical fields, engi- computing is the difficulty say, that number is nearly impos- neering, national security, and of controlling it from its sible to imagine. numerous other areas.2 extreme fragility state and Because of the transforma- In quantum computing there tion of one state to another, i.e., are no fixed 1s and 0s; rather the noisy environment. from particle (has a position in space) to wave (movement) and qubits are based on quantum mechanics and the laws of vice versa, the measurement physics thereto. The laws governing quantum thereof, as stated, is probabilistic rather than physics are different from that governing fixed. (Dirac, 1930) Although a photon (light classical physics which are deterministic particle) may be in different places at the and regulate electromagnetism, gravity, and same time, once an observer focuses on the mechanics.1 Quantum computing is probabilistic photon it then is fixed in the perceived loca- rather than deterministic whereby researchers tion. Thus, as one commentator noted, it is rely on averaging the results of the phenomena analogous to “alternative facts” in current inasmuch as a particular qubit may be defective. political vogue whereby different observers A “qubit” (quantum bit) is its fundamental unit may have differing interpretations of the same of memory. A quantum computer can trans- phenomena thus violating classical physics form a classical memory state into a quantum that is based on measurement and the ability state and back again. Confusingly, atoms are to replicate and confirm theoretical findings composed of electrons and other particles (has of others. (Fedrizzi & Proietti, 2019) mass and structure – a position in space) but which may also act like waves (transportation of energy without mass – a disturbance from DIFFICULTIES IN CREATING its equilibrium). A positively charged atom has PRACTICAL USAGE OF QUANTUM electrons that travel in circular motion around COMPUTING the nucleus, although the common textbook representation of electrons orbiting around a nucleus has been called into question. Although a qubit can be represented by 0s and 1s, it can be both at the same time, have Among the problems faced by scientists seeking multiple values, and is called a superposition, to harness the potential of quantum computing i.e., instead of a fixed numerical designation, is the difficulty of controlling it from its extreme in quantum mechanics the observations made fragility state and the noisy environment. are probabilities whose measurements made Known as decoherence, it is the greatest road- on qubits in identical states may result in block to successful practical usage of quantum 90 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

computing. Electronic devices are affected by TABLE 2 Growth of quantum computing power using Neven’s Law radiation, light, sound, vibrations, heat, and magnetic fields. Their erratic and highly disor- n 22n # times faster in computing power dered motion, unless made coherent, would make quantum computing impossible. The 1 221 = 4 times computing power attempt to control the erratic behavior is the 2 222 = after 2 years subject of intense research that has led in part 3 223 = to Superconducting Quantum Interference 4 224 = 16 times computing power Devices (SQUIDS), quantum photonics, 5 225 = after 4 years spintronics, molecular coherent quantum electronics and other breakthroughs.4 6 226 = 256 times computing power after 6 years Nevertheless, developments in quantum computing are occurring at an exponential 65,536 ≈ 65.5 thousand times computing pace. It is Moore’s Law in spades (named after power after 8 years Gordon Moore who observed over the past several decades that the number of transistors 4,294,967,296 ≈ 4.3 billion times computing in an integrated circuit doubles about every power after 10 years two years while the cost halves in the same time frame). Neven’s Law (quantum computer 18,446,744,073,709,600,000 ≈ 18.4 quintillion times computing version of Moore’s Law), named after Hartmut power after 12 years Neven of the Quantum AI Lab), posits that quantum computers are doubly exponential 7 227 = 340,282,366,920,938,000,000, ≈ 340.3 undecillion times compared to current computers or approx- 000,000,000,000,000,000 computing power after 14 years imately a million times faster. Instead of exponential growth by powers of 2 (22) (see 8 228 = 115,792,089,237,316,000,000,000,000, ≈ 115.8 quattuorvigintillion times table 1), growth would be that of powers of 000,000,000,000,000,000,000,000,000, computing power after 16 years powers of 2, or 222 (see table 2). 000,000,000,000,000,000,000,000 According to Neven, it is due to the 13,407,807,929,942,600,000,000,000, combination of two exponential factors: (1) a 000,000,000,000,000,000,000,000,000, classical circuit, e.g., would require 16 ordi- 000,000,000,000,000,000,000,000,000, 13.4 quinquagintillion times nary bits if a quantum circuit has four qubits; 9 229 = 000,000,000,000,000,000,000,000,000, ≈ computing power after 18 years (2) quantum processors are rapidly improving 000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000 17,976,931,348,623,100,000,000,000, 000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000, 18 uncentillion times computing 10 2210 = 000,000,000,000,000,000,000,000,000, ≈ power after 20 years 000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000, 000,000,000,000,000,000,000,000,000, 000, 000,000,000 TABLE 1 Growth of computing power using Moore’s Law n 2n # times faster in computing power by the reduction of its error rate in the quantum circuits which has been the main cause of lack 1 21 = 2 2x computing power after 2 years of adaptation. The goal is quantum supremacy whereby chips will improve so significantly 2 22 = 4 4x computing power after 4 years that the most powerful supercomputers will pale in comparison. Data that can be carried by 3 23 = 8 8x computing power after 6 years controlled photons would be virtually unlimited both in quantity and speed. (Hartnett, 2019) 4 24 = 16 16x computing power after 8 years Another way to look at Neven’s Law: if we had quantum computing in the late 1960s, we would 5 25 = 32 32x computing power after 10 years have had the laptops we have today by 1975. (Rossi & Gonzalez-Zalba, 2019) 6 26 = 64 64x computing power after 12 years 7 27 = 128 128x computing power after 14 years 8 28 = 256 256x computing power after 16 years 9 29 = 512 512x computing power after 18 years 10 210 = 1024 1024x computing power after 20 years www.europeanbusinessreview.com 91

TECHNOLOGY PHOTONS the measurement of their physical properties. (Peres, 1993) They mirror comparable changes A photon is an elementary subatomic particle even though there is no apparent interaction which acts as the force carrier for the electro- between them. Scientists are unable to explain magnetic force such as light and radio waves. It the manner in which this apparent contradic- has zero mass and moves at the speed of light in tion to classical laws of physics phenomenon a vacuum. It possesses both wave and particle occurs but which enhances dramatically the properties. It can both be measured having a computing power of qubits. Albert Einstein definite and finite position but also may have called it “spooky action at a distance.” (Lochhead momentum as a wave but not both simulta- & Dugan, 2019) neously. Photons as light quanta or discreet quantity of energy can act as information An alleged important development that carriers (qubits) and are the basis for quantum has engendered much publicity and commen- computing which greatly surpasses existing tary both from the interest in quantum computer information technology.5 computing advancement and from a national security perspective, is the announcement The problem that previously made practical by China’s Shanghai Institute of Microsystem use is that photons do not interact with each other and Information Technology that it developed which thus has engendered much research to superconducting nanowire single-photon detec- accomplish a waveform interaction to produce tors which, if accurate, represents a significant carrying results. (Harvard-Smithsonian Center breakthrough for quantum information technol- For Astrophysics, 2017) Researchers Hannes ogies. (Press, 2017) A major problem of quantum Pichler, Zhenda Xie, and others have been able computing technology is the need to maintain to entangle photons coupling pairs of photon its use at near absolute zero temperatures. MIT researchers announced that they have been able to generate single photons for carrying quantum information at room temperature. It is accomplished by new single-photon quantum emitters. (Matheson, 2019) QUANTUM SUPREMACY particles using a quantum emitter to enable The somewhat controversial term, quantum quantum information processing. (Pichler, supremacy was termed by John Preskill, a Choi, Zoller, & Lukin, 2017) Entanglement is the leading theoretical physicist at the California interaction of two or more particles, albeit the Institute of Technology, as he stated: “to describe particles may be a substantial distance from the point where quantum computers can do one another. There is a perfect correlation in things that classical computers can’t regard- less of whether those tasks are useful.” (Preskill, 2019a) The designation is controversial because it calls to mind the offensive expression “white supremacy” and, in addition, that quantum computing has already achieved that status over classical computing. Thus, a group of 16 scientists at Oxford and Cambridge universities 92 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

complained the expression evokes racists’ and A photo provided disclosure of confidential quantum computing colonialists’ idea which term should be replaced by Google shows, advancements, stated that Google researchers, by “quantum advantage.” Others complained from left, Sundar led by the noted scientist, John Martinis, had that this objection is that of the thought police Pichai, the chief achieved quantum supremacy.” (Rieffel, 2019) currently in vogue. (Furedi, 2019) By its integra- executive, and a The Report indicated that the scientists were tion of information technology and quantum Google researcher faced with the dual challenges of creating a with Google's quantum computer machine. mechanics, so-called intractable computational GOOGLE /The New York quantum system engineered to perform a compu- tasks are now able to be accomplished which Times News Service tation in a large enough computational space cannot be performed by classical computers. The The source: with low enough errors to provide a quantum goal is to create a quantum device that combines theglobeandmail.com speedup and whether the quantum computer a large number of qubits with low error rates to can solve problems that are very difficult for thus achieve supremacy over classical computers but easy existing classical computers. Is the accomplishment one in a for a quantum computer. The (Boixo & Neill, 2018) Preskill Report stated that they were earlier alleged that controlling line of immense breakthrough able to demonstrate an imme- large-scale quantum systems or of limited initial steps is diate computational capability would be either really hard, or disputed among researchers? that would enhance optimiza- ridiculously hard but concluded tion in quantum computing. that the Google achievement It further alleged that, discussed below has proven although quantum computing that quantum supremacy is achievable but would requires further technical leaps to engineer entail arduous work. (Preskill, 2019b) fault-tolerant qubits, nevertheless, it was able to achieve technical advances to demonstrate GOOGLE’S BREAKTHROUGH AND quantum supremacy over state-of-the-art clas- QUANTUM SUPREMACY sical computers. It performed quantum circuit sampling in polynomial time with a quantum processor with low error rates which no known Enormous sums are currently being expended to classical computer could achieve. (Rieffel, 2019) harness to capabilities of quantum computing. The said John Martinis, whose title is that of The announcement of a Status Report from the chief scientist quantum hardware, and Sergio NASA Ames Research Center, and almost imme- Boixo, chief scientist quantum computing diately withdrawn likely due to the inadvertent theory, published a Blog of their claimed www.europeanbusinessreview.com 93

TECHNOLOGY quantum supremacy breakthrough in which they Hannover, accomplish calculations at a speed of 3 minutes, discussed how their experiment was performed. Germany - June 20 seconds what it would take Summit, the The probabilistic aspect of quantum theory was 13, 2018: IBM world’s best supercomputer some 10,000 years minimized by improved two-qubit gates by the shows a model to accomplish. Rather than working on massive use of a new type of control that is able to turn of quantum amounts of data sequentially, it could do so in off interactions between neighboring gates. They computer at their a parallel manner. (Martinis & Boixo, 2019) expanded the test to demonstrate that quantum pavilion at CeBIT Microsoft’s Matthias Troyer, responding to a mechanics works by the expansion of the state- 2018 question posed before the Google announce- space dimension to a size of 10 quadrillion. ment at a panel discussion that included IBM’s The authors stated that its Sycamore quantum flowgraph / Pat Gumann and Google’s John Martinis, stated computer is full programmable and would be Shutterstock.com that once a computer can be built with just over able to run general-purpose algorithms. They 2,000 qubits, the unhackability of Bitcoin will be expressed their intent to expand applications by overcome. (Perry, 2018) making their “supremacy-class processors” avail- able to academics and companies. Suggested Is the accomplishment one in a line of future applications include the design of new immense breakthrough or of limited initial materials such as lightweight batteries for auto- steps is disputed among researchers? Almost all mobiles and airplanes, more effective medicines, observers caution that even if the achievement and more efficient fertilizers to reduce their size- has truly occurred, nevertheless, its transla- able carbon imprint. (Martinis & Boixo, 2019) tion into the marketplace will require years of further research and experimentation. Google The announcement created shock waves had entered into a partnership agreement with throughout the globe. A potential result from NASA executed on June 19, 2018 by NASA and such supremacy is the now questionable by Hartmut Neven on behalf of Google on July unhackability of blockchain. Accomplished 3, 2018, entitled “Nonreimbursable Space Act in conjunction with the U.S. federal agency Agreement Between The National Aeronautics NASA, it was alleged that its quantum processor, and Space Administration Ames Research “Sycamore,” which contains 54 superconducting Center and Google LLC to Analyze the Utilization qubits (actually 53; one did not work), is able to and Assessment of Google’s Emerging Quantum 94 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

Processors.” (NASA, 2018) The purpose of the to the slightest disruptions of minute change agreement is for the parties to explore the utili- in temperature, (“noise”), last only fractions zation of the gate-based quantum processors of a second, and are prone to errors because that Google is building. The use of gate-based of qubit particle-wave transitory states. Others quantum processors is for the support of general commentators fear that quantum supremacy as distinguished from special purpose quantum and its potential capability of cracking the most processors to enable the exploration of new secure encryption codes pose significant dangers approaches to solve complex computing chal- particularly to cryptocurrencies and blockchain lenges that are beyond the capabilities of current that are reliant on maintenance of totally secure applications. (NASA, 2018) communications. (Aten, 2019) Yet another scien- tist posits the view that quantum computing is a IBM REBUTTAL fad that will implode because we will never be able “to control the more than 10300 continuously variable parameters defining the quantum state IBM, which also has developed a 53-qubit of such a system.” (Dyakonov, 2018) It appears that quantum computer, is a naysayer against the although the announced Google breakthrough is claim of quantum supremacy. Dario Gill, Director significant as the first step in a long progressive of the IBM Research facility in Yorktown, New advancement just as the first airplane flight at York, stated that the implementation of one very Kitty Hawk, almost all commentators agree that specific quantum sampling procedure with no the use of quantum computers for practical appli- practical applications is not a significant break- cations is years away. (Giles, 2019) through of quantum computing. (Cho, 2019) He further declared: “We argue that IBM, which also has devel- QUANTUM SUPER- an ideal simulation of the same DENSE CODING task can be performed on a classical system in 2.5 days and oped a 53-qubit quantum Superdense coding is analogous with far greater fidelity. This is computer, is a naysayer to a main purpose of blockchain in fact a conservative, worst- against the claim of quantum which is to maintain secrecy case estimate, and we expect that with additional refinements supremacy. Gill intimates from outside third parties to the classical cost of the simula- that classical computers communications. The protocol, tion can be further reduced.” will work in concert with first proposed by C. Bennett The authors suggest that new and S. Wiesner in 1992 and later and better classical computing quantum computers and not experimentally achieved four software can enhance the devel- replace them. years later by Mattle, Weinfurter, opment of quantum computing. Kwiat, and Zeilenger, enables Gill intimates that classical the sending of two classical bits computers will work in concert of information secretly from with quantum computers and not replace them. one party to another through the receiver of the (Pednault, Gunnels, Maslov, & Gambetta, 2019) communication by the use of entangled photon Other cautionary and more realistic remarks pairs by performing one of four quantum single suggest that the development is a “proof-of-con- qubit gate operations. The sender or a third cept” which offer potential extraordinary benefits party sends one qubit of the entangled photon especially in the fields of machine learning, mate- to one party and the other to the receiver who is rials science, and chemistry. (Whyte, 2019) then able to apply a certain quantum gate to her Quantum computers are very delicate subject qubit to decode the message. (Atkin, 2018) www.europeanbusinessreview.com 95

TECHNOLOGY USES OF QUANTUM COMPUTING MAJOR ENTITIES EXPLORING QUANTUM COMPUTING Like AI, quantum computing has compa- rable uses except at an almost incalculable Among the corporations and entities greater speed. Almost every field of social profoundly engaged in quantum computing and business endeavor will be affected. With research and development, in addition to immense data presented that previously took the cited Google, IBM, and Microsoft, are: days to digest, then Alibaba, in conjunction sped forward with The perennial problem will be the with the Chinese Academy ability of individuals to learn the of Sciences offers a cloud AI, commentators in disciplines required to utilize the quantum service; Baidu’s technological advances. Thus, the Quantum Computing offering diverse disciplines of quantum information theory and computation; Honeywell’s quantum computing suggest banking, accounting, medi- cine, law, travel, need arises for properly trained “trapped ion” (charged personnel who can understand, atomic particles confined and et al, will experi- update almost daily, and apply the suspended in free space using electromagnetic fields within ence significant advances. Cities will become “smart” with technology to the almost infinite a quantum computer) (Nielsen advances in traffic uses required in the workplace. & Chuang, 2010); Intel’s foray regulation, energy into providing methods to output, electronic validate wafers and method to vehicles, and new validate qubits’ performance; machine learning processes. Whereas the and Raytheon whose BBN Technologies unit is great value of blockchain usage was that it applying quantum computing to imaging. (CB was un-hackable, the new technology with Insights, 2019) A smaller entity that has engen- advanced algorithms that power output dered much interest is Rigetti Computing millions of times beyond todays’ computers in California which makes superconducting poses a major threat to blockchain adaptation. electronics and which is poised to make Attorneys reliant on “smart contracts” will useful applications of quantum computing no longer have the confidence that currently by the launch of its new cloud platform, underlies their applications. Forest, whereby developers can write code for The perennial problem will be the simulated quantum computers and support ability of individuals to learn the disci- programs utilizing a quantum processor as an plines required to utilize the technological adjunct to conventional software rather than advances. Thus, the need arises for prop- a total replacement thereof. (Simonite, 2017) erly trained personnel who can understand, update almost daily, and apply the tech- nology to the almost infinite uses required in the workplace. Individuals at the lower end CHINA’S ADVANCEMENTS IN of the educational spectrum will continue to QUANTUM COMPUTING downslide with robots, driverless vehicles, and other cheaper alternatives replacing the need for human output. Second only to U.S. advances in quantum computing is the People’s Republic of China (China) which represents both a competitive 96 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

threat to U.S. and European firms and also leadership was the announcement by the China raises security fears in Western government. In Electronics Technology Group Corporation a November, 2019 Interim Report of the National (CETC) that its development of quantum radar Security Commission on Artificial Intelligence, would be able either currently or in the near whose chairman is Eric Schmidt of Google, future to make stealth aircraft obsolete. It it noted the challenge posed by China has alleged it tested radar at 60-mile range although overseen a 30 times increase in research and some observers believe that owing to secrecy, development from 1991 to 2015 and is projected the actual effective range of its quantum radar is to overtake the U.S. in 10 years. (National Security much greater. Allegedly, it was able to overcome Commission on Artificial Intelligence, 2019) It has decoherence of photons by its single-photon repeatedly excelled in many areas of the new detectors. (Majumdar, 2019) technologies from academic publications to some of the largest global firms (Baidu, Alibaba, A relatively new area for quantum computing Tencent, iFlytek, and Sensetime), to its erosion is the offering of computer service in the cloud. of the civilian and military relevant research and Huawei Technologies Co., Ltd., of Shenzhen, development (R&D) and global talent. Many of Guangdong, China, is especially aggressive in the scientists were trained in the U.S. thereby quantum computing developments with its allowing major advancements in STEM (science, release of a cloud service platform for quantum technology, engineering, and mathematics) computing simulation and advances in the programs, and innovative research. integration of a quantum error correction with the platform. The service can provide both full Among China’s recent advances that have and single-amplitude simulations with at least caught the attention of U.S. political and civilian 42-qubits of full-amplitude simulations and at The source: dogtownmedia.com www.europeanbusinessreview.com 97

TECHNOLOGY least 81-qubits for full single amplitudes. It claims Mobile World Congress 2019 AI will profoundly change human society and it can achieve up to 169 qubits for single-ampli- in Barcelona, Huawei Booth life and change the world. Thus, the mission tude simulations. The platform will be open to of the Plan is “to seize the major strategic the public for its use. (Huawei, 2018) Similarly, alvarog1970 opportunity for the development of AI, to build CAS-Alibaba Quantum Computing Lab is also Shutterstock.com China’s first-mover advantage in the develop- heavily invested in a Quantum Computing Cloud ment of AI, to accelerate the construction of an powered by a quantum processor that includes innovative nation and global power in science 11 superconducting qubits whose chip works at and technology.” extreme low temperatures. (Black, 2018) The Plan began with an analysis of The CHINA’S CURRENT ARTIFICIAL Strategic Situation in which it noted that the INTELLIGENCE (AI) INITIATIVE development of AI has reached a new stage especially mobile Internet, big data, super- China is projected to invest some $1.6 trillion computing, sensor networks, brain science, in AI and AI-related industries by the year and other new theories and technologies. It 2030. It accounts for over half of all AI global has accelerated deep learning, cross-domain expenditures for the past five years and expects integration, man-machine collaboration, the opening of swarm intelligence, (Beni & Wang, to increase its AI investment tenfold in the next 1993) and autonomous control. three years. (Burrows, 2018) Presumably, the R&D expenditures will also include substantial AI, as the focus of international competi- investments in quantum computing. China’s tion, requires China to seize the initiative in State Council announced and released it’s a AI in order to enhance national security and New Generation of Artificial Development Plan attain social and economic benefits for its citi- AI which was completed and released in July, zens. As a disruptive technology, AI may cause 2017. (Burrows, 2018) The Plan is divided into the transformation of employment structures, several sections. It begins with a comment that impact legal and social theories, violate privacy rights, and other areas in China. It already leads globally in the publication of scientific papers on AI, in the number of inventions have been patented, in voice recognition and in visual recognition technologies, in adaptive auton- omous learning, intuitive sensing, and other related areas. Nevertheless, China recognizes its shortcomings in basic theory, core algorithms, key equipment, high-end chips, and several other areas. The Plan then stated The Overall Requirements which is divided in a discussion of the guiding ideology, basic principles, stra- tegic objectives, and overall deployment. Its guiding ideology is the implementation of the polices set forth at the 18th Party Congress, its Plenary Sessions, and the leadership of General Secretary Xi Jinping that stresses the imple- mentation of innovation-driven development strategy to accelerate the deep integration of AI with economy, society, and national defense. The Basic Principles stresses technology-led 98 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021

global development trend of AI, the ability of intelligent application of a complete industrial its communist ideology to concentrate forces to chain and high-end clusters. The scale of AI do major undertakings, promote planning and industries will exceed 10 trillion RMB ($1.44 layout of projects, and a talent pool able to carry trillion). China will possess world leading AI out the principals. It seeks to be market-domi- technology innovation and personnel training nant, be open-source, and open to industry, centers and will have comprehensive laws and academia, research and production units. For regulations coupled with ethical norms and strategic objectives, AI development is to take policy systems. place in three steps: The overall deployment of AI will be 1 By 2020, China will be in step with other accomplished by construction of an open and cooperative AI technology innovation major global players whereby AI will become system; grasp AI’s characteristic high degree an important engine for economic growth by of integration of technological attributes and making extensive progress in big data- cross-me- social attributes; adherence to the promo- dium-, swarm-, hybrid enhanced-, tion of the trinity of breakthroughs and autonomous- intelligence. It AI, as the focus of inter- in AI research and development, also will have achieved important product applications, and fostering progress in other foundational national competition, industry development; and full theories and core technologies as requires China to seize support science and technology, well as advances in AI models and the initiative in AI in the economy, social development, methods, core devices, high-end and national security. (Beni & Wang, equipment, and foundational order to enhance national 1993) (Rosenberg & Wilcox, 2019) software. It will have achieved security and attain social (Metcalf, Askay, & Rosenberg, 2019) first echelon status, nurtured and economic benefits (Schumann, Willcox, Rosenberg, & industries to invest 1 trillion RMB Pescetelli, 2019) (approximately $144.7 billion, for its citizens. Other international efforts being undertaken include: the European €113 billion); 2 By 2025, China expects break- Union’s 2016, Quantum Manifesto, which was launched in 2018 with an investment throughs in AI theory and technology systems of $1.1 billion over ten years in basic quantum whereby AI industries will enter into a global information science (QIS) through its Quantum high-value chain and widely used in intelligent Technologies Flagship; Canada’s Perimeter manufacturing, medicine, city, and agriculture, Institute and University of Waterloo’s QIS R&D; national defense construction, and establish the United Kingdom’s 5-year $440 million National laws and regulations addressing ethical norms Quantum Technologies Program; and many other and policy systems, and formation of AI security global efforts. (Figliola, 2018) assessment and control capabilities; 3 By 2030, AI applications will have made QUANTUM COMPUTING, BIG DATA, BLOCKCHAINS, & China into the world’s leading AI innovation ARTIFICIAL INTELLIGENCE center with significant results in an intelligent economy and intelligent society applications. Quantum computing is expected to greatly Major breakthroughs in each of the area enhance AI going forward and poses threats discussed in 2020 will have taken place and to blockchain in the foreseeable future. As one allowing AI to be deeply expansive in the author stated, the deluge of data that has arisen economy and an expensive core technology for key systems, support platforms, and www.europeanbusinessreview.com 99

TECHNOLOGY with the boon in digital technologies (about will require access to big data which refers to 2.5 exabytes daily), the need for hardware to access anywhere, access anytime, and access support it increases exponentially which only anybody. (Martin, 2017) quantum computing will be able to muster effi- Also on the horizon is quantum machine ciently. Although a single-chip computer may learning combined with quantum neurons contain 2 billion transistors, nevertheless, the will vastly improve the manipulation of large need for greater speed for data analytics will matrices and large vectors exponentially faster require a transition from the current technol- than classical computers. (Musser, 2018) The ogies to the evolving quantum advantage is that, whereby a computing and any additional On the horizon is quantum classical computer processes futuristic development.2 individual data units one by one, AI technologies will benefit machine learning combined a quantum computer would be greatly with big data analytics, with quantum neurons will able to process, e.g., using a state predictive analytics, and vastly improve the manip- of four qubits, 16 numbers at a machine learning. The vast time. 60 qubits could encode data quanta of data will have an ulation of large matrices equivalent of all of the data accu- almost infinite affect upon and large vectors exponen- mulated by humans annually. almost all forms of human tially faster than classical A quantum processor of 2,000 endeavor. For example, in qubits has been manufactured marketing, predictive analytics computers. by D-Wave Systems of British Columbia whereby each of the can ascertain greater and greater understanding of human qubits acts in a superposition motivations and needs geared to specific indi- wired together and interacting magnetically. viduals such as disbursement of programs in The system is still in development with scien- different regions and different climatic influ- tists attempting to ascertain how to put classical ences. The vast complexity of individuals data into and out of a quantum state. With the and groups require big data analyses that are exponential growth in understanding of the quickly exceeding the current capabilities of latest technologies it is highly likely that early- existing technologies. (Reavie, 2018) CEOs stage difficulties will be resolved in the near 100 THE EUROPEAN BUSINESS REVIEW SEPTEMBER - OCTOBER 2021