The Palgrave Handbook

of Corporate Sustainability
in the Digital Era
Edited by
Seung Ho Park
Maria Alejandra Gonzalez-Perez
Dinorá Eliete Floriani
The Palgrave Handbook of Corporate Sustainability in
the Digital Era
 Seung Ho Park
Maria Alejandra Gonzalez-Perez
Dinorá Eliete Floriani
Editors

The Palgrave
Handbook of Corporate
Sustainability in the
Digital Era
Editors
Seung Ho Park Maria Alejandra Gonzalez-Perez
Nanyang Technological University Universidad EAFIT
Singapore, Singapore Medellin, Antioquia, Colombia

Dinorá Eliete Floriani

Universidade do Vale do Itajaí
Itajaí, Brazil

ISBN 978-3-030-42411-4    ISBN 978-3-030-42412-1 (eBook)

https://doi.org/10.1007/978-3-030-42412-1

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 Seung Ho Park
To Ja Young (my wife), Alexandra and Amelia (my daughters).
Maria Alejandra Gonzalez-Perez
Dedicated to my Mum (1944–2020), to Dr. Carlos Enrique Piedrahita
(1954–2018), and to my loved boy Cian Felipe (2008–2020).
Dinorá Eliete Floriani
To Flavio, my husband. My father and my mother,
Leopoldo and Izolda Floriani.
 Introduction

Business sustainability in a digital era requires a new way of doing business in the
twenty-first century. Sustainability and digitalization provide challenges and opportuni-
ties to companies that require new capabilities and organizational adaptation. While
they have drawn much attention in academic research and business practices, the man-
agement field is still unsure of the scope, related issues, and organizational processes and
outcomes of these concepts. This Handbook is an ambitious attempt to provide multi-
disciplinary ideas in the global context that pave the way to advanced knowledge devel-
opment and valuable business practices of digitalization and sustainability. It provides a
comprehensive and broad picture of the nature, applications, and execution of sustain-
ability in a digital era.
Sustainability in a digital era requires a complex and broad scope of corpo-
rate changes, including social commitment and firm embeddedness in the loca-
tion of the primary businesses. Corporate sustainability entails systematic and
future-oriented behavioral changes at the individual, organizational, and cul-
tural levels. It also requires changes in how companies cope with different busi-
ness environments and public policies that cause an unprecedented level of
uncertainty and political turmoil.
Corporate sustainability and digital transformation are multidimensional
concepts that relate to various academic disciplines. These concepts are being
explored in various fields that would lead to complementary understanding
and theoretical integrations. There is also much variation in practicing these
concepts across country borders. This Handbook includes studies from multi-
ple disciplines, including political economy, marketing, strategy, accounting,
information technology, and so on, across various countries of advanced and
emerging markets. It is a gateway and a guide to understanding these critical
and timely subjects in the most comprehensive and relevant way.
In this digital era, it is not possible to create long-term value for organiza-
tions without considering ethical, social, environmental, cultural, and eco-
nomic aspects. Corporate sustainability recognizes that organizational growth
and profits are essential, but it is not merely this. Organizations focusing on

vii
viii Introduction

new business models should pursue sustainable development, especially the

three combined pillars of corporate sustainability: social, environmental, and
economic aspects.
Finally, corporate sustainability is becoming a hot topic because of the ongo-
ing changes in global governance. Since the global financial crisis of 2008,
there has been a growing tendency in most Western countries, as well as emerg-
ing economies, toward less interdependencies and more engagement of gov-
ernments to control international transactions of firms by adopting barriers to
trade, or investment control, or even dismantlement of multilateral mecha-
nisms of trade governance (as WTO). Some authors call such an ongoing pro-
cess as de-globalization. Remarkably, this process is happening when the
economy is entering the phase of digitalization, which, in our understanding,
requires more interdependencies among countries and more efficient coopera-
tive systems to cope with the implications of the digital era. Digitalization ver-
sus de-globalization seems to be a paradox that calls for broader discussions
involving universities, c­ orporations, nongovernmental organizations, and state
representatives to build a more comprehensive framework of this new era.
Motivated by this ongoing global debate, encompassing most intellectual
spheres, we organized this book. In particular, it attempts to (i) present evi-
dence and analyze the implications of the digital era to society and business,
and the challenges of sustainable and profitable survival; (ii) identify potential
social, demographic, technological, and managerial future trends; (iii) under-
stand the need for profound transformations in individuals, the culture of orga-
nizations, and the environment to adapt to the accelerated changes and manage
future-oriented organizations.
The book is divided into four main sections. Part I addresses digital trans-
formation, with 11 chapters devoted to digitally transformed sectors and orga-
nizations. These chapters cover topics across different levels. From a macro
perspective, we bring studies about ecosystems and examine firm-level technol-
ogy adoption and the scope of the incorporation of automation, including the
algorithms shaping our future lifestyle and the cybersecurity aimed at reducing
the risk of security breaches. From the firm perspective, we address topics like
the role of the digital orientation of small companies in the process of embrac-
ing different digital directions. In this digital era, companies have focused on
factors that accelerate the internationalization process, but they also have to
look closely at the long-term sustainability of these companies in international
markets. The elements that contribute to the sustainability of digital companies
in emerging markets are also treated in this first chapter. We address subjects
like the relevance and the factors affecting museum visitors’ behavioral inten-
tion to use the Augmented Reality technology in Tourism 4.0, and the positive
impacts of mobile money platforms. We also include the topic of the use of
Virtual Reality training as a means for organizations to promote equality, inclu-
sion, and diversity effectively. Seeking for transparency and profit-oriented
competitiveness, companies also rely on political links to influence the institu-
tional environment and corporate sustainability management.
 Introduction  ix

Part II focuses on the economic, political, and ethical challenges in the pro-
cess of digitalization. Some scenarios were constructed in this part of the book,
brewing up through 2025, expecting the future to transform corporate sus-
tainability radically for social advantage. This section includes studies dealing
with the role of corporate social responsibility views and political criticism of
capitalism and wealth effects on corporate sustainability. The political forces
underpinning populism introduce their impacts on business, demanding that
global organizations become more flexible in dealing with a complex and
uncertain world and with the advance of digital technologies. The challenges
to sustainability imposed by the digital revolution, social trends, and global
imbalances and how to surpass these obstacles present the economy of attention
as a concept that must be taken into account to conceive creative ways of
understanding the digital economy from a human and ethical perspective. The
role of the economy of attention in conceiving creative ways of understanding
the digital economic needs to develop global regulation mechanisms to man-
age Artificial intelligence (AI) and big data is also discussed in terms of being
very challenging. The knowledge of existing regulations introduces a new cul-
ture in the business ecosystem and the dynamics of public interest in artificial
intelligence. Nevertheless, the negative impacts of digitally enabled globaliza-
tion on individuals, communities, and nation-states is also being treated in this
part of the book, presenting how to overcome these impacts through a change
in values toward stakeholder perspective, leadership, and connection through
information, communication, and technology. Additionally, the digital revolu-
tion, social trends, and global imbalances make it challenging to address the
impact on environmental management, technology transfer, and local capacity
building of inward foreign direct investment (FDI) on domestic firms’ after
learning orientation and catching up strategies during outward FDI. This sec-
tion also discusses the local capacity building of FDI in local firms following
learning orientation and catching up strategies during outward FDI, also look-
ing at the dark side of the new globalization and joint efforts to mitigate its
harmful effects.
Part III of the Handbook addresses questions related to corporate sustain-
ability and organizational resilience in the digital era. This part discusses the
influence of automation and digitalization on humans and the impact of digi-
talization on the future of work. The chapters in this section raise discussions
about the link between sustainability and digitalization practices in the logistics
service industry, the link between blockchain technology and business sustain-
ability agenda, the effects of digital transformation on corporate sustainability
accounting (CSA), and the use of big data analytics to achieve triple bottom
line (TBL) sustainability. It also brings investigations on climate change disclo-
sures in sustainability reports in different national cultures, the relation of
workplace happiness and women’s advancement and leadership, and the role of
storytelling in the management of sustainability. From a marketing point of
view, we bring discussions about the impact of corporate disclosure practices
and social media on intellectual capital, virtuous co-creation practices in the
x Introduction

so-called “born circular firms,” disruption of marketing components and the

role of corporate social and environmental responsibility (CSRE), and the
effects of disruptive digital technologies on future consumption patterns. We
also address studies on the unexpected outcomes of disruptive innovations in
supply chain operations, the growth and sustainability of unicorn companies,
and the mediating effect of digital capabilities on organizational creativity and
performance. This third part presents the relevance of disruptive innovations
and the challenges to sustainable and inclusive development in a digital era.
Finally, yet equally important, Part IV brings some topics related to future-
oriented management education. We bring reflections on the importance of
systematic reflexivity in research and education to promote international and
sustainable development and on the most appropriate variables as means and
goals for a management career in the future. The power of business generates
and achieves sustainable values that could promote a new digital era by com-
bining the three pillars of corporate sustainability in social, environmental, and
economic dimensions.
 Contents

Part I Digital Transformation   1

1 The Eco-System of Firm Technology Adoption  3

Joshua Kofi Doe

2 Algorithms Shaping the Future 29

Eduardo Olier and Francisco Valderrey

3 Automation Adoption in the Textile Industry of an Emerging

Economy 55
Olga Lucía Lopera Lopera and Juan Velez-Ocampo

4 Determinants of the Digital Orientation of Small Businesses 75

Minna Saunila, Mina Nasiri, Juhani Ukko, and Tero Rantala

5 Analysis of Business and Sustainability Models of Native

Digital Media in Latin America 91
Jessica Arrieta-Majul and Juan Velez-Ocampo

6 The Internationalization Speed of SMEs and their Long-term

Sustainability in Foreign Markets109
Beatrice Maria Zanellato Fonseca Mayer, Dinorá Eliete Floriani,
and Mohamed Amal

7 Cybersecurity, Personal Data Protection and Crime

Prevention from an Italian Perspective131
Rosanna Pittiglio, Filippo Reganati, Federica Ricci,
and Claudia Tedeschi

xi
xii Contents

8 Mobile Money Systems as Avant-Garde in the Digital

Transition of Financial Relations157
Dimitrios Reppas and Glenn Muschert

9 Augmented Reality: The Game Changer of Travel and

Tourism Industry in 2025169
Tan Gek-Siang, Kamarulzaman Ab. Aziz,
and Zauwiyah Ahmad

10 Equality Inclusion and Diversity Through Virtual Reality181

Andri Georgiadou

11 Need for Speed: Corporate Political Activity Effect on Celerity

of Regulatory Decisions195
Jeferson Lana and Raul Beal Partyka

Part II Economic, Political and Ethical Challenges 211

12 Political and Ethical Challenges of 2025: Utopian and

Dystopian Views213
Duane Windsor

13 Adapting to Populism’s (Current and Future) Moment:

Political Uncertainty and Business Strategy237
Christopher A. Hartwell and Timothy M. Devinney

14 Dynamics of Public Interest in Artificial Intelligence: ‘Business

Intelligence Culture’ and Global Regulation in the Digital Era259
George Gantzias

15 Economy of Attention: Definition and Challenges for the

Twenty-First Century283
Santiago Giraldo-Luque and Cristina Fernández-Rovira

16 Is Stakeholder Capitalism the Answer? From Global Financial

Crisis to Unfunded SDGs307
Diana Piedrahita-Carvajal

17 FDI Facilitating Sustainable Development In and Out of an

Emerging Market: Is Foreign Participation a Necessary
Condition for Emerging Market Firms to Catch Up Globally?335
Yuanyuan Li
 Contents  xiii

18 Taming the Dark Side of the New Globalization355

Larita J. Killian

Part III Corporate Sustainability in the Digital Era 377

19 Building Skillful Resilience Amid Uncertainty379

Jacqueline Jing You, Mai Chi Vu, and Christopher Williams

20 Digitalization, Institutions and the Future of Sustainable Work397

Andreas Kornelakis

21 Digital Capabilities: Bridging the Gap Between Creativity and

Performance411
Sílvio Luís de Vasconcellos, José Carlos da Silva Freitas Jr, and
Fabio Miguel Junges

22 Sustainability in the Banking Industry Through Technological

Transformation429
Sylwia E. Starnawska

23 Exploring Effects of Digitalization on Sustainability in the

Logistics Service Industry455
Orsolya Diófási-Kovács

24 Supply Chain Innovation and Sustainability Frontiers: A

Balanced Scorecard Perspective479
Miguel Cordova and Freddy Coronado

25 The Future of Sustainability: Value Co-creation Processes in

the Circular Economy503
Beatrice Re, Giovanna Magnani, and Antonella Zucchella

26 Digital Technologies and Consumption: How to Shape the

Unknown?529
Muhammad Shujaat Mubarik and Navaz Naghavi

27 A Corporate Social Responsibility View on Digital

Disruption in Marketing543
Irina Naoumova and Jerome Katrichis

28 Trust, Transparency, and Technology: Blockchain and Its

Relevance in the Context of the 2030 Agenda561
Ana Maria Gomez-Trujillo, Juan Velez-Ocampo,
and Maria Alejandra Gonzalez-Perez
xiv Contents

29 The Rise of Unicorn Companies: A Magical Growth?581

Cyntia Vilasboas Calixto Casnici

30 Intellectual Capital Disclosure in the Digital Era: Challenges

and Opportunities for MNEs595
Lukasz Bryl

31 Human Dynamics of Automation and Digitalisation of

Economies: Discussion on the Challenges and Opportunities613
Ahmad Arslan, Asif Ruman, Sean Naughton, and Shlomo Y. Tarba

32 Achieving the Triple Bottom Line Through Big Data Analytics631

Baraah Shdifat, Dilek Cetindamar Kozanoglu, and Shadi Erfani

33 Digital Transformation and Corporate Sustainability

Accounting651
Miguel A. Gil and Miguel A. Montoya

34 Climate Change Disclosures in Different Cultures: A Study of

Sustainability Reports671
Arzu Özsözgün Çalişkan and Emel Esen

35 Storytelling for Human Sensitivity, Compassion and

Connection in Corporate Sustainability693
Andrew Creed, Jane Ross, and Jack Ross

36 Developing Gender Equality Marketing Beyond 2025:

A Systematic Literature Review715
Nicole Böhmer and Kai Michael Griese

37 The Female Way to Happiness at Work: Happiness for Women

and Organisations743
Irene Campos-García

38 Assessment of the Level of Sustainable Development

Based on Agenda 2030767
Alexandre Zeni, Daniela Muller de Quevedo,
Moema Pereira Nunes, and Marco Antônio Siqueira Rodrigues

39 Advancing the Inclusive Agenda for People of Determination

in the UAE Through Sustainable Innovations789
Racquel Warner and Immanuel Azaad Moonesar
 Contents  xv

Part IV Future-oriented Management Education 813

40 A Serendipitous Road Map to Educate Cosmopolitan and

Sustainable Development-­Oriented Managers815
Sergio Castrillon-Orrego

41 Promoting Business Sustainability through Experiential

Learning: Connecting Multiple Dimensions837
Sergio Castrillon-Orrego and Paula Almonacid


Correction to: Augmented Reality: The Game Changer of Travel
and Tourism Industry in 2025C1
Tan Gek-Siang, Kamarulzaman Ab. Aziz, and Zauwiyah Ahmad

Index857
 Notes on Contributors

Zauwiyah Ahmad is Senior Lecturer in the Faculty of Business, Multimedia

University (MMU), Malaysia, where she obtained her Doctor of Philosophy
(Management). Her research interests are behavioral accounting, ethics, per-
sonal finance, and information security.
Paula Almonacid is Assistant Professor of Finance at Universidad EAFIT,
Colombia, and PhD Candidate in Statistic Sciences at the Universidad National
de Colombia. Almonacid-Hurtado graduated as an Economist at Universidad
EAFIT, and also holds an MSc in Economics from Université de Montréal.
Mohamed Amal is Professor of Economics and International Business at the
University of Valle de Itajai, Brazil, and the Regional University of
Blumenau (FURB).
Jessica Arrieta-Majul is Project Coordinator at Gabo Foundation, Colombia,
an independent nonprofit institution of an international nature, created by the
journalist and writer Gabriel García Márquez, with the purpose of working on
the training and professional development of Latin American journalists. She
has been associated with this institution since July 2012. She is also an
MBA student at Universidad de Antioquia.
Ahmad Arslan is Associate Professor of Marketing, Management and
International Business at Oulu Business School, University of Oulu, Finland.
His earlier research has been published in prestigious academic journals like
British Journal of Management, International Business Review, International
Marketing Review, Journal of Business Research, Production Planning &
Control, Scandinavian Journal of Management, and Journal of Strategic
Marketing. Moreover, he has contributed book chapters to several edited
books. Finally, Arslan is an editorial board member of three academic
journals and reviews papers on a regular basis for several other prestigious
journals.

xvii
xviii NOTES ON CONTRIBUTORS

Kamarulzaman Ab. Aziz is Associate Professor and the Director of the

Entrepreneur Development Centre at Multimedia University (MMU),
Malaysia, where he obtained his Doctor of Philosophy (Management). His
research interests include cluster development, technology and innovation
management, entrepreneurship, and commercialization.
Nicole Böhmer is Professor at Osnabrück University of Applied Sciences,
Germany. From 2015–2018, she was an equal opportunity representative of
her faculty. Her research focuses on international HRM, gender, talent man-
agement, and careers. She teaches human resource management and engages
especially in case study didactics. Prior, she worked as an HR generalist for
several years. Apart from her studies in the management discipline, she
has a teaching degree. She holds a doctoral degree in political sciences
from Carl von Ossietzky University of Oldenburg in Germany.
Lukasz Bryl is Assistant Professor at Poznan University of Economics and
Business, Poland. He received his PhD in international business in 2013
defending the thesis titled: “The significance of new economy in contemporary
MNEs.” His main research areas focus on intellectual capital measure-
ment and reporting, internationalization strategies, and new economy.
Arzu Özsözgün Çalişkan is Faculty Member in the Department of
Accounting and Finance at Yildiz Technical University. Her fields of study and
interest include accounting and corporate reporting, and interaction among
the business world, community, and environment.
Irene Campos-García is Professor at Rey Juan Carlos University, Spain. Her
research areas are mainly focused on human resources management, leader-
ship, happiness at work, and gender diversity. She is member of the research
team of the Iberoamerican Chair in Business Management and Corporate
Social Responsibility (Salamanca University and Banco Santander), the
Iberoamerican Group of Multidisciplinary Studies on Happiness
(IGOMSOH), and a competitive project funded by the Ministry of
Science, Innovation and Universities (Spain). She has published in presti-
gious international journals indexed in JCR and SJR.
Cyntia Vilasboas Calixto Casnici is Lecturer at Fundação Getulio Vargas –
FGV, Brazil. She earned her PhD in Business Strategy from FGV, which
included an exchange program at the Judge Business School, University of
Cambridge. She is Program Chair (2019–2021) of the Academy of International
Business – Latin America & Caribbean Chapter; Vice Chair, Events of Teaching
and Education SIG of Academy of International Business. Her research inter-
ests are related to International Business, Business Models, and Tech
Companies. She has substantial experience in supporting foreign compa-
nies in doing business in Brazil and advising Brazilian companies inter-
ested in exporting and expanding their operations abroad.
 NOTES ON CONTRIBUTORS xix

Sergio Castrillon-Orrego is Professor at Universidad EAFIT, Colombia. He

learns from teaching, pursues interdisciplinary reflection, and seeks research
pertinence, mostly in the fields of management education, business ethics,
CSR, and philosophy of management. Enriched by multicultural educational
settings, Castrillon-Orrego tries to nourish his teaching, research interests, and
daily life by the respectful inclusion of multiple cultural traditions from the past
and present. Seeking inspiration from their multiple voices, so the quest for
sustainable development reverberates with sense and meaning.
Miguel Cordova is Associate Professor and Internationalization Leader of the
Management School and Department in Pontificia Universidad Católica del
Perú (PUCP). He holds an MBA and he is PhD (c) of Strategic Management.
His research is about Power and Influence, Supply Chain Management,
and Entrepreneurship. Cordova is T&E SIG’s Resources Chair of the
Academy of International Business (AIB). He obtained four research
grants, a scholarship for International Teachers Program of the European
Foundation for Management Development (EFMD), and one teach-
ing award.
Freddy Coronado is Assistant Professor at Universidad de Chile. Coronado
is Auditor and Engineer in Management Control and Information Systems. He
holds a PhD in Business Administration from Michigan University. His research
interests include management control, organizational behavior, innova-
tion management, firms’ strategy, and sustainability. He was director of
Undergraduate, Master, and Executives programs of Management
Control, where he has received several teaching awards due to his trajec-
tory. Coronado was recently appointed President of the Chilean Chapter
of the Ibero-American Association of Management Control
(AICOGestión).
Andrew Creed is Faculty Member at Deakin University, Australia. He has
published in high-impact journals, including Journal of Cleaner Production,
Sustainability, and European Business Review, and with top book publishers
including, Palgrave, Emerald, Cengage, and Oxford University Press. He has
extensive experience in businesses and educational settings in Australia, the
United Kingdom, and the United States.
José Carlos da Silva Freitas Jr., is Professor and Researcher of Information
Systems and Leadership at UNISINOS, Brazil, and holds a Doctor in
Management from UFRGS.
Daniela Muller de Quevedo is Professor in the Graduate Program in
Environmental Quality and Graduate Program in Administration at Feevale
University, Brazil. She holds a PhD in Water Resources and Environmental
Sanitation from the Institute of Hydraulic Research and a Master’s in
Mathematics in the Area of Probability and Statistics. De Quevedo develops
research in the area of monitoring aimed at analyzing water quality in hydro-
xx NOTES ON CONTRIBUTORS

graphic basins, identifying models and indicators for basin management. She is
an ad hoc CAPES consultant in the evaluation of Academic and Professional
Programs in the area of Environmental Sciences.
Sílvio Luís de Vasconcellos Professor and Researcher of organizational cre-
ativity and international entrepreneurship at FURB, Brazil. He holds a Doctor
in Company Management from UNISINOS.
Timothy M. Devinney is Professor of International Business at Alliance
Manchester Business School, UK. He has published more than a dozen books
and 100 articles in leading journals including Journal of International Business
Studies, Management Science, The Academy of Management Review,
Organization Science, Journal of Business Ethics, and the Strategic Management
Journal. In 2008 he was the first (and only) recipient in management of the
Alexander von Humboldt Research Award and was Rockefeller Foundation
Bellagio Fellow, and was elected a Fellow of the Academy of International
Business. He is on the editorial board of more than 12 of the leading interna-
tional journals.
Orsolya Diófási-Kovács is Assistant Professor of Logistics and Supply Chain
Management at Corvinus University of Budapest. Her field of research is sus-
tainability within the supply chain (e.g., green logistics, sustainable procure-
ment) and she is interested in the new trends and technologies enabling more
sustainable solutions within this field. She teaches several courses (Logistics
Management, Operations Management, Sustainable Public Procurement) and
works in the field of environmental management consulting, implementing
green procurement, and supporting ecolabelling projects.
Joshua Kofi Doe is Lecturer of Marketing at Central University, Ghana. He
holds a Master of Philosophy in marketing degree from the University of
Ghana Business School. His research interest is in the adoption of technologi-
cal innovation to marketing activities and consumer responses to such strate-
gies. He is currently in a PhD program with the Open University of Netherlands.
His PhD thesis is to develop an eco-system perspective Firm Level
Technology Adoption Model that accounts for the influence of personal
and societal level factors as well as technological characteristics on firm
factors and firm adoption.
Shadi Erfani is Senior Lecturer and Deputy Head of School Teaching &
Learning at the Faculty of Engineering and Information Technology, School of
Information, Systems and Modelling, University of Technology Sydney.
Erfani possesses a highly honed set of managerial and research skills. She
has a strong proven track record of high-quality publications to her credit.
She has taught and coordinated numerous subjects at the undergraduate
and postgraduate level at various academic institutes. Prior to joining
academia, she has worked in senior and managerial roles in a number of national
and international organizations.
 NOTES ON CONTRIBUTORS xxi

Emel Esen is associate professor at Yildiz Technical University, Turkey, where

she received a BS in Business Administration a master degree in Human
Resources Management of Business Administration. She earned her PhD
in Organizational Behavior at Marmara University. Her research interests
include Positive Organizational Behavior, Business Ethics, and Corporate
Reputation.
Cristina Fernández-Rovira is Professor of Communication at University of
Vic – Central University of Catalonia, Spain. She holds a PhD in Sociology and
Anthropology from Complutense University of Madrid, a degree in Journalism
from Autonomous University of Barcelona, a master’s degree in Conflictology
from Open University of Catalonia, and a master’s degree in European
Integration from UAB. Her main research interests focus on the economy of
attention, political communication, social media and the digital transformation
of society, especially its consequences in social and political spheres within
postindustrial societies.
Dinorá Eliete Floriani is Director for Professional Master in Science in
Management and International Business, coordinator of the MBA program,
and Professor of Internationalization Strategy at UNIVALI–Brazil. She is also
Visiting Professor at the University of Florence and Halmstad University.
Floriani holds a PhD from the University of Sao Paulo with a sandwich period
at Grenoble University/Grenoble. She published in top-tier, peer-reviewed
journals such as IBR, JBR, and Brazilian Business Review and a chapter in
a book published by Edward Elgar (UK). She serves in the Board of
AIB – Latin America Chapter.
George Gantzias is Professor of Cultural Policy and Management and
Director of a postgraduate course on Cultural Organization’s Management at
Hellenic Open University, Greece. Having led both postgraduate courses and
research projects to success, he holds a demonstrable strategic capability
for building coherent and feasible postgraduate programs at national and
international environment. His research encompasses academic areas such
as Cultural Studies, Cultural Policy and Administration, Regulation and
Communication Policy, Cultural Technology, Management, and Artificial
Intelligence Policy Issues. He has built a strong research profile through
publications in top-quality books and journals, which include several
books and academic articles. Recently, Routledge Revivals published The
Dynamics of Regulations: Global Control Local Resistance as part of the
Humanities and Social Sciences, by including his work on global regula-
tion, info-communication industry, and regulation of British advertising
to some of the most influential academics scholars of the last 120 years.
Tan Gek-Siang is Lecturer of Business at Multimedia University (MMU),
Malaysia, where he obtained his Master of Philosophy in Management. His
research interest focuses on tourism and technology.
xxii NOTES ON CONTRIBUTORS

Andri Georgiadou is Assistant Professor of Human Resource Management

in the Nottingham University Business School, UK, and the Director of the
Equality Inclusion and Diversity (EQUIDY) Center. Her research focuses on
equality, diversity, and inclusion at work from relational and interdisci-
plinary perspectives.
Miguel A. Gil is Researcher Professor of Accounting and Finance at
Tecnológico de Monterrey, Mexico. His academic background is a BA in
Accounting and Finance and an MA in Finance, both degrees from Tecnologico
de Monterrey. He holds a PhD in Accounting and Finance from the University
of Manchester. His research interests focus on Management Accounting,
Organizational Learning, and Management Control Systems in hi-tech
industries.
Santiago Giraldo-Luque is Professor of Journalism and Deputy Director of
Research and Post Graduate Studies in the Department of Journalism at
Autonomous University of Barcelona, Spain. Giraldo-Luque also holds a PhD
in Communication and Journalism from UAB. He has a degree in Political
Science from National University of Colombia, a master’s degree in
Communication and Education and a master’s degree in Journalism from
UAB. He is a researcher of the Communication and Education Cabinet
(UAB). His lines of research are political participation, social media, the
economy of attention and data journalism.
Ana Maria Gomez-Trujillo is Assistant Professor of International Business at
CEIPA Business School, Colombia. Her research and teaching interests include
the internationalization of and sustainability of companies from emerging mar-
kets. She has authored 2 scientific papers, she has also co-authored 4 book
chapters in the areas of internationalization of emerging market firms and she
has presented her research in 10 international academic conferences.
Maria Alejandra Gonzalez-Perez is Full Professor of Management at
Universidad EAFIT, Colombia. Gonzalez-Perez was the Vice-President of
Administration at the Academy of International Business and she’s the regional
chapter Chair for Latin America and the Caribbean. She is also a member of the
global council of the Sustainable Development Goal number 1 (End Poverty)
of the World Government Summit, Research Partner at the CEIBS Center for
Emerging Market Studies, Area Editor of Cross-Cultural & Strategic
Management, Associate Editor of UNCTAD’s Transnational Corporations,
and Editor-in-Chief of the business journal AD-minister. Gonzalez-Perez has
published 15 books, over 50 academic peer-reviewed papers and several book
chapters in the areas of internationalization of emerging markets firms,
sustainability, corporate social responsibility, and international migration.
Christopher A. Hartwell is Professor of Financial Systems Resilience at
Bournemouth University, UK, Professor of International Management at
Kozminski University, and former President (and current Director of Macro &
 NOTES ON CONTRIBUTORS xxiii

Trade) of the Center for Social and Economic Research in Poland. A leading
scholar on the evolution of economic institutions. Hartwell’s interests are in
institutional development, especially the interplay between financial institu-
tions and other institutions. He holds a PhD in Economics from the Warsaw
School of Economics, a Master’s in Public Policy from Harvard, and a BA
in Political Science and Economics from the University of Pennsylvania.
Fabio Miguel Junges is Professor of Economics and Digital Transformation
at Universidade do Vale do Rio dos Sinos (UNISINOS), Brazil, where he
received a doctorate in Company Management. Junge is also an entrepreneur
in the information technology industry and a researcher.
Jerome Katrichis is Professor of Marketing at the University of Hartford
Barney School of Business, USA. His research interests are in B2B Marketing,
Customer Satisfaction, Market Orientation, and Digital Marketing. He has
published in the Journal of Service Research, Journal of Business to Business
Marketing, and Industrial Marketing Management, where he serves on the
editorial board. He is active in several academic, civic, and business
associations.
Larita J. Killian is Professor at Indiana University-Columbus, USA, and a
Visiting Professor at Universidad Privada Boliviana. Previously, she served as a
financial specialist for the US Department of Defense. She is the recipient
of national education awards from the American Institute of Certified
Public Accountants and the Association of Government Accountants, and
was selected as a Fulbright Specialist in business. She earned a doctorate
from Stanford University and has authored two books and numerous
journal articles, with an emphasis on government financial management
and accountability.
Andreas Kornelakis is Senior Lecturer in International Management at
King’s Business School, King’s College London, UK. His interests concern the
changing political-economic environment in Europe with a focus on compara-
tive employment relations, technology, and HRM. His work has appeared in a
wide range of academic journals including: Work, Employment & Society; British
Journal of Industrial Relations; Business History; and The International Journal
of Human Resource Management.
Dilek Cetindamar Kozanoglu is Associate Professor in the School of
Information, Systems, and Modelling at University of Technology Sydney
(UTS), Australia. She worked at many universities, including Case Western
Reserve University, Chalmers University of Technology, and Sabanci University.
She has more than 100 publications, including 9 books. She was awarded the
PICMET Fellowship in 2019. She received a best book award from the
International Association for Management of Technology in 2012 and an
“encouragement award” from the Turkish Academy of Sciences in 2003.
xxiv NOTES ON CONTRIBUTORS

Jeferson Lana is Professor of the Postgraduate Program in Administration

and the Professional Master Program in Management, Internationalization and
Logistics at the University of Vale do Itajaí (UNIVALI), Brazil. Lana holds a
PhD in Business Administration from Getulio Vargas Foundation—FGV/
EAESP and a Sandwich Doctorate with Fulbright Scholarship at The Wharton
School. Lana is an Anbima CPA-20 approved professional personal and busi-
ness finance advisor.
Yuanyuan Li is PhD candidate in the Department of Management and Global
Business at Rutgers Business School, USA. Her research interests include FDI
motives, location strategies of multinational enterprises, and emerging
market institutions. Her work has been published in Small Business
Economics and Multinational Business Review.
Olga Lucía Lopera Lopera is a lawyer and specialist in human talent from the
Universidad de Medellín, Colombia. She is an MBA candidate at the
Universidad de Antioquia. Lopera Lopera has teaching and professional experi-
ence in the area of human management in the textile-clothing sector. She has
been Deputy Director of the Textile Center of the National Learning Service
SENA, in Colombia since 2015.
Giovanna Magnani is Assistant Professor of Business Management at the
University of Pavia, Italy. Her research focuses on the internationalization pro-
cesses of small and medium-sized firms.
Beatrice Maria Zanellato Fonseca Mayer is also a lecturer for undergraduate
courses, such as Business Administration and International. She participates in
research groups in IB studies, and is a consultant for more than 15 years for
programs of internationalization process of Brazilians firms, the last 10 years
being specifically in innovation habitats (scientific parks and companies’ incu-
bators) to promote and support internationalization process of Brazilian TBFs.
Kai Michael Griese is Professor of Marketing at the Osnabrück University of
Applied Sciences, Germany, where he has been since 2009. He received his
PhD in business science from the University of Chemnitz in 2002. Since 2011,
he has been a Visiting Professor at the Shanghai University of International
Business and Economics. His research interests center on improving the under-
standing of sustainable marketing, mainly through the application of con-
sumer research and statistics.
Miguel A. Montoya is Professor of International Economics and Business at
Tecnológico de Monterrey, Mexico. He analyzes multinational companies and
innovations at Base of the Pyramid in emerging markets. He has published
articles in various academic journals and book chapters. He received a PhD
from the Autonomous University of Barcelona.
Immanuel Azaad Moonesar is Associate Professor of Health Administration
& Policy at Mohammed Bin Rashid School of Government (MBRSG) , UAE,
 NOTES ON CONTRIBUTORS xxv

with research interest is in public policy, health inclusion, international business

policy, healthcare management and leadership, maternal and child health,
nutrition, and quality management. He is the President of the Academy of
International Business—Middle East North Africa regional chapter. He
holds a Doctor of Philosophy in Health Services: Leadership (Superior
Distinction) from Walden University. He is also a Registered Dietitian.
He has published in over 95 publications in peer-reviewed journal arti-
cles, peer-reviewed international conferences, co-authored books and
book chapters, and policy briefs.
Muhammad Shujaat Mubarik is Professor and Dean Faculty of Business
Administration & Social Sciences at Mohammad Ali Jinnah University, Pakistan.
His research interests include the role of human capital at micro, meso, and
macro level; firm’s intellectual capital; digital supply chain and sustainability.
He has published a number of high-quality research papers in journals of
high repute.
Glenn Muschert is Professor of Sociology in the Department of Humanities
and Social Sciences at Khalifa University of Science and Technology, UAE. He
holds a PhD in Sociology from the University of Colorado Boulder, with previ-
ous faculty appointments at Purdue University and Miami University.
His research focuses on the sociology of social problems within the digital
sphere, sustainable development, ICTs, and mass media. His publications
have appeared in a variety of Sociology, Media Studies, Business Studies,
and Communications journals and volumes.
Navaz Naghavi is Lecturer in Taylor’s Business School, Taylor’s University,
Malaysia. Naghavi holds a PhD in financial economics from the University of
Malaya. Her areas of interest include financial economics, sustainability,
and internationalization.
Irina Naoumova is Professor of Management and Chair of the Management,
Marketing and Entrepreneurship Department at the University of Hartford
Barney School of Business, USA. Her research interests are focused on various
aspects of international business, firm performance, and good gover-
nance. She published in the Journal of International Business Studies, Journal
of World Business, Corporate Governance: International Review, Management
International Review, Asia Pacific Journal of Management, and others. She is
a Fellow of the Academy of International Business—South East, serves in
editorial boards of several international journals, and keeps active involve-
ment is various academic associations.
Mina Nasiri is Junior Researcher in the Department of Industrial Engineering
and Management at LUT University, Finland. Her research interests lie in the
area of digitalization, digital transformation, performance measurement and
management, operations management, and sustainable strategies.
xxvi NOTES ON CONTRIBUTORS

Sean Naughton is Associate Director of the Business School at Edge Hill

University, UK. Sean began his career in International Project Management
before moving further into the Operations Management field. Whilst working
as a management trainer, Sean wrote a number of books including one on IT
and latterly Operations Management and Strategic Management. Sean’s move
into Higher Education (HE) signaled his change to research-based work, and
he presently concentrates on the fields of Agility, Supply Chain Management
and Operations Management. He has published various papers and book chap-
ters over the last few years.
Moema Pereira Nunes is Professor in the Graduate Program in Administration
and Coordinator of the MBA in International Business at Feevale University,
Brazil. Nunes received her PhD in Management-Competitiveness and
Interorganizational Relations at Unisinos University. She is a Visiting Professor
at Otto-von-Guericke Universität Magdeburg. Nunes has worked in several
positions related to international business and innovation, in private and public
sector, over the last decades. Her research interest includes international
business, business model innovation, innovation management, entrepre-
neurship, and strategy.
Eduardo Olier is Chairman of the Institute Choiseul for Spain and Vice
President of the European Think Tanks Observatory. Olier holds an MSc and
a PhD in Telecommunications Engineering from the Polytechnic University of
Madrid and a Diploma from Harvard Business School. He has developed a
long professional career with executive positions in various multinationals,
maintaining academic and research activities in several universities. He belongs
to several boards of multinational companies and is the author of more than
250 articles on economics, geopolitics, and new technologies. He has pub-
lished several books on the economics of globalization.
Seung Ho Park (PhD, University of Oregon) is President’s Chair Professor
of Strategy and International Business and executive director of NBS Center
for Emerging Market Studies at Nanyang Technological University. He was the
founding president of the Samsung Economic Research Institute China and
Skolkovo-EY Institute for Emerging Market Studies. His co-authored books
on emerging markets include the award-winning book Rough Diamonds: Four
Traits of Successful Breakout Enterprises in BRIC Countries (2013), Scaling the
Tail: Managing Profitable Growth in Emerging Markets (Palgrave Macmillan,
2015), Managing Emerging Multinationals: Solving International Challenges
(2016), and ASEAN Champions: Emerging Stalwarts in Regional Integration
(2017). He is a fellow of the Academy of International Business (AIB) and his
recent research focuses on sustained high-performance organizations, emerg-
ing market multinationals, and growth strategies for multinational and local
companies in emerging markets.
Raul Beal Partyka is a PhD Student in Fundação Getulio Vargas’s Sao Paulo
School of Business Administration (FGV EAESP), Brazil. Partyka holds a mas-
ter’s in Business Administration from the University of Vale do Itajaí—Univali.
 NOTES ON CONTRIBUTORS xxvii

He is a researcher at GESICON—Strategy Group on Services, Innovation, and

Knowledge and at GEEP—Study Group on Strategy and Performance.
Diana Piedrahita-Carvajal is Adjunct Lecturer of Finance at Universidad
EAFIT, Colombia, and International Consultant. She has more than ten years
of experience in the subjects of investments, fixed income, financial markets,
treasury, and corporate finance. In the private sector, she has more than five
years of experience as CFO. She has experience as an entrepreneur, consultant,
and business development in an EdTech Start-up. Piedrahita-Carvajal is
an investor representative in bonds and collective funds and a member of
boards of directors and Trust Committee. Piedrahita-Carvajal has lived, stud-
ied, or worked in Spain, Belgium, and Colombia.
Rosanna Pittiglio is Associate Professor of Economic Policy in the
Department of Political Science, University of Campania “Luigi Vanvitelli”,
Italy. She received her PhD in Economics from the University of Dundee. Her
research covers international trade and applied industrial organization with a
particular focus on intra-industry trade, firm performance, and the relationship
between FDI and firm survival. She is the author/co-author of numerous
research papers published in several international academic journals such as
Regional Studies, Review of International Economics, The World Economy,
Manchester School, Structural Change and Economic Dynamics, and others.
Tero Rantala is Researcher in the School of Engineering Science at LUT
University, Finland. His current research focuses on performance management
and measurement of university–industry collaborations. In addition, his cur-
rent research interests involve different areas of performance management
in digital business environments and sustainable business contexts. He
has previously published in journals such as European Journal of Operational
Research, Journal of Cleaner Production, Information Technology & People, and
Education and Work.
Beatrice Re is PhD student of Applied Economics and Management at the
University of Pavia, Italy. Her doctoral research focuses on co-creation pro-
cesses in the circular economy.
Filippo Reganati is Professor of Economics at the Sapienza, University of
Rome, Italy. He received his MA and PhD in Economics from the University
of Reading. Reganati has published over 100 research papers in reputed
national and international journals and conferences, besides 4 books. His
research interests mainly focus on foreign direct investment and productivity
spillovers, international trade in imperfect competitive markets, applied indus-
trial organization, and economics of crime.
Dimitrios Reppas is Assistant Professor of Economics at Khalifa University of
Science and Technology, UAE. Previously, Reppas was a Lecturer of Applied
Environmental and Natural Resource Economics at the University of
Manchester. He received his PhD and masters in Agricultural and Resource
xxviii NOTES ON CONTRIBUTORS

Economics as a Fulbright scholar from the University of Maryland,

College Park, and holds a master’s degree in Economics from University
College London. His research interests focus on sustainable development,
renewable natural resources, game theory, and alternative currencies.
Federica Ricci is Professor of International Accounting and Researcher in
Business Economics at the Sapienza, University of Rome, Italy. She holds a
PhD in Business Economics from the University of Cassino and Southern
Lazio- Italy. She is the author of international papers regarding intellectual
capital, social responsibility, and corporategovernance. She is in the board and
scientific committee of international journals and international conferences.
Marco Antônio Siqueira Rodrigues is Professor in the Institute of Exact and
Technological Sciences at Feevale University, Brazil, and a Post-Doctorate fel-
low at the Polytechnic University of Valencia. Rodrigues is also a researcher at
the National Council for Scientific and Technological Development (CNPq-II).
He holds a PhD in Engineering from UFRGS. Rodrigues develops investiga-
tions in the area of Sanitary Engineering works in the development\appli-
cation of technologies and processes for the treatment of urban and
industrial effluents, and develops technologies for the degradation of
emerging pollutant compounds and toxic metals in public water supplies,
industrial and urban effluents.
Jane Ross is Member of the Association for Life-wide Living, Canada. Ross is
a social anthropologist with broad business experience worldwide, especially
Africa, Asia, North America, and Europe. As a dynamic strategic thinker, she
provides senior-level thought leadership for local, regional, and global organi-
zations. Her current research is in community-driven initiatives linking land-
scape, communities, and the arts.
Jack Ross is Member of the Association for Life-wide Living, Canada. Ross is
a language and education specialist who teaches business communications by
distance at University of Maryland University College. He has extensive
background in business and social science sectors of universities and cor-
porations in Canada, the United States, Africa, and Asia. His current
interests involve capturing the importance of place through musical com-
positions, especially ballads.
Asif Ruman is Doctoral Researcher at Oulu Business School, University of
Oulu, Finland. His areas of research generally lie in the fields of International
Economics and International Finance. He holds a masters in Economics
and Business Administration from Finland and has worked in both aca-
demic and industry. He has presented his academic research at different inter-
national conferences held in Europe as well as North America.
Minna Saunila is Senior Researcher in the Department of Industrial
Engineering and Management at LUT University, Finland, where she received
a doctorate degree in Industrial Management. Her research covers topics
 NOTES ON CONTRIBUTORS xxix

related to performance management, innovation, service operations, and sus-

tainable value creation. Recently, her research projects have been related to
digitization of services and production. She has previously published in
Journal of Engineering and Technology Management, Technology Analysis and
Strategic Management, and Computers in Industry, among others.
Baraah Shdifat is a PhD student in the School of Information, Systems and
Modelling at University of Technology Sydney (UTS). Her main interest and
research topics are big data and sustainable performance. She received her BS
in computer science at Al al-Bayt University and her MA in Management
Information System at Al Balqa Applied University. She worked at City
University College of Ajman, Zarqa Private University, as computer lec-
turer in 2016. She was a computer teacher and computer programmer in
the Jordan Ministry of Education from 2010–2016.
Sylwia E. Starnawska is Associate Professor at SUNY Empire State College,
USA. She serves as the coordinator of Global Finance and Investment graduate
certificate. Starnawska has experience in management of financial institutions,
mainly MNEs. She was involved in international corporate finance, global capi-
tal markets, and international investments. She also served as a CNBC guest
speaker. Her research interests and publications focus on international
financial markets, multinational strategic management, value-based man-
agement and shareholder value creation, and global portfolio management.
Shlomo Y. Tarba is Professor in Strategy and International Business at
Birmingham Business School, University of Birmingham, UK. He is the
Deputy Editor-In-Chief of British Journal of Management and editorial board
member of several top-ranked journals. He has served as a guest-editor
for the special issues of leading journals such as Human Resource
Management, Journal of World Business, Long Range Planning, California
Management Review, and many others. He has published over 55 articles
in premier refereed academic journals in strategy, international business,
human resource management, organizational behavior, and market-
ing areas.
Claudia Tedeschi is Associate Professor of Commercial Law at, Sapienza,
University of Rome, Italy, where she received her PhD in Economic Law. She
is Director of the Master in International Commercial Law and she participates
in national and international research projects. She is author of articles, chap-
ters, and monographs and is conference speaker. Her research interests include
business structure and organization, business financing, financial market, com-
petition, the circulation of wealth, and the business crisis.
Juhani Ukko is Senior Researcher in the Department of Industrial Engineering
and Management at LUT University, Finland. He is also an Adjunct Professor
at Tampere University. His current research focuses on performance mea-
surement, operations management, digital transformation, digital ser-
xxx NOTES ON CONTRIBUTORS

vices, and corporate sustainability performance. In recent years, he has

managed and participated in research projects related to digital transfor-
mation in companies and society. His work has been published in journals
such as International Journal of Operations and Production Management,
Production Economics and Journal of Cleaner Production.
Francisco Valderrey is Professor and Researcher at Tecnológico de Monterrey,
Mexico. Valderrey received a Bachelor of Business Administration from the
University of Houston, a Master of International Management from
Thunderbird, and a PhD in Administration from Universidad de Valencia. He
occupied several positions at multinational enterprises and was a co-­founder of
a technology company in California. He has co-authored two books in market-
ing and different articles about international business. His research focuses
primarily on marketing in China and The New Silk Road.
Juan Velez-Ocampo is Assistant Professor of Management and Academic
Coordinator for the MBA program at Universidad de Antioquia, Colombia.
His research and teaching interests include the impact of globalization in
emerging economies, international expansion and performance of multina-
tional enterprises from emerging economies, the interlinks between interna-
tionalization and corporate reputation, and the institution-based view of
strategy. He has authored 10+ journal articles and presented his research in
20+ international academic conferences.
Mai Chi Vu is a Senior Lecturer at Newcastle Business School, Northumbria
University UK. Her research interests are corporate mindfulness practices,
workplace spirituality and the application of Buddhist philosophies in organiza-
tions. She has published in the Journal of Business Ethics, Management Learning,
and Leadership.
Racquel Warner is Assistant Professor at Mohammed Bin Rashid School of
Government (MBRSG), UAE. She is a career educator with over 25 years
international teaching experience across the full spectrum of the education,
from early childhood to tertiary level. She works actively in communities in
Nepal, Bangladesh, and Kenya to support the development and accessibility of
quality education to at-risk groups. Her research interest in student
engagement and learner autonomy has led to her work in curriculum
redesign, teacher training, and education policy development. Warner is
an executive member of AIB-MENA and she has presented at many inter-
national conferences and published chapters on the subjects of study skills,
student engagement, and the policy imperative of this approach.
Christopher Williams is Reader in Management at Durham University
Business School, UK. He holds a BSc (Hons) degree from Durham University,
an MBA from the Open University Business School, and a PhD in International
Management from University of London. His research interests include inno-
 NOTES ON CONTRIBUTORS xxxi

vation in international firms, knowledge transfer, national innovation systems,

and resilience.
Duane Windsor is Lynette S. Autrey Professor of Management at Rice
University’s Jones Graduate School of Business, USA. He emphasizes business
ethics and corporate social responsibility, anticorruption reform, stakeholder
theory, and environmental sustainability. He edited Business & Society, spon-
sored by the International Association for Business and Society, from
2007–2014. He was an associate editor for the first and second editions
of the Encyclopedia of Business Ethics and Society, edited by Robert W. Kolb.
His research appears in such journals as Academy of Management Journal,
Business & Society, Business Ethics Quarterly, Journal of Business Ethics, and
Journal of Management Studies.
Jacqueline Jing You is Doctoral Researcher at Durham University Business
School, UK. Her research interests include organizational resilience and dis-
ruption, interorganizational relationships, and organizational ecosystems. Prior
to entering academia, she worked for multinational corporations and then as an
entrepreneur for nearly 14 years. She holds degrees from the University of
Shanghai for Science and Technology and the University of St Andrews.
Alexandre Zeni is a PhD in Environmental Quality from Feevale University,
Brazil. Zeni has a degree in Business Administration from the Feevale University
and a Master in Production Engineering from the Federal University of Santa
Maria. He held the position of Dean of Planning and Administration,
Deputy Director and Director of the Institute of Applied Social Sciences
at Feevale. He participated in several other boards with executive posi-
tions such as: Municipal Counselor for Socio-Economic Development in
Novo Hamburgo/RS, Full Counselor of the Empresa de Economia Mista
Fenac SA, and Counselor and President of a credit cooperative.
Antonella Zucchella is Full Professor of Marketing at the University of Pavia.
She is co-author of Circular Entrepreneurship, Creating Responsible Enterprise
and recipient of the 2018 Emerald Literati Award.
 List of Figures

Fig. 1.1 Initial Firm Technology Adoption Model (F-TAM). (Source: Doe
et al. 2017, 2018) 13
Fig. 1.2 Revised F-TAM model. (Source: Doe et al. 2018, 2019) 15
Fig. 1.3 Survey-tested technology adoption model (F-TAM). (Source: Doe
et al. 2019) 17
Fig. 3.1 Leadership dimensions levels by company. (Source: Authors’ creation) 64
Fig. 3.2 Automation levels in the textile industry. (Source: Authors’ creation) 65
Fig. 4.1 Research model to identify the determinants of the digital
orientation of small businesses. (Source: Authors’ creation) 80
Fig. 4.2 Description of the context. (Source: Authors’ creation) 83
Fig. 4.3 Small businesses’ digital orientation. (Source: Authors’ creation) 84
Fig. 7.1 Evolution of cybersecurity events from 2014 to 2018. (Source:
Authors’ creation based on Clusit (2019) data) 135
Fig. 9.1 Tourist Arrivals (in millions) and Tourism Receipts (in RM billions)
in Malaysia 2013–2018. (Source: Authors’ creation based on
Tourism Malaysia (2019)) 172
Fig. 9.2 Research framework, hypotheses and operating definition of
contracts for studying AR in the tourism industry. (Source: Authors’
creation)173
Fig. 12.1 Two contrasting scenarios for 2025 political and ethical problems.
(Source: Author’s creation adopted in part from Windsor 2018a) 218
Fig. 13.1 Average vote share of populist parties in Europe, 1990–2019.
(Source: Author’s creation based on the Timbro Authoritarian
Populism Index 2019, data obtained from https://populismindex.
com/data/. Timbro Authoritarian Populism Index 2019. Europe
includes both Western and Eastern members of the EU and
non-­EU countries such as Iceland, Montenegro, and Serbia.
“Populist” parties are defined as those either having “extremist”
views (in the Timbro report, this consists of adherence to nazism,
fascism, communism, trotskyism, and Maoism) or “pure populism,”
which is characterized by an explicit lack of respect for division of
powers and minority rights; impatience with democratic procedures

xxxiii
xxxiv List of Figures

as noted in party manifestos or speeches; and the focus on politics as

conflict between a corrupt elite and a virtuous “people”) 242
Fig. 13.2 Economic policy uncertainty index for the UK, January 2014–
August 2019. (Source: Created from Baker, Bloom, and Davis
Index, latest data available at http://www.policyuncertainty.com/
uk_daily.html. Solid column indicates date of Brexit, June 23, 2016) 244
Fig. 13.3 The channels of influence. (Source: Hartwell and Malinowska
(2019), based on Peng (2006)) 245
Fig. 13.4 ICRG economic risk ratings for Hungary and Poland, May
2004–November 2018. (Source: International Country Risk Guide.
Economic Risk is calculated on a scale from 0 to 50, with higher
numbers representing more risk. The ERR is composed of
macroeconomic measures such as GDP, inflation, and budget deficit) 249
Fig. 15.1 Evolution of the number of users in digital platforms (in millions;
2004–2018). (Source: Author’s creation based on Statista, growyse.
com, Yahoo Finance, thebalancecareers.com, Semiocast and The
Guardian)290
Fig. 15.2 Evolution of workers and profits in Spanish banking (2007–2018).
(Source: Author’s creation based on Bank of Spain and National
Commission of the Stock Market of Spain) 296
Fig. 16.1 Overview of the causes of the subprime crisis. (Source: adapted
from Fixing Global Finance (Wolf 2010). Notes: 1CDO
Collateralized debt obligations (CDOs) are structured financial
instruments that purchase and pool financial assets and transform in
tranches of various mortgage-backed securities (The Financial Crisis
Inquiry Commission 2011, p. 128). 2CDS Credit default swap.
3
OPEC The Organization of the Petroleum Exporting Countries is
a permanent, intergovernmental organization whose objective is to
coordinate petroleum policies among member countries
(Organization of the Petroleum Exporting Countries OPEC 2017)) 309
Fig. 16.2 Effective Fed funds rates. (Source: Board of Governors of the
Federal Reserve System (US) (2019b), Effective Federal Funds Rate
[DFF], retrieved from FRED, Federal Reserve Bank of St. Louis;
https://fred.stlouisfed.org/series/DFF, December 30, 2019) 310
Fig. 16.3 Federal Reserve US total assets (less eliminations from
consolidation). (Source: Board of Governors of the Federal Reserve
System (US) (2019a), Assets: Total Assets: Total Assets (Less
Eliminations From Consolidation): Wednesday Level [WALCL],
retrieved from FRED, Federal Reserve Bank of St. Louis; https://
fred.stlouisfed.org/series/WALCL. Retrieved from FRED, Federal
Reserve Bank of St. Louis. Retrieve 25 September of 2019) 312
Fig. 16.4 Overview of crisis effects and structural trends. (Source: Author’s
creation)312
Fig. 16.5 Largest companies by market cap 2009 (US% billion). (Source:
Adapted from Visual Capitalist https://www.visualcapitalist.
com/a-visual-history-of-the-largest-companies-by-market-
cap-1999-today/)318
 List of Figures  xxxv

Fig. 16.6 Largest companies by market cap 2019 (US% billion). (Source:
Adapted from Visual Capitalist https://www.visualcapitalist.
com/a-visual-history-of-the-largest-companies-by-market-
cap-1999-today/)319
Fig. 16.7 Share of global GDP of China and the United States. (Source:
World Bank, World Development Indicators (2019). GDP (current
US$) [Data file]. Retrieved from https://datacatalog.worldbank.
org/public-licenses#cc-by)321
Fig. 19.1 Building skillful resilience amid uncertainty. (Source: Authors’
creation)381
Fig. 21.1 Research model to study the relationship between organizational
creativity and organizational performance. (Source: Authors’
creation)419
Fig. 25.1 Apepak co-creation process. (Source: Author’s creation) 512
Fig. 25.2 Rifò co-creation process. (Source: Author’s creation) 514
Fig. 25.3 Womsh co-creation process. (Source: Author’s creation) 516
Fig. 25.4 Up2Go co-creation process. (Source: Author’s creation) 518
Fig. 27.1 CSRE “Christmas tree” model. (Source: Authors’ creation) 546
Fig. 30.1 Evolution of the intellectual capital reporting practices. (Source:
Author’s creation) 599
Fig. 35.1 The facets of sensitivity, compassion and connection in corporate
sustainability. (Source: Authors’ creation) 695
Fig. 36.1 Design-oriented CIMO logic with four components. (Source:
Author’s creation based on Denyer et al. 2008) 722
Fig. 36.2 Articles at the overlap of marketing, gender, and inequality
(number per year). (Source: Authors’ creation) 723
Fig. 37.1 Targeting organisational happiness by supporting women.
(Source: Author’s creation) 758
Fig. 38.1 Participation of the indicators evaluated by the ESEN matrix.
(Source: Authors’ creation) 778
Fig. 39.1 Role of inclusive education as a pathway for economic growth.
(Source: Morgon Banks and Polack 2014) 796
 List of Tables

Table 1.1 Firm technology adoption model 16

Table 2.1 Elements involved in the monetization of digital data 32
Table 2.2 Big Data, predictive analytics, machine learning, Internet of
things, and artificial intelligence 39
Table 3.1 Studied Companies of the Textile-Clothing Sector 63
Table 4.1 Digital orientation’s survey items 82
Table 4.2 Digital orientation based on company type and company conditions 85
Table 4.3 Determinants of the digital orientation of small businesses 85
Table 5.1 Native digital media analyzed in this chapter 93
Table 5.2 Native digital media in Latin America 96
Table 6.1 Determinants of pre- and post-internationalization 114
Table 6.2 Consequences of speed of pre- and post-internationalization 116
Table 6.3 Motivations, speed propellers, and consequences of pre- and
post-­internationalization stages in the Audaces case 125
Table 7.1 Victims of cybersecurity events 135
Table 12.1 Utopian and Dystopian scenarios 219
Table 16.1 The largest bankruptcies in US history 311
Table 17.1 NCA results for knowledge-intensive inward FDI 348
Table 17.2 NCA results for provincial inward FDI 348
Table 17.3 NCA results on inward FDI location quotients and strategic
asset-seeking outward FDI 349
Table 17.4 NCA results on inward FDI location quotients and market-­
seeking outward FDI 350
Table 17.5 NCA results on inward FDI location quotients and natural
resource-seeking outward FDI 350
Table 21.1 Research model for studying the relationship between
organizational creativity and organizational performance 421
Table 23.1 Summary of the case study projects in the logistics service industry 462
Table 23.2 Effects of digitalization projects on economic sustainability 464
Table 23.3 Effects of digitalization projects on environmental sustainability 468
Table 23.4 Effects of digitalization projects on social sustainability 469

xxxvii
xxxviii List of Tables

Table 23.5 Sustainability performance evaluation model of digitalization

projects473
Table 24.1 Measuring the impact of supply chain disruptive innovation on
organizational strategy 492
Table 25.1 Case studies on value co-creation: key facts and figures 511
Table 25.2 Cross-case comparison of co-creation mechanisms 520
Table 28.1 Blockchain and trust 566
Table 28.2 Blockchain and transparency 570
Table 28.3 Blockchain and sustainability 573
Table 29.1 Case study selection 585
Table 29.2 Videos 585
Table 29.3 Internationalization and current status 589
Table 30.1 Features of reporting intellectual capital matters via social media 603
Table 30.2 Percentage of MNEs with an official social media channel 604
Table 30.3 Top ten MNEs in social media (Facebook, Instagram) 605
Table 30.4 Top ten MNEs in social media presence (Twitter) 606
Table 30.5 Top ten MNEs in social media presence (YouTube, LinkedIn) 606
Table 30.6 Average life in years of MNEs in social media 607
Table 33.1 Table of interviews 666
Table 34.1 Company profile and culture scores 675
Table 34.2 Studies on key words related to disclosure on climate change 676
Table 34.3 Descriptive statistics of keywords in sustainability reports 679
Table 34.4 Turkey and UK 683
Table 34.5 Italy and Spain 685
Table 34.6 Germany and France 688
Table 35.1 Elder story morals embedded in a sustainability matrix 700
Appendix 1 Story Pool Indicating Excerpts for Analysis with Matrix Alignment 706
Table 36.1 Targets of SDG 5: Gender equality 719
Table 36.2 Gender policies in business and government policies 719
Table 36.3 Articles at the overlap of marketing, gender, and equality
(number per journal and year of first publication) 723
Table 36.4 Categories identified in selected marketing literature along the
CIMO logic 725
Table 36.5 CIMO category system and the four sustainable pathways 732
Table 37.1 Initiatives to increase women’s happiness at work 750
Table 37.2 Female presence in different hierarchical positions:
Latin American companies’ data 754
Table 37.3 Female presence in different hierarchical
positions: Spanish data 756
Table 38.1 SDG calculation structure 773
Table 38.2 Municipal index of sustainable development UN agenda by 2030 775
Table 38.3 Analysis and interpretation of the result of municipal indicators
compared to the national data 776
Table 38.4 Source of data and references used to research the indicators and
to set the tool 782
Table 39.1 Summary of main laws and policies which enable an inclusive
agenda in UAE 795
Table 39.2 Meta-analysis of data: Policies, laws and initiatives addressing
inclusion in the UAE by year 803
 List of Tables  xxxix

Table 39.3 Content assessment by document type of inclusive agenda in UAE

(2006–2019)804
Table 39.4 Exhibit 1: Specific documents in the public domain according to
themes and year of publication 808
Table 41.1 Arguing preferences when selecting a given SDG 846
Table 41.2 Why do students prefer a given SDG, when assuming a
Business perspective? 847
Table 41.3 Interpreting the vicarious experience with SDGs 847
Table 41.4 Proposing reflections to their peers, raising sustainability
awareness848
Table 41.5 Identifying Administrative Failures, Criticizing Business Dynamics 849
 PART I

Digital Transformation
 CHAPTER 1

The Eco-System of Firm Technology Adoption

Joshua Kofi Doe

Introduction
In a not too distant future, most products and services are likely to be digitized
(Hollebeek and Macky 2019). Meanwhile, business processes get digitized
largely due to the digital sophistication of customers and the lower costs and
efficiency associated with digitized operations (Tiago and Veríssimo 2014).
Many firms have therefore moved their operations to the digitized world where
innovative technologies are used for business operations. The kinds of tech-
nologies adopted include big data mining (Wu et al. 2014); cloud computing
(Zhang et al. 2010); social media (Rigby 2011); networking (Kaplan and
Haenlein 2010); cyber security (Von Solms and Van Niekerk 2013); and mobile
app/technologies (Barrett et al. 2015). This phenomenon however disrupts
many industries (Christensen and Raynor 2003), and in some cases, creates
large losers who are unable to reinvent themselves back into the business
environment.
The adoption of such innovations, according to Rogers (1962, 2010), hap-
pens at the individual level where attitudinal and perceptual factors relate
directly to adoption; firm level where internal and industry environmental
characteristics relate directly to adoption; and at the societal level where collec-
tive macro-level actions relate directly to adoption. Individuals as well as orga-
nizations exist within a society and interact. An uncharted question is how
these various actors relate to each other as the firms adopt the innovations for
business processes. For instance, how do firms ensure that the technologies
adopted are sustainable in the eco-system and are more profitable in the long

J. K. Doe (*)
Central University, Accra, Ghana

© The Author(s) 2021 3

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_1
4 J. K. DOE

term? What are the most important factors that must be fixed for a sustainable
and inclusive adoption of digital innovations?
The purpose of this paper is to present the Firm Technology Adoption
Model (F-TAM), an eco-system model for examining the adoption of an inno-
vation at the small-to-medium-scale enterprise (SME) level in a developing
country context. Specifically, the study reports the influence of personal fac-
tors, firm-level factors, and societal-level factors, as well as how these factors
serve as an eco-system for adoption of an innovation at the firm level. This
novel view of examining adoption establishes the link between firms, individu-
als, and society for a sustainable business operation in the digitized era. The
contribution of this chapter is to highlight the relevance of an eco-system-­
oriented perspective of engendering the sustainability of digital technologies
that firms adopt and, by extension, corporate sustainability in the digitized era.
The conclusions made here are relational propositions that can be tested in
any digitized context. The findings will help business owners to appreciate how
individual actions as well as societal actions affect the eco-system of innovations
and firm adoption decisions, as well as channel their energies to factors that
ensure sustainability of their innovation adoption even beyond 2025. Society
and governments can focus on the actions, policies, and activities that ensure
sustainability of the digitized world. Researchers can embark on a series of
studies to validate the report of this study.
In the subsequent sections, the main research questions are listed, the
research methods used are summarized, a summary of findings are presented
and discussed, conclusions are drawn, contributions of the paper to theory as
well as industry practice are provided, and, finally, limitations of the work and
recommendations for future research are shown.

Context and Background of Study

History of Innovation Studies

The study of innovations and their adoption originates from Tarde (1903),
who is regarded as the founding father of diffusion studies. Current studies on
innovation however are rooted in the works of Rogers (1962) and Schumpeter
(1987). While Rogers (1962, 1995, 2010) focused on the adoption and diffu-
sion of innovation, Schumpeter (1987) focused on what an innovation is and
its effect on organizational performance.
Theories and models such as Theory of Reasoned Action (Fishbein and
Ajzen 1975) and Diffusion of Innovations (Rogers 1962) have been the back-
bone with which researchers have examined the adoption of innovations at the
individual level until the emergence of technology-specific models such as the
Technology Adoption Model (TAM) (Davis et al. 1989) and Integrated Model
of Technology Acceptance (ITMA) (Venkatesh et al. 2002). At the firm or
organizational level, there had not been any new theory or model since Rogers’
(1962) Diffusion Theory until the 1990s when Tornatzky, Fleischer, and
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 5

Chakrabarti (1990) and Goodhue and Thompson (1995) proposed the

Technology, Organization and Environment Framework (TOE) model and
Task–Technology Fit (TTF) model, respectively. At the societal level, the only
notable theory development since Rogers’ (1962) Diffusion Theory was in
2004 when Bajaj and Leonard (2004) developed the Culture Policy and
Technology (CPT) Framework for examining society-wide technology adop-
tion. The theories and models listed above have been the dominant ones used
to date.
A major idea that runs across all of the earlier models is that behavioral
intention to adopt will lead to the adoption and use of an innovation. While
this idea is true in developed countries due to the availability of infrastructure
(Dewan and Kraemer 2000; Pohjola 2001) and emphasis on the role of science
in human behavior (Hofstede 2003), the same cannot be said of most develop-
ing countries suffering from major infrastructural paucity and divergent socio-­
cultural emphasis on human behavior (Amoako et al. 2014). Thus, between
behavioral intention to adopt and actual adoption is the socio-economic gap of
poverty, cultural closeness, resource challenges, and low e-readiness. The result
is that these earlier models have realized mixed results when they are tested in
developing country contexts (Datta 2011), and therefore do not particularly
explain why an innovation is so adopted.
Another omission observed in the scientific literature is the role of the inno-
vative eco-system as an integrating network of interrelated actors that stimulate
adoption on any particular level. For instance, the Technology, Organization
and Environment (TOE) framework proposes that each of these factors will
lead to adoption. The TOE framework places employees as part of the organi-
zation’s environment. As an organization, however, there is the possibility that
there will be personal-level adoption of an employee occurring before the orga-
nization itself. There is correspondingly an organization-wide adoption that
can occur, as well as a societal-level adoption that occurs outside the organiza-
tion. Within an organization, there are individuals; and organizations similarly
exist within societies. This forms the social system (eco-system) mentioned in
Rogers’ (1962) definition of diffusion, within which adoption can occur at any
level. Scientific literature is silent on the influence of each of these levels of
adoption on others. Thus the influence of personal-level factors on other-level
factors and vice versa is not established. The influence of organizational-level
factors on other-level factors has not been established. Likewise, the influence
of societal-level factors on other-level factors has not been established. How
these three levels of factors interrelate to stimulate adoption at the firm level is
also absent from the scientific literature. For the attainment of corporate sus-
tainability, how these factors interact needs to be explored because employees
work within a firm environment, while firms also exist within a societal context.
Thus there are both internal and external factors that can interact to promote
or hinder the sustainability of any corporate strategy in the digitized era. How
these factors interact needs to be explored.
6 J. K. DOE

Finally, after scrutiny of the earlier models, it appears that data used in devel-
oping the earlier models have been from socio-cultural and economic contexts
of developed countries. A significant question that arises from this phenome-
non is: if the model was developed from a developing country context, will the
antecedents of adoption explain adoption behavior better?
To position this study into the international academic discourse, Boateng,
Molla, and Heeks (2009) classified innovation studies into three categories.
The first category is the potential and constraints frameworks, which include
opportunities, assessment, and electronic readiness (e-readiness), as well as
development frameworks. The second category is the adoption and diffusion
frameworks, which include technological, managerial, organizational, cultural,
environmental, and interactional considerations frameworks. The third cate-
gory is the support and implementation frameworks, which include strategy,
consumer behavior, design and development, service evaluation, public policy,
knowledge, and learning. This study falls in line with the adoption and
diffusion-­related studies.

The Concept of Innovation

Rogers (1962, 1995) defines innovation in his Diffusion of Innovation Theory
(DOI) as “an idea, practice, or object that is perceived as new by the unit of
adoption”. According to Rogers’ (1962) definition, the perceived newness of
the idea for the adopting unit is the point where the innovation occurs, and not
the currency of the invention. The DOI theory focuses on understanding how,
why, and the rate at which an innovation spreads in a social system (Rogers 1962).
Schumpeter (1934, 1974), on the other hand, defines innovation as the
introduction of a new product, a new method of production, a new market,
conquest of a new source of supply, and implementation of a new form or
organization. This view of defining innovation is broad, capturing anything
new in the organization, both internal or external. Schumpeter (1934) empha-
sizes the role of innovation in organizations and treats it as another factor of
production, aimed at yielding higher profits. To Schumpeter (1974), there-
fore, innovation pertains (only) to a commercially exploitable novelty.
The Organisation for Economic Co-operation and Development (OECD)
defines innovation in the Oslo Manual (2005) as “the implementation of a new
or significantly new product (goods or service), process, new marketing method
or a new organizational method in business practice, workplace organization or
external relations”. The OECD views innovation as a process of activities that
involves scientific, technological, organizational, financial, and commercial
steps, which actually leads to or is intended to lead to improvement in the
workplace.
In this chapter, innovation is defined as the adoption of any new artifact,
concept or idea, process, product or service, technology, method, or structure
previously unused by the adopting unit. It is essential to establish the differen-
tiation between an innovation and an invention. An invention is the creation of
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 7

a new artifact, concept/idea, process, product/service, technology, method, or

structure (Kuznets 1962); thus innovation is precipitated by inventions.
Adoption of an innovation, on the other hand, invariably results in a behavioral
change; and for that reason, earlier models which studied adoption, employed
behavioral change theories such as Theory of Reasoned Action and Theory of
Planned Behaviour. A digital innovation is enabled by digital technologies that
leads to the creation of new forms of digitalization (Yoo et al. 2010). Digital
innovations often change the structure of industries and are largely disruptive
(Christensen and Raynor 2003). A disruptive innovation creates new markets
and value, disrupts existing industry structure, and displaces established market
leaders, products, and alliances with new ones (Christensen and Raynor 2003).

Diffusion and Adoption of Innovation

Rogers (2010) differentiates between adoption and diffusion of an innovation.
Diffusion is the process by which an innovation is communicated among the
members of a social system over time. Fichman (2000) defines diffusion as “the
process through which a technology spreads across a population of organiza-
tions”. Although Fichman’s (2000) definition seems to focus only on organi-
zation, it is still consistent with Rogers’ (2010) definition in that the
organization is a social system. The technology referred to in Fichman’s (2000)
definition is broadly referred to as innovation in Rogers’ (2010) definition.
From the Theory of Diffusion (Rogers 2010), four essential issues are identi-
fied for diffusion to occur. These are the innovation itself, communication of
the innovation, time, and social system (context of adoption).
Innovation: Rogers (1962) posits that the characteristic of the innovation
makes the innovation diffuse faster or lower. In his argument, an innovation
that gives an advantage to its users is triable, flexible to use, observable and
compatible with users, and is easily adopted, therefore diffusing faster.
Communication: The channel of communication is a system by which users
exchange information. According to Rogers’ (1962) diffusion, the faster a
communication system is, the quicker the diffusion of innovation that is com-
municated through that channel. Between the mass communication channels
and interpersonal communication channels, Rogers (1962) posits that the
interpersonal channel is more important due to the influence of opinion leader-
ship. Tarde (1903) had conceptualized this interpersonal communication pro-
cess as social imitation of something new by members of a community.
Time: This aspect of the innovation diffusion process accounts for the time
lag between when an innovation is first adopted and when it is replaced by a
new innovation. This chronicles adopter categorization, which ranges from
innovators, early adopters, early majority, late majority, and laggards within the
social system of diffusion. Thus, while some members of the same social system
are first to adopt an innovation as a result of venturesome disposition, others
adopt the innovation only if non-adoption can cause them to be extinct.
8 J. K. DOE

Social System: A social system is a group of interconnected units jointly

engaged in problem-solving to accomplish a common objective (Rogers 1962).
The diffusion of an innovation occurs only when a social system accepts the
innovation and shares information about the innovation within the system and
with other systems. Rogers (1962) argues that social systems that are based on
a positive attitude to change, value for advanced technology and a skilled labor
force, respect for education and science, and emphasis on rational relationships
rather than emotional relationships are prone to adopting innovations. Rogers
(1962) further argued that potential adopters’ decisions concerning adoption
are based on rationality embedded in culture and the context of adoption
rather than persuasion. This is uncharacteristic of most African societies
(Amoako et al. 2014) where cultures are less likely to plan for long-term infra-
structure that can accommodate the use of innovation (Hoyer and
MacInnis 1997).
Adoption of an innovation, on the other hand, is an individual process of
how the adopting unit becomes aware of an innovation, takes interest in the
innovation, evaluates the innovation, tries the innovation, and finally adopts or
rejects the innovation.
At the awareness stage, the adopting unit becomes aware of innovation. The
awareness may have come to them through the opinion leadership within the
social system or through the commercial promoters of the innovation.
At the interest stage, the individual collects specific information about the
innovation, its usefulness, ease of use, and consequences of adoption. This
enables the adopter to move to the next stage of evaluation based on the known
characteristics of the innovation.
At the evaluation stage, the individual determines the value of the innova-
tion and decides whether to try it. This determination is arrived at as a trade-off
between costs incurred and potential benefits expected, effort and outcome,
advantage over competing innovations, among other factors.
At the trial stage, the adopting unit takes the innovation into experimental
use for the first experience. This purchase is usually on a limited scale where the
adopter seeks to overcome perceived risks of full-scale adoption.
At the adoption stage, the innovation is engaged into full-scale use and is
given a favorable response by members of the society. The adoption stage reg-
isters the rejection of innovation if the trial use is unfavorable.

Adoption Eco-system
An eco-system is a multifaceted, dynamic, evolving system of parts that con-
stantly interact, and adapts, sometimes in unexpected ways (Gobble 2014).
The eco-system can be a business eco-system, innovation eco-system, start-up
eco-system, etc. The eco-system view of adoption has been prompted by
researchers on innovation eco-system (Gobble 2014; Adner 2006; Groth et al.
2015) who emphasize the need to examine innovation as a member of a system
of parts that contributes toward the success of the innovation. This view is
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 9

adapted in examining adoption at the firm level. Thus the adoption eco-system
is operationalized in this study as the interaction of factors at the different levels
of adoption and the technology itself.
These articles posit that for any adopted technology to be sustainable (long-­
term adoption and profit yielding) at the firm level, personal-level factors
(human attitudes), firm-level factors (firm preparedness), and societal-level fac-
tors (government and society contribution toward its adoption) must all inter-
play to ensure real sustainability of the technology adopted. Otherwise the
technology is either dropped along the way or fails to yield the essential bene-
fits sought.

Developing Country Contexts

The World Bank (worldbank.org; cited on 20th July 2019) defines a develop-
ing country as a low-to-middle-income ($0–$3995 per-capita income) country
with low standards of living and low access to goods and services. Bannock
et al. (1992) similarly define a developing country as a country that has not yet
reached the stages of economic development characterized by neither growth
of industrialization nor a level of national income sufficient to yield domestic
savings required to finance investment for further growth. A relevant emphasis
of Bannock et al.’s (1992) definition is that developing countries lack the
required domestic savings to finance investment that is necessary for further
growth and infrastructure to support adoption of future technologies. Within
this developing country context is the issue of the digital divide, that is, the
unequal access of technological innovations, which is invariably a poverty gap
(Fuchs and Horak 2008).

SMEs in Developing Countries

The world bank classifies firms with less than 300 employees as SMEs. The
African Development Bank also views all firms with less than 50 employees as
SMEs. These classifications may see some variations within countries. For
instance, the Ministry of Trade in Ghana defines micro-to-medium-sized enter-
prises as any organization that employs between 1 and 5 persons to be a micro
enterprise, 6 to 29 people with total assets less than $100,000 as a small enter-
prise, and 30 to 99 people with total assets of up to $1 million as a medium
enterprise (Mensah 2004).
In developing countries, small businesses represent over 90% of business
units and are hailed to be the backbone of the private sector in any economy
(Bannock 2005). It is worth noting that SMEs account for 50% to 60% of total
employment (Kennedy and Hobohm 1999), stimulate local and regional
development, promote an entrepreneurship culture, and develop other
business-­related skills (Albaladejo 2002). In a developing country context
where governments lack the needed resources to provide basic amenities like
10 J. K. DOE

roads, water, electricity, employment, and infrastructure, SMEs become par-

ticularly important in national development agendas. Therefore, their empow-
erment is a relevant issue worth examining. An area of SME empowerment is
to promote the adoption of sustainable innovation among SMEs.

Corporate Sustainability
Corporate sustainability has been operationalized as “meeting the needs of a
firm’s direct and indirect stakeholders (such as shareholders, employees, cli-
ents, pressure groups, communities, etc.), without compromising its ability to
meet the needs of future stakeholders as well” (Dyllick and Hockerts 2002).
Siebenhüner and Arnold (2007) argued that a sustainability-oriented company
is one that makes changes to include the use of resource-efficient technologies,
sustainability reporting schemes, and providing sustainable goods and services
to its customers. Internal drivers of sustainability include reducing costs and
waste while improving process efficiencies; helping to boost innovation and
innovative practices; attract and retain more compliant employees; helping to
manage risks, intangible assets, and internal processes; increasing productivity
and product quality; among others. External triggers of sustainability include
improved customer satisfaction, improved relations with regulators and ease of
access to permit, ethical behavior, improved access to the market, trust,
among others.

Digitized Environment
Issues of the digital business environment and its related studies date back to
1947 to the invention of the transistor, followed by the mainframe computers
and virtual memory in the 1970s (Tilson et al. 2010), and digital record keep-
ing and interconnectedness in the 1980s (Mahoney 1996). Following the rapid
growth of internet connectivity in the 1990s (March et al. 2000), the digital
revolution became truly global, spreading to the masses in the developing
world. Current digitized technologies includes cloud computing, tablet com-
puters and smartphones (Yoo et al. 2012), big data mining, social media (Rigby
2011), mobile app/technologies (Barrett et al. 2015), etc.
In the current digitized environment almost all other human activities are
being digitized. Thus business interactions with stakeholders, such as custom-
ers, suppliers, government agencies, bankers, and insurance companies, are all
being digitized. This is creating convergence of some activities on mobile
devices and thereby increasing convenience, efficiency, as well as risks, while
decreasing cost and time involved in performing the same activities. In this era,
therefore, a sustainable corporate strategy is one that can address the complexi-
ties and challenges of navigating the adoption of different technologies more
conveniently. This is where the firm needs an crucial understanding of what
factors to lay emphasis on in order to engender an overall sustainable corporate
strategy.
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 11

Methodology
This chapter investigates interrelated published studies that have spearheaded
the proposal for this eco-system perspective of examining adoption of innova-
tion. This chapter examines, in particular, the objectives of such studies, meth-
ods used in these studies, findings of each study, and then discussion of all
findings in relation to how a sustainable innovative environment can be pro-
moted. An author-centric approach to literature analysis (Webster and Watson
2002) is employed for the analysis. Each article is analyzed based on the con-
tribution to the development of this novel view of examining firm innovation
adoption (F-TAM). Papers are chosen based on their immediate improvement
on the preceding stage of the research stream. Thus the chapter that makes the
most immediate improvement of the model development process is examined
at each stage of the analysis.

Summary of Findings
Doe, Van de Wetering, Honyenuga, and Versendaal (2017) sought to examine
factors that stimulate firm-level adoption of mobile technologies at the per-
sonal level, firm level, and societal level, as well as how these factors interrelate
to stimulate adoption at the firm level. Using a systematic literature review,
Doe, Van de Wetering, Honyenuga, and Versendaal (2017) sampled articles
from three and four-star ranked journals in the areas of innovations, informa-
tion and communications technology, entrepreneurship, and small business
management; and examined articles that had studied adoption of innovation at
various levels of adoption. The authors used the modified form of the author-­
centric approach to literature analysis (Webster and Watson 2002), with the
levels of adoption as provisional codes (Saldaña 2015). The data was reclassi-
fied with a concept-centric approach to qualitative data analysis with sub-­
coding techniques (Saldaña 2015). Causation coding (Miles et al. 2014;
Saldaña 2015) and pattern coding were used in regrouping the sub-codes into
major themes that depict the three levels of adoption. The constructs were
displayed in a conceptual framework as artificial ex-ante artifacts (Venable et al.
2012) to be evaluated or validated as natural ex-ante artifacts (Venable et al.
2012), and were finally tested on the real adopters as natural post-ante artifacts
(Venable et al. 2012). The findings of the study are described below.
At the Employees Personal level, factors that were found to have directly led
to adoption include Perceived Usefulness (Vankatesh et al. 2003); Perceived
Ease of Use (Vankatesh et al. 2003); Perceived Social Influence (Shinh et al.
2013); and Perceived Indispensability (Shinh et al. 2013). These are generally
perceptual and attitudinal factors of an individual. With these variables, the
study proposed that employees would adopt innovation by themselves whether
they are in a firm setting or not, and whether it is sanctioned by an
organization.
12 J. K. DOE

The Resource-Based View posits that the resources of a firm, including

employees, shape the ability of the firm to be innovative and adaptive to inno-
vations (Najaftorkaman et al. 2015) through subjective norm influence
(Fishbein and Ajzen 1975) within the social system (Rogers 1962). This study
therefore posited that personal-level factors of adoption would lead to firm-­
level adoption, as well as firm-level factors of adoption. The study therefore
proposed that: Individual-level factors directly lead to firm-level adoption of
digital innovation; individual-level factors of adoption directly influence firm-­
level factors of adoption.
At the firm level, the literature inquiry found that the existence of techno-
logical readiness, managerial innovativeness, and organizational readiness
(Boateng et al. 2011); strategic fit with operations (D’Ambra et al. 2013); and
industry readiness (Molla and Licker 2005) will hasten or lead to the actual
adoption of the innovation. The study therefore proposed that: Firm-level fac-
tors lead to general adoption.
Macro-environmental or societal-level factors that were discovered to
enhance firm adoption of innovation include government championship
(Caerteling et al. 2013); government policy (Boateng et al. 2011; Rogers
1962); trust; and risk culture (Boateng et al. 2011). These factors were expected
to moderate the relationship between firm-level factors and adoption.
Therefore, the study proposed that: Firm-level adoption is moderated by societal-­
level factors.
This interrelationship was proposed as a model, which is expected to work
at the organizational level of adoption. The initial model of the F-TAM is
shown in Fig. 1.1.
In this study, the factors that were reported in Doe et al. (2017) were tested
for contextual validation in a developing country context through Delphi tech-
niques of academics and industry experts. Specifically, the study examined to
what degree the F-TAM reflects the adoption pattern among SMEs in Ghana;
whether there were other factors that are not accounted for in this model; and
whether changes in the model make the model more valid.
Using two rounds of Delphi interviews, the study sampled views of both
academics and industry experts who had varying opinions on the adoption of
mobile technology innovations in Ghana. Within two rounds of reducing the
variety of responses, consensus of responses was achieved (Linstone and Turoff
1975). In the first round of interviews, the respondents were asked to com-
ment on the original variables of the F-TAM (Doe et al. 2017), as well as the
relationships that were posited to exist. Respondents were asked to suggest any
variable that they believe should be added or deleted based on their experiences
and knowledge of how SMEs adopt mobile digital innovation. Any new vari-
able discovered was added as part of the second round of interviews. In the
second round, respondents were asked to comment on the revised variables,
restricting the comment to agreement, disagreement, and neutrality.
Respondents were given an option to indicate any other comment they may
have. The role of the researchers in that study was restricted to that of a
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 13

Personal Level Factors

Perceived Ease of Use
(PEOU)
Perceived Usefulness (PU)
Perceived Indispensability
Perceived Social Influences

Firm Level Factors

Technological Readiness FIRM LEVEL ADOPTION
Managerial Innovativeness OF DIGITAL
Organizational Readiness TECHNOLOGY
Strategic Fit with
Operations INNOVATION
Industry Adoption

Societal Level Factors

Government Championship
Government Policy
Risk-taking Culture
Trust in Digital Operations

Fig. 1.1 Initial Firm Technology Adoption Model (F-TAM). (Source: Doe et al.
2017, 2018)

planner, facilitator, recorder, and reviewer or synthesizer of the data (Avella

2016). For each respondent, content analysis (Berelson 1952) became a useful
mode of analysis to confirm or test a pre-existing theory (Ezzy 2002); in this
case, the variables and relationships of the F-TAM model. For cross-case analy-
sis, the concept-centric approach to qualitative data organization (Webster and
Watson 2002) was used to arrange the contents of discussion into building
blocks or themes. The model was then refined using pattern-matching tech-
niques (Yin 2013).
In summary, Doe et al. (2018) found that personal-level factors can better
be described as Employee Attitudes and Perceptions. This clearly demarcates a
particular firm’s employee factors from the general public human factors cap-
tured in society-level factors. On the personal level, Perceived Usefulness,
Perceived Ease of Use, Perceived Indispensability, and Perceived Social
Influences were confirmed in the initial F-TAM to be contextually relevant at
the personal level to stimulate firm adoption. Other variables added were Trial
Feedback (Rogers 1962) and Employee Self Interest (Yun et al. 2007). These
factors were discovered to be contextually relevant as personal-level factors that
stimulate firm-level adoption.
Factors of adoption at the firm level were decomposed into two sub-groups
of internal factors and industry factors. The internal factors confirmed from the
initial F-TAM include Technology Readiness, Managerial Innovativeness,
Organizational Readiness, and Strategic Fit with operations. Other variables
14 J. K. DOE

discovered were Ease of Support (Grandon and Pearson 2004) and

Organizational Culture (Škerlavaj et al. 2010). Trust was discovered as a rele-
vant variable at the firm level but was measured under Technology Readiness
(Vize et al. 2013).
Industry adoption was confirmed from the initial F-TAM, but decomposed
into Customer Needs (Hauser et al. 2006), Competitive Pressure (Rogers
1962; Soares-Aguiar and Palma-Dos-Reis 2008), and Partner Requirements
(Iacovou et al. 1995). These factors together formed the industry factors at the
firm level.
Societal-level factors confirmed from the initial F-TAM in Doe et al. (2018)
include Government Championship and Government Policy. Government
Policy was, however, decomposed into Government Policy Directions and
Government Laws/Regulations. Both Government Policy and Government
Laws (Tornatzky and Fleischer 1990) were confirmed. Other variables discov-
ered from the Delphi interviews were Digital Media Infrastructure (Tornatzky
and Fleischer 1990), Opinion Leadership (Rogers 1962), and Successive
Government Commitment (Mathews 2012). Variables deleted from the initial
F-TAM were Societal Risk Culture and Trust. Risk Culture and Trust were
found to be more significant at the firm level than at the societal level.
The influence of Technology Characteristics on technology adoption had
been posited by Rogers (1962). This effect was unanticipated in the initial
F-TAM due to the orientation of examining the interaction effect at the differ-
ent levels of adoption. Technology characteristics of Innovation Flexibility,
Observability, and Relative Advantage of Innovation, Innovation Triability,
and Innovation Complexity were realized to be significant if the study exam-
ined firm adoption as an eco-system. Triability was measured under Trial
Feedback at the employee personal level and therefore deleted from Technology
Characteristics.
The results of the Delphi interviews unearthed some new relationships not
anticipated in the initial F-TAM (Doe et al. 2017). These include the following:
Societal-level factors were proposed to lead to personal-level factors.
Personal-level factors were proposed to moderate the link between the firm
factors and firm adoption. Societal-level factors were proposed to lead to firm
adoption. Societal-level factors were proposed to lead to firm-level factors.
Technology factors were proposed to influence personal-level factors, firm-­
level factors, and societal-level factors.
The study, at this stage, proposed a revised F-TAM that contained 62% of
variables of the initial F-TAM (Doe et al. 2017). In the end, these changes or
linkages between the constructs were proposed to make the model more
representative.
The revised F-TAM is shown in Fig. 1.2.
In this study the authors sought to quantitatively test the suggested Firm
Technology Adoption Model (F-TAM) using data from a developing country
context. Firstly, Doe et al. (2019) developed and tested a reliable and valid
instrument for measuring firm technology adoption using variables in the
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 15

Employee Attitudes and

Perceptions
Perceived Ease of Use
Firm Internal Perceived Usefulness
Characteristics Perceived Indispensability
Technological Readiness Perceived Social Influences
Managerial Innovativeness Trial feedback
Organizational Readiness Employee Self Enhancement Motives
Strategic Fit with Operations
Ease of Support
Organizational Culture

Firm Level
Factors Firm Level
Firm Industry
Adoption
Characteristics
Customer Needs/Demands
Competitive Pressure
Partner Requirement
Societal Level Factors
Government Policy
Technology Government Championship
Characteristics Government Laws
Innovation Infrastructure
Observability Opinion Leadership
Flexibility Successive Government Commitment
Complexity (-)
Relative Advantage

Fig. 1.2 Revised F-TAM model. (Source: Doe et al. 2018, 2019)

F-TAM. Using Churchill’s (1979) process of questionnaire development, Doe

et al. (2019) crafted or adapted question items from relevant previous studies,
and went through an evaluation process of self-review, expert review, and focus
group discussions to improve the face validity (De Leeuw et al. 2008). The
questionnaire was field-tested using a sample of 25 respondents from the actual
population, and was found to be valid and reliable for measuring firm technol-
ogy adoption using the F-TAM. Secondly, Doe et al. (2019) collected 400
SMEs who were purposively sampled (Straits and Singleton 2017) due to the
need to sample only SMEs that had, indeed, used mobile money financial tech-
nology innovation as part of their business process.
In that study, a series of hypotheses were made to test the propositions made
in Doe et al. (2019). The summary of the proposed hypotheses and test results
is shown in Table 1.1.
Surprisingly the data did not support the hypothesis that Firm factors lead to
firm adoption. A significant implication from the findings in hypotheses H1,
H2, and H3 is that they challenge earlier models, such as PERM, TOE, and
TTF, which suggested that firm factors lead to firm adoption. Perhaps, if those
studies had decoupled employee factors from other firm-level factors, the
results would have been different. This finding underscored the essence of the
F-TAM in examining the interrelationship between the three levels of adoption
as an eco-system and decomposing employee factors from other firm-level
factors.
16 J. K. DOE

Table 1.1 Firm technol-

Hypothesis proposed Test results
ogy adoption model
H1: Personal-level factors lead to firm Confirmed
adoption
H2: Personal-level factors lead to firm Confirmed
factors
H3: Firm factors lead to firm adoption Not confirmed
H4: Societal-level factors influence Confirmed
personal-level factors
H5: Societal-level factors influence Confirmed
firm-level factors
H6: Societal-level factors lead to firm Not confirmed
adoption
H7: Technology factors influence Not confirmed
employee factors
H8: Technology factors influence Not confirmed
firm-level factors
H9: Technology factors influence Not confirmed
societal factors

Source: Authors’ creation

Societal-level factors did not lead to firm adoption. This outcome similarly
contradicts propositions in other models, such as the Culture, Policy and
Technology framework (Bajaj and Leonard 2004), suggesting that policy issues
constructed in F-TAM under societal factors will lead to firm adoption.
The results of Doe et al. (2019) triggered an inquiry into further relation-
ships that were not anticipated and discovered that technology characteristics
directly influence firm adoption. This study, furthermore, discovered that tech-
nological factors could moderate the relationship between firm-level factors
and firm adoption. This particular proposition, if confirmed, would be another
novel discovery in adoption studies. Earlier firm-level models such as PERM,
TTF, and TOE, did not anticipate or conceive the idea of a possible strength-
ening of this relationship by technology characteristics.
Suspected mediating relationships were reported at this stage. Firstly, if
personal-­ level factors lead to firm adoption and societal factors influence
personal-­level factors, then personal-level factors could actually mediate the
relationship between societal-level factors and firm adoption. Secondly, if
societal-­level factors lead to firm-level factors and societal-level factors are influ-
enced by technology characteristics, then societal-level factors could actually
mediate the relationship between technological characteristics and firm-level
factors. Finally, societal-level factors could mediate the relationship between
technological factors and personal factors.
In a follow-up study to understand other contextual factors that could
explain how firm-level factors did not lead to firm adoption (Doe et al. 2019),
Doe, Van De Wetering, Honyenuga, and Versandaal (nd) sought to find out
whether firm size affects the relationships posited in F-TAM, whether personal
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 17

Firm Internal Characteristics

Employee Attitudes and Perceptions
Technological Readiness
Managerial Innovativeness Perceived Ease of Use
Organizational Readiness Perceived Usefulness
Strategic Fit with Operations Perceived Indispensability
Ease of Support Perceived Social Influences
Organizational Culture Trial feedback
Employee Self Enhancement Motives

Firm Level Factors

Firm Level
Adoption

Firm Industry Characteristics

Customer Needs/Demands
Competitive Pressure
Partner Requirement Societal Level Factors
Government Policy
Government Championship
Government Laws
Technology Innovation Infrastructure
Characteristics Opinion Leadership
Observability Successive Government Commitment
Flexibility
Complexity (-)
Relative Advantage

Fig. 1.3 Survey-tested technology adoption model (F-TAM). (Source: Doe

et al. 2019)

factors and societal factors have any other effect on the proposed eco-system,
and how technology characteristics influence the suggested eco-system of
adoption. The study confirmed the relationships reported in Doe et al. (2019).
Furthermore, apart from societal-level factors, personal factors and technologi-
cal factors were discovered to moderate the relationship between firm-level
factors and firm adoption. Without this moderating effect, firm-level factors
would have been insignificant in the pool of factors that lead to firm-level
adoption. The study also discovered a full mediating effect of personal-level
factors on the relationship between societal-level factors and firm adoption. It
was likewise confirmed that societal factors fully mediate the relationship
between technology factors and firm-level factors, as well as fully mediate
between technology factors and personal factors.
A pictorial view of the direct relationships supported by empirical data, in
addition to the suspected moderating relationships, is shown in Fig. 1.3.

Reflection on F-TAM
The F-TAM is posited as an interaction of four groups of factors to influence
adoption. The four groups of factors include personal-level factors, firm-level
factors, societal-level factors, and technology-related factors. In the following
sections, these relationships and factors are discussed.
18 J. K. DOE

Employees’ Individual-Level Factors

These are individual perceptions or attitudes toward the technology. These fac-
tors can lead to technology adoption as a firm even when the firm has not
officially prepared itself nor sanctioned the adoption of the technology.
Employee adoption produces a subjective norm within the working environ-
ment, which leads to the emergence of other factors at the firm level. When the
firm decides to organize itself to adopt (factors of adoption), adoption becomes
easier because the actual users within the firm will indeed adopt. Their adop-
tion will reinforce (moderation effect) the firm’s effort to adopt. The only
significant group of factors that precipitates these personal-level factors, accord-
ing to the F-TAM, is the societal-level factors. Thus, employee personal factors
serve as a mediator between societal-level factors and firm adoption, as well as
between societal-level factors and firm-level factors. Specific factors at the
employee personal level are:

Perceived Usefulness (PU) (Vankatesh et al. 2003). This is the degree to which
a person believes that using a technology will increase his/her job perfor-
mance or output: it is the performance outcome expectancy of the technology.
Perceived Ease of Use (PEOU) (Vankatesh et al. 2003). This is the degree to
which a person believes that using a technology will be free of effort: the
degree of ease associated with technology use.
Social influences (SI) (Shinh et al. 2013). This is the extent to which the adopter
perceives that important others, such as family and friends, believe he/she
should use a technology: the extent to which the use of a technology dem-
onstrates class boundaries or social standing.
Perceived Indispensability (PI) (Shinh et al. 2013). This is the extent to which
livelihood, work, or an activity is dependent on the use of a technology.
Trial Feedbacks (Rogers 1962). This is the post-trial perception of the technol-
ogy an individual holds.
Perceived Employee Self-Enhancement Motives (Yun et al. 2007). This is the
extent to which an employee believes the adoption of a technology will yield
a personal tangible or performance benefit.

Firm-Level Factors
Firm-level factors: These are all preparations in the form of technical, infra-
structural, and financial preparations that the organization must have to be able
to adopt a technology. In many earlier models, this factor had been proposed
to include human resources (Employees). In the F-TAM, however, decompos-
ing employee factors out of organizational factors shows a divergent result
worth mentioning. Apart from the employee factors, the rest of the factors at
the organization level were not significant in precipitating firm-level adoption.
If employee-level factors were part of organizational factors, the result would
have shown a significant effect on firm adoption just as earlier models have
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 19

reported. Indeed, this result highlights the essence of examining the phenom-
enon of adoption from an eco-system perspective. These organizational-level
factors are precipitated by internal factors, industry factors, societal-level fac-
tors, and employee factors. Among SMEs in general, these organizational-level
factors would be irrelevant without the moderating influence of personal, soci-
etal, and technological factors.
Among large firms, however, these organizational factors are likely to lead
directly to firm adoption. In this regard, one issue worth investigating in fur-
ther studies is whether industry factors alone would precipitate firm adoption
if it is decoupled from the internal organizational factors, just as employee fac-
tors were decoupled from firm-level factors. Specific factors at the organization
level are:

Technology Readiness/Innovative Readiness (Boateng et al. 2011). These are

the availability of internal technologies relevant to the firm, the current tech-
nology, and the knowledge required. This variable also measures Trust (Vize
et al. 2013).
Managerial Readiness (Lumpkin and Dess 2001). This is the management’s
attitude toward change, future orientation, proactivity, support, and
risk behavior.
Strategic Fit with Operations (Goodhue and Thompson 1995). This is the
extent to which a technology fits business operations or tasks to be performed.
Organizational Readiness (Boateng et al. 2011). This is the scope, size, mana-
gerial structure, organizational slack resources, business process, creativity,
and openness of the firm, that is, the preparedness of the organization toward
future environmental changes.
Ease of Support (Grandon and Pearson 2004). This is the ready availability of a
technical hand to assist the firm in resolving initial and further problems that
may arise from the use of a technology.
Organizational Culture (Škerlavaj et al. 2010). It is the predisposition to try
new technologies and to absorb possible gains or losses resulting from an
adoption attempt.
Customer Readiness/Market Demand (Hauser et al. 2006). The extent to
which serving a particular customer group requires the use of a technology.
Competitor Pressure/Actions (Rogers 1962). This is the extent to which indus-
try competition is dependent on the adoption of a technology, that is, the
extent to which a competitor’s action produces pressure, as well as the
mimetic response by rivals in the industry.
Partner Requirements (Dimaggio and Powell 1983). This is the extent to
which firm partners require the firm to use a technology in its transactions
with them.
20 J. K. DOE

Societal-Level Factors
For firm-level adoption of a technology innovation, societal-level factors are
macro-environmental readiness and changes that must happen to lend support
to adoption. These are mainly governmental actions and support for adopting,
societal active promotion in the form of a recommendation, and infrastructure.
Since organizations exist in a society, these societal-level factors lead to the
availability of factors at the firm level through a diffusion process. They, how-
ever, do not lead directly to firm adoption. At any time an organization decides
to adopt a technology, these societal factors reinforce the organizational effort
(a moderation effect) to adopt. The only significant group of factors that pre-
cipitate societal-level factors are technology characteristics. Therefore, societal-­
level factors mediate between technology characteristics and employee-level
factors, as well as between technology characteristics and firm-level factors. The
specific factors at the societal level are:

Government Championship (Howell et al. 2005). This is the extent of active

promotion made by influencing top-level government officials, their views of
the technology, support, and active removal of obstacles.
Government Policy (Bajaj and Leonard 2004). These are deliberate policies
aimed at promoting a technology in a country or social system.
Government Laws (Tornatzky and Fleischer 1990). These are a society’s set of
laws and legal instruments that regulate the purchase, use, and disposal of a
technology/innovation.
Opinion Leadership (Rogers 1962). This is a word of mouth communication in
which one person (opinion leader) informally influences the actions and atti-
tudes of others who may be opinion seekers or opinion recipients.
Technology Infrastructure (Tornatzky and Fleischer 1990). This is the support-
ing infrastructure, such as telecommunications networks, upon which a tech-
nology or an innovation can thrive within the society.
Successive Government Commitment to Promoting Innovation (Mathews 2012).
This is the extent to which previous government innovation-related projects,
policy, and actions are continued by successive governments.

Technology Characteristics
Technology factors are the characteristics of a technology itself, as proposed by
Rogers (1962). True to this proposition, when a technology (innovation) is
observable, offers a relative advantage, is not complex, is flexible, and can be
tried before full adoption, it can be adopted directly without the influence of
other factors. Technology characteristics, however, strengthen (moderates) the
firm’s effort to adopt a technology. Technology characteristics do not directly
influence personal factors nor organizational factors, but indirectly do. Specific
technology-related factors examined in the F-TAM are:
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 21

Flexibility: This is the relative ease with which a technology can be applied to
do different things apart from what it was initially defined to do.
Observability: The relative ease with which the technology can be seen by oth-
ers who use it early.
Relative advantage: These are the benefits that the usage of the technology
provides over other competing technologies.
Complexity: This is the relative difficulty associated with the use of a technol-
ogy, and is expected to have a negative relationship with adoption of the
technology.

Reflection of Relevance and Further Studies

Scientific Relevance
This study makes some critical contribution to the field of innovation studies in
business research. This central idea of the F-TAM is a significant departure
from earlier models. While it challenges propositions in earlier models, it pro-
poses new concepts and variables for further studies. The study has significant
implications for scholarly debate and further studies. Among the technology
adoption and innovation studies, the study proposes a new model called the
Firm Technology Adoption Model (F-TAM). This model is an interactive eco-­
system model that examines the effect of both personal-level and societal-level
of adoption on firm factors of adoption as well as on firm adoption. The study
challenges the dominant idea in earlier studies that factors of adoption at any
particular level of adoption alone will generally lead to adoption. This idea is
prevalent in models such as TAM, TRA, ITMA, UTAUT, and DOI at the per-
sonal level; TOE, PERM, and TTF at the firm level; and CPT and PERM
model at the societal level.
This study challenges the idea of positing intention to adopt as a sole ante-
cedent of adoption, with all other factors leading to intention to adopt. This is
because the gaps between intention to adopt and actual adoption are the con-
textual gaps of socio-economic development, infrastructure, and cultural
norms, which can often hinder actual adoption in some contexts.
This study is the first to propose an interactive eco-system of measuring
adoption of a technology and, by extension, any innovation; and prompts a
re-­examination of earlier models at personal, firm, and societal levels with
regard to other influences.

Industrial Significance
For industry practitioners, the findings of this study provide a framework with
which organizations can easily promote adoption of any innovation in the
organization context. The interactive effect highlights where emphasis needs
to be laid in order to ignite adoption and the sustainability of the digitized
technology. For instance, at the firm level, employee factors and the nature of
22 J. K. DOE

the technology itself are more important than other internal organizational
factors. This idea is obviously missed by earlier models that classify all firm-level
factors as one. With this model, igniting adoption is expected to be easier at the
firm level. Thus, the proposed eco-system will enable managers to take a holis-
tic view of firm technology adoption.
In the digitized era where new technologies are rapidly churned out, what
would make a corporate strategy sustainable in the changing environment must
necessarily be identified. This is more so for technological strategies if they are
to be sustainable. The ability of the firm to unlearn old technologies, adopt
new technologies, and adapt them to the changing digital environment is
largely dependent on the employee factors shown in the F-TAM model. Firms
that understand the interaction effect of adoption factors are more likely to
deploy more sustainable strategies that lead to sustainable corporate perfor-
mance in the competitive digitized era than those that do not.

Limitations and Future Research

This study has limitations that future research should seek to address.
Firstly, the proposed model has only been tested using data from one devel-
oping country context. Further studies would need to sample data from mul-
tiple developing country contexts. This may be done with larger samples of
over 2000 SMEs randomly sampled across regions.
Secondly, the discipline of marketing posits with the marketing orientation
(Kotler and Levy 1969) that customer needs are placed at the heart of the
organizations’ efforts to drive customer satisfaction and profit. If this is so,
then the variable of “customer needs”, as well as other industry factors, could
probably lead to firm adoption. Perhaps if industry factors are decoupled from
internal organizational factors at the firm level, industry factors could lead to
adoption. This needs to be explored in further studies.
The proposed new model has just begun its journey of acceptance and vali-
dation. Apart from an extended study in other developing country contexts,
the model needs to be go through a comparative test, vis-a-vis other models
that have been proposed to explain technology adoption or any other innova-
tion at the firm level. Further studies can focus on this area.
In the course of developing this model (more precisely at the second stage),
some relationships were deleted due to their ability to cause a feedback effect
in the model. For instance, whether personal-level factors will influence societal-­
level factors; whether firm-level factors will influence societal-level factors and
personal-level factors; and what effect firm adoption will have on personal-level
factors, firm-level factors, and societal-level factors. These are all worth explor-
ing in further studies.
The F-TAM was tested among SMEs under voluntary adoption conditions.
There are circumstances under which governments impose some mandatory
conditions for firms to adopt, or firm managers impose mandatory conditions
 1 THE ECO-SYSTEM OF FIRM TECHNOLOGY ADOPTION 23

for adoption. Further studies of SME adoption under mandatory conditions is

recommended to explain what variations can occur in this model.

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 CHAPTER 2

Algorithms Shaping the Future

Eduardo Olier and Francisco Valderrey

Introduction
As we approach the year 2025, humanity is swiftly venturing into a virtual
realm driven by technological advances as never seen before. More and more
data are created every day in the form of petabytes, exabytes, and so on, that
require new and more effective technologies through Big Data solutions
(Oussous et al. 2018). Additionally, new developments in artificial intelligence
(AI), machine learning, and mathematical algorithms will computerize the
management of such an enormous quantity of data coming from businesses
and the whole society.
The examples of how AI is permeating society are many; for instance, a
diversity of benefits of the new technologies allows for improvements in auton-
omous vehicles, agricultural robots with the capabilities to replace hard labor
and optimize crops, supplying reliable financial assistance, and providing better
outcomes in research, medical treatments, or justice (OECD 2019). Those
contributions may start in advanced economies, but eventually reach remote
areas; telemedicine is a vivid example, and the case of well-known doctors pro-
viding skin treatments to severely ill patients in Africa illustrates one of the
many positive effects of AI (Atkinson and Mabey 2019).
At the same time, the growing impact of the Internet through a record
number of users, mobile applications, spread of social networks, cloud

E. Olier
Institute Choiseul, Madrid, Spain
e-mail: [email protected]
F. Valderrey (*)
Tecnológico de Monterrey, Monterrey, Mexico
e-mail: [email protected]

© The Author(s) 2021 29

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_2
30 E. OLIER AND F. VALDERREY

computing, 3D printing, and industrial value chain, among other break-

throughs, paves the road for dramatic changes in our society (López de
Mántares 2018). Consequently, a new business arena is coming out at an
unmatched speed with unicorns (companies reaching a market value above $1
billion) taking the lead, spreading out, and challenging more traditional busi-
nesses (UNCTAD 2019). New Internet-based currencies like Facebook’s
Libra, Bitcoin, and other similar cryptocurrencies are just the tip of the iceberg
of an overhaul of the global financial system, as many substantial changes in the
system are in the making through the use of blockchain technologies. Indeed,
financial stability may become a sweet remembrance from the past, especially
with the so-called “monetary populism,” undermining financial institutions
(World Economic Forum 2019).
All the previously mentioned factors are creating a digital revolution chal-
lenging the world as we know it. A most likely result will be the creation of a
profound digital divide with unforeseen consequences to business organiza-
tions and the entire society, thus raising major ethical concerns. Individuals and
organizations ask questions regarding rules and regulations to protect people
left behind by technology. Such protection is no longer circumscribed to
defend fundamental rights, such as equal opportunities, but nowadays the
debate is moving forward, sometimes pointing out at global governance or
banning the attribution of responsibility to robots, as in the Top 10 Principles
for Ethical Artificial Intelligence by UNI Global Union (OECD 2019). Indeed,
issues related to ethics are expanding along with the new technologies, as hap-
pens with artificial narrow intelligence, which is “machine intelligence that
equals or exceeds people’s abilities or efficiency at a specific task,” as found in
Google search and Facebook social mapping (Anderson et al. 2018). Ethical
concerns extend to a wide variety of circumstances; for instance, data protec-
tion and algorithm-based decision in the administration of justice (Brkan 2019)
is one of the many areas where individuals may be unprotected to pervasive
technology.
By the year 2025, the digital revolution may have a profound impact on
individuals, the culture of organizations, and the environment, forcing enter-
prises to reorient people and business activities to readapt their way of doing
business continuously, as foreseen by Chinese and German authorities pursu-
ing technological leadership as in the case of the Made in China 2025 and
Industry 4.0 (Li 2018). Machine-learning algorithms and AI are fostering
technological breakthroughs with the capability of placing ordinary citizens at
the mercy of those with access to their data. Before we may realize it, entire
societies could be under siege by institutions, organizations, or private indi-
viduals, controlling private information from others. If this happens, democ-
racy will end up disappearing for good (Olier 2019).
The potential loss of freedom is one of the most critical challenges for
humanity in the forthcoming years, with a severe impact on the global econ-
omy, geopolitical stability, and the well-being of people. A significant conse-
quence may be a permanent gap between the rich and the poor, and the birth
 2 ALGORITHMS SHAPING THE FUTURE 31

of a new class of useless and “superfluous” individuals, alienated from society

and entirely manipulated by a new ruling upper class (Harari 2018). We may
be nearing a world where advanced machines controlled by powerful algo-
rithms will be capable of commanding people, and controlling business and the
entire society, as predicted by Norbert Wiener, who many years ago anticipated
that Cybernetics would be the instrument that could facilitate the control of
human beings (Wiener 1954). On the other hand, technology may work side
by side with humans in different areas, as described by the so-called “induction
effect,” showing better results when the power of AI is combined with human
creativity (Siegel 2016).
The previously mentioned changes in the business world are easy to spot.
During 2017, 61% of firms in the United States had incorporated systems
based on AI and machine learning into their business processes (Rayome
2019), embedding algorithms in their inner software structure. The impact is
notorious on the labor market, where probably a few million jobs are created
annually in industries heavily dependent on AI, at the expense of many more
workers in traditional sectors of the economy.
Unfortunately, highly qualified people are also at risk of losing their jobs. In
the health sector, for instance, there is no way for medical doctors to compete
with machines capable of foreseeing a future heart attack based solely on the
DNA of the patient (American Heart Association News 2019). The issue
becomes more dramatic in many industrial processes already managed by
robots. Furthermore, the presence of algorithms goes unnoticed in supercom-
puters that perform financial analysis and other complex processes, in self-­
driving vehicles, state-of-the-art weapons, hotel reservations, or private urban
transportation. As anticipated by George Orwell’s novel Nineteen Eighty-Four,
we could be nearing a planet controlled by Big Brother, with a plethora of algo-
rithms managing every aspect of our existence (Orwell 1990).
Although many factors partially explain advances in technology, we can
identify the algorithm as the building block of digital transformation. An algo-
rithm is “an explicit, precise, unambiguous, mechanically-executable sequence
of elementary instructions, usually intended to accomplish a specific purpose”
(Erickson 2019) or, more simply, a set of steps required to solve a problem.
Algorithms are also at the center of this chapter, where we intend to demon-
strate how algorithms are dominating our lives and shaping our future. Briefly
stated, we intend to show that algorithms will shape our lives in a not so distant
future through different technologies having a profound impact on business
and society. To that purpose, we set as the objectives for our research to find
out to what extent algorithms are part of society, to look for algorithms with
an impact on the business world, and to attempt how algorithms may change
our lives soon.
In this chapter, we discuss the relevance of algorithms in modern society and
their role in molding our lifestyle. After providing a proper context for compre-
hension of algorithms and the associated technological improvements, we ana-
lyze the elements behind the new digital economy, sharing some technical
32 E. OLIER AND F. VALDERREY

insights about algorithms, before evaluating their main impact on our future
society. Finally, after raising some ethical concerns, we provide advice to entre-
preneurs, managers, and policymakers before describing our contribution to
the overall project of Business 2025: Sustainability and Digital Transformation.

Literature Review
In this section, we go through a brief literature review related to digital trans-
formation. Before we look for how scholars have approached this topic, we
need to state the monetary importance of the digital economy. It is hard to
measure the size of the digital economy, but a joint report from Huawei and
Oxford Economics mentions that “the digital economy is worth $11.5 trillion
globally, equivalent to 15.5% of global GDP and has grown two and a half
times faster than global GDP over the past 15 years” (Huawei and Oxford
Economics 2017). An issue of utmost importance to the digital economy is
how to create value from digital data. A recent report from the United Nations
(UNCTAD 2019) points out different vital elements involved in the monetiza-
tion of digital data, as shown in Table 2.1.
The digital economy has been a topic of interest to researchers for quite
some time. Nevertheless, many questions still arise, as fewer than expected
journals have devoted efforts to cover the issue, until very recently. Several
reviews of the literature intend to share a historical view of how digitalization
has permeated business activities and models. Out of the few attempts, we
chose the work by Reis, Amorim, Melão, and Matos to draw a historical per-
spective on the evolution of Digital Transformation Definitions (Reis et al.
2018). According to Reis et al., different authors provide insights throughout
time, with an impact on several issues concerning digital transformation.
Stolterman and Fors (2004) advance the idea that the Digital Transformation
extends to most aspects of human existence, through the use of technology.
Martin (2008) goes beyond the concept of technology by itself and looks at
the contribution from digital advances into business, the government, and pri-
vate citizens alike. Westerman et al. (2011) go one step further, pursuing radi-
cal changes into business ventures coming from technological improvements.

Table 2.1 Elements involved in the monetization of digital data

Actions from data value chain Data monetization

Collect Selling targeted online advertising (e.g., Google, Facebook)

Store Operating e-commerce platforms (Amazon, Alibaba, Uber,
Airbnb)
Analyze Transforming traditional goods into rentable services
(Mobike, Rolls Royce)
Transform data into digital Renting out cloud services (Amazon Web Services, Tencent,
intelligence MyJohnDeere

Source: Adapted from UNCTAD 2019

 2 ALGORITHMS SHAPING THE FUTURE 33

McDonald and Rowsell-Jones (2012), instead, look at how the digital transfor-
mation improves business performance beyond the benefits of particular tech-
nologies. Indeed, they point to how digital transformation may be a pillar to
the creation of new business models. Solis et al. (2014) take a step further by
addressing the needs of the new digital customers and how to satisfy those
demands at any single time of their experience. Finally, Collin et al. (2015)
draw a line between the digitalization and digital transformation. To them, the
new change encompasses the most relevant issues to society as a whole.
Although all of the above definitions contribute to our understanding of digital
transformation, we stay by the proposal from Stolterman and Fors, because it
has the simplicity needed to communicate the main idea behind the process of
digital transformation, while it is also inclusive of all aspects of human life.
Another attempt to summarize the literature on digitalization was advanced
by Parida et al. (2019). This review of literature expands into business model
innovation and sustainability from the perspective of digitalization. The authors
map different theoretical perspectives and provide a classification based on six
different elements: a theoretical perspective, digitalization, value creation,
value delivery, value capture, and key references. Eloranta and Turunen (2016)
present their view of Platform Theory into customization and standardization
through the integration between back-end and front-end activities. Ehret and
Wirtz (2016) look at how to manage downside risk, from the Transaction
Theory, looking at issues such as reduced costs and delivering outputs. Krotov
(2017) points at generating value from technology through opportunity rec-
ognition, creativity, and disruptive business models, along with new actors in
the ecosystem, following the entrepreneurship theory. Parida et al. (2015)
focus on workable actions to economic and social systems, according to transi-
tion theory. They also point at radical innovation and propose structural
changes as possible pathways to find new opportunities along with the digital
transformation. Finally, Kohtamäki and Helo (2015) base their proposals into
resource-based view and dynamic capabilities. They look to the Internet of
things (IoT) strategy, value co-creation with customers, mass service custom-
ization, and a realistic view into reconfiguring offers, resources, and revenue
streams.
The authors suggest further lines of research. Because of the nature of digi-
talization and its many components, it is worth to provide a more general
framework and open, as well, new lines exploring the latest developments in
technology. Although the above-mentioned theories may help in explaining
how firms may react to digital transformation, we have a preference for
Transaction Cost Theory. In spite of much criticism, transaction theory has
evolved over the years (Greve and Argote 2015), and illustrates how companies
react to a changing environment and the pressure to make decisions in com-
plex, technology-driven scenarios. Transaction cost theory deals with the ratio-
nale for choosing allocation of resources and activities, either to the market or
to the firm (Gibbons 2019), thus offering a more realistic scenario for decision-
makers throughout the process of digital transformation. After all, one of the
34 E. OLIER AND F. VALDERREY

pillars of transaction cost theory is the adaptation of the firm, which is “the
central economic problem” (Williamson 1991).

The Elements Behind the New Digital Economy

Over 25 years ago, several scholars coined the term digital economy to highlight
the transformation from the old analog economy based on physical informa-
tion to a new one where information was digital, supported by bits stored in
computers and moving at the speed of light (Gada 2017). The analog economy
was mainly based on cash, checks, reports, face to face meetings, and an array
of other physical instruments, including direct mail ads, telephone calls, and a
vast amount of paper to support business activities (Al-Qirim 2004).
The digital economy, on the contrary, started the transformation of the
physical world into an electronic, binary one (Dufva and Dufva 2019).
Factories were no longer entirely supported by humans, and new “digital
workers” were governed by programmed chips in the form of robots and
many other computer-­controlled artifacts. Life was then managed by myri-
ads of software-­programmed devices taking responsibility of carrying out
many activities previously done by humans (Pew Research Center 2014). As
a result, this new computerized economy was rapidly renamed “the knowl-
edge economy” (Dahlman et al. 2009), as most of the jobs were created
within information-­intensive sectors of the economy. Factories were no lon-
ger based on human labor, yet humans created the computerized systems
that supported manufacturing processes. The same occurred in farms oper-
ated by new computer-based machines, where smart chips and other “intel-
ligent” devices were embedded into millions of products reshaping consumer
behavior and the overall structure of the economy, with a fundamental shift
to the service sector (Messner et al. 2019). Services started to account for
more than 70% of GDP in advanced economies, and new industries were
established upon the convergence of computing, communications, and con-
tent (Szirmai 2015).
In parallel to this enormous economic transformation, a new communica-
tion structure called the World Wide Web (the Web) gave birth to a virtual
world of trillions of web sites that profoundly transformed economics and soci-
ety. In this “Matrix-type” of environment, money and economic transactions
were separated from its previous function, and economic value moved from
traditional businesses to new financial structures, such as hedge funds, that cre-
ated thousands of new financial products and helped develop a parallel virtual
economy several times bigger than the real one. As of today, the over the coun-
ter (OTC) financial market is approximately seven times bigger than the nomi-
nal GDP for the entire planet, supporting a volatile business world based on
new financial instruments. The knowledge economy has also transformed the
way we understand the world. So many things are “smart” today. We live
within reach of smart clothes, smart cars, smart cities, smartphones, smart TVs,
smart flying vehicles, and so on, proving the pervasive digitization of the world
 2 ALGORITHMS SHAPING THE FUTURE 35

after information shifted from analog to digital. Many physical things have
become virtual dots stored in computers and moving at a speed of light within
the Internet from one location to another on our planet, the Earth, that now
appears to be shrinking before our eyes.
Strangely enough, we live in a sort of dual space where physical location
cannot prevent us from entering into limitless cyberspace full of virtual sites:
virtual corporations, virtual markets, virtual villages, virtual communities, and
the like. The new smart, social, and economic virtual space has opened the
door to a global environment, through some process of molecularization of its
components. The old corporation has been disaggregated and replaced by
dynamic molecules and clusters of individuals and entities (Tapscott 1997), just
as has happened to many aspects of society. Indeed, we live in a virtual world
where people and organizations interact in real-time with citizens willing to
share their interests immediately. Immediacy is now at the core of the digital
world and is also the engine that has boosted the creation of the most valuable
companies in the world. Among those, we find Apple, Alphabet, Amazon,
Microsoft, and Facebook, with probably trillions of dollars in aggregate market
value. Service provided in real-time is the common denominator to those orga-
nizations, either when reaching customers and placing products at their finger-
tips or when providing services through an electronic platform. Hence, a new
way of leveraging economic value is replacing the old, traditional business, with
digital solutions replacing the outdated analog technology, in leading
economies.
In the new digital society, work has become unbundled from jobs, and work
and jobs have both become unbundled from companies, many of which are
now kinds of platforms. As a consequence, the digital economy has opened a
new age where acceleration changes everything (Friedman 2017). Beneath
those fundamental changes lies the so-called Moore’s law, stating that the
number of transistors in an integrated circuit doubles every two years (Gustafson
2011). An immediate consequence of Moore’s law is the unparalleled transfor-
mation of labor as we know it, the ubiquity of jobs, and the real possibility to
work collaboratively across continents or exchange valuable information for
business interaction or social communication. The examples are too many, as
happens with Facebook, Airbnb, WhatsApp, Twitter, Netflix, or PayPal, to
name a few. Advances in digital technology have created entirely new industries
and new ways to reach end consumers through highly efficient intermediaries,
as happens with Booking or Uber (Friedman 2017). This last-mentioned com-
pany is leading many others into building virtual platforms where a single com-
pany can instantly reach millions of customers spread across remote locations.
We could talk about the “uberization” of business and society (Davis 2016)
since Uber is perhaps the most prominent example in this era of profound
changes powered by new digital technologies. Uber owns no vehicles or physi-
cal assets, but still outperforms well-established competitors in the mobility
industry (CBInsights 2018).
36 E. OLIER AND F. VALDERREY

Technology-driven companies are reaching dominant positions in many

markets. Beyond business success, those enterprises are also developing the
capacity to interact with their customer base and influence their behavior. For
instance, Facebook tries to define who we are, Amazon searches to identify
what we want, and Google intends to define what we think (Dyson 2012).
Those companies collect vast amounts of data to track people’s interests,
whether they like it or not, often violating their privacy. An enormous amount
of data continually feeds extremely powerful databases and generates profiles of
unprecedented depth and specificity (Pasquale 2015). State-of-the-art tech-
nologies from large corporations are spreading to all nations, although at dif-
ferent speeds (Castells 2013).

Big Data, Predictive Analytics, Machine Learning,

IoT, and AI
Digital technology is at its highest in the so-called Big Data, which relates to
new processing technologies capable of managing far larger quantities of data
than before. Contrary to old databases structured into tables, Big Data applica-
tions perform immeasurable group data computing, thus getting fully valued
information returns. The concept of Big Data is hard to understand, but the
reality is that such capacity to use immense volumes of data in real-time is per-
meating the overall economy, just as happened before with science. Nowadays,
Big Data allows the effective management of billions of data about almost
everything in life, providing the means for computers to make predictions with
an astonishing degree of accuracy. Big Data allows algorithms to crunch moun-
tains of data and to put into action complex mathematical models to induce
results that may have an economic, social, political, or scientific value; there-
fore, “Big Data is all about seeing and understanding the relations within and
among pieces of information that, until very recently, we struggled to grasp
fully” (Linden et al. 2003).
Big Data makes possible unseen methods to make predictions, up to the
point of unfolding the so-called “predictive analytics,” or the new technology
that “learns” from data to forecast the future behavior of a system and there-
fore optimize a specific decision-making process. This is the reason why math-
ematical models are the necessary elements to help sustain computer-based
predictive models, which will be able to yield the behavior of an individual,
groups of individuals, or a system whose features will serve as inputs to get a
predictive behavior as output. Predictive analytics provides the framework,
where the higher the number of features, the higher is the probability to achieve
the desired predictive behavior (Siegel 2016).
Big Data and predictive analytics could not be possible without powerful
computing devices based on machine learning or the automated detection of
meaningful patterns in data (Shalev-Shwartz and Ben-David 2014). Machine
learning can be defined as a method to enable computers to learn directly
 2 ALGORITHMS SHAPING THE FUTURE 37

from data rather than from the use of programming. Machine learning can
also be understood as the study and computer modeling of learning processes
in their multiple manifestations (Michalski et al. 1984), working through a
sequence of instructions executed by a computer program that optimizes a
mathematical model using example data or, perhaps more important, experi-
ence. Therefore, once a model is “learned,” algorithms should be structured
as efficiently as possible to be able to predict the future with enough accuracy
(Apaydin 2010). Accordingly, an algorithm is to be understood as a set of
computational instructions that determine the content and sequence of a
series of specific actions capable of transforming initial data into the
desired result.
IoT is another primary path leading to a fully digital world. IoT defines
the interconnection of physical objects through the Web, intending to opti-
mize processes, the big ones, such as large manufacturing items, and the
small ones, as connecting home appliances for comfort in the house. IoT
offers endless industrial applications, as well as some personal improvements
to our lifestyle. For years, IoT was more of a dream to reach optimization of
processes with little or no human intervention, but the reality was that expec-
tations were hardly matched. Recently, though, with the advent of 5G, a
more robust protocol for mobile communication over the Web, IoT is regain-
ing much of the importance that was obtained many years ago. This techno-
logical approach to connecting unmaterial objects gains acceptance by the
minute, as many new developments are proving their efficiency. Although
there are many definitions available, the following one accurately describes
IoT: “An open and comprehensive network of intelligent objects that have
the capacity to auto-organize, share information, data, and resources, react-
ing and acting in face of situations and changes in the environment”
(Madakam et al. 2015).
All the previously mentioned technologies are at the foundations of the
most significant technological advances in recent years: artificial intelligence or
AI, which “can be defined as intelligent systems with the ability to think and
learn” (Reis et al. 2019). The use of AI is spreading to all corners of the planet,
especially in the world of business. AI has been around for a long time; in fact,
“the name behind the idea of AI is John McCarthy, who began research on the
subject in 1955 and assumed that each aspect of learning and other domains of
intelligence can be described so precisely that they can be simulated by a
machine” (Ul-Ain et al. 2019). AI is often associated with robotics and the old
desire of humanity to control nature by replicating the human brain and
unleashing the power of unmatched AI. AI also started with limited applica-
tions, but today has expanded into any possible field of knowledge, leaving
behind the image more associated with robots.
AI is paramount to the world of business. Presently, commercially available
intelligent machine and services include “Tasks, Voice-Based Virtual Assistants,
Web Mapping, Ridesharing Apps, Filter Spam, Humanoid Robots, Healthcare,
38 E. OLIER AND F. VALDERREY

Collaborative Robots, Self-Driving Cars, or Assistive Device for Blind” (Soni

et al. 2019), and the list is wide open to new developments. It is hard to envi-
sion a world where algorithms, Big Data, predictive analytics, machine learn-
ing, IoT, and AI could be absent. As previously stated, algorithms are at the
core of a digital transformation with profound changes in our lives. Advances
in technology are changing industry, business, and much of our routine,
although there are different areas where digital transformation has a significant
impact on people. A recent review points at the following five fields: “AI as a
Replacement for Manual and Mental labor; High-End Technology and
Complex Algorithms for Better Decision Making; Enhanced Internet and
Cyber Security; Focus on Integration of AI with core Hardware, and Impact
on the Workplace and Businesses” (BDAN 2019). According to the review, AI
is changing the way we work, shifting from manual labor into more attractive
occupations, requiring different skills for managing the fully automated process
and the capabilities to work alongside with smart machines. High-end technol-
ogy allows for handling an unprecedented amount of data, which brings obvi-
ous benefits such as automated decision-making while raising concerns about
security and data privacy. Enhanced Internet and cybersecurity, always accord-
ing to the review, are responding quickly to the many threats posed by cyber-­
attacks and malicious software. There is much room for improvement, but AI
is delivering new solutions to those threats. Many of the changes that are
already happening come from the integration of AI with core hardware.
Advances in hardware are easy to spot in smartphones, with capabilities prolif-
erating and providing customized solutions through virtual assistants. Finally,
all of the previously mentioned issues have an impact on the workplace and
businesses. Our work will never be the same once we open the door to
AI. Technology, indeed, is helping organizations to become leaner and more
efficient in many different tasks.
Algorithms, Big Data, predictive analytics, machine learning, IoT, and AI
can take us much further away from what we may think. Presumably, those
changes will not stop at technologies such as 5G, blockchain, augmented
reality, autonomous vehicles, among others, or those that may seem futuris-
tic today, as space tourism and exploration, but changes may reach our rela-
tionship with nature and our physical body. Indeed, digital transformation
may lead humankind to the symbiosis of human beings and machines, replac-
ing organs with 3D technology, and connecting our brains to the cloud (El
Financiero 2019). Indeed, a recent experiment has opened the debate after
scientists could “design and build so-called xenobots that could locomote
across the bottom of a petri dish. When several designs were housed together,
they began to exhibit “collective behaviors,” such as orbiting one another or
temporarily binding” (Yasinski 2020). Table 2.2 summarizes what we con-
sider the pillars of digital change, at present.
 2 ALGORITHMS SHAPING THE FUTURE 39

Table 2.2 Big Data, predictive analytics, machine learning, Internet of things, and
artificial intelligence

Big Data Big Data is the new processing technology capable of managing immense
volumes of data in real-time
Predictive Predictive analytics provides the framework, where the higher the number of
analytics features, the higher is the probability to achieve the desired predictive behavior
(Siegel 2016)
Machine Machine learning can be defined as a method to enable computers to learn
learning directly from data rather than from the use of programming
Internet of IoT is “an open and comprehensive network of intelligent objects that have
things (IoT) the capacity to auto-organize, share information, data, and resources, reacting
and acting in face of situations and changes in the environment” (Madakam
et al. 2015).
Artificial AI “can be defined as intelligent systems with the ability to think and learn”
intelligence (Reis et al. 2019)
(AI)

Source: Author’s creation

Algorithms in the Twenty-First Century: Taking Care

of Business

The Algebra of Mohammed Ben Musa is the nineteenth-century English trans-

lation of the Compendium on Calculation by Completion and Reduction written
by the Persian astronomer Muhammad ibn Musa al-Khwarizmi, who lived
between 780 and 850 AD (Rosen 1831). He was a highly recognized scholar
at his time and the first one to introduce three basic algebraic methods, among
many other mathematical techniques. Firstly, he demonstrated how to reduce
equations; that is, how to write them in simpler forms. Secondly, he showed
how to remove a negative quantity from one side of an equation and add it to
the other to perform equation completion. Thirdly, he illustrated the way to
implement equation balancing to cancel like terms on opposite sides of an
equation. He also invented the formula for solving polynomial second degree-­
type of equations. Tracking the etymology of the word algorithm is a fascinat-
ing undertaking. Such a word honors the work of the brilliant mathematician
Muhammad ibn Musa al-Khwarizmi and is the Latinization of his name. In
fact, during the Middle Ages, his works were much appreciated, and many
European scholars used to refer to him in the Latin expression: “Dixit
Algorizmi” (that is how al-Khwarizmi said). It is a common mistake to confine
algorithms to the domain of Mathematics, thus ignoring the critical role played
in every aspect of life. For instance, Google Maps may take us from point A to
point B using the shortest possible route. The list of examples of practical
applications of algorithms is almost endless.
Algorithms existed in many forms before computers, but computer algo-
rithms were game-changers. Alan Turing was the first scientist who formalized
the concepts of algorithms and computation through the so-called “Turing
Machine.” Briefly explained, a Turing Machine consists of an infinite series of
40 E. OLIER AND F. VALDERREY

squares that can be left blank or written either 1 or 0 using a head. In this case,
the machine can perform three basic operations: (1) read the number written
on the square, (2) edit the written number either erasing it or writing a new
one, and (3) move the head one square right or left to modify the correspond-
ing square by writing a new one or erasing it. In spite of the innovation associ-
ated with the Turing Machine and other similar old-fashioned computing
mechanisms, those devices had fundamental limitations. Modern computers
respond to the need to solve highly complex problems requiring indeterminis-
tic and sophisticated solutions analyzing randomized mechanisms able to vary
the order of the computing steps to reach the desired output, or capable of
giving a different output to a defined input (Cormen et al. 2009). Thus, ran-
domized algorithms attempt to represent social behavior in many ways, either
by perturbing given inputs or by modifying process throughputs to get a
wanted output (Motwani and Raghavan 1995). Accordingly, random algo-
rithms can work in two different ways: either “using” unknown inputs at the
beginning of the process that will be known as the process moves ahead, or
employ inputs already known beforehand, and then modify the process dynam-
ically to get new outputs afterward.
Computer algorithms, similarly to how humans approach problem solving,
may look for an optimized solution by computing the shortest path, may also
approximate the solution through attempting to minimize risks, or may use a
heuristic approach by searching for the optimal solution in much shorter times
than trial and error mechanisms will do. Additionally, they can make a set of
computational operations guided by an expert system. This is what people do
when using other people’s knowledge to provide expert-level solutions to com-
plex problems, being understandable and flexible enough to accommodate
new knowledge through conditional statements of rules (Buchanan and
Shortliffe 1984).
Algorithms are also the inner mechanism of the Internet “bots,” or software
applications that run automatically over the Internet, without the control of
human beings. This is the case of Twitter, where many “likes, retweets, and
followers” appearing over your account do not come from humans. It is said
that more than 15% of Twitter accounts are bots rather than people (Newberg
and CnBc 2017). Today, automatic personal assistants also control many peo-
ple’s activities, as happens with Siri from Apple, the Google Assistant, or
Amazon’s Alexa. The fundamental question, though, is to what extent those
robots may have an impact on our daily lives.
Companies designing and distributing those devices may acquire in-depth
knowledge about their users. Google, for example, can build the advertising
profile of anyone who repeatedly accesses its pages, as demonstrated by
Google’s ad configurator. Amazon is also as mighty as Google in controlling its
customer base, and it accounts for more than 20% of the distribution market in
the United States, well exceeding four trillion dollars. Google’s system of rec-
ommendations of purchases among clients is much more potent than “likes”
from Facebook, Google, or Apple. To those enterprises, selling online is only a
 2 ALGORITHMS SHAPING THE FUTURE 41

part of their business interest: they must know their customers and, whenever
possible, manipulate their purchase decisions. For instance, Amazon is person-
alizing recommendations according to the benefits of each of its consumers. It
has also developed an algorithm called “item-to-item collaborative filtering,”
kept with secrecy, and intended to connect users with those showing similar
preferences (Linden et al. 2003). Behind this algorithm, there are many years
of research to feed massive databases with a plethora of data, from geography,
demography, buyer’s interests, and so forth, including sites the user may click
in before arriving at Amazon. PageRank, the algorithm that drives Google
Search, is such a powerful mechanism that it is capable of finding “needles in
haystacks” (MacCormick 2013). PageRank can prioritize the media encoun-
tered by users and can also assess the importance of a site when looking for a
specific term, and has been described as “a master switch of the Internet that
centralizes and organizes the circulation of information in the network of net-
works, and for every search” (Wu 2011).
Computer machines have started to interact with humans in a human-like
fashion. Some technologies using powerful algorithms are used now to filter
applicants for a job. Those devices also regulate traffic flow, help commercial
brands to obtain emotional insights in real-time, and control their reactions,
even to the point of building emotional intelligence. In no small degree, algo-
rithms rule the business world, reaching many different sectors of the economy
(Rainie and Anderson 2017). For instance, few industries are so dependent
nowadays on algorithms as the car industry. It is hard to think about a plant
where algorithms are not essential to almost any major step of the design or the
manufacturing process. Robots build our cars, and, metaphorically, they are
also getting in the driver’s seat. New technologies allow those vehicles to make
decisions about optimizing the purchase of fuel automatically, the right dealer
to make a repair, or negotiating with unknown passengers about the best route
to take while car sharing.
Intelligent robotics can help businesses improve their effectiveness in many
aspects, and Google Maps may be a good example, but there are many others.
Airbnb, for instance, may offer a nice vacation package at a competitive cost
(Christian and Griffiths 2016). Health care is another field where algorithms
minimize human error and make more accurate diagnoses, provide early detec-
tion of serious illnesses, develop new drugs, or map diseases to build more
robust medical solutions. They can predict complex molecular systems in days
rather than in weeks or months (Daley 2019). Algorithms are so powerful that
they may also cross the line between business and society (Martin et al. 2019).
A notorious example is the case of the British company Cambridge Analytica,
as described by the newspaper The New York Times in March 2018, in collabo-
ration with The Observer and The Guardian. According to their investigation,
Cambridge Analytica had obtained personal data from probably over 50 mil-
lion Americans fraudulently from Facebook for the sole purpose of building
voter profiles that would tip the scales in Donald Trump’s favor (Olier 2019).
This case was not a novelty to Facebook, as the company had to apologize back
42 E. OLIER AND F. VALDERREY

in 2014 for conducting a psychological experiment with many people within its
social network. Nearly 700,000 users of the platform were used, without their
knowledge, in a test aimed at checking their reactions to a series of information
proposed on their pages (Arthur 2014). The experiment, coordinated by Adam
Kramer, a scientist at Facebook, analyzed three million posts from their more
than two billion users.
Most probably, sustainability and digital transformation will be at the center
of the business world in the forthcoming years, entirely dependent upon highly
complex and volatile networks guided by computer algorithms. Entrepreneurs,
managers, and policymakers must be aware of them, and a sensible risk trade-­
off and opportunities must be seriously considered. The 2019 World Economic
Forum Global Risk Report in its 14th edition shows three major risks related
to computing affecting business and society as a whole: cyber-attacks, critical
information breakdowns, and data fraud or theft (World Economic
Forum 2019).

Cybernetics: The Human Use of Human Beings

We live in an algorithm-like world with invisible computing systems guiding
much of our life. Algorithms are deployed for dealing with every aspect of
people’s life: emotions, attitudes, facial recognition, habits, personal interests,
personal medical data, and whatever one can imagine without any legal, super-
vised control. “As we put more and more our world under the control of algo-
rithms, we can lose track of who─or what─is pulling strings” (Steiner 2012).
Algorithms have replaced humans in many activities because they are cheaper
and faster than we are.
The Internet is modifying people’s behavior, creating an increasing depen-
dency on search engines, which are replacing memory by instant access to full
information. As proven by some scientists (Sparrow et al. 2011), “when people
have access to search engines, they remember fewer facts and less information
because they know they can rely on search as a readily available shortcut”
(Bloom 2011). Along with memory, learning by itself has been transferred to
machines. This is not an irrelevant issue, as such dependency on AI is an evi-
dence of the social power of algorithms, which relate to their ability to make
choices, to classify, to sort, to order, and to rank people’s wills (Beer 2019); in
other words, to decide what should be most visible to the user. In an extreme
scenario, machines could develop the capabilities to take command over
humans, in which case turning off the switch to all those devices becomes an
appealing possibility. In a controversial experiment set by Facebook with AI,
two supercomputers created their language, started to communicate unintelli-
gibly to their creators, and, when the situation ran out of hand, people in con-
trol had to stop the procedure. The truth was different, there was no menace
to humankind from those mainframes, but the issue raised concerns about the
potential dominance of machines over human beings (Baraniuk 2017). After
all, intelligent devices have being outsmarting humans for a while, as
 2 ALGORITHMS SHAPING THE FUTURE 43

demonstrated by Deep Blue beating Kasparov in a chess game in 1997, or

more recently with AlphaGo beating the top world player of the ancient
Chinese Go game, and Pluribus by Facebook winning against professional
poker players (Vincent 2019). The question, hypothetically, is how feasible it is
to destroy all computers and let humans regain control. It is hard to tell about
the consequences, but disruption of communications, global supply chains, the
international financial system, and many others will probably lead to cata-
strophic consequences to our highly interconnected world.
The essence of human society, as James Beniger states, “is its continuous
processing of physical throughputs, from their input to the concrete social
system to their final consumption and output as waste” (Beniger 1986).
Consequently, any social system may include inputs, throughputs, and outputs
in the form of economic flows, standard behavior, information, energy pro-
cesses, and even ideas as we have addressed several pages above. All the previ-
ous factors fall into the domain of cybernetics, or the science melting control,
information, and communication theories altogether.
The use of algorithms, whether disguised under robots or AI devices, raises
many ethical concerns. In China, facial recognition technology carries out peo-
ple’s total surveillance by using the system known as Sharp Eyes, which tries to
connect all existing cameras that already scan people on roads, in buildings and
shopping centers, and at many other places to integrate them into a huge,
nationwide surveillance platform, where private life will be explored at the con-
venience of authorities (Denyer 2018). Needless is to say that those means of
control may cross borders easily, increasing polarization of nations, leaving
those countries with cutting edge technology in clear superiority versus those
far below in technological development. In the end, we may raise income and
wealth disparity, along with profound social instabilities and perhaps economic
war (Olier 2018).
The term cybernetics derives from the Greek κυβερνητική, meaning the
steersman: the helmsman of a vessel. Cybernetics came out as a new scientific
field by the end of the forties introduced by Norbert Wiener, an American
mathematician, in collaboration with the Mexican physician Arturo Rosenblueth
and a team striving for multidisciplinary research. Mathematicians tried in par-
allel to applying research into formulas using primitive calculating machines,
thus developing the new science of cybernetics. Norbert Wiener’s “Cybernetics”
delved into the application of these new theories and connecting studies relat-
ing the nervous system and computing machines, drawing upon the fact that
neurons operate with numbers, store numbers, and provide numerical results.
In subsequent chapters, he evaluated the possibility for machines to reproduce
themselves and how individuals organize themselves and adapt their behavior
to the environment based on the acquired experience (Wiener 1973).
Under a different point of view, cybernetics is the general theory of control
that applies to any system. In this context, a system is a group of elements of
any category that interact with one another, such as people. Wiener envisioned
a society where machines could replace man in many activities. In his book,
44 E. OLIER AND F. VALDERREY

God & Golem, Inc.: A Comment on Certain Points where Cybernetics Impinges
on Religion, he anticipated how cybernetics could join the sphere of religion
along three different axes. The first axis was the ability for machines to learn;
the second one, the possibility of machines to reproduce themselves; and third
axis, the coordination between machines and human beings (Wiener 1964).
Current technologies already offer similar options and, hence, Cybernetics
“has come in such a way together to technology with almost unlimited power:
It can change a man into a woman, it can give capacities to move around the
universe and reach planets near or far and can draw from matter incredible
secrets” (David 1965). By relying on cybernetics, some human beings would
be capable of dominating others by merging enormous technological capabili-
ties with powerful mechanisms capable of mathematically analyzing millions of
data through Big Data technologies supported by powerful machine-learning
algorithms and AI (Anderson et al. 2018).
Surprisingly, the proposals from Wiener and David, seemingly futuristic at
that time, may fall short to the new opportunities offered by the state-of-the-­
art technology. Presently, scientists pose more sophisticated research questions
about the possibility for machines developing consciousness from an immate-
rial element, therefore degrading human beings to very highly advanced
machines based on complex cells and organs. Thus, it cannot be ruled out the
possibility to build a human sort of a machine, which can be manufactured as
robots of human appearance (Robotopia 2019).
Cybernetics is changing the very nature of humankind, taking the human
race closer to the biblical prophecy: “Thou will be like gods” (O’Connell
2018). In a not so distant future, some individuals may reach such knowl-
edge as to discern the ins and outs of nature, good and evil, and even master
the inner aspects of life (López de Mántares 2018). Modern technology
may set the stage for humans to go beyond the limits set by biology and
nature itself. Humans will then be able to regenerate damaged organs and
prevent death; after that, there will be no end to human life (Kurzweil
2005). Those magnificent opportunities will come with strings attached, as
anticipated by Yuval Harari: “a useless class will emerge: an extremely large
new human group that will be left out of the understanding of the new
machines.” A sort of “superfluous people” who will be neglected from soci-
ety and will become the object of manipulation of a new ruling, upper class
(Harari 2018).

Final Thoughts
Through this document, we elicited the profound changes that we believe will
happen by 2025, when countries with advanced economies will be further
apart from less developed nations. The singularity moment, or the point in
time when humans and machines may merge, will most probably occur in the
business world, where organizations with full access to technological improve-
ments will face no competition in the global markets. Managers will find
 2 ALGORITHMS SHAPING THE FUTURE 45

themselves at ease with the assistance of powerful machines facilitating deci-

sion-making, although at the expense of working side by side with fierce com-
petitors for the same job. For some time to come, entrepreneurs will probably
enjoy a blue ocean, providing products and services of great novelty, up to the
time where competition from AI will become unbearable. Thus, during the
coming years, decision-makers in business will have to be under constant alert,
spotting for new technological advances that may translate into immediate
dominance of the market.
Managers should prepare themselves to compete in a cut-throat market,
where machines backed by AI may displace them at any instant. If they cannot
master leading technologies in their field of specialty, they should get help,
perhaps from more friendly machine-learning devices. Entrepreneurs and com-
panies with the desire to stay ahead in the game may also find opportunities by
reshuffling the cards, taking their organizations from renovation to innovation,
and, finally, to disruption (Evans 2019). Disruption is not a privilege of big
corporations but is at the hands of smaller enterprises creating new categories
in the markets where they compete. Policymakers must have a say in the digital
era (Lei and Tang 2019). They play a fundamental role in acting as a referee or
fostering the economy through continuously supporting innovation and value
creation. Above all, policymakers should be on alert for sudden shifts in the
distribution of wealth, to mitigate the growing divide in an economy of “the
haves and have-nots,” brought about by corporate use of the state-of-the-art
technology, leaving behind entire segments of the population with little com-
puter proficiency.
We are reaching the year 2025 and the time envisioned by some experts for
robots to take control of primary business functions (Smith and Anderson
2014). By then, presumably, machines will take over crucial areas of the orga-
nization, and only astute managers and entrepreneurs will survive into such
markets. Decision-makers, business managers, and corporations should be all
aware of the risks they face while ripping the benefits that those technologies
may bring to humankind. In this process, research will be paramount, with
most efforts directed toward finding a new equilibrium between humans and
the devices of their creation. For many experts making predictions about global
climate, world population, humankind setting foot on Mars, and so on, the
year 2025 may seem too near to foresee significant changes. To scholars deal-
ing with algorithms and AI in business, instead, it is too hard to envision the
world after such a date. By then, things will be completely different, and many
businesspeople will look with nostalgia at the times when they used to make
decisions in their own company.
Humanity is facing all sorts of challenges, some of which deserve full atten-
tion. One of those challenges, though, may not be getting the much-needed
consideration: the advance of AI. Therefore, we pursued to describe the ele-
ments behind the rapid spread of technology and to discover the keys to how
technology is overhauling business and the economy. We unveiled how algo-
rithms are the building block of numerous technologies that will mightily
46 E. OLIER AND F. VALDERREY

transform our society, and we presented a set of evidence demonstrating how

algorithms are at the center of such changes. The issue is not irrelevant, as our
lifestyle will be either threatened or improved, much according to our response
to new developments in AI.
In this chapter, we intended to address different audiences, mostly business
managers, academia, and policymakers, showing the need to be informed about
the digital transformation of our societies from different angles. We shared
examples of future technologies and some applications that are turning into
reality at unprecedented speed. Flying automobiles are eye-catching, but prod-
ucts that were unimaginable a few years ago are already part of our lives, such
as personal home assistants or services like on-demand streaming television.
For some years, the digital transformation of our society has brought huge
business opportunities, but it is also turning the table on enterprises lacking
flexibility and the constant pursuit of innovation. Many organizations have
focused on the efficiency of the operation while neglecting the needs of the
coming digital society, thus setting themselves apart from the new consumer
(Schwaferts and Baldi 2018). The obvious advice to managers, then, is to pre-
pare their organizations to change, taking a multidisciplinary approach, and
looking at the core ingredients of digital transformation, such as “Strategy,
User-Centered Design, Agility in Delivery, Integration of Software, Platforms
and Technology, Data Analytics and Insights, and Product Design Mindset in
Execution (Davidson 2018).”
The academia faces unseen challenges brought by the digital transforma-
tion of higher-level education. The issue is no novelty, as demonstrated by
distance learning; in particular, “MOOCs (Massive Open Online Courses),
and SPOCs (Small Private Online Courses), are said to have revolutionized
universities and the corporate education landscape” (Kaplan and Haenlein
2016). Kaplan, in his article with suggestive title “A school is ‘a building that
has four walls… with tomorrow inside,’” calls upon the academia to reinvent
the business school (Kaplan 2018). The author points out at the challenges
that educational institutions are facing, which are not solely related to deliv-
ering content through digital means, but by developing communication sys-
tems that will embrace students, mostly through social media. Educators
need to understand the basic premises of digital transformation to lead their
pupils into an economy increasingly moved by algorithm-based technologies.
They may not understand the nuts and bolts of those technologies, but, at
the very least, they should share with students a much wider vision of macro
changes in society. Researchers should stay permanently at the leading edge
of those developments.
Policymakers have much to learn from algorithms, Big Data, predictive ana-
lytics, machine learning, IoT, and AI. They are already dealing with dramatic
changes associated with blockchain technologies and competition on issues of
national sovereignty, such as the issuance of private currency, thus taking away
from governments the monopolistic power over the money supply. Many other
 2 ALGORITHMS SHAPING THE FUTURE 47

problems are arising with the digital transformation of our society, some of
those overly pessimistic, such as cybernetics and the perils of a world controlled
by machines following orders covertly embedded in algorithms. There is per-
haps a stronger menace, the one coming from human beings pretending to
take control over humankind. By no means, those risks should be undermin-
ing, but policymakers have new tools, as well, to leverage on the potential gains
from new technologies driven by algorithms. Inadvertently, we are acquiring
the capabilities to face problems common to many nations, such as providing
efficient services, administration of justice, or the entire redesign of public ser-
vices to rip the benefits of a data-driven digital economy (Ciuriak 2018).
Policymakers may lead the digital transformation of entire nations, as happened
in the Eastern European country of Estonia. As shown by Estonia, public
administrators may find novel approaches to foster innovation based on digital
technologies that eventually take millions of citizens into prosperity. The case
of Estonia sets an example of the so-called “hiding hand” or some partnership
with the public sector to guide society through efficient e-governance (Kattel
and Mergel 2019).
Managers, educators, and policymakers face significant challenges lying
ahead from the digital transformation of our society. From each of their angles,
they may contribute to reach a more technologically advanced society, where
digital technologies may play a fundamental role turning the promise of the
circular economy into a reality (Antikainen et al. 2018) and paving the road to
a more inclusive and prosperous society. Those challenges transgress the
boundaries of the comfort zone for decision-makers, as the digital transforma-
tion is providing the means to solve many problems that we are facing on a
global scale. Blockchain, for instance, “can contribute to solving climate
change, reduce voting fraud, fix our identity systems, improve fair trade, and
allow the poor to improve their lives by monetizing their (digital) capital” (Van
Rijmenam and Ryan 2018).
This chapter addressed the need to review business strategies and how orga-
nizations, entrepreneurs, and policymakers may deal with accelerated changes
happening in the digital economy. As seen profusely throughout the different
sections, algorithm-based technologies are omnipresent in our lives, the corpo-
rate world, education, or the public administration. Our research is conceptual,
and, therefore, we cannot quantify the impact of digital transformation on
modern societies. Nevertheless, the evidence is overwhelming, proving that
Big Data, predictive analytics, machine learning, blockchain, IoT, and AI have
a considerable influence on our lifestyles. Those are the technologies that we
envision presently, but out of intuition and experience, such as the unexpected
rise of the Internet, we may expect unforeseen changes from the digital trans-
formation. It is too difficult to look into the future, at least beyond the year
2025, but we have a certainty: the invisible sequence of instructions that we
call algorithms will shape our fate.
48 E. OLIER AND F. VALDERREY

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 CHAPTER 3

Automation Adoption in the Textile Industry

of an Emerging Economy

Olga Lucía Lopera Lopera and Juan Velez-Ocampo

Introduction
This chapter aims to identify the different levels of incorporation of automa-
tion, in companies in the textile sector in Colombia. To do so, an assessment
tool was used to target the level of maturity of ten companies that incorporate
automation in their manufacturing processes. By implementing this method, it
was feasible to identify not only the weaknesses and strengths of the companies
but also the potential opportunities that could lead to the creation of continu-
ous improvement in the field of automation for Industry 4.0. Such opportuni-
ties have the potential to be useful for the entire textile sector in Colombia.
The levels of industrial automation in the textile sector could be defined as
follows: beginner level, companies that incorporate the automation of their
activities, procedures and processes, in machines; intermediate level, companies
that make interfaces to intercom all these machines; and leader level, companies
that make integrated management of the whole factory, where orders can be
given from a device outside the factory to meet the production requirements.
With this perspective and taking into account some of the trends in compa-
nies in this sector by 2025 such as the digitization of industries, smart factory
and intelligent products. There are challenges that demand action at different
levels: for instance, industries need to incorporate automation to a beginner
level in their activities with procedures, processes, and machines; for the
intermediate level, they must make interfaces to intercommunicate machines;

O. L. L. Lopera • J. Velez-Ocampo (*)

Universidad de Antioquia, Medellín, Colombia
e-mail: [email protected]; [email protected]

© The Author(s) 2021 55

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_3
56 O. L. L. LOPERA AND J. VELEZ-OCAMPO

meanwhile, for the leader level, companies must be able to incorporate auto-
mation processes, devices, and technologies at different production and admin-
istrative procedures.
Therefore, our research question is, how important is it to detect the level
of incorporation of automation in the textile sector in Colombia? On the one
hand, these questions suggest setting a business protocol regarding automa-
tion and assign those responsible employees interacting in internal areas
(Gallardo-Echenique 2019), to eliminate the barriers that allow the level of
advancement within a business improvement program. On the other hand, it
also serves as a guide for other companies in the sector that seek sustainability
in turbulent markets over time.
In addition to this, markets are changing rapidly, new companies cannot be
managed with old business models. The new challenge is the incorporation of
automation and other technologies that could represent substantial savings in
costs and production times while increasing the sustainability and productivity
of the textile sector (Bernat and Karabag 2019). Therefore, the need to advance
in automation is a way that the Colombian textile sector could select to retain
market presence and relevance in the local and international business environ-
ment (Toudert 2019). This endeavor requires a joint effort between govern-
mental institutions and stockholders to ensure that the sector can move
forward.
This chapter is organized as follows: first, we present a literature review
regarding the incorporation of automation in the textile industry, and then the
methodology and the instrument to assess the levels of incorporation of auto-
mation is presented to get critical results with its analysis and conclusions;
finally, we discuss some implications for companies that want to invest in auto-
mation to overcome the first levels of adoption.

Textile Sector, Context, and Background

According to Martínez et al. (2019), the textile sector is part of the secondary
sector of the economy that belongs to the manufacturing activities; this sector
is responsible for the continuous transformation of fabrics, fibers, and threads
into products such as accessories or clothing. This industry includes subsectors
such as (a) preparation and spinning; weaving of textile products; (b) manufac-
ture of fabrics, knitwear, and clothing; and (c) manufacture of other textile
products.
The industrial origin of the textile sector in Colombia dates back to 1907
when the creation of the first textile companies in the country began (Pineda
2009). Some of these companies are Fábrica de Hilados y Tejidos El Hato,
Compañía de Tejidos de Bello, Fábrica de Tejidos Hernández, and Compañía
Colombiana deTejidos (Coltejer). This early development of the textile sector
could be explained due to geographical factors such as easy access to water
sources for power generation; the qualification of the workforce trained by the
Escuela de Artes y Oficios and the increasing urbanization of cities and their
 3 AUTOMATION ADOPTION IN THE TEXTILE INDUSTRY OF AN EMERGING… 57

consumption of textiles facilitated the development of the sector and its con-
centration in the main cities of the country (Solano 2009).
Subsequently, in the 1950s, companies were created for specific products
such as Leonisa, one of the local companies specialized in female underwear. In
1980s and 1990s, the creation of Inexmoda, ColombiaModa, and Colombiatex
contributed to the internationalization and sophistication of the sector;
Colombian textiles are currently appreciated in several countries, which boosted
international trade (Amed et al. 2018).
In regards to the global apparel market, it is currently estimated at $1.1 tril-
lion, which constitutes around 1.8% of world GDP. Close to 75% of this market
is concentrated in the European Union, the United States, China, and Japan
(Cappellieri et al. 2019). In terms of population, these regions are home to
only one-third of the world’s population. This means a high expenditure on
clothes per capita in these developed markets. They are followed in descending
order by Brazil, India, Russia, Canada, and Australia.
In this context, China is the largest exporter of textiles and clothing in the
world. Its infrastructure for textile manufacturing, clothing, and transportation
are the largest and most important globally (Antay 2019). China’s textile and
clothing exports have dominated world trade in the last decade, with 40% of
global market share. China and India have become the largest manufacturing
regions in the case of the retail clothing market. In the coming years, both
countries are expected to represent a significant proportion and outperform
several of the traditional developed markets in the global clothing sector.
Additionally, the current size of the clothing market in China is estimated at
US$150 billion and India at US$45 billion (Cappellieri et al. 2019). Both
markets have presented a strong growth within the last years, despite global
uncertainties and that demand has loosened (Antay 2019). In the last ten years,
the Chinese market registered an annual growth of 15%, while the Indian mar-
ket registered an annual growth of 12% annually.
The textile sector in Colombia represents 1% of the world market; however,
this sector is highly important for the local economy, especially in terms of
employment. The 70,000 formal companies that belong to this sector generate
around 1,800,000 direct and indirect jobs. The cotton chain has 10,284 hect-
ares planted in 2018 supplying 35% of domestic demand. This sector moves
$18 billion a year where 35% of the market share belongs to imported prod-
ucts, 35% is produced by the national industry, and the other 30% is smuggled
(Botero 2019).
In regards to the Colombian import market, the main countries of origin of
textiles and raw materials are China, India, the United States, Mexico, and
Indonesia. While the main textile and raw material import companies are:
Manufacturas Eliot S.A.S., Tex-Town S.A.S, Corporación Distribuidora de
Algodón Nacional, Toptex S.A, and Industrias Canon de Colombia S.A. In terms
of imported garments, the main countries of origin of clothing are China,
Bangladesh, Turkey, Vietnam, and India and the local companies that import
the most are Compañía de Inversiones Textiles de Moda S.A., Permoda Ltda,
58 O. L. L. LOPERA AND J. VELEZ-OCAMPO

Crystal S.A.S., C.I. Iblu SAS, and Iberomoda S.A.S. (Echavarría et al. 2019).
Imports in Colombia are especially focused on the following products: cloth-
ing and clothing accessories, knitwear and clothing accessories, and other
made-up textile articles.
Regarding the export market, the five countries of destination of the exports
of textiles and raw materials are Ecuador, Mexico, Brazil, the United States,
Peru, and the main exporting companies of textiles and raw materials are Enka
de Colombia S.A., Manufacturas Eliot S.A.S., Textiles Lafayette S.A.S., Fabricato
S.A., and Compañía de Empaque S.A. In the same market, the five countries of
destination for clothing manufacturing are: the United States, Ecuador, Peru,
Mexico, and Costa Rica, and the five clothing exporting companies are:
C.I. Jeans S.A., C.I. Girdle & Lingerie, Industrias Canon of Colombia S.A.S.,
Crystal S.A.S., and Supertex S.A. (Mesa and Torres 2019). The Colombian
products that are mostly exported in the textile sector are synthetic or artificial
filaments, knitwear, coated impregnated fabrics, cotton, and special fabrics.

Automation, Context, and Background

According to Guerra (2016), automation comes from the Greek word auto,
which means “by itself,” and maiomar, which means “to launch.” Automation
is a system where production tasks are transferred, usually performed by human
operators to a set of technological elements. Automation is the management of
information in companies for decision-making in real time; it incorporates
computer science and automated control for autonomous execution and opti-
mally of desired processes according to engineering criteria and in line with the
plans of the business management.
An automated system, according to Groover (2007), consists of two main
parts: the first part is the command, which is usually a programmable general
command (programmed technology), and is at the center of the system that
must be able to communicate with all the constituents of the automated sys-
tem; and the second part is the operative part, which acts directly on the
machine. They are the elements that make the machine move and perform the
desired operation, and are actuators of the machines such as engines, cylinders,
compressors, sensors as photodiodes, limit switches.
According to Robinson (2014), during the twentieth century, many
machines were invented, such as cars with advanced engines, battleships, killing
machines, cars with air conditioning, airplanes, and many more. In the 1980s,
automation advanced, where some machines could communicate with others
through industrial ethernet; meanwhile, in the 1990s digital product develop-
ers merged with automation technology generating control programs for
simulation-­based production processes; and in 2004, programmable logic con-
troller (PLC) functionality was discovered on a chip. At present, artificial intel-
ligence placed on machines means that they no longer need human operators
(Muñoz and Fernández 2019) and that robots become autonomous, coopera-
tive, and learn from reality.
 3 AUTOMATION ADOPTION IN THE TEXTILE INDUSTRY OF AN EMERGING… 59

At present, and with the development of new materials (Carmona et al.

2018), nanotechnology and advances in other sciences such as Mechanics,
Electricity, Electronics, Systems, Pneumatics, Hydraulics, Instrumentation
have helped improve productivity and efficiency of the industrial processes,
with the communication between all the components of the machine also
called as Field Bus, Scada Systems; and, on the other hand, Servomotors,
Artificial Vision Cameras, and Robotics are increasingly imposed in the field of
industrial automation to global scale.
In 2018, robot installations worldwide increased by 6%, to 422,271 units,
worth €1000 million. According to Marquina et al. (2019), since 2010, the
demand for industrial robots has increased considerably due to the current
trend toward automation and continuous technical innovations in industrial
robots. Due to automation, the World Economic Forum (2018) estimates that
approximately 75 million physical jobs will be lost by 2025 worldwide, but that
133 million new functions will be created, which means that it will be necessary
to be prepared and trained and it will require a greater degree of specialization.
Among the jobs that will be most demanded in this new era, we can mention
data analysis, design managers, critical thinking, social intelligence, as well as
programmers and software developers. It is also estimated that 54% of all
employees will need training in new skills during the next five years.
According to Graetz and Michaels (2018), in Colombia the manufacturing
industry has been one of the most active in automation. By 2019, the degree
of automation in the Colombian business sector is 17%, and in 2025 it aims to
rise to 30%, which implies a huge challenge in terms of appropriation of tech-
nology and improvement of employee skills. In terms of maturity, Colombia is
at an early stage of automation via robots. According to González (2019), 30%
of industrialists in Colombia consider the automation of processes versus
implementing analytical software and cloud computing a technological prior-
ity. Furthermore, 38% plan to use emerging technologies such as cloud com-
puting and 13% robotic process automation.

Literature Review
The study of automation adoption within the textile industry has been studied
from different perspectives and geographies. For instance, Simonis et al. (2016)
consider that automation is very relevant to ensure the international competi-
tiveness of German industry, due to the production experience, design, and
intelligent knitting machines that use self-learning systems in knitting to
increase the quality of the product, reduce tissue rejection costs, and support
the operator during manufacturing. Meanwhile, Zamfirescu et al. (2013) pres-
ent an anthropocentric cyber-physical reference architecture for intelligent fac-
tories that could be used in both emerging and developed markets. And
Kemper et al. (2017) outline the vision of the future of smart textile produc-
tion, and also describe the first pilot solutions and current research approaches.
60 O. L. L. LOPERA AND J. VELEZ-OCAMPO

Grieco et al. (2017) from an Italian perspective, applied the technology of

Industry 4.0 to Bottega Veneta, a luxury textile company recognized for its
leather goods and found that the accumulated delay for each order is mini-
mized, weighting the priority level of the client and the excess capacity required
by the proposed plan was minimized. Bertola and Teunissen (2018), with the
experts’ perspective, showed how digital transformation, properly promoted,
could transform the fashion industry into a more sustainable and customer-­
oriented business. But they also underline the critical issues and the slow adop-
tion of technologies by established traditional brands and companies.
With a participant view in the textile industry, Fernández and Fraga (2018)
review the requirements for the development of smart clothing and show the
potential impact of smart clothing on medium-term business models. While
Pérez et al. (2016) analyze the evolution of cybernetic and physical systems
based on wireless communications, textile antennas, materials for chromic
screens, textile switches, pressure and motion sensors, textile circuits, and
micro-component welding technology. They also document that expert system
and argue that with applications in the textile industry, accompanied by decen-
tralized controls, achieve efficiency gains through greater flexibility and
adaptability.
A study conducted by Gudanowska (2017), in Poland, states that a strong
technical base is complemented by soft skills that are increasingly significant for
Industry 4.0 engineers. And finally, from the perspective of an empirical study
conducted in Portugal, Marques and Ferreira (2018) infer how digitalization is
still in a preliminary stage in the garment industry and it is necessary to prepare
all the resources of the garment company to achieve horizontal and vertical
integration in smart manufacturing.
From the perspective of emerging markets, Zhen and Xing (2015) argue
that the Chinese textile industry should be cautious to incorporate the tech-
nologies of industry 4.0 by ascertaining the industry standards and its imple-
mentation. Advancing automation, Chong (2019) aims to develop
computational thinking capabilities by developing mobile applications to its
employees. In addition, Deepshikha and Nath (2018) suggest exploring appli-
cations in the design of clothing, interiors, and accessories to increase function-
alities as part of the user’s lifestyle. Meanwhile, in India, Nimeshee Singh
(2018) argues that there are very few technologies in Industry 4.0, specifically
for the clothing sector, and very few for the garment production process. While
Scott and Sayem (2018) explain why traditional methods of relating anthro-
pometry with a 2D pattern are the main cause of the bad fit of the garment and
present a solution to mathematically quantify both body shape and fit of the
garment.
Lee et al. (2017) defend that for the sewing machine to be intelligent it
must be modified, adapting a cyber-physical system (CPS) to be able to moni-
tor it. Tseng et al. (2011) demonstrate that there is a positive and strong rela-
tionship between the use of IT information technologies and high business
performance, while Jakatilake and Rupasinghe (2016) develop a customized
 3 AUTOMATION ADOPTION IN THE TEXTILE INDUSTRY OF AN EMERGING… 61

smart clothing production plant, a novel approach in the garment industry

based on the identified problems of the current sewing process and the sugges-
tions of customers to improve them.
An additional debate regarding the adoption of automation in the textile
industry lies on the dehumanization of the labor relations, for instance David
(2015) states that such dehumanization is accompanied by a growing demand
for machines, to fill the demographic gap, increasingly accused in economically
advanced societies. Thus, within the so-called Fourth Industrial Revolution,
machines threaten workers in terms of productivity.
In that perspective, and within the context of Latin America, Acosta et al.
(2018) state that the main challenge is to ensure that all companies embrace
technology in their organizational processes, covering the technological gap
with developed countries and which has not allowed a new and renewed digital
economy for developing countries. Weller et al. (2019), in a study for the
Economic Commission for Latin America and the Caribbean (ECLAC),
address the issue of technological substitution of human labor and find that the
poorer the country, the higher is the average risk of substitution, and that due
to the risks of greater segmentation, precariousness and informalization that
arise in the context of new technologies, new labor and social regulations are
required, so that new jobs reflect the requirements for decent work, for which
a common effort of all the actors is a must.
On the other hand, it is necessary to clarify the concepts of the seven dimen-
sions that are used in the instrument, regarding the level of maturity of the
implementation or incorporation of automation in industries, each of which
contains its explanation and context that is described below.
Regarding the maturity level of technology, this is defined as the process
where technology stabilizes in the market; therefore, the technology is in the
most profitable period, and its costs are minimal because large investments are
not needed to remain in the market, and the benefits remain stable with a small
upward deviation. Investments are limited to improving some of the attributes
of technology, to adapt it to the changes that occur in the environment (Garrido
2019). Along with this level, this is also related to the development of comple-
mentary technologies.
Prospective: It is a set of systematic searches to explore current and future
markets, in order to evaluate relevant information on global technological
trends and productive market adaptations that facilitate competitiveness and is
likely to increase economic and social benefits for the company. In turn, for the
development of automation, it allows to improve the allocation of resources
and business capacities toward research, development, and technological inno-
vation and also minimizes the risk in decision-making regarding the future.
Strategy and organization: Automation improves existing products or pro-
cesses through the use of digital technologies and offers the opportunity to
develop completely new business models. For this reason, its implementation is
of great strategic importance (Serrano and Ponton 2019). We examine current
openness and cultural interaction with automation using the following four
62 O. L. L. LOPERA AND J. VELEZ-OCAMPO

criteria: state of application of the automation strategy; operation and review of

the strategy through a system of indicators; investment activity related to auto-
mation; and use of technology and innovation management.
Smart factory: The implementation of automation allows distributed pro-
duction. Smart parts control and supervise the production process and are
guided autonomously through production. The smart factory is a production
environment in which production systems and logistics systems are largely
organized without human intervention. The smart factory is based on cyber-­
physical systems (CPS), which link the physical and virtual worlds through
communication through an IT infrastructure, the Internet of things, which
includes digital modeling through the collection, storage, and processing of
smart data. In this way, the smart factory concept ensures that information is
delivered and that resources are used more efficiently (García 2019).
This intelligent factory requires real-time and intercompany collaboration
between production systems, information systems, and people. These inte-
grated systems produce huge amounts of data that are processed, analyzed, and
integrated into decision-making models. The progress of a company in the
intelligent factory area is measured using the following four criteria: digital
modeling, equipment infrastructure, data usage, and information systems.
Smart operations: A hallmark of automation is the integration of physical
and virtual worlds throughout the company and in all companies. Digitization
and a large amount of production and logistics data introduce totally new
forms and approaches to production planning systems (PPS) and supply chain
management (SCM). The technical requirements in production and produc-
tion planning necessary to perform the self-controlled workpiece are known as
intelligent operations. (Valencia 2019). The preparation of smart operations is
determined using the following four criteria: information exchange, use of the
cloud, informatic security, and autonomous processes.
Smart products: Smart products are equipped with ICT components (sen-
sors, RFID, communications interface, etc.) to collect data about their envi-
ronment and their own state. These products collect data, know their way
through production, and communicate with higher-level systems, to improve,
guide production processes autonomously and in real time, and control and
optimize the status of each of the product. The use of intelligent products dur-
ing the use phase makes possible new services in the first place, for example
through communication between customers and manufacturers. The prepara-
tion in the area of intelligent
​​ products is determined by observing the addi-
tional functionalities of the products and the degree to which the data of the
use phase are analyzed.
Data-based services: Data-based services align future business models and
improve customer benefit. The after-sales and services business will be increas-
ingly based on the evaluation and analysis of the data collected and will be
based on the integration of the entire company. This means that they have a
physical and digital component, which in turn is the basis of the services digi-
tized in the phase of use of the products (Carreño-Pérez et al. 2019). The
 3 AUTOMATION ADOPTION IN THE TEXTILE INDUSTRY OF AN EMERGING… 63

availability in the area of data-based services is determined using the following

three criteria: availability of data-based services, proportion of revenue derived
from data-based services, and percentage of data used.
Employees: Employees help companies carry out their digital transforma-
tion and are most affected by changes in the digital workplace. Their direct
work environment is altered, forcing them to acquire new skills and qualifica-
tions through adequate training and continuing education, where companies
prepare their employees for these changes (Nieves 2019). The preparation in
the dimension of the employees is determined to analyze the abilities of the
employees in several areas and the efforts of the company to acquire new sets
of skills.

Methodology
The methodology of this chapter was inspired by the steps and procedures of
the case study proposed by several authors (e.g. Eisenhardt 1989; and Yin
2014). Ten textile companies were included due to their adoption of automa-
tion procedures and their willingness to participate in the study. To avoid elite
bias (Myers and Newman 2007) in the interview process, we contacted two
different employees from each of the companies, a senior manager and another
participant representing middle-level employees, for a total of 20 interviews.
This case study includes an analysis of ten companies whose profiles are
introduced in Table 3.1. Data collection included archival sources and inter-
views with two informants from every company. In the interviews, we used the
instrument with 20 questions adapted from the Industry 4.0 Readiness Online

Table 3.1 Studied Companies of the Textile-Clothing Sector

N° Enterprise Specialty Foundation Employees Import/ Product
Export

1 Tincol Dry cleaner 1977 115 Importer Chemicals and

inks
2 Teñimos Dry cleaner 1971 188 Importer Chemicals and
inks
3 Pelco Dry cleaner 1987 60 Importer Chemicals and
inks
4 Color y Digital stamping 2008 72 Importer Special inks and
Diseño dyes
5 Línea Directa Clothing 2004 2.800 Importer Fabrics
6 Crystal Clothing 1945 7.500 Importer Raw materials
7 Fabricato Raw materials and 1920 2.100 Exporter Cloth/fabrics
fabrics
8 Leonisa Clothing 1956 3.000 Exporter Clothing
9 Colhilados Clothing 2003 300 Exporter Yarn
10 Creytex Clothing 1971 400 Exporter Casual
sportswear

Source: Authors’ creation

64 O. L. L. LOPERA AND J. VELEZ-OCAMPO

Self-Check for Business model, which was commissioned by the IMPULS

Foundation to self-assess the level of advancement of industry 4.0 in industries
in any sector.
An instrument with 20 questions was designed adapting the IMPULS
model (Industry 4.0 Readiness Online Self-Check for Business) used to self-­
assess the level of progress of industry 4.0 in their industries in any sector. The
instrument is also subdivided into seven dimensions: prospective, strategy and
administration, intelligent operations, intelligent products, intelligent factory,
data-based services, and employees. In each of the questions, there are three
types of qualifications with the following labels: 1 = P = Beginner, low level,
begin the automation experience, pilot test assemblies; 2 = I = Intermediate,
middle-level learner, began an automation implementation, but is under devel-
opment, observation, and evaluation of it; and 3 = L = Leader, high level,
complete and successfully extended developments, which can be replicated in
the organization. Subsequently, these answers are submitted to a spreadsheet in
Excel and plotted to eventually give them an interpretation of context and an
analysis of the question that corresponds to a different business dimension.

Results
Figure 3.1 presents that companies do not develop leadership at the same time
in all dimensions, which justifies an adjustment in the process of incorporating
automation or an improvement program in those dimensions, in which the
company has not reached the leader level in the aspect of study. It is also observ-
able the fact that almost all companies, on a scale of 1 to 2, that correspond to
beginners and intermediate, and in a reasonable time, with a good plan, with
strong investment, and with dedication of the management, it is estimated that

3.5
3
2.5
2
1.5
1
0.5
0
OL

TO

OS

SA

TA

O
TA
DO

TE
N

LC
NI

C
NC

IM
CA

SE

YS

EY
RE

PE
LA

O
N

DI
TI

CR

CR
BR

LE

DI
HI
TE

Y
FA

EA
CO

OR

LIN
L
CO

I. PROSPECTIVE II. STRATEGY AND ORGANIZATION III. SMART OPERATIONS

IV.SMART PRODUCT V. SMART FACTORY VI. DATA SERVICE

VII. EMPLOYEES

Fig. 3.1 Leadership dimensions levels by company. (Source: Authors’ creation)

 3 AUTOMATION ADOPTION IN THE TEXTILE INDUSTRY OF AN EMERGING… 65

companies become leaders. In general terms, the weakest dimensions in most

companies are smart operations, smart products, and smart factories.
Figure 3.2 evidences the automation level of the group of companies inter-
viewed for this study. The following are the insights of the seven dimensions
reviewed:

Prospective: The companies interviewed have a vision of integration with tech-

nologies and companies, but many of them have not put it into practice: 53%
say they have a positive view of automation technologies and only 5% are
beginners in that concept.
Strategy and organization: 47% of the companies show a leadership trend com-
pared to 53% of the companies which have to make improvement plans. This
infers that companies are aware of the importance of automation and embed
it in the strategy of the organization.
Smart operations: This item illustrates 33% of the companies leading smart
operations; however, they still need to make adjustments and improvements
in obtaining equipment to better off the concept of an intelligent factory.
On the other hand, 48% have failed to make this notion a reality.
Smart products: At this point, most of the companies, 48%, are beginners,
which state a huge challenge to change the mindset toward the customer
since they have to implement adjustments in the production factories in
order to choose and improve their products and orders.

59%
60% 53%
47% 48%
50% 44%
42%
40%
40% 36% 35% 37%
33% 33% 33% 33%

30% 32%
23% 24% 23%
20% 18%
20% 17% 17%
14%
10% 5%

0%

Beginner Intermediate Leader

Fig. 3.2 Automation levels in the textile industry. (Source: Authors’ creation)
66 O. L. L. LOPERA AND J. VELEZ-OCAMPO

Intelligent factory: Only 17% of the companies interviewed have obtained an

intelligent factory in the context of intercommunication and certain produc-
tion automatisms. The other companies must plan the incorporation by
means of improvement plans, and structural and concept reforms, to be able
to raise the level.
Data-based services: 36% of companies have experienced and explored the pos-
sibilities of scaling data. Many companies have enough structure and data-
bases to start automation processes.
Employees: 65% of companies do not have personnel with digital and automa-
tion skills. There are also few with promotion plans or motivations for this
type of staff. However, only 35% of the staff can be considered an expert,
according to the companies interviewed.

Some executives made contributions that reinforce the results of the inter-
views, in this line, and the ideas of some of them are collected as follows: “A
company which does not start implementing automation, is going to be left
out, like the muleteers who saw the trucks arrive,” according to Tincol man-
ager. “We develop products with high added value, but with the technologies
of industry 4.0, all companies will be part of the competitiveness and for this,
they must be in the story of automation,” according to Colhilado manager.
“In Colombia, there are few cutting-edge companies, and others are small
and medium. The latter lack of improvement strategies and only care about
billing. Concerning the year 2025, the sector requires more investment, hard
work and a change in mentality and I don’t think this will be achieved within 5
years,” according to Crystal manager.
The sector in 2025: “It is a sector that is missing a lot. There is disintegra-
tion and there is a lack of collaborative work. I think it will show a slow prog-
ress,” according to Creytex manager. “This is a more strategic, analytical and
less operational issue,” according to Teñimos manager. “Automation, if related
to sustainability, makes us more competitive over time,” according to Creytex
manager.
“Autonomy occurs in specific processes, but not all processes are chained.
For example, the cutting of cloth, where it is cut, and the machine guides the
process and takes the data later. Machines read the required tissue and density
and adjust these variables in real-time; the indigo machine doses the dye and
calculates the deviation; the machine adjusts the color automatically,” accord-
ing to operations director of Fabricato S.A.

Discussion
It would be worth asking: “Could technology serve as an instrument to over-
come the divisions and inequalities of a country?” Research that relate to tech-
nology and inequality, for instance Acemoglu and Restrepo (2016) and Qureshi
et al. (2019), have observed an unfavorable trend. While technologies are
booming productivity, increasing inequality is the slowdown. The
 3 AUTOMATION ADOPTION IN THE TEXTILE INDUSTRY OF AN EMERGING… 67

technological advance leads to the distribution of income from labor and capi-
tal unevenly, and income passes from work to capital.
According to Baily and Montalbano (2016), in order to obtain better results
in terms of productivity and equity, policies must meet the challenges of the
digital age. A better world can be created by revitalizing competition and
encouraging innovation at the technological frontier, as well as expanding its
dissemination to all economies, improving and updating the professional train-
ing of workers and reforming social contracts. Action plans should respond to
a context of radical and continuous change.
Others and economists choose not to lose their position in the market,
where technologies are at least curbing the problem of unemployment; but the
challenges are enormous for an emerging economy like Colombia, which has
to guarantee peace first and then begin the reforms that the political economy
demands, in order to see the fruits of the incorporation of the technologies of
the fourth industrial revolution. There are policies that can promote equity and
productivity at the same time, and it is suggested to address a comprehensive
agenda for the senators so that policies can help take advantage of synergies and
mitigate impacts.

Conclusion
It can be inferred that only 37% of the selected companies are at an advanced
phase of automation. This is followed by other phases of development of
Industry 4.0 technologies, for example robotics and automated value chain
processes, advanced product simulation, and virtual reality.
In general, the level of incorporation of automation in companies in the
textile sector is intermediate, which means that companies are in the processes
of selection, testing, evaluation, and control of automation, and expect con-
tinuous improvement programs from stakeholders. It is also anticipated a
strong investment to make possible the level rise, alliances with governments,
an institutional framework that prepares new digital capabilities, new ways of
doing business, and all the necessary strategies to move from that intermediate
level to the market leader.
In addition, deepening the situation of companies in the textile sector
regarding the incorporation of automation, in which continuous improvement
programs are expected that are taught from management, alliances with gov-
ernments, an institution that prepares new digital capabilities, new ways of
doing business, all the necessary strategy, and a strong investment to make it
possible to level up and complete automation levels and lead the market.
Meanwhile, the implications of the automation implementation are reflected
in all the fields of organizational management, in the way of planning the pro-
duction, the way of doing it, the logistics controls, and in general the paradigm
shift of the entire value chain, which the company is willing to deliver.
Therefore, the future perspectives of process automation in companies in
the textile sector are confusing for entrepreneurs, in which large changes in
68 O. L. L. LOPERA AND J. VELEZ-OCAMPO

technological development, large investments, and corporate reengineering are

estimated, which should involve many alliances and where most of the compa-
nies interviewed showed a high degree of pessimism. As an aggregate, it is
suggested to develop further research in this regard, to be able to specify more
success factors that can help the textile manufacturing sector, in its develop-
ment of industrial automation.
With that argument, some authors (e.g. Heredia, et al. 2017) are optimistic
about the relationship between the sustainable development goals (SDGs) and
industrial automation, and suggest that strategic knowledge management is a
social and business asset that allows communities to endogenous and autono-
mous development that is needed to reduce social gaps in developing regions.
It also assumes that the fact of sustaining the industry implies stabilizing the
processes of the domestic economies and, therefore, all those involved, that is,
people, companies, sector, and so on.
Taking into account that digital technologies are a great promise, their
potential to increase productivity has not been fully exploited, according to
Qureshi et al. (2019), the way in which new technologies translate into real
increases in productivity depends on how governments manage the impacts
and processes of distribution of growth and not companies individually. Much
of the recent political discourse has focused on blaming the international trade
in unemployment, the cuts in wages of less-skilled workers, and the growing
inequality. However, the most dominant factor has been technological change.
Regarding ethical considerations, one of the concerns that arises in compa-
nies that try to incorporate automation is the substitution of employment by
machines, especially in textile production where substitution is massive. This
creates the dilemma between cost reduction and profitability and the increased
elimination of jobs. For the defenders of the technology, there is an improve-
ment of the jobs that become more specialized and represents an opportunity
rather than a threat; for the detractors, it is a discourse of developed countries,
embedded in emerging economies which do not support the demands and
determinants of technologies and that increasingly generate a greater gap
between industrialized and underdeveloped countries.
In regards to the recommendations for business practitioners and entrepre-
neurs, we posit that they should make a thorough analysis of the current state
of the level of automation and technology in their respective industries. This
approach should be carried out from the management including vital changes
to make a ripple effect in the rest of the organization in order to become an
organizational culture. It is suggested to make training plans in order to make
the new technology known to the entire group of collaborators. At the time of
acquiring technology, it should be viewed futuristically, so that the purchase is
not obsolete in a short time. Invest in a workgroup before making any pur-
chase. This group should be dedicated to doing thorough work to identify the
need of the company in terms of technology in the present world to be able to
get the best. It is also critical to take into account that technology is not bought
 3 AUTOMATION ADOPTION IN THE TEXTILE INDUSTRY OF AN EMERGING… 69

because it is due to a fashion trend but to meet the punctual needs that the
company has.
For digital human talent, an analysis should be made of the current status of
collaborators with respect to everything digital, look at the national market
who can train staff and, if there is not, review experts internationally, in order
to have an responsible employee with the required knowledge. It is important
that from the areas of human talent appropriate the subject and also must have
knowledge of the skills required in staff to operate the new technology. It is
necessary to be very clear about the development, training, and implementa-
tion plans that allow people to be able to operate the new technologies they
will face.
For academic and educational institutions, curriculum plans must be rede-
signed; these must be oriented to develop in the youth or students the capacity
to analyze at their best, because in this way they can become indispensable in
the market and irreplaceable by technology. In addition, the textile design
should be encouraged so that Colombia can be recognized in other areas and
become as important as our fashion designers are today. Higher education
institutions must have clarity and importance of creativity and analysis to be
competitive.
To know very well the interests of young people to reach them with more
attractive teaching methodologies and in which knowledge can be acquired
and thus greatly reduce attrition. In the same way, they must implement a very
high vocational orientation to reduce it. They must also develop new special-
izations for technicians managing automated technologies, like the Colombian
technical institution SENA; but also developers and designers of these tech-
nologies should be promoted, as input from universities to the textile sector.
After this study makes relevant, future research in each of the seven dimen-
sions shown, which can serve as a way to go, by medium and small companies
in the textile sector. Regarding policymakers, an incentive policy should be
generated for the sector that allows for technological updating and also limits
the disorderly advances of artificial intelligence. Support the sector so that its
competencies are strengthened and promoted so that companies that have
leadership, somehow help the sector.
It might be true that an emerging market has multiple kinds of priorities, for
instance, related to infrastructure, the sophistication of institution, and the
reduction of corruption. However, public and private investment in innovation
and automation might represent a major transformation for the country’s eco-
nomic development. For instance, back in the 80s, Asian countries such as
South Korea, Singapore, Vietnam, and India started their strong industrializa-
tion process and nowadays are major exporters in different industries.
70 O. L. L. LOPERA AND J. VELEZ-OCAMPO

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 CHAPTER 4

Determinants of the Digital Orientation

of Small Businesses

Minna Saunila, Mina Nasiri, Juhani Ukko, and Tero Rantala

Introduction
In the near future, many ecosystems and businesses of different organizational
types will face transformations and challenges in their operation environments
caused by increasing digitalization (Bouwman et al. 2019). This digital trans-
formation poses great challenges to companies (Li et al. 2018) when con-
nected products, services, and operations transform businesses, making new
approaches for adapting to the changes necessary (Kallinikos et al. 2013; Yoo
et al. 2012). A company oriented toward digitality recognizes digital resources
outside their IT function and integrates them with value creation (Quinton
et al. 2018). Digital orientation, composed of market orientation, entrepre-
neurial orientation, relationship orientation, and technology orientation, is
thus considered to be a top strategic priority for companies to stay competitive.
Most research on digital orientation focuses on large companies, but the digital
orientation of small companies is different. Therefore, there is a lack of evi-
dence about the context in which small businesses can pursue digital
orientation.
As there is growing demand for understanding the digital transformation of
small businesses in for such businesses to have a sustainable business model
with a future orientation (Ukko et al. 2019), this chapter studies the conditions
under which small companies are likely to pursue different digital orientations.
Furthermore, this chapter explores and presents the types of companies that

M. Saunila (*) • M. Nasiri • J. Ukko • T. Rantala

LUT University, Lappeenranta, Finland
e-mail: [email protected]; [email protected]; [email protected]; [email protected]

© The Author(s) 2021 75

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_4
76 M. SAUNILA ET AL.

are most likely to embrace different digital orientations. The findings are useful
to different business-oriented organizations looking to stay profitable and sus-
tainable in operational environments shaped by the digital transformation.
Combining the insights from the literature review with empirical data, this
chapter contributes to existing literature by both conceptualizing digital orien-
tation and defining the factors that support or hinder the digital orientation of
small businesses. The empirical data for the study presented in the chapter were
gathered from small businesses located in Finland. The results show that the
companies that have digitality well represented in their strategy embrace digital
orientation more than the companies that do not have digitality well repre-
sented in their strategy. Also, companies’ willingness to grow affects the level
of digital orientation, whereas competitive intensity in markets does not.
Finally, company type affects the individual components of digital orientation
but not the digital orientation as a whole.
The chapter is structured as follows: After the introduction, we present con-
temporary companies’ different views of digital orientation based on prior lit-
erature. Next, we discuss the propositions regarding the digital orientation of
small businesses as well as the research model of the study. In the section that
examines empirically the digital orientation of small businesses, we present the
data collection, measurements, and the results of the analyses. Finally, we pro-
vide the most important conclusions and implications.

Digital Orientation
Digitally oriented companies are generally more open to and engaged in using
digital technologies (Khin and Ho 2019; Ukko et al. 2019). The influence of
digital technologies in companies’ operating environments is highly dependent
on how small businesses approach digital transformation strategically (Quinton
et al. 2018). Generally, strategic orientation refers to “the strategic directions
implemented by a firm to create the proper behaviors for the continuous supe-
rior performance of the business” (Gatignon and Xuereb 1997, p. 78). In rela-
tion to the digital transformation, a strategic orientation is crucial to the
management of digitality as it assists in determining the focus for digitally
enabled operation and is thus considered to be a top strategic priority for com-
panies to stay competitive. There are several different digital orientations that
reflect the focus of a company’s digitally enabled operation. For example, Khin
and Ho (2019) conceptualize digital orientation as an extension of the tech-
nology orientation. They define it as “a firm’s commitment toward the applica-
tion of digital technology to deliver innovative products, services, and
solutions.” Mithas et al. (2013) use the term “digital strategic posture” to
describe a company’s level of specific digital business practices compared with
the industry in which the company operates. Thus, customers, competitors,
and technological developments are the crucial issues that need to be taken
into account when aiming to approach digital technologies strategically.
Furthermore, Quinton et al. (2018) suggest that digital orientation is a
 4 DETERMINANTS OF THE DIGITAL ORIENTATION OF SMALL BUSINESSES 77

combination of the market, learning, and entrepreneurial orientations. They

state that companies embracing such orientations adopt behaviors that support
the development and utilization of market insight and renewal.
Therefore, this study defines digital orientation as a company’s engagement
with the application of digital resources to create value throughout and outside
the company. Digitality is considered to be a strategic priority for companies
(Quinton et al. 2018; Ukko et al. 2019), and prior research states that ele-
ments of strategic orientation include market orientation (Narver and Slater
1990; Kim et al. 2013: Ho et al. 2016), entrepreneurial orientation (Covin and
Slevin 1989; Ho et al. 2016), relationship orientation (Panayides 2007; Ho
et al. 2016), and technology orientation (Gatignon and Xuereb 1997; Kim
et al. 2013; Khin and Ho 2019). According prior research, digital orientation
is composed of market orientation, entrepreneurial orientation, relationship
orientation, and technology orientation. In this chapter, we use the following
definitions of the four elements of digital orientation: Market orientation
focuses on companies’ actions to understand customer needs and respond to
their needs with digital technologies (Narver and Slater 1990; Kim et al. 2013;
Ho et al. 2016; Quinton et al. 2018; Saunila et al. 2019). Entrepreneurial ori-
entation emphasizes recognizing market opportunities and being proactive in
markets with the assistance of digital technologies (Covin and Slevin 1989; Ho
et al. 2016; Quinton et al. 2018). Relationship orientation refers to forming
and retaining mutually valuable external relationships by using digital tech-
nologies (e.g., with suppliers, customers) (Panayides 2007; Ho et al. 2016).
Technology orientation emphasizes the application of novel technologies in
company operation (Gatignon and Xuereb 1997; Kim et al. 2013; Khin and
Ho 2019). These four orientations are required to take advantage of the pos-
sibilities offered by digital technologies.

The Role of Context

The importance of context for a deep understanding of the phenomena in our
world cannot be ignored. A deeper appreciation of context enables the explora-
tion of innovative perspectives and solutions to existing issues by enabling dif-
ferent interpretations and novel insights (Härtel and O’Connor 2014).
As the size of a company reflects the extent of the company’s capabilities,
resources, and skills (Valtakoski and Witell 2018), considering company size in
strategic and market orientations is important (Laforet 2009). Generally, small
businesses serve small, niche, and local markets, and the necessity of digitality
in market orientation (i.e., advertising and enhancing products and services)
might not be felt at all times (Camilleri 2018). At the same time, the dynamic
nature of the current business environment causes small businesses to utilize
digital orientation in order to find opportunities for new resources, new rela-
tionships, and new markets (Cenamor et al. 2019). However, small businesses
are not as well equipped as large companies and might have some difficulty in
finding financial support for tangible and intangible equipment (Laforet 2008).
78 M. SAUNILA ET AL.

Empirical evidence has revealed that small businesses can successfully adopt
ideas and practices that worked for large companies (Russo and Perrini 2010).
Therefore, the first proposition is structured as follows:

P1. The digital orientation of a small business is determined by a company’s size.

Moving toward digitality, whereby manufacturers are equipped with smart

products that operate autonomously and interact with other devices, requires
digital systems to support novel industrial product and service offerings. In
order to handle these kinds of offerings, there is a need for technical reconfigu-
rations and to develop specific means in relation to market structures.
Digitalized product-service systems raise complex and far-reaching challenges
for the whole manufacturing process and industrial companies, requiring close
collaboration between different parties, including manufacturing companies
and electronic equipment providers as well as manufacturers and customers.
The series of actions in value creation can connect the industrial economy and
the digital economy, providing opportunities for both economies to enhance
each other (Lerch and Gotsch 2015). Therefore, as there are many differences
in the operational logics between the manufacturing and the service industry
(Valtakoski and Witell 2018), the next proposition is as follows:

P2. The digital orientation of a small business is determined according to the

different industry types.

The Role of Company Conditions

Literature suggests that it is essential for digitalization in its various forms to be
integrated into corporate strategy (Thompson et al. 2013; Ukko et al. 2019).
For example, Thompson et al. (2013) argue that it is dangerous for small busi-
ness owners to assume that new technologies will automatically provide their
businesses with a competitive edge. They claim that small businesses need to
ensure that business strategies fully incorporate new digital technologies and
have a clear understanding of what the consequences are of adopting these
technologies. Similarly, Ukko et al. (2019) state that digital business strategy
refers to the transformation in the business process (Cui and Pan 2015), com-
pany capabilities (Cha et al. 2015), and operational routines (Chen et al. 2014)
and their integration with the corporate strategy. Quinton et al. (2018) claim
that companies that are guided, for example, by a combination of the market,
entrepreneurial, relationship, and technology orientations are well positioned
to take advantage of the opportunities presented by digital technologies
because such companies adopt attitudes and behaviors that support the genera-
tion and use of market insight, proactive innovation, and openness to new
ideas. In turn, these behaviors are directed by the companies’ strategic orienta-
tion (Ketchen Jr et al. 2007; Quinton et al. 2018). In line with the discussion
above, we propose the following proposition:
 4 DETERMINANTS OF THE DIGITAL ORIENTATION OF SMALL BUSINESSES 79

P3. The digital orientation of a small business is determined by the presence of

digitality in a company’s strategy.

Many prior studies have suggested that digital orientation in its various
forms is positively related to small business growth, performance, and competi-
tiveness (Quinton et al. 2018; Taiminen and Karjaluoto 2015; Weill and
Woerner 2015). For example, Weill and Woerner (2015) show an increase of
revenue growth and profit margins for companies that embrace digital technol-
ogy and operate within the digital ecosystem. Quinton et al. (2018) report that
digital orientation offers a new perspective for small businesses interested in the
adoption and diffusion of digital technologies as a way of approaching strategic
marketing and creating company growth. From a marketing orientation per-
spective, Taiminen and Karjaluoto (2015) state that digital marketing and
social media provide opportunities for small businesses to attract new custom-
ers and reach existing customers more efficiently. Similarly, Chuang and Lin
(2015) consider digital service capabilities as an internal driving force that
enables companies to better understand their customers, improve their service
delivery, and respond to customer needs. Thompson et al. (2013) report that
small businesses with no e-commerce sales are less likely to innovate in the
absence of growth and those with higher e-commerce sales are significantly
more likely to increase sales and be innovatively orientated. Therefore, as a key
mechanism for organizational growth and renewal, digital orientation is implic-
itly central to this theory (Saunila et al. 2019). Consequently, we put forward
the following proposition:

P4. The digital orientation of a small business is determined by a company’s

willingness to grow.

In order to manage competition, small businesses need to adopt behaviors

that fit the characteristics of the market they are in, such as acquiring certain
assets or capabilities (Quinton et al. 2018; Theodosiou et al. 2012). However,
adopting too specific a strategic or a digital orientation can also have disadvan-
tages; this trait is particularly treacherous in the presence of market turbu-
lences, such as changes in the technological landscape (Grewal and Tansuhaj
2001; Quinton et al. 2018). This means that the competitive position and the
technological development of an industry may affect the digital orientation of
small businesses. For example, Quinton et al. (2018) argue that companies’
external environments shape their structures and actions (Scott and Christensen
1995), including intentions to adopt digital technologies (Kim and Pae 2007).
They also identified three types of external pressures that may affect the adop-
tion of digital technology: coercive pressure, mimetic pressure, and normative
pressure. Coercive pressure may take the form of political influence or lack of
legitimacy (DiMaggio and Powell 1983) and originates from customers, sup-
pliers, or trading partners, referring to formal and informal effects that lead a
company to adopt a technological solution. In mimetic pressure, a company
80 M. SAUNILA ET AL.

Digital orientation Willingness to

grow
Market orientation
Company
characteristics Competitive
Entrepreneurial orientation
intensity
Size
Industry
Relationship orientation
Digitality in
Technology orientation strategy

Fig. 4.1 Research model to identify the determinants of the digital orientation of
small businesses. (Source: Authors’ creation)

feels pressured to imitate the technological behavior of other companies instead

of creating a set of behaviors of its own. Normative pressure refers to the expec-
tations associated with professionalization, including the rules and conditions
that a company has to comply with to continue trading or for social legitimiza-
tion (Quinton et al. 2018). Thus, in line with above, we present the following
proposition:

P5. The digital orientation of a small business is determined by the competitive

intensity in the markets.

Research Model
We developed our research model based on the literature review of the context
where strong digital orientation is the most commonly implemented and the
conditions under which small companies are likely to pursue different digital
orientations. As illustrated in Fig. 4.1, both company characteristics and com-
pany conditions, namely the presence of digitality in a company’s strategy, a
company’s willingness to grow, and the competitive intensity in the markets,
determine the level of digital orientation. Digital orientation is composed of
market orientation, entrepreneurial orientation, relationship orientation, and
technology orientation.

The Empirical Examination of Digital Orientation

of Small Businesses

Data Collection
The study is built on a web-based questionnaire that assessed digital orienta-
tion of small businesses. The respondents were management representatives,
 4 DETERMINANTS OF THE DIGITAL ORIENTATION OF SMALL BUSINESSES 81

and the unit of analysis was the company level. The respondents represented
small businesses with less than 250 employees, the limit defined by the
Federation of Finnish Enterprises. The responses were received from 98 small
businesses located in the region of Päijät-Häme, Finland.
The respondents represented the companies of which 67% had revenue of
less than €2 million and 33% had revenue of €2 million or more. Around 30%
of the studied companies operated in the manufacturing sector, and the remain-
ing 70% operated in the service sector. Many different industries were repre-
sented—for example, production, trade, IT, building and construction, and
real estate.

Measurements
The literature review informed the questionnaire design. The questionnaire
was based on reflective measures, and its content (with exact items) and refer-
ences are presented in Table 4.1. Two company characteristics were included
to study which types of companies are most probably involved in embracing
different digital orientations. The company characteristics included size (mea-
sured using revenue) and industry (measured using a manufacturing or a ser-
vice dummy variable).
The studied conditions under which small companies are likely to pursue
different digital orientations were the presence of digitality in company strat-
egy, a company’s willingness to grow, and the competitive intensity in the mar-
kets. Digitality in strategy was measured with one item, which asked the
respondents to assess whether digitality was part of the company strategy on a
scale of 1 to 5 (strongly disagree to strongly agree). A company’s willingness to
grow was measured on a scale of 1 to 5, with response options ranging from
strongly disagree to strongly agree. Regarding the competitive intensity in the
markets, a similar scale of 1 to 5, with response options ranging from strongly
disagree to strongly agree, was used.
Digital orientation was measured via four dimensions discussed in section
entitled “Digital orientation,” namely market orientation, entrepreneurial ori-
entation, relationship orientation, and technology orientation. Each dimension
was measured using three to four items that asked the respondents to assess
whether they had a need to adopt digital technologies (in relation to the speci-
fied goals presented in Table 4.1). Response options also ranged from strongly
disagree to strongly agree.

Results of the Analyses

Figure 4.2 presents the conditions under which the studied companies oper-
ated. Around 78% of the companies agreed that they had a high presence of
digitality in their strategy, and only 11% did not consider the presence of digi-
tality in company strategy to be high. The remaining 11% of the companies
neither disagreed nor agreed. Regarding the willingness to grow, 71% of the
82 M. SAUNILA ET AL.

Table 4.1 Digital orientation’s survey items

Themes Items Scale References α

Company Company size Open field (revenue)

characteristics Industry Manufacturing/
service
Digitality in Digitality is part of From 1 to 5 E.g., Thompson et al.
strategy our company (strongly disagree to 2013; Ukko et al. 2019.
strategy strongly agree)
Willingness to Our company aims From 1 to 5 E.g., Taiminen and
grow to grow fast (strongly disagree to Karjaluoto 2015; Weill
strongly agree) and Woerner 2015;
Quinton et al. 2018.
Competitive The competition in From 1 to 5 E.g., Grewal and
intensity our industry is (strongly disagree to Tansuhaj, 2001;
tough strongly agree) Theodosiou et al. 2012;
Quinton et al. 2018.
Digital We have a need to
orientation adopt digital
technologies in
order to:
Market Increase From 1 to 5 E.g., Narver and Slater 0.788
orientation understanding of (strongly disagree to 1990; Kim et al. 2013:
customer needs strongly agree) Ho et al. 2016; Quinton
Analyze competitors et al. 2018; Saunila et al.
Monitor changes in 2019.
the markets
Entrepreneurial Improve the range From 1 to 5 E.g., Covin and Slevin 0.715
orientation of products and (strongly disagree to 1989; Ho et al. 2016;
services strongly agree) Quinton et al. 2018.
Expedite market
entry
Reach new
customers
Relationship Search for new From 1 to 5 E.g., Panayides 2007; 0.743
orientation partners (strongly disagree to Ho et al. 2016.
Improve strongly agree)
collaboration with
partners
Improve the
company image
Technology Intensify processes From 1 to 5 E.g., Gatignon and 0.842
orientation Intensify the use of (strongly disagree to Xuereb 1997; Kim et al.
resources strongly agree) 2013; Khin and Ho
Enhance 2019.
information flow
Enhance ICT
expertise

Source: Authors’ creation

 4 DETERMINANTS OF THE DIGITAL ORIENTATION OF SMALL BUSINESSES 83

Digitality in strategy

Willingness to grow

Competitive intensity

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Strongly disagree Slightly disagree Neither disagree nor agree Slightly agree Strongly agree

Fig. 4.2 Description of the context. (Source: Authors’ creation)

companies agreed that their company’s willingness to grow was high. Only
18% did not agree, and the remaining 11% of the companies neither disagreed
nor agreed. Sixty-two percent of the companies agreed that competitive inten-
sity in their markets was high, while 17% did not agree. The remaining 21% of
the companies neither disagreed nor agreed.
Figure 4.2 shows the level of digital orientation in small businesses divided
into four dimensions: market orientation, entrepreneurial orientation, relation-
ship orientation, and technology orientation. Twenty-seven percent of the
studied companies thought that their digitally assisted market orientation was
strong (with the mean being between 4.1 and 5 on a scale of 1–5). Around
53% of the companies had put little effort into the digitally assisted market
orientation (with the mean between 3.1 and 4 on a scale of 1–5). Also, a
noticeable portion, 20% of the companies, had not put significant effort into
the digitally assisted market orientation (with the mean between 1 and 2 on a
scale of 1–5).
Fifty-two percent of the studied companies thought that their digitally
assisted entrepreneurial orientation was strong (with the mean being between
4.1 and 5 on a scale of 1–5). Around 39% of the companies had put little effort
into the digitally assisted entrepreneurial orientation (with the mean between
3.1 and 4 on a scale of 1–5). Only 9% of the companies had not put significant
effort into the digitally assisted entrepreneurial orientation (with the mean
between 1 and 2 on a scale of 1–5).
Forty-three percent of the studied companies thought that their digitally
assisted relationship orientation was strong (with the mean being between 4.1
and 5 on a scale of 1–5). Around 48% of the companies had put little effort into
the digitally assisted relationship orientation (with the mean between 3.1 and
4 on a scale of 1–5). Only 9% of the companies had not put significant effort
into the digitally assisted relationship orientation (with the mean between 1
and 2 on a scale of 1–5).
Forty-two percent of the studied companies thought that their digitally
assisted technology orientation was strong (with the mean being between 4.1
and 5 on a scale of 1–5). Around 41% of the companies had put little effort into
the digitally assisted technology orientation (with the mean between 3.1 and 4
on a scale of 1–5). Also, a noticeable portion, 17% of the companies, had not
84 M. SAUNILA ET AL.

Digital orientation
Technology orientation
Relationship orientation
Entrepreneurial orientation
Market orientation

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Low Medium Strong

Fig. 4.3 Small businesses’ digital orientation. (Source: Authors’ creation)

put significant effort into the digitally assisted technology orientation (with the
mean between 1 and 2 on a scale of 1–5) (Fig. 4.3).
We used an analysis of variance to determine whether the small businesses’
digital orientation generally differed based on the type of company, the pres-
ence of digitality in company strategy, a company’s willingness to grow, and the
competitive intensity in the markets. The results are presented in Table 4.2.
First, the influence of company characteristics on the digital orientation of
small businesses was studied. The differences between micro companies and
small companies were examined. The results suggest that company size does
not have a significant effect on its digital orientation. The differences between
the manufacturing industry– and the service industry–oriented companies
were also analyzed. The results suggest that a company’s industry significantly
affects only one dimension of digital orientation, namely technology orienta-
tion. The service-oriented companies placed more emphasis on technology ori-
entation than the manufacturing companies did.
Second, the differences in digital orientation were studied according to the
presence of digitality in a company’s strategy. Significant differences were
found in all dimensions of digital orientation, meaning that the presence of
digitality in a company’s strategy affects digital orientation in terms of market
orientation, entrepreneurial orientation, relationship orientation, and technol-
ogy orientation. Those companies with a high presence of digitality in their
strategy were more widely oriented toward digitality than those who did not
have digitality strongly included in their strategy.
Third, the effect of a company’s willingness to grow on its digital orienta-
tion was studied. Significant differences were found in the market orientation,
entrepreneurial orientation, and technology orientation based on a company’s
willingness to grow. Thus, the companies that have a strong will to grow put
more emphasis on digitally assisted market orientation, entrepreneurial orien-
tation, and technology orientation than the companies that have no will to
grow. A company’s willingness to grow did not affect the level of the digitally
assisted relationship orientation.
Fourth, the differences between companies that operate in highly competi-
tive markets and those that have less intense competition in their markets were
examined. Significant differences were not found in the digital orientation of
small businesses based on the competitive intensity in their markets. Table 4.3
presents the summary of the results and their interpretation.
 4 DETERMINANTS OF THE DIGITAL ORIENTATION OF SMALL BUSINESSES 85

Table 4.2 Digital orientation based on company type and company conditions
Market Entrepreneurial Relationship Technology
orientation orientation orientation orientation

Mean Sig. Mean Sig. Mean Sig. Mean Sig.

Company Micro 3,88 3,52 4,14 1,29 4,11 1,05 4,00 1,51
size Small 3,56 3,93 3,95 3,75
Industry Manuf. 3,65 1,02 4,14 0,29 4,06 0,00 3,64 4,30c
Service 3,83 4,04 4,06 4,05
Digitality Low 3,43 8,37b 3,76 5,54c 3,83 3,96c 3,53 8,49b
in strategy High 3,92 4,19 4,15 4,09
Willingness Low 3,42 13,74a 3,78 7,37b 3,91 2,61 3,69 4,47c
to grow High 3,99 4,24 4,15 4,07
Competitive Low 3,71 0,18 4,05 0,02 3,82 2,86 3,95 0,02
intensity High 3,79 4,07 4,12 3,92

Source: Authors’ creation

Notes: Sign. a p ≤ 0.001, b 0.001 < p ≤ 0.01, c p ≤ 0.05

Table 4.3 Determinants of the digital orientation of small businesses

Proposition Support Interpretation

P1. The digital orientation Not Company size does not affect companies’ digital
of a small business is supported orientation, that is, the engagement with the
determined by company application of digital resources.
size.
P2. The digital orientation Partially Service-oriented companies are more advanced in
of a small business is supported terms of technology orientation (the application of
determined according to the novel technologies in company operations) than
different industry types. manufacturing-oriented companies.
P3. The digital orientation Supported Companies that have a high presence of digitality in
of a small business is strategy are more advanced in terms of digital
determined by the presence orientation (in all its dimensions: market
of digitality in a company’s orientation, entrepreneurial orientation,
strategy. relationship orientation, and technology
orientation).
P4. The digital orientation Partially Companies that have high willingness to grow are
of a small business is supported more advanced in terms of digital orientation (in its
determined by a company’s three dimensions: market orientation,
willingness to grow. entrepreneurial orientation, and technology
orientation).
P5. The digital orientation Not Competitive intensity in the markets does not affect
of a small business is supported companies’ digital orientation, that is, the
determined by the engagement with the application of digital
competitive intensity in the resources.
markets.

Source: Authors’ creation

86 M. SAUNILA ET AL.

Conclusions
In this chapter, we intended to contribute to the empirical literature on the
digital orientation of small businesses. In this regard, we were able to demon-
strate that knowing the conditions under which small businesses operate can
indeed add to our understanding of the digital orientations they pursue.
Therefore, this chapter contributed to existing literature by both conceptual-
izing digital orientation and defining the factors that support or hinder the
digital orientation of small businesses. The implications for research and prac-
tice are introduced next.

Theoretical Implications
We proposed to study the conditions under which small companies are likely to
pursue different digital orientations and which types of companies are most
likely to embrace different digital orientations. Moreover, by using empirical
survey data, the objective was to enhance the literature on digital orientation
with further empirical insights. First, the results indicate that certain condi-
tions, such as digitality in strategy and willingness to grow, explain small busi-
nesses’ digital orientation to some degree. With regard to the presence of
digitality in the strategy of small businesses, the results strongly support Ukko
et al. (2019) and Thompson et al. (2013), who concluded that small businesses
need to ensure that business strategies fully incorporate new digital technolo-
gies, with a clear understanding of what the consequences are of adopting these
technologies. The results also support prior studies that suggest that digital
orientation in its various forms is positively related to small business growth
(Quinton et al. 2018; Taiminen and Karjaluoto 2015; Weill and Woerner 2015).
Second, company size or industry did not explain the level of digital orienta-
tion. Although small companies are not as equipped as large companies (Laforet
2008), they can perfectly adopt ideas employed by large companies using a
high level of flexibility, teamwork, and fast adaptability (Russo and Perrini
2010). Thus, companies’ characteristics in terms of size do not play an influen-
tial role in the digital context. This can be due to the fact that digital orienta-
tion operates as a comprehensive strategy, allowing companies with different
sizes and activities to cooperate. In terms of industry, the service-oriented com-
panies are more advanced in terms of technology orientation than
manufacturing-­oriented companies. The reason behind this might be the dif-
ferences in the operational logic of the service and the manufacturing compa-
nies (Valtakoski and Witell 2018) and the nature of service companies, whereby
efficient service offerings using novel technologies are their core business.
Third, the competitive intensity in the markets does not explain small busi-
nesses’ digital orientation. The results challenge the idea that in order to man-
age competition, small businesses need to adopt behaviors that fit the
characteristics of the market they are in, such as acquiring certain assets or
capabilities (Quinton et al. 2018; Theodosiou et al. 2012). In fact, competitive
 4 DETERMINANTS OF THE DIGITAL ORIENTATION OF SMALL BUSINESSES 87

intensity in the markets does not seem to shape the digital orientation of small
businesses. Therefore, our study concludes that the various forms of digital
orientation are determined by a company’s internal factors. In small compa-
nies, internal factors determine the digital orientation, and external factors,
namely the intensity of competition, do not play a significant role.

Managerial Implications
In terms of the managerial and policy implications, our research raises the
awareness and understanding, previously based on very few empirical studies,
of the role of the context and company conditions for the digital orientation of
small companies. As the results of the study show that company size does not
affect companies’ digital orientation, the managers of companies should under-
stand that, despite the size of the company, there are possibilities available
when considering the digital orientation of the company. The results also indi-
cate that service-oriented companies are more advanced in technology orienta-
tion than manufacturing-oriented companies. As such, managers of the
manufacturing-oriented companies should pay attention to the new possibili-
ties that the digital orientation of the service companies could provide them
with. This study further provided evidence that managers of small businesses
should consider the significant role of digitality for strategy in all the dimen-
sions of digital orientation. In other words, by implementing an advanced level
of digitality in strategy, decision-makers in small business could successfully
perform in digital orientation in terms of the market, the entrepreneurial, the
relationship, and the technology orientation. Additionally, decision-makers,
especially in small businesses, should consider the internal and the external
nature of factors and activities in their businesses. For instance, a company
condition in terms of willingness to grow is mainly related to internal activities,
whereby the work patterns will change based on the factors inside the com-
pany, including its market, entrepreneurial, and technology orientations. In
contrast, competitive intensity involves activities that are more external, mean-
ing change will occur externally. As the competitive intensity in the markets
does not affect companies’ digital orientation, the managers of the companies
are not forced to shift toward digital orientation as a reaction to the activities
of their competitors; the digital orientation is motivated more due to the inter-
nal characteristics of companies.

Limitations and Further Research Directions

Although the results presented in this chapter indicate that the factors support-
ing the digital orientation of small businesses seem to be internal, such as digi-
tality in strategy and willingness to grow, the phenomenon needs more evidence
and greater empirical understanding. There are avenues for future research that
could improve the understanding of the implementation of digitality in a com-
pany’s strategy. Furthermore, it would be reasonable to improve the
88 M. SAUNILA ET AL.

understanding of why the external factors, such as the competitive intensity in

the markets, do not explain the level of digital orientation of small businesses.
As a limitation of the chapter, it should be noted that the results were gathered
from only one country. As such, there might be some country-specific factors
affecting the conditions under which small businesses operate. For that reason,
it would be a good idea to conduct further research to extend the empirical
understanding regarding the phenomenon in other countries. Finally, as this
chapter focused on the digital orientation of small businesses, further research
could work to understand the factors supporting the digital orientation of large
companies.

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 CHAPTER 5

Analysis of Business and Sustainability Models

of Native Digital Media in Latin America

Jessica Arrieta-Majul and Juan Velez-Ocampo

Introduction
A business model is the logic of the company, is the way it creates and captures
value for its group of interest (Baden-Fuller and Mangematin 2013). It is a
strategic decision from the organizations to define what the market has to offer,
publicity strategies, and model of income. Therefore, business models consist in
articulating value proposition, identifying a segment of the market, estimating
the cost structure and potential of all its benefits (Chesbrough and Rosenbloom
2002). With the manifestation of the internet in the 1980s and 1990s, business
models of several industries had significant changes; entertainment, tourism,
telecommunications, and journalism sectors, in general, had the biggest trans-
formation. In addition, the access and availability of internet changed the rela-
tionship of power between the company, clients, and the providers, creating
necessities, formats, platforms and markets that businesses which created the
digital version of their media knew how to capitalize. This new internet acces-
sibility created the conditions for the creation and adaptation of new businesses
and digital natives’ business models, due to the removal of entry barriers and
the appearance of services that could replace those already existent.

J. Arrieta-Majul
Universidad de Antioquia & Fundación Gabo, Medellín, Colombia
e-mail: [email protected]
J. Velez-Ocampo (*)
Universidad de Antioquia, Medellín, Colombia
e-mail: [email protected]

© The Author(s) 2021 91

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_5
92 J. ARRIETA-MAJUL AND J. VELEZ-OCAMPO

In the case of journalism, central topic of this chapter, the first digital publi-
cation was in the Chicago tribune in the United States, in the networks used at
the time, such as America Online (AOL), (Salaverría 2019). However, it was
not until 1994 that the first publication in the World Wide Web was registered,
in correspondent to the Palo Alto Weekly of San Francisco, California (Carlson
2003), originating what is today known as digital journalism. Digital media,
also known as meta-media (Campos-Freire 2015), is characterized by the utili-
zation of diverse formats of information available in the web: written text,
video, photographs, audio, computer graphics, and graphics (multimedia); the
hypertextuality or addressing to various publications of complementary topics;
and the interactivity that allows the user to choose the content they prefer to
see, reproduce, or share.
Traditional journalistic companies, focused on printed media, had their
business model centered in the sale of paperback editions and income from
publicity and subscriptions. When transferring the content to a digital version,
the audience was originally offered complete free access for several years.
Nonetheless, this new offer affected the income and had to be reformulated.
Over the years, some media have begun to restrict their websites, requesting a
prior registration or a monthly payment, in order to make some profits, but not
all strategies have been effective. Many are still looking for an alternative that
allows for sustainability.
These changes in the industry, then, impacted the company’s income and
business model. There are several strategies that digital media implement to
charge for their services, some of the most widespread mechanisms are
micropayments or fractional content, consumer payment, subscription, and
open access. These strategies have meant a change for the whole media indus-
try. Even the way in which information is consumed has transformed and mod-
ified the audience’s relationship with the media, making it more participatory
through social networks or directly on each media page.
With the change in the relationship of the media with the audience, the
journalistic business should not only focus on designing financial strategies to
ensure profitability and sustainability long term. Their efforts should also con-
sider exploring new formats that are not only focused in the physical sale of
newspapers. The creation of virtual communities that share, produce, and dis-
cuss specific content contributes to the diversification of the audiences and to
the sustainability of media as businesses.
This chapter aims to analyze the business model of three native Latin
American digital media. To do this, some inclusion criteria were established:
media that had not been created as the digital version of a printed media and
had no paper edition. The media analyzed in this chapter are: El Faro (El
Salvador), La Silla Vacía (Colombia), and Revista Anfibia (Argentina). El Faro
was founded in 1998 and is focused on the coverage of in-depth research topics
in Central America. La Silla Vacía is a niche medium created in 2009, not only
because of its thematic focus (power and politics), but also for is geographical
approach of covering Colombian politics (Meléndez Yúdico 2016); this media
 5 ANALYSIS OF BUSINESS AND SUSTAINABILITY MODELS OF NATIVE DIGITAL… 93

was founded by an international donation from the Open Society Foundation.

Meanwhile, Anfibia is a digital media of chronicles, essays and nonfiction sto-
ries created by an Argentinian university and that does not have a particular
theme. Table 5.1 introduces more details about selected media.
These three media have a particularity: although they receive donations
from their readers and have fund-raising campaigns, their content is freely
accessible, have no restrictions or prior registration, unlike print media that in
their digital version restrict the content or require a fee to access it. The four
media that will be analyzed have diversified their income with contributions
from international cooperation, organization of events, workshops, production
of documentaries, and sales of books. They are also characterized by publishing
in-depth research, what is also known as slow journalism, a philosophy that
seeks to eliminate the myth that speed is associated with efficiency, in relation
to last-minute news coverage (Barranquero 2013).
This chapter is organized as follows: first, there will be a discussion about
the relevant literature in the study field, subsequently the principals of the case
study methodology will be introduced, following the findings from the review
of secondary sources and interviews with journalists, directors, and founders of
each medium, and, finally, we present the discussion and conclusions.

Table 5.1 Native digital media analyzed in this chapter

Media Anfibia El Faro La Silla Vacía

Year of creation 2012 1998 2009

Country Argentina El Salvador Colombia
Director Cristian Alarcón José Luis Sanz Juanita León
Category Narrative journalism Investigative Investigative journalism
journalism
Interview Editor, executive Opinion Chief director, chief editor,
participants and producer, director, coordinator and regional editor La Silla
data sources Responsible for editorial Archival data Santandereana
innovation. Archival data
Archival data
Formats Text, image, podcast, Text, image Text, image, computer
Paperback edition graphics, podcast
Income 80% Universidad Nacional 65% international 35% international
distribution de San Martín cooperation cooperation
20% Workshops 22% 65% commercial projects
advertisement
9% general
content
4% audience

Source: Own construction

94 J. ARRIETA-MAJUL AND J. VELEZ-OCAMPO

Business Models, Sustainability, and Digital Journalism

A business model is the formulation of a competitive strategy articulation of
value propositions, one where a target market has been identified, the value
chain and projection of the costs are defined, and profits are identified as well
as the position of the company in the value network. (Chesbrough and
Rosenbloom 2002). According to Linder and Cantrell (2000), the model
refers to a nuclear logic of an organization to create value. However, Osterwalder
(2004) and Goyanes-Martínez (2013) argue that the business model is way for
an organization to create, provide, and capture value. The business model,
therefore, reflects the value that is being offered to customers (Campos-Freire
2010). It is a scheme that allows companies to strengthen customer confi-
dence, generate income and maintain a position in the value chain following a
particular purpose and strategy. The traditional media (press, radio, and televi-
sion) have developed their business models based on three classic sources of
income: payment by consumption (sales by unit number or subscription),
advertising, and subsidy or sponsorship (Campos-Freire 2010); however,
native digital media have diversified their sources and income models.

Internet Business Models

In occasions, the business model is often confused with the financing model or
the revenue model. However, within the media the models are developed
through value propositions and mixed economies that include user participa-
tion, payment of consumption for the articles, and, in very particular cases,
public contributions (Campos-Freire 2015).
According to Rojas et al. (2014), the most commonly used business models
on the internet are micropayments or fractionated content, payment for con-
sumption streaming/pay per view, and subscription. Micropayments or frac-
tionated content correspond to a common practice that is generally less than
six dollars to access books, articles on the web, songs or games. The pioneers
for this mechanism were Apple, Amazon, and media outlets such as The
New York Times, and slowly traditional media and editorials also implemented
these mechanisms. Another strategy is the payment per consumption, stream-
ing or pay-per-view, which were initially used for many years by television net-
works to provide access to exclusive programming or content with technical
specializations. The best-known case in the activity is the Netflix platform,
which offers series, movies, documentaries; this company originally was a pio-
neer in this type of payment but evolved to the subscription model. This pay-
ment method is also widely used by hotels that charge by hours and car rental
companies that only charge for the real time of use.
The subscription payment model has a fixed customer base in a specific time
(weeks, months, years) due to the fact that the payment is made in advance,
while the open access is used regularly to share educational, academic, or scien-
tific content. For the digital media, each of these models represents a challenge.
 5 ANALYSIS OF BUSINESS AND SUSTAINABILITY MODELS OF NATIVE DIGITAL… 95

The audience was offered free content for many years, but within the last years
the charges for content have increased,; in most of the cases, users are requested
to register, which implies sharing personal data and trusting the provider. And
it is that the model as it was known, with solid bases in advertising revenue,
ceased to be efficient because the large technological platforms and social net-
works like Facebook and Google lead the marketing and advertising online
market (Campos-Freire et al. 2017).

Sustainability of New Media and Innovation

According to Chesbrough and Rosenbloom (2002), the business model has
among its functions to identify the segment (target audience), value structure
(costs and profits), business position (competitors), and design a competitive
strategy. Based on these elements, the digital and traditional native media,
which are transforming their content to this format, could potentially guaran-
tee their sustainability. It not only depends on technology and the tools it
provides, because they remain changing and updating themselves constantly; it
concerns rethinking the business, innovating the platforms, and being acquain-
tance with their audience’s needs.
The internet’s arrival had an impact on the finances of traditional printed
media that de-structured the value chain and also promoted a new relationship
with customers (audience) (Campos-Freire et al. 2017), thus leaving the need
to think of more and new distribution channels—unlike print—to create a
community and focus about long-term sustainability.
Business models, for that reason, must evolve according to changes in the
organization and the environment itself (Holm et al. 2013). Editorial indepen-
dence, income diversification, and, above all, the evolving profile of journalists
must be taken into consideration. Although digital journalist are not com-
pletely different from the traditional ones, especially in terms of ethics, research,
and writing protocols, these journalists must be prepared to combine their
skills with other professionals such as programmers, designers, or photogra-
phers in order to develop a more solid and more relevant approach to under-
stand, discuss, and present different realities (López-García et al. 2017). Within
Latin America, since the 1990s, some digital media have increased their partici-
pation while creating online communities. Table 5.2 introduces some of the
leading digital media in the region.

Mobile Devices, Social Networks, and Journalism

The most popular social networks at the moment to share journalistic content
are Facebook (founded in 2004), Twitter (in 2006), and Instagram (created in
2010), which were originally created to link friends, publish photographs, and
send messages of 140 characters with current issues or personal experiences,
but have transformed gradually transforming to become a channel that allows
the audience to have a real-time interaction with media about the last-minute
96 J. ARRIETA-MAJUL AND J. VELEZ-OCAMPO

Table 5.2 Native digital media in Latin America

Media Inception Country of Focus
year origin

El Faro 1998 El Salvador It is the first native internet newspaper in Latin America.
It makes a firm commitment to investigative and in-depth
journalism and is agnostic in terms of its platform: it
makes journalism in various genres and formats both
online and offline and traditional media such as radio,
books, documentary films, and face-to-face events. Since
its birth, El Faro has had a Central American vocation.
Ciper 2007 Chile The Journalistic Research Center (CIPER) is a nonprofit
foundation aimed at promoting and exercising
investigative journalism. Its assets are made up of
voluntary donations whose amount, origin, and
employment render a public account.
La Silla 2009 Colombia La Silla Vacía is an informative and interactive medium
Vacía for people interested in current Colombian politics. They
are focused on those stories that really describe how
power is exercised in Colombia: on the characters that
move the threads of power, on the strategies to achieve
and maintain it, and on the ideas and interests that
underlie the country's great decisions.
Chequeado 2010 Argentina It is the first site in Latin America dedicated to the
verification of discourse and is among the first ten
fact-checking organizations in the world. It is a
nonpartisan and nonprofit digital medium dedicated to
the verification of public discourse, the fight against
misinformation, the promotion of access to information,
and the opening of data.
Animal 2010 Mexico Native digital medium that brings together journalists,
Político designers, programmers, and video editors to create
content with rigor, precision, and thought to serve
citizens.
IDL 2010 Peru Journalistic research unit within the Legal Defense
Reporteros Institute, a nongovernmental organization linked to the
defense of human rights and democratic governance.
They are mainly dedicated to journalistic investigations
on cases of corruption, drug trafficking, internal security,
and corporate issues.
Plaza 2011 Guatemala Plaza Pública is a means of communication that aims to
Pública provide information and ideas for a solid, vigorous
democracy, with ethics and social justice. Founded by the
Rafael Landívar University, we belong to the Office of
the Vice-Rector for Research and Projection and we are
mainly financed by the university budget.
Anfibia 2012 Argentina Anfibia is a digital magazine of chronicles, essays, and
nonfiction stories that work with the rigor of journalistic
research and literature tools. It proposes an alliance
between academia and journalism with the intention of
generating thought and new readings of the
contemporary.

Source: Own construction

 5 ANALYSIS OF BUSINESS AND SUSTAINABILITY MODELS OF NATIVE DIGITAL… 97

events. In addition to “content distributors”, they have served as sources of

journalistic information (Pedriza 2018). To these were added, with the launch
in 2007 of the first phones, the massification of mobile devices that had as
many features as a laptop (López-García et al. 2019), and, in journalism, this
changes the way of consuming news and also changes the diversification of
formats. The reading of journalistic material from smartphones, even if the
publication is of a long format, continues to increase (Albalad Aiguabella 2015).
In addition, the multifunctionality of the devices has put a new challenge to
journalism: What to do when a camera is available to anyone, with the possibil-
ity of making videos or text or recording audios anywhere or transmitting
events in direct? The answer would remain differentiate with research and qual-
ity content.

Methodology
To conduct this study, where we will analyze the business model of five native
digital media in Latin America, we used case study methodology (Eisenhardt
1989; Yin 1989). Which is useful as an empirical evidence that supports the
analysis of contemporary phenomena (Yin 1989). This qualitative method was
chosen because it allows the combination of sources and techniques for data
collection (Chetty 1996); furthermore, it is also appropriate for the analysis of
emerging phenomena.
Although there is no single number of cases for this methodology, Eisenhardt
(1989) argues that the analysis of between four and ten cases is usually suffi-
cient to conduct an investigation. Perry (1998) argues that the number of cases
is the decision of the investigator, and Patton (1990) follows that same line and
does not indicate an exact number of cases to evaluate. The investigations that
apply the case study methodology, in general, are heuristic and holistic, because
the complexity of the cases is reflected and it is also about giving a complete
vision of the situation and context that is being analyzed, which also allows
conclusions and discuss them.
Chetty (1996) indicates that the case study is a rigorous methodology that
allows to study the phenomenon from different variables and is appropriate to
analyze and investigate those phenomena and give answers to why and how
they occur, from a deeper form. Goode and Hatt (1976), however, claim that
this methodology is a way of organizing data, not of achieving it. In any case,
in order to validate the information, it is necessary to contrast the content and
revise the criteria and the construct (convergent: two or more concepts that
coincide; discriminating: concepts that differ from one another) (Rialp 2003).
Yin (1989) argues that this methodology is essential in the social sciences,
and contemplates a protocol that has four steps to guarantee objectivity in
research: (i) background analysis, literature related to the subject; (ii) triangu-
lation of information and questionnaire focused on contrasting theories; (iii)
establishment of a work schedule and a scheme for research; and (iv) selection
of a theoretical sample, not representative of the population. In addition, it
98 J. ARRIETA-MAJUL AND J. VELEZ-OCAMPO

proposes a series of components that allow an assertive design: research ques-

tions, theoretical propositions, unit analysis, and linking and interpretation
of data.
For data triangulation, Arias Valencia, (2000) states that the most important
thing is to control personal bias and take into account the following: verify
interview information with observation and secondary data (method); contrast
information: in research and finding the balance between space and time, col-
lect the data at different times and have the ability to contrast them. To analyze
the business model of the three digital native media, Anfibia (Argentina), La
Silla Vacía (Colombia) and El Faro (El Salvador), eight interviews were con-
ducted by video conference with members of each media, taking into account
the diversification of roles, approaches and in some cases the presence in dif-
ferent regions, we interviewed: Laura Ardila (editor of La Silla Caribe), Juan
Esteban Lewin (chief editor of La Silla Vacía), Jineth Prieto (editor of La Silla
Santandereana), María Luz Nóchez (journalist and opinion coordinator of El
Faro), Sol Dinerstein (producer of Anfibia), Leila Mesyngier (editor of
Anfibia), Cristian Alarcón (director and founder), and Tomás Pérez Vizzón
(responsible for editorial innovation).
In addition, Jean-François Fogel, a journalist and digital advisor of several
media in France (including Le Monde from 1994 to 2002), was interviewed in
person as an external informant Mr. Fogel was selected due to his participation
on the team that renewed the internet platform of Le Monde and created the
first online payment area for subscribers. Archival data was also used to
strengthen and contextualize the information provided by informants.

Literature Contextualization
In order to contextualize our study on the current debates regarding digital
journalism, we conducted a systematic literature review using Web of Science
as the main database source. Search criteria included the terms “journalistic
innovation”, “online media”, “digital newspaper”, “online news media”,
“business model journalism”, “digital journalism”, and “journalistic entrepre-
neurship”. With this search we managed to identify 53 articles published
between 2000 and 2019. Content analysis of these manuscripts allowed us to
identify the approach and impact of digital journalism in comparison to tradi-
tion media companies.
With this search, we managed to identify native digital journalism as inno-
vating through three central indicators: (i) native digital media content and
narrative, (ii) the usage of technological tools and new and research format,
and (iii) a business and sustainability model (Flores 2017). In addition, we
achieved to recognize long-range native digital media as a growing genre that
combines written language with photography, super short films (compilation
of short video clips), maps, and other graphic elements (Hippala 2017).
 5 ANALYSIS OF BUSINESS AND SUSTAINABILITY MODELS OF NATIVE DIGITAL… 99

Findings: The Cases of Digital Media in Latin America

The three journalistic media analyzed in this chapter were created by journalist
that had remained working for traditional media companies. Among those, the
only specialized in a subject is La Silla Vacía, focused in research and coverage
of Colombian politics.
El Faro is the oldest native digital media in the region and has a more inter-
national reach that other cases studied, primarily due to having long-range
research focused on political, legal, and social topics from El Salvador and spe-
cific coverage in Central American countries.
In terms of the number of journalists, we can identify that the three cases
have between 13 and 22 people in their editorial offices, including directors,
editors, journalists/reporters, engineers, commercial/sales, and administrative
and financial areas. As for the technological platforms to disseminate its
research. La Silla Vacía, especially La Silla Caribe, uses WhatsApp to distribute
messages redirecting to the website. El Faro also has a newsletter and sends it
via email to its subscribers.
In the sources of funding, we can find that La Silla Vacía and El Faro con-
duct crowdfunding campaigns among their readers, although they also have
support from international organizations and grants and organize events or
academic activities to diversify their income sources. Nomad has its own con-
tent agency for sponsored content and provides consultancy services.
The three native digital media outlets monitor their audience through
Google Analytics, and their audience in general varies from ages 25 to 45 years
and allows to access content via mobile devices and computers. All the media
began by publishing their research in text format. However, as their business
models evolve, they incorporated other formats such as photography, videos,
and infographics. Currently, all these media are on Facebook, Twitter, and
Instagram.

El Faro (El Salvador): The First Native Digital Media

of Latin America

Founded in May 1998, El Faro is the first digital native newspaper in Latin
America. Its editorial line is focused on defending human rights. According to
its opinion coordinator, María Luz Nochez, “El Faro is committed to the
truth”; she also highlights that El Faro readers possess a certain interest for
understanding what is happening in politics. She believes that they differ from
their other country’s media due to the way in which they present the news and
information, always focusing on innovating so “the reader both enjoy the con-
tent and feel satisfied with the findings”, stated Mrs. Nochez.
Research Revenue Model organized annually the Central American Forum
for Journalism, at this event there are multiple talks and workshops, besides, a
crowdfunding strategy known as Excavación Ciudadana is held at this event
since 2015. With this activity, they receive online donations from readers in
100 J. ARRIETA-MAJUL AND J. VELEZ-OCAMPO

order to financially support research. Their goal is for the number of income
and donors to grow and allow for long-term sustainability, in a region where
there are also external factors such as migration, gangs, and political context—
social that make independent journalism in an area considered particularly vio-
lent, be more complex. El Faro Store: sale of books, magazines, eBooks. Some
of these contents are created by journalists (own content) and collaborators
linked to El Faro. Some others from journalists and researchers in Latin
America. It also has audiovisual products, decoration, and stationery. But it was
not always like this. For six years, this media created in a region where not the
entire population accesses the internet connection, had no income. It was until
2003 that he received the first international donation from the United Nations
Development Program (UNDP). In terms of format, El Faro generally pres-
ents their research using text, it as well creates regular content for El Faro
Television. In addition, it once was also presented in radio.

La Silla Vacía (Colombia): How Power Operates

in the Nation

Created by Juanita León in 2009, this medium is focused on covering political

power in Colombia. He started with headquarters in the capital of the country,
which at this time has a team from five regions responsible for working from
the territories. To coordinate the teams, a weekly editorial board is held and
there is continuous communication. The one in Bogotá, Colombia, remains
the main office, and from there the administrative management and metrics are
coordinated. Although they publish content on social networks, there is not an
official Community Manager role. The content on social networks is managed
by the journalists themselves, even though the workload increases, it maintains
the accuracy of content on social networks.
It has a creative department (La Silla Gráfica) where they have photogra-
phers and audiovisual directors with whom they seek to strengthen other for-
mats to publish the news. This media sees it as an opportunity not to charge for
accessing its content and maintaining a direct relationship with the audience.
Unlike print and traditional, looking for subscribers who are willing to pay to
see the news.
However, what they do maintain is their Super Amigos campaign (since
2012), in which they seek donations to diversify income and finance in-depth
research. This media is characterized by identifying who are the powerful fig-
ures in the country and how they operate their work and personal relationships;
it also has a section in charge of detecting lies or “the filtering of the post
truth” (data check/speech). This media publishes most of their news in
text format.
La Silla Caribe was the first regional division that La Silla Vacía had. It is
focused on the northern municipalities of the country. When interviewing their
editor, we were informed that every day a massive text is sent to their WhatsApp
contacts in order to share the most relevant news.
 5 ANALYSIS OF BUSINESS AND SUSTAINABILITY MODELS OF NATIVE DIGITAL… 101

According to Jineth Prieto, regional editor of La Silla Santandereana, this

is the most regional division of the whole media but is as independent as the
rest of the divisions. Mrs. Prieto stated “What La Silla expresses is not expressed
by anyone else with that level of depth and independence. It presents the con-
text, what moves behind the story”. La Silla Santandereana has a direct alli-
ance with a local university to access physical space. It is considered a reference
in that area of the
​​ country. They have created in a new format: the podcast. In
addition to these two sections, they have La Silla Pacífico, Sur, Cachacha (cen-
tered in Bogotá), Paisa (Power in Antioquia and Coffee Region—Caldas,
Risaralda, Quindío, Tolima, Norte, and Oriente del Valle del Cauca), and
Nacional. La Silla Académica is one of their sources of income. It publishes
articles and research conducted from universities and allows users to access
knowledge that usually remained in educational establishments. The whole
media is a network with more than 500 experts having a space to publish cur-
rent content about the country. From that media, they diversify the positions
in front on different issues.
The whole staff is formed by the journalistic director, reporters, the admin-
istrative area, the graphic designer, and systems engineer. The office is located
throughout five other different cities around the country: Barranquilla,
Medellin, Bucaramanga, Neiva, and Cali. In total, the team consists of approxi-
mately 20 people, divided in groups of 5 per region. Regarding their audience
and according to Chief editor Juan Esteban Lewin, audience possesses a certain
level of education due to their researches being “relatively complex” that con-
tains data and analysis in which specific and sophisticated knowledge is usually
required. According to Lewin, as an attempt to reach younger audiences, the
creative department developed lighter format and social network presence.
In regards of the business model of La Silla Vacía, this media was originally
created without a clear business in mind; they wanted to develop one that was
feasible for them while remaining independent. Mr. Lewin states that part of
their funding comes from international cooperation, while the crowdfunding
campaign Super Amigos is also an important economic source. Mrs. Prieto told
us that the “democratization of information” is at the very core of La Silla
Vacía, and that they do not consider charging users for the quality content they
produce.

Anfibia (Argentina): Chronicles and Alternative

Contents from the South
It is a digital magazine of nonfiction stories, chronicles, essays, and opinion
columns; it was founded in 2012, with funding from the General University of
San Martín. In recent years, he has tried new formats: Anfibia podcast,
Polyamory, paper magazine, and a luxury edition published in 2019. They also
carry out training workshops, which are a percentage of their income and also
have a line: performing journalism, which can be defined as the “border
102 J. ARRIETA-MAJUL AND J. VELEZ-OCAMPO

between journalism and art, between the story and the action”. With the new
formats, they have discovered a new audience. They have to, as challenge for
the coming years, diversify sources of income, consolidate the support of the
university, and be a producer of content rather than just a journalistic medium,
have a growth opportunity.One of the reasons for entering the podcast is that
there is part of the audience that does not connect completely with the text but
that “the audience even if it does not read does not mean that they do not want
to report”, says Tomás Pérez Vizzón, responsible for editorial innovation.
Although Anfibia started with a more conversational format, it was with the
Poliamor texts, transfer to audio recordings, which experienced a more narra-
tive line. The content of the magazine is aimed at people between 25 and
40 years, while the podcast, for an intermediate audience, between 20 and
32 years, “a little younger”. People who are permanently looking for informa-
tion, with concern and desire of looking for new things. That’s why Anfibia
presents podcast, videos, stories on Instagram, Twitter, WhatsApp. Anfibia is a
reference in journalism. The audience of your country looks for them when
there is a situation to know their analysis, position, and perspectives of the
news. They link different professionals in their publications to contribute on
current issues.
They have an artistic and content director, a team of five editors, some rather
oriented to the traditional text editing and the rest oriented in working with
alternative journalistic areas. They also have a community manager and an
executive producer that is in charge of coordinating everything that happens in
the magazine. Additionally, they have a person that manages the training activi-
ties, and, finally, two editors responsible for the productions that also illustrate
and design the images for the texts.
Their editorial line is focused on human rights and gender inclusion, while
their formats range from texts, podcasts, videos, and computer graphics. In
regards of their audience, Anfibia targets readership leaders, who have “middle-­
class cultural consumptions, up with those interested in being informed, who
like literature”, according to editor Leila Mesyngier (2019). The magazine,
then, “offers tools for interpreting reality, and using in discussions”, expressed
producer Sol Dinerstein. This is why their texts and productions can generate
conversation in any context. Its readers are interested in the political agenda of
the country and in general in the Latin American situation; that is why when
events take place in the region, they also focus part of their content for this
purpose. They “try to find a different focus in the texts”, argued Mrs. Mesyngier.

Discussion
The creation and development of native digital media in Latin America began
with El Faro, in 1998. It is interesting that El Salvador, since it is a small coun-
try where at the end of the twentieth century the access to internet was lim-
ited, produced the first digital media (Meléndez Yúdico 2016). What we can
identify is that these media were created because there was a need for
 5 ANALYSIS OF BUSINESS AND SUSTAINABILITY MODELS OF NATIVE DIGITAL… 103

information and content that were not found in traditional media. The cases
analyzed in this research also show that the cost structure of digital natives is
much smaller; they do not depend on a single product and are in constant
innovation. Having diversified their sources of income and not relying on
single partners or income sources. This also allows them to be independent
and be such a reference in their countries of origin (and in some cases at a
continental level).
Although it is often thought that journalism is in crisis, in reality it is the big
companies that are in the process of transformation due to generational and
technological changes. The three digital native media analyzed in this article
were founded because there was a void of information or not-so-deep
approaches to current issues in the traditional media of three countries:
Argentina, Colombia, and El Salvador.

Conclusions
The first conclusion of this article is that there are two different yet comple-
mentary scenarios in the media: the traditional and the digital one; however,
the boundaries between them are often blurred. The fixed cost of printing is
very high. The mass media are disappearing due to fragmentation and the mul-
tiplication and appearance of new digital media. Journalism changes its tradi-
tional formats to adapt to the demands of new consumers. Transparency and
verification of information is a fundamental pillar for this exercise. Data check-
ing, contrasting information, and searching conflicting sources, the informa-
tion that arrives are still the basis for good journalism, transparency, and
integrity. Second, the information is in different parts and formats. Native digi-
tal media in general have a not-so-large number of people in the newsroom and
therefore their costs are lower, which helps maintain independence and a mar-
gin of income.
Third, there is a lot of information on the web and a very high but frag-
mented demand. The attention is also different. Not only are the media, there
is entertainment everywhere. Even Jean-François Fogel, a French journalist
and director of the master’s degree in media management at the Sciences Po
University in Paris, says that Netflix, the entertainment platform that distrib-
utes audiovisual content through streaming, is the biggest competition in jour-
nalism. Given the variety of media and portals, companies compete for the
attention of the audience. Netflix time is cheaper than the reading time of a
daily hour. Today we are in a world where people have several subscriptions for
activities that take away time dedicated to leisure and entertainment such as
Spotify, HBO, Hulu, and the other platforms that offer content. The audi-
ence’s available time is limited. This did not exist before.
Fourth, new media that have a lower-cost-level culture will survive in jour-
nalism, including businesses that combine sources of income: grants, dona-
tions, events, training activities, specialized blogs, and sale of items. The
business and income models are currently fragmented to the extent that one
104 J. ARRIETA-MAJUL AND J. VELEZ-OCAMPO

cannot be recognized. Each media finds a way to manage itself according to its
needs. Big and expensive organizations with higher costs tend to disappear.
Fifth, specialized and niche information gets subscriptions. The idea of ​​jour-
nalism as a pure thing is something that is going to be reduced. There are all
kinds of communication but in the digital world the loyalty of the audience is
complex. They also have social networks as a stimulus. We must always review
what they do and for whom. Why that niche what is offered differently. The
readers of these five media in general are people with a university education
level and who are interested in what happens behind the news, but especially
interested in debating.
Sixth, to be a partner or donor of a medium is to define oneself as a person
who cares about quality journalism and deep investigations. This figure is
increasing in digital media. They pay to help the existence of a medium think-
ing that it improves the political situation of the country. Seventh, the diversi-
fication of profiles and professions within a writing enriches the debate and the
focus of research. A mixed team is valued more and, on the web, having news
in different formats attracts new audiences.
Eighth, to have a small media management team from the beginning helps
strengthen them. Entrepreneurship is a day-to-day learning process but having
clarity of income and costs is a strategy that allows us to view economic needs.
Ninth, social mobilization was another important reason for the creation and
development of digital media. Some journalists felt that the voice and demands
of society were not reflected in traditional journalistic companies, some biased
or in the lookout for power, so having their own space gave them the opportu-
nity to provide information that was sufficiently transparent to allow them to
know in detail what directly affected their countries: cases of corruption,
inequality, and issues related to politics and economics.
For journalists or groups that try to promote their own media, it is recom-
mended to start with a small team that knows what they want. Hyperlocal
media (focused on research of specific communities/territories) has a great
opportunity. This kind of journalism could be more interesting and sustain-
able, furthermore, it can reach better quality standards because journalists have
the opportunity to deepen on specific and powerful issues within the region or
city in which they are focused. The model of partners, and not having a sub-
scription to access content, makes Latin American digital media have an advan-
tage. Analyze the thoughts of undergraduate careers in journalism and social
communication. With the speed in which technology moves and the media
industry is transformed, the courses that are taught must be reorganized,
including even those that allow a more complete training for future journalists:
innovation, entrepreneurship, and business management must be added. The
tendency to create a medium of its own continues to increase and better than
the academy to prepare future professionals.
For future research, it is convenient to characterize the partners/donors of
each medium and analyze the behavior and time spent in the digital media. It
is understood that a partner is someone interested in the quality of information
 5 ANALYSIS OF BUSINESS AND SUSTAINABILITY MODELS OF NATIVE DIGITAL… 105

and the sustainability of a medium, but does it go beyond donation? Are they
active readers? How much is the content consumed? Are they participating in
the activities conducted by the media? With these questions as a basis, one
could have a more precise knowledge of this part of the audience that is so
important for the sustainability of the media.

Appendix
Questionnaire focused on directors, founding partners, or managers/
coordinators of the media.

1. Full name of the interviewee.

2. Name of the media.
3. Media country.
4. Describe the main functions of your position.
5. In what context was your medium created (Vállez and Codina 2018;
Salaverría 2019)?
6. What is the editorial line of your medium?
7. How is the xxxx team (name of the medium) formed?
8. In which category of journalism do they classify the content they publish
(Greenberg 2013)?
9. To what audience are the contents of your media directed? Is it only local
or open to international news/publications? In what format are your news
published (Masip 2016)?
10. What is the business model of your environment (Casero-Ripollés 2012;
Batlle and Roses 2009)?
11. What is the income model of your environment? Detail as much as possi-
ble the strategies they use (Campos-Freire 2010).
12. With what system of metrics or indicators monitor the interaction of its
users with the content (Campos-Freire et al. 2016)?
13. From which devices do you access your page (López-García et al. 2019)?
14. Do you have official accounts on social networks? If the answer is positive,
how do you manage the content published on social networks? How much
impact on the content published content from these channels (Campos-­
Freire et al. 2016)?
15. What is your main journalistic competence or what media do you have as
references (same type of content) (Meléndez Yúdico 2016)?
16. Have you thought about publishing a paper version? why (Campos-­
Freire 2015)?
17. How do you fight fake news (Lotero-Echeverri et al. 2018)?
18. On the sustainability of your environment: What challenges do you per-
ceive for the next five years (Barranquero 2013)?
19. What recommendations/suggestions could you give to journalists inter-
ested in creating their own digital media?
106 J. ARRIETA-MAJUL AND J. VELEZ-OCAMPO

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 CHAPTER 6

The Internationalization Speed of SMEs

and their Long-term Sustainability in Foreign
Markets

Beatrice Maria Zanellato Fonseca Mayer,

Dinorá Eliete Floriani, and Mohamed Amal

Introduction
This chapter discusses the speed and the long-term sustainability of firm’s
internationalization. The analysis focuses on the firm and its internationaliza-
tion process in a temporal perspective, exploring small and medium-sized
enterprise (SME) technology-based firm (TBF). Preliminary studies about
internationalization speed (Oviatt and McDougall 2005) focused on the time
between inception and start of internationalization (Chetty and Campbell-­
Hunt 2004), but not on the subsequent period once internationalization has
started (Chetty et al. 2014). That is, most of the studies on internationalization
speed have been based on the analysis of the time in which a company initiates
its international activities (Chetty et al. 2014).
The post-entry period, as an important part of internationalization process,
is still under-investigated (Ibeh et al. 2018), especially the post-entry speed of
internationalization (Romanello and Chiarvesio 2019). Such approach can
advance the international entrepreneurship literature in several ways. First, in
the existing literature, consistent results have pointed to the antecedents that
lead to accelerated internationalization (Oviatt and McDougall 2005;
Hilmersson et al. 2017), as well as the characteristics of the companies that

B. M. Z. F. Mayer (*) • D. E. Floriani • M. Amal

UNIVALI, Itajaí, Brazil
e-mail: [email protected]; [email protected]

© The Author(s) 2021 109

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_6
110 B. M. Z. F. MAYER ET AL.

present fast internationalization (Dzikowski 2018). However, what happens

after the entry in foreign markets and its implications over time are yet to be
explored (Hilmersson and Johanson 2016).
Second, we believe that the factors that promote and influence the pre-­
internationalization are different in post-internationalization (Efrat and
Shoham 2012). Albeit the term “long-term sustainability” is not approached
literally in the literature; it can be seen as a kind of consequence of post-entry
internationalization, as it goes beyond performance, growth, and survival. In
our understanding, studies that address the topic of survival in the internation-
alization context are too deterministic, as they mostly focus on whether the
firm is still alive or not (Carr et al. 2010; Sapienza et al. 2006). In this study,
we argue that long-term sustainability can be seen as an output of post-entry
internationalization, related to the post-entry stage. Some of the consequences
of post-entry internationalization speed analyzed as an output of international-
ization are performance, survival, and international growth. The existing litera-
ture, when focusing on such post-entry outcomes, may be narrow and does not
allow a more dynamic perspective of this level of firm’s international commit-
ment. In this sense, this study proposes to include long-term sustainability as a
specific result of the internationalization process, based in empirical assess-
ments of different cases, where they suggest that companies may stay abroad
for reasons beyond international performance, in some cases to escape from
weak institutional context from home country, as an emerging market. In this
context, the internationalization motives can go beyond the classic taxonomy
of FDI motives, as pointed by Cuervo-Cazurra et al. (2015). The authors sug-
gest that emerging market firm’s internationalization could have four different
motives, such as sell more, buy better, upgrade, and escape. Based on this
assessment, the understanding of internationalization motivation can be
advanced by arguing that these motives can change during the international-
ization process, in the pre- and the post-entry stages.
Thus, the main goal of this chapter is to analyze the motivations and propel-
lers of acceleration along the pre- and post-internationalization stages of a
TBF. Under this perspective, long-term sustainability is regarded as one of the
consequences of post-entry speed of internationalization.
In this sense, the research was conducted using a single case of Brazilian
TBF to understand the motivation and factors that lead to accelerate the inter-
nationalization process, comparing the pre- and post-entry stages, and its con-
sequences for the long-term sustainability.
This research contributes to the literature on the internationalization of
technology-based SMEs in several ways. First, by proposing a different approach
to capture the dynamic of internationalization. By analyzing the long-term
sustainability, it proposes the concept of permanence in foreign markets to
overcome the concept of performance, speed, and survival. Such categories are
too deterministic and tend to overlook the changing internationalization pat-
terns. Second, it distinguishes between pre-entry and post-entry, as two main
time categories of this phenomenon of long-term sustainability. Third, it
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 111

expects to design such process by using the case of technology-based SME

from an emerging economy. While corporate sustainability is still a challenge
for SMEs from emerging markets that operate abroad, changes in the business
environment from traditional to digital market may provide some opportuni-
ties to SMEs to internationalize and obtain long-term sustainability in the for-
eign market.
This chapter is organized as follows: first, it discusses the theoretical issues
about speed in pre- and post-entry stages and the motivations from emerging
market firms to internationalize. After, it exposes the methodological approach
and describes and analyzes the case, contributing with some theoretical propo-
sitions, leading to the final remarks and conclusions.

Theoretical Issues

Determinants of Pre- and Post-internationalization

Studies about the precocious process of internationalization have been concen-
trating on behavior approach theories, specially the studies of International
New Ventures (Oviatt and McDougall 1994, 2005).Studies approaching accel-
erated internationalization examine speed under different lights (Zucchella
et al. 2007), as in the beginning of international activities, during growth and
international expansion, and in firm’s survival.
Speed during the process of internationalization of the firm can be under-
stood in two stages, pre-entry and post-entry. Both stages, pre and post, cor-
respond to the same process, although presenting distinct determinants and
consequences. But despite being different, both stages are dependent, what
occurs on the first will affect, positively or negatively, the subsequent stage. On
post-entry phase, for international growth of the firm, less time would have a
positive effect, but not for its survival, where less time would have a negative
effect (Sapienza et al. 2006; Mudambi and Zahra 2007). This is in consonance
with Gerschewski et al. (2015), which highlighted that different dimensions of
international activities may be an outcome of different determinants that need
to be acknowledged in order to have a full perspective on the overall speed of
internationalization. The pre-entry stage may be defined as “the time lag
between the founding of a firm and the start of international operations”
(Autio et al. 2000, p. 909), where the determining factors are analyzed as
being those that allow firms to make its first entrance on the international mar-
ket. On the post-entry stage, determinant factors are analyzed as those that
rapidly propel international expansion and is defined as “post-entry or post-­
internationalization” once the company has started internationalization
(Prashantham and Young 2011).
Dominguez and Mayrhofer (2017) and Efrat and Shoham (2012) indicate
that in the process of internationalization influences differ between the two
stages; in the pre-entry stage, external factors have more positive effects on
112 B. M. Z. F. MAYER ET AL.

firm’s performance, as opposed to internal factors, which have greater impact

on the post-entry stage.
Therefore, the determinants of accelerated internationalization during pre-
and post-entry stages are distinct, and can be arranged in three main perspec-
tives of analysis: the entrepreneur-based view, the firm-based view, and the
external factors-based view. The three perspectives are based on the model of
Zahra and George (2002)—which indicates environmental and strategic fac-
tors (external factors-based view) as potential moderators of the relation
between organizational factors (firm-based view) and the dimensions of entre-
preneurship (extent, speed, scope)—and on the studies of Oviatt and
McDougall (1994), which highlight the aspects of entrepreneurship for the
formation of international new ventures (INVs).
From the perspective of the entrepreneur, the determinant factors of pre-­
internationalization, the entrepreneur international experience (Zucchella
et al. 2007; Musteen et al. 2010; Casillas and Acedo 2013), and the entrepre-
neurs’ networks (Pla-Barber and Escribá-Esteve 2006; Felzensztein et al. 2015)
appear as crucial aspects for precocious internationalization. Experiences gained
by working and studying abroad provide personal aptitudes to get familiar with
other cultures, to develop a global mindset, and to establish network ties,
which minimizes the risk perception enhancing the confidence of the entrepre-
neur to take a step ahead toward international markets (Osarenkhoe 2009;
Musteen et al. 2010). On the post-entry stage, entrepreneur characteristics
such as international experience (Casillas and Acedo 2013; Mudambi and
Zahra 2007) and entrepreneur personal network ties (Khan and Lew 2018;
Safari and Chetty 2019) also positively influence rapid international expansion.
On the firm-based view, among firm’s internal factors that propel accelera-
tion of internationalization on the pre-entry stage are those related to the
firms’ innovation and knowledge intensity (Osarenkhoe 2009), comprehended
through product innovativeness and innovation capacity (Autio et al. 2000;
Luo et al. 2005). Niche positioning (Zucchella et al. 2007) is also a significant
factor on precocious internationalization, for it allows the firm to differentiate
from international competition obtaining advantages and henceforth accelerat-
ing its process. During the post-entry stage, firm’s networks(Gerschewski et al.
2015; Safari and Chetty 2019), a diversification strategy (Casillas and Moreno-­
Menéndez 2014; Sadeghi et al. 2018), and technological capacity (Luo et al.
2005; Khavul et al. 2010; Musteen et al. 2010; Teixeira and Coimbra 2014)
are pointed as propellers of rapid international expansion. Nonetheless, regard-
ing firm’s external aspects (external factors-based view), speed propellers
observed during pre-internationalization stage are cultural distance (Luo et al.
2005; Chang and Rhee 2011; Casillas and Moreno-Menéndez 2014) and
firm’s location (Casillas and Acedo 2013; Teixeira and Coimbra 2014). When
firms are located on companies’ conglomerates, they tend to have a superior
position concerning market information, networks, and marketing practices
that nourish firm’s further expansion (Luo et al. 2005). Lastly, within the
determinants of the firm’s external factors for post-entry internationalization,
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 113

so far the first mover advantages (Fariborzi and Keyhani 2018) and number of
countries (Chang and Rhee 2011; Felzensztein et al. 2015; Hilmersson et al.
2017) appear to have the biggest influence on internationalization speed.
Analyzing the determinants for speed of internationalization in both stages,
network appears as a preponderant factor, for networks enhance the learning of
foreign environments, and they provide valuable information to develop capa-
bilities (Laurell et al. 2017) to improve the company’s outcomes to reach its
objectives. However, those networks go beyond commercial scope for market
services (Sedziniauskiene et al. 2019); they need to be locks for the generation
of new or reinforcement of old innovative capacities of the firm (Laurell et al.
2017). It is understood that access to resources that generate new competences
and innovation for the firm are the more strategic ones, which lead to long-­
term sustainability. Hence, a new element appears as a turning point, the
importance of innovative capacities generators for TBFs in process of interna-
tionalization. Therefore, for TBFs the insertion in innovative ecosystems con-
tributes to the support of international business, for it has elements and actors
that enable an increase in innovation in firms (Autio and Thomas 2014) and
consequently brings the conditions for the firm to reach and sustain a superior
position in international competition. Table 6.1 summarizes determinant fac-
tors on internationalization speed discussed in this session both in the pre- and
post-entry stages, which composes the first category of analysis of the case study.

Consequences of Pre- and Post-internationalization Speed

As determinants of internationalization speed differ between stages pre- and
post-entry, so do its consequences. Studies have focused in understanding the-
ses effects with temporal frames on pre- or post-internationalization stages.
Khavul, Perez-Nordtvedt, and Wood (Khavul et al. 2010) analyzed the rela-
tion between organizational entrainment among international new ventures
(INVs), and their most important international customers positively moderate
the relationship between the degree, scope, and speed of internationalization
and performance of INVs from emerging markets and have found out that the
degree and scope have a positive effect over firm performance, although the
speed was not proved. Analyzed performance was the perception answerers had
over growth in international sales, profitability, market share, and firm’s com-
petitive position. Accordingly, Zhou et al. (2012) produced a similar study and
successfully sustained the hypothesis that INVs from emerging countries
reached a positive result, on answerers’ perception, in growth in international
sales, in profitability, and in market share, and this relation was mediated by
marketing capability development.
On yet another study that analyzes the INV of emerging countries, Deng
and Sinkovics (2018) examine the relationship between rapid export expansion
across institutional distance and overall firm performance (net profit divided by
total sales) and affirm the relationship to be positive when INVs export
114 B. M. Z. F. MAYER ET AL.

Table 6.1 Determinants of pre- and post-internationalization

Determinants Pre Post

Entrepreneur’s Entrepreneur’s international Entrepreneur’s international

perspective experience (Zucchella et al. 2007; experience (Casillas and Acedo 2013;
Musteen et al. 2010; Casillas and Mudambi and Zahra 2007).
Acedo 2013). Entrepreneur’s personal network
Entrepreneur’s networks (Pla-Barber ties. (Khan and Lew 2018; Safari and
and Escribá-Esteve 2006; Chetty 2019).
Felzensztein et al. 2015).
Risk perception and entrepreneur’s
confidence (Osarenkhoe 2009;
Musteen et al. 2010).
Firm’s Firm’s Network (Laurell et al. Firm’s networks (Gerschewski et al.
perspective 2017). 2015; Safari and Chetty 2019).
Firm’s innovation and knowledge Strategy diversification (Casillas and
intensity. (Osarenkhoe 2009). Moreno-Menéndez 2014; Sadeghi
Product innovativeness and et al. 2018).
innovation capacity (Autio et al. Technological capacity (Luo et al.
2000; Luo et al. 2005). 2005; Khavul et al. 2010; Musteen
Niche positioning (Zucchella et al. et al. 2010; Teixeira and Coimbra
2007). 2014).
Internal Factors (Dominguez and
Mayrhofer 2017; Efrat and Shoham
2012).
External Cultural distance (Luo et al. 2005; First-mover advantages (Fariborzi
factors-based Chang and Rhee 2011; Casillas and and Keyhani 2018).
view Moreno-Menéndez 2014). Number of countries (Chang and
Firm’s location (Casillas and Acedo Rhee 2011; Felzensztein et al. 2015;
2013; Teixeira and Coimbra 2014). Hilmersson et al. 2017).
External factors (Dominguez and Firm’s location (Luo et al. 2005).
Mayrhofer 2017; Efrat and Shoham Insertion in ecosystems of innovation
2012). (Autio and Thomas 2014).

Source: Elaborated by the author

upwardly to more open countries, yet the relationship to be negative when

INVs export downwardly to less open countries.
In common, both studies point internationalization speed of INV from
emerging markets in pre-entrance stage to have a positive effect over firm’s
performance’s index. But the question is, what are the consequences on post-­
entry phase?
Studies on the effects of speed over post-internationalization are still incon-
clusive. Research by Mohr et al. (2018) has found a decrease in investment as
a consequence of rapid internationalization on post-entrance. Nonetheless, the
study has concentrated on retail companies, which present differences when
compared to firms from other sectors, such as TBFs. Mohr and Batsakis (2017)
also analyzed the market-seeking expansion of 110 retailers over a ten-year
period and found support for a curvilinear relationship between international-
ization speed and firm performance that is moderated by the geographic scope
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 115

of firms’ internationalization path and firms’ international experience. Other

studies have also found evidence that the post-entry speed of internationaliza-
tion may have negative consequences, especially on performance. Jiang et al.
(2014) have focused on the speed with which subsidiaries are established and
concluded that speed was negatively associated with subsidiary survival, so the
early mover subsidiaries are less likely to make a profit when they are estab-
lished with faster speed. According to Hilmersson and Johanson (2016), the
speed of increased commitment of resources abroad has a negative and curvi-
linear effect in firm performance and the speed of increased dispersion of inter-
national markets has a positive and curvilinear effect on firm performance.
The conclusion is that time associated to commitment, sales, or dispersion
will have different results on firm’s performance.
This way, Hilmersson (2014) has found that the scope and speed of interna-
tionalization render a positive performance effect (measured using the firm’s
return on total assets), whereas the scale of internationalization does not.
Chang and Rhee (2011) sustain that speed positively affects firm performance
with a strong brand, and firms with intensive global competition. Accordingly,
Chetty et al. (2014) discovered that there is a positive relationship between
speed and international performance, and firms that internationalize earlier
have faster speed of internationalization process.
The conclusion is that during pre-entry stage the speed of internationaliza-
tion will have a positive effect over firm’s performance, but for international
expansion it can bring negative effects, which can compromise long-term sus-
tainability. Table 6.2 presents the consequences of speed of internationalization
in pre- and post-entrance stages, which will compose the second category of
analyses of the case study.

Internationalization Motives for Emerging Market Firms

During the process of internationalization of emerging market companies, the
manner in which they explore resources, both at home and in host country, will
have consequences to the type of motivation the firm will have to expand inter-
nationally. There are two types of advantages, one on the level of the firm, the
competitive advantage—Firm-Specific Advantage (FSA)—and the other from
the place/country, the comparative advantage—Country-Specific Advantage
(CSA) (Rugman and Verbeke 1998). According to Cuervo-Cazurra et al.
(2015), the reason for internationalization for firms from emerging markets
can be classified as four types, sell more, buy better, upgrade, or escape.
To sell more, the company exploits existing resources and capabilities at the
home country to obtain access to a larger market and increase revenues. So, the
firm explores home country conditions to gain economy-scale selling for the
domestic and international markets, getting access at better host country con-
ditions, like market opportunities to increase revenues (Cuervo-Cazurra et al.
2015). To buy better, the company exploits existing resources and capabilities
at the host country to avoid the comparative disadvantages of poor home
116 B. M. Z. F. MAYER ET AL.

Table 6.2 Consequences of speed of pre- and post-internationalization

Pre Post

(+) Degree and scope of (−) Decrease in investment abroad. (Mohr et al.
internationalization affect positively firm’s 2018).
performance (perception of growth in (−) The market-seeking expansion has a
international sales, profitability, market curvilinear relationship between
share, and competitive position) (Khavul internationalization speed and firm performance
et al. 2010). that is moderated by the geographic scope of
(+) INVs from emerging countries reached firms’ internationalization path and firms’
positive growth in international sales, international experience (Mohr and Batsakis
profitability, and market share, relationship 2017).
mediated by marketing capability (−) The speed of increased commitment of
development (Zhou et al. 2012). resources abroad has a negative and curvilinear
(+) Relationship between rapid export effect in firm performance (Hilmersson and
expansion across institutional distance and Johanson 2016).
overall firm performance (net profit divided (−) For survival, to which less time would have a
by total sales) when INVs export upwardly negative impact (Sapienza et al. 2006; Mudambi
to more open countries—yet the and Zahra 2007).
relationship is negative when INVs export (+) The speed of increased dispersion of
downwardly to less open countries (Deng international markets has a positive and curvilinear
and Sinkovics 2018). effect on firm performance (Hilmersson and
Johanson 2016).
(+) The scope and speed of internationalization
render a positive performance effect (firm’s return
on total assets) (Hilmersson 2014).
(+) The speed positively affects firm performance
with a strong brand, and for firms with intensive
global competition (Chang and Rhee 2011).
(+) There is a positive relationship between speed
and international performance (Chetty et al.
2014).
(+) For firm’s international growth, less time
would have a positive effect (Sapienza et al. 2006;
Mudambi and Zahra 2007).

Source: Elaborated by the author (2019)

country conditions. The firm uses the sources of comparative advantage to help
it to face competitors better by reducing the relative comparative disadvantage
of the home country. In this case, the firm may choose to reduce operations in
the domestic market and increase operations in foreign markets (Cuervo-­
Cazurra et al. 2015). To upgrade, the company exploits new resources and
capabilities in better host country conditions (comparative advantage of host
country) to improve its existing operations and its competitiveness (competi-
tive advantage of companies). In this case, the firm’s “focus is on the upgrading
of the home country by exploring new sources of advantages abroad” (Cuervo-­
Cazurra et al. 2015, p. 32). To escape, the company exploits new resources and
capabilities in the host country to avoid poor home country conditions, and to
gain efficiency in its operations, accessing new sources. In that case, probably
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 117

the firm will expand activities in the host country and will reduce or close its
activities in the home country (Cuervo-Cazurra et al. 2015).
This perspective is particularly important to understand the internationaliza-
tion of firms from emerging markets that faced many challenges from poor
home country conditions. This study will analyze these internationalization
motives in the Brazilian TBF case. The TBFs from emerging countries are
dependent on specific resources and capabilities, like technology and skilled
labor, and in many cases they try to explore these resources abroad, expanding
internationally. For the companies operating in emerging markets, internation-
alization is one strategic option to grow and acquire resources and capacities
(Guillén and García-Canal 2009).It is understood that the dynamicity of the
process of internationalization may lead to changes in the motivation between
pre- and post-internationalization stages, due to experience acquired by the
firm in international operations, which may lead to reviewing strategic goals
regarding internationalization. It is also understood that target market attrac-
tiveness is not enough to guaranty long-term sustainability. The motivations
for internationalization—sell more, buy better, upgrade, and escape—in
emerging market firms will compose the third category of analyses of this
case study.

Method
The research uses qualitative method, given the descriptive and exploratory
approach proposed (Eisenhardt 1989). A single case study method was chosen
(Creswell and Poth 2016) in order to capture the nuances related to motiva-
tion, to the propellers and consequences of speed of internationalization dur-
ing pre- and post-entry stages. The goal is to understand how the Brazilian
TBF conducts its process to achieve long-term sustainability and obtain the
in-depth knowledge needed to answer our research question (Yin 2003). Small
and medium Ttechnology-based firm was the object of analysis. Prashantham
and Young (2011) argue that the strength of the competitive advantage of
TBFs lies first in their own structure: technological knowledge and market
knowledge. TBFs can quickly apply improvements to identified needs and
adapt to acquire a greater volume of customers (Zahra et al. 2000). In addi-
tion, TBFs bring innovation to products and accumulation of knowledge to
compete in the international market (Wiklund and Shepherd 2003).

Case Selection
The criteria for selecting a single case study (Yin 2003) was due to a set of
peculiar characteristics of Audaces, the chosen firm, which allows the under-
standing of how a Brazilian TBF leads a fast process of internationalization in
order to achieve long-term sustainability. Such characteristics are as follows: it
is established in the 1990s, when the phenomenon of INV starts to be studied;
it leads an accelerated process of internationalization, both during entrance and
118 B. M. Z. F. MAYER ET AL.

expansion to near and distant markets; it starts its process without managers’
previous international experience; it is located outside of a reference pole in its
area (fashion/clothing/textile); it comes from an emergent country and begins
its process in a time when Brazil is opening its markets, without any world
reference technology firms; it has 22 years of international permanence; it has
had international divestment and performed direct foreign investment South-­
South and South-North.

Data Collection
Data was collected and crossed from two different sources (Eisenhardt 1989).
The first was multiple in-depth, semi-structured interviews. Interviews were
conducted between August and December of 2018. The subjects were the
founder/director of the company (01 h 40 min) (E1), the international man-
ager (45 min) (E2), and the commercial manager (01h 22 min) (E3). For the
interviews, it was designed a protocol with questions that would capture the
motivations and propellers of acceleration and long-term sustainability during
pre- and post-entry stages (available in Appendix). The interviews were
recorded and transcribed.
The second was secondary data for obtaining additional information cap-
tured from official websites, press releases, articles published in the media,
institutional material, and papers about Audaces.

Data Analyses
After meticulous reading, interviews were codified into analytical tables, with
the assistance of Atlas Ti software, for a better understanding of the data.
In this phase, the story of the internationalization process is described in a
longitudinal perspective, in a manner to chronologically understand how the
firm developed its strategies in order to achieve long-term sustainability. After
that, it is analyzed according to previous analyses categories: (1) international-
ization path, pre stage—(2) motivation, (3) propellers, and (4) consequences
of speed; post stage—(5) motivation and (6) long-term sustainability propel-
lers. Quotations were organized, analyzed, and interpreted in a manner to
answer to the questions posed by this study. Therefore, outcomes of the inter-
views were crossed with secondary data collected.

Description of Audaces Case

Audaces was idealized by five computer sciences students who started the com-
pany in 1992 at CELTA — a TBF incubator in Florianópolis, Santa Catarina,
Brazil. Today, it has 240 employees, around 8500 clients, partnerships with
over 200 educational institutions in fashion/textiles, present in over 70 coun-
tries, with a factory in the city of Trento, Italy.
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 119

After a brief history in furniture, in 1996 it turned its focus to fashion:

“around 1996 we perceived a need in the textile industry. There was little com-
petition, it was foreign, expensive, and offered bad services. It was when we
changed for textiles” (E2). They continued in textiles and operated with soft-
ware and equipment for this industry. The product line emerges as a product
of the lack of domestic competition, and for that reason already pointed at
internationalization as a strategy of expansion, although there was still a seg-
ment to be explored in the Brazilian textile market. “In 1996 we were the only
ones in Brazil to do what we were doing. We knew the all the competition was
abroad and being in the global market was important for Audaces. A technol-
ogy company cannot be in one country only” (E1).

Internationalization Process: Pre-internationalization Phase

Ground zero of internationalization history was in 1996, with the participation
in two international fairs in textiles, which resulted in the prospection of poten-
tial international clients. They started in Argentina, where they developed the
first international partnership. “The opportunity came in a fair. Due to the
proximity to Florianópolis, an Argentine said ‘I want it, it’s ok if it’s Brazilian,
I want it’. There we realized that if we could sell to him we could sell to oth-
ers” (E3).
After that, they closed deals with Spain and Venezuela. After 1999, fashion
and textile fairs became the company’s main strategy to prospect new interna-
tional opportunities. “It happened because of the opportunities we had in fairs
in Latin America. We saw the opportunity in international markets when we
started the first export” (E2). But they needed persistency, for international
market demanded thrust. “This is a long term investment. In some fairs we
started investing in 2006-2009-2012, around the third time you come back
they start really taking you for real. Ahhh those Brazilian guys are here for the
third time, I think we can thrust them” (E1).
The access to first markets brought contributions for adapting the products,
and so the strategy was expanding to countries with similar cultures, using
adaptations already made: “we thought of these countries after Argentina
(Spain, Venezuela, Peru) for having the same language. As the evolution of
those contacts after the fairs were quick, we thought: we can’t go wrong
there” (E3).

Internationalization Process: Post-internationalization Stage

In 2000, after participating in a fair, they entered the Peruvian market. In
2002, they participate in the JIAM fair, in Osaka, Japan. There they met the
director of IBERTEC, a distributer of industrial automation systems in Europe
and started a partnership that consisted in the adaptation of the Audaces soft-
ware for meeting the needs of the European costumer. With just a few adjust-
ments, the company managed to export to Spain, Italy, and Japan.
120 B. M. Z. F. MAYER ET AL.

According to the content in E3, all this internationalization movement

wasn’t planned at the beginning and also wasn’t motivated by previous inter-
national experience. However, quick internationalization after first fairs was
motivated by the recognition that they had a solution superior to those avail-
able at the international market: “we saw a global opportunity, since we only
have two globally strong competitors, but their software is not as optimized as
ours, it was a great opportunity to think about dominating some markets” (E2).
With a stand at the Intermoda fair, in the city of Guadalajara, in 2003, they
closed deals and partnerships in Mexico. In the year of 2004, they participated
in Colombiatex, and in the same year they starte partnerships and sales for
Colombia, Guatemala, Uruguai, and Lithuania. In 2005, through a represen-
tation company in El Salvador, they entered the markets of El Salvador,
Nicaragua, Costa Rica, and Panama. In the same year, an Egyptian company
came looking for a partnership deal and brought new businesses.
Despite not facing language barriers, cultural dressing barriers came in some
countries, but they were quickly overcome: “In Europe, for example, they have
the costume-made culture. But our product was designed for an industry that
produces millions of the same piece. We have to make some changes in order
to better serve this market” (E2).
Therefore, by the end of 2005 they were already leaders in Latin America
and had a mild participation in more distant markets such as Europe, Japan,
and Egypt; they had validated a model for international operation through
commercial partnerships, as well as developed a structure to maintain interna-
tional operations.
The entrance into other countries after 2006 continued in quick pace, partly
for the participation in fairs and partly for the expansion in commercial partner-
ships. And for guaranteeing the entrance in new markets, Audaces continu-
ously built a successful case in each country to show credibility to new potential
clients. Acquired knowledge from previous experiences gave subsidies and con-
fidence to get speed in entering new markets. Also, international experience
developed by the team allowed designing more assertive processes with time.
“Today we have in our international area multidisciplinary people … when you
go make business abroad you need to know a little bit of everything. If you are
focused on only one area, you’ll suffer in the others” (E2).
In this scope, they have redirected the international strategy to prioritize
markets. “Today we have the strategic markets’ department, focused in a few
markets, in order to develop nourished markets. We came to the conclusion
that the world is too big to embrace at once … it is one thing to sell and
another one to develop the market, develop a culture there to be a sales leader.
Today we focus on developing markets. We have someone to work with market
opportunities that are outside the focus” (E3). Hence, to guarantee long-term
sustainability in the countries Audaces was, they focused on developing mar-
kets and structuring processes for local demands, improving their capacity to
respond locally. “today sales happen through partners. Our job is to go there
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 121

to support sales, make sales enablement, give them support, orientation, con-
trolling goals. But they do the hands on sales operation” (E3).
In 2007, the firm tried an investment on the Spanish market with the open-
ing of a commercial unit in Barcelona. Led by the firm’s commercial director,
it started two partnerships with distributers, but closed its activities in 2008
due to the world crises (Ramos and Alperstedt 2010).
Business model was also altered, but the challenge was integrating the model
internationally, due to differences between markets. Those changes represent
market differentials and Audaces can adopt a pioneer position, but at the same
time it depends on conservative moves from the global competition that estab-
lishes market patterns. “We have two strong global competitors, with more
than 50 years of experience, those are very big and strong companies, with a
square model, they only sell for life” (E3). This makes altering business model
become risky. Those strategic changes occur also due to movements in other
Brazilian TBFs that start to adopt a recurring revenues model through SaaS—
Software as a Service—but to succeed it was essential that market adopted
cloud computing. Henceforth, Audaces brings this new model to its operation
“This year we are starting sales with recurring revenues, changing the product
to SaaS and probably we’re going for this e-commerce line. But it’s still a chal-
lenge because it’s a complex product to sell. Manage to sell this software that
enters the manufacture cycle and that is self-service, enabling the client to click
there and buy, it’s still a challenge, it’s not a cheap software” (E3). And it faces
resistance: “Here in Brazil it is easier to implement SaaS because it’s a culture
that’s more used to services. Outside, nobody wants to rent. Specially in Asia,
they say: ‘how is this going to be in the cloud? What if there’s no cloud?’ In
Europe also, incredible as it may sound, they have this difficulty in accepting
SaaS. It is the only continent in which no one bought SaaS, only life licenses.
In Latin America, some accept, others don’t. […] in Central America, this dif-
ficulty doesn’t exist because the companies in our niche are all very big,
American or Korean capital” (E2).
Audaces’ long-term sustainability depends on the efficiency of its business
model, based on commercial partnerships, hence depending on the engage-
ment of local partners for commercializing its products. Henceforth, they have
developed a “channel engagement index” which consists in evaluating existing
channels through “structure, capillarity, coverage, formation, clients’ list”
(E3). Investment in each country happens according to market segmentation
strategies; the company evaluates in which stage each country is for its product
and works according to its maturity.
Even with the business model based on commercial partnerships, in 2010,
with an increase in demand in Latin America, Audaces opened three own com-
mercial units, in Argentina, Colombia, and Mexico, and, in 2012, in Peru.
The opening of the Colombian unit was encouraged by the closing of the
partnership with a local distributor in 2009, when the country presented good
marketing potential and the firm needed to restore its image, deteriorated by
this former partner (Ramos and Alperstedt 2010). In Mexico, the market
122 B. M. Z. F. MAYER ET AL.

potential was associated with the low level of qualification of the Mexican part-
ner, so Audaces decided to take charge of operation to guarantee quality and
the market. Things were different in Argentina, where partnership was well
established and working, but there was a potential for expansion (Ramos and
Alperstedt 2010). Here started a new cycle through own sales offices.
In 2014, the firm started to plan a direct investment in Italy, motivated by
the country being a world reference in high fashion and by an increase in cli-
ents in that market, to which they still exported. “We’ve always had the goal to
be abroad , not only for revenues, but for competing on the best markets,
which would improve the quality of our services in Brazil. Our target was to
grow in number of clients” (E1). Given the relevance of the market, the impor-
tance of proximity with reference clients, and the potential of entering even
more distant markets such as Asia and Africa from Europe, they indicated a
strategic intention of opening a subsidiary in Italy. “A no turning back decision
with a defined strategy to be closer to the Asian market, to which we also sell
in large scale.” “By developing systems and equipment, Audaces is thinking
about the demanding costumer from Europe. That way we can sell world
wide” (NSC 2018). Despite knowing the Italian market through its partners,
the firm had some trouble culturally adjusting. “The biggest barrier to opening
our own firm in Italy was the cultural difference, even already having 400 cli-
ents there, this was the biggest problem. They are nice clients, important refer-
ences, but until you can actually understand how they work it’s hard. Each
country has its own particularities, even the wording, we need to adjust” (E1).
The choice of location inside Italy, hence, is given by factors that could gen-
erate innovation for the company: “In Italy, creative centre of world fashion,
believing the transformative strength of design, we are located in the region of
Trento, one of the most important poles of mechatronic technology of Europe”
(Audaces 2019). The importance of networks, besides commercial scope,
reveals a new strategic step for Audaces, searching for a more adequate envi-
ronment to develop its international business in an ecosystem of innovation.
“Investment in labour can be decisive in the process of internationalization,
specially when dealing with innovative technology to a certain segment. It is
possible to establish partnerships with teaching institutions and government
entities that can favour that measure. Guaranteeing support and maintenance
through local technicians and distributors is usually also a relevant strategy
because it reduces industries’ production costs, crucial aspect for the survival of
so many firms” (Pereira 2019).
Due to the opening in Italy, Audaces decided to close its offices in Argentina,
Mexico, Peru, and Colombia, passing the operation to its commercial partners
(distributors). It also realigned its international structure, and, now, from the
headquarters in Brazil they work the markets in the Americas and from its sub-
sidiary in Italy they work the European, Asian, and African markets
(Audaces 2019).
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 123

Results: Development of Propositions

It has been observed that the determinants of speed of internationalization, the
initial motivation and consequences of the pre-internationalization stage have
differed from the post-internationalization stage (Chetty et al. 2014; Sadeghi
et al. 2018). Nevertheless, there is dependency between stages; initial conse-
quences have been the basis for further movements at Audaces.
By starting internationalization, the firm enjoyed recognition for its innova-
tive capacities in the market niche it worked, which represented a competitive
differential in face of the international competition. Niche positioning (Zucchella
et al. 2007) is an important catalyzer for precocious internationalization, for it
allows the firm to differentiate from the international competition, speeding up
its process. Moreover, the innovative (Autio et al. 2000) and niche product (Luo
et al. 2005) needs to seize the moment of competitive differential and so did
Audaces, which contributed for accelerating its initial process of internationaliza-
tion. The realization that they had an innovative product led them to interna-
tional fairs and the establishment of commercial networks (Oviatt and McDougall
2005), speeding the internationalization process.
The consequences of the precocious internationalization were positive in
terms of performance, as advocated by previous studies by Khavul et al. (2010)
and Zhou et al. (2012). Furthermore, the results were beyond financial perfor-
mance (Zahra and George 2002). The firm found in internationalization a way
to keep innovating for better-serving external markets, as well as the domes-
tic market.
Henceforth, in the beginning the motivation was “sell more”, seizing initial
conditions in resources and home country capacity (Cuervo-Cazurra et al.
2015), Audaces’ source of innovation so far. This leads to the following
proposition:

P.1: In the pre-entry stage, external factors – captured in terms of international

opportunities – and internal factors – captured as niche positioning, innovative
products, and legitimacy – have a higher impact on the speed of international-
ization, suggesting a sell-more motivation.

During the post-internationalization stage, network continues to be a pro-

peller of acceleration for international growth(Gerschewski et al. 2015; Safari
and Chetty 2019) that leads to long-term sustainability. However, in order to
lead to long-term sustainability, network needs to go beyond commercial scope
and include educational institutions and governments, as institutional network
(Sedziniauskiene et al. 2019). Also, it is important to be close to big clients to
guarantee responsiveness (Barlett and Ghoshal 1990). In the same way, the
post-entry stage also presents some particularities that are dealt with as the firm
continues in the market and acquires legitimacy. “Intangible assets such as rep-
utation and networks can significantly influence the speed and degree of inter-
nationalization” (Zahra and George 2002, p.16).
124 B. M. Z. F. MAYER ET AL.

The speed of internationalization that leads to long-term sustainability

depends on the level of input of resources (commitment). According to
Hilmersson and Johanson (2016), the speed of increased commitment of
resources abroad has a negative and curvilinear effect in firm performance but
the speed of increased dispersion of international markets has a positive and cur-
vilinear effect on firm performance. In the Audaces case, the initial exportation
model lasted for almost ten years, changing for a commercial model that passed
through distributors and overseas offices, which lasted for another seven years
and, two years ago, the model changed again to an overseas unit. That way, speed
was in the replication of tested models. The adoption of new models that would
implicate a larger amount of resources commitment demanded more time.
This strategy diversification dynamism (Casillas and Moreno-Menéndez
2014; Sadeghi et al. 2018) accelerates international expansion and leads to
long-term sustainability and subsequent permanence of firms in the interna-
tional market, with goals exceeding financial performance to reach technologi-
cal capacity (Khavul et al. 2010; Musteen et al. 2010; Teixeira and
Coimbra 2014).
Post-entry internationalization speed was a consequence of the possibility of
replication of the business model tested and validated in the overseas market
until there was a need for strategic change, in this case propelled by an external
factor: world reference big clients’ demands. Hence, this dynamics for better
competitive conditions led the firm to achieve long-term sustainability and
ulterior permanence.
Permanence in international markets is therefore aligned with the possibility
of replication of tested models, performance, and access to new sources of
innovation, as well as external factors such as firm’s location (Luo et al. 2005)
and the immersion in innovative ecosystems (Autio and Thomas 2014) provid-
ing exchanges among companies in the market.
By being present in the largest market of its segment, Audaces is up-to-date
with tendencies and needs of that industry. Permanence overseas provides the
possibility of internalizing knowledge acquired in the Italian market, applying
it in Brazil and vice versa, boosting innovation in Audaces’ products and ser-
vices worldwide. Lastly, being located in an innovative ecosystem, as source of
connections and innovation, brings the firm the capacities it needs to continu-
ally adjust and stay overseas. That leads to the second proposition:

P. 2 In order to achieve permanence the firm needs to reach long-term sustainabil-

ity in foreign markets, connected to performance, scalability of business model,
innovation, network, big clients, legitimacy, and responsiveness.

The case demonstrates new findings regarding motivations for internation-

alization after the first experiences in foreign markets. They have created and
tested their business model, going for rapid replication, which contemplated
scalability of business model applied to new contexts/markets. However, they
needed to keep innovating to guarantee long-term sustainability and that led
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 125

to strategic change, in this case directly catalyzed by large clients in Italy and
the attractiveness of the host country as a whole, with resources and capacities
complementary to the ones in the home country in a motivation for upgrading
(Cuervo-Cazurra et al. 2015). Moreover, they find in the host country a way
to escape the weak institutional conditions in Brazil, such as juridical and tribu-
tary insecurities. So, in this case, there is an intersection between upgrade and
escape: on the one hand, exploring complementary resources and capacities;
on the other, escaping a weak institutional environment. All with the incentive
of large clients in the host country demanding proximity from its suppliers.
That leads to a third proposition:

P.3: In the post-entry stage, firms from emerging markets are likely to adopt an
upgrade and escape strategy of internationalization to obtain better conditions
from home and host country and to avoid the poor institutional conditions in
the home country.

Table 6.3 brings a summary of obtained results in each category of analyses,

showing the difference and corelation between pre- and post-­
internationalization phases.

Table 6.3 Motivations, speed propellers, and consequences of pre- and post-­
internationalization stages in the Audaces case
Pre-internationalization stage

Motivation Propellers Consequences and expansion factors

Sell more Access to international opportunities Seizing accomplished adaptations

Innovative niche product in the Validated commercial model
international market Legitimacy and thrust
Commercial network
Development of internal capacities
Development of new markets and
clients
Post-internationalization stage
Motivation Propellers Consequences and factors for
long-term sustainability
Upgrade Possibility of replication and scalability Home and host countries as sources
of business model of innovation
Responsiveness to world reference Location in innovative ecosystem
large clients Expansion of network (institutional)
Strategic changes toward better-­ beyond commercial boundaries
competitive and innovative conditions Consolidation of business model
Global legitimacy
International hub
International permanence
Escape Access to better institutional conditions Development of alternatives to deal
with home country restrictions

Source: Elaborated by the author (2019)

126 B. M. Z. F. MAYER ET AL.

Final Remarks
Given the dynamicity and speed of the internationalization process of TBFs,
this study helps to explain how TBFs from emerging countries conduct a
speedy process that creates room for long-term sustainability leading to inter-
national permanence. Considering there are two stages of internationalization,
pre- and post-entry, the study explores the differences among them in terms of
propellers and consequences of speed, and the motivations inherent to the
speedy internationalization process in a longitudinal perspective. The study
contributes with the literature in a manner to bring new factors as outputs of
speedy internationalization in the post-entry phase, especially international
permanence, which is beyond operational financial performance. Permanence
emerges in this case as an output reached by long-term sustainability, which is
strongly related to innovation, international legitimacy, institutional and com-
mercial network, scalability of business models, and responsiveness to world
reference large clients. Moreover, the study highlights that firms from emerg-
ing countries can change their motivation for internationalization throughout
the process, exploring resources and capabilities both at the home and host
countries. In the case of Audaces, initial motivation was Sell More with strong
dependency on the home country as source of resources and capacities, but it
changed to a hybrid perspective between upgrade and escape: first looking for
new sources of capacities and resources in Italy to maintain its innovative and
technological capacities and, at the same time, escaping weak institutional con-
ditions typical to emerging countries.
From the perspective of emerging countries-based TBFs, this study contrib-
utes to the understanding of the changes that occur between pre- and post-­
entry stages, highlighting that the factors that propelled the start of the speedy
internationalization are complementary—however different from the ones that
lead to long-term sustainability and subsequent international permanence.
In this case, we advance the debate by pointing that the concepts of perfor-
mance and survival are concepts basically related to the firms’ pre-­
internationalization stages. The perspective that underpins such concepts is to
understand the factors and motivation of internationalization, suggesting that
the resources in pre-internationalization stages may be the same or sufficient to
support their further internationalization.
The concept of international permanence has the advantages of showing
how such resources change over time, and by such process, firms are more
likely to change their own motives and adopt different and, sometimes, com-
plementary approach to sustain their growth in foreign markets. From a pure
international entrepreneurship perspective, this may suggest that firms, partic-
ularly TBFs, can achieve their permanence in international markets by over-
coming their own home country constraints, but that such level of commitment
in the post-internationalization can succeed by establishing different levels of
commitment in the different foreign markets, multiple motivations, and dis-
tinctive network positioning and product development, as the case above
has shown.
 6 THE INTERNATIONALIZATION SPEED OF SMES AND THEIR LONG-TERM… 127

Finally, the concept of international permanence can, in some way, provide

a better framework to connect international entrepreneurship and international
business. While definitely entrepreneurial behavior (proactive, innovative, and
risk-taking) are key factors to the internationalization path of firms, the devel-
opment of new resources and firm-specific advantages is a further stage of firm
development in foreign markets. Such process, in our understanding, is likely
to happen when firms reach the permanence stage of their internationaliza-
tion path.
Results arising from this research, however, present limitations. Because it
was based on one case, replication of results is limited to the context of this
firm, requiring new cases in order to validate and complement findings. The
same scope can be extended to other emerging country companies in longitu-
dinal analyses of the internationalization process, pre- and post-entry.
Furthermore, studies can be expanded in a manner to connect innovative eco-
systems from home and host countries, as propellers of speed and internation-
alization long-term sustainability in the context of TBFs, enhancing the
comprehension of the factors that lead to the permanence of firms overseas.

Appendix: Interview Protocol

The case protocol was divided in three sessions:
Session I—First, questions revolved around the start of internationalization:
How did they approach international market? What motivated the firm to
internationalize?
Session II—Questions about the obstacles throughout the process: Which
were specific facts that marked the process of internationalization and could
have been more natural? What would they do different since the foundation of
the firm? Particularly in the international market, what would they have done
differently?
Session III—Questions about post-entrance stage leading to long-term sus-
tainability: What motivated the firm to grow abroad? What are the companies’
prospects in the international market?

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 CHAPTER 7

Cybersecurity, Personal Data Protection and

Crime Prevention from an Italian Perspective

Rosanna Pittiglio, Filippo Reganati, Federica Ricci,

and Claudia Tedeschi

Introduction
It is a common view that the development of the digital and knowledge-based
economy has yielded extensive benefits for our societies and economy. For
example, the telecommunications, financial services, and transportation indus-
tries, as well as the military and other essential government services, all depend
on the Internet and networked computer systems to conduct most of their

Note, Although the authors have jointly developed this chapter, it was written as
follows: “Introduction”, “The Regulatory Framework as an Incentive to Cyber
Security and Personal Data Protection Investments” and “Conclusion” by F. Reganati;
“Cyber Events and Cybersecurity: A Descriptive Analysis” and “Cybersecurity
Investments: An Economic Analysis” by R. Pittiglio; “The Italian Legal Framework
and the Principle of Accountability Using a Possible Connected Cyber and Personal
Data risk Model”, “Current System and its Reference Context”, “Comparing the Legal
Instruments: Differences and Elements in Common. The Principle of Accountability”
and “A Possible Connected and Flexible risk Prevention and Management Model” by
C. Tedeschi; “Research Methodology” and “Findings” by F. Ricci.

R. Pittiglio
University of Campania “Luigi Vanvitelli”, Naples, Italy
F. Reganati • F. Ricci • C. Tedeschi (*)
Sapienza, University of Rome, Rome, Italy
e-mail: [email protected]; [email protected];
[email protected]

© The Author(s) 2021 131

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_7
132 R. PITTIGLIO ET AL.

day-to-day operations. At the same time, the digital revolution and its implica-
tions for society and business growth are increasingly important in the context
of the near future, due to technological developments like cloud computing
services, mobile deployments, and big data applications. In particular, digital
technologies can facilitate the achievement of the 17 goals set out by the
United Nations 17 in their 2013 Sustainable Development Goals (SDGs)—
from reducing poverty and infant mortality to promoting sustainable farming,
improving health services, fighting discrimination, and achieving universal lit-
eracy. For example, digital health technologies can reduce inefficiencies,
improve access, reduce costs, increase quality, and personalize care (FDA
2017), while the adoption of autonomous vehicles may reduce emissions and
energy consumption providing positive impact on the environment (Lim and
Taeihagh 2018). However, the intensive utilization of the online space has
raised society’s exposure to malicious behaviors, causing an unprecedented
global expansion of computer-based criminal activities. Cyber incidents have
surged, in terms of frequency and costs. According to the Internet Crime
Report (2019),1 business e-mail compromise/e-mail account compromise—
BEC/EAC—incidents in the USA have increased from 16,000 in 2017 to
20,000 in 2018, resulting in losses of nearly US $1.3 billion. On a global scale,
the last report from the Center for Strategic and International Studies (CSIS)
estimated the annual cost of cybercrime, to the global economy, at around US
$600 billion (roughly 0.8% of global GDP). Thus, cybercrime has emerged as
a novel, profitable activity that bears very low risk, which has raised the con-
cerns of governments, citizens, and the private sector.
Given this state of affairs, the goal of investing in cybersecurity and personal
data security has come to pose an important challenge, involving both public
and private entities which, however, do not often have enough sufficient incen-
tive to provide an optimal level of protection (Dynes et al. 2008; Anderson and
Moore 2006). This paves the way for intervention by national governments,
which are better suited to manage the risks associated with cyber events and to
reduce their vulnerabilities. As a matter of fact, the lack of effective cybersecu-
rity and personal data protection measures might have potential knock-on
effects on the development of information societies because it makes digital
technologies a source of risk more than a source of development and erodes
users’ trust, which will in turn cripple adoption and hinder innovation.
This issue becomes particularly relevant in the private sector, where firms
must face a trade-off between allocating their scarce resources to investment in
cybersecurity and personal data security and other competing activities (i.e.,
investments in marketing) that might improve revenues.
In such a context, and from a regulatory point of view, two legal instru-
ments have been adopted recently: the Network and Information Security
Directive—NIS—(Dir. EU 2016/1148), which concerns the security of the
EU’s networks and information systems, transposed onto the Italian legal
system by Legislative Decree 65/2018, and the The General Data Protection

1
FBI’s Internet Crime Complaint Center.
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 133

Regulation—GDPR—(Reg. EU 2016/679), which is self-executing among

the EU Member States and has led to changes in the Italian legal system
(Legislative Decree 101/2018) to meet the new requirements. These legal
instruments are important, because they both introduce a number of obliga-
tions and responsibilities for the entities, which include companies, covered by
these instruments. Consequently, their entry into force represents a chance to
reflect on how, and to what extent, these new rules can optimize investments
in security and affect the organizational structure of companies.
It is worth noting that, although the NIS Directive and the GDPR have
some elements in common, in terms of obligations and responsibilities, the
NIS Directive’s scope is to protect the “network and information system”,
which consists of an e-communication network and the relevant devices and
digital data processed by the said networks or devices; by contrast, the GDPR
protects “personal data”, namely, any information related to an identified or
identifiable natural person.
Therefore, the aim of this chapter is twofold. First, we explore the economic
costs and benefits faced by private firms in the context of their investments in
cybersecurity and personal data security activities. Second, we analyze how the
recent legislative innovations on network security, information systems (EU
Directive 2016/1148, Nis Directive), and the protection of personal data (EU
Regulation 2016/679, GDPR) may affect firms’ organization of activities
aimed at reducing the risk of security breaches. In doing this, we adopt a case-­
study approach focused on an Italian multinational firm (i.e., Leonardo, S.p.A.)
which not only undertakes activities in several sectors (defense, banking and
finance, telecommunications, etc.) but also produces solutions and services
that ensure the security of data, networks, and systems.
In particular, the research questions we seek to address are the following: (i)
to what extent is information security perceived as a business objective by firms’
managers?; (ii) moreover, if firms’ investment in cybersecurity and personal
data security does not meet societal needs, what is the role of the policy-maker
in implementing regulatory or legislative actions?; and, finally, (iii) to what
extent is such legislation effective in implementing an efficient level of cyberse-
curity protection?
The remainder of the chapter is organized as follows: Section “Cyber Events
and Cybersecurity: A Descriptive Analysis” deals with some descriptive data on
cyber events; Section “Cybersecurity Investments: An Economic Analysis”
examines how private firms negotiate the decision to invest in information
security; Sections “The Italian Legal Framework and the Principle of
Accountability Using a Possible Connected Cyber and Personal Data Risk
Model” examines the Italian legal framework and the principle of accountabil-
ity, potentially using a connected cyber and personal data risk model; Section
“Research Methodology” presents our case study; Section “Findings” provides
the results and finally, Section “Discussion and Conclusions” furnishes some
concluding remarks.
134 R. PITTIGLIO ET AL.

Cyber Events and Cybersecurity: A Descriptive Analysis

This section provides some stylized facts relating to the evolution of cyber
activities, from 2014 to 2018, and from which emerges the need for intense
activity aimed at cybersecurity (i.e., techniques to protect computers, networks,
programs, and data from unauthorized access or attacks that are aimed for
exploitation).
Before carrying out our descriptive analysis, two remarks are necessary. First,
this research focuses exclusively on the following three types of criminal activi-
ties connected to the cyber sphere: (i) cybercrime—all those activities (such as
fraud, theft, forgery, distribution of child pornography, incitement to racial
hatred) committed, using a computer especially, to illegally access, transmit, or
manipulate data; (ii) Hacktivism—all activities aimed to compromise or disrupt
the operation of information systems (computers or networks); and (iii) cyber
espionage—those activities aimed to obtain personal, sensitive, or proprietary
information from individuals without their knowledge or consent.2
Second, this preliminary analysis is based on a sample of 5614 cyberattacks
of particular gravity, or that significantly impacted the victims, in terms of eco-
nomic losses, damage to reputation, the dissemination of sensitive data (per-
sonal or otherwise), or that, in any case, prefigure particularly worrying
scenarios occurring in the world (therefore including Italy).3
To this end, we use information collected by CLUSIT—Associazione
Italiana per la Sicurezza Informatica—considered the most substantial and
authoritative Italian association in the field of computer security. Figure 7.1
shows the evolution of three categories of cyberattacks considered over time.
From the figure, it emerges that cybercrime is the most important cause of
cyberattacks at the global level. Over the five-year period, its share shows a
significant increase of around 20 percentage points (p.p.) By contrast, in the
same period, Hacktivism activities have significantly decreased. In 2018, only
4% of cyber events aimed to compromise or disrupt information systems, rela-
tive to 27% in 2014. As for the espionage activities, relative to 2014, their
percentage rose from 13% to 17%. When we look at the victims of cyber events
(Table 7.1), we notice that, in 2018, around 50% of attacks are targeting three
categories of victims: multiple targets (19.6%),4 government sectors (16.2%),
and health/chemical/medical (10.3%).

2
Also included are cyberwarfare and cyber sabotage (i.e., computer- or network-based conflict
involving politically motivated attacks by a nation-state on another nation-state).
3
The CLUSIT sample consisted of 8417 known attacks of particular gravity over the period
2011–2018. They include, therefore, all attacks that significantly impacted the victims, in terms of
economic losses, damage to reputation, and diffusion of personal data. We exclude from the analy-
sis the attacks happened over the years 2011–2013 (2803 attacks). The reason is that, since 2014,
more restrictive criteria have been used to define a serious attack; therefore, some categories of
attacks, which may still have been considered “serious” in 2011–2013, have now become ordinary
administration (e.g., the “defacements” of websites).
4
The significant decrease in the “Others” category is due mainly to the fact that, in 2016, the
new “multiple targets” category was introduced to account for the growing number of serious
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 135

79%
76%
80% 72%
68%
70% 60%
60%
50%
40%
27%
30% 21%
15% 17%17%
20% 13%12%13%
7%
4%
10%
0%
Cybercrime Hacktivism Cyber espionage

2014 2015 2016 2017 2018

Fig. 7.1 Evolution of cybersecurity events from 2014 to 2018. (Source: Authors’
creation based on Clusit (2019) data)

Table 7.1 Victims of cybersecurity events

2014 (%) 2015 (%) 2016 (%) 2017 (%) 2018 (%)

Multiple Targets 0 0 4.7 19.7 19.6

Gov. – Mil. – LE - Intel 24.4 22.0 21.0 15.9 16.2
Health/Chemical/Medical 4.2 3.8 7.0 7.1 10.3
Banking/Finance 5.7 6.3 10.0 10.4 10.1
Online Services/Cloud 11.8 18.5 17.0 8.4 8.3
Research–Education 6.2 8.1 5.2 6.3 7.1
Software/Hardware Vendor 5.0 5.4 5.3 6.0 7.0
Entertainment/News 8.8 13.6 12.5 10.2 6.6
Critical Infrastructures 1.5 3.3 3.6 3.5 3.7
Others 21.4 6.1 4.3 5.1 3.1
Hospitability 0.0 3.9 3.1 3.0 2.9
GDO/Retail 2.3 1.7 2.8 2.1 2.5
Organization-ONG/ 6.2 5.0 1.8 0.7 1.4
Religion
Telco./Automative 2.4 2.3 1.7 1.5 1.3

Source: Authors’ creation based on Clusit (2019) data

Note: Gov. – Mil. – LE – Intel’ stands for ‘Government – Military – Law Enforcement Intelligence Attacks’;
‘GDO’ for ‘Large – scale retail trade’; ‘ONG’ for Nongovernmental organization, and TELCO for
Telecommunication Companies.

attacks carried out, in parallel, by the same group of attackers against numerous organizations
belonging to different categories. As a result, some of the attacks against organizations belonging
to this category were merged into a single “multiple targets” category (CLUSIT 2019).
136 R. PITTIGLIO ET AL.

It is worth highlighting two aspects that, interestingly, since 2017, indicate

a transformation in the actions of cyber aggressors. The first is an increasingly
greater propensity to attack victims belonging to different categories (therefore
multiple targets), as a demonstration of the fact that the attackers have become
increasingly aggressive and carry out operations on an ever larger scale, with an
“industrial” logic divorced from territorial constraints and target type of tar-
gets, aiming only to maximize the economic result (CLUSIT 2019). Second,
we note a strong reduction of attacks aimed toward government sectors,
­traditionally considered the main target of cyber attackers (over the five-year
period, the category of Gov.–Mil.–LEAs–Intel. showed a reduction of about 8
p.p.). Finally, we can observe an impressive increase in the number of attacks
related to the health/chemical/medical sector (+6.1 p.p.), mainly a reflection
of the increased incidence of identity theft (i.e., events in which cybercriminals
steal personal data like passwords, bank account data often related to credit and
debit cards, social security, and other sensitive information.)5
Given this exponential growth of cyberattacks, characterized by ever novel
threats, companies are, at once, increasing their investments in risk prevention
and struggling to adapt to the rapid evolution of these methods of aggression.
For instance, the Italian market for information security and privacy solutions
in 2018 reached a value of 1.19 billion euros (with a growth rate of 9% in 2018
and 12% in 2017).
Generally leading the market are large companies, with 75% of total spend-
ing focused on adapting to GDPR and more traditional security components
(such as network security, business continuity and disaster recovery, endpoint
security). Among the large companies, 63% increased their budgets for cyber-
security and 52% designed a multi-year investment plan, even if almost one in
five still lacks the foresight to put forth dedicated investments or does nothing
more than allocate resources only in case of need.
In this context, we ask: Do firms have the right incentives to invest in cyber-
security? Therefore, in the next section, we analyze, from an economic perspec-
tive, the extent to which the free interplay of market forces can provide firms
with the right incentives to advance a level of investment in cybersecurity that
may be regarded as optimal for private agents and society.

Cybersecurity Investments: An Economic Analysis

According to the investment theory, a firm determines its optimal level of
investment by comparing costs and benefits. In other words, firms invest up to
the point where the marginal costs of an additional “unit” of information secu-
rity activity are equivalent to the expected marginal benefits associated with
that activity. However, some authors (Gordon and Smith 2007; Bauer and van

5
According to the U.S. Bureau of Justice Statistics (BJS), more than 1.1 million Americans are
victimized by identity theft (ENISA 2019).
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 137

Eeten 2009) have argued that, in the case of cybersecurity investments, firms
rarely undertake the well-established cost-benefit analysis before deciding
whether to invest and the amount of investment.
Why does this happen? Scholars of the economics of cybercrime (Gordon
and Loeb 2006; Moore and Anderson 2011) have identified two main motives
that may justify instances in which the optimal level of investment from a pri-
vate perspective may be less than the optimal level of investment from a social
perspective.
The first motive concerns the fact that cybersecurity investments are associ-
ated with some costs and benefits that, often, cannot be easily observed
(Romanosky 2016). Among the economic costs necessary to prevent adverse
cyber events, in fact, not only there are costs that can be easily identified and
estimated in monetary terms—(i) personnel costs associated with setting up
new in-house teams, tiger teams, and so on; (ii) purchase costs for hardware,
software, and consultancy services, and (iii) administrative costs—but also
there are items that have a value that is virtually impossible to capture easily,
including, for instance: (i) the time spent by IT staff on security, as opposed to
other IT activities, and (ii) the time spent by the firm’s staff on reading and
following security policies.
The evaluation of anticipated economic benefits associated with cybersecu-
rity investments is even more complex. In fact, Gordon and Smith (2007)
argued that these consist, essentially, of “cost savings” items, derived from sev-
eral categories of factors, such as: (i) decreased security incidents and cyber-
crime losses; (ii) reduced costs of liability for breaches; (iii) increased trust of
customers; (iv) increased company reputation; (v) protection from unfair com-
petition due to industrial espionage; or (vi) increased compliance. Given that
all of these benefits represent a reduction in potential future costs, linked to the
prevention of losses due to cybersecurity breaches, their estimation is difficult,
costly, and, in many cases, impossible. However, today’s availability of statistics
and data on cyber events is quite limited and often unreliable; as such, this
represents a primary factor that limits the use of traditional economic methods
for evaluating the efficiency by which cybersecurity investments are made.
Moreover, another factor that may lead to situations of under- or overinvest-
ment in cybersecurity emerges from the possibility that firms under-report inci-
dents, out of a desire to avoid undermining trust in their brand and because
they aim to avoid damage to their reputation and stock price (Moore
et al. 2009).
A second factor that discourages firms’ adoption of cybersecurity solutions
relates to characterization of the IT industry by the presence of many different
types of externalities that engender a mismatch between the perceived indi-
vidual and social benefits and the costs of information security. Several scholars
(Gordon et al. 2015; Moore and Anderson 2011; Anderson 2001) have argued
that, due to the inherent interconnectivity associated with computer networks,
138 R. PITTIGLIO ET AL.

when a firm invests in cybersecurity, it indirectly increases the level of cyberse-

curity for other firms also (positive externalities). In such a case, as the marginal
social (indirect) benefits are higher than the marginal private (direct) benefits,
the single market player has the incentive to under-invest in cybersecurity activ-
ities, relative to that quantity that maximizes social welfare. Similarly, the lack
of investment in cybersecurity by one market player may determine costs that
not only do harm to the firm itself, but also negatively affect the security of
other actors (negative externalities). For example, a cyberattack against a ser-
vice provider (i.e., health insurance company, e-mail provider) may impose
heavy costs that result in, for example, the theft of customers’ personal data
that are not fully internalized by the victim.
Moreover, the IT market is characterized by the presence of network exter-
nalities, that is, the value (benefit) of a protective measure is an increasing func-
tion of the number of other users adopting it (Moore and Anderson 2011).
For example, when a company buys encryption software, it can protect com-
munications only within its boundaries, but not with respect to other external
agents (customers or suppliers). In such a case, as the marginal costs of this
investment may be higher than the marginal benefits, at least until a certain
threshold number of other players adopt the protection, the early-adopter firm
is likely to under-invest in cybersecurity. Finally, it may also be the case that an
investment by one firm generates positive externalities for others, inviting them
to free-ride and discouraging their own investment.
The two factors articulated above represent cases in which market forces fail
to recognize an efficient allocation of resources. Both situations suggest that a
government intervention is required to provide the right incentives or regula-
tions to compel firms to invest in cybersecurity activities, at a level that accounts
not only for private losses incurred by firms from breaches of cybersecurity, but
also the costs of externalities resulting from such breaches.
By postponing a deeper analysis of the Italian legislation on the enhance-
ment of cybersecurity until the next section, we can now present some general
measures that may be undertaken to amplify a firm’s incentive to invest in
cybersecurity.
First, governments may favor helping with the collection and dissemina-
tion of reliable and cost-effective information related to cybersecurity. In
this respect, one possible solution may be to enhance the coordination of
cybersecurity activities, at national and international levels, through imple-
mentation of the information sharing related to computer security.6 However,
if, on the one hand, information sharing has the potential to lower the cost
of cybersecurity for each firm involved in such a program, then, on the other
hand, free-rider behavior may arise; in other words, one member of the
group may be tempted to under-invest in the program, since it hopes to

The ISACs (Information Sharing Analysis Centers) and the US-CERT (United States Computer
6

Emergency Response Team) are two good examples of efforts to coordinate cybersecurity activities.
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 139

learn a lot from the other members (Gordon et al. 2003). Thus, unless eco-
nomic incentives are devised to offset the free-rider problem, much of the
potential benefit from information sharing among organizations will not be
realized.7
Other possible actions that the government may take include designing
mechanisms and regulations aimed to provide incentives for private firms to
internalize cost externalities associated with lax cybersecurity behaviors. Some
examples may include regulations that enhance disclosures related to cyber
risks and actual incidents, as well as penalizing firms for data breaches.

The Italian Legal Framework and the Principle

of Accountability Using a Possible Connected Cyber
and Personal Data Risk Model

Starting from the idea that companies are facing new risks caused by innovation
and technological progress, among others, and after having analyzed whether
and how the market provides them with adequate incentives to develop a suit-
able security system, we need to see how these new instruments place them-
selves vis-à-vis the market and how they meet the objective to ensure cyber and
personal data protection.
Although the NIS Directive and the GDPR are different, they have some
elements in common in terms of obligations and responsibilities; their com-
parison is important to see whether it is possible to develop a flexible and con-
nected risk organization and management model.
In terms of differences, the NIS Directive’s scope is to protect the “network
and information system”.8
The GDPR, rather, protects “personal data”.9
Thus, the NIS definitions are broader because they refer not only to elec-
tronic systems and devices but also to any other digital data, whether personal
or not personal. The GDPR, instead, only concerns personal data (Kuan
Hon 2018).
In order to understand whether we can have a common risk organization
and management system, even if only in part, we need to identify the risks that
can actually occur within the framework of cybersecurity or personal data
protection.
Within the ambit of cybersecurity, the NIS Directive requires the security
measures to allow the entities concerned to resist any incident, that is, any
action that compromises the availability, authenticity, integrity, or confidential-
ity of stored or transmitted or processed data and the related services offered

7
In the USA, this problem has been tackled by information-sharing associations, security-breach
disclosure laws, and vulnerability markets.
8
That is an e-communication network; the relevant devices and the digital data processed by the
said networks or devices.
9
Namely any information that regards an identified or identifiable natural person.
140 R. PITTIGLIO ET AL.

by, or accessible via, those network and information systems and, consequently,
has an actual adverse effect on the security of network and information systems.
Within the ambit of personal data, the GDPR, instead, requires data pro-
cessing to be performed in such a way as to prevent any breaches thereof, that
is, a breach of security leading to the accidental or unlawful destruction, loss,
alteration, and unauthorized disclosure of, or access to, personal data transmit-
ted, stored, or otherwise processed. Hence there are different risks.10
It is also true, however, that a cyber breach may also lead to a data breach,
even of personal data.
Both instruments in terms of security obligations provide for risks to be
assessed and appropriate and proportionate security measures to be taken to
assess and manage the risks.
The need to take such measures is common to the protection and security
of both the networks and information systems and the personal data, although
it is important to stress that an assessment of a cyber risk assumes benchmarks
that only in part coincide with those of the GDPR (Zuanelli 2018).
We are going to refer to this area of partial community to see whether it is
possible to develop a flexible and connected risk organization, monitoring, and
management system that may be more effective for the company, lead to a
more efficient flow of information, and be more cost-effective.
Thus, it is the aspects concerning the security obligations and responsibili-
ties envisaged by the legal instruments that have similarities shared by the
GDPR and the NIS and that suggest we take into further consideration the
symmetry between cybersecurity and data protection as developed by the
European law makers.
Within this legal framework we have the underlying principle of account-
ability. This word has a broad meaning that embodies both the concept of lia-
bility and that of competence, compliance, and transparency when implementing
effective measures and modalities for demonstrating and verifying such
effectiveness.
We need to take due account of the fact that in the Italian legal system the
new framework of safeguards has points in common with the rules on the pre-
vention of risks that are the result of criminal activities set out by Legislative
Decree 231/2001(regulating the responsibilities of entities for administrative
wrongdoings that are the result of criminal activities), so much so as to justify
giving due consideration to the possibility for companies that should abide by
the new security obligations and consequently responsibilities, to develop a
more efficient risk prevention, control, and management system. This new
framework should make the stakeholders performing the different functions
take action in concert, also through a more efficient flow of information.

10
The risk of an incident that compromises the security of networks and systems and the con-
tinuation of services in the first case: the risk of an accidental or unlawful breach affecting personal
data and natural persons in the second case.
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 141

Furthermore, in Italy, a first cybersecurity step was the Law Decree

105/2019 that established the cybernetic national security perimeter in order
to ensure a high level of security of networks, information systems, and IT
services.11 In the near future, decrees will be adopted to outline the content.
Naturally, although we are comparing the legal instruments, in the GDPR
and the NIS the predicate offenses required instead to apply Legislative Decree
231/2001, are absent.
In the light of the above, we would like to follow the process below:

1. Identify the reference context, defining the stakeholders subjected to the

obligations.
2. Compare the legal instruments from the viewpoint of the principle of
accountability, identifying differences and similarities.
3. Assess whether it is possible to implement a flexible and connected risk
prevention and management model.
4. Lay down some conclusive thoughts on how the legal instruments affect
the organization of enterprises in terms of reducing the risk of security
breaches and also in terms of relations between the supervisory bodies
and efficient information flows.

Current System and Its Reference Context

In terms of our current system and its reference context, the NIS Directive
regulates the digital framework of critical infrastructures (essential operators)
linked to the providers of digital solutions, laying down the relevant require-
ments and sanctions.
Hence, the individuals that are subjected to these requirements are the
operators of essential services.12
Rather, the GDPR addresses a large number of individuals, which naturally
may coincide with the individuals covered by the NIS, and regulates the auto-
mated or non-automated processing of personal data retained by different
individuals.13
Since many cyber incidents compromise personal data, the NIS provides
that the competent authorities should cooperate closely with the authorities

11
In particular security of public administrations, bodies, and operators. Public and private hav-
ing an office in the national territory, on which the exercise of an essential function depends, that
is, the provision of an essential service for the maintenance of civil, social, or economic activities
fundamental for the interests of the State and whose malfunction, interruption, even partial, or
improper use, may result in prejudice to national security.
12
Private or public entities with a strategic role in the sectors of energy, transportation, banking,
infrastructures, financial markets, health, water, and digital infrastructure, and the providers of
digital services, specifically online marketplace, online search engine, and cloud computing—con-
sequently, well-identified individuals.
13
Like natural or legal persons, public authorities, or other bodies, except for States, natural
persons performing activities that are exclusively personal or home-based, or also individuals that
use them for specific objectives (e.g., prevention, investigations, or more).
142 R. PITTIGLIO ET AL.

that supervise data protection and, should incidents occur that breach personal
data, they should exchange information.
The above legal framework allows us to confirm the link between cybersecu-
rity and personal data protection.

Comparing the Legal Instruments: Differences and Elements

in Common—The Principle of Accountability
In this part of the chapter, we are going to compare the requirements pertain-
ing to security connected to the responsibilities of administrative bodies and
corporate control, the relationship between the bodies and those in charge of
correctly implementing the rules, and the ensuing liability resulting from a
breach of law.
The most important innovation in both legal frameworks is the approach to
risk management under the principle of accountability.
We should start by identifying the stakeholders in charge of laying down the
security measures, and monitoring and demonstrating their effectiveness.
In the GDPR there are three stakeholders: the controller (Article 4, GDPR),
who provides for the processing of data without receiving instructions from
others and determines the purposes and means of the processing itself. Usually,
and in case of enterprises, especially companies, the controller of the processing
is the company itself through its management bodies that may appoint a spe-
cifically identified stakeholder to take on the position.
That is an important and functional element because it will always be the
management itself that would be in charge of laying down the security mea-
sures to prevent cyberattacks (as is the case in relation to prevention of offenses
within the framework of Legislative Decree 231/2001).
The second stakeholder is the processor who processes personal data on
behalf of the controller (Article 4, GDPR), guaranteeing the implementation
of measures and ensuring the protection of the rights of the data subject
(Article 28, GDPR).
Lastly, the controller and the processor may designate, under certain condi-
tions, mandatorily or also voluntarily, a data protection officer (Article 37,
GDPR), a stakeholder designated to carry out tasks to support, monitor,
advise, train, and inform with regard to the implementation of the GDPR and
the processing of data, cooperating with the supervisory authority (Articles 38
and 39, GDPR [Avitabile 2017; Riccio 2016; Pizzetti 2016]).
Without prejudice to the responsibility of carrying out the tasks correctly,
the highest burden in terms of accountability and liability is on the controller
who shall ensure that the personal data is processed lawfully, correctly, and
transparently; is collected for specific, explicit, and lawful purposes and later
processed in such a way as not to be incompatible with such purposes; is suit-
able, pertinent, and limited to what is needed to abide by the purposes; exact
and updated; retained in such a form as to allow the identification of the data
subjects for the time needed to accomplish the purposes and not exceeding the
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 143

said time—retention for a longer period of time is allowed only with a view to
dismiss the data in the public interest, to carry out research for the purposes of
science, history, and statistics—and is processed in such a manner as to ensure
an adequate personal data security.
Furthermore, the controller is responsible for compliance with these princi-
ples and should also be able to demonstrate adherence to these principles
(accountability).
Hence, from the above requirement derives the obligation to implement
technical and organizational measures and to be able to demonstrate that the
processing is being performed in accordance with the Regulation itself (Articles
24 and 32 GDPR).
The system of responsibilities is important and sets out that the controller
and the processor are jointly responsible for the processing. They are exempted
from responsibility when they can demonstrate that they are not responsible
for the harmful event. That seems to suggest that, under the principle of
accountability, the controller and the processor have to demonstrate that they
have correctly fulfilled the obligations set forth by the Regulation and hence
that they have really and effectively implemented all those technical and orga-
nizational measures suitable to ensure the correct protection of personal data
and the prevention of the risk of breaches.
The NIS instead, unlike what is envisaged by the GDPR, is a directive and
does not refer explicitly to accountability, but in any case ascribes to the con-
cept of responsibility such a broad meaning that it should be linked to risk
assessment and management in terms of competence, transparency, and com-
pliance and thus, basically, of accountability. Nonetheless, it does not identify
specific stakeholders to implement security measures. It rather sets out a num-
ber of requirements that the stakeholder that implements the provisions shall
have to satisfy, like operators of essential services and providers of digital ser-
vices. And it is precisely by looking at the security measures introduced by the
NIS that we can understand this new accountability plan.
The operators of essential services should implement technical and organi-
zational measures to prevent and minimize the impact of incidents (Articles 14
and 12 of Legislative Decree 65/2018).14 The providers of digital services too
should implement technical and organizational measures that are suitable and
proportionate to risk management (Article 16).15
The Commission Implementing Regulation (EU) 2018/151 is also impor-
tant on this specific point, and only concerns digital service providers. It
requires these providers to make the adequate documentation available to
enable the competent authority to verify compliance (Article 2).

14
The competent authorities should have the powers and means they need to assess adherence
and that also includes an assessment of the whole risk management and analysis process (Art. 15).
15
Here again the authorities, in line with what is envisaged for the operators of essential services,
nonetheless with some dissimilarities, may take measures when they have evidence that a digital
service provider does not comply with its obligations.
144 R. PITTIGLIO ET AL.

Hence, it seems that although the NIS does not explicitly refer to account-
ability, its reference to adequacy, proportionality, and compliance leads us to
connect risk assessment and management not only to the implementation of
the legal instrument, but also to the demonstration of the implementation of
the legal instrument—concepts that characterize the meaning of accountability.

A Possible Connected and Flexible Risk Prevention

and Management Model
We have seen that the principle of accountability is implemented through a
number of technical and organizational measures and it is useful to consider
the model that is already envisaged by our legal system to be able to define it
concretely.
Following the introduction of Legislative Decree 231/2001, entities with a
legal personality, companies, and associations, including those without a legal
personality—with a view to prevent and manage the criminal activities commit-
ted to their advantage or in their interest by stakeholders that have high-­ranking
positions or employees, and to be exempted from administrative liability—are
required to implement an organizational model that identifies areas of risk and
reduces the likelihood of criminal activities being committed, and to set up an
internal supervisory body.
Specifically, Article 24bis of Legislative Decree 231/2001 covers e-crimes
and the unlawful processing of data and refers to offenses envisaged by the
criminal code.
One reference set out in this Article is to the offense of unauthorized access
to a computer-related system (Article 615ter criminal code [Finocchiaro
2017]), which is a case of data and security breach and is connected to the
provisions set out in the GDPR (Maglio and Ghini 2017a, b; Cupelli-Fico
2019) and probably now also to the provisions set out in the NIS.
Consequently, it is the implementation of adequate measures that is com-
mon to all legal instruments considered, amid the deep differences pointed out
earlier. The identification of a common cross-cutting line defining a broader
risk prevention policy would allow a partly unitary assessment by the company.
In general, the steps to a correct and efficient system are: first, to preliminar-
ily identify potential risks, detecting the areas where harmful events could take
place; then, to start mapping the risk processes and to blueprint a monitoring
system made up of procedures aimed at regulating the activities, the training,
and the implementation of decisions and the traceability of each important step
(Confindustria’s guidelines—General Confederation of Italian manufacturing
and service companies).
Accordingly, the management has to first take a picture of the existing situ-
ation and then take action to tackle critical circumstances.
In order to be exempted from liability an entity should have assigned the
task of supervising over the implementation and compliance of the model to a
body endowed with autonomous powers in terms of initiatives and
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 145

supervision. Just as important is the setting up of an efficient and operational

information flow system.
With specific reference to the offenses set out in Article 24bis, it is a complex
task to identify the elements needed to develop a risk management and organi-
zation model because first the areas of risk, namely the sectors—practically
all—where computer-related systems are used need to be identified. Then, the
sectors where an offense may be committed need to be set out. Lastly, the
principles and rules of conduct as well as the procedures for data access and use
to counter the specifically identified risks need to be identified.
In this perspective, we can say that the above model may be of use to handle
the risk of a criminal activity perpetrated by outsiders as well as an accidental
incident, thus outside the scope of Legislative Decree 231/2001. Basically, the
activities and risk mapping performed to develop an organizational model for
the purposes of Article 24bis could come handy to determine, at least in part,
the personal data protection model or the cyber model.
Similarly, also within the GDPR and the Italian personal data protection
code we see an exemption of liability when adequate security measures in com-
pliance with the principle of accountability are set out.
The new rules provide for a level of security and protection starting from the
blueprinting of the activity and for the whole duration of the data, from collec-
tion to erasure, and for the implementation of mechanisms that allow only the
data which are necessary for a specific purpose to be used (Privacy by design and
privacy by default, Article 25, GDPR). Then, in case of a high risk, an assess-
ment of the impact is required (Article 35, GDPR [Linee guida Gruppo arti-
colo 29—WP248 2017]).
Hence, the data-processing controller has to perform a wide range of activi-
ties with a view to compliance and to demonstrate compliance, that is to say that
a controller has to provide for a risk organization and prevention system.
Activities begin with an assessment of the risks, their likelihood of occur-
rence and seriousness, and identifying the sectors where data is processed and
the activities that give rise to the risks. This implies mapping all the data pro-
cessing, identifying the data sources, their nature, the modality of data reten-
tion, and the purposes of the processing; then activities continue with the
identification of the data processors and their specific responsibilities within
each sector; the implementation of the required procedures to comply with the
data-processing instructions of the controller and the processor; and the set-
ting out of specific protocols to counter the risks.
Building a personal data-protection system is similar to building the organi-
zational model envisaged by Legislative Decree 231/2001 and that allows us
to make some considerations on a possible extended approach, when the same
stakeholder is required to build other risk management systems referred to the
GDPR or the NIS Directive.
An important factor is for the identification of the risk area, just like the
content of the risk organization and management model and the technical and
organizational measures required under the different legal instruments, to be
146 R. PITTIGLIO ET AL.

always performed by the same stakeholder with management and supervision

responsibilities.
Within this perspective and within a supervisory system that encompasses
the provisions of Legislative Decree 231/2001, and which interacts with the
personal data protection and cyber protection provisions, it is important that
the actions of the supervisory body and those of the data protection officer, or
the computer-related security data processor, although aimed at different safe-
guards, be at least in part coordinated and, where possible, organized together.
We have in mind a monitoring system of the collaboration structures; an
aggregated supervisory process that will link the stakeholders in charge of each
sector through reports, information exchange, and meetings.
In this case, models, where possible, should be interconnected and flexible.
Depending on the size of the enterprise, the supervisory stakeholders involved
in the different functions should have a systemic approach not limited only to
one individual function—a comprehensive stance capable of coordinating and
connecting (Internet audit, risk and control committee, when there is one) the
different functions falling within the cognizance of the management, as, for
example, the data protection officer and those who are in charge of assessing
and improving the risk control and management processes and the efficiency of
corporate organization.
Probably, it is a question of fostering a process that is already in place in large
companies, although the segregation of duties does not always make its imple-
mentation easy.
It is also a question of promoting corporate change in smaller companies
given the need also for these companies to comply with several legal instru-
ments that require the implementation of risk management processes.16
Consequently, it is a question of enhancing and strengthening an instrument
that not only ensures compliance with specific rules, but also, within the frame-
work of a long-sighted and wide-ranging perspective, the monitoring, change,
and improvement of the whole of the risk management processes, also in terms
of cost-effectiveness.
Lastly, in order to make an overall assessment, we have to analyze the NIS
Directive. This legal instrument sets out a large number of measures to address
cyber-risk management, including the implementation of a monitoring model
capable of ensuring accountability.
We need to make two preliminary remarks:

–– In the current situation, a cyber risk is no longer limited to the area of

information technology but has become a general risk for enterprises and
as such has to be assessed and managed.

16
Ranging from health, the environment, and security in the workplace to personal data protec-
tion, of course the GDPR, to computer-related security and Legislative Decree 231/2001.
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 147

–– In terms of cybersecurity, the activity is very broad and complex and, in

this framework, the use of a cyber-risk management model is only one of
the multiple instruments aimed at implementing security.17

We have said that unlike the provisions of the GDPR, although the NIS
Directive considers the implementation of adequate security measures neces-
sary, it does not identify them nor indicate specific stakeholders to implement
them. It instead provides that the obligation to implement them is on the
operator of essential services or the provider of digital services.
Then it is plausible for an entity, after having already implemented an orga-
nizational model for the purposes of Legislative Decree 231/2001 and a par-
tially overlapping organizational personal data protection model, to supplement
the same model to fulfill the obligations in terms of computer-related security.
Although here the system of responsibilities has to be totally built and
interpreted.
Notwithstanding the fact that the principle of accountability is present, it is
nonetheless envisaged in more general terms. An analysis of the Directive—
after having taken into consideration the obligations of the operators of essen-
tial services and providers of digital services, and the role of the competent
authorities to verify compliance—has shown that here again in order to fulfill
the obligations set out by the NIS Directive and to be exempted from liability,
a risk monitoring, management, and organization model needs to be adopted.
Hence in order to prevent the risk of computer-related criminal offenses
envisaged by Article 24bis of Legislative Decree 231/2001, which is the part
in common, the starting point is the recognition of the risk sectors and the
activities that for that purpose are already being performed.
The said mapping and the identification of risk areas—even if performed in
relation to the prevention of specifically identified offenses—certainly lead to
an overall analysis of the system of risks connected to the strategic objectives of
an enterprise. An analysis of the possible internal attacks is the starting point to
prevent personal data breaches resulting from criminal activities or incidents as
envisaged by the GDPR, and to assess the risk of compromising the networks
and information systems caused by external attacks or incidents, as required by
the NIS Directive.

17
This aspect is pointed out in the 2015 Italian cybersecurity report, which sets forth a national
framework for cybersecurity, as well as underlining the importance of a dynamic and synergic
action between the different instruments. The report also refers to an organizational model com-
prising risk assessment and management processes to identify risk areas, threats, likelihood of
occurrence, possible impact, and measures to mitigate these factors. Consequently, adequate secu-
rity and monitoring procedures need to be implemented and roles and responsibilities defined, in
compliance also with the principle of segregation, to ensure correct risk management and an effi-
cient system to monitor, prevent, and counter the threats against cybersecurity. Functions and
responsibilities, in particular in terms of the monitoring processes, have to be well defined also with
a view to ensuring accountability.
148 R. PITTIGLIO ET AL.

Hence, part of the analysis may be used in three different milieus, Legislative
Decree 231/2001, personal data, and cyber, and, consequently, information
should be shared also with the stakeholder in charge of computer-related secu-
rity. By so doing, compliance with the legal instruments and sharing of informa-
tion would be connected, and the said connection would facilitate prevention
of all criminal activities, as well as wrongdoings and accidental events. The
foregoing would lead to enhancing the implementation of these legal instru-
ments, reaching the objective of reducing security breaches and making the
system more efficient.

Research Methodology
The aim of this chapter is to investigate to what extent cybersecurity invest-
ment is considered a strategic target at firm level and in what ways the recent
legislative innovations on network security, information systems, and the pro-
tection of personal data may affect firms’ organization of activities that aim to
reduce the risk of security breaches.
In particular, it intends to answer the following three research questions:

Rq1. Why should a company invest in cybersecurity and personal data

protection?
Rq2. How does a firm implement a strategy of cybersecurity and personal data
protection?
Rq3. To what extent does the current regulatory framework incentivize invest-
ments in cybersecurity?

To address these research questions, we have conducted a case study on an

Italian multinational company, Leonardo S.p.A.
It is worth noting that the use of a case study can be considered a particu-
larly appropriate strategy for:

i. research based on single firm-level findings that can be generalized across

a larger set of units (Gerring 2004); and
ii. investigating novel and complex issues that lack data and are still under-
studied (Eisenhardt 1989; Weick 2007).

With regard to case selection, the choice of Leonardo S.p.A. is due to the
following two criteria:

1. it ranks among the leading world providers of cybersecurity solutions; and

2. in the last few years, Leonardo S.p.A. has outstandingly increased its
investments in cybersecurity and personal data protection.

Founded in 1948 under the name Finmeccanica, in 2017 the company

changed its business name to Leonardo S.p.A, inspired by the Italian creative
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 149

genius Leonardo da Vinci. Today, Leonardo S.p.A. is a multinational company

operating in more than nine countries (located in Europe, North America,
Oceania, Middle West, Asia, Central and South America, Russia, China, Africa)
with a turnover of about 12.2 billion euros and about 46,000 employees.
Cybersecurity and cyberspace are strategic sectors for this company, which has
been producing and developing solutions for 30 years, through technologies
and services that ensure the security of data, networks, and systems.
One of the strong points of Leonardo S.p.A. stems from the fact that the
company undertakes activities in various sectors such as defense, banking and
finance, telecommunications, emergency services, production and distribution
of energy and gas, health care, and transport. This high degree of sectoral
diversification has allowed the company to develop specific skills in understand-
ing both the business and security requirements needed to protect customers’
key infrastructures. Hence, over the last few years, Leonardo S.p.A. has
increased its investments in cybersecurity.
Thanks to its long-standing experience, Leonardo S.p.A. is the cybersecurity
partner of several national and international institutions and, since 2012, it has
been cooperating with the NATO Communications and Information Agency
(NCI) to protect NATO’s Communications and Information System (CIS)
infrastructure from cyberattacks.
In order to develop the case study, we have followed a specific analytical
protocol (Mayring 2014; Yin 2013). First, we collected and analyzed archival
materials from multiple sources, including the company’s websites and internal
documents. In this way, we conducted a preliminary identification of the phe-
nomenon (Pan and Tan 2011) before onsite data collection. Then, we col-
lected onsite data mainly through personal (face-to-face) interviews at the
headquarters of Leonardo S.p.A. in Rome. The choice of subjects for the inter-
views and the formulation of interview questions were supported by the analy-
sis of various documents and archives. Interviews were structured on the basis
of research questions, literature review, and our own experiences.
The interviews, which involved individuals from the cyber head office and
cybersecurity division, aimed to encourage participants to describe their atti-
tude toward cybersecurity and personal data protection, as well as the compa-
ny’s propensity for making investments in cybersecurity.
Examples of questions asked during the interviews include:

• How important is the issue of cybersecurity and personal data protection

for Leonardo S.p.A.?
• What are Leonardo S.p.A.’s main points of strength regarding the issue
of cybersecurity and personal data protection, and which areas need
improvement?
• With regard to this aspect, which investments have been made recently?
• Do employees receive training on cybersecurity and personal data
protection?
• What are the main cost items?
150 R. PITTIGLIO ET AL.

• What would be the direct cost of a cybersecurity attack?

• What are the potential benefits of cybersecurity investments?
• How would you assess the cost-benefit trade-off of cybersecurity
investments?
• How do you report on cybersecurity and data protection?
• Is the current regulatory framework adequate for the purpose of
cybersecurity?

Findings
In this section we present the main results of our case study with reference to
the relevant elements of the decision to invest in cybersecurity: the strategic
target, costs and benefits, and regulatory incentives.

(a) Cybersecurity and personal data as a strategic target

Cybersecurity is one of the company’s main strategic objectives: today,

Leonardo S.p.A. serves about 70,000 users and more than 5000 networks
delivering cybersecurity services in 130 different countries. Being aware of the
importance of data protection is an asset that makes the company competitive
in the marketplace and is prevalent at every organizational level. The compa-
ny’s approach is based on a strategy which achieves the security objectives
through: (i) continuously improving cyber defense (Detection and Response)
and cyber resilience capabilities in order to discover, respond to, and recover
from internal and external threats by leveraging skilled people, structured pro-
cesses, and technologies; (ii) developing a risk management culture involving
every stakeholders (either internal and external); and (iii) promoting collabora-
tion and partnerships with institutional, public, and private entities with similar
cybersecurity interests and objectives.
One example is the Cyber Trainer project which Leonardo S.p.A. is devel-
oping thanks to internal and regional funds (Fondo europeo di sviluppo regio-
nale (FERS) 2014–2020), with the endorsement of European Defence Agency
(EDA) and the Ministry of Defense. The project’s objective is to develop the
capacity for creating critical infrastructures in order to train future cybersecu-
rity operators, but those very same structures could be applied to the sector of
cyber defense. The advantage is that cyber training infrastructures lend them-
selves to use in both civil and military contexts (Italian Institute For International
Political Studies (ISPI), Report 2018).
In 2014, Leonardo S.p.A. inaugurated the Cyber Security Centre in Chieti
(Italy) which aims to design and deliver services and solutions that ensure cyber
safety for both Italian and foreign organizations. The Security Operation
Centre (SOC) identifies and analyzes malicious cyber activities, by correlating
them with other events and evaluating the associated risk. Prevention and
defense activities against cyber threats are based on alarms sounded by the SOC
in the presence of cyberattacks or on identification of new cyber weakness in
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 151

information infrastructures. The SOC can also restore the integrity and avail-
ability of information and systems that have been attacked.
In 2016, Leonardo S.p.A. started its Computer Emergency Readiness Team
(CERT) that has the mission to coordinate the incident management and
threat intelligence services across the constituency. The Leonardo CERT has
got the FIRST18 and Trusted Introducer accreditations and exchange threat
information with many other worldwide CERTs.

(b) The cost–benefit trade-off of cybersecurity and personal data investments

The issue of the cost-benefit trade-off is well established in capital invest-

ment literature, including that related to investments in cybersecurity (Gordon
and Loeb 2006). In general, cyberattacks cost on average, about 11.7 million
dollars at a global level. In USA, it has reached 21.22 million, nearly twice the
global average, while in Italy the estimated cost of a cyberattack is around 6.73
million dollars (Accenture 2018). The chief executive officer at Leonardo
S.p.A. declared that:

By the year 2021, the costs of cyberattacks will exceed 1,000 billion dollars.
Accordingly, Leonardo has created a cybersecurity division with yearly sales of
about 400 million and nearly 1,500 employees.

As previously discussed in section “Cybersecurity Investments: An Economic

Analysis”, an ex-ante evaluation of the costs and benefits associated with a
cyberattack is not easily quantifiable at firm level. It is therefore quite difficult
to incentivize private sector firms to make the appropriate level of investments
in cybersecurity activities: Gordon and Loeb (2002) show that the optimal
investment in information security is always less than or equal to 36.79% of the
expected loss from a security breach.
Our interviews confirm the difficulty of estimating the costs of cybersecurity
incidents ex ante, but at the same time reveal an awareness of the importance
of taking preventive measures.

We are perfectly aware that cybersecurity investments do not yield a direct gain,
but it is necessary to prevent costs to the firm. Since Leonardo deals with civil and
military stakeholders daily, it cannot afford to lose customers due to cyberattacks.
The impact of a huge cyber accident would be too big to be contained. For
instance, in the event of cyber espionage attack, competitive information (proj-
ects, financial data) could be lost, while in the event of a hacktivist attack, we
would suffer from damage to our image.

Since 2015, Leonardo has implemented its own cybersecurity framework

based on national and international best practices. This model has a tree-­
structure and considers five dimensions, named “goals”:
18
FIRST: Forum of Incident Response and Security Team
152 R. PITTIGLIO ET AL.

• Govern cybersecurity
• Identify and manage cyber risks
• Protect business environment from cyber threats
• Predict and detect cyber threats
• Respond and recover to cyber threats

Each goal has been articulated in about 30 domains totally. Every domain
includes cybersecurity capabilities, each one based on three aspects:

• Organization and skills of people employed

• Processes
• Technology

Through this model, Leonardo assesses the level of capability maturity on a

yearly basis. The increase in the capability maturity score is due to increased
investments/activities in cybersecurity, particularly in skills, processes, and
technologies. The most substantial investments have been made in specific
people skills. Indeed, thanks to continuous personnel training, Leonardo has
obtained a high level of security certifications. There is also substantial invest-
ment in the technologies and maintenance of software and tools.
The importance of human capital was emphasized during the interviews. It
has in fact emerged that only highly specialized skills can endow the organiza-
tion with an effective system of management and prevention of cyber risks.

In 2018 – said one interviewee – we had two attempted cyberattacks that were
potentially highly dangerous. Both were detected and mitigated thanks to the
skills of our analysts. Investment in technologies per se does not suffice, it should
be coupled with highly qualified personnel, and people skills always need to be
kept up-to-date.

Regarding the cost–benefit trade-off, interviews also revealed that, from 2017
to 2018, the time needed for reacting to cyberattacks decreased, log sources
that provide data increased, and the cyber posture turned from reactive to
preventative:

When we started implementing the cybersecurity strategy, virtually 100 percent

of our actions were reactions to an attack, while today 85 percent of actions are
preventative. That is, eight actions out of ten are made to prevent a cyberattack.
At least half yearly, Leonardo makes a management review to assess benefits and
improvements involving every internal stakeholders. This leads to the conclusion
that even if the benefits of cybersecurity investments are hard to assess in strictly
economic terms, they outweigh the related costs.
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 153

The Regulatory Framework as an Incentive to Cybersecurity

and Personal Data Protection Investments
One might argue that the current regulatory framework acts as an incentive to
investment in cybersecurity and personal data protection. By using the Italian
and EU legal framework, companies not only have many obligations, but also
many tools to guarantee cyber and privacy security.
The Italian regulatory framework subscribes to the international trend of
extending cybersecurity to the whole supply chain. Regulatory innovation of
personal data protection and the creation of a regulatory perimeter is the start-
ing point for urging firms to comply with the minimum requirements needed
to guarantee cyber and personal data security standards. From this perspective,
the regulatory framework acts as an incentive for security investments. Thus,
when the regulatory framework is coupled with adequate investments in tech-
nology and human capital, a sustainable competitive advantage can be gained.
Another important element to be underlined concerns the fact that the
cyber risk is strictly linked to the personal data risk.

A possible cyber accident should spread also to personal information which are
held by the company: therefore, it is not possible clearly to separate the two risks.

From an organization point of view, this implies not only a continuous

exchange of information between the cybersecurity and the personal data units
but also a shared use of such information.
We have seen how the implementation of adequate measures is common to
the legal instruments, despite the deep differences pointed out earlier. The
identification of a common cross-cutting line that defines a broader risk pre-
vention policy allows a partly unitary assessment by the company and as a result
information is shared with personal data protection and cybersecurity officers.
By so doing, the compliance with the legal instruments and the sharing of
information would be connected and thereby facilitate the prevention of crimi-
nal activities as well as accidental events.

Discussion and Conclusions

Cybersecurity and personal data protection represent crucial elements to har-
ness all the potential of digital technologies and to deliver outcomes that are
beneficial to society.
This chapter has analyzed the economic costs and benefits faced by private
firms with regard to their investments in cybersecurity and personal data secu-
rity activities, and in what ways recent regulations on network security, infor-
mation systems (EU Directive 2016/1148, NIS Directive), and the protection
of personal data (EU Regulation 2016/679, GDPR) may affect firms’ organi-
zation of their activities to reduce the risk of security breaches. From a meth-
odological point of view, we adopted a case-study strategy on an Italian
154 R. PITTIGLIO ET AL.

multinational company—Leonardo S.p.A.—which has produced and devel-

oped solutions for 30 years, creating technologies and services that ensure the
security of data, networks, and systems. Overall, the findings from the case
study on Leonardo S.p.A. support the idea that it is very difficult to estimate
the optimal level of investments in cybersecurity and personal data protection
and, more generally, from a private perspective, it is likely that the optimal level
of investment in cybersecurity and data protection will be less than the optimal
level of investment from a social perspective, making it quite difficult to incen-
tivize private sector firms to make the appropriate one.
Coherent with the economic framework, analyses of cost-benefits and nor-
mative incentives have emerged as key factors in orienting a firm’s investment
decisions. On the one hand, it was stressed that evaluation of the anticipated
economic benefits associated with cybersecurity investments can be quite com-
plex, given their cost savings [why in italics?] nature, which is mainly related to
factors such as: (i) a decrease in security incidents and cybercrime losses; (ii)
reduced costs of liability for breaches; (iii) the increased trust of customers; (iv)
increased company reputation; and (v) increased compliance. On the other
hand, government intervention is required to incentivize firms’ investments in
cybersecurity activities.
With regard to a firm’s strategic planning, the case study implies that
Leonardo S.p.A. is perfectly aware of the importance of cybersecurity and data
protection as fundamental assets for increasing its competitiveness in the
marketplace.
With reference to the implementation step, the findings show that the effec-
tiveness of cybersecurity and privacy systems is achieved by simultaneously
investing in human capital and technology. Each of the key informants inter-
viewed consistently stressed that improvements over these last few years in
terms of cybersecurity and personal data have been obtained by investing in
technologies and relying on people with highly specialized skills who are stimu-
lated by continuous training.
Finally, with regard to the effectiveness of the regulatory framework to
incentivize an optimal level of investment, the analysis confirms that it would
be possible to enhance the implementation of these legal instruments, reaching
the objective of reducing security breaches and making the system more effi-
cient. We have in mind a possible system of the collaboration structures: an
aggregated supervisory process that will link the stakeholders in charge of each
sector through reports, information exchange, and meetings. In this case,
models, if possible, should be interconnected and flexible. By this way, there
would be a better information sharing and costs reduction.
 7 CYBERSECURITY, PERSONAL DATA PROTECTION AND CRIME PREVENTION… 155

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 CHAPTER 8

Mobile Money Systems as Avant-Garde

in the Digital Transition of Financial Relations

Dimitrios Reppas and Glenn Muschert

Introduction. Mobile Money: Geographical

Distribution and How It Works
“Mobile money” (MM) is an electronic form of currency, that is, digital money,
which requires the use of an application on an electronic device, such as a tablet
or a mobile phone. MM systems often lie outside the formal banking system:
MM users can make basic financial transactions (such as transfers, deposits, and
withdrawals) without the need of having a formal bank account (therefore,
MM is not to be confused with mobile banking, in which customers, typically
in developed countries, access their formal bank accounts via mobile devices).
MM systems are instead associated with the use of SMS (text messaging)
mobile phone technology, typically in developing countries, by the “unbanked”
population in order to conduct cashless transactions.
Overall, this chapter points out the need for greater complementary finan-
cial services, which ideally emerge out of cultivating collaborative relationships
between MM systems and the traditional banking system. There is a growing
amount of empirical evidence that the development and deployment of MM
systems contribute toward the achievement of sustainable social and economic
growth (as described by the UN Sustainable Development Goal 8: “to promote
sustained, inclusive and sustainable economic growth, full and productive employ-
ment and decent work for all” (Sustainable Development Goals, n.d.)).

D. Reppas (*) • G. Muschert

Khalifa University of Science and Technology, Abu Dhabi, United Arab Emirates
e-mail: [email protected]; [email protected]

© The Author(s) 2021 157

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_8
158 D. REPPAS AND G. MUSCHERT

Therefore, business managers and entrepreneurs, regulatory agencies, govern-

ments, as well as academia should engage in establishing closer collaborations
with a view to deploying MM systems. This chapter aims at providing some
lessons to these stakeholders for improved analysis and practice of MM systems
in the future.
As a noted example of financial “reverse innovation” (Govindarajan and
Trimble 2012), the development and deployment of MM systems have unex-
pectedly occurred at greater pace among the poor and financially excluded
populations of low- rather than high-income countries. The African continent
has the highest adoption rates for MM compared to all other continents
(Lashitew et al. 2019), while adoption lags in Europe and the Middle East. As
of 2019, the Global System for Mobile communications Association (GSMA)
worldwide network of 750 mobile operators estimated that about 720 million
people worldwide have opened an MM account in 90 different countries, and
nearly half (350 million) are located in the sub-Saharan Africa and 223 million
in South Asia (GSMA 2019a). Kenya’s “M-Pesa” system is the most successful
and well-documented example of MM adopted since the mid-2000s (see Aron
(2018) for a summary of Kenya’s “M-Pesa” system); however, Somaliland is
the African region with the highest percentage of MM users worldwide
(Demirguc-Kunt and Klapper 2012) (see Penicaud and McGrath (2013) for a
summary of Somaliland’s “Zaad” system).
Overall, the high rate of MM adoption systems in East Africa and in South
Asia may, at first, be rather counterintuitive; we typically expect new technolo-
gies to be adopted first by the developed countries, and later by developing
countries. Nevertheless, several arguments, presented in the next section, can
explain this higher adoption rates of MM in developing economies.
Furthermore, most MM systems seem to have focused initially on consumer
transactions, that is, on allowing person-to-person (P2P) remittances, but at
least Kenya’s “M-Pesa” and Somaliland’s “Zaad” systems have now expanded
their services to person-to-business (P2B) and person-to-government (P2G)
remittances (e.g., merchant payments, electricity payments, university and
schooling fees, even livestock trade), business-to-person (B2P) and govern-
ment-to-person (G2P) remittances (e.g., salary payments), as well as to busi-
ness-to-business (B2B) payments.
The way MM systems work, in general, is the following: customers first need
to register with the provider of the service by showing some form of govern-
ment identification to an Agent. In most countries, the provider will be a tele-
communications company, that is, a Mobile Network Operator (MNO), but
MM services can also be delivered by the established banking sector, that is, by
the local banks in the economy (see Pelletier et al. 2019). The Agent is typically
a small retailer (such as a grocery store or a petrol station), and occasionally, a
larger one (such as a supermarket or a utility company). Once registered, users
can then deposit cash (i.e., official tender) in their MM accounts and get, in
return, the equivalent value in the electronic currency (i.e., e-money). E-money
can then be used for transactions with other individuals/businesses/
 8 MOBILE MONEY SYSTEMS AS AVANT-GARDE IN THE DIGITAL TRANSITION… 159

government (who may or may not be holders of an MM account), or money

can simply be kept in the mobile wallet in a digital form (i.e., for saving pur-
poses). Finally, different countries introduce varying regulatory frameworks for
their MNOs. In general, MNOs are required by their respective governments
to comply with the international established “Know Your Customer” (KYC)
and “Customer Due Diligence” (CDD) standards so as to prevent financial
crimes. Overall, regulations for MNOs are less stringent than those imposed on
the formal banking sector (Suri 2017). For instance, MNOs are typically
required to secure their electronic money by holding assets of equal value in
liquid form (Pelletier et al. 2019). That is, MM deposits need to be held in
trust accounts within the commercial formal banking system, while banks are
expected to keep only a small proportion of deposits in liquid form.
The next section briefly summarizes the main positive economic and social
impacts of deploying MM systems on the unbanked segments of populations
in developing countries. We then proceed with some lessons for improved
inquiry and practice, by summarizing common empirical challenges encoun-
tered by all parties involved in the design and deployment of MM systems. We
conclude that MM systems are a promising step toward a new financial market;
nevertheless, there seems to be a need for greater standardization of research
protocols.

Economic and Social Impacts of Mobile Money

As a subject in the broader field of digital transformations and sustainability,
MM systems are an important area of study, as they seem to achieve several
positive outcomes, categorized in the following three broad themes:

1. MM systems represent a digital transformation of exchange relations (in

the form of the migration of remittances from cash-based systems to
electronic media).
2. MM systems show great promise to include unbanked and financially
excluded populations in formal economic relations.
3. MM systems seem to contribute to humanization of aspects of financial
relations.

Briefly, we now explain how MM systems can be beneficial along the three
themes described earlier.
Regarding the theme of digital transformation, MM systems seem to recon-
figure pre-existing financial practices by bringing increased transparency and by
offering a more secure and convenient alternative method to cash. In other
words, MM help record a larger volume of official remittances; help authorities
control money laundering practices; reduce transaction costs of transporting
money through middlemen; facilitate trade and business planning; and also
offer a safer option for savings (as compared to “cash under the mattress,”
160 D. REPPAS AND G. MUSCHERT

“jewelry accumulation,” or other practices followed in developing countries;

see, for instance, Nelms (2017), for a discussion about Ecuador’s “cajas”).
Regarding the theme of financial inclusion, MM systems seem to have been
particularly successful wherever formal banking transactions are limited due to
the following three reasons. First, in rural areas, where population density falls,
the cost of establishing a geographically wide network of bank branches
increases significantly. Instead, MNOs may still find it profitable to launch an
MM platform in rural areas, because they can rely on their already available
mobile network infrastructure (and their available Agents). Second, the typical
rural family (at least in developing countries) tends to have a lower income
than that of an urban family; and when poor families cannot meet the require-
ment for maintaining a minimum account balance, they are excluded from
conventional banking. MNOs may instead find it profitable to launch an MM
platform in poor areas, because they can rely on charging low commissions for
a larger volume of transactions. Third, banks are reluctant to open a bank
account (or offer any additional services, such as insurance and loans) to poor
people, because hardly any records of financial transactions will be available for
such families. Instead, MNOs can rely on the history of transactions they
already have for their customers from mobile usage and build profiles; that is,
MNOs face less of an asymmetric information problem than banks. Apart from
the aforementioned three main reasons (explaining why/when MM achieve
financial inclusion of the unbanked), Economides and Jeziorski (2017) also
note that MM can be successful in areas with high criminality, that is, where
holding cash is a risky activity and therefore mainstream banking services are
unavailable.
In some cases, such as in Kenya’s M-Pesa system, financial inclusion extends
beyond simple P2P and P2B remittances; that is, the mobile currency may not
serve just as a cash-in-cash-out system. Instead, the MNO provider in the
above two countries has managed to continuously evolve the system by provid-
ing also micro-credit and micro-insurance to poor people. Suri and Jack (2016),
for instance, find that access to MM has been effective in improving the eco-
nomic lives of Kenyan women and has reduced poverty in Kenya by about 2%:
women, in particular, seem to have changed their occupation away from agri-
culture (into small business and retail), as MM provide greater financial inclu-
sion via access to direct remittances, increased privacy for financial dealings,
and increased access to credit. Likewise, in Asia, fintech players are now diver-
sifying their MM services by offering medical (i.e., insurance) and financial
(i.e., wealth management) (GSMA 2019a). Pelletier et al. (2019) find, using
data for MM systems on 90 countries, positive economic impacts on the poor
due to adopting MM systems (such as an increase in the total value of transac-
tions recorded in the economy). Furthermore, they find that such positive
spillover effects are much larger when MM systems are deployed via the bank-
ing system, rather than an MNO.
Overall, the empirical literature finds that MM systems allow households in
developing countries to integrate into the financial system, and that a
 8 MOBILE MONEY SYSTEMS AS AVANT-GARDE IN THE DIGITAL TRANSITION… 161

prerequisite for their financial inclusion seems to be the development of a

robust Agent network. In Kenya, for instance, the number of participating
Agents in the M-Pesa system grew, in 2015, to about 65,000 (compared to
approximately 10,000 bank branches in the country); in Tanzania, the number
of MM Agents, in 2014, grew to around 45,000 (compared to approximately
only 580 bank branches); and in Uganda, the number of Agents has grown to
around 41,000 (versus only about 470 bank branches in the country) (Suri
2017). Another significant determinant of the practical development of MM
systems worldwide has been the successful collaboration of the provider with
the regulatory authorities (Lashitew et al. 2019).
Regarding the theme of the humanization of financial relations, MM sys-
tems have been viewed as a means of providing self-reliance and security to
local communities, particularly as a means of “insulating” local economies
either from large exogenous communal shocks (e.g., natural disasters/medical
epidemics) or from idiosyncratic financial shocks. In the case of Kenya, for
instance, Suri et al. (2012) find that users of the M-Pesa system have been able
to utilize their remittance network in order to finance their increased health
care cost without reducing food and education expenditures (whereas non-­
users of MM were found to be more likely to pull their children out of school,
as a means to cover increased medical expenditures). In a subsequent study,
Suri and Jack (2016) find that the reductions in transaction costs of remit-
tances (achieved through the use of MM) have resulted in M-Pesa users flatten-
ing their financial risks, compared to non-users. The reason for this improved
risk-sharing is that households participating in MM systems have a larger set of
people to rely upon (whenever a negative shock takes place). In other words,
MM seem to have the potential to build social relationships of trust, reciproc-
ity, solidarity, mutual aid, and cooperation among communities (resulting
therefore to poverty alleviation); perhaps, there is a stronger sense of belonging
and solidarity among sparsely populated, or geographically isolated, poor com-
munities. Also, keep in mind that not only MM systems but several other alter-
nate systems of economic exchange, denoted collectively, in the literature,
under the terms “complementary currencies,” “parallel currencies,” “local cur-
rencies,” “regional currencies,” “alternative currencies,” “social currencies,”
or “supplementary currencies,” seem to have similar positive social effects (for
a meta-analysis of these alternate forms of currencies and their potential to
remedy some of the negative effects of mainstream state-sponsored currencies,
see Reppas and Muschert (2019)).
To sum up, MM can be seen as a tool not only for protecting local commu-
nities from exogenous financial shocks, but also for building social capital and
strengthening social cohesion. That is, today’s widespread use of MM may be
explained partly by the fact that many post-materialist societies recognize the
potential of MM to boost social integration and achieve social sustainability.
Although most of the literature assesses MM overall positively (for its ability
to achieve outcomes as those mentioned in the above three themes), Martin
(2019) raises a rather underexplored, but important, feature of MM platforms:
162 D. REPPAS AND G. MUSCHERT

MM may be used as a means of increased surveillance because MNOs seem to

operate “in-house” monitoring platforms which allow them to build unique
behavioral profiles for their customers and Agents (see, for instance, The
Economist (2018a) on how some firms try to generate credit judgments in the
absence of a conventional financial history). Therefore, Martin (2019) expresses
concerns that if MM platforms are perceived, in the future, mainly as a surveil-
lance mechanism (placed by governments), then poor people may eventually
step away from them. Another drawback of MM is that they seem to be encour-
aging overborrowing, particularly in East Africa, where digital lending is yet
not regulated (The Economist 2018b).

Lessons for Improved Inquiry and Practice

From a research perspective, there is still much to learn about MM systems. For
example, in a critical review of the empirical literature on the micro- and macro-­
economic impacts of MM, Aron (2017) concludes that the parties potentially
involved in the deployment of MM platforms (i.e., academic community, gov-
ernment regulators, central banks, and telecommunication companies) need to
better understand the types of data required to conduct more reliable empirical
research. Likewise, Pelletier et al. (2019) conclude that partnerships between
the two main providers of MM (namely MNOs and the formal banking sector)
should be encouraged because none seems to be unambiguously superior to
the other: MM systems offered by MNOs have the advantage that they can
reach a larger number of financially excluded individuals (than with banks),
while MM systems offered by banks have the advantage (compared to MNOs)
that they can stimulate better the economy (due to the wider range of products
offered along with the MM system).
Overall, this chapter aims at enhancing cooperation among the academic
community, government regulators, central banks, and telecommunication
companies/entrepreneurs by specifying some of the conditions required for
the successful development of MM systems, and by identifying what types of
data may be required to conduct more reliable empirical research for the mea-
surement of social and economic impacts of MM.
In the growing field of academic knowledge about MM in a variety of fields,
most academic studies seem to focus on iterations of one or both of the follow-
ing two questions (Aron 2017, 2018):

• Researchers examine the factors that lead to the development, deploy-

ment, and adoption of MM systems, including the economic conditions,
social/cultural conditions, the existence of a well-structured network of
Agents, and the proper regulatory environment (as already discussed in
the previous section).
• Researchers examine the impacts of MM systems at various levels, includ-
ing macro- and micro-level, such as enhanced transparency, measures of
 8 MOBILE MONEY SYSTEMS AS AVANT-GARDE IN THE DIGITAL TRANSITION… 163

financial inclusion, poverty reduction, and risk reduction (as already dis-
cussed in the previous section).

Among a large proportion of studies examining MM systems, the answers to

the above two fundamental research (but also practical!) questions are unclear,
primarily due to concerns with the wide variety of ways/forms in which data
are collected (including data quality), and the broad swath of methodologies
employed (such as Randomized Control Trials, Differences-In-Differences,
Propensity Score Methods, and Instrumental Variable Methods). Thus, as
Aron (2017, 2018) points out, it is important to exercise caution in making
inferences from existing studies about MM systems, about the factors that play
a role in their adoption and sustained usage, and about their potential welfare
increasing effects. Although some authors tend to make strong claims, many
findings in the literature seem potentially emergent from idiosyncratic aspects
of the data examined. Similar to Aron (2017, 2018), Khan and Blumenstock
(2016) also conclude that behavioral models for the adoption of MM (by using
mobile phone data) do not necessarily apply to several developing countries;
therefore, predicting the key drivers of MM adoption is difficult and research-
ers should avoid making generalizations. Suri (2017) also concludes that
although MM seem revolutionary, there is still a lot to learn.
Therefore, in the rest of this section, we summarize some common mistakes
(or methodological challenges) encountered in the existing empirical studies
when trying to answer either of the above two main questions (i.e., trying to
identify either factors of deployment or the impacts of MM). We overall aim at
providing some lessons for improved analysis and practice in the future.
There are numerous common methodological challenges across the empiri-
cal studies of MM, the first of which deals with measurement bias in some of
the variables used. There is noted measurement bias on the MM usage variable,
such that the definition of MM usage seems to be inconsistent across empirical
studies (and occasionally, some authors may fail even to explain exactly how
MM usage is measured in their studies). For instance, when usage is defined as
the number of registered customers to the MNO, then true participation is
overestimated, because some customers may never use the MM service (i.e.,
being registered to the operator (i.e., ownership of a SIM card or of a mobile
phone) does not necessarily mean usage of the MM service). Furthermore,
Roessler (2018) points out that ownership of mobile phones is likely to be
inflated particularly in surveys for households with lower income, lower educa-
tion, and older age groups. Therefore, although MM systems seem, in theory,
to support the needs of a broad set of users, in practice they may end up reach-
ing a smaller (than expected) number of individuals, which can underestimate
measures of digital inequality experienced by excluded households, as it gets
increasingly harder for such households to catch up with the rest. On the other
hand, true MM usage is underestimated whenever it is measured as households
with at least one of its members having had a registered MM account (or a SIM
subscription): underestimation occurs because other unregistered customers of
164 D. REPPAS AND G. MUSCHERT

the same household who are not the owners of the SIM card might still be
using the service.
Further measurement bias is observed in the wealth and education variables,
both of which seem to be poorly measured in developing countries, or at other
times are completely omitted from the empirical studies. For instance,
Munyegera and Matsumoto (2016) measure household wealth in terms of land
size and total asset. Blumenstock et al. (2016) use mobile-phone usage data as
a proxy for wealth, while others (Jack and Suri 2014; Suri and Jack 2016) omit
wealth entirely, even while including other household characteristics in the
control variables. Likewise, education may be measured in terms of years of
schooling (Jack and Suri 2014; Riley 2018) or entirely omitted (Suri and Jack
2016). Nevertheless, in studies trying to identify the factors for the adoption
of MM, both wealth and education seem to be important determinants and
therefore should be included in the vector of control variables, as otherwise the
omission of such important controls leads to endogeneity problems, as dis-
cussed in more detail below.
A second methodological challenge concerns omitted variable bias for struc-
tural changes. The adoption of MM systems may depend on political regime
changes (such as in Somaliland); on important technological changes (i.e.,
quality changes in the services provided by the MNO); and/or on network/
spillover effects (i.e., whether there exists a threshold, either a critical number
of users or a critical number of Agents, above which MM adoption becomes
widespread in a community; see Riley (2018) and Centellegher et al. (2018)
for spillover effects). Empirical studies should therefore test for any of the
above structural changes by introducing dummy variables (and interaction
effects of these dummies with other explanatory variables). Researchers might
also want to keep in mind that technological changes are likely to occur in the
near future in Africa (because the majority of Internet connections there are
currently 2G, but 3G is expected to overtake 2G during 2019 (GSMA 2019b);
and the rollout of 3G services will be critical for the wider adoption of MM
systems).
A third methodological challenge involves the possible existence of endoge-
neity when MM is introduced as an explanatory variable in the analysis. Some
studies measure the impact of MM on different microeconomic outcomes
(e.g., household consumption) and therefore introduce a dummy in the right
hand side (RHS) for the intervention (adoption of MM), or some continuous
variable referring to the usage of MM by individuals. Nevertheless, both the
adoption and usage of MM are not uncorrelated with unobservable (or difficult
to measure) variables, captured through the error term. For instance, as noted
above, adoption and usage of MM seem to be affected by household educa-
tion, household wealth, technological changes (in the network), and the user’s
social network. If any of such difficult-to-measure variables is not explicitly
introduced in the empirical analysis (but, instead, is captured through the error
term), then the explanatory variables are endogenous (and thus the results
biased).
 8 MOBILE MONEY SYSTEMS AS AVANT-GARDE IN THE DIGITAL TRANSITION… 165

To resolve the endogeneity problem, an instrument should be used to

replace the MM adoption (or usage) variable. Some commonly used instru-
ments in the literature are the number of Agents available (Jack and Suri 2014);
the distance of a household from the closest available Agent (Munyegera and
Matsumoto 2016; Riley 2018); or the change in the Agent’s network density
(Suri and Jack 2016). Nevertheless, any of these measures (relating to the
Agents network) may still not be a good solution for the endogeneity problem,
because the roll-out of Agents (by MNOs) is not random (Aron 2017, 2018).
Instead, Agents self-select in locations predicted to bring more profits to them
(i.e., toward locations with higher population density, higher income, and edu-
cation levels).

Conclusions
While studies of MM do indeed suggest that some optimism is warranted
regarding the capacity for such systems to lead to the positive inclusion of
financially marginal populations, and for the increase in economic and social
well-being in environments where they are deployed, there remains a need for
greater standardization of research protocols for the study of the socioeco-
nomic aspects of MM systems. As Suri (2017) points out, MM systems are
perhaps one promising step toward a new financial market, but researchers
should always keep in mind that the robustness of their empirical studies should
be tested against different model specifications (Aron 2017, 2018).
This chapter therefore scrutinizes the existing body of research, in order to
develop a way toward the establishment of a more unified field of MM research.
Drawing upon a meta-analysis of existing studies, with a particular concentra-
tion on the two fundamental questions (as described in the previous section),
this chapter provides a list methodological concerns for researchers, which if
addressed will increase the internal and external validity of MM studies, advo-
cated in the spirit of contributing to the broader fields of digital transforma-
tions and sustainability in financial relations.
MM is perhaps the quintessential example of a reversed engineered financial
technology (Govindarajan and Trimble 2012), and the successful deployment
of such systems speaks a potential growth strategy that, if successfully adopted,
can serve the interests of various stakeholders simultaneously. Of course, those
interested in development initiatives for poverty reduction among the world’s
poorest (see Collier 2007) will find MM systems attractive, because they have
shown great potential to include unbanked populations in formal economic
relations, to reduce poverty, and to protect less affluent populations from the
risks of economic shock. In addition, MM can be appealing to those interested
in developing services for the vast consumer base located at the “bottom of the
pyramid” (see Prahalad 2010), in a way which rather than competing for
existing market share in financial services, relies on the creation of new markets
among those who have been excluded. A case in point is that once MM systems
have been widely adopted, they have expanded to offer additional financial
166 D. REPPAS AND G. MUSCHERT

services to users such as insurance or microcredit. Thus, rather than displacing

the vested interests of mainstream financial institutions such as private or public
banks, MM systems often include those previously unbanked segments of the
population without drawing customers away from traditional financial services.
In many cases, MM systems have also linked users to formal banking institu-
tions via interoperability, and therefore have complemented existing banking
systems rather than competing with them.
Indeed, there is a great potential in the use of MM systems in a variety of
nations to drive progress on the UN Sustainable Development Sub-Goal 8.10
to “strengthen the capacity of domestic financial institutions to encourage and
expand access to banking, insurance and financial services for all” (Sustainable
Development Goals, n.d.). The key indicator for success would be measured
via the “proportion of adults (15 years and older) with an account at a bank or
other financial institution or with a mobile-money-service provider” (Goal 8,
n.d.). To the extent that development and deployment of MM systems contrib-
ute to the achievement of sustainable social and economic growth, then these
policies should be encouraged by regulatory agencies, governments, and NGOs.
However, MM systems may not be a silver bullet which solves the problem
of financial exclusion without generating any unintended negative conse-
quences. While the record generated via MM remittances can help government
and regulators monitor and thereby minimize unauthorized activities such as
black marketing, money laundering, and tax evasion, there may be other ethical
concerns with MM which have not been deeply explored. While financial inclu-
sion may have benefits for those who were previously excluded, inclusion may
create different vulnerabilities. MM systems have potential to subject disem-
powered segments of the population to greater surveillance and indeed may be
a form of “surveillance capitalism” (see Zuboff 2019) which refers to the
increased use of data in economic relations and use of automation in decision
making. Such commodification of consumer information via the digitization of
remittances may serve the interests of data-driven capital accumulation and/or
the rise of the surveillance state, and thus should be examined critically (see
Martin 2019). Ultimately, the use of MM systems in remittances should serve
the interests of those whose exchanges are facilitated via such systems, rather
than the other way around.

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 CHAPTER 9

Augmented Reality: The Game Changer

of Travel and Tourism Industry in 2025

Tan Gek-Siang, Kamarulzaman Ab. Aziz,

and Zauwiyah Ahmad

Introduction
Dubbed as ‘Mini Asia’, Malaysia is a melting pot of Asian culture with strong
fusion of influences from China, India and Southeast Asia. Such competitive
advantage, on top of the strategic geographical location with year-round pleas-
ant tropical climate, has made Malaysia as one of the preferred choices among
global travellers. With a new aim to reposition as the ‘World’s Top 10
Destinations’, Malaysia forecasts to welcome 28.10 million international tour-
ist arrivals and generate RM92.2 billion international tourism receipts in 2019
(The Edge Markets 2018c). Recently officiated by the Ministry of Tourism,
Arts and Culture, the ‘Visit Malaysia 2020’ aims to attract 30 million interna-
tional tourist arrivals and generate RM100 billions international tourism
receipts (The Star Online 2019).
Tourism sector is categorised as one of the largest industries in contributing
to domestic economic well-being in many countries (Patuelli et al. 2013;
Pérez-Rodríguez et al. 2015; Tang and Tan 2015). Nevertheless, tourism sec-
tor in Malaysia is experiencing a downfall when the nation missed its tourism

The original version of this chapter was revised. The spelling of the editor’s name was
corrected to Tan Gek-Siang. An erratum to this chapter can be found at https://doi.
org/10.1007/978-3-030-42412-1_42

T. Gek-Siang (*) • K. Ab. Aziz • Z. Ahmad

Multimedia University (MMU), Cyberjaya, Malaysia
e-mail: [email protected]; [email protected]; [email protected]

© The Author(s) 2021, corrected publication 2021 169

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_9
170 T. GEK-SIANG ET AL.

targets in recent years. Similarly, one of the most visited states, the UNESCO
World Heritage City of Melaka (UNESCO 2019) is also facing a similar declin-
ing trend. The deteriorating tourism performance has raised an alarming signal
to the tourism authorities and businesses for a need to rejuvenate the local
tourism sector.
Launched by Arctur (a company headquartered in Nova Gorica, Western
Slovenia, which pioneers the co-creation of sustainable innovations through
industrial partnership), Tourism 4.0 is an initiative to transform tourism by creat-
ing a collaborative ecosystem in which tourism stakeholders co-create enriched
travel experience by using the enabling key technologies of Industrial 4.0, such
as augmented reality (AR). Inspired by the ideas of Tourism 4.0, many tourism
businesses are now participating in the paradigm shift of digital transformation
through the use of digital technologies to offer tourism products in a more per-
sonalised, interactive and engaging manner (Arctur 2019), especially when
majority of the travellers today are the millennial who are more tech-savvy.
Past tourism studies categorised AR as one of the most notable digital tech-
nologies which has a great potential in tourism to enhance travel experience
into something more interactive, enjoyable and exciting (Han et al. 2013; Jung
et al. 2015; tom Dieck and Jung 2018). It can be achieved when “3D virtual
objects are integrated into a 3D real environment in real time” (Azuma 1997)
to provide useful information, navigation, guides and translations to travellers.
In the past, signs are built to provide information of world heritage sites to
tourists, which is said to affect the overall natural state of destinations (tom
Dieck and Jung 2018), but AR applications can now enhance visitor experience
by overlaying digital information accessible via smartphone displays in the real
environment while preserving original state of the site and creating awareness
on heritage preservation (Garau 2014; Kalay et al. 2007). Being developed as
part of smart tourism, AR will become an innovative way to achieve sustain-
ability tourism because it fulfills all three aspects of environment protection
(safekeeping of natural state of destinations), social (appreciation of cultural
and heritage values) and economic (marketing in an attractive way of less popu-
lar tourist attractions) for generations to come.
Due to the downturn of the local tourism sector, AR is believed to be a use-
ful digital technology to improve tourism experience and pave the way for
smart tourism. However, AR is regarded as a new technology in the local tour-
ism context, and studies on user’s acceptance of AR is still in its infancy as far
as tourism studies are concerned. Thus, studies on user’s acceptance of AR are
deemed crucial for successful implementation of Tourism 4.0 technologies.

Background of Study

The Downturn of the Local Tourism Sector

World Tourism Organisation reported that Malaysia was the second most vis-
ited Southeast Asian country, which has attracted 25.83 million international
tourist arrivals and generated US$19.14 billion international tourism receipts
 9 AUGMENTED REALITY: THE GAME CHANGER OF TRAVEL AND TOURISM… 171

in 2018, failed to defeat Thailand, which has attracted 38.28 million interna-
tional tourist arrivals and generated US$63.04 billion international tourism
receipts (World Tourism Organisation 2019). Since 2013, Malaysia has failed
to defend its distinguished title as the ‘World’s Top 10 Destinations’ and is cur-
rently ranked 15th, while Thailand is ranked 9th worldwide (World Tourism
Organisation 2017, 2019).
Being the third largest contributor in terms of foreign exchange receipts in
Malaysia after manufacturing and commodities (New Straits Times 2019b; The
Edge Markets 2018b), the tourism sector is reported for losing its global com-
petitiveness when the international tourist arrivals plummeted in recent years.
To further illustrate, international tourist arrivals dropped by 808,933 (−3.02%)
in 2017 from 26,757,392 tourists in 2016 (Tourism Malaysia 2019). In 2018,
international tourist arrivals further shrank by 116,105 (−0.45%) from
25,948,459 tourists in 2017 (Tourism Malaysia 2019), while other Southeast
Asian countries registered a positive growth in international tourist arrivals
(World Tourism Organisation 2019). In addition, Malaysia has missed its tar-
gets of international tourist arrivals for the sixth consecutive years, and the gap
of mismatch has been widening across the years from 1.08 million in 2013 to
7.27 million in 2018 (World Tourism Organisation 2019; The Edge Markets
2018c). Malaysia has recently revised down its forecast for the number of inter-
national tourist arrivals for 2019 and 2020 to a more attainable figure of 28.10
million and 30.00 million, from an early target of 34.50 million and 36.00
million, respectively (New Straits Times 2019a). Malaysia has also missed its
targets of international tourism receipts for the fifth consecutive years and the
gap of mismatch has been widening across the years from RM4.00 billion in
2014 to RM49.90 billion in 2018 (Tourism Malaysia 2019). As such, the
Socio-Economic Research Centre has urged the country to do more to attract
tourists, and there is a need for a comprehensive study to address the issues on
view of the tourism sector in neighbouring countries, such as Thailand is now
far ahead than Malaysia (Bloomberg 2018; The Edge Markets 2018a). Malaysia
has also revised down its forecast for the international tourism receipts for
2019 and 2020 to RM92.2 billion and RM100.00 billion, respectively, from
an early target of RM151.00 billion and RM168.00 billion, respectively (The
Edge Markets 2018c). Figure 9.1 shows the tourist arrivals (in million) and
tourism receipts (in RM billion) in Malaysia from 2013 to 2018.
Located in the southern region of the Peninsular Malaysia, the 600-year-old
historic city of Melaka is one of the most visited destinations in Malaysia (The
Edge Markets 2018a), attracting millions of domestic and international tour-
ists to witness the universal cultural heritage values between the East and the
West left by the colonisers. In 2008, the UNESCO inscribed Melaka and
Georgetown in Pulau Pinang as the world heritage cities (UNESCO 2019).
Notably, the worsening outlook of the national tourism sector is reflected in
Melaka. Recently, the tourism performance in Melaka has been showing dete-
riorating sign which received serious attention. In 2017, Melaka welcomed
16,794,468 tourist arrivals and generated RM 1965 million tourism receipts.
However, the growth of tourist arrivals in Melaka failed to maintain
172 T. GEK-SIANG ET AL.

28.00 90.00
80.00
27.50
70.00
27.00
60.00
26.50 50.00

26.00 40.00
30.00
25.50
20.00
25.00
10.00
24.50 0.00
2013 2014 2015 2016 2017 2018

Tourist Arrivals (in million) Tourism Recipts (in RM billion)

Fig. 9.1 Tourist Arrivals (in millions) and Tourism Receipts (in RM billions) in
Malaysia 2013–2018. (Source: Authors’ creation based on Tourism Malaysia (2019))

double-digit growth since 2013 and only grew by 3.13% in 2017, which was
the lowest since 2008 (Melaka Chief Minister Department 2018). Similarly,
the growth of tourism receipts contracted to only 7.65% in 2017, which was
the lowest since 2008 (Melaka Chief Minister Department 2018). The deterio-
rating performance of the local tourism sector has raised an alarming signal to
the tourism authorities and businesses for a need to rejuvenate the local tour-
ism sector through effective tourism marketing.

Increasing Use of AR Technology in World’s Most

Popular Museums
Today, the cultural and heritage tourism sector such as museums are looking
for innovative ways to engage with visitors by mean of cutting-edge digital
technologies (Tscheu and Buhalis 2016), for instance AR. Both the Art
Newspaper (2019) and Themed Entertainment Association (2019) reported
that the ‘Top 10 Most Visited Museums in the World’ mainly located in the
United States, the United Kingdom, France and China have all integrated AR
mobile app or similar virtual technologies for visitors to interact with museum
exhibits and enhance their overall experience while visiting the museums. A
study reported that visitors only spend an average of 2.31 seconds for each
museum exhibit; thus, the use of AR applications in museums would grab their
attention and explore the exhibits which lead to longer time spend in the muse-
ums (MuseumNext 2019).
 9 AUGMENTED REALITY: THE GAME CHANGER OF TRAVEL AND TOURISM… 173

Limited Studies on User’s Acceptance of AR

Recent technological advancements in mobile devices have changed how users
interact with the environment. Despite its wide applications in various fields,
literatures argued that AR application is still in the infancy stage for tourism
sector (Olsson et al. 2012). Also, limited attention has been devoted to studies
on how AR technology can be used at world heritage sites (Han et al. 2013;
tom Dieck and Jung 2018). Many past studies focused on the technical aspect
on how AR applications are developed rather than studying the adoption of AR
applications (Yovcheva et al. 2013).
In order for a new IT application to be successfully implemented, it is imper-
ative to study on user acceptance and use (Aldhaban 2012). Past studies also
mentioned that if tourists accept and use AR applications, it will enhance the
satisfaction of the tourists (Yovcheva et al. 2013). In tourism studies, reasons
why people use AR applications have not been extensively studied (Chung
et al. 2015). In addition, past studies that focused in user’s acceptance of AR
mobile app were conducted in Dublin, Ireland (Han et al. 2018; Jung et al.
2018), South Korea (Jung et al. 2018), Korea (Chung et al. 2018), the United
Kingdom (Tussyadiah et al. 2018) and the United States (He et al. 2018).
Similar study is still at its infancy in the context of Malaysia.

Purpose of Study
The objective of this study is twofold: (1) to develop an AR mobile app for the
People’s Museum, Melaka, to enhance visitor experience; (2) to examine user’s
acceptance of the AR mobile app. This study adapted the Unified Theory of
Acceptance and Use of Technology (UTAUT) developed by (Venkatesh et al.
2003) to gauge user’s acceptance of the AR mobile app. The research frame-
work is presented in Fig. 9.2 postulating that performance expectancy (PE),
effort expectancy (EE), social influence (SI), playfulness expectancy (PL) and
content relevance expectancy (CRE) as the factors affecting museum visitors’

H1
Performance Expectancy (PE)

H2
Effort Expectancy (EE)

H3
Social Influence (SI) Behavioural Intention to Use (BIU)

H4
Playfulness Expectancy (PL)

H5
Content Relevance Expectancy (CRE)

Fig. 9.2 Research framework, hypotheses and operating definition of contracts for
studying AR in the tourism industry. (Source: Authors’ creation)
174 T. GEK-SIANG ET AL.

behavioural intention to use (BIU) the AR mobile app. Hence, five hypotheses
were developed and tested.

Hypotheses

Hypothesis 1 / H1: Performance expectancy significantly affects behav-

ioural intention to use AR mobile app.
Hypothesis 2 / H2: Effort expectancy significantly affects behavioural inten-
tion to use AR mobile app.
Hypothesis 3 / H3: Social influence significantly affects behavioural inten-
tion to use AR mobile app.
Hypothesis 4 / H4: Playfulness expectancy significantly affects behavioural
intention to use AR mobile app.
Hypothesis 5 / H5: Content relevance expectancy significantly affects
behavioural intention to use AR mobile app.

Operation Definition of Constructs

PE—The degree to which a museum visitor believes that using the AR mobile
app will make visiting the museum more satisfying in meeting his or her needs.
EE—The degree of ease associated with the use of the AR mobile app.
SI—The degree to which a museum visitor perceives that important others
believe he or she should use the AR mobile app.
PL—The degree to which a museum visitor believes the experience of using
the AR mobile app is enjoyable and fun.
CRE—The degree to which a museum visitor believes that using the AR
mobile app will help him or her to gain good information of the museum
exhibits.
BIU—The museum visitor’s prediction, intention and plan to use the AR
mobile app as soon as it becomes available.

Methodology
This study developed an AR mobile app named as ‘When History Comes
Alive’, which was later tested by the respondents in a survey to examine the
factors affecting user’s acceptance of the AR mobile app.

Step 1: Development of the AR Mobile App

Selected exhibits in the People’s Museum were first scanned using a handheld
3D scanner to create its virtual forms. Next, QR codes and AR markers of the
virtual elements were created and placed adjacent to the respective museum
exhibits. Then, an AR mobile app was developed using Vuforia—a software
development kit for creating AR applications for mobile devices. Lastly, the AR
mobile app was uploaded to the Google Play Store. Using the AR mobile app
requires museums visitors to first download it from the Google Play Store into
 9 AUGMENTED REALITY: THE GAME CHANGER OF TRAVEL AND TOURISM… 175

their internet-enabled smartphone and activate it. Upon scanning the QR

codes, they can watch videos which guide them to play traditional games (such
as congkak, batu seremban and chapteh) and learn more about the museum
exhibits through display of facts and figures. More fascinatingly, when the users
scan the AR markers, they will see virtual elements being superimposed into
the real environment on their smartphone screen. The AR mobile app allows
them to interact and take photo with deceased legendary figures such as Tun
Abdul Razak Hussein, play with virtual gassing, create their own virtual kite
and wear traditional beauty accessories such as lip plate.

Step 2: Survey on User’s Acceptance

This study was a mixed-method research, involving both quantitative and qual-
itative approaches. A survey was conducted using self-administered question-
naire to examine user’s acceptance of the AR mobile app. The questionnaire
was developed, validated by subject matter experts and further refined before
the data collection. There were 31 items measuring the main constructs of the
study using seven-point itemised rating scale ranging from 1 = ‘strongly dis-
agree’ to 7 = ‘strongly agree’, namely PE (6 items), EE (5 items), SI (5 items),
PL (6 items), CRE (5 items) and BIU (4 items). All the measurement items
were adapted from the past studies on user’s acceptance of information tech-
nologies and validated by the subject matter experts on its level of clarity and
level of relevance based on four itemised rating scales. After necessary instru-
ment refinement, all the measurement items are found to be clear and relevant.
Data collection was carried out in the People’ Museum, a three-story former
municipal council building located along the Jalan Kota in the UNESCO
World Heritage City of Melaka. Using convenience sampling technique, 120
museum visitors were selected as the respondents and attempted the survey
after using the AR mobile app. It was then followed by an interview with the
museum curators and visitors to get better insights about the use of the AR
mobile app in the museum.

Findings
Of the 120 samples, 53.3% were female and 46.7% were male. The respondents
were predominantly local (80.0%), married (60.0%) and aged between 30 and
39 years old (33.2%) and had undergraduate education background (53.3%).
Most of the respondents were full-time employed (46.60%). Separately, tour-
ists’ vacation behaviour was studied in which 53.3% of the respondents were
found to have a very satisfied travel experience in Melaka; thus, they are
extremely likely to revisit Melaka in the near future. Moreover, 73.40% of the
respondents brought along their smartphone, and 86.70% of them were con-
nected to the Internet when vacationing in Melaka. The above findings add
confidence on the potential of the application.
176 T. GEK-SIANG ET AL.

In this study, the IBM SPSS Statistics 25 was used to analyse the data. Firstly,
the normality test showed that both skewness and kurtosis of all measurement
items were both within the tolerable range of ±3 and ±10, respectively, indicat-
ing the data was normally distributed and deemed as acceptable for further
analyses (Kline 2005; Park 2008). The reliability analysis showed that the
Cronbach’s alpha for all the constructs were above 0.800 (PE: 0.905; EE:
0.894; SI: 0.883; PL: 0.926; CRE: 0.900 and BIU: 0.912), indicating the
measurement items were positively correlated; thus, all the constructs were
deemed reliable (Sekaran 2000). The regression analysis reports the adjusted
R-square was 0.612, indicating that 61.2% of the variation in the dependent
variable can be explained by the variation in the independent variables. The
ANOVA analysis indicated that an independent variable or more contributed
significantly to the model (p < 0.05) and all the independent variables were
significantly (p < 0.05) associated with the dependent variable. The regression
model is written as follows: BIU = −0.562 + 0.136 PE + 0.110 EE + 0.077 SI
+ 0.326 PL + 0.236 CRE.

Discussion
PL was found to have a significant positive effect on museum visitors’ BIU, the
AR mobile app, because the aesthetic dimension of an AR mobile app will
motivate users to use it (Haugstvedt and Krogstie 2012). Consistent with pre-
vious study (Haugstvedt and Krogstie 2012), PL was also found as the stron-
gest predictor (β = 0.326) of BIU. Next, similar effect was found between CRE
and BIU. Supported by past studies, AR mobile app should fulfil users’ infor-
mation needs to improve one’s usage experience, intention to use and recom-
mendation to others (Jung et al. 2015; Yovcheva et al. 2013; Chung et al.
2015). In addition, similar effect was found for PE and EE towards BIU (tom
Dieck and Jung 2018; Chung et al. 2015; Haugstvedt and Krogstie 2012),
especially when the usage experience is favourable. If the AR mobile app is user
friendly, it is more convenient for museum visitors to understand the exhibits
and learn local history by themselves rather than referring to leaflets or inquir-
ing others (tom Dieck and Jung 2018). Lastly, consistent with previous study
(Chung et al. 2015), similar effect was found between SI and BIU but it was
the weakest predictor (β = 0.077) among other constructs. The adjusted
R-square was 0.612, indicating that 61.2% of the variation in the dependent
variable can be explained by the variation in the independent variables. In light
of the UTAUT, the determinants postulated in the research framework are said
to sufficiently explain museum visitors’ adoption of AR mobile app in the
People Museum, Melaka. The proposed research framework is suggested to be
validated in other UNESCO World Heritage Sites or tourist destinations.
During an interview with the museum curators, one of the respondents
hoped that “the use of similar AR mobile app should be expanded to other
museums or historical sites in Melaka” because AR makes learning history
more interactive and enjoyable and thus helps museum visitors to appreciate
 9 AUGMENTED REALITY: THE GAME CHANGER OF TRAVEL AND TOURISM… 177

local culture and heritage better (tom Dieck and Jung 2018). Another respon-
dent mentioned that “the use of AR application is suitable for tourist destina-
tions with UNESCO’s recognition”, which supported by previous studies
(Haugstvedt and Krogstie 2012; tom Dieck and Jung 2018) which mentioned
that AR is now widely used in world heritage sites and museums. Another
respondent concluded that “AR applications will transform the local museums
into world class museums which serve as a 21st century learning hub, further
enhance Melaka’s reputation as a global tourism destination”. Such advantage
can be seen when the world’s most visited museums have successfully intro-
duced AR to enhance visitor experience and their satisfaction (The Art
Newspaper 2019; Themed Entertainment Association 2019).

Conclusion
This study suggests several managerial implications for the developers of the
AR mobile app. Playfulness dimension was found as the most important factor
in determining user’s acceptance. Thus, the developers of AR mobile app
should focus on designing a more pleasurable and engaging user experience by
adding in reward-based gamification features. Furthermore, the AR mobile
app should provide precise, sufficient and updated information to the users in
multiple languages to cater for the needs of museum visitors from different
countries. Moreover, more virtual museum exhibits should be added into the
AR mobile app, or expand the app usage to other museums and heritage sites
in Melaka to further enhance the usefulness of the AR mobile app. Also, clear
and multilingual user manuals should be placed in the museum so that it would
be easily accessible for the museum visitors to learn and become skillful in using
the AR mobile app. The management of museums and heritage sites should
actively promote the AR mobile app to the tourists too.
In paving the way of smart tourism using Tourism 4.0 technologies, the
tourism authorities should work hand in hand with other tourism businesses to
make AR cover the four wheels of the tourism sector, namely accommodation,
transport, catering and tourist attractions. Accommodation providers can now
turn their business premise as an interactive hotel by using AR to advertise their
services and inform accommodation details and hotel services by creating vir-
tual tours, such as Hub Hotel and PAI Hotel. In terms of transportation, tour-
ists can use AR-capable travel apps to point at the vehicles to get direction,
route, next stop and places of interest, or multilingual AR map as an interactive
guide. In terms of catering, restaurant owners can introduce brand new menus
using interactive 360-view of each dish where customers can see virtual 3D
food on their dining table or when ordering online. Also, exploring tourist
attractions with AR mobile app makes the users travel back in time where old
images of city and landmarks can be seen via AR mobile app, and be a personal
tour guide for travellers to navigate and further explore the city.
Inevitably, this study encountered several limitations. Firstly, the findings in
this study are not generalisable to other museums or heritage sites. As such, it
178 T. GEK-SIANG ET AL.

is suggested that similar study should be conducted in other museums and

heritage sites to validate the present findings. Secondly, future studies should
investigate on whether differences in gender and age would influence user’s
acceptance of AR applications because literatures showed that IT adoption of
an individual varies across different gender and age (Sun and Zhang 2006),
which has been tested in studies on user’s acceptance of AR application (tom
Dieck and Jung 2018; Sun and Zhang 2006), particularly in the context of
cultural and heritage tourism. The limitations of the study suggest for future
studies.

Acknowledgement The authors are grateful for the technical assistance from the
People’s Museum, Melaka, and support from the Multimedia University, Malaysia.

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 CHAPTER 10

Equality Inclusion and Diversity Through

Virtual Reality

Andri Georgiadou

Introduction
In recent years, there has been a great development in virtual reality (VR) tech-
nology, resulting in its growing acceptance and adoption by the scientific com-
munity as a valuable tool for a wide range of applications. VR’s technological
power lies in its intensity, its interactivity, and the simulated realism that can
provide the users.
For this reason, much of the scientific research has focused on further
enhancing these two characteristics leading to the creation of more complex
VR systems. However, these systems, despite their huge potential, require the
use of specialized VR equipment that had been until recently difficult to afford
and acquire by organizations; the increased commercial interest however in the
power of VR has finally enabled the pervasive use of this technology.
In this chapter, we theoretically introduce the use of Virtual Reality train-
ings as a means for organizations to effectively promote equality, inclusion, and
diversity. Literature indicates how traditional diversity training and interven-
tions have not been as effective in enhancing organizations’ inclusivity insofar
(Kalev et al. 2006). In this respect, we posit that through virtual embodiment
(Gaudiosi 2015) empathy will be cultivated and hence the values of equality,
inclusion, and diversity will be more effectively promulgated.

A. Georgiadou (*)
Nottingham University Business School, University of Nottingham,
Nottingham, UK
e-mail: [email protected]

© The Author(s) 2021 181

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_10
182 A. GEORGIADOU

In the sections to follow, we introduce how learning occurs in organiza-

tions, and discuss existing approaches to diversity trainings in organizations,
followed by an introduction on the advantages of using virtual reality equality
trainings. We conclude the chapter highlighting the value of the suggested
approach as well as potential limitations.

Learning in Organizations
Learning in organizations is the organized learning process aimed at restoring
knowledge and skills for achieving a specific purpose (Fiol 1994). Training
aims to transfer knowledge or skills from a transmitter to a receiver through a
standard procedure on one or more learning themes (Pendry et al. 2007).
Of course, learning does not involve just the transmission of knowledge but
also the consolidation of that knowledge, through its practice, rehearsal, and
application. Training is defined as a learning process whereby an employee
seeks to acquire knowledge, technical skills, and to develop attitudes and
behaviors more effective for their work. So, in business, education has a self-­
centered character. The question to be addressed is what the job entails and
hence what is required from the employee to know now or in the future at
work. What deficiencies should they cover in order to get the job done in the
best possible way?
In all, training aims to provide employees with specific skills or assistance to
accomplish their tasks. Also, training focuses solely on current work as well as
the immediate needs of the business. In a similar vein, learning at work is a
systematically designed process that aims at exploring knowledge as well as
learning ways of behaving that contribute to achieving the goals and strategy of
the business (Goldstein 1991).
Furthermore, training is about getting a person to do a job effectively, effi-
ciently, and consciously: effectively so that what was taught can be implemented;
efficiently in order to be able to achieve the expected results; and consciously, so
that the different emotions and behaviors of the trainers can put the trainees in
a position to do what is right and when they need to.
Training and development are closely linked to the concept of learning at
work. They presuppose a level of education and career development opportu-
nities and usually involve middle- and upper-level staff.
Staff development is also a learning process where the goal is for the
employee to acquire the knowledge and skills they will use in the future, in
tasks that require more responsibility and initiative (Webb 2013). Career devel-
opment is more anthropocentric in nature and is related to how the employee
will become capable and develop as a person (Brown 2002). Of course, the
ultimate aim is to prepare employees to deal effectively with future situations
and take initiatives that will relate not only to the surface dimension of the tasks
but also to the resolution of wider organizational problems.
Staff training is centered around achieving the below:
 10 EQUALITY INCLUSION AND DIVERSITY THROUGH VIRTUAL REALITY 183

• To enhance the professional skills that trainees already possess in order to

improve their performance
• For employees to develop different or new professional skills so that they
can take on new tasks and meet the future needs of the business as best as
possible
• To reduce learning and adaptation time when taking up a new job, as a
result of career rotation or promotion

Development in organizations aims in enhancing the below:

• Knowledge: Knowledge is a pool of observations, facts, and information

that relates to the job, the processes, the individuals, and the formal tasks
associated with it.
• Skills: Skills development involves improving interpersonal skills in order
to improve employee effectiveness, such as problem-solving, decision-­
making, and interpersonal communication.
• Attitudes: Attitudes are the tendency of every individual to act and react
in a specific and predictable way. A possible change in attitudes usually
refers to a change in behavior. This change is intended to make the way
they respond to the stimuli they receive from the environment more
effective. Attitudes of the employee towards others (clients or colleagues),
tolerance for cultural differences, confidence in themselves, and a desire
to take responsibility and risk are some of the examples of attitudes that
are sought to be developed through specific training programs and to
lead in such desirable behaviors.
• Competencies: Competencies consist of all the professional characteris-
tics, knowledge, abilities, and behaviors required for an employee to per-
form their job properly. In order for employees to acquire the required
competencies, many businesses implement training programs that aim at
enhancing them.

Diversity Trainings in Organizations

In the international business environment that defines today’s global society,
managing diversity tends to be a more specific subject of study and research,
both within the internal micro-environment and organizational culture and
within the global macro-academic community (Georgiadou, Gonzalez-Perez,
& Olivas-Lujan 2019a, b). The internationalization of business, coupled with
the phenomenon of globalization, has brought about a new reality in the
human resources operating in the international business environment. It is
now self-evident that on a worldwide scale, people of different nationalities,
cultures, languages, religions, and sexual orientation coexist in the same work
environment (Vassilopoulou et al. 2018).
The aforementioned phenomenon of diversity, which was formerly marked
by discriminatory behaviors and unfair treatment of the workforce that differed
184 A. GEORGIADOU

from the objective norm, today tends to be characterized and used as a com-
parative competitive advantage, which could lead through effective manage-
ment to the optimization of the business performance (Georgiadou et al.
2019). This makes managing diversity in most businesses particularly impor-
tant, especially if they want to remain competitive in the international market
arena. As a result of this new approach to the global workforce, there has been
an adoption of government laws and statutory frameworks for diversity, while
endeavoring to bring relevant legal norms of diversity treatment into a common
line worldwide, at the same time facilitating multinationals operating in many
countries. Thus, diversity management strategy is now part of the management
of international businesses.
Initially, the concept of diversity in human resource management emerged
from issues of gender and nationality diversity. Subsequently, new categories of
diversity emerged, such as age, religion, and sexual orientation. The above have
been issues that have been of great concern to societies from time to time, until
the basic legislative principles on diversity issues of human resources have been
enacted. Multinational companies and the increase of migrant workers around
the globe have been a catalyst for combating inequality and unfair discrimina-
tion against human resources, as for these companies to successfully tackle the
negative discrimination caused by ineffective diversity management would lead
to the highest return on their business.
Diversity management is regarded as the recognition, understanding, appre-
ciation, respect, and acceptance of differences in terms of age, class, gender,
sexual orientation, race, ethnicity, religion, physical and spiritual ability, posi-
tion, and other visible and non-visible characteristics among people. At the
same time, the concept of cultural diversity in international business is a char-
acteristic of a company whose employees come from a plethora of diverse back-
grounds, different nationalities, religions, cultures, and so on.
International business management realized early on that, not managing
diversity and multiculturalism raises many problems, but tackling it effectively
is, at the same time, a challenge for the proper functioning of human resources.
By and large, effectively managing diverse human resources promotes the
attraction and retention of high-value employees, augments the firm’s organi-
zation in encouraging and endorsing innovation, and reinforces the corporate
responsibility image of the organization (Dreachslin 2007). In the literature
(Cox and Blake 1991; Dreachslin 2007), diversity is the coexistence in a work-
place, a market, or a society of a group of individuals, of diverse characteristics:
age, ethnicity, skills, knowledge, opinions, and values. It reflects all those fea-
tures that make them what they really are: unique. Kochan et al. (2003) con-
ducted a five-year study on the effects of diversity on business performance.
Their conclusion was that “the impact of diversity depends on the context in
which it is being leveraged, including organizational culture, human resource
practices, and strategy” (Dreachslin 2007, p. 83). Literature has also revealed
the core belief that effectively managing workforce diversity can be considered
 10 EQUALITY INCLUSION AND DIVERSITY THROUGH VIRTUAL REALITY 185

as a strategic “value-adding HR function that enhances organizational perfor-

mance” (Cooke and Saini 2010, p. 476).
According to Cox (1993), two types of diversity training are the most popu-
lar: awareness and capacity building. The latter introduces the topic of diversity
management and usually includes data on the demographics of the workforce,
the concept of diversity, and exercises for participants to think about issues to
increase their own self-awareness. Education for creating skills provides more
specific information about cultural patterns of different groups and how they
can affect work behavior. New employee orientation programs are also ultimate
for the introduction of the expectations of workers, regardless of their cultural
and national backgrounds.
Diversity training refers to any type of organizational, either on the site or
online, program aimed at helping individual with diverse backgrounds and
attributes work together more efficiently and effectively. Such programs have
been used by organizations for a long time, but research reports mixed effects
regarding their effectiveness.
In an attempt to increase diversity and reduce bias, organizations are relying
on the same programs they have been using over the last six decades. Many of
the approaches have been found to activate bias rather than quash it and allow
for discrimination issues to be raised. The reason was that the majority of diver-
sity programs are centered around regulating the top management team’s
behavior, which is perceived as a direct threat to their status and autonomy.
It’s been estimated that about $8 billion a year is spent on diversity trainings
in the United States alone (Kirkland and Bohnet 2017). However, on the site
or online diversity training is failing because it often focuses merely on raising
awareness, and not on changing behaviors and taking action to ensure diversity
management and inclusion in the workplace.
Gender-based workplace discrimination costs the UK economy only the
most in terms of output, at $168 billion a year (Webber 2018). According to
European Commission, if women’s productivity level would rise to the level of
men’s, Europe’s GDP could grow by 27% (Lagarde and Ostry 2018). A report
released by the World Bank Group finds that if women had the same lifetime
earnings as men, then global wealth would increase by a total of $160 trillion
(Georgieva and Bibeau 2018).
If one considers the fact that firms nowadays operate a lot like networks
(Volini et al. 2019), it becomes even clearer that equality, diversity, and inclu-
sion can enhance organizational performance. A research conducted by
Deloitte and other academic institutions confirms that inclusive and diverse
teams are more engaged, innovative, and creative in their work (Rock and
Grant 2016). Deloitte’s study comparing low-performing teams against higher-­
performing teams reveals that individuals must feel included the organizational
processes, culture, and strategy in order to participate, speak up, and thus fully
contribute towards the realization of the firm’s mission, aim, and objectives
(Office for Women 2016).
186 A. GEORGIADOU

Despite this increased scrutiny, emphasis, and investment, however, it seems

that organizations face a challenging reality gap: results appear to be extremely
slow and thus behavioral change is not happening. The top management teams
who have abdicated responsibility for this matter to the human resource depart-
ment or the diversity officer have the duty now to take ownership and hold
business leaders accountable at all levels. Employees today are gradually becom-
ing aware of various typologies and sources of bias, and some businesses are
starting to invest and take action in order to expose the issue and implement
the necessary structural and institutional changes to effectively deal with it
(Porter 2014).
The most popular solution today is training. But while such interventions
are helpful, it appears that the approach that organizations have been following
is not effective. The latter has been confirmed by the market research we have
conducted, as well. The research was conducted within the period April–May
2019. The research took place among 180 business buyers and the sample was
random as questionnaires were distributed randomly through various net-
works, including LinkedIn, Facebook, and mailing lists like European Women’s
Management Development International Network (EWMD); Gender and
Diversity in Organizations Division in Academy of Management; and Women in
Academy of International Business. Samples were taken from organizations
located in the UK (44%), France (11%), Italy (22%), Germany (11%), and
Austria (12%). According to our survey (2019), 33.3% believe that the existing
training approach of their organization is not effective at all whereas 44.4%
believe that is somewhat effective.
Proving the argument that organizations are investing resources on equality
training, according to our survey, organizations are spending an average of
$750 annually per employee on equality training, whereas the average total
number of employees at the companies is estimated at 4000 employees. Hence,
around $3 million is spent on average on equality training, which is perceived
as not effective by the employees.
Learning in virtual reality, however, has proven to enhance employee
engagement, increase knowledge retention, and build through empathy the
emotional connection between the trainee and subject that is needed to bring
about the desired change in attitudes and behavior. Research has shown that
the more senses we employ in a situation we experience, the deeper the learn-
ing becomes; retention rates a week after virtual reality training have been
documented to be as high as 80%, compared with 20% after traditional training
methods (Gaudiosi 2015). This is because VR challenges trainees on an audi-
tory, visual, and kinesthetic level simultaneously, thus offering a unique amal-
gamation of empathic affordances, which rely on a vivid sense of actual presence
and on the illusion of owing your virtual body. A plethora of empirical studies
have reported substantial cognitive, emotional, and perceptual effects of the
illusion of ownership over a virtual body. Behavioral, phenomenological, and
physiological evidence has suggested that following a thorough and adequate
induction, participants in VR training readily identify themselves with their
 10 EQUALITY INCLUSION AND DIVERSITY THROUGH VIRTUAL REALITY 187

virtual bodies. Remarkably, virtual embodiment may also have a significant

impact on reducing implicit biases related to age and race (Banakou et al. 2013;
de Waal 2008).

Virtual Reality
The advent of the Internet and its consequent universal acceptance as a domi-
nant means of information exchange could not leave the VR space untouched.
This has resulted in the development of appropriate templates that have led to
the creation of three-dimensional virtual worlds, thus creating new ways to
communicate online. The challenge was the ability to develop low-cost applica-
tions that appeal to a wide audience, such as all Internet users.
VR uses computers to create and simulate realistically and plausibly real or
unreal environments from which the user has the illusion of being surrounded
and, in which they can move freely, interacting with the others, as they would
in the real world. This is achieved by isolating the users and their senses from
the real world and overlaying the real-world stimuli with corresponding virtual
ones, made by the VR system through the use of appropriate technology.
The virtual world is transmitted in such a way that it can be shared with a
wider audience. For example, the computer-based virtual world is the descrip-
tion of the objects within the simulation itself created by the computer. When
we observe this virtual world through a system that transmits objects and inter-
actions to us through an interactive presentation, we experience virtual reality.
Summarizing the aforementioned text, we conclude that the virtual world is
the description of a collection of objects within a virtual space, as well as the
rules and relationships that dominate these objects (Sherman and Craig 2018).
If we consider that the user of virtual reality must immerse in another, alter-
native reality, then a virtual reality can be defined as entering—sinking into an
alternate reality or illusion. An alternative reality may be the representation of
a real space that exists somewhere in the natural world, or just a fantastic envi-
ronment created by a developer. This is the perception of an alternative world
or an alternative perspective of the natural world.
Immersion is essentially a transition from one mental state to another and is
characterized by minimizing the critical distance from what is presented to the
user and, maximizing the emotional involvement in what is happening. The
goal of virtual reality is to install a physical or artificial world in the user’s field
of vision, thereby immersing themselves in an illusion that excites their senses
and pretends that two-dimensional surfaces are three-dimensional (Grau
2003). Replacing real-world stimuli with those of the virtual environment is
crucial to achieving immersion in the virtual environment. In virtual reality,
entry into the virtual world begins with physical or mental immersion. In natu-
ral immersion, a synthetic stimulation of certain senses is dominated through
the use of technology, while the state of mental immersion is referred to as the
sense of presence of the user in an environment. We conclude, therefore, that
188 A. GEORGIADOU

physical immersion is the defining characteristic of virtual reality while metal

immersion is the ultimate goal of most digital media creators.
One of the benefits of virtual reality is that it allows the user to choose their
advantage and influence the events within the digital world. In other words,
virtual reality allows the user to gain a real-time simulated experience that
resembles that of physical reality. In addition, virtual reality enables the reduc-
tion of the dangers inherent in the physical reality, as well as the creation of
scenarios that seem unlikely in the real world. Sensory feedback, which is pro-
vided instantly by virtual reality, is based on the user’s physical position and
movements and in most cases is perceived through vision. To make this possi-
ble, the computer, based on virtual reality software, must be state-of-the-art so
as to record any kind of movement in real time. A typical virtual reality system
records the movements of the head as well as the hands or an object in the
user’s hands.
The authenticity of virtual reality depends on its response to the user’s
actions and movements. Another element of its authenticity, which is consid-
ered essential, is interactivity. Interactivity is the ability of the user to influence
a computer-based world, as well as the ability to change their field of view
whenever they so wish. In virtual reality, interactivity is achieved when the user
moves through the virtual world and is able to change their field of vision by
moving their head, while in more sophisticated applications, the user has the
ability to move objects using their hands.

Equality, Diversity, Inclusion (EDI) Through VR

VR technology has already passed its early exploratory stage and is progres-
sively acknowledged, adopted, and demanded. VR has possibly reached a tip-
ping point for achieving a large-scale adoption, mainly due to the establishment
and availability of more user-friendly and affordable hardware. Even though
VR has been around for some time, it was not available for use by the wider
audience from the beginning. VR headsets were either too uncomfortable and
not allowing for smooth vivid virtual experience, or they were too expensive
and had to be powered by large-scale computers. Consequently, VR was mostly
used by big organizations in the industrial design sectors or by specialized
research centers.
Nowadays the VR headsets have become affordable and powerful, while
even smartphones can be used to process VR data. This creates massive oppor-
tunities for individuals, organizations, and researchers seeking to further inves-
tigate and process a cultural transformation into a virtual space.
Based on this categorization, the VR technology has gone beyond the peak
of exaggerated and unrealistic expectations and a substantial number of con-
sumers and businesses are expected to adopt VR technology within the follow-
ing five years.
To put this in a context, it seems that VR technology is now entering the
phase of enlightenment that smartphones went in around 2008. It actually
took smartphones about nine years to reach a 50% adoption rate by consumers
 10 EQUALITY INCLUSION AND DIVERSITY THROUGH VIRTUAL REALITY 189

in Europe. At the moment, smartphones have been reported to be used by

one-third of the world population, with the worldwide sales of smartphones to
have reached more than €375 billion in 2016. It took less than ten years for
this transition to occur. Furthermore, a growing industry of mobile applica-
tions’ design, development, and launch is directly linked with the growth in the
use of smartphones; it has actually brought a revenue of €16.5 billion to the
EU economy.
VR technology’s adoption could be taking place rapidly, as individuals are
gradually seeking for it, whether for private use or as consumers or profes-
sional. Interestingly, this acceptance rate is documented to be significantly
higher compared to two years ago. An increasing number of individuals are
enthusiastically asking for VR solutions, whereas others are simply curious
about this new technology and mandate more information and tests to be con-
ducted (Bezegová et al. 2017).
Despite the increasing scrutiny and investment on implementing diversity
training programs, organizations appear to be failing to effectively cultivate the
desired skills, behavior, and attitudes, with previous estimates suggesting that
only 10% of training expenditures transfer to the job. Diversity trainings in
Virtual Reality address that transfer problem through cultivating empathy with
immersion. This is achieved through the development of breakthrough appli-
cations using existing state-of-the-art technology that will enable the realiza-
tion of training sessions in true-to reality virtual environments that resemble
actual workplaces.
Ultimately, these virtual training sessions will significantly stimulate the
trainees’ personal accountability toward attitudinal and behavioral change to
incorporate inclusion and equality into their businesses’ culture and DNA. Being
a fun and interactive workshop also allows trainees to enjoy the virtual
experience.
The way individuals enter the fully immersive experience of a virtual training
is through VR headsets (Equal Reality 2019). Once users don the headset, they
are placed into their virtual workspace, which resembles their real one. There,
they are asked to take on the character of a person in the workplace who is
being bullied, harassed, or discriminated against. Using a predefined and pre-
designed scenario, that is realized on the basis of instructions and material for
the incidents developed with businesses on a one-on-one basis, the simulation
will provide users with some choice as to their responses throughout the case.
Once the objectives of the first case are met and the scenario plays out, another
one kicks off, this time with that participant embodying an observer to the
incident of harassment or discrimination. Throughout these virtual reality
workshops, participants actually experience first-hand how it feels and how it is
to be bullied, harassed, discriminated against, and alienated. Examples could
include, but of course are not limited to, three-minute-long scenarios played
out in the VR; one in which a female employee experiences being left out of a
conversation with male colleagues and has to ask so as to be included, and
another in which an employee is berated, and their personal space
encroached upon.
190 A. GEORGIADOU

Significance and Implications of VR Diversity Trainings

VR training’s competitive advantage against the conventional trainings is that
it can give users very strong empathy and an authentic, deep emotional reac-
tion to issues around harassment, intimidation, and negative experiences at
work. This way, it provides the participants with a unique opportunity that they
wouldn’t have otherwise; to realize not just what this situation is all about, but
to experience how it actually feels. That’s a scenario and a position that they
couldn’t have had in any other form, unless being literally in that person’s shoes.
Virtual reality’s ability to put people in the shoes of another can be utilized
in a way that will have great effect in the organizational experience, culture, but
also day-to-day operations, as it’s the ultimate empathy evoker. On the one
hand, users have an actual physical reaction on a conscious level as well as an
unconscious level to this virtual character, and it’s intimidating and harassing
them. According to research (Nott 2018), close to nine in ten employees
reported that this VR experience makes them more receptive to the proceeding
workshop, while nearly all (98%) said afterward that they now understood their
personal role in further promoting and safeguarding inclusion and diversity.
On the other hand, for diversity trainers VR is the ultimate teaching tool in
its profound effectiveness at stimulating empathy. Being open to and valuing
diversity is not just something that people can learn; it’s something they can
feel and experience. A lot of individuals have seen and felt intimidation and
bullying up close. You can never forget that despair, that frustration. Being
alienated, excluded, disregarded, and muted. So, how can you get people to
comprehend that feeling? Some trainers have been using storytelling to raise
awareness, and undoubtedly listening to others is a great place to start for
people who will listen. However, it’s even more effective if you can actually get
people to feel it first-hand; that’s virtual reality diversity trainings.
According to a survey conducted by Hays (2019), 52% of employees claimed
that their employer’s public face and the way they portray themselves on issues
like diversity do not count for a genuine representation of the real organiza-
tional culture. Out of these, 23% reported that diversity is not a real concern
for the business, and 21% claimed that the public face appears to be an objec-
tive and not a reality, whereas 14% argued that their line managers had failed to
effectively adopt and implement inclusive policies such as diversity in the
recruitment process. Diversity efforts seem to be falling apart, firstly due to
diversity fatigue; people have lost interest in the conventional diversity training
approach after a long period of attending workshops that have not added any
value in the efforts to bring about attitudinal or behavioral changes in organi-
zations and societies.
Second, the insufficiency of the training approaches can be found in the
inadequacy of the organizations to assimilate differences. Diversity is not just
about recruiting people from diverse backgrounds; for diversity’s benefits to be
fully unlocked, organizations need to invest in inclusion. Acquiring and adopt-
ing VR training sessions will substantially augment the impact of the diversity
 10 EQUALITY INCLUSION AND DIVERSITY THROUGH VIRTUAL REALITY 191

training programs in businesses and subsequently contribute to a further soci-

etal attitudinal and behavioral changes on matters around equality and
inclusion.
In light of this, businesses that choose to acquire and utilize VR training
simulations which will be based on real lived experience of their employees will
enable them to actually walk in someone else’s shoes to learn first-hand what it is
like to experience inappropriate behavior or be the victim of discrimination at
work. This will allow the participants to identify potential sources of bias and
make important strategic decisions in real time on a real case-scenario with
reality-based coworkers, thus rehearsing how they would react should they wit-
ness discrimination and reflecting on their own practices. Hence, this virtual
reality experiences puts them into a critical position of making value-based
decisions and practice taking action in the moment. The ultimate goal of course
is, for individuals to have an intimate experience of how it feels like to be dis-
criminated against, harassed, bullied, or the victim of abuse of power. VR tech-
nology achieves this through the cultivation of empathy towards others, thus
deepening the participants’ connection to the topics under discussion.
As with any intervention of course, there are limitations that should be
acknowledged. First, people are reluctant in using technologies that are not
familiar with. Although VR has been available for some time now, VR trainings
have been so far introduced mainly in the military, the surgery medicine, and
nowadays the health and safety industry. Hence, people working in organiza-
tions exposed to more conventional training approaches might struggle to
acknowledge the value of the suggested intervention. Second, for virtual simu-
lations to be as realistic as possible, a significant amount of resources—time and
money—is required; resources that organizations might be unwilling to pro-
vide, considering a “cheapest” and “fastest” alternative of traditional training
sessions. Finally, on the site diversity trainings are more generic and appeal to a
wider spectrum of themes associated with EDI. However, VR diversity train-
ings are custom-made and that can be, apart from time consuming to be
designed and built, irrelevant to some of the participants.

Conclusion
With an estimated 500 million people entering the global workforce over the
next decade, coming to grips with the inclusion and equality challenge is criti-
cal. Without normalizing gender diversity for example, millions of skilled
women jeopardize being left off the grid. In order to meet the equality and
inclusion challenge, especially in the context of the current financial and refu-
gee crisis, organizations need to invest in developing the appropriate strategies
that will combine a new technological capacity and assets with investments in
an extensive variety of traditional and non-traditional economic sectors. Virtual
workplace diversity—and not only—training is crucial and a key step in capital-
izing emerging economic, market, and business opportunities.
192 A. GEORGIADOU

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 CHAPTER 11

Need for Speed: Corporate Political Activity

Effect on Celerity of Regulatory Decisions

Jeferson Lana and Raul Beal Partyka

Introduction
It can be said that over the last decade, transparency has become compulsory,
a crucial safeguard to protect society from capture by private interests.
Confidentiality creates several problems. The shareholders themselves are
deceived because they are kept in the dark about how their endangering capital
is being used.
Companies must become as transparent about their political activities as
they are about their sustainability activities, and this dual management, cou-
pled with stakeholder pressure, will pose fascinating new challenges for corpo-
rate strategy (Lyon et al. 2018). On the other hand, the quality of public
policymakers’ information is a prerequisite for good regulation (Néron 2016).
Putting the constructs together, it would be disastrous for governments to
attempt to develop such regulations without the extensive input of the organi-
zations needed to comply.
However, consistent with Kuo and Means (2018), companies can exert their
political influence for the public good as well as for private profit. So, we argue

J. Lana
University of Vale do Itajaí, Itajaí, Brazil
e-mail: [email protected]
R. B. Partyka (*)
Fundação Getulio Vargas’s Sao Paulo School of Business Administration
(FGV EAESP), Sao Paulo, Brazil
e-mail: [email protected]

© The Author(s) 2021 195

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_11
196 J. LANA AND R. B. PARTYKA

that corporate sustainability requires some level of political engagement. The

context of emerging economies in which the institutional environment is weak
or ineffective also allows exploring the links between notions of corporate
social responsibility (CSR) and corporate political activity (CPA) within these
institutional environments (Demirbag et al. 2017).
Before, companies must take sides to make everything faster. With the
advent of the digital age, where everything literally gets even faster—trans-
forming the speed of things—having actions and activities that help speed up
your business becomes a business need, and the business now has celerity capa-
bility. From now on, companies move from just knowing how to do things to
now knowing how to do things quickly. CPA is on this path, which helps, and
makes a process that has always been time consuming into a faster process
(Holburn and Zelner 2010).
Werner (2017) examined investors’ reactions to accidental disclosure of
companies’ investments in CPA. Investor reactions were more positive because
companies had more experience in politics in general, specifically about involve-
ment in election campaigns. Therefore, in addition to the transparency of dis-
closure, involvement in political activities generated attraction for investors.
Lana (2017) found speed in the anti-dumping measures requested by Brazilian
companies that were politically active through corporate political donations.
Holburn and Vanden Bergh (2014) focus on regulatory approvals for public
service mergers and demonstrate the role of campaign contributions as the
petitioner stepped up his political activities in the period before announcing the
merger, consistent with a strategy of companies seeking political support before
the regulatory review.
Furthermore, in Schuler’s research (1996), the intention of steel companies
in the United States in the worst economic year of 1982 was to overburden the
system for the government to negotiate restrictive deals with foreign countries,
shelving more than one hundred unfair commercial petitions, and anti-­
dumping and countervailing duties, believing that agents are willing to favor-
ably govern their industry and that political action would be more effective in
influencing business managers in precarious economic conditions.
Critics of corporate political activity argue that the activities are a dispropor-
tionate political voice to companies. What matters is not just a company’s will-
ingness to spend money on politics, but its ability to profit by extension and
generate jobs and tax revenue. When a company that supports a local economy
can easily move—or choose not to make more investments—its political prefer-
ences will have a significant weight (Kuo and Means 2018). And in an era of
hashtag activism and boycotts sustained by social media, companies can’t afford
to ignore consumers, employees, investors, and other stakeholders (Rodgers
et al. 2019).
While it is easy to criticize the negative side effects of CPA for democracy, it
should not be forgotten that democratic regimes are also far from perfect and
that, in many countries, to organize local communities and help solve social
problems, and filling government gaps, corporate interventions are welcome.
 11 NEED FOR SPEED: CORPORATE POLITICAL ACTIVITY EFFECT ON CELERITY… 197

Thus, they offer a more practical view of the CPA. Not as an opposition of
principle, but pragmatic forms of deliberation and governance that can allow
CPA and corporate citizenship activities to contribute to society (Scherer
et al. 2013).
The remainder of the chapter is organized as follows. First, we explain the
context and background. Then, the body of the chapter is present with the
relevant literature of nonmarket strategies, corporate political activity, and
institutional environment. Finally, we conclude by presenting the key contribu-
tions of our study, also suggesting future avenues for research.

Context and Background

Understanding that the corporate environment is uncertain and that compa-
nies are continually seeking ways to remain attractive, the search for tools that
provide greater security is a natural consequence. Therefore, in weak institu-
tional development environments, such as Brazil and many other emerging
countries, companies use the CPA as a tool to protect market uncertainties and
state expropriation.
Firms compete, whether individually or in cooperation; it is their nature.
While a great body of research has focused on the financial dimensions of the
consequences of the competition, we still need more explanations on the
mechanisms by which firms compete (McGrath 1988; Mitchell and James
2001). We assume that CPA works better in emerging countries due to low
institutional development.
In emerging countries, the institutional environment is favorable for compa-
nies to ally themselves politically to provide greater success in their business. In
institutional environments with highly regulated sectors, large state-owned
companies influence the attractiveness of the sectors and the pressures influenc-
ing them (Doh et al. 2012), as is the case in Brazil. Companies can use the CPA
as a tool to protect and build competitive advantage due to market uncertain-
ties and state expropriation. Country-specific institutional characteristics sug-
gest that it is difficult to find common institutional characteristics among
countries where group companies appear relatively well. For example, contract
enforcement is relatively efficient in Israel and not very effective in the
Philippines. Brazil is in the middle (Khanna and Yafeh 2007).
Companies are seen as social structures that exert action and pressure on the
environment they are inserted in. Establishing a business can be more expen-
sive in a more developed economy than in an emerging one because of the vari-
ous actors involved. However, companies in emerging markets deal with social
forces that influence political actors, and these are the results of policies (Doh
et al. 2012). Companies do not understand or do not know how to deal with
the institutional forces that affect political actors and, therefore, respond with
nonmarket strategy (NMS) avoiding obsolescence and inefficiency.
In order to achieve the purposes outlined in the introduction of transpar-
ency and profit-oriented competitiveness, we focus on speed. If time is money,
198 J. LANA AND R. B. PARTYKA

competing for speed is a reasonable capability firms can develop in order to

obtain performance (Baron 2013). We are here particularly interested in influ-
ence of corporate political capabilities (Holburn and Zelner 2010) on the
speed of political decisions (Bonardi et al. 2005).
Our hypothesis states that the greater the political capabilities of the firm,
the faster will be the decisions of regulatory agencies and government actors
relative to the firm’s demands (Hillman et al. 1999). The rationale behind this
idea is that the alignment between firms and public actors (Baron 1999;
Dorobantu et al. 2017; Hillman et al. 2004) boosts the interest of the latter in
providing celerity to the corporate demands of the former (Bonardi et al.
2005). This alignment is pursued by several CPA channels, such as lobbying,
advocacy, elections donations, and hiring former politicians to the manage-
ment team (Hillman and Hitt 1999; Hillman et al. 2004; Schuler et al. 2002).
On the one hand, in developed economies, CPA focuses especially on influ-
encing and preventing or making a decision on regulatory movements that
affect companies’ market strategies (Doh et al. 2012; Lawton et al. 2013). But
in emerging markets, companies often use CPA to compensate for institutional
gaps (i.e., Khanna and Palepu 2010).
Nevertheless, these actions must be carefully thought and strategically
developed, forming a political capability of the firm. Finally, in this chapter, we
will provide concepts and examples of the influence of political capabilities on
the speed of public decisions to the challenges of surviving, sustainable and
profitable. A broader movement pushing for greater corporate responsibility is
growing and has so far focused on how stakeholders can improve corporate
responsibility for corporate social responsibility (i.e., Utting 2008).

Conceptual Framework

Nonmarket Strategies
Nonmarket strategies address the movement to broaden business strategies,
“may include activities such as joining a political action committee, holding
conferences, litigating a case in court, and mobilizing social actors to support
or oppose a strategic initiative” (Doh et al. 2012, p. 24) in addition to its inter-
nal environment, seeking to influence the external environment (especially the
government) to obtain advantages and to mitigate risks of institutional instabil-
ity, and, finally, guarantee the return of invested capital. When the firm adopts
a policy of developing relationships with government, the interactions in the
nonmarket environment are voluntary. When government regulates an activity
or activist groups organize a boycott of a firm’s product, it is involuntary
(Baron 1995).
Clearly, government policy is an essential component of business. However,
the behaviors of companies participating in the public policy process have
received relatively little attention. What is known is the relationship between
competitive strategy and company policy and the objectives of the company’s
 11 NEED FOR SPEED: CORPORATE POLITICAL ACTIVITY EFFECT ON CELERITY… 199

political activity (Hillman and Hitt 1999). A significant factor of such activities
is that the greater the control government have over opportunities, the more
the nonmarket strategies are to be needed. This is clear in the case of govern-
ment in the role of customer or regulator. The control of opportunity by gov-
ernment and interests is one side of the coin. The other side of the coin is the
profits that incumbent firms garner due to this control (Baron 1997).
In airline industry, nonmarket actions significantly affect performance. The
greater the number of nonmarket actions, the better is the performance,
whether measured by quarterly gross profit margin (Shaffer et al. 2000). This
evidence supports the perspectives of business and society scholars, which
emphasize the importance of nonmarket actions to both business students and
business practitioners. It was also shown that states were more likely to adopt a
renewable portfolio standard if they had an American Solar Society office in
their state (Lyon and Yin 2010).
The closest context is the idea by Bonardi et al. (2005), who cite the exis-
tence of political markets that would offer greater incentives to use different
channels of political connections at different times. With this, the idea of team
is appropriate for firms that seek to optimize their investments in political
resources. In this sense, we point out that not only the political benefit in capi-
tal, favorable public policies, and information are important, but also the time
elapsed until they take effect. An important point needs to be addressed in
temporal surveys is that they help to improve the causal understanding of phe-
nomena. In this sense, causal research in administration is more easily absorbed
by the corporate environment, since it serves as a reference for the process of
business decision-making.
As in any field of scientific study, the influences of time and relationships of
interest are important, even in the organizational field. Thus, it is plausible to
infer that there are more suitable moments for certain corporate political
investments, which would also explain the incongruity of some results found
by empirical antecedents (Hadani and Schuler 2013). The move to examine
political competition is favorable. Constant attention must be paid to the
importance of a problem and time, such as through changes in the technical,
economic, or political environment (Hillman et al. 2004).
In addition to being influenced by the political context, the success of non-
market strategies also depends on the capabilities and experience of the com-
pany itself. The firms with the largest size, age, diversification, and latitude
(Lenway and Rehbein 1991; Schuler 1996) find it easier to influence political
actors because of their greater credibility and bargaining power (Hillman and
Hitt 1999; Hillman et al. 2004). Also the costs are lower for companies that
have high access through political representation (Schuler et al. 2002) or offices
close to the seat of power (Rehbein and Schuler 1999) and for companies with
(Bonardi et al. 2006; Holburn and Zelner 2010) and greater adaptability to
different institutional settings (Oliver and Holzinger 2008).
200 J. LANA AND R. B. PARTYKA

Corporate Political Activity

CPA is defined as “any deliberate firm action intended to influence govern-
mental policy or process” (Getz 1997, p. 32). It mainly reflects the combina-
tion of different tactics, including campaign contributions, political action
committee (PAC) contributions, lobbying, grassroots lobbying, and soft-­
money contributions to political parties with the goal of achieving access to
politicians. The area most widely studied behind antecedents of firm, industry,
issue, and institutional factors is the outcome of CPA in terms of both policy
decisions and firm performance. The ability to influence a policy decision in a
manner favorable to the firm is closely intertwined with improving firm perfor-
mance (Hillman et al. 2004).
Considering the previous topic, where the nonmarket strategies are defined
as the set of efforts made by the company in search of advantages that are not
related to the market aspects, connecting a company politically, in search of
advantages from the political sphere, is understood as one of the nonmarket
strategies. In this way, the CPA is treated as a nonmarket strategy and the
effects on firm performance due to these actions were investigated. The impact
of the connections on performance exists, whether positive or negative, due to
the creation of different conditions among firms.
The theoretical framework includes some variations regarding the nomen-
clature used in the treatment of the phenomenon. Getz (1997), Hadani (2012)
and Hillman et al. (2004) call corporate political activity, or action (CPA), the
actions aimed at bringing government closer to firms, and explain that this
would be a broader approach than the proposal by the (corporate political
strategies (CPS), so-called by Bonardi et al. (2005) and Schuler (1996)).
Actions planned with the intention of influencing the decisions of public poli-
cies taken by the political actors. Other authors call political connections
(Faccio 2006; Fisman 2001) the phenomenon of interconnecting firms and
government in search of market advantages. Although there are some funda-
mental differences between the terms CPA, CPS, and political connections, in
this chapter they will be treated as similar, and the standard nomenclature used
will be CPA.
Resource dependency has been used to explain aspects of CPA, the depen-
dence of business organizations on government for such things as favorable
regulations, sales, or trade protection. Similarly, the exchange-based literature
on CPA considers that there is a mutual resource dependency between firms
and politicians. Both are used to explain why firms are politically active
(Getz 1997).
One of the political activities is personal service. It may be considered an
interorganizational linkage in that a decision-maker from one organization
becomes a decision-maker in another (Hillman et al. 1999). They are part
executives that may serve at the federal or the state cabinet level, elected politi-
cians, in executive and administrative departments, or consultants or members
 11 NEED FOR SPEED: CORPORATE POLITICAL ACTIVITY EFFECT ON CELERITY… 201

of special committees. In sectors where firms are increasingly subject to global

competition, both a strategic perspective and a public policy at the firm level
are needed to understand the factors that compel a company to seek govern-
ment protection against imports (Schuler 1996). Studies on the importance of
political actors in emerging markets have been published, as in China (Du et al.
2019; Li et al. 2008), India (Elg et al. 2015), and in Russia (Okhmatovskiy 2010).
On the other hand, in a case study of Fisman et al. (2012), there was no
significance of the political ties of US Vice President Richard Cheney with US
organizations. It was pointed out as responsible for such finding, the effective
control of institutions in the search for income through personal ties with
senior government officials. In this case, it focused on the importance of VP’s
personal ties in generating value. Existing institutions such as lobbying entities
and political action committees facilitate political relations and differ greatly
from the exchange of personalized favors.
In addition, visiting senior government officials appears to be a valuable
CPA for companies, providing greater financial gains than companies that do
not receive visits. The visit indicates that the government may be willing to
provide resources that benefit its sector, whether with increased funding or
aligned policies. The government may also be willing to protect loss-making
companies. Visit by government officials can also attest to the reputation and
legitimacy of host companies, and extension certification enhances the third-­
party impression of company reputation and legitimacy (Schuler et al. 2017b).
In Ukraine, findings show that micro- and small businesses need to engage in
political activities with the state when they enter the market, but also after
entry, to survive in contexts where institutions, among them, are in conflict
(Rodgers et al. 2019).
In addition, this leads to the finding that investors have been more positive
than firms (Werner 2017), but is more specifically with regard to engaging in
electoral campaigns. Corporate donors gained direct access to Republican gov-
ernors and their senior staff. This institutional background illustrates how the
characteristics of state politics and policymaking make the states an attractive
target for CPA. The petitioner increased their political activities in the period
before they announce merger, consistent with a strategy of firms seeking politi-
cal support in advance of regulatory review. Firms use an indirect strategy of
targeting pivotal political actors who can exert influence on regulatory agencies
as well as a direct strategy of lobbying agencies in order to shape agency deci-
sions (Holburn and Vanden Bergh 2014).
Corporate sustainability management is driven by enlightened self-interest,
where the task of sustainability is to find the best means (e.g., pushing for new
regulations) of using natural resources to meet corporate profitability goals
(Schuler et al. 2017a). Companies’ sustainability discourse on the importance
of environmental stewardship and responsibility contrasts sharply with their
less visible but deliberate and proactive policy actions designed to facilitate the
approval of bills (Cho et al. 2018). Organizationally, behind the scenes, there
is a more intimate area accessible only to a more intimate group of political
202 J. LANA AND R. B. PARTYKA

actors (Cho and Roberts 2010). These political actors who are only intimately
affected should be sought for behind-the-scenes political contributions and
strategies.
The talk in front of everyone about performance (sustainability reports) and
the behind-the-scenes actions (political strategies) of oil and gas companies
reflect two conflicting approaches. Publicly, corporations promote the perfor-
mance of environmental responsibility with the goal of managing their stake-
holders’ impressions by forging a specific image of them. Our analysis of
sustainability reports highlights how oil and gas companies present their con-
cern for the present and future environmental protection.
Behind the scenes, companies focus their efforts on lobbying. Given the
current and future major concerns in the social and ethical field, the current
voluntary, unregulated sustainability reporting scheme, for example, allows
organizations to project an image and impressions of deception. Thus, it can be
inferred that sustainability disclosures are not only used to conceal poor envi-
ronmental performance, but also to divert attention from economically tar-
geted political contributions (Cho et al. 2018).

Institutional Environment
A institutional theory view governments as principal actors in establishing
norms through coercive or regulatory methods (DiMaggio and Powell 1983;
Oliver 1997). In the context of emerging countries, regulatory and contract
enforcement regimes in such markets are ineffective. These events are com-
monly known as “institutional gaps” (Khanna and Palepu 1997). Khanna and
Palepu argue that these gaps create opportunities for in emerging markets
compared to developed markets. Informational voids in the product market
create a situation where consumers do not have reliable information about
products and services. Investors lack the much-needed reliable information in
these financial markets. In this way, investors may not be willing to invest in
opportunities, nor can entrepreneurs raise capital for promising ideas.
Companies must adapt their strategies to regulate (Khanna and Palepu
1997). Unlike developed economies, emerging markets suffer from weak insti-
tutions in all or most areas. Yet, when regulators set political goals above eco-
nomic efficiency, they can distort the functioning of markets. In this case, not
only does the state intervene more extensively in commercial operations, but
companies also have difficulty predicting the actions of regulators. Diverging
paths have been seen between North and South Korea, or between East and
West Germany, where one part of the country stagnated under central planning
and collective ownership, while the other thrived on private ownership and the
market economy (Acemoglu et al. 2000).
Institutions are the formal and informal rules of a society or, they are the
humanly invented constraints that shape human interaction and govern eco-
nomic and political behavior. It is the rules of the game in a society that govern
 11 NEED FOR SPEED: CORPORATE POLITICAL ACTIVITY EFFECT ON CELERITY… 203

human interactions. Institutions are the types of structures that matter most in
social life because they make up the material of social life (North 1990).
Moreover, institutions are developed by society to create order and provide
the rules of the segment, and organizations are the actors subject to these rules
(North 1990). The role of institutions is also in improving business investment
(Baumol 1990). Operating a range of formal institutions, including property
rights, regulation, information transparency, and accountability, is important in
attracting foreign direct investment primarily to developing and emerging
countries (Globerman and Shapiro 2003).
From the standpoint of the institutional structure in the economy, increased
productivity in an economy may be improved or limited, depending on its
institutional structure (North 1990). The need and interest of the country
need to be above lobbying by the parties that may be impacted by the develop-
ment of the sector to which they belong. Therefore the importance of a solid,
trustworthy institutional structure and preferably not one in which its norms
change every three to five years, creating instability in the sector.
Finally, it can be seen that the development of connections with the host
country’s government can facilitate dealing with regulatory agencies, as well as
understanding and responding to the norms of the institutional environment
(Banerjee and Venaik 2018). While institutions define the system of rules that
shape the attitudes, values, and expectations of individual economic actors,
institutions are also responsible for producing and reproducing the conven-
tions, routines, habits, and “established thinking habits” that, along with atti-
tudes, values, and expectations, influence the economic decisions of the actors.
However, they are unlikely to be aware of the real impact that institutions have
had on their education (Gertler 2004).

Discussion and Conclusion

As recognized by scholars, companies and their managers make many decisions
about political strategies based on the relationship with the government, it is
impossible to ignore the ethical and transparency foundations of such actions.
We conclude the chapter by discussing the implications of our findings for
academics and business managers, along with several reflections on how our
results speak in broader discussions about civil society organizations and
policymakers.

Implications for Business Managers

Companies are not expected to support public policies that significantly hurt
them financially, for example that a coal company supports policies that stop
coal mining or that an oil company supports policies that stop oil drilling.
Then, what can we expect for 2025, really?
204 J. LANA AND R. B. PARTYKA

1. Companies should plan to fully disclose their corporate political activity.

In the information age, transparency is increasingly irrefutable. Shady
money and lobbying are unpopular between the public and civil society
actors, and pressure for political outreach is unlikely to diminish. Leading
companies in corporate sustainability are also likely to be the first to drive
this movement (Lyon et al. 2018).
2. Alignment political activity with public pronouncements and corporate
sustainability efforts. If a company is seeking to reduce the amount of
carbon emitted, it is also expected to support public policies that require
all companies to reduce their emissions (Lyon et al. 2018).

Corporate sustainability management can extend its ethical reach and inter-
twine with more empirical phenomena (Schuler et al. 2017a, b). The demand
for political transparency is unlikely to disappear. The challenge will be, as
demands for political transparency grow, that companies continue to execute a
strategy that involves contradictions between virtuous public statements and
self-interest lobbying and other activities. Important is a more responsible
involvement with the government. Business support is important in the prog-
ress toward a more sustainable world. Corporate leaders can expose their own
willingness to be transparent about their political activities and speak up to
demand new norms and transparency rules for all companies (Lyon et al. 2018).

Implications for Theory and Scholarship

A major challenge for academia and education institutions will be the develop-
ment of assessment tools to estimate the extent to which corporate policy
action supports policies that will actually lead to more sustainable outcomes
(Lyon et al. 2018). Many developing nations have been desperate for constant
tax payments to governments, but without dignified return to citizens and
resolution of problems. It is plausible to imagine that they suspect that much
of the problem is the influence of money and corporate power on politics
(Lyon et al. 2018).
On the other hand, as to the legality of campaign contributions, changes to
these laws change states’ anti-transparency statutes in the United States for
example, when a state allows campaign contributions and has a competitive
electoral environment, it approves more anti-transparency laws (Werner and
Coleman 2015). This opens practical political, legislative, and regulatory
debates about the role of corporate money in politics. Contributions to elec-
tion campaigns and their close political connections between business and poli-
cymakers can lead to undue and unfair policy influences in a country (Claessens
et al. 2008), but this type of CPA may be unavoidable due to the country’s
institutional or competitive pressures, especially when foreign companies set up
in foreign countries (Lawton et al. 2013).
Finally, it will also be interesting in the future to examine the temporal
effects, that is, how CPA strategies change over time due to changes in the
 11 NEED FOR SPEED: CORPORATE POLITICAL ACTIVITY EFFECT ON CELERITY… 205

institutional environment resulting from the globalization of trade and invest-

ment flows. In addition, it will be interesting to measure society’s expectations
about the activities of foreign companies, who wish not only to benefit from
the local economy but to contribute to it (Banerjee and Venaik 2018).

Conclusion
While the dissemination of money in political campaigns is already widespread
in nations around the world, it should also include a number of other possible
activities that are tailored to the variety of political systems and regimes around
the world to prevent corruption, which remains a powerful force in many parts
of the world. Much of the practical and even legal debate about CPA disclosure
concerns the impact on reputation and level of competitiveness. We see this as
an open question that should be involved in further studies. In addition, scopes
that favor full CPA transparency would also inform the biggest ethical issue
(Skaife and Werner 2019).
In front of the audience, as colors are trying to find attractive ways to attract,
a search for tools that offer greater security is a natural consequence. In fact,
companies do not understand or do not know how to deal with the institu-
tional institutions that affect political actors; therefore, they respond with
NMS—like CPA—in order to create a superior performance or sustain com-
petitive opportunities and advantages.
Examining a relationship between CPA and corporate sustainability, in the
context of an institutional environment in emerging economies, our study con-
tributes to this body of literature, analyzing the research of companies that use
CPA as a tool to protect and build competitive advantages due to market
uncertainties and state expropriation, whereas it must maintain ethical, trans-
parent, and noncontradictory treatment of such activities for shareholders and
society.
Finally, companies must become transparent not only in sustainability activi-
ties but also in political activities. This dual management, coupled with pres-
sure from stakeholders, will bring new challenges to the business strategy. If
companies know how to manage their business strategies, from now on they
will not only know how to do things, but they will also know how to do it
quickly.

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 PART II

Economic, Political and Ethical

Challenges
 CHAPTER 12

Political and Ethical Challenges of 2025:

Utopian and Dystopian Views

Duane Windsor

Introduction
This chapter designs contrasting utopian and dystopian scenarios about the
future (Windsor 2018b) and a median voter perspective to examine political
and ethical challenges of 2025 affecting corporate sustainability. Each citizen
chooses a political and ethical stance in light of their expectations about the
future and capacity to influence that future. The situation has strong implica-
tions for business managers assessing the corporate social responsibility (CSR)
of businesses and political criticism of capitalism and wealth as aspects of cor-
porate sustainability. Citizens are stakeholders of specific businesses. Business
managers are citizens facing the same challenges in private life as well as in their
management responsibilities.
The utopian or optimistic view is designed to be progressive and globalizing
in orientation. Governments and global markets both function effectively, and
global economic growth continues. This view presumes that sustainable devel-
opment is feasible politically and economically and that technological advances
will ameliorate and reverse climate change damages. The view rests on an
implicit assumption of aggregate positive-sum changes. The dystopian or pes-
simistic view is conservative and increasingly nationalistic and populist in orien-
tation. This view presumes that coming changes are adverse to national and
popular interests. Governments and global markets begin to function less
effectively toward 2025. There could be persistent trade wars between key

D. Windsor (*)
Rice University, Houston, TX, USA
e-mail: [email protected]

© The Author(s) 2021 213

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_12
214 D. WINDSOR

economic actors, such as the US and China or the European Union (EU). The
view rests on an implicit assumption of zero-sum changes: what one country or
interest gains, another country or interest loses. Zero-sum invokes a lifeboat
ethics condition concerning other countries and refugees (Hardin 1974).
This chapter relates to the overall project of Business 2025 corporate sus-
tainability in the digital age as follows. The project call for papers identifies
2025 (see Center for Long-Term Cybersecurity 2019; Lipman and Petrov
2013; Gerhold and Steinmüller 2018) as possibly a “point of no return” for
various problems. The dystopian scenario corresponds to this concern. The
implication is that there must be changes in individual and business behaviors
as well as in public policy. The utopian scenario corresponds to positive effects
of desirable changes, but must function effectively now to avoid a possible
“point of no return.”
Contrasting narratives for utopian and dystopian scenarios examine what
happens if on the one hand viable solutions are quickly found and behavioral
and public policy changes do occur quickly enough, or if on the other hand
such solutions are not quickly found and behavioral and public policy changes
do not occur quickly enough. Businesses cannot decide what actions to take
without considering the political chaos that seems to be unfolding in the US
and the EU, in the EU due to Brexit and increasing immigration, and the com-
bined political and ethical challenges facing the citizens of democratic societies.
The emphasis in this chapter is on the implications of the call’s “social, demo-
graphic, technological, and managerial trends by 2025” as viewed by the
median voter citizen and the business manager. These trends constitute the
business environment shaping corporate sustainability.
The importance of the topic coverage is that this chapter addresses the dif-
ficulty of understanding the dynamics of political and ethical choices. If 2025 in
reality proves to be a “point of no return,” then individuals, organizations, and
institutions have amazingly little time to identify key problems and decide how
to proceed. A utopian narrative anticipates success. A dystopian narrative antic-
ipates failure. Each narrative in effect advises differently on what may happen
and how to decide what to do in each year from 2020 through 2025.
The chapter structures specific objectives as follows. The second section
explains the context and background for the scenario approach in terms of a
perfect storm for corporate sustainability. The section identifies a first list of the
most important political and ethical challenges expected in 2025. The year
2025 suggests a relatively short time horizon over which to identify potential
solutions and make choices. The ethical problem for citizens and managers
takes the form in a perfect storm of Hardin’s (1974) lifeboat ethics. The third
section explains the constructed utopian and dystopian scenarios. The section
sharpens differences between utopian and dystopian narratives to emphasize
political and ethical choices facing citizens and business executives and direc-
tors. The scenarios constitute a dialogue. The fourth section links these sce-
narios to a median voter perspective in which the median voter is politically
neutral but ethically concerned without embracing Hardin’s lifeboat ethics.
 12 POLITICAL AND ETHICAL CHALLENGES OF 2025: UTOPIAN AND DYSTOPIAN… 215

The chapter links the proposed scenarios to the median voter perspective and
then to business sustainability issues of CSR and political criticism of capitalism
and wealth. Because 2025 is coming up quickly, references must emphasize
current topics, used simply to illustrate arguments. The chapter also seeks to
link these topical references to an academic literature. The left extreme empha-
sizes the utopian scenario. The right extreme emphasizes the dystopian sce-
nario. The political center party of median voters may disappear toward the left
and right extremes. The fifth section addresses two key corporate sustainability
issues within the framework generated by the scenarios and the median voter
perspective. These two issues are corporate social responsibility (CSR) and
political criticism of capitalism and wealth.

A Perfect Storm for Corporate Sustainability

A brewing perfect storm involves multiple challenges occurring simultaneously,
more or less, and interacting viciously to undermine governments, markets,
businesses, and citizen confidence and understanding.

Key Challenges
A list of the most important challenges includes the following in no particular
order of importance. The combination of challenges is the perfect storm.
Changes listed here, and possibly others such as the 2020 COVID-19 pan-
demic, present profound political and ethical challenges for business and gov-
ernmental leaders and individual citizens. The chapter does not take a position
on the merits of any particular challenge. Contrasting references seek to pro-
vide dialogue about pro and con views on key challenges.

1. Rising nationalism and populism negatively affect international trade,

investment, and cooperation (Windsor 2019b). Brexit and Catalonian
independence movements are symptomatic. The Trump Administration
is not a fan of the Paris Accord 2015 and is trying to redesign key trade
arrangements through threat of trade wars if necessary. Nationalism and
populism (Waisbord 2018; Wimmer 2019), Brexit (Dixon 2018; Jenkins
2016), the Paris Accord (Duke 2019; Novak 2017), and trade war
threats (Benson 2019; Krugman 2019) have advocates and critics.
2. Population movements ignore national border controls and are driven by
various factors, such as economic preference, climate change, military
conflict, and internal conflict. There are advocates (Bove and Elia 2017)
and critics (Foster 2014) of mass population movements. The 2019
Finland election reveals a deeply divided population in a small, relatively
homogeneous, and highly democratic society (OZY 2019). Some reports
cite immigration concerns as a driver of populism (Leicester 2017) and
Brexit (Adam and Booth 2018).
216 D. WINDSOR

3. Climate change effects such as global warming, melting glaciers and

polar caps, and rising sea levels are arguably accelerating: technological
innovations may (or may not) offset these effects (Borenstein 2019).
Some prominent companies, illustrated by Amazon and Duke Energy,
have recently undertaken pledges to reduce carbon pollution (Martin
2019; Pisani and Sapra 2019). Senator Mitt Romney (Republican, Utah)
has cautioned that climate change effects might result in “the disruption
of the whole political order of the world” and that effective action in
Washington, DC will depend on “wins for both parties” rather than “a
victory for one party” (Osborne 2019).
4. There is a potential ideological shift away from capitalism and toward
socialism (Economic Report 2019; Newport 2018): this shift involves
concerns over inequality (Semuels 2019; Telford 2019; Tomlinson 2019)
and health care access (Schatzker 2019). These concerns lead to demands
for higher taxes, universal basic income, and universal Medicare Access
promoted by progressives—whose financing scheme is higher taxes
beginning with the wealthiest and working downwards. Senators Bernie
Sanders (Democrat, Vermont) and Elizabeth Warren (Democrat,
Massachusetts) have advanced various proposals (Rappeport and Kaplan
2019; Sanders n.d.; Stein 2019; Windsor 2019a). Senator Sanders has
stated: “There should be no billionaires. We are going to tax their
extreme wealth and invest in working people” (Cillizza 2019).
5. There is risk of permanent winning coalitions driven by identity politics
(Boettke and Thompson 2019) or some other kind of anti-compromise
politics that can destroy democratic governance by establishing one-­
party states that are unavoidably dictatorial (although majoritarian)
rather than constitutional (featuring checks and balances and electoral
competition) (Mainwaring 2001; Traub 2013).
6. China, Russia, Iran, and North Korea are aggressive regional military
powers that seek to gain regional hegemony and threaten neighbors
(Sciutto 2019). Iran and North Korea have nuclear weapons develop-
ment programs. Regional aggression may force arms race and regional
conflicts (Arnon and Guzansky 2018). Iran and Saudi Arabia are engaged
(or arguably not) in an undeclared war in Yemen (Bednarz et al. 2015).
7. Pervasive corruption is widespread in many countries, including Brazil
and India as well as China, Russia, Iran, and North Korea. Advanced
economies with democratic regimes are not immune to corruption (Hall
et al. 2020). Corruption undermines public confidence in institutions
(Clausen et al. 2011). Multinational enterprises may play a crucial role in
providing bribes to public officials (Windsor 2019c). A variant of corrup-
tion involves the multiple business scandals that undermine public confi-
dence in capitalism (Lombardi et al. 2019).
 12 POLITICAL AND ETHICAL CHALLENGES OF 2025: UTOPIAN AND DYSTOPIAN… 217

Hardin’s Lifeboat Ethics

Hardin’s (1974) lifeboat ethics model illustrates ethical challenges for citizens
and managers in a perfect storm. Climate change may increase both inter-­
nation and intra-nation inequality effects (Diffenbaugh and Burke 2019). In a
proposed model of lifeboat ethics, Hardin makes an argument for not helping
the poor of the world. An interpretation of the argument is as follows. The
advanced economies possess a lifeboat capable of holding their own popula-
tion. The developing countries—holding most of the world’s growing popula-
tion—do not have such lifeboats. The advanced economies cannot save the rest
of the world without being swamped. This argument generates present debates
concerning refugee policies and sanctuary zones in the US and the EU. The
policy of the EU has been that if a refugee can touch some part of the EU, then
the refugee is automatically admitted. A “progressive” position favors admis-
sion; a “conservative” position favors exclusion.
The lifeboat model raises a profound question about personal ethics for citi-
zens and business managers. In the setting of using Clustered Regularly
Interspaced Short Palindromic Repeats (CRISPR) for genetic modification of
humans, George Church (Professor of Genetics, Harvard Medical School)
argues: “I believe we have an ethical obligation to maximize benefits and mini-
mize harm” (Hall 2019: 15). Dov Seidman, CEO of the ethics and compliance
consulting business LRN, states: “Moral leadership means truly putting people
first and making whatever sacrifices that entails” (Friedman 2018).

Utopian and Dystopian Scenarios

A scenario is simply a description of a possible future. Contrasting scenarios
may thus be an informative dialogue. A scenario may be qualitative (i.e., a nar-
rative) or quantitative (i.e., a mathematical model). Narratives are the most
common approach. Scenarios may prove useful for dialogue (Gerhold and
Steinmüller 2018) and addressing “wicked problems” (Wright et al. 2019).
This chapter does not undertake to make specific predictions. Scenarios have
equal likelihood. For instance, the Center for Long-Term Cybersecurity (2019)
looks at four scenarios for 2025. An optimistic (or utopian) Scenario 1
“Quantum Leap” expects quantum computing to be successful and important.
A pessimistic (or dystopian) Scenario 2 “The New Wiggle Room” is a “poi-
soned chalice” in which there is too much information and knowledge. Scenario
3 “Barlow’s Revenge” shifts cybersecurity to government or by delegation to
big business (Barlow 1996) and Scenario 4 “Trust Us” shifts cybersecurity to
an artificial intelligence (AI) “SafetyNet” trusted to function correctly. The
Center for Long-Term Cybersecurity (2019: 6) characterizes the scenario
approach as follows:

The Cybersecurity Futures 2025 scenarios (like all scenarios) are not predictions.
They are logical narratives that tell stories about how forces of change from a
218 D. WINDSOR

“Brave New World”

sustainable development

Present Future
Time Time

“1984”
(environmental
catastrophe)
Socially Negative Outcomes
2019 2025 2050 2100
Today Near Middle Distant

Fig. 12.1 Two contrasting scenarios for 2025 political and ethical problems. (Source:
Author’s creation adopted in part from Windsor 2018a)

variety of sources … may overlap and combine to create a set of cybersecurity

problems in 2025 that are different from those encountered today.

Figure 12.1 depicts two contrasting scenarios for the future, adapted from
Windsor (2018a). One scenario is utopian or positive. The contrasting scenario
is dystopian or negative. These two scenarios are extreme and opposing narra-
tives about the possible future. Sustainable development (a “Brave New World”
invoking Huxley 1932) and environmental catastrophe (“1984” invoking
Orwell 1949) here describe positive and negative outcomes in perhaps the
year 2100.
An essential difference across time horizons is that “While a near future is
represented in practical terms and concerned with forming expectations and
goals under conditions of uncertainty, a distant future is represented in stylized
terms and concerned with imagining possibilities under conditions of ambigu-
ity” (Augustine et al. 2019: 1930). Because scenarios are not predictions but
narratives about possibilities, it is important not to treat a scenario as in any
sense a reality. Individuals may tend to believe scenarios. Augustine et al. (2019:
1930) in a study of proposed geoengineering planetary-scale technologies for
addressing climate change caution:

Geoengineering has increasingly been treated as if it were a reality, despite con-

tinued controversy and in the absence of any implementation. We find that
societal-­level imaginaries that were built on deeply-held moral bases and cos-
mologies underpinned the conception of geoengineering, and that a dialectic
process of discursive attempts to reconcile oppositional imaginaries increased the
concreteness and credibility of geoengineering so that it increasingly has been
treated as an ‘as-if’ reality.
 12 POLITICAL AND ETHICAL CHALLENGES OF 2025: UTOPIAN AND DYSTOPIAN… 219

Table 12.1 Utopian and Dystopian scenarios

Dimension Utopia Dystopia

A Median Voter Assesses Two Competing Scenarios

Metaphor Label “Brave New World” (Huxley, 1932): “1984” (Orwell, 1949): the
the future will be positive through future will be negative due to
replacement of capitalism by socialism replacement of capitalism by
socialism
Political orientation Progressive Conservative
Ethical orientation Social welfare Lifeboat ethics (Hardin, 1974)
Nationalism Global Nationalism and populism
orientation
Expectation Sustainable development Environmental catastrophe
beyond 2025
Technological Technological solutions for climate Technological solutions
forecast change appear ineffective or delayed
Climate change Paris Accord effective Paris Accord ineffective
policies
Social institutions Resilient and innovative Inadequate
Leading Continue to be successful Increasingly ineffective
democracies
Artificial Complementary to human labor Substitute for human labor
intelligence (AI) increasing employment decreasing employment
and robotics
Economic Socialism Capitalism
prescription
A business manager assesses CSR and political criticism
of capitalism and wealth

Source: Author’s creation drawing in part on Huxley (1932), Orwell (1949), and Hardin (1974)

Table 12.1 provides a comparison of proposed utopian and dystopian sce-

narios on key dimensions. These scenarios are constructed narratives and not
specific forecasts. The constructed narratives may include some apparent incon-
sistencies or elements that arguably might serve better in the opposed narra-
tive. The scenario labels are metaphors. The essential feature of future utopia is
that society solves all key problems to everyone’s benefit: the scenario is opti-
mistic. The essence of future dystopia is that key problems overwhelm society’s
ability to handle: the scenario is pessimistic. These two narratives are intention-
ally extreme opposites. Reality to 2025 and beyond may well prove to be some
mix of positive and negative dimensions. While the two scenarios do strongly
emphasis sustainable development versus environmental catastrophe, the sce-
narios are not restricted to environmental matters: political, ethical, and value
orientations, political outcomes, and AI outcomes are also included. The sce-
narios present the median voter and business managers with conflicting narra-
tives about the future. A progressive party may threaten that environmental
catastrophe must result from a conservative party and promise that utopia will
follow from socialism. A conservative party may threaten that socialism will
result in dystopia and promise that capitalism is the path to wealth. But in
220 D. WINDSOR

general terms, utopian reasoning tends to be progressive (Huxley’s “Brave

New World” is coming) and dystopian reasoning tends to be conservative
(Orwell’s “1984” is coming). A particular reader may view “Brave New World”
as dystopian (Huxley’s intention) and “1984” as utopian. But the chapter’s
author designs these two extreme scenarios as forming a dialogue for the
median voter and then the business manager about corporate sustainability.

A Utopian Scenario
“Brave New World” is an ironic twist on Huxley’s (1932) dystopian view of the
technological future. Huxley envisioned that technology would enslave man-
kind—here as a twist technological solution to climate change free mankind.
The intended sense of the scenario is that the future will be good, and espe-
cially under the guidance of a progressive political party moving toward social-
ism. Four major improvements occur. One improvement is that technological
solutions for climate change problems do appear. That is, independently of
political and institutional developments, technological innovation will begin to
reverse environmental damages. It may be 2050 before such technologies must
be operating, but there must be convincing evidence of practicality by 2025 to
provide citizen confidence. A second improvement is that there will be institu-
tional arrangements for addressing climate change problems. In particular,
something like the Paris Accord will function effectively. A step in this direction
by 2025 might be that the US rejoins and implements the Paris Accord. A third
improvement is that social institutions at various levels will prove more resilient
and innovative than predicted (Windsor 2018b). A fourth improvement is that
the leading democracies—especially the US concerning attempted one-party
impeachment of President Donald J. Trump and the UK decision concerning
Brexit—resolve amicably and satisfactorily present internal political dissensions.
In this utopian scenario, AI and humans can be complementary and AI invest-
ment increases human employment (Windsor in press).
Some scenarios in the literature are positive concerning the future
(Whittington 2019; Xing et al. 2019). Schanes, Jäger, and Drummond (2019)
feature three possible scenarios for reaching a more resource-efficient economy
in Europe. Each of the three scenarios-labeled as—Global Cooperation, Europe
Goes Ahead, and Civil Society Leads—while quite different leads to greater
resource efficiency. Global Cooperation relies on top-down agreements.
Europe Goes Ahead emphasizes market mechanisms that drive technological
solutions. Civil Society Leads relies on bottom-up changes in behavior through
community-based initiatives. The best path forward is then a combination of
the three scenarios or approaches. A study by Yu, Zheng, Li, and Li (2018)
explains alternatives for peaking carbon dioxide emissions in China before
2025. The comparison approach of adjusting the present energy-intensive
heavy and chemical industrial structure cannot meet the 2030 target date (see
also Zhang et al. 2019).
 12 POLITICAL AND ETHICAL CHALLENGES OF 2025: UTOPIAN AND DYSTOPIAN… 221

A Dystopian Scenario
“1984” takes its label from Orwell (1949) (Zuboff 2019), in which totalitarian
systems of competing ideologies have control of key societies. The intended
sense is that the future is dim, and especially if capitalism is abandoned in favor
of big government socialism. A dystopian scenario is the opposite of a utopian
scenario on each of the key dimensions. First, technological solutions either do
not exist or will be substantially delayed in effective operational implementa-
tion. In either case, citizen confidence will be undermined in the period
between 2019 and 2025 as climate conditions deteriorate and perhaps acceler-
ate in speed of deterioration. Alternatively, a problem is that as environmental
activists (scientists or otherwise) emphasize accelerating speed of climate dete-
rioration in order to marshal support and resources for action and thus keep
moving the timing of disaster to the present, it is possible that citizens will lose
confidence in the predictions. Alarmism may undermine credibility. Second,
the Paris Accord proves hopelessly inadequate collectively to handle climate
deterioration in the absence of technological solutions. Third, social institu-
tions at various levels do prove inadequate to handle climate change effects.
Fourth, between 2019 and 2025, internal political dissensions result in consid-
erable social damage in the US and the UK. In this dystopian scenario, AI and
humans are substitutes and AI investment decreases human employment
(Windsor in press). Substitution possibly could place increasing stress on gov-
ernment action to handle the effects of mass or increasing unemployment.
Identity politics may tend to undermine democratic governance through
promotion of tribal violence: the problem embedded in identity politics is that
there will be “permanent winning coalitions” preventing compromise across
policy issues (Boettke and Thompson 2019: 1). It is possible that identity poli-
tics may be offset by existence of multiple value configurations. A study
(Midgley et al. 2019) reclassifies 83,526 respondents from 60 countries (in
Wave Six of the World Values Survey) into five global archetypes of different
value configurations. Countries vary, perhaps markedly, by proportions of pop-
ulations falling into each archetype.

A Median Voter Perspective

The median voter chooses between political party proposals. The progressive
stance is that environmental catastrophe must be tackled by government and
that socialism will create utopia. The conservative stance is that socialism is
even worse and that capitalism is the path to utopia and avoidance of environ-
mental catastrophe. Citizens are stakeholders of businesses and business man-
agers are voting citizens. The fundamental political consideration is whether in
democratic societies the party system maintains the center or deteriorates
toward the more extreme postures of progressive and conservative parties. In
this chapter’s utopian scenario, the median voter model is working and political
choices gravitate to the center. In this chapter’s dystopian scenario, the median
222 D. WINDSOR

voter model is not working and there is a deep division between deeply differ-
ent and increasingly ideological positions (progressive versus conservative).
A median voter perspective appears more significant now for the US and the
UK than in the previous decades since 1945. The reason is accelerating move-
ment of the parties toward their extremes and increased pressure on centrists
to go one way or the other. The concern is not strictly new (Binder 1996;
Schofield and Sened 2005), but relevant to 2025 and may be intensifying
recently. Senator Sanders to the left and President Trump to the right arguably
illustrate the trend (Olmstead 2018).
A split may be temporary. The Brexit referendum on June 23, 2016 was not
a strong majority outcome (BBC 2016). The overall vote in the UK was 51.9%
leave and 48.1% remain. The difference was about one million votes. The
country was closely divided, with key regional differences. After more than
three years of failed negotiations over Brexit terms and calls for a second refer-
endum, Prime Minister Boris Johnson’s Conservative Party obtained an abso-
lute majority in late 2019. In January 2020, the House of Commons voted
Brexit legislation (330 for and 231 against).
Or the split may be longer lasting: socialism seems to be gaining favor in the
US, and the US House of Representatives has adopted partisan (not bipartisan)
articles of impeachment of President Trump. Unless a compelling impeach-
ment case is developed, sufficient to pass the US Senate by two-thirds majority,
a predictable outcome is a roughly 50–50 split in the US electorate (Polls
2019). For studying political and ethical challenges to corporate sustainability,
a median voter perspective is quite useful and particularly so from 2020 toward
2025. A permanent split encourages the dystopian scenario and Orwell’s 1984
may unfold.

A Median Voter Model

The median voter assesses the dialogue created by the two competing narra-
tives. The essential feature of a median voter model as a predictive theorem is
that “a majority rule voting system will select the outcome most preferred by
the median voter” (Holcombe 2006: 155). In effect, outcomes move toward
the centrist position on any policy question. Consider a simple version of the
median voter model, in which there are three voters on any decision and the
two-voter majority wins with the peaceful acceptance of the third voter. Two-­
thirds of the electorate is a strong majority. The voters agree to the voting rule
in advance. One voter wants to spend $X, another voter wants to spend $2X,
and the median voter wants to spend $X+2. The voting outcome will be $X+2.
The idea, however, is that the winning coalitions vary across issues. The median
voter model may be applicable to both electorates (voting in referenda or for
representatives) and elected representatives (voting in legislatures).
There are two potential defects in the median voter model. One defect is
that there is no centrist position, but simply two competing positions. It is
easier to see this defect with four voters. Two voters prefer X and two voters
 12 POLITICAL AND ETHICAL CHALLENGES OF 2025: UTOPIAN AND DYSTOPIAN… 223

prefer not-X: there is no solution. The two voters concur and a third voter
accepts the outcome serves to conceal this defect. In practice, the majority in
favor of a policy may be very thin and not reflect a centrist position. It is also
possible that a center is quite thin, meaning that policy choices rest on a rela-
tively small proportion of centrists in a deeply divided electorate. The other
defect is that relative to either thin center or two competing positions in dead-
lock, the more radical wings draw the political parties (in control of nomina-
tions to elected representative positions) away from the center and toward
more radical postures, whether progressive or conservative (Pitts 2019).
There are awkward decision problems of the following form. One voter
wants X; another voter wants not-X (the exact opposite policy). The median
voter, in between, decides the outcome as X or not-X. For instance, X is pro-­
abortion and not-X is anti-abortion: the positions are irreconcilable. The
median voter must choose (or find a compromise solution satisfactory to the X
and not-X voters). But the vote, in a large electorate, may be very close.
The median voter model may or may not be too simple for political com-
plexity. The favorable case is that simple models are “engines of analysis that
allow a variety of hypotheses about more complex phenomena to be devel-
oped” and that “simple models that extract the essential from the observed will
serve us well” (Congleton 2004: 707). On the other hand, a different study
reports that legislators are most constrained by median voter preferences in
homogeneous districts: heterogeneity frees the legislator (Gerber and
Lewis 2004).
The median voter may proceed on any of three bases. First, the median
voter simply prefers X or not-X. That is, there are only two positions (or politi-
cal parties) and the median voter adheres to one of them at the outset of vot-
ing. This basis is the simplest version of the median voter model. Second, the
median voter has no policy preference but acts on self-interest only. That is, the
median voter calculates what is in her or his interest regardless of effects on
others (Downs 1965). Third, the median voter is neutral and weighs the merits
and consequences of X or not-X in order to decide what to do. Each one of
these bases is a different political decision-making process. In a civil discourse
setting, the median voter listens to X and to not-X before deciding which alter-
native to select based on the merits of the positions. The median voter must
consider the ethics of best policy concerning social welfare (or the public
interest).

An Immigration Illustration
Social division over immigration is a good illustration. The progressive view
encourages immigration as part of the path to Huxley’s Brave New World; the
conservative view discourages immigration as part of the path to Orwell’s 1984.
Immigration is a decision problem involving two dimensions (Epstein and
Herz 2019). One dimension is the aging of the population in developed coun-
tries. The native population needs, or wants, tax base linked (in the absence of
224 D. WINDSOR

increased automation investment) to imported labor. Increased immigration

addresses this need or want. The other dimension is that the immigrants may
be different in “social norms and culture” that alters the country in ways that
the natives do not approve. This second dimension may serve as a constraint on
the first dimension. The conflict in dimensions may be exacerbated by the
acquisition of voting rights by the immigrants or their descendants. Suppose,
for instance, that immigrant voters prefer to reduce their taxes and thus pen-
sion payments to native retirees.
Evidence from Switzerland suggests that direct democracy tends to oppose
naturalization of immigrants (Hainmueller and Hangartner 2019). Previously
in Switzerland, naturalization requests were subject typically to municipal ref-
erendums. Federal Court rulings then forced municipalities to transfer natural-
ization decisions to elected municipality councils. Over the period 1991–2009
for about 1400 municipalities, Hainmueller and Hangartner found that natu-
ralization rates increased by 60% when handled by progressive representative
democracy rather than conservative direct democracy. The municipal councils
had to justify rejection decisions formally and potentially subject to judicial
review. While it is true that citizens may be more xenophobic and less impressed
with judicial review than are elected representatives, this interpretation unavoid-
ably sidesteps the question of whether naturalization of immigrants is socially
desirable or not. The citizens express different preferences than do representa-
tives constrained by the Federal Court rulings.

Application to a Proposed Three-Party Interpretation

Analysis can scale from the median voter model at the individual citizen or
manager level to aggregating political parties by imagining an abstractly defined
three-party democracy. Each political party attracts individual voters through a
set of policy positions on key issues of rights, entitlements, taxation, immigra-
tion, and social norms. There are left, center, and right parties. In this imagi-
nary three-party democracy, the left party is “progressive” on key issues. The
right party is “conservative” on key issues. The left and right positions are
essentially ideological: for socialism versus capitalism, with expectations about
whether there are likely to be technological solutions preventing environmen-
tal catastrophe. The left party ideology views lifeboat ethics as inhumane and
immoral. The right party ideology views lifeboat ethics as moral necessity in a
perfect storm. The “centrist” party lies in between the progressive and conser-
vative parties and attracts any ideologically “independent” voters who are nei-
ther progressive nor conservative systematically. This centrist party
independently must decide what it thinks on each key issue.
In the imagined three-party democracy, a progressive party increases indi-
vidual rights (including abortion) and entitlements (including transfers to
poorer citizens). The transfer component leads to higher taxes for redistribu-
tion. This party can be more global in value orientation and thus other-­
regarding concerning other countries and cultures, which are to be treated
 12 POLITICAL AND ETHICAL CHALLENGES OF 2025: UTOPIAN AND DYSTOPIAN… 225

with respect accorded to the country’s own citizens. A progressive party

expands the government sector through higher taxes on wealth and is welcom-
ing to immigrants. A progressive party may tend to be anti-capitalism and pro-­
government expansion. A progressive party tends to emphasize that policies
will create a utopian future for citizens.
A “conservative” party emphasizes individual responsibilities. A conserva-
tive party seeks to reduce taxes and is less welcoming to immigrants, especially
those who are likely to draw on public welfare benefits and to vote for the
progressive party. This party may be more nationalistic in value orientation and
thus self-regarding concerning other countries and cultures, so that the test of
international policy is at least no cost and preferably increased benefits to the
country’s own citizens. A conservative party tends to be pro-capitalism and
anti-government expansion. A conservative party tends to emphasize dangers
of a dystopian future arising from undesirable government expansion.
The centrist party becomes critically important when progressives and con-
servatives are roughly balanced in voting power (whether in the electorate or
in the legislature). Assume, for instance, that there are 100 progressives, 100
conservatives, and 10 centrists. These numbers can be scaled up and down.
The 10 centrists determine policy outcomes in a pure referendum context. The
centrist party thus corresponds to the median voter. Alternatively, in a US-style
two-party system, centrists can comprise both independents and center-­
oriented members of progressive and conservative parties. In either interpreta-
tion, there are three positions. This three-party political system, in either
configuration, faces a set of real policy challenges. Political crisis may result
from the center disappearing and the progressive and conservative parties mov-
ing their policy positions to the extreme opposites.
Abstraction means that the imaginary democracy does not correspond in
detail to any specific national political system. Much more detail is necessary to
match to a particular system such as the US or the UK. The actual content of
“progressivism” and “conservatism” may take different forms in various coun-
tries. American variants may be quite different from European variants. The
party definitions are therefore as abstract as possible to the analysis purpose,
but some detail is necessary to the party definitions. The author thinks the
party descriptions reasonably match the US 2020 presidential nominations
process and the prolonged Brexit crisis in the UK resulting in a late 2019
strong Conservative Party majority for Prime Minister Johnson, committed
to Brexit.

Two Key Corporate Sustainability Issues

Within conditions captured by the two scenarios confronting a median voter as
a progressive–conservative dialogue, business managers must make judgments
about key business issues in a perfect storm. For illustration, this chapter
focuses on CSR and political criticism of capitalism and wealth as relevant to
corporate sustainability.
226 D. WINDSOR

Corporate Social Responsibility (CSR)

CSR is a conception of the relationship between business and society (Aguinis
and Glavas 2012). Matten and Moon (in press) theorizes practical need to
establish legitimacy with core stakeholders, societies, and regulators. Those
authors place this practical need within the configuration of such influences.
The utopian scenario increases the role of the regulators. The dystopian sce-
nario throws businesses into more chaotic conditions.
The present author’s conception is different (Windsor 2013): each business
should undertake feasible actions to improve society independently of the
purely economic performance of that business. This conception can separate
into three kinds of actions: (1) voluntarily obey laws and governmental poli-
cies, (2) do not cause any harm to stakeholders through unethical conduct not
fully regulated by government, and (3) do try to generate some good for stake-
holders through corporate citizenship conduct. In this conception, society has
the meaning of any stakeholders of a business who receive harms or benefits.
Such actions arguably meet the practical need stated by Matten and Moon.
However, a business might improve its profitability through intentional eva-
sion of laws and policies, which require effective government enforcement.
The German company Siemens operated a top-down global bribery scheme
until caught in 2006 by US and German authorities (Berghoff 2018). A busi-
ness might improve its profitability through unethical conduct not fully regu-
lated by the government (Ingram n.d.). Ingram cites labor practices,
environmental concerns, marketing practices, and business impacts on society.
A business might improve its profitability by not engaging in corporate citizen-
ship conduct and especially philanthropy or alternatively might find that dona-
tions help contribute to shareholder value (Liang and Renneboog 2016). CSR
is sometimes conceptualized in terms of triple bottom-line performance defined
as economic, environmental, and social effects (Slaper and Hall 2011).
The literature on CSR divides into two general approaches. An approach
based on market economics theory (Kitzmueller and Shimshack 2012) restricts
CSR to a combination of (1) legal compliance and (2) ethical compliance only,
to the exclusion of citizenship activities. In this restricted approach, there is a
tendency also to minimize the content of laws and ethics to a set supportive of
business economic performance. An economics-based approach emphasizes
profit seeking in a capitalist market economy as the best path to improving
social welfare. There is an effort to identify win-win solutions in which the
business does social good and financially well (Aguinis 2011). An approach
based on ethics broadens CSR to encourage citizenship activities and also to
expand the content of laws and ethics (Carroll 2000). An ethics-based approach
tends to constrain profit seeking through increased duties (negative and posi-
tive) to a broad set of stakeholders. Political CSR (Scherer and Palazzo 2011)
encourages businesses to foster democracy and to provide public goods in
instances of governmental incapacity: the utopian scenario encourages such a
transformation in corporate conduct.
 12 POLITICAL AND ETHICAL CHALLENGES OF 2025: UTOPIAN AND DYSTOPIAN… 227

As with the utopian and dystopian scenarios, economic CSR and ethical
CSR are opposed approaches. An intermediate position between economics
and ethics is that there can be a good business (or strategic) case for CSR
(Carroll and Shabana 2010). The business case for addressing multiple social
issues is subject to criticism (Kaplan in press).
The utopian scenario, as associated with the progressive left in this chapter,
envisions government increasing CSR through laws and policies in place of
voluntarism. The scenario, as formulated in this chapter, is highly critical of
capitalism and wealth. Business can anticipate increasing government substitu-
tion for CSR activities. The dystopian scenario, as associated with the conserva-
tive right in this chapter, envisions leaving CSR other than strictly limited legal
compliance to business as a voluntary decision. Business can anticipate increas-
ingly difficult conditions for profitability.
The political and ethical uncertainty of the business environment through
2025 reflects in the most recent Shell Scenarios concerning energy futures.
Royal Dutch Shell has long developed scenarios of energy futures. These sce-
narios are “what if?” questions for Shell executives. The most recent effort
provides three scenarios in which the process of economic globalization may
unfold on three very different pathways to 2025. Each scenario also has differ-
ent international relations and international cooperation concerning “peace,
international security, and economic development.” The three scenarios are
labeled “Low Trust Globalisation” and “Open Doors” and “Flags” to identify
“different combinations of market, geopolitical and social forces” (Shell
Scenarios n.d.). The scenario labels are reasonably clear: low trust prevails,
open borders facilitate globalization, and national interests impede globaliza-
tion. Open borders match a utopian scenario; low trust and national interests
match a dystopian scenario.
The conventional view of corporations is that agent-managers of publicly
traded enterprises do and should seek to obtain as much profit as possible for
shareowners. Privately owned businesses may act more altruistically as a matter
of choice. The Business Roundtable (2019) in a statement signed by 181 CEOs
(of 193 members) in August 2019 adopted a different stance. The statement
recommends five objectives defined in terms of primary stakeholders: value
delivery for customers, investment in employees, fair and ethical dealing with
suppliers, support for communities in which operating, and long-term value
creation for shareholders. The last one is both fifth in the sequence and the
only one explicitly regarded as oriented toward long-term value.

Political Criticism of Capitalism and Wealth

The majority voting approach (Rice 1985) may arguably lead to expansion of
the government sector (Husted and Kenny 1997). The median voter can tax
wealthier citizens and transfer wealth to both poorer citizens and herself or
himself. An empirical analysis of 79 household budget surveys from 24
228 D. WINDSOR

democracies concludes that greater inequality of factor income redistributes

more wealth to the poor (Milanovic 2000).
There is rising criticism of capitalism and excess wealth concentration
(Dorning 2019; Schatzker 2019). There are proposals to break up the big
technology corporations as too powerful and too wealthy (Timberg 2019).
Historically, there have been real experiments with laissez-faire capitalism and
socialism. The nineteenth century was arguably the high point of unregulated
or laissez-faire capitalism. The twentieth century was arguably the high point
of socialism (essentially Marxism). The historical record is that both approaches
proved highly defective (Thomas 2019). That is, critiques of both unregulated
capitalism and full-blown socialism have merit, even separating democratic
socialism away from totalitarian communism to look at economic performance
isolated from political regime. The argument thus always becomes that next
time the experiment will work better because the advocate says so.
Margaret Thatcher, subsequently UK Prime Minister, stated the essence of
the decision problem for the median voter: “Socialism started by saying it was
going to tax the rich, very rapidly it was taxing the middle income groups.
Now, it’s taxing people quite highly with incomes way below average and pen-
sioners with incomes way below average” (Thatcher 1976). The question for
the median voter is whether to trust a pledge to tax the extremely wealthy only.
The pledge might be sincere or a ploy to gain office.
The US presidential nomination process for 2020 appears to have the effect
of leading prominent Democratic Party candidates toward socialism defined
practically rather than ideologically as the marked expansion of government.
The question for the median voter is whether a pledge to be a democratic
socialist and not a socialist (much less a communist) is valid, leaving aside the
issue of whether there can be a substantive difference in practice between
socialism and democratic socialism (or social democracy), arguably as practiced
for instance in Scandinavia.
Senator Sanders has proposed increased taxation of the very wealthy and
corporate taxation based on the difference in pay between CEOs and employ-
ees. The corporate taxation proposal is that taxes would increase on a corpora-
tion in which the highest paid employee (typically the CEO) received more
than 50 times the pay of the average employee. This proposal is restricted to
corporations of more than $100 million annual revenue (Stein 2019).
Senator Sanders’ wealth taxation proposal is to increase taxes on the top
0.1%, estimated at about 180,000 households (Sanders n.d.). “The revenue
raised under this plan would be used to fund Bernie’s affordable housing plan,
universal childcare and would help fund Medicare for All” (Sanders n.d.).
Cillizza (2019) points out that the details of the proposed taxation do not
amount to elimination of billionaires but rather cutting the wealth of present
billionaires in half over 15 years. There would be a 1% tax on net worth over
$32 million (married couples), rising with net worth in percent steps (2%, 3%,
and so forth) to 8% on net worth over $10 billion (married couples). All brack-
ets would be halved for single-person households (so $16 billion to $5 billion)
 12 POLITICAL AND ETHICAL CHALLENGES OF 2025: UTOPIAN AND DYSTOPIAN… 229

(Cillizza 2019; Sanders n.d.). Senator Warren’s similar proposal is restricted to

a smaller set of households and begins at $50 million net worth with a 2% tax
that rises to 3% tax above $1 billion (Rappeport and Kaplan 2019).
Such a wealth transfer may be appealing to poorer households, who would
benefit at no cost. The median voter, who presumably falls below the top 0.1%
of the wealth distribution, should have no objection as the transfer is from the
wealthier to the poorer. The median voter might be attracted by some of the
specific benefits (such as Medicare for All) promised at no cost. However, the
median voter must weigh the prospect that this excess wealth tax is (whether
intentionally or by foreseeable evolution) simply the first step in increased taxa-
tion down to the median voter in order to fund all kinds of government proj-
ects such as the “New Green Deal” on climate change.

Conclusions
The citizen and the business manager face a set of political and ethical choices
about difficult problems. This set of problems has important implications for
corporate sustainability through and beyond 2025. A first list of these prob-
lems includes rising nationalism and populism, population movements across
borders, climate change, ideological conflict between capitalism and socialism,
possible collapse of traditional democratic governance, aggressive authoritarian
regimes possessing or seeking nuclear weapons, and pervasive corruption. The
lifeboat model raises profound ethical issues for citizens and business manag-
ers. The chapter explains two contrasting scenarios, utopian (or optimistic)
versus dystopian (or pessimistic), concerning how these problems unfold
through 2025. The scenarios provide a dialogue in narrative form: Huxley’s
Brave New World versus Orwell’s 1984. The chapter links these scenarios to
judgments required of the median voter and the business manager.
For academia and policy makers, the recommendations include careful
examination of these issues and their implications for corporate sustainability
and citizens. For academia and educational institutions, the vital issue is
whether research and teaching are addressing the constellation of problems
and effects in ways that are useful for citizens and business managers. For policy
makers, the vital issue is whether they understand both the big picture and the
details of what may be unfolding to 2025. Both the US and the UK exhibit
signs of policy deadlock that may undermine confidence in democracy and
capitalism. There are increasing signals of policy stress in other countries such
as Finland.
A fundamental concern going forward to 2025 is whether “democracy” is
increasingly perceived to be beginning to fail and fracture in the US and the
UK. Policy deadlock on Brexit in the UK and gun control in the US can be
interpreted as signaling the political systems are no longer working effectively
(Dionne 2019). “The United States retreated from its traditional role as both
a champion and an exemplar of democracy amid an accelerating decline in
American political rights and civil liberties” (Freedom House 2019). Such
230 D. WINDSOR

opinions (or judgments) might be viewed as an “early warning indicator”

(Goldberg 2019).
A development is the arguably increasing tendency to subject political and
policy disagreements to criminal investigation or to civil litigation as a feature
of Orwell’s 1984. Many policy initiatives of the Trump Administration have
been subjected to civil litigation in the courts. One feature of the 2017 US tax
law change was a $10,000 cap (SALT) on federal deductibility of state and
local taxes. Four of the high tax states—Connecticut, Maryland, New Jersey,
and New York—sued in federal court on the ground that the cap unconstitu-
tionally infringed on state sovereignty to adopt progressive taxation and effec-
tively raise public service cost per household in their states. On September 30,
2019, a US district court (Manhattan, New York) ruled against the plaintiffs,
holding that the US Congress has broad power to levy taxes (Casselman 2019).
The matter must properly be resolved at the federal election ballot box and not
in the federal courts. The median voter is the key to the election process. Either
the center determines election outcomes, or the center disappears as the pro-
gressive and conservative extremes dominate the election process. A progres-
sive domination promises Huxley’s Brave New World; a conservative
domination cautions against Orwell’s 1984.

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 CHAPTER 13

Adapting to Populism’s (Current and Future)

Moment: Political Uncertainty and Business
Strategy

Christopher A. Hartwell and Timothy M. Devinney

Introduction
The world faces a new political reality following the global financial crisis of
2007–2009, namely, the ascendance of populism beyond its previous position
as a fringe political force to a central role in global policymaking. The ability of
populist leaders to tap into disaffection with globalization, multinational busi-
nesses, and macroeconomic policy has translated into the creation of a “popu-
list moment” in many developed and developing countries around the world
(Devinney and Hartwell 2020). While populist political parties have suffered
some reversals in a number of recent elections since the watershed of 2016,
events such as Brexit, the election of Donald Trump, and the advance of
nationalist populism in Central Europe (and its continuing popularity in Latin
America) have upended existing economic policies; undermined decades of
commitment to globalization in trade, services, and movement of people; and
have fostered an era of seemingly permanent economic policy uncertainty.

C. A. Hartwell (*)
Bournemouth University, Poole, UK
Kozminski University, Warszawa, Poland
e-mail: [email protected]
T. M. Devinney
Alliance Manchester Business School, University of Manchester, Manchester, UK
e-mail: [email protected]

© The Author(s) 2021 237

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_13
238 C. A. HARTWELL AND T. M. DEVINNEY

Indeed, the reality of the fallout from Brexit and the possibility of Trump’s re-­
election—coupled with the allure of populism in emerging markets, who may
have never fallen out of love with it—means that the current populist moment
may outlive its present protagonists and continue to influence the global busi-
ness environment for decades.
Seen from a long-term perspective, the effects of this challenge to the estab-
lished liberal order are, like Zhou En-Lai’s purported assessment of the French
Revolution, “too early to tell.”1 However, while rumors of the demise of liberal
democratic approaches to economic policymaking may be exaggerated, there is
no denying that the political earthquakes occurring globally over the past
decade have much more immediate ramifications for businesses internationally.
The increased levels of uncertainty are the most concerning first-order effect.
The economics literature has already shown the perils of overall policy uncer-
tainty for a host of effects in the economy, including its dampening effect on
investment and hiring (Bloom 2009), while the international business (IB)
literature has been more concentrated on decisions at the firm level such as
hedging or cash management (Cosset and Suret 1995; Huang et al. 2015;
Nguyen et al. 2018; Bova and Vance 2019) and diminished operational expan-
sion. However, the latest wave of populism has manifest itself in a form of
global uncertainty that is novel and which has not been explored as a holistic
process by mainstream economics (and it has been relatively untouched by the
IB literature as well).
Along these lines, the effects of sustained political volatility have been under-­
explored in international business where such volatility is usually couched in
terms of institutional distance (Kedia and Bilgili 2015) or focusing on informal
volatility such as terrorism (Henisz et al. 2010). It is unfortunate that this
work, despite its merits, has not moved far beyond the groundbreaking work
done in the 1980s and 1990s on environmental uncertainty (e.g., Mascarenhas
1982; Fitzpatrick 1983; Milliken 1987; Miller 1993). However, the effects of
populism go far beyond just the first-order impact on policy or the discrete
event of the election of a populist leader or party. They also tend toward a
changing of the rules of the political game and a rearranging of the political
system to support the ease of implementation of populist policies. In this sense,
the idea of political-institutional volatility (Hartwell 2018a), and the unpre-
dictable and complex effects this could have, should be of prime concern to
businesses. As Acemoglu et al. (2005: 391) note, “political institutions deter-
mine the distribution of de jure political power, which, in turn, affects the
choice of economic institutions.” Hence, abrupt and lasting shifts to the
political order could determine the composition of economic institutions for
years to come.

1
Famously, Chinese Premier Zhou En-Lai was asked in 1971 by the US Secretary of State Henry
Kissinger his thoughts on the significance of the French Revolution, and the Premier answered that
“it was too early to tell.” It has since emerged that Zhou was likely responding thinking that the
subject was the Paris riots of 1968 and not in fact the French Revolution.
 13 ADAPTING TO POPULISM’S (CURRENT AND FUTURE) MOMENT: POLITICAL… 239

Finally, at the firm-specific level, changes in the overall political and eco-
nomic business environment could have far-reaching impacts on how a firm
finds and utilizes resources, particularly in terms of human and physical capital.
For example, while shifts in political parties may not cause firms to entirely
rethink their human resources or resourcing strategy or management capabili-
ties, a genuinely revolutionary populism might force it to rethink its business
model, particularly as the notion of global value chains loses its allure under
populist political pressure. Moreover, with the restriction of the economic
frontier relating to anti-globalization policies (Rodrik 2018), firms may find it
more difficult to cultivate (or remain within) disaggregated global value chains,
forcing dramatic shifts in their plans and production processes (some of which
may be due to government policy, see Benczes [2016]).
Given the reality of populism’s moment, the purpose of this chapter is to
explore one specific case of political uncertainty on the performance, manage-
ment, and actions of businesses for the future. In particular, this chapter focuses
on the three specific areas touched upon above which could have the most
immediate effect on business: first, how populism creates uncertainty about
(and may actually change) macroeconomic policies; second, how the effects of
populism on political institutions (Fukuyama 2014) change both the rules of
the game and the abilities which firms need to cultivate in order to remain
competitive; and, third, how populist policies affect value chains, sourcing, and
talent acquisition (Cumming et al. 2016) at the firm level.
The main conclusion of this analysis is that the political forces underpinning
populism require firms to reallocate resources to new abilities and agilities
unlike those used before, while at the same time draining funds from possible
productive investments, which are held back in any event in such an environ-
ment of uncertainty. In particular, firms will find themselves straddling the line
between cost-effectiveness and capturing international economies of scale
while keeping an eye on localization in order to please increasingly insular
political institutions. Moreover, the need for investing in political capital may
also increase due to the pervasive nature of the state under populism, forcing
business to become more politically aware, if not necessarily active (Phongpaichit
and Baker 2005). The watchword for businesses globally will be flexibility in
the mold of Howlett et al. (2018) in order to deal with an increasingly complex
and uncertain world.
This chapter proceeds as follows: the next section will explore some of the
different conceptions of populism and how populism is having its “moment”
globally, while Sect. “Populism and Business” will explore the channels through
which populism could affect firm behavior and management. Section
“Conclusions” concludes and offers some thoughts for both businesses and
researchers in seeking to understand populism’s effects in the coming decades.
240 C. A. HARTWELL AND T. M. DEVINNEY

Background: Populism’s Moment?

Defining Populism
One primary difficulty associated with a more nuanced and scientific under-
standing of the effects of “populism” is a wanton carelessness in using the term,
with popular press and media, in particular, being the most egregious offenders
(and applying the term to de facto mean “anything that I don’t personally sup-
port”). This definitional vagueness is, at times, justified and exacerbated by
disagreement among academics as to what makes a “populist,” a problem that
arises less from ideological bias and more from the fact that scholars from dif-
ferent disciplines have offered different interpretations which comport with
their own theories on the animating forces behind society.
One of the most comprehensive recent surveys of populism across disci-
plines (Rode and Revuelta 2015) notes that “populism” tends to be conceived
of as one of the four distinct-yet-interrelated categories, either as a phenome-
non which is structural, economic, ideological, or political-institutional. The
structural approach sees populism as a social call to arms, with populism merely
the mobilization of local factors of production as a way of asserting national
sovereignty (Cardoso and Faletto 1979). Taguieff (1995: 25) notes that the
issue with this conception is that populism is treated as an omnibus concept, “a
dimension of political action, susceptible to syncretism with all forms of move-
ments and all types of governments. (…) Whether dimension or style rather
than ideology or form of mobilization, populism is so elastic and indeterminate
as to discourage all attempts at a rigorous definition.” In response, economists
have (not surprisingly) relied on the economic interpretation of populism,
where populism is best conceived not as focusing on short-term development
goals (as is seen in the structural approach), but more as a set of policies used
to achieve redistribution of a pie that already exists. Created in response to
populism in Latin America, the economic approach offers important clues
about the effects of many populist redistributive schemes but also has a blind
spot when it comes to right-wing populism or explaining populists who enact
market reforms (Weyland 1999, 2001).
Veering away from the economic underpinnings of both the structural and
economic approaches to populism, the ideological school conceives of popu-
lism in much more emotional and visceral terms, an ideology that “pits a virtu-
ous and homogeneous people against a set of elites and dangerous ‘others’ who
are together depicted as depriving (or attempting to deprive) the sovereign
people of their rights, values, prosperity, identity and voice” (Albertazzi and
McDonnell 2008: 3). While Stanley (2008) notes that populism is a “thin ide-
ology” with little useful use as an analytical framework, he admits that populists
do indeed have a distinct set of ideas about political processes but do not have
the answers to all socio-economic questions they examine. It is this “thinness”
that allows populism to be used as a tool in service of other, better-developed
ideologies: for example, variants of populist thinking in Central Europe in the
 13 ADAPTING TO POPULISM’S (CURRENT AND FUTURE) MOMENT: POLITICAL… 241

1990s were steeped in business liberalism combined with nationalist goals

(Hanley 2004), while Prime Minister Thaksin Shinawatra of Thailand started
off as avowedly pro-business but began to incorporate populism as a way to
assist favored insiders who were not part of the pre-existing elite (Phongpaichit
and Baker 2005).
The final conception of populism, and one popular with political scientists,
is the political-institutional approach, which treats populism as a movement
defined by “[a]ny sustained, large-scale political project that mobilizes ordinar-
ily marginalized social sectors into publicly visible and contentious political
action, while articulating an anti-elite, nationalist rhetoric that valorizes ordi-
nary people” (Jansen 2011: 82). Urbinati (2013: 141) also recognizes popu-
lism as a phenomenon arising from a particular institutional structure, calling
populism “an interpretation of democracy made from within a republican
structure and perspective of government and politics.” Perhaps most impor-
tantly for the current political climate globally, the political-institutional
approach focuses on the role of leaders and how they operate in democratic
processes to sell populist ideas. As Canovan (1999: 6) puts it, “Populist politics
is not ordinary, routine politics. It has the revivalist flavor of a movement, pow-
ered by the enthusiasm that draws normally unpolitical people into the political
arena … Associated with this mood is the tendency for heightened emotions to
be focused on a charismatic leader.” This almost messianic approach to politics,
fusing ideas of good and evil, and the true people’s will, combined with the
availability of access points to political institutions, results in an effective leader
able to convert emotion into policy.

Populism’s Moment
Regardless of the flavor of populism, it is undeniable that populists of all stripes
have made impressive political gains since the global financial crisis, combining
the charismatic leadership implied by the political-institutional approach with
the redistributive policies of the economic approach and ideological vehemence
toward the “other” (with a dash of resource mobilization thrown in). While
populist parties have been making gains in Europe ever since the early 1990s
(Fig. 13.1), it is only since the global financial crisis that their popularity has
made them viable partners in government and leaders of countries. Populist
leaders, such as Viktor Orbán in Hungary and behind-the-scenes power broker
Jarosław Kaczynski in Poland, are some of the most visible and entrenched
faces of the new politics in Central Europe. However, much of this populism is
opportunistic as well, as Orbán has only been a committed populist since his
second term beginning in 2010, while Kaczynski was only able to implement
his more consistent populist aspirations following sweeping victories in parlia-
mentary elections in 2015. Following the debacle of the eurozone crisis, popu-
lism was also seen to rear its head in Western Europe, such as with the coalition
of the Five Star Movement–the League in Italy, although many of these parties
have, rather ineptly, overplayed their political hands and dropped out of direct
 242 C. A. HARTWELL AND T. M. DEVINNEY

23
Average Vote Share of Populist Parties in Europe

21

19

17

15

13

11

5
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
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2010
2011
2012
2013
2014
2015
2016
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2018
2019
Fig. 13.1 Average vote share of populist parties in Europe, 1990–2019. (Source:
Author’s creation based on the Timbro Authoritarian Populism Index 2019, data
obtained from https://populismindex.com/data/. Timbro Authoritarian Populism
Index 2019. Europe includes both Western and Eastern members of the EU and non-
­EU countries such as Iceland, Montenegro, and Serbia. “Populist” parties are defined
as those either having “extremist” views (in the Timbro report, this consists of adher-
ence to nazism, fascism, communism, trotskyism, and Maoism) or “pure populism,”
which is characterized by an explicit lack of respect for division of powers and minority
rights; impatience with democratic procedures as noted in party manifestos or speeches;
and the focus on politics as conflict between a corrupt elite and a virtuous “people”)

leadership in government. Across the English Channel, Nigel Farage and his
former party, the UK Independence Party (UKIP), made sizable gains in local
elections across Great Britain starting in 2014 and (ironically for a euroskeptic
party) produced the largest number (24) of Members of the European parlia-
ment from the country in the latest elections. Although in decline given inter-
necine struggles in the wake of Brexit (see below), the ideas animating UKIP
continue to find a happy home throughout the UK and were successfully co-­
opted by the Conservative Party in the 2020 general election. More explicitly
nationalist/xenophobic parties such as the Alternative für Deutschland (AfD)
also sit in the European parliament, but, unlike British populists, with addi-
tional clout in the Bundestag (AfD currently holds 91 out of 709 seats in the
German parliament).
While the European move toward populism has been the most noteworthy,
populism’s successes have by no means only been a European phenomenon.
Populism’s favorite breeding ground, Latin America, has seen a continent-wide
revival of populist sentiment, ranging from Lula’s organized populism in Brazil
(Samuels and Zucco Jr. 2014) to the disastrous tenure of the Kirchner family
in Argentina (Aytaç and Öniş 2014), the socialist oppression of Venezuela, and
the comparatively lighter populism of Morales in Bolivia. Across the Pacific,
 13 ADAPTING TO POPULISM’S (CURRENT AND FUTURE) MOMENT: POLITICAL… 243

much of Oceania has seen a spike in populist rhetoric and success, ranging from
the hardline President Duterte in Philippines to the mainstream xenophobic
racism of Winston Peters in New Zealand (and the populist-lite platform of his
coalition partner, Prime Minister Jacinda Ardern). And although Europe gets
the most airplay, it is more interesting that the world’s most populous coun-
tries, comprising 38% of the global population, also have governments which
can plausibly be called populous: India under Modi has taken a decidedly
national populist turn (where he has redefined “national,” see Jaffrelot and
Tillin 2017), but even China’s communist leader Xi Jinping has married suspi-
cion of globalization with nationalist ideas that amount to a variety Devinney
and Hartwell (2020) call authoritarian populism.
Of course, perhaps the two largest manifestations of the populist wave in
terms of airplay and ramifications—the election of Donald Trump to the
Presidency in the United States in 2016 and the decision by the UK to “Brexit”
the European Union (EU) in the same year—are not reflected in Fig. 13.1.
The resurgence of populism in the United States did not rear its head the min-
ute Donald J. Trump announced his run for the presidency, as then President
Obama was, for many, a divisive leader who railed against elites, denounced
political opponents as “bitter clingers,” and sought to upend previous policies,
most prominently in foreign policy. However, Trump’s presidential campaign
was characterized by radically different themes, including a focus on anti-­
globalization and a reflexive distaste for immigration (Kazin 2016). Not one to
disappoint his base, he has continued this approach into his Presidency, includ-
ing, and especially, in his economic policymaking (e.g., the use of tariffs for
non-trade goals and ideologically based moves to limit immigration). His lead-
ership style—and especially his use of Twitter—has continued to inspire oppo-
sition; for example, despite an enviable economy, fully half of the United States
continues to be opposed to Trump the person. While Trump has remained in
the mainstream of Republican Party policies in some areas (tax cuts, deregula-
tion), in others he has been much more erratic, pulling a normally free trade-­
oriented party closer to protectionism based on a belief that trade is not
“working” for the American people (Mead 2017) and engaging in seemingly
irrational battles with once close allies. With the United States for decades at
the center of the liberal global trading order, this shift has threatened the exist-
ing system of trade agreements and trade liberalization that was painstakingly
built over time.
On the other side of the Atlantic, Brexit has unleashed a wave of uncertainty
for British businesses and the European continent exacerbated by the erratic
manner in which the Brexit process itself has played out. For over three years
(at the time of writing this chapter), British industry and the British public has
been serenaded with the myriad of ways in which Brexit was going to take
place, but the irreconcilable demands of hardcore Brexiteers with the stipula-
tions laid down by the European Union—to say nothing of the thorny issues
such as the “backstop” for Northern Ireland in order to avoid a hard border
with the Irish Republic—have combined to make the entire withdrawal process
244 C. A. HARTWELL AND T. M. DEVINNEY

muddled beyond belief. After a first date for Brexit was postponed in 2019, a
second date (October 31st) was set, but Prime Minister Theresa May failed on
multiple occasions to have any deal with the EU approved by parliament. With
the ascension of Boris Johnson as her successor, a shift in negotiating tactics
took place, with (some would say) a cavalier attitude toward a “no-deal” Brexit.
Whether this is a negotiating ploy remains to be seen, but one thing is certain:
Brexit itself was driven by a populist wave, with lower-skilled and manufactur-
ing workers (i.e., those who would perceive themselves as “left behind” by
elites and globalization) overwhelmingly favor “Leave” (Becker et al. 2017)
(Fig. 13.2).
Clearly, at both the macro and micro level, populism is having its moment
globally. Before understanding the effect that this will have on firms, we must
consider a final key point regarding populism (one which is also very relevant
for thinking about scenarios for business in the future): in all likelihood, the
current state of affairs is going to survive the current group of populists. Put
another way, democratic populist agendas tend to be difficult to maintain as an
outside force as their policies are co-opted by major political parties and soon
become part of the mainstream. If populism is truly popular, the political orga-
nizations with established institutional advantages will move to capture popu-
list voters, vitiating the claims of populists to be ignored politically. Of course,
such a reality will come to pass only if existing parties are strong enough to
resist populist waves as, once in power, populists will attempt to hold on to
power by manipulating existing institutions. But in either case, populists will
eventually leave or be replaced but their ideas may linger. The pendulum swing-
ing toward anti-globalization, anti-immigration, and toward “national great-
ness” is likely to be in this direction for some time. Businesses must then adapt
accordingly.

3000

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7/

Fig. 13.2 Economic policy uncertainty index for the UK, January 2014–August
2019. (Source: Created from Baker, Bloom, and Davis Index, latest data available at
http://www.policyuncertainty.com/uk_daily.html. Solid column indicates date of
Brexit, June 23, 2016)
 13 ADAPTING TO POPULISM’S (CURRENT AND FUTURE) MOMENT: POLITICAL… 245

Populism and Business

This overview of the latest wave of populism occurring across the globe per-
formed two functions. First, it synthesized the current research on populism in
order to understand how it may influence political processes and institutions,
that is, what is the vector to power that populism utilizes (Devinney and
Hartwell 2020). Second, and perhaps more importantly, it illustrated the eco-
nomic channels through which the current populist moment is operating,
helping us to potentially understand where business might be affected. This
section extends this analysis to its logical conclusion, highlighting the specific
areas where populism and the populist moment might impact firm strategy,
performance, and decision-making.
As noted in the introduction, three specific areas will be highlighted for
examining the influence of populism, namely, macroeconomic policies, politi-
cal risk and uncertainty, and value chains/sourcing/talent acquisition. This list
is by no means exhaustive and is, in reality, just a small sub-set of where popu-
lism—by acting through many variegated channels—can impact business. As
Fig. 13.3 shows, business strategy, execution, and performance are influenced
by many different factors, including industry competition, firm-specific attri-
butes, and (crucial for our case) both formal and informal institutions. Formal
institutions are often considered the most important for determining a busi-
ness environment, but the extant literature has hundreds (if not thousands) of
pages on how informal institutions also are critical.
With reference to populism, as it is a social phenomenon, by definition, it
has to have started first in the informal sector, with changes in attitudes and
norms allowing for the emergence of populist leaders and a receptiveness to
populist themes. Given that informal institutions encompass norms, cultural
precepts, and slow-moving arrangements, the emergence of populism must be
more than a mere instant phenomenon and is something that would have per-
colated through various strata of society in earlier times. These shifts underpin-
ning societal structures may thus have already exerted some influence on firm
behavior, for example, conditioning corporate social responsibility activities or
(more nefariously) coloring hiring and promotion practices. However, we

Informal Institutions, constraints, and sanctions

Industry-based
competition

Firm-specific Performance/
resources and Strategy Execution Evaluation
capabilities

Formal Institutional
Conditions

Fig. 13.3 The channels of influence. (Source: Hartwell and Malinowska (2019),
based on Peng (2006))
246 C. A. HARTWELL AND T. M. DEVINNEY

assert that it is not until populism has ascended to the level of creating, dises-
tablishing, or modifying significantly formal institutions (and their instruments,
such as legislation and punishment) that the strongest effects on the firm
become apparent. Put another way, while informal populist ideas may create
opportunities for some firms or cause them to alter their behavior (e.g., through
anti-immigrant sentiment in some locales), the ascendance of populism into
the political system will affect all firms (albeit to different extents). Political
institutions beget economic institutions which set the rules of the game, and
when populist ideas have a vector to power, everyone must adapt. For this rea-
son, we have chosen these three areas of political influence as they may have the
most visible effect on business, at least in the short-term.

Macroeconomic Policies and Outcomes

Populist economic policies, focusing mainly on fiscal policy, have long been
noted for accentuating “economic redistribution and nationalization of natural
resources” (Madrid 2008), at the same time deemphasizing “the risks of infla-
tion and deficit finance, external constraints, and the reaction of economic
agents to aggressive nonmarket policies” (Dornbusch and Edwards 1990:
247). Such careless behavior pays no heed to internal or external constraints
(indeed, in developing economies, institutional constraints can be less binding
and thus populist policies enacted more readily) and can even actually “work”
for a time, as accumulated capital is burned off and redistributed; however, the
lack of new and replacement capital coming online leads to tighter and tighter
constraints and an inevitable failure of such policies (Larraín and Meller [1991],
surveying Chile in the 1970s, note that this sort of policy leads to a total col-
lapse of the economy).
Not all strains of populism have such a massive and abrupt redistributive
scheme, such as that seen in Latin America, where left-wing populism was mar-
ried with socialist economic thought. Indeed, right-wing populism often con-
tains its own redistributive character, but on a smaller scale (as can be seen in
modern-day Poland, where working singles subsidize larger families), meaning
that this form of populism might not destabilize macroeconomic aggregates
immediately. However, the emphasis on redistribution means that one day the
piper will have to be paid, and often it is fiscal policy which is the first domino
to fall (see Damill et al. 2015 on Argentina’s latest experience). Large fiscal
outlays and creation of new entitlements, combined with falling revenue intake,
means governments increasingly have to borrow in order to finance consump-
tion (rather than investment). Such a path creates much larger economic risk
for an entire country, and firms are likely to be caught in the middle, facing
higher borrowing costs and short-term arrangements with suppliers (who wish
to hedge against economic risk, see Carlton [1982]). At the same time, there
is evidence that volatile government expenditures also exacerbate business
cycle volatility, meaning firms have a tougher competitive environment to navi-
gate (Furceri 2009).
 13 ADAPTING TO POPULISM’S (CURRENT AND FUTURE) MOMENT: POLITICAL… 247

Moreover, a need to keep the largess flowing to favored groups (especially

wage increases) means pressure on budgets and, often, spikes in inflation
(Albanesi 2007). It is in inflationary pressure where we see the most obvious
impact on firms. Higher levels of inflation, coupled with higher volatility of
inflation rates, have immediate effects on the investment decisions of busi-
nesses. Inflation also leads to exchange rate weakening, which may help export-
ers (subject to their dependence on intermediate goods) but has an immediate
deleterious effect on imports via higher prices (both effects seen almost imme-
diately following the Brexit vote in 2016 and the 25% decline in the value of
the British Pound). As with the root cause of inflation (fiscal deficits), variabil-
ity of prices also shortens contracts, inducing buyers to speed up purchases and
causing resource misallocation, which might not have occurred if firms had
more time to accurately match with others in the value chain (Tomassi 1996).
Given that redistribution is a key tenet of populist macroeconomics and that
populist economics is often exclusively conceived of as a zero-sum game, this
implies that there will be business winners as well as business losers, despite the
fact that the former are outweighed by the latter. With inflationary pressures
and/or exchange rate volatility putting a damper on the whole economy, at the
sectoral level, there may be pieces of the economy which might benefit from
populism. Larger firms, state-owned companies, and especially firms tagged as
“national champions” often find themselves the benefactors of populist macro-
economic policies as they are offered cheap loans from the public that, in an
inflationary environment, result in real negative interest rates (Brennan 2007).
And while exchange rate volatility may harm exporters, shifts of emphasis from
certain industries and promotion of others may actually lessen the pressure on
the firm that is no longer favored; an example comes from Argentina, where
soybean production was favored over traditional exports of beef, meaning soy-
beans were taxed to provide funding for populist programs but beef was left
relatively alone (Richardson 2009).
Finally, as noted in the introduction, populism may not have an emphasis on
keeping broader macroeconomic aggregates stable, but it can lead to some
structural reforms which are needed. Paramount among these are if interests
on which the ruling party is dependent on push for broader reforms, such as
deregulation or market opening. In such a situation, the populist party may
enact reforms which benefit the economy despite the overall lack of urgency for
tending to the macroeconomy (see Hamilton 2009). However, it is unlikely
that such reforms can be sustained without forging a broader pro-market con-
sensus, and thus even beneficial reforms tend to collapse under the weight of
populist promises (Alizadeh 2013).

Political Risk and Uncertainty

While populism may be either fast or slow-acting in affecting macroeconomic
aggregates, if it does so at all, it has a much more immediate effect on the vola-
tility of policies. In reality, populism acts as a negative uncertainty shock as it
248 C. A. HARTWELL AND T. M. DEVINNEY

often: (a) reverses (sometimes abruptly) policies of previous executives; (b) acts
to create turnover in administration so that favored people are put in place of
the “old regime”; and (c) has its own reversals and advances based on its (mis)
reading of the popular will. As a somewhat revolutionary catch-all, populism
can create prolonged periods of uncertainty—translating into political risk—as
businesses grapple with and attempt to understand the nature of the change
happening before them. The diversity of populism also complicates this issue as
populists have different objectives in mind in different contexts.
One point that unites populists, however, is to change what existed before
at the policy, administrative, and institutional level, meaning that the long-term
worries of populism are not only worries about policies but about the rules of
the game themselves. As Devinney and Hartwell (2020: 8) note, the “most
radical, way in which power can be perpetuated is to co-opt established politi-
cal institutional frameworks in pursuit of populism, changing existing political
institutions so that they are less of a barrier and more of a facilitator. The weaker
the checks and balances on the execution of the power of the executive, the more
likely that those pursuing a populist agenda will be able to capture all levers of
government once in a position of power” (emphasis added). Thus, not only are
weak institutions susceptible to more radical change from populism, populism
at its heart attempts just such a radical transformation of existing political insti-
tutions, which then has a direct effect on economic institutions (moreover, this
process can be sped along by the unstable macroeconomic policies pursued by
populists, see Hartwell [2018b] for this link).
As an example, the right-wing populism seen in recent years in Central and
Eastern Europe has been predicated on shifting formal political institutions; for
example, Poland’s ruling “Law and Justice” (PiS) party has led a sustained
effort to reorient the judiciary into a more PiS-favorable organization (Fomina
and Kucharczyk 2016), while Orbán in Hungary, with more time in power, has
sought to remake the Hungarian constitution, the judiciary, the central bank,
the media, higher education, and overall human rights institutions in his own
image (Pappas 2014). In some instances, these far-reaching reforms have been
thwarted by civil society, but the presence of supermajorities in both the Polish
and Hungarian parliaments has meant that the populist governments have not
stopped attempts to remake these political institutions. This continuous strug-
gle between formal and informal institutions creates persistent uncertainty
which then feeds back into the macroeconomic situation noted above. As
Fig. 13.4 shows, the election of Orbán’s Fidesz party in 2010 has led to a sus-
tained level of economic risk in Hungary (the highest since joining the EU),
while Poland has been on a roller-coaster with levels from 2015 to 2018 equal-
ing levels from 2005 to 2007 (the last time that PiS was in power).
Given the uncertainty, both policy and institutional, that populism engen-
ders, it is not difficult to draw a line from this uncertainty to firms. In fact,
there is ample evidence on the effects of political and economic policy uncer-
tainty on the firm at all points of the chain, as shown in Fig. 13.3. In even
normal times, elections provoke unease in firms and lead to a rollback in
 13 ADAPTING TO POPULISM’S (CURRENT AND FUTURE) MOMENT: POLITICAL… 249

43

41
ICRG Economic Risk Rating

39

37

35

33

31

29

27
11/1/2007

5/1/2011
5/1/2004
11/1/2004
5/1/2005
11/1/2005
5/1/2006
11/1/2006
5/1/2007

5/1/2008
11/1/2008
5/1/2009
11/1/2009
5/1/2010
11/1/2010

11/1/2011
5/1/2012
11/1/2012
5/1/2013
11/1/2013
5/1/2014
11/1/2014
5/1/2015
11/1/2015
5/1/2016
11/1/2016
5/1/2017
11/1/2017
5/1/2018
11/1/2018
Hungary Poland

Fig. 13.4 ICRG economic risk ratings for Hungary and Poland, May 2004–November
2018. (Source: International Country Risk Guide. Economic Risk is calculated on a
scale from 0 to 50, with higher numbers representing more risk. The ERR is composed
of macroeconomic measures such as GDP, inflation, and budget deficit)

investment (Julio and Yook 2012; Jens 2017), while weak economic condi-
tions can lead any political uncertainty to increasing the risk premia that firms
face (Pástor and Veronesi 2013). In countries where government connections
are more important (due to the pervasive nature of the state and rampant inter-
vention), political uncertainty causes even more difficulties for firms, as shown
in Xu et al. (2016). In fact, in environments used to stable politics, political
uncertainty even vitiates the amount of information available in the market-
place, making firm assessments, investments, and valuation more difficult
(Chen et al. 2018).
In populist political environments these bouts of uncertainty are magnified.
Sudden policy changes, linked to charismatic leaders, can make Kingsley et al.’s
(2012: 63) injunction—namely that “properly assessing a firm’s exposure to
regulatory uncertainty helps managers craft an appropriate integrated strat-
egy”—difficult as both firm exposure and regulatory uncertainty can be in a
state of flux. Of course, the strain of populism—that is, left-wing or right-­
wing—can make a difference in determining the extent of the political uncer-
tainty as left-wing populism tends to create more uncertainty about future
economic conditions (and hence cash flow) than right-wing populism, which
values macroeconomics more but social orderings less. At the same time, there
can actually be pro-business populism, as seen in Thailand (Phongpaichit and
Baker 2005), which would attempt to reorient institutions for the benefit of
business, creating a state of flux but with the promise of stability at the end of
the process. In even these scenarios, however, cumbersome institutional mech-
anisms can be crafted which satisfy populist whims but may impede firm
250 C. A. HARTWELL AND T. M. DEVINNEY

operations in the medium term; in such an environment, only additional soci-

etal constraints can help firms to thrive, but such constraints are very location-
and culture-specific (see Moser [1982] for how populism shaped judicial
institutions in the US state of Wisconsin).
One of the key issues that a firm can encounter is the fact that any shift of
institutions (political or economic) under a populist regime means a shift in the
mediation of incentives in society. In a market economy, firms respond to vari-
ous incentives in the marketplace, stretching from consumer preferences to tax
rules to cost considerations and everything in between. Underpinning these
actions is an assumption that performance in the market is, in some way, merit-­
based; that is, firms that satisfy their customers, control their costs, fulfill niches,
and generate shareholder value are rewarded accordingly.
Under a populist regime, however, these merit-based incentives are no lon-
ger dominant as political masters must also be pleased lest their wrath be
incurred. Coupled with changes in institutions, such as the judiciary becoming
more politicized, firms will need to change their own skillset to be able to sur-
vive in the new regulatory and competitive environment. In countries where
populism and/or authoritarianism is the normal state of affairs, change in lead-
ers means the need to cultivate new political connections and invest resources
into the political marketplace in order to avoid the deleterious effects that
come with being on the outside (or worse, being associated with the old elites).
Evidence shows that cultivating such connections can help with firm perfor-
mance in both very low and very high corruption environments (Ferguson and
Voth 2008; Wu et al. 2012; Amore and Bennedsen 2013). In any event, such
a reality forces firms to divert valuable resources that could be spent competing
or innovating in order to curry political favor or, more realistically, to deflect
political attention. This may end up wasting firm resources, if demanded by
politicians (Bertrand et al. 2018), or may even result in shifts in management
as cronies are put into places of power, which then creates its own cost issues
for firms (Schoenherr 2019).

Value Chains, Sourcing, and Talent Acquisition

The macroeconomic situation is a much larger consequence of populist eco-
nomic policies, while uncertainty can strike both the macro and the microeco-
nomic climate of the firm. At the very micro level, that is, within the
organizational structures of the individual firm, navigating the fluctuations and
shifts engendered by populism can have much more long-lasting effects related
to the integration of firms with international supply chains and, in extreme
circumstances, with the human capital available to the firm.
In the first instance, and in an obvious consequence of anti-globalization-­
oriented populism, the reversion to protectionism and closing of the economic
frontier will likely disrupt international value chains across industries. Arbitrary
increase of tariffs in pursuit of non-trade goals (as used consistently by US
President Trump) or the abrogation of trade deals not only creates uncertainty
 13 ADAPTING TO POPULISM’S (CURRENT AND FUTURE) MOMENT: POLITICAL… 251

about the viability of existing value chains but also increases the costs of using
these chains. In extreme circumstances, where policy moves lead to prohibitive
costs and/or embargos, value chains may be broken entirely, forcing firms to
find new suppliers or customers. Mudambi (2018) notes that one of the rea-
sons that populism is on the rise is precisely because value chain costs have been
falling and migrating, giving rise to hardship on lower-skilled workers domesti-
cally. With populism’s ascendance, these costs are on the rise again, affecting
firms while simultaneously not actually helping the middle classes of Europe
and North America who saw their value chains fragment and move elsewhere.
One of the most substantial examples of populism’s effect on value chains
can be seen in Brexit (which, at this point, is still a process rather than an event
and will likely be in process for some time to come even with a supposed exit
date). The UK’s accession to the EU in 1973 set in motion a long progression
of harmonization of technical standards and trade regulations, with large por-
tions of both the EU and UK economies becoming more concentrated in trade
in intermediate (rather than final) goods (Keane 2018). At the same time, value
chain integration with European firms occurred to the exclusion of such link-
ages with the rest of the world as firms concentrated their energy on the closest
and most lucrative (and mostly hassle-free) opportunities (Ijtsma et al. 2018).
In the aggregate, the UK has, today, about half its trade with the EU, and
immediately preceding the Brexit referendum, EU trade made up approxi-
mately 13% of the UK’s national income (Dhingra et al. 2018). The high levels
of integration between the EU and the UK means that Brexit, in any form, will
have a massive disruption to value chains on both sides of the Channel. As
Vandenbussche et al. (2019) note, the impact of tariff changes will tear value
chains asunder, harming not only bilateral trade but third-country indirect
trade, contributing substantially to job losses in the EU-27 as well. The pros-
pect post-Brexit—no matter which path to Brexit is taken—is rather bleak. As
Hatzigeorgiou and Lodefalk (2016) note, the UK has not had any indepen-
dent trade policy in 46 years and is sorely lacking in trade negotiation experi-
ence. It is unlikely that, in such a populist environment, the trade policy that
does come about from a Brexited UK is conducive to building strong interna-
tional value chains and integrating Britain with the rest of the world, despite
the rhetoric characterizing the post-Brexit UK as “Singapore on the Thames.”
In sum, not only will EU and UK businesses have to deal with the immediate
disruption of value chains being broken up artificially, they will need to invest
resources toward building new ones, with UK firms in particular laboring
under the shadow of further protectionist impulses as well as skilled labor
shortages.
The effects on a firm’s external competitive environment are likely to be
severe under erratic populism, but the effects of a populist shift also are bound
to filter down to firm organization. Indeed, at a more microeconomic level, the
shifting incentive structure of the economy (as noted above) means that differ-
ent skillsets will be necessary at the firm level. For manufacturing firms, the
closing of the economic frontier may mean a need to source locally and/or,
252 C. A. HARTWELL AND T. M. DEVINNEY

more realistically, develop processes and procedures in-house and a move

toward more technology-driven (e.g., robots) rather than labor-driven (e.g.,
paying higher wages locally) solutions. Such a reorientation will not be limited
to manufacturing as services may also find that the disruptions accompanying
populist protection may require “bringing jobs home,” forgoing efficiencies
abroad for retaining staff domestically. Both of these shifts will require training
or re-training of staff and possible shifts of production processes in order to
replace lost opportunities. Undertaking such a change will of course utilize
scare firm resources, although there is evidence that firms which have experi-
ence internationally in a variety of uncertain environments, will be better situ-
ated than those serving the domestic market exclusively (Delios and Henisz
2003). There is also the possibility that the local reaction is to rely more on
technology over labor as local labor costs rise. So rather than substituting for-
eign labor for local labor, firms substitute technology (e.g., robots and artificial
intelligence systems) for labor. This will lead to the perverse effect that rather
than bringing benefits to lower-skilled workers, the second-order effect will be
to exacerbate the lack of opportunities for those with lower education and skills.
In order to reorient the internal processes of the firm, as well, individuals
with different skills may be necessary, but the populist environment makes tal-
ent acquisition a new gauntlet to run. In the most obvious instance, if the
populist wave has a heavy anti-foreigner component to it, firms relying on
language abilities or even the presence of diasporas will find their workforce
disrupted as either existing talent will have to leave (see: Brexit and EU citi-
zens) or future workers will be prevented from entering. In a large country
with favorable demographics and adequate educational attainment, the com-
position of talent (i.e., domestic versus foreign-born) can be affected but the
actual numbers may not be, leading to a relatively easier time for firms in
replacing the workforce. However, in smaller countries or those reliant on for-
eign expertise (generally any small open economy), closing the migrant frontier
may make it incredibly difficult for firms to source adequate talent. In the short
run, jobs may be backfilled by lower-skilled workers, but this means either an
investment by firms to bring worker skillsets up to par and/or a period where
quantity or quality (or both) suffers. None of these outcomes is desirable in a
competitive marketplace. Other solutions, such as better integration with
higher educational institutions, are long-term processes (Purg et al. 2018).

Conclusions
The rise of highly visible populist leaders—and the corresponding ascendance
of populist ideas—around the world over the past decade has presented chal-
lenges for business, but not challenges which might be regarded as particularly
“unique.” Indeed, in one sense, the uncertainty and volatility engendered by
populism is no different than other forms of institutional volatility which firms
have had to endure in the past. Emerging market multinational enterprises or
even domestic firms are well-acquainted with weak institutional environments
 13 ADAPTING TO POPULISM’S (CURRENT AND FUTURE) MOMENT: POLITICAL… 253

and have developed the strategic agility to survive and even thrive. Indeed,
many emerging market firms have already survived successive waves of popu-
lism, as evidenced by the hardiness of some Latin American firms and their
ability to compete internationally (Embraer in Brazil; e.g., see Grosse and
Mesquita [2007]). Thus, the wave of populism centered mainly in developed
nations, for many emerging market firms, is more of a novelty than any-
thing else.
However, it is precisely this fact, that developed rather than developing
countries are succumbing to the siren song of populism, that makes this
moment of populism different from the uncertainty and political risk faced by
firms in the past. Coupled with the fact that populist parties have made gains in
so many places, this moment of populism is unlike any that most existing firms
have ever lived through. In fact, one of the most daunting attributes of the
current political climate is the fact that populism in general—but especially in
its current moment—tends to come in waves, building momentum as it
spreads, cresting, and eventually breaking. This cyclical nature of populist sen-
timent may thus last for years or decades (and, as noted above, populist ideas
may long outlast populist leaders), meaning long-term and far-reaching impli-
cations for strategy, performance, and existing human and physical capital.
This chapter has attempted to provide a first insight into some of these pos-
sible effects of the current wave of populist sentiment (and populism more
generally) on international businesses. By no means exhaustive, this chapter
points the way to a virtually infinite number of research possibilities to under-
stand how firms actually operate under populism. Are there additional channels
to the ones noted above at play? What is the relative importance of different
effects? How do different varieties of populism affect businesses in differ-
ent ways?
It is also crucial to set out options so that firms can weather the storm. In
the first instance, how can firms guard against populism-related uncertainty? It
is here that we already have some idea from the existing literature on political
uncertainty, which points to having an exit strategy being generally useful, and
there is no better exit strategy than being a multinational. As Beaulieu et al.
(2006) note in the context of populist revolt (secession) in Quebec, firms
which operated in other countries as well as Canada were far less affected by the
uncertainty surrounding the secession vote. Delios and Henisz (2003) also
show, in a more comprehensive way, that internationalization can create a sort
of agility for firms to deal with policy uncertainty, and thus even if a firm is
indigenous to the country afflicted with populism, it will have some abilities to
cope with uncertainty if it has international exposure. This finding is echoed by
Cuervo-Cazurra et al. (2018), who show how management in emerging mar-
ket firms working internationally actually learn at home how to cope with
uncertainty and apply this skill in other contexts. But does this hold for popu-
lism as well? Given that strategies of this sort are dependent on firm resources,
experiences, and other factors, how realistic is this as a strategy?
254 C. A. HARTWELL AND T. M. DEVINNEY

Beyond the diversification strategy of internationalization—which may be

difficult to achieve once the populist moment has already arrived—the only
ways for firms to survive are similar to those noted in other contexts of political
uncertainty. The most obvious recommendation would be for firms to attempt
to “fly under the radar,” remaining apolitical and scrupulously neutral, and
avoiding any hint of controversy. This may not always work, for silence can be
treated as consent in more authoritarian populist regimes, but it can be safer
than the alternative. Indeed, some firms in the United States (e.g., Nike) have
gone precisely in the other direction, attempting to position themselves in
opposition with the Trump administration; but this approach has alienated seg-
ments of the market while not necessarily bringing new benefits. On the other
hand, firms could also attempt to curry favor with the new regime, a strategy
reliant on a number of different tactics (Schuler et al. 2002); however, this
strategy is dangerous when populist leaders have a high rate of turnover (Henisz
and Delios 2004). Moreover, firms that thrive on internal (as well as external)
appetite for politics tend to have poor performance (Eisenhardt and Bourgeois
III 1988).
But perhaps the most important action that firms can take is to retain stra-
tegic flexibility in order to adapt to changing times. As with every product a
firm sells or every move it is to make in the marketplace, information and espe-
cially research is crucial, and in a populist environment, devoting resources to
knowledge acquisition can make the difference between surviving and failing
(Henisz and Delios 2004). As part of this process, firms are counseled to form
strategic alliances, with managers of firms benefiting from intensive networking
and seeking out allies across sectors (Danis et al. 2010). At the same time, such
alliances will benefit from being embedded in informal institutions amid an air
of reciprocity, forming a sort of institutional diversification which may lessen
the impact of volatile political institutions (Park and Luo 2001).
In any event, finding a way in which to not just survive but to thrive during
populism’s moment will be an area for research for years to come. It is incum-
bent on economists and researchers in IB, strategy, and management to seize
on this natural experiment and observe if firms are coping with populism as
“business as usual” in an uncertain world, or if populism this time around is
quantitatively and qualitatively different. We believe that this time is different
and may necessitate new coping mechanisms in order for business to persist.

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 CHAPTER 14

Dynamics of Public Interest in Artificial

Intelligence: ‘Business Intelligence Culture’
and Global Regulation in the Digital Era

George Gantzias

Introduction: Digital Transformation

and Public Interest

The digital transformation is challenging existing business regulation mecha-

nisms and our traditional business culture in our society. A new ‘Business
Intelligence Culture’ (BIC) is likely to be the result of the domination of arti-
ficial intelligence(AI) by 2030. The need to develop global regulation mecha-
nisms to manage artificial intelligence and big data will be very challenging.
The advance of digital technology over the last two decades has provided new
opportunities that have the potential for digitizing society and the business
activities in our everyday life.
This chapter examines and analyzes briefly different types of theories of reg-
ulation and the public interest concept in info-communication policy-making.
It introduces a new culture in the business ecosystem, which is the BIC to use
as a methodological tool to analyze digital transformation (AI and robots’
adoptions) of corporations in the digital era. Finally, it explains the regulatory
limits by examining the dynamics of public interest in artificial intelligence
ecosystem briefly.

G. Gantzias (*)
Hellenic Open University, Patras, Greece
e-mail: [email protected]

© The Author(s) 2021 259

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_14
260 G. GANTZIAS

Artificial Intelligence Challenges in Digital Era

In the second decade of the twenty-first century, cultural markets and digital
systems had been exposed to AI developments in info-communication global-
ization. At the same time, digitization in cultural and creative industries has
meant that nation-states have become more socially plural and multicultural.
These developments have provoked counterpressures for regulation and rereg-
ulation to maintain or restore national social order in digital capitalism. Within
this context, we can identify the contrasting principles between the global ver-
sus local interests and between consumer choices, democratic citizenship,
human’s rights and automatic decision-making systems (see also Payne 2018;
Oravec 2018; Rolan et al. 2018).
The notion of freedom, responsibility, accountability and transparency,
which are the cornerstones developing a culture of democratic citizenship and
a new digital culture, that is, the BIC, are essential ingredients to set up global
regulatory mechanisms. Public interest and regulation of artificial intelligence
and digital culture deserve new attention in the twenty-first century. Why?
In the second decade of the twenty-first century, artificial intelligence and
digital culture are pushing forward by breaking traditional boundaries on
human decision policy-making in organization systems and info-­communication
policy-making. For example, the fourth and fifth generations of mobile phones,
Internet of Things (IoT), AI, robots, broadband connections, wireless applica-
tions, cyber-communities, cyberwars and e-commerce are bringing together
business start-ups, research institutions and new business regulations in our
everyday life. According to DESI report (2019), ‘Integration of Digital
Technology,’ ‘Finland, Sweden, the Netherlands and Denmark have the most
advanced digital economies in the EU followed by the UK, Luxembourg,
Ireland and Estonia. Bulgaria, Romania, Greece and Poland have the lowest
scores on the DESI index’ (DESI Report 2019).
.
The DESI report (2019) states:

the use of robots varies strongly according to company size. Almost 25 % of large
enterprises use both industrial and service robots, while the take-up rate for SMEs
is four times less at only 6.2 %. (DESI report 2019)

The above DESI report gives some good indications about the role of robots
in the European business sustainability. Moreover, Jacques Bughin et al. (2019)
pointed out:

to scale up and close the gap with the world’s AI leaders, Europe will need to
focus: (1) continued development of a Europe-wide, vibrant ecosystem of deep
tech and AI start-ups; (2) acceleration of digital transformation and AI innova-
tion among incumbent firms; (3) progress on the digital single market; (4) fun-
damental development of research, education, and practical skills; and (5) bold
 14 DYNAMICS OF PUBLIC INTEREST IN ARTIFICIAL INTELLIGENCE: ‘BUSINESS… 261

thinking about how to guide societies through the potential disruption. (Mckinsey
Global Report, February 2019, p.2)

The AI argorithms together with robot’s policy-making are challenging corpo-

ration sustainability and ethical standards. According to Stephanie Hare:

the Ethical Challenges of Artificial Intelligences are well known. In 2020, we will
realize that AI ethics will need to be codified in an enforceable way to prevent an
existential threat to individuals, companies and society. (Hare 2019, p.116)

Within this context, Michael Chui et al. (2018) pointed out:

The total annual value potential of AI alone across 19 industries and nine business
functions in the global economy came to between $3.5 trillion and $5.8 trillion.
This constitutes about 40 percent of the overall $9.5 trillion to $15.4 trillion
annual impact that could potentially be enabled by all analytical technique.
(Mckinsey Global Report, April 2018, p.17)

Nowadays, the role of Artificial Intelligence is a very critical factor to the digital
transformation of our free-market economy. According to Jacques Bughin
et al. (2018):

AI has the potential to deliver additional global economic activity of around $13
trillion by 2030, or about 16 percent higher cumulative GDP compared with
today. This amounts to 1.2 percent additional GDP growth per year. (Mckinsey
Global Report, September 2018, p.3)

Within this context, the AI is going to be a significant global info-­communication

platform in the digital era by contributing to GDP in near future.

According to the consultancy Firm PricewaterhouseCoopers, the widespread of

adoption of AI will add about $15.7 trillion to global gross domestic product by
2030. (as cited in Kai-Fu Lee 2019, p.14)

According to AI global statistics report:

worldwide revenue from the AI market is projected to reach as high as 190 billion
U.S. dollars by 2025. Companies, particularly from software and information
technology services industries, are investing heavily in artificial intelligence. At
the same time, AI-focused startups have been gaining momentum and attention
from investors, with the funding of AI-startup companies nearly increasing by
fivefold from 2015 to 2018. (As cited in Liu, S. 2019)

The global regulation of AI and the model BIC are very crucial issues to cor-
poration sustainability in the digital era. The chapter examines augmented
intelligence, digital business, ethical challenges, info-communication culture,
262 G. GANTZIAS

digital transactions, robot rights and the role of regulatory bodies. It also ana-
lyzes the current globalization debate about artificial intelligence, public inter-
est and human decision-making. In looking forward to the shape of artificial
intelligence regulatory global mechanisms, this chapter serves as an outline of
types of regulations to the significant challenges of those regulators and others
will have to meet with new levels of commitment in the digital era. Therefore,
the role of regulation mechanisms is likely to develop a safety net of rules to
encourage artificial intelligence transformation by 2030.

Dynamics of Artificial Intelligence and Regulation:

Global and Local Challenges
Regulation is under pressure—from those concerned about national regulatory
mechanisms and global regulatory mechanisms in today’s difficult artificial
intelligence environment; from those who see regulation mechanism as an
essential tool in protecting the public interest and ethical standards; and from
those concerned about ‘divide’ and inequalities in the digital era. The diction-
ary definition of regulation is to control by rule, to set up a framework of rules
governing an area of activity in free market. There is no absolute agreement as
to what is meant by the term ‘regulation’ in the context of digital policy and in
an artificial intelligence economy. It was used in many different ways (see also
Horwitz 1989; Baldwin and Cave 1999; MacAvoy 1971; Herman 1981;
Barnett and Duvall 2005; Braithwaite 2008; Cabinet Office 2003; Foster 1992).
Perhaps the most common usage is state intervention in the running of big
tech business in info-communication globalization. An even more general defi-
nition is provided by John Francis in the Politics of Regulation: ‘the interven-
tion by the state in private activity in order to realize public purposes’ (as cited
in Gantzias [2001] 2019, p.10). This intervention covers the inclusion to con-
trol Internet of Things (IoT) and artificial intelligence (AI) systems by intro-
ducing a regulatory mechanism at the national level. The majority of state
regulation nevertheless aimed at controlling the commercial activities of artifi-
cial intelligence enterprises for a wide variety of social, cultural and business
reasons. These reasons may or may not be justifiable, but at least the state in a
free-market democracy has to come up with some fairly good justifications for
interfering in artificial intelligence affairs, or regulation will just be evaded or
ignored (see also Bernstein 1985; Posner 1974; Armstrong and Vickers 1994;
Gruber 2000; Elkin 1985; Kerwin 2003; Kerwer 2005; Snyder 1993; Simmons
2001; Sell 2003; Majone 1996; Lodge 2008; Hood 2006). For an example,
the General Data Protection Regulation (GDPR), a set of rules on data protec-
tion and privacy introduced by the European Union in May 2018, raises con-
cerns on how European legislation to enforced both locally and globally.
Moreover, caught in a veritable blizzard of artificial intelligence (AI), cul-
tural and business digital changes, all countries around the world are today
grappling with profound and (for them) unfamiliar issues of artificial
 14 DYNAMICS OF PUBLIC INTEREST IN ARTIFICIAL INTELLIGENCE: ‘BUSINESS… 263

intelligence and automatic decision-making mechanisms in business. They

have to come to terms with a host of essential novel conditions:

• Termination of traditional decisions-making mechanisms to regulate the

free market;
• An invasion of artificial intelligence forces at corporate, production and
distribution policy-making process;
• The shift from conventional decision-making policy to automatic
decisions-­making mechanisms;
• The unleashing of unprecedented competition for revenue both locally
and globally;
• Uncertainties about how human productivity will be affected by artificial
intelligence and robots;
• Associated uncertainties about likely shifts of human capital and robots
in response.

To gain a better understanding of the recent cultural and economic crisis in

the regulation of artificial intelligence (AI), the monetary systems and the gov-
ernance of cyberspace, it is essential to look first at the theories of regulation
and the conditions and circumstances in which has its roots in a free-market
economy. Moreover, the traditional approaches of regulation, public interest
and decision-making policy offers little guidance for coping with the dynamics
of regulating artificial intelligence in the digital era. So, the resulting problems
are as follows:

• How to regulate artificial intelligence mechanisms to ensure its confor-

mity to the public interest (however defined) both globally and locally;
• What roles envisage for automatic decision-making mechanisms in the
info-communication globalization;
• How to adjust the expatiations, obligations and resources of global and
local regulators to each other;
• How to hold BIC accountable to global public interest principles and
ethical standards.

Regulation Theories and Artificial Intelligence:

Control and Resistance
Regulatory arrangements do not arise in a vacuum, but evolve over a period of
time, and within the context of a particular set of political, economic, social,
technological and cultural determinants (see also Francis 1993; The Financial
Times 2019; Hood et al. 1999; Horwitz 1989). The theoretical framework for
analyzing regulation in cultural and creative industries, together with the
emerging artificial intelligence systems, uses John Francis’s exclusive definition
264 G. GANTZIAS

of regulation and Robert Horwitz’s classification of five general categories of

regulation theory together with the dictionary definition of regulation.
Economists and political scientists had developed a number of different the-
ories about why governments were so keen on the idea, what it actually
achieved, if anything, and why it failed when it did. In his book The Irony of
Regulation Reform (1989), Robert Horwitz classified a variety of theories into
five types of the regulation theory, which are as follows (Gantzias [2001]
2019, p.11):

• Public interest theory,

• Perverted public interest theory,
• Conspiracy theory,
• Organizational theory,
• Capitalist state theory.

They are not mutually exclusive, but overlap with one another to some
extent. The typology itself is significantly comprehensive, but individual theo-
ries can be criticized both for its general weakness and for failing to explain
specific fact about the area of regulation.
The artificial intelligence industry has some unique features as a regulated
industry, which sets it apart from other regulated industries and makes it more
difficult to fit neatly into any of the existing theories without modification.
Some of the general theories of regulation are more appropriate to the genesis
of regulation institutions, and others to its continued operation.

Public Interest Theory: Digital Challenges in Public Interest

The oldest and most influential of these is public interest theory, which was first
formulated in the last century by public policy-makers themselves. The state
justified imposing restrictions on big pan-national corporations on the grounds
because it was not in the public interest for small producers to go out of busi-
ness from excessive competition. With the coming of the twentieth century
came the mass market and the concept of the mass consumer (see also Held
1970; Gantzias [2001] 2019, pp.11–12; Yeung 2010; Black 2001; Breyer
1982; Hancher, and Moran 1989a, b).
In the twenty-first century, the emergence of AI and IoT introduces auto-
matic decision-making mechanisms by using AI devices. Nowadays, new artifi-
cial intelligence programs are writing their own rules on investments in the
digital era (The Economist 2019). Public interest theory is about how to set up
a regulatory agency to protect citizen’s rights against the AI robots’ policy-
making or the AI software programs. The state intervened in the economy to
ensure that large businesses with monopoly or partial monopoly status in AI
ecosystem did not abuse their powers and exploit ­consumers/users’ privacy
and security issues. Governments should intervene in the AI ecosystem by set-
ting regulatory mechanism to introduce public interest principle in the digital
 14 DYNAMICS OF PUBLIC INTEREST IN ARTIFICIAL INTELLIGENCE: ‘BUSINESS… 265

era. According to public interest theory, regulation became a response to the

conflict between the consumers/users’ and private corporations’ interests.
In the past, the public interest theory of regulation maintains that regula-
tory agencies were set up by governments not just to deal with excessive con-
centration of power in particular areas of special national importance—transport,
telecommunications, cultural industries, gas, electricity, water and so on—but
so as to introduce rationality and fairness into the economic system generally
(sea also MacAvoy 1971; Joskow 1974; Mosco 1988; Thompson 1997; Pargal
2003; Scott 2001). The regulation was also an expression of democratic reform
as it protected the rights of consumers/users to be active and free in the digital
era. It promotes efficiency and consumers/users’ protection of privacy and
security in info-communication society.
There are, however, some problems with the public interest theory. It is a bit
too idealistic and does not sufficiently recognize the effects of the big tech
companies lobbying powers. In digital capitalism, democratic governments
cannot function without the support of capital markets both globally and
locally. Whatever the good intentions behind the setting up of regulatory agen-
cies, technological, economic and political realities often dictate that regulation
is often manipulated by financial markets or politicians or the big tech compa-
nies for their purposes.
Public interest theory is only a partial explanation of the genesis of regula-
tory institutions. It does have enough to say about the operation of the institu-
tion once it has been established as a regulatory mechanism in the digital era.
It suffers from the fact that it concentrates on the genesis of regulatory agen-
cies, that is, the reasons why they were set up in the first place, and it does not
have very much to say about what happens after an agency has been operating
for some time. It just assumed that the public interest goes on being served
automatically in the digital era. Another difficulty is that it is not always easy to
identify the public interest in any particular area in info-communication society
(see also, Posner 1974; Ogues 1994; McQuail 1992; Black 1996; Bovens
1998; Breyer 1982; Campbell 1999; Collins 1999; Freeman 2000; Gunningham
and Rees 1997; Ogus 2007).

Perverted Public Interest Theory: Artificial

Intelligence in the Free-Market Economy
Perverted public interest theory or regulatory failure theory tried to come up
with some explanations of how the regulatory systems frequently failed to
achieve their objectives in digital capitalism (see also, Posner 1974; Horwitz
1989, p.2; Gantzias 2019, pp.13–15; Mattli 2003; Ogues 1994; Bardach and
Kagan 1982). Failure theory accepts the central premise of the public interest
theory, that regulation was initially been set up in the interests of the public,
but eventually came to be used as a tool by regulated industries or central bank-
ing sectors for their purposes. The chief reason for this is that regulated
266 G. GANTZIAS

industries or central banking sectors, by their nature, are extremely influential

and they are able to use their influence to persuade agencies to act more favor-
ably toward them than toward consumers/users (see also Pargal 2003; Moore
2008; Stigler 1971; Thatcher 1998; Ogus 1995; Shleifer 2005).
Within this context, financial systems or industries introduce regulation to
serve their own interest in making a profit than the benefit of costumers/users
by using learning machines and smart algorithms.

Nowadays, ‘machines are taking control of investing – not just only the hum-
drum buying and selling of securities, but also the commanding heights of moni-
toring the economy and allocating capital.’ Until now, financial markets use
computers and digital programs to cut costs. In digital capitalism ‘…computers
can distort asset prices, a lot of algorithms chase securities with given characteris-
tics and then suddenly ditch them. Regulators worry that liquidity evaporates as
markets fall…another worry is how computerized finance could concentrate
wealth’. (The Economist 5 October, 2019, p.11)

One of the problems with regulation is that it is impossible, for legislation can’t
do more than state general guidelines, or the system would be too inflexible to
be able to adapt to very many different contexts and situations of use, which
are always changing. The agency has to have considerable powers to make gen-
eral policy and detailed rules itself, so there is plenty of scope for special interest
lobbies to influence the process and procedures (see also Black 2000; Cranston
1979; Braithwaite 1982; Campbell 1999; Furlong and Kerwin 2005; Sinclair
1997; Rees 1988; Scott 2008).
In business ecosystem, statutory and self-regulation mechanisms should be
made able by using artificial intelligence mechanisms to develop a BIC to
improve the business function in three primary ways:

• Improving productivity, efficiency and engagement: Business intelligent

user experiences—such as finance software you can talk to—can simplify
and speed up everyday tasks.
• Automating repetitive tasks by using self-regulation intelligence systems:
Automation not only reduces costs and improves accuracy, but also liber-
ates people from performing mundane work and allows them to focus on
more strategic projects.
• Improving process regulation by developing an intelligence culture in the
business ecosystem: Machine learning can increase the accuracy of regula-
tion tasks and accountability, which, in turn, supports more informed
human-oriented decision-making.

There are three basic models of artificial intelligence industry influence on

statutory and self-regulation regulatory agencies: instrumental, structural and
capture. Capture is the broadest notion of regulation; instrumental and
 14 DYNAMICS OF PUBLIC INTEREST IN ARTIFICIAL INTELLIGENCE: ‘BUSINESS… 267

structural factors often just help to explain why a regulatory agency becomes
captured by the business interests it is supposed to regulate.
The instrumental model focuses on the role of individuals in the regulatory
agency. People employed in self-regulatory agencies often used to work in the
self-regulated industry, and they have gone over to the self-regulation side
because they have the necessary knowledge and expertise. They share the same
social, economic and educational background, and the same attitudes to busi-
ness and capital markets which makes them sympathetic to their decision on
policy-making and not to AI robots’ policy-making. If there is too close a rela-
tionship between regulators and regulated, it makes it less likely that the regu-
lator will able to make the necessary tough decisions in the digital era (sea also,
Joskow 1974; Gunningham 1995; Lane and Ersson 2000; Majone 1996; Black
2001; Campbell 1999; Black et al. 1998).
It will probably be inclined to ignore breaches of the rules and only intro-
duce regulations that don’t interfere with central banking system’s or the big
tech companies’ ability to make profits. In the case of AI, robots, algorithms
chase public interest principles with a given characteristic and then suddenly
ignore them. For example, AI software programs are likely to favor Amazons’
business interest, ‘for example, if Amazon (whose boss, Jeff Bezos, Quant
fund) started trading using its proprietary information on e-commerce, or
JPMorgan used its internal data credit-card flows to trade the Treasury bond
market’ (The Economist, 5 October, 2019, p.11).
Another worry is how AI robot regulation could concentrate on policy-­
making power—AI robots performance rests more on chips processing power
and analyzing data. Therefore, the big tech companies with AI software pro-
grams and hardware chips could have a disproportionate amount of power.
The rise of business AI robots is not only changing the speed of analyzing
customers’ attitudes and behavior but also raises question about the following:

• Self-regulation systems for AI products and services,

• The impact of the AI market on the global economy,
• How the big tech companies governed,
• Accumulation of digital capital to a global digital business elite,
• Regulatory stability in the digital era,
• Global public interest principles to protect customers/users’ privacy
and security.

In digital capitalism, structural factors are the way in which statutory or self-­
regulatory agencies constituted, their relations with the state and other institu-
tions, their institutional remits and the amount of authority and level of
resources they have limited the options available to individuals. There is a little
to what an individual can do in artificial intelligence regulatory mechanisms. A
future concern in creating global regulatory mechanisms is: What is the role of
human regulators and the AI robot regulators, that is, AI robots which use AI
software programs to write their own rules in the digital era?
268 G. GANTZIAS

For decades humans’ decisions on policy-making on rules has been voted in

and out of agencies by regulators on behalf of people’s interests. What if those
decision-making processes are run by AI robots and algorithms software pro-
grams that are likely to use an algorithm to ignore public interest principles and
ethical standards in info-communication globalization?
Capture theory has been very influential in analyzing regulatory failure.
There are various versions of it but, basically, capture theory explains the failure
of regulation to work in practice by the fact that the agency becomes captured
by artificial intelligences systems they regulate (see also, Gantzias [2001] 2019,
p.15; Bernstein 1985; Dyson 1992; Kerwer 2005; Hood et al. 1999; Levy, and
Spiller 1996; Lodge, and Wegrich 2009; Osborne, and Gaebler 1992; Bovens
2007; Froud et al. 1998; Gunningham et al. 2003). The economic and politi-
cal power of artificial intelligence industry is probably to be stronger than that
of the traditional regulatory agency, and regulatory objectives are like to be
dominated by AI robots policy-making by 2025. A combination of instrumen-
tal and structural factors contributes to agency capture by the emerging AI
robots regulators. So once a regulatory agency would be captured by machines
mines, they will stop working for the people and start working for the artificial
intelligence industry or the benefits of the robots.

Conspiracy Theories: Digital Anarchy in Regulation

Conspiracy theories go much further than regulatory failure theories, and they
focus on the closeness of big business interests to the political mechanisms and
on the effects of economic power on governments (see also Stigler 1971;
Simmons 2001; West 1988). It tends to be a bit one-sided, however, down-
grading the state as an actor and exaggerating the extent to which it can be
used as a vehicle for special interest groups—at least in big tech companies with
global business activities such as Google, Apple and Microsoft.

For example, ‘Sundar Pichai said that AI required “smart regulation” that bal-
anced innovation with protecting citizens. While many regulators are more
focused on tackling Google over antitrust than AI at the moment, the company
is keen to avoid repeating some of the tech industry’s past mistakes by working in
a “partnership between government and businesses”’. (The Financial Times 20
September, 2019)

According to conspiracy theories, regulation is a crucial mechanism which big

companies, such as the big tech companies, try to control entry into their
global and local markets and construct artificial cartels in order to downgrade
the role of all governments to introduce both global and local regulation
mechanisms in the digital era.
Conspiracy theories do not accept that regulation is set up in the public
interest at all, but it is actively pursued by central banking systems or industry.
It is not only consumers who suffer from the inherent chaos and instability of
 14 DYNAMICS OF PUBLIC INTEREST IN ARTIFICIAL INTELLIGENCE: ‘BUSINESS… 269

the free market but business and central banking system as well. Regulation,
although it is supposed to restrict the power of monopolies and central banking
systems’ abuses of power, often acts as means of cartel management, that is, it
facilitates the concentration of power, by controlling entry to the market and
limiting competition (see also Gunningham and Rees 1997; Kolko 1963;
Hood 2006; Black 2001; Hancher and Moran 1989a, b; Hood 2002; Kwakwa
2000; Majone 1989; Levi-faur 2005; Ogus 1995; Black 2009; Ogus 2004;
Brown et al. 2006). For example, European Central Bank regulative mecha-
nism of the traditional banking sectors in the EU are likely to favor centralized
banking system’s interest and keep potential competitors out of banking mar-
kets, though in the case of digital currencies there is a lack of regulation on
Bitcoin; this was entirely European governments’ incompetence because the
existing banking system and European leaders ignore the role of digital curren-
cies in destabilizing central banking systems and bring anarchy into their self-­
regulatory mechanisms.(see also Gantzias 2013)
Within this context, the penetration of Bitcoin as a global digital currency
has contributed by creating regulatory anarchy in monetary systems by chal-
lenging regional currencies’ systems of paper money. Regulation of digital cur-
rencies should focus on the financial stability and the business of digital
currencies’ ability to provide useful and adequate security for digital transac-
tions. Nowadays, the state or central banking system has sufficient power to
control the effects of the regulating digital currencies around the world by
introducing a global regulatory mechanism (statutory of self-regulation). So, a
regulatory mechanism is likely to be responsible to introduce an official global
digital currency, that is, the Global Info-Cash (GIG), as product and service in
a free-market economy (see also Gantzias 2014).

Organizational Theories: Artificial Intelligence

and Info-Communication Regulation
Organizational theories concentrate on the behavior of regulatory agencies as
institutions. They recognize that organizations develop a life of their own,
which is, to some extent, autonomous, from both the state and the regulated
industries. The behavior of agencies cannot be completely explained in terms
of their stated goals and purposes. Regulated agencies tend to follow organiza-
tional imperatives as much as any other. ‘Rules and regulations proliferate as an
end in themselves and regardless of the cost involved in an ever-increasing
bureaucracy’ (Gantzias [2001] 2019, p.18). In other words, they become con-
cerned with preserving and extending their own power and authority, increas-
ing the number of staff, and increasing the amount of rules and regulations for
their own sake because this is what they are being paid to do (see also Wilson,
J. Q. and Rachal, P. 1977; West 2005; Alesina and Tabellini 2007; Black 1995;
Wilson 1980; MacAvoy 1971; Bardach and Kagan 1982).
Organization approaches recognize that institutions have their rationale and
their behavior cannot be explained entirely in terms of their stated purposes
270 G. GANTZIAS

and goals, and in terms of external pressures from government, the big tech
companies or customers/users of the info-communication platforms.
Organizations hate to be blamed for anything; they don’t like to take risks or
to have their authority challenged, so they set up self-regulatory systems and
invent rules about AI services to cover every possible circumstance for their
own mistakes in digital capitalism. They tend to be secretive and unwilling to
discuss the reasons behind their decisions.
Organizational critiques of self-regulation from the consumers/users are
influential in tradition systems of self-regulation by companies—consumers/
users are very anti-self-regulation because they saw it as severely restricting
their freedom to ask about privacy and security issues, holding back enterprise
and profitability, and ultimately very damaging to the national economy as a
whole. Their solution to promoting consumer welfare was not self-­regulation—
they regarded this as the problem—but smart regulations which provided con-
sumers with more real choice through artificial intelligence mechanisms of
competition by creating a ‘new global regulatory order’ (see also Sinclair 1997;
Gunningham and Grabosky 1999; Kirkpatrick, and Parker 2007; Lindblom
1977; Moore et al. 2006).
Within this context, the main ethical standards of business self-regulations
systems are eternal: equal treatment of all users of artificial intelligence services,
equal access to big data and the protection of privacy. Recently, the artificial
intelligence revolution looks as if it will make today’s regulations look horribly
out of date.

Google’s chief executive [Sundar Pichai] has warned politicians against knee-jerk
regulation of artificial intelligence, arguing that existing rules may be sufficient to
govern the new technology… [He also pointed out] there are areas [of AI regula-
tion] where we need to do the research before we know what are the right kind
of approaches we need to take. (The Financial Time 20 September, 2019)

Digital transformations in organizations systems imply a change in the business

culture. Nowadays, there are organizational transformations, when businesses
redraw corporate roles and accountabilities by developing a new digital culture,
that is, the BIC. The term ‘transformation’ is also increasingly used for a digital
reinvention: companies fundamentally reworking the way they wired and, in
particular, how they go to global and local markets. By looking to existing
regulations to develop a balance between innovations, public interest, ethical
standards and protecting human rights, a dynamic regulatory model would be
helpful to regulate particular sectors and industries instead through a blanket
vetting of algorithms.
Traditional regulations are very complicated to work due to the emerging of
artificial intelligence software programs and penetration of digital transactions
in our everyday tax and payments system. To create a sustainable global regula-
tory mechanism to protect the public interest and ethical standards is an expen-
sive process that requires a lot of money. If the private sectors have the intention
 14 DYNAMICS OF PUBLIC INTEREST IN ARTIFICIAL INTELLIGENCE: ‘BUSINESS… 271

to develop self-regulatory systems to serve their interests by ignoring custom-

ers/user’s privacy and security issues, it will end up with the result that will be
a chaotic capitalist robotization in the digital era.

Capitalist State Theory: Digital Capitalism

and Regulation

Capitalist state theory of regulation focuses regulation as part of a wider politi-

cal theory of state intervention in the period of digital capitalism (see also;
Gantzias [2001] 2019, p.19; Sell 2003; Simmons 2001; Osborne and Gaebler
1992; Rees 1988; Kerwer 2005; Scott 2000; Lodge 2008). By 2030, regula-
tory agencies are likely to be digitally transformed by using AI robots: a digital
transformation of regulatory agencies by using artificial intelligence devices,
which we define as an intense, regulatory-wide smart algorithm programs to
enhance regulation performance and to boost regulatory efficiency. Traditional
regulatory agencies occurred as one of several types of state apparatus designed
to safeguard the accumulation of capital, toward which the state is structurally
biased, when the market fails to do the job. They are a means of social control
which enables the state to maintain order in the market on behalf of industry
but which also makes it possible for it to distribute social benefits at the same
time (see also Ogus 2007; Wilson 1980; Sinclair 1997; Thompson 1997;
Shleifer 2005; Scott 2000; Brown et al. 2006).
According to structuralism Marxist theory, although the state is the main
actor in a capitalist democracy, it cannot just do as it wants; it is bound by two
main constraints: the constraint of accumulation of capital and the constraint
of legitimation. This means that governments must do as much as possible to
encourage user’s interests and promote privacy and safety issues, but at the
same time it is answerable to the electorate who legitimize its activities
(Gantzias [2001] 2019, pp.19, 324). It must, therefore, offer social welfare
provisions to compensate the sections of society which do not immediately
benefit from the accumulation of capital—the unemployed, the sick, the pen-
sioners, consumers and so on (see also Mosco 1988; Armstrong et al. 1984;
Herman 1981).
Within the frame of digital capitalism, info-communication regulation
should be a mechanism for enabling the business to perform well and pursuing
social, cultural and economic objectives at the same time. Other non-Marxist
approaches also emphasize the political rather than the economic dimension of
regulation. Economists take an instrumental view of regulatory agencies as
tools for achieving certain financial benefits, mostly in terms of promoting the
most efficient use of resources. This is treating agencies as a completely
passive means to an end. But the choice of regulatory institutions cannot be
divorced from the broader political and cultural context in digital capitalism
(see also Mosco 1988, p.120; Normanton 1996; Scott 1998; Elkin 1985;
Mckean 1970).
272 G. GANTZIAS

Regulation is a mechanism whereby business can be ‘induced’ to perform well,

and social objectives can also be seen to be being pursued … public policy-­making
as an exercise in the logic of efficient choice and in particular, as an exercise in
economizing, using McKean’s definition of economizing: ‘all decision making
persons or groups … try to make the “most” as they conceive of the “most” of
whatever resources they have’. (Gantzias [2001] 2019, p.19)

Recently, traditional regulatory systems are themselves outcomes of broader

decisions made by humans about the relationship between the citizen, business
and the state. Such choices are about government, and about the kind of soci-
ety in which we wish to live. Digital transformations, as we define them, take
up a surprisingly large share of a regulator’s and an agency’s time and attention.
They require enormous energy to realize the necessary degree of change
between the statutory and self-regulatory regimes in digital capitalism.
Herein lay the seeds of disappointment. Our most fundamental lesson from
the twentieth century is that the statutory regulatory mechanisms and self-­
regulatory systems need to average regulatory agency rarely have the combina-
tion of skills, mind-sets and ongoing commitment needed to pull off a
large-scale digital transformation in a free-market economy. For example, AI
robots, as regulators that cannot explain themselves, or whose detailed opera-
tion is beyond the realm of human decision policy-making, pose a problem for
the legal system and regulators in the digital era.

As Rebecca Williams, a legal scholar at Oxford University, observes, if machines

lack the ability to explain their actions, current law might struggle to identify
criminal intent in acts that arise because of decisions they have made. “In criminal
law,” she says, “the thing that’s interesting is having the third party breaking the
chain of causation that is not a human being. That is really new”. (The Economist
15 December, 2018)

In digital era, it is likely to be very difficult to develop global legal rules, public
interest principles and ethical standards to regulate effectively the big tech
companies such as Microsoft, Apple, Amazon, Alphabet, Intel, Arm and so on.
Within this context, legislation on tax in the United States, such as the ‘Foreign
Account Tax Compliance Act’ (FACTA), and law in European Countries, such
as ‘General Data Protection Regulation’ (GDPR), are very complicated to be
implemented effectively both globally and locally. How should regulators react?
One of the immediate concerns is infringing on people’s privacy by AI soft-
ware programs. Recently, the smart algorithms and software monitoring of
everyday life of human activity from exercising, shopping, reading to posting
on social media enable the big tech companies to target advertisers or recom-
mend items of interests. Nowadays, the real global regulatory anarchy on digi-
tal ecosystems has brought into light issues of privacy, accountability, the
relation of law with robots, security, freedom of expression and fake news.
 14 DYNAMICS OF PUBLIC INTEREST IN ARTIFICIAL INTELLIGENCE: ‘BUSINESS… 273

Dynamics of Public Interest in Artificial Intelligence

According to The International Encyclopedia of Social Sciences, the term ‘public
interest’ is very elastic and relative. It has no a priori content waiting to be
revealed. It simply indicates that there exist some wider general considerations
beyond the specific goals of interested parties. Proponents of diametrically
opposed policies in info-communication public sphere have at one time or
another to be acting in the public interest; in fact, it would be difficult to find
anyone in digital capitalism who claimed otherwise (Gantzias [2001] 2019,
p.13; see also Sills 1986; McQuail 1992).
This means the public interest cannot be decided in advance but depends on
a given set of circumstances in the emerging artificial intelligence ecosystem.
Traditional public interest theory relies on the somewhat simplistic assump-
tions that a clear-cut distinction can be made between digital policies which are
and digital policies which are not in the interest of the community. In real life,
things are more complicated than the black-and-white situations necessary for
public interest theory to be true in info-communication globalization.
McQuail has provided a definition that makes the concept of public interest
more able to handle the very complex situation of the modern mass communi-
cations media which raise so many different issues—freedom of expression,
accuracy and truth of reporting, libel and obscenity, safeguarding of copyright
and intellectual property rights, preservation of cultural diversity, advertising,
privacy and so on. Policy-makers have to decide between many conflicting
positions on these issues and numerous competing demands from different
interest groups (see also McQuails 1992; Held 1970; Gantzias [2001] 2019,
pp.31–35; Simmons 2001; Perri 6 2001).
McQuail, therefore, accepts that the public interest in communications is
heterogeneous and not unitary and recommends treating ‘various statements
of public interest concerning communications as a set of competing claims or
proposals with a normative component’ (as cited in Gantzias [2001] 2019,
p.34). It is then up to the political and legal systems to decide which claims are
the most justifiable, usually by providing a general statutory framework for
regulation and creating regulatory bodies to take care of the details. For exam-
ple, the broadcast media have historically been much more tightly controlled
than the digital content on the internet because they have been perceived as
more powerful in communication tools in twentieth century (see also Gantzias
[2001] 2019, pp.28–38; Baldwin and Cave 1999; Shearer 2002; Sinclair 1997;
Wilson 1980; Yeung 2010).
The digital content on the internet tends to be controlled under the law of
the land on libel, defamation, obscenity and so on; different countries often
have internet codes and complaints bodies, which are a form of self-regulation
but they do not have legal backing or statutory regulatory agencies to impose
regulations on digital content. In the case of European countries, there are
various Internet Codes about digital content. Such codes were always claimed
to be in the public interest but were, in fact, highly political and concerned
274 G. GANTZIAS

mainly with preventing criticism of whichever governments are in power. Since

freedom of expression exercised with responsibility is a fundamental demo-
cratic right which can never be claimed against the public interest government
regulation of the internet in European countries, even by the so-called volun-
tary codes, they have seldom been genuinely in the public interest, either in
their motivation or their operation.
Within this context, in United States, the big tech companies manages to
manipulate the digital content system and social media system which advertise
its products and services without any specific restrictions in order to protect the
consumers/users privacy and security. In digital era, states are setting aside
their monopolistic, command and control approaches to governing in favor of
a more participatory approach involving civil society, communication and
information markets and regulatory authorities.
At the global level, the development of global public interest principles relies
on global cooperation, harmonization and consensus without the use of coer-
cive power. Nowadays, the protection of the public interest and ethical stan-
dards at global level relies on voluntary actions or international organizations.
Within this context, the protection of the public interest would be used as the
main justification for setting up a global regulatory authority and reforming
the existing national legislation and regulatory authorities in digital capitalism.
Public interest arguments, for example, have been used in forming interna-
tionally agreed regulations in communication and information sectors at the
global level belonging to national and local regulatory agencies. Recently, the
emerging of artificial intelligence, together with the fifth generation of mobile
phones and big data centers, places the public interest debate and regulation of
digital content at global level. In the near future, statutory regulations are
likely to affect both human and robot decisions on policy-making. So public
interest principles and ethical standards in creating, developing, managing and
promoting digital content will be subject to a network of smart regulatory
mechanisms.
The various types of capture and conspiracy models of regulatory failure can
also be applied to global regulation. In the United States, regulatory officials
are using existing law to pursue the big tech companies and politicians are
drafting new legislation, that is, the Department of Justice (DOJ), the Federal
Trade Commission (FTC) and the House antitrust subcommittee have all
launched inquiries—they are placing regulatory pressures on by the method of
investigation at the moment. ‘The big tech companies, i.e., Microsoft, Apple,
Amazon, Alphabet and facebook are worth a combine of $4.3 trillion’ (The
Economist, 5th October 2019, p.55).
Within this context, the big tech companies, as part of the info-­
communication industrial platforms for creating, producing, managing and
transmitting digital content, are placed into a new policy paradigm, which I
have called info-communication (info-com) policy. “So, the public interest in
communications [and particularly in artificial intelligence robot ecosystem of
 14 DYNAMICS OF PUBLIC INTEREST IN ARTIFICIAL INTELLIGENCE: ‘BUSINESS… 275

the big tech companies] should be redefined and encompass the info-com pub-
lic interest principles’ (as cited in Gantzias [2001] 2019, p.25).
The emerging paradigm does not lack normative elements but covers a
wider range of public interest principles and ethical standards at global regula-
tory ecosystem. Ethical standards should be a clear and concise statement of
minimum public interest principles excepted from business when promoting
their product and services. The value of the regulation is operating at the pro-
cess and product level of regulatory agencies using the term ‘general interest’
to cover public interest principles and ethical standards both globally and
locally. The term ‘general interest’ is more ‘digital communicative’ and less
‘political,’ ‘technological,’ ‘economic’ and ‘cultural’ in character (see also Perri
6 2001; Payne 2018; Gantzias [2001] 2019, pp.25–35).
Global regulation is a very complicated process, and the definition of ‘gen-
eral interest’ is very critical to be clarified by the question: How do public inter-
est principles and ethical standards work in practice? So, a methodologically
useful typological diction between measures designed to affect the processes of
the BIC and the way to be regulated, that is, its form and structure, and those
intended to deal with what artificial intelligence software program produces as
digital content or services, to regulation bearing on info-communication
industry. For example, in regulating AI robots, this distinction corresponds
roughly to that between rules governing the automatic decision-making aspects
of the AI system and regulation bearing on digital content created by human
or produced by robots. The book The dynamics of Regulation: Global Control,
Local Resistance made the same distinction concerning the following:

to television advertising: regulation of advertising within the commercial televi-

sion system deals with it both as part of the financial structure and as a series of
broadcast messages with content. Process regulation also includes determining
the amount and distribution of advertising. (Gantzias [2001] 2019, p.36)

In our research project ‘Dynamic Regulations, Digital Culture and Artificial

Intelligence: Public Interest and Ethical Standards’, we are in the process of
collecting all necessary data to update the existing regulatory model ‘Product
and Process Regulation’ (see also Gantzias [2001] 2019; pp.36–43). The
forthcoming updated regulatory model, which we call ‘Dynamic Product and
Process Regulation’ (DPPR), is likely to be very useful as a methodological
tool to examine and analyze global regulation mechanisms and robot’s policy-­
making in the digital era.

Conclusion: Public Interest in Artificial Intelligence Revolution

The artificial revolution will lead to the develop a new business culture, that is,
the BIC, global public interest principles and ethical standards in all countries
around the world.
276 G. GANTZIAS

In twentieth century, staff in regulatory systems had aimed to perpetuate

their activities in a way that makes them regulation—and not industry—ori-
ented. This, of course, ties in with Bernstein’s notion of bureaucratization and
cyclical decline. Moreover, organization, once into a period of operation,
becomes, to an extent, resistance to pressures from outside, finding ways to
evade or diffuse the demands made on them. The more complex and conflict-
ing of these demands become, the more likely the regulators are to seek safe
and satisfactory solutions rather than optimal ones.
The public interest theory, of Horwitz’s five types of regulation theory,
seems to be the most applicable as a theory of creating info-communication
regulation. Conspiracy theory also takes a very negative view not just of the
effectiveness of regulation, but of its primary motive. It disputes the validity of
the public interest justification even at the genetic state. It claims that regula-
tion is initiated from the very start as a result of a conspiracy between powerful
business interests and the state.
Our global regulation vision will motivate all countries around the world to
bring into reality info-communication regulatory mechanisms, AI policy-­
making systems, universal public interest principles and ethical standards to
protect privacy and security issues in our info-communication society. The defi-
nition of public interest is a very complicated process. Still, it is very beneficial
to explain why regulatory agencies are very essential global actors to control
artificial intelligence systems and robot’s policy-making. In our research proj-
ect ‘Dynamic Regulations, Digital Culture and Artificial Intelligence: Public
Interest and Ethical Standards’, we are working to that direction by making the
necessary modification to update the model ‘Product and Process Regulation’.
In the near future, global regulatory mechanisms are likely to be the practical
solution to overcome ‘divides’ and ‘inequalities’ by enforcing universal public
interest principle and ethical standards.

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 CHAPTER 15

Economy of Attention: Definition

and Challenges for the Twenty-First Century

Santiago Giraldo-Luque and Cristina Fernández-Rovira

Introduction
This chapter takes up the discussion on the economy of attention, reviews its
main conceptual approaches and proposes four lines of reflection on its future
as well as the future of the digital society. Our study is linked to corporate sus-
tainability in the digital age as the attention economy is rooted in one of the
main problems of our time: social control through the market and the ethical
implications of the great technological oligopolies that dominate the digital
society.
In order to contribute to the debate on the use of consumers’ data on the
Internet, and the importance of the conscious and unconscious attention that
people dedicate to the network, this chapter is developed to solve the following
three main research questions:

RQ1: What is the attention economy and why is it important in the twenty-­
first century?

S. Giraldo-Luque (*)
Autonomous University of Barcelona, Catalonia, Barcelona, Spain
e-mail: [email protected]
C. Fernández-Rovira
University of Vic – Central University of Catalonia, Barcelona, Spain
e-mail: [email protected]

© The Author(s) 2021 283

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_15
284 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

RQ2: Which are the main economic and sociological changes associated with
the development of the attention economy in the second decade of the
twenty-first century?
RQ3: How can corporations take a critical stance in the face of the challenges
outlined by the attention economy at the beginning of the third decade of
the twenty-first century?

The chapter is divided in six sections. The objective of the chapter is to offer
a broad vision of the concept of the economy of attention; for this reason, the
definition of this notion is the starting point of the text. Next, the chapter aims
to explore four challenges that humanity faces today in connection with this
issue: (1) the structuring of oligopolies based on information; (2) the social
and cultural homogenization as a product of the new world linked to the net-
work society; (3) the sociological challenges of the workplace; (4) the respon-
sible use of technology. The final part of the chapter tries to link the concept of
the attention economy and its main elements with the corporate ethical and
strategic responsibility. The corporation sustainability needs to understand the
drastic shift towards intangible goods, but, above all, to formulate solutions
based on technology that involve a human perspective.
The chapter hopes to be a starting point towards a reflection that includes
all social agents, specially corporations, about the future of the information
society.

Context and Background

Information and communication technologies (ICTs) represent the latest, and
truly vertiginous, great transformation for humanity. Computers, the Internet
and the ability to produce, store, manage and analyse data have changed every-
thing: work, social relations, culture, politics and citizenship and, of course, the
economy.
Information and communications technology is a phenomenon that impacts
our social coexistence and has led to an innovation in the system of social tech-
nology (Masuda 1984), after two enormous social, economic and political
changes—namely, the fall of the Berlin Wall and the economic crisis of
2007/2008. The technological transformation system is made up of four char-
acteristics that defined the transition from an industrial society, guided by
material goods, to the information society, based on the economy of the intan-
gible (Bell 1976) and in the logic of networks (Castells 1997).
First, Masuda (1984, pp. 17–20) indicates that different types of innovative
technology build a complex technological system. As a second step, he adds,
integrated technology systems are disseminated in society and gradually imple-
mented. As a result, a rapid expansion of a new type of productivity is gener-
ated, which configures the third characteristic that ends up producing the final
one: a social impact that gradually leads to the transformation and
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 285

institutionalization of new forms and social behaviours that, generally, are dif-
ferent from those considered as traditional.
The change of society, also guided by the economic standardization after the
fall of the Berlin Wall, integrated information systems as the basis of its devel-
opment. The network spread and penetrated a liberalized society that accessed
a utopian scenario of universal democratization through the Internet, the net-
work of networks.
For Castells (1997), the network’s own logic, at the centre of the informa-
tional paradigm, is characterized by its capacity for penetration, flexibility and
convergence. The information society uses the logic of networks in its basic
structure, which explains the use of the concept of “network society” (Castells
2004). Networks constitute the new social morphology, and the expansion of
the network logic modifies the operation and the results in the processes of
production, experience, power and culture (Castells 1997).
However, the expansion of networks and the network society, the paradigm
shift, has proved to be unfair (Piketty 2014; Taylor and Silver 2019) and far
from the optimism of mass self-communication (Castells 2009) and of social
mobilization (Castells 2012). The idea of the​​ network as a guarantee of prog-
ress was an illusion that collapsed, especially with the financial crisis of
2007/2008. The connection to the network society, exemplified on a smart
mobile phone connected to the Internet, has guaranteed new forms of social
control (Tufecki 2014). This phenomenon has led to the creation of individu-
alized worlds or media bubbles (Pariser 2011), has widened the gap between
rich and poor, promotes job insecurity and contributed to the global capitalist
crisis (Fuchs 2017), and has also destroyed the value and empathy of conversa-
tion (Turkle 2019).
The introduction in the 1990s of Web 1.0 and the widespread use of devices
connected to the network created possibilities for analysing the information
consumed and the users’ behaviour on the Internet. But it is not until the fail-
ure of the first Internet, at the turn of the twenty-first century, when the cre-
ation of information for the Internet would cease to be a problem (Fuchs
2017). Users began to be part of platforms in which, under the concept of a
collaborative and participatory web, Web 2.0 (O’Reilly 2007) published their
productions at zero cost. The main asset of the information age tended to be
produced for free (Simon 1971, p. 41; Davenport and Beck 2002, p. 13).
The problem of the twenty-first century is concentrated on the ability of the
product to capture the attention of the user. The price of a good is linked not
to its production value, but to its own consumption value. The product, as an
experience, acquires a specific value each time it is consumed, not when it is
produced (Shapiro and Varian 1999, p. 3).
The qualitative leap that occurs with the technological advance of the last 15
years (2005–2020), in which the techniques of collecting, extracting, captur-
ing, analysing and processing huge amounts of information have solved the
problems of data management (Mayer-Schönberger and Cukier 2013); it also
opens the door to the concept of the attention economy, fully applied since
286 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

2008. “Large technology companies pivot on the attention economy”

(Morgans 2017).
The attention economy is not a novelty. Its theorizing, in the 1970s, could
not yet monitor users in their relationship with interconnected interfaces and
technologies (Davenport and Beck 2002). Nor was it possible to make calcula-
tions or algorithms that could handle the amount of information that comput-
ers began to store. Much less was it possible to make correlations between
them (Shapiro and Varian 1999, p. 36). But the challenge was perfectly under-
stood by Amazon and Google, and then by the technology companies that
reproduced their operations (Fuchs 2012, 2017).
According to the “Communications Market Report” (Ofcom 2018), users
of mobile phones in the United Kingdom spend an average of three hours and
seven minutes a day on their phones. At the same time, 48% of young people
in the United States between 18 and 29 years of age declare that they never
disconnect from their digital universe (Perrin and Kumar 2019). The screens
have the attention.

The Economy of Attention

The economy of attention states that it is impossible to pay attention to all the
information we receive from the Internet: “A wealth of information creates a
poverty in attention and the need to place attention efficiently among the over-
abundance of sources of information that are feasible to consume” (Simon
1971, pp. 40–41). Davenport and Beck (2002, p. 32) propose that attention
involves mental concentration on specific information that reaches the con-
scious senses of the individual who decides when to pay attention and whether
to perform an action:

The attention is produced in a phase of relatively unconscious restriction, in

which we eliminate most of the sensory impulses that surround us and that flow
to us […] and in a decision phase, in which we decide to act on the information
to which we pay attention. (pp. 32–34)

The concept of the attention economy advanced at the end of the twentieth
century with the introduction of search engines on the Web. Shapiro and
Varian describe search engines as platforms that allow people to find informa-
tion that people value and exclude what they don’t value (1999, p. 21). The
change of format accepts the replacement of the massive and dispersed com-
mercial and communicative exchange to give way to the universe of product
customization (Davenport and Beck 2002, p. 27). It also allows for the indi-
vidualization of marketing and behavioural observation of millions of consum-
ers, follow-up actions that admit immediate and automated production of
exclusive content for clients (Shapiro and Varian 1999, p. 7).
The concentration of users on digital platforms—Google, Facebook or
Amazon environment—allows us to place privileged scenarios for the attention
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 287

market in which the manipulation of the user’s attention can be more easily
produced. According to Tristan Harris, former Google ethical designer and
founder of the Time Well Spent movement, attention is governed by “intermit-
tent variable rewards” (in Morgans 2017). The individualized reward makes
possible the control of attention by large technology companies which, through
striking technologies associated with the user’s emotional experiences, deter-
mine a very effective attraction market (Gerlitz and Helmond 2013).
In this sense, the attention economy can be defined as an economic model
that has been technologically enhanced in the last two decades and that is based
on the human attention capital within an ecosystem with infinite communica-
tive inputs that fight to capture their own individual or collective attention.
The model assumes that attention—time, as well as the actions developed in
it—guarantees a monetization based on the conversion of one’s attention into
relevant and privileged information for the collector and analyser of the same
information (data). The economy of attention highlights both the audience
and the potential value of the activities of the audience and focuses on the com-
municative and cultural industries associated with free time, leisure and the
rational defencelessness of individuals.
Some empirical studies have been done in order to demonstrate the power
of the attention economy in the digital society. Ciampaglia, Flammini and
Menczer (2015), for example, study the phenomenon and focus on the pat-
terns of collective attention that are related to the new information. The
Nielsen Norman Group also studied the concept applied to the marketing of
attention and how informative stimuli affect user behaviour (Kane 2019).
Mark Manson (2014) quantified the earnings based on informational atten-
tion, such as consumption, produced by one of the celebrities of the decade,
Kim Kardashian, and how the attention economy could help promote terror-
ism. Finally, the studies of Wu (2017) and Franck (1999) allow to trace a his-
tory of the economic transformation that led both to the “industrialization of
human attention capture” and to the “emergence of a new, quaternary sector
of the economy”.

Economic Oligopoly in a Liberalized Society

Technology companies have understood the new economic model focused on
three elements: the sale of intangible assets associated with ephemeral emo-
tional values, such as prestige; the infinite sale of mechanisms (software) and
devices (hardware) that attract the attention of the user associated with the
same emotional values; and the storage of user information that is fed back at
every moment through the use of mechanisms and devices acquired by the
consumers. Amazon, Google and Facebook have used the three elements to
establish an oligopoly of attention, or data, counted in time of dedication and
collective desire guided by large platforms and advertising (Pasquinelli 2009).
Tim O’Reilly admitted that the term 2.0 was created with the intention of
identifying new economic strategies for Internet companies after the dotcom
288 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

financial crisis (O’Reilly and Battelle 2009). The fundamental framework of the
new strategy was found in the benefit of the data (or content) generated by the
user to establish additional values ​​on that product—free and very valuable.
Greg Linden proposed in 1997 to Jeff Bezos, owner of an online bookstore, to
implement the suggestions service to his readers through the collaborative fil-
tering “article by article”, a patent that led to the revolution of predictions
(Mayer-Schönberger and Cukier 2013, p. 70).
The relationships between the characteristics of the items sold had the abil-
ity to extend to any type of product. Amazon ceased to be a book store to
expand its offer to all existing consumer goods. The information system had
the ability to work with all available data and, through them, predict the inter-
est of a specific person for a specific product (Mayer-Schönberger and
Cukier 2013).
The power of prediction, the first link in the oligopoly of information,
allowed pioneering companies to establish oligopolistic spaces for information
and, therefore, for attention. The growing grouping of information in a small
number of technology companies gave them the opportunity to make and offer
very wide ranges of predictions.1
The power of prediction and, therefore, of knowing what a user can buy or
do, renews the power theories of Luhmann (1995) and Foucault (1979a).
Both authors understood the significance of power relations as the definition of
the horizon of individual and collective actions. It is the construction of a slight
oligopoly, guided by the experience of open and dynamic communication,
which is accessible and attractive: It also gives strength to the evidence of the
same invisibility—or self-legitimization—of the power announced by Foucault,
from which is controlled the very meaning of life.
Despite the fact that the circulation of information on the network has
become more fluid, dynamic and complex by the exponential increase in the
number of actors (Castells 2004), economic concentration is greater and the
visibility of the actors in the communication network recreates the industrial
dynamics of exclusion. The rapid decline in visibility is the main barrier to the
spread of information online, which is linked to the prominence of any given
specific actor (Frank 1999; Fuchs 2013).
In the case of the oligopoly of information, the paradox is clear: While the
Internet is presented as a place of open information which is available to all citi-
zens, and as a place where everyone can feel a part of what is happening in the
world, the circulation of information is concentrated in a few channels. On the
one hand, these channels act as mass media which control information flows on
their platforms while; on the other hand, they freely recycle information from
1
The role of information and its size and complexity, as well as the importance of consumer data
in an environment of oligopolistic domination of informational goods, establishes the term Big
Data as an extremely important element in the digital economy. De Mauro, Greco and Grimaldi
(2016, p. 131) defined Big Data as “the information asset characterized by such a High Volume,
Velocity and Variety to require specific Technology and Analytical Methods for its transformation
into Value”.
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 289

user-consumers to build prediction processes, algorithms with which they clas-

sify and prepare consumer packages for multiple advertisers (O’Neil 2017).
The positioning algorithm, along with the restricted data contained within,
constitutes the second link in the oligopolistic construction made with user
data. The definition of prominence in the network is made by an oligopolistic
actor who uses the free work of billions of Internet users for this purpose
(Pasquinelli 2009).
The setting of the Google PageRank algorithm determines the level of pop-
ularity of a web page based on its citations. But the domain over citation con-
trol rests with a single company that determines the hierarchy and, with the
information of millions of users, establishes prices and privileged positions.
Google establishes its own economic policy, the economic policy of PageRank
(Pasquinelli 2009), which controls advertising and knowledge markets:
“Google establishes its own proprietary hierarchy of value for each node of the
Internet and becomes then the first systematic global rentier of the common
intellect” (Pasquinelli 2009, p. 153).
Classical economists declared that progress depends on the best possible use
of the fragmentary knowledge present in everyone. Referring to prices, they
mentioned that the system that provides the most genuine information should
serve as a basis for the decision-making of isolated and dispersed people. They
also pointed out that the more interfered people were, the less reliable the
indicators at their disposal would be.
The characteristics of oligopolies imply that a few companies are the only
ones capable of offering a good or service and, therefore, dominate the offer in
the market. The oligopolistic companies also behave in an abusive manner with
demand when controlling supply. Governing information and attention give,
in the information society, an absolute power to the companies which also
dominate 60% of the Internet advertising market (Banis 2018). A power exer-
cised without any control.
Pasquinelli (2009), by introducing the concept of global income which
companies such as Facebook and Google extract from the commercial exploita-
tion of users’ work through user-generated content (UGC), also reinforces the
contradiction of the liberalized society and of classical economic theory over
the economic control exercised by the technological giants. Property rights
(Hayek 1985), over the cognitive and intellectual goods produced by users,
over their information, their data, and their behaviour, are violated and trans-
gressed by technological agents who, using the emotional control inherent in
technological addiction (Giraldo-Luque 2015), avoid a critical reaction of their
users (Fig. 15.1).
In January 2019, the number of Internet users exceeded half of the world’s
population, totalling more than 4.3 billion people. Facebook networks, with
nearly 2.3 billion users, can reach 51% of total Internet users in the world. The
interconnection between users through billions of friendships and exchanges
represent a dated social graph which is made available exclusively to a handful
of companies—which is indeed dangerous. The model is based on capturing
290 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

2500

2000

1500

1000

500

0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Facebook Twitter Instagram

LinkedIn Netflix WhatsApp

Fig. 15.1 Evolution of the number of users in digital platforms (in millions;
2004–2018). (Source: Author’s creation based on Statista, growyse.com, Yahoo
Finance, thebalancecareers.com, Semiocast and The Guardian)

user attention. Their time spent on the Internet and their interactions mea-
sured in “asymmetric vectors of energy, data, attention and value” (Pasquinelli
2009, p. 154) implies the systemic feedback of technology and the inputs of
the economic movement of the intangible (Fernández-Rovira and Giraldo-­
Luque 2019).
Every time an individual uses their mobile phone, they send consumption
data in an automated and invisible process, including their entire digital behav-
iour, to the oligopolist collector of information. The concentration of attention
generates more data to adjust the black boxes or algorithms that determine the
interests of the consumer (Rahwan 2018) and, thus, allows for greater and
more refined control of the user.
The control over prediction—Amazon model—the control over the defini-
tion of visibility prices based on popularity—Google model—and the control
of reception, channelling and administration of data and attention based on
thousands of millions of users—Facebook model—establish, at the zenith of
the liberalized society, the greatest oligopoly and concentration of communica-
tive power in the history of mankind.

Concentration of Attention and Concentration

of Culture: The Homogenization of Society

On the Internet, economic power and the scenario of cultural domination that
is associated with it, finds two consumption mechanisms that shape the domi-
nation of life. The first is the concentration of consumption in increasingly
large companies that become oligopolies. The second is the conversion of
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 291

informational merchandise in the revolution of data and algorithms. The two

mechanisms would have generated in a democratic context, in the nineteenth
century and in the first half of the twentieth century, a social revolution with
the possibility of humanity having to depend on a few oligopolistic companies
for the definition of policies that would affect people’s leisure activities and
interests. Above all else, this social revolution would occur given that citizens
would not receive any kind of economic benefit from being exploited by the
commercial giants.
The point of social breakdown lies in one’s own capacity for awareness of
the phenomenon. The individual is aware that all information sent to the
Internet is used for free by technology companies. With the data sold to other
companies or political parties, users receive products and services that they buy
happy to know how well they are known by the companies that offer them the
products. The individual also feels free to buy the good or service.
The fundamental change between the social homogenization of the indus-
trial age and the technological era is the absolute domain over leisure time, of
all the conscious and unconscious attention of the individual that is used to
generate profits to oligopolistic companies. The cultural world is conceived,
within the network or the media bubble (Pariser 2011), as a space of domina-
tion and as a scenario of elimination of differences. In that domination, and
under values ​​such as ephemeral social notoriety in the network (always lim-
ited), the user becomes a free worker who produces a myriad of digital content
and interactions that technology companies only have to manage. It is the
“commercialization of the prosumer of the Internet” (Fuchs 2012, p. 43). In
that context, culture acts as the legitimizing space of the dynamics of exploita-
tion. It is useful for the user to feel comfortable with the new values ​​associated
with the prestige and recognition granted by the PageRank and the “like” but-
ton; it is also useful for the user to avoid thinking of oligopolistic platforms as
new spaces of global income of the community intellect (Pasquinelli 2009).
The role of cultural socialization that fulfils and satisfies technology as the
most relevant actor in the contemporary media scenario is remarkable. The
cultural world is based on a universe of individual satisfaction. Symptoms of
uncertainty or lack of information are quickly replaced by the individualized
information systems that feed our emotional well-being.
The cultural scene maintains people under broad frameworks of control and
universal harmonization. Individuals satisfied and preconditioned by the selfish
and individualized satisfaction of their desires for ephemeral happiness carry
out an oriented and homogenized cultural consumption—through data-based
predictions—that standardizes thoughts, feelings and aspirations. In the face of
uncertainty, the ceaseless media-cultural bombardment system is therapeutic.
The individual no longer needs to think for himself, or feel—Tinderised—or
imagine—Facebookised.
In a new paradox about the cultural link and the construction of the social
welfare of the satisfaction of desires in a liberal society, the individual assumes
the myth of the foundation of the Internet as the society of participation and
292 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

of the social, political and cultural integration defended by Castells (2012),

Hartley (2012) and Shirky (2008). The post-crisis world, however, disrupts
the imaginary world of the liberal society—and even the neo-liberal one—
without its rupture implying in the subjects a social reaction precisely because
the cultural universe that is accessed, mediated by the information oligopolies,
has erased the contradictions and alterations of life previously manifested in art,
music, literature and cinema. In fact, the new manifestations which are appar-
ently countercultural, are made mostly on channels such as YouTube, Netflix,
Facebook and Twitter.
The process of integrating individuals into the same consumer society repro-
duces, in the democratic period of the second decade of the twenty-first cen-
tury, social repression better than any other era. The control framework is truly
sophisticated. The democratic control process uses a non-authoritarian and
legitimate figure as the guarantor of freedom of expression to establish itself
without any friction as a totalitarian and oligopolistic system. The technologi-
cally democratic system consolidates its own domination and grants doses of
both managed freedom and instinctive repression to isolated individuals
through thousands of devices that are, at the same time, objects of desire and
social status—in terms of PageRank or ‘like’ buttons. Since the twentieth cen-
tury the consolidated democratic process gives an illusion of freedom that the
political scene, but especially the economic scene, uses to protect itself from
opposing, increasingly controlled, forces. The opposing voices themselves fight
for the protection of democratic freedom promoted from the control system:
“The loss of consciousness due to the satisfactory freedoms allowed by a soci-
ety without freedom makes possible a happy conscience that facilitates the
acceptance of its mistakes” (Marcuse 1987, p. 106).
Under the cultural-technological domain promoted by the oligopolies that
concentrate attention and entertainment (Google, Facebook, Amazon,
Netflix), the individual enters a vital uncertainty that is resolved, in a subtle and
sophisticated way, with two processes. On the one hand, the design of new
psychological and mediated needs (social recognition on the web as a personal-
ized PageRank) which feed intimate sensory drives in people and which are
transmitted through new cultural realities that end up occupying time—atten-
tion—which was previously destined to the development of cultural or leisure
activities. On the other hand, the new cultural platforms reduce the feeling of
uncertainty and relax the tensions of human contradictions. Through predic-
tive mechanisms, they anticipate the same uncertainty and give adequate
responses—in the form of goods to be consumed—to users who become
addicted to the services offered and at a low cost (such as Netflix’s rate).
Only in the anesthetized world, full of symbolic and technological scopol-
amine, can reggaeton, with its macho, violent and kitsch symbolism, become a
massive phenomenon. In the middle of feminist struggles, in times of social
outcry in a society without rights, in the face of the economic horizon plagued
with uncertainty about new forms of exploitation, can the song Despacito have
(in September 2019) more than 6.4 billion views on YouTube, a sample which
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 293

is equivalent to almost 83% of the world’s population. This is the power of

cultural homogenization.
The Internet and the acculturation model based on big digital platforms
displace the traditional antagonism between culture and social reality. The
antagonism is reduced to a controlled space under the metaphor of the protec-
tive interface. The interface protects us from monsters, and even from failure
or rejection in a relationship (Turkle 2019). The new homogeneous culture
ends up liquidating the complexity framework of the culture that is at least
two-dimensional (Marcuse 1987, p. 90).
The appearance of current cultural privileges, such as the mass access to the
same culture, provides a protected environment, in the interface, in which
some forbidden or censored truths survive under an abstract integrity. These in
turn are separated from the society that suppresses them. Mass access, at the
same time, generates the illusion that such suppression, censorship and prohi-
bition does not exist.
Individuals in virtual spaces copy models of the spectacle society and try to
build their own experience of fame and popularity with the tools that the inter-
face gives them. Its popularity and the popularity of its actions guided to please
others (Turkle 2019, p. 123) will be marked by the degree of superficial,
instantaneous, ephemeral media positioning that they obtain from their pro-
files. This ends with the possibility of transcending towards a new social subject
that uses the new open space with a vindictive mentality.
The happy world of the technological universe that controls user attention
represents the denial of dialectical, critical and historical thinking. Unified lan-
guage, accepted by the individual under the effects of sensory psychological
narcissism induced by the interface, by the ‘like’ button, is as anti-critical and
anti-dialectical. At the same time, the interface acts as memory. It classifies and
decides the images, the moments, the episodes that the individual can and
should remember and, of course, celebrate. External or Universal Serial Bus
(USB) type of memories are a terrible simile of the individual’s memory loss:
external to himself or herself. According to Carr (2011), the construction of
the simile of the USB, as an external and oriented memory, is related both to
the loss of one’s own cultural memory and to the capacity of society to portray
and narrate its own cultural memory through critical and creative artistic
expressions.

New Merchandise and New Jobs: New and More

Sophisticated Exploitation Forms
The year 2008 and its crisis, just at the height of the technological deployment
of large companies such as Facebook and Google, changed everything. Non-­
payment of services—before, rights—meant the end of well-being for millions
of workers and their families. Labour and social rights suffered in most coun-
tries of the globe. The scenario of the absence of rights and the economic crisis
294 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

that promoted cultural and political changes in favour of social transformation

in past centuries rears its ugly head at the end of the second decade of the
twenty-first century, which is seen as being socially misunderstood. In its rela-
tionship with the cultural challenge, the social force remains anesthetized by
television series that project dystopia in supposedly imaginary universes2 while
the same projected dystopia happens daily and without social criticism.
In the workplace, fully affected by both the digital reconversion of the work
universe and the resounding change in working conditions after 2008, there
are at least four situations that arise as challenges from a sociological point of
view: the transformation of society into a social factory; the change of labour
relations and the loss of rights by workers; the introduction of automation in
companies; and the absence of an educational framework adapted to the tech-
nological world of the twenty-first century.
The concept of the social factory (Tronti 1962) explains that the production
of all goods by all citizens reaches a higher level of penetration by integrating
social relations of production and consumption itself. In it, the whole society is
part of the process of producing goods for oligopolistic companies. In the
social factory, capital is concentrated in cultural production which, at the same
time, allows the user/consumer/worker to build a community identity through
access to goods produced also in a community way (Sussman 2017). For
Tronti, the whole society—digitally connected—acts according to the fac-
tory—technology company—and the factory extends its exclusive domain—
oligopoly—over society. It is a way in which class antagonism, far from
disappearing, is shown as an element that permeates all social activities, includ-
ing the dynamics of cultural development (Cleaver 1992), but remains a con-
trolled social drive under the framework of cultural production.
The prosumer or citizen participating in the era of freedom and the democ-
ratization of production is commercialized under their own conscience. Both
the time of the work carried out on technological platforms and the time of
non-work (leisure, entertainment, culture, communication) becomes free pro-
ductive work. Companies appropriate the work not paid to the citizen to gen-
erate new capital gains (Fuchs 2012) which, in addition, will be monetized
through products that the user will end up buying when they appear in the
form of advertisements in his or her daily Internet use.
The first element of labour relations in the digital economy, which is focused
on attracting attention (energy and user consumption actions), is structured in
such a way that the billions of users of technology platforms work free for oli-
gopoly giants. The capital of companies such as Google, Facebook and Amazon
is produced from the unpaid work (exploitation) of its users.
In the second element, for the labour scene in the digital universe, whose
symbols can be associated with the centralized factory (in the industrial society)
and with the decentralized call centre (in the information society), labour rela-
tions and rights have radically changed. The new business practices, which

2
See, for example, the Nosedive episode of the Black Mirror series on Netflix.
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 295

promote individual work, multitasking and 24-hour immersion in the company,3

also determine increasingly less community-based social behaviour.
Labour individualization has led to two operations depending on the type of
worker. In the first case, the salaried worker has lost the space for meeting,
conversation, collective creation and labour discussion with the other workers.
New work practices impair the feeling of ‘community at work’ and longer
screen time is demanded (Turkle 2019). Likewise, the new digital and more
digitalized companies require that their workers have a flexible schedule that
prevents them from dedicating their time to, for example, acquiring a new skill,
having or being with their family or administering an adequate rest schedule
(O’Neil 2017). The emphasis on data of companies, applied to controlling
workers and monitoring their production within the organization, ends up
undermining the possibilities of human development and prevents the con-
struction of a social fabric within the labour scene. Social individualization in
the company can also be understood as one of the main causes of the gradual
loss of working-class and social-democratic parties and unions in the political
life of Western democracies (Fernández-Rovira 2018), which have experienced
a significant fall in membership in almost all OECD countries.
In the second case, self-employed workers, often promoted by decentralized
technology platforms such as Deliveroo or Rappi, have fewer labour rights
(schedules, vacation time, living wages or social security). The logical economic
implication, moreover, is that autonomous workers receive a less-regulated fis-
cal burden and, therefore, public revenues reduce their collection capacities
(Moore 2019, p. 129).
Finally, the digitalized society rewards multitasking and points to those who
can perform several activities simultaneously as the workers best adapted to
technological change. However, investigations have shown that dedication to
several tasks in parallel decreases performance in all activities performed by the
individual (Wang and Tchernev 2012).
The introduction of digitalization and robotization in companies is the third
sociological factor that the information society imposes on the workplace. The
problem is not technology itself but rather the decisions taken by human beings
about the human factor. For example, in the case of the bank restructuring in
Spain in the post-crisis period and the automation of thousands of processes—
another example of decentralized work towards the worker—decreased the
number of employees from 277,311 in 2007, to 192,626 workers in 2018,
according to the Bank of Spain. The figures are paradoxical regarding their
earnings in the same period. According to the National Commission of the
Stock Market of Spain, between 2008 and 2018, Spanish banks obtained prof-
its of more than €100 billion and recovered, in the course of 2018, almost the
same amount of profits as 2008, the year in which the crisis began (Fig. 15.2).
Despite their profits and the economic recovery of their values, the Spanish
banks intend to continue with the employee layoff plan. While it is true that the

3
See, for example, the movie Sorry We Missed You (2019), directed by Ken Loach.
296 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

300000 25000

250000
20000

200000
15000
150000
10000
100000

5000
50000

0 0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Workers Profits

Fig. 15.2 Evolution of workers and profits in Spanish banking (2007–2018). (Source:
Author’s creation based on Bank of Spain and National Commission of the Stock
Market of Spain)

recovery of banking benefits may not have been possible with the number of
jobs in 2007, new data on recapture of benefits close to those before the crisis
should be considered before relating directly the automation of processes with
the dismissals of personnel. On the contrary, it presents itself as an opportunity
to use their workers in a creative and innovative way. The research, training and
development of new services can be key elements to maintain a good employ-
ment rate which is necessary, in addition, for the economy to function properly.
Finally, education in the twenty-first century needs to train users and future
professionals in competences related to data literacy and technological tools.
Future professionals need to be able to understand technology, to modify it
and to build new economic, social and cultural processes with the tools at their
disposal. For this reason, it is essential to understand the technology not only
as a communication interface. It is essential to know what is behind the screen
to be able to govern and control the algorithms that dominate the collection of
user attention and information. Knowing the processes and the operations
associated with them is the only way to handle the reproduction of the condi-
tions that make large technology companies dominate the most important
aspects of people’s daily lives.

The Irresponsible Use of Technology

In the economic and social spheres, the universe of the oligopoly of attention
creates different problematic situations that are typical of massive technological
environments. The problems are due to a new, more sophisticated stage within
the dominant economic system since the 1990s, namely digital capitalism
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 297

(Fuchs 2017). The challenges are associated with the behaviour of oligopolistic
companies which are related either to the universe of intangible goods pro-
duced by people for free or to the management of users’ intangible emotions.
The first challenge is: How do we put a tax on technology? Current tax
regulations leave out transnational corporations—not just technology compa-
nies—that benefit from having more flexible regulations in certain countries.
With respect to this problem, it is also worth asking whether there should be
regulation for the sale of data packages created by individuals who give up their
property rights, almost always unconsciously, on user-generated content
(UGC) platforms. At the same time, it is essential to raise a discussion about
the distribution of profits of the free work carried out by users—which gener-
ates wealth for the great platforms—which can be conceived as ‘time-attention’
and as specific actions that should be proportionally remunerated.
The taxation of large companies linked to the Internet should also be con-
sidered as a possibility for the reconstruction of a technological social contract
(Fernández-Rovira 2018). Their activities must be regulated under interna-
tional and/or state regulations, even more so when there is no control over
their activities—as evidenced by the case of Cambridge Analytica (Rawnsley
2018). Their identification and sanction as taxable markets or monopolistic
processes has only been applied in the European Union, with the case of
Google (Scott 2017; Hern and Jolly 2019).
The second challenge related to the responsible use of technology is defined
by the issue of addiction which it generates in users. The ethical feeling of
building an addictive consumer product—and one which already demonstrates
significant social and behavioural problems (Turkle 2019)—has generated
much rejection towards products created by the same inventors of the
technology.
Sean Parker, former vice president of Facebook, stated:

One of the objectives of Facebook was to consume the maximum time and con-
scious attention of the user, a leitmotiv conducive to the development of the
“like” button that gave users that dose of dopamine that governs the younger
generations of the 21st century. It is a feedback loop of social validation through
which it is possible to exploit a vulnerability in human psychology. (2017)

In the second decade of the twenty-first century, apparent freedom has

ceased to be rationalized through better living standards (Piketty 2014). Its
rationalization and internalization, sophisticated domination, occurs from the
individual’s psychological domain and psychological satisfaction through the
‘like’ button.
Justin Rosenstein, leader of the technical team that developed the Facebook
Pages application, as well as the ‘like’ button on the platform, declared that he
protects himself from the networks and from the button he created:
298 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

The “like” button is like a function of bright pseudo-pleasure alarms that can be
as hollow as seductive. The main intention I had when creating the button was to
make positivity the path of least resistance, and I think it succeeded in its objec-
tives, but also created great unwanted negative side effects. In a way, it was too
successful. (in Lewis 2017)

The ‘excessive success’ of the ‘like’ button dramatizes the universe of con-
trol over the very essence of humanity, which is contradictory and conflicting.
Within the social network, resistance is controlled through the happy narcis-
sistic loop, a button that measures the popularity of a publication, a person or
a subject.
The third challenge facing technology is the absolute invasion of the privacy
of individuals, as well as the intrusion into the user’s decision-making system.
Sherry Turkle (2019, p. 390) underlined a phrase by Mark Zuckerberg about
privacy: “Privacy is no longer a relevant social norm”, the creator of Facebook
confessed in an interview. For Turkle, however, no democracy can exist with-
out privacy.
Turkle also notes that the regime of happiness to which the user is subjected,
when using Internet applications, suggests that surveillance exercised by tech-
nology is a protective factor for the user. In social media, surveillance is similar
to social participation and the feeling of caring makes users lose their sense of
prevention against what the platforms hope to take from them. The individual,
in his sense of freedom within the network and inside his personal and appar-
ently intimate space, behaves like himself and contributes unadulterated data,
faithful to his own thoughts, to the benefit of the oligopolistic system (Turkle
2019, p. 396).
On the Internet, the individual is subject to continuous surveillance (Turkle
2019; Fuchs 2012). Surveillance, on the one hand, feeds and surpasses the
theory of Michel Foucault in which he ensures that one of the tasks of the
modern state is the promotion of a citizenry that monitors itself through a
camera that looks at everything (Turkle 2019, p. 395; Foucault 1979b), but
which is invisible in its dimension of power and control over the actions of the
individual (Foucault 1979a), which corresponds to the second dimension. In
it, the individual accepts “freely” the rules, or the contract of absolute surveil-
lance4 offered by the companies. Companies exercise an ideological control
focused on what the user can lose socially if he decides to abandon the applica-
tions. For Fuchs (2017, p. 542), commercial Internet platforms exert emo-
tional coercion on individuals to use their products. The more users use their
platforms under coercion and social pressure, the easier it is to reproduce that
coercion over other unconnected users.

4
Facebook’s privacy rules are available at: https://es-es.facebook.com/about/privacy. Amazon
rules can be found at: https://www.amazon.com/gp/help/customer/display.
html?nodeId=201909010
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 299

The space of intrusion in decision-making is no less disturbing. The freedom

of elections built from social networks, and from the big digital platforms in
general, can be understood as an illusion close to that of absolute interconnec-
tion or, even, to the possibility of belonging to the market. A market that, as
James Williams, former Google strategist points out, is centralized and con-
trolled in an absolutist way: “The information technology industry is the lon-
gest, most standardized and most centralized form of attention control in the
history of humanity” (in Lewis 2017).
For Williams, the framework of the attention economy also feeds on cre-
ation and impulsivity: “The attention economy encourages the design of tech-
nologies that attract our attention. In doing so, it privileges our impulses over
our intentions” (in Lewis 2017), a situation that has also forced the media to
join the impulsive, sensational information offer: “baits and entertainment to
survive” (Williams, in Lewis 2017).
It is precisely the logic of disinformation which is the latest sociological chal-
lenge that we have in the controlled market of the attention economy. Harsin
(2015) indicates that the regime of post-truth corresponds to the society of
control. In many societies, there is a change from the regime of truth to regimes
of post-truth, characterized by the proliferation of truth markets. In the con-
trol society, power exploits new freedoms to participate, produce and express
oneself, as well as consume, disseminate and evaluate. This corresponds to
post-politics or post-democracy, where the issues, speeches and capacity of
sociopolitical agency remain constrained. Post-truth regimes emerge from
post-democratic strategies that use data analysis to manage the field of appear-
ance and participation, through attention and affection (Fernández-Rovira and
Giraldo-Luque 2019).

Do Macro-Social Changes Affect Corporations as Well?

The challenges of technological change involve all social actors. No one can
avoid being part of the new digital economy. Billions of companies around the
world are trying to adapt their functionalities, their structures and their busi-
ness models to the new economic trends. But it is often thought that the ethi-
cal and human challenge of the digital transformation has nothing to do with
the challenges for private corporations. Nothing could be further from the
truth. Facing the challenges is the only way to be sustainable in the second
decade of the twenty-first century.
Each one of the problems described above reflects challenges for the cutting-­
edge business organization. The first of these is the awareness that they, as
technological subjects, are data producers and collectors. Corporations also
produce information at zero cost and can obtain, from their users, thousands
of data. Establishing new fields of business diversification based on the storage
and recycling of their own data and the data of their users/clients, in an ethical
and transparent way, can mark the beginning of new fields of competition on
the oligopolistic domain of information. Likewise, the ethical and transparent
300 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

use of users’ data will allow the strengthening of the relationship of trust
between the corporation and the citizen. Good data processing, a good that
will be increasingly valued, will guarantee a long-term relationship between the
corporation and the customer.
Secondly, corporations have the possibility of promoting new creative econ-
omies linked to culture and to the universe of proximity. Through them, and
the participation of citizens as an instrument of appropriation, it is possible to
curb the dominant cultural framework guided by the large digital entertain-
ment platforms. These actions also make it possible present alternatives to the
information oligopoly itself, which delimits the margin of technological and
cultural action.
The third challenge is the most relevant one: corporations must try to estab-
lish a new ethical social contract with humanity. The world of work needs to
promote new relations that guarantee social welfare and, at the same time,
lower rates of inequality that have increased, without stopping, since the mid-
dle of the twentieth century (Fuchs 2017; Galbraith 2019). The ethical social
contract poses four tasks that can be solved from the corporate universe. The
first task is the recovery of the rights lost by the worker, mainly from 2008.
Garbage contracts, legal loopholes, the demands of companies and franchises
to deceive workers need to be rethought by the corporations. Only by guaran-
teeing stable working conditions will the worker be able to develop a useful
productive life to motivate the economy and the profits of the company itself.
Likewise, the promotion of basic conditions of worker rights encourages the
scope of the second challenge: the corporate censure of the social factory, the
phenomenon that forces the individual to work consciously or unconsciously
beyond the working hours for a company.
The last two tasks have to do with the application of technological process
automation, especially those involving the replacement of human action by
robotic mechanisms, and with the strategic corporate commitment to training
its workers (current and future) in data literacy. In this sense, corporations can
finance strategic programs of dual education with universities or training cen-
tres, as well as ensure their own training plans. Once again, this type of action
can generate a greater commitment from workers to their corporation, while
promoting the social, ethical and educational projection of the organization.
Corporations, as a last challenge, need to turn to information and commu-
nication technologies, but they must always ensure a transparent, responsible
and ethical development of their business implementation. Of course, corpora-
tions must be in solidarity with the tax system of the territories where they
develop their activities and not take advantage of the flexibility derived from
the post-Berlin world to defraud taxes. But, at the same time, corporations
must be the first to demand payment (and to pay) for the commercial exploita-
tion of both user data and user-generated content on digital platforms. The
first company to pay the user for the use of their data will be a milestone in the
economic system of the twenty-first century.
 15 ECONOMY OF ATTENTION: DEFINITION AND CHALLENGES… 301

Corporations must also ensure the defence of privacy, being the first privi-
leged ones to do so. They must seek the protection of property rights, not only
of the material goods they, their workers and their clients produce, but also of
the intangible or cognitive goods produced by the corporation itself. They can
nurture a new culture of protection of the content produced by citizens in their
daily lives and promote a philosophy of rejection of corporations that take
unscrupulous advantage of them.
Finally, corporations, within a market economy, need to stand up and
denounce the practices of dominant position of technological companies. This
is the only way for them to maintain the belief that market economy is capable
of self-regulation when there are forces that put at risk their own free and fair
competition, as well as equal opportunities in an open and global economy.
The above challenges pose at least three research horizons. The first has to
do with the possibility of linking the economy of attention to the field of busi-
ness. The academy can explore the potential of different industries to make
better use of the data and information generated in the context of their sectoral
and territorial scope. The second stances the challenge of rethinking a new
social contract that guarantees the social welfare of humanity, in which technol-
ogy and information play a decisive role—if they move away from being tools
linked to the construction of cultural hegemony. The third line of research can
focus on the study of the business concentration of the digital economy and
how the Internet has also promoted inequality. In this line, the transformation
of the income of large technological companies based more and more on data
management than on the provision of services or goods can also be studied.

Conclusion: “Oh! I Touched My Phone 5,000

Times Today?”
The universe of attention, which implies dedication time and a conscious effort
on the part of the user to consume or create information or content—as an
asset in the information society—is consolidated as a vital centre of the econ-
omy in the twenty-first century. The transition from the construction of a
good, as the core element of the economic process, to the consumption of the
good, forces us to reconsider the consumption model of the good as part of the
production chain.
The main problem of the attention–work notion when applied to the pro-
ductive chain is that it is not considered work, as productive dedication by the
creators of the content. The new exploitation of the worker is not due to obe-
dience or the raw performance of a job, but rather is due to the instrumental
status that is forced on the individual which reduces them to the state of a liv-
ing thing (Marcuse 1987, p. 63). The description of the instrument—the algo-
rithm fuelled by human labour—as alien to itself and incomprehensible to the
human being is also replicated and celebrated by the same individual over the
302 S. GIRALDO-LUQUE AND C. FERNÁNDEZ-ROVIRA

other instruments that surround them. The irony is that the individual does
not understand the description of the instrument, yet venerates it.

Users dramatically underestimated their daily use (mobile):

“I will probably touch my phone 500 times today.”

“Oh!!! I touched my phone 5,000 times today?!”

However, few users were moved to make major life changes. Most needed
fewer than 10 seconds to go from shock to utter resignation. (dscout 2016)

The unconscious framework on the control of attention–work destroys the

most utopian panorama of a network society (Castells 1997, 2004) as a new
type of more complex, dynamic, but plural and inclusive economic relation-
ship. The digital world only introduces a new type of capitalist reproduction,
more sophisticated: a hegemonic ideology on consumer hardware and soft-
ware. Nobody wants to stop using the tools despite knowing that they are
addicted to them (dscout 2016).
Undoubtedly, the conscious framework on the exploitation of the individual
and their social and cultural homogenization is the first step. The reconstruc-
tion of the critical and cultural framework, which multiple voices have already
raised, is fundamental in achieving social awareness of the economic and cul-
tural control large technological companies have over us. Ethical questions are
being raised more and more by the same technology gurus in Silicon Valley
who now flee from technology and take their children away from it: They know
only too well the beasts they have created. And most certainly, they do not hear
Despacito at home.
The critical framework which is individual and collective, which develops its
own awareness about the productive process of information, and about the
domain of attention of billions of Internet users, is the only means to think
about and propose, through collective work and consensus, a new social (tech-
nological) contract.

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 CHAPTER 16

Is Stakeholder Capitalism the Answer?

From Global Financial Crisis to Unfunded
SDGs

Diana Piedrahita-Carvajal

Introduction
In this chapter, there is a review of the 2008 Global Financial Crisis and then
the explanation of the effects and spillovers of that crisis over monetary policy,
debt burden, and high valuation of assets around the world. These effects,
combined with demographic changes, inequality, and social unrest, have had a
profound impact on the capacity of the global economy to respond to another
recession and to fund the investments needed for the future in the SDGs, just
at the threshold of a digital revolution.
The main contribution of this chapter to Corporate Sustainability in the
Digital Era is that it presents the big picture in economic terms to give context
to make decisions. The back-forward analysis could give insights into how his-
tory and cycles are shaping the future at every level. With the accelerated pace
of the digital era, understanding those complex interconnections could help
prepare to respond to it.
It starts with the contextualization of the Global Financial Crisis and then in
its direct effects: ordinary policy tools exhausted, negative interest rates, huge
debt burden, and high valuation of assets in different markets. Moreover, it
presents some current structural trends like wealth concentration, income
inequality, demographic changes (social systems), low growth, dollar hege-
mony, trade wars, and the digital revolution.

D. Piedrahita-Carvajal (*)
Universidad EAFIT, Medellín, Colombia

© The Author(s) 2021 307

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_16
308 D. PIEDRAHITA-CARVAJAL

Finally, it presents the SDGs as the global framework to achieve and the
actual keys to doing it. The keys found in this chapter are the stakeholder per-
spective, the usage of technology, partnerships between players, and the recip-
rocal obligation of the people. Some examples presented are Business
Roundtable, sharing economy, fiscal and monetary policy coordination, and
sustainable finance.
This chapter has a dark view of the capacity and fiscal space to invest in a
more sustainable world but also remarks on how imperative it is to act on it
proactively. How this fight concludes will determine how able humanity is to
change the trend toward a more just, fair, and sustainable world.

Where We Came from: Global Financial Crisis

The subprime crisis had been the most significant debt crisis since the Great
Depression in 1930. As shown in Fig. 16.1, it was the combination of several
trends in the world economy that finally ended in the popped bubble of the
subprime mortgages market.
One of the trends was the financial benefits of the real estate investment,
especially home buying in a low-interest rate monetary policy expansion. On
the one side was the big profit from the rise in prices, with increases of more
than 80% during 2000–2006 (Dalio 2018, p. 174). This higher value of assets
increased the owner’s perceived wealth, inducing people with low solvency
ratios to buy real estate supported on the value of the assets. On the other side,
the lack of regulation allowed lenders to bet more aggressively in the market,
with lower mortgage rates, softer terms, and explosive securitization of lending
directed to subprime loans.
The US government’s housing policies and regulations also fueled risk-­
taking in home ownership with government-sponsored enterprises like Fannie
Mae, Freddie Mac, and the Federal Housing Administration (FAH). They sup-
ported the creation of 27 million subprime and Alt-A loans, many of which
finished in default and delinquencies. The sources of funding for mortgages
were 54% government-sponsored enterprises, 24% commercial banks, 13%
non-agency securities, and 4% savings and loans (The Financial Crisis Inquiry
Commission 2011, p. 69).
A moral hazard arose in the securitization of the riskier and profitable loans
because when the banks translated the default risk to the investors, there was
no incentive to maintain proper underwriting standards. Therefore, the finan-
cial innovation of the asset-backed securities fueled the funding in the sub-
prime mortgages and gave the investors a new financial instrument with higher
interest rates and AAA ratings.
Another trend was the historically low effective interest rate of the Federal
Reserve from 2002 to 2005 when it stayed close to 1%, as is shown in Fig. 16.2.
This low-interest rate made cheaper the buying of assets and generated an
incentive to leverage debt to invest, putting more pressure on the rise of differ-
ent kinds of assets, especially real estate.
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 309

Global Financial
Crisis

China Shock and

Lack of regulation Financial innovation Great moderation
high growth

Central Bank
Explosion of Generalized fall in confidence in the
Inclussion Omission success of the
securitization inflation
Monetary Pol.

Explosion of off- Conversion of Big demand of

High incentives to Loans to people Low and stable
balance sheet subprime debt to commodities
buy real state with low solvency inflation
securities AAA (CDO)1 (surplus OPEC 3 )

Controlled
Fannie Mae and Investment banking Structured CDS 2 without Growth current
macroeconomic
Freddie Mac with low regulation derivative assets regulation account surplus
volatility

Weak bankruptcy Low Solvency

Low interest rates
proceedings Capital Ratio

Credit agencies

Moral hazard

Fig. 16.1 Overview of the causes of the subprime crisis. (Source: adapted from Fixing
Global Finance (Wolf 2010). Notes: 1CDO Collateralized debt obligations (CDOs) are
structured financial instruments that purchase and pool financial assets and transform in
tranches of various mortgage-backed securities (The Financial Crisis Inquiry Commission
2011, p. 128). 2CDS Credit default swap. 3OPEC The Organization of the Petroleum
Exporting Countries is a permanent, intergovernmental organization whose objective is
to coordinate petroleum policies among member countries (Organization of the
Petroleum Exporting Countries OPEC 2017))

There was a generalized global fall in inflation, and the central banks carried
out their statutory mandate of fostering maximum employment with price sta-
bility. However, one reason behind that low growth of prices could be the
globalization of lower costs of production (especially workforce) in developing
countries, re-location of factories, employment in those countries, and prod-
ucts with lower prices in dollars.
Finally, the growth of commodities prices, the development of emerging
economies—as the BRIC1 and OPEC countries—and the subsequent high
demand for commodities contributed to generating substantial current account
surpluses in those emerging markets. That put enormous amounts of money
available to invest in the financial markets that rebounded in their liquidity and
pricing.

1
It is an acronym referring to the developing countries of Brazil, Russia, India, and China.
310 D. PIEDRAHITA-CARVAJAL

8.00

7.00

6.00

5.00

4.00

3.00

2.00

1.00

0.00
2008

2017
2000
2001
2002
2003
2004
2005
2006
2007

2009
2010
2011
2012
2013
2014
2015
2016

2018
2019
Fig. 16.2 Effective Fed funds rates. (Source: Board of Governors of the Federal
Reserve System (US) (2019b), Effective Federal Funds Rate [DFF], retrieved from
FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/DFF,
December 30, 2019)

In this context, after a monetary policy contraction cycle, all the mentioned
forces started to act. With higher interest rates, there was less interest in lever-
age debt to buy properties and higher debt service, real estate prices began to
fall. With the loss of wealth, defaults and delinquencies started to rise, espe-
cially in subprime mortgages, fueling the spiral of losses throughout the market.
With no historical data on the correlation between the losses in the suppos-
edly diversified mortgage market, the securitized market of Mortgage Backed
Security and (MBS), CDO began to fall, making huge losses across the market.
Then a credit crunch arises because lenders were scary and there was no clarity
of whom has who in their balance sheets increasing the devastating conse-
quences to the financial market.
Starting with the rescue of Bear Stearns in March 2008 and the fall of equity
prices and borrowing costs spiking, the investment banks were jeopardized.
Then the politically complex decision of bailing out Freddie and Fannie because
of their implicit government guarantee and lack of regulation increased politi-
cal scrutiny, social anger, and the limits of a complete legal authority to take
further actions. There was no backstop of the falling apart of the financial mar-
ket. In that context, the biggest bankruptcy in all times took place in September
2008, see Fig. 16.1.
The bankruptcy of Lehman Brothers represented a milestone for its size
(US$ 691 billion) and for the risk that generated across the whole system. An
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 311

Table 16.1 The largest bankruptcies in US history

Company Bankruptcy date Description Assets
($billion)

1 Lehman Brothers Holdings Inc. 09/15/2008 Investment Bank 691,1

2 Washington Mutual, Inc. 09/26/2008 Savings & Loan Holding Co. 327,9
3 WorldCom, Inc. 07/21/2002 Telecommunications 103,9
4 General Motors Corporation 06/01/2009 Manufactures & Sells Cars 91,0
5 CIT Group Inc. 11/01/2009 Bank Holding Company 80,4

Source: (New Generation Research Inc. 2019) Largest corporate bankruptcies http://www.bankruptcydata.
com Reprinted with permission

essential part was their interconnections and their role as a counterparty in

indexes and derivatives markets (Table 16.1).
In a market where trust is the key, losing the global faith in the system would
be devastating not only for the financial market as a whole but also for the
global economy. With the financial meltdown passing to the economy and
contagion risk materializing in investment banks, the US Treasury and the
Federal Reserve took a new approach to build a safety net for the system.
Despite the monetary policy expansion by the Federal Reserve, with liquid-
ity and lowering its Fed funds target rate from 5.25% to 0.25%, its capacity to
contain the contagion was in doubt. The change in the confidence of the mar-
ket began when the Federal Reserve started to print money to help the delever-
aging and directly purchased assets linked to the crisis as MBS, loans, and
treasuries. The main quantitative easing QE programs were QE1, purchases of
US $600 billion in November 2008; QE2, purchases of about US$1.1 trillion
in March 2009; and QE3, monthly progressive purchases in the European
sovereign debt crisis between 2012 and 2013.
In the end, in 2015, the Federal Reserve balance sheet was five times bigger
than before the subprime crisis, and the total amount in the balance was $4.5
trillion, almost 25% of the GDP of that year, see Fig. 16.3.

Shaping the Future: Crisis Effects

and Structural Trends

The relevance of the Global Financial Crisis relies on how it has drained the
resources needed to prepare for the digital transformation and for building a
sustainable world, as stated by the SDGs.
We want to explain the significant direct effects and those prevalent trends
that were fueled by the crisis (see Fig. 16.4).

Direct Effects of the Global Financial Crisis (GFC)

Ordinary Monetary Policy Tools Exhausted After ten years, the tools used to
navigate through the Global Financial Crisis and the European Sovereign Crisis
312 D. PIEDRAHITA-CARVAJAL

Trillion $ 5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Fig. 16.3 Federal Reserve US total assets (less eliminations from consolidation).
(Source: Board of Governors of the Federal Reserve System (US) (2019a), Assets: Total
Assets: Total Assets (Less Eliminations From Consolidation): Wednesday Level
[WALCL], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.
stlouisfed.org/series/WALCL. Retrieved from FRED, Federal Reserve Bank of St.
Louis. Retrieve 25 September of 2019)

Creating the
Future

Direct effects Structural

crisis trends

Monetary policy High valuation of

Inequality Low Growth Dollar hegemony Digital revolution
tools exhausted assets

Ubiquitous
Low interest Quantitative Wealth
Financial market Low productivity Fiat currency presence of
rates easing concentration
technology

Negative interest Huge debt Income Low Platform

Real State Low inflation
rate burden inequality diversification economy

Emerging
Increased Risk taking and
markets Fiscal loopholes Older society Trade War Sharing Economy
demand of AAA Low spreads
exposure

Low profits of Demographic Artificial

Excess Liquidity
Banks changes Intellingence

Sustainability of IoT and Smart

Social systems Cities

Fig. 16.4 Overview of crisis effects and structural trends. (Source: Author’s creation)
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 313

left the governments of the advanced economies exhausted and with no wiggle
room. The big question now is how they could respond if a new recession
arrives without space to expansion in the monetary policy and without the
budget capacity to inject resources through quantitative easing.

In terms of the monetary policy expansion, there have been low and even
negative nominal interest rates in the advanced economies, with these levels of
rates, central banks enter into a new reality.
The low level of interest rates and low short-term inflation expectations
could be structural and associated with three factors. One factor is demographic
with lower population growth product of low fertility rates with an aging pop-
ulation that increase the needed savings for a more extended retirement period.
A second factor is a slowdown in productivity growth. The third factor is the
financial industry’s practical demand for liquid and safe assets (pension funds,
insurance companies, money market, and reserves), which increases the com-
parative price of government securities for their liquidity (Committee on the
Global Financial System 2019, p. 47).
As far as quantitative easing is concerned, only in the United States, the
Federal Reserve has expanded its balance sheet from 870 billion to 3.8 trillion
in September 2019, see Fig. 16.4. This enormous amount of money has been
used and invested by the market in different assets around the world and could
probably affect their liquidity and valuation. The Federal Open Market
Committee (FOMC) began a balance shift normalization program in 2017,
but today there are still more than 3 trillion above the pre-crisis level.
As presented by the Committee of the Global Financial System, some of the
spillovers of unconventional monetary policy tools are extreme dependence on
central banks’ liquidity, low-interest rate margins, possible excessive risk-­taking,
disintermediation, and low bank profitability (Committee on the Global
Financial System 2019, p. 52).
The big question lies in how to promote prosperity with the actual fiscal and
monetary policy constraints. Moreover, if new kinds of tools are needed, and
these tools require a lot of creativity and will to create them, how will that
affect the power forces and risk aversion around the World?

Negative Interest Rates Policy (NIRP) It has been used since 2012 by seven
major central banks in Europe and Japan (Danmarks Nationalbank, Bank of
Japan, Magyar Nemzeti Bank, Bulgarian National Bank, European Central
Bank, Swiss National Bank, and Sveriges Riksbank).

The purpose of this policy is to increase the supply and demand for loans by
taxing the bank’s liquidity and lowering its financing costs. Nevertheless, the
flattening of the yield curve compresses net interest income, and the negative
rates on excess liquidity entail extra costs to the banking system (Cœuré 2016).
As highlighted by Boungou, evaluating the data from a panel dataset of 2442
banks operating in 28 European Union countries over the period from 2011
314 D. PIEDRAHITA-CARVAJAL

to 2017, negative interest rates have squeezed bank’s margins and contributed
to a reduction in its risk-taking (2019).
The negative funding rate in AAA securities implies a general rise in the
bond market, a problematic task fulfilling the investment promises of financial
companies (pension funds, insurers, and investment companies), an increase of
risk-taking looking for profits, and deserted auctions for lack of interest.
This long-term structural change combined with the Fintech disruption
posed an essential challenge to banks, pension funds, and insurers who might
have to rethink their business models.

Huge Debt Burden The world has experienced a big jump in global debt over
the last decade. On July 31, 2019, the global debt (public and private) was—at
an all-time high—of $250 trillion and represented almost 320% as a percentage
of GDP (Institute of International Finance 2019). The most important rise in
debt levels since 2007 comes from non-financial corporate and government
sectors.

In September 2019, the government debt sector reached its highest level in
peacetime; the big question is: Is it sustainable? Furthermore, could it go fur-
ther in the case of a new recession? In developed markets, the debt to GDP
ratio is higher than 100%, and in the emerging market, the ratio is close to 50%.
Comparing them historically, we could be crossing a reasonable threshold.
Whether this is a new normal or a huge bubble, only time might say.

High Valuation of Some Assets After ten years of monetary policy expansion
and quantitative easing in the advanced economies, one of the challenges is the
boost effect in asset prices and how to pursue normalization. On the one side,
the very cheap funding for more than ten years and full liquidity by central
banks; on the other side, asset managers looking for returns in different
markets.

As was highlighted long ago by Bernanke and Reinhart on the implications

of very low-interest rates, these might cause an increased risk of short-term
dislocation in financial markets (Bernanke and Reinhart 2004). Moreover, with
the unconventional monetary policy tools running for an extended period, the
possible side effects might become more severe.
There is a vast literature on monetary policy and risk-taking increase. For
example, in the funding side, Nakashima, Shibamoto, and Takahashi (2019),
using Japanese data, found that the interest rate cuts stimulate lending to less
solvent firms from highly leveraged banks (2019, p. 3). Jiménez, Ongena,
Peydro, and Salas (2013) found that “lower overnight interest rate induces
lowly capitalized banks to grant more loan applications to ex-ante risky firms
and to commit larger loan volumes with fewer collateral requirements to these
firms, yet with a higher ex-post likelihood of default” (2013, p. 1).
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 315

The debt market is trading at record low yields, and credit spreads are very
tight; that means that changes in prices are generating significant returns. The
numbers given by Kristalina Georgieva in the 2019 IMF Annual Meeting cur-
tain-raiser speech are impressive: nearly $19 trillion of corporate debt could be
at risk of default if a major downturn occurs (Georgieva 2019).
Nevertheless, the excesses are also abroad; the waves of financial flows to
emerging markets in direct and portfolio investments have been persistent
since the post-Global Financial Crisis. Historically, the emerging markets have
a persistent vulnerability when the reversal of flows finally occurs. As Carney
presents it, 20% of the surges in capital flows to emerging markets economies
have finished in financial crises, and the probability of experiencing a financial
crisis after capital flow surges is three times higher than in normal times
(Carney 2019a).
The economic outlook at the end of 2019 shows an expected slower growth,
as measured by real GDP (at Purchasing power parity (PPP) rates), in nearly
90% of the world (IMF 2019d). That means that the expected growth will fall
to 3%, the lowest since the Global Financial Crisis.

Indirect Effects Fueled by the Global Financial Crisis (GFC)

Dollar Hegemony The US dollar is the dominant currency since the Bretton
Woods era, 75 years ago. This dominance generates different kinds of spillovers
in the rest of the countries. The most important is that the financial cycle is a
dollar cycle. Shifts in the demand and supply of safe dollar assets drive move-
ments in exchange rates, bond prices, and financial quantities around the world
(Krishnamurthy and Lustig 2019).

Examples of the hegemony of the dollar would be: the US economy repre-
sents 15% of the global GDP and 10% of the world trade but accounts for 50%
of global trade invoices. As a preferred currency for funding, it also represents
two-thirds of the emerging markets debt and two-thirds of global securities
issuance. Finally, in terms of official foreign exchange reserves, it represents
two-thirds (Carney 2019b). So, it is the principal currency for funding (secu-
rity issuance and holding), a safe haven in risk aversion moments, a denomina-
tion of reserves of the public sector, and the preferred currency for trade.
The liquidity and deep of US capital markets and the lack of better alterna-
tives also explain why the US dollar is the principal fiat currency. That strength
generates US current account deficits, low-interest rates, and flexibility in ser-
vicing its debt in dollars in case of a crisis. However, its dominance exacerbates
the correlation of cycles between countries, diminishing the offer of safe assets
in different currencies and reducing the shock-absorbing properties of a flexi-
ble exchange rate world policy.
The capacity of the international monetary and financial system to evolve
and equilibrate these imbalances is vital. Examples of initiatives with the aim of
316 D. PIEDRAHITA-CARVAJAL

correct these exposures are the local currency bond market initiative or the
United Nations Conference on Trade and Development (UNCTAD) princi-
ples for responsible lending and borrowing.
Some could argue that it could be a switch from one hegemonic currency
(US$) to another with growing power (maybe the renminbi), but this does not
solve the actual imbalances. The suitability as a currency implies confidence as
a store hold of value, and as a medium of exchange, and so the different new
attempts must take into account both factors.
There have been several attempts to equilibrate the imbalances. One of
them is the digital currency Libra, which is backed by a reserve of assets in dif-
ferent currencies and based on the Libra blockchain technology (Libra
Association Members 2019). Its founding members come from businesses,
nonprofit organizations, and multilateral organizations, but its leader is
Facebook. The target is to launch it in the first half of 2020.
With the technological disruption in the Internet and mobile broadband,
the accessibility could be reached by billions of people. Some strengths of Libra
are the growing market of online commerce, broad Internet access, lower costs
of transactions, and a network that helps to create the baseline of the transac-
tions required.
However, because of the importance and the global implications of a pay-
ment system in the life of the people, there are severe doubts that a private
group as the Libra Association has on the proper incentives to protect the dif-
ferent challenges that this new system entails. Some of the challenges are pri-
vacy policies, antimonopoly ruling, anti-money laundering/combating
financing of terrorism, conflicts of interest between founding members, opera-
tional stability, regulations, among others.
Another doubt is the one raised by Mark Carney: Could this system create a
new synthetic hegemonic currency or a network of central banks digital curren-
cies that could reflect the more diverse world economy? Could this change of
currency structure diversify and disentangle the individual country cycles?
(Carney 2019b).
Some have argued that the International Monetary fund (IMF) has the
Special Drawing Rights (abbreviated SDR) that could evolve into a currency
supported by a portfolio of currencies. In 1969, the IMF created the SDR to
supplement their member countries with official reserves. A basket of curren-
cies composes the value of the SDR—US dollar 42%, euro 31%, renminbi 11%,
yen 8%, and pound sterling 8% (IMF 2019b).

Wealth Concentration and Income Inequality One unintended effect of quan-

titative easing has been that it increases wealth concentration and income
inequality. The connection with the past crisis could be that when the central
banks made the asset purchase programs, it pushed asset prices up, benefiting
principally those with more financial assets.
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 317

Although inequality between countries is improving and the number of

people living below the $1.9 per day (extreme poverty) is decreasing, the gap
between rich and poor is widening. This gap could be measured as wealth con-
centration and income inequality.
Using the United States as an example, there is a slower growth of income
and growing inequality since the 1970s (Stone et al. 2019). In wealth concen-
tration, the top 1% of the population is wealthier than 90% of the bottom
population combined (2019, p. 1). Furthermore, the gap is getting wider in
the last 30 years, with the concentration of wealth from the top 1 percent rising
while the share of wealth from the bottom 90% falling (2019, p. 1).
In terms of income inequality, two trends explain its actual values: income
concentration and widening inequality. As stated by Pikketty and Saez (2003),
the income concentration—from income statistics based on Internal Revenue
Service (IRS) data—at the top 1% has returned to 1920s levels and has risen
sharply since 1970.
In terms of widening inequality—annual estimation of the distribution of
household income and taxes from the US Congressional Budget Office—there
is a significant divergence between the growth of household income from the
top 1% and the average. The average household income before transfers and
taxes grew almost 60% from 1979 to 2016 (inflation adjusted), and the top 1%
of the income distribution grew 218% in the same period (Congressional
Budget Office 2019).
This tendency looks like a self-reinforcing feedback loop, especially in the
Fourth Industrial Revolution. In terms of returns on capital, the top wealthier
population will be the largest beneficiaries of innovation because they tend to
be the providers of capital, funding, and intellectual property.
In terms of human capital, a high investment in education is imperative to
meet the new market demand for highly skilled individuals. Still, that kind of
leverage normally could be afforded by countries/people that generally are not
at the bottom of the pyramid. However, the implementation of ultrafast 5G
could blend the real and the digital world through online classes and give bet-
ter odds to people to excel. Escalating remote learning interactivity could break
down some barriers and contribute to the quality of learning, facilitate the
increase of international volunteers as qualified teachers without displacing, or
reach isolated areas.
However, technology could also present threats to inequality. For example,
in artificial intelligence (AI), because the historical data available could have
biases based on gender, race, age, or other factors, it can generate results that
accentuate inequality (Stone et al. 2016).
Wealth concentration and income inequality have raised questions about
capitalism and its future. The impression of a new gilded age where many are
left behind is at the center of social unrest and polarization, and so new per-
spectives are needed to equilibrate the balance at every level.
318 D. PIEDRAHITA-CARVAJAL

Digital Revolution
The evolution of information, communication, and technology (ICT) is creat-
ing a new reality where the boundaries between physical and digital are fading.
This transformation is supported in the infrastructure built in the digital age
with transistors, computers, optics, and the open worldwide web. However, it
is the general adoption of technology changing the people’s habits and innova-
tions in usage that transforms into economic impact.
The phase of the general adoption of digital technology is impressive; 30
years from the creation of the World Wide Web, 53.6% of the global population
in 2019 is connected to the Internet, which is 4.13 billion people (International
Telecommunication Union 2019). Nevertheless, the possible connectivity is
even higher with active mobile-broadband subscriptions (smartphones) at 83
per 100 inhabitants (2019).
Another measure is how the irruption of the platform economy and its
superstar firms has changed the business landscape forever. Few platform com-
panies, such as Amazon, Airbnb, Facebook, Google, and Uber, dominate their
markets and produce high market concentration, principally because they are
more productive in their respective domains. Because of the use of technology
and mass scale from the platform, they create an economy of scale and low
labor share in profits. This new way to explain the fall of labor to GDP share in
profits is based on the idea that industries and markets are increasingly charac-
terized by a “winner take most” feature where one or a small number of firms
gain a substantial share of the market (Dorn et al. 2017).

0 50 100 150 200 250 300 350 400

Petrochina

Exxon Mobil

ICBC

Microsoft

China Mobile

Walmart

China construction Bank

Petrobras

Johnson & Johnson

Shell

Fig. 16.5 Largest companies by market cap 2009 (US% billion). (Source: Adapted
from Visual Capitalist https://www.visualcapitalist.com/a-visual-history-of-the-largest-
companies-by-market-cap-1999-today/)
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 319

0 200 400 600 800 1000 1200

Microsoft

Amazon

Apple

Alphabet

Facebook

Berkshire Hathaway

Alibaba

Tencent

Visa

Johnson & Johnson

Oil and gas Financial Technology Telecommunication General

Fig. 16.6 Largest companies by market cap 2019 (US% billion). (Source: Adapted
from Visual Capitalist https://www.visualcapitalist.com/a-visual-history-of-the-largest-
companies-by-market-cap-1999-today/)

The market capitalization of the platform business model of Amazon,

Alphabet, Facebook, Alibaba, and Tencent represents unprecedented success
in disrupting markets and then dominating them (see Fig. 16.5). Moreover, in
2009, there was only one tech company, Microsoft, in the top 10, but in 2019,
big techs take over 80% of the top companies, and 49% of them are platform
business models (Desjardins 2019) (Fig. 16.6).
At the end of 2019, new technologies are arising, and more market disrup-
tions are expected. Some of these new technologies are massification of AI,
autonomous operating machinery, communication using holograms and mul-
tisense media, digital twin (control of objects), Internet of Things (IoT), nano-
technology, quantum computers, blockchain, and genetics.
These changes represent opportunities and risks. For example, with AI and
the automatization of tasks, there is a potential to increase unemployment.
Nevertheless, new kinds of jobs are created and will need the workforce to
embrace new skills. In the LinkedIn Emerging Jobs Report 2020, the fastest
growing jobs from 2015 to 2019 in the United States were artificial intelli-
gence specialist with 74%, followed by a robotics engineer with 40% and data
scientist with 37% (LinkedIn 2019).

Demographic Changes and Social Systems After the highest jump in the world
population in history, its growth is decelerating at an unsynchronized rate
between countries. The world population increased from 1.65 billion in 1900
320 D. PIEDRAHITA-CARVAJAL

to 7.7 billion in 2019; over the last 100 years, the global population has more
than quadrupled (Roser et al. 2019). One notable trend is the population
aging, product of deceleration of growth due to low fertility rates and increas-
ing life expectancy.

The proportion of the old population is expected to double by 2050 (World

Health Organization 2018). With an anticipated decline in the working-age
population that reduces the social security contributions, the sustainability of
the entire system is in great danger. Pension and health care reforms are neces-
sary for many countries, but they represent a very high political cost for gov-
ernments to achieve.
These challenges denote a significant and growing expenditure for govern-
ments. For example in OECD countries in 2017 the public spending allocation
as percentage of country’s GDP were: old age expenditure (pensions and
elderly care 7% to 8%, health 6%, and family or incapacity-related benefits 2%
each one (Ortiz-Ospina and Roser 2020).
Social systems usually are not recorded as liabilities by countries. However,
if they were, the world’s total liabilities would be about 198% of GDP (Gaspar
et al. 2018). With the global debt (public and private) at an all-time high, these
imbalances are a source of vulnerability and maybe drag on long-term growth.
On the other side, given the fiscal consequences mentioned, it will also
affect the public and private savings. The expected increase of public pension
expenses is 1% of GDP in advanced economies and 2.5% of GDP in emerging
economies by 2050 with the current policies (Amaglobeli et al. 2019). That
trend could finish in a corresponding decline in public saving.
However, this reality is increasing the social anger and protest all over the
world. The sense that capitalism is no longer generating opportunities for all
and that the everyday individual effort for progressing will not be compensated
with a better future through education and work has broken the social contract.

Trade Wars In October 2019, the global economy was in a “synchronized

slowdown” at a GDP growth of 3%, which is the lowest rate of growth since
the Global Financial Crisis (IMF 2019c). The uncertainty about trade disputes,
the Brexit, and geopolitical tensions are some of the triggers of this slowdown.

In terms of trade disputes, the largest is between the United States and
China. In this negative-sum game, the possible losses of escalating the conflict
for businesses and consumers can be measured in the direct costs and the
expected secondary effects: loss of confidence and market reactions. The
International Monetary Fund estimates that the potential cumulative impact of
trade conflicts for the global economy could be around $700 billion by 2020
or about 0.8% of GDP (IMF 2019c).
These two countries represented 40% of the global GDP in 2018: the
United States, with 20.5 trillion, represented 24%, and China, with 13.6 tril-
lion, represented 16% (World Bank 2019). It is essential to highlight that since
China’s accession to the World Trade Organization (WTO) in 2001, its share
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 321

35%
US
30% China

25%
Share of global GDP

20%

15%

10%

5%

0%
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Fig. 16.7 Share of global GDP of China and the United States. (Source: World Bank,
World Development Indicators (2019). GDP (current US$) [Data file]. Retrieved from
https://datacatalog.worldbank.org/public-licenses#cc-by)

in the global GDP has gone up from 4% to 16%; that is, it has been multiplied
by 4, while the share of the United States has gone down from 31.7% to 24%;
that is, it has decreased by 25% (World Bank 2019), see Fig. 16.7.
Some reasons for the economic takeoff of China are the low production
costs, a populous country, cheap currency, heavy-handed state intervention,
diffuse technological know-how protection, and the state capitalism that has
jeopardized foreign competitors, known as “China Inc”. The sidestep approach
to WTO rules taken by China fueled the necessity to revitalize the WTO (more
than 70 years of expertise) and to improve the multilateral approach and align-
ment between trade partners (Blustein 2019).
Another critical issue is that China has one of the highest national saving
rates in the world, exceeding 40% of GDP since 2000 and peaking at 52% of
GDP in 2008, with a gradual decline after that (Amaglobeli et al. 2019). It was
the major foreign holder of Treasury Securities during 2018, having, on aver-
age, $1.16 trillion, increasing its position 163% since 2008 (Department of the
Treasury/Federal Reserve Board 2019).
From a historical perspective, trade has had a significant effect on the prob-
ability of military conflict. The openness to trade from countries could imply a
higher likelihood of going to war because multilateral trade openness decreases
bilateral dependence and, as a consequence, the cost of bilateral conflict (Martin
et al. 2008).
The international trade system has helped to build prosperity all around the
world, even though it has been unequal between regions. For example, the
annualized growth pattern of long-term development (GDP per capita) from
322 D. PIEDRAHITA-CARVAJAL

1950 to 2016 for the world was 345%, while for Africa was 193% and East Asia
almost 800% (Bolt et al. 2017).

Filling the Gaps: Where and How Are We Going

Understanding the challenging necessities and gaps, we need a different
approach towards a fairer and sustainable world. Inequality, the digital revolu-
tion, demographic changes, global corporations, environmental changes, and
lack of fiscal space from now on to fight downturns are too wide in scope and
need a broader commitment and shared responsibility from all parties.
This unique opportunity to tackle the need for a more sustainable world
economy at the entrance of the Fourth Industrial Revolution comes from dif-
ferent sectors: The framework created by a multilateral approach with the
SDG, the private sector with initiatives as Business Roundtable, the technology
sector with Vision 2030, or the banking sector with sustainable finance.
Government efforts through fiscal policy expansion and taxing changes redi-
rection, and conscious decisions from individuals to contribute as investors in
a sustainable finance or the sharing economy.

Multilateral Sector: Sustainable Development Goals (SDGs)

The most notable effort should be to accomplish the seventeen SDGs finally
adopted in 2015. The 2030 Agenda for Sustainable Development and the Paris
Agreement on Climate Change represent the highest materialization of multi-
lateral consensus. These two policies of global scope represent proof of the
benefits of multilateralism and the importance of the United Nations as a leader
to solve global challenges. These milestones represent a reinvention for sustain-
able development that meets the needs of present generations, respecting the
future rights of those to come.
The importance of the goals also matches with a considerable amount of
resources needed to reach them. In the World Investment Report 2014,
UNCTAD calculated that there is a gap of $2.5 trillion in the estimated annual
investments needed to achieve the SDGs (UNCTAD UN 2014).
Six years later, there is progress in almost every indicator worldwide, as can
be seen in the Sustainable Development Goals Report 2019 (UN 2019).
However, resource scarcity is one of the significant restrictions to achieve
SDGs. Some examples of the implications of the actual shortage are 10% of the
world’s people still live in extreme poverty (SDG 1.1), that is to say with less
than $1.9 a day (World Bank 2019), or that in 2018, 821.6 million people
were undernourished and the number is rising since 2015 (SDG 2.1.1) (FAO
2019). Alternatively, that 9% of the population have to practice open defeca-
tion with the impacts on water, health, and sanitation (WHO/UNICEF Joint
Monitoring Programme (JMP) for Water Supply and Sanitation (wssinfo.org)
2018). Another insurmountable barrier in the future skills needed for develop-
ment and equality may be access to the information and technology of
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 323

communications SDG 9.C, where in the least developed countries (UN classi-
fication), the average Internet use is 18%, while in OECD members, it is 82%
(International Telecommunication Union 2019).
Worryingly resources are declining, not rising. The multi-funding framework
is composed of international private finance (FDI, portfolio investment, interna-
tional borrowing, philanthropic resources, NGOs, and remittances), interna-
tional public finance (principally, official development assistance (ODA)), and
domestic finance (public, private, and donors).
The principal source of international funding, foreign direct investment, was
the lowest in 2018 since 2005 (OECD 2020), and without getting trade back
on track, the expectations of international private financing of SDGs seem
unrealistic. For example, the US tax reform implied the repatriation of resources
from foreign operations of American companies and had a direct effect on
global FDI and unknown consequences in the future reinvestment of foreign
earnings.
The other sources of international funding have different performance. In
terms of ODA, there is stagnation towards 0.31% of gross national income
(GNI), far below the 0.7% of GNI target (OECD 2018, p. 31). The funding
from remittances have been growing in relevance, becoming 25% of the total
funding in 2017 from 14% in 2000 (2018, p. 35). Finally, the funding from
international borrowing, after a boom in short- and long-term debt to devel-
oping countries from 2010 to 2014, of $561 billion (31% of share in total
funding) to less than half in 2015–2016 of $257 billion shows the debt burden
and vulnerabilities mentioned before (2018, p. 35).
As highlighted by the IMF in the Fiscal Monitor (2019a), in the case of low-­
income developing countries, international financial support is essential to
complement their efforts to meet the SDGs. The annual spending gap related
to infrastructure alone to reach their goals amounts to $358 billion after assum-
ing an increase in their taxes to GDP ratio of 5% over the next decade (2019a).
Nevertheless, with an already constrained budget in the advanced econo-
mies, the possibility and will to help and to diminish the inequality gap between
countries seem very optimistic. These gaps envisioned to be funded by aid
flows do not seem to be materialized as needed.
The SDGs are not exempt from criticism, either. First, there is no clear pri-
oritization, and that makes it difficult for resource optimization in those with
higher impact. Second, its broad coverage goes against being precise, easily
measurable, and attainable. Finally, the coordination of efforts between differ-
ent parties is vital to reach the goals with scarce resources.
Political will and change of values are necessary to confront the unequal
prevailing order in the economy, business, and politics as a whole. In the actual
order, the self-interest—in public and private sectors—remains the backstop
for achieving the goals. The sense of mutual obligation between people and
support of public-private partnerships (PPP) could be the key to how to work
together and also could optimize scarce public resources.
324 D. PIEDRAHITA-CARVAJAL

Before becoming daunting, it is essential to continue innovating and using

ICT to break barriers that today seem unbreakable. Examples like Bill &
Melinda Gates Foundation with its effort in vaccination and sanitation.
Vision2030 with wearables to measure health using AI. The Indian Government
initiative to distribute cooking gas subsidies using digital technology. All of
them inspire and create optimism to think different and sow the seed of
sustainability.

Private Sector: Business Roundtable

In this context, the private sector in the United States is trailblazing with the
Business Roundtable. In August 2019, 181 CEOs as business leaders redefined
the Purpose of a Corporation to Promote “An Economy That Serves All
Americans,” taking a broader vision of their responsibilities, measuring their
stakeholder (employees, customers, communities, and the environment) return
looking beyond the usual shareholder return (Business Roundtable 2019).
The new statement on the Purpose of a Corporation from Business
Roundtable (2019) is:

While each of our individual companies serves its own corporate purpose, we share a
fundamental commitment to all of our stakeholders. We commit to:

• Delivering value to our customers…

• Investing in our employees…
• Dealing fairly and ethically with our suppliers…
• Supporting the communities in which we work…
• Generating long-term value for shareholders, who provide the capital that
allows companies to invest, grow and innovate.
• Each of our stakeholders is essential. We commit to deliver value to all of them,
for the future success of our companies, our communities and our country.
(2019, paras. 4–6)

This statement is remarkable because shareholder (not stakeholder) value

has been the center of the corporate purpose and its economic and financial
decisions in the last 50 years. The focus on increasing shareholder value, grow-
ing profits, and optimizing resources is almost an axiom for financial theory
and capitalism. This new statement marks a direction toward stakeholder capi-
talism, far away from the free market economy and deregulation.
This long-term shift came as a response to social requests, environmental
change, technology disruption, and economic spillovers like slow growth, tax
loopholes, or wealth inequality. The journey toward sustainable and profitable
growth has started.
There is new evidence that firms with high purpose, clarity, and culture inte-
gration have systematically enjoyed a higher stock market performance and
results (Gartenberg et al. 2019). The real power is the use of business as a
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 325

platform for change, and how with the involvement of stakeholders, it could
become the norm, not the exception.

Private Sector: Sustainable Finance

The decline of trust in financial institutions, high penalties for misconduct, and
increased regulation in different countries after the Global Financial Crisis
mark a milestone in the principal asset of financial institutions: TRUST. A new
approach was imperative to restore confidence and reputation and to build a
sustainable culture that could work in the longer term.
These necessities, with the profound change from Fintech, paved the way
for another alignment from the private sector to the stakeholders and the SDGs
in the form of Principles for Responsible Banking.
In these principles, the banks make a compromise to align themselves with
the society, making their products and services clear and transparent to create
value for stakeholders: customers, investors, and community. They were
launched on 22 September 2019 by 130 banks from 49 countries, representing
more than US$47 trillion in assets during the annual United Nations General
Assembly in New York (United Nations Environment – Finance Initiative
UNEP FI 2019b).
Maybe, more important is the concrete actions settled with the Collective
Commitment to Climate Action led by 33 banks, also launched in September
2019, where there is an alignment of their operation, lending, and investment
with the objectives of the Paris Agreement on Climate (United Nations
Environment – Finance Initiative UNEP FI 2019a).
In this milestone, there is also regulation and soft regulation. One example
of this needed framework is the Taxonomy Technical Report released in June
2019. This taxonomy is a European Union classification system for environ-
mentally sustainable economic activities. It settles a list of activities that con-
tribute at least to one environmental objective (initially climate change
mitigation and adaptation) and do no significant harm to the other five, as well
as meet minimum social safeguards (Technical Expert Group on Sustainable
Finance 2019).
With this common language and rules, investors and managers could trust
in the investment and finance decisions that they take—about green, sustain-
able, and responsible—and with that could influence the corporation’s decision-­
making toward sustainable economic activities and their benefits. For example,
one of the possible funding strategies for the SDG is to produce investible SDG
assets for institutional and particular investors to give options to support the
achievement of the goals.
Some examples of the increasing types of instruments to invest in sustainable
finance are: Green bond market (individual bonds and fund), green loans, and
private equity firms with the compromise to environmental, social, and gover-
nance (ESG) matters. This change of values, incentives, and support from
326 D. PIEDRAHITA-CARVAJAL

different parties has created a virtuous circle toward the aim of decreasing
global warming and support sustainable finance.

Sharing Economy and the Hidden Power of Many

One revolution of the Internet is the rise of the sharing economy. The sharing
economy is the agreement between consumers to give temporary access to assets
with idle capacity, generally for money (Frenken and Schor 2017). At the center
of sharing economy is that it is beneficial to both parties generating profits from
resource efficiency, sustainability, circular economy, and community. This econ-
omy flourishes with the Internet because it allowed a sufficient scale where
unknown others share products/services through an online platform, with low
transaction costs and confidence (ratings) to make the transactions (2017).
The sharing economy generates a new paradigm about ownership because it
is not necessarily efficient to own assets, and some assets will have longer life
cycles. Almost every asset has excess capacity because the owner does not con-
sume the product all the time, and so the sharing economy unlocks the poten-
tial value of goods. For that reason, it could be crucial in sustainable
consumption because it allows consumers, aware of the importance of sustain-
ability, to easily choose more goods or services toward lower carbon consump-
tion, helping to achieve SDGs.
This new type of business represents a disruption in markets like education,
transportation, finance, hospitability, and the labor market. In the hospitability
industry, for example, in just ten years, Airbnb became a top contender, with 7
million listings worldwide, in 100,000 cities, and 500 million guest arrivals
(Airbnb n.d.). In the labor market, TaskRabbit (bought in 2017 by Ingka
Group—IKEA) focused on tackling domestic tasks like cleaning, maintenance,
assemble, or even taking Instagram photos. They have 140,000 Taskers in 50
cities across the United States, the United Kingdom, Canada, and France
(TaskRabit 2019). Alternatively, crowdfunding in creative projects with
Kickstarter has raised $4.7 billion, making true more than 470,000 projects
(KickStarter 2019).
However, there is a need to test the real impact on sustainability and carbon
reduction of sharing economy. As Mi and Coffman presents it, there is a mix of
empirical impact results, and more research is needed to inform evidence-based
policymaking (2019). Nevertheless, if several of these platforms generate
empirical evidence of real impact effects, policymaking must help them to
improve and reach new levels. These could be an example of how technology
creates the opportunity to align economic interests with sustainable ones.
Unfortunately, the sharing economy as the rhetoric of disruption and mar-
keting could hide problems. For example, in transportation, Uber (which has
small sharing economy participation in its portfolio in sharing rides) could be
creating more consumption of goods because some drivers buy a car to make
services. Alternatively, in the case of Airbnb, there is the possible rise in the cost
of living for local and longtime renters because of the reduction of housing
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 327

supply. One working paper in Social Science Research Network (SRRN) in the
National US market concludes that Airbnb listings increase small amounts of
rental rates and house prices, with a 1% increase in Airbnb listings associated
with a 0.018% increase in rental rates and a 0.026% increase in house prices
(Barron et al. 2018).
The policymaking around the world is trying to embrace sustainability but
limiting spillovers. Some examples are: limitations in days per year of home rent-
als (Amsterdam, London, New York, Paris, San Francisco, or Tokyo); minimum
rental period (Singapore) licensing or registration requirement (Barcelona,
Berlin, San Francisco), or even wholly banning them (Palma) (Guttentag 2018).

Public Sector: Fiscal Expansion and Taxing Changes

Fiscal Expansion With normal monetary policy tools exhausted and balance
sheets of central banks on its highest point, several voices argue on the need for
fiscal firepower. That means to get ready to deploy fiscal stimulus to accompany
the other central banks tools if the downside risk materializes and a new reces-
sion arrives.

The fiscal policy tools are increasing public spending or transfers and tax
reductions. The coordination of fiscal policy with monetary policy expansion
(named Monetary Policy 3) to boost growth in a recession does not come
without restrictions. It will be feasible only for countries with fiscal solvency or
without substantial vulnerabilities. The fiscal policy requires longer response
time and the challenging task of aligning the will of policymakers to growth
and sustainability objectives.
In those countries with limited fiscal space in terms of deficit and debt, the
market forces might not be confident in the feasibility of higher exposure;
because of that, the public investment will have to occur through budget re-­
composition. In countries with no fiat currency, the historical debt tends to be
lower, and their exposure to volatility in exchange rates (portfolio investment,
commodities prices, and external and foreign currency debt) increases their
vulnerabilities and ties their action possibilities.
Tackling this debt vulnerabilities in non-developed economies is imperative
to achieve the SDG. Some examples of the multilateral effort to build resilience
are the UNCTAD principles for Responsible Sovereign Lending and Borrowing,
sovereign debt restructuring mechanism, local currency bond market initiative,
or a well-endowed global climate disaster fund.
But with the pressing changes of technology, climate, and demography, a
reorientation of spending toward the coordination of fiscal policy with mone-
tary policy expansion is imperative in terms of raising long-term economic and
sustainable growth, which is crucial for a reduction in public debt burdens in
the future. In this case, the reorientation of spending is a must, leaving behind
corruption, bureaucratic structures, old subsidies, mismanagement of public
sector assets, and reforming the taxation toward more progressive taxation and
efficient allocation of resources.
328 D. PIEDRAHITA-CARVAJAL

Tackling corruption deserves a separate point. The fiscal costs and loss of con-
fidence in corruption are substantial for almost all economies. As was highlighted
by IMF Fiscal Monitor, April 2019, the least corrupt governments collect 4% of
GDP more in tax revenues than their peers with the highest levels of corruption
(IMF 2019a, p. 10). These crucial differences in revenues could create economic
growth and decrease inequality, which finally generates more revenues.

Taxing for Equality The funding of governments comes from taxes, which are
compulsory levies on individuals or entities to transfer wealth to fund public
expenditures, such as infrastructure, social safety net, health care, education,
national defense, law enforcement, and the court system.

Taxes are a crucial instrument to reduce inequality and foster long-term

sustainable growth through government transfers and directional expenses.
Taxes and transfers help in redistribution because they could increase dispos-
able income relative to market income (Joumard et al. 2012). Each country has
a tax model (amount of taxes, mix, and progressivity) that finances its welfare
system; therefore, it needs its taxpayers to achieve balance. With globalization,
the movement of capital and labor is more accessible, making the difference in
tax systems a source of competition.
There have been some growing concerns about how to control offshore tax
evasion, loopholes of different tax systems, base erosion and profit shifting, lack
of global coordination, and challenges of multinationals, mainly digital enter-
prises around the world. For example, Damgaard and Elkjaer (2017) state that
almost 40% of all foreign direct investment positions globally ($12 trillion) pass
through empty corporate shells with no real activity and low-tax jurisdictions.
Alternatively, as Tørsløv, Wier, and Zucman (2018) estimate, almost 40% of
multinational profits are shifted to low-tax jurisdictions each year globally.
Finally, a report from the Institute on Taxation and Economy Policy (ITEP)
(2019) observed that in 2018 after the US tax avoidance, 60 of America’s big-
gest corporations did not have to pay anything in their federal income taxes.
One vital effort to tackle this problem in a consensual way is the global tax
transparency standards and base erosion and profit shifting (BEPS) package by
OECD and G20 countries. This coordinated global framework has two inten-
tions: one is ensuring a minimum corporate income tax on Multinational
enterprise (MNE) profits and the other is restoring the credibility and stability
of the international tax system (possible overlaps and mitigate double taxation)
(OECD 2019). The OECD found in 2015 that BEPS practices cost countries
between $100 and $240 billion in lost revenue annually, which is equivalent to
4–10% of the global corporate income tax revenue (OECD n.d.).
Some countries are using a unilateral approach for the taxation of multina-
tional companies—Benin, France, India, Italy, Spain, Tanzania, Uganda,
United Kingdom, Zambia—but these uncoordinated measures could lead to
distortions and produce more international tax competition.
 16 IS STAKEHOLDER CAPITALISM THE ANSWER? FROM GLOBAL FINANCIAL… 329

Conclusion
Reaching corporate sustainability in the digital era depends on the navigation
of every individual (person, business, and country) in the macroeconomic
development of the system as a whole. That is why having the big picture from
the complex interconnections of the economy is necessary to make knowledge-
able decisions.
The search for equilibrium for the entire system—economy, environment,
and people—requires the courage of all to invest in a sustainable path of growth
so that today’s consumption does not leave the environment and the future
generations without resources to develop and freedom to make choices.
This sustainable growth implies new values and new approaches to over-
come present and coming challenges to the world as a whole. In this chapter,
we aimed to present and define some of the principal economic realities and
trends with high economic impact at the end of 2019, some of them the prod-
uct of the ten years old Global Financial Crisis, and how important it is to
respond to them properly.
The principal conclusion is that we are facing a knot in resources, leadership,
and values. In terms of resources, because to reach the SDGs with the new
needs from the Fourth Industrial Revolution, the gap to reach is of $2.5 tril-
lion (UNCTAD UN 2014). Now, in a synchronized slowdown, it has fewer
resources than needed to catch up with expectations.
The conventional monetary policy used to support growth is exhausted, and
there is an increase in the vulnerability of many countries, now with high bur-
dens in fiscal and private balance, leaving them, in some cases, without space to
invest or help others.
This lack of funds became a calamity in terms of wealth and income inequal-
ity. According to Oxfam (2019), “26 people owned the same wealth as the
3,800,000,000 people who make up the poorest half of humanity”. This eco-
nomic and moral failure has brought political consensus but no sufficient global
action, and with the technological disruption and the gap between rich and
poor getting bigger, this precarious position could make the system collapse.
Inequality is undoubtedly at the base of social unrest, lack of trust in institu-
tions, increasing nationalism, and populisms of all kinds. United to the actual
uncertainty—driven by trade wars, the Brexit, and geopolitical and religious
tensions—could be holding back the growth and the capacity to act in a holistic
pattern.
Public transfers have a significant impact on income distribution, especially
those focused on education, health care, and pension systems, ensuring that
universal public services could put a safety net that would provide a lower
bound to give similar opportunities to all. This proposal can be achieved only
with a global taxing system or a more coordinated taxing system with mini-
mum taxes paid by individuals and enterprises, and distributed efficiently in
terms of necessities, protecting them from corruption and avoidance.
330 D. PIEDRAHITA-CARVAJAL

However, there are attempts to build prosperity and sustainable growth.

The best example is the framework provided by SDGs, where the consensus
and implementation efforts could become a threshold for a generation that
needs and wants change. New values are needed to defeat greed and individu-
alism and build a more sustainable world for all. The principal attempt is the
shifting to stakeholder value from shareholder value, with examples as the latest
statement of the Business Roundtable or the necessary change represented by
the sustainable finance for the investment world, where profitability and
responsibility go hand in hand. Another attempt is sharing economy, where
unknown others can unit to find value in the unused goods or services and help
in the sustainability of the system.

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 CHAPTER 17

FDI Facilitating Sustainable Development

In and Out of an Emerging Market: Is Foreign
Participation a Necessary Condition
for Emerging Market Firms to Catch
Up Globally?

Yuanyuan Li

Introduction
In the second half of the twentieth century, two-thirds of the world foreign
direct investment (FDI) landed in emerging economies. Among these FDI
projects, the vast majority of them are efficiency-seeking and later-on market
seeking (Dunning 1993). Efficient-seeking inward investments tend to lock
emerging market firms into low value-added activities such as assembly and
simple manufacturing. These activities also pollute the local environment and
exhaust local resources. In other words, inward FDI was exploiting emerging
economies’ local resources, such as land and human labor, to realize its own
efficiency via the global value chain. Although inward FDI in emerging econo-
mies contributes to the overall advancement of the society by sharing modern
manufacturing technologies and managerial practices, it is still unknown
whether and how inward FDI in emerging economies affects the long-term
profitability and sustainability of emerging market firms (EMFs).
With the establishment of international corporate social responsibility (CSR)
instruments such as the Organization for Economic Cooperation and

Y. Li (*)
Rutgers Business School, Newark, NJ, USA
e-mail: [email protected]

© The Author(s) 2021 335

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_17
336 Y. LI

Development (OECD) Guidelines for Multinational Enterprises starting 2000,

more and more inward FDI entering emerging economies abide by the con-
cept of sustainable development. In addition, emerging market local actors,
such as policymakers and business leaders started to be more selective on
inward investors. They pay attention to environmental impact and technology
transfer aspects of the inward FDI, guiding local firms to keep up with the
global standard and catch up with industry leaders globally.
In this chapter, I intend to explore whether inward FDI fulfills the function
of technology transfer, as expected by supranational organizations, national
policymakers, and business sectors. The evidence to be shown in this chapter is,
as a response to the inward FDI, what is the business motive and location
choices of emerging market firms when conducting outward FDI. Usually,
strategic asset-seeking motive or choosing a developed country as FDI destina-
tion indicate a catching up intention of EMFs.
By focusing on the trend of strategic asset-seeking (also known as knowledge-­
seeking) FDI, this chapter fits into the overall theme of the book: the intersec-
tion among businesses, technology and social advancement by the year 2025.
In this chapter, I present a collection of evidence, between 2000 and 2014, the
changing trend of inward FDI in knowledge-intensive sectors, and the evolve-
ment of Chinese firms’ learning orientation in outward FDI. This is to analyze
how inward FDI facilitates the local businesses’ development, intentionally or
unintentionally, through knowledge transfer and spillover in an emerging mar-
ket context. This chapter also offers a prediction of strategic asset-seeking out-
ward FDI from China based on historical trends, indicating an increasing
impact of inward FDI in knowledge-intensive sectors and inward FDI from
developed countries.
This chapter contributes to the understanding of the effectiveness of inter-
national corporate social responsibility (CSR) instruments such as the OECD
Guidelines for Multinational Enterprises starting in 2000. With a period of
15 years, the evidence between 2000 and 2014, this research takes advantage
of the time span to analyze the hypothesized effect of multinational enterprises
on local ones’ development, especially the long-term development as this chap-
ter focuses on strategic asset-seeking outward FDI.
This chapter also contributes to the frontier scholarly knowledge on the
determinants of outward FDI from emerging markets. Prior literature on
emerging market multinational focus on the liberalization of outward FDI
policies (e.g. Sauvant and Chen 2014), government financial support, and state
ownership (e.g. Shapiro and Globerman 2012; Luo et al. 2010). While out-
ward FDI policy and direct support to outward FDI activities are indispensable
to the development of emerging market multinational, in this chapter I pro-
pose that inward FDI policies and guidelines, seemingly unrelated to outward
activities, might have an impact on local firms’ global expansion in the long run.
The rest of the chapter is organized as follows. In the next section, I will
offer key definitions related to general sustainability and business sustainability.
It will then be followed by a literature review on inward-outward FDI
 17 FDI FACILITATING SUSTAINABLE DEVELOPMENT… 337

relationships. After the literature review section, theories on inward FDI

knowledge transfer and spillover mechanisms are presented. Two hypotheses
regarding inward-outward FDI relationships in an emerging market context
are proposed after taking into account of OECD guidelines and Chinese
Catalogue for the Guidance of Foreign Investment Industries. In the method
section, data source and measurement schemes are explained in detail. This
research adopts Necessary Condition Analysis techniques to explore the rela-
tionship between condition X (inward FDI) and outcome Y (outward FDI).
The collection of data and summary statistics are illustrated before the results.
I conclude this chapter discussing the future trends of emerging market multi-
nationals’ business sustainability and practical implication of this study.

Definitions
One of the most broadly accepted definitions of sustainable development is in
the 1987 World Commission on Environment and Development (the
Brundtland Commission): Sustainability is “development that meets the needs
of the present without compromising the ability of future generations to meet
their own needs”.
Therefore, sustainability has a long-term focus. While it has a heavy focus on
environmental issues and humanity issues, business sustainability and competi-
tiveness is also a part of the concept.
Among the four business motives in internationalization (natural resource
seeking, market seeking, efficiency seeking, and strategic asset seeking), strate-
gic asset-seeking FDI has a long-term focus in sustaining investing firms’ future
competitiveness. Based on Dunning (1993), the strategic asset-seeking FDI is
to promote long long-term strategic objectives, especially that of sustaining or
advancing global competitiveness (e.g. augmentation of a global portfolio of
physical assets and human competences, which I perceive will either sustain or
strengthen their ownership-specific advantage or weaken those of competi-
tors). The term “strategic asset seeking” is interchangeable with “knowledge
seeking.” A more precise version of the definition by Dunning and Narula
(1995) refers that the strategic asset-seeking motive to the upgrade of techno-
logical assets through FDI in R&D facilities. Usually, the competence creation
mandate subsidiary has a strategic asset-seeking motive (Cantwell and
Mudambi 2005).

Literature Review
By reviewing the host country effect of inward FDI (IFDI) and the home
country determinants of outward FDI (OFDI), I try to understand whether
the factors in the host country’s effect and the elements in home country
determinants are intrinsically connected. As can be seen from above, IFDI has
an influence on local firms’ productivity via the evolution of tangible and intan-
gible assets which constitute the asset kind of O advantage (Oa). IFDI also
338 Y. LI

impacts the intermediate product and factor markets, which can potentially
affect the internalization strategy of local firms. Literature regarding interna-
tionalization related to emerging markets views inward investment as a contri-
bution to multinationality, the capacity to coordinate international resources
effectively and coherently (Ot), as inward FDI familiarize local firms with inter-
national markets (Luo and Tung 2007) and facilitate acquisition of foreign
knowledge and international experience without going abroad. Furthermore,
the institutional disruption literature argues that foreign entrants can possibly
reshape the institutional assets (Oi) of the environment local firms operate in
by influencing new legislation and introducing new codes of conduct, norms,
and corporate culture. Thus, it much follows that the factors in IFDI host
country effect largely overlap with determinants of OFDI.
The following section reviews literature directly dealing with the relation-
ship between inward FDI and outward FDI and summarize their influencing
channels.

Knowledge Diffusion Channel

Gu and Lu (2011) identifies a positive inward-outward FDI relationship when
the inward investment mode is co-investments. They define co-investment as a
business jointly owned and conducted by foreign and indigenous firms.
Co-investment, an analogy to an international joint venture, has a compara-
tively high level of communication and proximity between the foreign partners
and indigenous firms. In co-investment organizations, partners share profit and
risk together. Due to common interest and mutual understanding, the co-­
investment partners reduce competitive responses and increases substantial
information exchange. The connections between business partners facilitate
the transfer and diffusion of technical and managerial knowledge, which boosts
the local firm’s competitiveness in the long run. They summarize that the spill-
over effect of co-investment in a country increases the probability of its
OFDI. The spillover mechanism should be more salient in developing market
context. Mudambi (2008) argues that, as it is shown in the smiling curve, the
intangibles of both ends (R&D knowledge and marketing knowledge) from
advanced country MNCs fuel the catch-up process of emerging market firms
via original equipment manufacturer network. This should result in a higher
outward FDI propensity of local firms.
Ma et al. (2015) finds a negative relationship between foreign presence and
international expansion of indigenous firms. Similar logic as the IFDI spillover
effect, the presence of foreign companies allows local firms to gain access to
new and diverse knowledge, organizational skills, and capabilities. As outward
FDI can be costly, risky, and resource-intensive, local firms tend to avoid OFDI
if they are able to acquire strategic resources by collaborating with foreign
firms that operate at home. This concludes that high levels of foreign presence
can impede overseas investment by weakening the foreign expansion
motivations.
 17 FDI FACILITATING SUSTAINABLE DEVELOPMENT… 339

To sum up, factors in the IFDI host country effect largely overlap with
determinants of OFDI. The channels of IFDI influencing OFDI is through
IFDI technology transfer, knowledge spillover, and institutional diffusion. In
the following section, I attempt to discuss how IFDI affects O advantage of
local firms through the channels reviewed above, mainly technology transfer
and knowledge spillover.

Theory: The Knowledge Spillover Effect of Inward FDI

The impact of FDI on host country indigenous firms have been widely studied
in areas such as development economics, international business, technology
management, international management, political economy, and regional stud-
ies. In this section, I focus on the unintentional knowledge spillover effect of
foreign presence on indigenous firm capability advancement, which is regarded
as an economic externality.
The topic of inward FDI and knowledge diffusion could be traced back to
Dunning (1958)’s research on US investments in the United Kingdom and
later Richard Caves (1974)’s three channels of FDI productivity spillovers
(allocative efficiency, technical efficiency, and technology transfer). The litera-
ture on the IFDI influencing local firms’ capability building is inconclusive (see
a review of Perri and Peruffo 2016). Recent studies tend to focus more on the
demand side, namely the absorptive capacity of the local firms. However, with-
out available external knowledge on the supply side, discussing the absorptive
capacity of local firms is meaningless. The supply-side factors investigated in
empirical studies include entry mode of FDI (e.g. Blomstrom and Sjoholm
1999; Dimelis and Louri 2002; Javorcik 2004; Javorcik and Spatareanu 2008),
sources of FDI (e.g. Buckley et al. 2002; Buckley et al. 2007; Javorcik et al.
2004), and motives of investment (e.g. Driffield and Love 2007; Girma 2005;
Protsenko 2003).
The literature on the spillover effect of FDI recognizes that influence of
foreign firms from developed countries on the productivity and knowledge
stock of the indigenous firms in developing host countries through four main
channels: demonstration, competition, linkages, and employee mobility
(Blomström and Kokko 1998; Liu and Buck 2007; Perri and Peuffo 2016; Wei
and Liu 2006).
“Demonstration” effect arises as local firms are exposed to foreign firms’
activities. It then allows local firms to imitate the production, marketing, and
organizational practices (Blomström and Kokko 1998). The mechanism “com-
petition” occurs when foreign presence increases the competitive pressure on
domestic firms and pushes them to improve their innovation speed and magni-
tude (Liu and Buck 2007). The vertical linkages with foreign multinational
enterprises (MNEs), also known as backward and forward linkages in the sup-
ply chain, originates knowledge flow via the process of local suppliers and dis-
tributors’ adaptation to foreign MNEs (Jindra et al. 2009). Backward linkage
means spillovers from foreign-invested firms to their indigenous suppliers.
340 Y. LI

Employee mobility also facilitates knowledge spillover by indigenous firms hir-

ing works which were previously employed by MNEs. Employees as the knowl-
edge carrier would diffuse foreign techniques and technologies to local
employers (Glass and Saggi 2002).
Extending from FDI spillover literature, I intend to explore what motives of
IFDI generate more externalities in terms of knowledge diffusion and how that
affects OFDI activities of local firms. It is difficult to correlate IFDI with O
advantage accumulation of local firms without knowing the activities of
IFDI. Certain types of IFDI are slim in contributing to the competitiveness of
local firms. In order for technology transfer or technological spillover to take
place, foreign firms need to have a certain level of interaction with local firms.
Knowledge diffusion is a type of economic externality that happens between
specific foreign and indigenous firms, with some kinds of formal or informal
associations between the two required (Morrissey 2012). That is to say that not
all types of FDI have spillovers. Different motives for inward investment vary
in knowledge content and their interaction with local firms, which affects their
knowledge diffusion in the local environment.

The Motives of Inward FDI and Knowledge Spillover

Generally, there are four types of FDI identified by IB literature, namely natu-
ral resource seeking, market seeking, efficiency seeking, and strategic asset
seeking (Dunning 1993). Foreign firms out of natural resources seeking, local
market seeking, and efficiency seeking will have limited interaction with local
businesses. In the early stage of IFDI, foreign firms tend to establish a repre-
sentative office to facilitate trade flows between the home and host countries.
In addition, some developing countries have export processing zone, in which
foreign enterprises import intermediate products and use cheap local labor to
do assembling work and then export the final product (platform FDI). These
trade-supportive and platform FDI have limited knowledge spillover to the
local environment. Rodriguez-Clare (1996) suggested that if foreign-invested
firms do not source locally, the FDI could create an “enclave” economy and
hurt the indigenous firms. A recent study by Cantwell and Smeets (2013)
found strong positive productivity spillover for an asset-seeking type of FDI,
suggesting that the active R&D activities and intense interaction with local
entities in order to tap into local knowledge pool actually enlarge the learning
potential for indigenous firms. Subsidiaries involving technologically creative
tasks positively contribute to the development of the host economy (Marin and
Sasidharan 2010). Conversely, externally controlled plants are often character-
ized by low degrees of local integration, thus having a little or negative devel-
opmental impact on host countries (Watts 1981).
The reason why knowledge-intensive IFDI brings more spillover is because
of (1) its technological leadership position in an industry/knowledge field and
(2) its local embeddedness causing co-evolution of local and foreign firms’
knowledge base.
 17 FDI FACILITATING SUSTAINABLE DEVELOPMENT… 341

Technology Leader Effect

Although Girma (2005) and Driffield and Love (2007) argue that technologi-
cal laggard tends to pursue knowledge-seeking FDI and therefore is less likely
to induce knowledge spillover to the local environment, Cantwell and Smeets
(2013) argue that, due to tastiness nature of knowledge (Kogut and Zander
1993), those capable to identify, assimilate, and exploit knowledge (Cohen and
Levinthal 1989) tend to seek knowledge. Berry (2006) explains that laggard
firms lack the absorptive capacity to understand advanced knowledge and also
lack of skills to transfer knowledge back to the MNE system. Therefore,
knowledge-­seeking FDI does not make sense for a laggard to carry, let alone
that knowledge-seeking FDI is more costly than competence-exploiting FDI
(Cantwell and Mudambi 2005). After confirming that it is the technological
leader that conduct knowledge-intensive FDI, it argues that knowledge leader
tends to have more knowledge spillover in the host location than technology
laggard. Tong and Hu (2003) found that foreign firms originating from tech-
nologically advanced countries are associated with more productivity spillover
in the host country than those from regions with comparatively low techno-
logical competence such as Hongkong, Macao, and Taiwan.

Local Embeddedness of Foreign Subsidiaries

The reciprocal nature of knowledge creation requires local embeddedness of
foreign firms when seeking knowledge in the host location (Cantwell and
Smeets 2013). In order to benefit from learning feedback, MNE subsidiaries
need to tap into the local knowledge base. This subsequently benefits local
firms for foreign knowledge exposure (Cantwell 1989). Geographical proxim-
ity stimulates face-to-face interactions and expedites the transmission of knowl-
edge (Jaffe et al. 1993). Learning and demonstration effects are more effective
among agglomerated firms (Barrios et al. 2006; Driffield 2006; Thompson
2002). More local embeddedness generates more spillover (Beugelsdijk et al.
2008). Spillover is actually an outcome of strategic games between the involved
parties including foreign-invested firms, indigenous firms, and host country
governments. Multinational firms need to adapt their technologies to the local
environment. This adaptation is also a continuous learning process.
Accompanied by the gradual localization process, more “learnable” knowledge
might be available to indigenous firms. Moreover, the increasing embedded-
ness into the host country environment may also broaden the scope and
strengthen the intensity of the interaction with indigenous firms.
342 Y. LI

Hypothesis Development

Chinese Catalogue for the Guidance of Foreign Investment Industries,

from 1995 to 2011
In order to make sure inward FDI activities not impeding the development of
the domestic economy and stability of the society, the Chinese government
issued the Catalogue for the Guidance of Foreign Investment Industries in
1995. The Chinese catalogue for the guidance of foreign investment industries
(the Catalogue) experienced several major updates since 1995. The catalogue
is updated in 1997, 2002, 2004, 2007, 2011, 2015, and 2017. In this cata-
logue, the Chinese government gives guidance on which industries are (1)
encouraged, (2) permitted, (3) restricted, and (4) prohibited. This catalogue is
important in shaping the inward FDI industry distributions because the cata-
logue is the basis on which the Chinese government approves inward FDI
projects.
The first major provisions to the Catalogue took place in 2002, as a response
to China joining WTO in 2001. In these provisions, China encourages greater
geographic dispersion of inward FDI and more FDI inflows to several indus-
tries including agriculture, resource exploitation, infrastructure, and environ-
mentally friendly and high-technology industries. R&D centers related to
bioengineering, new materials, aerospace, and renewable energy are welcome.
The encouraged list was expanded from 186 items to 262 items, while the
restricted list shrank from 112 items to 75 items. Several prohibited items, for
the purpose of protecting local infant industries, such as telecommunication
and general intermediate industrial products, started to be open to foreign
investors. In order to facilitate the economic development of inland provinces,
the provisions encouraged FDI inflow to southwest and northwest regions.
In the 2007 amendment, the Catalogue further encourages high-­technology
industries, to accelerate the pace of the domestic industry and economic
advancement, to enhance knowledge assimilation and independent innovation
by indigenous firms. The Chinese government has a strong intention to associ-
ate industrial restructuring to inward FDI. Machinery, transportation vehicles,
and pharmaceutical industries are among the top list of encouraging items. At
the same time, China started to prohibit foreign investors to mine nonrenew-
able resources including wild lives and endangered plants. More importantly,
the Catalogue eliminates the special support for export-oriented foreign busi-
nesses, switching policy focus from subsiding export processing zone to
encourage technology-based foreign manufacturing interacting with local
enterprises.
As it is mentioned in the theory section that IFDI or foreign entrants are
heterogeneous in nature and this is one of the reasons that we observe variation
in FDI spillover to the local economy. Borrowing from Cantwell and Smeets
(2008)’s productivity spillover from competence exploiting subsidiaries and
competence creation subsidiaries, I argue that asset-seeking IFDI has more
 17 FDI FACILITATING SUSTAINABLE DEVELOPMENT… 343

knowledge spillover to local firms and equipped local firms with the more
absorptive capacity to acquire more advanced knowledge from more techno-
logical advanced locations.
Strategic asset-seeking OFDI oftentimes is realized in competence creation
mandate, meaning subsidiaries are supposed to generate new knowledge
(knowledge at least new to the parent firm) in the host country. A prerequisite
of developing new knowledge with host country resources or learning from
host country firms is the subsidiary being able to understand the knowledge in
the host country and exploit it in its own organizational context. Absorptive
capacity affects a firm’s confidence to participate in more risky investment
activities and aspiration in upgrading firm resources and utilizing developmen-
tal opportunities in the environment. IFDI prepares local firms with the absorp-
tive capacity via four main spillover channels in the IFDI host location. The
four main channels, namely demonstration, linkages, competition, and
employee mobility, function better when IFDI is conducted by a technological
leader and this technological leader interacts with local firms sufficiently.
H1 Colocate with Inward FDI (foreign entrants) in knowledge-intensive
industries increases the likelihood of emerging market firms seeking strategic
assets abroad.

OECD Guidelines for MNEs, 2000 and 2011

OECD Guidelines for Multinational Enterprises so far has two versions, 2000
one and 2011 one. The guideline is to “strengthen the basis of mutual confi-
dence between multinational enterprises and the societies in which they oper-
ate (OECD, 2000, 2).” In the 2000 version, there is a one-page section on
Science and Technology. The five bullet-point guidelines in the 2011 version
are the same including the commentary contents. The general guideline is to
encourage MNEs, when intellectual property rights are protected, to conduct
knowledge transfer in the host country, to facilitate the development of host
country local and national innovation capabilities, and to contribute to the
“long term development prospects of the host country (OECD 2000, 36;
OECD 2011, 55).”
OECD guidelines correspond with the technology spillover channels: dem-
onstration, linkages, and employees. The demonstration aspect is related to the
second and fourth bullet points: respectively, “Adopt, where practicable in the
course of their business activities, practices that permit the transfer and rapid
diffusion of technologies and know-how, with due regard to the protection of
intellectual property rights.” and “When granting licenses for the use of intel-
lectual property rights or when otherwise transferring technology, do so on
reasonable terms and conditions and in a manner that contributes to the long
term sustainable development prospects of the host country.”
The linkage aspect is related to the following: “Where relevant to commer-
cial objectives, develop ties with local universities, public research institutions,
and participate in co-operative research projects with local industry or industry
344 Y. LI

associations.” The training of the employee aspect is: “When appropriate, per-
form science and technology development work in host countries to address
local market needs, as well as employ host country personnel in a science and
technology capacity and encourage their training, taking into account com-
mercial needs.”
While China is not part of the adhering governments, multinational enter-
prises from OECD guidelines–adhering countries entering China are expected
to follow the guidelines. These countries are mainly OECD members.
IFDI from developed countries tends to have knowledge spillover to indig-
enous firms. This spillover is usually context-specific, making an indigenous
firm more exposed and gradually locked in the logic of where the knowledge
was initially developed. As innovation literature mentioned, knowledge is local-
ized and context-specific, which also indicates that one location contains its
specific knowledge base and expertise (Jaffe et al. 1993). The path dependence
or incremental nature of knowledge development creates clusters and attracts
even more foreign firms with a similar background (Li and Bathelt 2019). The
process of FDI also facilitates the emergence of agglomeration in the host loca-
tion. When FDI first comes to a location, foreign firm diffuses knowledge to
local partners and competitors. Gradually, centered by the foreign firm, more
and more firms with similar knowledge base invest and cluster in the region,
making the region specialized in a technology field (Cantwell 1995).
H2 The proportion of a city’s inward FDI from a specific country increases the
extent of the city’s outward FDI projects to that country.

Methodology

Data and Sample

We use a collection of evidence from an emerging market context, China,
where inward and outward FDIs both are limited since starting of the second
half of the twentieth century and grew significantly over the years. This allows
me to have enough empirical evidence and time span to test whether inward
FDI has an impact on emerging market firms’ outward FDI, and how does
inward FDI affect the sustainable development of emerging market firms.
In addition, the regional disparity in economic development and institu-
tional diversity among provinces in China creates a natural lab to test how these
differences affect subsequent economic and social development. For the pur-
pose of this research, the regional differences in inward FDI quantity and
industry distribution provide an empirical basis to establish potential causal
relationships. In addition, China has a pro-learning environment in which local
firms have a strong incentive to learn from foreign firms for performance
increase (Xia et al. 2014; Li et al. 2017). Therefore, the inward-outward FDI
relationships can be more obvious and established in China than elsewhere.
The inward FDI sample used in this study is from the Statistical Bureau of
China, while the outward FDI projects are collected from the Ministry of
 17 FDI FACILITATING SUSTAINABLE DEVELOPMENT… 345

Commerce of China. On the inward FDI side, I use the provincial and munici-
pal statistical yearbook for inward FDI in each industry and calculate the per-
centage of inward is in the knowledge-intensive industries.
Statistical Bureau of China started to collect information in the early 1950s,
near the establishment of the People’s Republic of China in 1949. Ministry of
Commerce of China documented outward FDI projects (OFDI directory)
starting 1983 after China released its Open and Reform Policy, which intends
to welcome the market economy to its socialist regime.
The OFDI directory contains 24,228 Chinese outward FDI projects from
China between 1983 and 2014 across 31 provinces in 180 host countries/
regions. For the purpose of this research, I eliminate tax haven cases such as
Hong Kong, Macau, Bermuda, British Virgin Islands, Luxembourg and so on,
which is a common practice for FDI studies (e.g. Anderson and Sutherland
2014; Shi, Sun, Yan, and Zhu 2017) because investment in a tax haven is
largely foreign portfolio investment and does not involve any actual business
operation. After eliminating tax haven cases, there are 16,338 projects.
This dataset includes parent firm name, subsidiary firm name, host country,
home province, project approval date, and business activities in the host coun-
try. Based on the business activities in the host country, I code the FDI motives
into natural resource seeking, market seeking, efficiency seeking, strategic asset
seeking, trade-supportive investment, and management-supportive invest-
ment, based on Dunning (1993). These business activities in the host country
are reported by the managers of each firm to the Ministry of Commerce when
pursuing project approval.

Measurement
Knowledge-intensive inward FDI is measured as the amount of inward FDI
stock in knowledge-intensive industries in a given year of a province.
Knowledge-intensive industries in China include scientific research and tech-
nology services, research and experimental development, professional and
technical services, technology promotion and application services, information
transmission, software and information technology, telecommunications, radio
and television and satellite, internet and related services, and software and
information technology services. First, all 31 provinces are included in the sam-
ple. I then collect province-level inward FDI stock for each of the province
between 2000 and 2014 in which the first strategic asset-seeking FDI starts in
2000. I collect inward FDI stock for each industry. Second, I aggregate inward
FDI stock for these industries. Tibet has limited information in inward invest-
ment, possibly because Tibet attracts a limited amount of inward FDI. So 30
provinces are presented in the following regional distribution.
Location quotients of a specific country, a measure that calculates the relative
importance of FDI country to a city among FDI countries in all cities. For
example, the United Kingdom occupies 0.2% of all inward FDI in Tianjin,
while, in all cities (aggregates), the United Kingdom accounts for 0.4% of all
346 Y. LI

inward FDI. Therefore, the location quotients of the United Kingdom in

Tianjin is 0.2/0.4=0.5. The value below 1 usually means that this country is
not dominating.
Strategic asset-seeking outward FDI is a type of FDI project with a long-term
orientation and developmental goals. I first coded strategic asset-seeking out-
ward FDI based on documented manager self-reported business activities in
the host country. Firms conducting strategic asset-seeking FDI usually report
establishing research and development centers in the host country, seeking
technological knowledge, reserve, or attract talents/human capital in the sub-
sidiary or the parent firm. Typical examples of strategic asset-seeking FDI
include new project development in telecommunication, new technological
component development, new drug development; development of computer
software and digital programs; development of medical devices, design of opti-
cal instruments; gather information about new technology, talent, and new
human resources introduction to the organization; and seeking technical con-
sultancy in the host country.
Strategic asset-seeking outward FDI measured as the number of strategic
asset-seeking outward FDI projects in a given year of a province or a city. Out
of the 16,338 outward FDI projects, there are 1573 strategic asset-seeking
projects. These 1573 projects are scattered among 31 provinces between 2000
and 2014, with a general regional distribution as below. For hypothesis 2, I
select 14 representative cities (similar to the approach of Bathelt and Li 2018,
2019) to conduct city region analysis. Among these 14 cities, there are 7112
outward FDI projects, among which 823 projects are strategic asset-seeking
outward FDI projects.

Empirical Model
In order to test the hypotheses, this research adopts a necessary condition
analysis (NCA) developed by Dul (2018). Necessary condition analysis facili-
tates answering a certain type of research question: whether A is a necessary but
not sufficient condition for B to happen. In our hypotheses, I intend to study
whether inward FDI in knowledge-intensive industries is a necessary condition
for emerging market firms to catch up with global industry leaders. In other
words, inward FDI in knowledge-intensive industries might not be a sufficient
condition, meaning that there are other factors such as firm size, firm age, and
firm international experience, and so on that are affecting a firm’s decision in
engaging in strategic asset-seeking outward FDI. However, I propose that
inward FDI in knowledge-intensive industries is a necessary condition for
EMFs to initiate strategic asset-seeking intent, meaning that without being
embedded in a region with a significant volume of inward FDI in knowledge-­
intensive industries, firms will not embrace the vision of seeking strategic
assets abroad.
NCA only involves the variables of interests, so there is no need for adding
control variables such as firm age and firm size, and so on. This allows me to
 17 FDI FACILITATING SUSTAINABLE DEVELOPMENT… 347

use the full 16,338 outward FDI sample for this research purpose without los-
ing observations due to dataset merge for acquiring control variables.
Furthermore, I test hypothesis 1 at the province level and hypothesis 2 at the
city level to avoid nested data issues. In NCA, the traditional independent vari-
able is called condition X, while the dependent variable is named outcome Y.

Empirical Evidence and Results

Data Trend (Summary Statistics)
The overall trend of outward FDI from China, the strategic asset-seeking motive
change across time and province.
Chinese OFDI breaks down into three major motives: natural resource
seeking (NR), market seeking (MA), and strategic asset seeking (SA). Overall,
Chinese OFDI did not take off until early 2000, with no strategic asset-seeking
motive before the year 2000. Strategic asset-seeking OFDI has a steady grow-
ing trend and exceeds natural resource seeking OFDI in 2013. With this
momentum, we can expect an increasing trend of strategic asset-seeking OFDI
in the future years, certainly lasting till 2025.
By the end of 2014, most of the strategic asset-seeking OFDI was from the
east coast, namely Beijing, Shanghai, Jiangsu, Zhejiang, and Guangdong
Province.
Out of the 16,338 outward FDI projects, there are 1573 strategic asset-­
seeking FDI projects in the host country. Below is a collection of strategic
asset-seeking outward FDI host country profile. The first 20 host countries
occupy 85% of the total number of projects in strategic asset-seeking out-
ward FDI.
The east coast, mainly referring to Shanghai, Zhejiang, and Jiangsu prov-
ince, of China is still going to be the main force of strategic asset-seeking
OFDI. The first runner-up region is the North including Beijing, Tianjin. The
west regions still need more stimulations in order for local firms to catch up
even domestically.
Seven out of the top 10 provinces, Jiangsu, Beijing, Zhejiang, Liaoning,
Shandong, Shanghai, Hubei, overlap between inward FDI and outward FDI
provincial profile. I then suspect a strong correlation between inward FDI and
outward FDI activities. However, the correlation does not identify a causal
relationship; therefore, I use NCA to predict whether inward FDI is a neces-
sary condition for outward FDI in the case of Chinese provinces.

Results
Results for Hypothesis 1.
The analysis is conducted at the province level, wherein 1573 strategic asset-­
seeking outward FDI projects are grouped into 30 provinces for 15 years
between 2000 and 2014. There are 450 province-year observations for the
348 Y. LI

current NCA analysis. The outcome Y is the number of strategic asset-seeking

outward FDI projects in a province, while the condition X is the amount of
inward FDI in knowledge-intensive industries of a province. For hypothesis 1,
the model is testing whether the amount of inward FDI in knowledge-­intensive
industries in a region is a necessary condition for preparing local firms to
engage in strategic asset-seeking outward FDI projects.
First of all, the NCA model presents the effect size. There are two effect
sizes. The first one, ce_fdh, is based on a ceiling line that is drawn with a step
function. It connects the highest values of the outcome Y for the values of the
condition X. The effect size, cr_fdh, is based on a straight ceiling line that has
been drawn through the points that are part of the step function. Based on the
general rule of thumb in Dul (2016), the effect sizes 0.044 and 0.045 in the
result, in Table 17.1, are small effects.
I have also tested the significance of the effect, as an effect size observed
could be a random chance. The test resamples the data to create a range of
samples (permutations) in which the condition X and outcome Y are unrelated.
The outcome of the test is the probability that we observe the results if this is
the case. The probability is represented by the p-value. Similar to regression
models, the more the p-value approaches zero, the more unlikely the observed
effect is caused by random chance. I choose permutation number as 10,000,
the p-value therefore is 0.006 and 0.013. Both p-values are less than 0.05, sug-
gesting that the probability that the observed effect size is due to random
chance is small enough and can be neglected. In other words, emerging market
firms embedded in a region with a high volume of knowledge-intensive inward
FDI is a necessary condition for preparing these firms to engage in upgrading
activities abroad in outward FDI projects (Table 17.2).

Table 17.1 NCA results

ce_fdh (p) cr_fdh (p)
for knowledge-intensive
inward FDI Kfdi 0.044 (0.006) 0.045 (0.013)

Source: Author’s creation

Notes: Effect size(s): 0 < d < 0.1 small effect;
0.1 ≤ d < 0.3 medium effect; 0.3 ≤ d < 0.5
large effect; d ≥ 0.5 very large effect

Table 17.2 NCA results

ce_fdh (p) cr_fdh (p)
for provincial inward FDI
Ifdiprovince 0.153 (0.001) 0.131 (0.036)

Source: Author’s creation

Notes: Effect size(s): 0 < d < 0.1 small effect; 0.1 ≤ d
< 0.3 medium effect; 0.3 ≤ d < 0.5 large effect; d ≥ 0.5
very large effect
 17 FDI FACILITATING SUSTAINABLE DEVELOPMENT… 349

Robustness check by ifdiprovince. The effect size is bigger than kifdi as con-
dition X and the significance level is the same, both less than 0.05.
For hypothesis 2, I select 14 representative cities (similar to the approach of
Li and Bathelt, 2014, 2018, 2019) to conduct city analysis. The goal of the city
analysis is to show that city regions with a large number of IFDIs from specific
countries will be likely to also establish a larger number of OFDIs to these
countries. These cities are capital cities of certain provinces, representing each
region in China: Northeast, North, East, Midsouth, Southwest, and Northwest.
The total number of projects from these cities is 7112 between the year 2000
and 2014. The top cities are Beijing, Shanghai, Ningbo, Shenzhen, and
Qingdao.
The inward FDI policy in China has the catalogue in years 1995, 1997,
2002, 2004, 2007, and 2011 within the timeframe of this research’s empirical
evidence. Among these years, 1995, 2002, and 2007 see significant updates;
therefore, the years selected for inward FDI country profile are 1994, 2001,
2006, and 2010.
The data points at the end of the year 1994 capture the inward FDI stock
before the catalogue in place. The data points of 2001 capture the inward FDI
stock before China joins WTO. The data points of 2006 capture the inward
FDI stock before the start of the global financial crisis and the 2010 data points
capture the inward FDI before the release of the new catalogue in 2011.
Among the 7112 outward FDI projects, there is 823 strategic asset-seeking
outward FDI projects. These projects cluster to the United States, Japan,
Germany, and the United Kingdom, and so on. Six out of the top 10 strategic
assets-seeking outward FDI destinations are also listed at the top as the inward
FDI countries.
The following NCA analysis is to test whether emerging market firms tend
to seek strategic assets in the country where inward FDI dominants are in the
home city. For example, whether a firm from Tianjin is more likely to invest in
the United Kingdom to seek knowledge if a large number of inward FDI in
Tianjin is from the United Kingdom.
Table 17.3 shows that the effect is very large (> 0.5) and also significant
(0.001).
For the purpose of comparison among different motives, I construct a sam-
ple for market-seeking outward FDI. The results show that the effect size of
market seeking is still very large and significant but smaller than strategic asset
seeking, meaning inward FDI from developed countries matter more to

Table 17.3 NCA results

ce_fdh (p) cr_fdh (p)
on inward FDI location
quotients and strategic Location quotients_IFDI 0.634 (0.001) 0.462 (0.001)
asset-seeking outward FDI
Source: Author’s creation
Notes: Effect size(s): 0 < d < 0.1 small effect; 0.1 ≤ d < 0.3 medium
effect; 0.3 ≤ d < 0.5 large effect; d ≥ 0.5 very large effect
350 Y. LI

strategic asset-seeking outward FDI location choices than to market-seeking

outward FDI location choices (Table 17.4).
I also constructed a sample for natural resource-seeking outward FDI. The
results show that the effect of inward FDI location quotients on location
choices of natural resource-seeking FDI is small and not significant, indicating
that inward FDI, dominated from developed countries, does not have a strong
impact on the natural resource seeking. Natural resource-seeking outward FDI
is directed to resource-abundant countries with positive diplomatic ties with
China. Knowledge transfer and spillover from developed country multination-
als have a limited role to play (Table 17.5).
Overall, the impact of the Chinese Catalogue for the Guidance of Foreign
Investment Industries and present OECD Guidelines for Multinational
Enterprises is evident. These guidelines encourage inward FDI, especially FDI
inflows to emerging markets, to contribute to the sustainable development
goals of local enterprises. The two hypotheses are supported, arguing that
inward FDI is a necessary condition for emerging market firms to catch up with
the global leaders, by either engaging in long-term-oriented outward FDI
activities (strategic asset-seeking outward FDI) or establishing a subsidiary in
developed countries.
Strategic asset-seeking outward FDI is and will be experiencing an upward
going trend. The concern here is the effectiveness of FDI policy support on the
western regions in China. From Table 17.4, we can see that the last five prov-
inces with minimum inward FDI are all in the western regions, Gansu, Xinjiang,
Qinghai, Ningxia, and Sichuan. Although the Catalogue since the 2002
amendment started to emphasize on the economic development of the West,
after more than one decade, not enough evidence has shown that the West
regions are catching up even domestically. There is also not enough evidence
to show that the West regions will show strong momentum by 2025. However,
with the One-Belt-One-Road initiatives, in the longer term, the western
regions could potentially show some progress.

Table 17.4 NCA results

ce_fdh (p) cr_fdh (p)
on inward FDI location
quotients and market-­ Location quotients IFDI 0.580 (0.000) 0.456 (0.000)
seeking outward FDI
Source: Author’s creation
Notes: Effect size(s): 0 < d < 0.1 small effect; 0.1 ≤ d < 0.3 medium
effect; 0.3 ≤ d < 0.5 large effect; d ≥ 0.5 very large effect

Table 17.5 NCA results

ce_fdh (p) cr_fdh (p)
on inward FDI location
quotients and natural Location quotients IFDI 0.073 (0.384) 0.046 (0.447)
resource-seeking
Source: Author’s creation
outward FDI
Notes: Effect size(s): 0 < d < 0.1 small effect; 0.1 ≤ d < 0.3 medium
effect; 0.3 ≤ d < 0.5 large effect; d ≥ 0.5 very large effect
 17 FDI FACILITATING SUSTAINABLE DEVELOPMENT… 351

Discussions
This research intends to study whether FDI in China can facilitate the sustain-
able development of Chinese multinational corporations. In particular, which
type of inward FDI in China is more likely to facilitate such a sustainable devel-
opment goal?
I adopt one of the most broadly accepted definitions of sustainability, the
“development that meets the needs of the present without compromising the
ability of future generations to meet their own needs”. This definition empha-
sizes on an ability to develop in the long term, which can be reflected in the
concept of strategic asset-seeking FDI. Strategic asset-seeking FDI is to pro-
mote long-term strategic objectives, especially for sustaining or advancing
global competitiveness. Therefore, Chinese multinational corporations with
strategic asset-seeking activities, such as acquiring intellectual properties,
recruiting talents, and codeveloping technologies with local partners, in the
host country have better chances than other firms to reach sustainable develop-
ment goals, both domestically and internationally.
In terms of contribution to academia, this research extends the application
of FDI spillover mechanism to outward FDI activities, departing from the tra-
ditional productivity story of FDI spillover. By doing so, this research estab-
lishes the inward-outward FDI linkages, which is an understudied topic in both
International Business and Economics literature. Rathar than using aggregate
FDI measurements, this research breaks down FDI activities into different
motives. This contributes to the understanding of the role of FDI motives. The
results show that motive plays an important role in determining inward-­
outward FDI relationships. While strategic asset-seeking and market-seeking
outward FDI can be heavily influenced by inward internationalization, natural
resource-seeking FDI tends to be independent of inward FDI. Empirically,
prior literature tends to use host country location factor endowment to infer
business motives. However, the two hypotheses show that motives and loca-
tion choice are two separate research questions. This research measures busi-
ness motives directly by leveraging on manager self-report subsidiary activities.
The implication for business managers and policymakers is that inward FDI
plays an important role in host country economic development. Regions with
abundant inward FDI, especially inward FDI from OECD countries, show
long-lasting growth trend and also strong learning orientation during global
expansion. A collection of the evidence above shows that technology intro-
duced by developed country multinationals facilitates business sustainability in
an emerging market and society advancement. With the ongoing effort of the
Chinese Catalogue for the Guidance of Foreign Investment Industries, we
should expect Chinese enterprises moving toward a more sustainable way of
development, both domestically and internationally.
352 Y. LI

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 CHAPTER 18

Taming the Dark Side of the New Globalization

Larita J. Killian

Introduction
Advanced digital technology enables the new globalization. Together, these
forces have improved opportunities and living standards for millions of people.
It is natural to celebrate these outcomes, but there is also a dark side to the
story. Digital technology and globalization create “losers” as well as “winners.”
While some are lifted from poverty, others lose economic security. Individuals
can now communicate with virtual “friends” around the globe, yet they feel
less solidarity within their local communities. Governments can deploy digital
platforms to streamline delivery of services, yet they may be powerless to pre-
vent Internet-based interference with elections. As global corporations become
stronger, nation-states find it more difficult to shield their citizens from the
negative effects of social and economic disruption.
To reap the full, positive potential of digital technology and globalization, it
is essential to address the attendant, negative impacts. To ensure a sustainable
future, we need to analyze the lessons of the recent past. Consider the events
of 2016, the year Donald Trump won the presidency of the United States and
British citizens voted to leave the European Union (Brexit). Even those who
celebrate these outcomes agree they are highly disruptive, and disruption and
uncertainty are inimical to economic development (Bloom 2014). More

L. J. Killian (*)
Indiana University-Columbus, Columbus, IN, USA
Universidad Privada Boliviana, Cochabamba, Bolivia
e-mail: [email protected]

© The Author(s) 2021 355

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_18
356 L. J. KILLIAN

disruption is in store unless we mitigate the negative effects of the digital revo-
lution and globalization and ensure that the benefits are widely shared.
Digitalization refers to “the diffusion of digital technologies into nearly
every business and workplace and pocket” (Muro et al. 2017, p. 12). Through
technologies such as artificial intelligence, computer algorithms, and robotics,
digitalization remakes both economic and social relationships (Acemoglu and
Pascual 2017, p. 2). Globalization refers to “the cross-border flow of ideas,
information, people, money, goods, and services” that results in “an intercon-
nected world where national leaders have increasingly limited ability to protect
the lives and livelihoods of citizens” (Bremmer 2018, p. 8). Global communi-
cation and trade are not new, but digital technologies have ushered in a “new
globalization” featuring “a very crowded and tightly interconnected world”
(Sachs 2011, p. 86). Digitalization and globalization are symbiotic: one rein-
forces and advances the other. It is their combined effect that holds so much
promise as well as peril for human societies.
The 1999 protests against the World Trade Organization (WTO) meeting
in Seattle, Washington, United States, the 2008 global financial crisis, and
years of protests in Brazil were signs that the new globalization was not work-
ing for everyone (Bremmer 2018). Other signs include increased student pro-
tests in South Africa (Bremmer 2018) and the rise of formerly “fringe” political
parties in Germany and France as centrist parties lose ground (Gardels and
Berggruen 2019). Across Europe, “[t]he electorate is crying out for change
and is therefore volatile — preferring to back new insurgents rather than the
status quo parties that have been around for decades” (Mark Leonard, as cited
in Erlander 2019, p. A-1). Unrest is stirring in the Mideast and Africa because
governments are not “keeping up” with social and economic impacts of the
new globalization (Bremmer 2018, p. 14). The disruptive events of 2016 sim-
ply capstone years of “populist backlash” (Gardels and Berggruen 2019, p. 5)
and can be interpreted as an “indictment of globalism” (Bremmer 2018, p. 5).
Developing1 countries are especially at risk. The World Bank estimates that
“from a pure technological standpoint,” two-thirds of all jobs in developing
countries are susceptible to automation (2016, p. 126). Due to relatively weak
social safety nets, developing countries are less equipped to respond to social
and economic upheaval (Bremmer 2018). In recent decades, they were the
“winners” as digitalization and globalization transferred jobs and capital from

1
Scholars use descriptors such as developing, developed, advanced, or emerging to differentiate
countries and economies. For instance, in its annual World Economic Outlook reports, the
International Monetary Fund classifies countries as “advanced economies” or as “emerging market
and developing economies” (IMF 2019, 133-134). Advanced economies include Canada, Estonia,
Germany, Japan, Singapore, Slovenia, and the United States (39 total). The emerging or develop-
ing economies include Afghanistan, Brazil, China, India, Iran, Liberia, Mexico, Nigeria, Qatar, and
Paraguay (155 total). The IMF uses GDP at purchasing power parity, total exports, population,
and other factors to determine classification. It notes, however, “This classification is not based on
strict criteria, economic or otherwise, and has evolved over time. The objective is to facilitate analy-
sis by providing a reasonably meaningful method of organizing data” (IMF 2019, 134).
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 357

the West to the developing world. These gains may reverse, however, as oppor-
tunity shifts to Africa and robotics (Sachs 2011). “[T]hanks to globalism’s
coming technical innovations, the problem will be far, far worse in developing
countries than in the wealthy West” (Bremmer 2018, p. 37).
The digital technology that enables the new globalization also impacts social
discourse, making it harder to forge a consensus on how to cope with global-
ization. Thus, from a practical perspective, these phenomena must be addressed
together. This chapter explores the harmful effects of digitalization and the
new globalization on individuals and communities as well as on nation-states.
Then, it reviews proposals for mitigating the harmful effects, drawn from cur-
rent literature. The chapter concludes with recommendations for leaders in
business, education, and public policy.

Negative Impacts on Individuals and Communities

The digital revolution promotes social isolation by enabling individual “infor-
mation silos.” Social media use individually tailored algorithms to “determine
what news articles appear” to a given individual (Foer 2017, Prologue).
Consequently, individuals are more likely to communicate with only those who
already share their views, depriving them of opportunities to deepen their
thinking and change their minds (Bremmer 2018; Sorkin 2019, p. B-1).
Neighbors receive different sets of information and “stereotypes replace real
experience with others,” fueling prejudice and demagogic politics (Gardels and
Berggruen 2019, p. 24). This plays into the hands of special interest groups
because a poorly informed public is more easily swayed by propaganda and less
able to “resist the dark maneuvers of the special-interest groups that pull the
strings” (Sachs 2011, p. 157).
Scholars debate whether “free will” actually exists. Those who believe that
humans are capable of exercising free will find this capacity threatened by digi-
tal technology, due to “rewiring [of] not only our social networks but our
neural networks as well” (Sachs 2011, p. 154). Foer offers this warning:

[T]he tech companies have a different way. They hope to automate choices, both
large and small, that we make as we float through the day. It’s their algorithms
that suggest the news we read, the goods we buy, the path we travel, the friends
we invite into our circle. (Foer 2017, Prologue)

Digital technology companies harvest data on individual behavior so they

can predict and influence behavior and, thus, sell advertisements targeted to
the individual. Further, they design “automatic digital nudges that subtly push
people toward the specific behaviors favored by the company” (Zuboff 2019,
p. 295). The World Bank, in its generally positive report on Digital Dividends,
finds that digital technology may have detrimental impacts on memory and
other “cognitive capacities and socialization” (2016, p. 261).
358 L. J. KILLIAN

Digital technologies disrupt labor markets, harming communities and social

cohesion. Technology’s champions have been reluctant to acknowledge this
problem, being “steeped in the belief that technology inevitably leads to better
jobs and higher pay” (Porter 2019, p. A-17). Indeed, this beneficial result
accrues to many, but not to all. Lawrence Summers, a former Vice President of
the World Bank, predicts that due to automation and globalization some work-
ers may be unable to earn a living wage, which will weaken families and com-
munities (Porter 2019, p. A-17).
The digital revolution allowed companies to offshore work to lower-wage
countries such as Mexico, Ireland, and China. As a result, “previously thriving
home local economies began to wither… Modern globalization had arrived
and it was very much the result of connecting computers” (Arthur 2017, p. 3).
The offshoring of jobs creates both “winners” and “losers” and may not be a
net loss to humanity. As digital technology advances, however, more jobs will
simply disappear. Low-skill, low-wage workers engaged in “rote, rule-based”
tasks are the first to be displaced by robotics and artificial intelligence (AI)
(Muro et al. 2017, p. 8). Less-educated workers in developing countries, who
recently benefitted from offshoring, are particularly at risk (Bremmer 2018).
For a time, workers who possess advanced digital skills may find themselves in
higher demand with increased earnings; industrial robots have been shown to
“increase productivity and wages” for some workers while reducing overall
employment (Acemoglu and Pascual 2017, p. 6).
As digital technology advances up the employment ladder, however, higher-­
skill workers are also at risk. Bremmer predicts that “two-thirds of jobs in the
finance and insurance sectors are likely to disappear once computers can under-
stand speech as well as humans do” (2018, p. 16). Arthur finds that “even
high-end skilled jobs such as radiologists are being replaced by algorithms that
can often do the job better” (2017, p. 6). All countries are impacted by these
developments. Fifty-seven percent of jobs in OECD countries could be auto-
mated over the next two decades (Acemoglu and Pascual 2017, p. 1), and in
China, “Guangdong province recently announced a program to automate 80
percent of its factories by 2020, by substituting human labor with robots”
(World Bank 2016, p. 328).
The digital revolution creates new jobs, but the question is whether suffi-
cient new jobs will be created to replace those lost to technological advance
and how many workers will be able to make the transition. “From a techno-
logical standpoint, fewer than half of today’s schoolchildren in China, Croatia,
or Thailand can expect to find a job in an occupation that exists today” (World
Bank 2016, p. 100).
Since women and minorities often have less access to the advanced educa-
tion required for technology-enhanced jobs, the digital revolution exasperates
biases in wages and job opportunity (Muro et al. 2017). The same dynamic
aggravates inequality within countries as communities with the highest concen-
tration of highly skilled workers pull further ahead of others. “Digitalization
may be contributing to worker pay disparities, the hollowing out of job
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 359

creation, and the divergence of metropolitan economic outcomes” (Muro

et al. 2017, p. 380). The “widening bifurcation of the digital economy into
high- and low-wage sectors” is increasing inequality (Gardels and Berggruen
2019, p. 23).
Economic polarization exacerbates social fragmentation. As Piketty warns, a
polarizing market economy “contains powerful forces of divergence, which are
potentially threatening to democratic societies and to the values of social justice
on which they are based” (2014, 571). Life becomes a struggle of “us” versus
“them.” “Them” status can be attached to foreigners, racial-ethnic or religious
minorities, the wealthy, members of a different political party, or residents of a
different region (Bremmer 2018, pp. 2–3).
By contributing to social fragmentation, the new globalization leads to a
“crisis of connection” (Brooks 2018, p. A-31). Displaced members of the mid-
dle and working classes are less likely to attend church or know their neighbors
and less likely to be married than at any other time in recent decades. “In short,
they have fewer resources to help them ride the creative destruction that is
ever-present in a market economy” (Brooks 2018, p. A-31). In the United
States, loss of social cohesion is contributing to a recent, unexpected drop in
life expectancy (Case and Deaton 2015; Eberstadt 2017).
Globalization threatens the basic human need for a sense of belonging
(Gardels and Berggruen 2019). The “naïve people, the free-marketers and glo-
balizers, did not know what they were doing” as they dismantled social and
economic ties that afford meaning, purpose, and stability to local communities
(Mishra, as cited in Gardels and Berggruen 2019, pp. 167–168). As jobs disap-
pear, members of a community lose their sense of “internal affinity.” Displaced
by digital processes, workers feel irrelevant and marginalized, with “a sense of
things falling apart, and a quiet anger about immigration, inequality, and arro-
gant elites” (Arthur 2017, p. 25). Betrayed by the status quo, they seek to
regain control of their fate by embracing disruption as evidenced in the Brexit
vote, the Trump presidency, and support for France’s Le Pen (Gardels and
Berggruen 2019).

Negative Impacts on Nation-States

Nation-states are also threatened by these trends. In times of disruption and
insecurity, political consensus and effective public policy become ever more
elusive. Rather than providing a platform for persuasion, dialogue, and nego-
tiation, social media “amplify the human tendency to bind with one’s own
kind,” and information silos reduce dialogue on complex issues to “echo cham-
bers of the like-minded” (Gardels and Berggruen 2019, p. 28). As the Arab
Spring revealed, the social media tools that topple dictators can also tear societ-
ies apart (Gardels and Berggruen 2019).
Because of the enhanced, cross-border flow of ideas, information, money,
services, goods and people, “national leaders have increasingly limited ability to
protect the lives and livelihoods of citizens” (Bremmer 2018, p. 8). This
360 L. J. KILLIAN

undermines confidence in government; workers know their jobs are threatened

and that governments have limited capacity to stem the disruption (Bremmer
2018). With their relatively young populations, developing nations are at par-
ticular risk. Youth unrest emerges when young people “fear their country has
no place for them,” their education attainments will not improve their lives,
and the government is uninterested or unable to make a difference (Bremmer
2018, p. 58).
As global corporations expand their power relative to nation-states, they
foster competition among nations in a “race to the bottom.” They “threaten
to leave the country in search of lower labor costs” (Stiglitz 2017, paragraph
16). The Apple Corporation, whose existence was enabled by U.S. laws and
institutions, “parked its intellectual property in an Irish subsidiary so it could
avoid paying taxes in America and support those institutions. It saved $9 bil-
lion in 2012 alone” (Brooks 2019, p. A-23). “Financial institutions operate
across territories with little respect for borders, wreaking havoc on the ability
of countries to plan for a sustainable future” (Slobodian and Kentikelenis 2019,
paragraph 3).
In their “home” countries, powerful corporations may pressure politicians
to reduce corporate taxes; this forces citizens to pay more of the tax burden,
forces the government to reduce services, or both (Bremmer 2018, p. 28).
Nations are also compelled to compete for highly mobile capital by easing
regulations, tolerating pollution, or ignoring labor standards (Sachs 2011). In
the United States, the share of GDP paid in federal income taxes by corpora-
tions declined from 3.8 percent to 1.8 percent in recent decades (Sachs 2011,
p. 100). Ultimately, the competition leaves all nations with less capacity to
regulate and moderate their economies. “The biggest loser ends up being
internationally immobile labor, which is likely to face higher taxation to com-
pensate for the loss of taxation on capital” (Sachs 2011, p. 94). The World
Bank urges nations to find a balance between economic efficiency and worker
protections to avoid a “race to the bottom” (2016, p. 118).
Democratic nations are threatened when advanced technology is used to
reduce validity of elections. During the 2010 midterm elections in the United
States, Facebook researchers conducted experiments in “nudging” voter
behavior. In an experiment involving over 61 million (unwitting) Facebook
users, researchers claim to have generated an additional 340,000 voters (Zuboff
2019, pp. 299–300). Behavior modification works in both directions, how-
ever; the power to “nudge” voting behavior means the ability to suppress as
well as increase voting. In 2016, Cambridge Analytica, backed by several
wealthy investors, purchased data on millions of Facebook users to prepare
targeted political messages to influence the U.S. elections (Warzel 2019).
Election interference is not limited to the United States; misinformation cam-
paigns have “disfigured elections and social discourse in Indonesia, the
Philippines, Columbia, Germany, Spain, Italy, Chad, Uganda, Finland, Sweden,
Holland, Estonia, and the Ukraine” (Zuboff 2019, p. 508).
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 361

With diminished capacity to moderate their economies and safeguard elec-

tions, some nations turn to border walls as an answer. The burgeoning interest
in border walls is “a classic symptom of a nation-state’s looming impotence in
the face of globalization”; building walls fulfills a desire for “greater sovereign
control” when the very concept of nation-state is in crisis (Abrahamian 2019,
p. SR-1).
Neoliberal philosophy contributed to the new globalization and decline in
government efficacy. In mixed economies, business, government, and civil
institutions (nonprofits) play complementary roles. Neoliberalism discredits
the role of government regulation, leading to the “relative lawlessness” of
global corporate operations; it spread from North America to Europe and
“continues to make inroads in every region of the world” (Zuboff 2019,
p. 192). The pivot from a mixed economy to neoliberalism is evident in the
inaugural speeches of U.S. presidents. In Franklin Roosevelt’s second inaugu-
ral (1937), he reminded citizens that government is “the instrument of our
united purpose to solve for the individual the ever-rising problems of a com-
plex civilization.” By 1981, as the new globalization was gaining steam, Ronald
Reagan used his first inaugural to declare: “In this present crisis, government is
not the solution to our problem; government is the problem” (Reagan 1981).
Neoliberal philosophy opened the door to “hyperglobalization,” a prefer-
ence for “free trade rather than fair trade, unregulated global capital flows, cuts
in the safety net and in public investment” (Gardels and Berggruen 2019,
pp. 156–157). With insufficient revenue, governments cannot make needed
investments in education and infrastructure, failures that further reduce confi-
dence in the government. This negative spiral “quite justifiably generated a
backlash” (Gardels and Berggruen 2019, pp. 156–157). Brooks (2019) agrees
that the global spread of neoliberal philosophy had devastating effects, and he
assigns wide-ranging responsibility:

A deadly combination of right-wing free-market fundamentalism and left-wing

moral relativism led to a withering away of moral norms and shared codes of
decent conduct. We ripped the market out of its moral and social context and let
it operate purely by its own rules. We made the market its own priest and confes-
sor. (Brooks 2019, p. A-23)

The populist backlash in developed countries confirms that the new global-
ization creates too many “losers” and weakens government capacity to mitigate
the harm. Developing countries are not immune. From 2003 to 2012, several
Latin American countries experienced strong economic and social develop-
ment linked to the new globalization; these gains may diminish as economic
activity shifts to workers in still poorer countries and to robotics (Sachs 2011;
Castañeda 2019). To help shape a sustainable future, we must mitigate the
negative effects of digital technology and globalization and find ways to spread
the benefits more equitably.
362 L. J. KILLIAN

To summarize, despite their many benefits, advanced digital technology and

the new globalization damage individuals and communities in multiple ways.
The harm occurs through reduction in cognitive capacities and capacity for
“free will”; increased social fragmentation and reduced social “belonging”;
weakened capacity to achieve policy consensus through discourse; increased
divergence in wages and job opportunities; and accelerated “sorting” of regions
and countries into economic “winners” and “losers” (bifurcation).

Responding to the Challenge

Several factors impede a strong response to this challenge. Digital tools ease
daily activities, such as shopping and connecting with children, a profound
convenience that diverts attention from negative impacts (Zuboff 2019,
p. 383). Mesmerized by the stunning capabilities of digital technology, we
often fail to notice how information silos and behavioral “nudges” affect our
perceptions and behavior (Foer 2017).
Another impediment is the unprecedented nature of digitally enabled glo-
balization; we lack templates for dealing with the unprecedented. The early
twenty-first century may resemble the early colonial period when natives of the
Western hemisphere welcomed European explorers as gods, dazzled by the
superior technology (Zuboff 2019). Like those first Americans, open, demo-
cratic societies are vulnerable to unprecedented power: “[F]or centuries we
have been on guard against state power… we were unprepared to defend our-
selves against new global behemouths” (Zuboff 2019, p. 53). A further hin-
drance is fatalism, the belief that even if advanced technology and globalization
are damaging communities and livelihoods, there is little we can do about it
(Zuboff 2019).
When governments attempt to constrain the negative effects, their efforts
sometimes fail due to outdated methods. In July 2019, the U.S. Federal Trade
Commission imposed a $5 billion fine on Facebook for mishandling user per-
sonal information (Wilson 2019). Critics noted, however, that Facebook’s first
quarter revenue for 2019 was $15 billion and that shortly after the penalty was
announced Facebook shares traded at their highest level of the year (Kang et al.
2019, p. A-1). One critic warned that with such an “outdated framework” it
may be “structurally impossible” for the government to hold major media
companies accountable in a meaningful way (Warzel 2019, p. A-18).2
If economic and social disruptions continue, governments may become
more autocratic in response. For instance, governments may use advanced digi-
tal technology to monitor citizens and quell civil unrest; China’s “social credit”
system and India’s Aadhaar system are viewed as potential prototypes for this

2
It may be too early to judge the impact of this enforcement action. When the fine was
announced, FTC commissioners also urged the U.S. Congress to pass comprehensive privacy and
data security legislation to strengthen the government’s position in relation to global media
companies.
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 363

response (Bremmer 2018, pp. 125–128). Likewise, the World Bank warns that
the Internet could become “a tool for state control and elite capture” (2016,
back cover).
But the future is in our hands. Brynjolfsson (2019) calls for a stubborn,
“mindful optimism,” noting, “We have immense choice in how we organize
things. We can reorganize to benefit the many or the few.” The World Bank
calls for “analog complements” to tame the harmful impacts of digitally enabled
globalization and ensure the benefits are more widely shared (2016, p. 2).
“Analog complements” include improved regulatory regimes to reduce
monopoly power and ensure competition; stronger governments that are
accountable to their citizens; and improved education to help workers adapt to
the new economy. Other proposals include labor market reforms and provi-
sions for guaranteed, basic incomes. Resonating throughout these proposals is
a return to “mixed” economies, where governments reclaim a proper, account-
able role vis-à-vis global corporations and civil institutions.
Various proposals are discussed separately, below, but they would integrate
at the level of implementation. For instance, to tame monopolies or strengthen
labor market protections, improved regulatory regimes and accountable gov-
ernments are required.

Constrain Monopoly Power

Several scholars call for constraining (or even “breaking up”) monopolies due
to their negative impact in social, political, and economic realms. Per Foer
(2017), global technology companies have a “spiritual yearning” for monopo-
ly.3 Monopolies inhibit new entrants to markets and stifle economic opportu-
nity: “[T]he absence of a competitive business environment can result in more
concentrated markets, benefiting incumbent firms” (World Bank 2016, p. 3).
The economics of the Internet favor natural monopolies,” threatening to undo
the benefits of digital technology (World Bank 2016, p. 3).
The combination of rapid technological change and market concentration
diminishes upward mobility. This is especially detrimental for communities and
countries trying to catch up to the global elites. “Digital capitalism has created
new information monopolies and, along with the explosion of finance, concen-
trated wealth in the top 5 percent” (Gardels and Berggruen 2019, p. 56). If
market concentration by a few powerful companies is not mitigated, we will see
“greater divergence between and within countries, rather than convergence
and catching-up” (World Bank 2016, p. 248).
Because several of the most powerful global corporations (Apple, Google,
Facebook, and Amazon) are information gatekeepers, their market concentra-
tion can impede the generation and circulation of new ideas as well as entry of
new businesses. Bremmer warns that as social unrest spreads in response to

3
To be fair, leaders of diverse enterprises might yearn for monopoly power; this motivation is not
limited to digital technology companies.
364 L. J. KILLIAN

economic disruption, these gatekeepers could be pressured to impede the

“transmission of information and politically resonant ideas” (2018, p. 102).
Effective governments and regulatory regimes are instrumental in constraining
monopolies.

Update Regulatory Regimes

Effective regulations do not stifle business; rather, they “even the playing field”
and serve business as well as the public. “Rules of competition and behavior are
the foundation of healthy, growing markets” (Lohr 2019, p. B-1). For instance,
effective rules are needed to “make the world safe for A.I. — and let A.I. flour-
ish” (Lohr 2019, p. B-1).
Regulations tend to lag technology and business innovation. Zuboff argues
that large technology companies operate in a “lawless” environment, free from
regulation, because their technical wizardry and global reach are unprece-
dented and because they arose when neoliberal philosophy had reduced public
support for government regulation (2019, p. 192 and 495). In a “race to the
bottom” to attract firms and capital, developed countries have reduced regula-
tions that protect workers, protect the environment, and require balanced,
truthful broadcasts over public airways (Sachs 2011, p. 96).
Many countries regulate network industries such as electric utilities and tele-
communications. For example, regulations allow consumers to retain the same
phone number when changing providers, leveling the playing field for new
entrants. These models could be extended to Internet-based enterprises. The
World Bank calls for new regulations for social media, digital marketplaces,
digital payment systems, and the sharing economy so users can “change inter-
net platforms with ease and at zero cost” (2016, p. 80).
There is momentum for regulatory reform. The European Union’s General
Data Protection Regulation, effective 2018, limits how companies can use per-
sonal data (Zuboff 2019, pp. 481–482). The WTO already regulates some
telecommunications services and is exploring ways to regulate data use and
security (Bradsher and Bennhold 2019, p. B-3). Leaders of Japan, South Africa,
China, and Germany have called for global oversight of the technology sector
(Bradsher and Bennhold 2019, p. B-3). The Chancellor of Germany, Angela
Merkel, urges social media companies to “make their algorithms transparent so
users know how they are being steered” (Gardels and Berggruen 2019, p. 30)
and calls for new ethical standards for AI, genetic engineering, and data owner-
ship (Bradsher and Bennhold 2019). Recently, the U.S. Senate held hearings
on Facebook’s plans for a virtual, global currency, having already held hearings
on data privacy.
Some proposed regulatory reforms target financial practices. Slobodian and
Kentikelenis (2019, paragraph 3) call for the “renationalizing” of finance:
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 365

There are nearly 200 sovereign countries, but globally only a few dozen banks
matter … Financial institutions operate across territories with little respect for
borders, wreaking havoc on the ability of countries to plan for a sustainable future.

Other finance-related proposals include increased use of public investment

banks, separation of commercial banking from investment banking, and giving
employees a modest stake in the corporate dividends normally awarded to
executives and stockholders (Slobodian and Kentikelenis 2019).4
Regulatory reform will be incomplete without campaign finance reform
(Sachs 2011, pp. 61–62). In every region of the globe, businesses donate
money to politicians, often donating across the political spectrum “to ensure
government favours regardless of who ends up in power” (Falguera et al. 2014,
p. 348). This sometimes results in “regulatory capture,” a situation where gov-
ernment agencies are dominated by the industries they are charged to regulate
and serve the interests of the industry rather than the public. “Regulatory
capture” may have contributed to two commercial plane crashes in 2018 and
2019 that claimed 346 lives (The Economist 2019).
Regulatory reform is a delicate task because government regulators can also
go too far. “Fake news is bad, but a ministry of truth is worse” (Gardels and
Berggruen 2019, p. 30). Daskal (2019) alerts readers to recent legislation in
Singapore: intended to reduce “fake news,” the legislation may allow the gov-
ernment to access detailed records of individual Internet use. This legislation
may be “a much bigger threat than any of the fake news or hate speech laws
that have come before it” (Daskal 2019, paragraph 3).

More Effective, Accountable Government

Reform efforts hinge on effective and accountable governments. For example,
the updated regulatory regimes needed to reign in monopolies, even the play-
ing field, and encourage new entrants to markets will not accrue without effec-
tive and accountable governments (World Bank 2016). As “instrument[s] of
our united purpose” (Roosevelt 1937), effective and accountable governments
play a critical role in mitigating the negative impacts of advanced technology
and globalization.
The neoliberals were wrong: strong markets cannot modulate and organize
human affairs on their own. “The interaction between market and collective
action is what leads to our prosperity” (Joseph Stiglitz, as cited in Cohen 2019,
p. A-1). Absent the moderating influence of government, markets will become
concentrated, less dynamic, and eventually will self-destruct (Piketty 2014). A
mixed economy, in which commercial interests and democratic governance are
appropriately balanced, “supports the market form while tethering it to society:
balancing, moderating, and mitigating its destructive excesses” (Zuboff 2019,

4
In the United States, regulations established in the 1930s (Glass-Steagall Act) prevented com-
mercial banks from engaging in investment banking. This legislation was repealed in 1999).
366 L. J. KILLIAN

p. 39). To counteract the “dead end of corporatocracy,” we must “regain a

proper understanding of the complementary and balanced roles of government
and the marketplace” (Sachs 2011, pp. 178–179).
Too many governments have gone “AWOL”5 (Sachs 2011, p. 105).
Powerful corporations aided this process through “relentless lobbying and pro-
pagandizing” that sowed doubt among citizens concerning the role of govern-
ment (Sachs 2011, pp. 178–179). These campaigns were successful; in several
countries, the “money-politics-media trap” causes the public to lose faith in
government (Sachs 2011, p. 236). Under the new globalization, governments
have less capacity to protect and enhance the lives of citizens; this undermines
faith in government and further reduces their capacity to act. Piketty (2014)
finds these effects most visible in English-speaking countries. Governments
must be restored to their proper role and held accountable: “Only markets and
government operating as complementary pillars of the economy can produce
the prosperity that we seek” (Sachs 2011, pp. 178–179; see also World
Bank 2016).
This task will be difficult. In the United States, for example, “The revolt
against a moribund political class has transmuted into a revolt against gover-
nance itself” (Gardels and Berggruen 2019, p. 2). Faith in government has
declined in both developed and emerging countries (Zuboff 2019).
Governments themselves must accept some responsibility for the cynicism. For
instance, they sometimes fail to deploy new digital tools, such as online finan-
cial reports, to increase transparency and accountability (World Bank 2016).
Restoring faith in democratic governance, however difficult, is essential.
Gardels and Berggruen warn that “the anger, alienation, and cynicism leading
to the suicide of democracies” will not be resolved unless democratic practices
and institutions are “reconceived for the digital age” (2019, p. 41). Further,
“Remaking the relationship between citizens and government is much more
likely than the construction of walls to create lasting security and prosperity for
the greatest number of people” (Bremmer 2018, p. 167). Citizens, civil insti-
tutions, and enlightened business leaders must proactively help to restore gov-
ernment to its legitimate, accountable role (Bremmer 2018). Two leaders who
accept this challenge are Warren Buffett, chair and CEO of Berkshire Hathaway,
and Bill Gates Senior, co-chair of the Bill and Melinda Gates Foundation; both
emphasize the necessity of government action to redress economic inequities
(Clifford 2018; Wulfhorst 2010).
Finding the appropriate balance between freedom and regulation is an
ongoing challenge; throughout history, the pendulum swings. Following
World War II, national governments became more powerful as they coordi-
nated the restoration of war-ravaged economies. During the 1980s, popula-
tions of several developed countries perceived (or were convinced) that
government over-reached into economic affairs and that progress required

5
AWOL—Absent Without Official Leave, an expression often used by the military to describe
someone who is missing form their assigned post.
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 367

reducing the role of government in the economy. Once again, the pendulum
may have swung too far; today’s powerful business interests need to be counter-­
balanced by effective governments and civil institutions (Rajan 2019).

Education Reform
A frequent prescription for countering the dark side of digitally enabled global-
ization is to improve education and training. This is no surprise: improved
education is a perennial, catch-all solution to social ills. The World Bank (2016)
makes numerous statements about the need to educate and train workers so
they are qualified for jobs in the digital economy, including those in artificial
intelligence. Muro, Liu, Whiton, and Kulkarni (2017, p. 50) urge public offi-
cials to “work urgently with industry to expand their local pools of high-quality
IT talent, knowing that the digitalization of everything will continue to expand
the need for well-prepared technical talent.” They also recommend expanded
internship and apprenticeship opportunities for workers without a college
degree. Finally, they place significant responsibility on workers themselves, to
“think much more seriously in the age of digitalization about what they can do
that computers can’t” (Muro et al. 2017, p. 50).
Bremmer notes that even if the digital economy creates as many jobs as it
destroys—which is doubtful—many displaced workers will not have the skills
to “make the leap from the old world to the new” (2018, p. 48). Citing
Singapore’s example, Bremmer calls for “individual learning accounts” to help
workers retrain throughout their lives (2018, p. 142).
But “educationism” is a “trap” (Hanauer 2019). Certainly, education and
training can help individuals and communities deal with advancing technology
and the new globalization, but absent other reforms, it will not solve inequality.
While many workers lack skills for the “high-wage” jobs of the future, the
fastest-growing job categories are in low-wage occupations such as health-care
support and food preparation (Hanauer 2019). Moreover, in advanced coun-
tries, real wages for college-educated workers have been falling. “Meanwhile,
nearly all the benefits of economic growth have been captured by large corpo-
rations and their shareholders” (Hanauer 2019). Expanded opportunities for
education and training (and better teachers!)6 are warranted but will not prove
the panacea that many hope.

6
Teachers are a frequent object of reform. In its report on the digital economy, the World Bank
included these remarks on teacher training: “Rethink curricula and teaching methods. Today’s
education systems need to prepare students for a career and not only a job. Modern labor markets
require creativity, teamwork, problem solving, and critical thinking in ever-changing environ-
ments… teachers now must instruct students in how to find information and apply it in a new and
unexpected context. This requires changes in teacher training” (World Bank 2016, 33).
368 L. J. KILLIAN

Labor Market Reforms

Another proposed response is improved worker protections. In 1944, William
Benton, a corporate executive, wrote in Fortune Magazine that peacetime
prosperity depends on businesses accepting “necessary and appropriate” gov-
ernment regulation and labor unions (Leonhart 2018, p. A-27). In the latter
twentieth century, however, the role of organized labor declined. As humans
were displaced by automation and digital communications facilitated the off-
shoring of jobs, labor organizations lost members and bargaining power. This
weakened the position of labor vis-à-vis owners of highly mobile capital. In
1994, the OECD recommended a loosening of labor laws and protections to
foster more vigorous economies and allow enterprises to respond to market
trends. For example, it urged members to “[r]eassess the role of statutory min-
imum wages” (OECD 1994, Part 3B). Such proposals stemmed from a belief
that strong worker protections in European Union countries drove the rela-
tively high unemployment rates in those countries (Freeman 2007).
Currently, scholars are reassessing the role of worker protections. In his
study of the relationship between institutional arrangements (unionization,
minimum-wage laws) and economic outcomes, Freeman (2007) finds no con-
nection between institutional arrangements and levels of employment or
unemployment, and specifically contrasts his results to the OECD (1994)
study. He does find a relationship between institutional arrangements and
income inequality: “[C]ountries that rely on institutions to set wages and
working conditions have lower rates of inequality or dispersion of earnings,”
and “inequalities are smaller in union settings” (Freeman 2007, p. 20). The
OECD (2004) has modified its previous stance toward labor protections.
The co-founder of Microsoft, Bill Gates, has suggested a tax on robots, paid
by firms that employ robots. Presumably, the tax would slow the displacement
of human workers, and the funds could be used for worker retraining (Bremmer
2018, p. 143).7 Others propose that governments subsidize wages to encour-
age firms to hire lower-skill workers, especially for socially beneficial tasks such
as elder care (Gardels and Berggruen 2019, p. 110).
Larry Summers, a former Vice President of the World Bank, expresses
renewed interest in labor market protections. Once a champion of globaliza-
tion, he now promotes the concept of “reasonable nationalism” in which inter-
national agreements are judged “by whether people as workers, consumers,
and voters are empowered” (Gardels and Berggruen 2019, p. 159). A
U.S. Senator has proposed legislation requiring that 40 percent of corporate
board members be elected by employees, a version of Germany’s shared gover-
nance model (Leonhart 2018).
The World Bank warns that labor regulations must be carefully crafted to
avoid harming workers. Actions that render human labor more expensive and
7
Larry Summers, a former Vice President of the World Bank, responded: “What’s so special
about robots?” In other words, perhaps the tax should apply to all machinery that does the work
once performed by humans. (Bremmer 2018, p. 143)
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 369

“troublesome” may simply hasten automation and outsourcing, and low-wage

workers are typically the first to lose their place (World Bank 2016, p. 280).
Gardels and Berggruen (2019, pp. 98–99) promote a Scandinavian model:

Strengthening instead of weakening unions is key to improving equality -- but

only if the unions don’t resist innovation, but assist it and use their bargaining
power to gain a greater share of the wealth created by productivity gains.

There is irony, however, in workers “assisting” innovation when it includes

job-displacing innovations such as AI. The result may be a need for highly
skilled workers, but fewer of them. This is an old problem. Einstein wrote that
“[t]echnological progress frequently results in more unemployment rather
than in an easing of the burden of work for all” (1956, p. 130). He felt the only
solution was a “socialist economy” that would “guarantee a livelihood to every
man, woman, and child” (Einstein 1956, p. 130).

Universal Basic Income

Universal basic income (UBI) involves the unconditional transfer of cash to
adult (and sometimes youth) members of a jurisdiction regardless of wealth or
other income. Proposals vary in detail, such as whether the recipient is defined
as an individual or a family. When transfers depend on criteria such as income
level or work requirements, or when the form of transfer is “in-kind” (food,
utilities, medicine, etc.) rather than cash, the program is no longer a true
UBI. In practice, true UBI programs are rare, but experiments continue. UBI
programs have been conducted in Brazil, Peru, Canada, Netherlands, Iran,
Scotland, Indonesia, and the United States with varying success (Bremmer
2018; Hanna and Olken 2018). Frequently, UBI programs involve a specific
village or city rather than an entire nation (Hanna and Olken 2018). Cash
transfer programs in Iran and the U.S. state of Alaska are cited as the truest
examples of UBI, while programs in Indonesia and Peru are narrower in focus
(Hanna and Olken 2018).
UBI proposals ebb and flow with changing circumstances (Henderson
2015; Caputo 2012; Furman and Seamans 2019). Today, support for UBI is
burgeoning as advances in digital technology and the new globalization dis-
place workers. The problem is how to organize distribution when digital capi-
talism is “divorcing productivity and wealth creation from employment and
income” (Gardels and Berggruen 2019, p. 2). In the transportation and con-
struction sectors alone, driverless vehicles and 3-D printing threaten millions of
jobs: “It takes a better imagination than mine to come up with new blue-collar
occupations that will replace more than a fraction” of these jobs (Murray 2016,
paragraph 12). Moreover, where AI does not displace humans, it may not bode
well for workers: “[G]oing forward it is reasonable to expect that to the degree
that AI does not displace labor, part of that will be because relative wages
adjust, in other words, that inequality rises” (Furman and Seamans 2019,
p. 174).
370 L. J. KILLIAN

There are several arguments favoring UBI. In times of slow economic

growth or heavy wealth concentration, broad-based redistribution is necessary
to sustain consumer demand and prevent economic contraction (Caputo
2012). While UBI programs are costly, they may cost less than the existing,
overlapping social welfare programs they are meant to replace (Henderson
2015; Murray 2016).8 Further, UBI may stimulate innovation and entrepre-
neurship as individuals take more business risks, knowing their basic survival
needs are met (Furman and Seamans 2019). In his bold proposal, Murray
(2016) argues that UBI may even change individual conduct for the better
because relative (or absolute) poverty would no longer be an excuse for irre-
sponsible, self-destructive behavior. “The availability of a guaranteed income
wouldn’t relieve individuals of responsibility for the consequences of their
actions. It would instead, paradoxically, impose responsibilities that didn’t exist
before” (Murray 2016, paragraph 27). For example, since family formation is
related to economic circumstances, he anticipates an increase in marriage rates
and fewer births to unmarried women.
Scholars debate whether UBI would cost more or less than the current
social programs it is intended to replace. Murray (2016) projects a cost savings
if the United States adopts his version of UBI in every detail, but Henderson
(2015) reports that UBI may cost twice as much as the current, anti-poverty
programs. Interest groups would fight to preserve their favorite programs, so
UBI would become a supplement to other social programs rather than a
replacement (Henderson 2015). Some arguments against UBI are based on
moral or psychological concerns. Caputo (2012, p. 12) writes that in Mexico,
one obstacle to UBI is “overcoming the Biblical mandate to the effect that he
who does not work does not eat.”. In Japan, proponents of UBI must contend
with “an entrenched work ethic that distains any proposal perceived as promot-
ing ‘free riding’” (Caputo 2012, p. 12).
In 2003, Brazil launched a means-tested cash transfer program, Bolsa
Família. Directed at specific income levels and not a true UBI, it is considered
an important step. Per an architect of Bolsa Família, when people realize the
benefits of UBI, this acceptance will lead to “an effective expansion of income
transfer programs to new countries” (Suplicy 2007, p. 12). Yet in 2016, Swiss
voters rejected a nation-wide UBI; among other reasons, voters feared that
UBI would simply draw new migrants to Switzerland, endlessly increasing the
cost of the program (Minder 2016).

8
Murray (2016, paragraph 7) stresses this point in arguing for UBI in the United States: “UBI
is to be financed by getting rid of Social Security, Medicare, Medicaid, food stamps, Supplemental
Security Income, housing subsidies, welfare for single women and every other kind of welfare and
social-services program, as well as agricultural subsidies and corporate welfare. As of 2014, the
annual cost of a UBI would have been about $200 billion cheaper than the current system. By
2020, it would be nearly a trillion dollars cheaper.”
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 371

Most UBI proposals involve redistributing wealth through taxation. Gardels

and Berggruen, (2019, p. 82) extend this concept and propose “pre-­
distribution” of wealth and reduction of inequality by giving all citizens an
equity share in the robots creating future wealth. “For example, each new
robot in an autonomous vehicle fleet could be fractionally owned by every
member of the community in which it operates” (Gardels and Berggruen
2019, p. 108). This “universal basic capital” would supplement UBI; a dual
approach is necessary, for by itself UBI is too expensive to sustain. The notion
of society providing basic income “must also imply social obligations” (Gardels
and Berggruen 2019, p. 110).
Will current proposals for UBI fade, as in past decades, or develop into more
wide-spread adoption? Given the disruptions caused by advanced technology
and the new globalization, “the case for ‘this time is different’ has a lot going
for it” (Murray 2016, paragraph 11). Furman and Seamans (2019) agree that
this time is different but believe the most likely, near-term response may be
wage subsidies such as cash supplements to low-wage workers or tax breaks to
encourage companies to hire human workers.

International Cooperation
Implementing the proposed reforms may require increased international coop-
eration. When countries engage in a “race to the bottom” (World Bank 2016,
p. 118) to attract capital and investment, it contradicts efforts to update regu-
lations on worker and environmental protections and financial practices. In
early 2019, the market capitalization of Apple Corporation was almost one
trillion dollars, larger than the GDP of all but two European Union countries
(Kravitz 2019). Given the power and reach of global “corporatocracy” (Sachs
2011, p. 105), increased international cooperation among governments and
civil institutions seems the only, realistic choice. Existing coalitions, such as the
European Union and the Organization of American States, could lead these
efforts. Sachs recommends that at minimum, countries band together to set
minimum standards in worker and environmental protections (2011, 100).
Lohr (2019) cautions that international agreements should be broad-based
and inclusive so that policy-making is not left to superpower nations.
International cooperation is easier to prescribe than achieve. At the 2019
meeting of world leaders in Davos, Switzerland, there were calls for interna-
tional cooperation on data governance, but the enthusiasm was not unani-
mous. A Chinese leader made this observation:

It is imperative to respect national sovereignty and refrain from seeking techno-

logical hegemony, interfering in other countries’ domestic affairs and conducting,
shielding or protecting technology-enabled activities that undermine other coun-
tries’ national security. (Wang Qishan, as cited in Bradsher and Bennhold
2019, p. B-3)
372 L. J. KILLIAN

While it will not be easy to tame the negative impacts of the new globaliza-
tion, several scholars and public officials have proposed credible responses.
These include constraints on monopoly power; updated regulatory regimes
(broad regulatory reform); renewed emphasis on mixed economies including
effective, accountable governments; expanded, more equitable opportunities
for education and training; labor market reforms, including collective bargain-
ing protections; universal basic income schemes; and increased international
cooperation among governments and civil institutions.

Conclusion
This chapter illuminates the “dark side” of the new, digitally enabled globaliza-
tion by summarizing its negative impacts on individuals, communities, and
nation-states. These impacts lead to social and economic disruption that will
worsen if not addressed (Bremmer 2018; Sachs 2011). Developing countries
that benefitted from the new globalization in recent decades are especially vul-
nerable and could see the benefits reversed (Bremmer 2018). The new global-
ization contributes to growing inequality between countries and within
countries, reducing social cohesion (Muro et al. 2017). By fostering “informa-
tion silos,” digital communication inhibits consensus-building on how to
respond to the new globalization, exasperating social fragmentation.
Drawing from recent literature, this chapter reviews several proposals for
mitigating the negative impacts of the new globalization. At the level of imple-
mentation, various proposals will meld. For instance, more effective gover-
nance is required to curb monopolies, update regulations, or enact labor
market reforms. Given the global reach of digital communications and the
“corporatocracy” (Sachs 2011, p. 105), international cooperation may be
instrumental in implementing other forms.
Leaders of business, large and small, must be proactive in mitigating the
negative effects of the new globalization. Reducing disruption is necessary to a
stable business environment. Moreover, the higher calling of a business leader
is to promote a just and equitable society:

As creators of wealth and prosperity, businesses and their leaders must find ways
to make a just distribution of this wealth to employees (following the principle of
the right to a just wage), customers (just prices), owners (just returns), suppliers
(just prices), and the community (just tax payments and other contributions to
the community). This applies at every size and level, from the smallest local busi-
ness to worldwide enterprises. (Dicastery for Promoting Integral Human
Development 2018, p. 17)

Further, “stewardship of the environment, both physical and cultural” is part

of the business leader’s vocation (Dicastery for Promoting Integral Human
Development 2018, p. 17).
 18 TAMING THE DARK SIDE OF THE NEW GLOBALIZATION 373

One need not be religious to recognize the higher calling of business. In

2019, nearly 200 CEOs from diverse, global industries issued a “Statement on
the Purpose of a Corporation,” which expands the notion of stakeholder to
include customers, suppliers, employees, communities, and the natural envi-
ronment rather than just shareholders (Business Roundtable 2019). This brief
statement embodies a recognition that corporate leaders should not ignore the
negative impacts of the new globalization and that remedies are required to
avoid social breakdown. Business leaders should help restore a proper balance
between business, government, and civil institutions to ensure a stable, sustain-
able business environment.
Enlightened business leaders are taking steps to rebuild community and pre-
serve social and natural environments. Takeda, a global pharmaceutical corpo-
ration, gives employees paid time off to volunteer in the local community. It
also makes monetary donations to organizations where its employees volunteer
30 or more hours per year and matches employee charitable contributions up
to $5000 per year (Takeda 2019). These actions promote social integration
and a balanced economy. Neste Corporation, based in Finland, provides an
example of promoting environmental sustainability. Originally in the petro-
leum refining business, Neste has redirected over 50 percent of its investments
to sustainable products such as renewable biofuels (Strauss 2019).
Education is a significant factor in determining how individuals and com-
munities are impacted by digitally enabled globalization (World Bank 2016;
Muro et al. 2017). Education institutions should be aggressive in providing
increased access, including new delivery methods. They should partner with
industry to promote internships and apprenticeships, and should strive to serve
those who often have less access to advanced, technical education: women,
minority groups, and those outside of urban centers (World Bank 2016). As
noted earlier, however, education improvements must be coupled with other
reforms. Otherwise, advanced education will simply help determine who
“wins” by signaling which individuals have attained the highest skills and there-
fore should be admitted to good jobs, without lowering the overall level of
inequality. In fact, some researchers believe that higher education is contribut-
ing to income inequality (Carnoy 2011; Muro et al. 2017).
Neoliberal philosophy permeated much of society in recent decades, and
business faculty at universities were not immune. Business faculty should ensure
their curricula and learning materials reflect diverse perspectives rather than a
sole emphasis on any one philosophy; critical perspectives should be included.
Policy makers should recognize that healthy societies depend on business,
government, and civil institutions all playing a significant role; they should not
allow decision-making to be captured by any single sector (Rajan 2019). Above
all, they should avoid a “race to the bottom” to attract business investment. To
fulfill this goal, policy makers may need to coordinate with other governments
and civil entities to strengthen their position vis-à-vis large, global
corporations.
374 L. J. KILLIAN

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 PART III

Corporate Sustainability in the Digital Era

 CHAPTER 19

Building Skillful Resilience Amid Uncertainty

Jacqueline Jing You, Mai Chi Vu, and Christopher Williams

Introduction
A globalized and increasingly digitalized economic system has caused profound
changes to the way organizations operate and are managed. Recent global
events associated with technological, social-political, and environmental
changes have challenged the conventional notions of globalization that were at
the core of international business, economics, and politics. On top of these
issues, the world has become more digitally interconnected and complex. This
in itself presents both opportunities, such as those brought about through
digital transformation of business activity (Andal-Ancion et al. 2003), and
risks, such as the threats to organizations from cyber-attacks and data protec-
tion breaches (Von Solms and Van Niekerk 2013). Researchers have also begun
to show that organizations can learn through internet-based social networks,
and how this ‘cyber-learning’ can help them cope with the complexity of the
external environment (Williams et al. 2020a). The digital era promises to bring
new opportunities and risks in areas such as 5G, automation and artificial intel-
ligence, and quantum computing. These trends are part of an increasingly
complex digital environment that is as uncertain and unpredictable for organi-
zations as never before.

J. J. You (*) • C. Williams

Durham University Business School, Durham, UK
e-mail: [email protected]; [email protected]
M. C. Vu
Northumbria University, Newcastle upon Tyne, UK
e-mail: [email protected]

© The Author(s) 2021 379

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_19
380 J. J. YOU ET AL.

Notably, most organizations form purposeful relationships with external

organizations—through what are commonly referred to as inter-organizational
relationships (IORs)—in an attempt not only to satisfy their ancillary needs
and attain their objectives but also to share risk and knowledge, as well as cope
with uncertainty (e.g., Barringer and Harrison 2000; Oliver 1990). Certain
aspects of IORs (e.g., a higher level of interdependence), however, can also
become a source of uncertainty that creates greater vulnerabilities (e.g., Brusset
and Teller 2017; Bode et al. 2011), especially in an increasingly digital ecosys-
tem. The digital threat is real and immediate—and growing rapidly (Bughin
and Van Zeebroeck 2017). Disruptions experienced by one organization in a
digital value chain can quickly permeate throughout the whole chain and result
in a major crisis (e.g., Craighead et al. 2007). Hence, the ability of an organiza-
tion to both anticipate and react to these challenges will be a determining fac-
tor in how likely it is to sustain itself and survive. Such resilience in organizations
has been increasingly acknowledged as being the crucial capability to manage
adversity and to “sustain competitiveness and remain viable within uncertain
environments” (Burnard and Bhamra 2011: 5581).
This chapter aims to provide a fresh look at how an organization can prepare
for, respond to, and recover from disruptions in an increasingly turbulent and
unpredictable digital environment. We first start by discussing disruption in
organizations across a spectrum of analytical levels from creeping development
(e.g., unnoticed [Perrow 1984], pluralistic ignorance [Weick 1990, 1996]) to
sudden shock (e.g., earthquake [Williams and Shepherd 2016], terrorist attack
[Pearson and Clair 1998]). This allows a reflection on the past, with research
and academic debate on various types of disruptions, and provides an informed
insight into resilience with a focus on the digital future. Following this, by
incorporating an ecological view (Holling 1973), characteristics of resilience in
organizations and management are discussed. Through a journey from disrup-
tion to resilience, the question of how to understand resilience in organizations
is raised. We argue that cultivating resilience is a learning process that can be
enhanced through attention and connectivity. Drawing on the Buddhist con-
cept of skillful means (SM), we develop a new concept—Skillful Resilience (see
Fig. 19.1)—which emphasizes a non-static approach to preparing for and
responding to the disruptive digital era.

Disruption in Organizations
Organizations, viewed as social and open systems, are involved in both routine
events that reinforce a stable organizational structure over time and non-­
routine events that can lead to change (Morgeson and Hofmann 1999). Events
that require change are often seen as disruptive in nature and described as
threat, crisis, adversity, accident, surprise, critical, shock, and so on. Moreover,
Morgeson, Mitchell, and Liu (2015: 515) point out that “events can originate
at any hierarchical level and their effects can remain within that level or travel
up or down throughout the organization, changing or creating new behaviors,
 19 BUILDING SKILLFUL RESILIENCE AMID UNCERTAINTY 381

ption
Di

Disru
sru
pt
ion

The
Context flexibility Emotional ability to visualize
intelligence and deconstruct
complex situations

Organizational resilience

Attention Connectivity

Di
sr
up
ion

tio
n
pt
sru
Di

Fig. 19.1 Building skillful resilience amid uncertainty. (Source: Authors’ creation)

features, and events.” Indeed, disruption emanates from the environment

where organizations operate, including both objective and perceived environ-
ment (Bourgeois 1980). Thus, the term ‘uncertainty’ in the context of organi-
zations emerges to describe a situation in which an organization is unable to
predict firm performance due to, for example, a lack of sufficient information
or an inability to discriminate between relevant and irrelevant data (Gifford
et al. 1979).
Despite the numerous terms used to describe disruptions, two common
attributes emerge: creeping development and sudden shock. The former attribute,
grounded in a process-oriented perspective, categorizes disruption as “the
gradual development of situations that stretch a group’s resources to the point
of impairment” (Kahn et al. 2018: 512) with distinctive characteristics: com-
plexity, emergingness, and interactivity. The latter reflects a variance-oriented
perspective that views disruption as a discrete event. According to Cunha,
Clegg and Kamoche (2006), suddenness refers to an unexpected issue that
leads to either foreseeable or unforeseeable issues or processes with distinctive
characteristics: novelty and incomprehensible situations.
382 J. J. YOU ET AL.

Resilience in Organizations
Resilience is often germane to the concept of sustainable development
(Holladay and Powell 2013; Xu et al. 2015) due to its influences on the three
pillars of sustainability: social, economic, and environment. Resilience in orga-
nization and management has been increasingly acknowledged as a crucial
capability to manage adversity and to sustain competitive advantages within an
uncertain environment (Williams et al. 2020b). The term ‘resilience’ was
developed by the Canadian ecologist Holling (1973), who discovered two dis-
tinctive system properties: stability and resilience. The stability property refers
to the ability of a system to return to an equilibrium state after perturbation;
often measured with the degree of fluctuation around specific states and the
speed of returning to the equilibrium state. The resilience property is related to
the ability of a system to absorb changes while maintaining the relationships in
the system. A system can be very resilient while having low stability because of,
for example, much fluctuation (Holling 1973). One possible explanation of
this phenomenon is that there are multiple stable equilibria that enable systems
to absorb unforeseen changes and disturbances while maintaining their essen-
tial functions and structures, together with the relationships between popula-
tions (Holling 1973).
The ecological perspective regarding resilience has served as the basis of
resilience studies in many disciplines, each focusing on different aspects of resil-
ience. Economic and engineering resilience, for example, tend to focus on the
stability of systems (Perrings 2006; Limnios et al. 2014). Resilience in psychol-
ogy, however, focuses on developing a set of combined abilities and character-
istics that enable an individual to cope more effectively with stress and adversity
across the life span (Conrad 1999). In social systems (e.g., communities, orga-
nizations, and groups), resilience involves not only absorbing or persisting
through disturbances but also adjusting to and learning from the environment
(Ortiz-de-Mandojana and Bansal 2015). Consistent with this, we define orga-
nizational resilience as a learning process to enhance the capability of an orga-
nization in continually anticipating and adjusting to adversity from various
forms of disruptions.

Learning Toward Organizational Resilience

Rather than being a static attribute, resilience in organizations can be created,
maintained, and changed over time through deliberate intent and actions.
Ortiz-de-Mandojana and Bansal (2015) point out that resilience is a dynamic
process in which organizations can develop by noticing and correcting mal-
adaptive tendencies. Barton and Kahn (2019) also argue that organizational
resilience emerges when an organization is able to realize its behavior and situ-
ation in a complex environment through collective sense-making and acknowl-
edging the emotional experiences of members during adversity. Scholars have
noted the importance of a softer, emotional aspect to coping with disruption in
 19 BUILDING SKILLFUL RESILIENCE AMID UNCERTAINTY 383

the digital environment (Alkali and Amichai-Hamburger 2004). This enables

members of organizations to become available in terms of sharing and inter-
preting relevant information, which creates meanings to drive effective opera-
tional responses to disruption.
Learning plays an important role in building organizational capacity for
resilience. Risk faced by organizations has been referred to as “the ever-present
potentiality of catastrophe” (Hallgren et al. 2018: 125). Learning enhances
organizational capacity to detect problems and issues in the early stages, which
enables organizations to re-organize resources in order to protect against or
react to disruptions. Moreover, some devastating consequences are triggered
by extreme and sudden events outside the core operations of organizations
(Hallgren et al. 2018) (e.g., the Notre Dame cathedral fire). This means that
the formal structures and processes organizations establish are temporarily par-
alyzed in response to the sudden disruption. Christianson, Farkas, Sutcliffe and
Weick (2009) argue that organizational learning from disruption can be
improved through an appropriate revision of response repertoires. ‘Response
repertoires’ refer to the accumulation of routines, habits, and rules that have
formed experiences, and the ability to recombine portions of this accumulated
experience in novel and informed ways.
However, organizations face a number of challenges in terms of learning to
become more resilient. First, organizational learning from disruption shows a
discernible bias toward extreme events because, compared to minor accidents
(Madsen 2009), extreme events tend to promote learning at various levels
(individuals, teams, organizations, and industries). Second, research shows
that, as the effects of serious errors and disastrous events fade over time
(Haunschild et al. 2015), organizations learn little from their failures. This
reflects how organizational decision-making is still driven by profit in some
industries (e.g., Starbuck 2009) rather than engaging with changing societal
expectations. Third, learning occurs when the members of an organization
revise their beliefs in a way that, when the beliefs are acted on, the organiza-
tion’s performance improves (Huber 2004).

The Skillful Means Approach

The skillful means (SM) approach, which emerges from a Buddhist concept, is
a non-static approach to responding to changes, complexities, and unexpected-
ness. It requires context-sensitively customizing and reconstructing relevant
approaches (Schroeder 2004). Skillful means in Buddhist philosophy empha-
sizes how something is taught rather than the context of the teaching itself (Vu
et al. 2018) and this was used by Buddha himself to contextualize his version
of truth to different audiences and contexts. In other words, SM is an approach
that guides individuals to deconstruct complex contexts and uncertainties
effectively. While it is a familiar concept and practice in Buddhist philosophy, it
has only been applied in a limited number of organizational studies, such as
384 J. J. YOU ET AL.

that by Vu and her colleagues on corporate social responsibility (Vu 2018) and
organizational mindfulness (Vu et al. 2018).
We believe this approach can be applied in organizations, particularly in
complex digital contexts. This is because the underlying assumption is that any
form of disruption an organization experiences or faces can lead to various
degrees of organizational ‘suffering’. Suffering as a consequence of disruptions
can exist in forms of, for example, extreme attachment to profit maximization,
and of striving for maximum competitiveness in the contemporary digital era.
The consequence of this may prevent organizational sustainability because such
pursuits reflect a greed, which is considered as the fundamental source of suf-
fering in Buddhism.
Drawing on the SM approach, such ‘suffering’ can be surmounted through
skillfully and context-sensitively managing different circumstances on the basis
of the ‘right’ understanding of the nature of disruption: its transience and
impermanency. This calls for heightened awareness and context-sensitive
responses. The notion of ‘right’ does not imply moralistic judgment but ethical
discernment between what is skillful and what is unskillful in differentiating
between what leads to suffering and what to genuine happiness (Brito 2014).
To facilitate the ‘right’ understanding of phenomena, the ‘noble eightfold
path’—part of the ‘four noble truths’ in Buddhism—provides eight principles
aimed at liberating ‘suffering’ through knowledge and wisdom. These are right
mindfulness (training of higher moral disciplines based on moment awareness
and past experience), right speech (abstaining from slanderous and harsh
speech), right effort (enhancing self-efficacy through constant diligence), right
concentration (intensifying the relative amount of substance needed to adjust
to the situation), right livelihood (ensuring that one earns one’s living in a
righteous way), right intention (goodwill in actions), right action (refraining
from unwholesome deeds that occur as a natural means of expression), and
right view (evaluating phenomena through sustained attention to have a com-
prehensive understanding) (eight Rs) (Bodhi 2011).
This approach is viewed as a distinctive practice that helps achieve higher
moral discipline, higher concentration, and higher wisdom through skillfully
selecting or combining the eight Rs (Bodhi 2011). Three crucial principles of
SM can be identified which allow organizations to adapt to new environments:
context flexibility, emotional intelligence, and the ability to deconstruct com-
plex situations.
Context flexibility—this is the adaptability of an organization in a context-­
sensitive and context-relevant manner. Corruption, for example, is considered a
harmful and unethical practice in the West. It is, however, commonly accept-
able in the developing world due to weak legal systems and institutionalized
bribery (Davis and Ruhe 2003). When dealing with ethical issues in different
circumstances, it is imperative to realize that each ethical issue is contextually
bounded, and this not only requires a context-sensitive way of responding but
also consideration of the impact of actions on sustainable development (Vu
et al. 2018). When dealing with disruptions under uncertainty, individuals in
 19 BUILDING SKILLFUL RESILIENCE AMID UNCERTAINTY 385

organizations (as well as organizations themselves) are often confronted by a

need to make clear decisions under ethical ambiguity (Holian 2002). In this
sense, context matters. Organizations involved in strategic digital programs
need to adapt their resource allocations over time in a way that is relevant to
the context while reducing the possibility that knowledge is ‘lost’ as a conse-
quence of ongoing digital disruption (Williams and Durst 2019).
Emotional intelligence—this is the ability to skillfully diagnose and identify
authentic and inauthentic emotional expressions to respond to multiple cultural
and contextual variations. There is no universal way of cultivating emotional
intelligence in dealing with dilemmas or contextual challenges. For example,
unskillful free expressions of personal emotions or critical expressions will very
likely to be considered offensive in Eastern face-saving cultures compared to
Western cultures. Sometimes referred to as emotional quotient (EQ), this
capability is a soft skill that is essential in a range of highly disruptive digital
industries, such as management consultancy (Williams and You 2018; Williams
2019), and a range of settings where relational capital between actors is impor-
tant for strategy and positive outcomes (Du and Williams 2017; Williams et al.
2020b). Change has an important human component. Individuals drive change
with emotive language and rhetoric. Individuals affected by change may also
put up resistance, raising the prospect of a politicized organizational area which
is characterized by a heightened emotional state and which can eventually lead
to the demise of the organization if not handled carefully (Mintzberg 1985).
The ability to visualize and deconstruct complex situations—underpinned by a
holistic and systems approach to problem-solving. In an institutionalized system,
there is a need to observe from ‘within’ and from ‘outside’ since this facilitates
contextual sense-making for managers by retrieving what they might have for-
gotten, blending detached and absorbed, as well as mindfully coping to reduce
and explore the equivocality (Guiette and Vandenbempt 2016; Weick and
Westley 1999) of contemporary contexts. Such observations lead to complex
mental models of organizational reality for decision-makers. One source of
uncertainty—such as increasing threats in cyber-space—can be enough to make
managers grapple with a range of scenarios and be unable in practice to make
effective decisions. But adding in more sources of uncertainty, including those
that originate internally from within the organization (e.g., staff turnover,
health and safety breaches, corporate crime), and the sense-making capability
of decision-makers, becomes extremely challenged. Systems thinking allows for
an appreciation of complexity and the acknowledgment that problems are
inter-related (Jackson 2003).
The core feature of this approach is non-attachment. According to onto-
logical addiction theory, problems often arise when there is an “over-allocation
of cognitive and emotional resources towards a particular object, construct or
idea, to the extent that the object is assigned an attractive quality that is unre-
alistic and that exceeds its intrinsic worth” (Shonin et al. 2014:124).
Consequently, different forms of desires and levels of attachment are gener-
ated, which threaten flexibility, reflexivity, and effective responses to changes
386 J. J. YOU ET AL.

and disruptions. This approach does not imply short-term problem-solving to

handle difficult situations but invites managerial exploration of potential con-
textual and ethical contradictions, and it heightens awareness of resilience for
both decision-making and management learning in the long term.

Toward Skillful Resilience in an Age of Disturbance

Adopting the SM approach embraces three capabilities—context flexibility,
emotional intelligence, and the ability to visualize and deconstruct complex
situations—which improve resilience in organizations through exploration and
exploitation of learning experiences. According to March (1991), exploration
encourages organizations to discover new opportunities that may involve inno-
vation and invention, while exploitation involves increasing efficiency and pro-
ductivity by utilizing existing resources. In the following section, we focus on
discussing how organizations gain the ‘right amount’ of attention and connec-
tivity, which are two critical sources for organizational resilience, through the
SM approach to cope with disruption in the digital era.

Skillful Negotiations and Means for Wise Attention

Attention in organizations is not a unitary process but a variety of intercon-
nected mechanisms, processes, structures, and outcomes that operate at vari-
ous levels of analysis (Ocasio 2011). The concept of attention in organization
science has a long, rich, and diverse history, which can be traced back to the
work of Simon (1949) focusing on how an organization organizes its adminis-
trative behavior by channeling, structuring, and allocating its attentions. The
topic has been at the center of classical studies of organizational decision-­
making (Ocasio 2011). In the behavioral theory of the firm, organizations are
viewed as problem-solving entities with limited attentional capacity (Cyert and
March 1963). The attention-based view of the firm (ABV) argues that atten-
tion in organizations shapes organizational adaptability (Ocasio 1977). Other
scholars (e.g., Daft and Weick 1984) focusing on the cognitive perspective in
organizational theory have also acknowledged the centrality of attention in
managerial cognition but have viewed it as mainly being used prior to encod-
ing, conceptual thinking (Corner et al. 1994), and attentional stability (i.e.,
mindfulness attention; Weick and Sutcliffe 2006). Strategic management
scholars (Gavetti and Levinthal 2000) have applied this view to examining how
stable interpretation of the environment shapes organizational action and
adaptation because any change in interpretation is viewed as a change in the
focus of attention.
Given that organizations are embedded in an environment of other organi-
zations together with a complex of societal and cultural structures, we argue
that attention is a critical source for organizing resilience in an organization.
This is because attention helps to develop both the proactive capability—to
capture details about the emergence of risks and to encourage informed
 19 BUILDING SKILLFUL RESILIENCE AMID UNCERTAINTY 387

thinking in terms of action—and the reactive capability—to quickly identify

resources and capabilities that can be reconfigurated in sloving problems. In
the neuroscience literature, the concept of attention is viewed as central in
explaining the limited information processing capacity of the human brain and
therefore a varied range of stimulus mechanisms are investigated (Lavie 1995;
Styles 2006). There are three common attentional processes: selective attention,
attentional vigilance, and executive attention (e.g., Posner and Rothbart 2007;
Corbetta and Shulman 2002). As noted by (Ocasio, 2011), although the find-
ings of cognitive science are at the individual level, research on attention in
organizations has also demonstrated similarities to these three forms.
Selective attention refers to individuals choosing to process a specific set of
sensory stimuli at a moment in time because the human brain is incapable of
coping with all external stimuli simultaneously. This is a bi-directional process
of attention, both top-down (i.e., schema/goal/task-driven) and bottom-up
(ecological, data-driven) (Corbetta and Shulman 2002).
Attentional vigilance focuses on the length of time during which individuals
can sustain concentration due to a particular stimulus. Sustained attention
decreases and disappears over time because of its limited duration (Ocasio
2011). This study argues that the ‘right concentration’ on details can also help
to utilize time effectively and be time-­wise in approaching important projects
and plans (Kanfer and Ackerman 1989). This reflects attentional sufficiency
(Kudesia 2019).
Executive attention is often associated with planning, problem-solving, con-
flict resolution, and decision-making (Ocasio 2011). This is because this type
of attention links memory and the planning components of the mind, which
allows individuals to efficiently and quasi-simultaneously manage a variety of
goals and tasks. Research shows that executive attention involves allocating
controlled cognitive resources to assist the memory in reacting to diverse stim-
uli, including those not in predetermined schemata, such as non-routine activi-
ties, disruption, and dealing with interruption (Fernandez-Duque et al. 2000).
The SM approach can be activated by a combination of various means—
referred to as Rs—to address a particular need. Such combinations emphasize
a skillfully selected set of environmental stimuli of the ‘right amount’ that is
crucial in preparing for and responding to disruption. Having the ‘right
amount’ means rejecting any forms of over-emphasis on certain environmental
stimuli in order to achieve a balanced attentional engagement. According to
Ocasio (1977:1288), attentional engagement is “a process of intentional, sus-
tained allocation of cognitive resources to guide problem-solving, planning,
sense-making and decision-making.”
In times of disruption, it is difficult to accommodate a situation where an
actor whose attentions firmly focusing on a particular stimulus flexibly switch
back and forth between stimuli (Ocasio and Wohlgezogen 2010). This conflict
could possibly be resolved by combining right concentration, right view, and
right mindfulness in a way to promote a naturally ambidextrous attention
through the reinforcement of organizational routines and the mindful
388 J. J. YOU ET AL.

exploration of new opportunities. For example, in the face of disruptions or

changes, doubt may appear because of, for example, a lack of knowledge or
information which may cause danger in organizations (Nystrom and Starbuck
1984). ‘Right concentration’ helps to intentionally allocate cognitive resources
to emphasize problem-solving and decision-making on pressing issues, rather
than oscillating around the formation of doubt. This enhances the reactive
capability for resilience. To further understand why and how disruption occurs,
continual reflexivity and reflection are required. An alternative means—the
‘right view’—is needed because it enables attention to be shifted from routine
‘mindless’ behavior to more ‘mindful’ reflection on experience, especially when
disruption unexpectedly occurs outside the core business. Doing this enhances
the proactive capability for resilience. The ‘right view’ is facilitated by means of
‘right mindfulness,’ which provides a freedom to detach and reattach attention
to different stimuli (e.g., moment awareness and past experiences; routine and
non-routine activities).

Skillful Collaboration, Sustainability, and Recovery

According to the network perspective, organizations are increasingly intercon-
nected and interdependent across a variety of spatial and temporal scales to
acquire resources (Pfeffer and Salancik 2003), innovate (Du and Williams
2017), or to gain competitive advantages (Christopher and Holweg 2017).
For example, supply chains, as virtual organizations of legally separated firms
(e.g., Amazon and its logistic partners UPS and FedEx), coordinate to secure
shared objectives through mutually derived competitive advantages. Open sys-
tem theory, which emerged in 1950, views organizations as systems that acquire
various inputs (e.g., raw materials, capital) from their environments. These are
transformed into outputs (e.g., services or goods) and then are eventually
exported to the environment (Evan 1993). New inputs, however, are discon-
tinued when the outputs of a system no longer create value for the environ-
ment (Shrivastav et al. 2009). It is argued that managing the connectivity of
the input-transformation-output (I-T-O) cycle is central to organizational
resilience because it facilitates the exchange and flow of information, materials,
and capital necessary for organizational survival and growth.
Resilience in ecology emphasizes connectivity, which is “the way and the
degree to which resources, species or social actors disperse, migrate or interact
across ecological and social landscapes” (Biggs et al. 2012: 427). The effects of
connectivity on resilience are examined by looking at the exchange of material
or information, the spread of disturbance, and recovery from disturbance
(Nystrom and Folke 2001; Bodin and Crona 2009; Brondizio et al. 2009).
Following this tradition, we discuss below how the SM approach improves
three aspects of connectivity.
The exchange of material/information. The first aspect of connectivity
emphasizes the exchange of material or information, and this is consistent with
the argument made by Pfeffer and Salancik (2003) that organizations are not
 19 BUILDING SKILLFUL RESILIENCE AMID UNCERTAINTY 389

self-sufficient in internally generating all the necessary resources to survive and

so they must engage in exchanging with their environment (Scott 1987). The
exchange of material or information often has a direct effect on the production
or the transformation stage in the I-T-O cycle. In certain circumstances, such
interdependency may lead organizations to a situation in which survival and
continued success are uncertain. The ‘friend-enemy’ relationship between
Apple and Samsung is a classic example of mutual dependency on critical
resources and components.
As a practice of the noble eightfold path, it is argued that the ‘right effort’
facilitates the exchange of information and the flow of materials by enhancing
self-efficacy. For instance, putting effort into efficiently allocating resources/
information based on members’ expertise in organizations enhances the orga-
nizational capacity to detect risks and react rapidly to situations (Ocasio 1977)
before they have been accumulated into a major crisis. Moreover, the ‘right
effort’ nurtures relationships and trust, which stabilize the flow of energy/
resources within and across organizations to strengthen connectivity against
disruptions and facilitate restoration after disruption. This is because the
essence of the ‘right effort’ is to facilitate diligence, exertion, and unflagging
perseverance in order to reach the full perfection of development (Bodhi 2011).
The spread of disruption. Disruption has cross-level effects. For
instance, events that occur in the broader societal context (e.g., pandem-
ics, financial crises, political protests, terrorism, and civil war) can influence
lower-level phenomena (e.g., organizations, teams, and individuals). The sec-
ond aspect of connectivity is associated with strength (e.g., tightness and loose-
ness, the frequency or duration of interactions). Research shows that a high
level of connectivity increases information-sharing and the development of
trust and reciprocity necessary for collective action (Diani 2003) and thus con-
tributes to a firm’s value realization through repetitive and stable exchanges
(Coleman 1988). On the one hand, strong ties of connectivity enhance a sys-
tem’s robustness to withstand both external and internal shocks and maintain
control over structures and functions. On the other hand, when disruption
occurs, it can quickly permeate throughout the whole system and result in a
major crisis (e.g., the nuclear accident at Three Mile Island. See Perrow 1984).
Additionally, a high level of connectivity among organizations can also lead to
synchronized behavior and sustainable practice (Bodin and Prell 2011).
Strengthening connectivity without harmful or excessive pursuit of long-­
term purposes and having the ‘right view,’ which involves understanding the
interdependence and impermanent nature of the universe, provide a higher
level of psychological safety, and this, in turn, guides toward taking optimal
action in dealing with disruption. According to Bodhi (2011), the ‘right view’
derives from our appraisals and values, which have become conditions for our
actions. For example, when events occur, we first appraise whether or not the
event is relevant to our concerns. If it is irrelevant, no further actions or specific
emotions are developed (Leigh and Melwani 2019). Sometimes, our view may
not be clearly formulated in the first place or we may have only a hazy
390 J. J. YOU ET AL.

conceptual grasp of our beliefs. Indeed, these ‘silent’ views have a far-reaching
influence. For example, over-emphasis on short-term immediate gains over
long-term sustainability is harmful not only to businesses themselves but also
to the wider community in which they operate (e.g., the Deepwater Horizon
oil spill disaster in 2010). Hence, being aware of the costs and benefits, as well
as the exploitations, associated with short-term acts helps to moderate indi-
vidual or organizational pursuits or desires for reality.
Recovery from disruption. The third aspect of connectivity is particularly
important in enabling an organization to recover from disruption. In an exper-
imental study of macrobenthic communities, Thrush, Halliday, Hewitt and
Lohrer (2008) found that recovery was largely determined by the degree of
connectivity across metacommunities. In organization studies, it is also found
that temporary organizations are remarkably efficient at recovering from
extreme events (Hallgren et al. 2018). Such temporary response groups can be
seen as “collectives of individuals who use non-routine resources and activities
to apply to non-routine domains and tasks, using non-routine organizational
arrangements” (Majchrzak et al. 2007: 150). Powley (2009) discovered liminal
suspension (new structural relationships formed in a temporal space), which is
one of the social mechanisms utilized in recovering from the detrimental event
of a school gunshot incident.
To recover from disruption, there are a number of ways to foster re-­
connectivity in the SM approach. SM based on the ‘right intention’ and the
‘right speech’ can facilitate knowledge-sharing and compile conceptual knowl-
edge to attend to a more complex situation (Anderson 1982). The ‘right inten-
tion’ includes the intention of renunciation, of goodwill, and of harmlessness,
while the ‘right speech’ consists of abstaining from false speech, slanderous
speech, harsh speech, and idle chatter (Bodhi 2011). A combination of the
‘right intention’ and ‘right speech’ facilitates goodwill in creating and strength-
ening genuine connectivity and knowledge-sharing within and across organiza-
tions, such as restoring and mending damaged relationships. Research shows
that, without continual communication through the ‘right speech,’ thought-
fulness, and empathetic connection, people will find it more difficult to adjust
their responses because they may lose their ability to articulate their actions
during adversity (Anderson 1982).
In some circumstances, skillful means based on the ‘right action’ and the
‘right livelihood’ can also be useful to restore and repair connectivity and even-
tually cultivate resilience in the long run. The ‘right livelihood’ is concerned
with ensuring that one earns one’s living in a righteous way by staying away
from dishonesty (Bodhi 2011), and the ‘right action’ emphasizes preventing
unwholesome deeds. The implication in business contexts, for example, is that
business transactions and sales should be presented truthfully without decep-
tive advertising, misrepresentation of quality or quantity, and dishonest maneu-
vers. Doing this enhances social inter-relation and reduces fragmentation that
could diminish coordination and competencies (Kudesia 2019).
 19 BUILDING SKILLFUL RESILIENCE AMID UNCERTAINTY 391

Conclusion
The digital era undoubtedly brings both opportunities and threats to the sur-
vival of organizations. Over the last few years there has been a renewed interest
in the concept of ‘ecosystems’ as a way for organizations to survive and grow.
Inter-organizational relationships within ecosystems provide the key for orga-
nizations to grasp opportunities and deal with threats. On the upside, increas-
ing digitization offers opportunities for ecosystems, for example, to improve
customer relationships and access to knowledge for innovation. On the down-
side, it increases the uncertainty and heightens the chances of maladjustment
to the changing environment.
We suggest it is possible to understand how organizations cope with adver-
sity in the digital era through the concept of skillful resilience within ecosys-
tems. This entails three mechanisms: context flexibility, emotional intelligence,
and the ability to deconstruct complex situations. Figure 19.1 shows our syn-
thesized model. The SM approach is useful because it is a highly dynamic and
contextualized practice. It does not imply short-term problem-solving to han-
dle disruptive situations facing organizations. Rather, it allows for the requisite
attention and connectivity among organizational members within ecosystems
to learn over the long term. In doing so, it allows proactive and reactive capa-
bilities to be continually developed and sharpened to bear disruptive events.
We also suggest that longitudinal studies in different organizational settings
should be conducted to trace the interaction and activation of the core con-
cepts and observe the antecedents and the consequences of attention and con-
nectivity throughout the life-cycle of a disruptive event.

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 CHAPTER 20

Digitalization, Institutions and the Future

of Sustainable Work

Andreas Kornelakis

Introduction
The emerging fourth industrial revolution presents an immense challenge to
the world of work. The digitalization of work denotes the computerization of
routine tasks previously undertaken by workers and is facilitated by technologi-
cal advances such as increasing computing power, big data, cloud computing,
artificial intelligence (AI), the Internet of things (IoT) and online platforms
(OECD 2016). It is widely considered as one of the key drivers of productivity
and growth in the near future (Van Ark 2014). But digitalization through
smart ‘disruptive’ technologies has rendered work flexibility more important
than ever. Although digitalization will provide opportunities for prosperity, it
will also raise several challenges for groups of workers with the risk of growing
inequality in access to good quality, sustainable jobs and access to digital skills
(OECD 2016). Even more, digitalization has already started affecting services
sectors across countries, which were thought to be immune to computeriza-
tion. These challenges have prompted European business and labour associa-
tions to warn against the potential negative impact of digitalization on the
world of work (EU Economic & Social Committee 2015).
One strand in the academic and policy literature has largely focused on the
positive effects of the fourth industrial revolution and the benefits of new ‘bril-
liant technologies’ (Brynjolfsson and McAfee 2016). Proponents have been
enthusiastic about the benefits of digitalization and its potential to increase

A. Kornelakis (*)
King’s College London, London, UK
e-mail: [email protected]

© The Author(s) 2021 397

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_20
398 A. KORNELAKIS

efficiency; create new markets, new products and services; and new channels of
distribution. They highlight the positive effects on ‘customer expectations’; on
‘product enhancement’; and on ‘collaborative innovation’ (Schwab 2015,
p. 4). Thus, digitalization is expected to enhance consumer choice and also
enable highly scalable business models with close to ‘zero marginal cost of
reproduction’ (Brynjolfsson and McAfee 2016, p. 61). Other scholars have
been more sceptical of the positive effects of digitalization, as the latter is
expected to increase inequalities, exacerbate job insecurity and threaten the
availability of adequate employment opportunities (Holtgrewe 2014). Indeed,
fears of mass technological unemployment have been fuelled by estimates sug-
gesting that about half of existing jobs are likely to be computerized in the next
20 years (Frey and Osborne 2017).
Against the backdrop of these debates around digital transformation trends,
this chapter sets out to contemplate on the potential effects of the digital trans-
formation on the quality and sustainability of jobs. It reviews the discourse
around the likely effects of digitalization on new ways of working based on
publications of practitioner management literature. It argues that the digital
transformation hype is driven by management consultancies, which seek to
overplay the benefits of the new digital business models. However, it also quali-
fies these assessments by bringing in the academic scholarship in comparative
management to suggest that the overall effect of digitalization on sustainable
work will depend on national-specific institutions. Finally, the chapter sets out
an agenda for future research among comparative management scholars to
study more systematically the effects of digitalization on different aspects of
work, organization and management.

Management Consultants, the Future of Work

and the Bright Side of Digitalization

The 2011 report on digitization by PwC’s consulting arm Strategy& was one
of the first among a series of practitioner reports to discuss the future of work
in the context of new digital technologies (Friedrich et al. 2011). It presented
one of the first indices of digitization to measure the degree of change across
sectors and countries. The index of digitization of a company involves the
extent to which a company enables each unit of the internal networking system
to access and exchange data, to use big data analytics and machine learning;
and generally digitalize its workflows. The report argued that the maturity of
digitalization opens up the opportunity for companies to manage their process
and innovate on their business models (Friedrich et al. 2011). A more recent
report from McKinsey suggested that the one of the benefits of new digital
platforms was the unprecedented ability to connect talent pools with employ-
ment opportunities in novel and innovative ways (McKinsey 2015a). Apart
from the physical form of digitalization, management consultants have empha-
sized how the increased inter-connectedness at the company or global level
 20 DIGITALIZATION, INSTITUTIONS AND THE FUTURE OF SUSTAINABLE WORK 399

leads to innovation of products, process and systems and delivers integrated

ways to manage people, data and whole organizations.

Digitalization and Skills

One important effect of digitalization that management consultants empha-
sized concerned the impact of digitalization on human capital and skills.
According to Accenture, digitalization will affect skills and human capital at
three different levels: (i) enhancing the alertness of humans on new develop-
ments, facilitating and testing alternatives skills; (ii) engaging new generations
of communication and workflow to spread the new skills across time and space;
and (iii) extending human capabilities and perspectives by robotization
(Thomas et al. 2014, p. 13).
Robotization is broadly defined and includes several examples such as smart
factories; self-driving cars; 3D printers and virtual robots, including software,
production process management, control systems and artificial intelligence.
These brand new digital technologies are expected to have immense implica-
tions for the kind of skills that are required under what was dubbed as the
‘intelligent digital regime’ (Thomas et al. 2014, p. 17). The recombination of
digital and human resources (or ‘human + machine’ model) is likely to become
the mainstream in the workplace of the future (Thomas et al. 2014, p. 26). For
example, field-service technicians, who were once needed to accumulate a
great deal of tacit knowledge and memorizing, will no longer need those skills.
Instead, the digital technology will make information-sharing and remote col-
laboration available as needed, and it will be more critical for the technician to
be able to absorb new knowledge quickly, to form sound judgement and
develop further problem-solving skills. Likewise, managers of intelligent digital
processes need to be far more comfortable asking questions of the models they
have at hand, designing experiments and interpreting the data they get back,
and making judgements based on a combination of data, direct observation
and experience (Thomas et al. 2014). The overall perspective is that it will be
essential for individuals to engage in re-skilling and be alert to continuously
update their human capital along with changes in digital technologies.

Digitalization, Autonomy and Remote Working

The management consultants’ perspective emphasizes how automation will
lead to increased efficiencies. In the ‘intelligent digital regime’ (Thomas et al.
2014, p. 17), work will evolve through a continuous, iterative process of exper-
imentation and adjustment. Some of the routine work will be taken over by
machines and systems; however, new skills will be needed such as operating
new technology and learning new knowledge and intuition to analyse the big
data. In the context of new business models, back-office work will be gradually
handed over to automated software or algorithmic systems. This approach will
be made possible by easy access to relatively inexpensive digital models and
400 A. KORNELAKIS

workflow templates. Additionally, technology adopted by the companies will

enable the automation of repetitive tasks, which can free up employees’ time,
increasing their work autonomy and discretion to carry out higher-level, non-­
routine manual and cognitive tasks.
The platform economy and especially crowdsourcing platforms such as
Upwork, Amazon Mechanical Turk and TaskRabbit allow for greater connec-
tivity and better matching between job seekers and tasks (Barty et al. 2015).
Big data will also help companies to identify suitable workers and combine
demand forecasting with scheduling tools, so that staff is available even at peak
times. Moreover, the ability of online platforms to codify skills can improve the
way tasks are allocated, which means that they could improve the signalling
about the skills and, by implication, the matching of employees (McKinsey
2015a). Finally, the use of digital tools such as broadband, cloud computing,
internal social networking platforms and video conferencing will enable people
in any organization to work remotely and efficiently irrespective of their loca-
tion. Digitalization will thus further enable and promote the diffusion of
remote, exile and virtual working.

Digitalization and Job Matching

As a corollary, the way companies recruit talent online will be affected by digi-
talization, particularly the emergence of online talent platforms. The pool of
talent that is available in sites such as LinkedIn and Indeed.com make it possi-
ble to recruit ‘passive’ candidates who may not be even looking for jobs
(McKinsey 2015b). In addition, the methods of recruitment and selection will
also become more advanced, as there are already sophisticated digital tools for
applicant screening and testing, on-boarding, team formation and performance
feedback (McKinsey 2015b). Task-based hiring is increasingly becoming more
popular and digital marketplaces for freelancers make it easier for employers to
call in outside help for some specific assignments. Platforms can dramatically
lower costs for small companies that need specialized help, for instance, for
accounting or marketing assistance for a product launch (McKinsey 2015b).
The common thread running through all of these changes is that skills and
lifelong learning will matter more than ever before. Furthermore, work in plat-
form markets can often be carried out flexibly, which creates opportunities for
those who would otherwise not work or those who can choose the time and
place of work. The flexibility, both temporal and spatial, is an important aspect
of the attractiveness of work for many workers in platforms (OECD 2016).
Thus, flexibility of working time will cater individuals who might not be able
to, or not interested in working full-time or on a fixed schedule.
 20 DIGITALIZATION, INSTITUTIONS AND THE FUTURE OF SUSTAINABLE WORK 401

Beyond the Management Consultant’s Hype: The Dark

Side of Digitalization
Digitalization and Joblessness
The dark side of digitalization entails pessimistic views about the future of
work. Among them, the most prominent is the prospect of mass unemploy-
ment because technology will render many jobs obsolete. The prospect of dis-
placement of workers is consistent with recent findings in studies of occupational
change that suggest that many, especially routine middle-skill occupations, dis-
appeared in the last 20 years due to routine-biased technological change (Goos
et al. 2014). For the future, estimates suggest that 47% of the jobs are charac-
terized by a ‘high risk’ to disappear in the next 10–20 years due to automation
and computerization (Frey and Osborne 2017). However, these broad projec-
tions have been questioned by other quarters of the policy-making nexus.
Recent analyses from the Organisation of Economic Cooperation and
Development (OECD) estimated that the risk of automation is much lower.
Employing a task-based approach, the jobs with a high risk of automation (i.e.
those jobs with at least 70% of tasks being automated) are estimated to be 9%
across the OECD (Arntz et al. 2016, p. 8).

Digitalization, Power and Work Intensification

The introduction of new digital technologies is likely to increase work intensity,
for example, by altering the tempo and pace of working time, which will be
structured by big data and algorithms, and result in the mode of ‘working any-
time, anywhere’ (Eurofound & ILO 2017). For instance, employees in organi-
zations currently may spend a significant portion of their working day checking
and replying to their work emails using their computers, tablets or even smart-
phones (Cascio 2019). Management practices and policies regarding working
time and work-life balance will be influenced by the expectation for universal
availability and reachability through mobile working. The unprecedented
monitoring capabilities of new digital systems, which can accurately collect data
on key performance indicators and frequency of use, will lead to an increase in
‘electronic’ performance management (Stone et al. 2015, p. 23). Especially
when employees are teleworking, the monitoring may contribute to an inten-
sification of work and could lead to employee burnout and work-related stress.
Finally, new technologies are expected to reallocate the autonomy and power
between professional groups (Petrakaki and Kornelakis 2016) and this, in turn,
will have implications for their work autonomy, their privacy rights and their
power to resist electronic monitoring and intrusive surveillance systems.
402 A. KORNELAKIS

Digitalization, Labour Rights and Precarious Work

The perils of digitalization of work for labour rights have reasonably attracted
the attention of European trade unions (EU Economic & Social Committee
2015; Unite 2015). Trade unions are concerned about the risks that are trans-
ferred from employers to employees; since some of the emerging forms of work
result in the blurring of the employment relationship. Platform work also raises
questions about the potential casualization of work, since platform workers
establish themselves as self-employed, which may well be bogus and spurious,
and hide a ‘dependent employment relationship’. The broader concern is that
service platforms, which transcend national boundaries, indicate a trend
towards insidious deregulation, as there is a failure to respect national labour
law (including employment contracts rights and dismissals protection). There
is also a risk that regulated jobs will be displaced by these new forms of work,
giving rise to a parallel and insecure ‘digital’ labour market that does not com-
ply with the social, tax and other regulations that govern workers in standard
employment relationships (EU Economic & Social Committee 2015).
Another main concern relates to the future of collective bargaining. The
technical possibility to engage in individualized contracts at very low transac-
tion costs poses an important challenge to collective bargaining. Collective
bargaining is rather difficult in markets for digital services delivered over the
Internet. Given that freelancers in platforms often do not work for any single
firm, and the platform only operates as an intermediary, collective bargaining is
difficult to establish. Additionally, in several countries, independent workers do
not even have the right to unionize as this goes against competition law regula-
tion. Even if they could, organization among geographically dispersed workers
tends to be difficult. All in all, current legislation has not caught up with these
fast-growing forms of employment and business models, and trade unions are
seeking new regulation for digital platforms. Overall, the trade unions’ main
concern is that the digitalization of the work is giving way to the casualization
of employment rights (Eurofound & ILO 2017).

Sustainable Work: Re-skilling the Workforce

and Re-regulating the Labour Market

Digitalization and Re-skilling the Workforce

As technology has developed rapidly, employees require access to new digital
skills and competences, to become proficient operators of new technologies.
This means that curricula in Vocational Education and Training (VET) need to
be reviewed and amended accordingly and related training measures have to be
implemented (Eurofound 2016). The increasing digitalization of production
processes also means that more STEM-related occupations will be needed in
manufacturing, but also in services. Examples of digital skills include program-
ming and coding skills, data analytics and cyber-security skills. Big data from
 20 DIGITALIZATION, INSTITUTIONS AND THE FUTURE OF SUSTAINABLE WORK 403

sensors and platforms will increase exponentially and advanced data analytical
skills will be essential in the near future.
This demand for new advanced digital skills must be addressed through an
enhanced focus on STEM education and training; and an enhanced coopera-
tion between networks of firms, colleges or universities and the government.
This challenge is more acute and immediate in some sectors like the informa-
tion and communications technology (ICT) industry, but in all sectors, digita-
lization is creating the need for new skills including soft digital skills using the
Internet, creating a website or developing an app. In addition to them, the
demand for other soft ‘employability’ skills such as team-working skills, com-
munication skills and problem-solving skills is also increasing (Kornelakis and
Petrakaki 2020). The softer skills are quintessential for the facilitation of
‘hybrid’ jobs that follow the ‘human plus machine model’ and require close
human-machine interactions (Eurofound 2016).
As the recent report from the World Economic Forum illustrates, a key issue
is who will pay for the reskilling of employees (World Economic Forum 2019).
For this reason, the reskilling process will require the change not only in VET
systems but also in firms. It can be facilitated by human resource (HR) man-
agement practices and processes that include lifelong learning, training and HR
development (Kornelakis 2014). These will be a key lever for organizations to
adjust to mega trends of digitalization and the advent of the gig economy
(Cascio 2019). Reskilling and upskilling for digitalization may take place
through retraining programmes within traditional internal labor market
arrangements and on-the-job retraining. Therefore, employers will need to
increase investment in training existing employees in line with company needs
to keep up with new processes. A major challenge is to increase the digital skills
of current workers, and in particular older ones, which could close the widen-
ing generational digital skills gap. Overall, the trend to acquire future skills
through work-based learning will continue, with a focus on ensuring that train-
ing provision meets the changing demand for digital working in the future.
Work-based learning is an effective means of bringing digital skills to the work-
force and also an excellent way of preparing young people in education for the
labour market. However, there are clearly limits to how far reskilling by itself
can remedy the problems that will be created by digitalization. For this reason,
it has to be combined with a radical rethinking of what is work and how this is
regulated.

Digitalization and Re-regulating the Labour Market

Regulation has a major role to play towards encouraging and supporting the
economic potential and the efficient development of sustainable working. New
protection mechanisms, particularly on specific regulations, should be intro-
duced for each new work organization innovation or business model. It is vital
to ensure that the existing rules are effectively enforced to meet the new chal-
lenges posed by developments in the platform economy (Kenney and Zysman
404 A. KORNELAKIS

2016). These developments require an adjustment of the institutional frame-

work as defined by law, collective agreements and works council arrangements.
Moreover, existing labour laws will need to be adjusted to these new chal-
lenges, with the overall prospect of promoting sustainability and inclusiveness
in employment relations. For instance, a good example is the passing of legisla-
tion in France of the ‘right to disconnect’ that allows workers to avoid checking
work emails out of normal working hours (The Guardian 2016).
While digitalization has put the new forms of employment on the spotlight,
the definition of ‘employee’ and the articulation of collective solutions agreed
by the social partners, remains of central importance in shaping the world of
work. Collective bargaining regulation has an important role to play to shape a
‘just transition’ to sustainable working by re-regulation working conditions at
the company or sectoral level. The compromises between management and
employees can be an important tool to navigate the new environment (Unite
2015). In an increasingly digitalized and internationalized industry, the role of
collective bargaining could be strengthened, while respecting the principle of
the freedom of association.

Comparative Institutional Theory and the Future

of Sustainable Work

The comparative organizational and management literature (Kornelakis 2018a)

can lend us important insights for the future of sustainable working amid a
sustained period of digital disruption. On the one hand, the literature sought
to provide a counterweight to the obsession of management consultants with
‘best practice’ and ‘organisational change’ (Sorge and Van Witteloostuijn
2004). The latter attached greater importance on the sterile comparison of
management practices to maximize performance, and accorded less attention
on the appropriateness and fit of different practices and organizational forms
with their institutional and societal context.
With the advent of digitalization, we observe a similar trend. Management
consultancies operate as the main ‘movers and shakers’ of new management
ideas and fashions, and over-emphasize the role of digital transformation in
cutting costs through automation, increasing revenues through new digital
markets and digital market channels of distribution. As a response to the digital
disruption, they are searching for universal solutions irrespective of country
and societal context.
This universalistic approach to, and obsession with, ‘best practice’ misses the
point of a large body of literature in comparative management, which sug-
gested that there is no ‘one-size-fits-all’ approach (Kornelakis 2018b). Seminal
works in the comparative institutional literature suggested that institutions do
matter and that the impact of similar technologies on work organization is
mediated by the societal-context in which they are embedded (Morgan and
Kristensen 2014; Sorge 1991). More recent work in the broader comparative
 20 DIGITALIZATION, INSTITUTIONS AND THE FUTURE OF SUSTAINABLE WORK 405

HR management field (Festing 2012; Holman and Rafferty 2018; Kornelakis

et al. 2017; Mayrhofer et al. 2011) has showcased how national institutions
moderate the pressures of globalization and shape the dynamics of change in
management practices. Although the comparative studies of national business
systems, employment relations and corporate governance (Gospel and
Pendleton 2006; Hotho 2014; Whitley 2007) have given us important insights,
the interplay between technology, work organization and production regimes
has fallen behind in terms of empirical exploration and conceptualization.
This gap becomes even more pertinent in light of current developments
around the digitalization of work and the emergence of platform capitalism
and their implications for sustainability in the work environment. We still do
not know how organizations across sectors and countries will adjust to the
challenges posed by the fourth industrial revolution. Digitalization is likely to
form a new source of pressure for convergence, whereby organizations across
countries will imitate each other to exploit the cost and productivity advantages
of new technologies. These new developments deserve the careful attention of
comparative management scholars and warrant the development of a new
research agenda.

Towards a Research Agenda for the Future

of Sustainable Work

The profound and rapid transformations brought about by the digitalization of

work highlight the important gaps in our knowledge of its impact on the future
of sustainable working. While the practitioner literature speculates on possible
effects, the overall discourse is driven by management consultants’ hype and
metaphors (Sorge and Van Witteloostuijn 2004) that overplay the beneficial
effects of new technologies in terms of minimizing costs and maximizing rev-
enues, whilst downplaying the importance of local institutions in transmitting
these effects.
Further research should first and foremost focus on researching contempo-
rary cases of digitalization in different sectors of the economy and the implica-
tions for people, work practices and processes. Preliminary evidence suggests
that it is not manufacturing, but it is the service sectors that are now at the
forefront of digital transformation including white-collar sectors such as ICT,
finance, insurance, professional services, media and telecommunications
(McKinsey 2016). For instance, the financial industry is a sector that has been
emblematic for many decades of secure and stable white-collar jobs. This sector
is now threatened by digitalization and large-scale initiatives of digital restruc-
turing in the coming years, as the example of Deutsche Bank suggests (The
Guardian 2017). In sum, we need further in-depth and sector-specific studies
that study the effects of new digital technologies on employment and (un)
sustainable working patterns across different countries.
406 A. KORNELAKIS

Beyond sectoral studies that chart the impact of digitalization on sustainable

work, we also need an ongoing research programme of innovative solutions at
different levels of analysis. We need to know more about what different orga-
nizations—sectoral associations or governments—are doing to mitigate the
negative repercussions of digitalization on their workforce. These studies may
well include what and how transnational and national organizations and asso-
ciations negotiate agreements in order to deal with digital structural change
and how transnational regulation is amended to increase the sustainability of
future working arrangements. In other words, we need to know how different
actors and stakeholders influence the process of digitalization by mitigating the
unsustainable aspects of the digitalization of work. The comparative perspec-
tive is pertinent here as we may well observe that the societal institutions medi-
ate the impact of new technologies differently.
In addition, further research is needed on the type of contractual arrange-
ments for ‘self-employed’ workers in the platform economy. We need to come
up with innovative ways to ensure that these micro-jobs are compliant with
national employment laws and do not create a threat to domestic workers
undercutting wages and working conditions. As the platform economy tran-
scends national borders, transnational regulation may be the best medium to
confer the platform workers a minimum of employment rights, such as sickness
pay, leave and access to national social protection schemes. At the same time,
the jobs in the gig economy should not reflect one-sided flexibility (Taylor
2017) but should serve the interests of workers and business alike.
Finally, digitalization is set to disrupt the organization of work in the manu-
facturing sector at a global scale. Emerging technologies, such as the IoT, 3D
printing and AI, reshape manufacturing processes and shift them towards new
models of redistributed and localized production with high value-added cus-
tomized products. This move from mass production and diversified quality
production models (Sorge and Streeck 2018) to ‘mass customization’ produc-
tion models has the potential to dramatically simplify the current complexity of
global value chains. But this re-organization will undoubtedly have implica-
tions for the application of international labor and environmental standards in
global value chains. Hence, ‘threats to relocation’ of production may also take
the form of ‘threats to digitalization’ of production. Further research should
examine the potential impact of new technologies for decent work and envi-
ronmental sustainability, including the potential of green jobs, in the contexts
of both developed and developing countries.

Acknowledgments An earlier version of this chapter was presented at the conference

‘Industry 4.0: Triggering Factors and Enabling Skills’ ADAPT, University of Bergamo,
1–2 December 2017, and I would like to thank the participants for their comments. I
would also like to thank Natalie Yang for research assistance.
 20 DIGITALIZATION, INSTITUTIONS AND THE FUTURE OF SUSTAINABLE WORK 407

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 CHAPTER 21

Digital Capabilities: Bridging the Gap Between

Creativity and Performance

Sílvio Luís de Vasconcellos, José Carlos da Silva Freitas Jr,

and Fabio Miguel Junges

Introduction
The need for a deeper understanding of the context of digital transformation
and the corresponding need to hire more creative people is manifest both in
the intense coverage dedicated to the subject by the international media and in
the strategies adopted by large companies founded on knowledge, such as
Google, Facebook, Amazon, and Microsoft. Recently, the McKinsey Global
Institute reported that by 2030 about 375 million workers (about 14% of the
global workforce) might need to change occupational categories because of
digitization, automation, and advances in artificial intelligence (AI) (Illanes
et al. 2018).
Development of a toolbox of digital capabilities may constitute the differen-
tiating factor that firms need to overcome the challenges of an economy that is
ever more fluid, integrated, and dynamic and in which technology is one of the
drivers of development by 2025. It is in this context that creativity appears to
play an important role, given that the majority of organizations are no longer
subject to restricted access to technology. Although the role of organizational

S. L. de Vasconcellos (*)
Universidade Regional de Blumenau (FURB), Blumenau, Brazil
e-mail: [email protected]
J. C. da Silva Freitas Jr • F. M. Junges
Universidade do Vale do Rio dos Sinos (UNISINOS), São Leopoldo, Brazil
e-mail: [email protected]; [email protected]

© The Author(s) 2021 411

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_21
412 S. L. DE VASCONCELLOS ET AL.

creativity in performance is consolidated on strategy literature (Bissola et al.

2014; Ericsson and Moxley 2012), we propose the mediating role of digital
capabilities in environments where digital transformation is imminent as a nov-
elty. This chapter primarily contributes to an understanding of the relationship
between creativity and organizational performance, measured in terms of the
development of digital capabilities. We conducted a study in Brazil of firms
from several different industries. We assessed whether they perceive superior
performance when they used creativity as a resource to enable them to develop
their digital capabilities.
The Brazilian setting is relevant because the country has the largest econ-
omy in Latin America and is at an intermediate stage of industrialization, hav-
ing started to actively compete with other economies when trade barriers were
removed during the last decade of the twentieth century. We opted to conduct
an empirical study, based on a survey of 102 Brazilian organizations in different
industries, using a data collection instrument that has been validated in prior
research. The results indicate that there is a relationship between creativity
within organizations and reinforcement of their digital capabilities in the con-
text of digital transformation and that organizations’ performance is affected
positively in environments with better developed digital capabilities.
This chapter has contributions to make to the literature on the development
of dynamic capabilities and also contributes to understanding how firms should
develop specific skills to deal with growing competition, which is no longer
restricted to improving operational efficiency, but takes in the capacity to rap-
idly transform operations from analog to digital, synchronizing actions with
the demand from customers and suppliers and for keeping ahead of competi-
tors, spread across different parts of the globe.
In the context of abundant technological resources, access to disruptive
technologies, such as AI, Internet of things (IoT), blockchain, and cloud com-
puting, can no longer be considered as a source of competitive advantage in of
itself. Organizations, therefore, need to understand that the competencies
needed to articulate these resources can confer an advantage in their markets.
As such, organizational creativity emerges as an essential component in this
equation. First, because making organizations more creative has social effects
since creative jobs tend to be substantially better paid. Second, as disruptive
technologies become relevant, digital resources are needed to make them more
efficient. Third, managerial trends by 2025 must combine artificial and human
intelligence in a harmonious way. Given that organizational creativity has
become a key element in digital transformation, the research question that
permeates this chapter is: To what extent digital capabilities can mediate the
relationship between organizational creativity and the performance of firms in
the face of digital transformation?
This chapter is divided into sections. First, we provide an overview of the
context of digital transformation. We then cover how the literature has dealt
with organizational creativity and digital capabilities, proposing two hypothe-
ses that run through the chapter. And then we explain how we conducted our
 21 DIGITAL CAPABILITIES: BRIDGING THE GAP BETWEEN CREATIVITY… 413

statistical analysis before presenting the results. The final part of the chapter is
dedicated to a discussion of the results of the empirical component and some
conclusions.

Context and Background

Digital transformation has wide-reaching effects on markets and industries,
both from the perspective of consumers and from the perspective of suppliers,
because it enables the practices of innovation, creation of new business models,
and new forms of consumption and design. It has also contributed to a refor-
mulation of aspects related to employment, creation of a new type of organiza-
tion, and of a variety of new ways of capturing value through the supply of
products and offering of services.
Among the benefits that can be identified with adoption of these new tech-
nologies, we can list improved relationships with customers, increased opera-
tional efficiency, the ability to penetrate new markets and to create new products
and services, and the means to maintain a competitive position in a scenario in
which competition has become global (Bharadwaj et al. 2013; Chen et al.
2016; Stief et al. 2016). Understanding the factors involved in digital transfor-
mation that are linked with better organizational performance is now, there-
fore, critical for organizations to be able to maintain their positions in their
markets.
However, digital transformation is not merely the result of adopting and
implementing new technologies in products and services. It involves a pro-
found transformation of organizations’ strategic perspectives, of their business
processes and, especially, of aspects related to people and the organizational
culture (Warner and Wäger 2019), taking in aspects such as creativity in the
application of new technologies and fostering the development of digital capa-
bilities. Microsoft is a clear example on a global organization that has managed
to transform the essence of its strategy and culture over the last five years,
recapturing the title of the most valuable firm on the planet after making sig-
nificant changes to its culture and product strategy and adoption of new tech-
nologies in its platforms on a global scale.
Although there has been much discussion of how the adoption of new tech-
nologies leads to superior performance for an organization, the relationship is
still inconclusive, meriting more considerable attention in academic studies
(Nwankpa and Roumani 2016). Thus, digital transformation is not only a chal-
lenge for businesses but also for people and governments. The prevailing model
of education in the twentieth and early twenty-first century is still mainly linked
to older professions that were not necessarily focused on creative skills (Acar
et al. 2019). The discussion for the third decade of the twenty-first century is
how we will employ a mass of human beings who were not prepared to be
creative. Some assumptions are already explicit: creativity is the last frontier of
AI (Otake 2016). Digital capabilities are needed to deal with digital
414 S. L. DE VASCONCELLOS ET AL.

transformation (Mu and Lee 2005). In sum, there is no discussion of whether

digital transformation will change the context; it is the context (Li 2011).
Digital capabilities can be understood as a combination of skills and pro-
cesses of digital business for development, mobilization, and use of organiza-
tional resources supported by digital technology platforms to respond to the
environment and add value to the organization (Tams et al. 2014). In this
chapter, we propose to discuss creativity as a crucial resource (de Vasconcellos
et al. 2019) for reorganizing the workforce, implementing strategies, and, in
particular, for conceiving digital capabilities to face digital transformation.
Digital transformation is the phenomenon of adoption of new technologies,
such as IoT, artificial intelligence, blockchain, Big Data, and cloud computing,
that facilitate the digitalization of organizations’ processes. This conjunction of
events has accelerated over the last 20 years because of the exponential growth
and availability of these new technologies on a global scale (Nadeem et al.
2018; Stief et al. 2016). This recent phenomenon has become a buzzword
worldwide and has found its way onto the agenda in both public and private
sectors, irrespective of the size, business sector, or origins of the organizations
involved (Bharadwaj et al. 2013; Bouwman et al. 2018), because failure to
transform an organization can result in loss of market share and may even sig-
nal the end of its ability to continue as a going concern (Nadeem et al. 2018).
There are recent examples of firms that once dominated the global scene but
lost their respective positions precisely because they were not alert to the social
and technological transformations that were taking place around them. The
cases of Kodak, RIM (Blackberry), and Nokia are just some of the many exam-
ples of this phenomenon. Ironically, all three of these firms dealt with innova-
tive and disruptive technologies and were among the most valuable companies
in the world in their time. Undoubtedly, it was not a lack of financial resources
or access to technology that prevented them from maintaining a competitive
position in their markets. However, they nevertheless failed because they did
not correctly read the velocity with which the transformation would take place.
In this context of accelerated digital transformation, we believe that creativ-
ity is an essential element for the development of digital capabilities in organi-
zations. This powerful combination is associated with better performance; a
hypothesis that we discuss in the sections that follow, and which we test with
the results of the empirical study that we present below.

Literature Review

Organizational Creativity
Organizational creativity is a result of social interaction between the creativity
of the individual people who make up an organization and the resources that it
possesses, as long as there is an atmosphere that fosters this interaction (Isaksen
and Ekvall 2010). In this context, organizational creativity can be defined as
the creation of value that can be useful for the development of innovation in
 21 DIGITAL CAPABILITIES: BRIDGING THE GAP BETWEEN CREATIVITY… 415

products, services, ideas, and procedures that originates from individuals who
work together in a complex social context (Woodman et al. 1993). The com-
bination of these factors enables an organization to cope with changes that may
be technological, market-based, or social (Woodman 2008).
The current concept of organizational creativity has come a long way. If up
to the start of the twentieth century, creativity was considered an individual
phenomenon, restricted to talented people with gifts that differentiated them
from other people (Lubart 2001; Runco 2001), as the decades passed, it came
to be associated with elements that, to a certain extent, restricted productivity
and caused conflicts in activities focused on repetitive tasks, since creativity
tended to break with established bureaucratic structures (Cummings 1965).
However, as creativity proved to be essential both for innovation (Amabile
1988) and for the entrepreneurial practices needed to cope with environments
in transformation (Chakrabarti et al. 2011; Kor et al. -2007), creativity came
to be considered a social phenomenon, although one that can be interpreted as
a firm resource, resulting from sharing and validation of the creativity of indi-
viduals who are part of the same entity—an organization—and, therefore a
resource that is capable of contributing to make it more competitive (Bratnicka
2013; Teece 2017).
Although there are theoretical debates about whether creativity is a resource
or an articulation of resources, and thus a dynamic capability (Zollo and Winter
2002), some studies show that organizational creativity acts as a crucial resource
for building capabilities and that these, in turn, are an element in the construc-
tion of competencies (de Vasconcellos et al. 2019). In order to constitute a
resource, organizational creativity is dependent on factors that must be harmo-
nized in order to emerge socially through the articulation of multiple individ-
ual skills, stimulated by divergent thinking, which is then consolidated into an
organizational capacity as a result of collective convergent thinking (Acar and
Runco 2019). There are three critical elements in this process: organizational
motivation, resources, and management capabilities (Amabile 1996; Amabile
et al. 1996).
Organizational motivation is linked to individuals’ perception that their
ideas are being implemented for the benefit of the organization. Organizational
motivation emerges when the individuals that make up an organization, col-
lectively, feel motivated (Runco 2004). In turn, resources, whether tangible or
intangible, must be valuable, rare, difficult to imitate, and employed by the
organization to create competitive advantage (Barney 1991). Possession of
resources that can be articulated with others is essential for organizational cre-
ativity to reveal itself. Finally, management practices create options for dealing
with conditions of uncertainty, creating value, and sustainable competitive
advantage (Sirmon and Hitt 2007). When articulated, these elements enable
combinations of individual creativity within an organization to be transformed
into a new resource, organizational creativity, the basis for the construction of
ever rarer capabilities that are determinant of organizations’ performance
(Bratnicka 2013).
416 S. L. DE VASCONCELLOS ET AL.

Given the complexity and subjectivity of organizational creativity, measuring

it is a challenge for the academic community. For example, Ekvall (1996) pro-
posed a model comprising 50 questions based on organizational climate as the
driving element of creativity. In turn, Amabile et al. (1996) proposed a model
with 78 questions that combine other elements, such as motivation, resources,
and management practices, to evaluate organizational creativity as a determi-
nant factor in a firm’s capacity to innovate.
Over the last few decades, these models have provided the foundation for
other studies, which partially built on prior results (e.g., de Vasconcellos et al.
2019; Moultrie and Young 2009) and refined them. Our proposal for hypoth-
esis 1 is intended to help confirm whether firms with greater organizational
creativity do, in fact, achieve better performance.

H1: There is a positive and significant relationship between organizational cre-

ativity and organizational performance.

The technological advances that challenge organizations force them to

innovate and develop practices with which they are unaccustomed. Considering
that organizational creativity is a determinant element in coping with the sig-
nificant transformations that are in course and which demand knowledge,
innovation, and the ability to transform practices rapidly and efficiently
(Chakrabarti et al. 2011), we propose that digital capabilities, which are essen-
tial for digital transformation, mediate the relationship between organizational
creativity and organizational performance.

Digital Capabilities
In order to understand the idea of the connection between creativity and digi-
tal capabilities, in the context of digital transformation, already highlighted at
the start of this section, it is necessary to take a step back and understand cer-
tain underlying concepts such as resources, capabilities, and competencies.
Javidan (1998) uses the metaphor of a pyramid to conceptualize their hierar-
chical levels, where the bottom level comprises resources. They, therefore,
form the foundations of the structure, in other words, the blocks that support
competencies by means of orchestration of these elements to enable superior
performance (Sirmon et al. 2011). If, on the one hand, resources are the inputs
to the organization’s value chain, capabilities are the firm’s ability to exploit
and combine its resources and other capabilities, constituting the second level
in the hierarchy. Finally, competency is at the top of the structure, as the third
level. It comprises the integration and coordination of resources and capabili-
ties, which, in the form of competency, is perceived by the market and is capa-
ble of generating organizational performance. In this study, we focus on
creativity, at the first level, and digital capabilities, at the second level. Digital
capabilities are part of the framework of capabilities that enables firms to gener-
ate competitive advantage.
 21 DIGITAL CAPABILITIES: BRIDGING THE GAP BETWEEN CREATIVITY… 417

Digital capabilities emerge with the organization’s need to become agile

since, in order to rapidly adapt to technological progress, it is necessary to
develop new capabilities (Teece 2018). Digital capabilities are defined as a col-
lection of capabilities that amplify an organization’s ability to develop, mobi-
lize, and effectively utilize its organizational resources and improve its processes,
such as customer relationship management, product development, knowledge
management, and collaboration through use of digital technologies (Tams
et al. 2014). Digital technologies enable new processes for the creation of
enterprises and can be malleable, editable, self-referential, and interactive,
which is why they demand digital capabilities (Nambisan et al. 2017).
When firms find themselves faced with the challenge of dealing with digital
transformation, their digital capabilities contribute to improving business per-
formance concerning their competitors, delivering a quality product or service
to their customers. However, the firm must be capable of managing the rela-
tionships between the multiple actors involved in its business, such as its sup-
pliers and the firm’s employees, and this demands an adequate strategy
(Bharadwaj et al. 2013). In this study, we test the role of organizational creativ-
ity as a crucial resource in this process. Creativity is necessary to enable digital
capabilities to be incorporated into products as operant capabilities, thereby
creating new functionalities and developing new skills (Yoo et al. 2019). Digital
capabilities include sensing capability, responsiveness capability, process digiti-
zation capability, and market connectivity capability (da Freitas 2017; 2018).
Sensing capability is the capacity to detect, interpret, and seek opportunities
in the environment (Pavlou and El Sawy 2011). Sensing capability enables
digital businesses to deal with specific challenges, such as difficulty with identi-
fying new business opportunities, enabling them to work with an infinite range
of new channels, for example, social media and IoT (Müller et al. 2015). This
capability, therefore, plays an essential role in the acquisition of data from the
environment to produce useful information through data mining, to make a
significant difference in operational excellence and competitive market response
(Grover and Rajiv 2013), given that detection is a crucial element for subjec-
tive assessment and decision-making.
Responsiveness capability refers to the capacity to rapidly and effectively
respond to customers’ needs and desires and, consequently, improve perfor-
mance (Kohli and Grover 2018; Setia et al. 2013; Tams et al. 2014).
Responsiveness capability also helps firms to understand changes in consumer
behavior, increasing customer satisfaction, which yields several benefits such as
good recommendations on social media and a reduced number of complaints,
resulting in more customers and, consequently, more sales, translating to bet-
ter business performance.
Process digitization capability refers to the transformation of analog pro-
cesses into digital processes, marking the transition from traditionally conduct-
ing business to the digital (BarNir et al. 2003). Firms should develop the
capacity to obtain process visibility so that they can react and respond to prob-
lems or changes as quickly as possible (Kohli and Grover 2018). Process
418 S. L. DE VASCONCELLOS ET AL.

digitization is thus a digital capability that can be developed for digital busi-
nesses using digital technologies. Process digitization capability increases the
velocity of the processes to which it is applied and is linked to responsiveness
capability since once a process has been digitized, response can be instant.
Therefore, the scope of the processes digitized ensures agility and the capacity
to respond, in providing customers with access to information and within the
firm (Setia et al. 2013).
The market connectivity capability relates to technological integration with
suppliers and customers (da Freitas Jr et al. 2017). As digital technologies and
their functions evolve, firms are developing new strategies to serve market
dynamics, competing face-to-face in some markets and organizing into digital
ecosystems (e.g., Apple and Amazon both sell hardware), while cooperating in
others to ensure connectivity (Yoo et al. 2019). This connectivity capability
enables firms to connect with customers and other stakeholders at any time, in
any place, with any person, so that all actors are connected within the ecosystem.
The new digital infrastructures and their related capabilities can make criti-
cal contributions, complementing collaborative practices, such as collaboration
with customers or within an ecosystem. The ecosystem architecture can also be
constructed to meet the requirements and structure of the firm, and it is pos-
sible to combine one or more ecosystems, offering the ability to take responsi-
bility for coordinating co-creation of value and actions within the ecosystem
(Nambisan et al. 2017). This capability contributes to enabling digital resources
to be configured to exploit opportunities, rapidly responding to market
demands.
Working from the assumption that organizational creativity is an essential
resource for the formation of digital capabilities and that digital capabilities
leverage firms’ organizational performance in the context of digital transforma-
tion, we propose that digital capabilities have a mediating effect on the rela-
tionship between organizational creativity and organizational performance, as
stated in hypothesis 2.
H2: Digital capabilities mediate the relationship between organizational cre-
ativity and organizational performance.
Taking the two research hypotheses together, we designed and carried out
an empirical study in Brazilian organizations from a variety of industries. The
study is described in detail in the next section, and the relationship between the
underlying hypotheses is illustrated in Fig. 21.1.

Research Method
For heterogeneity, we scrutinized the respondents from a list of 4758 organiza-
tions from 625 cities, located in 23 Brazilian states, ranged from micro to large
firms from diverse industries. The sample adequacy for applying linear regres-
sion, we considered a 95% confidence level and a 10% margin of error, resulting
in a minimum of 95 respondents (Maroco 2010). Thus, we conducted an
empirical study with 102 Brazilian organizations in order to investigate the
 21 DIGITAL CAPABILITIES: BRIDGING THE GAP BETWEEN CREATIVITY… 419

Digital
capabilities
+H2

Organizational Organizational
creativity +H1 performance

Fig. 21.1 Research model to study the relationship between organizational creativity
and organizational performance. (Source: Authors’ creation)

relationship between organizational creativity and organizational performance,

as well as the role played by digital capabilities in this association.
We consider that Brazil offers an appropriate setting for this investigation,
since it is one of the ten largest economies in the world and the largest in Latin
America, and because it is at an intermediate stage of industrialization, in a
scenario in which aspects related to digital transformation are widely discussed
in organizations in the struggle to maintain competitiveness in an ever more
globalized market. Additionally, Latin America as a whole is challenged by
Asia’s accelerated economic growth, innovation, and production, strongly
influenced by China, and is thus in need of rapid responses to ensure that the
future of this region that is important in the global scenario is not
compromised.
The industries in which the firms in the sample do business are heteroge-
neous, which offers the opportunity to measure whether the effect of creativity
on performance is associated with the level of knowledge and innovation.
Additionally, 61 of the firms studied export, and 33 of them have some opera-
tion abroad. We tested the hypotheses using ordinary least squares regression
of our cross-sectional data on 102 Brazilian companies: 30 manufacturing
firms, 30 retail firms, and 42 service providers.
We adapted three scales to construct a questionnaire. To measure organiza-
tional creativity, we adapted a scale used by de Vasconcellos et al. (2019), which
had itself been adapted from Moultrie and Young (2009), who based it on
Amabile et al. (1996). To measure digital capabilities, we adopted a scale by
Freitas Jr. et al. (2017) and Freitas Jr. (2018). To measure organizational per-
formance, we adapted a scale from Zou, Taylor, and Osland (1998), which
probes managers’ perceptions of organizational performance. We chose to
420 S. L. DE VASCONCELLOS ET AL.

measure organizational performance in terms of the perceptions of the manag-

ers who responded to the survey because secondary data on financial perfor-
mance was unavailable since an absolute majority of the firms that participated
in the study are not listed and do not publish their financial results.
Three academics and two executives validated the final version of the ques-
tionnaire to ensure reliability. We used back translation to ensure that transla-
tion of scales in English into Portuguese did not result in loss of intrinsic
meanings, affecting the results. We also took the precaution of standardizing
questions and scales to give interviewees a sense of integration. Finally, we
standardized response items to a Likert scale ranging from 1 (disagree com-
pletely) to 7 (agree completely) to facilitate comprehension.
Data were collected via telephone during August 2019, using university
employees who are data collection specialists. Before starting the calls, we held
a standardization meeting with the team of interviewers to avoid response bias.
We explained the study objective and the constructs covered. We also con-
ducted a pre-test with 32 interviewees before initiating the study. Validity was
confirmed, and all items were retained.
We used time since the establishment of the firm, the number of employees,
and turnover as control variables. We assessed each variable after confirmatory
factor analysis, considering compound reliability (CR), variance extracted
(AVE), and Cronbach’s alpha (CA). The scales exhibited adequate reliability.
Since we only collected data from one representative of each firm, we ran
Harman’s single factor test to check for common method bias (Podsakoff et al.
2003). The single factor test explained less than 50% of the covariance between
variables, indicating that common method variance is not a severe problem.
Having demonstrated the adequacy of the data and the constructs, we pro-
ceeded to test the hypotheses.

Results
We tested the hypotheses using three regression analysis models. While the first
model measured the effect of the control variables on organizational perfor-
mance, the second model evaluated the relationship between organizational
creativity and performance. Finally, the third model assessed the mediation
effect of digital capabilities on the relationship between organizational creativ-
ity and performance. Table 21.1 summarizes the data compiled, showing that
all three models were significant (p<0.01).
The results for Model I, shown in Table 21.1, demonstrate that when only
the control variables are assessed in the model, performance can be explained
by firm size, represented by the number of employees (β = 0.353, p < 0.05).
The firms in the sample that have larger numbers of employees have a higher
probability of better performance.
In contrast, when firm size is operationalized as revenue, there is no signifi-
cant association. Model I also indicates that firms that have existed for longer
have a significant and negative relationship with performance (β = −0.247,
 21 DIGITAL CAPABILITIES: BRIDGING THE GAP BETWEEN CREATIVITY… 421

Table 21.1 Research model for studying the relationship between organizational cre-
ativity and organizational performance
Model I Model II Model III

Dependent Organizational Organizational Organizational

variable performance performance performance
Independent Organizational Organizational
variable creativity creativity
Mediating variable Digital capabilities
Control variables Revenue, employees, Revenue, employees, Revenue, employees,
Time since Time since Time since
establishment establishment establishment
R2 0.081*** 0.188*** 0.440***
F 2.861 5.625 15.110
R2 change 0.155*** 0.411***
F change 12.878 43.246
β org. Creativity 0.349*** 0.119
VIF org. Creativity 1.130 1.340
β digital 0.592***
capabilities
VIF digital 1.390
capabilities
β revenue −0.114 −0.165 −0.157
VIF revenue 2.040 2.064 2.064
β employees 0.353** 0.270* 0.113
VIF employees 2.312 2.376 2.473
β time −0.247** −0.159 −0.020
VIF time 1.247 1.318 1.394

Source: Authors’ creation

Notes: (*) sig. to p<0.10; (**) sig. to p<0.05; (***) sig. to p<0.001

p < 0.05). The older the firm, the worse the performance. In summary, this
model explains around 8% of these firms’ performance.
In the same table, Model II includes the independent variable organiza-
tional creativity. In this model, performance can be explained by organizational
creativity (β = 0.349, p < 0.01) and by size, represented by the number of
employees (β = 0.270, p < 0.10). In this model, with organizational creativity
included, time since the establishment of the firm is no longer significant.
In Model III, we included the variable digital capabilities. In this model,
performance is explained by the variable digital capabilities (β = 0.592,
p < 0.01). None of the other variables were significant in the model, which
suggests that there is total mediation by the variable digital capabilities.
We conducted Sobel’s test to test whether mediation by the variable digital
capabilities affects the relationship between organizational creativity and per-
formance. The result was significant (Soper 2019), confirming the mediating
power of the variable digital capabilities.
422 S. L. DE VASCONCELLOS ET AL.

Discussion
In this chapter, we attempted to understand how creativity and digital capabili-
ties are related to organizational performance in the context of digital transfor-
mation. Therefore, we interviewed 102 managers from different firms in
different industries in Brazil and with varying degrees of involvement in the
international/foreign market.
Initially, we tested whether the control variables had effects on the organi-
zational performance of this group of firms. We found that firms with more
significant numbers of employees and which had been in existence for shorter
periods had better performance than the others. We then moved on to assess
the effect of organizational creativity.
When we tested whether creativity was associated with superior firm perfor-
mance, we found that the result was positive. A 100% change in organizational
creativity was linked with a 19% increase in performance, which indicates that
firms that invest in developing creativity among their employees perceive supe-
rior organizational performance in relation to organizations that do not stimu-
late creativity through their management practices. We also found that the
negative effect of time since the establishment of the firm was no longer signifi-
cant, leading us to believe that organizational creativity is capable of mitigating
the negative effect on the performance of time in existence and reduces the
effect of organization size, measured in terms of the number of employees.
We then tested for the existence of a mediating effect of digital capabilities
on this relationship. The theoretical assumption was that organizational cre-
ativity would act as an antecedent of several other capabilities, such as innova-
tive capability and entrepreneurial capability (de Vasconcellos et al. 2019).
According to the logic of the existence of resources that are the foundations for
competencies that lead to superior performance (Javidan 1998), it was feasible
to suggest that organizational creativity would act as a driver of digital capabili-
ties and that firms that achieved higher levels of development of digital capa-
bilities would have even better performance.
The results support the second hypothesis proposed. When the digital capa-
bilities measure was added to the model, the model became more robust, lead-
ing to the observation that a 100% increase in a firm’s digital capabilities,
founded on its organizational creativity, was associated with a 44% increase in
the interviewees’ perceptions of their organizations’ performance. In this
model, none of the control variables had any effect on organizational perfor-
mance, leading to the conclusion that more creative firms and those that
develop digital capabilities can mitigate the negative effect of time in existence
and the positive effect of the number of employees on the organization’s
performance.
These findings are revealing in both theoretical and management terms.
From a theoretical perspective, they confirm the existence of the hierarchy of
resources, capabilities, and competencies proposed by Javidan (1998), since
the mediation effect was confirmed statistically. They also show that
 21 DIGITAL CAPABILITIES: BRIDGING THE GAP BETWEEN CREATIVITY… 423

organizational creativity serves as a foundation for firms that are faced with
digital transformation, considering the significant association between organi-
zational creativity and digital capabilities. Furthermore, these findings favor the
interpretation that firms that understand how to articulate and orchestrate
resources and capabilities (Sirmon et al. 2011) obtain superior performance.
They also confirm the premise that simply possessing resources, without articu-
lation, is insufficient to achieve organizational performance (Barney 1991).
The study also contributes to the insight that digital capabilities are an integrat-
ing element between organizational creativity and perceived firm
performance.
Concerning contributions to management practice, this study indicates
which dimensions of creativity should be promoted in order to enable it to
emanate among the people who work in the organization. Motivation,
resources, and creativity-oriented management practices are elements that,
when developed, can boost performance. However, the effects are superior
when this creativity is articulated with the elements responsible for digital capa-
bilities, such as a sensing capability, responsiveness capability, process digitiza-
tion capability, and market connectivity capability (da Freitas Jr 2018, 2017).
In parallel, this study also reveals the mitigating effects of the disadvantage
of time since the establishment of the firm on digital transformation. When the
variable organizational creativity is included in the model, to the extent that it
is applied to digital capabilities, the significant and negative effect of time since
the establishment of the firm on performance ceases to exist. The results also
support the conclusion that smaller firms can achieve better performance when
they become more creative and when they develop their digital capabilities,
given the total mediation, canceling out the effects of the other variables
included in the regression.

Conclusions
This study attempted to understand how creativity and digital capabilities are
related to organizational performance in the context of digital transformation.
The results of the empirical study yielded evidence that there is a relationship
between creativity and organizational performance, mediated by development
of digital capabilities, highlighting that firms that are more creative and that
develop digital capabilities are capable of mitigating the negative effect of time
since establishment of the firm and the positive effect of size of organization,
measured in terms of number of employees, on performance of the
organization.
Even though the contributions are made, this study also has limitations. For
example, all respondents are from firms from a single country, and it is not pos-
sible to generalize the effects of organizational creativity and digital capabilities
to more advanced economies or those in earlier stages of development than
Brazil. It is also impossible to determine whether the effects of these variables
are linked with a particular type or sector of business since we chose to seek a
424 S. L. DE VASCONCELLOS ET AL.

heterogeneous sample in this respect. About the method, since this is a cross-­
sectional study, the dependent and independent variables play an entirely
instrumental role, and it is impossible to evaluate cause and effect relationships
between variables.
Exploring the limitations of a study also reveals opportunities for new stud-
ies. For example, comparing the results for different industries in different
countries over time, using panel data, could contribute not only to theory but
also to practice. Logically, the limited access to secondary data on firms of dif-
ferent sizes and doing business in different institutional and economic circum-
stances is a barrier to achieving this objective. However, data from listed
companies could indicate whether the data presented here can be generalized
or not to large firms that champion digital transformation on a large scale.
Finally, this study is founded on the assumption that digital transformation
is ongoing. It is, therefore, essential to investigate how firms should ensure
they sense these changes, respond to them, and institute practices to ensure the
feasibility of digitalization of their processes. In this study, it can be evidenced
that organizations that are better prepared for digital transformation are already
enjoying the benefits of applying organizational creativity in the development
of digital capabilities. In this sense, the most creative organizations are per-
forming better and generating positive social effects, as creative jobs tend to be
better paid. In addition, by applying their digital capabilities, these organiza-
tions are able to achieve better performance from disruptive technologies.
Thus, this research signals that organizations that take on new management
trends today will be more competitive in 2025 because they are able to harmo-
niously combine the artificial intelligence and creativity of the individuals work-
ing in it, transforming their skills into a first-order organizational resource
when socially enacted: the organizational creativity.

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 CHAPTER 22

Sustainability in the Banking Industry Through

Technological Transformation

Sylwia E. Starnawska

Introduction
The chapter presents technological revolution in the banking sector. Digital
transformation of banking is the only pathway to regain the sustainability of the
incumbent players. The chapter addresses the drivers and opportunities of digi-
tization of the banking industry during the systemic disruption (affecting the
whole system). Challenges for innovation diffusion and adaptation to disrup-
tive technologies are dramatically changing the financial market infrastructure
and creating new risks in the evolving financial services open ecosystem.
As a matured industry, banking exhibits relatively low growth with a widen-
ing gap between the top banks and the rest of the sector.
The digitalization imperative followed deregulation, globalization, and con-
solidation phase, rewarding the global and multi-local presence with stream-
lined services. Highly competitive banking industry is driven by technically
savvy customer, very demanding regulatory compliance, efficiency, and speed/
time pressure from the booming innovative nonbank offer. The banking back
office, including risk management and internal controls, needs to be enhanced
with much more creativity to support customer facing digitalized operations in
the conditions of increasing uncertainty.
The chapter addresses the reasons of digital investments underperformance
in many banks and the merits of successful approaches to IT investments in
banking. Lagging institutions, resisting digital innovation will face profit

S. E. Starnawska (*)
SUNY Empire State College, Buffalo, NY, USA
e-mail: [email protected]

© The Author(s) 2021 429

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_22
430 S. E. STARNAWSKA

erosion and will follow a spiral of decline similar to other failures observed in
the technologically intensive industries.
The chapter covers new technologies and trends predicted in the banking
sector with recommended strategies for sustained growth of banking organiza-
tions. It indicates new opportunities for development of the financial services
offering, efficiencies, and convenience through automation of core banking
functions, connection, operation, and processes in the value chain creation.
The competitive collaboration with the Fintech sector will result in reinventing
more productive business models, a new market structure, and dynamics. The
digital disruption, as the inflection point, will involve developing new roles of
banking employees (and substantial displacement of human capital) with appli-
cation of artificial intelligence (AI) in the bionic transformation.
The social and international perspective of cross-country comparisons (rec-
ognizing the technology gap and financial inclusion of the bottom of the cus-
tomers pyramid) supplements this futuristic, but a highly probable view of the
banking industry. A more efficient and resilient financial sector delivering value
to customers and society is expected to emerge.
The chapter discusses new identified risks associated with the digital revolu-
tion in banking related to cybersecurity, privacy, a third party risk, and outside
banking regulatory supervision. The challenges of harmonization to deploy
technologies, such as the distributed ledger technology (DLT) (a database that
is consensually shared and synchronized across multiple sites, institutions, or
geographies), in a blockchain infrastructure in a multi-party, globalized net-
work environment will lead to a condensed financial-intermediation system
with streamlined, direct, and virtual delivery of financial services. The disinte-
gration of trading patterns, resulting from innovation and lower trading costs
through competition among matching platforms, may lead to reduced market
quality while transferring more power to the largest financial providers.
The PESTLE framework is applied for the presentation of the key factors
driving the digital revolution in financial serviced identified in the literature
review and focused on technological, legal, political, and socio-economic fac-
tors. The tripod approach is followed for presenting the research results cover-
ing the future evolution of the banking sector organized into the following
sections: resource-based view, industry analysis, and institutional analysis.

Literature Review

Technological Factors Bringing Inflection Point

in the Financial Industry

 istributed Ledger Technology (DLT) Innovation

D
Distributed ledger technology (DLT) with blockchain form had the largest
disruptive effect in the field of market infrastructure causing possible disinter-
mediation of some market players in the process of market fragmentation and
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 431

creation of silos. With blockchain technology, participants in the system can

transact bilaterally without a third-party intermediary. The trust is established
instead by the shared distributed, decentralized ledger, and the system of vali-
dation through consensus (Bullmann and Pinna 2017; Cohen et al. 2016;
Tranquillini 2016; Workie and Jain 2017).
This database technology is used to share the management of information
among multiple participants in a network without reconciliation between
financial institutions. The stored information is instantly and independently
updated by multiple participants and protected via encrypted digital signatures.
It increases the resilience of the system and its ability to recover from
disruptions.
DLT as critical innovation can foster collaboration with stakeholders across
markets and jurisdictions to develop sound technological, legal, governance,
functional, and operational cross-border standards to make financial markets
more efficient and safe. DLT platform can improve and enhance experience for
consumers, allowing new affordable and accessible financial services (offered
by partners) and improving functionality of general ledger accounting, by tying
it to digital cryptography and redefining process and roles of various market
players (Workie and Jain 2017). However, open banking platforms create net-
work market vulnerabilities with rent appropriation threats (Gomber et al.
2018; Mager 2019; Tranquillini 2016).
The direct interaction between issuers and investors on a distributed ledger
will reduce importance of regulated intermediary financial institutions.
Concerns for safety and sustainability of such a market architecture put the
financially dominant and innovative banks to cocreate and manage the emerg-
ing DLT-based financial ecosystem with collaboration of Fintech partners dur-
ing the emergence of disruptive platforms to streamline the business (Campenon
2016; Cohen et al. 2016; Workie and Jain 2017; Panetta et al. 2017;
Tranquillini 2016).
Banks recognize the efficiencies of blockchain technology to reduce coun-
terparty risk or capital held against unsettled trades, limit human error in
matching trades, limit the professionals needed for administrative and settle-
ment functions, and expedite the settlement of trades. One-stop-shop,
transaction monitoring and the combination of traditional credit and transac-
tion data in one location could support credit scoring and fraud protection. It
could pose a risk for full-set of data comprised by unauthorized breach.
(Cohen et al. 2016; Gomber et al. 2018; Kiljan et al. 2017; Workie and Jain
2017). Information sharing among institutions can strengthen the maturity of
the participating partners’ cybersecurity programs against cyber-attacks
(Korte 2017).
The most promising advantage of DLT for financial industry, driving top-­
line revenue growth, is the development of new products and services (delivery
modes) by utilizing smart contracts to replicate (or replace) conventional legal
agreements. It will result from applications to financial products, including
commercial paper notes, derivative instruments, and asset backed securi-
ties (ABS).
432 S. E. STARNAWSKA

Donald (2018) explains the evolution of securities trading shaped by law

and technology. Securities trading migrated from private networks to public
forums and now will be returning to private networks. The disintegration of
securities trading can reduce market quality for most of the stakeholders while
increasing the power of the largest institutions limiting market access.

 rtificial Intelligence (AI) Application

A
AI-based cognitive computing utilizing vast and versatile data and information
sources might become the financial industry’s biggest disruptor. They can
improve evidence-based decision making by continually learning about the
market from each transaction (Ehrenfeld 2017).
Application of robotics and cognitive automation in banking enabling faster
processing, handling higher volumes and reducing errors, are next industrial
revolution. They bring negative structural challenges such as process fragmen-
tation requiring front-to-back process streamlining, redesigning, or even re-­
engineering along with automation and dramatic employment shifts. Those
challenges must be addressed with the right operating model, governance,
opportunity qualification methods, and infrastructure. To reimagine processes
for greater efficiencies and control, many issues should be resolved: quality of
data, validation process with some flexibility, unstructured communication,
legacy systems, and massive employee retraining for advanced skills-jobs
(Hegde et al. 2017; Krishna 2016).
Mieszala (2015) considers a triple revolution via increasing penetration of
digital technologies in banking. First, an industrial revolution with new oppor-
tunities for growth and cost reduction resulting from the automation of core
banking functions-connections with clients and between employees, innova-
tion, processing of operations, and decision making. Then, a market revolution
initiated by specialized new entrants such as Fintech lenders, disintegrating
value chains, reinventing their business models, and fundamentally transform-
ing the market structure and dynamics. Finally, a managerial revolution, as
digital disruption requiring new skills and mindsets among employees, com-
pletes the process.

 New Form of Money

A
A new form of digital money—programmable smart money—originated the
acceleration of automated electronic payments in the cashless society. The new
API technologies changed the financial services industry by their distributed
and decentralizing nature. Technological evolution of the financial environ-
ment led to the creation of multiple cryptocurrencies, which started with the
disruption of the post-1971 world of fiat currencies. The token-based transac-
tions are the advent a new era of ambient accountability, where the technologi-
cal architecture provides for constant verification and validation. Banks would
be enticed to join this trend by embracing the digital money and digital
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 433

identity technologies for private money creation as cost-effective and desirable

by all market participants. Central banks have to enable this radical change with
a permitting regulatory framework and a considered seigniorage issue for
money creation. The transformational expansion of cryptocurrencies will pro-
mote innovation in the wider economy while servicing complex transactions
with substantial information contents transfer, reduction of concentration of
liquidity and credit risk, and financial inclusion in the economy. Concerns of
political control, and tracking tax evasion, money laundering, and bribery
remain (Birch 2018; Gomber et al. 2018).

Legal and Political Factors Opening the Market for New

Technologically Armed Competition

 arket Entry Barriers Relaxed

M
Regulations removing competitive barriers help new entrants (Fintech firms)
who propel the revolution in the industry by complementary innovations with
progress enhancing effectiveness of another, promoting a new business model
with the reduced need for intermediaries. In Europe, the second Payment
Services Directive (PSD2) enabled new types of financial services companies:
Account Information Service Providers (AISP) and Payment Initiation Service
Providers (PISP). Banks were forced to allow approved third parties access
customer data and payment systems (Docherty 2018; Salmony 2018).
Fintech revolution inherent in the sharing economy affects financial services
due to major improvements in efficiency, customer centricity, and informed-
ness, process disruptions, and use of social media. Fintech providers leverage
technology to create stakeholder value associated with an expanding range of
financial transaction payments and charitable giving, cryptocurrencies, block-
chain, FX (foreign exchange) and cross-border payment, lending and deposit
services, peer-to-peer (P2P) lending and crowd-funding, investments, financial
markets, trading, risk management, and robo-advisory.
Providing deposit accounts, such as checking and savings accounts, and giv-
ing retail and commercial customers access to their funds (requiring asset/lia-
bility management and banks leverage) remain the most fundamental and
pervasive banking functions due to legal protection, deposit insurance, and
risk-incurring time transformation of money.
As open banking and interinstitutional APIs (application programming
interface) enter the mainstream, the deposit services market will face substan-
tial Fintech-driven disruption. With approaching maturity of the Fintech sec-
tor, advocated expansion into capital markets, and progressing customer
intelligence as a key driver of financial firm profitability, regulators might
engage in more oversight (Gomber et al. 2018).
Bigtech companies such as Apple, Google, Amazon, Facebook, and PayPal
have technology, capital to invest, and customer franchises into which to mar-
ket financial products (Viceira et al. 2018; Docherty 2018). Incumbent banks
434 S. E. STARNAWSKA

have the legacy network to defend and experience the pressure to adapt to the
different competitive environment. Banks need to address the technology
platform-­driven disruption and threat of obsolescence caused by the new com-
petition created by adoption of modern technologies. Financial institutions
and Fintech start-ups sustaining systematic innovation can be mutually sup-
portive and complementary in collaborative strategies building customer-­
centric business models not competitors in the same market segment (Gomber
et al. 2018).
Fintech providers as innovators can increase benefits from the diffusion of
the new technology from the external adopters by pursuing collaboration with
banks when the systematic characteristics of the innovation process change
irreversibly. It is evidenced on the pattern of innovation diffusion because of
using multi-party integration needs/solutions observed in the banking indus-
try (Wonglimpiyarat 2017).

 egulatory and Compliance Pressure Increased Requiring Risk Management

R
With New Technologies
Following new capital regulations from the Basel Committee and an overhaul
of loan accounting standards, banks facing strategic risks need to embrace new
breakthrough technologies to preserve short-term shareholder value while
maintaining long-term competitiveness and viability (Docherty 2018; Griffoli
2017; Folwarski 2018).
Banking and securities industry risk management regulations resulted in
transformational change with impact on the underlying data and technology
infrastructure. Critical technology and data management components were
deployed with support of external vendors to assist with regulatory compli-
ance, affecting data sourcing, data processing and retention, data analytics and
reporting, data management, governance and control synchronized with poli-
cies, standards, procedures, and documentation dealing with complex global
regulations (Krishna 2016; Becker and Buchkremer 2018).
These technologies (such as ontologies, coupled with artificial intelligence
and machine learning (ML)) help process, federate, and integrate unstructured
data (text, voice, video) and structured data from siloed databases in and across
financial institutions (Butler and Brooks 2017).
Regtech semantic-technologies-based solutions (the management of regula-
tory processes within the financial industry through technology) provide sup-
port for better decision-making because they originate from heterogeneous
and fragmented GRC (Governance, Risk Management, and Compliance) solu-
tions recognizing the need for a holistic, integrative approach. Regtech provid-
ers, as vital robust partners for the experimenting financial industry, utilize a
combination of a variety of technologies. Regtech industry supports overarch-
ing framework to integrate fragmented initiatives in financial institutions.
Regtech, as a third party subject matter specialist, plays a significant role for all
stakeholders in collaboration, governance, standards, and market practice har-
monization to implement successfully new Fintech solutions in a multi-party,
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 435

globalized network environment (Ehrenfeld 2017; Gomber et al. 2018; Smith

2018; van der Westhuizen 2016; Krishna 2016).
The well-managed data benefit the business by improving customer analysis,
risk management, compliance, portfolio management and marketing, reengi-
neerd processes to eliminate waste, designed better products and services,
improved relationships with customers, and pursued more effective distribu-
tion channels to generate business (Smith 2018).

Socio-Economic Factors Expanding the Market for Financial Services

 inancial Inclusion of Underserved Populations

F
The entry of Fintech providers and the use of robo-advisers by traditional
financial services companies offering mass-market financial advice demonstrate
a new trend described as a blend of new-market and low-end disruption with
attractive low-cost value proposition. A new class of wealth management advice
providers is attracted by a sizable underserved population, similarly as initially
Fintech firms were offering payments and lending after the financial crisis of
2008 (Viceira et al. 2018; Kansal and Chaganti 2018; Buchak et al. 2018).
According to Jagtiani and Lemieux (2018), Fintech firms’ consumer lend-
ing activities penetrated areas underserved by traditional banks, such as in
highly concentrated markets, areas with fewer bank branches per capita, and
where the local economy was not performing well.
Manif and Marsh (2017) and Noronha and Kumar (2019) explain how digi-
tal revolution addresses financial inclusion for low-income underbanked popu-
lations. DLT technology offered by Fintech reduces costs and increases access
points, and offers instant cash, settlement, and remittance for consumers with-
out a checking or saving accounts relying on check cashing services. DLT’s
real-time transfer ability improves check processing, drawing unbanked con-
sumers to banks in the process if they operate on the shared platform. The
unbanked households use their mobile devices as an access point to other
Internet-based services such as mobile payment services. The smartphone
dependency is higher among low-income, minority, and less-educated popula-
tions more likely to be underbanked or unbanked, but exhibiting high rates of
mobile phone ownership and concerns about privacy. Customer satisfaction in
using financial services via various delivery channels (e-banking includes ATM,
net banking, mobile banking, and phone banking) depends on ease of use,
conservation of time, convenience, privacy, accuracy, and servicing most needs
(Rani and Rani 2018).

 erception of Trust and Digital Privacy

P
Trust is the most critical element in the decision of purchasing financial advice.
Century-old banks with tarnished reputation are not considered more credible
than exciting Fintech startups (Viceira et al. 2018; Docherty 2018; Gomber
et al. 2018; Manif and Marsh 2017; Trieu et al. 2019). Consumers are
436 S. E. STARNAWSKA

comfortable with online interactions and demonstrate a strong preference for

digital. They favorably choose Fintech and Bigtech providers’ business models
with recurring transactions, as prepared meal purchases or gasoline fill-ups
turned into loyalty propositions with support of apps adding value by organiz-
ing history.
Digital privacy is the foundation of consumer trust. It depends on business
information security and governance controls in the digital services. Security
solutions for digital privacy protection and access validation include multi-­
factor authentication, security tokens, biometrics, and access control lists. Data
privacy concerns or a breach of security has damaging implications for custom-
ers and business. Hence, the technology, policies, and processes used to store,
transmit, and control access to enterprise information are critical (Rice and
Sussan 2016).
Salmony (2018) recommends the use of intelligent data-driven authentica-
tion available in new digital technologies for smart digital identification to
replace the current dependence on government-issued documents, faxes/util-
ity bills, user ID/passwords, and rigid two-factor procedures. The modern
3SPP identity solutions are secure, simple-to-use, scalable, private, and perva-
sive according to the expanded akronym. The model connects many current
silos of organizations providing attributes across multiple participating parties
employing an open four-corner model, with banks playing as trusted partner,
the central role, instead of today’s point-to-point interconnections. It offers
better protection against massive cyber breaches and identity frauds. Users
experience would be enhanced by reduction of countless passwords, registra-
tion procedures, poor online acceptance, and high fraud costs. Pseudonymity,
substituting true personal identity, is convenient, saves costs, and improves
privacy, but requires attribute management in the new open application pro-
gramming interface (API) network economy. Providing identity services is a
new future business opportunity for banks to be offered to corporates (includ-
ing Fintech), governments, and online services when the IoT (the Internet of
Things) devices and mobile apps needing identification will explode in volumes.
Considering the capabilities and limitations of DLT technologies and robo-­
advisors hoped to be a foundation for solving major problems faced by financial
institutions, regulators and Fintech companies will need to continue working
in collaboration to avoid fragmented innovation. The beneficial disruption in
automation processing will only occur when all who participate agree to find
solutions benefiting all participants (Ehrenfeld 2017).

I nnovation Driving Efficiency

The customer acquisition costs remain high, because of the critical nature of
the scale of the business, while customer retention became more difficult
(Gomber et al. 2018). With the existing significant client base and data for data
mining, banks as the incumbent players could capitalize on the opportunity for
automated wealth management services in collaboration with Fintech firms
offering technological solutions. Banks guard their greatest legacy assets and
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 437

fear cannibalization of their high-margin business and a brand/trust gap

(Folwarski 2018).
The effectiveness of banking technology investments depends on the sup-
port for transition efforts received from transformational leaders, commitment
to change successfully overcoming resistance, and diffusion of the innovation
(Cingilloglu 2017; Messenböck et al. 2017; Ardizzi et al. 2019).
Banks consider various strategies in the digital revolution: build, buy, or
partner, depending on the cost-efficiency and control of technology in captur-
ing the market. Fintech providers are attracted to collaborate with banks to get
access to a customer base. Banks are taking cautious bets with Fintech firms to
best position themselves in the instant delivery for customer satisfaction. Full
acquisition is not often considered by banks because banks are looking for stra-
tegic gaps to fill for revenue growth with mature technologies ready to apply
for new products or new market segments. There are challenges in potential
acquisitions such as costs/pricing with intellectual property diligence and inte-
gration challenges due to cultural differences and growth-oriented Fintech ver-
sus bottom-line performance-focused banks. There is a natural strategic fit
between banks and Fintech firms, facing the competition from Bigtech compa-
nies (McCormick 2018).
Fintech providers as parent companies of smaller banks might gain an unfair
advantage over their competitors, misguide their creditors, or limit their liabili-
ties by benefitting from the federal subsidies given to the banking industry.
Fintech-owned bank activities could pose a significant risk to the federal safety
net. Therefore, it would be preferable to have both Fintech industry as well as
maintaining a safe and sound banking system (Oney 2018).

Methodology
The study was conducted in the meta-review format for reconciliation of domi-
nant patterns and forecasts with recognition of notable differences. It was
based on reports, analyses, and data from leading research tanks and advisory,
consulting firms, and industry experts, focused on financial services technology
(BCG, McKinsey, PWC, KPMG, CFTE, GPS Citibank, BNY Mellon, Unisys
Corporation, Celent, CBInsights, Deloitte, IDC Financial Insights,
FDIC CFR).
It includes interdisciplinary and cross-industry analysis (financial sector,
Fintech firms, Regtech firms, IT) with a global perspective and regional differ-
ences. It incorporates relevant functional issues related to IT, finance and eco-
nomics, strategy and organizations, marketing, statistics and data science,
operations management and management science, and computer science.
438 S. E. STARNAWSKA

Resource-Based View of the Future Banking

 xpected Employment Shits and Substitution in Banking

E
By 2030, large banks will reduce the total employment by 30–50% of the
­current number while shifting the workforce to operations and technology,
constituting 50% of the bank personnel. It will reduce the cost-income ratio to
30% from current average of 60% leading to significant gains in the return on
equity (ROE) (Ghose et al. 2019; Deloitte 2019a; Skinner 2018; Dupas
et al. 2017).
The biggest layoffs at Wall Street are expected in asset management (90K),
securities service (58K), sales and trading (45K), private banking and wealth
management (24K), and trading and clearing venues (15K) by deployment of
artificial intelligence and blockchain (Skinner 2018), whereas only an increase
of 24K is expected in technology and data hiring.
Next, there will be dramatic shifts in banks’ employment by 2039, mostly
reduction of back-office jobs by 20% cut from the current 38% employment in
the banking sector and strong growth in the demand for software developers
and computer system analysts (McKinsey 2018).
Banks hire talent from competitors and are expected to source out project-­
based needs to gig-based employees, up to 15–20% of labor force in next five
years (Ghose et al. 2019; PWC 2019; Morel et al. 2018).

 xpected Skyrocketing Spending Patterns on Technology

E
The rankings of the digital leaders among banks are aligned with banks spend-
ing on technological innovations. Twelve of the 15 largest banks, including
JPMorgan Chase, recorded an increase in their operational budgets from 2016
to 2017, and budgeted $9.5 billion annually for technology in 2016 and 2017,
and an increase to $10.8 billion in 2018. Bank of America set the bar higher
with an annual global technology and operations budget of nearly $16 billion
with Citigroup Inc. spending roughly $8 billion on technology and Wells
Fargo $9 billion. The sum of bank IT spending across North America, Europe,
Asia-Pacific, and Latin America is expected to increase by 4.2% compounded
annual growth rate from 2018 to 2021 to the total of $296.5 billion (Garcia
2018; Shevlin 2019).
The gigantic IT spending budgets of the mega IT bank players evidence a
growing gap between the largest and smallest banks, reflecting what they can
afford to invest to develop new technologies. Smaller banks are falling behind
because regional institutions suffer from a competitive disadvantage. Although,
as a percentage of assets, IT spending at four of the largest regional banks (US
Bank, PNC, BB&T, and KeyBank) is slightly higher than it is at the four mega-
banks (JPMorgan Chase, Bank of America, Wells Fargo, and Citibank), 0.51%
as compared with 0.44% respectively. The widening gap is even more signifi-
cant for smaller players. Credit unions’ spending on technology, as a percent of
assets, is behind the mega- and regional banks, with the median IT spending
among credit unions of 0.42%. They spent about $6 billion in total on IT in
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 439

2018, just a little more than half of what JPMorgan Chase spent by itself that
year, whereas mid-size banks ($500 million to $50 billion in assets) spent
0.22% of assets on IT in 2017 (Shevlin 2019; Nichols 2019; Dupas et al. 2017).
At most advanced banks, 60% of all transactions are conducted digitally via
smartphone or computer, following the first imperative of digitizing for bank
cost reduction and next, digitizing for customer value increase. To attract more
of the lagging revenue through digital channels’ adoption, banks need to pur-
sue ecosystem approach and invest in Fintech. In 2017, banks increased their
participation in the funding rounds for retail banking startups to 71%, as com-
pared with only 20% in the 2013 funding for Fintech firms (Desmangles et al.
2018; PWC 2019).
The most active US bank investors in Fintech companies (by the number of
portfolio companies) are Goldman Sachs, Citigroup, and JPMorgan Chase.
They focused on technologies supporting real estate, data analytics, and pay-
ments & settlement, complementing their own digital banks development.
Data analytics category consists of startups leveraging AI and ML. Citigroup
engaged in four blockchain, three capital markets, and three payments & settle-
ment startups since 2017 related to its own in-house bank’s larger strategy of
building open banking infrastructure. Capital market startups include aug-
menting or replacing securities issuance, trading, clearance, and operations
(CBInsights 2019).
Fintech providers (interested in banking license and access to customers), as
mutually beneficial natural fit, can support community banks with agile tech-
nology development because community banks lack the necessary personnel to
invest in new digital products and are slow in innovation (Hernandez 2018;
PWC 2019; Morel et al. 2018; Elder 2016).
Nearly 50% of banks around the world say that their latest digital invest-
ments are failing to generate returns greater than the costs of capital. Only a
few banks generate significant returns from digitization. Those benchmark
banks benefit from consistently harvesting the idle capacity resulting from
ongoing digitization while digitizing the front-end customer experience. They
capture productivity unlocked in their legacy operations and extend digitiza-
tion to non-customer-facing operations, such as finance, HR, and other corpo-
rate functions. Although they experience efficiency gains through the full,
continuous, and disciplined digitation cycle by repeatedly applying created new
capabilities to scale out with the flywheel mindset, their primary focus is on
improving customer experience. The real gains come from applying digitiza-
tion as broadly as possible across the organization and from building an ongo-
ing capability for capturing digital value (Baghai et al. 2018).
Successful digital investment results are driven by prioritizing innovations
improving customer experience and employee experience at the same time,
while increasing revenues and reducing costs (Jain 2017).
440 S. E. STARNAWSKA

 xpected Banking Revenue, Profitability Forecasts, and Financial Inclusion

E
Banks will address new revenue trends based on the wealth-based stratification
of the consumer markets with 30–40% of population in the developed societies
having no money, displaying only basic transactional banking needs. Another
30–40% of people who have very little money can be served at much lower
costs with automated artificial intelligence powered across all financial services.
The remaining 20% constituted by affluent high net worth individuals and
ultra-high net worth could be provided personal human being-aided attention
in the new cost-efficient operating model (Ghose et al. 2019).
To revitalize banking revenue streams, banks can implement analogies from
other industries, such as cobranding products (e.g. credit cards) and revenue-­
sharing arrangements contributing between 10% and 30% of revenue attribu-
tion. New opportunities are important to substitute for the expected revenue
loss in the range of 10–30% due to digital disruption. Between one-third and
one-half of all consumer payment volumes, 17–34% of personal lending vol-
umes, and credit card lending and mortgage volume up to 17%, investments
volume up to 34%, and 17–34% of SME lending volume, may be taken over by
digital banks, Bigtech, or Fintech firms by 2025. The negative profit impact
can be devastating to banks because lending accounts for more than 50% of
banks’ total risk-adjusted revenues, followed by savings and investments (21%),
capital markets (16%), and payments (7%). Personal/SME is the most profit-
able segment for banks, accounting for nearly 50% of all profits, followed by
corporate (35%) and investment banking/markets (20%) (Ghose et al. 2019;
Broeders and Khann 2015; Dupas et al. 2017; Baumgärtner et al. 2018).
The market appetite for passive investing and the popularity of open-ended
mutual funds and exchange-traded finds (ETFs) increased to 45% of the US
market share, 48% in Asia, and even 70% in Japan to support the transition to
robo-advisors (McKinsey 2018).
The major revenue growth potential is expected in Asia (8% annually) with
also Latin America and the Middle East and Africa experiencing above average
prospects. Regional differences are not only the result of different digital trans-
formational strategies but also a response to various macroeconomic condi-
tions, trade flow corridors, labor flexibility, and regulatory changes (Desmangles
et al. 2018; Badi et al. 2019; BNY Mellon 2014; PWC 2016; Ghose et al.
2017; Grasshoff et al. 2018b; Allen 2019; Baumgärtner et al. 2018).

Industry Analysis: The Forecasted Strategic Changes

 idening Gap in the Banking Sector

W
There is already an increasing profitability dispersion between the early market
proxies for challenger platform banks in the United States (CWB Bank,
CelticBank, and Live Oak Bank) and disadvantaged by the physical network
large top-ten banks. ROE (return on equity) multiplier of proxies over the top-­
ten US banks increased from 2.3 in 2016 to 6.0 in 2017 (Allen 2019).
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 441

Further revenue loss for lagging banks and limited ROE improvement will
lead to progressing polarization between market winners and losers with top
banks already enjoying a big efficiency advantage. Large banks are negatively
affected by higher costs, compliance, and structural complexities. Many banks
do not have clear digital strategy or lack market-leading digital capabilities
undermining their digital readiness (Ghose et al. 2019; Desmangles et al.
2018; Baumgärtner et al. 2018).
Top-ten US banks leaders in digitization are JPMorgan Chase, Bank of
America, Citibank, Morgan Stanley, PNC Financial Services Group, Wells
Fargo, Goldman Sachs, Bank of New York Mellon, TD Bank, and US Bank.
These pioneers were identified in the multifaceted research, rated on working
with cutting-edge technology with strong infrastructure, learning and innovat-
ing with technology, adopting blockchain and cryptocurrencies, and embrac-
ing digital transformation (Ansari 2019; Din 2017).
The top banks recognized by Global Finance Magazine global banks by
innovation (in the respective regions) were Bank of America (Global and North
America), BNP Paribas (Western Europe), VTB Capital (Central and Eastern
Europe), CCB International (Asia-Pacific), BBVA (Latin America), GIB
Capital (Middle East), and Rand Merchant Bank (Africa). These banks were
2018 inaugural winners of the Best Bank for New Financial Technology cate-
gory because they are at the forefront of the financial innovation, leveraging
blockchain, artificial intelligence, data analytics, and the Cloud to change the
face of banking (Kranc 2018; Morel et al. 2018).

 New Business Model for Banks: Challenges of Open Banking or Connected

A
Banking With Strategic Alliances
As per Salmony (2019), banks have a mixed record in adapting to changes.
Banks will have to implement changes driven by unsatisfied customers demand-
ing change, at high expense, under time pressure, under rules laid down by
others such as regulators, new competition from Fintech, and new technologi-
cally intensive and connected network-based environment while addressing
high infrastructure and compliance costs. Banks should become more active,
and regain the initiative through smart approaches with instant (real-time)
relentlessly client-centric service.
The open shared economy will be much larger, with the banks well posi-
tioned to take the biggest share of the benefits. They invest in the open digital
infrastructure taking a key role in the collaboration-based model by success-
fully cherry-picking of partners (PWC 2016; Grealish 2019; Grasshoff et al.
2017; Brackert et al. 2019; Morel et al. 2018; Baumgärtner et al. 2018).

A Platform Virtual Bank

Branch-based banking began its steady decline in the late 1980s with emer-
gence of challengers operating as a branchless Internet-only banking model.
Branches were reduced but not eliminated, as part of multichannel strategies
pursued by major banks, justified by the demand for deposits. Next, banks will
442 S. E. STARNAWSKA

be hosting and monitoring DLT platforms to enhance customer experience

(Gomber et al. 2018; Patel and Brown 2016).

Customer-Oriented Focus
Banks are well positioned to adopt the KYC (Know-Your-Client) approach
based on the wealth of data collected for compliance with the anti-money laun-
dering (AML) regulations. The legacy control culture and the internal frag-
mentation into silos with manual processes reduce operating speed, limit
flexibility, increase cost, decrease efficiency, and divert attention from the cus-
tomer service experience (Ghose et al. 2019; Backbase 2018; Desmangles et al.
2018; PWC 2019; Brackert et al. 2019; Saleh et al. 2017).

Risks and Global Issues

For banks, cybersecurity is not purely a ‘technology problem’ but a business
challenge requiring business ownership and strategy development. From an
internal bank issue, cybersecurity will shift the attention to risk to the third-­
party service providers and connections as banks struggle to manage the com-
plex ecosystem of third-party service providers, and the dependencies they
create under strong regulatory pressure (KPMG 2018; Grasshoff et al. 2018a).
The cybersecurity risk will be exacerbated by an increased use of third-party
vendors, deployment of evolving, sophisticated and complex technologies,
explosive growth of cross-border data exchanges with new markets, increased
use of mobile technologies by customers, including the rapid growth of the
Internet of Things, and heightened cross-border information security threats.
The expected areas of concern include attack surface, perimeter security, pri-
vacy protection, and device management. Use of machine learning, big data,
data mining, customer analytics, and collaboration within the joint risk-based
framework, and digitized risk management can balance customer safety-­
convenience trade-off, increase efficiency, and reduce processing time (PWC
2016; Grasshoff et al. 2018b; Ivanov 2019).

Institutional Analysis of a New Emerging Market Landscape

and Players
There are various strategic pathways dominated by consolidation via M&A and
strategic alliances creating convergence. New trends will lead to a completely
new arena of banking collaborating intensely with emerging leaders in the
financial services (Ghose et al. 2019; BNY Mellon 2014; Alf et al. 2018).

I ncumbent Banks Making Strategic Bets

With muted revenue growth of 2% annually and 8–9% average ROE in the
period of 2012–2017, global banks need to reinvent themselves quickly and
dramatically. Even in the asset management sector, where ROE is much higher
than the average in the financial services industry, there is downward pressure
on margins and profitability from ETFs and robo-advisors. Although the
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 443

capital markets revenue grew 7% from 2016 to 2017, investment banks, after
five consecutive years of revenue decline, captured only 33% of total revenue in
2017, down from 48% in 2006 (McKinsey 2018; PWC 2019; Grasshoff et al.
2018b; Allen 2019; Morel et al. 2018).
The incumbent banks will transition into next-generation cloud-native tech-
nology platform to eliminate duplication and fragmentation, much beyond just
mobile banking, use of big data, and cybersecurity. The internal growth model
is based on principles of venture capital and lean startup methodology. It is a
new way of thinking for the organization, empowering employees, to build,
test, and launch innovative solutions for clients. The deployment of new plat-
form replacement is very risky, expensive, and time-consuming. Deep strategic
alliances with tech vendors and Fintech firms will be mutually beneficial,
although initially ignored (Ghose et al. 2019; Deloitte 2019a; BNY Mellon
2014; Sella 2017; McKay 2017; Dab et al. 2017; Jain 2017; Kranc 2018;
Morel et al. 2018).
APIs are critical for traditional banks (with PSD2). They revolutionized the
system giving the lead to Fintech providers. Banks have to take over the initia-
tive for providing controlled access to their open platforms. APIs and access to
comprehensive collaborative banking platform provide what customers want—
one dashboard of their complete financial life taking fuller advantage of the
open network economy (Ghose et al. 2019; Backbase 2018; Morel et al. 2018).
It will be much more beneficial for banks to become a platform company
providing access with API for external third parties rather than to attempt to
integrate banking into other apps (Ghose et al. 2019; Deloitte 2019c;
Desmangles et al. 2018; Bareisis 2019).
Traditional banks have to overcome the attachment to old architecture and
some manual processes because it obstructs the deployment of new technologi-
cal environment, although the old core banking system (CBS) is underlying
basic day-to-day functionality. The change requires implementation with con-
current integration, training, reconciliation, and pending compliance. The
launch of new stand-alone digital offshoots might be a cautious way to mitigate
the risk of transition but can delay the process. Benefits can be derived from
learning experience allowing replication or gradual digital migration to the new
model for the revolutionary approach using a parent brand name for leverage
in areas when trust is needed (Ghose et al. 2019; Deloitte 2019a; PWC 2019).
Incumbent banks have to embrace disruptive technologies driving new
platform-­based business models like a start-up approach creating an opportu-
nity for deep strategic partnerships with a variety of players offering compelling
unique selling propositions (USP) (Ghose et al. 2019; BNY Mellon 2014). It
requires a dramatic internal cultural change and openness into strategic part-
nership with technological providers or leaders in the field (Ghose et al. 2019).
PSD2/Open Banking drives the competition in banking by opening the
sector to a variety of players and various forms of collaboration for access to
customer and customer data. Banks have a great business opportunity to use
big data from their fragmented data pools to transform them into data lakes for
444 S. E. STARNAWSKA

cognitive and personalized banking. Tracking needs exhibited by customers

could support eroding loyalty (Ghose et al. 2019; Backbase 2018; Desmangles
et al. 2018; BNY Mellon 2014; PWC 2016; McKay 2017; Dab et al. 2017).
Financial inclusion will widen the market enabled by a new low cost-to-serve
data-centric digital banking model explained by the ATGIE concept: acquire,
transact, generate data, insight, and engage (Ghose et al. 2019).
New global market expansion opportunities for digital offering of financial
services are in countries with cash dependency, alternative payment options,
underbanked populations, demographics with young, migrating populations,
and with regulatory and institutional support for mobile money adoption
(Ghose et al. 2019; Trieu et al. 2019; BNY Mellon 2014).
Reimagining of traditional banking involves three-pronged digital strategy
encompassing: (1) digital bank targeting mobile-first and mobile-only genera-
tion, (2) omni-channel experience with deepening customer engagement, and
(3) ecosystem partnerships forging collaborations to widen distribution reach
(Ghose et al. 2019). It corresponds to the model of digital platform-based
open modular and smart banking with agile processes delivering superior cus-
tomer value. It requires a quantum leap in the customer-focus providing insight
and building relationship in the new-housed, orchestrated ecosystem (Backbase
2018; McKinsey 2018; Deloitte 2019b; PWC 2019; Dab et al. 2017; Morel
et al. 2018).
Incumbent banks are expected to expand the use of blockchain, RPA
(Robotic Process Automation), business process management (BPM) and AI
technologies (including image recognition, optical character recognition—
OCR, natural-language processing—NLP, voice recognition), and better data
management in both the front and back offices in transaction banking.
Standardization of processes along with customization of the banking proposi-
tion will support significant efficiency gains and instant, frictionless, and seam-
less customer service (Deloitte 2019a; PWC 2016, 2019; Bareisis 2019;
Brackert et al. 2019; McKay 2017; Dab et al. 2017; Jain 2017; Booth et al.
2017; Silva 2019).
Incumbent banks pursue hybrid strategies such as developing in-house
expertise or by-side offspring as their own challenger banks; using M&A to
acquire proprietary technology developed by outsiders; forming consortia (to
make minority investments in startups and acquire rights to their intellectual
property), or cooperative strategic alliances with contractual commitments to
technical vendors or partners (including Regtech and Insurtech).
A new business model shapes the industry operating on the technologically
driven interoperability of infrastructures across markets fostering consolidation
and convergence. The sophisticated propriety decision software will give advan-
tage to creating value-added propositions, not any more commodity like, indi-
vidualized financial services from various vendors (Deloitte 2019a; BNY
Mellon 2014; PWC 2016; Ghose et al. 2017; Grasshoff et al. 2018b;
Sella 2017).
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 445

Incumbent banks will undergo bionic transformation by blending digital

and personal interactions to create a responsive and cost-effective distribution
model with a converted value proposition combining human judgment with
data power. They need to adopt a customer journey mindset with end-to-end
processes supported with robotics and machine learning to reduce process
intensity and improve customer satisfaction (Dupas et al. 2017; Morel et al.
2018; Baumgärtner et al. 2018).
Sustainable productivity improvement is imperative for the financial services
industry. It is difficult to implement without transition to platform-based busi-
ness model supported by digitalized employees embracing cultural change
(PWC 2019).

 hallenger Banks Not Always Quite New

C
New digital banks entered the market in mid-2010s benefiting from reduced
capital requirements in some jurisdictions (e.g. OakNorth and Starling). Some
of them were launched by incumbent banks (e.g. Di-Ba by ING, Pepper by
Bank Leumi, New Hong Kong Virtual Bank by Standard Chartered, Hello
Bank by BNP Paribas, FINN by JPMorgan Chase, Marcus by Goldman Sachs;
Bo by RBS) to overcome the transformation barriers caused by their legacy
networks. New branding targeting young market segments facilitated ventures
with much lower cost structures. It can lead to much smoother transition to a
new operating model without the burden of underused network (Ghose
et al. 2019).
Digital banks with virtual banking license can leverage their balance sheet
via fractional reserve banking for lending and earning spread on deposits.
Therefore, they are subject to Basel regulatory framework to monitor risk/
return on risk-weighted assets (Ghose et al. 2019).
Digital banks’ growth was enabled by graduate expansion of their product
offering including payments, credit cards, mortgages, auto loans, checking
accounts, life insurance, and health insurance. They build their competitive
advantage by addressing a clear consumer need: value, transparency, custom-
ization, and simplicity. There is a significant perceived value added of personal-
ized insights and optimized service and the advantage for banks with
prospecting, business origination and customer retention (Ghose et al. 2019;
Desmangles et al. 2018; Bareisis 2019; Broeders and Khann 2015; Dupas
et al. 2017).

 intech Firms as Disruptors

F
The success of Fintech providers was attributed to regulators opening them
access to traditional banking services on Fintech mobile money platforms. The
initial areas including payments, lending, and robo-advisors were supplemented
by international remittance, merchant payments, e-commerce, mobile lending,
savings, insurance & FX products, mobile money, and G2P transfer offer solu-
tions. (Ghose et al. 2019; Trieu et al. 2019; McKinsey 2018; Deloitte 2019c;
Desmangles et al. 2018).
446 S. E. STARNAWSKA

Fintech firms demonstrated tremendous growth in the last five years with
impressive capital sourcing capabilities and innovating via crowdsourcing (the
top 50 received more than $3.5 billion in equity). A broader access to cus-
tomer base by Fintech providers can be obtained by collaboration with banks
and Bigtech companies to overcome the scalability barrier, security, and data
confidentiality (Ghose et al. 2017, 2019; Trieu et al. 2019).
Moreover, Fintech providers already operate on the digital platform for the
worldwide community covering an impressive range of financial areas (banking
and insurance) offering trusted and excellent mobile access-based customer
experience (Ghose et al. 2019; Trieu et al. 2019; PWC 2016).
APIs gave Fintech firms an advantage of offering accessible and real-time
faster and customized payments with value added solutions (Ghose et al. 2019;
Backbase 2018; BNY Mellon 2014; Sella 2017). The most successful Fintech
companies prioritize customer acquisition and retention while monetizing the
opportunities offered by customer data collection (Trieu et al. 2019;
Deloitte 2019b).
M&A and investment activity in 2018 continued to reflect the beginning of
maturation of key Fintech areas of operation looking for increasing a critical
mass via consolidation and preparation for the advent of more consistent regu-
latory oversight of the fragmented and with blurred boundaries financial ser-
vices sector after digital systemic disruption. Internationalization of operations
with its implications requires common standards and legal principles for main-
taining trust in financial services after the period of regulatory divergence (He
et al. 2017; Deloitte 2019a; BNY Mellon 2014).
All market players need to recognize that ensuring that customers control
their ‘data lives’ will be both a commercial and regulatory imperative
(Deloitte 2019c).

 igtech Firms Pioneering Platform Companies

B
The keen interest in financial services of Bigtech, such as GAFA (Google,
Apple, Facebook, and Amazon) or sometimes grouped as Facebook, Apple,
Amazon, Netflix, and Google (FAANG), and BAT (Baidu, Alibaba, and
Tencent) posed a significant challenge for all other market players. These busi-
nesses derive their value through what is called BeCoN, or behavioral, cogni-
tive, and network capital (similar to Airbnb or Uber) based on their mutual
marketplace platform driving transactions by using leading-edge algorithms to
efficiently match supply and demand. Financial services have long been home
to many platforms, such as stock and derivatives exchanges, clearing houses,
and depositories, all created to benefit both the platform owners and their end
clients, however not as open and customer facing as the new accessible and
cybercommerce-related ones that recently emerged.
The way Bigtech firms conquered retail sector and their natural competitive
advantage in customer acquisition based on the high user engagement model
will let them focus on the most suitable financial services with cross-selling
opportunities such as payments and insurance. Internet companies will
 22 SUSTAINABILITY IN THE BANKING INDUSTRY THROUGH TECHNOLOGICAL… 447

dominate the mass market and will be interested in products they can offer in
collaboration with bank capital or ‘rent out’ the bank charter from smaller
banks. Bigtech firms can host products from Fintech firms to collect the rent
from them for the customer access (Ghose et al. 2019; Backbase 2018;
McKinsey 2018; Desmangles et al. 2018; BNY Mellon 2014; PWC 2019;
Broeders and Khann 2015).
The banking sector structure changes parallel other industries such as shar-
ing platforms for online ticket booking or Airbnb for travel agencies and hotels
(McKinsey 2018; PWC 2016).
Bigtech as a platform company will compete more on financial products
rather than become broad-based banks. They are also more likely to be just a
platform to channel banking processes with front-end offering from them or
share-revenue from various providers and back-end processes rendered by tra-
ditional banks (Ghose et al. 2019; McKinsey 2018).
The proliferation of platforms for long- and short-term corporate contracts,
such as Wonolo, Fiverr, or Talent Exchange, supported a gig economy transfer-
ring people’s life into platform companies, including the demand for financial
services (PWC 2019).

Conclusions
Digital revolution requires a profound transformation of the banking sector to
reemerge on a sustainable collaborative virtual platform by the year 2025 and
beyond. It is driven by regulatory, socio-cultural, demographic, and techno-
logical change forcing accelerated, costly, and risky adaptation. A reinvented
financial services landscape will in turn affect the global economy and the
global population with broader inclusion and a more competitive market struc-
ture. Intense scholarly and regulatory effort will be essential to mitigate risks
and address ethical concern related to protection of customer assets, interest,
and data.

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 CHAPTER 23

Exploring Effects of Digitalization

on Sustainability in the Logistics Service
Industry

Orsolya Diófási-Kovács

Introduction
This chapter seeks to explore the possible effects of digitalization projects on
the sustainability performance of a specific group of companies: logistics ser-
vice providers (LSPs). These companies have an important role within the sup-
ply chain in terms of efficient delivery, according to recent trends boosted by
digital solutions, and in terms of reducing the harm caused by logistics opera-
tions on the environment.
It is important to explore the effects of new technologies and analyze cur-
rent innovations in order to gain insight into possible solutions to manage
future organizations successfully, in harmony with nature and society. In the
last decades sustainability issues are increasingly present in our everyday lives
and within business decisions and practices as well. The concept of sustainabil-
ity promises equity, prosperity, and availability of natural resources for the next
generations as well. Supply networks work under ever stronger pressure from
stakeholders for reducing the harmful impacts of their operations and to ratio-
nalize their resource consumption. In this sense environmental management in
logistics services is indispensable for the development and operation of green
supply chains. The transport and logistics sector is the second largest polluting
industry within the EU (EU Transport in Figures, 2018), and due to

O. Diófási-Kovács (*)
Corvinus University of Budapest, Budapest, Hungary
e-mail: [email protected]

© The Author(s) 2021 455

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_23
456 O. DIÓFÁSI-KOVÁCS

globalization the need for transportation services is not likely to decline in the
upcoming years.
Another important topic nowadays is digitalization, changes brought by the
Fourth Industrial Revolution. The massive penetration of digital technologies
(e.g. Cloud, IoT, Big Data Analysis) facilitates the vertical and horizontal inte-
gration of supply chains and fulfills customer demand by developing more
transparent, more efficient, and more sustainable digital ecosystems (WEF
2016). Some estimates suggest that the use of digitalization and info commu-
nication technologies can lead to a 20% reduction in carbon emissions by 2030
(Evans 2019).
The purpose of this chapter is to examine the industry practices of logistics
service providers (LSP) from the sustainability and digitalization point of view.
The following are the research questions:

RQ1: What kind of effects can digitalization projects have on the sustainability
(social, environmental, economic) performance of a logistics service provider?
RQ2: How could digitalization projects significantly contribute to the reduc-
tion of CO2 emissions of LSPs?

The results suggest that digitalization projects have a rather positive effect in
terms of economic performance (e.g. efficiency, profitability). The environ-
mental performance is not significantly changed, but the CO2 emissions can be
reduced significantly. According to the results digitalization projects do not
affect the number of full-time employees; the projects discussed in the chapter
rather help companies deal with the current workload of employees and secure
a more efficient and creative working environment.
This chapter begins with a literature review about sustainability and digitali-
zation, focusing on the logistics service industry. Then the methodology of the
research is described, followed by the description of the projects. After the
project descriptions the effects of each are analyzed along economic, environ-
mental, and social dimensions. The discussion and the final conclusions part
close the chapter with some managerial implications, limitations, and closing
remarks.

Background and Literature Review

In order to find relevant sources in the literature and be able to identify the
ongoing discussions about digitalization it is necessary to make clarifications
on several definitions used very often nowadays but in different meanings. In
this research and chapter, the following definitions are used. Industry 4.0 refers
to the current trend in manufacturing, which builds on data exchange and
automation, data collection, and analyses for automatic and smart decision
making. It includes the Internet of things, cloud computing, cyber-physical
systems that communicate with machine and human throughout the value
chain, and cognitive computing. Nagy et al. (2018) define Industry 4.0 as “a
 23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY… 457

phenomenon that, by means of technology assets and activities, maximizes the

transparency of processes by exploiting the possibilities of digitalization and
integrates the corporate value chain and the supply chain into a new level of
customer value creation.”
At the core of this trend originating from manufacturing is digitization:
“digitization is creating a digital (bits and bytes) version of analog/physical
things such as paper documents… So, it’s simply converting and/or represent-
ing something non-digital into a digital format which then can be used by a
computing system for numerous possible reasons” (I-Scoop 2018). However,
“in business, digitalization most often refers to enabling, improving and/or
transforming business operations and/or business functions and/or business
models/processes and/or activities, by leveraging digital technologies and a
broader use and context of digitized data, turned into actionable, knowledge,
with a specific benefit in mind” (I-Scoop 2018). If we look at the meaning of
digitalization beyond business, we can see that the adoption of digital tech-
nologies across all possible societal and human activities is just happening
(I-Scoop 2018).
Thanks to the increasingly frequent adaptation of technologies in different
industries, not just in manufacturing, the term “Logistics 4.0” appeared in
connection with smart supply chain management. According to DHL’s logis-
tics trend radar (2018) there are several technologies that can be used by logis-
tics service providers and overlap with the digital technologies for smart
manufacturing. These are 3D printing, virtual reality, big data analyses, cloud
logistics, IoT, robots/cobots, automation, and autonomous vehicles (DHL
2018). Last but not least we should define info communication technologies
(ICT) as well, because of the terminology of the current discussion in the lit-
erature. Most articles mention the use of ICT rather than the “new” term,
digitalization. According to Weber and Kauffman’s (2011) definition ICT is
understood “as technologies that support data and information processing,
storage and analysis, as well as data and information transmission and commu-
nication, via the Internet and other means.” In this sense we can conclude that
there is an overlap with several technologies classified as Logistics 4.0. For this
reason, ICT-related papers are also included in the literature review.
Several authors have discussed the effects of ICT on sustainability perfor-
mance of companies in general. According to the literature, from an environ-
mental perspective, ICT development has controversial effects. On one hand,
the spread of ICT tools and the increase of their capacity and performance
enhance the need for energy, and the large amount of electronic waste pollutes
the environment (Yi and Thomas 2007). On the other hand, improvement of
ICT and consequently the increasing efficiency of the companies and/or pro-
duction processes might save us energy, waste, pollution, or workload, result-
ing in better environmental performance (Benitez-Amado et al. 2015; Gimenez
et al. 2014; Melville 2010; Lee and Brahmasrene 2014). We can see pro and
con examples of ICT’s environmental effects in the literature. Matthews et al.
(2002) compared online and offline book retailers and concluded that it
458 O. DIÓFÁSI-KOVÁCS

cannot be decided which is more energy efficient. Ishida (2015) and Yi and
Thomas (2007) state that ICT supports economic growth, social development,
and environmental protection, although computers contain parts that are toxic
and to produce semiconductor wafers manufacturers use a considerable amount
of water and energy.
Regarding the sustainability performance of third-party logistics service pro-
viders (3PLs) we have a very thorough literature review done by Evangelista
et al. (2018). 3PL companies provide complex solutions to their clients besides
transportation and logistics, for example, warehousing, value-added services,
inventory management, and customer service solutions, which require high-­
level IT support. The operations of logistics service industry have significant
effects on the environment. Transport and logistics have the second greatest
emissions after energy industries (IEA 2017), and due to globalization, the
demand for logistics, (e.g. the transport of goods) is continuously growing
(ITF 2016). We can say that sustainability is getting greater emphasis within
logistics services in everyday operations and on the strategic level as well, in
order to reduce the harmful environmental impacts. In the literature environ-
mental sustainability of 3PLs appears in three main streams: (1) focusing on
green initiatives, factors for motivations and barriers (Lieb and Lieb 2010; Lin
and Ho 2011; Maas et al. 2014; Evangelista 2014; Perotti et al. 2015); (2) the
effects of green initiatives on business performance (Oberhofer and Dieplinger
2014; Kim and Han 2011; Tacken et al. 2014; Lun 2011); and (3) energy
efficiency of road freight (Léonardi and Baumgartner 2004; Liimatainen et al.
2012). A couple of papers discuss effects of info communication technologies
(ICT) (Wang et al. 2015; Kang et al. 2013) and the relationship between sus-
tainability and digitalization (Kayikci 2017).
Wang et al. give a list of ICTs used in road freight that have the potential to
reduce carbon emissions. The compilation of this list is a highlight of the paper
and gives us clues to understand and possibly position these ICTs in the new
Logistics 4.0 terminology. ICT tools that help the reduction of CO2 emissions
in road freight services according to the classification by Wang et al. (2015):
Level 1 ICT use includes digital tachograph and telematics in order to provide
information on the vehicle itself and its load. Level 2 refers to the company and
the management of business processes—transport management systems (TMS)
and enterprise resource planning systems (ERP). Level 3 refers to the supply
chain and includes customer relationship management (CRM), supplier rela-
tionship management (SRM), and supply chain management (SCM) systems.
Level 4 refers to the network of various supply chains, and open/closed elec-
tronic logistics marketplaces are listed here. Kayikci (2017) lists the digitaliza-
tion characteristics of logistics and determines which logistics digitalization
characteristics are connected to which sustainability dimensions based on case
study research. The conclusions suggest that digitalization in logistics has not
yet reached the maturity level, but in terms of economic effects there is a huge
potential. Digitalization has a poor impact on the social dimension, and the
 23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY… 459

environmental dimension is mostly impacted by reducing waste, pollution, and

emission of greenhouse gases (Kayikci 2017).

Methodology of the Research

The data used for analyses in this chapter are part of an I4.0 focused research
project at Corvinus University of Budapest, where various sectors (automotive,
FMCG, logistics services, retail, and shared service centers) and supply chains
(the different companies under study belong to different supply chains.) were
examined based on qualitative methods, namely case study analyses. Due to the
yet not so wide uptake of digitalization or 4.0 technologies, convenience sam-
pling approach was followed by the research team. Those companies were
selected that according to the expectations were more mature in 4.0 initiatives.
There was only one specific aspect in the sampling process based on institu-
tional theory, namely that the selected companies should be either locally
owned (or the headquarter of the company should be located in Hungary) or
a multinational firm’s subsidiary—since the initial expectation was that differ-
ences in ownership, size, host, and home environments can cause fundamental
influences on competitive strategy (Porter 1980) and human resource manage-
ment practices (Rosenzweig and Singh 1991), which would result in different
approaches toward 4.0 initiatives. The project’s aim is to examine the main
features of digital transformation among different sectors and supply chains
but at the business unit level.
The data collection process was formalized by a data collection guide
(DCG), which was developed by the research team based on the qualitative
research design literature (Yin 2003; Caniato et al. 2018) and previous research
experiences. The 20-page long DCG provided a structure for the interviews
and case descriptions. Its main highlights were industry and corporate level 4.0
strategy, motivation, planning, implementation, responsibilities toward digita-
lization projects, experiences, results, impacts of projects, employment struc-
ture and trends, governance of innovation processes within the company, and
sustainability-related questions. The DCG defined the most relevant aspects of
the inquiry, and a supplement provided questions and a protocol for semi-­
structured interviews.
Altogether seven in-depth interviews were conducted by two logistics ser-
vice provider companies in Hungary in the autumn of 2018. In the case of each
logistics service provider a senior manager was interviewed first; they chose the
projects that they were willing to introduce to the researchers. Upon question-
ing, the senior managers answered that the projects were selected based on
their success rate and timespan, because they wanted to show the researchers
recent and potentially successful projects. Additional interviews were con-
ducted with each project manager of the selected projects.
The information gained was completed by triangulation with the publicly
available data of the companies (websites, news, economic data) and experience
of visits. All the interviews were transcribed and case descriptions written from
460 O. DIÓFÁSI-KOVÁCS

the information gained according to the DCG structure. The units of the case
descriptions were digitalization projects. Each case description was sent to the
unit’s representative to validate the content.
As mentioned in its description, the DCG contains sustainability-related
questions too. In this research sustainability is measured according to the triple
bottom line—economic, social, and environmental aspects. Among economic
dimensions the effects of digitalization are scanned on the cost and quality of
service, reliability, flexibility, speed of logistics services, and overall supply chain
effectiveness. These are the determinants of value creation for customers in
logistics. Among environmental sustainability dimension overall environmental
performance of the logistics service provider is examined and energy consump-
tion and energy efficiency are highlighted. The overall environmental perfor-
mance refers to several green actions, for example, waste management, land
use, pollution prevention, water use, strategy- or policy-related reporting activ-
ities. These were described during the interviews to the respondents. This
analyses of environmental sustainability effects follows the current trend in the
literature focusing highly on energy consumption and CO2 emissions (e.g. Lee
and Brahmasrene 2014; Léonardi and Baumgartner 2004; Liimatainen et al.
2012). Social sustainability dimensions focus on the effects of digitalization on
work environment, employee satisfaction, working relationships between
employees, supervision practices, learning and skill development issues, fluc-
tuation, productivity, and human resource demand. Economic and social crite-
ria are strongly represented among the dimensions, due to the public interest
and concerns.
After transcribing and processing of the interviews, only four projects (CD
1–4.) were considered to contain satisfactory amount of information for the
work in this chapter. These four projects are presented here along with their
impacts on the overall sustainability performance of the companies.

Description of the Digitalization Projects

Before the introduction of the projects and the results of the research it is
important to see the environment these projects are operating in. This is done
by briefly introducing the Hungarian logistics industry and the companies.
In the Hungarian modal split, road freight has 68%, rail 18%, pipelines 10%,
inland water transport 3.4%, and air freight comes last (ST 2017). In general
we can say that the logistics industry itself is constantly growing in Hungary,
and a highly competitive market has emerged with many players, which shows
the importance of the industry. Logistics in Hungary and in the EU also plays
a significant role in environmental sustainability. The industry accounts for 8%
of the total CO2 emissions (ST 2017) in Hungary and 28.5% of the emissions
in the EU (EC 2018).
Both companies under study are third-party logistics service providers, and
their main field of operations is road freight, along with other services. For the
sake of confidentiality, the companies will be referred to as LSP1 and LSP2.
 23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY… 461

Both companies are large companies according to the EU definition, but the
size of their fleet reflects the difference between the scale of their operations.
LSP1 operates with 3500 own vehicles (LSP1-CD1) and LSP2 with only 230
vehicles (LSP2-CD4). Both companies have similar fleet management strat-
egy—only use maximum three years old vehicles, still with full guarantee ser-
vices. LSP1 has Hungarian ownership, and LSP2 is a subsidiary of a multinational
company (LSP1-CD1, LSP2-CD4).
Regarding digitalization strategies, LSP1 has a formal digital strategy and an
assigned Chief Digital Officer with a supporting R&D team, whose task is to
research innovative technologies and explore their possible use within the
operations of LSP1. LSP2, since it is a subsidiary, has a small local R&D team,
mainly working on project implementations and customization. The parent
company’s main R&D team with over 150 employees works at the headquar-
ters and provides solutions for subsidiaries upon request. LSP2 does not have
a formal digitalization strategy in place but has a strong focus on innovative
solutions and even the term “Logistics 4.0” appears as a central element of
their marketing activities (LSP1-CD1, LSP2-CD4).
We can say that sustainability is an important issue for both companies, but
they make different use of it. Just like with digitalization LSP1 has been pub-
lishing formal Sustainability Reports since 2017. LSP2 also publishes
sustainability-­related data on its website and positions itself as a “green logistics
service provider.” Its website has a real-time CO2 emission calculator and it
uses CO2 emission data in its quotations for partners as well (LSP1-CD1,
LSP2-CD4).
The senior management-level interview at LSP1 was done with the Chief
Digital Officer and further three with project managers. In LSP2 the country-­
level General Manager gave the senior management-level interview and the
leader of the local R&D team talked in detail about the project. Projects 1–3
are from LSP1 and Project 4 is from LSP2.

Introduction of Digitalization Projects

The following paragraphs give a brief introduction to the projects purely based
on the case description written according to the methodology described in the
“Methodology of the Research” section and Table 23.1 provides an overview
of the projects:
Project 1 is about software robots. They are used to replace multi-system,
repetitive, monotonous tasks. The aim of the project is to disencumber those
currently working in an overloaded administrative area by software robotiza-
tion of tasks that do not require a human decision or creative solution. Even
though the costs play an important role, currently cost reduction is not the
focus of the project but rather a decrease of the workloads (LSP 1-CD1).
Project 2 consists of two software applications. One of them is a decision-­
making software, which is used for significantly speeding up the transport plan-
ning task (which was previously paper-based) and to make the binding decision
462 O. DIÓFÁSI-KOVÁCS

Table 23.1 Summary of the case study projects in the logistics service industry
Number of P1 P2 P3 P4
project

Topic of the Software Intelligent planning Telematics Transport

project robots and routing management system
software
Technologies Robots, ERP Sensors, IoT, cloud, Big data, Predictive
included in the big data, ERP, predictive maintenance,
project predictive maintenance, sensors, ERP, big
maintenance, energy cloud, IoT, data, IoT, M2M
storage system, sensors, ERP,
M2M energy
optimization
Goal of the Reducing Optimizing fleet Development of The development of
project the workload utilization basic controlling a system integrating
of employees system of vehicle internal processes
and driver and customers in an
ERP system
Previous None Paper-based None Phone-based
practices operation, phone communication,
communication manual task solving
Further None Integrating weather External big data None
developments and real-time traffic system
planned data into the system development
Departments/ Digital Digital directorate, Digital Freight planners,
parties involved directorate, drivers, operators, directorate, drivers, invoicing
invoicing freight planners drivers

Source: Author’s creation based on case descriptions, CD 1–4

for truck and task among other information available to the driver almost
instantly. Demand for this solution emerged in 2010, and the project was
launched in 2013. The program is not designed by region, so it does not take
country borders into account and constantly decides and constantly monitors
the possible change of circumstances (new tasks, position of truck, etc.).
Another positive benefit is that it makes the transport planning process trans-
parent and free from human intervention. Time management (e.g. time gates
for loading and unloading) is the challenge, and the responsibility of the fleet
operators is also significant as the program makes decisions based on the infor-
mation they provide (location, actual vehicle utilization, etc.). Part of Project 2
is the routing engine. This engine plans the entire route, including gas stations
and car parks, calculates the driver’s actual driving and rest time, and calculates
when the vehicle is expected to arrive at the destination. It completes the oper-
ation of the planning software, which also calculates the arrival time, but the
routing engine provides the actual, current data based on which the arrival
time is modified. An important goal of this solution is to reduce delays. It
makes route planning more cost-effective, helps better utilization of driving
and rest time of drivers, and makes it easier for transport organizers to work, as
 23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY… 463

they regularly receive information on the location and expected arrival time of
each vehicle (LSP1-CD2).
Project 3 is about telematics: the essence is that continuous communication
with the driver is ensured through the system. Through a smart device (e.g.
smartphone), the system continuously sends the GPS coordinates of the truck,
monitoring the driver’s braking, acceleration, cruise control, driving and rest
time, fuel level, and so on. The driver receives not only his daily tasks through
the system but also the route planning and refueling plan (LSP1-CD3).
Project 4 is about the development and implementation of a transport man-
agement system which includes each process from the recording of a freight
task to invoicing to the customer. This is a system that is exclusively used now
to have all the information in one place, and it has the advantage of being able
to communicate not only with other LSP2 subsidiaries but can also quickly and
easily connect with its partners’ systems. Thus, electronic information exchange
makes work faster, more accurate, more efficient. Previously communication
with drivers was done on paper or by phone or text messaging. Orders also
came on the phone and were recorded manually. Part of this system is a mobile
app (own development of LSP2) used by the drivers, who are all equipped with
smartphones. This app is not a route planning app, so the drivers only have to
stop at the safe and approved rest areas. The drivers see all details of their work,
which truck they have to use, which trailers to tow, and the destinations. The
transport documents are also stored via this app. The customers have an inter-
face too where they can follow their orders, track the delivery, and have access
to all the transport documents (LSP2-CD4).
The following section provides the interpretation of the information gained
from the interviews and the data from triangulation. The determination of the
effects (positive, negative, neutral) is based on the information in the case
descriptions (CD1–4) and represent the interpretation of the researcher
approved by the company representative. This section also answers RQ1: What
kind of effects can digitalization projects have on the sustainability (social,
environmental, economic) performance of a logistics service provider? and
RQ2: How could digitalization projects significantly contribute to the reduc-
tion of CO2 emissions of LSPs?

Analyses of the Effects of Digitalization Projects

on Economic Sustainability
If we analyze the effects of the digitalization projects on the sustainability
dimensions, we can conclude that all of the four projects have positive or neu-
tral effects on economic sustainability (exception is P1—flexibility dimen-
sion) (Table 23.2).
In Project 1, the investment costs are minimal compared to the advantages
brought about by the software robots in workload reduction of employees,
who are now able to work on more value-added tasks. At the implementation
phase of the software robot project the quality of the tasks done might not be
 464

Table 23.2 Effects of digitalization projects on economic sustainability

Number of P1 P2 P3 P4
projects

Costs Positive: The investment costs are Positive: The project has positive Positive: The use of telematics Positive: The implementation
minimal compared to the advantages effects on costs because of truck provides possibilities for cost and the development of the
brought about by the software robots utilization and route saving by monitoring ecodrive project means investment costs
O. DIÓFÁSI-KOVÁCS

in workload reduction of employees, optimization, which leads to practices, by supporting at the beginning, but these will
who are able to work on more more efficient operations predictive maintenance be balanced later by more
value-added tasks practices, and by shedding light efficient and safe operations
on operational errors—e.g.
timeframes of unloading and
too long waiting time
Quality Positive: At the implementation phase Positive: The project has positive Positive: The telematics project Positive: The perceived quality
of the software robot project the effects on quality because of has a positive effect on quality of service is improved by a
quality of the tasks done might not be route optimization, which by making possible errors in well-operating TMS
significantly better, since initial errors eliminates delays and thus the trucks visible—avoiding
can occur in the program, but after provides customer value breakdowns and other
the testing phase robots provide more problems causing lower service
stable quality of work done. The quality
other aspect is the process
re-evaluation prior to the
development of robots; this can result
in process improvement
Reliability Positive: Using software robots has a Positive: The project has positive Positive: The telematics project Positive: A well-operating TMS
positive effect on reliability in solving effects of reliability since it makes has rather positive effects on provides the necessary
monotonous tasks without errors the tracking of the trucks reliability by making possible information for delivering
possible, providing real-time errors in the trucks visible— reliable services
information to customers avoiding break downs and
other problems causing
unreliable service
Number of P1 P2 P3 P4
projects

Flexibility Negative: The software robots are Positive: The constant Neutral: The telematics project Neutral: The TMS has neutral
programmed for a specific task; they re-planning of resources provides has neutral effects on flexibility effects on flexibility
do not support flexibility more flexible operations and
optimized utilization
Speed Positive: At the implementation phase Positive: By providing the Positive: The telematics project Positive: The TMS has rather
of the software robot project the optimal match of truck and task, has a positive effect on the positive effects on the speed of
speed of work will probably decrease providing the fastest route speed of operations by operations, by providing all
due to necessary checks, but after the suggestion, and reducing the reducing the chance of necessary data in the right place
test phase robots will deliver tasks possible navigation mistakes, the unexpected delays due to the and at the right time
faster project has a positive effect on trucks
the speed of operations
Supply Positive: The project supports supply Positive: The project supports Positive: The telematics project Positive: The TMS has positive
chain chain effectiveness based on the supply chain effectiveness based contributes to the overall effects on supply chain
effectiveness aspects mentioned above and in on the aspects mentioned above supply chain effectiveness by effectiveness by connecting the
several cases by delivering tasks that the above-mentioned aspects stakeholders and providing the
currently are not done and penalties and provides transparency of necessary information input for
are paid instead to customers the operations the running processes

Source: Author’s creation based on case descriptions, CD 1–4

23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY…
465
466 O. DIÓFÁSI-KOVÁCS

significantly better, since initial errors can occur in the program, but after the
testing phase robots provide more stable quality of work done. The other
aspect is the process re-evaluation prior to the development of robots—this can
result in process improvement. Using software robots has a positive effect on
reliability in solving monotonous tasks without errors, but the software robots
are programmed for a specific task and they do not support flexibility. At the
implementation phase of the software robot project the speed of work will
probably decrease due to necessary checks, but after the test phase robots will
deliver tasks faster. So, we can conclude that the project supports supply chain
effectiveness based on the aspects mentioned above and in several cases by
delivering tasks that currently are not done and penalties are paid instead to
customers.
Project 2 has positive effects on costs because of truck utilization and route
optimization, which lead to more efficient operations. The project has positive
effects on quality because of route optimization, which eliminates delays and
thus provides customer value. In terms of reliability, Project 2 has positive
effects, since it makes the tracking of the trucks possible, providing real-time
information to customers. The constant re-planning of resources provides
more flexible operations and optimized utilization. By providing the optimal
match of truck and task, and providing suggestions for the fastest route, reduc-
ing the possible navigation mistakes, the project has a positive effect on the
speed of operations as well. Altogether this project supports supply chain effec-
tiveness based on the aspects mentioned above.
Regarding Project 3, the use of telematics provides possibilities for cost sav-
ing by monitoring ecodrive practices, by supporting predictive maintenance
practices, and by shedding light on operational errors—for example, time-
frames of unloading and unreasonably long waiting time. The telematics proj-
ect has a positive effect on quality by making possible errors in the trucks
visible, which can help avoid breakdowns and other problems causing lower
service quality. Project 3 has a rather positive effect on reliability by making
possible errors in the trucks visible, but it has neutral effects on flexibility. The
speed of operations is positively affected by reducing the chance of unexpected
delays due to the trucks. This project also contributes to the overall supply
chain effectiveness by the above-mentioned aspects and provides transparency
of the operations.
In the case of Project 4, the implementation and the development of the
transport management system (TMS) means investment costs at the begin-
ning, but these will be balanced later by more efficient and safe operations. The
perceived quality of service is improved by a well-operating TMS, since it can
provide necessary information for delivering reliable services. The TMS has
neutral effects on flexibility, but rather positive effects on speed of operations,
by providing all necessary data in the right place and at the right time. The
TMS has a positive effect on supply chain effectiveness by connecting the stake-
holders and providing the necessary information input for running the pro-
cesses. These findings are in line with the literature, highlighting the positive
 23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY… 467

effects of ICT on competitiveness (Yi and Thomas 2007; Benitez-Amado et al.

2015; Matthews et al. 2002; Melville 2010; Ishida 2015).

Analyses of the Effects of Digitalization Projects

on Environmental Sustainability
The digitalization projects have similarly positive and neutral effects on envi-
ronmental sustainability performance of the firms. Three projects have reported
completely positive effects on environmental performance and energy con-
sumption and in these cases energy efficiency is also supported (Table 23.3).
By reducing the distances, optimizing load, and eliminating empty running
of trucks, fuel consumption is reduced significantly, meaning reduced emis-
sions of greenhouse gases, contributing to overall environmental performance.
Noise pollution and traffic can also be reduced along with waste by providing
more efficient planning options for the maintenance of trucks. The TMS has a
positive effect due to the reduction of paper-based processes too. Here it
should be noted that these projects can have significant effects on fuel con-
sumption, which can of course be considered as a “green action,” but the
companies have direct financial interest in reducing their fuel consumption.
Here RQ2 can be answered: that digitalization projects can significantly con-
tribute to the reduction of CO2 emissions of LSPs by using technologies for
route optimization, reduction of empty running of trucks, ecodrive practices,
and predictive maintenance.
The more comprehensive set of indicators for environmental performance
were not used. This research only contributes to the line of discussion about
possible CO2 emissions (Lee and Brahmasrene 2014; Léonardi and
Baumgartner 2004; Liimatainen et al. 2012; Gimenez et al. 2014.), but there
seems to be great potential for further improvement of environmental perfor-
mance of both LSPs. Project 1 has completely neutral effects on environmental
sustainability, since it does not use more or less energy compared to the manual
solutions.

Analyses of the Effects of Digitalization Projects

on Social Sustainability
The digitalization projects seem to have more diverse effects on social sustain-
ability issues (Table 23.4). According to the results none of the projects affect
the working relationship between employees, and in the case of Project 1,
supervision and inspection are not affected by software robots either. The other
dimensions show positive effects. The software robots bring improvement to
the work environment by eliminating monotonous tasks and by reducing stress
and burn-out, and the project rather improves skills and furthers learning of
employees, by process analyses at the robot development phase.
Project 1 brings improvement to productivity by liberating employees from
monotonous tasks and freeing up capacities for creative work. Providing the
468 O. DIÓFÁSI-KOVÁCS

Table 23.3 Effects of digitalization projects on environmental sustainability

Number of P1 P2 P3 P4
projects

Environmental Neutral: The Positive: By Positive: The Positive: The

performance software robot reducing the project TMS has positive
project has a distances, contributes to the effects on the
neutral effect on optimizing load, environmental environmental
the overall and eliminating performance of performance of
environmental empty running of the company by the company,
performance of trucks, fuel reduction of fuel caused by load
the company consumption is consumption and and route
reduced providing more optimization and
significantly, efficient planning the reduction of
meaning reduced options for the paper-based
emissions of maintenance of processes
greenhouse gases, trucks
contributing to
overall
environmental
performance. Noise
pollution and traffic
can also be reduced
Energy Neutral: The Positive: By Positive: The Positive: The
consumption software robot reducing the project has TMS has a
project has a distances, significantly positive effect on
neutral effect on optimizing load, positive effects on energy
the energy and eliminating fuel consumption, consumption
consumption of empty running of by raising because of route
the company, trucks, fuel awareness toward optimization and
since it does not consumption is ecodrive practices the reduction of
use more or less reduced empty running
energy compared significantly
to the manual
solutions
The project Neutral: The Supports: The Supports: The Supports: The
supports/ software robot project supports project supports project supports
causes project has a energy efficiency by energy efficiency energy efficiency
challenges in neutral effect on fuel consumption by fuel based on fuel
terms of the energy reduction consumption consumption
energy efficiency of the reduction
efficiency company, since it
does not use
more or less
energy compared
to the manual
solutions

Source: Author’s creation based on case descriptions, CD 1–4

Table 23.4 Effects of digitalization projects on social sustainability
Number of P1 P2 P3 P4
projects

Work Improvement: The software Improvement: The project The telematics project makes In the development phase of the
environment robots bring improvement to the improves the work environment work environment of the drivers project certain mistrust and
work environment by eliminating by providing all necessary more controlled but their resistance occurred against the
monotonous tasks navigational information to freedom of choice gets limited, new system, but in the future the
drivers and thus providing safer which means safety for some TMS is intended to create a more
operations and burden for other drivers comfortable and simple working
environment
Employee Improvement: The software Declension: At the beginning of Declension: The project has Neutral effect: In the
satisfaction robots bring improvement to the the implementation of the project negative effects on employee development phase of the project
work environment by eliminating the drivers resisted the decisions satisfaction, since the freedom certain mistrust and resistance
monotonous tasks made by the software and the of choice gets more and more occurred against the new system;
operators were also skeptical limited for drivers en route in the future the TMS is intended
about the optimal routes. After a to create a more comfortable and
certain time, all employees simple working environment and
accepted the new way of planning possibly employee satisfaction
and there were positive effects on
the overall company performance
Working Neutral effect: The project does Neutral effect: The project does Neutral effect: The telematics Neutral effect: The project has
relationship not affect the working not affect the working project does not affect the neutral effects on working
between relationship of employees relationship of employees relationship between employees relationships
employees

(continued)
23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY…
469
Table 23.4 (continued)
470

Number of P1 P2 P3 P4
projects

Inspection, Neutral effect: The project does Improvement: The project Improvement: The project Improvement: The TMS brings
supervision not affect inspection and supports the inspection of drivers
provides perfect insights into more transparency into the
supervision practices by having a reference task, route,
the driving style and practices of operations, which improves the
and timeframe drivers, which even gives possible supervision tasks
possibility for connecting
O. DIÓFÁSI-KOVÁCS

performance/payment options
Learning, Improvement: The project rather Improvement: The project Neutral effect: The project Improvement: The TMS requires
skill improves skills and furthers requires more digital skills from requires minimal digital skills new digital skills from employees;
development learning of employees, by process drivers; hence training is provided from drivers; the overall effects for this reason training is provided
analyses at the robot development can be considered neutral
phase
Fluctuation Improvement: The software Neutral effect: The project has Neutral effect: The projects’ Neutral effect: The project has
robots bring improvement to the neutral effects on fluctuation effect on fluctuation is currently neutral effects on fluctuation
work environment by eliminating currently; since following the neutral, since the salaries of the
monotonous tasks, reducing suggestions of the route drivers do not depend on their
stress and burn-out optimizing software is not driving performance. This
mandatory, the drivers’ pay does might change in the future
not depend on it
Productivity Improvement: The software Improvement: The project Improvement: The productivity Improvement: After the
robots bring improvement to improves productivity by less is positively affected, since more implementation and learning
productivity by liberating empty running of trucks and optimal driving style results in phase the TMS has the potential
employees from monotonous optimized routes less fuel consumption; good for increasing the productivity
tasks and freeing up capacities for navigation results in less errors significantly
creative work and time wasted
Human Improvement: The project brings Improvement: Because of more Neutral effect: The project Improvement: After the
resource improvement to human resource efficient planning and driving currently does not affect human implementation and learning
demand demand by providing chance for time utilization the current tasks resource demand phase the TMS has the potential
employees to do valve-added can be delivered by the employees to increase efficiency; thus the
work and preventing overloading overload of employees can be
reduced

Source: Author’s creation based on case descriptions, CD 1–4

 23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY… 471

chance for employees to do value-added work and preventing overloading can

be considered as positive effects on human resource demand.
Project 2 improves the work environment by providing all necessary naviga-
tional information to drivers, thus providing safer operations. At the beginning
of the implementation of the project the drivers resisted the decisions made by
the software and the operators were also skeptical about the optimal routes.
After a certain time, all employees accepted the new way of planning, which
had positive effects on the overall company performance. The project supports
the inspection of drivers by having a reference task, route, and timeframe. It
also requires more digital skills from the drivers, so necessary training is pro-
vided by the company. The implementation of intelligent planning and routing
software has neutral effects on fluctuation currently; since following the sug-
gestions of the route optimizing software is not mandatory, the drivers’ bene-
fits do not depend on it. The project improves productivity by less empty
running of trucks and optimized routes, meaning that the current tasks can be
delivered by the current number of employees.
Project 3, the telematics project, makes work environment of the drivers
more controlled; their freedom of choice gets limited, which means safety for
some and burden for other drivers. The project has negative effects on employee
satisfaction, since the freedom of choice becomes limited for drivers during
work. Telematics provides perfect insights into the driving style and practices
of drivers, which even gives possibility for connecting performance/payment
options. The project requires minimal digital skills from drivers, so the overall
effects can be considered neutral on skill development. The projects’ effect on
fluctuation is also currently neutral, since the salaries of the drivers do not
depend on their driving performance. This might change in the future, because
there is a need for productivity, since more optimal driving style results in less
fuel consumption and good navigation means less errors and time wasted. The
project currently does not affect human resource demand.
Project 4, the TMS, is intended to create a more comfortable and simple
working environment and brings more transparency into the operations, which
improves the possible supervision tasks. The project has neutral effects on fluc-
tuation. On the other hand, the implementation of a TMS has the most diverse
effects in case of social sustainability; here, the human factor, the resistance
toward change, can be experienced. In the implementation phase of the project
certain mistrust and resistance occurred against the new system. The described
phenomena of resistance is in line with Bridges’ Transition Model (Bridges
1991) “Ending, Losing, Letting go.” This is the first phase of transition, when
employees experience resistance and emotional discomfort due to a significant
change in their working environment. With time and further experience this
leads into “The Neutral Zone,” when they might feel skeptical and untrusting
toward the new solutions (Bridges 1991). The TMS in the case of Project 4
was in this phase when the interviews were conducted. With support and guid-
ance, the final phase, “The New Beginning,” can be reached when people start
to see the benefits of the new system, develop the needed skills, and build their
472 O. DIÓFÁSI-KOVÁCS

new commitment (Bridges 1991). Since the TMS implementation project

requires new digital skills from employees necessary training is provided
continuously.
We can conclude that there is a potential in the TMS for increasing produc-
tivity and efficiency significantly, and thus the overload of employees can be
reduced.

Discussion
Sustainability has more than one exact meaning (Harrington 2016). It can be
relevant on global and local levels; it is in practice a “moving target,” and it is
very difficult to determine what is right and what is wrong in terms of sustain-
ability for different organizations. Contingency approach (Scott 1981) can be
applied for sustainability solutions, since there is no general good solution for
all organizations and for all aspects of sustainability. The possibilities made
available by digitalization—at the current maturity phase—are very similar to
the challenges of sustainability, providing an interesting field of research in this
context.
On the other hand, it is clear that the theory of sustainability is seeking long-­
term treatment of natural resources, social systems, and people in ways that are
consistent with human well-being and dynamic system stability (Harrington
2016). Systematic thinking, a comprehensive approach, is an important ele-
ment of logistics and supply chain management; therefore it is reasonable to
expect organizations in the transport and logistics sector to evaluate every
innovation and change against sustainability values.
For summarizing the effects of digitalization projects, we can use a final
sustainability performance evaluation model. This model can be used not only
in the case of logistics-related projects but also for digitalization projects in any
other sector (e.g. automotive, FMCG, banking, retail) and for different levels,
positions in supply chains, or supply networks. In Table 23.5 the project evi-
dence is summarized from this research.
All four projects are cross-functional; several departments are involved in the
implementation and they are based on digitization (I-Scoop 2018)—switching
from paper to digitalized solutions. According to the hierarchical categoriza-
tion of ICT use in transport and logistics, which has a potential for furthering
sustainability performance suggested by Wang et al. (2015), Project 3 can be
categorized as Level 1 ICT use, which focuses on the vehicle and its load.
Projects 2 and 4 can be considered as Level 2 actions, meaning systems are
deployed to manage specific business processes. Project 1 does not fit into this
categorization, since software robots as used in the current case study do not
result in better sustainability performance.
Regarding the Logistics 4.0 technologies (DHL 2018) some of them are
included in the four projects: robots, ERP, sensors, IoT, cloud, big data, pre-
dictive maintenance, energy storage system, M2M. On the other hand, the
ones most frequently mentioned in connection with logistics are not present in
 23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY… 473

Table 23.5 Sustainability performance evaluation model of digitalization projects

Number of P1 P2 P3 P4
projects

Topic of the Software robots Intelligent Telematics Transport

project planning and management
routing software system
Technologies Robots, ERP Sensors, IoT, Big data, Predictive
included in the cloud, big data, predictive maintenance,
project ERP, predictive maintenance, sensors, ERP, big
maintenance, cloud, IoT, data, IoT, M2M
energy storage sensors, ERP
system, M2M
Economic P1 has positive P2 has positive P3 has positive P4 has positive
sustainability effects on all the effects on effects on effects on
economic economic economic economic
sustainability sustainability, all sustainability, but sustainability, but
aspects, except aspects considered since it is a as a TMS we
for flexibility, telematics should mention it
which is due to project, we has neutral effects
the nature of should mention on flexibility
technology used it has neutral
effects on
flexibility
Costs ✓ ✓ ✓ ✓
Quality ✓ ✓ ✓ ✓
Reliability ✓ ✓ ✓ ✓
Flexibility – ✓ – –
Speed ✓ ✓ ✓ ✓
Supply chain ✓ ✓ ✓ ✓
effectiveness
Environmental P1 has a neutral P2 has positive P3 has positive P4 has positive
sustainability effect on the effects on effects on effects on
overall environmental environmental environmental
environmental sustainability in all sustainability in sustainability in all
performance of aspects all aspects aspects
the company
Environmental – ✓ ✓ ✓
performance
Energy – ✓ ✓ ✓
consumption
The project – ✓ ✓ ✓
supports energy
efficiency

(continued)
474 O. DIÓFÁSI-KOVÁCS

Table 23.5 (continued)

Number of P1 P2 P3 P4
projects

Social P1 means P2 has mainly P3 has divisive In the case of P4,

sustainability improvement in positive effects on effects according at the beginning a
most of the social sustainability, to the interviews, certain distrust
social but at the meaning appeared toward
sustainability implementation declension in the project, which
aspects but has phase declension terms of working dissolved with
neutral effects appeared in terms environment. time. Clearly
on working of employee The project has positive effects
relationships satisfaction. The clearly positive appear in the case
and supervision project has neutral effects only on of supervision,
effects on working supervision and skill development,
relationships and productivity productivity, and
fluctuation human resource
demand
Work ✓ ✓  
environment
Employee ✓ x x –
satisfaction
Working – – – –
relationship
between
employees
Inspection, – ✓ – –
supervision
Learning, skill ✓ ✓ – ✓
development
Fluctuation ✓ – ✓ –
Productivity ✓ ✓ ✓ ✓
Human ✓ ✓ – ✓
resource
demand

Source: Author’s creation based on case descriptions, CD 1–4

the current cases (autonomous vehicles, drones, artificial intelligence, virtual

reality). The categorization and sector-specific analysis of 4.0 technologies still
hold massive research potential in the field of logistics services.
From the organizational and management point of view these projects tar-
get increasing operational efficiency of core activities of the LSPs and of support-
ing tasks. These projects do not show the important element of Industry 4.0,
creating new business models (I-Scoop 2018). Creating a new business model
would involve proactively (without external expectations from the partner)
offering increasing value for customers enabled by digital transformation.
The projects also seek to reduce workload of current employees. This means
that the assumption that 4.0 technologies are endangering workplaces is not
currently the case in the companies analyzed. The lack of qualified employees
 23 EXPLORING EFFECTS OF DIGITALIZATION ON SUSTAINABILITY… 475

is a real problem in the logistics service industry, and digitalization projects

might offer some relief for this type of problems. At the same time Agostini and
Filippini (2019) found that the success of digitalization projects depends on
human resources. The more educated and skilled workforce is employed in the
organization, there is more chance to implement digitalization successfully. In
the interviews one of the most important success factor of the projects was
change management practices—this is clearly visible from the final model, that
social sustainability, which is mostly connected to human behavior and accep-
tance, shows the most diverse results. (e.g. P3 has divisive effects according to
the interviews, since it divided the employees’ views very strongly.)
The initial assumption that the size of the organization and the potential
know-how and financial power have an effect on the maturity of digitalization
and sustainability—for example, the subsidiary of a multinational company has
better resources for digitalization and sustainability-related projects than a
national company—did not prove with the cases analyzed.
This chapter seeks to join the current discussion in the literature and shows
a possible research framework for the future analyses of the effects of digitaliza-
tion projects on sustainability performance of companies. The cases are meant
to show evidence in the form of a model which can be used for further research
throughout different sectors and levels of supply networks.

Conclusions
This research contributes to the current debate about the environmental
impact of digitalization and provides insights into the social and economic
effects of Logistics 4.0 as well. The conclusion of the case study analyses seems
to be in line with the suggestions of Kayikci (2017), that digitalization in logis-
tics has a long way to go until maturity but it already has positive effects on the
economic performance. The environmental effects of digitalization are mainly
based on the reduction of emissions, and the impact on social dimensions very
much depends on the type of the project in question. It can be concluded that
logistics service providers need to adapt to the dynamic market environment
they operate in, in order to keep and develop their competitiveness and live up
to the expectations of external stakeholders regarding sustainability issues.
Dealing with people in a highly dynamic environment, such as the logistics sec-
tor, with innovative technologies, in this case digitalization, and aiming for
better sustainability results, which itself is changing with time, technology, and
other environmental factors, is quite a challenging managerial task, where
change management plays a crucial role.
There are limitations to this research, which should be admitted. One limi-
tation is that it focuses on one specific industry and companies operating in this
industry. At the same time, it can be seen that the content of the projects
includes technologies such as software robots, which can also be used in other
industries. For this reason, the managerial implications can be similar for other
digitalization projects as well. The other limitation of this research lies in the
476 O. DIÓFÁSI-KOVÁCS

project selection method. These are recently finished or currently running

projects, which are successful or have promising outcomes. For this reason, the
effects can only be assumed, and the results are not based on objective mea-
surement. The environmental effects are not very comprehensively measured,
so this calls for further research in this field in order to obtain a clearer picture
of costs and benefits of digitalization on sustainability performance.
Despite the limitations this research might help practitioners with inspira-
tion about the possible outcome of their investments into digitalization based
on project evidence and provide valuable addition to the academic research
community interested in this field by offering a sustainability performance eval-
uation model.

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 CHAPTER 24

Supply Chain Innovation and Sustainability

Frontiers: A Balanced Scorecard Perspective

Miguel Cordova and Freddy Coronado

Introduction
Specialization is known to benefit trade as individuals or countries gain from
competitive advantages. Similarly, industrial and organizational productivity
has been argued since Taylor’s “Principles of Scientific Management” to ben-
efit from the specialization of tasks and the reduction of operational processes
into smaller units. This organizational approach may nevertheless be subopti-
mal, especially when there is disruptive innovation, as radical change usually
affects organizations at a system level rather than at the level of its sub-units
and as its effects are often unexpected.
Furthermore, considering high-paced technological changes, firms need to
enhance their cooperation and their process integration if they want to remain
competitive and support their innovation efforts. Nevertheless, operating in an
integrated world demands an integrated perspective too. Hence, firms need to
carefully consider the potential consequences of any process modification, be it
small or large, for their strategy implementation.
Supply chain (SC) is conceived as an integration of value-added processes,
sequentially organized, from raw material extraction to the final products in

M. Cordova (*)
Pontificia Universidad Católica del Perú, Lima, Peru
e-mail: [email protected]
F. Coronado
Universidad de Chile, Santiago, Chile
e-mail: [email protected]

© The Author(s) 2021 479

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_24
480 M. CORDOVA AND F. CORONADO

stores’ shelves (Chopra and Meindl 2013; Coyle et al. 2013; Render and
Heizer 2014). According to Chopra and Meindl (2013) and Coyle et al.
(2013), activities such as transportation, inventory management, order man-
agement, storage, and planning of resources are the most important within
supply chain management (SCM). Through the combination of these activi-
ties, SCs aim to deliver products to consumers at the proper time, at the mini-
mum possible cost (Chopra and Meindl 2013). Hence, some years ago, SCM
was focused mainly on efficiency and effectiveness performance measures
(Chopra and Meindl 2013). However, this perspective recently shifted toward
incorporating sustainability considerations as well. After that, it seems to be a
tension between being efficient and being socially responsible (Porter and Van
Der Linde 2009; Coyle et al. 2013; Leonard and Gonzalez-Perez 2013).
Therefore, SCs have been adapted to operate under a completely new perspec-
tive including economic, social, and environmental considerations, more con-
ducive to sustainable development (Gonzalez-Perez and Leonard 2016).
Moreover, main SC activities such as transportation have been affected by
innovations that follow this sustainability trend—promoting sustainable last-­
mile logistics (Guo et al. 2019), incorporating electric and flight capabilities
into vehicles (Kasliwal et al. 2019), enhancing safety and environmental out-
comes using combined control systems for transport measuring (Wang 2019),
adopting sustainable transport behaviors through gamification (Marcucci et al.
2018), and so on. In general, innovation (Goksoy et al. 2013) and technologi-
cal change (Agrawal and Narain 2018) have increased the potential as well as
the complexity of SCM; understanding technological innovation as a process
results in several organizational benefits such as collaboration, integration, and
profitability (Teece 1986).
Considering the awareness needed inside SCs’ operations in order to remain
sustainable and to deal with the unexpected changes derived from the digital
revolution era, the focus of this chapter is to measure the disruptive impact of
SC innovations on organizational strategy, under Balanced Scorecard (BSC)
framework. Specifically, this chapter uses the BSC framework to measure the
impact of transport-automation innovations on different organizational strate-
gic perspectives and then to highlight the tensions between being efficient and
being socially responsible. In the traditional sense, the objective of SC innova-
tion is mainly cost saving and delivery time reduction, in order to gain effi-
ciency and competitive advantages in international markets. Hence, companies
can decide to boost their transportation processes using electric vehicles, tech-
nological devices, and big data, among others. However, some of these innova-
tions represent important challenges for already established strategic goals such
as profitability, safety of workers, quality of life, and environmental issues. In
this way, the use of performance measurement systems (PMS) becomes urgent
to guarantee that the intended savings are not achieved at the expense of mate-
rializing any of the aforementioned socio-environmental objectives or threat-
ening the sustainable development goals (SDGs) defined by the United Nations
(2015). The objective of this study is to answer the following research
 24 SUPPLY CHAIN INNOVATION AND SUSTAINABILITY FRONTIERS: A BALANCED… 481

questions: (i) How to measure the strategic impact of disruptive innovations

related to transport automation inside SCs? and given this (ii) What are the
potential tensions between different strategic objectives?
In a global economy where large geographic distances have to be covered,
while achieving efficiency, increasing automation is a highly relevant topic for
the transport sector (Porter 1998; Ghemawat 2001). According to Phys.Org.
(2019), for instance, robots still move less than 1% of the global pallets in ware-
houses and the logistics automation market should grow from $46 billion in
2018 to more than $80 billion by 2023. Hence, the importance of this chapter
is in providing insights about processes’ operational continuity under a turbu-
lent digital era, without missing the strategic alignment.
This chapter adopts both an academic’s and a practitioner’s viewpoint,
points out some gaps in the current management literature, and presents SCM
as a complex and integrated system, which has to deal with disruptive techno-
logical innovations through reliable and comprehensive PMS to monitor a
firm’s strategy implementation. We also contend that seeing SCM as such can
in turn lead practitioners to take responsible decisions ahead of automation and
digitization policy choices. Alongside an increase in the quality of managerial
decisions, it can lead to cost reductions due to the selection of more suitable
technological solutions, with less-stressed implementation processes, and in
accordance with global SDGs.
The chapter is organized as follows. The next section describes the current
context and background of transport automation in the SCs. It also includes
the literature review about sustainable supply chain management (SSCM) and
a review of the main concepts of PMS and BSC. The third section exhibits the
methodology used in order to answer the two research questions proposed
before. This section also presents our reflections on how four disruptive inno-
vations in transport automation have shocked SC operations and how these
changes may generate trade-offs between different organizational performance
dimensions. Finally, the fourth section concludes the study, highlighting the
final reflections and answering the two research questions of this chapter. New
paths for further research are also presented in this final section.

Context and Background

What Is Currently Going on About Sustainable Transportation?

Logistics is the heart of SC operational mechanisms, providing support to
physical movement demanded from organizations, customers, and many other
stakeholders related to this complex network service (World Bank 2018).
According to World Bank (2018) SCs’ reliability is positively related to delivery
certainty, more than other important variables such as speed or even cost. A
reliable delivery will determine the overall logistics performance as well as how
much the customer is willing to pay for that certainty. As organizations searched
for growing and expanding their operations, their SCs’ transportation activities
482 M. CORDOVA AND F. CORONADO

have been extended alongside the also increased global requirements for trade
(OECD, 2010). Since then, containers implementation, multimodal transport
methods, and standardization of global regulations for trade, among many
other important changes related to transport optimization and evolution, were
deployed (UNCTAD 2001).
The World Trade Organization (2019) highlighted how delivery and distri-
bution services turn efficient due to the intervention of technology. Moreover,
it declared distribution as one of the most demanded services in the current
global economy. Technological revolution has changed the way firms tradition-
ally trade among them, making tradable some goods and services that were not
tradable before and drastically reducing geographic distances (World Trade
Organization 2019). However, the intensive and increasing use of modern
transportation mechanisms for global commerce, which has grown more than
4% per year since 2017 (World Trade Organization 2018), turned them into
one of the major factors responsible for carbon emissions and increasing the
risk of a dramatical increase of 60% of the emissions by 2050 (OECD 2017).
In addition, OECD (2010) stated that transport activity consumes consider-
able amount of fossil fuels; still no big-scale alternatives have been developed
nor are there alternatives with similar properties to play as substitutes. Besides
contaminant emissions and fossil fuel utilization, according to Malin Andersson,
Head of the Department, Development and International Affairs, Urban
Transport Administration, in the city of Gothenburg, transportation generates
uncomfortable noise, which produces another type of contamination against
the goal of having sustainable cities (Volvo Trucks 2018). According to the
World Economic Forum (2019), governments need to properly foresee the
unintended outcomes from the adherence of technological revolution into
economic initiatives, playing an active role, by regulating its effects on social
and environmental contexts.
Besides its high demand as a supply chain’s service, transportation faces big-
ger challenges in having to include the three axes of sustainability concept as a
must into every organizational activity if the world wants to move forward to a
promising future (World Economic Forum 2019). United Nations (2015), in
its SDGs, declared that people must live in good health conditions (third goal),
emphasized the need for affordable and clean energy in every global activity
(seventh goal), explained how relevant having a decent work with healthy eco-
nomic growth could be (eighth goal), described the importance of support
innovation through industries (ninth goal), and asserted the necessity for tak-
ing care of our natural resources such as fossil fuels, through responsible con-
sumption methods (twelfth goal). These five SDGs will drive transportation
activities to evolve, innovating with technology but at the same time changing
their main sources from fossil fuels to clean energy options and taking care of
generating proper human labor conditions.
 24 SUPPLY CHAIN INNOVATION AND SUSTAINABILITY FRONTIERS: A BALANCED… 483

Literature Review

S ustainable Supply Chain Management and Transportation

Supply chains are historically conceived as complex systems that meld different
organizational activities toward the achievement of common objectives,
through sharing practices and establishing responsibilities with their stakehold-
ers, in order to fulfill customers’ requirements on time and with less opera-
tional costs (Chopra and Meindl 2013; Coyle et al. 2013). Li et al. (2006)
demonstrated that SCM practices, which could possibly be affected by several
factors of the business context, have a direct impact on firms’ competitive
advantage as well as on organizations’ performance. In the same line, Frohlich
and Westbrook (2001) pointed out that firms tend to decide among several
integration strategies for their SCs; better-integrated firms exhibited better
process performance. Furthermore, Choi et al. (2001) argued that supply net-
works are not a static picture of how supply flows but are complex dynamic
systems that need to be adaptive over time. They explained how supply net-
works’ dynamic forces organizations to initiate efforts on predicting and con-
trolling their operations under higher levels of uncertainty, due to the constantly
changing characteristics of the SC, even when these changes seem to be “small.”
A fresher perspective suggests the need to include environmental issues
regarding operations and performance measurement into the SCs (Gonzalez-­
Perez and Leonard 2016), especially when logistics activities, such as transpor-
tation, are strongly related to CO2 emission levels into the environment (Liu
et al. 2018). Hence, the incorporation of the three axes of sustainability (eco-
nomic, environmental, and social) has become a complex challenge for organi-
zations during the last decades (Dyllick and Hockerts 2002). Suppliers,
customers, government, and society have been increasingly demanding solu-
tions and responses from companies that cause significant environmental
impacts because of their production cycle activities (Jabbour et al. 2014a, b).
Although this follows a global sustainability trend, it implies important changes
on the SCs’ processes (Hervani et al. 2005), such as supplier selection process,
including social and environmental criteria of the efforts to ensure a sustainable
performance of products at the SC’s end (Seuring and Müller 2008). According
to Srivastava (2007), it is possible to achieve environmental goals through SCs’
operations without having a negative impact on other managerial expected
outcomes such as profitability, adaptability, or efficiency. As a consequence,
SCM has responded with the so-called Green Supply Chain Management
(GSCM), defined as the integration of environmental thinking into SCM,
including product design, material sourcing and selection, manufacturing pro-
cesses, delivery of the final product to the consumers, and the end-of-life man-
agement of the product after its useful life. Srivastava (2007) argued that the
adoption of the GSCM surpasses environmental subjects, since a good corpo-
rate image implies higher profits, cost reduction, and generation of business
value. Then, GSCM practices are positively related to firms’ sustainable perfor-
mance (Zaid et al. 2018). In addition to this, Vachon and Klassen (2008)
484 M. CORDOVA AND F. CORONADO

argued that inter-firm collaboration within the SC would help organizations to

improve their operational results as well as their environmental innovation lev-
els. Moreover, Carter and Rogers (2008) explained how these three axes of
sustainability could coexist within the SC when firms tend to look for low-cost
strategies to obtain scarce resources from their relationships with suppliers or
customers, considering the limited available resources in the environment.
However, most research of SSCM is more focused on environmental perspec-
tives than on social or economic ones (Seuring and Müller 2008).
Transportation is one of the main processes inside SCs, giving support to
products and services design and being capable of adding value to customers at
different stages (Graves and Willems 2005). Focusing on transport activities
can help reduce logistics costs, making supply operations more efficient and
sustainable (Islam 2018; Wulf et al. 2018), solve geographic distances in a
proper way (Ghemawat 2001), boost tourism management (Prideaux 2000),
and so on. The importance of transportation as a key driver for competitiveness
within SCs implies its adherence to sustainability practices too. Thus, transport
faces challenges related to not just how to be more efficient but also how to be
cleaner. Since organizational performance is embedded in the new digital era,
technological revolution plays a crucial role in assisting transport automation
processes with innovations (Oke 2007); this does not mean less jobs as human
labor do much more than usually is perceived (Gittleman and Monaco 2019).
Therefore, these innovations also involved sustainability practices oriented
toward urban transportation (Lane and Potter 2007; McCormick et al. 2013)
as well as cargo transportation (Szymczak et al. 2018).
Some of these technological innovations in cargo transport are focused on
Global Positioning System (GPS) devices, which could assist SCs in activities
such as tracking the vehicles at any time (Suresh and Vasantha 2018), obtaining
data that makes feasible reliable measurement of travel time to improve transit
time, freight fluidity, transport planning (Cedillo-Campos et al. 2019), or real-­
time tracking on fleet and production facilities for the liquefied natural gas
(LNG) industry (Wang et al. 2018). Others aim to integrate key activities such
as transportation and manufacturing, both highly relevant for profitability and
reliability. Therefore, lead-time and transportation demands lead to changes in
chemical industry SC design such as merging operations and eliminating nodes
(Patel and Swartz 2019) or the use of modular manufacturing in the construc-
tion industry (Innella et al. 2019), integrating transport and production
through several ways in order to reduce time and costs. Other innovations are
focused on cargo vehicles that could be responsible of major CO2 emissions in
the SCs’ activities (López-Avilés et al. 2019). According to Ballinger et al.
(2019), electric vehicles are the key to reduce greenhouse emissions of the
transportation activity. However, materials supply needed for these electric
trucks could be a constraint in the near future. Another constraint would be
that charging stations for freight electric vehicles have to be optimized accord-
ing to each cities’ limitations (Londoño and Granada-Echeverri 2019).
Furthermore, vehicles such as forklifts, which are used inside factories and
 24 SUPPLY CHAIN INNOVATION AND SUSTAINABILITY FRONTIERS: A BALANCED… 485

warehouses, have been fully automated too, providing several benefits regard-
ing logistics performance and cost reduction (Park et al. 2011), and incorpo-
rating different improvements on them related to their vision system and pallet
detection (Syu et al. 2017).
Finally, sustainable SCs and their key operational activities, such as transpor-
tation, need to implement PMS in order to monitor performance and mine
information but also to capture how disruptive innovations, derived from digi-
tal revolution, may affect different stages or control points in unexpected man-
ners. Furthermore, these PMS have to be aligned with firms’ strategy.
Next, this chapter presents a literature review related to PMS. Specifically,
we introduced the BSC framework in order to measure the comprehensive
impact of transport disruptive innovations in SC and organizational strategy.

 erformance Measurement Systems and Supply Chain

P
PMS have the purpose of providing relevant information in decision-making,
planning, and evaluation (Widener 2007; Merchant and Otley 2006). Simons
(1995) argued that PMS are the formal information-based mechanisms man-
agers use to maintain or alter patterns in organizational activities. Thus, PMS
have two main purposes: providing useful information to management and
aligning employee behavior with organizational strategic goals.
According to Berry et al. (2009), PMS such as the BSC (Kaplan and Norton
1996), the Intangible Asset Monitor (Sveiby 1997), and the Skandia Navigator
(Edvinsson and Malone 1997) have become very popular tools in aligning an
organization’s objectives and strategies. The importance of these PMS lies in
that they help organizations to not only identify and specify their Key Success
Factors (KSF) but also to monitor these factors and the respective responsible
units with the aim of evaluating alignment with the firm’s global goals (Ferreira
and Otley 2009). The BSC is perhaps the best-known and most widely studied
of all the above-mentioned PMS (Lucianetti 2010).
A SC is critical to maintain the organization in the global market by aligning
the activities from the suppliers of raw materials to manufacturing processes,
and then to distribution, customer service, and finally reprocessing and dis-
posal of products. Therefore, performance measures are needed to monitor the
effectiveness and efficiency of the SC. Hence, the PMS must be adapted to
introduce these new variables in order to improve decision-making and to
monitor strategy implementation. In a recent literature review, Reddy et al.
(2019) observed that during the last couple of decades, research in PMS of SC
has remarkably increased, accumulating more than 50% of the articles from
2013 onward. The authors documented that the majority of the researchers
(35%) have used the BSC approach for evaluating the SC, followed by the
Supply Chain Operations Reference (SCOR) model with 16% of the studies.
They argue that the pervasive use of this model is explained by the simplicity in
which BSC translates strategic objectives by aligning traditional financial mea-
sures representing an organization’s past and adding non-financial measures
(operational measures) that become the drivers of future performance.
486 M. CORDOVA AND F. CORONADO

 alance Scorecard, Supply Chain Management, and Sustainability

B
According to Kaplan and Norton (1996), companies can use the BSC to com-
municate strategy to all levels, align personal objectives and those of the depart-
ments to those of the organization, link strategic objectives to long-term goals,
and plan their business in a way that allows them to allocate correct resources.
The BSC translates the organization’s vision into a set of performance indica-
tors that are distributed in four perspectives: financial, customer, internal pro-
cesses, and learning and growth perspective.
The BSC is also a promising framework for measuring, managing, and
reporting the results of corporate sustainable strategy (Figge et al. 2002;
Schaltegger and Wagner 2006). Although sustainability aspects can be inte-
grated in the existing four standard perspectives, Kaplan and Norton (1996)
also pointed out that the firm-specific formulation of a BSC may involve a
renaming or adding of perspective. Consistently, prior research has also
addressed sustainability-related goals by introducing a fifth perspective to the
standard BSC framework (Moreo et al. 2009; Hsu and Liu 2010; Hansen and
Schaltegger 2016). Sustainability measures often are quantitative (such as tons
of greenhouse gas generated) but not monetary, making them difficult to inte-
grate into traditional financial analyses in a meaningful way. Adding a new
perspective then can be considered as the simplest approach for companies,
which want to make more visible the role of sustainability in their strategy. As
a result, the following five perspectives are likely to capture the impact of SC
disruptive innovation on organizational strategy:

• The financial perspective indicates whether the company’s strategy, imple-

mentation, and execution are effectively contributing to provide superior
returns based on the capital invested. According to Kaplan and Norton
(1996), the three core financial themes are revenue growth, cost reduc-
tion, and asset utilization. A critical appraisal of the financial perspective
reveals, therefore, that the focus should be on how to increase the num-
ber of new products, minimize product/service costs, and maximize rev-
enue flow. Consequently, financial measures traditionally used are rate of
return on investment, net profit, productivity ratio, customer profitabil-
ity, cost per operation hour, supplier cost savings, inventory cost, and
information carrying cost.
• The sustainability perspective monitors how organizations respond to
societal expectations in order to maintain their “license to operate.”
Consequently, this perspective usually includes measures of impact on
environmental, social, or ethical issues such as organizational carbon
footprint, alternatives power source, level of emissions and waste, use of
environmentally friendly raw materials, packaging reduction, reuse, or
recyclability, and use of “green” suppliers.
• The customer perspective is intended to capture how customers see the
organization. Thus, this perspective usually monitors how customers
react to the organization’s value proposition. This perspective usually is
 24 SUPPLY CHAIN INNOVATION AND SUSTAINABILITY FRONTIERS: A BALANCED… 487

monitored by measuring customer perceived value of product/service,

customer reputation, customer satisfaction, customer loyalty, and cus-
tomer share.
• The internal process perspective seeks to monitor the business processes
in which the organization must excel in order to satisfy its shareholders
and customers. Organizations should decide what processes and compe-
tencies they must excel at and specify measures for each of them. In con-
sequence, examples of performance metrics for evaluating internal process
are total SC cycle time, accuracy of forecasting techniques, product devel-
opment cycle time, on-time delivery, on-specs delivery, service and prod-
uct quality, defect-free deliveries, flexibility of service systems to meet
particular customer needs, and speed to market.
• The learning and growth perspective is intended to monitor the capacity
of an organization to continue improving and creating value aligning
intangible assets such as human capital, strategic alliances with suppliers,
flexible culture, and organizational knowledge. Performance metrics for
the innovation and learning perspective in a BSC includes employees’
skills, supplier’s ability to respond to quality problems or new needs, and
accuracy of forecasting.

In SC literature, Neely et al. (2000) argued that PMS in SC should be used

to improve efficiency and effectiveness of operations and classify measures as
cost, time, quality, and flexibility (response to a changing environment). In the
BSC framework, the five perspectives are likely to capture comprehensively the
impact of SC disruptive innovation in organizational strategy by capturing effi-
ciency measures (financial perspective) and effectiveness measures (internal
process perspective), explaining how these are casually interconnected.
Kaplan and Norton (1996) stressed the importance of building in cause-­
and-­effect relationships for such analysis. They suggest that if cause-and-effect
relationships are not adequately reflected in the BSC, it will not translate and
communicate the firm’s vision and strategy. These cause-and-effect relation-
ships can involve several or all the perspectives in the BSC framework. For
instance, an agile culture (learning and growth perspective) together with envi-
ronmentally friendly materials (sustainability perspective) is likely to promote
innovation in environmentally friendly products and services (internal business
operations perspective), and thus the organization will be more likely to
improve customer reputation and customer share (customer perspective),
resulting in an increase of customer profitability (financial perspective).
Consequently, the study will use the causal relationship approach to explain the
impact of disruptive innovation on organizational strategy.
488 M. CORDOVA AND F. CORONADO

Reflections on the Impact of Disruptive Innovation

on Organizational Strategy

Methodology
To answer the research questions raised in this chapter we present an explor-
atory study in which we develop reflections from four examples of disruptive
innovation in transport that have occurred during the last five years and that
are expected to have effects in SCs. As a first step, each innovation is described
using secondary data obtained from different companies’ official reports and
websites, and both academic and practitioner articles.
Then, based on the BSC framework, we analyzed each example in terms of
the expected performance effect on different perspectives of organizational
strategy. This analysis is based on inductive logic and not on specific results of
an organization. Hence, we have been conservative in not deducing effects that
the reader logic cannot support.
Finally, we use this framework to identify and discuss potential tensions
between different strategic objectives organization may face. The purpose of
these reflections is to identify potential trade-offs, not providing evidence or
predictions, but generating a logic of how to develop them in case of applying
this methodology in a specific organization.

Four Examples in Supply Chains Disruptive Innovation

Private sector changes, which lead to the globalization of markets and enhanced
competition, are forcing organizations’ strategies toward flexibility, innovation,
and efficiency (Frow et al. 2005). Digital and technological revolution has
generated several disruptive innovations in the SCs that could drive organiza-
tions to improve their sustainability. This chapter will exhibit four different
examples rooted on transport automation that have occurred during the last
five years.

 xample 1: Going Back to the Future to Enhance Transportation Decisions

E
There is no doubt about how the GPS has gained great reputation around the
world due to its connectivity and cost reduction, among other capabilities.
Since 2000, when US President Clinton accepted to globally extend this tech-
nology, GPS has entered into almost every industry, making them more reli-
able, faster, and efficient (BBC 2019a). According to a study of the UK
government, lacking GPS would generate US$ 1 billion per day losses during
the first five days, after which the amount could be beyond calculation (BBC
2019a). Many technological firms have supported digital revolution using the
GPS platform, in order to offer new services as well as valuable information
that was inaccessible before.
Earth-I, a company based in the UK, has launched its service of satellite
monitoring system, which allows the stakeholders of industries such as
 24 SUPPLY CHAIN INNOVATION AND SUSTAINABILITY FRONTIERS: A BALANCED… 489

construction, mining, agriculture, and defense to supervise their ground oper-

ations (Reuters 2019a). This system provides real-time data related to when
facilities start or stop their processes, and it currently has 100 copper foundries
under satellite supervision, which represent 90% of global production
(Reuters 2019a).
Earth-I has its focus on geospatial intelligence, providing relevant real-time
information in order to enhance decision-making processes in organizations
(Earth-I 2019a) Delivering decisions support from outside Earth, it democra-
tizes the information related to copper foundries’ activities, which usually have
local constraints as well as reliability ones (Earth-I 2019b). Considering copper
is utilized in several industries across the globe and that its transportation
requirements are constantly demanded, this technological innovation is trans-
forming how information is generated inside the SC.
Planning processes in the supply chain could change due to this satellite
monitoring system that delivers alerts about production performance and sta-
tus of facilities (Gestión 2019), allowing a faster decision-making process and
the opportunity to find operational alternatives in advance. Transport require-
ments could be demanded on time and even transportation contingency plans
could be activated sooner, having less negative impacts as a result of a discon-
tinuity event at some point inside the SC (Cedillo-Campos et al. 2019; Suresh
and Vasantha 2018; Wang et al. 2018). Furthermore, anticipating transport
decisions in the SC could generate important savings to shippers, warehouses,
forwarders, and so on.

 xample 2: Merging Transportation with Manufacturing

E
By the beginning of 2018, the Australian company Orica, world leader in pro-
duction explosives and blasting systems, launched the Bulkmaster 7 Mobile
Manufacturing Unit (MMU™). This innovation, which includes the latest
integrated hydraulic, sensor, and control system technology, is oriented to
open cut mine operations and offers better productivity levels, increased cargo
loads, less costs and delivery times, ergonomic design, and improved safety
levels (Orica Media and News 2018). As its project team’s senior manager said:

By combining our global field expertise and MMU design experience, we’ve been
able to test the boundaries of traditional delivery system construction. We have
dramatically improved the carrying capacity, accuracy, delivery speeds and vari-
ances in material properties, with greater stability and a more ergonomic design.

The first Bulkmaster 7 initiated operations in the Pilbara region of Australia,

working at the Fortescue Metals Group Solomon facilities (MiningMagazine
2018). Specifically, the improvements related to the Bulkmaster 7 released are:
(i) an ad-hoc deposit for ammonium nitrate, which works with less weight, bet-
ter stress distribution, and a lower gravity center, (ii) a higher overall capacity
for bulk explosives retention, and (iii) reinforced power in order to improve
delivery lead times and achieve more precise measurements methods for
490 M. CORDOVA AND F. CORONADO

materials (MiningMagazine 2018). In addition to this, the MMU includes a

BlastIQ system that improves productivity, employs less time, and spends less
in drill and blasting mining operations (MiningMagazine 2018).
Merging transportation and manufacturing, this company increased its
overall production capacity, providing safety and easy operations for workers
involved (Orica May 22, 2018). Alongside process efficiency, it achieved a
faster delivery speed for its customers, which resulted in an improved lead time
as one of its most valuable SC variables (Chopra and Meindl 2013; Coyle et al.
2013; Patel and Swartz 2019).

 xample 3: Electrifying Cargo Transport

E
Companies such as Volvo, Daimler AB, Scania, and Tesla are setting their basis
in a promising new market of electric trucks (Gestión 2018). Furthermore,
demands from sustainability global agenda and subsequent government subsi-
dies would encourage this new industry’s rapid growth (Reuters 2018). Electric
cargo vehicles propose lower operational costs as well as several environmental
benefits by reducing CO2 emissions compared to traditional vehicles (Ballinger
et al. 2019; López-Avilés et al. 2019). Moreover, electric trucks offer an
improved performance, high operational uptime, longer life than traditional
trucks, less frequency of mechanical services, and reduced noise (Volvo Trucks
2019). According to Logistica360 (2020), the Dutch company DAF’s electric
trucks are capable of loading up to 37 tons of weight and operate for 100 km
under complete autonomy, which permits it to offer its services to urban distri-
bution. On the other hand, limits of cargo are still a latent agenda of these
transport innovations, due to unreached but necessary power to move bigger
amounts of goods, which is one of the main principles of logistics to achieve
economies of scale (Gestión 2018).
UPS Company, one of the world’s biggest delivery firms, is turning its tra-
ditional cargo van fleet based on diesel into electric vehicles. It started in
London, facing several problems related to vehicle conversion costs and uncer-
tain capabilities of the local power grids to plug many trucks at the same time.
However, it is approaching the point of costs and benefits balance, and the
British government is supporting it with resources due to its commitment with
CO2 emissions reduction (The New York Times 2018).
Singulato Motors has announced a production of 50,000 electric cargo vans
per year in order to supply the new transportation requirements in China for
the next years (Reuters 2018). In addition, Volvo Company announced its
partnership with Samsung to develop battery cells that could be in accordance
with the power requirements of the new electric trucks (Volvo 2019) Inter-­
firm alliances turn especially important when organizations have to deal with
technological opportunities as well as process constraints. Upgrading opera-
tional attributes of electric trucks would permit them to give service to differ-
ent customer demands and provide a cleaner transportation mode.
 24 SUPPLY CHAIN INNOVATION AND SUSTAINABILITY FRONTIERS: A BALANCED… 491

 xample 4: Lift Truck Automation

E
By the end of 2016, Pepsico, one of the world’s biggest beverages and foods
companies, announced the launching of a new distribution center in Mexico,
which is managed by fully automated lift trucks (Lideres Mexicanos, 2016).
This innovation allows Pepsico to lower operational costs in its warehouses as
well as have zero human accidents, because there is no longer the need for
human presence to drive those lift trucks. Other benefits of this forklifts auto-
mation process are the reduction of energy utilization and less disturbing noises
inside warehouses, such as in that of Ocado, a large British online supermarket,
which eliminated those noises that usually came from people or alerts for pre-
venting damage (BBC 2019b). According to Beverage Industry (2018), bever-
age companies are good candidates to incorporate automated guided vehicles
(AGVs) in their warehouse logistics operations, due to regular schedules and
common activities such as picking, transporting, and positioning products.
Another activity positively affected by self-driving forklifts is delivery; compa-
nies such as Amazon consider warehouse automation as a strategic milestone
for the firm’s objectives related to cost reduction and faster deliveries (Reuters
2019b). Conversely to AGVs in the streets, automated forklifts provide effi-
ciency as well as safety to workers, operating with high technological features
that include laser detectors for obstacles, navigation technology, and internal
maps (Beverage Industry 2018; Park et al. 2011; Syu et al. 2017).

Balanced Scorecard (BSC) and Supply Chain Disruptive Innovation

According to the literature review, disruptive innovations are more likely to aim
at financial and sustainability perspectives, reflecting firms’ efforts to be more
sustainable and at the same time improve their financial measurements (Chopra
and Meindl 2013; Porter and Van Der Linde 2009; Coyle et al. 2013; Leonard
and Gonzalez-Perez 2013; Gonzalez-Perez and Leonard 2016; Goksoy et al.
2013; Agrawal and Narain 2018). However, each of the four examples
described earlier have other relevant impacts on the customer, internal pro-
cesses, and learning and growth perspectives too. While organizations would
prepare themselves on how to deal with changes related to financial and sus-
tainability issues, these additional impacts could be perceived as unintended
outcomes from implementing technological innovations in SC operations.
Hence, companies should be prepared for them too, in order to overcome the
unexpected outputs of incorporating innovations, heading changes with an
integrated sense of the organization. Consequently, organizations will need to
include new variables into their PMS (Neely et al. 2000) that assist them to
deal with the other three BSC perspectives (Kaplan and Norton 1996) that
could be affected by innovations.
In order to capture comprehensively the expected impact of each example
on organizational performance, in Table 24.1 we present predictions in terms
of the impact on each of the BSC perspectives. Overall, Table 24.1 presents
performance measurements that may have to be considered for each BSC
492 M. CORDOVA AND F. CORONADO

Table 24.1 Measuring the impact of supply chain disruptive innovation on organiza-
tional strategy
BSC Example 1 Example 2 Example 3 Example 4
Perspective

Financial Decrease of bothDecrease Decrease Decrease costs.

discontinuity manufacturing operational cost. Increase revenue.
events and costs due to Increase revenue.
anticipation of optimization of
transportation operations.
decisions. Increase in
revenue due to
increase in
overall
production
capacity.
Sustainability May decrease level Improve safety Decrease level of Decrease energy
of CO2 emissions for employees. CO2 emissions. utilization.
due to Decrease noise. Decrease accidents.
optimization of Increase
transportation unemployment.
decisions.
Customer Increase customer Increase Increase customer Increase customer
satisfaction (may customer satisfaction due to satisfaction due to
increase due to satisfaction due environmentally environmentally
online tracking for to lead-time and friendly friendly operation
anticipating quality transportation. and on-time
decisions and improvements. delivery.
better on-time
delivery and
quality).
Internal Increase in Improve Decrease Flexible operation.
processes reaction time; manufacturing productivity (less Information-based
improve average speed. cargo economies optimization.
on-time as well as of scale).
on-specs delivery.
Learning and Improve Increase in Increase in Increase
growth information manufacturing manufacturing operational
availability for capacity. capacity due to capacity.
improving upload time. Increase learning
operational opportunity due to
flexibility. digitalization of
navigation data.

Source: Author’s creation

perspective in the SCM context. Customer perspective would have to include

metrics oriented to customer satisfaction. Internal processes perspective would
need to add metrics focused on operational flexibility, lead-time accomplish-
ment, and productivity levels. Finally, learning and growth perspective would
 24 SUPPLY CHAIN INNOVATION AND SUSTAINABILITY FRONTIERS: A BALANCED… 493

have to include metrics oriented to information flow, information availability,

and organizational knowledge capacity.
In terms of impacts, innovations described in Examples 1 and 2 are likely to
have a positive impact on each of the BSC perspective. For instance, the adop-
tion of GPS is expected to result in savings (financial), decrease in CO2 emis-
sions (sustainability), increase of customer satisfaction due to improvements on
the services level (customer), improvement of flexibility due to anticipation
(internal processes), and potential learning due to new information availability.
On the other hand, innovations described in Examples 3 and 4 are expected
to have mixed impacts on the BSC perspectives. Thus, our predictions suggest
possible tensions among expected and unexpected results on firms’ strategy
due to the adherence of disruptive innovations in SSCM, even more consider-
ing the statements of United Nations (2015) regarding global SDGs. For
instance, Example 4 presents improvements in energy utilization levels as well
as less human accident rates; however, this innovation is also likely to result in
job losses (being against SDGs one, eight, and ten), as these devices are fully
automated. Another conflict appears with Example 3, in the internal processes
perspective, because electric trucks do not reach the same power attributes as
conventional ones, which could generate less opportunities to take advantage
of economies of scale in SC operations (against SDGs eight and nine).
In order to provide predictions for specific organizations in terms of how
they deal with such trade-offs, information about that organization’s strategic
priorities is required. For instance, if a company just looks for maximizing prof-
its, it is not expected to consider the sustainability perspective of the BSC. Thus,
the decision of adoption of such an innovation will be driven directly by the
improvements on financial performance. On the other hand, if an organization
has committed to sustainability goals, then it is expected to face the trade-offs
and make different decisions in terms of how to implement the innovation in
order to balance its impact on the expected unemployment. Hence, an organi-
zation may use this innovation only to increase its capacity or in new operations
(new factories) in order to protect actual employees.

Conclusions
In the new era of digital revolution and innovation, SCM needs to be flexible
and disruptive. Many companies around the world are leading the innovation
in managerial practices across the SC. Nevertheless, this chapter emphasizes
the importance for firms to be aware of innovations’ expected results as well as
the unexpected ones. Global trade, production, and customer needs will con-
tinue to drastically increase in the following years, and consequently techno-
logical and digital innovations will do the same. Therefore, organizations will
also need to evolve their PMS, in order to keep their main activities oriented to
the strategy and continue accomplishing their stakeholders’ requirements
regarding profitability and sustainability.
494 M. CORDOVA AND F. CORONADO

Due to several changes generated by technological innovation in SCs, cur-

rent performance measurement mechanisms would become outdated and firms
will have to reanalyze their processes in order to choose new drivers, which fit
with new business contexts, setting additional metrics. This chapter puts under
discussion how improvements on SCs’ predictability and the chance for taking
decisions in advance (Example 1), due to information availability, open the
boundaries of new metrics of customer satisfaction, delivery times, quality of
delivery, discontinuity events, and operational flexibility. In addition, it reflects
on how operations that merge manufacture and transport by technology
(Example 2) and/or acquire electric trucks (Example 3) could also generate
the necessity of new measures related to customer satisfaction, productivity,
manufacturing speed, and manufacturing capacities. Moreover, this study dis-
cusses about how forklifts automation (Example 4) leads SC operations to
introduce metrics for customer satisfaction, operations’ flexibility, and learning
opportunities.
Not addressing properly those new business environments would drive
companies to have to deal with plenty of managerial problems in the future due
to insufficient or inappropriate PMS, having inadequate or inaccurate perfor-
mance metrics. Therefore, firms would have less chance to follow the step of
technological and digital revolution, and at the same time follow the guidelines
proposed by the United Nations through their 17 SDGs toward 2025. Hence
firms need to identify how to manage the suggested trade-offs by these disrup-
tive innovations and, more important, how these trade-offs could be signifi-
cantly negative for SCCM. Furthermore, the appearance of tensions between
firms’ strategic objectives and sustainability goals, such as having less job posi-
tions (Example 4 and sustainability) and less productivity levels (Example 3 and
internal processes), put under discussion how firms want to develop their oper-
ations and the trade-offs generated by innovations. Alongside this, organiza-
tions also have to decide which new metrics they need to abandon and which
others they need to add into their strategy, in order to prompt sustainability
and their own long-term survival and performance. This new landscape will
provide practitioners valuable information to enhance their decision-making
processes related to technological innovation and to think along the SC under
a fully integrated processes point of view.
Some limitations of the present study suggest considering a wider range of
innovation types and innovation examples in order to find a more accurate
categorization and different trade-offs between expected and unexpected out-
comes of disruptive innovations in SCs. Another important limitation of our
chapter is that we neither collect primary data nor test hypothesis. However,
we believe that the analysis developed is a contribution to understanding the
impact that innovation can have on different dimensions of the organizational
strategy and our reflections may shed light for the development of future
research in this regard.
Specifically, there are at least three research lines that may be motivated by
our chapter. First, researchers may interview business executives who had
 24 SUPPLY CHAIN INNOVATION AND SUSTAINABILITY FRONTIERS: A BALANCED… 495

implemented the innovation discussed in our chapter to obtain primary source

data to validate our predictions. Conducting a qualitative investigation through
in-depth interviews with the managers of the organizations and the leaders of
the SC could fill the gap related to the limited details on how these technologi-
cal innovations really work in daily operations and affect the organizational
strategy. Having this primary data will also assist researchers to find additional
tensions and unsolved trade-offs due to SC innovations. Second, researchers
can develop and test hypotheses about how organizations manage the balance
between the different BSC perspectives by introducing firm strategy as a vari-
able in the empirical test. For example, comparing samples of companies with
different strategies (e.g., strongly vs. not committed to sustainability objec-
tives) can provide an appropriate design to demonstrate the presence or absence
of trade-offs between different BSC perspectives and thus understand the dif-
ferent approaches to introduce SC innovations. Finally, researchers can focus
their studies on organizations that have been recognized for their strong com-
mitment to sustainability to understand what kind of initiatives they implement
to balance tensions between BSC’s different perspectives when implementing
SC innovations.

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 CHAPTER 25

The Future of Sustainability: Value Co-creation

Processes in the Circular Economy

Beatrice Re, Giovanna Magnani, and Antonella Zucchella

Introduction
The unsustainable levels of human activity are one of the major causes of the
environmental emergency the world is facing (Furukawa et al. 2019). The ris-
ing consumption needs in advanced countries as well as in emerging and fast-­
growing economies is harming the whole planet (ibid). A global shift toward
more sustainable production and consumption paradigms is urgently needed
(Bengtsson et al. 2018).
The circular economy (CE)—defined as “an industrial economy that is
restorative or regenerative by intention and design” (Ellen MacArthur
Foundation 2013, p. 14)—is recognized by scholars of many scientific disci-
plines as a feasible path toward the implementation of sustainable production
and consumption modes (Ghisellini et al. 2016; Murray et al. 2017).
This chapter positions within the emergent stream of entrepreneurship stud-
ies that looks at the entrepreneurial dynamics and processes in the circular
economy (Zucchella and Urban 2019) and focuses on value co-creation pro-
cesses in entrepreneurial firms with circular business models.

B. Re (*)
University of Bergamo, Bergamo, Italy
University of Pavia, Pavia, Italy
e-mail: [email protected]
G. Magnani • A. Zucchella
University of Pavia, Pavia, Italy
e-mail: [email protected]; [email protected]

© The Author(s) 2021 503

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_25
504 B. RE ET AL.

Co-creation is recognized as being a milestone in achieving the so-called

“circular advantage”1 (Accenture 2014). It is the interactive creation of value
between businesses and customers2 jointly (Antikainen et al. 2015; Kirchherr
et al. 2017). The firms-customers interaction that intervenes in co-creation can
be regarded as a dialogical process (Ballantyne 2004; Ballantyne and Varey
2008), an integrated process (Grönroos 2011) made of “mutual understand-
ing by listening and learning” (Ballantyne 2004, p. 117). The interaction
between the provider and the customer requires that they are both active
(Grönroos and Ravald 2011). The word “active” comes from the Latin actus,
and it is used to describe something operative, especially with the meaning of
“given to worldly activity” (Online Etymology Dictionary). Applied to the
circular economy context, active firms and customers would constructively
work together to make changes both in production processes and in consump-
tion habits. On the one hand, firms develop a deeper understanding of their
customers, to then build innovative circular business models (CBMs) (Bocken
et al. 2016; Lewandowski 2016; Pieroni et al. 2019). On the other hand, cus-
tomers contribute to “close resource loops” (Bocken et al. 2016; Konietzko
et al. 2019), for instance, by returning goods to the providers or by exchanging
unused products with peers. In doing so, they not only have an “active voice”
in firms’ processes (Prahalad and Ramaswamy 2004a,b) but, more substan-
tially, they become crucial components of the firms’ “circular mission”
(Zucchella and Urban 2019).
In the implementation of circular practices, firms and customers are thus
closely intertwined. They are deeply involved in a continuous value co-creation
process, i.e. “a joint process whereby firms and customers together, in interac-
tions, create value” (Grönroos and Voima 2013, p. 138). In this chapter, we
refer to “circular co-creation processes” to indicate virtuous and dynamic inter-
actions between firms with circular business models and responsible customers.
Although there is consensus about the potential gains stemming from co-­
creation (Prahalad and Ramaswamy 2003, 2004a, b)—such as fostering prod-
uct/service innovation (Bitner and Brown 2008; Sawhney et al. 2005) and
improving consumption/usage experiences (Gentile et al. 2007; Payne et al.
2008)—value co-creation has not been analyzed sufficiently rigorously
(Grönroos and Voima 2013). So far, there has been little empirical analysis of
the processes enabling co-creation (Grönroos and Ravald 2011) and of their
key dynamics, especially in the business-to-business contexts (Payne et al.
2008). A more thorough understanding of the ways providers and customers
interact and influence each other in these value co-creation processes is needed
(Grönroos and Ravald 2011).
1
The circular advantage is the competitive advantage a firm can gain if able to rethink product
and services from both the perspective of the value delivered to customers and the alignment of the
business model with the circular economy.
2
It should be noted that while the terms “consumers” and “customers” are used quite inter-
changeably in the literature, here we explicitly refer to customers, to take into account both the
B2C and the B2B contexts.
 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 505

This chapter illustrates how circular co-creation processes generate virtuous

practices of joint sustainable consumption and production modes. We analyze
four case studies of “born circular firms”, i.e. companies that “are founded
with the mission to create both economic and social/environmental value,
applying the principles and the business models of the circular economy”
(Zucchella and Urban 2019, p. 89).
The chapter is structured as follows. The next section is devoted to illustrat-
ing the theoretical foundations. The following section is dedicated to illustrat-
ing our case firms and analyzing co-creation processes. The final section
discusses our findings and advances avenues for future research.

Theoretical Background

Context
Our context of analysis is the circular economy, which is gaining momentum
on the agendas of policymakers (Brennan et al. 2015) and on academic
researches alike (Geissdoerfer et al. 2017). There is wide consensus about con-
sidering the CE as a concrete path to reach sustainable modes of production
and consumption (Bocken et al. 2016; Ghisellini et al. 2016). This context
suits the present research since it is making world actors rethink about the ways
of doing business (Geissdoerfer et al. 2017), and concurrently it requires cus-
tomers to make concrete actions and to share with firms the responsibility
toward the environment. The role of engaged customers is thus crucial in the
implementation of circular practices (Camacho-Otero et al. 2018).
CE distinguishes from the traditional linear economy by virtue of the
approaches it establishes with resources, which consist in narrowing, slowing
and closing the resource loops (Bocken et al. 2016). To narrow resource loops
means “to reduce resource use associated with the product and production
process” (ibid, p. 310). For instance, 3D printers can narrow resource loops by
design: they allow additive manufacturing processes3, directly from raw materi-
als (Kellens et al. 2017), thus helping to produce the final output without any
material waste (Post 2015).
To close loops means reintroducing used materials into the production sys-
tem to avoid waste and allow a circular flow of materials (Bocken et al. 2016;
Stahel 2010). For instance, the Italian firm Waistemade transforms used bike
tires into design belts through an upcycling process.
To slow resource loops means stimulating the usage of already existing assets
to avoid their underutilization (Bocken et al. 2016). This implies activities such
as sharing, reuse and refurbishment of products and services (ibid; Ellen

3
Additive manufacturing technologies could compete with traditional manufacturing methods,
based on subtractive processes (Paris et al. 2016). The latter involve progressively cutting material
away from a block and usually generate higher waste than additive manufacturing processes
(Kreiger et al. 2014).
506 B. RE ET AL.

MacArthur Foundation 2013). It is the case, for instance, of peer-to-peer car

sharing (see, for instance, the Dutch SnappCar).
From an entrepreneurial perspective, embracing one or all of the above-­
mentioned approaches to resources means to implement circular business
models (Bocken et al. 2016; Lewandowski 2016; Pieroni et al. 2019).

Circular Business Models

Circular business models are praised for concretely reducing waste and preserv-
ing the resources available through leading products and materials to their
“highest level of utility and value” (Wastling et al. 2018, p. 1). According to
the conceptualization provided by Linder and Williander (2017, p. 183), a
CBM is “a business model in which the conceptual logic of value creation is
based on utilizing the economic value retained in products after use in the
production of new offerings”. CBMs differ from linear business models,4 inas-
much as the formerare conceived to withhold resources in use as much as pos-
sible and to reintroduce what is commonly considered as “waste” into the
economic system.
Lacy and Rutqvist (2015) distinguish five circular business models: circular
supply chain, resource recovering, product life extension, sharing platforms
and product as a service (PSS). The circular supply chain business model con-
sists of the production and usage of renewable, recyclable and/or biodegrad-
able inputs to be introduced in the supply chain or to be outsourced to other
firms. An example is Pela Case, a company producing 100% compostable phone
cases: after use, the circular loop is closed with the material gently returning
back to the Earth.
The recovery/recycling business model is based on taking what is com-
monly defined as waste and making something new out of it. This is what the
Dutch firm Gumshoe does by producing sneakers with a sole obtained from
the recycling of chewing gums collected in the city streets.
The product life-extension model basically consists of making products that
last a long time or increasing products’ life through upgrade and refurbish-
ment, thus contrasting the planned obsolescence of most consumer goods.
Miele is a case in point since its design strategy is based on durability: the high-­
quality machines it produces have a predicted functional lifespan of 20 years,
against an average of 10 years or less of the other machines on the market.
The sharing business model aims at enhancing the utilization rates of already
existing products, decreasing the need for new manufacturing and increasing
the productivity of otherwise idle goods. An example is BlaBlaCar, which
allows users to offer each other car lifts in exchange for monetary
compensation.

4
A linear business model represents the status quo in most manufacturing industries (Linder and
Williander 2017). “Its essence is generally summarized as take – make – dispose. That is, take the
resources you need, make the goods to be sold and make profit and dispose of everything you do
not need – including a product at the end of its lifecycle” (Sariatli 2017, p. 32).
 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 507

Finally, in the product-as-a-service business model (PSS), companies keep

the ownership of products, by allowing users to rent them. Product-as-a-service
has been praised for favoring resource efficiency (Tukker 2015) and enabling a
sort of “resource revolution” (ibid).
A certain amount of innovation and creativity is embedded in the above-­
mentioned business models and it is crucial to close resource loops (Stahel
2016). Firms with circular businesses can either be innovative young start-ups
wishing to unleash their creativity and care for sustainability, the already men-
tioned “born circular firms” (Zucchella and Urban 2019), or “growing circular
firms” (ibid). The latter are typically established ventures that at some point
have decided to transit from a linear production model to a circular one—a
process requiring substantial organizational changes and investments. The
“circular mission” (ibid) characterizing born circular businesses represents the
expression of their founders’ ambition to change the way of doing business to
start building a better world.
The empirical analysis of the present chapter will focus on case studies of
born circular firms as their entrepreneurial orientation is often the result of
their founders’ straightforward, innovative and far-reaching mindset - the cir-
cular entrepreneurs - who value co-creation as the cornerstone of their busi-
ness model.

Value Co-creation Processes

A value-creating process can be defined as “a set of activities starting with the
design and development of what is going to be produced” (Vargo et al. 2008,
p. 361). The co-creation paradigm assumes that this process cannot be per-
formed separately by customers and firms: the locus of value creation is the
interaction between them (Prahalad and Ramaswamy 2004a,b; Vargo
et al. 2008).
Co-creation processes (Prahalad and Ramaswamy 2003, 2004a, b) allow
reciprocal understanding and the establishment of a virtuous and collaborative
relation, so that “the roles of the company and the consumer converge”
(Prahalad and Ramaswamy 2004a, p. 6). On the one hand, several are the rec-
ognized benefits that firms can gain through customer engagement in value
co-creation processes, for instance, an increase in brand loyalty (Jaakkola and
Alexander 2014), the improvement of the offering (Bitner et al. 1997; Mills
et al. 1983), better product quality (Füller et al. 2011), the attraction of new
customers (Piligrimienė et al. 2015; Saarijärvi et al. 2013), the reception of
inputs for innovation (Magnusson et al. 2003; Von Hippel 2001) and the
reduced business risk (Maklan et al. 2008).
On the other hand, customers seem to associate their participation in firms’
processes with greater satisfaction (Nambisan and Baron 2007), perceived
value (e.g. Anderson and Sullivan 1993; Kelley et al. 1990), economic gains,
for instance thanks to discounts (Bitner et al. 1997), and with a feeling of con-
trol over the offering (Lengnick-Hall 1996).
508 B. RE ET AL.

The literature advances many concepts with respect to customers’ participa-

tion in firm’s processes, for instance, engagement (Van Doorn et al. 2010;
Hollebeek et al. 2019) prosumption (Xie et al. 2008) and empowerment
(Füller et al. 2009).
Customer engagement refers to the “customer provision of resources dur-
ing non-transactional, joint value processes that occur in interaction with the
focal firm and/or other stakeholders, thereby affecting their respective value
processes and outcomes” (Jaakkola and Alexander 2014, p. 254).
Prosumption regards “individual physical or mental acts or social acts by actors
in an exchange relationship that help to co-produce the seller’s offering and
gives rise to socio-psychological experiences for the buyer(s) in cooperation
with the seller” (Xie et al. 2008, p. 112). Although there has been some criti-
cism about the exploitation of customers’ intellectual capital (Cova and Dalli
2009), it overall seems that prosumers enjoy their activities (Ritzer and
Jurgenson 2010). Finally, empowerment denotes the “individual experience of
increased self-determination and efficacy” (Füller et al. 2009, p. 74) and it
generally refers to a personal contribution—in terms of creativity and knowl-
edge—a customer gives to a company, for instance, by providing suggestions
for the development of a product (ibid). Nowadays interactions often take
place online: the Internet allows the establishment of a “persistent dialogue
with customers” (Sawhney et al. 2005, p. 5). Together with customers, espe-
cially in online marketplaces, firms develop “superior value propositions”
(Kasouf et al. 2015; Payne et al. 2008).
The customer-company interaction is the milestone of not only the engage-
ment construct (Hollebeek et al. 2019) but also of the service-dominant (S-D)
logic (Bendapudi and Leone 2003; Vargo and Lusch 2004). The S-D logic
entails that the “customer is always a co-creator of value” (Vargo and Lusch
2004) and it embraces the “value-in-use” meaning of value (Vargo and Lusch
2008). This means that value emerges in the process of usage (Grönroos 1979,
2006, 2008; Gummesson 2007), the latter being a dynamic one (Grönroos
2000; Mattsson 1991; Woodruff 1997). In light of this, suppliers need to
design and align their own processes according to the customers’ value-­
creating ones (Payne et al. 2008).
The literature identifies several co-creation forms between firms and cus-
tomers (Sheth and Uslay 2007; Vargo and Lusch 2008). Frow et al. (2015)
report 12 co-creation forms. Co-conception of ideas regards the joint sharing
and developing of ideas and solutions. Co-meaning creation is the sharing of
meaning within the communities of users. Co-design refers to the interven-
tion of knowledgeable customers in the design of the new offering (Von Hippel
1988; Piller and Walcher 2006). Co-consumption refers especially to the sharing
of consumption experiences with fellow customers, thus generating value for
oneself and for the others (Agrawal and Rahman 2015).
Co-experience can be defined as “experiences with products in terms of how
the meanings of individual experiences emerge and change as they become
part of social interaction” (Battarbee and Koskinen 2005). A set of co-creation
forms regard the traditional marketing mix of the firm. Co-production refers to
 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 509

customers who are involved in the production process but also in the improve-
ment of value propositions. Co-promotion activities take place when enthusiastic
customers promote the brand, becoming advocates or, at the extreme, evange-
lists, typically within a community. Co-pricing is the process whereby customers
experience the product before paying and determine the price according to the
value they assign. Some examples in this sense are “pay-what-you-want” res-
taurants. Co-distribution is the involvement of customers in distribution chan-
nels. For instance, Unilever was able to reach remote areas in India through the
support of local women who have been trained as sales agents.
Lastly, co-maintenance, co-outsourcing and co-disposal are other increas-
ingly relevant co-creation forms, although in the literature there are still no
clear cut definitions. Co-maintenance is considered, in vague terms, as the
involvement of customers in the refurbishment and recovery activities.
Co-outsourcing seems to imply that “customer resources are integrated in the
company’s […] outsourcing processes” (Saarijärvi 2012, p. 383). Co-disposal
refers to consumers’ involvement in recycling products and materials.

Circular Co-creation Processes

Value co-creation in the context of circular economy requires firms and cus-
tomers not only co-creating value but also jointly and synergistically finding
efficient ways to take responsibility for environmental issues, developing what
we here define “circular co-creation processes”.
The latter can be investigated from several perspectives. Our focus is on how
a firm can seek to develop circular co-creation processes with its existing as well
as potential customers. On the one hand, circular firms may identify value co-­
creation opportunities by somehow “teaching” their customers some co-­
creation behaviors (Payne et al. 2008). On the other, “responsible consumers”
(Kirchherr et al. 2017) show interest in being engaged to circular firms’ value
proposition and mission. Therefore, they can be considered “circular
innovators”,5 because they are prone to change their habits and to co-create
value with firms with the aim of taking steps toward circular practices.

Methodology
The empirical work is devoted to illustrating the processes of value co-creation
in a set of entrepreneurial firms6 (Covin and Slevin 1991) with circular business
models. We adopt a qualitative methodology and an inductive approach to let
preliminary evidence empirically emerge from informants’ narratives. We opt
for an illustrative case studies design (Yin 2014; De Massis and Kotlar 2014),

5
According to the Theory of Diffusion of Innovation (Rogers 1962), the innovators are those
2.5% of individuals willing to be the first to try and adopt an innovation.
6
Entrepreneurial firms are defined as “risk taking, innovative, and proactive” (Covin and Slevin
1991, p. 7). They are usually prone to “take on high-risk projects with chances of very high returns
and are bold and aggressive in pursuing opportunities” (ibid, p. 7–8).
510 B. RE ET AL.

which is suitable to investigate a contemporary phenomenon such as CE (the

“case”) in its real-world context and to convince that the phenomenon is rel-
evant (De Massis and Kotlar 2014).
Our data collection was carried out between May and September 2019.
Case firms have been purposefully selected (Patton 2015) according to the fol-
lowing criteria. We searched circular firms within two open access databases—
LifeGate7 and Atlante Storie di Economia Circolare—reporting cases of Italian
circular entrepreneurship. Then, we first searched and selected those cases
where a co-creation process between firms and customers was evident. At this
stage we collected around ten cases. Then we checked the availability of these
firms’ founders/most knowledgeable informants to perform a Skype interview.
Out of these firms, only five accepted to be interviewed. Our final sample is
made of four circular firms. Table 25.1 provides an overview of the selected
case studies, highlighting the name and role of the interviewees, the industry,
the business model, the circular mission and whether the firm operates in the
B2B or B2C context.
We conducted in-depth interviews with the respective founders/most knowl-
edgeable informants adopting a semi-structured interview scheme. The main
topics discussed in the interviews were (i) the firms’ foundation (business
model and circular mission), (ii) the co-creation forms, according to the role
customers had in value creation process and (iii) the continuous and inter-
twined process of value co-creation as well as the process output. Each inter-
view lasted around 1 hour, it was recorded using a digital device and then
transcribed within the following 24 hours. In parallel, to ensure reliability of
interviewees’ responses, we triangulated the data with secondary sources of
information (e.g. online reports, web articles) as well as within the research
team (Pettigrew 1988; Yin 1984) through mutual discussions which were nec-
essary “to balance detachment and involvement” (Pettigrew 1988, p. 278).
In accordance with the multiple case study protocol (Eisenhardt 1989;
Eisenhardt and Graebner 2007), we started our data analysis by first perform-
ing a within-case analysis for each firm involved in the study. We read the tran-
scripts several times to become “intimately familiar with each case” (Eisenhardt
1989, p. 540) and we identified the peculiar pattern of each single case.
Subsequently, we proceeded as follows: (i) we selected interviewees’ most rel-
evant sentences; (ii) we codified them according to the three key dimensions:
co-creation form, co-creation mechanisms, and process output and (iii) we
established relationships among the codified dimensions. In doing so, we were
able to identify recurrent co-creation mechanisms as well as related outputs.

7
LifeGate consists of a group of companies engaged in the communication of sustainable econ-
omy principles (Zucchella and Urban 2019). The founder of the holding company, Marco Roveda,
is a pioneer in bio-agriculture. The holding aims to promote a sustainable world and to place sus-
tainability at the core of every human decision. LifeGate’s mission is the creation of the world’s
biggest information and communication network of people, companies, NGOs and institutions, all
committed to building a sustainable future (www.lifegate.it).
 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 511

Table 25.1 Case studies on value co-creation: key facts and figures
Company Interviewee Number Industry Circular Circular mission B2B/
name of business B2C
employees model

Apepak Massimo 15 Packaging Circular “Our mission is to B2C

Massarotto supply offer an alternative
(Founder) chain to the plastic film: a
beeswax envelope for
food which is 100%
natural, washable
and reusable”
Rifò Niccolò 6 Textile Recovery “Rifò makes high B2C
Cipriani and quality garments and
(Co-founder) recycling accessories, using
100% upcycled textile
fibers. We transform
old clothes into a new
yarn which we use to
craft new warm and
soft products”
Womsh Gianni Dalla 5 Footwear Circular “We want to create a B2C
Mora supply new purchasing
(Founder) chain and philosophy that is
recovery more conscious and
and eco-friendlier”
recycling
Up2Go Elena Colli 6 Information Sharing “Up2Go is the ideal B2B
(Business service platform carpooling solution to
developer) activity— be implemented in
software firms and institutions
development in a fast and easy
way. It allows to
reduce costs, be
sustainable and
facilitate commuters’
home-work journeys”

Source: Author’s creation

Single Case Analyses

Apepak
Apepak is a start-up founded in 2017 in Castelfranco Veneto (North East of
Italy) by Massimo Massarotto. According to the founder “Apepak is a product,
but also a useful and effective instrument to start doing something concrete to
support the environmental cause”. The firm produces envelopes to store food
in the fridge. The envelopes are made of organic cotton and beeswax and can
be washed and reused several times.
512 B. RE ET AL.

Inspired by the philosophy “share as you go”, Massarotto was highly moti-
vated to create and carry on an ethical business, and this aim shines through all
the choices he has made over time. For instance, he decided to combine
the firm’s pro-environmental mission with a strong social aim. To do so, he
outsourced production to the social cooperative Sonda, located in the province
of Treviso, who employs disadvantaged people and favors their social
reintegration.
The story behind Apepak is peculiar. The young Massarotto moved from
Veneto to San Francisco many years ago, to study social media. After working
for many years as a freelance consultant, in 2017 he made a radical change in
his life. Inspired by a packaging he saw in San Francisco, together with his wife
Molly, he started creating some prototypes of sustainable envelops made of
natural beeswax and he sent them to his Italian relatives as a Christmas present.
Having been congratulated by the gift receivers on creating such a great and
sustainable product for everyday use, Massarotto realized the potential of the
product and he made his wish come true: to start his own business.
The first step Massarotto made was opening a landing page on Wix. Right
from the start he highly regarded the co-creation of value with customers as a
milestone of his way of doing business (cf. Fig. 25.1).
Co-creation has been a critical aspect of Apepak venture from the very
beginning. Massarotto decided to involve a group of Italian customers in the
product design, by posting on his personal Facebook page the message: “we
would like to test this product with 200 Italian families. If you would like to
receive a sample and then to answer a questionnaire, we can send you the
sample for free”. This call for action attracted a lot of attention. “Literally after
2 hours from my posting, I received more than 1000 requests!”, explains the
founder. The proactive consumers who responded the call, whom he defines
“trend setters”, can be considered “circular innovators”. The testing phase was

Create product
prototypes

Improve the
marketing mix
Apepak
Test with proactive
consumers – the
“circular innovators”

Create feedback loops with Go-to-market

engaged customers

Fig. 25.1 Apepak co-creation process. (Source: Author’s creation)

 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 513

successful. The testers first used Apepak for some weeks and then answered the
questionnaire that included questions related to the marketing mix—product
(e.g. “do you like the smell?”, “do you like the texture?”), place (“where would
you like to find it?”), price (e.g. “do you find it too expensive?”, “how much
would you be willing to spend to buy it?”).
The founder points out:

When you co-produce a product with 200 families, you are letting them feel part
of the project. They do not feel as merely consumers, they are co-creators. They
actually felt co-owners of the whole idea.

The feedback helped the company to make key go-to-market strategic deci-
sions. For instance, the choice to opt exclusively for specialized shops as distri-
bution channels is one of the results of the contribution provided by the testers,
together with the product size(s). Then Apepak regrouped the testers on a
dedicated Facebook group, which is now open to all customers wishing to
engage with the firm. This page is aimed at favoring interactions between the
firm and the customers, to create a system of “feedback loops”. As a reward for
their support, customers get a discount of 15 Euro on their first Apepak order.
The constant dialogue allows to build reciprocal trust meant to last. In
Massarotto’s words:

The feeling of ‘being important’ is crucial in the relation customers establish with
a firm. Taking part in the value co-creation process means building a bond, a rela-
tion which lasts.

Thanks to the “feedback loops”, the firm is able to constantly improve its
marketing mix according to customers’ suggestions. The process is iterative, as
shown by the orange arrow in the Fig. 25.1. Product features (size, smell, con-
sistency) can be aligned with customers’ feedback. Price is set within a range
which takes into account the customers’ expressed willingness to pay.
Distribution channels’ choices are made in compliance with the opinions pro-
vided by customers; they strongly supported the “ethical” decision to avoid
supermarkets and to instead opt for online channels and specialized stores.
Customers from their side feel satisfied thanks to the fact that their suggestions
are taken into account and implemented by the firm. The output of Apepak’s
value co-creation process consists in a virtuous “success spiral”—as in Massimo’s
words—for both Apepak and its customers.

Rifò
Rifò was founded in 2017. Its young founder, Niccolò Cipriani, had a previous
working experience in Vietnam, that made him concerned about the critical
environmental consequences of the overproduction in the textile industry.
514 B. RE ET AL.

Motivated by the willingness to make a positive impact in that industry and

influenced by the textile tradition of his home city, Prato (Tuscany), Cipriani
and his co-founders decided to create a circular fashion start-up. Rifò produces
wool and cotton sweaters and accessories through the recycling of existing
textile materials. The brand name is iconic: in Tuscan dialect it means “I am
doing it again”. In November 2017, Rifò was launched on the crowdfunding
platform Ulule, through a very successful campaign communicating the firm’s
value proposition and its circular mission. Rifò’s business is growing: in 2018
the turnover was around 85,000 Euro, while it has reached 320,000
Euro in 2019.
Rifò’s crowdfunding was highly successful: the firm obtained 290 pre-sales
out of the set goal of 200. In addition to the financial aspect, the crowdfunding
campaign was very helpful in letting the firm interact with customers and test
the market in advance. In doing so, Rifò was able to understand customers’
preferences through their orders and feedback and align its range of items
accordingly (most popular sizes, colors, materials and product types). Therefore,
this co-creation with customers started from the very beginning through cus-
tomer engagement in financing and in providing feedback through the crowd-
funding platform, as shown in Fig. 25.2.
The case of Rifò highlights that a key role in the co-creation process may be
played by the crowdfunding platform. Ulule was not just the online platform
through which the company was financed, but it also represented the place
where customers could order products through pre-sales at a discounted price
and leave comments afterward. This process enabled the firm to get a good
amount of feedback, which, in turn, helped to make ad hoc improvements to
the offer. The first 50 customers were also rewarded with gifts (such as a ther-
mos branded Rifò).
At the same time, the firm started involving a good number of potential
customers through intensive marketing and communication campaigns,

Rfò engages potential customers

through crowdfunding platforms

Customers become loyal

and advocates Rifò
Customers pre-order the
items and leave feedback,
Rifò adapts its offer to
them
Customers send their Rifò activates customers by
garments to the firm and get asking them to send old
discounts to buy Rifò products garments to be recovered or
recycled

Fig. 25.2 Rifò co-creation process. (Source: Author’s creation)

 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 515

especially on Instagram. This kind of promotion has been particularly effective.

In the words of Cipriani:

The digital communication with our customers is the most effective one. Once
we reach a broad audience, we are more likely to be contacted by interested cus-
tomers, for instance via Instagram.

Customers are asked to collect and send their old cashmere clothing to Rifò
headquarters. The firm proceeds with recovering or recycling the cloths to
transform them into accessories (scarves and gloves). In return for these
actions, customers obtain a 10% discount on their purchases.
The call-to-action not only creates economic benefits for those customers
who participate (gifts and discounts) but it also generates a feeling of satisfac-
tion for having been an “active” part of an environmental cause. This virtuous
cycle generates reciprocal trust between the firm and its customers, which takes
the form of brand loyalty and advocacy: customers repurchase from Rifò and
tend to become advocates via social media, thus letting the firm increase the
number of customers.

Womsh
Womsh was born in 2014 in Vigonza (North East of Italy), from an idea of
Gianni Dalla Mora, an experienced agent in the footwear industry. At a certain
stage of his life, Dalla Mora felt the personal need to engage with environmen-
tal and social sustainability and to create something that would have fulfilled
himself. He therefore decided to establish a company with an iconic name,
Womsh, that is, “word of mouth shoes”—which had as core business the pro-
duction of zero-impact, recyclable designer sneakers. Womsh aims to create a
product that is not just sustainable but also fashionable. To do so, the firm is
constantly innovating. For instance, it has recently launched a vegan product
line, which is based on the use of a natural material, the “Apple Skin”, a patent
of the Italian firm Frumat Leather, based in Bolzano (North East of Italy). The
environmental commitment of the company is expressed in several ways. First
and foremost, it can be noticed from the decision to locate the production
entirely in Italy, in a certified factory that is 90% powered by renewable energy
and from the strong commitment the firm is making to compensate the CO2
emissions, for instance through the participation in a renowned LifeGate proj-
ect, Impatto Zero®.8
The firm is performing well: its turnover in 2019 amounts to 1.2 million
Euro and it is expected to double in 2020, especially thanks to the constantly

8
The project Impatto Zero® is aimed at calculating, reducing and compensating the CO2 emit-
ted by all the human activities. To do that, it buys the carbon credits generated through the inter-
vention in favor of ecosystems of forests and the development of projects aimed at obtaining
energy efficiency as well as the production of renewable energy (www.lifegate.it).
516 B. RE ET AL.

Production o
sustainable and
vegan sneakers
Customers repurchase
a new pair of sneakers
and become brand
advocate Womsh
Involvement of the
customers in the motto
“choose the change”
Sneakers’ recycling
process is outsourced Customers return the
sneakers and get a
discount on a next
purchase

Fig. 25.3 Womsh co-creation process. (Source: Author’s creation)

increasing sales in foreign markets, primarily Germany, Switzerland, Belgium,

Luxemburg and the Netherlands.
The implementation of the company’s circular mission requires the active
involvement of customers. The co-creation process is illustrated in Fig. 25.3.
Womsh involves customers in its mission “choose the change”, mainly
through digital marketing campaigns on social media. Customers buying shoes
are asked to bring them back to Womsh shops once worn out, so that the
shoes materials can be recycled.
As Dalla Mora explains:

All I’m asking is that customers bring the sneakers back to us, because we can
recycle them. It is a form of active collaboration from which customers should
not back out.

Womsh outsources the recycling process to Esosport, the sport division of

ESO Società Benefit,9 a firm founded in 1999 and whose mission is to recycle
materials from different backgrounds (for instance, bicycle and textile indus-
tries). ESO Società Benefit collects and donates wasted and used materials to
support the ongoing projects of the not-for-profit association
GOGREEN. Through the projects “Il Giardino di Betty” (Betty’s garden) and
“La Pista di Pietro” (Pietro’s track), these materials are recycled to promote
the redevelopment of children’s playgrounds area pavements and a run-
ning track.

9
ESO Società Benefit was founded in 1999 to offer a service of waste management and consul-
tancy to Italian firms. ESO is certified EN ISO 9001:2015, EN ISO 14001:2015, BS OHSAS
18001:2007.
 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 517

In the founder’s words:

Our customers are also actors of our project. When the sneakers are worn out,
they are invited to bring them back to our shops, not solely to get a discount on
a new pair of shoes, but to actively take part in our circular mission.

This co-disposal process does not require much effort from customers, who
are only asked to return the items after use. This apparently simple action is
actually valuable: it enables the closing of the resource loop and, with it, the
implementation of Womsh’s circular business model (resource recovery). The
co-creation process thus triggers a virtuous circular loop, which benefits both
the firm and its customers. On the one hand, the firm gains in terms of brand
loyalty and advocacy from enthusiastic customers. On the other hand, respon-
sible and active clients are rewarded for their action—they get a 10-Euro dis-
count on the next purchase, which favors the repurchase of a new pair of shoes.
Finally, such co-creation process with the firm generates a feeling of satisfac-
tion, which often turns into brand loyalty. Indeed, the whole process is able to
ignite in the actors involved a feeling of pride for being “active” in contributing
to the environmental cause.

Up2Go
Up2Go is a start-up born in 2013 in the Emilia-Romagna region from an idea
of five young women, motivated to make a step toward a more sustainable
mobility. Up2Go is a carpooling platform aimed at reducing traffic and pollu-
tion levels. The firm’s turnover was around 17 million Euro in 2018, more
than double of the 2017 figure. The service is provided through packages that
include the license of the App plus dedicated support by Up2Go, mainly con-
sisting in a variety of communication and engagement activities aimed at final
users. These packages are sold to targeted customers, for instance, companies
or universities, which pay for the service and then bestow it to the relative com-
munity of users. Up2Go has been very proactive in developing partnerships.
The two most important ones are with Autostrade Per l’Italia (the Italian high-
way), which promotes discounts on the road tolls, valid for those vehicles
shared by a minimum of four people on board, and with GreenApes,10 which
allows users to get rewards from earned credits.
The co-creation process between the firm and its customers is represented in
Fig. 25.4.
Co-creation starts with Up2Go presenting its project to a large audience of
targeted customers. This typically takes place via e-mails, in trade fairs—such as
the “Fiera delle Startups” (start-ups fair) organized by Sole24Ore in

10
GreenApes is a certified B-corporation. It is a social network rewarding sustainable actions and
ideas (www.greenapes.com).
518 B. RE ET AL.

Up2Go presents its offer to

potential customers (mainly
companies and universities)

The offer is improved and

customized
Customers test it with a
Up2Go selected group of
employees

Customers get feedback from the Up2Go and its customers organize
final users and provide suggestions engagement events and introduce
to the firm according to them incentives for users

Fig. 25.4 Up2Go co-creation process. (Source: Author’s creation)

2013—and during conferences focused on the topics of sustainability, mobility

and digital innovation, excellent places to interact with stakeholders.
The identified high-potential customers are firms and universities located in
Italy, with a large number of employees/students. As explained by our inter-
viewee, Elena Colli:

We began with a specific strategy: we targeted a number of selected firms and

universities having a potential broad population of users, and we contacted them.
Then, the first customers generated word-of-mouth, as a result of which we have
been contacted by further ones.

Some customers—such as Barilla (the famous Italian pasta producer)—got

involved in the project and they proceeded with a testing phase with a small
group of employees (30–50) and then asked them suggestions and feedback to
improve the service.
The business developer thinks that testing is a great idea:

The first impression is fundamental, if you launch something targeting a larger

audience and then it does not work, then it is difficult to change users’ mind.

Engagement is key to the firm’s success. Up2Go and its customers periodi-
cally organize engagement activities to involve the final users, which usually
include the illustration of the App, explanation of the carpooling service and
assistance in creating the profile and offering/asking the first lift. Customers
also develop incentives to attract and reward the final users, for instance, dedi-
cated free parking spaces and different kinds of rewards (such as discounts,
cooking classes and leisure activities).
Getting suggestions and feedback from customers as well as the final users is
highly valued by the firm, which considers it as the best way to improve and
 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 519

customize the offer according to the expressed needs (for instance, improve-
ment in the App features, more external partnerships, different incentives).
As Colli explains:

We are mediators between our corporate customers and the final users. They both
provide us with comments and feedback, which are fundamental for our develop-
ment: we continuously adapt our offer according to them.

The outcome of Up2Go co-creation process is beneficial for all the actors
involved. The start-up improves its offer in terms of quality and effectiveness of
the service, and it becomes attractive for further customers. The latter, espe-
cially companies, gain in terms of reputation (since they adopt a sustainable
practice and promote tailored welfare for their employees), while the final users
save money on their journeys and they also get rewards (incentives) for their
engagement.

Cross-Case Comparison
Table 25.2 cross-compares our case studies’ pieces of evidence, which are sys-
tematized using three key dimensions: co-creation forms (as described in the
theoretical background), co-creation mechanisms and process output for both
firms and customers.
The four analyzed firms, although with different CBMs, exhibit some com-
mon co-creation mechanisms. Apepak, Rifò, Womsh and Up2Go seem to fol-
low a similar co-creation pattern characterized by the following steps: (i)
engagement and/or testing activities on online platforms; (ii) activation
through customers’ response to stimuli provided by the firm and (iii) reward to
customers in the form of discounts or incentives.
Engagement, which is often mentioned in the literature as the antecedent to
co-creation, in these firms is declined in terms of customers’ involvement on
online platforms, where they are asked to test the product (Apepak), to pre-­
order it (Rifò) or to directly provide feedback (Womsh). In Up2Go, the modes
of customers engagement involve approaching potential customers mostly dur-
ing trade fairs or via e-mails, and then, together with the customers, organizing
users’ engagement activities.
Customer activation refers to the customers’ response to the stimuli pro-
vided by the firms. Firms launch explicit “call to actions”, asking their custom-
ers to somehow intervene in the value creation, for instance, by answering a
questionnaire (Apepak) or by sending their items to the firm (Womsh and
Rifò). In doing so, customers feel empowered, since they feel being part of the
“circular mission” and they develop a bond with the firm.
The reward mechanism allows the intensification of the established relation-
ship through the recognition and monetization of customers’ commitment.
The three B2C firms (Apepak, Rifò and Womsh) opt for discounts on the pur-
chase of their products, while in the Up2Go case, incentives are provided to
520 B. RE ET AL.

Table 25.2 Cross-case comparison of co-creation mechanisms

Co-creation Co-creation mechanisms Process output
form(s)

Apepak Co-production  The firm involves 200 families Firm:

Co-promotion (innovators) in the product  Improvement of the offer
testing phase via Facebook. in terms of product
Customers test the product and features and quality (e.g.
answer to an online smell, size, consistency),
questionnaire, providing distribution strategy
suggestions and feedback (specialized shops and
ACTIVATION/TESTING/ online) and price
ENGAGEMENT via ONLINE  Increased brand loyalty
PLATFORM and advocacy
FEEDBACK Customers:
 Customers get a discount on an  Greater perceived value
Apepak order  Perception of control over
REWARD the offerings
 Economic value
(discounts)
Rifò Co-maintenance  Engagement of customers Firm:
Co-disposal through pre-sales and reward-­  Improvement of the offer
Co-promotion based crowdfunding platforms. in terms of product
Customers provide their feedback features
on the products  New production inputs
ENGAGEMENT via ONLINE  Increase in brand loyalty
PLATFORMS/FEEDBACK and advocacy by existing
 Customers send their old/broken customers
cashmere garments back to the  Attraction of new
firm to be regenerated or recycled customers
ACTIVATION Customers:
 Customers get a discount on the  Economic value
purchase of Rifò products (discounts)
REWARD  Satisfaction for being
“active” in the
environmental cause
Womsh Co-disposal  Engagement of customers in the Firm:
mission ‘choose the change’  Increase in brand loyalty
through marketing campaigns in and advocacy by existing
social media as well as through customers
marketplaces and physical stores  Attraction of new
(resellers). Customers leave customers
feedback on social pages Customers:
ENGAGEMENT via ONLINE  Gain in term of economic
PLATFORMS and FEEDBACK value (discounts)
 Customers bring the shoes back  Satisfaction for being
to the shops after use to allow the “active” in the
recycling by Womsh partners environmental cause
ACTIVATION
 Reward through a discount on
the next purchase
REWARD
(continued)
 25 THE FUTURE OF SUSTAINABILITY: VALUE CO-CREATION PROCESSES… 521

Table 25.2 (continued)

Co-creation Co-creation mechanisms Process output

form(s)

Up2Go Co-experience  Engagement of customers during Firm:

trade fairs or via e-mail.  Improvement of the
Customers get involved and test product offer in terms of
the service with a selected group quality of the service
of users  Brand loyalty and advocacy
ENGAGEMENT and TESTING  Attraction of new
 Firm and customers organize customers
engagement events and a plan of Customers:
incentives to attract the final users  Greater value perceived
REWARD  Gain in reputation
 Customers provide suggestions
according the final users’
feedback
FEEDBACK

Source: Authors’ creation

final users by means of the customers (e.g. firms offer free parking spaces to
their employees using Up2Go services).
Our empirical analysis allows to confirm the fruitful association of custom-
ers’ participation to firms’ processes with greater satisfaction (Nambisan and
Baron 2007) and perceived value (e.g. Anderson and Sullivan 1993) as well as
the perception of control over the offering (Lengnick-Hall 1996) and of higher
economic value (Bitner et al. 1997) thanks to discounts. For firms, the improve-
ment of the offering (ibid; Mills et al. 1983) and the building of loyalty emerge
as key outputs. Loyalty development is particularly critical for small, young
circular firms because it is hard for them to communicate their value proposi-
tion, especially when price ranges are higher than non-circular competing firms
in the business. For instance, this issue is encountered by Womsh, whose prices
are relatively high, but—as the entrepreneur explained—the firm’s positioning
is very often misunderstood by those customers who do not fully understand
its circular mission and its vision. Co-creating value together is a valuable way
to involve customers in the firms’ mission. In the B2B context, we observe that
mechanisms are employed both with customers and with final users, thus sug-
gesting a sort of interweaving co-creation process.

Conclusions
Our case studies are informative for both theory and practice. We contribute to
the entrepreneurship literature on the mechanisms through which entrepre-
neurial firms co-create value with their customers. We could identify a recur-
rent co-creation pattern characterized by three key mechanisms: engagement
via online platforms, activation through actions required by precise stimuli and
rewards in the form of discounts (or incentives in the B2B context).
522 B. RE ET AL.

As the analyzed case studies have shown, the output of the co-creation pro-
cess is beneficial for both firms and customers. On the one hand, firms are able
to improve their offer according to customers’ suggestions and feedback loops;
in addition, they gain loyalty from highly engaged customers and they acquire
new customers. On the other hand, customers not only feel empowered and
obtain economic benefits as a result of their participation but they also feel
satisfied about having been “active” in the environmental cause.
Our illustrative case study research is not without limitations, some of them
suggesting intriguing opportunities for further research. The number of case
studies is limited, and they are all cases of Italian circular entrepreneurship.
Future studies will have to collect more in-depth and diversified case studies to
provide a greater amount of empirical evidence of co-creation processes. Case
studies should also be informative of all co-creation forms that have been
reported in the literature. A systematic longitudinal study of co-creation mech-
anisms and outputs may enable the identification of successful co-creation pat-
terns, as well as a more thorough understanding of the collective gains
stemming from co-creation processes.
We hope our investigation may be inspirational for further entrepreneurs
wishing to pursue circular missions, who may find in co-creation the key to the
success of their business.

Acknowledgments We would like to thank the entrepreneurs for sharing with us their
“circular stories”. We are grateful to the anonymous reviewers for their insightful com-
ments that helped us improve the manuscript.

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 CHAPTER 26

Digital Technologies and Consumption: How

to Shape the Unknown?

Muhammad Shujaat Mubarik and Navaz Naghavi

Introduction and Background

Digital technologies are transmuting the consumption landscape. With con-
sumers’ spending driving approximately 60% of the global GDP, embracing the
power of technology to create value is paramount to ensuring progress through-
out developed and emerging economies (World Economic Forum 2019).
According to Statista (2019), the number of digital buyers in 2021 would be
2.14 billion. It shows that digitalization is appearing as the most powerful
driver of innovation. It is acting as the trigger of the current wave of innovation
and is transforming both consumption and production patterns (Seele and
Lock 2017). As a result, today’s value chains and business models are under
increasing pressure (Parente et al. 2017). Digitalization is having a highly dis-
ruptive impact on markets, the world of work, and our social structures
(Bouwman et al. 2018). It is remarkably changing the consumers’ buying pat-
terns, behaviors, and expectations (Arya et al. 2019). Hence, equipped with
disruptive technologies like big data, artificial intelligence (AI), and machine
learning, firms have started hyper-speed customers targeting. This marks the
beginning of a new era of digitalization, making it very clear that the influence
that digitalization would place on human lives by transforming the means of

M. S. Mubarik (*)
Mohammad Ali Jinnah University, Karachi, Pakistan
e-mail: [email protected]
N. Naghavi
Taylor’s University, Lakeside Campus, Subang Jay, Malaysia

© The Author(s) 2021 529

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_26
530 M. S. MUBARIK AND N. NAGHAVI

consumption, production, and communication would be massive and

incomparable.
After capitalizing on and gaining momentum in the last decade, the pace of
the process of digitalization is now exponentially increasing, leaving a stealthy
yet revolutionary impact on the world. Since digitalization is evolving at a
faster pace, two essential questions need to be addressed on an urgent basis.
First, what is the role of digital technologies in shaping future consumption
patterns and what digital technology developments can be instrumental in
shaping the consumption and production patterns of the future? Second, what
can be the impacts of digitalization on environmental sustainability and con-
sumers’ wellbeing and trust? (Beier et al. 2017; Keller et al. 2017; Mirra et al.
2018). This study undertakes this task. In doing so, it provides a basic under-
standing of the association of digital technologies, environmental sustainability,
and consumers’ wellbeing. Further, the study sheds light on the digital devel-
opments having the potential to shape future consumption patterns. It also
provides policy implications for the government and corporate sectors to direct
the technological revolution toward environmental, sustainability, consumer
wellbeing, and trust.
In doing so, we, first of all, discuss the trends in consumers’ buying patterns
by comparing past, present, and future trends. Building on this, the following
section elaborates on the role that digitalization plays in shaping future con-
sumption patterns. The subsequent section discusses the association of digita-
lization with the environment and consumers’ wellbeing and trust. The final
section concludes the chapter and discusses the policy implications.

Consumer Buying Patterns: Past, Present, and Future

To know how profoundly present consumption patterns are different than the
past and what is their future direction, we review the production patterns of the
last 19 years (2000–2019). For example, back in 2005, despite extensive use of
the internet, most buying decisions were taken in the marketplace. The buying
in that era primarily relied upon the “first moment of truth” (FMOT) (Kreutzer
and Land 2015). For example, in 2005, when a person goes to a departmental
store to buy a product, (s)he can see down the line numerous brands of that
product. While buying the product, the customer compares and contrasts vari-
ous aspects like the design, price, and other details given on the product itself
and instantly decides which one to buy. This process is called the “first moment
of truth.” This model was considered as the vital marketing framework to deci-
pher customers’ decision-making process. In the light of this model consumer
behavior is explained as a three-step sequential process. It is buying, experienc-
ing, and becoming loyal/disloyal.
It is apparent in this buying example that the use of the internet or any other
digital technology is absent in the process of buying. However, this FMOT
model started changing and the second stage of consumer buying behavior
emerged with the focus on “zero moment of truth” (ZMOT) (Lecinksi 2011).
 26 DIGITAL TECHNOLOGIES AND CONSUMPTION: HOW TO SHAPE… 531

To illustrate this assume the same person is now buying the product in 2011.
The person, as a customer, can access the internet, smartphones, and other
gadgets to precisely compare and contrast the various brands of the product
without physically going to the store. This is the “zero moment of truth.” The
term got famous after a book of that name was launched by Google, explaining
how the influx of digital technologies and social media channels were changing
consumers’ decision-making process. It was considered as the first marketing
framework to comprehensively consider the digital technologies for under-
standing consumers’ buying behavior. ZMOT, along with the McKinsey
Model, has been used by numerous businesses around the globe. Quarterly
(2009) presented an illustrative model to explain the customers’ decision-­
making journey in the era of technologies. Traditionally, it is presented that
customers think and behave in a funnel way and take several steps before buy-
ing a product. They interact with many brands and types of a specific product,
get acquainted with few, consider fewer, and purchase one to whom they
become loyal or disloyal.
However, due to the influx of technologies, smartphones, and the internet,
customers do not act in this linear way (Edelman and Singer 2015). Instead,
the technology has changed customers’ journeys to a loop as presented by
Quarterly (2009). The new loop model explains why customers are not
required to behave in a funnel way by introducing the concept of consideration
set—“a combination of products that customers plan to buy.” It tells companies
to provide adequate information to customers to help make their buying deci-
sions instead of putting them in the funnel.
Despite being popular, ZMOT and the McKinsey Model were incapacitated
to keep pace with rapid technological changes (Greenough 2019). Today, cus-
tomers receive innumerable amounts of information through the internet and
other sources. They have lesser time to evaluate a particular piece of informa-
tion. It implies that failing to convince the customer to buy now means (s)he
will never come again. In this context, McKinsey revised his customer decision
model. The new model focuses on the sharing of the right information to the
customer and at the right time with the right intensity. Nevertheless, one key
aspect which this model needs to incorporate is “time to the customer,” the
time a product takes to reach the customer. Traditionally, customers were
required to physically visit the market place for buying the products despite
having all the necessary information about the product obtained through social
media. Now, companies like Alibaba and Amazon have revolutionized the buy-
ing behavior and customers find everything at their doorstep without physically
moving a single step. This incorporation of online retail stores has drastically
reshaped the consumers’ buying patterns. In this context, we argue that with-
out incorporating the role of digital technologies and big data, it is onerous to
predict future consumption patterns. Further without understanding the con-
sumption patterns, it would be difficult to achieve the goal of sustainable con-
sumption. Hence, the following section is devoted to reviewing the role of
digital technologies and big data in shaping future consumption patterns.
532 M. S. MUBARIK AND N. NAGHAVI

Future of Consumption: Role of Digital Technologies

Today’s innovation is profoundly driven by data, services, and the internet of
things (IoT). The combination of these three things has allowed the fusion of
virtual and real worlds. It is important to note that this convergence cannot be
attributed to any single groundbreaking innovation. As a matter of fact, since
the invention of the first electronic computers in the 1940s, these technologies
are continually being developed. In the early phase, this process was evolution-
ary and gradual; however, it has gathered pace in the last few decades, and now
the technological capabilities are increasing at a highly accelerated pace. At one
end the computing capabilities of machines like memory size, processing
power, and networking capacities are increasing at an exponential rate. At the
other end, the cost associated with these capacities is decreasing at an equal
rate. Long before, Moore (2012) mentioned that the power of computing
machines would be getting double in every one and a half to two years, also
known as Moore’s law. This prophecy of Moore is being fulfilled even before
time (Lambrechts et al. 2018).
Along with the increasing computing powers of the machines, cyber-­physical
systems are taking place. These systems can collect a massive amount of data,
their digital processes, and the real environment in a very short period. Until
recently, the majority of the data were recorded manually or through hodge-­
podge systems, and then with all inherent errors, they were transferred and
processed. Now enormous amounts of data can be collected, processed, and
analyzed simultaneously with the help of digital and sensor technologies.
Further, cloud computing makes it easy to affordably store the exponentially
rising volumes of data (Cochoy et al. 2017). This enormous amount of data
deposited in the clouds—known as big data—is a goldmine for producing new
knowledge about but not limited to the society, consumers, and producers.
Hence, cloud computing offers the foundations for the creation of innovative
products and services. Likewise, digital consumer interaction is also becoming
easier and reliable through the latest service infrastructure comprising of a wide
variety of devices for every walk of consumers’ lives. The trio of data, IoT, and
services allows any technological gadget to exchange information with any
other person or device anywhere in the world. Looking forward, three types of
digitalization would be forming the basis of future innovation, communica-
tion, production, and consumption processes (Ryynänen and Hyyryläinen
2018). The first, originating from cloud computing and data storage, is data-­
driven digitalization (DDD). This will be acting as the basis because of the
continuously expanding data sets, which are being cultivated with the help of
digital technologies for retrieving useful and practical information. The prime
source of such information is consumers as they generate data by, for example,
internet surfing, web browsing, and using smart devices.
Since the consumers generate the data, a big question arises on the owner-
ship of the data. If the data are owned by the consumer then the question arises
as to their monetization. Presently, consumers provide personal data once they
 26 DIGITAL TECHNOLOGIES AND CONSUMPTION: HOW TO SHAPE… 533

agree to the terms and conditions (T&Cs) of usage of any digital product or
service (Cochoy et al. 2017). The data generated by consumers provide valu-
able information and knowledge about various aspects. If the knowledge has an
economic value in today’s knowledge-based economy, then what about the
economic value or the price of the knowledge generated by the consumer?
Would the consumer be paid for the data generated in the future for selling the
knowledge about his/her behavior? Or will the digital gadgets instrumental in
generating data be delivered free to the consumers in exchange for the infor-
mation they would be providing? These questions appear very superficial.
However, with the increasing level of awareness among consumers, addressing
these questions would be an essential task for keeping the pace of data-driven
economies intact.
Discussing the future of consumption in the era of digitalization requires
elaborating on the role of platform-based digitalization (PBD), which is rapidly
appearing as a vital digital development of future (Cochoy et al. 2017). This is
providing the basis of shared and circular economies, where digital platforms
managed freely are replacing the physical marketplace. It is giving birth to the
“born digital” companies. The famous transportation, accommodation, and
carpool platforms are a few examples of it (Ernst and Young 2012; Eva
Geisberger 2012). Here the point to ponder upon is the future development of
such platforms and their role in data expansion.
Lastly, groundbreaking digitalization—the digital innovation that can radi-
cally transform the existing structures of consumer-producer interactions—can
play an essential role in determining the future consumption and production
patterns. The rise of Airbnb and Uber are two significant examples of it. Since
the groundbreaking digitalization can be sudden and subtle, forecasting their
occurrences is very difficult. The most vital factor in this regard is consumers
engagement—consumers being the center of the innovation adoption process. The
degree to which a consumer accepts an innovation is an indication of its success
or failure (Jenkins and Denegri-Knott 2017).
Putting together, data-driven digitalization, platform-based digitalization,
and groundbreaking digitalization can transmute consumption and production
patterns. Nevertheless, it is pertinent to see how adopting these disruptive digi-
tal technologies that are ready to transmute the global value chains, and deal-
ing with subsequent societal issues like human capital development to support
new business models and degradation of the environment owing to over-­
consumption in the time of big data, can tackle, shape, and fulfill consumers’
wellbeing, security, trust, and transparency (Silva et al. 2019). Every techno-
logical development that is taking place in the business world must have con-
gruence with the environment (Beier et al. 2017). More specifically the success
of these digital technological developments depends upon their relationship
with environmental sustainability as well as consumer wellbeing and trust
(Keller et al. 2017). In this context, studying how digitalization affects the
environment and consumer wellbeing is of paramount importance. Further,
environmental sustainability is closely connected with consumers’ wellbeing;
534 M. S. MUBARIK AND N. NAGHAVI

increasing the former may improve the latter. Against this backdrop, the fol-
lowing sections briefly delineate the influences digital technologies can have on
consumers’ wellbeing and trust and on environmental sustainability.

Role of Digital Technologies in Consumers’ Wellbeing

and Trust

Although the capability of digitalization to facilitate consumers cannot be

undermined, it is, however, too early to paint only the rosy side of the picture.
This is because the increasing role of digitalization, especially the digital media
in consumers’ lives, can create a sense of ensnarement (Schlegel et al. 2018).
While the consumers could feel free from the physical interactions and socio-­
economical impediments, contemporary burdens for authentication may
require them to share their private information. While fulfilling the require-
ment for authentication in digital media, the consumer may lose control over
separating personal and private lives (Markos et al. 2018). This raises a serious
question about the pressure that information authentication/validation exerts
on consumers to share their private information.
Further, the interaction of consumers on digital and social media leaves their
information digital footprints and social networking information. This private
information can then be used for public events, either putting the individual
under limelight or exposing them to cyberbullying. Researchers (e.g. Hayes
et al. 2015; Przybylski and Weinstein 2017; Ho and Ito 2019) have high-
lighted the devastating effects of digital participation on consumers’ wellbeing.
They have even illustrated sheer depression, psychological illness, and other
pressures arising due to the digital media participation (Przybylski and
Weinstein 2017). Nevertheless, it requires extensive research to understand the
adverse effects of digital interaction on consumers’ wellbeing and devise strate-
gies to combat such adverse consequences. Another ethical issue that can affect
the wellbeing of consumers is the conduct of marketers in this regard. Marketers
use digital media platforms to identify and contact the opinion-makers and
more socially connected consumers.
Knowing the influence of such consumers, marketers, and other firms
involved in buzz marketing, marketers offer them product samples and other
goodies in order to get a favorable endorsement about the product experiences
(Naghavi and Mubarik 2019; Brynjolfsson et al. 2019). In one way, it is a kind
of bribe offered to the opinion-makers or influencers to gain personal benefits.
These opinions may be misleading and may compromise the consumer’s well-
being. Hence it involves severe ethical considerations. Another issue that has
not yet come under the limelight is digital disparity. It refers to the fact that
despite the exponential increase in the number of consumers interacting
through digital media, there exists a vast digital divide. Such inequalities to
access and use of digital technologies exist across socio-economic status, educa-
tion, and gender. It also indicates that some users are better off than others in
 26 DIGITAL TECHNOLOGIES AND CONSUMPTION: HOW TO SHAPE… 535

using digital technologies to attain better wellbeing. For example, 33% of the
persons between the ages of 55 and 65 years do not have a minimum level of
ICT and computer skills compared to the 5% only in the age group of
16–24 years (OECD 2019). Further, 70% of adults do not possess adequate
skills to use digital technologies for problem-solving (OECD 2019). These
statistics imply the need for some necessary skills to enable consumers to effec-
tively capitalize on the benefits of digital technologies and navigate the virtual
online world safely.
Governments around the globe are using digital technologies to increase the
efficiency and effectiveness of public services and to give users ease of access
(Dutot et al. 2016). However, access to these digital technologies comes with
certain digital safety and security risks. Further, the two major evils of social
media, namely, fake news and disinformation, limit the exposure of the people,
thus contributing to the polarization of social and political views. There is suf-
ficient anecdotal evidence available to establish the association between peo-
ple’s exposure to perceived disinformation and lower trust in the government
(Reuber and Fischer 2009). Due to the rise in the incidence of digital security
breaches, people remain reluctant to share their personal information with
social and professional online networks. In particular, digital consumers
encounter the challenges associated with information disclosure, unfair and
malicious commercial practices, incorrect payments, wrong information,
frauds, theft of identity, and dispute resolution. Another concern in this regard
is convoluted and vague terms and conditions associated with digital transac-
tions, which often fail to share the essential information with consumers (Kucuk
2016; Zoovu 2017). The general perception of people is that companies write
too many additional terms and conditions in order to hide those terms and
conditions that consumers may contest (Jahdi and Acikdilli 2009). It high-
lights the need to immediately cater to the issue of digital security as failing to
do so may create a big hurdle in the growth of digital technologies.

Role of Digital Technologies

in Environmental Sustainability

Where an enormous amount of literature is studying the benefits of digitaliza-

tion, little focus is being given on its role to cope with the most significant
challenge humanity is facing—environment (MeJeur 2019). Careful analysis of
the effects of digitalization on the environment exposes the other side of the
story. Despite the fact that digitalization can be instrumental in saving the
material and energy costs, its adverse effects on environments cannot be
ignored. Since the emerging digitalization is complex and interdependent, it
behaves in an unpredictable and unanticipated way in terms of its good and bad
environmental effects. Some of the researchers consider society’s relationship
with digital technologies as a “blind date” (Milne 2019). To turn it into
romance requires taking into account the adverse environmental effects of
536 M. S. MUBARIK AND N. NAGHAVI

digitalization. Precisely, the impacts of digitalization on the environment need

to be taken up at the highest forums like the UN. Presently, none of the SDGs
directly consider the environmental impacts of digitalization. It is a fact that
digitalization is at one end giving birth to the sharing economy and at another
end it is increasing consumerism by increasing the ease and access of buying a
variety of products at one click. Likewise, digital waste is also appearing as a
serious threat to the environment. Digitalization is reducing the life cycle of
technologies and goods, and every other day a new model with enhanced fea-
tures can be seen in the market place, making the old models irrelevant
(Kagermann 2015).

Conclusion
Digitalization is exerting a groundbreaking effect on markets, work, and soci-
eties worldwide. It is radically transforming consumers’ buying patterns and
behaviors. This change in the consumers’ buying patterns has been enormous
in the last few years. First moment of truth, the most celebrated model of the
last decade used for understanding consumers’ buying process, has become
irrelevant and replaced with the zero moment of truth (ZMOT), which itself is
becoming irrelevant now. Big data, services, and the internet of things (IoT)
are driving today’s innovation, which is augmented by the exponentially
increasing computing capabilities of machines with a sharp decrease in their
costs. Mainly, three types of digitalization will be providing the basis for future
innovation. The first, originating from cloud computing and data storage, is
data-driven digitalization. The prime source of data is consumers who gener-
ate the data by, for example, internet surfing, web browsing, and using smart
devices. In this regard, the main challenge is the rapidly increasing volume of
big data. The success of digital technologies depends upon their ability to mine
such big data to extract useful information. This information can be used for
the development of innovative digital products. In this regard, it is vital to
address the question, would the consumer be paid for the data generated in the
future for selling the knowledge about his/her behavior? The second, platform-­
based digitalization, is proving to be functional. It is giving birth to the “born
digital” companies. The famous transportation, accommodation, and carpool
platforms are a few examples of it. The third, groundbreaking digitalization,
the digital innovation that can radically transform the existing structures of
consumer-producer interactions, can play an essential role in determining the
future consumption and production patterns. Groundbreaking digitalization is
associated with the generation of new products and services and/or completely
new ways of doing business. It can also generate entirely novel business oppor-
tunities that may not have existed before. Since such disruption may be subtle
and unpredictable, it may be challenging to forecast future patterns of con-
sumption and its effects on the markets.
For directing the development of digital technologies toward sustainable
future consumption, three dimensions (consumers’ wellbeing, environmental
 26 DIGITAL TECHNOLOGIES AND CONSUMPTION: HOW TO SHAPE… 537

sustainability, and consumers trust and transparency) are to be taken into

account. First is the consumers’ wellbeing. Although digital technologies facili-
tate consumers, their adverse effects cannot be disregarded. It is widely agreed
that increasing the role of digitalization in consumers’ lives can create a sense
of being ensnared by them. Some of the researchers have even shown sheer
depression and other psychological pressures stemming from digital media par-
ticipation. It demands serious scholastic work to explore the harmful effects of
digital interaction on consumers’ wellbeing and devise strategies to combat
such adverse consequences. Another ethical issue that can affect the wellbeing
of consumers is the conduct of marketers who use digital media platforms to
identify the opinion-makers. Knowing the influence of such opinion-makers,
marketers offer them goodies to get a favorable endorsement for their product
or service. This is a kind of bribery as the opinions obtained through such
actions may be misleading and may compromise consumer’s wellbeing. Hence
it requires serious policy efforts to control it. Likewise, another issue in this
regard is digital disparity, which refers to the vast digital divide among digital
technology users. Such inequalities to access and use of digital technologies
exist across socio-economic status, education, and gender. Imparting digital
literacy among people can help them to better align their real and digital lives
and to save from mental and psychological issues stemming from the abuse of
digital technologies.
The second dimension is environmental sustainability, as a careful analysis of
the effects of digitalization on the environment exposes the other side of the
story. Despite the fact that digitalization can be instrumental in saving the
material and energy costs, its adverse effects on environments cannot be
ignored. For accruing the benefits of digital technologies, the appropriate reg-
ulatory framework needs to be developed and executed. Presently, the environ-
ment predominantly focuses on the manufacturing sector with a lesser emphasis
on regulating the dynamics of digital technologies. In this regard, governments
worldwide should adopt a middle of the road approach to softly push the digi-
tal revolution toward a sustainable structure, which can emerge organically.
The third dimension is consumers’ trust and transparency. Access to digital
technologies poses some digital security risks. The rising number of digital
security breaches is discouraging people from sharing their personal informa-
tion with social and professional online networks. Further, digital consumers
are also facing the challenges of information disclosure, unfair and malicious
commercial practices, frauds, and theft of identity. Management and mitigation
of digital security risk is the responsibility of everyone in society and requires
immediate strategic measures for improving the transparency of digital transac-
tions. It is also necessary to enhance the consumers’ control over their data. In
this regard, carefully designed technologically driven solutions can be instru-
mental in increasing the level of trust among consumers.
Putting together, digital technologies are revolutionizing the societies;
however, to reap the fruits it is essential to ensure environmental sustainability
and consumers’ wellbeing, transparency, and trust. Now the question is, how
538 M. S. MUBARIK AND N. NAGHAVI

to ensure these dimensions? The next section entails brief implications of the
study to address this question.

Policy Implications
We provide three major policy implications for making the growth of digital
technologies conducive to the environment, consumers, and society. First,
regarding the effects of digital technologies on environment appropriate regu-
latory framework needs to be developed and executed. Presently, the primary
focus of environment-related policies has been the manufacturing sector with a
lesser focus on regulating the dynamics of digital information and knowledge
(Pritchard and Wilson 2018). In this regard, governments worldwide should
adopt a middle of the road approach to softly push the digital revolution
toward sustainable structure, which can emerge organically. As per our under-
standing, this can be the most feasible policy measure for the digitalization and
environment. Unfortunately, the majority of businesses using digital technolo-
gies have little or no interest in investigating their impacts on the environment.
Exploring and implementing the practices which can influence the environment-­
related performance of firms with digital technologies can also be an essential
step. On the consumers’ front, some measures can also be taken to promote
sustainable consumption (Llamas and Belk 2013). For example, digital media
can help consumers to find products that are environment-friendly, long-­
lasting, and energy-efficient. Digital media can also be used for disseminating
information related to the international standard on the environment, like the
ISO. Another practical action which some of the companies are doing is the
introduction of eco-friendly bots. These bots help consumers to find the prod-
ucts which are not only economical but also environment-friendly like clothing
knitted with organic cotton, eco-tourisms, and recycled products. To summa-
rize, to direct the digital technologies revolution toward a sustainable middle,
the triad of consumers, producers, and the government has to work together.
Where the governments would develop and execute the related environmental
policies to regulate the digital technologies revolution the consumers and pro-
ducers would adopt the practices that are sustainable (Mubarik and Naghavi
2019). This policy framework also should be dynamic as present methods of
gauging the impact of digital technlogies are incapable to do so.
Second, in regard to consumers’ wellbeing, “digital literacy” can play a cru-
cial role. Imparting digital literacy among people can help them to better align
their real and digital lives and to save them from mental and psychological
issues stemming from the abuse of digital technologies. For example, excessive
use of the internet can cause depression, bi-polar disorders, attention deficit,
and addiction. This tendency can be high among children and teenagers. In a
nutshell, digital literacy can play an important role in ensuring consumers’
wellbeing in digital technologies. It can also help to promote responsible con-
sumption patterns in the digital era.
 26 DIGITAL TECHNOLOGIES AND CONSUMPTION: HOW TO SHAPE… 539

It should be a strategic priority for the triad of government, companies, and

individuals. Hence, management and mitigation of digital security risk is the
responsibility of everyone in society.
Third, immediate strategic measures are essential for improving the trans-
parency of digital transactions, on the objective and use of the personal data
collected from the consumers. Likewise, it is also vital to increase the control
and access of consumers over their data. Carefully designed technologically
driven solutions can assist in improving the trust in the digital media. National
privacy policies (NPP) need to be taken up to the highest levels of government
by taking a societal perspective. Finally, transnational operability of the privacy
policy framework is also essential to promote digital safety.
This study primarily reviewed the available literature on the triad of digital
technologies, consumptions, and environmental sustainability. We recommend
future researchers to collect empirical data for analyzing the impact of digital
technologies on environmental sustainability and consumers’ wellbeing.

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 CHAPTER 27

A Corporate Social Responsibility View

on Digital Disruption in Marketing

Irina Naoumova and Jerome Katrichis

Introduction
When and where the digital revolution began and how long it has been around
are matters of debate and disagreement. What is certain is that digital disrup-
tion is with us and is impacting the lives of real organizations and real consum-
ers around the globe every day (Karimi and Walter 2015). These disruptions
have a deep and lasting impact on all involved. The purpose of this chapter is
to examine the digital disruption that is currently occurring in marketing, with
a view of the role of corporate social responsibility (CSR) in further developing
digital marketing tools in participating organizations in the unsteady transi-
tioning times with limited rules and regulations in existence for digital market-
ing. We argue that CSRE adds socially focused value to the digital marketing
concept and secures its sustainable development as a tool, and thus leads to a
humanistic way of developing businesses and society. Thus, in lieu of the main
theme of the Handbook, we are interested in the following question—how can
the digital era tools be used to provide a sustained societal development? Our
answer to this question is that it would be possible if companies use CSRE as a
strategy for corporate and societal development. Otherwise the digital era
tools, digital marketing tools specifically investigated in our chapter, could cre-
ate significant harm to the individual, and society as a whole. We used semis-
tructured interviews and questioned a number of practicing managers and
marketing professionals. Based on their answers, we concluded that CSRE

I. Naoumova (*) • J. Katrichis

University of Hartford, West Hartford, CT, USA
e-mail: [email protected]; [email protected]

© The Author(s) 2021 543

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_27
544 I. NAOUMOVA AND J. KATRICHIS

strategies could secure the socially valuable development of digital marketing

tools and lead to sustainable societal development in the digital era while the
formal regulatory institutions have yet to be developed.
The authors will look into disruptions created by digital marketing in the
already existing CSRE strategies and suggest adjustments. The chapter will
discuss future CSRE approaches associated with the future mobile phase of
digital marketing transformation (Yadav and Pavlou 2014). The chapter will
also provide suggestions for strategy management, investors, and practitioners
for the year 2025 and beyond.
The chapter consists of an abstract, introduction, two sections, where we
discuss a corporate social and environmental responsibility approach and digital
marketing tools in the times of significant changes to the institutional land-
scape with weakened or not yet developed formal and informal institutions.
This is followed by a methodology section, findings, conclusions, and
discussions.

CSRE Foundations and Relationship Between Pillars

For the purpose of this chapter we will be using the definition of corporate
social responsibility introduced by Carroll (1979) and developed further by
him and others (Carroll and Shabana 2010; Dahlsrud 2008; Malik 2015;
Schwartz and Carroll 2003). Carroll suggested four types of corporate social
responsibilities: economic, legal, ethical, and discretionary. Economic respon-
sibility suggests that firms are responsible for their economic/financial perfor-
mance. Other scholars note that the natural environment should be distinct
from the social environment (Mitchell et al. 1997; Freeman 1984). It has been
demonstrated statistically that people have different attitudes toward the natu-
ral environment (Starik and Rands 1995; Shrivastava 1996; Babiak and
Trendafilova 2011). Thus, CSR transformed into CSRE, where “E” designates
environment.
Conceptually, the use of the new digital forms and tools of marketing leads
to CSRE transformation. The current status is seen as a transition stage from
traditional marketing to a new model (White 2005; Etter et al. 2019).
The role of CSRE undergoes distinctive changes in times of transitions
(Wenzel and Will 2019). We expect significant erosion in economic and legal
responsibility frameworks. Ethical responsibility will be affected but not that
drastically. As for discretionary responsibility, it would increase its value for a
firm’s strategic decision-making dramatically.
For economic responsibility, digital marketing is seen favorably—as a set of
tools increasing product or service visibility and attractiveness (Saura et al.
2019). The accessibility of new markets worldwide launched a development of
new mechanisms for driving revenues and decreasing costs, thereby increasing
profits. Traditional regulatory instruments on national and international levels,
although they also change, are not that dynamic and fail to catch up with new
trends in digital marketing (Shiner 2019). Hostile trade wars are
 27 A CORPORATE SOCIAL RESPONSIBILITY VIEW ON DIGITAL DISRUPTION… 545

demonstrating inefficiency of economic regulators and force an erosion of tra-

ditional economic responsibilities. Opening up the market for their products or
services for international customers, companies are widening their customer
base tremendously while still being limited with resources for quality customer
service. Many firms just trade the quality of their customer service for profit
(Kumar et al. 2000).
The legal responsibility is based on a country’s laws and system of regula-
tions and varies from country to country. International laws were also devel-
oped through various organizations, agreements, and associations. With
increased uncertainty introduced by a wide use of digital marketing, legislative
systems also failed to adequately reflect the contemporary voids. What is legal
in one country could be illegal in another (Howells and Ramsay 2018).
Unification exists, but only to a limited extent, and many international laws are
considered as recommendations rather than strict regulations of business. In
the unstable environment of transition from traditional legal regulations on a
country level to rather vague recommendations on an international level, or
with no regulations at all, the only limitation for firms is their internal CSRE
strategy and their company’s organizational culture. To sustain their CSRE
strategies in the times of loose regulations for digital marketing, companies
should make their codes of corporate conduct more detailed and strict (Judge
and Naoumova 2004). The legal and economic regulations for digital market-
ing are not deployed yet, and thus the area has suffered significant erosion of
CSRE concepts as stated above. It is most eroded in the layers which were well
regulated in the past—legal and economic. The ethical concepts are mainly
regulated not by formal but informal institutions, and therefore they are less
damaged than the first two.
Ethical responsibility is based on societal moral norms and, although also
changing, they change slower than regulations (Laczniak and Murphy 2019),
and become a stabilizer for other dimensions of CSRE.
Discretionary responsibility relates to voluntary sponsorship and involve-
ment in various activities needed for the health of society. Digital marketing
tools increase a company’s transparency (Baldassarre and Campo 2016), and
thus lead to the accessibility of information on a company’s voluntary activities.
They start playing a more strategically substantial role, which leads to increased
spending and better media coverage of such activities.
Interestingly enough, lately, the environmental responsibility framework
started experiencing some erosion on the level of international regulatory insti-
tutions (Ağan et al. 2016) but seem to have experienced strengthening at a
company level (Chuang and Huang 2018). Media coverage and transparency
made this movement possible.
According to Carroll (1979), CSR pillars in the following order—economic,
legal, ethical and discretionary/philanthropic—form a pyramid. A pyramid
structure provides some integrity to the CSR definitions but turns the multi-
functional CSR layers’ relationships into a trivial model. Modeling principles
require some simplification of reality, focusing on the most valuable features,
546 I. NAOUMOVA AND J. KATRICHIS

factors, and processes, thus clarifying the main issue. In the CSR pyramid, lay-
ers’ relationships become even less clear. The main problem is seen in the goal
to make a uniform model for a very complex context of CSR. It is impossible
to be responsible “in general.” Bringing a stakeholder approach to the CSR
discussion, Carroll actually focused on a society (even a state) in general instead
of relating CSR, “sliced” into smaller pieces, to each stakeholder. Thus, his
model is not adequate and leads to misunderstanding of layers’ relationships.
When an institutional framework is changing rapidly, informal institutions
play an even more important role than formal structures (Judge and Naoumova
2004). They are not necessarily accepted by market players. They are intro-
duced by the strongest market players in lieu of their strategies. They substitute
for economic and legislative regulations until they are finally developed. It
might happen that companies confront the new regulations and lobby against
them when such regulations threaten their profits and strategies.
CSRE elements have more complex relationships that involve the whole
range of stakeholders.
Figure 27.1 shows that CSRE vectors have different magnitudes for each
stakeholder. It would be an unreasonable simplification to say that gradual
increases in economic responsibility would then lead to the development of
legal responsibility, later to ethical, and finally to discretionary or environmen-
tal responsibilities as it is proposed in the “pyramid” conception.
We suggest that the CSRE model would rather look like a “Christmas tree”
with branches growing around, thicker or thinner, more or less developed.
According to Baron (2001), CSRE activities are driven by altruism, strategy,
and coercion. Institutional analysis (Scott 1995) provides additional knowl-
edge to the issue. New digital era in marketing introduced new realities which
are limited yet diffused among elements of formal and informal institutional
frameworks. The diffusion is yet to be created. Formal institutions at the
national and international level have to develop and then diffuse a common set
of values, norms, and rules somehow standardizing organizational behavior
(DiMaggio and Powell 1983) and forcing other companies to choose among
expected strategies. The whole framework in its formal and informal institu-
tional spectrums is in transition and thus, the most active driver of CSRE activi-
ties is company strategy.

Economic
responsibility Ethical
responsibility
Legal responsibility Discretionary
responsibility

Environmental responsibility

Fig. 27.1 CSRE “Christmas tree” model. (Source: Authors’ creation)

 27 A CORPORATE SOCIAL RESPONSIBILITY VIEW ON DIGITAL DISRUPTION… 547

The literature (Maignan and Ferrell 2003) confirms that different societies
place different priorities on each of the CSRE dimensions. Globalization results
in increased use of new technologies (Fatima 2017) and “predetermines” the
evolutionary creation of a common global business culture (Barnet and
Cavanaugh 1994; Bird and Mendenhall 2016). The expectations for the new
gobal business culture seemed to promise a more sensitive attitude toward
society and the environment (McWilliams and Siegel 2001). But the high pace
of changes has amplified the uncertainty factor and led to dynamic erosion of
traditional CSRE strategies as we discussed above. With the imbalanced
“branches” of the Christmas tree it is clear that economic and legislative regu-
lators are desperately needed.

Digital Marketing and CSRE

Considerable research exists on how digital marketing improves company per-
formance and increases firm value (Järvinen and Karjaluoto 2015). Direct ben-
efits for customers are also well studied (Hendriyani and Auliana 2018). There
is limited research (Brondoni 2010; Vazhappully and Hope 2018) on CSRE in
the digitalization of company marketing and the challenges associated with it.
We will discuss six areas, or tools, that have emerged as primary components
of modern digital marketing and examine the regulatory impact of corporate
social and environmental responsibility. These tools include search engine opti-
mization for website effectiveness, search engine and display advertising, con-
tent marketing, social media marketing, email marketing, and e-commerce. We
will also examine the impact these tools have on customers (Colleoni 2013),
including the development of customer “micro-habits” and the issues sur-
rounding the gathering of data and the privacy invasions created by predictive
analytics (Järvinen et al. 2012).
Economic, legal, ethical, discretionary, and environmental issues will be dis-
cussed in connection to the emerging digital marketing challenges (Green and
Peloza 2011): generating a website and social media traffic and product/com-
pany referrals; collecting and sharing digital information on customers; con-
necting to customers; keeping up with technology and competition; plugging
into a company internal operations.
The major struggle for digital marketing teams is to balance the pressures
for customer responsiveness and cost efficiency/standardization (Bughin et al.
2018; Maignan et al. 2005). In the corporate social and environmental respon-
sibility approach, it is seen as a need for balancing an ethical, economic, legal,
and discretionary focus, as well as environmental.
Most businesses today are faced with the prospect of digital disruption. A
group from Accenture has developed a “Disruptability” index and estimate
that 71% of 10,000 companies that they studied are either in the throes of dis-
ruption or on the brink of significant disruption (Abbosh et al. 2019). They
indicate that disruption is not a short-lived explosion, but rather a persistent
condition. The Forbes Technology Council asserts that no industry is wholly
548 I. NAOUMOVA AND J. KATRICHIS

immune from disruption and details a set of industries that are on the cusp
(Forbes Technology Council 2019). The issue is certainly widespread, but is
particularly acute with respect to marketing and marketing practices
(McKinsey 2014).
While some (Westerman et al. 2014) take a somewhat broader interpreta-
tion of digital marketing, here we take the view that digital marketing can be
defined primarily through a set of tools. Our objective is to examine each of
these tools in terms of the potential implications they might hold with respect
to CSRE issues. The tools we examine include search engine optimization and
search results, search engine and display advertising, content marketing, email
advertising, social media marketing, email marketing, and e-commerce. Each
of the tools we examine bring their own challenges with respect to CSRE. Each
are discussed in turn. Some of these challenges are traditional CSRE issues,
others are created by the tools themselves.

The Digital Marketing Challenges

As stated above, digital marketing is typically seen as a boost for a firm’s perfor-
mance and increase in its value. The companies’ challenges are associated with
the lack of knowledge of its tools as well as regulations, limited professional
personnel, and sociocultural and even economic consequences of digital mar-
keting. Although digital marketing is already a reality, it is still rapidly evolving
and there are gaps between the opportunities and firm resources and capabili-
ties in each of these challenges. The gaps are large and growing in spite of the
trend of hiring technology-savvy personnel because internal company conflicts
are adding to the situation.

The Quality of New Marketing Personnel

Universities are not yet ready to reeducate a massive army of marketing profes-
sionals because the majority of the educational institutions worldwide are also
lacking the needed skills. Thus, the erosion of traditional marketing takes place
because of a strong “injection” of technical personnel in the marketing area.
These gaps require immediate filling, so companies are rapidly restructuring,
and the technical personnel become an internal “middle man” layer inside a
company. There are two scenarios of this typical company conflict: (1) techni-
cal personnel would learn some of the marketing tools, and take over the entire
marketing area; (2) marketing personnel would adjust somehow and learn
from their technology-savvy colleagues. The conflict between technology-­savvy
people and traditional marketing personnel is a widely spread situation for
firms in transition to the digital marketing era (Kakabadse et al. 2017). In the
meanwhile, the quality of marketing services will diminish (Wang et al. 2017)
and the statistical data would not necessarily reflect market preferences cor-
rectly (Xiang et al. 2015; Srinivasan et al. 2016).
 27 A CORPORATE SOCIAL RESPONSIBILITY VIEW ON DIGITAL DISRUPTION… 549

Outsourcing of Marketing Services and Increased Rivalry

With digital marketing, companies learn to use new marketing tools and collect
the needed data. They face rivalry from outside-industry, nontraditional players
like Google and Facebook, who have bargaining power in big data collection,
analysis, and reporting (Hull 2015; Flyverbom et al. 2019). It leads to struc-
tural changes in marketing services. Traditionally, larger companies kept mar-
keting in-house, although used the services of specialized marketing companies.
Smaller firms were using them as well for more standardized services, while
those requiring customization were done in-house.
The landscape is now changing dramatically. Media companies, advanced in
various marketing social media techniques, penetrate the industry and compete
with traditional service providers for outsourced and in-house services. Given
the lack of in-house and tradtional service providers knowledge and resources
and lack of regulations as well, they definitely win the competition and change
the landscape (Khanna et al. 2019). Traditional CSRE models, which evolved
in the traditional industry, do not work for them. Early on, digital marketing
was complementary to their businesses, and thus not significantly limited by
their internal CSRE policies. Additionally, a large number of international firms
from developing or emerging economies flooded the market. With little knowl-
edge and experience in good governance principles wide spread in the devel-
oped countries, they provide cheaper services and win the competition.

Transition to a New Regulatory Framework and Firm Opportunism

The digital era has seriously affected formal institutions nationwide and inter-
nationally (Li et al. 2012). Formal institutions are dealing with rules, regula-
tions, and laws (Peng 2013), and thus are experiencing a strong need for
adaptation to the new realities (Selwyn 2009). The research confirms a transi-
tion of regulatory-coercive power (Wang and Yang 2013) to a new system
where the regulations will limit firm opportunism. Digital marketing is driven
by data collection, analysis, and the resulting findings. Collecting big data
becomes a primary function, and thus everything else could be threatened if
customers are not willing to share information. Firm opportunism is based on
an opportunity to easily use big data and more precise methods and models of
market analysis; making it relatively easy to achieve customization of marketing
content with the use of modern technology and even incorporating artificial
intelligence in customer service. More actions and areas are covered with tech-
nology increasing company profits dramatically. Firms jump at opportunities
provided by big data and social media mechanisms (Aral et al. 2013; Fan et al.
2015; Leeflang et al. 2014), and since the coercive framework on a national
and international level is barely catching up with tremendous widening of the
digital era marketing, firms get involved in opportunistic activities with little
respect for principles and understanding of consequences. CSRE, as an internal
company strategy, stays the only orientation point for them (Illia et al. 2017)
550 I. NAOUMOVA AND J. KATRICHIS

in the turbulent white waters of the changing nature of marketing and com-
munication with customers.
In the regulatory framework, some countries are coming up with new regu-
lations on how consumers’ personal data could be collected and stored. For
example, the European Union adopted a General Data Protection Regulation
in 2018, which includes substantial fines for violators. In the United States,
several states are already engaged in law suits against the companies that inten-
tionally or unintentionally violated the Civil Rights Laws allowing targeting
customers by race (Rocklin 2018). The USA Federal Trade Commission
(2019) combines different acts on its site (www.ftc.gov), but they are rather
scattered and not yet systemic.
Although on a national level some attempts have already been made, inter-
nationally there is no strong institutional framework (Singh et al. 2005;
Edenberg and Jones 2019) focusing on coercive regulations in digital market-
ing and related areas. Apparently, a transition to a new regulatory framework is
necessary to limit firm opportunism and uncertainty.

The Role of Informal Institutions in Marketing: CSRE Relationship

Peng (2013) suggests that norms, cultures, and ethics are attributes of informal
institutions that are responsible for normative and cognitive pillars governing a
firm and individual behavior. Countries adopt codes of good governance
(Lopez Iturriaga 2009) and thus develop a normative framework for their busi-
nesses. The increased number of competitive and partnering peers who adopted
the CSRE strategies is confirmed to be positively related to the firm following
the same principles (Greenwood et al. 2011; Marquis and Tilcsik 2016; Raffaelli
and Glynn 2014).
Customization of the marketing content becomes necessary when it comes
to reaching out to international and culturally different customers. Companies
market and sell abroad but often cut on customer services and return options
because of distance and costly returns. In their race for short-term profits, they
engage in opportunistic behavior and, as a result, increase transaction costs for
their international customers and clients. While having higher margins at the
beginning, they create a threat for sustainability of their businesses abroad in
the long run (Das 2004; Martín and Camarero 2005).
CSRE has been reported as a substitution for formal and informal institu-
tional functions at a company level (Kuznetsov et al. 2009) in the countries
with a weak institutional framework. Therefore, we expect CSRE to become a
leading strategy for firms engaged in digital marketing, helping to sustain their
businesses in the times of transition to a new institutional framework.
 27 A CORPORATE SOCIAL RESPONSIBILITY VIEW ON DIGITAL DISRUPTION… 551

Disruptions in the Digital Marketing Tools

Search Engine Optimization and Search Results

Search engine optimization is an area that hasn’t garnered much attention in
the CSRE literature. Search engine optimization is related primarily to what is
referred to as “owned media,” or an organization’s own website, and it relates
to how internet users find that website through a search engine. Ideally you
would like your website to be listed as early as possible on the list of results the
search engine returns as most searchers will not go too far into a list. When an
internet user types key words or phrases into the search bar of their favorite
search engine, the search engine returns two types of results. The first type of
result displayed are typically advertisements related to the key search words
that were typed in. Typically, the first few search results are these paid search
engine advertisements. The order of these advertisements is determined by
how closely the words or phrases match words or phrases selected by the adver-
tiser and how much the advertiser bid in the continuous instantaneous auctions
that happen every time someone uses a search engine. Following this set of
advertisements, a list of “organic” search results is displayed. Organic search
results are presented in order, based on page ranking. Every search engine has
its own proprietary method for ranking relevant pages, but it is based mostly
on how frequently and prominently the search words or phrases typed in by the
searcher were used on the web page. Search engines use programs or bots
(sometimes called spiders or crawlers) that read web pages to arrive at the rank-
ings for each page. Every page on the internet is ranked, and search engine
optimization is the practice of designing web pages that deliver a higher rank-
ing than other websites in the “organic” ranking process. While it is certainly
to the marketer’s advantage to use as many potential search words as possible
on their page, this can be taken to an extreme in order to drive a higher volume
of traffic to the website. Web developers use tricks like stuffing their page with
key words or phrases that do not actually seem to appear on the page. This can
be done by using fonts that match the background color of the page. Most
search engines recognize such tricks and tend to treat the perpetrator harshly
in their web page rankings, if they are ranked at all.
A large part of the disruption to marketing has been caused by the shift in
media consumption habits by the typical consumer. Today, more than half of
the more than twelve hours US adult consumers spend with media is now spent
with digital media (Dolliver 2019).

Search Engine and Display Advertising

While search engine and display advertising would seem to have little in terms
of CSRE implications, since they pose little apparent differences from ordinary
advertising, how ads are selected and served up to internet users certainly is an
issue. Many websites use several different types of tracking cookies and device
552 I. NAOUMOVA AND J. KATRICHIS

fingerprinting which allows advertisers access to the browsing history of the

user. Most search engines also assign unique identification numbers to users
and keep track of search histories for each user, usually for as long as nine
months. That way, advertisers can serve up only ads that the user has displayed
an identifiable interest in. Users, of course, benefit by seeing more interesting
ads, but usually without realizing how much of their privacy has been violated.

Content Marketing
The whole concept behind content marketing is for firms to enhance their
image through producing content that is valuable to viewers. There is an enor-
mous range of content that marketers can place on their websites or place in
more conventional media, or both. Consulting and other firms sometimes pro-
vide white papers and other types of reports on their websites to help establish
credibility for their firm. Two of the sources cited here (McKinsey 2014;
Abbosh et al. 2019) are examples of such white papers. The range of media
available to website developers has never been greater. On the other end of the
spectrum might be an organization sponsoring a concert, or even a music tour.
While it is clear that all sorts of firms can offer all sorts of content, the central
idea in content marketing is that the marketer controls the content. This is
where content marketing collides with CSRE issues. The central issue revolves
around content credibility, especially when the provider has a commercial
interest in the information being provided and is a classic criticism of exposure
to advertising in general. Of course, media range in their ability to maintain
credibility, both across and within different media categories. Just as firms can
be thought of as more or less credible and trustworthy, so can different media,
and media outlets.
Content marketing also requires firms to bring media production capabili-
ties and the individuals responsible in-house, as considerable media content is
now created by the marketers themselves.

Social Media Marketing

Social media is more than just a label. Social media is called social media because
it is not owned media, and the marketer does not have the same degree of
control over the message. While the media platform (e.g., Facebook, LinkedIn)
is owned, the messaging is socially constructed in a multidirectional flow. This
is where the metaphor of a media vehicle delivering an audience to an adver-
tiser falls down the most. In essence, each social media platform is not so much
an advertising vehicle, but rather an advertising channel. Of course, while the
consumer is being social, they are also exposed to advertising.
There is currently a societal outcry with respect to social media. It is utiliz-
ing advertising exposures which are based on the same kind of analytics and
consumer tracking that are prevalent in search engine and display advertising.
Consumers seem to believe that their social interactions are more sensitive than
 27 A CORPORATE SOCIAL RESPONSIBILITY VIEW ON DIGITAL DISRUPTION… 553

their search history. There is also an ongoing debate in society regarding the
relative merits and negative impacts of social media on society, culture, and
even health.

Email Marketing
Some authors (Zahay and Roberts 2018) believe that all of internet marketing
grew out of the area of direct mail marketing, or just direct marketing. They
see the internet as simply one direct response medium. Direct mail marketing
has probably the longest tradition of intense analytics in marketing. It really
focuses on lists and list management. While some in the popular press speculate
about the carbon footprint of email, it clearly has less of a carbon footprint than
a direct mail marketing piece, even one on recycled paper.
It’s clear that many in the population do not particularly like to be sent
unsolicited email. The term “spam” was coined in the 1990s to mean unsolic-
ited email, according to Merriam Webster. Typing “best spam filter” into the
search line on any search engine will provide evidence of how little individuals
care for unsolicited email. A great deal of effort has been expended to eliminate
or at least reduce the number of unwanted emails individuals receive. In many
cultures, email is regulated at least to some extent. Usually limits are placed on
the number of unsolicited emails a marketer can send, or the requirement that
recipients must “opt in” to receiving email.

e-Commerce
e-Commerce is simply conducting electronic transactions over the internet.
While it would seem obvious that e-commerce is an advantage over traditional
retailing with respect to CSRE issues, that is not really the case. One analysis
(Weideli 2013) saw the difference so close that the carbon footprint advantage
depended on the mode of transportation of a terrestrial shopper, whether they
came from an urban or suburban location and whether an online shopper
expected express shipping. Next-day or two-day shipping seems to dramatically
increase the carbon footprint of the online shopper.
One area of e-commerce that gets enormous attention in the literature is the
online customer review process. Customer review platforms on e-commerce
websites really provide a type of specifically commercial social media, as this
content is socially constructed. This type of social media tends to garner signifi-
cantly different levels of management attention than others. Positive reviews
on e-commerce sites can be thought of as a type of “earned media,” much the
same as positive mentions and reviews on social media.
Niu and Fan (2018) provide one approach to dimensionalizing the manage-
ment process for customer reviews. There are a number of dimensions of cus-
tomer review management that really have no established standards. For
instance, no standards exist with respect to providing incentives to customers
that provide positive reviews. There are no standards that exist with respect to
554 I. NAOUMOVA AND J. KATRICHIS

the number and types of interventions that are reasonable. There is even the
issue of how reasonable it is to manage reviews in the first place.

Methodology and Findings

Semistructured Interviews
The discussions above have built the foundation for the need to understand the
situation and bring the practical experience into judging the literature state-
ments. For these purposes we conducted semistructured interviews with stu-
dents in MBA and executive training programs. We approached those who
were decision-makers for their companies, regardless of industry. We recorded
32 fully answered interviews specifically focusing on digital marketing and cor-
porate social and environmental responsibility company strategies. The inter-
viewer had the list of initial questions that was developed based on the
discussions in the literature presented in the discussions above. The interviewer
was also generating questions naturally based on the discussion topic, as is
required in semistructured interviews (Rowley 2012). There are two tradi-
tional forms of such interviews, specifically telephone interviews and face-to-­
face interviews. There are advantages and disadvantages to each of them
(Cachia and Millward 2011). We used a video conferencing approach that
combines advantages of the above but is easily available now with a variety of
software applications with accessibility even during traveling plans (Sedgwick
and Spiers 2009). Seven of our respondents were on business trips and we had
to adjust interviews to their time zones.
Examples of the initial questions are provided below:

• What digital marketing tools does your company use on a regular basis?
• What are the limitations to the business, and to the society in using
these tools?
• Are the companies responsible for the negative consequences in using
these tools? If so, in what way?
• What are the rules and regulations that are holding the company respon-
sible for the negative consequences in using these tools?
• Does your company follow the CSRE strategic directions?
• If so, does it help in limiting the discussed about negative
consequences?

Summary of Responses
All 32 respondents confirmed the challenges on an “incomplete” (the term was
used by one of respondents) institutional environment. The sample consisted
of 18 (56.25%) male and 14 (43.75%) female respondents. Educationally, 26
(81.25%) had one graduate degree already and were seeking their second
degree, the remaining 6 (18.75%) were in the process of getting their first
 27 A CORPORATE SOCIAL RESPONSIBILITY VIEW ON DIGITAL DISRUPTION… 555

graduate degree. All 32 interviewees are in top or middle level management

position in their companies. The firms represented included 16 companies
(50%) that are larger than 1000 employees.
Out of 32 respondents, 12 (37.5%) specifically mentioned the lack of advice
from regulatory institutions in regard to the use of digital marketing tools.
Nineteen respondents (59.375%) stressed the need for an advanced control
from a municipality or a state and developing legislative mechanisms further.
All 32 respondents confirmed that legal and economic responsibilities of a
company exist but they are difficult to control from regulatory institutions with
the lack of new instruments. Thus, the company has to make an informed deci-
sion whether to continue to follow the CSRE principles even without signifi-
cant pressure of regulatory forces. Once committed, a company has to stay firm
on its principles to be a good citizen, and thus grow customer loyalty. The
violations are typically self-reported and self-admitted. Out of the 32 respon-
dents, 30 (93.75%) confirmed a need for “nontraditional forms of collective
self-control” (the term used by one of the respondents). The suggestions were:
the control functions should move from a state and formal regulatory institu-
tions to trade associations, professional associations, customer associations, etc.
Respectively, 27 (84.375%) and 21 (65.625%) respondents stressed the
increasing role of ethical and environmental responsibility as a need for the
development of a “healthy digital marketing system” (the term was used by
one of the respondents).
Eighteen respondents (56.25%) noted the significantly increased, lately (in
3–5 years), value of voluntary activities adding to the positive image of the
company. Interestingly enough, 16 of them (88.89%) belonged to the compa-
nies that are more than 30 years old and had a chance to compare with past
experience. All 18 respondents, who pointed out at the increased role of discre-
tionary responsibility, confirmed its connection with the introduction of digital
marketing tools.
All 32 respondents confirmed their companies are using more than 3 digital
marketing tools, 29 (90.625%) reported that they use all the digital marketing
tools discussed above. The same 29 interviewees reported content marketing
as the most affected by limited regulations and underlined the need for institu-
tional control. Notably, all 32 respondents confirmed that reputational risks
increased dramatically with the development of digital marketing systems. The
firms are also affected by fake accusations and unfair rivalry. Thus, in turbulent
times they see CSRE as a “defense mechanism” (the term was used by one
respondent) saving their reputation and increasing customer loyalty. When
asked a question on social media marketing, 27 interviewees (84.375%) con-
firmed that it is the most progressing tool but at the same time the one that
generates more reputational risks for the companies.
The interviews of practitioners confirmed that CSRE is seen as a mechanism
of developing a “healthy” system of a company’s digital marketing tools and,
at the same time, becomes a self-regulatory strategic approach and “defense”
mechanism substituting for underdeveloped or yet not existing institutions.
556 I. NAOUMOVA AND J. KATRICHIS

Conclusions and Suggestions for Strategy Management,

Investors, and Practitioners
The literature review on the role of CSRE in developing digital marketing tools
at a company level and current institutional challenges are consistent with the
findings from semistructured interviews with 32 company decision-makers.
Based on the chapter discussion, the technology-savvy strategists would
need to develop and closely follow their CSRE strategies, develop a balanced
approach, focusing on all of its pillars, make them a part of the firm governance
mechanism and popularize them among industry peers and partners. In the
times of transitioning to a new regulatory environment, organizations could
take a proactive role and be responsible and lobby for institutional develop-
ments. For both customers and investors, it would confirm that the company
is conducting a sustainable and healthy business. Policymakers would benefit
from stressing the need for businesses to incorporate CSRE strategies. It alone
could become a form of a control mechanism for authorities to maintain sus-
tainability of a healthy, socially responsible business. In the immediate future,
it might become even more popular among companies, small businesses, and
large corporations. Thus, we predict CSRE will be a strategic instrument for
creating a new institutional environment for digital marketing.

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 CHAPTER 28

Trust, Transparency, and Technology:

Blockchain and Its Relevance in the Context
of the 2030 Agenda

Ana Maria Gomez-Trujillo, Juan Velez-Ocampo,

and Maria Alejandra Gonzalez-Perez

Introduction
In the first semester of 2020, the most widely recognized applications of block-
chain technology was still bitcoin cryptocurrency. However, since its inception in
2008, blockchain has been gaining space in different areas, with the number of
applications and actors increasing steadily. Its impact is already quite significant
and disruptive for current business models, with potential for the whole world.
In 2017, Iansiti and Lakhani (2017) acknowledged the hype for blockchain,
and how it had the potential for deep transformation of business. However,
they also understood and reported the reasons why its mass adoption would
take longer than expected. It will take a long time because blockchain is a foun-
dational technology (having the potential to create new foundations for social

A. M. Gomez-Trujillo (*)
CEIPA Business School, Sabaneta, Colombia
e-mail: [email protected]
J. Velez-Ocampo
Universidad de Antioquia, Medellín, Colombia
e-mail: [email protected]
M. A. Gonzalez-Perez
Universidad EAFIT, Medellín, Colombia
e-mail: [email protected]

© The Author(s) 2021 561

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_28
562 A. M. GOMEZ-TRUJILLO ET AL.

and economic systems), and in order for it to work, high levels of technologi-
cal, social, and regulatory complexity need to be established and coordinated.
However, Iansiti and Lakhani are clear that although it will take many years,
the impact blockchain will have on people, society, business, and governments
is so great that the process of digital transformation had to begin straight away.
In the authors’ words “it will take years to transform business, but the journey
begins now” (Iansiti and Lakhani 2017: 1).
Melanie Swan (2015), founder of the Institute for Blockchain Studies,
explains in her book Blockchain: Blueprint for a New Economy, that blockchain
technology can be considered the fifth disruptive computational paradigm after
central computers (mainframes) in the 1970s, personal computers (PCs) in the
1980s, the internet in the 1990s, and mobile social networks in the first decade
of the 2000s.
For this reason, she suggests thinking about blockchain as an advanced
information technology with technical levels of escalated sophistication, with
multiple applications for any form of asset registration, inventory, and exchange,
including all areas of the economy, tangible and intangible assets (ideas and
patents, climate change, health data, hotel reservations, contracts, etc.). In fact,
all public records (such as registration of properties, civil status or car owner-
ship, business licenses, birth and death certificates) could migrate to block-
chain. Moreover, blockchain is a new organizational paradigm for discovery,
valuation and transfer.
The best-known application of blockchain technology is Bitcoin, the leading
cryptocurrency. Since 2013, Bitcoin, Ripple and Litecoin have been growing
steadily, and in 2017, the world witnessed the first cryptocurrency boom. By
December 2017, the total market capitalization of cryptocurrencies had
reached the colossal peak of $6 Billion (Statista.com 2020). Just Bitcoin on its
own rose its value by 2000% in the period January to December 2017
However, blockchain and Bitcoin are two different things. Blockchain is a
distributed database that promotes trust and transparency and can be used to
transfer all sort of things, while bitcoin is a cryptocurrency that promotes ano-
nymity and is a device for currency transfers using blockchain technology.
Bitcoin is powered by blockchain, but blockchain has many uses beyond Bitcoin
(Marr 2019).
The potential benefits of blockchain technology extend to political, humani-
tarian, scientific, and social issues of the real world. For example, its application
to the management and coordination of public data repositories and the irre-
trievability of transactions can be a fundamental step to advance and perhaps
reconfigure different aspects of humanity. In October 2019, UNICEF
announced a digital crypto fund, and the first time the United Nations became
able to accept donations in digital currencies (Forbes 2019).
This has meant that both governments and local and international investors
are imposing regulatory measures for cryptocurrencies. As of October 2019,
several countries had developed regulations for cryptocurrencies: in countries
such as Switzerland, Canada, and Mexico the use of cryptocurrencies is legal
 28 TRUST, TRANSPARENCY, AND TECHNOLOGY: BLOCKCHAIN… 563

and is a generally accepted method for payments (Viens 2019). In October

2020, that Internal Revenue Service (IRS) of the United States issued guide-
lines on cryptocurrencies which are expected to be effective from 2020 (Forbes
2019). In this way, the introduction of regulatory mechanisms into blockchain
technology and applications has become a major critical issue for developing
blockchain’s potential and establishing a global legal framework that includes
individuals, companies, and governments by 2030.
With the changes in dynamics, actors, and relations due to these types of
technologies, issues such as privacy, trust, and transparency become relevant for
people and organizations. Blockchain offers protected data storage and secu-
rity, as it enables privacy of information combined with a certain level of trans-
parency, thus generating trust.
Additionally, at the United Nations conference on climate change in 2017,
a group of experts let by Tom Baumann identified blockchain’s potential in
dealing with climate change, since it allows for greater transparency and partici-
pation of different interest groups in the search for solutions to problems asso-
ciated with climate change. The open global initiative Climate Chain Coalition
(CCC) (created in December 2017 and with more than 170 organizations
around the world in membership by January 2020) seeks to advance block-
chain technology and other digital solutions such as the internet of things and
big data to support the mobilization of climate finance and improve measure-
ment, reporting, and verification (MRV) to escalate actions for mitigation of
and adaptation to climate change. This chapter is intended to contribute to the
analysis of application of blockchain technology and its linkages with business
transparency, trust, and sustainability. Specifically, it aims to answer the ques-
tion: How does blockchain technology guarantee transparency, trust, and sus-
tainability in the context of Agenda 2030?
The rest of this chapter is structured as follows: A description of blockchain
technology is presented, followed by details of its capacity to generate trust
among parties involved, as well as its characteristic transparency. Next, sustain-
ability issues related to its implementation are discussed, and finally, some con-
clusions are presented to provide some insights from business practitioners and
scholars.

Context and Background

Blockchain: The Technology

The paper by Satoshi Nakamoto (2008), “Bitcoin: a peer-to-peer electronic
cash system,” popularized the applicability of blockchain for the development
of a cryptocurrency. Interest from academics, governments, investors, and
users has subsequently grown exponentially. A Google Scholar search on block-
chain in April 2020 resulted in more than 216,000 hits, while the same search
in May 2019 revealed 55,300 publications of studies on the technology in the
preceding decade.
564 A. M. GOMEZ-TRUJILLO ET AL.

The blockchain or chain of blocks consists of a ledger or ledgers where all

operations are recorded, control over which is dispersed among different com-
puters in a network, each of them with a copy of the chain, thus eliminating the
need for confidence in just one administrator. This technology, which uses self-­
monitored and self-controlled algorithms, has the power to reject malicious
attempts to manipulate the system.
In the first instance, blockchain was seen as a threat to traditional models of
financial transactions; however, this conception has changed, since the world’s
biggest banks are now carrying out research and investing heavily in this inno-
vative technology, as it is perceived as the most secure technology for financial
and non-financial institutions.
Deloitte (2016) defined blockchain as a type of database that records trans-
actions that are copied to all the computers that participate in a network. With
blockchain technology, each transaction creates a block that is added to the
chain, registered in a linear and chronological way with the date and time, and
assigned a unique hash by the system (hash function). Blockchain effectively
blocks manipulated transaction attempts and describes them with an alphanu-
meric string resulting from data encoding using cryptography. Hence, any
attempt to falsify one of the blocks in the chain would require manipulation of
the previous blocks, all of which have been registered and assigned a unique
hash. This set-up guarantees the authentication, transparency, and efficiency of
each transaction, and maximizes the security of the mechanism by blocking
attempts to modify transactions.
Blockchain can be also defined as a distributed “database of records, or pub-
lic ledger of all transactions or digital events that have been executed and shared
among participating parties. Each transaction in the public ledger is verified by
consensus of a majority of the participants in the system” (Crosby et al. 2016:
7). In its functioning, each transaction in the chain is transmitted to every node
and it is also recorded in a public or private ledger. Each node needs to verify
the ownership and identity of a block to proceed with the recording phase
(Crosby et al. 2016).
Seebacher and Schuritz (2017) in an attempt to explore the concept and
characteristics of blockchain, conducted a systematic literature review that
allowed them to analyze a total of 31 articles and to propose a definition of the
technology, which is synthesized as:

A blockchain is a distributed database, which is shared among and agreed upon a

peer-to-peer network. It consists of a linked sequence of blocks, holding time-
stamped transactions that are secured by public-key cryptography and verified by
the network community. Once an element is appended to the blockchain, it can-
not be altered, turning a blockchain into an immutable record of past activity
(Seebacher and Schuritz 2017: 14)

Additionally, Seebacher and Schuritz (2017) expose that this new technol-
ogy has specific characteristics that can be listed as: trust, shared and public,
 28 TRUST, TRANSPARENCY, AND TECHNOLOGY: BLOCKCHAIN… 565

low friction, peer verification, cryptography, immutability, decentralization,

pseudonymity, redundancy, versatility, and automation. The most important
ones are its decentralized nature and its capacity to generate trust. These two
characteristics group the others in the following way: trust can be facilitated by
the integrity of data, the transparency of the network, and the immutable
design of the chain, which can be interpreted as the impossibility of altering the
transactions that are added to every block. On the other hand, this decentral-
ized network guarantees privacy or pseudonymity of participants, as well as
reliability of information and its versatility.
Hence, combined with artificial intelligence (AI), blockchain can affect and
act upon data in different ways. This combination gives deeper and more accu-
rate data insights as blockchain can act as an access layer, whereas AI can pro-
cess the data. This reveals a need for collaboration with other technologies such
as machine learning or big data to achieve more computational power and
improve business models.
In this sense, trusted interactions and the decentralized network constitute
the core aspects of this system in any industry or application. This is translated
into security and privacy issues that are also related to business sustainability. In
this regard, blockchain technology may impact development-oriented invest-
ment through improvements in decentralized technologies that can benefit
citizens, companies, and governments.

Blockchain and Trust

In the past, the security of information, or a physical object, depended on the
capacity of someone to keep it safe. Now, this has changed (Anjum et al. 2017).
Blockchain is a system that can store information in an independent and decen-
tralized manner that goes beyond the ability of just one person or entity to
provide safety. It offers trusted and secure economic transactions (Beck
et al. 2016).
The relation between blockchain and trust has been analyzed since 2016. A
search on Web of Science in January 2020 for articles in the categories of eco-
nomics, business, business finance, and management that contain both the
terms “blockchain” and “trust” resulted in a total of 48 articles (See Table 28.1).
Hence, in terms of personal data, blockchain can be used to storage or to
share information in a trust-free way. This was demonstrated by Zyskind,
Nathan, and Pentland (2015) in their study of a decentralized personal data
management system that did not require trust in a third party.
From a network perspective, blockchain is seen as a community without
hierarchy as it is run by a group of people with a common belief in a transpar-
ent and trustworthy system in which the greater the number of participants,
the greater the level of trust and security among them. They can interact
directly without the intervention of a third party and with a null probability of
data modification (Blockchain Council 2018).
566 A. M. GOMEZ-TRUJILLO ET AL.

Table 28.1 Blockchain and trust

Year Title of article Source

2016 Fraud detections for online businesses: a perspective Financial Innovation

from blockchain technology
2016 Trustless computing-the what not the how Banking Beyond Banks and
Money: A Guide to Banking
Services in the Twenty-First
Century
2017 Smart contract relations in e-commerce: Legal Technology Innovation
implications of exchanges conducted on the Management Review
Blockchain
2017 Hitching healthcare to the chain: An introduction to Technology Innovation
Blockchain Technology in the Healthcare Sector Management Review
2017 A Blockchain ecosystem for digital identity: Improving Technology Innovation
service delivery in Canada’s public and private sectors Management Review
2017 The future of money and further applications of the Strategic Change – Briefings In
blockchain Entrepreneurial Finance
2017 Blockchain and the (re)imagining of trusts Strategic Change – Briefings In
jurisprudence Entrepreneurial Finance
2017 Blockchain and sensor-based reputation enforcement Reshoring of Manufacturing:
for the support of the reshoring of business activities Drivers, Opportunities, and
Challenges
2018 Cryptocurrencies and business ethics Journal of Business Ethics
2018 Blockchain and the potential of new business models: Revista de Gestao e Projetos
A systematic mapping
2018 Blockchain technology for providing an architecture International Journal of
model of decentralized personal health information Engineering Business
Management
2018 Political economy of distributed capitalism (on the Voprosy Ekonomiki
book by D. Tapscott and A. Tapscott, Blockchain
revolution. How the technology behind bitcoin is
changing money, business, and the world)
2018 Unpacking blockchain trust Blockchain and the New
Architecture of Trust
2018 Blockchain as/and law Blockchain and the New
Architecture of Trust
2018 Trust in a viable real estate economy with disruption Facilities
and blockchain
2018 Blockchain: What it is, what it does, and why you Federal Reserve Bank Of St Louis
probably Don’t need one Review
2018 The impact of financial technology on the Financial and Credit Activity –
transformation of the financial system problems of Theory and Practice
2018 A TISM modeling of critical success factors of Journal of Advances in
blockchain-based cloud services Management Research
2018 Questioning centralized organizations in a time of Journal of Management Inquiry
distributed trust
2018 Case study of Lykke exchange: Architecture and Journal of Risk Finance
outlook
2018 Business model innovation and value-creation: The Journal of Service Management
triadic way

(continued)
 28 TRUST, TRANSPARENCY, AND TECHNOLOGY: BLOCKCHAIN… 567

Table 28.1 (continued)

Year Title of article Source

2019 Blockchain in the IS research discipline: a discussion Electronic Markets

of terminology and concepts
2019 Effect of blockchain technology adoption on supply Management Research Review
chain adaptability, agility, alignment and performance
2019 Buyers of ‘lemons’: How can a blockchain platform Electronic Markets
address buyers’ needs in the market for ‘lemons’?
2019 Blockchain startups and prospectus regulation European Business Organization
Law Review
2019 A decentralized token economy: How blockchain and Business Horizons
cryptocurrency can revolutionize business
2019 Triple-entry accounting with blockchain: How far Accounting and Finance
have we come?
2019 Blockchain and supply chain relations: A transaction Journal of Purchasing And
cost theory perspective Supply Chain Management
2019 Towards a taxonomy of E-commerce: Characterizing Technology Innovation
content creator-based business models Management Review
2019 Blockchain technology in commercial real estate Journal of Property Investment
transactions and Finance
2019 Applying Blockchain to the Australian carbon market Economic Papers
2019 Key success factors of Blockchain platform for Journal of Asian Finance
micro-enterprises Economics and Business
2019 A fair contract signing protocol with blockchain Electronic Commerce Research
support and Applications
2019 Information asymmetry in initial coin offerings Electronic Commerce Research
(ICOs): Investigating the effects of multiple channel and Applications
signals
2019 Blockchain technology: Implications for operations Supply Chain Management –An
and supply chain management International Journal
2019 Proof-of-work blockchains and settlement finality: a Journal of Financial Market
functional interpretation Infrastructures
2019 Accounting and auditing at the time of Blockchain Australian Accounting Review
technology: A research agenda
2019 It’s real, trust me! Establishing supply chain Business Horizons
provenance using blockchain
2019 Theory and reality of cryptocurrency governance Journal of Economic Issues
2019 Toward a distributed carbon ledger for carbon Journal of Emerging Technologies
emissions trading and accounting for corporate carbon in Accounting
management
2019 Agri-food supply chain traceability for fruit and CIRIEC – Espana Revista de
vegetable cooperatives using Blockchain technology Economía Pública Social y
Cooperativa
2019 Benefit and risk perceived as determinants of the use Contabilidad y Negocios
of cryptocurrencies in modeling of structural
equations
2019 Blockchains, real-time accounting, and the future of Ledger
credit risk modeling
2019 Energy-efficient mining on a quantum-enabled Ledger
Blockchain using light

(continued)
568 A. M. GOMEZ-TRUJILLO ET AL.

Table 28.1 (continued)

Year Title of article Source

2019 Blockchain technology and complex flow systems as Revista Brasileira de Inovacao
opportunities for water governance innovation
2019 Cryptocurrencies and Blockchain: Opportunities and International Journal of
limits of a new monetary regime Political Economy
2019 Trust, reputation and ambiguous freedoms: Financial Journal of Cultural Economy
institutions and subversive libertarians navigating
blockchain, markets, and regulation
2019 The blockchain as a backbone of GDPR-compliant Quality – Access to Success
frameworks

Source: Authors’ creation

The implications of this technology are also seen in the inter-organizational

relations of companies from different industries who need to create reliable and
trustworthy relations, as well as to guarantee security and corruption-free sys-
tems (Beck et al. 2017). This is especially important for banks or financial ser-
vices companies, health care, logistics, and entertainment industries, in which
blockchain appears as a fundamental and helpful tool.
As Casey and Vigna (2018) state, the importance of blockchain lies in its
decentralized character in which information is not managed by a single cen-
tralized institution, but by multiple participants of the network. Moreover, as
the information is grouped into blocks that are chained together, the truth
cannot be changed. Here, any change requires a consensus of the total chain,
making this technology an incorruptible one.
In this regard, Hawlitscheka, Notheisena, and Teubner (2018) explain the
potential of blockchain technology for solving issues of trust in the sharing
economy. The authors suggest that “the promise of the blockchain as a trust-­
free technology points at the replacement of trusted third parties such as plat-
form intermediaries” (p. 59). In this sense, blockchain can be seen as a system
that can revolutionize interactions and relations between peers who need a
high degree of control and trust. It can also safeguard the cybersecurity of
companies and help them overcome the infrastructure obstacles of the context.
As an example of this, Ying, Jia, and Du (2018) conducted a study on
Hainan Airlines (HNA), a Chinese conglomerate that implemented blockchain
technology in its e-commerce platform. The study showed that blockchain can
be used to protect sensitive information, to eliminate intermediaries and enable
organizations to create their own cryptocurrencies. Here “trust is not estab-
lished by a central authority but rather, a crowd of nodes on the blockchain
network. This approach is more reliable because it is not subject to a single
point of failure” (p. 3).
In this way, blockchain technology is credited with the potential to make
truly disruptive changes, since the way in which its decentralized and trusted
systems and processes have application for individuals, companies,
 28 TRUST, TRANSPARENCY, AND TECHNOLOGY: BLOCKCHAIN… 569

organizations, governments, and the economy. Likewise, according to Jem

Bendell, professor of leadership in sustainability and founder of the Institute
for Leadership and Sustainability (IFLAS) of the University of Cumbria, in
England, although public opinion and the media have had fluctuating posi-
tions in favor and against blockchain, it is important to take into account the
intentions and contexts in which this technology is used. Professor Bendell,
who spoke at UNCTAD’s World Investment Forum (WIF) on October 24,
2018, in Geneva, argues that advances or novel technological proposals will
always cause intrigue and concern, and it cannot be affirmed with certainty if
any technology is good or bad for humanity. However, in trying to answer a
question about what the positive results are and how they can be maximized,
Bendell proposed “With blockchain technology, basically data cannot be
hacked.” Although there are not many examples, and the technology not yet
having the critical mass necessary to be adopted globally or in day-to-day activ-
ities, there is evidence of tits contribution to poverty reduction. Some examples
are smart contracts, the Stellar platform in Africa, and currencies that have
been created to facilitate agricultural transactions.
For Bendell (2018), blockchain has the potential to underpin the transfor-
mation of the current economic system based on debts and loans, and to trans-
form it quickly to avoid speculators, through collective leadership that can be
scaled to meet the needs of our time. In the same vein, Werbach (2018), argues
that the potential of blockchain can be totally exploited only with the help of
effective governance; if this does not happen, blockchain cannot guarantee
trust at all. The question here is about the need for regulation but also for the
potential of this system to regulate and be regulated. This leads to a call for
more integration of blockchain’s developers and the legal entities that are will-
ing to implement it.
Moreover, in order to construct trust in this technology, it is necessary to
convince users of its potential. The fear of fraud is present in the minds of con-
sumers and sensitive industries such as finance and health care are still unsure
of blockchain’s ability to guarantee privacy and avoid fraud. The vulnerability
of information can make people and companies unwilling to share their pre-
cious money and information online. But the force of blockchain’s decentral-
ized custody, execution, and settlement can persuade users to accept its security
and give it their trust. Another way to build trust in this technology is to
actively seek out and examine those with malign aims, such as hackers, and
develop ways to be protected online (Zelbst et al. 2019).

Blockchain and Transparency

Satoshi Nakamoto (2008) introduced bitcoin cryptocurrency as a blockchain
technology application; however, the vast majority of people began to hear
about blockchain because of the bitcoin boom. In fact, in an HSBC bank sur-
vey in 2017, 59% of people said they had never heard of blockchain, and those
who recognized this technology nearly all associated it negatively with bitcoin.
570 A. M. GOMEZ-TRUJILLO ET AL.

This explains the aversion of many people towards blockchain. However, its
characteristic of decentralization allows parties to make transactions without
intermediaries. Such transactions are more transparent than those that are
made with intermediaries or centralized systems (Francisco and Swanson 2018).
The relation between blockchain and transparency has been analyzed by
many authors since 2016. A search on Web of Science in January 2020 for
articles within the categories of economics, business, business finance, and
management that contain both the terms “blockchain” and “transparency”
resulted in a total of 23 articles (see Table 28.2).

Table 28.2 Blockchain and transparency

Year Title Source

2017 The networked record industry: How Strategic Change – Briefing in

blockchain technology could transform the Entrepreneurial Finance
record industry
2018 What problems will you solve with Blockchain? MIT Sloan Management Review
2018 Competency-based management in a system of Contemporary Issues in Business And
sustainable development of banks, financial and Financial Management in Eastern
technology companies Europe
2018 Trust in a viable real estate economy with Facilities
disruption and blockchain
2018 Case study of Lykke exchange: Architecture and Journal of Risk Finance
outlook
2019 Overcoming economic stagnation in low-­ Journal of Risk Finance
income communities with programmable
money
2019 A decentralized token economy: How Business Horizons
blockchain and cryptocurrency can
revolutionize business
2019 Study of factors influencing the decision to Property Management
adopt the blockchain technology in real estate
transactions in Kosovo
2019 Triple-entry accounting with blockchain: How Accounting and Finance
far have we come?
2019 Blockchain technology in commercial real estate Journal of Property Investment &
transactions Finance
2019 Blockchain-based platforms: Decentralized Technological Forecasting and Social
infrastructures and its boundary conditions Change
2019 Key success factors of Blockchain platform for Journal of Asian Finance Economics
micro-enterprises and Business
2019 Supply chain re-engineering using blockchain Technological Forecasting and Social
technology: A case of smart contract based Change
tracking process
2019 Accounting and auditing at the time of Australian Accounting Review
Blockchain technology: A research agenda
2019 Blockchain disruption and smart contracts Review of Financial Studies
2019 Reengineering the audit with Blockchain and Journal of Emerging Technologies In
smart contracts Accounting

(continued)
 28 TRUST, TRANSPARENCY, AND TECHNOLOGY: BLOCKCHAIN… 571

Table 28.2 (continued)

Year Title Source

2019 A primer for information technology general Current Issues in Auditing

control considerations on a private and
permissioned Blockchain audit
2019 The supply chain value of POD and PGI food Quality – Access To Success
products through the application of Blockchain
2019 Blockchain and smart contracting for the European Business Organization Law
shareholder community Review
2019 The end of “corporate’ governance: Hello European Business Organization Law
“platform’ governance Review
2019 Embedding distributed systems into Social Issues in Contemporary Society:
organizations. How Blockchain reinforces Relations Between Companies, Public
transparency and accountability in PA’s new Administrations, and People
governance models
2019 Blockchain technology and complex flow Revista Brasileira de Inovacao
systems as opportunities for water governance
innovation
2019 Blockchain and business ethics Business Ethics – A European Review

Source: Authors’ creation

In this vein, Changpeng “CZ” Zhao, CEO of Binance, the blockchain foun-
dation, explains that given that transparency is the biggest advantage of block-
chain, it offers the possibility of having an immutable public record of
transactions and tracking them from the source to the final destination.
Additionally, Nowinski and Kozma (2017) argue that blockchain technology
creates value to companies in different ways; first via transaction authentication
mechanisms; second, by reducing costs, since it eliminates intermediaries that
were necessary for operations and transactions; third, improving operational
efficiency, so decreasing waiting time. These synthesize the attraction of block-
chain with its four elements: simplicity of technology, decentralization, coordi-
nation, and transparency of transactions.
Supporting this, Vanessa Grellet, the director of ConsenSys, an organization
that develops blockchain technology solutions, identifies the following as pri-
orities for the use of blockchain: Transparency in the supply chain; transparency
in financing; support for human rights activism; follow-up on the impact of
philanthropic donations; actions in favor of the environment and climate; trade
without intermediaries; energy exchanges without intermediaries; carbon mar-
kets; and financial inclusion proposals. Similarly, for Galia Benartzi, co-founder
of the cryptocurrency converter company Bancor, the biggest potential of
blockchain is its transparency and impossibility of being manipulated, since
anyone can see the transactions and oppose them, but nobody can manipulate
them. On the other hand, Louis De Bruin, leader of Blockchain in IBM Digital
Operations, stated that the biggest virtue of blockchain is its efficiency, since
everything carried out under this technology is describable by the phrase “all
transactions visible to everyone.”
572 A. M. GOMEZ-TRUJILLO ET AL.

The transparency characteristic of blockchain is an asset to any type of indus-

try. For example, in the logistics industry, it facilitates the traceability of a prod-
uct through all the phases of a supply chain, at the same time avoiding negative
practices within it: blockchain is a traceability and transparency guarantor. In
this regard, Jeppsson and Olsson (2017) analyze the applicability of blockchain
from the loading of products in a supplier’s facilities until its final destination.
The authors argue that this ledger allows all parties involved in the process to
check the history of the product and to locate it wherever it may be. Additionally,
they assert that blockchain creates transparency in the whole chain and within
all participants, increases credibility, and contributes to the sustainability of the
industry. However, effective use depends on cooperation between parties,
motivation for its implementation, and system integration (Jeppsson and
Olsson 2017).
In another area, Benchoufi and Ravaud (2017) analyze blockchain’s appli-
cability to the health industry, and more specifically to clinical trials. They
found that blockchain offers a high degree of control and autonomy of data
that enables it to provide historicity and inviolability. Moreover, traceability
allows the creation of Smart Contracts with all the patients or stakeholders of
the clinical trial. Smart Contracts enable the creation of a trusted relationship
without the intervention of third parties, a feature that is lacking in present-day
systems.
From a political perspective, blockchain has the potential to guarantee trans-
parent and democratic elections; its great appeal here reflects the low credibility
and confidence in the current electronic systems of voting. Here, Moura and
Gomes (2017) analyze the possibility of incorporating blockchain into a digital
government repertoire that will impact voter’s confidence, election scrutiny,
and transparency that will be reflected in improvement of societal problems,
specifically of voting issues.
Likewise, the food industry can also benefit from the implementation of
blockchain in the way that it can contribute to food safety and traceability, as
well as waste- and cost-reduction that optimizes the supply chain. Additionally,
its benefits go beyond the mere traceability of food as it allows participants to
acquaint themselves with the sustainable or unsustainable ways in which food
was grown (Yiannas 2017).
The applications mentioned above reveal the strength of decentralized sys-
tems due to their capability of data protection and confidentiality. Nevertheless,
their privacy benefits and advantages can also represent risks for end-users. This
statement is supported by De Filippi (2016) with the argument that privacy is
hampered when everyone has access to all the history of a set of transactions.
In practice, however, there is not a conflict between privacy and transparency
as people can identify ways to preserve individual privacy in these networks.
Likewise, Akram and Bross (2018), analyzing the privacy and transparency
issues of blockchain, argue for a difference in public and private blockchains. In
a public blockchain there are no restrictions regarding participants and all the
transactions are identified and validated publicly. On the other hand, a private
 28 TRUST, TRANSPARENCY, AND TECHNOLOGY: BLOCKCHAIN… 573

blockchain involves the monitoring of permissions, which makes it less decen-

tralized than public blockchains. Consequently, a private blockchain has more
transparency as users are known and not anonymous. In this way, the degrees
of privacy and transparency depend on the kind of blockchain being used.
Other relevant issues here are social and ethical considerations, as block-
chain is changing the nature of cultures and organizations. Its transparency
characteristic should also be reflected in its capacity to affect the consequences
and risks of the system that impact the whole network.

Blockchain and Business Sustainability

Blockchain has the potential to generate societal, economic, and environmen-
tal impacts that can represent new challenges and opportunities for the digital
transformation.
In this regard, the relation between blockchain and sustainability has been
analyzed by many authors since 2018. A search on Web of Science in January
2020 of articles within the categories of economics, business, business finance,
and management that contain both the terms “blockchain” and “sustainabil-
ity” resulted in a total of only six articles (See Table 28.3).
As noted by Kewell, Adams, and Parry (2017), blockchain can be used to
achieve and fulfill the sustainable development goals of the United Nations,
which means it could be applied for public good. From the consumer’s per-
spective, this technology can enhance sustainability as it provides verified infor-
mation such as the origin of products in a secure and accessible platform
(Nikolakis et al. 2018).
Similarly, Beck, Avital, Rossi, and Thatcher (2017) argue that this distrib-
uted ledger technology or “record of digital events” can become an enabler of
social and economic transactions that will result in positive implications for
organizations and societies as well as in the facilitation of value creation. Here,

Table 28.3 Blockchain and sustainability

Year Title Source

2018 Business model innovation and value-creation: The Journal of Service Management
triadic way
2019 Blockchain applications and business sustainability Amfiteatru Economic
2019 Blockchain technology: Implications for operations and Supply Chain Management –
supply chain management An International Journal
2019 Defining supply chain management: In the past, Journal of Business Logistics
present, and future
2019 Biomass Blockchain as a factor of energetical Entrepreneurship and
sustainability development Sustainability Issues
2019 A conceptual model of sustainable supply chain Cogent Economics and Finance
management in small and medium enterprises using
blockchain technology

Source: Authors’ creation

574 A. M. GOMEZ-TRUJILLO ET AL.

Blockchain for Good (B4G) can deliver social, economic, and environmental
positive outcomes that go beyond the simple benefits of cryptocurrencies
(Adams et al. 2017).
Moreover, for the specific case of the bank industry, this disruptive technol-
ogy can boost sustainable development, as it contributes for the optimization
of the financial infrastructure and the use of more efficient systems; addition-
ally, blockchain can support economic growth and green technologies’ imple-
mentation (Cocco et al. 2017). Blockchain can also be analyzed from the
perspective of the supply chain, exploring its potential in logistics, as was the
case of the study conducted by Saberi et al. (2018), in which it appears as a tool
to overcome supply chain management problems or barriers which can be cat-
egorized as inter-organizational, external, technical, or intra-organizational;
this, in the end, will result in the accomplishment of acceptance of stakehold-
ers’ demands for sustainability and contributions for development as well as in
a trust enhancement of different actors and avoidance of corruption.
Other arguments put forward the point that the large number of new start-
ups dedicated to blockchain means that the supply of talent is not enough to
meet the growing demand for blockchain developers. According to Yoav
Vilner, blockchain expert and columnist at Forbes, IBM and Mastercard have
submitted more than 80 patents each for blockchain-related technology, and
both companies are struggling to find enough talent to develop their initiatives
(Vilner, 2018).
It must be conceded that blockchain can represent a threat to climate stabil-
ity and the environment as it is a resource-intensive technology that can increase
greenhouse gas emissions. Applications of blockchain technology such as bit-
coin require vast amounts of electricity, and this implies significant level of
carbon emissions (Stoll et al. 2019). As a matter of fact, Mora et al. (2018:
931) found that that “projected Bitcoin usage, should it follow the rate of
adoption of other broadly adopted technologies, could alone produce enough
CO2 emissions to push warming above 2 °C within less than three decades.”
Louis De Bruin from IBM noted that “blockchain energy consumption is not
sustainable.” The Cambridge Bitcoin Electricity Consumption Index (CBECI)
(2020) estimates that by January 2020, bitcoin was using 86.74 TWh per year,
more than the total annual electricity consumption of countries such as Finland,
Belgium, Switzerland, Philippines, Austria Chile, or Colombia.
Blockchain’s negative consequences can be reduced by the effective imple-
mentation of fiscal policies targeted at mitigating energy consumption (Truby
2018). This assumption can be interpreted in the light of the necessity for
effective governance and a legal framework that will allow the achievement of
meaningful goals and the development of blockchain as a tool that can be used
for the reduction of waste and environmental damage for the benefit of busi-
nesses and people around the world (Sulkowski 2019). Moreover, blockchain
can address different environmental challenges through three mechanisms
related to resource rights, behavioral incentives, and product origins that reflect
the underlying challenges of environmental management and sustainable
 28 TRUST, TRANSPARENCY, AND TECHNOLOGY: BLOCKCHAIN… 575

development (Le Seve et al. 2018). On the social side, blockchain can ensure
human rights and fair labor, as well as consumer confidence in transparent
products.
Just as in blockchain technologies, decentralization in business sustainability
requires a higher level of commitment of people as they are involved in the
whole process and they are aware of the possible consequences of their acts.
This can mean also higher motivation for more efficient use of natural, human,
and financial resources.
The massive adoption and full development of the blockchain’s potential
will depend, according to Fredrik Voss, Nasdaq’s vice president of Blockchain
Innovation, of having a complete ecosystem. In the view of the OECD policy
forum on blockchain, in order to reach its potential, it is necessary to guarantee
the integrity of the processes and the creation of adequate policies and mea-
sures, and also to face the possible risks of its misuse. For this, governments and
the international community will have to play a significant role in the creation
of policies and the regulatory environment of the blockchain bases that are
aligned with the challenges to promote transparent, fair and stable markets, as
is already under way in countries such as the United States, where 28 states
introduced blockchain legislation in 2019 (Morton 2019).
In this way, trust and transparency, major benefits of this technology, can be
developed and provided to the business community, as no other technology
has been able to do before. This immutability of information makes it even
more trustworthy as every action follows a dictated protocol without the need
for any intermediation by a third party. Consequently, this will be translated
into major business sustainability that will help to correct redundancies, con-
tract violations, and bottlenecks in the flow of goods.

Conclusions
The 2019 Digital Economy Report of the UNCTAD (United Nations
Conference on Trade and Development) highlights the role of digital transfor-
mation in the achievement of the Sustainable Development Goals and Agenda
2030, with a focus on developing economies, while at the same time, it urges
international cooperation as a tool to reach the sustainability potential of digi-
tal technologies.
In this sense, different trends in digital economies can be identified (block-
chain technologies, three-dimensional printing, internet of things, 5G mobile
broadband, cloud computing, automation and robotics, artificial intelligence,
and data analytics).
In regard to blockchain technologies, they are referred to as “a form of dis-
tributed ledger technologies that allow multiple parties to engage in secure,
trusted transactions without any intermediary. It is best known as the technol-
ogy behind cryptocurrencies” (UNCTAD 2019: 6). What is important here is
that by 2017, China accounted for almost 50% of patents relating to this type
576 A. M. GOMEZ-TRUJILLO ET AL.

of technology; the United States accounted for another 25% (Chamber of

Digital Commerce 2018).
This represents a call for cities and companies to adopt digitalization as a
tool to create trusted and sustainable relations (Kunndu 2019). Blockchain
Technologies as Distributed Ledger Technology (DLT), provides security,
traceability and transparency for managerial and control issues (Saberi et al.
2018). Windolph, Harms, and Schaltegger (2014), exposed the scandal of
multinational companies publishing different sustainability reports nationally
and internationally in order to achieve legitimacy, success, and internal improve-
ment. The reporting of sustainability practices is used as a tool to head off cri-
tiques of their social and environmental commitments that can affect their
trade and production worldwide (Kolk 2003).
Additionally, the advantages of the digital transformation are remarkable for
companies in terms of efficiency, flexibility, and sustainability (Savastano et al.
2018), for that reason, we require detailed analyses of the strategies needed to
take advantages of their benefits and to overcome obstacles in the implementa-
tion process. This can also be analyzed for the implementation of sustainability
practices as there is a need to measure the impact of those strategies, due to the
fact that companies can implement them in order to diminish liability of origin
(Park 2018).
There is a need to better understand blockchain technology, its applications
and implications; for this it is necessary to exclude preconceived concepts about
cryptocurrencies. According to James Zhan (2018), director of the Investment
Division of the United Nations Conference on Trade and Development
(UNCTAD), there are great gaps in terms of the scope and implications of
blockchain that must be filled before the issuing of recommendations to those
responsible for public policies, mainly in developing countries.
In terms of non-financial applications, opportunities for blockchain are
increasing. This technology promises to become the engine of digital growth
as it can be extended to any industry and geography in the world. Specifically,
Crosby et al. (2016) identify the opportunities for the introduction of block-
chain into the notary public, music, insurance, medical, and legal professions
and industries, arguing that it can eliminate the need for a centralized authority
that controls information.
In this sense, it is possible to argue that the role of digital transformation
and its related technologies such as blockchain in implementing Agenda 2030
is gaining relevance, as it becomes a key tool guiding different interests and
actors towards common goals in a quantifiable and reliable manner (Denny
et al. 2017). However, it is important to highlight the need for a framework
that integrates individuals, companies, and governments in a process of
improvement of monitoring mechanisms that will guarantee the accomplish-
ment of Agenda 2030’s goals.
Like the achievement of the aims of Agenda 2030, and a global sustainable
business environment, the wide adoption of the foundational technology of
blockchain is a continuous process rather than a single endpoint. To reiterate,
 28 TRUST, TRANSPARENCY, AND TECHNOLOGY: BLOCKCHAIN… 577

“It will take years to transform business, but the journey begins now” (Iansiti
and Lakhani 2017: 1).
In spite of this, it also critical to understand that blockchain’s environmental
negative externalities need to be tackled by algorithm engineers, policymakers,
and citizens. Available evidence demonstrate that the electricity consumption
of this technology could have a tremendously negative impact on global tem-
perature (Mora et al. 2018; Stoll et al. 2019; Sutherland 2019). Without
addressing these environmental (and social and political associated conse-
quences), blockchain is not sustainable (Howson 2019).
Finally, blockchain should reflect the following assumption “technologies
used for digital transformation can also be leveraged to enhance trust—when
they’re used to enhance transparency, reinforce ethical practices, boost data
privacy, and harden security” (Albinson et al. 2019).

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 CHAPTER 29

The Rise of Unicorn Companies: A Magical

Growth?

Cyntia Vilasboas Calixto Casnici

Introduction
Unicorn firms (Lee 2013) are startups valued at US$1 billion or more and have
become a status symbol rather than a key business goal. The total number of
unicorn companies around the globe is unknown since there are different
sources and methodologies that jointly account for more than 400 firms in
2019 (CB Insights 2019), and newspapers update the list frequently with a
“newbie” in the club.
Advances in information technology enable an increasing number of firms
to operate overseas shortly after their foundation (Knight and Cavusgil 2004).
Unicorns have created a different business model than traditional firms since
they are technological and asset-light firms. They are breaking the logic of
competition worldwide, demonstrating that the regulatory landscape needs to
be reshaped to deal with the new modes of organizing economic activities
(Cohen and Kietzmann 2014).
It’s important to note that a small group of investors is actively capitalizing
several, even competing, firms. Investors such as Tiger Global Management,
Tecent Holdings, and Sequoia Capital have financed approximately 40 differ-
ent unicorns each in recent years (CB Insights 2019). Venture capital organiza-
tions injected money to make the expansion possible, but it seems that not all
of these companies have had time to developed organizational capabilities to
expand worldwide.

C. V. C. Casnici (*)
Fundação Getulio Vargas (FGV-EAESP), São Paulo, Brazil
e-mail: [email protected]

© The Author(s) 2021 581

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_29
582 C. V. C. CASNICI

Investors are looking forward to a value-creation opportunity and cash-out.

Therefore, they pressure the unicorns to go public (often an Initial Public
Offer – IPO) in order to have better governance and transparency (The
Economist 2019). However, they will need to face different pressures from
investors and regulators and some of them might not be prepared for those
challenges. Therefore, it is reasonable to ask “Are unicorns’ success a magical
or a sustainable growth?” and “What are the internal and external factors that
might influence their exponential growth?”
This chapter seeks to evaluate the exponential growth of four unicorn com-
panies in the last decade and analyze the challenges and opportunities facing
those companies in sustaining their growth. Therefore, it can show some
potential technological and managerial trends for Business 2025, a digital era.
The chapter is structured as follows: after this introduction, Section 2 dis-
cusses the theoretical background that anchored the study. Then, the research
design presents criteria for case selection as well as the sources of data. Next,
the findings illustrate the main information about each selected company and
compares their path, opportunities, and challenges. Final considerations and
managerial contributions close the chapter.

Theoretical Background

Exponential Growth: a Dynamic Capability Analysis

In unstable business contexts, according to Teece et al. (1997), challenges
become even more crucial and require reconfigurations of resources and capa-
bilities to be executed rapidly and efficiently. The dynamism necessary to con-
figure resources, supported by innovation (Teece et al. 1997) and strategic
conversions, becomes apparent when faced with situations that need not mere
problem-solving, but changes to the way that problems are solved (Zahra
et al. 2006).
Dynamic capabilities can be measured based along three dimensions: pro-
cesses, positions, and path. For Teece et al. (1997), processes refer to doing
things such as routines and standards in progress in the firm, as well as the
learning what arises from these activities; positions are related to existing tech-
nological resources, intellectual property, client base and inter-organizational
relations with suppliers and companies; path is understood as being the strate-
gic alternatives a company has at its disposal, the presence, or not, of advanta-
geous returns, and tendencies to depend on its path, which for its part can be
undergoing evolutionary changes (Teece et al. 1997).
The development of an organization’s path can be modified and, according
to Mahoney (2000), this may occur without any theoretical explanation of the
change. Managers face several challenges along its trajectory. A passive perspec-
tive on each situation could point out some specific answers to regular issues.
Or managers could go through unfamiliar alternatives, which would change
the organization’s path. Therefore, assuming proactivity, after a contrafactual
 29 THE RISE OF UNICORN COMPANIES: A MAGICAL GROWTH? 583

analysis, change is incorporated and comes to determine new directions, gen-

erating new resources for the organization (Kor and Mahoney 2005).
The business model can influence the firm’s dynamic capabilities based on
the impact on the organization’s design. A firm’s dynamic capabilities are fun-
damental to the maintenance of profitability in the long term (Teece 2018). It
may require a business model’s adjustments and even its innovation in order to
keep a company growing. There is a correlation between growth and a firm’s
dynamic capabilities.

The Unicorns Wave

Mobile internet helped in building opportunities for new type of startups. A
fast-growing market of consumers, low cost of entry, and a large amount of
private funds (VC and equity) helped the rise of unicorn companies. In the
previous technological wave, companies needed to invest heavily in logistics
and infrastructure (Simon 2016). Now, developers are more common, every-
one has a smartphone, and consumers are familiar with apps, all factors that
facilitated the proliferation of startups.
Development of a different business model, challenging traditional indus-
tries, convinced investors that they could obtain higher returns from believing
in entrepreneurs. Since that type of firm is usually asset-light, it is easy to struc-
ture and start operating (Kenney and Zysman 2019).
In this wave, several crowd-funding websites, angels, accelerators, and
micro-venture capitalists decided to surf on it, willing to advance capital to
young, unlisted firms. Recently, sovereign wealth and private equity funds have
also joined in. One of the consequences is that startups can now run more
losses in an effort to triumph over competitors (Kenney and Zysman 2019).
When startups can stay private, they can test new ideas, pivot their business
model and build an innovative culture that anticipates change. This helps them
stay ahead of competitors and innovate continuously (Govindarajan et al. 2016).
However, many unicorns are not doing as well as expected. Common rea-
sons are unrealistic valuation, excess spending, failure to keep innovating, and
increased competition (especially if big groups like Apple, Amazon, or Google
can provide similar services) (Govindarajan et al. 2016).
A concern on unrealistic valuation is that some of those firms might never
be profitable or can easily collapse. Then, these unicorns might fade like the
Cheshire Cat from Alice in Wonderland, leaving investors with just the smile
(Kenney and Zysman 2019).

International New Ventures in the Digital Era

The first years of an organization are crucial in determining its chances for
survival. Some entrepreneurs set their sights to a longer range, taking steps into
the foreign market during their first years in business (Knight and Cavusgil
2004). Oviatt and McDougall (1994, p. 49) define International New Ventures
584 C. V. C. CASNICI

(INVs) “as business organizations that from inception, seek to derive signifi-
cant competitive advantage from the use of resources and the sale of outputs in
multiple countries.” The authors classify INVs on the basis of the number of
their coordinated activities in the value chain and the number of countries
involved. A firm with few coordinated activities abroad and reaching a few
markets is classified as Export Start Up; increasing the number of activities
moves a firm to Geographically Focused Start Up; one operating in many
countries is a Global Start Up (Oviatt and McDougall 1994). Finally,
Multinationals are firms that are present in a variety of countries and are always
seeking opportunities where the business networks are established to coordi-
nate multiple organizational activities, without geographic limit (Oviatt and
McDougall 1994).
Later, Fernhaber, McDougall, and Oviatt (2007) laid they are in more than
120 cities worldwide New Ventures were influenced by some characteristics of
their industry such as evolution, level of concentration, knowledge intensity,
global integration, and level of venture capital.
Nowadays, digitalization has blurred the boundaries of industries and
changed traditional business models, altering the way organizations create and
deliver value through digital platforms. They can create value through the
establishment and coordination of a network of users (Brouthers et al. 2016;
Teece and Linden 2017). Internationalization has led to an increase in the pos-
sibilities of digital startups scaling up globally by serving multisided markets.
The motivation to expand activities can be related to resource acquisition and
the need for different layers of architecture. In order to reach these types of
resources, digital startups need to activate a network with high technology and
content providers around the globe (Ojala et al. 2018).

Research Design and Methods

Case Selection
Case studies are usually the method chosen for exploratory International
Business (IB) research. I selected four startups in the exploratory case to
develop a theory (Yin 2003). Since unicorn companies have become a new
trend topic in the media, I decided to investigate several of them to evaluate
their growth. In selecting the companies to be studied, I chose the two most
valuable from CB Insights ranking (CB Insights 2019), and, for contrast, two
famous recent cases of failure. I used multiple sources to investigate unicorns
that no longer exist or are close to bankruptcy. The main goal was to investi-
gate variance among the cases, evaluating possible theoretical diversity
(Eisenhardt and Graebner 2007). In order to reduce external influence, the
selected companies are all from the United States, the largest home country for
unicorns. Table 29.1 summarizes the companies selected, their highest valua-
tion in the market, which will confirm the unicorn label, and the industry in
which they operate.
 29 THE RISE OF UNICORN COMPANIES: A MAGICAL GROWTH? 585

Table 29.1 Case study selection

Company Valuation in October 2019 Industry
(USD)

JUUL Labs 50B Consumer & Retail

WeWork 47B Other
Theranos 0 Healthcare
Arrivo 1B Automotive & Transportation

Source: Author’s creation

Table 29.2 Videos

Documentary/ Interview Company Producer Year

How Juul Became a $15 Billion Giant JUUL CNBC 2018

Labs
Inside The Heated Battle Over Juul: Creating Teen JUUL NBC 2018
Addicts or Saving Lives? Labs
Arrivo Loop – XD Innovation Arrivo XP Innovation 2018
The Dropout (6 episodes) Theranos ABC 2019
The Inventor: Out for Blood in Silicon Valley Theranos HBO 2019
What’s Next for Juul JUUL Business Insider 2019
Labs
How WeWork Makes Money WeWork Business Insider 2019
WeWork: Profile of a Company in Crisis WeWork Financial Times 2019
Why WeWork’s Business Model is Risky WeWork Wall Street 2019
Journal

Source: Author’s creation

Data Sourcing
This study used only secondary sources, although different types of data were
drawn on to improve reliability through triangulation (Cuervo-Cazurra et al.
2016). Newspaper articles from Forbes, Fortune, CNBC, Financial Times, The
New York Times, The Guardian, and The Economist anchored the research.
Considering the type of companies selected, information technology maga-
zines and blogs such as Wired, The Verge, and Techcrunch were a great source
of information about the firm’s investors, expansion and failure. In total, 262
articles were read about the four selected startups. In addition, I analyzed many
documentaries and online interviews about their paths, challenges, and expan-
sion. Table 29.2 shows the main videos used in this study. Most of them are
documentaries about their business model.
Thus, even though some of the analyzed firms no longer exist, the data
available were updated and relevant for this study. Interviews also helped to
understand the founders’ personal characteristics and style.
586 C. V. C. CASNICI

Findings

Magical Growth

JUUL Labs
Juul Labs manufactures electronic cigarettes (e-cigarette) for adult smokers. It
was founded in 2015 by two Stanford grad students, Adam Bowen and James
Monsees, who aimed to find an alternative to smoking. Its headquarters is in
San Francisco. Juul has three-quarters of the US e-cigarette market (CNBC
2018). In addition, the company has online stores in 20 different countries. In
December 2018, Altria Group, one of the world’s largest cigarette manufactur-
ers, acquired a 35% stake for US$12.8 billion. Currently, the e-cigarette is
manufactured in China and the pods in the United States (Juul 2019).
The company faces lawsuits and upcoming FDA regulation. Therefore, it is
investing significantly in clinical and non-clinical studies to support its exami-
nation by the FDA. Juul needs to submit the product to be reviewed by August
2022 (NBC 2018).
The company claims that their mission is: “Improve the life of the world’s
one billion adult smokers by eliminating cigarettes.” Therefore, they claim to
be only targeting adults. However, their marketing strategy was based on social
media, and used models to show a lifestyle that appealed to young adults.
There was even a verb (“Juuling”) among their customer base (NBC 2018) to
differentiate the habit from regular smoking. Lately, the company has started
to use adult smokers who have switched to Juul and can provide real-case tes-
timonials (CNBC 2019) in its website and social media campaigns. In addition,
Juul recently added nicotine warning labels to their packages (CNBC 2019) to
inform users of the consequences of vaping.
In September 2019 the CEO, Kevin Burns, resigned in the middle of the
teen vaping crisis in the United States. More than 500 people presented cases
of vape-related lung illness. Altria’s senior vice president and chief strategy and
growth officer, K.C. Crosthwaite became Juul’s new CEO.
Furthermore, President Donald Trump pushed to ban all non-tobacco-­
flavored e-cigarettes and the FDA quickly responded to his wishes by warning
Juul about breaches of the policy restricting the sale of flavored vaping (WSJ
2019b). The main issue for Juul is that the FDA prohibits the tobacco industry
from using flavors, because they make the habit attractive to children. Fruity
flavor is one of the main arguments Juul make to encourage regular smokers’
conversion to e-cigarettes (CNBC 2019).

WeWork
WeWork is a commercial real estate company, created in 2010 in New York by
Adam Newmann as an alternative working space for entrepreneurs and small
business. As at April 2020 it was one of the biggest co-working companies with
846 different locations in 123 cities across 38 countries (WeWork 2020). What
 29 THE RISE OF UNICORN COMPANIES: A MAGICAL GROWTH? 587

makes WeWork different than their competitors? They excel in branding and
aesthetic: industrial, clean, cafes, open space with bright lights (Business Insider
2019b; WSJ 2019a). The goal is to change the way people work (Financial
Times 2019), opening new locations worldwide using different membership
options that range from young entrepreneurs to blue chip companies
(WSJ 2019a).
In 2019 the company diversified and changed to launch We company, offer-
ing co-living spaces, school and gym. The company is losing a lot of money due
to its strategy of being a real estate player with technology incorporated
(Business Insider 2019b). Softbank valuated it at US$47B in January 2019, but
after releasing the information for a possible IPO, the market valued the firm
at only around US$12B. Investors are concerned about lease obligations. So
far, the company has invested ten times more than it is able to earn from mem-
bership lease signings. It is still unclear how much of its total space the com-
pany needs to fill in order to break even (WSJ 2019a). Therefore, they decided
to delay the IPO and the CEO, Adam Neumann, resigned.

Unicorn Myth or Cheshire Cat

Theranos
Theranos was founded in 2003 by Elizabeth Holmes. She was the youngest
women to figure in the Forbes list of self-made billionaires. Frequently com-
pared to Steve Jobs and Bill Gates, Elizabeth also dropped her studies to invest
in her idea of a startup for blood testing (Business Insider 2019b). Elizabeth’s
admiration for Steve Jobs was highlighted in John Carreyrou’s book, Bad
Blood: Secrets and Lies in a Silicon Valley Startup. Some lifestyle and managerial
characteristics mentioned in the book were the company dress code (black
turtleneck shirt) and the hiring of former Apple employees and suppliers
(Carreyrou 2018b).
Theranos’s machine (“Edison”) was claimed to be able to run many labora-
tory tests from a single finger-prick and few droplets of blood. Theranos would
provide clinical testing cheaper and faster to customers (Kasoff 2015). In 2004
the firm was able to raise almost US$7 million in funding. Theranos’s valuation
reached US$30 million just one year after its foundation. Three years later, the
company valuation reached US$197 million and by 2010 it was valued at US$1
billion (Tun 2019).
Theranos’s path changed in 2013 when it started to be mentioned in news-
papers, Ted talks, and public events. They achieved the public image that they
needed to persuade large numbers of customers to access their blood test
results in a painless and cheap manner. One of the main investors interested in
the firm was the pharmacy store chain Walgreens. Their partnership established
Theranos Wellness Centers inside Walgreens stores in Arizona in 2013. In
2014 Theranos was valued at US$9 billion and Elizabeth Holmes became a
multibillionaire, since she owned 50% of the company. (Tun 2019).
588 C. V. C. CASNICI

All the media attention also incited curiosity about the firm and its technol-
ogy. Theranos never explained Edison’s analytical capability in detail. In 2015,
John Carreyrou, a Pulitzer Prize-winning reporter, started to investigate the
firm and soon was able to interview former employees. He published a series of
articles in The Wall Street Journal about Elizabeth’s management incompe-
tence and questioned the firm’s technology (Kasoff 2015). Later, it was stated
by ex-employees that Edison’s quality control failed many times, which put
patients at risk by either misdiagnosing or missing results, and that Theranos
was using Siemens and other standard blood-testing equipment for the major-
ity of its tests (Kasoff 2015; Carreyrou 2018a, b; Cao 2019).
The articles contributed to the collapse of the company. Theranos settled
lawsuits with an investor and Walgreens. Elizabeth Holmes and her chief oper-
ating officer, Ramesh Balwani, were charged by the Securities and Exchange
Commission (SEC) with criminal fraud for making false claims about the effec-
tiveness of Edison’s blood testing. Theranos laid off most of its workforce and
was dissolved in September 2018 (Solon 2018; Dickson 2019).

Arrivo
Arrivo was founded by Brogan BamBrogan, former SpaceX engineer in 2016.
The idea was to develop a transportation system for autonomous cars on mag-
netic tracks. The company’s slogan was: “The End of Traffic”. Unlike other
hyperloop projects, they were proposing a high-speed magnetic levitation tech-
nology (O’Kane 2018; Szymkowski 2018; XD Innovation 2018).
In order to implement it, Arrivo planned to build a test track in Colorado in
partnership with the Colorado Department of Transportation to connect
Denver’s suburbs to the International Airport (Gordon 2019) by 2021. This
project would demonstrate full system functionality (XD Innovation 2018). In
addition, the Chinese state-owned corporation, Genertec, offered a US$1B
line of credit to build a transportation system in any project worldwide, but
which could not be used to fund Arrivo’s operations (McBride 2018;
O’Kane 2018).
At the end of 2018 Arrivo ceased to exist due to lack of funding and laid off
its 30 employees. There was no evidence that the company could prove their
transportation concept (Gordon 2019). Some employees claimed on social
media of a lack of guidance and unstable working environments. The founders
left the company months before it ceased operations, which corroborates other
observations on distant leadership (O’Kane 2018).

What Can We Learn from Those Unicorns?

Analyzing the selected companies’ capabilities, we can understand their process
were similar in the way that all of them searched for venture capitalists to
finance their idea. In some cases, the startup did not have a final product or
developed technology at the time of the first rounds of investment. The lack of
technology or viability of the business model can be highlighted in the cases of
 29 THE RISE OF UNICORN COMPANIES: A MAGICAL GROWTH? 589

Theranos and Arrivo, but WeWork is still under evaluation as it is still trying to
prove that it can be profitable for investors before launching its IPO.
In the case of WeWork, the required dynamism of reconfiguring the firm
promoted diversification a strategic conversion to try to solve co-working’s
vacancy problems (Zahra et al. 2006). The proactive changes determined new
directions, generating new resources for the organization path (Kor and
Mahoney 2005), but the market is still evaluating the changes and investors are
assessing the profitability of the new segments. Arrivo, on the other hand, did
not have time or financial resources to solve its problems. The company col-
lapsed before testing its business model in Denver; it could not advance through
the prototype phase.
JUUL and Theranos needed institutional approval to operate. Since legisla-
tion is outdated for tech companies, both companies could find ways to post-
pone sending documents and information to be evaluated by authorities.
Authorities can alter organization’s path in several ways (Teece et al. 1997; Kor
and Mahoney 2005); Theranos was closed by the FDA, but Juul needs to have
a stronger relationship with them in order to keep selling flavored pods.
Regarding their position, JUUL is the market leader for e-cigarettes,
WeWork is one of the main players worldwide for co-working space, but after
having its valuation questioned by the market is “in crisis,” requiring restruc-
turing of its business model to remain attractive to investors. It is now under
severe pressure to prove the robustness of its business model before the hoped-­
for IPO. Finally, Theranos and Arrivo are finished, out of the market due to
financial crisis.
It is important to note that WeWork and JUUL developed international
coverage a few years after their foundation, as seen in Table 29.3. In the case of
JUUL, the firm is already selling in 20 different countries and part of its manu-
facturing is allocated to China, outsourcing the less strategic part of the
e-­cigarette. According to the proposed classification of Oviatt and McDougall
(1994), JUUL would be categorized as an Export Start Up. They have some
commercial offices abroad, but most of the value chain still lies in the home
country, because the pods are the main value-added part of production. Even
with institutional constraints, JUUL is expanding consistently and Altria’s
investment (it is the owner of the all-powerful Marlboro brand) will probably

Table 29.3 Internationalization and current status

Company Founded Internationalization Current Status INV

JUUL Labs 2015 2018 Market leader Export Start Up

WeWork 2010 2015 “In Crisis” Global Start Up
Theranos 2003 x Closed x
Arrivo 2016 x Closed x

Source: Author’s creation

590 C. V. C. CASNICI

speed this internationalization process thanks to all its acquired knowledge of

the market for regular cigarettes.
WeWork has already acquired or built offices in 38 countries. Due to the fact
that the company relies on physical assets, it would be classified as a Global
Start Up. Marketing and sales could be concentrated in regional offices, since
they are in more than 120 cities worldwide (Oviatt and McDougall 1994).
Because they are establishing contracts with large firms in different locations to
reduce their vacancy rate, customers might require a more local interaction too.
With regard to internationalization, the digital startups increased their
chances of scaling up globally by serving multisided markets. The motivation
to expand their activities can be related to resource acquisition and the need for
different layers of architecture. In order to reach these types of resources, digi-
tal startups need to activate a network with high-technology and content pro-
viders around the globe (Ojala et al. 2018).

Conclusions
It is important to note that the selected companies rely on a product or physical
assets to operate. In the case of Juul it is the e-cigarette itself, for WeWork,
Theranos and Arrivo would be the infrastructure to provide their services or
show their embedded technology such as co-working spaces, blood-testing
machines and magnetic tracks. Therefore, it is not possible to generalize the
findings of this study to all unicorn companies, since many of them are operat-
ing as digital platforms – for instance Didi Chuxing, Epic, and Airbnb. Then,
their business model would be more related to the coordination of a network
of users (Brouthers et al. 2016; Teece and Linden 2017).
Unicorns are increasing in number due to the amount of private investment
available; a magical growth is possible because venture capitalists worldwide are
willing to surf on that wave. However, they will only able to sustain this expo-
nential growth if the startup develops strong dynamic capabilities and keep
innovating consistently. Otherwise, they will become the Cheshire Cat (Kenney
and Zysman 2019) and perish.
No one applied the Silicon Valley expression “Fake it until you make it” bet-
ter than Theranos. The scandal precipitated huge concern over the ethical
behavior of local entrepreneurs. This case specifically will be relevant for busi-
ness managers and entrepreneurs to reflect on the consequences of their actions
to multiple stakeholders. Authorities, investors, employees and patients were
tricked by Theranos and the consequences are still being analyzed by the US
legal system. Thus, policy-makers may revise their regulations based on the
challenges brought by start ups in this digital era. Finally, academia can also
benefit from the four presented cases while there is still a need to understand
more about unicorn companies: their main differences from traditional busi-
ness, how sustainable they are, and how their business models impact not only
competitors, but also the ecosystem.
 29 THE RISE OF UNICORN COMPANIES: A MAGICAL GROWTH? 591

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 CHAPTER 30

Intellectual Capital Disclosure in the Digital

Era: Challenges and Opportunities for MNEs

Lukasz Bryl

Introduction
The rapid growth of digitalization has led to intellectual capital becoming a
concept of growing interest and importance to scholars and business practitio-
ners. Abeysekera (2006) defines intellectual capital as a form of knowledge that
is not presented in traditional financial reporting. Brooking (1996) perceives
intellectual capital as combined intangible resources that allow organizations to
operate and utilize the knowledge possessed by a person or a company to make
better usage of human and natural assets (Kwiatkowski and Stowe 2001).
Dumay (2016) defines intellectual capital as “the sum of everything everybody
in a company knows that gives it a competitive edge. Intellectual capital is intel-
lectual material, knowledge, experience, intellectual property, information that
can be put to use to create value.” Not only does intellectual capital per se play
a significant role in the development of companies, but its disclosure by firms
is perceived as crucial as it contributes to a firm’s value creation. The timely
reporting of key information (including intellectual capital) plays an important
role in the development of a strong and transparent financial system (Basuony
et al. 2018). Corporate reporting fosters financial markets by eliminating bar-
riers to the flow of important information to the various stakeholders, thus
leading to the reduction of information asymmetry and enhancing equality
among investors (Gallego Alvarez et al. 2008; Fuertes-Callén et al. 2014).

L. Bryl (*)
Poznan University of Economics and Business, Poznań, Poland
e-mail: [email protected]

© The Author(s) 2021 595

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_30
596 L. BRYL

Three incentives can be identified for companies to disclose their intellectual

capital. First, to provide more insight into the firm and thus resolve uncertainty
among investors, which may lead to share price increase (Edvinsson 1997; Lev
2001). Second, to help companies to focus on certain key areas they come to
recognize because of reporting intellectual capital (Cooper and Sherer 1984;
Stewart 1997). Third, enterprises that disclose their intellectual capital could
be perceived by the labor market as more sustainable and hence more attractive
to individuals with higher skills and experience. Intellectual capital reporting is
especially important for large, globally recognized firms, since with their
growth, their visibility increases and they become subject to greater interest
from their stakeholders. This phenomenon makes them more susceptible to
potential negative reactions of these groups, which are more diverse due to the
more diversified nature of large firms (Brammer and Pavelin 2004).
Recent changes in technology, capital markets and the media have affected
firms’ disclosure policies, especially the practices of reporting intellectual capi-
tal. Over the past two decades, companies have started to use the internet for
communication purposes. The rise of the internet revolutionized the way
enterprises report their financials and consequently, it has enabled the merging
of traditional annual reports with additional financial and non-financial infor-
mation in multiple forms (Jones and Xiao 2004). Even simple corporate web-
sites offer practically unlimited space for sharing information and therefore
help firms to potentially save costs. Potential savings derive from the lower cost
of production and distribution of information to much wider range of stake-
holders (Dolinšek et al. 2014; Mohamed and Basuony 2014) reached within
the given firm’s disclosure policy. Campbell (2003) and Gallego Alvarez et al.
(2008) suggest that internet is possibly the most powerful tool to provide spe-
cific information to targeted stakeholders as a legitimacy strategy. Additionally,
the internet enables timely reporting compared to traditional paper-based cor-
porate disclosure (Koreto 1997), mainly in the form of annual reports.
Over a decade ago, Guthrie et al. (2008) suggested that the increasing prev-
alence of popularity of internet provoked questions about the significance of
annual reports as the primary source for intellectual capital reporting. In addi-
tion, a study by Striukova et al. (2008) indicated that the annual report could
not be treated as a proxy for the general pattern of intellectual capital disclo-
sure. As a result many researchers have come to suggest that there are better
corporate reporting channels to disclose intellectual capital information – espe-
cially in the context of the constant innovations in communication (Dumay
and Tull 2007).
The aim of this chapter is to present various forms of the contemporary
landscape of intellectual capital reporting practices with a special focus on chal-
lenges and opportunities of reporting via social media. Original research is
incorporated in the chapter, presenting data on social media utilization among
the 100 largest multinational enterprises (MNEs). The goal of the empirical
analysis is to determine the potential of intellectual capital reporting via social
 30 INTELLECTUAL CAPITAL DISCLOSURE IN THE DIGITAL ERA: CHALLENGES… 597

media by showing the current usage of social media by the largest MNEs.
Therefore the research questions are:

RQ1: What are the main challenges and opportunities of corporate reporting via
social media?
RQ2: What is the extent of social media usage among the largest MNEs?
RQ3: How popular are social media among the largest MNEs?

The chapter has three aims. First, it attempts to revive and foster discussion
of the relevance of intellectual capital reporting in the context of rapidly devel-
oping digitalization. Second, it seeks to show the great potential of intellectual
capital disclosure with the help of social media. Third, it serves as an answer to
the call from scholars who try to conduct the exploration of new opportunities
in intellectual capital reporting in terms of alternative technologies and com-
munication channels, such as websites, LinkedIn, Facebook, Twitter, and
Google+ (Lombardi and Dumay 2017). In this sense, the chapter analyses the
potential of intellectual capital disclosure both theoretically and empirically by
studying the current usage of the most popular social media among the cho-
sen MNEs.
The structure of the chapter is as follows: Section “Introduction” is an
introduction; Section “Importance of Intellectual Capital Reporting” exam-
ines the importance of intellectual capital disclosure; Section “Intellectual
Capital Disclosure Practices” depicts the impact of digitalization on intellectual
capital reporting practices; Section “The Impact of Digitalization on Intellectual
Capital Disclosure Practices” describes key features of social media reporting;
Section “Disclosure of Intellectual Capital Via Social Media” provides the
methodical assumptions adopted in this paper; In Section “Methodology” the
main findings of social media usage analysis are shown; Section “Results” pres-
ents the conclusions and suggestions for future lines of research.

Importance of Intellectual Capital Reporting

According to Dumay and Guthrie (2017) disclosing intellectual capital is
defined as: “the revelation of information that was previously secret or
unknown.” Reporting on intellectual capital has become a vital part in the
process of company value creation (Petty and Guthrie 2000; Sullivan 2000;
Williams 2001).
Addressing the theory of intellectual capital disclosure, Dumay (2012) states
that there are two grand foundations: the MV/BV ratio, and greater profit-
ability because of the lower cost of capital. In this sense theory suggests that
better corporate disclosure should have a positive effect on access to new capi-
tal and on shareholder value, as it increases management credibility and
improves analysts’ forecast (Bryl 2020). Consequently firms gain from greater
transparency. Healy and Palepu (2001) indicate that majority of prior studies
use agency theory and information asymmetry theory. In this sense, firms share
598 L. BRYL

information on their activity in order to reduce agency costs and information

asymmetries, as well as to comply with investor and analyst requirements
(Koonce et al. 2011; Sharma 2013). Bismuth and Tojo (2008) argue that
“ensuring that the nonfinancial information is consistent, comparable over
time and across companies, material and reliable would allow investors to bet-
ter assess future earnings and the risks associated with different investment
opportunities, thus reducing information asymmetry.”
Abeysekera (2006) states that, just because annual reports are readily avail-
able, there is no guarantee that the information contained within is reliable and
thus they “may not reflect the objective reality of the firm.” Additionally,
annual reports are backward-looking and contain limited information about
the future prospects of a company, something that would be expected in an
intellectual capital report (Dumay 2016). Many authors (e.g., Striukova et al.
2008) feel that there are better corporate reporting channels companies could
use to disclose information on intellectual capital. Voluntary communication
practices can be performed by reporting management forecasts, analysts’ pre-
sentations and conference calls in press releases, on websites, in social media
and other corporate reports (Dumay 2016).

Intellectual Capital Disclosure Practices

Dumay and Cai (2015) found that annual reports were used as the primary
data source in 79% of the examined research papers concerning intellectual
capital disclosure. As indicated by De Silva et al. (2014) although there was an
increase in the intellectual capital reporting found in annual reports of New
Zealand firms between 2004 and 2010, there was no strong evidence suggest-
ing growth of intellectual capital disclosure. In this sense, contemporarily the
evolution of reporting intellectual capital via annual reports is stagnant.
Therefore, firms tend to adopt other forms of disclosure, such as integrated
reporting, which provides opportunities for new streams of intellectual capital
disclosure; however, the early evidence indicates a possible fail (Cuozzo et al.
2017). With regard to the drivers of corporate intellectual capital disclosure,
numerous authors (e.g., Bruggen et al. 2009; Yi and Davey 2010; Curado
et al. 2011; Liao et al. 2013; An et al. 2014) point to the crucial importance of
various factors (size, industry, ownership, type of auditor, listing status).
Although certain studies provide contradictory conclusions, firm size and
industry are the least questioned determinants of intellectual capital reporting.
There may be several reasons identified why and what benefits firms achieve
through disclosing their intellectual capital. As suggested earlier, better intel-
lectual capital disclosure leads to lower information asymmetry, consequently
firms decrease their cost of capital. Review of the studies conducted by Bryl,
Fijałkowska, and Prysiński (2020) found that there is a negative relation
between non-financial information disclosure and the cost of equity. Moreover,
researchers observed that intellectual capital disclosure improves credit rating
and thus lowers the cost of debt. With regard to the impact of intellectual
 30 INTELLECTUAL CAPITAL DISCLOSURE IN THE DIGITAL ERA: CHALLENGES… 599

capital disclosure on firm value, there is not a coherent and strong link between
intellectual capital disclosure in publicly available reports and value creation
(Cuozzo et al. 2017) as firms tend to be more likely to keep valuable intellec-
tual capital information rather than to report it (Schaper et al. 2017). This
phenomenon may be understandable in high-tech industries, in which innova-
tion play crucial role in a company’s competitive advantage. This suggests that
reporting on intellectual capital not only does not lead to value creation, but in
fact may be destroying it.

The Impact of Digitalization on Intellectual Capital

Disclosure Practices
The direct impact of digitalization on corporate reporting practices can be
identified in at least two dimensions. The first one is the shift from the non-­
ecological, non-practical printed-paper annual reports to electronic ones. This
early change was a trigger to the development of later forms of intellectual
capital disclosure, such as intellectual capital stand-alone reports, CSR/
ESG/Sustainability reports, direct reporting via official corporate websites,
Integrated reports and, finally, social media disclosure (Fig. 30.1).
Recent evidence shows that for listed firms the practice of creating stand-­
alone intellectual capital reports has almost died (Dumay 2016). Consequently
research must still employ annual reports as a proxy for intellectual capital dis-
closure (Dumay and Cai 2014). With regard to corporate websites’ reporting,
early studies (Guthrie et al. 2008; Gerpott et al. 2008) showed that the quality
of intellectual capital reporting in annual report and website was significantly
positively interrelated, but that disclosure of intellectual capital in annual

Fig. 30.1 Evolution of the intellectual capital reporting practices. (Source: Author’s
creation)
600 L. BRYL

reports was better than on websites. Contrary to this study, Branco, Delgado,
Sousa, and Sá (2011) suggested that studied Portuguese firms were probably
utilizing annual reports and the internet as complementary intellectual capital
data sources. Studied entities were likely to manage the information on intel-
lectual capital they wish to disclose in each of the reporting media. Research
found that annual reports provided more human capital information than
internet websites, whereas disclosure of information on structural and rela-
tional capital was performed better via websites than in annual reports. Hence,
Portuguese-listed firms seemed to have realized the potential benefits of web-
sites in terms of sharing data on intellectual capital. This may derive from the
fact that annual reports content is focused on investors while internet websites
have a much wider interest group. Moreover, with regard to corporate report-
ing practices, intellectual capital disclosure researchers are also studying the
latest fad – integrated reporting, which includes intellectual (structural), rela-
tional, and human capital as part of its six capitals framework (Abeysekera
2013; Melloni 2015; Dumay 2016). However, recently, a growing interest in
corporate disclosure has emerged in the form of social media that facilitates
firm-directed, one-to-many communications enabling the bypassing of tradi-
tional media to allow firms to broadcast their intended message to a large net-
work of stakeholders, readily observable to all (Lee et al. 2015). Therefore,
both regulators and firms are starting to perceive social media as important
channels for disclosing data. Additionally, technology makes reporting easier
and enables companies to communicate with a wide spectrum of stakeholders
(Dumay 2016).
The common feature of all studies adopting different reporting sources pre-
sented in the Fig. 30.1 is the content analysis method, which is described as a
technique of gathering data (Abeysekera 2008). The aim is to codify qualitative
and quantitative data into pre-defined categories in order to receive quantita-
tive scales of different levels of complexity (Guthrie et al. 2006; Guthrie and
Petty 2000; Abeysekera 2008; Dumay and Cai 2015). Although it has limita-
tions, content analysis is perceived as valid in social science research (Schneider
and Samkin 2008; Guthrie and Petty 2000; Yi and Davey 2010).
The variety of ways available to report intellectual capital leads to, the dis-
closure of greater amounts of data, and thus to the reduction of information
asymmetry, while simultaneously causing confusion among investors, analysts,
and researchers. It should be stressed that the above-listed tools rarely exclude
each other, often they are employed by firms as complementary sources of
shared information. Nevertheless, all intellectual capital reporting documents
still have features which limit their usability, such as, inter alia, time-lag of the
published data and a lack of interaction between a firm and its stakeholders. In
this sense, we may identify the second stage of digitalization’s impact on intel-
lectual capital disclosure practices: social media reporting set apart from previ-
ously employed documents.
 30 INTELLECTUAL CAPITAL DISCLOSURE IN THE DIGITAL ERA: CHALLENGES… 601

Disclosure of Intellectual Capital Via Social Media

To communicate with stakeholders about intellectual capital, companies have
at their disposal numerous traditional and modern communication channels.
However, the shortcomings of the traditional channels have led to disclosed
information often being met with skepticism (Du et al. 2010). Consequently,
relying solely on traditional communication channels is unwise at the present
time (Zizka 2017). It is clearly evident that passive, one-directional flow of
information can be replaced with new communication tools that create a pool
of interactive two-way exchange of relevant data (Lardo et al. 2017). Dumay
(2016) argues that one way of going beyond established intellectual capital
disclosure is to adopt social media.
Technology development, Big Data evolution and the way that society now
communicates all move intellectual capital reporting practices away from tradi-
tional media toward online channels such as websites, Facebook and Twitter
(Dumay and Tull 2007; Lombardi and Dumay 2017). In terms of one of the
most challenging effects of mass digitalization, Big Data, online media chan-
nels such as websites, online reports, and social media are now the most impor-
tant sources of information (Fortunato et al. 2017; Dutta 2010). Big Data
provides new ways of discovering and creating knowledge, thus influencing
activity, business, and competitiveness for all kinds of enterprises (La Torre
et al. 2018).
Social media can be described as “a group of internet-based applications that
build on the ideological and technological foundations of Web 2.0, and that
allow the creation and exchange of user-generated content” (Kaplan and
Haenlein 2010). Although websites and social media were not intentionally
designed to disclose intellectual capital (Garanina and Dumay 2017), they sup-
ply huge, variable, and valuable amounts of data derived from a variety of
sources that can be utilized for intellectual capital disclosure (Secundo et al.
2017). The interactive nature of social media works as a useful and rich channel
for communicating intellectual capital information between organizations and
their stakeholders (Chua 2011). Social media foster and facilitate reporting,
broadcasting, and sharing of useful information, such as news, bulletins, events,
alerts and updates, to a large group of stakeholders through a variety of forms
(Lee et al. 2015). It may be legitimate to state that social media have a signifi-
cant potential to change, or at least strongly influence, current and future cor-
porate disclosure practices, offering further opportunities for research on the
role of intellectual capital disclosure.
Firms incorporating social media into their disclosure policy are usually fol-
lowed by many interested parties and possess the power to respond to any
stakeholder’s comments. This interaction is potentially beneficial since a firm
that is active in social media can discover the perceptions and opinions of its
various stakeholders and react to them (Gupta 2011). Consequently, firms can
use social media to reduce negative reactions to adverse situations; hence,
602 L. BRYL

reporting and reacting via social media may be an effective strategy to reduce
information asymmetry (Blankespoor et al. 2014; Lee et al. 2015).
Employing social media for corporate disclosure purposes provides the pos-
sibility of interaction, not only between the firm and its stakeholders, but also
between stakeholders (Vernuccio 2014; Broekemier et al. 2015). In this sense,
social media can be used by external parties to report information about a firm.
For firms, motivation to use social media for disclosing non-financial informa-
tion is usually the same, as in the case of other reporting tools: creation of a
positive corporate image and informing the world of a firms’ achievement of its
goals. Further, Pisano et al. (2017) suggest social media have stronger influ-
ence in some sectors than conventional online media and so allow firms to
conduct designed strategic disclosure of information to stakeholders of partic-
ular interest. With the help of social media, firms can reach a wider range of
stakeholders on a real-time basis in an easier manner, can initiate a real exchange
of views with their stakeholders, and can improve online information sharing
among stakeholders (Du and Jiang 2014; Zhou et al. 2015). As social media
enable more direct and interactive contact with stakeholders, these improved
relationships can lead to a better reputation that can result in improved finan-
cial results (Eberle et al. 2013; Schmeltz 2012; Schultz et al. 2013). Additionally,
releasing information on a firm’s intellectual capital via social media may create
greater credibility as original corporate posts and stakeholders’ comments are
visible. This is important, since the public may become suspicious when few or
no comments are available (Eberle et al. 2013). Moreover, employing social
media as a channel for communicating information about intellectual capital
limits firms’ ability to pursue a strategy of greenwashing – the “selective disclo-
sure of positive information about a company’s environmental or social perfor-
mance while withholding negative information on these dimensions” (Lyon
and Montgomery 2013). Because of the possibility of immediate reaction from
stakeholders, firms have to take into consideration that unfavorable actions
conducted in the past, or future negative attempts, may evoke public outrage
and thus lead to the deterioration of corporate reputation. Table 30.1 summa-
rizes the most important challenges and opportunities of intellectual capital
reporting in social media.

Methodology
This chapter will analyze and evaluate the extent of social media usage among
the largest MNEs. In particular, it aims to assess MNEs’ readiness for potential
intellectual capital disclosure via social media.
Social media prevalence was examined in the five most popular social media:
Facebook, Instagram, Twitter, YouTube and LinkedIn. The study was con-
ducted in several steps. First, prevalence in all social media was determined. By
“prevalence” was understood the possession of an official channel containing
the name of the company. By adopting this methodology, the study excluded
all profiles that referred to the firms’ brands. The second step took account of
 30 INTELLECTUAL CAPITAL DISCLOSURE IN THE DIGITAL ERA: CHALLENGES… 603

Table 30.1 Features of reporting intellectual capital matters via social media
Challenges Opportunities

Confusion while managing the Simple and cheap communication channel

content in numerous official profiles
Risk of spam, haters attack, hacking or Release of relevant information in a timely manner
manipulation
Loss of control over disclosed theme Real-time interaction including two-way dialogue
Corporate image distortion by external Possible wide range of disclosed data
parties
Great amounts of stored data Focusing on stakeholders of and with particular
interest
Formal reporting of less consequence Immediate management of a potential image crisis
Reduction of corporate greenwashing Increased analysts’ coverage, leading to diminished
information asymmetry and lower cost of capital
Lack of auditors’ control Potential higher credibility once trust is established

Source: Author’s creation

the relative popularity of each of the given social media in order to determine
which of them had the greatest potential to reach stakeholders in the process
of intellectual capital disclosure. To perform this, the study adopted different
measures for different social media: for Instagram, Twitter and LinkedIn, the
number of followers was counted, for YouTube it was the number of subscrib-
ers and for Facebook it was profile likes. The third step involved identification
of the ten best-performing MNEs with a division on the given social media.
Where possible additional statistics were provided.
Data were collected manually in September 2019 by either using the
Socialblade (www.socialblade.com) database or by entering the company name
in the search field of the given social media. The Fortune 100 Global 2018
listing was used to identify the 100 largest MNEs.
One hundred MNEs were studied. Cumulated revenue exceeded 13 trillion
USD, and assets amounted to more than 57 trillion USD. The MNEs employed
more than 25 million people in worldwide. The group was diversified in terms
of geographical origin. Most MNEs derived from the United States (37), fol-
lowed by China (21), and Japan (9).
According to Cuozzo et al. (2017) “continental Europe” is the most stud-
ied region in terms of intellectual capital reporting, accounting for 38% of
articles, followed by Australasia (37%). Within the European nations the coun-
tries dominating in intellectual capital disclosure research are: Italy, Spain,
Germany and Netherlands. Interestingly, the United Kingdom and North
America are under-represented. Therefore, the proposed study is complemen-
tary to the previous studies on intellectual capital disclosure, since the sample
in this study consists mainly of US and Chinese firms.
604 L. BRYL

Results
The first step of the study was based on the analysis of the prevalence of the
given MNE in various social media. It was observed that the majority of the
studied MNEs are present (have launched an official corporate channel) in all
analyzed social media (Table 30.2).
The most popular social media tool appeared to be LinkedIn (86%) fol-
lowed by Facebook (85%). The least popular was Instagram (68%). MNEs that
did not launch an official social media channel on Facebook derived mainly
from China (7%) and Japan (3%). This is a consequence of Chinese govern-
ment regulations and a different cultural background. However, of the 21 larg-
est Chinese MNEs, 14 possess an official Facebook profile. Fifty-six MNEs
(56%) that pursued a strategy of simultaneous presence in all five social media.
The second step of the study involved determining which social media have
the greatest average popularity. Social media popularity indicates the possible
extent of information sharing with a firm’s stakeholders. Since social media
tools vary in terms of usability and features, their popularity indices also are
differentiated. For example, Instagram, Twitter and LinkedIn employ the cat-
egory of followers, Internet users who can see a company’s posts on the profile
and feed. They can also view Instagram corporate stories and contact a firm
directly. Naturally, the more followers a firm “possesses” the greater the audi-
ence it can target. Facebook uses the notion of profile likes, which is also a
measure of corporate popularity. When people “like” the profile of the com-
pany, it means that they are interested in the activity of the given firm and wish
to be notified about new status messages and photos. Additionally, YouTube,
the video and music streaming platform, entices Internet users to subscribe to
a firm’s channel. Like the other popularity indices, subscribers are persons who
wish to be notified about videos uploaded by the company. With reference to
Gupta (2011), the quantity of followers/likes/subscribers drives a firm’s abil-
ity to get the opinion of stakeholders and to react appropriately. It should be
stressed that each social medium possesses unique features thus enabling firms
to communicate with stakeholders in a different form. Therefore, it is to be
expected that MNEs employ many social media in order to maximize the posi-
tive results of disclosing crucial corporate information.

Table 30.2 Percentage of MNEs with an official social media channel

Facebook Instagram Twitter YouTube LinkedIn

Percentage with named channel 85% 68% 75% 66% 86%

Dominant nationalities of MNEs China China China China China
lacking an account (7%) (21%) (14%) (16%) (8%)
Japan US (8%) Japan Japan Japan
(5%) (3%) (4%) (2%)

Source: Author’s creation

 30 INTELLECTUAL CAPITAL DISCLOSURE IN THE DIGITAL ERA: CHALLENGES… 605

As a result, Facebook (>4 million profile likes), followed by its equity-related

entity, Instagram (>1.4 mln followers) were the most popular social media in
terms of quantitative employment by MNEs. That means that these social
media are the most recommended ones in terms of potential interactive com-
munication with the stakeholders. The oldest social medium, LinkedIn
(founded in 2003) recorded slightly fewer followers than the newest one,
Instagram (2010). However, concerning the median score for LinkedIn sig-
nificantly outperformed Instagram.
In order to go beyond the average and median misleading scores, Tables
30.3, 30.4 and 30.5 present statistics about the ten best performers in the
given social media.
Walmart and Volkswagen were the most popular of the ten MNEs on
Facebook. The official profiles of these MNEs are observed by more than 30
million people worldwide. The lowest score among the ten best performers was
that of Apple, which is followed by “only” around 11 million people. The total
number of profile likes of the top ten performers exceeded 220 million. The
second-most popular social medium among the best corporate performers was
Instagram. Interestingly, five best-scoring Instagram MNEs were also among
the five best performers in Instagram. However, the best-scoring Instagram
firm, BMW, recorded a much lower number of followers than the best Facebook
performer (20 million vs. 34 million). Nevertheless, the high score of BMW
may attributed to high Instagram activity (more than 6 thousand media
uploads).
The detailed analysis of Twitter statistics among the top ten performers is
presented in Table 30.4.
The best Twitter performer appeared to be Google (>21 million followers).
The second-best, Microsoft, recorded only one-third as many followers.

Table 30.3 Top ten MNEs in social media (Facebook, Instagram)

Facebook Instagram

MNE Profile likes MNE Followers Media Average Average

Uploads likes comments

Walmart 34,343,627 BMW 23,364,476 6241 200,589 560

Volkswagen 34,090,273 Apple 18,978,435 527 320,729 1730
Amazon 29,281,498 Google 10,764,656 1151 59,570 303
Google 27,344,816 Sony 7,427,604 1654 43,542 2400
Nissan motor 21,667,484 Volkswagen 6,904,570 2295 27,390 105
BMW 20,297,411 Samsung 5,061,242 474 28,152 188
electronics
Ford motor 15,788,593 Nissan motor 4,869,921 4368 33,624 148
Microsoft 13,527,564 Honda motor 3,869,504 1907 14,548 132
Dell 12,541,386 Ford motor 3,626,060 1456 48,506 291
Technologies
Apple 11,842,787 Microsoft 2,320,782 532 12,166 195

Source: Author’s creation

606 L. BRYL

Table 30.4 Top ten MNEs in social media presence (Twitter)

Twitter

MNE Followers Likes Tweets Average likes Created

Google 21,523,432 2302 102,265 1141 2009

Microsoft 8,721,044 1786 16,254 319 2009
Sony 4,343,499 47,277 27,813 678 2009
Apple 3,457,733 n/d n/d n/d 2011
Amazon 3,129,193 6489 31,268 211 2009
BMW 2,001,769 16,897 31,633 1598 2013
Verizon 1,665,159 11,759 124,223 111 2009
Ford motor 1,196,463 11,405 42,503 784 2008
Honda motor 993,426 7943 202,737 271 2009
Walmart 992,354 11,303 543,709 n/d 2008

Source: Author’s creation

Table 30.5 Top ten MNEs in social media presence (YouTube, LinkedIn)
YouTube LinkedIn

MNE Subscribers Uploads Video Views Created MNE Followers

Apple 10,100,000 297 672,335,078 2005 Google 13,108,648

Google 7,930,000 2264 2,637,521,693 2005 Amazon 9,686,088
Samsung 3,900,000 952 436,683,152 2006 Microsoft 8,458,106
electronics
Ford motor 2,000,000 671 355,441,041 2005 Apple 7,843,891
Sinopec group 1,060,000 34 398,498 2018 Nestlé 7,171,011
BMW 960,000 903 173,057,258 2006 IBM 7,000,493
Microsoft 622,000 621 69,640,044 2006 Johnson and 3,505,153
Johnson
Boeing 564,000 553 217,279,246 2006 Siemens 3,056,771
Huawei 560,000 258 39,013,281 2010 General 3,002,769
Electric
Honda motor 413,000 1268 88,745,259 2005 Total 2,314,440

Source: Author’s creation

Consequently, the total number of followers of all top ten performers was
much smaller (~48 million) than in the case of Facebook and Instagram.
Although, Google had the greatest number of followers, this was not the most
active firm (102 thousand tweets) in the top ten; this was Walmart (>500 thou-
sand tweets) which was also the oldest participant, as it joined in 2008, only
five years after Twitter was created. Seven of the most popular MNEs on
Facebook appeared in the top ten on Twitter.
Table 30.5 presents the data on corporate presence on YouTube and
LinkedIn.
Apple is the leader on YouTube with more than 10 million subscribers, fol-
lowed by Google (>7 million). However, Google was much more active in
 30 INTELLECTUAL CAPITAL DISCLOSURE IN THE DIGITAL ERA: CHALLENGES… 607

Table 30.6 Average life in years of MNEs in social media

Facebook Instagram Twitter YouTube LinkedIn

MNE No data available No data available 9 years 10 years No data available

Score Profile likes Followers Followers Subscribers Followers

Source: Author’s creation

terms of video uploads than Apple. Consequently, due to its more than 2000
uploads, Google’s total number of video views exceeded 2 billion, which was
more than the sum of the views of the remaining nine best performers. In
LinkedIn popularity, Google outperformed the rest of the firms as well, achiev-
ing more than 13 million followers.
The last step of the study was the average presence (in years) in the given
social media among the studied sample (Table 30.6).
Due to lack of publicly available data, only two social media (Twitter and
YouTube) were analyzed. The average lifetime of MNEs on YouTube was lon-
ger than on Twitter (10 vs. 9 years). This means that, on average, MNEs started
to use these communication channels after the channels had been in existence
for four years (in both cases).

Conclusions
Researchers argue that the disclosure landscape has been changed by social
media, offering further opportunities for studies on the significance of intel-
lectual capital disclosure (Lardo et al. 2017). This study attempted to present
contemporary intellectual capital reporting practices with a special focus on the
future potential of social media adoption in pursuing disclosure strategies.
With regard to the first research question it was concluded that among the
major challenges of employing social media in the process of intellectual capital
reporting are the following: confusion while managing content in numerous
official profiles; loss of control over a disclosed theme as a result of spam, hat-
ers’ attack, hacking or manipulation that subsequently may lead to distortion
of the corporate image. However, at the same time social media will enhance
immediate management of the potential image crisis by performing real-time
interaction, including dialogue; hence, once trust is rebuilt, social media foster
potentially higher credibility. These challenges can, then, be opportunities that
face firms which disclose intellectual capital via social media. Other opportuni-
ties include simplicity and low cost of sharing information, and the ability to
focus on stakeholders of particular interest.
With regard to the extent of social media usage (RQ2) among the 100
greatest MNEs, 76% of the studied firms use some social media. LinkedIn was
the most widely used (86%), followed by Facebook (85%). The least-used social
media were YouTube and Instagram, which were employed by only 66% and
68% of the studied MNEs respectively. The vast majority of MNEs adopt social
608 L. BRYL

media, though usage breakdown shows that there are certain social media that
could be employed more frequently. Slightly more than a half of the studied
firms adopt all five social media.
Concerning the third research question, which was aimed at studying
MNEs’ enthusiasm for social media, on the base of our empirical analysis,
Facebook appears to be the most popular social media channel utilized by
MNEs for the potential disclosure of relevant corporate information and shar-
ing it with stakeholders. Instagram was second, followed by LinkedIn. This has
direct practical implications, in the sense that the analysis shows which social
media should be subjects of greatest interest by the managers pursuing a strat-
egy of disclosing relevant data. The greatest enthusiasm for social media was
displayed by MNEs from the digital technology industry: Microsoft, Apple and
Google. These three were present in the top ten of all studied social media.
Activity in social media measured by, for example, video uploads and/or tweets
does not correspond directly to popularity classed by the number of followers
and/or subscriptions.
MNEs’ presence in the most popular social media shows an important
trend – the necessity for contemporary MNEs to report via new communica-
tion channels. Therefore, it is justifiable to state that social media presence and
activity is a strategic choice, additionally fostered by the strong development of
digitalization. Based on the studied sample, disclosure of intellectual capital via
social media has strong foundations to evolve and increase the employment of
this relatively new and innovative set of media for communication of intellec-
tual capital information. Social media should be perceived by managers as a
vital source of data and a convenient tool for disclosing intellectual capital, and
their attention should be drawn to the challenges and opportunities of intel-
lectual capital reporting via social media. The chapter contributes to academic
study by informing and stimulating discussion among scholars conducting or
planning to conduct research on the relevance and positive effects of intellec-
tual capital disclosure via social media.
The study has its limitations, such as its relatively small sample, with data
referring to the one year only. Future studies could be enriched by intra-­
industry comparisons of social media presence. Moreover, with regard to dis-
closure of intellectual capital, studies should concentrate on the extent and
quality of social media reporting, with a special focus on determining whether
disclosure via social media is related to companies’ financial and non-financial
performance.

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 CHAPTER 31

Human Dynamics of Automation

and Digitalisation of Economies: Discussion
on the Challenges and Opportunities

Ahmad Arslan, Asif Ruman, Sean Naughton,

and Shlomo Y. Tarba

Introduction
Automation and digitalisation are the current manifestations of technological
development trend which has historically offered both opportunities and chal-
lenges for the societies (e.g. Wajcman 2017). Economic and sociological stud-
ies have addressed the influences of similar earlier changes in detail. These
studies highlighted the changes in societies, including employment dynamics
due to developments such as industrial revolution, the Fordist manufacturing
revolution and the rise of the Internet (Matthews 1996; Giovannetti et al.
2003; Stearns 2018). However, the current trend of automation-based change
(including robotic and artificial intelligence), as well as digitalisation, has far-­
reaching implications for societies including specific concerns for both blue-
and white-collar workers (Tegmark 2017; Ustundag and Cevikcan 2017). It
has been argued that the Fordist revolution paved the way for the United

A. Arslan (*) • A. Ruman

Oulu Business School, University of Oulu, Oulu, Finland
e-mail: [email protected]; [email protected]
S. Naughton
Business School, Edge Hill University, Lancashire, UK
e-mail: [email protected]
S. Y. Tarba
Birmingham Business School, University of Birmingham, Birmingham, UK
e-mail: [email protected]

© The Author(s) 2021 613

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_31
614 A. ARSLAN ET AL.

States of America’s industrial dominance for the major part of the twentieth
century and resulted in a significant rise in the standards of living for different
categories of workers (Dean and Broomhill 2018). During 1970s and 1980s,
this aspect of industrial efficiency was dominated by Japanese firms that resulted
in concepts like total quality management and continuous improvement gain-
ing traction (e.g. Womack et al. 1990). In recent years, the rise of emerging
economies from Asia and Latin America have been linked to efficient labour
management, low costs and increased investments by multinational firms
(Chakraborty 2018; Gunvald Nilsen and von Holdt 2019).
Technological advancements such as the use of artificial intelligence and
robotics, as well as digitalisation manifested through the Internet of Things
(IoT), mean that many traditional industrial sectors face restructuring leading
to new competitive dynamics. For example, IoT coupled with advancements in
three-dimensional (3-D) printing is influencing the traditional manufacturing
sector significantly. Manufacturing sector was once difficult to enter due to the
high costs associated with plant establishment, but these technological advance-
ments are opening it to many new players (e.g. Petersen and Pearce 2017;
Heinis et al. 2018). Such technological advancements raise a significant ques-
tion with regard to their influences on human beings—especially in terms of
jobs and work (Stearns 2018; Frey 2019). It should be noted that the previous
industrial and technological revolutions not only improved efficiency, but also
resulted in lifestyle improvement for most of blue- and white-collar workers
(Berlanstein 2003; Allen 2009). However, the current pace and multidimen-
sional influences of automation and digitalisation are challenging the notion of
improvement in the well-being of the human workers that were historically
associated with technological advancements. This key characteristic of automa-
tion and digitalisation in current times forms the starting point and motivation
of our chapter. We argue that a better understanding of the multifaceted nature
of present-day automation and digitalisation is important in order to specifi-
cally address the challenges presented by it, as well as highlight the potential
opportunities it presents. The contribution offered by this chapter is twofold.
Firstly, it is one of the very few studies that attempt to take a broader view of
the complex phenomenon of automation and digitalisation with a focus on
both challenges and opportunities for the people (humans), rather than a nar-
row organisational focus as is the case in many studies. Secondly, despite being
conceptual in nature, this chapter presents some important statistics that clearly
highlight different dynamics of the situation in different European countries,
thereby providing a basis for future studies to delve further and analyse issues
arising within specific countries.
This chapter aims to undertake this task by adopting a step-by-step approach.
We firstly present an overview of the current trends in automation where issues
such as robotics, artificial intelligence, 3-D printing and digitalisation aspects
including IoT will be discussed. This is followed by a section dedicated to the
discussion of influences for humans of this automation by specifically discussing
challenges, including job losses. Alongside presenting theoretical arguments
 31 HUMAN DYNAMICS OF AUTOMATION AND DIGITALISATION OF ECONOMIES… 615

incorporating multidisciplinary prior research, we also use relevant publicly

available statistics to further highlight the different aspects of these challenges
and opportunities. It should be further noted that in order to make the discus-
sion specific, we focus on European developed economies, as their industrial
dynamics tend to differ significantly from North American and Southeast Asian
developed industrial economies. Therefore, the statistics used in this chapter
represent mostly European economies with occasional references to other
developed industrial economies. The next section takes a pragmatic look at
automation and tries to highlight the opportunities for humans in the form of
both new jobs associated with specific skill set requirements and entrepreneur-
ial opportunities that are emerging from the current automation trend. The
chapter concludes with the presentation of specific theoretical and policy
implications.

Current Trends in Automation and Digitalisation

of Economies

The automation of economies is manifested by the increased visibility of artifi-

cial intelligence (including robotics), digitalisation and Internet of Things
which has specifically been linked to the rise of 3-D printing (Lipson and
Kurman 2013; Schwab 2017; Frey 2019). Artificial intelligence has been men-
tioned as a key driving force behind automation by many scholars (Pérez and
Falótico 2019). Alongside industrial processes, artificial intelligence is increas-
ingly becoming visible in home-based electronic devices (smart devices) illus-
trating an increase in the level of trust placed in them over the years (e.g.
Abbass 2019). Beyond this, the notion of self-driving (automated) vehicles is
becoming a reality, with some arguments augmented by the notion of improved
road safety standards and a reduction in the number of fatalities caused by
human error (Vella 2017). Self-driving vehicles are now visible on the roads of
different European countries (Marletto 2019), and there is an ongoing debate
regarding their regulation on the issues of risk and responsibility (Liu et al.
2019). It should be noted that the increase in self-driving vehicles will not only
impact transportation and logistics industries, but also influence the way associ-
ated industries such as finance and insurance operate (Lohmann 2016;
Clements and Kockelman 2017). Artificial intelligence usage is becoming more
visible in the service sector as well, illustrated by the adaptation of artificial
intelligence–backed decision making in the banking, insurance, healthcare and
media sectors (Lipton et al. 2016; Gentzkow 2018; Riikkinen et al. 2018;
Eisen 2019). Specific statistics about automation in all these industries and
services are not readily available due to these being a new and ongoing trend.
There are, however, some recent studies and policy reports that focus on dif-
ferent European countries, where references to automation and the use of arti-
ficial intelligence in some of these sectors have been made (Frontier Economics
616 A. ARSLAN ET AL.

2018; Jin 2019). We build on these prior works and present a specific discus-
sion focused on the European context as given later.
We start by presenting some statistics on global industrial robot stock and
usage. According to IFR (2019), annual installation of industrial robots is
increasing by approximately 10% with additional ca. 400,000 robots being
installed every year during the last decade. This number is expected to increase
to ca. 500,000 robots being installed annually during 2020–2020 (IFR 2019).
These statistics highlight that the replacement of human workers will take place
across a range of global economic sectors, and more specifically in the manu-
facturing sector.
In this specific context, it is also important to refer to statistics about robot
density per 10,000 employees (industrial workers) in the key European indus-
trial economies, as well as an average at European Union (EU) level. The sta-
tistics show that Germany leads the way in usage of industrial robots per 10,000
employees followed by Sweden, Denmark and Italy. In case of Germany, there
are currently more than 300 robots per 10,000 industrial workers (IFR 2019).
This number is closely followed by Sweden at approximately 250 robots per
10,000 employees (IFR 2019). The current average in EU is approximately
100 robots per 10,000 industrial workers (IFR 2019). An interesting observa-
tion in this concern relates to France, a heavily industrialised economy where
industrial usage of robots in the manufacturing sector is slightly less compared
to Germany and some other European economies (IFR 2019). This can be
partially explained by referring to peculiarities in the French industrial context,
regulations and the role of unions (Arntz et al. 2016; Courtioux and Erhel
2019). As the artificial intelligence technology develops making robots more
effective and efficient, it is logical to expect that human (employees)-to-robot
ratio will increase further in all EU countries in the future.
Following this discussion on artificial intelligence and robotics, we move our
focus towards the digitalisation. Digitalisation has influenced international
markets and workforces in both positive and negative ways. Competition usu-
ally brings with it not only an increase in consumer choice, but lower prices
(Pekgun et al. 2017). The advancement of the Internet has ensured that sales
now take place internationally without the need for the development of com-
plex distribution networks, thus the realistic markets that suppliers can work
within have expanded without the subsequent need for investment to buy into
the said markets. The logical conclusion here is that the benefits to the con-
sumer are significant, improving standards of living and ways of life. Yet, as
identified by Brennen and Kriess (2014), “digitalisation serves both as an
organising mode across social domains and as a destabilising force”.
There is research evidence to suggest that a significant number of people
believe that digitalisation brings benefit to business. However, at the same
time, less than 50% believe that digitalisation also results in new business mod-
els (Siemens 2019), which can potentially have significant influences of humans
in the labour market. Such a point, if it is an accurate prediction, carries with it
the expectation that the future will simply be a continuation of the past—with
 31 HUMAN DYNAMICS OF AUTOMATION AND DIGITALISATION OF ECONOMIES… 617

the difference being the movement of the industrial and financial power bases
to different continents. However, such assumptions fail to acknowledge the
significant impact digitalisation brings with it. Principally, digitalisation requires
a deeper understanding of methods of analysis and integration within the
organisations for it to be operationally viable. Furthermore, it needs to be
grounded and controlled relative to presently available data and shown to be of
economic value before it is more widely used (Siemens 2019). The assumption
that digitalisation in itself is the answer is therefore an oversimplistic view to
take. It is clearly a management and operational tool, yet as with all such tools,
it needs to be considered in line with financial and other practical consider-
ations. Alongside such considerations run the concerns associated with ethics
regarding its usage and encroachment on an individual’s privacy. Subsequently,
some European researchers argue for the development of a set of specific ethi-
cal guidelines to ensure that negative issues do not arise, so as to build trust in
the technology (Sciencebusiness.net 2019).
Digitalisation is increasingly being manifested by IoT and 3-D printing. IoT
comprises any electronic and electrical equipment that connects to the Internet
and ranges from cell phones to home electronics to oil rigs (Forbes 2014). It
should be noted that IoT is closely related to the earlier discussion on robotics
and artificial intelligence. IoT can be considered as a series of disruptive digital
technologies, influencing the daily life of both individuals and businesses (Del
Giudice 2016; Santoro et al. 2018). IoT enables firms to become more intel-
ligent in developing, adopting and adapting disruptive technologies in their
business processes, in order to increase their efficiency and innovativeness
through knowledge flows and data/information gathering (Del Giudice 2016).
IoT usage has increased dramatically since 2010 and is expected to continue
increasing in the future with the number of connected devices reaching approx-
imately 50 billion by the end of 2020 (NCTA 2019). The resulting intercon-
nectedness between the increasing numbers of IoT devices offers significant
opportunities to many smart firms and entrepreneurs but carries with it the
risks of many firms losing out and individuals losing their jobs (Solima
et al. 2016).
Increased digitalisation manifested by IoT and other advancements has
resulted in firms adapting new and disruptive strategies which have the poten-
tial to change the overall landscape of economies as we know them. Tesla, for
example, has removed all worldwide electric vehicle patents so as to help grow
the market and make their technology the industry standard (Tesla 2019).
Such a radical step could never have been envisaged from Ford or Toyota in the
past. Similarly, Ingersoll-Rand has developed a monitoring system for its air
conditioning units to remotely balance light and heat-level needs in line with
energy-reduction goals (Trane 2019). Whilst such a system may align (to some
extent) with home-based smart systems, new business concepts such as Philips’
Pay-per-lux, sold to various organisations, including airports, ensure clients
only pay of the light used rather than the fixtures and fittings (Luxreview
2019). Hence, the digitalisation process can be argued to change the very
618 A. ARSLAN ET AL.

nature of business models in many sectors. However, if business models such as

these are more widely adopted, it is not so much the manufacturing processes
that hold value—it is the development of the technologies, forms of delivery
and changes in ownership that will hold the key to market control.
Along with IoT, 3-D printing is an aspect of digitalisation which is also
increasing rapidly at a global level. 3-D printing technology has been around
since 1984, but its popularity grew at the turn of the millennium when the cost
of printers dropped and manufacturing possibilities increased rapidly (Bogue
2013). 3-D printers are increasingly being utilised in a range of industries, from
basic to complex manufacturing, thereby resulting in new competitive dynam-
ics for traditional manufacturing firms. An interesting example in this concern
is of GE (General Electric), which now utilises 3-D printing for part manufac-
turing of its Leap Engine such that multiple parts are produced that are five
times stronger than those in the past from one print run (Fortune 2019).
The popularity of 3-D printing is increasing globally. According to Grand
View Research (2019), global 3-D printing market is rapidly increasing, and
currently the biggest market is in North America (40%) followed by EU (28%).
Moreover, 3-D print spending in Europe is increasing and expected to reach
seven billion US dollars annually by 2022 (IDC 2018). Hence, the use of 3-D
printing in European countries will be visible increasingly in all industries,
resulting in several challenges for the humans (both workers and entrepre-
neurs). It is from this point that we begin to discuss the challenges of automa-
tion and digitalisation in the next section.

Challenges of Automation and Digitalisation

Automation was once a state-of-the-art process developed under Fordist prin-
ciples and it offered substantial benefits to modern organisations (Hurley
2019). Automation under Fordist principles initially increased the employment
levels. However, the ongoing developments surrounding automation and digi-
talisation depict a decrease in employment throughout industrial economies
globally (Pierce et al. 2019). It should be noted that there have been earlier
instances in history representing similar significant changes. However, the rela-
tionship between humans and machines has never been as complex as it is now.
In earlier technological advancements such as the steam engine and electrifica-
tion, machines predominantly replaced physical effort and complemented the
human work (Landes 2003). As technologies advanced further and the second
machine age dawned, machines are doing direct physical work, as well as
undertaking cognitive tasks using artificial intelligence. Hence, there is an
increased discussion surrounding the disappearance of many jobs from society
due to this automation. The jobs at the highest risk from automation are char-
acterised by routine tasks and repetition, which can easily be automated and
digitalised (e.g. Pouliakas 2018). Some practical examples in this concern are
non-executive office occupations (routine information occupations) and indus-
trial assembly occupations (routine manual occupations) which are slowly
 31 HUMAN DYNAMICS OF AUTOMATION AND DIGITALISATION OF ECONOMIES… 619

disappearing. This may have been considered a risk for those operating at the
top of the pyramid as upcoming competitors have less to lose through automa-
tion (from the basis of their starting point—it can only improve matters if start-
ing at the bottom of the pyramid). The Fordist process experienced by
organisations and countries largely brought about benefits, infrastructural
improvements, investments and employment. The Fordist process took a con-
siderable time to reach its full potential. However, the very nature of current
automation and digitalisation in and of itself has speeded up the development
process to such an extent that what might have taken decades to achieve 80
years ago may now be completed in a few years.
A new automated manufacturing plant can be set up virtually anywhere in a
relatively short period of time and the newcomers can compete immediately
with those already in the market. Their relative position has been improved by
the requirement of a personal approach, flexibility, problem-solving ability or
creativity associated with the work (which is more difficult to digitalise). During
the second machine age, rather than only operating based on pre-programmed
inference rules, machines themselves are learning to use neural networks and
large data sets (Harteis 2018). This has added to the possibilities of utilising
automation in many new applications associated with such fields as translating
languages, pattern recognition, diagnosing illnesses and self-driving modes of
transport. These new application areas may mean that the impacts on employ-
ment will also touch many information processing and cognitive occupations as
well, which were deemed relatively safe some years earlier. In recent years, there
is a significant decrease in the number of middle-wage workers across the
European Union (EU) member states (Harteis 2018). This is driven by indus-
trial and technological changes and has significant social implications as reduc-
tion in middle-class population is going to influence their purchasing power
with spillover effect for many other businesses as well (Salvatori and
Manfredi 2019).
According to Pouliakas (2018), almost 15% of EU workers are in sectors
that are at a high risk of automation (70% or more job losses), and 40% are in
sectors that are going through significant automation-related transformation
(50–70% job losses). Hence, no industrial sector is safe from these changes, and
even in the little change category, the expected percentage is higher than 10%
(Pouliakas 2018). In this context, it has been established that routine tasks are
at the highest risk of job losses due to automation followed by autonomous
tasks and customer service tasks (Pouliakas 2018; Salvatori and Manfredi
2019). The tasks facing the least risk of automation in Europe are the ones that
require 4C skills, that is, communication, creativity, critical-thinking and col-
laboration (Pouliakas 2018). This is an important aspect which we also high-
light in later section while addressing new skills development in people in order
to deal amicably with the challenges of automation and digitalisation.
It should further be pointed out that the rise of automation and digitalisa-
tion not only represents a bleak picture fraught with risks and challenges, but
opportunities as well. In this context, researchers analysing similar topics have
620 A. ARSLAN ET AL.

found that the economic influences of these technological advancements have

been milder than originally anticipated in many cases (e.g. Itkonen 2017).
Moreover, these technological advancements have created new business mod-
els (e.g. Neumeier et al. 2017), which offer a number of new job and entrepre-
neurial opportunities for people. We offer a specific discussion on these
opportunities in the European context in the next section.

Automation, Digitalisation and the New Opportunities

In recent years, several researchers have focused on the changing nature of
employment due to digitalisation and automation. It has been argued by them
that in certain sectors, the concept of what constitutes “work” needs to be
rethought (e.g. Anttila and Oinas 2018). It is evident from earlier discussion in
this chapter that routine and low-skilled jobs are at the highest risk of disap-
pearing due to automation. It should also be noted that even though some
other tasks may not disappear, parts of them may become automated (e.g.
Koski 2018; Salvatori and Manfredi 2019). It has further been argued that
automation and digitalisation will create new tasks and occupations that will
take time to be understood by potential employees due to the new skill sets
required (Linturi and Kuusi 2018). There will be an increase in highly skilled
and knowledge-based jobs, and even routine jobs may require a certain level of
IT skills (Susskind and Susskind 2018). In sectors like elderly care, logistics and
construction, the interaction between workers and automated machines
(including robots) is slowly becoming visible (Koski 2018; Chen et al. 2018).
Moreover, automation and digitalisation are expected to lead to what has been
referred to as a “task-based mode of economy” (Acemoglu and Autor 2011;
Nedelkoska and Quintini 2018). In such economic model, the demand for
workers to undertake cognitive tasks will be higher (Harteis 2018; Koski 2018;
Paus 2018).
Researchers have also predicted that the changes initiated by automation
and digitalisation will increase the need for the retraining and development of
relevant skills (Harteis 2018; Paus 2018). They are also likely to introduce new
forms of jobs in the service sector (Acemoglu and Restrepo 2018; Susskind and
Susskind 2018). There are expectations that independent and platform-based
job opportunities will increase; thus, certain levels of new IT skills will be
needed. This development is already present in Europe, alongside an increase
in online jobs (relative to location-based jobs)—a trend that is anticipated to
continue to increase as identified through data published by the ESDE
(Employment and Social Development) index in the EU. It has been estimated
that in professional services, creative tasks, translation, software development,
sales and clerical tasks, already more than 30% work is online now (ESDE
2018). On the other hand, this percentage is still very limited in transportation
and ancillary services (ESDE 2018). However, for transportation services, an
increasing number of autonomous (self-driving vehicles) offer a challenge,
which is expected to grow in future as well (Coppola and Esztergar-Kiss 2019).
 31 HUMAN DYNAMICS OF AUTOMATION AND DIGITALISATION OF ECONOMIES… 621

At the same time, there are new opportunities associated with this specific tech-
nological development, which can be tapped in by target policy initiatives
(Coppola and Esztergar-Kiss 2019).
In terms of the level of preparedness of European countries in terms of deal-
ing with this change in employment dynamics, a useful indicator is digital
economy and society index (DESI) developed by European Commission
(DESI 2019). This index shows that Nordic and Western European countries
are better prepared to deal with the changing work environment relative to
other counterpart nations as depicted by their high DESI scores (DESI 2019).
It is also important to mention that despite this digital connectedness, in a
recent world economic forum (WEF) future of jobs survey, it was found that
the need in days for reskilling in Western Europe is approximately three months
(WEF 2018). This retraining needs to inculcate specific skills in vulnerable
people (workers) which have been highlighted by Pouliakas (2018: 7). These
skills include technical skills especially linked to the use of connected devices,
problem-solving skills, continuous and on-job learning skills, team working
skills, planning and organisational skills, foreign languages and communication
skills and multifaceted customer handling skills.
Along with the new job opportunities and relevant skills development needs
discussed so far, automation and digitalisation also offer many entrepreneurial
possibilities that can be utilised by individuals possessing the needed skill sets.
In this context, it is important to mention the important role of open innova-
tion and platforms for this new entrepreneurship. A key aspect of open innova-
tion is openness because established firms including multinationals are receptive
to ideas and technologies sourced from elsewhere (e.g. Bogers et al. 2017).
Prior researchers have found this openness, which was not there in past due to
the strategies of undertaking in-house R&D, has helped many new biotechnol-
ogy ventures to benefit from collaboration with large pharmaceutical firms
(Nambisan et al. 2018). In a recent paper, Mittal et al. (2019) highlight that
3-D printers can significantly help the entrepreneurial firms (small and medium
sized) to gain a foothold in previously out-of-bound (due to high entry costs)
high-end manufacturing sector.
Alongside open innovation, another aspect of this technological change is
rise of the digital platforms. These platforms not only enable entrepreneurship
but also deal with a fundamental barrier of risk—a key concern in the minds of
many entrepreneurs (Kenney and Zysman 2016). Platforms such as Alibaba,
eBay and Amazon Marketplace have played a major role in redefining the
nature and extent of market risk for small businesses by broadening market
access (Nambisan et al. 2018). Similarly, cloud computing platforms and asso-
ciated digital infrastructures help to enhance the overall agility of small busi-
nesses and enable them to up-scale their new ventures without assuming greater
levels of investment risk (Moeuf et al. 2018).
Along with these aforementioned aspects, certain digital platforms (espe-
cially Apple’s App Store and Google Play Store) have created entirely new
markets for digital entrepreneurial activities (Kenney and Zysman 2016;
622 A. ARSLAN ET AL.

Nambisan et al. 2018). These platforms have radically altered economic aspects
associated with starting a business, as well as reduced barriers and market risk
(Zysman and Kenney 2018). It has also been argued that open innovation and
digital platforms have enabled entrepreneurs to share their risk with several
other actors. Financing has been an aspect, where many potential entrepre-
neurs have historically struggled (e.g. Burns and Dewhurst 1996; Herciu
2017). However, platforms such as Kickstarter offer new sources of start-up
finance, and they have helped to significantly expand entrepreneurial activity
outside capital-rich environments (e.g. Herciu 2017). Moreover, platforms
such as CrowdSpring and others allow entrepreneurs to engage in a global pool
of product designers, while platforms like Mobilework and Amazon Mechanical
Turk provide access to low-cost, less-skilled workers (Lehdonvirta 2018). It
has therefore been argued that crowd-based platforms make it easy to take
control of routinised functions in entrepreneurial start-ups, leading to reduced
costs and start-up time (e.g. Caspin-Wagner et al. 2018). Like the new job
opportunities discussed earlier, these new entrepreneurial opportunities result-
ing from automation and digitalisation also require specific skills as well as their
continuous development. These skills have similarities with the ones mentioned
earlier for job hunt in the new automated and digitalised economy, as well as
some entrepreneurship-specific skills. A key aspect in this concern has been
identified in prior research as “dual skills”, where entrepreneurial mindset is
complemented with communication and technological awareness skills (e.g.
van Welsum and Lanvin 2012; van Welsum 2016). It has been argued that such
skills are highly needed for the entrepreneurs in digital age to “pitch” their
business case (van Welsum 2016) so that that they can take advantage of the
aforementioned new entrepreneurial opportunities. Hence, such skills devel-
opment should be the focus of policymakers in European countries, an issue
that we more specifically discuss in the next section.

Implications, Limitations and Future

Research Directions
The purpose of this chapter was to offer an overview of automation and digi-
talisation specifically in the context of European countries, highlight the chal-
lenges associated therein, and discuss the emerging opportunities. As the
chapter has focused on a relatively less-researched and an emerging topic, it
offers both theoretical and policy implications. A key theoretical implication of
the chapter relates to the urgent need for management scholars to develop
applicable theoretical frameworks with which to address these complex issues.
Despite an increasing amount of research being completed on these topics, we
found out that there is a rather lack of specific theoretical frameworks or con-
ceptual models to address issues such as job loss dynamics, new work, entrepre-
neurial possibilities, continuous training and skills development need for
employees and strategies of firms (both large and small) in an increasingly
 31 HUMAN DYNAMICS OF AUTOMATION AND DIGITALISATION OF ECONOMIES… 623

automated and digitalised economy. Given the fact that automation and digi-
talisation are multifaceted topics with multidisciplinary roots, we believe that
they offer fertile ground for specific theory development based upon estab-
lished organisational, sociology and behavioural sciences theories. Such theory
development work will enrich extant literature and guide future research in a
more structured way in all domains of social sciences including management
and organisation studies.
The policy implications of this chapter are associated with initiatives that can
be undertaken to address the myriad of challenges as well as fruitful opportuni-
ties offered by automation and digitalisation for European economies. Firstly,
each country according to its specific situation should have policy initiatives in
place to identify vulnerable people who have lost or can lose their work (jobs
and businesses) due to these changes. Retraining these individuals as well as
linking social benefits to retraining and skills acquisition is important to avoid
their alienation and problems of economic polarisation in society. As the role of
automated and digital technologies will increase in all occupations in future,
training programmes should incorporate technological and interaction skills
for the people operating at all levels in different industries and sectors. This
educational push should incorporate the earlier discussed elements identified
by Pouliakas (2018), as well as the ones referred in this chapter and should be
visible at all levels from basic to higher and vocational education. Another
important aspect highlighted in the chapter relates to digital entrepreneurship
and platform working opportunities in the changed environment. In order to
fully utilise these opportunities, training and skill acquisition programmes
should focus on specific areas rather than being general, as is the case currently
in many countries. Moreover, there is a significant variance in European econo-
mies in relation to digital preparedness. The more competent ones like Nordics
and Western European economies can embark on policy knowledge sharing
programmes with other countries that are finding it difficult to cope with
these issues.
A big risk for the future is linked to certain automated and digitalised busi-
nesses becoming monopolies and abusing their dominant powers. This cou-
pled with these large automated technological giants not offering employment
opportunities to a reasonable number of people, as well as pushing other com-
petitor firms out of business, leads to more unemployment. This risk is difficult
to tackle for individual EU member states due to the significant economic
power of these technological giants. However, EU-wide regulative initiatives
can be very helpful in tackling and regulating these power technological firms,
as the recent cases involving Apple and Google may suggest (e.g. Moore and
Tambini 2018). Moreover, labour mobility should also be supported to move
workers to tasks that better match their retrained skills. Hence, specific regula-
tions in this context as well as incentivising firms should also be the focus of
policy makers.
The current model in most European countries has elements of welfare
within it, which becomes very visible in the cases of Nordic and other Western
624 A. ARSLAN ET AL.

European countries. This welfare regime was developed in the post-World War
II time period around the wage–tax relationship (Pierson and Castles 2006;
Taylor-Gooby and Leruth 2018). Due to the changes in employment patterns
presented earlier, including the rise of freelancing and platform work, it is rea-
sonable to expect significant disruptions to that model. Hence policy makers in
different European economies need to align social insurance and labour market
regulations to minimise the influences of this disruption. Rather than initiatives
such as universal basic income, whose effectiveness has been debated by aca-
demics, especially in the current form (e.g. Fouksman and Klein 2019), specific
policy initiatives targeted at public support for mobility and the retraining of
vulnerable people may possibly be more beneficial. In this concern, automated
and digitalisation-specific taxation, sometimes referred as taxing the robots, has
also been suggested by some scholars (e.g. Oberson 2017; Abbott and
Bogenschneider 2018) Also, as most European countries are EU-member
states, the role of the EU needs to be very visible in terms of ensuring such
initiatives succeed in the coming years.
Our chapter has several limitations as well. Firstly, it is a conceptual piece of
work supplemented by statistics based on publicly available data. As we have
not undertaken primary research, specific insights in terms of the dynamics of
challenges, as well as the work and entrepreneurial opportunities present in
different European countries, are missing from the discussion. However, we
believe that our chapter builds a suitable basis for future studies to delve into
different aspects of these challenges and opportunities in different European
countries more specifically. Moreover, future studies can also perform specific
analyses of policy initiatives in different EU member states and see if those
initiatives match the training and skill development needs associated with a
more automated and digitalised economy. Finally, linking and analysing the
roles of automation and digitalisation with the larger debate on sustainability
are very important, and specific case studies with benchmark best practices
from different countries (both European and non-European) can be developed
by the future studies.

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 CHAPTER 32

Achieving the Triple Bottom Line Through Big

Data Analytics

Baraah Shdifat, Dilek Cetindamar Kozanoglu,

and Shadi Erfani

Introduction
Sustainability is an everlasting theme in both literature and practice due to several
critical global challenges. For example, poverty is one of the key social challenges,
since the number of people who are living below the poverty line equates to 736
million people in the world, meaning that these people live at or below approxi-
mately $1.90 US per day (World Bank 2015). Another major challenge is the
environmental problem arising from climate change. It is clearly shown that the
current worldwide resource footprint requires approximately 1.5 planets to sus-
tain existing life, and by 2030, two planets will be required to sustain consump-
tion (Moore et al. 2012). As discussed in the famous publication in 1972
(Meadows et al. 1972, p. 211): “The earth’s interlocking resources the global
system of nature in which we all live probably cannot support present rates of
economic and population growth much beyond the year 2100, if that long, even
with advanced technology”. Due to these global challenges, industry, academic
institutions, and public sectors have started to pay more attention to sustainabil-
ity issues. In particular, sustainability research has increased tremendously in
order to improve our understanding to cope with environmental and social
problems, including a reduction in energy use and climate change while fighting
with human rights abuses at the same time.

B. Shdifat • D. C. Kozanoglu (*) • S. Erfani

University of Technology Sydney (UTS), Ultimo, NSW, Australia
e-mail: [email protected]; [email protected];
[email protected]

© The Author(s) 2021 631

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_32
632 B. SHDIFAT ET AL.

Climate change is one of the key challenges facing sustainable development

for contemporary business and society. Extreme climate-related disasters result
in vulnerability for people and challenge both governments and companies
(Haney 2017). Moreover, it is widely recognized that current violations associ-
ated with climate change are set to make addressing climate change an irresist-
ible issue for future generations (Besio and Pronzini 2014). Interestingly, the
present global and national legislations are inadequate in protecting the ecosys-
tem around the world. Focusing on short-term temporary solutions leads to
poor environmental management (Coyle and Simmons 2014). As a result,
environmental sustainability has become a necessity.
Environmental sustainability addresses how environmental management
strategies are used as tools for increasing a company’s profits and enhancing its
image. Organizations should sustain their growth and maximize profitability
over the long term (Gupta 2015). However, companies can achieve economic
sustainability by using the assets of an organization efficiently and by balancing
economic (profit), social (people), and environmental (planet) measures to cre-
ate profitability and ensure growth indefinitely (Oberoi 2014). The current
sustainability agenda is pushing businesses to extend their focus beyond tradi-
tional economic goals to the triple bottom line (TBL) approach. The TBL
concept is also referred as P3 (people, planet, and profit) (Elkington 1998);
this is because it simultaneously takes into account social, environmental, and
economic issues in order to create higher business value and sustain long-term
success (Carter and Rogers 2008).
Digital technologies such as the Internet, social networking, and mobile
technology create a huge amount of data every second (Kauffman and Donato
2012). Big data analytics (BDA) is the process of using advanced technologies
to examine big data (BD) in order to uncover useful information (e.g. hidden
patterns) to make better decisions across business processes among functions
or companies (Waller and Fawcett 2013). In particular, BDA provides benefi-
cial information allowing managers to manage their business more effectively
according to social, economic, and environmental measures. Economically,
BDA can increase profit (Schroeck et al. 2012) and market share and maximize
sales and financial productivity (Manyika et al. 2011) as well as return on
investment (Chen et al. 2012). Environmentally, BDA could reduce environ-
mental footprint (Van Rijmenam 2014) and induce a reduction in emissions
(De Gennaro et al. 2016). BDA could also help firms to respond to social,
environmental, and social changes in an uncertain environment. By doing so,
BDA can improve a company’s sustainable performance (Hazen et al. 2016).
Considering the vital role of BDA for business success in several industries
(McAfee et al. 2012), BDA and sustainability for firms have recently received
interest from researchers. However, most of these studies offer conceptual evi-
dence. Some existing empirical studies indicate the influence of BDA on three
dimensions of the sustainability (i.e. environment, social, and economic), but
they remain fragmented rather than comprising all aspects in a coherent man-
ner (Song et al. 2017). Few authors have attempted to study the impact of
 32 ACHIEVING THE TRIPLE BOTTOM LINE THROUGH BIG DATA ANALYTICS 633

BDA on economic performance (Akter et al. 2016; Gunasekaran et al. 2017;

Wamba et al. 2017) while others focus on the impact of BDA on environmen-
tal sustainability (De Gennaro et al. 2016; Koseleva and Ropaite 2017).
However, the studies related to BDA and social sustainability are scarce (Song
et al. 2017). Consequently, studies focusing on the impact of BDA on the TBL
dimensions of sustainability in combination are still underdeveloped.
Additionally, there remains a lack of practical insights into how organiza-
tions utilize BDA to leverage sustainability. Therefore, this chapter aims to
focus on the following questions and offer several insights from previous stud-
ies that might help to answer them:

1. What is the relationship between sustainable development and the TBL?

2. How could big data analytics be utilized to achieve all three dimensions
of sustainability?

This chapter presents a conceptual study to discuss how to achieve sustain-

ability by utilizing BDA. The next section introduces the TBL approach in
examining three dimensions of sustainability (economic, environmental, and
social performance), followed by a section that introduces BDA and provides
examples of how they could contribute to sustainability. The final section sum-
marizes the link between the TBL and BDA, and it concludes by offering sug-
gestions for further studies.

Understanding Sustainability Through the TBL

Sustainability, in its most general conceptualization, indicates meeting the
needs of the current generation without encroaching upon the requirements of
the future generation (Brundtland 1987). However, corporate sustainability
indicates the balance among social, economic, and environmental goals of an
organization (Hansen and Schaltegger 2016). The sustainability of a firm is its
ability to satisfy the needs and requirements of current stakeholders while
developing continuous investment and managerial strategies to ensure future
profitability, social well-being, and environmental protection (Pantelic
et al. 2016).
Initial studies have, to some degree, been concerned with social responsibil-
ity and its impact on business performance (Filios 1983; Sturdivant and Ginter
1977). Despite these early studies, environmental sustainability had dominated
the majority of studies on sustainability, focusing mainly on the impact of envi-
ronmental aspects on the business’s financial performance (Gil et al. 2001;
Klassen and McLaughlin 1996). This trend has been overturned in the 2000s
where new streams of studies are interested in adopting a more comprehensive
approach toward performance inspired by the TBL.
In the TBL framework, the substantial dimensions of sustainable develop-
ment have been used, directing environmental, social, and economic objectives
within a business context (Blewitt 2014). Ultimately, the health or success of
634 B. SHDIFAT ET AL.

an organization should be evaluated not only by its traditional financial value

but also by its social or ethical values and environmental practices (Gimenez
et al. 2012; Slaper and Hall 2011).
The TBL has been receiving more attention from profit, non-profit, and
government sectors. As a result, the TBL is the most reported and cited frame-
work for addressing sustainability activities of an organization (Alhaddi 2015).
The TBL emerged during the mid-1990s and was developed by John Elkington,
who sought out a method for assessing the performance of organizations in the
USA (Elkington 1994). The TBL concept has been presented through a frame-
work that endeavours to concurrently concentrate on social, economic, and
environmental issues and strive to work harmoniously within these three per-
formance domains in order to create greater business value and sustain long-­
term success. In other words, it incorporates the three dimensions of
performance: social, environmental, and economic. That is why, the TBL
framework is known as the three Ps: people, planet, and profit (Alhaddi 2015;
Elkington 1998).
Even though businesses aim to attain the most profit, it is significant that the
business’s aim focuses on not only short-term (financial) benefits but also long-­
term (ethical and environmental) benefits as well. A business measures its per-
formance and success by using the TBL framework, addressing environmental,
social, and economic objectives within a business context (Goel 2010). Rogers
and Hudson (2011) suggest that the TBL framework aims to attain a consis-
tent and balanced focus on traditional financial value, environmental behav-
iours, and social or ethical value in order to create greater business value and
sustain long-term success (Carter and Rogers 2008). In other words, organiza-
tions cannot be successful in the long run if they fail to take into account social,
economic, and environmental issues (Elkington 1998). This chapter builds the
foundation of the outcomes of sustainable development on the TBL perfor-
mance pillars.
From a performance standpoint, TBL exhibits optimal conditions for over-
lap of the three dimensions. Elkington (1998) posited there are activities a firm
can engage in which have a positive effect on both society and the natural
environment, resulting in long-term benefits and competitive advantage.
Porter and Kramer (2006) concurs in his discussion of the potential benefits for
firms employing the same logic guiding their core business strategy with those
of the firm’s social responsibilities. The author further posits that this can be a
source of competitive advantage, as well as enhancing a symbiotic relationship
between the firm and community, resulting in both the firm’s success and
mutual reinforcement from the community.
The TBL approach motivates managers to balance their activities in order to
achieve not only economic but also environmental and social outcomes. By
doing so, it allows firm strategies to embrace sustainability by performing well
in three dimensions: economic, social, and environment. The following sub-
sections summarize each dimension and its importance for sustainability.
 32 ACHIEVING THE TRIPLE BOTTOM LINE THROUGH BIG DATA ANALYTICS 635

Profit/Economic Performance and Sustainability

Different business activities play a vital role in maintaining the economic sys-
tem, not only for the present day but also for future generations. All these
activities seek to contribute to profit maximization at the firm level. Traditionally,
business financial success is measured by using conventional accounting mea-
sures such as profit and revenue. Managers consider profit as the cornerstone
of their business in order to survive in a competitive market and to boost its
long-term sustainable growth (Gupta 2015). However, how can managers
achieve both profit and sustainable growth?
Companies become economically viable if they achieve economic sustain-
ability. Economic sustainability indicates using the assets of an organization
efficiently and balancing economic (profit), social (people’s), and environmen-
tal (planet’s) measures to create profitability and ensure growth indefinitely
(Oberoi 2014). Within a corporate context, economic sustainability means the
improvement of the short-term and long-term shareholders’ value as well as
the building of a strong financial foundation for the continued survival of a
company (Steurer et al. 2005).
According to the TBL approach, the economic pillar refers to the influence
of the organization’s business practices on the economic system (Elkington
1997). The economic sphere ties the business growth to economic growth and
ultimately contributes to sustainability (Spangenberg 2005). Organizations
can achieve economic value and support the people of tomorrow when they
make serious attempts to integrate environmental issues into their strategic
planning process (Ross 2015). Their business strategy, operations, and supply
chain processes must all integrate social and environmental concerns. One of
the popular examples is the Swedish furniture company IKEA. In 2016, IKEA
raised its sales to $37.6 billion, but it did not consume all the profit. Instead,
the organization used its profits in recycling waste material, including the rem-
nants of trees, which were transformed into new products. Now, IKEA is rec-
ognized as a company that runs an operating system of “zero waste to landfill”
(Parinduri et al. 2019).
Green et al. (2012) reveal that the economic performance dimension of the
TBL approach is mainly related to reducing costs associated with energy con-
sumption, purchased materials, waste discharge, waste treatment, and disposal.
Some alternative sets of indicators of economic performance include sales and
brand image (Schaltegger and Burritt 2014). These alternative metrics are
related to the sustainability performance of a firm since sustainable practices of
a firm could attract customers, which result in a better brand image as well as
sales (Schaltegger and Burritt 2014).

Planet/Environmental Performance and Sustainability

Firms use natural resources and raw materials in manufacturing all the time.
Consequently, the environmental performance of firms has a strong association
with sustainable development. The environmental performance addresses
636 B. SHDIFAT ET AL.

corporations’ behaviour as well as how environmental management strategies

are used as tools for increasing a company’s profits and enhancing its image
(Morali and Searcy 2013). The environmental pillar of the TBL refers to
engaging in practices that do not compromise the environmental resources for
future generations. It aims to protect and conserve biodiversity and the envi-
ronment through efficient utilization of natural recourses, waste management
as well as reducing pollution such as greenhouse gas emissions. Alhaddi (2015)
indicates that by protecting the environment, organizations achieve financial
advantages from the reduction in operational costs (energy and water usage)
and growing revenues from the improvement of innovative green products
(Kearney 2009).
Businesses face increasing pressure from customers and regulations to mini-
mize the ecological footprint of companies (Morali and Searcy 2013). In fact,
the goal of reducing ecological footprint is not confined to the border of a
firm. Companies need to conduct activities that could also reduce their eco-
logical footprint throughout their supply chain. Unethical behaviours of supply
chain partners damage the brand image of international corporations. For
example, the multinational food company Nestle was accused of rainforest
deforestation through its palm oil suppliers (Coombs 2014). Therefore, orga-
nizations working closely with their supply chain partners might lead to provid-
ing sustainable products and services (Gold et al. 2010).
Achieving environmental sustainability requires new forms of engagement
among policymakers, researchers, and stakeholder to make a valuable contribu-
tion to minimizing the ecological footprint (Martens et al. 2016). Governments
should embrace strategies to develop green industries like renewable energy
and they should also set regulations to reduce carbon emissions (Misopoulos
et al. 2019). On the other side, businesses should adopt environmental prac-
tices to minimize their footprint on the environment by adopting environmen-
tal practices such as efficient utilization of natural recourses, waste management,
and cutting of pollution such as greenhouse gas emissions (Elkington 1998;
Song et al. 2017).

People/Social Performance and Sustainability

Social issues have recently been popular in debates on developing sustainability
(Eizenberg and Jabareen 2017). For example, human rights principles are
included in the 2030 Agenda for Sustainable Development. However, people
are a vital asset for any organization, and every organization should consider
the interests of the people within the organization (employees), while also tak-
ing into account its social impact on the community in order to nurture its
long-term sustainable growth. This is because the people dimension of the
TBL approach is focused on the organization’s impact on employees, commu-
nity, and society as a whole (Arowoshegbe and Emmanuel 2016).
The social line of the TBL indicates participating in beneficial and fair busi-
ness actions that promote labour, human rights, and the community (Elkington
 32 ACHIEVING THE TRIPLE BOTTOM LINE THROUGH BIG DATA ANALYTICS 637

1997). These actions provide value to society and “give back” to the commu-
nity, such as non-discrimination and avoiding employing forced and compul-
sory labour (Arowoshegbe and Emmanuel 2016).
Thanks to the rise of TBL-based reporting such as the Global Reporting
Initiative, large businesses are paying more attention to assess the social, eco-
nomic, and environmental impact of their operations (GRI 2014). In particu-
lar, two reasons encourage businesses to consider the social dimension of the
TBL approach when they publish social reports: achieving positive publicity
and recognition for their actions as well as meeting the demands of investors
(Tschopp 2003). However, defining social sustainability is difficult because
social values are dynamic, complex, and difficult to quantify. Recently, some
studies have played a notable role in enhancing our understanding of social
sustainability such as investigating the principles of social sustainability, the
conceptualization of social sustainability, and investigating design for social
sustainability that promote social sustainability in both outcome and process
(Corsini and Moultrie 2019; Eizenberg and Jabareen 2017). For example,
social sustainability could be referring to an ethical code of human growth and
survival that should be achieved in a comprehensive, connected, fair, and pru-
dent manner (Sharma and Ruud 2003). Other studies consider social sustain-
ability as an approach, comprising social equity, social responsibility, social
justice, health equity, labour rights, development, and community resilience
(Long 2016; Takhar 2015). In a way, Sabella and Eid (2016) relate social sus-
tainability to human capital, social capital, and human well-being. Policymakers
and scholars use many terms interchangeably, such as social sustainability, cor-
porate social responsibility (CSR), and corporate citizenship, to indicate busi-
ness leaders’ roles to involve environmental aspects in the corporations’
strategic plan.
Assessing social performance effectively leads to improving social sustain-
ability. Measuring social performance focuses on the interaction between the
organization and the community as well as responses to issues that are related
to community involvement, employee relations, and fair wages (Goel 2010).
Social criteria are grounded in corporate social responsibility (CSR), which
highlights an organization’s public acts of good citizenship (Luo and
Bhattacharya 2009; Orlitzky et al. 2003). According to the CSR literature,
social performance has two main aspects: an internal aspect, which relates to
employee well-being and equity, and an external aspect related to community
performance indicators, such as corporate philanthropic commitment (Jacobs
et al. 2010; Montabon et al. 2007).

Big Data Analytics

Technological innovations make vast volumes of data generated in the digital and
physical world. The term “big data” (BD) was introduced to describe the data
explosion, particularly in the digital world. Cisco estimated that the total amount
of data generated by devices would reach 847 ZB per year by 2021 (Cisco 2018).
638 B. SHDIFAT ET AL.

There are five “Vs”, which provide a comprehensive definition of BD: volume,
velocity, variety, veracity, and value (Wamba et al. 2015). “Volume” refers to a
massive amount of a large number of records or data that consumes enormous
storage. “Velocity” refers to either the speed or frequency of creating data and/or
the frequency of delivering data (Russom 2011). “Variety” represents the data
generated from various sources and formats and entails multidimensional fields of
data consisting of unstructured and structured data (Russom 2011). “Value”
indicates economically worthy insights and benefits which are generated from big
data by extraction and transformation (Dijcks 2012). “Veracity” ensures that the
data used are trusted, authentic, and protected from unauthorized access and
modification (Demchenko 2013).
Technologies such as the Internet create data every second (Kauffman and
Donato 2012). Thus, firms are dealing with different forms of data, including
customer-generated content, user logs, and customer transaction records.
Firms could extract business insights from BD through two stages: data man-
agement and analytics. Data management consists of different processes: from
data acquisition, recording, extraction, cleaning, and annotation to integra-
tion, aggregation, and representation. Data analytics involves modelling, analy-
sis, and interpretation. That is why the term “BD analytics” (BDA) helps us
understand how BD is implemented to solve the real problems of companies
(Cetindamar et al. 2019). In other words, BDA is the process of using advanced
technologies to examine BD in order to uncover useful information (e.g. hid-
den patterns) to make better decisions across business processes among func-
tions or companies (Waller and Fawcett 2013). BDA is sometimes also defined
as technologies (e.g. database and data-mining tools) and techniques (e.g. ana-
lytical methods) that a company can employ to analyse large-scale, complex
data for various applications intended to augment firm performance in various
dimensions (Kwon et al. 2014). BDA consists of the application of multiple
analytic methods that address the diversity of BD to provide actionable, descrip-
tive, predictive, and prescriptive results (Wamba et al. 2015).
BDA has a dominant role in a variety of industries. For example, BDA
enhances manufacturing and industrial automation (Wilkins 2013). In the
healthcare sector, BDA reduces operational costs and improve the quality of
life (Liu 2014). From the perspective of supply chain management, BDA helps
to improve visibility, resilience, and robustness (Gardner 2013).
Studies argue that BDA can create significant value for the world economy,
enhancing the productivity and competitiveness of companies and the public
sector (Manyika et al. 2013). Also, it is argued that BDA could reduce the
environmental footprint (Van Rijmenam 2014).

The Use of BDA for TBL

Despite increasing attention about sustainability, there is relatively little mana-
gerial and academic understanding of how companies respond to sustainability
issues. Most of the studies primarily focus on the strategy of sustainability
 32 ACHIEVING THE TRIPLE BOTTOM LINE THROUGH BIG DATA ANALYTICS 639

(Engert et al. 2016; Marshall and Brown 2003; Sabella and Eid 2016). While
some others focus on the measurement of performance on sustainability
(Paulraj et al. 2017), there are few studies on information technology utiliza-
tion and its impact on sustainability (Gunasekaran et al. 2017; Song et al. 2017).
With the rapid evolution of BD technologies, employing BDA could solve
sustainability issues (Shdifat et al. 2020). The following subsections present
how BDA could affect economic, social, and environmental performance of
companies.

Impact of BDA on Economic Performance

Firms use BD technologies in order to capture vast amounts of data from sev-
eral sources, such as radio frequency identification tags, web information, and
social media activities (Davenport 2014). These massive collected data can
make radical changes in the way businesses manage their customers and their
business models (Braganza et al. 2017, p. 329).
In the current business environment, the firm dramatically relies on infor-
mation systems and data analytics to build its competitive advantage (Chen
et al. 2012; LaValle et al. 2011). Several studies indicate the business value of
BDA solutions to enhance financial performance (Akter et al. 2016; Wamba
et al. 2015, 2017). BDA increases customer satisfaction and loyalty through
improving corporate ability to meet their preferences (Wamba et al. 2017). In
addition, BDA decreases customer acquisition costs (Wamba et al. 2015),
which are critical factors for enhanced cash flows in order to enhance financial
performance (Wamba et al. 2017). BDA can also increase profit and market
share and maximize sales and financial productivity as well as return on invest-
ment (Schroeck et al. 2012). For example, BDA can help firms increase new
products and services creation, satisfy customer needs at the right time and
place, expand into new markets, and improve sales and revenue (Columbus
2014). The utilization of BDA in economic sustainability might be summa-
rized under two key economic performance criteria: (1) profitability and (2)
sales growth.

(1) Predictive analytics-based BDA and text mining can reduce costs and
increase profits (i.e. waste and fraud reduction). For example, an
Australian healthcare organization uses CMC-I+Plus, an advanced ana-
lytical application providing claim-based intelligence to facilitate cus-
tomers claim governance, balance cost, and quality (Srinivasan and
Arunasalam 2013). As a result, managers can use the patterns of predic-
tive analytics-­based BDA and text mining to review a cost and profit
summary related to each healthcare service, identify any claim anoma-
lies, and thus make proactive decisions that eventually lead into increased
profitability.
(2) BDA can be used to enhance business value and firm performance by
directly improving the sales. For example, personalized recommenda-
640 B. SHDIFAT ET AL.

tion systems in Amazon generated 29% of Amazon’s annual sales (JP

2012). The success of this recommender system depends on advanced
data analytic tools and methods. It combines data from different
sources: search and web browsing history, purchase history, other cus-
tomers’ purchase and browsing history, related products available, and
current item in shopping carts. Amazon finds proper suggestions for
new or existing customers by applying sophisticated mathematical algo-
rithms (Linden et al. 2003).

Impact of BDA on Environmental Performance

There is an increasing call to address environmental sustainability matters in
light of the new forms of analytics and insight that big data could generate.
BDA can be used to improve sustainability by exploring hidden patterns,
unknown correlations, and trends (Wu et al. 2016). There have been several
studies on BDA for approaching environmental issues as pollution, waste,
resource depletion, and ecology disruptions. For example, in order to improve
the urban air quality to protect human health and control air pollution, Zheng
et al. (2013) proposed a semi-supervised learning method consisting of a spa-
tial classifier involving spatial-related features (e.g. length of highways) and a
time classifier involving temporally related features (e.g. traffic). This method
provides fine-granularity air quality prediction in real-time based on limited air
quality monitor stations.
Another important use of big data’s real-time analytics is processing data
instantaneously. IBM Company’s mainframe computer called “Deep Thunder”
is designed to provide local, high-resolution weather predictions (Mukred and
Jianguo 2017). This mainframe computer could be used to predict the loca-
tions where the public is going to face outages due to weather conditions.
Consequently, any company using “Deep Thunder” can take the necessary
steps to prevent that or fix it right on time, which leads to reducing the cost
and optimising energy use for the company (Mukred and Jianguo 2017).
Utilization of big data in environmental sustainability can be discussed
under four environmental performance categories: (1) enhancing energy effi-
ciency, (2) reducing emissions of CO2 and gases, (3) adoption of cleaner manu-
facturing practices, and (4) improving natural resource utilization.

(1) One of the essential metrics to determine the degree of energy-savings

is energy efficiency. BDA is considered an effective method to optimize
energy use in order to reduce the relevant environmental impacts. BDA
technologies collect data from different resources to extract valuable
information to help create energy strategies, for example, energy effi-
ciency in the building sector. BDA technologies could be utilized to
analyse and understand individuals’ energy consumption behaviour,
which leads to improving energy efficiency and promoting energy con-
servation (Koseleva and Ropaite 2017).
 32 ACHIEVING THE TRIPLE BOTTOM LINE THROUGH BIG DATA ANALYTICS 641

(2) Regarding emission of CO2 and other greenhouse gases, BDA such as the
analysis of extensive data based on the Global Positioning System (GPS)
might be influential by improving systems management and planning. A
study supported by the European Council (De Gennaro et al. 2016)
declared that the main areas for reducing greenhouse gas emissions in the
transport sector are turning to carbon-free or less carbon-­intensive fuels
and improving fuel efficiency. This study developed a methodology that
provides a broad overview of data-processing platform applications
designed to harness the enormous data potential of Europe’s road trans-
port policies. The platform mentioned above uses data from navigation
mobility-focused systems and driving styles. A preliminary pilot study was
performed, and its basic algorithms were developed based on two sets of
data from conventional fuel vehicles assembled using on-board GPS sys-
tems. The emissions model shows how evaporative emissions can be mea-
sured from fuel vehicles based on real-world driving data. That is why
BDA technologies can facilitate the reduction of emissions and lead to
sustainable development (De Gennaro et al. 2016).
(3) A combination with BDA and service-driven patterns that could help
manufacturing firms to overcome the lack of complete data and valuable
knowledge related to product lifecycle management. It could also
encourage them to manufacture in a cleaner manner which leads to
sustainable production and improve their sustainable competitive
advantage (Zhang et al. 2017).
(4) BDA could improve the utilization of natural resources that play crucial
roles in sustainable development. Rapid improvement in an economy
might lead to adverse influence on the ecosystem. Hence, manufactur-
ing firms should consider sustainable management of ecological
resources and human resources (Song et al. 2017). For example, in
2015, the multinational company Unilever achieved a zero-waste-to-­
landfill target at its more than 240 manufacturing plants in 67 countries
(Unilever 2015). In 2017, it had lowered water usage by 20% across 90
of its sites through using BDA and Internet of Things-enabled sensors.
The company also raised its annual consumption of renewable energy,
such as wind and solar power, to 28%. By 2020, Unilever expects to
reduce its dependence on coal to zero and thus cutting greenhouse gas
emissions by 43% (Howells 2017). These actions will lead to a r­ eduction
in natural resource consumption and improve sustainable performance.

Impact of BDA on Social Performance

Social sustainability deals with social issues such as gender discrimination,
inequality, poverty, education, diversity, and wages. Firms address social issues
by adopting different strategies, such as corporate social responsibility (CSR)
reports. Approximately 60% of the world’s largest companies have CSR reports
on their corporate websites (Jose and Lee 2007). These reports are used to
642 B. SHDIFAT ET AL.

share their social practices with a varying degree of detail. For example, some
firms even give data about the number of days lost due to injury to portray a
safe working environment in their companies (Tate et al. 2010). Although a
firm’s commitment level should be apparent in these reports (Jose and Lee
2007), it is difficult to decide whether an organization was implementing
socially responsible activities or merely reporting to satisfy stakeholders
(Kolk 2003).
The development of information technology and sensor technology has
enabled large-scale data collection from each supply chain partner (Mani et al.
2017). Those data could be potentially useful to reduce the lack of knowledge
about social sustainability criteria and address social breaches in the supply
chain. Therefore, BDA expected to find proper and accurate predictions, which
can lead to enhancement in transparency in supply chains and mitigate social
violations to achieve social sustainability (Keeso 2014; Song et al. 2017; Wu
et al. 2016). Mani, Delgado, Hazen, and Patel (2017) employed BDA to miti-
gate supply chain social risk and demonstrate how such mitigation can help in
achieving sustainability. The results show that companies can predict various
social problems including workforce safety, fuel consumptions monitoring,
workforce health, security, the physical condition of vehicles, unethical behav-
iour, theft, speeding, and traffic violations through BDA, thereby demonstrat-
ing how information management actions can decrease social breaches. There
are two significant ways BDA might contribute to solve or mitigate social
issues: (1) child labour and (2) health and safety.

(1) Child labour is one of the most visible issues in social sustainability
(Yawar and Seuring 2017). Although awareness is increasing on child
labour and steps have been taken to cease child labour from many coun-
tries, changes in this issue do not come easily (or quickly) due to the
embeddedness in the socio-cultural and economic structure of society.
Performance monitoring is an effective technique to measure supplier
performance, which identifies the breach level of social issues across the
supplier base. It includes both comprehensive audits using the code of
conduct and focused assessments in specific high-risk areas such as child
labour. However, auditing for child labour in the lower tiers of supply
chains can be difficult due to having a poor capability for capturing and
reporting information about child abuses (Syafrudin et al. 2017). As a
result, investment in advance technologies for data gathering and ana-
lysing from suppliers will assist in monitoring the performance (Mamic
2005) that will ultimately help managers in deciding how to reduce
social violations in supply chains in order to achieve social sustainability.
An example of the use of BDA comes from the work of Thöni, Taudes,
and Tjoa (2018). This study developed a novel model for social sustain-
ability monitoring in supply chains based on a Bayesian network and big
data analysis (text mining). A quantitative risk model continuously ranks
suppliers based on their risk of breaching sustainability standards on
 32 ACHIEVING THE TRIPLE BOTTOM LINE THROUGH BIG DATA ANALYTICS 643

child labour. A Bayesian network uses various data sources such as sta-
tistical data, social media (twitter), audit results, and public reports of
child labour incidents, which helps to determine the breach likelihood
for each supplier location. The model includes child labour incidents
automatically from publicly available news sources using text-mining
algorithms in order to improve child labour standards in the sup-
ply chain.
(2) BDA might contribute to the efficiency of health and safety perfor-
mance of companies. Social media has become an essential channel used
by firms to spread information and communicate with external parties.
Official firm websites provide vast amounts of diverse information
regarding firm performance and development. For example, a study
(Wu et al. 2017) collected data from various types of data about light-­
emitting diode firms (such as qualitative data from management and
social media data as well as quantitative data regarding operations) and
employed a novel method based on big data analysis to develop sustain-
ability by strengthening these firms capabilities to mitigate social risks,
such as health and safety. This kind of different BDA models might be
used to collect data regarding unethical issues from supply chain part-
ners, such as health and safety, so that an international watchdog com-
pany could determine the breach likelihood along the supply chain
base. As a result, this information might help managers to make deci-
sions regarding reducing social violations in supply chains to achieve
social sustainability.

Concluding Remarks
The overview reported in this chapter offer insights into the interplay between
BDA and the three TBL elements. It is merely focused on one digital tool that
is BDA, but the rest of the chapters in this book bring different aspects of digi-
talization and its impact on corporate sustainability. The chapter argues that
the goal of long-term sustainability, meaning growing without harming the
requirements of the future, requires the use of some managerial and techno-
logical tools. We argue that the TBL perspective might be an efficient manage-
rial tool for companies. This perspective forces firms to perform well in three
dimensions: economic, social, and environmental. In addition, we argue that
BDA could be an effective and efficient technological tool while struggling
with sustainability challenges. In the era of data revolution, stakeholders, such
as shareholders and communities, have the power to press on a firm to consider
the long-term impact of commercial activities on both the environment and
society. BDA provides beneficial information allowing managers to manage
their business more effectively according to social, economic, and environmen-
tal performances. In sum, employing BDA provides opportunities for compa-
nies to establish corporate sustainability in a competitive market.
644 B. SHDIFAT ET AL.

To meet the demands of current and future stakeholders, this chapter rec-
ommends business managers and entrepreneurs to align their business, sustain-
ability, and BDA strategies. BDA is a tool and it could be instrumental in
overcoming TBL-related challenges for companies. However, this might not
be automatic and businesses might not efficiently utilize BDA. That is why
there is room for the intervention of policy makers to motivate businesses to
adapt and implement in their businesses as well as regulate its implementation.
In fact, policy makers could themselves use BDA for the sake of society. For
example, BD can shed light on social breaches in the business market that were
previously hidden, such as gender discrimination and inequality. Proper and
accurate predictions are founded from BDA, which help policymakers to put
regulations promoting a workplace to achieve diversity, equality, and fairness.
However, due to its descriptive nature, it has two limitations that might be
opportunities for researchers in the sustainability field. First, it is an overview
of the literature that could lay the base to develop a framework to examine the
relationship between BDA and sustainability performance. Conducting empiri-
cal work in different industry settings and countries could enrich the knowl-
edge on assessing BDA and sustainability performance as well as the impact of
BDA on sustainability performance. Second, further studies might expand the
scope of search to find out additional factors that might affect the impact of
BDA on sustainability performance.

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 CHAPTER 33

Digital Transformation and Corporate

Sustainability Accounting

Miguel A. Gil and Miguel A. Montoya

Introduction
Corporate sustainability (CS) has been a topical issue in accounting literature
for at least three decades (Epstein 2018). Such interest is based mainly on two
key factors that affect organizations: improvement on financial performance
and public demand for ecological sustainability (Dyllick and Hockerts 2002).
Firstly, the current literature has found that sustainability reporting improves
financial performance (McWilliams and Siegel 2000). Secondly, public demand
for ecological sustainability has resulted in several policies that force organiza-
tions to use natural resources and manage waste responsibly (Moon and
Knudsen 2018).
However, in practice, it has been found difficult to efficiently report CS
efforts (Sheehy 2015). Such complications arise mainly from a lack of appropri-
ate accounting data and the technology to collect such data. Failing to produce
timely and accurate accounting data can undermine the credibility, perceived
by stakeholders, related to CS endeavors (Burritt and Christ 2016). Thus, digi-
tal transformation (DT) looks set to change the nature of corporate sustain-
ability accounting (CSA) by improving the technologies used to generate the
required data at the right time.
DT is another popular topic in accounting literature (Zhu et al. 2006). DT
is seen as a revolutionary change in the way that accounting information is
produced, distributed and interpreted. The main characteristic of DT in

M. A. Gil (*) • M. A. Montoya

Tecnológico de Monterrey, Monterrey, Mexico
e-mail: [email protected]; [email protected]

© The Author(s) 2021 651

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_33
652 M. A. GIL AND M. A. MONTOYA

accounting is its ability to produce information almost immediately (Troshani

et al. 2018). DT permits business units and individuals to share data in real
time and use networks to develop a level of accounting awareness that was
previously impossible. Such capability to generate relevant information in
record time provides an attractive possibility regarding CSA efforts (Burritt
and Christ 2016).
Due to the empirical data collected in this research, the focus of the study in
regard to DT will be “business model innovation based on digital technolo-
gies” (Zhu et al. 2006). Examining DT from the business model innovation
perspective allows us to understand the effect of digital technologies on the
capabilities of the organization (Burritt and Christ 2016). Thus, the relation-
ship between DT and CSA can be analyzed clearly.
This chapter examines the use of DT in CSA. The analysis provides an over-
view on how DT improves the quality of accounting information relevant to
CS, but also highlights the most important challenges on managing such an
implementation. To provide empirical evidence on how DT affects CSA, we
use a case study from the Mexican forest industry. The case study examines the
organizational efforts in implementing DT in CSA. It pays special attention to
the regulatory role of the government and how corporations and organizations
have made new efforts to generate valuable and timely accounting information
relevant to CS endeavors. The case study uses the framework of CS systems
proposed by Azapagic (2003). This framework allows us to analyze the effects
of DT on different dimensions of the organizations. The research question of
this study is: How does DT improve CSA in an organization?

Context and Background

Accounting scholars argue that CS is related to financial performance. Thus,
several studies encourage practitioners to improve their CS endeavors and to
report them in their financial and non-financial releases. Moreover, the current
accounting literature identifies the increasing popularity of CS policies around
the world. Such policies obligate organizations to report their CS endeavors to
the government and to the general public. As noted by Aras and Crowther
(2008), “A growing number of writers over the last quarter of a century have
recognized that the activities of an organization impact upon the external envi-
ronment and have suggested that such an organization should therefore be
accountable to a wider audience than simply its shareholders” (p. 434).
As Ioannou and Serafeim (2017) argue, “reporting corporate sustainability
efforts requires accounting data to ensure credibility” (p. 10) However, in
practice, acquiring the correct accounting data has been problematic. In some
cases, the financial and non-financial data is not capable of communicating the
bigger picture of CS efforts in the organization. In other cases, the accounting
data is already outdated when gathered, thus leading managers to equivocal
conclusions (Johnson 2015). Studies on CSA have found that such problems
arise for mainly two reasons: firstly, a failure in acquiring and processing
 33 DIGITAL TRANSFORMATION AND CORPORATE SUSTAINABILITY ACCOUNTING 653

accounting data. Traditional accounting systems tend to focus their attention

on financial performance (Gil 2018; Murray et al. 2017; Schneider 2015).
Therefore, in several cases, these systems are not aimed to capture data regard-
ing CS endeavors and senior managers’ reports based on basic financial infor-
mation. Secondly, scholars argue that organizations usually lack the technology
to produce the required accounting information on time. The lack of required
technology to gather and process accounting data usually causes organizations
to generate outdated reports using old data (DeNisi and Smith 2014; Gil 2013).
The idea of DT has gained attention over recent years in accounting litera-
ture (Perrini and Tencati 2006). DT is changing the way in which business
works, but also in old institutions embedded in the way accounting is produced
(Dahlmann and Grosvold 2017). DT in accounting is improving the way in
which data is gathered and processed. Improvements in technology systems
allow managers to gather real-time data in order to produce accurate reports
(Bhimani and Willcocks 2014). Such capacities allow DT to be seen as a com-
petitive factor in modern industry by improving the efficiency of internal pro-
cesses: “Due to the high requirements in the logistics sector, e.g., regarding
costs, efficiency, security, and sustainability, digital innovation is essential to
stay competitive” (Heilig et al. 2017: 1341).

A Framework for Corporate Sustainability

Managing CS endeavors in an organization is a complex task (Baumgartner
2014). As a consequence, scholars have proposed different frameworks which
aim to set a roadmap in managing CS. A particularly interesting framework was
developed by Azapagic (2003). This framework aims to explain how new tech-
nologies, methodologies and systems affect the way in which a company man-
ages their CS endeavors. The framework seems to fit the purpose of this chapter
as it seeks to understand the effect of DT in the way that organizations account
for CS endeavors (Porter 2008).
The framework suggests that CS endeavors must be coherent with strategy.
This assumption states that CS endeavors are not extra operations that add to
the core activities of the organizations; on the contrary, CS endeavors are
intrinsically connected to the activities and systems of the organizations. Thus,
if a new system or technology is introduced into the organization, the CS
endeavors should be affected too. This chapter will use the CS system frame-
work to understand how the introduction of DT affects the way in which the
organization accounts for CS endeavors.
According to the framework, the first stage for implementing a new system
or technology in CSA is defining the policy. Defining the policy must state
what the objectives are of the company in terms of CS and how the introduc-
tion of the new system or technology will affect the chances of achieving such
objectives.
It is very important that during the policy setting stage, the objectives and
operational efforts are coherent, as it is possible that there might be
654 M. A. GIL AND M. A. MONTOYA

disconnections that could lead to operational failures. A recommended way to

reduce the chance of failure is by recognizing the threats that emerge as part of
the planned implementation. Senior managers might be able to foresee risks
that could emerge and hopefully include detailed plans to overcome such bar-
riers. Another issue during the policy setting period is to consider all of the
possible stakeholders. Ignoring relevant stakeholders might produce incorrect
outcomes from the implementation. Organizational members should carefully
recognize all of the relevant stakeholders to produce the required information.
The second stage, according to the framework, is planning. The outcomes
of the planning stage should be a series of very specific targets that need to be
accomplished after the implementation of the new system or technology. The
targets must consider not only the financial performance but also qualitative
measures that can reflect environmental and social performance in the short
and long terms. Performance indicators can be developed during this stage to
help senior management to evaluate whether the objectives were achieved or not.
Finally, the implementation stage refers to a process in which senior manag-
ers prioritize and schedule organizational activities aiming to improve CS. The
appropriate actions should be stated by senior managers to help the organiza-
tion achieve its sustainability efforts. Though the monitoring of performance
measurements during this stage is important, senior managers should not for-
get that this stage also aims to affect the attitude of the organizational mem-
bers. If senior managers focus only on setting actions and revising performance
measurements, they can forget the long-term effect on the organization, which
is the attitude of organizational members toward CS endeavors.

Method and Methodology

Within the field of DT and CSA there have been many studies using different
methodologies, such as qualitative, quantitative and mixed. Each researcher
carefully chooses their methodology based on empirical evidence, background
and theoretical traditions. While trying to answer the research question in this
chapter, the researchers decided to use a qualitative methodology (Amis and
Silk 2008). A qualitative methodology permits researchers to answer ‘how’ and
‘what’ questions (Feldman 2003). Furthermore, a qualitative methodology
focuses on the interpretations of key individuals in the organizations studied
(Cooper and Morgan 2008). Such features of the qualitative methodology fit
correctly with the objectives of this research (Yin 2011).
Regarding the method, this chapter uses a case study method (Yin 2013). A
case study method helps in developing an in-depth understanding of a phe-
nomenon (Eisenhardt 1989). Furthermore, the case study method focuses on
theoretical generalization rather than statistical generalization. By analyzing a
single case study, it is possible to find similarities or differences in the empirics,
compared to what the theoretical assumptions state (Eisenhardt and Graebner
2007). By contrasting the empirical findings of the case study with the
 33 DIGITAL TRANSFORMATION AND CORPORATE SUSTAINABILITY ACCOUNTING 655

theoretical assumptions, it is possible to either agree with the current literature

or propose a different contribution (Scapens 2004).

Data Collection
Researchers collected the empirical data through three main forms. The pri-
mary form of data collection was interviews. Researchers completed interviews
with key individuals in the studied organization and in the relevant govern-
ment office. Before the interview, the researchers prepared a semi-structured
questionnaire that was developed from the theoretical concepts relevant to DT
and CSA. During the interviews, the researchers could add new questions or
explore interesting topics (Warren and Karner 2005); some of the interviews
were carried out on Skype, while others were face-to-face, and the researchers
took notes of qualitative aspects that they considered important, such as ner-
vousness, from an interviewee. Furthermore, when the interview finished the
researchers made quick notes of relevant information in addition to the inter-
view transcript. All the interviews were recorded and then transcribed. Access
to the organization studied and government office was granted by e-mail and
an ethical declaration was signed by the interviewees where it was expressed
that they could leave the investigation whenever they wanted (Wiles et al.
2008). Researchers stated that the purpose of the data collection was specifi-
cally in order to write this chapter (Bell and Bryman 2007).
The second form of data collection was acquiring internal documents from
the organization studied. Documents were relevant because the organization
studied kept evidence of their agreements and meetings. Therefore, researchers
focused on collecting minutes from meetings or e-mails where senior managers
agreed on a new idea. The purpose of collecting documents was to have physi-
cal evidence and then conclude that what individuals said during the interviews
was true. Other relevant documents were manuals, reports and statements. All
the documents were kept by the researchers on a special folder in ‘Cloud’
storage.
The third form of data collection was exploring the web and finding public
documents that were relevant to the study. Most of the information gathered
in this form was related to the government office that implemented the new
mandatory reports. Press articles and official statements were collected by the
researchers. The purpose of gathering these public documents was to under-
stand the context in which the organization existed.

Data Analysis
The data analysis consisted of three stages: the first stage focused on building a
timeline to understand the phenomenon (Huberman and Miles 2002); the
timeline was built mainly with information from the interviews but also from
private and public documents that were collected. Once the timeline was com-
pleted, the second stage consisted of finding triangulations of information.
656 M. A. GIL AND M. A. MONTOYA

Such triangulations allowed researchers to understand the phenomenon in

detail and from different perspectives (Lincoln and Guba 1990). For instance,
if there was an important topic that emerged from the timeline, the researchers
focused on finding information relevant to this topic from different data
sources. Finally, the third stage was to confirm the account that researchers had
built. To do this, the researchers contacted the CEO of the organization and
showed him the results of the study and minor details were added, as recom-
mended by the CEO.
The interview transcripts were analyzed by the researchers; key topics
emerged after the interviews were done and these topics were later used to
build the timeline of the case study. The researchers did not use any qualitative
analysis software. The reason for choosing to analyze the data without software
was because the researchers knew the context relatively well and believed that
their analysis would provide richer conclusions than those gained from using
software. The documents were also analyzed using the key topics that emerged
from interviews. Again, the documents were analyzed manually by the research-
ers in an effort to incorporate their knowledge of the context in the study.
Finally, the researchers kept evidence of the data analysis process by writing
their conclusions in a timeline and a table, with key findings of the case study.

Body of the Chapter

Case Study
To illustrate the effect of DT in CSA, this research uses a case study from the
forest exploitation industry in Mexico. This case study explores a local firm
which has recently implemented a new DT strategy due to policy changes in
the country and to improve its productivity. Using the CS system framework,
this study explores how the organization designed, planned and implemented
DT, and how it affected its CSA. In the organization of this case study, effects
on CSA are more evident as government regulations urged the organization to
produce better accounting information.

Background
The organization in the case study is a local forest exploitation firm. The firm
was founded 29 years ago and at the time of the study, the organization had
105 employees. Most of the employees worked in the field, cutting, storing
and transporting wood. Only ten employees were ‘office employees’, and they
were mainly accountants, managers and salespeople. Senior management con-
sisted of the partners that founded the company 29 years ago. In total, there
were five senior managers; the CEO was a partner that specialized in sales and
closing deals; however, he supervised all the operations in the firm; the CFO
was a partner who had an accounting background and his job was to pay taxes
and prepare financial reports; then there was a COO and an ‘operations senior
 33 DIGITAL TRANSFORMATION AND CORPORATE SUSTAINABILITY ACCOUNTING 657

manager’, who were partners that had a lot of experience in cutting wood and
planting new trees. Finally, the ‘headquarters manager’ was another partner
who focused on ‘human resources’ and the relationship with the government.
The five senior managers were the oldest members of the organization, their
average age was 67 and each of them had at least 50 years of experience in the
industry. The CEO stated during an interview:

I have been cutting wood since I was 5 and now, I am 68, I think that you can
imagine how much I know about cutting wood.1

Since early 2019, the forest exploitation industry in Mexico has experienced
several changes in the law. Such changes focus mainly on two objectives; the
first objective is to provide financial aid to local forest exploitation organiza-
tions in order to make them more competitive against their foreign rivals. Such
financial aid includes discount on federal income tax, subsidies in water and
electricity bills,2 and transfers in cash that the firms should use to improve their
CS efforts. The second objective from the changes in the law was to improve
the way in which companies operate and to closely regulate the exploitation of
natural resources. This second objective forced organizations to complete spe-
cific reports to monitor if ecological and industry standards were met. A gov-
ernment officer explained during an interview:

The federal government is giving a lot of financial resources to the forest exploita-
tion industry. But at the same time, the government is also trying to improve the
sustainability efforts in the industry, because of that the financial aid forces the
company to improve and report their sustainability efforts.3

Although the changes in the regulation did not force any of the organiza-
tions to implement a DT in their operations, a few firms decided to start a DT
process in order to improve their CS endeavors. One of those firms was the one
examined in this case study. The firm decided to implement DT with three
objectives.
The first objective was to improve their operations. According to senior
managers, the firm had problems monitoring the status of the trees. The com-
pany had a report that specified if the trees were healthy. This report was cre-
ated once a year in December, and in most cases, the data was not relevant
because if the trees became sick in January, their illness would not be accounted
for until the following December report. Another issue was that biological
threats could not be detected on time. The information that was collected only
included data from their own trees and it ignored other environmental threats,

1
CEO, Interview, May 2019.
2
In Mexico, water and electricity are provided by government companies. Thus, it is common
that the government provides subsidies to specific industries.
3
Government officer, Interview, July 2019.
658 M. A. GIL AND M. A. MONTOYA

such as plagues nearby or illegal wood cutters. The CFO explained during an
interview:

The status report of our trees was annual and that was a disadvantage. […] The
annual report focused only on the trees where we work, but it ignored the sur-
roundings. For example, one time there was a plague in an area very close to
where we worked, and the report did not account for the plague because it was
not in our trees, but we were ignoring critical information!4

The second objective for implementing DT was to collect the required

information for the new government reports. As stated earlier, the Mexican
government increased the number of reports and the level of detail in the infor-
mation regarding CS efforts. According to the accountant of the organization,
the new reports caused trouble because the company was not generating infor-
mation to fill the reports. The accountant explained:

The new reports required information that we did not have. For instance, we
knew the amount of wood that we gathered in the year, but we did not know how
many trees were left. Another thing that we did not know was the length of the
trees in the forest. […] The new reports also had a lot of qualitative information
that we did not have, it was important to implement technology to gather
the data.5

Policy Setting Stage

According to the CS system framework, defining the policies is the first step to
implementing DT. In the organization studied, defining the policies was a
phase that took place during December 2018. According to minutes from
meetings, defining policies was a critical activity as it first appeared as a relevant
topic in all the senior meetings from December 2018. On one of the minutes
of those meetings, the following was stated:

Point 1: Clarify the scope and limitations of technology implementation in the

firm. Important to check how technology can help us, how it will be imple-
mented and how much will it cost. […] Will it be ready for January 2019?6

According to senior managers, the objective of the policy setting phase was
to determine the threats from implementing a DT aimed at improving CSA. As
well as determining threats, senior managers also wanted to clarify who were
the relevant stakeholders. At some point, senior managers believed that the
only stakeholder was the government due to the new mandatory reports, but
as they explained, later they realized that relevant stakeholders also existed

4
CFO, Interview, May 2019.
5
Accountant, Interview, July 2019.
6
Minute from a meeting, December 2018.
 33 DIGITAL TRANSFORMATION AND CORPORATE SUSTAINABILITY ACCOUNTING 659

inside the organization. Based on what senior managers stated, the accountant
in the organization was relevant to the DT process as plenty of accounting
information would be gathered using the new technologies. The CEO
explained during an interview:

At first, we were obsessed with satisfying the government because we were scared
about the new reports. However, we quickly realized that we could use the new
technologies to collect information relevant to our accountant and managers. At
that point, we stopped focusing only on the government reports and we had a
more holistic view.7

Senior managers also realized that the new technologies could provide use-
ful information regarding the health status of the forest. Thus, the supervisors
of wood cutters and the person in charge of the health of the trees were invited
to the senior management meetings. The objective of inviting more people to
the meetings was to establish relevant policies not only for the government but
also for organizational departments that could give good use to the collected
information. The COO explained:

As we realized the possibilities with the new technologies, we had to invite more
people to our meetings. At first, we were only senior managers at the table, in the
end there were about 10 people discussing how to implement the new
technologies.8

When the researchers analyzed the participants in the meetings, they could
corroborate the story of senior managers. Moreover, the new attendants argued
that during the meetings their point of view was considered and that senior
managers were open to hearing them. For instance, the accountant explained
that the accounting of the company could improve with more data about
plagues and threats to trees. The accountant argued that such information
would help him to register liabilities if such threats were relevant to the opera-
tions of the company.
The policy setting stage in the organization studied focused on identifying
threats to the implementation of DT and identifying the relevant stakeholders.
During this phase, the organization experienced something very interesting at
a senior management level as they realized that relevant stakeholders were not
only the ones that they had initially thought. As senior managers met and ana-
lyzed the implementation of DT in order to improve CSA, they realized that
internal organizational members were also relevant. By acknowledging the
importance of internal stakeholders, senior managers were able to produce
richer and more relevant policies during this stage.

7
CEO, Interview, May 2019.
8
COO, Interview, May 2019.
660 M. A. GIL AND M. A. MONTOYA

Planning Stage
The second stage in the implementation of DT to improve CSA is planning.
Planning involves setting specific quantitative and qualitative targets that the
organization intends to accomplish. In the case of the organization studied,
senior managers stated that qualitative and quantitative goals were equally
important when implementing a DT process to improve CSA. According to
senior managers, qualitative information was crucial due to the nature of the
industry. The CFO explained during an interview:

When setting the targets of the DT process we believed that qualitative targets
were very important. In the forest exploitation industry, it is sometimes impossi-
ble to explain every relevant thing with a number. […] I would say that 50% of
the targets were qualitative. […] For instance, we wanted to know how many
trees we have cut in the last year, of course that quantitative information was
irreplaceable, but we also needed to know if the trees were healthy and if we met
the industry standards while cutting the trees. We needed to have that in our
accounting … somehow.9

When the researchers revised the minutes from one of the meetings in
December 2018, they found evidence that what the CFO was right. During
one of the meetings the minutes revealed that senior managers revised the rel-
evant targets for the implementation of DT. This included specific targets, of
which more than 50% were qualitative. When the accountant was asked during
an interview about how he perceived the qualitative targets, he explained the
following:

At the beginning I was confused because before, I had not handled qualitative
information. I thought that my job, as an accountant, was to register transactions,
and when they told me about qualitative targets being monitored in the account-
ing I was confused. […] After a few meetings with senior managers I realized that
using qualitative information in accounting was not that confusing. We were able
to register qualitative information. Thus, we monitored the accomplishment of
qualitative and quantitative targets.10

The CEO explained that, from his perspective, the greatest challenge of the
implementation was to collect relevant data on CS through DT and then to use
that data in the accounting of the firm. According to the CEO, setting the
targets was a complicated stage in the process of implementing DT because
they were not sure about what data was relevant. The COO agreed with the
viewpoint of the CEO. The COO explained that managers and accountants did
not understand how the organization carried out their activities in the field.
Thus, it was complicated for a manager or an accountant to interpret the data
collected from the field. The COO explained during an interview:

9
CFO, Interview, May 2019.
10
Accountant, Interview, July 2019.
 33 DIGITAL TRANSFORMATION AND CORPORATE SUSTAINABILITY ACCOUNTING 661

I think that the main problem was that managers and accountants and field work-
ers did not speak the same language. Accountants would not know how to inter-
pret the data that was collected from the field. Imagine that the data says that
some trees are sick, how would the accountant interpret that and then register it
in the accounting? It would be very complicated. In the end what we did was to
be very careful on setting the targets by including tons of details on how to man-
age and register what we had in the reports. Also, it was very helpful that we
[senior managers] worked closely with the accountants during the phase when we
established the targets.11

According to the collected information, in the organization studied, the

target setting stage focused on establishing the relevant targets that the organi-
zation aimed to accomplish with the implementation of DT. Such targets
included quantitative information but also qualitative information, which,
according to senior managers, was critical in understanding the outcomes of
CS. However, the biggest issue that the organization faced was to design tar-
gets that could be understood by both the accountants and the field workers of
the organization. In the end, senior managers managed to set the targets by
working closely with managers and accountants when setting such targets.
When managers or accountants were confused, senior managers would help
them to interpret the qualitative data in a useful manner.

Implementation Stage
The implementation stage in the organization studied started in January 2019.
During this stage, senior managers in the organization studied intended to set
the specific steps that would allow them to accomplish the targets stated during
the previous stage. According to senior managers, this stage was even more
complicated because “the previous stages existed only on paper, but now we
had to put them in practice”.12
During the implementation stage of the DT process, senior managers
focused on three dimensions: technology, CS practices and attitude. Technology
referred to the technical requirements that the DT needed to be implemented.
CS were what the CEO described as “what needed to change to make the busi-
ness sustainable”.13 This second dimension focused more on changing institu-
tional practices and was intended to redefine the way in which the organization
operated. The final dimension, attitude, was mentioned by the five senior man-
agers. The attitude dimension was intended to convince organizational mem-
bers that the changes that were being implemented had a purpose and that its
success would benefit the organization in the present and future. With all of
these dimensions, there were challenges that the organization faced.

11
COO, Interview, May 2019.
12
CEO, Interview, May 2019.
13
CEO, Interview, May 2019.
662 M. A. GIL AND M. A. MONTOYA

During the implementation of the technology, the organization had to do

important investments to acquire new technologies. For instance, the account-
ing software that the company was using was outdated and it was not able to
generate real-time data. Furthermore, the organization had only one license
for the old accounting software. Thus, there was only one person who could
register journal entries, that is, the accountant. The sales manager explained
the issues related to the accounting software.

Using the old accounting system was a problem. It was very complicated to reg-
ister an operation, it relied totally on the accountant, so it was impossible for me
to register anything. […] Also, I could not generate reports because the only
person who could do that was the accountant.14

Besides the problems with registering transactions, senior managers had the
issue that whenever they needed a report they had to wait until the accountant
had time to do it. For instance, when the organization applied for a grant in
early 2018, senior managers reported that the government office asked the
organization for several financial reports from the accountant. Senior managers
argued that they asked the accountant for the reports, but it took him more
than two weeks to complete the reports. The accountant argued that the report
took longer than expected because he had to update important data before
generating the report.
Due to the problems in the accounting software, senior managers believed
that it would be necessary to acquire a new software as part of the implementa-
tion stage of the DT process. When choosing the new accounting software,
senior managers asked managerial employees and the accountant for their
opinion. According to senior managers, the most relevant features for the new
software were the possibility of having multiple users, to be based on the
Cloud, and that it could generate reports immediately. With such features in
mind, senior managers decided to implement a new accounting software by
January 2019. The CFO explained during an interview:

The accounting software was one of the most important technological acquisi-
tions that we did. The software that we implemented solved a lot of the issues that
we had in the past. By implementing this new software, we were able to generate
reports immediately. Also, the accounting was updated because it did not rely
only on the accountant. Now salespeople could register when the client paid or
the finance department registered when we received merchandise. It was an
important investment, but it solved a lot of problems.15

Another important issue within the technology dimension was related to the
field where employees were cutting the trees. According to the COO, working

14
Salesperson, Interview, August 2019.
15
CFO, Interview, May 2019.
 33 DIGITAL TRANSFORMATION AND CORPORATE SUSTAINABILITY ACCOUNTING 663

in the forest between trees and animals “has not changed in the last 30 years”.16
However, the COO also recognized that implementing technology in the field
would help their employees and managers to have a better corporate view. The
COO mentioned, as an example, that the organization was not aware of the
illness that was affecting other trees close to where the firm was working. The
COO explained that this lack of knowledge had led to problems in the past, as
the organizational reports did not consider those threats. He added that by
implementing technology, the organization was able to gather information
from trees nearby. Thus, the organization reports would also include relevant
information from nearby fields. In particular, the COO gave an example where
the organization implemented the use of flying drones to get an aerial picture
of the field and its nearby areas. He explained in detail during an interview:

A good example of the DT process and how it helped our CS efforts was the use
of flying drones to get an aerial view of the nearby areas from where we were cut-
ting trees. With such views, we were able to foresee possible threats to the health
of our trees.17

The CEO added that implementing flying drones also allowed employees to
have a better understanding of which trees they had to cut. He explained that
sometimes tree cutters had problems understanding which trees were to be cut.
With the aerial views provided by the flying drones it became clearer. Tree cut-
ters got a picture captured by the flying drone and then a supervisor would
specify which trees were to be cut. This process minimized the mistakes that
had occurred in the past. The CEO explained in an interview:

By showing our employees the aerial picture of the trees that were to be cut, we
made it very easy for them to understand the orders. This implementation solved
a historical problem that we have had for several years.18

Finally, the CFO of the organization argued that the aerial view also helped
him to complete the government reports. According to the CFO, the govern-
ment asked for new mandatory reports with data about the status of the forest
at the beginning and at the end of the year. He explained that such reports
were difficult to complete, as counting trees was a time-consuming process.
With the implementation of the aerial views, the problem was solved. The CFO
explained that the flying drone could get a picture of the area and then with
that picture they could prepare a report.

16
COO, May 2019.
17
COO, Interview, May 2019.
18
CEO, Interview, May 2019.
664 M. A. GIL AND M. A. MONTOYA

An Overview of the Digital Transformation Process

The DT process in the organization was intended to improve efficiency in the
way that the company operated and to improve its work in CS and how the
organization accounted for them. Based on the recorded evidence, the organi-
zation experienced three stages during this DT process. During the policy set-
ting stage, senior managers identified the possible threats and identified the
relevant stakeholders. While setting the relevant stakeholders, senior managers
recognized the importance of the government as an external revisor. To fulfill
the needs of the government, the company realized the necessity of improving
CSA in order to produce relevant data and then to elaborate on the mandatory
reports. Then, during the planning stage, senior managers stated the targets
that were to be accomplished with the DT process. Such targets were quantita-
tive and qualitative, and while setting the targets, relevant individuals in the
organization were considered. The target setting focused mainly on accounting
practices that would permit the collection of relevant information on time and
the generation of the mandatory reports. Finally, the implementation stage
focused on establishing the actions to take. At this stage, the organization
focused on the implementation of a new accounting software and the introduc-
tion of novel technologies, such as the use of flying drones. These implementa-
tions affected the organization in its structure.

Discussion
The case study presented in this chapter allows us to answer the research ques-
tion stated in the introduction. Some of the empirical findings highlight cur-
rent theoretical assumptions while others might challenge these in order to
expand the boundaries of the relevant literature. In particular, this chapter
presents the following findings.
Firstly, evidence from the case study suggests that DT improves CSA. In the
case study, the organization decided to implement DT in part because there
was a stricter regulation by the government in terms of CS. Senior managers
realized that the organization was not able to generate the required informa-
tion in an efficient way. Thus, they decided to start with the DT process.
Senior managers recognized that the organization was not able to generate
the information in time to fill the mandatory government reports. They added
that through DT the organization would be able to generate the relevant data
in the accounting of the firm. According to the evidence from the case study,
the organization experienced a technological improvement that allowed them
to generate the required information. In the end, the accountant of the firm
recognized that the technological improvements allowed him to produce the
CS reports (Perrini et al. 2011).
Secondly, the case study found that the DT process to improve CSA hap-
pened over at least three stages. Furthermore, during the process, not only
were senior managers involved, but also managers and employees played an
 33 DIGITAL TRANSFORMATION AND CORPORATE SUSTAINABILITY ACCOUNTING 665

important role at every stage. These findings are consistent with Hahn and
Kühnen (2013) who argue that a CS system is not only the implementation of
new practices and technologies, but a process of gradual change in the
organization.
Another relevant finding from the case study is the use of quantitative and
qualitative information in the CSA. These findings are also consistent with
other studies that argue that qualitative information is important when account-
ing for CS endeavors. The use of such qualitative information allowed the
organization to prepare better reports for the government, but also to improve
their efficiency.
Thirdly, the case study revealed that senior managers believed that improv-
ing CSA was not only a matter of technology. Instead, senior managers argued
that attitude played a critical role in the success of the implementation. These
findings are somehow contradictory to some studies from the accounting lit-
erature in which the focus of an implementation is practices and technologies
(Lozano and Huisingh 2011).
In the organization studied, senior managers found that besides focusing on
the changes in attitude, it was important to have a coherent plan that involved
several individuals in the organization. This approach also differs from some
studies in accounting where institutionalizing new practices occurs in a top-­
down approach. In the case of the organization studied, part of the success in
the process of DT was that individuals across the whole organization were
involved from the policy setting stage until its implementation.
By analyzing the case study, it is possible to answer the research question
stated in the introduction of this chapter. The DT process affects CSA by
improving its efficiency through the use of new technologies, through a struc-
tured process that consists of three stages, and by considering changes in atti-
tude and involving different organizational individuals in the DT process.

Conclusions
This chapter has three empirical observations. The first one is that DT fosters
CSA. The findings are consistent with studies which suggest that DT provides
an organization with the technological infrastructure to generate relevant and
timely data to construct the necessary accounting. From the empirical findings
it can be concluded that the use of technology allows the organization to pro-
duce relevant information on time in order to complete the government reports
and to account for their CS endeavors.
The second empirical observation of this chapter is that DT, which aims to
improve CSA, can be successfully implemented by following stages that start
with the design and ends in the implementation. Following the CS system
framework, researchers could identify the key stages on which the DT was car-
ried out and its outcomes. These findings are consistent with Azapagic’s (2003)
idea that an implementation of a CS system requires order and logic.
666 M. A. GIL AND M. A. MONTOYA

Finally, the third empirical observation of this research is that, contrary to

what some of the accounting literature suggests, CSA is not only about imple-
menting technology. The empirical findings suggest that the successful DT
process and its effect on CSA included a coherent planning and action by senior
managers and other individuals in the organization. These findings suggest
that CSA requires changes in attitude at the group and individual levels within
the organization.
The practical contribution of this chapter can be applied by both practitio-
ners and policy makers. Practitioners that read this chapter should acknowl-
edge the role that DT has in CSA. It can be concluded that a DT process can
be a good idea when a company is redefining its CS endeavors. Regarding
policy makers, it can be concluded that promoting investments in technology
which promotes DT can have a positive impact on CS.
Regarding the limitations of this research, it would be interesting to study
what happened after the DT process. The organization will submit the new
mandatory reports to the government by December 2020. Thus, it might be
interesting to check the outcomes of these reports and if they met the criteria
set by the government office. Furthermore, another possible study for the
future can be a quantitative study measuring different companies that experi-
enced a similar phenomenon to the one studied in this chapter. For such a
study, this chapter should allow setting the relevant hypothesis to the test.

Acknowledgments We would like to express our gratitude to the involved actors in

this study. Especially to the interviewees who gave us their time and attention to collect
the relevant data to complete this case study.

Appendix

Table 33.1 Table of

Interviewee Date of the interview Length
interviews
CEO May 2019 79 minutes
CEO Sep 2019 23 minutes
CFO May 2019 68 minutes
CFO Sep 2019 30 minutes
COO May 2019 61 minutes
COO Sep 2019 30 minutes
Accountant July 2019 48 minutes
Salesperson August 2019 52 minutes
Employee #1 August 2019 32 minutes
Employee #2 August 2019 42 minutes
Employee #3 August 2019 19 minutes
Manager #1 July 2019 44 minutes
Manager #2 July 2019 29 minutes
Government officer #1 July 2019 78 minutes
Government officer #2 July 2019 18 minutes
External accountant July 2019 27 minutes

Source: Authors’ creation

 33 DIGITAL TRANSFORMATION AND CORPORATE SUSTAINABILITY ACCOUNTING 667

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 CHAPTER 34

Climate Change Disclosures in Different

Cultures: A Study of Sustainability Reports

Arzu Özsözgün Çalişkan and Emel Esen

Introduction
The digitalization that is currently fueling increased use of information and com-
munication technologies (ICT) in our life is a key tool for companies to remain
competitive and to maintain effective communication with stakeholders. While
digitalization creates new businesses and new jobs, it also produces additional
risks for economy, society, and environment. Among the risks, effects on the
environment, especially climate change, necessitate specific attention (Ciocoiu
2011) because it is increasingly accepted that climate change is the most signifi-
cant environmental issue that we face today (Norton and Leaman 2004).
Digitalization causes environmental effect by consuming resources in the pro-
duction of PCs, tablets etc., and by consuming energy in running the digital infra-
structure (Rappitsch 2017). Digitalization contributes to greenhouse gas (GHG)
emission and climate change both directly and indirectly (Bieser and Hilty 2018).
So, digitalization of world will lead to an increased demand for energy.
Not only digitalization but also climate change forces companies to transform
themselves and their products in order to survive (Brännlund and Lundgren
2009). For that reason, firms have to have strategies to comply with digitaliza-
tion and to address climate change risk factors, the latter being the most impor-
tant environmental issue that concerns business in recent years (Lee et al. 2015;
Jose and Lee 2007; Kolk 2008). In the same vein, companies manage their legiti-
macy by disclosing to stakeholders their operations’ non-­financial results, namely

A. Ö. Çalişkan • E. Esen (*)

Yildiz Technical University, Istanbul, Turkey
e-mail: [email protected]; [email protected]

© The Author(s) 2021 671

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_34
672 A. Ö. ÇALIŞKAN AND E. ESEN

social and environmental effects, via corporate reports. The non-financial perfor-
mance disclosure represents a strategy that companies can use to satisfy expecta-
tions from multiple stakeholders (Michelon and Parbonetti 2012).
Various characteristics (company size, environmental strategies, financial
performance, firms’ reputation etc.) can affect disclosure in corporate reports.
The relationship between characteristics and climate change disclosure, espe-
cially in sustainability reports, has been investigated in several studies (Amran
et al. 2011). Not only company characteristics but also national culture, with
characteristic views and customs dealing with accounting issues or distinctive
management behavior (Khlif 2016; Dragomir 2012) can be an important fac-
tor in corporate disclosure (Khlif 2016; Dragomir 2012).
The purpose of this chapter is to examine the relationship between cultural
dimensions and the extent of climate disclosures in the sustainability reports of
worldwide companies from six nations: the United Kingdom, Italy, Germany,
France, Spain, and Turkey. The companies were selected from the energy sec-
tor, a sector that has a relatively good environmental performance and is at the
center of the debate on climate change (Batruch 2017). The majority of green-
house gases are produced in the energy sector (Birol 2019) and increasing
energy-related carbon emissions make it increasingly difficult for humans to
deal with global climate change. Energy-related emissions showed an increas-
ing trend from 2014 to 2018. Especially in energy sector, companies can make
progress in efficient use of energy resources and focus on renewable resources.
By cutting down emissions, they can become more competitive and create
high-performance jobs in the sector (Verhaar 2020).
This study has some contributions to make to this area. Firstly, it provides a
critical assessment of sustainability reports that originate from different cultural
values. Secondly, it discusses the role of national culture climate change disclo-
sures, therefore Hofstede’s cultural dimensions were used for analyzing climate
change disclosures; specific keywords are selected based on previous studies in
climate change reporting.
This study is structured as follows: Section “Climate Change Disclosures”
discusses climate change disclosures; Section “Culture and Climate Change
Disclosures” looks at the role of culture on disclosures; Section “Method”
presents an account of research design and method before the research find-
ings, their implications and limitations are examined.

Climate Change Disclosures

The United Nations Framework Convention on Climate Change (UNFCC),
established in 1992, was the first international agreement on climate change.
Later, with the adoption of the Kyoto Protocol in 1997 and the Paris Agreement
in 2015, related parties came to support a global response to the threat of cli-
mate change. In the 2015 Paris Agreement, world nations took an important
step to reduce greenhouse gas emission (GHG) and keep global warming below
2 °C. Companies also carry responsibility to deal with climate change (Comyns
2018). In analyzing earlier studies of corporate responses to climate change,
 34 CLIMATE CHANGE DISCLOSURES IN DIFFERENT CULTURES: A STUDY… 673

sectoral differences, varying time horizons and strategies objectives have to be

taken into account (Weinhofer and Hoffmann 2010). Most large companies
dedicate time and resources to climate change and environmental disclosures
(Dawkins and Fraas 2011), and there are also pressures and demands from vari-
ous stakeholders to report information regarding climate change (Haque and
Deegan 2010). Specifically, investors who control huge assets for investment are
a powerful and influential stakeholder group for companies, and they wish to
obtain information about climate-related risks and strategies (Cotter and Najah
2012). The pressure of investors and environmental groups on firms to disclose
their actions in managing climate change force voluntary disclosure of informa-
tion (Ben-Amar and McIlkenny 2015). Corporate climate change disclosure is
important in dealing with the problem, since repeated disclosure will present
evidence about corporate learning about climate change and to satisfy stakehold-
ers’ expectations and concerns (Topping 2012).
The Carbon Disclosure Project (CDP) is an initiative that requests informa-
tion on climate change from the world’s largest companies (Berthelot and
Robert 2011). In 2018, 6937 companies reported through CDP, measuring
their climate-related risks and opportunities (CDP 2018). CDP identifies cli-
mate change as the “single biggest risk that exists to the economy today.”
Climate change reporting is a non-financial reporting practice, a subset of cor-
porate environmental reporting, and it provides insight into climatic data used
to guide organizations’ approach to climate change issues (Ooi and Amran 2018).
Climate change disclosures carry some types of risk – regulatory, physical
and other risks and opportunities associated with climate change, greenhouse
gas (GHG) emissions, energy use, corporate governance and strategies,
emission-­reduction strategies. Companies can disclose information in annual
reports, sustainability reports and their websites (Cotter and Najah 2012).

Culture and Climate Change Disclosures

Diverse environmental factors such as the national economy, capital markets,
accounting framework and culture influence the disclosure practices adopted
by companies (Haniffa and Cooke 2002). In order to understand trans-­country
differences, shared values, beliefs, expected behaviors that are deeply embed-
ded, unconscious and often irrational, collected under the heading of culture,
can drive the disclosure of information in company reports (Hooghiemstra
et al. 2015). Different cultures, societal norms and regulations can affect
reporting practices (Hahn and Kühnen 2013). For that reason, scholars and
academics interested in accounting try to integrate cross-cultural differences in
values to explain reporting practices (Han et al. 2010). Cultural differences
based on Hofstede’s (2001) dimensions have been widely investigated in
accounting and disclosure research, and have been in use for many years
(Dobler et al. 2016; Brewer and Venaik 2011).
There are six dimensions in Hofstede’s study: Power distance, masculinity/
femininity, uncertainty avoidance, individualism/collectivism, long-term ori-
entation/short-term orientation, and indulgence/restraint. In this study, four
674 A. Ö. ÇALIŞKAN AND E. ESEN

of Hofstede’s dimensions – power distance (PD), individualism (IND), mascu-

linity (MAS), and uncertainty avoidance (UAI) were used to generate compari-
sons. Power distance expresses how a society handles inequalities among its
members. In societies with high power distance, people accept hierarchy.
Hofstede defined individualism as follows: “Individualism stands for a society
in which the ties between individuals are loose: Everyone is expected to look
after her/his immediate family only” (Hofstede 2001: 225). The masculinity
dimension of Hofstede centers on the observation that masculine societies tend
to be competitive, more likely to behave in an assertive way, and focus on main-
taining success (Williams and Zinkin 2008). Uncertainty Avoidance is “the
extent to which a society feels threatened by uncertain and ambiguous situa-
tions by providing career stability, establishing more formal rules, not tolerat-
ing deviant ideas and behaviors” (Hofstede 1980: 46).
Gray and Vint (1995) found that the extent of information disclosure is
positively correlated with individualism and masculinity and negatively corre-
lated with uncertainty avoidance and power distance. On the other hand,
empirical findings showed that uncertainty avoidance and individualism reveal
a significant positive effect on disclosure practices when compared to power
distance and masculinity (Khlif 2016). However, the relationship between the
level of disclosure and Hofstede’s cultural dimensions ought to be discussed in
specific context (Santema et al. 2005; Cieslewicz 2014).
Thus, we stated the following research question:

RQ1: How do climate change disclosures in sustainability reports differ based on

Hofstede’s national culture dimensions?

Method

Sample
The main purpose of this chapter is to investigate climate change disclosures of
selected companies in energy sector across six countries in the world and to
analyze the national cultural differences in climate change disclosures of sustain-
ability reports for the year 2017. The methodological approach is qualitative.
Reports were obtained from Global Reporting Initiative (GRI) which hosts
widely adopted global standards for companies. The selected companies were
located in United Kingdom, Italy, Germany, France, Spain, and Turkey. The
limitations for sample selection were: publishing the sustainability report in
English, being a large company, and being based in one of the study nations. We
analyzed only one annual report per company. There are 38 large organizations
in energy sector for the year 2017 in the GRI database. National culture was
ranked using Hofstede’s individualism (IND), power distance (PD), uncer-
tainty avoidance (UA), Masculinity (MAS). To compare the scores of countries,
Hofstede’s cultural survey tool was checked. Companies in the energy sector
were selected, because climate change can influence the energy sector through
supply and demand, and also have an effect on energy transportation and
 34 CLIMATE CHANGE DISCLOSURES IN DIFFERENT CULTURES: A STUDY… 675

Table 34.1 Company profile and culture scores

Company name Country National culture scores

PDI IDV MAS UAI

Akenerji Turkey 66 37 45 85
Cairn UK 35 89 66 35
ERG Italy 50 76 70 75
Iberdrola Spain 57 51 42 86
Linde Group Germany 35 67 66 65
Rexel France 68 71 43 86

Source: Authors’ creation based on GRI and Hofstede’s study (GRI Sustainability Disclosure n.d., Hofstede
Country Comparison n.d.)
All companies operated in the energy sector
All reports published in 2017

infrastructure (Schaeffer et al. 2012). According to the World Bank Climate

Change Knowledge Portal, this sector is linked with climate variability and
change through the emission of greenhouse gases (Climate Change Knowledge
2019). Table 34.1 presents companies studied and culture scores of the study
nations.
We obtained the climate-change related information from companies’ sustain-
ability reports for the year 2017. Among the countries, France has the highest
power distance and uncertainty avoidance scores, UK has the highest individual-
ism score and lowest uncertainty avoidance score, Italy has the highest masculinity
score, Spain has the highest uncertainty avoidance score with France. Germany
has the lowest power distance score, Turkey has the lowest individualism score.

Content Analysis
Content analysis has been used to assess and explore the extent and nature of
climate change disclosures. The coding instrument was used to measure the
quantity of disclosure in sustainability reports. Table 34.2 lists studies from
2010 to 2019 that used key words related to disclosures on climate change.
Climate-related disclosures in these studies, were analyzed to understand the
factors that influence the disclosures in different cultures. However, culture
indirectly influences climate disclosures as a specific context. Based on these
studies (De Aguiar and Bebbington 2014; Kouloukoui et al. 2018, 2019; Kılıç
and Kuzey 2019; Haque and Deegan 2010; Amran et al. 2014), 13 keywords
were selected to analyze the sustainability reports and the information about
climate disclosures in these reports:

• Carbon
• Carbon footprint
• Carbon management system
• Carbon pricing and trading
• CDP Climate Change and Water Program
Table 34.2 Studies on key words related to disclosure on climate change

De Aguiar and Kouloukoui et al. Kouloukoui et al. Kılıç and Kuzey (2019) Haque and Amran, Periasamy, and
Bebbington (2014) (2019) (2018) Deegan Zulkafli (2014)
(2010)
Title Disclosure on climate Factors Disclosure of Determinants of climate change disclosures in the Corporate Determinants of
change: Analysing the influencing the climate risk Turkish banking industry climate climate change
UK ETS effects level of information by change-­related disclosure by
environmental the world’s governance developed and
disclosures in largest companies practices and emerging countries in
sustainability related Asia Pacific
reports: Case of disclosures:
climate risk Evidence from
disclosure by Australia
Brazilian
companies
Country – Brazil China, USA, Turkey Australia China, Hong Kong,
Germany, Ireland, India, Indonesia,
Denmark, UK Japan, South Korea,
Philippines, Singapore,
Taiwan, Thailand,
Malaysia, Australia,
New Zealand
Key Emission Climate risk Regulatory Risk Climate change policy/policies Board Mention of global
words Trading Floods Physical Risk Actions oversight warming or of the
Greenhouse · Gas Carbon footprint Competitive Risk Loans at lower prices to clients reducing GHG Senior Kyoto Protocol.
Climate Physical risk Legal Risk emissions management Firm’s plan to deal
Global Natural disasters Reputational Risk Loans at lower prices to projects on renewable sources engagement with global warming
Warming GHG protocol Mitigation Incorporating environmental issues in lending policies and and the objective to
Kyoto Regulatory risk Adaptation Special advisory services related to climate change responsibility control global
Carbon Dioxide (CO2) Floods Opportunities Board committee Emissions warming.
Methane (CH4) Environment Climate Risk Use of new technologies accounting Potential costs to
Nitrous Oxide (N2O) Competitive risk Climate Changes Waste disposal Research and achieve the global
Hydrofluorocarbons Storm Water consumption Development warming objectives.
(HFC) Pollution Energy conservation Potential Current costs to
Perfluorocarbons (PFC) Legal risk Building improvements liability reduce GHG emissions
Sulphur Hexafluoride Global warming Refrigeration and air-conditioning improvements Reduction Information on the
(SF6) Greenhouse gas Travel reductions Reporting/ extent of GHG
Water vapor (H2O) Reputation risk Employee training Benchmarking emission
Ozone (O3) Emissions Sponsorship Carbon
Carbon Monoxide (CO) Climate change GHG emissions and energy consumption accounting pricing and
Volatile Organic Climate GHG methodology trading
Compounds (VOC) management External verification External
Sulphur Dioxide (SO2) CO2 Total GHG emissions affairs
Nitrogen Oxide GHG emissions by scopes
(NOX = NO+N2O) GHG emissions by sources
Hydrogen (H2) GHG emissions by facilities
Aerosol The comparison of GHG emissions with previous years
Clouds Total energy consumption
Energy consumption by type, facility, or segment
Strategic planning
Strategic plans on climate change
Targets to reduce GHG emissions
Targets to reduce energy consumption
(continued)
Table 34.2 (continued)

De Aguiar and Kouloukoui et al. Kouloukoui et al. Kılıç and Kuzey (2019) Haque and Amran, Periasamy, and
Bebbington (2014) (2019) (2018) Deegan Zulkafli (2014)
(2010)
Sample 32 organizations 67 companies 100 large 52 banking organization 5 companies 111 companies
companies in the
world
Findings UK ETS was correlated Climate risk There is a low The findings prove that some banks are not There is an Independent
with disclosure disclosures are level of disclosure incorporated with climate change-related issues increasing non-executives on the
differences. positively related about climate trend in board of directors and
to firm size, risks by companies’ firm practices would
financial companies in the climate increase the climate
performance, and sample. change-related change disclosure in
country of origin corporate their sustainability
governance reports
disclosures.

Source: Authors’ creation based on previous studies

 34 CLIMATE CHANGE DISCLOSURES IN DIFFERENT CULTURES: A STUDY… 679

• Climate
• Climate (change) management/policies/procedures
• Climate change
• Climate risk
• Emission
• GHG (Greenhouse gases)
• Energy conservation/consumption
• Kyoto

Reports were published in different languages; but all analysis of sustain-

ability reports was conducted on English-language versions.

Results

Descriptive Statistics
Table 34.3 represents the descriptive statistics of keywords in the six 2017 sus-
tainability reports. It can be observed that the sample consists of 105 climate
change-related keywords for the Turkish company, 163 for the UK company,
191 for the Italian company, 371 for the Spanish company, 260 for the German
company and 32 for the French company.
The extent and content of climate change information disclosed in the sustain-
ability report of the Spanish company is higher than any other company. The French

Table 34.3 Descriptive statistics of keywords in sustainability reports

Keywords Ak Enerji Cairn ERG Iberdrola Linde REXEL
(Turkey) (UK) (Italy) (Spain) (Germany) (France)

Carbon – 2 19 3 3 –
Carbon management system
Carbon pricing and trading
(Carbon certification and
emission trading)
Carbon footprint 3 16 20 19 25 5
CDP Climate Change and Water 16 – 3 – – –
Program
Climate (change) management/ 1 3 2 5 – –
policies/procedures
Climate (change) risk – 9 1 – 2 –
Climate change 17 60 31 88 3 2
Emission(s) GHG (Greenhouse 38 49 99 203 160 18
gases)
Energy conservation/ 11 2 – 33 24 2
consumption
GHG (Greenhouse gases) 19 22 15 20 41 5
Kyoto – – 1 – 2 –
Total 105 163 191 371 260 32

Source: Authors’ creation based on sustainability reports

680 A. Ö. ÇALIŞKAN AND E. ESEN

company has the lowest disclosure score. The most common term used in sustain-
ability reports is Emissions, followed by Climate change and Greenhouse gases.
The findings show that companies are mostly concerned with the reduction of
emissions. On the other hand, companies specifically do not focus on the CDP
Climate Change and Water Program. In terms of which section of the report
houses climate-change related disclosures, the descriptive findings indicate that
the disclosed information about emission is housed in sections dealing with the
organization/company profile, the CEO statement/letter to stakeholders, eco-
nomic responsibility, environmental responsibility, or social responsibility sec-
tions. The climate change term is generally discussed in the sustainability
approach, business relationship, company profile, letter to stakeholders, or key
figures sections. Details about disclosures are presented in the Appendix.

Main Results

Culture and Climate Change-Related Disclosures

According to Hofstede’s (2001) cultural dimensions, France has the highest power
distance score among the sample. Cultures with high power distance have great
inequalities of power and wealth. In previous studies, it was found that power dis-
tance was negatively correlated with disclosed information. This implication was
supported by this analysis. Disclosed information in the French company report
was limited. Specifically, the company focused on emissions and GHG, and has
targets to reduce GHG emissions by focusing on the energy performance of build-
ings and transportation.Carbon (footprint) is another term which is frequently
disclosed in sustainable development, responsibility and environmental policy sec-
tions of sustainability reports. A sample quotation is shown below;

Reduce the carbon footprint of its operations by at least 30% (compared to 2010).
In 2017, Rexel also strengthened its efforts to shrink its global carbon footprint by
assessing the carbon emissions of its entire value chain.

Uncertainty avoidance is high in Spain and France, and it seems to have a posi-
tive effect on disclosure practices. The total amount of information disclosed by the
Spanish company is high. Climate change is the most used second climate change-
related keyword in the Spanish company’s sustainability report. A quotation:

This position was ratified in 2017 with our active presence at the Bonn Climate
Summit, where it became clear that this is the time to move from words to action to
progress in the energy transition towards a sustainable, safe and competitive model
that replaces production from polluting sources with clean energy and intensifies the
electrification of the world economy.

We observed a negative relationship between uncertainty avoidance and dis-

closure of information in the French company.
According to Hofstede’s (2001) cultural dimensions, Italy’s masculinity score
is high. In general, the masculinity dimension has significant negative effect on
 34 CLIMATE CHANGE DISCLOSURES IN DIFFERENT CULTURES: A STUDY… 681

disclosure level. For the Italian company, the relationship between masculinity
and the amount of disclosed information is not clear, compared with the rest of
the sample. Carbon, Carbon management system, Carbon pricing and trading,
Carbon certification and Emission trading keywords are more obviously dis-
closed in the company’s sustainability report. A sample quotation isgiven below:

In March 2018 the Group presented its new business plan: a 5-year project that
involves important developments in the renewable energy production sector, enabling
us to further reduce the carbon intensity of our energy production, an index we have
already managed to reduce by 89% in the last ten years.

For Turkey, there are mixed results when Hofstede’s dimensions are com-
pared to the sample. As is the case for France and Spain, uncertainty avoidance
is high in Turkey. It reflects the society’s level of tolerance for ambiguity; peo-
ple experience high stress and need predictability in this environment. In the
Turkish company’ disclosures we found that it makes investments in renewable
energy, strives to increase environmental awareness, adopts high-efficiency and
low-emission targets in existing systems. Among the sampled companies, the
Turkish company has the highest number of disclosures mentioning the CDP
Climate Change and Water Program. It is stated that

Carbon Disclosure Project (CDP) Turkey 2017 Water Leadership Award granted to
us as the result of the steps we have taken as Akenerji about water which holds an
important place in the future of the world and our work in this area, has the first
place as the greatest achievement we want to share with you.
In 2016, Akenerji continued being the one and only electricity generation com-
pany to participate in the CDP Turkey Water Program.

The study reveals that the German company appears to make climate change
disclosures with the keywords emissions, greenhouse gases, carbon footprint,
and energy conservation/consumption. The German company is a truly indi-
vidualist one, there is a direct and participative communication style, and dom-
inant values appear. For example, on energy conservation/consumption:

In 2017, we identified more than 170 projects worldwide that helped reduce our
energy consumption and CO2 emissions – for example, by using more efficient com-
pressors and by exchanging valves.
Our energy consumption increased by around 8 percent in 2017 compared with
2016. The increase in our energy consumption over the past few years is mainly due
to the expansion of our business operations.

Among the sampled companies, the UK has the highest individualism score.
According to Hofstede, British people try to find out what their personal pur-
pose in life is and how they uniquely can contribute to society. It is stated in
UK companies’ sustainability report that
682 A. Ö. ÇALIŞKAN AND E. ESEN

We also recognise that balancing the need for energy and reducing greenhouse gas
(GHG) emissions will require efficient use of energy and the full utilisation of both
conventional and innovative sources of energy into the foreseeable future, particularly if
energy is to remain affordable and accessible in developed and developing countries.

Discussion
Climate change has become one of the most important risk factors for compa-
nies around the world. Many stakeholders now demand climate change related
information and policies from the companies, and their number has been
increasing in the recent years. In particular, the interest of large institutional
investors in climate change-related risk has forced companies to provide wide-­
ranging climate-related information in their corporate reports. It is also impor-
tant to bear in mind that national culture will affect companies’ disclosure
practices and stakeholders’ information demands.
In this chapter, we have discussed climate change disclosures in different
nations by analyzing sustainability reports. It makes contributions to the grow-
ing literature on climate change disclosure, and reveals that there are a number
of implications for future studies. Firstly, the study assesses sustainability reports
of companies from six different cultural values. Climate change disclosures
enables companies to call attention to their environmental responsibility and
take the support of key stakeholders. Secondly, the paper discusses the relation-
ship between cultural dimensions and companies’ climate-related disclosures.
This chapter reveals significant differences among countries in disclosing cli-
mate change. Based on Hofstede’s study, the countries in the sample have differ-
ent cultural values. Turkey has the lowest individualism score while Germany has
the lowest power distance score. On the other hand, France has the highest power
distance and uncertainty avoidance scores, UK has the highest individualism score
and lowest uncertainty avoidance score, Italy has the highest masculinity score,
and Spain and France jointly have the highest uncertainty avoidance score.
According to the content analysis, companies from two countries, namely
Spain and Germany, display strong practice in disclosing information about
climate change in their sustainability reports. The clear similarities between the
two countries lies in the prominence of emissions related disclosures in their
sustainability reports. On the other hand, the French company shows poor
performance in this context. France is classified as a high power distance nation,
and its disclosing practice is weaker than other nations in this sample. In the
UK, individualism is high. While in some studies, individualism has been linked
to a positive effect on disclosure practice, in other studies it has been associated
with a negative effect on reporting. In this sample, the UK company disclosed
limited information in its sustainability report.
This research has certain limitations. The study results are limited to a
selected sample of only six nations, and analyzed large firms in the energy sec-
tor by looking at their sustainability reports. Therefore, result of the study
cannot be generalized to other sectors and countries.
 34 CLIMATE CHANGE DISCLOSURES IN DIFFERENT CULTURES: A STUDY… 683

It might be suggested that companies can expand their set of communica-

tion tools to disclose more and increasingly detailed climate change-related and
risk-related information. The role of other variables such as corporate gover-
nance, firms’ characteristics, or financial indicators can shape and influence cli-
mate change-related disclosing practice in research models. Also, the effect of
disclosing climate change on environmental impacts, corporate reputation, and
well-being of society can be analyzed.

Appendix: Related Sections and Examples of Disclosures

on Climate Change

Table 34.4 Turkey and UK

Keywords Ak Enerji (Turkey) Examples

Report section

Emission(s) Company profile Since 2011, we have been regularly reporting, on a

GHG Initiatives provided, voluntary basis, our climate change adaptation
(Greenhouse Active participation, Strategies and greenhouse gas emission management
gases) Responsibility in our within the framework of the most reputable and
value chain, global environmental initiative of CDP Climate
Environmental Change Program, which is an international corporate
responsiveness) platform for companies to voluntarily disseminate
Sustainability approach their strategies towards climate change.
and management Adopting high efficiency and low emission targets
Environmental policy in power plants, modern and environmentally
Sustainability Friendly technologies are preferred in order to
performance and goals obtain the highest possible operational efficiency
GRI-Index and innovations are made in existing systems.
Carbon Environmental Akenerji provides emission reduction certificates, by
footprint responsiveness its renewable energy investments, accredited by
Responsibility in our internationally recognized institutions to customers
value chain with high environmental awareness who aim to
minimize or end carbon-footprinting generated by
electricity use and other reasons, and enables their
electricity usage to be carbon-neutral.
Climate change Company profile Annual reports within the scope of Akenerji
Dialog with Stakeholders Sustainability Report, CDP Climate Change and
Sustainability approach Water program are issued to the public.
and management We reply to inquiries of the responsible investors
Environmental on the performance and practices of Akenerji.
responsiveness Annual reports within the scope of the Akenerji
Sustainability sustainability report, CDP Climate Change and
performance and goals Water program are issued to the public.
GRI-Index
Climate Environmental Being aware of the importance of climate change
(change) responsiveness in the energy generation sector, Akenerji has
management/ created an environment and climate strategy within
policies/ this scope and carries out its operations and
procedures investments within this strategy.
Energy Environmental In Akenerji, a large part of energy consumption
conservation/ responsiveness includes also the conversion of natural gas to
consumption GRI-Index electricity.
(continued)
684 A. Ö. ÇALIŞKAN AND E. ESEN

Table 34.4 (continued)

Carbon Sustainability approach To follow up, report and verify our greenhouse gas
Carbon and management emissions with our Carbon Management System
management Environmental that we have set up.
system responsiveness With this strategy, it has placed in the center of its
Carbon pricing Sustainability operations and investments the use of modern and
and trading performance and goals environmentally friendly technologies in energy
Carbon generation, investing in renewable energy sources,
certification and carbon neutral electricity supply investments for
emission trading customers who are aiming to reduce or neutralize
its emissions.

CDP Climate Message from CEO Carbon Disclosure Project (CDP) Turkey 2017
Change and Company profile Water Leadership Award granted to us as the result
Water Program 2017 in short of the steps we have taken as Akenerji about water,
Dialog with stakeholders which holds an important place in the future of the
Environmental world and our work in this area, has the first place as
responsiveness the greatest achievement we want to share with you.
Sustainability In 2016, Akenerji continued being the one and
performance and goals only electricity generation company to participate
in the CDP Turkey Water Program.
Keywords Cairn (UK) Examples
Report part
Emission(s) CEO statement Following discussions with stakeholders, both internal
GHG Approach and external, as well as our own risk management
(Greenhouse Environment process, we identified the following material issues: …
gases) About this report Climate change, emissions and discharge.
Climate Business relationship Climate change risk and reporting
(change) risk Environment As such, the climate change risks pertaining to our
assets in the UK and Norway, which include our
non-operated development projects Kraken and
Catcher, are well understood but changes will
result from the next round of the scheme.
Carbon Environment For example, long-term innovation may take the
(footprint) form of low emissions technology and carbon
capture. We do not use an internal cost of carbon on
the basis that it is not material to our projects at this
time but we continue to factor costs into our due
diligence and investment proposal processes as
necessary; it is an area we continue to monitor to
ensure we understand trends and implications.
Climate change CEO statement We strengthened the assessment of risks within our
Approach IPS during 2017 to include a standardised
Business relationship approach to the evaluation of modern slavery and
climate change risks. In 2017, we reviewed the
position taken by key investors on climate change
to understand related risks to our business.
Climate Approach The variety of topics is wide and in 2017 included
(change) Environment company strategy, financial position, human
management/ rights, modern slavery and climate change.
policies/
procedures

(continued)
 34 CLIMATE CHANGE DISCLOSURES IN DIFFERENT CULTURES: A STUDY… 685

Table 34.4 (continued)

Energy Environment The International Energy Agency (IEA) World
conservation/ Energy Outlook 2017 indicates that between 2015
consumption and 2040 world energy consumption is likely to
increase by 28%.
Carbon Environment Potential strategic issues include emissions control
Carbon restrictions (e.g. Trading and permitting, levies),
management potential for stranded assets, securing access to
system finance, licence to operate, and adaptation by
Carbon pricing countries and communities (e.g. due to rising sea
and trading levels or change in environmental conditions
Carbon affecting communities) to the impact from climate
certification and changes.
emission trading

Source: Authors’ creation based on sustainability reports

Table 34.5 Italy and Spain

Keywords ERG (Italy) Examples
Report part

Emission(s) ERG and sustainability The technology underlying the burners, also fuelled
GHG Economic responsibility solely by methane, permits the achievement of high
(Greenhouse Environmental levels of efficiency and low emissions.
gases) responsibility [T]he Agreement formally came into force,
Social responsibility committing signatories to adopt concrete plans to
Data and indicators monitor and reduce
Kyoto Environmental Subsequently, the Kyoto agreements and the
responsibility consequent commitments to renewable energies gave
rise to an environmental approach concentrated on
the systemic use of energy.
Climate Governance The “climate change” risk was included in the Risk
(change) risk Catalogue and the associated risk profile
Was analysed, assessing its impact on the medium/
long term.
Carbon Letter to stakeholders In March 2018 the Group presented its new business
(footprint) ERG and sustainability plan: a 5-year project that involves important
Economic responsibility developments in the renewable energy production
Environmental sector, enabling us to further reduce the carbon
responsibility intensity of our energy production, an index we have
already managed to reduce by 89% in the last ten years.
Climate Letter to stakeholders Our goal is to do business in a sustainable way, in line
change ERG and sustainability with the decarbonisation policies that the
Economic Responsibility international community continues to adopt in order
Environmental to combat the phenomenon of climate change.
Responsibility GOs are a very important certificate, not only for the
producer but also for customers: companies that
make environmental awareness and reduction of
climate impact key points in their strategies can
affirm that their production does not generate
indirect emissions (so-called Scope 2), qualifying
their product as even more sustainable.

(continued)
686 A. Ö. ÇALIŞKAN AND E. ESEN

Table 34.5 (continued)

Climate Environmental In fact, our business strategy, focused on the production
(change) responsibility of energy from renewable sources, in line with the
management/ indications of COP 21, views respect for the
policies/ environment and transparency towards our stakeholders
procedures as key elements in combating climate change
Energy Economic responsibility In 2017, we tested the service directly with one of
conservation/ Environmental our industrial customers in the food sector, which
consumption responsibility used the system to align its energy consumption to
Data and indicators the productions of two ERG hydroelectric plants
(Galleto and Salto) and two wind farms (Bisaccia and
Ginestra).

Carbon Letter to stakeholders In March 2018 the Group presented its new business
Carbon Economic responsibility plan: a 5-year project that involves important
management Environmental developments in the renewable energy production
system responsibility sector, enabling us to further reduce the carbon
Carbon intensity of our energy production, an index we have
(Emission) already managed to reduce by 89% in the last ten
pricing and years.
trading
Carbon
certification
and emission
trading
CDP Climate ERG and sustainability ERG received A- rating from CDP (improving the B
Change and Economic responsibility rating achieved in 2016).
Water In 2016, the “Oscar di Bilancio” award (for the
Program “detailed representation of the transformation
process”) and the “Best Newcomer Italy” award
from the CDP (Carbon Disclosure Project) for our
reporting on the Measures and strategies adopted in
the fight against Climate Change.
Keywords Iberdrola (Spain) Examples
Report part
Emission(s) Letter from Chairman & We have thus increased our emission-free installed
GHG CEO capacity to more than 32,000 MW, 67% of our total
(Greenhouse Iberdrola’s contribution capacity. This has allowed us to avoid the emission of
Gases) to the Sustainable 63 million tonnes of CO2 over the last three years.
Development Goals …. Prevent pollution by gradually reducing the
GRI Content Index intensity of greenhouse gas emissions
Organizational profile This is set out in the current Strategic Bonus
Governance 2017–2019 approved by shareholders at the General
Stakeholder engagement Shareholders’ Meeting of 31 March 2017, which
Reporting practice makes the reduction of CO2 emissions a strategic
Topic-specific disclosures: goal.
Economic dimension
Topic-specific disclosures:
Social dimension

(continued)
 34 CLIMATE CHANGE DISCLOSURES IN DIFFERENT CULTURES: A STUDY… 687

Table 34.5 (continued)

Carbon Iberdrola’s contribution The company has set the following environmental
(footprint) to the Sustainable goals: achieving a 50% reduction in the intensity of its
Development Goals CO2 emissions by 2030, as compared with the
Organizational Profile emissions of 2007; and reaching the goal of
Strategy becoming carbon-neutral by 2050.
Stakeholder engagement Today, the group is perfectly positioned to take
Topic-specific disclosures: advantage of the following opportunities, among
Economic dimension others, thanks to its leadership in renewable energy
Topic-specific disclosures: and its commitment to the transition towards a
Environmental dimension low-carbon economy:.

Climate Letter from Chairman & This position was ratified in 2017 with our active
change CEO presence at the Bonn Climate Summit, where it
became clear that this is the time to move from
words to action to progress in the energy transition
towards a sustainable, safe and competitive model
that replaces production from polluting sources with
clean energy and intensifies the electrification of the
world economy
Climate Iberdrola’s contribution Iberdrola has linked the SDGs to its business strategy
(change) to the Sustainable and its Sustainability Policy as seen in the image
management/ Development Goals below:
policies/ Organizational profile In relation to climate change, the group recognizes
procedures Strategy the seriousness of the threat that global warming
Topic -specific entails, which must be faced in a collective and
disclosures: Economic coordinated manner by governments, multilateral
dimension agencies, the private sector and society as a whole.
Topic-specific disclosures: Along these lines, the company undertakes to assume
Environmental a position of leadership in the fight against climate
dimension change and to develop the following principles of
conduct, among others
Energy Iberdrola’s contribution The company has a Policy against Climate Change,
conservation/ to the Sustainable approved by the Board of Directors, in which the
consumption Development Goals company commits to supporting international
Topic Specific disclosures: conventions to address this environmental problem,
Economic dimension encouraging the development of efficient
Topic -secific disclosures: technologies from the standpoint of greenhouse gas
Environmental emissions, boosting efficient energy use and
dimension increasing its customers’ awareness of the importance
Annexes of engaging in responsible energy consumption.
Carbon Organizational profile Once again, the company played a very important
Carbon Topic-specific disclosures: role with the Moving for Climate NOW initiative and
management Economic dimension with its participation in the main events and meetings
system Topic-specific disclosures: of the organisations meeting in Bonn (UN
Carbon Environmental Framework Convention for Climate Change, World
pricing and dimension Business Council for Sustainable Development,
trading Carbon Pricing Leadership Coalition, UN Global
Carbon Compact, etc.), energetically supporting the goals
certification previously agreed to in Paris, which agreement
and emission entered into force in November 2016.
trading

(continued)
688 A. Ö. ÇALIŞKAN AND E. ESEN

Table 34.5 (continued)

CDP Climate Letter from Chairman & This commitment to sustainability has resulted in our
Change and CEO continuing to lead for yet another year prestigious
Water Topic-specific disclosures: indexes such as FTSE4Good, CDP Climate Change
Program Economic dimension and the Dow Jones Sustainability Index, Iberdrola
being the only European electricity company to be
included in its 18 editions.
Iberdrola commits to the transparency and
communication of its climate change policies and is
taking the steps needed to reduce emissions (category
A within CDP Climate Change).

Source: Authors’ creation based on sustainability reports

Table 34.6 Germany and France

Keywords Linde (Germany) Examples
Report part

Emission(s) Our business model 28.4 m tonnes direct and indirect greenhouse gas
GHG Stories emissions
(Greenhouse CEO statement The best way for us to protect the climate is to
gases) Sustainability at Linde ensure CO2 emissions are not generated in the first
Safety (Transport) place. We will achieve significant reductions in
Environment emissions by the end of this decade as a result of
Key Figures efficiency measures in our own plants.
We are working, for instance, on numerous
projects designed to increase energy efficiency. To
give an example from our own processes, we were
able to reduce local CO2 emissions in 2017 by
around 10,000 tonnes per year as a result of the
overhaul of an air separation plant in China.
Kyoto Environment (Energy This includes greenhouse gases specified in the
& climate protection) Kyoto Protocol: methane (CH4), nitrous oxide
(laughing gas, N2O), perfluorocarbons (PFCs),
hydrofluorocarbons (HFCs), sulphur hexafluoride
(SF6) and nitrogen trifluoride (NF3). In 2014, Linde
has refined the determination method of the
indicator for these GHGs to include additional
emitters and emission sources. The reported figure
for 2013 was recalculated based on this new method.
Climate (change) Environment (Energy Climate risks in the Group risk management
risk & climate protection) Financial implications and other risks and
Key Figures (GRI & opportunities due to climate change
Global Compact Index)
Carbon Stories Since February 2017, this plant has been operating
(footprint) Sustainability at Linde at full capacity, demonstrating that the Large-scale
(Sustainability. deployment of carbon capture and utilisation
management) (CCU) not only makes ecological sense but is also
Safety (Production) a attractive from an economic perspective.

(continued)
 34 CLIMATE CHANGE DISCLOSURES IN DIFFERENT CULTURES: A STUDY… 689

Table 34.6 (continued)

Climate change Key Figures (GRI & As a source for global warming potential, we use
Global Compact Index) publications by the IPCC (Intergovernmental
Panel on Climate Change).
Climate (change) Sustainability at Linde We combine long-term business success with
management/ (Sustainability. ecological and social responsibility. Sustainability is
policies/ management) therefore an important part of our Group strategy.
procedures That is why we constantly analyse the impact of
our business operations on people and on the
environment and incorporate sustainability topics
in our core business. Our innovations and
products enable us to make a contribution
towards sustainable development and support our
customers’ efforts, for example, to increase their
energy efficiency or reduce their emissions.
Energy Environment Target/goal: Identify projects with the potential to
conservation/ Environment (Energy reduce energy consumption
consumption & Climate Protection) Optimal balance between energy consumption,
Overview cost effectiveness and environmental compatibility
Key Figures (GRI & In 2017, we identified more than 170 projects
Global Compact Index) worldwide that helped reduce our energy
Further information consumption and CO2 emissions – for example, by
using more efficient compressors and by
exchanging valves.
Our energy consumption increased by around 8
percent in 2017 compared with 2016. The increase
in our energy consumption over the past few years
is mainly due to the expansion of our business
operations.
Carbon Environment (Energy In 2017, we took part in the European Union’s
Carbon & Climate Protection) Emissions Trading System at ten of our hydrogen
management Further information and synthesis gas production sites. There were
system around 1.2 million tonnes of CO2 emissions from
Carbon (emission) these plants during the year. Our Group was
pricing and trading allocated emissions allowances for around 0.9
Carbon million tonnes of CO2. The remaining certificates
certification and were additionally procured.
emission trading
Keywords REXEL (France) Examples
Report part
Emission(s) Landmarks (Highlights) In 2017, Rexel reduced its greenhouse gas
GHG Governance (Message emissions by 35.3% versus 2010 and thus surpassed
(Greenhouse from CEO) its initial goal of −30% by 2020.
Gases) Commitments In 2017, Rexel reached its 2020 goals in terms of
(Sustainable reducing the greenhouse gas emissions of its
development) operations (−35% vs. 2010) and selling energy
Performance efficient products and solutions (+100% vs. 2011).
(Environmental The objective of reducing the Group’s carbon
indicators) emissions by 30% (Scopes 1 and 2) was also
Responsibility (Our achieved in 2017.
environmental policy)

(continued)
690 A. Ö. ÇALIŞKAN AND E. ESEN

Table 34.6 (continued)

Carbon Commitments Reduce the carbon footprint of its operations by at
(footprint) (Sustainable least 30% (compared to 2010).
Development) In 2017, Rexel also strengthened its efforts to
Responsibility (Our shrink its global carbon footprint by assessing the
environmental policy) carbon emissions of its entire value chain.
Climate change Commitments Energy management, a powerful lever for fighting
(Sustainable climate change and protecting the environment, is
development) a driver of economic growth and contributes to
improving the comfort and safety of end-users.
Energy Commitments The goal of doubling sales of energy efficient
conservation/ (Sustainable products and services was achieved in 2017. This
consumption development) significant growth was driven by Rexel’s offering
Performance perfect match with one of its endmarkets structural
(Environmental trends: lower energy consumption
indicators)

Source: Authors’ creation based on sustainability reports

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 CHAPTER 35

Storytelling for Human Sensitivity, Compassion

and Connection in Corporate Sustainability

Andrew Creed, Jane Ross, and Jack Ross

Introduction: Situating Sensitivity, Compassion

and Connection

Our chapter will synthesize multiple strands of human knowledge from life as
it has been lived in stories told by and gathered from 23 elder informants with
immense experience and depth of knowledge, ranging from indigenous spiri-
tual elders and leaders to elders highly positioned in the global science, medi-
cine and political worlds. These stories are analyzed for their intersection with
sustainability science and the human values of sensitivity, compassion and con-
nection in the midst of environmental transformations (Lemoine et al. 2019).
The key question is how can stories told of past organizational challenges
enhance the human values of sensitivity, compassion and connection for cur-
rent and future management? The current challenges of sustainability are tre-
mendous in economic, social and environmental dimensions. Thus, the aim of
the chapter is to present positive prospects for communication practice, reach-
ing into the morals derived from elders’ stories and finding ways to translate
these to future business strategy. Presenting humanity through the ethno-
graphic lenses of culture, creativity and place (Ross 2016), the chapter will

A. Creed (*)
Deakin University, Geelong, VIC, Australia
e-mail: [email protected]
J. Ross • J. Ross
Association for Life-wide Living (ALL), Camrose, AB, Canada
e-mail: [email protected]; [email protected]

© The Author(s) 2021 693

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_35
694 A. CREED ET AL.

generate an original matrix of storytelling morals passed along generations,

combined with relevant dimensional analysis, for the benefit of present and
future applications of sustainability.
Business, in its applied sense, is a constructive and creative trading mecha-
nism for survival (Billsberry et al. 2018), expressing a system and a promise of
hope about the capacity for people to attain the resources they need and want,
while protecting and sustaining resources in the places of operation (Bansal
2019). Within ancient societies are similar expressions about exchange and
growth through storytelling that communicate sensitivity, compassion and
connection (Sharp 1952; Forth 2012; Zoogah et al. 2015; Neville and
Coulthard 2019), thus providing moral direction for the people. For example,
commerce and trade have long provided societies with need fulfilment (Akrong
2019) and it seems likely that innovative new goods and services will offer fur-
ther solutions to difficult problems, albeit spawning new issues along the way.
Toffler (1985) and Nelson (2015) are among futurists who arrive at realistically
positive conclusions about humanity through continuous improvement of
resource distribution methods, such as business, drawing from the foundations
of wisdom built in the past. While the principles and activities of business clearly
have environment implications (are anthropogenic), the causes and solutions
for climate change have not always been appropriately attributed(Oreskes
2013; Rice 2013; Hall 2019) and it is, therefore, timely to explore particular
aspects of studies of humanities for ways to augment the science of sustainabil-
ity (Creed et al. 2014). Humans are both the causes of and the solutions for
problems that have occurred before, and lessons from the past may be one of
few hopes for sustaining ourselves through a significant crisis now and in
the future.
Indicators from all periods of human lived experience in the stories we study
will highlight positive ways to manage the crises that emerge for each genera-
tion. Our chapter will compile the most compelling story accounts from Ross
(2016) and Clarke (2003) and augment this knowledge with wisdom and sup-
port from additional research. The analysis will occur through a unique con-
ceptual framework built around dimensions of sustainability. We will conclude
with a summation of the profound transformations in individuals, organiza-
tions and the environment and discussion of how best to adapt to accelerated
changes, and manage organizations with a focus on a sustainable future
informed by the lived, documented, analyzed and communicated experiences
of our forebears.

Wisdom as Story Knowledge in Culture,

Creativity and Place
We need knowledge about how to address the current climate crisis and con-
duct business more sustainably (UNDP 2019). Knowledge can be a snapshot
of data in a defined time, such as a statement of fact, or it may be represented
as data in motion showing relational elements over a series of moments (Creed
 35 STORYTELLING FOR HUMAN SENSITIVITY, COMPASSION AND CONNECTION… 695

et al. 2014).Science normally fits the snapshot kind of knowledge, while story-
telling represents the relational kind of knowledge. In stories, we can derive
morals and, indeed, elders and leaders in groups including families and organi-
zations frequently utilize storytelling as a way of transferring and communicat-
ing wisdom and morality between the generations. The moral carrying capacity
of a tale provides the storyteller with a vehicle to relay wisdom about relation-
ships between people, artefacts, culture and processes, and it delivers to the
listener some entertainment and engagement along the way. The organiza-
tional precedents for investigating and harnessing the power of storytelling are
evident in research into human relations (Hansen and Kahnweiler 1993), digi-
tal innovation in cross-cultural contexts (Counted and Arawole 2015), leader-
ship (Tucker 2013), career development (Mattila et al. 2019) and diversity
(Sharaby 2019), among numerous fields.
In addition to the many narrative analysis techniques in literature (Mason and
Simmons 2019), there are three structural dimensions that help for interpreting
stories more effectively in business and sustainability, namely, culture, creativity
and place First utilized when scaffolding 22 rich and deep biographical accounts
compiled by the social anthropologist (Cantab), Ross (2016), culture, creativity
and place were the culminating variables from a combined ethnographic and
hermeneutic methodology designed to draw essential experience from diverse
elders, distilling their accounts into an artful and meaningful manuscript. These
stories, framed through the three anthropologically refined dimensions, reso-
nate with the sustainability elements of sensitivity, compassion and connection,
as Fig. 35.1 and the subsequent methodological description reveal.
To expand the Ross (2016) concepts, culture is a woven cradle of assump-
tions, values and attitudes which symbolize and express the compassionate
structure of groups and societies (Ross et al. 2013; Taggart 2016). Creativity
is the expression of individual sensitivity imagined, interpreted and reimagined
in ways that seek to extend and evolve (Zare and Zadeh 2013; Ross 2016; Jung
1964). Place is the essence of connection to space-time (Kaufmann 2014).

Culture
Compassion
Environment

Society

Sustainability
Place
Creativity
Economy

Connection
Sensitivity

Fig. 35.1 The facets of sensitivity, compassion and connection in corporate sustain-
ability. (Source: Authors’ creation)
696 A. CREED ET AL.

Each of these dimensions overlap and, in accordance with Fig. 35.1, we gener-
ated a conceptual framework upon which the story analysis in this chapter is
developed. The purpose of the conceptual framework is to facilitate a construc-
tive corroboration of the events and facts that are embedded in the stories for
analysis.
The core of the conceptual framework in Fig. 35.1 is the Elkington (1997)
construct of sustainability with its three petals representing economic, social and
environmental elements. Around this we compose the unique dimensional
alignment of creativity and sensitivity with place and connection to yield an
overlap with economic sustainability. Likewise, creativity and sensitivity aligned
with culture and compassion yield an overlap with social sustainability. Finally,
place and connection aligned with culture and compassion yield an overlap with
environmental sustainability. As a concept figure involving each element inter-
acting with the other, none of these overlaps are intended to be mutually exclu-
sive; however, they do illustrate weightings and leanings which guided our
investigation. We proposed that natural tendencies and attractions would be
more or less supported by the representations and it was from this conceptual
framework that we were able to apply integrated story analysis as explained next.

The Methodological Manuscript

Epistemologically, storytelling research is both interpretive and constructivist
(Clandinin and Connelly 2010) requiring the participant researchers to reach,
extrapolate, explore and build with patterned persistence from the emergent
blends of facts and fictions. Ontologically, story interpretation as a research
method is subjective, while still pivoting upon observations of facts. Notably,
popular fictional stories remain strongly dependent upon believability of
included facts, and it is only when facts are stretched too far in a story that it
becomes unbelievable. The skillful extrapolation and embellishment of facts, so
that they remain believable, is among the creative elements of storytelling,
which is one of the vehicles by which knowledge becomes engaging and allows
its import to transfer from teller to listener. It is useful to reiterate that stretch-
ing of facts, rather than leading to their destruction, is actually the essence of
acclaimed stories. For instance, awarded movies such as The Godfather, The
Right Stuff and Dunkirk are predominantly fictional in their drama but criti-
cally recognized for tinged-with-truth representations of emotions, ideas and
actions emergent from those portrayed contexts. It is because of both the facts
of the story and their dramatization that the transfer and communication of
knowledge succeed. Furthermore, in stories that are essentially biographical,
facts are an inherent part of the story design; thus we can rely with greater
confidence on learning from such stories: hence the focus on biographical
accounts in our research. It is appropriate to keep engaging with, or accepting
if necessary, the biases built into good stories to attain the benefit of the truths
that can be found hidden within the dramatic or performative mechanisms that
accompany them.
 35 STORYTELLING FOR HUMAN SENSITIVITY, COMPASSION AND CONNECTION… 697

In a research context, the method of reinterpreting stories involves an

embrace of subjectivity to discern the seeds of objective facts in their context.
Interpreting a story effectively therefore requires a framework of concepts for
sense making to occur. Some research explores how a story is told and the
resultant effects on the transfer of intention (Clarke et al. 2019). Our experi-
ence of stories used as research data in this chapter is that elders renowned for
wisdom have often grown to be familiar with storytelling techniques that aid
the subjective interpretation by listeners while maintaining integrity in their
connection with observable facts. The challenge in our research lay, as always,
with separating the drama from the core issues the stories were raising. The
mechanism of a conceptual framework was essential in designing a methodol-
ogy sufficient for discerning the intended messages of stories, especially in the
scope of business and sustainability.
Narrative analysis (Lejano et al. 2019) and sense making through story anal-
ysis (Slovic et al. 2019) are prevalent and growing fields for corporate sustain-
ability research. Stories are a cultural method designed to creatively capture
knowledge and develop interpretations (Reissner 2011) which can then be
passed between times, places and contexts (Mehta et al. 2013) as a knowledge
transfer and communicative practice. Indeed, other kinds of technological sys-
tems that capture and carry forward lessons from the past have proven highly
useful in various places and contexts. For example, the precedent case system
of common law (McCall 2014), the building of computer coding since the first
early programs (Berry 2006), the continuous improvement of automobile and
aircraft design(Xia et al. 2016), and the evolution of organizational policies in
bureaucracies (Chandler 1962) are among the systemic ways that lived experi-
ences are captured and preserved for coming generations. Such examples are
industrial and somewhat culturally bound ways that experience is captured and
transferred so that the intended improvement and development occur.
Storytelling might be perceived as having broader interpretive capacities
(Łyszczarz 2014; Boje 2019). Good stories can be linked to particular cultures
but their moral foundations often have wider appeal cross-culturally. Religious
stories, for instance, have been embraced in global contexts and across many
cultures for centuries. Epic tales from India and the Arab world, Greece, Africa,
Polynesia, Japan, China and indigenous North America and Australia, among
many others, have been very successfully translated over time and between
places to convey core messages. Shakespeare also harnessed archetypal narra-
tives to convey universal meaning, and poets in every generation aim to harness
timeless structural patterns to transfer deep moral messages (Berry 2006; Ross
2019). Stories have a stabilizing effect in a social network, providing a focus of
attention and acting as a platform and a boundary-spanner upon which experi-
ence can be recounted and serve as stepping stones for change.
Previous research has harnessed storytelling in fields of political and social
change (Chatoo and Jenkins 2019) and there is a current trend continuing the
exploration of post-modern and post-rational solutions in business fields
through sense making theory (Weick et al. 2005; Crawford et al. 2019) and
698 A. CREED ET AL.

related methodology (Denning 2006; Dawson and Sykes 2019; Bell et al.
2019; Sharma and Bansal 2019; Wiebe 2019). Big data analytics is also spawn-
ing an outgrowth of quantum storytelling by mining the patterns inherent in
the ways multiple people represent their organizational stories (Boje and
Sanchez 2018).Furthermore, the proliferation of documentary films, including
media retellings of stories of experience, may be indicative of the innately rec-
ognized value many people put in understanding what experienced people
have to offer. Some documentary series specifically focus upon elder stories
(Koorie Heritage Trust 2019). Even documentaries with other themes at their
core need to include stories of elders, such as politicians, states people, proven
business leaders, hardship and trauma survivors, as a means for conveying
authenticity to their audiences (Luhman 2019). People are interested in hear-
ing stories about experienced business people, such as Oprah Winfrey, Bill
Gates, Christine Lagarde, Warren Buffet and Ginni Rometty mainly because of
the drama involved in their examples and the essence of how they have sus-
tained themselves and their enterprises. In addition to written accounts,
YouTube, Vimeo and other audio-visual platforms are assisting the global dis-
semination of documentaries that record the wisdom of experienced people
(Vannini 2019; Harwood 2019). Experienced corporate elders have failures
and traumas to discuss along with their longer-term achievements. To have
survived lows and highs in business and in life brings inherent authenticity to
their stories.
There is a trove of available stories in a variety of media. Anthropogenic
knowledge resides in story data from ethnographic research, including Beauty
Everyday (Ross 2016), where 22 deep and rich accounts of long lives with
learned wisdom offer a wellspring of data. We also mined narrative insights
from the seminal study of a unique Australian indigenous elder, Wisdom Man
(Clarke 2003), which has been progressively translated into five languages.
Appendix 1 contains selection rationales for the stories we chose to reach into
with the deepest focus for the analysis in this section. These data sources were
chosen, on the one hand, for relevance, since Ross (2019) had previously fil-
tered the 22 accounts through the requisite categories of culture, creativity and
place; and on the other hand, for sheer depth of anthropological insights avail-
able in each story. Wisdom Man (Clarke 2003), for example, is a uniquely
insightful view of the life, thoughts and experiences of a respected Australian
aboriginal elder who had identified environmental sustainability as core to his
philosophy when he was alive and dealing with discrimination, loss and strug-
gle in sport, business, social and environmental areas. The juxtaposition of the
Wisdom Man story with the deep and inspirational stories of diverse elders in
Beauty Everyday (Ross 2016) was a structural tool to enable the storytelling
analysis to be cohesive and constructive for the theme of the chapter.
Our approach was to narrow the focus to the core research aim and select
stories with pertinence to sustainability and with accounts and data that had
clear relativity to the Fig. 35.1 conceptual framework. The method adhered to
the requisite research ethics requirements for secondary data analysis. We chose
 35 STORYTELLING FOR HUMAN SENSITIVITY, COMPASSION AND CONNECTION… 699

stories about people who are not necessarily famous, and yet who achieved at
the highest levels in their own ways. Among the chosen stories were published
contributions from an emeritus Harvard Faculty of Medicine Dean, farmer and
brain scientist, a former New York Times journalist, a Nobel Peace Prize co-­
winner in the field of atmospheric science, a former Canadian diplomat and
two highly respected indigenous elders from opposite ends of the earth. Theirs
and others’ stories were derived from long experience and enabled us to apply
a rich and deep iterative approach to interpreting and reinterpreting their
accounts through the conceptual framework. The next section reveals the key
findings.

Some Data Records of Humanity

A sense of positive human intervention in events, resources guardianship and
social development emerges from numerous biographical records compiled in
these substantive anthologies. By the conceptual framework of Fig. 35.1, we
applied iterative analysis through culture, creativity and place to distil the sto-
ries told by elders and position them among the dimensions of sensitivity, com-
passion and connection through the embedded petals of sustainability. We
found that narrative text contains universal elements composing patterns with
interpretability (Toolan 2016) and the following categorized, thematic quotes
enabled the progressive story analyses that ensued.
A feature of Table 35.1 is the three fields with no distilled moral statements
from the stories, instead containing the labels of sensitivity, compassion and
connection. These facets in this matrix are the sustainability bridges to the
dimensions that are conceptually distinctive, as per Fig. 35.1. For instance,
culture and economic sustainability stand as their own clear fields, indicating
that one will diminish or exclude the other, unless finding shared balance
through the application of the dimension of compassion, often expressed
through intersectionality (Watkins et al. 2019) and listening (Couzens 2014).
Likewise, creativity and the environment are each their own distinctive domains
because creativity will deplete resources from the environment unless a balance
can be attained through the moderating function of sensitivity. This indicates
the inherent struggle that business has with environmental sustainability, espe-
cially at the times when profit from creativity outweighs the other aspects of the
triple bottom line. Furthermore, a strong sense of place can disrupt social sus-
tainability by single-focus insularity unless the perspective-giving influence of
connection can become a moderating influence.
The other fields of Table 35.1 are populated with moral statements from the
stories we analyzed. Each distillation, derived from the deep pool of stories
indicated by Appendix 1, was allotted into cross-referenced dimensions to
enable a nuanced interpretation. The findings are at the level of principles or
guiding influence. For example, the advice given to Nobel Laureate, Dr. Russell
Schnell, by his grandmother (Schnell 2016a, p. 116) at B1 in Table 35.1 is
analyzed as an economic principle expressive of both creativity and sensitivity
Table 35.1 Elder story morals embedded in a sustainability matrix
Sustainability/ Economic Social Environmental
Stories

A. Culture Compassion Burn falsehood, dishonesty, hatred of others and “Complex changes can, perhaps, be understood as
war (Louis 2016) well by story as by science” (Schnell 2016a, p. 112)
The old people taught me how to live and how “The lake spoke to me about language and how
to share with others. I shared with the old people the words of poetry can, like Nature, can be as
too (Clarke 2003) close and beautiful as human touch” (Hewitt and
Ross 2016, p. 290)
B. Creativity “We must pick and choose among many competing “Everyone has a story to tell. And many of us Sensitivity
but valid claims on …. our treasure” (Gaede 2016, enjoy the opportunity of sharing ours” (Martin
p. 236) 2016, p. 311)
“You will go much further in life by using a little “Everyone needs meaning in their lives and people
sugar rather than salt” (Schnell 2016a, p. 116) to live for” (Blume and Ross 2016, p. 180)
“Creativity is a divine gift, freely available to “Inspiration awaits us in myriad forms from the
everyone. In the aeons of human existence, people elements we may or may not see, overcomes
have drawn inspiration from their landscape and each adversity” (Ross 2016, p. 324)
other” (Ross 2016, p. 324)
C. Place “You don’t leave your spirit land in times of trouble” Connection Like the water in a coulee, the currents of life can
(Clarke 2003, p. 230) connect and take us all around the world (Hladik
“While I think about the goings on there, I try to 2016)
remain focused on here and the unique place this is” “The forest belongs to nature and you have to be
(Pattison 2016, p. 144) kind to her” (Clarke 2003, p. 241)
“If society breaks down, I am stranded with my “We never did much damage because we knew that
family in the midst of 1.3 billion people who will if we hurt the land it would get sick and die, like a
soon be scrambling for food, water and the mother. She would no longer provide food for the
necessities of life” (Hladik 2016, p. 124) people. We had to look on things that way because
“I recognize how what my life became flowed from we were directly dependent on nature. No big
my early encounters with the land. Nature’s mysteries, commercial factories like today, with money
its wilderness and its bounty were ever present in my everywhere. No people fighting over money and
everyday existence” (Martin 2016, p. 311) dying for it” (Clarke 2003, p. 188)

Source: Authors’ creation

 35 STORYTELLING FOR HUMAN SENSITIVITY, COMPASSION AND CONNECTION… 701

with business parallels in marketing and selling techniques, where, of course,

promoting the benefits is key. The intention of the advice is to encourage long-­
term sustainable actions, which also turn out to be central to the relational
ethics inherent in trade and commerce. Finding the balance between sugar and
salt is, of course, the art of striking a deal.
At A2 are positioned quotes from two significant first nations elders and
leaders—Louis (2016) from Alberta, Canada, and Clarke (2003) from Victoria,
Australia—recounting wisdom from their stories about how to attain social
sustainability by carefully blending culture with compassion. Notice that one
eschews war, and the other points us to the wisdom of elders and the spirit of
sharing as a means for keeping the social energy in harmony. In corporate con-
texts, this principle makes sense for social sustainability in the formation of
strategic plans, as well as during competitive conflicts and throughout periods
of dispute and negotiation. The internal culture of an organization also needs
social harmony informed by these stories built upon immense experience of
human suffering and joy within the overlapping dimensions of culture and
compassion.
The respected Cree leader and elder Roy Louis (2016, p. 34) further
reflected upon his story about his great-great-grandfather, also a Cree chief
and elder:

One hundred and fifty years after he died, Maskepetoon lives on in spirit.
Although we face battles of other kinds: cultural disintegration and reintegration,
technological imperatives having pre-eminence over centuries-old traditions, dis-
putes about land and water, as well as the effects of chemical, gender and other
abuse. I take courage from the fact that Maskepetoon was able to adjust to the
times and even see beyond.

The quote communicates a strong sustainability lesson drawing on all three

economic, social and environmental petals and settled on adaptability and
innovation as the hope for a sustainable future. With culture, creativity and
place enacted through compassion, sensitivity and connection, the vision is
achievable in business, and in local and global communities.
The memorialized and respected Aboriginal leader and elder Banjo Clarke
(2003, p. 191) expanded on the story in his Australian context:

I believe the solutions for all the different races of the world is to just understand
one another and teach each other’s cultures. Go up and speak to people! If you
can’t speak their lingo, don’t turn away saying ‘Ah, I don’t understand him.’ Go
up and shake their hand and say, ‘I am your friend. Speak to me about your cul-
ture; I’ll speak to you about my culture and we’ll be friends.’ Don’t fight or be
angry. …. So just be happy!’ That’s the best way.

There are some significant sustainability dimensions embedded in this wisdom.

Compassion, sensitivity and connection are all expressed in a way that implies
702 A. CREED ET AL.

economic and social reparation can be achieved. However, it requires a big

heart and a desire to continue learning and being open to possibility.
The distillation at B2 comes from Joseph Martin, Dean Emeritus, Faculty of
Medicine, Harvard University, reflecting upon his autobiographical storytell-
ing experience. His lesson comes in social sustainability, encouraging leaders
and managers to act with sensitivity and be prepared to listen to people’s con-
cerns. The message in his story was captured in another way when he said, “In
the end, what became a sustaining influence was the recognition of the great
varieties of inter-human experience that characterize our lives and how lessons
learned from these experiences determine our capacity for leadership potential”
(Martin 2016, p. 312). In other storytelling, Martin (2011) offers more
insights into human sensitivity as an indispensable awareness in leadership.
Business in 2025 will need leaders who can work with the millennial generation
and the subsequent strata of workers with their unique social and cross-cultural
needs. Sensitivity will continue to be the necessary trait for ongoing leadership
success.
At C3 in Table 35.1 is distilled wisdom from Maurice Hladik, former
Canadian diplomat, in a personal narrative about the Tiananmen Square pro-
tests of 1989. It is a place-based start to his story drawing on environmental
sustainability as a core theme, using a coulee metaphor, and bringing attention
to the concept of connectedness. Later in the story, at C1 he describes the situ-
ation once he realized he was caught in the midst of the crowd during the mili-
tary crackdown and terrible massacre. In raw terms, human connectedness was
brought down to the prime economic sustainability aspects. Both sustainability
and survival itself are affected by connectedness which can flow both construc-
tively and destructively across the dimensions. One current problem is that
people do not hear the same stories; they exist within social-media tribes and
hear only stories tailored to their tribe. This equates to a challenge much like
Hladik described when social order was fragmented in Tiananmen Square. In
the same place-based fields of the matrix as Maurice Hladik’s, Banjo Clarke’s
statements further illustrate the power of connectedness to bridge between the
environment and the economy, and it is social sustainability which is the aspira-
tion of connectedness in the midst of the tensions that arise from the struggles
described.
While this chapter is written, further illustration of similar struggles between
connectedness and sense of place are bubbling up with a challenge to social
sustainability through the activism of Greta Thunberg at the United Nations
Climate Action Summit in 2019 and the subsequent global climate strikes
(Singer 2019). Wisdom from our story analysis involving Hladik and Clarke
might assist some to gain a deeper perspective about the underpinning dimen-
sions and, thus, the solutions to the Thunberg struggles moving forward. For
instance, at C1 in Table 35.1, Clarke pointedly warns against leaving your place
in times of crisis, which has played out for leaders many times. One recent
example is in Australia during the immense Christmas 2019 bushfires when
Prime Minister Morrison was noticed going on vacation to Hawaii while his
 35 STORYTELLING FOR HUMAN SENSITIVITY, COMPASSION AND CONNECTION… 703

voters were left fighting the fires in their places. Even when returning from
vacation earlier than planned, there were more delays with providing firefight-
ing resources and Morrison’s support as a leader ebbed (Tingle 2020). Parallels
in business leadership emerge when modern, global corporations encourage
leaders to live in a succession of countries. In their habits and decisions, such
leaders can become less concerned about ties to place and the obligations that
might involve. Clarke (2003) may sound his warning again and activists like
Greta Thunberg may question this mobility for the disconnection it creates
from the environment and from the people of the place.
A final word in this section of the analysis can go to Nobel Laureate and
eminent climate scientist Dr. Russell Schnell, who identified in A3 that story-
telling equates with science when the task at hand is to understand and convey
complex concepts. As an experienced contributor at the forefront of discover-
ing how urgent environmental sustainability initiatives have become (Schnell
2016b), his acknowledgment of the power of a story for creating both compre-
hension and action is worthy of notice. His wisdom sits within the dimension
of compassion as it overlaps with the clash between science and culture in the
current climate change debate.
All of the story morals distilled in Table 35.1 were the result of the same
iterative analysis process applied in the research method. Furthermore, we
found a wide range of stories can be treated similarly using the dimensions
delineated in Fig. 35.1 and unfolded in the matrix of Table 35.1. The depth of
our data is indicated in Appendix 1 where additional moral distillations were
found beyond the full scope of this chapter. Additional implications of the
work in this project, and for other corporate sustainability research pathways,
are discussed next.

Sustainability and the Wisdom of Elders

Logical reasoning by philosophers, including David Hume, has previously con-
tributed knowledge about inherent humanism in the commercial transactions
of society (Creed et al. 2014; Coventry and Valls 2019). Stories generating
moral outcomes as told by people with lived experience tend to communicate
the humanist principles predicted by Hume and as categorized by the fields of
Fig. 35.1 and the matrix of Table 35.1. However we grappled with the cultural
intonation of what it means to say one is an elder (Liang et al. 2012) and to
reconcile with the notion of experience and authenticity in storytelling. There
are both demographic and psycho-social components (Zaniboni et al. 2019) to
eldership. One can objectively be old or young according to time-based stan-
dards applied in laws and customs (Cheung et al. 2019). Notably, eldership is
also connected with individual responses and behaviors emerging from signifi-
cant events, such as the death of one’s parents, the survival of major events and
trauma, and the adoption and conduct of social leadership positions in difficult
times (Yang and Warburton 2018). Someone with a number of years passed
and showing a socially acceptable ability to manage, lead and thrive through
704 A. CREED ET AL.

adverse circumstances is likely to be perceived, and probably respected, as an

elder (Daleure 2019). Even chronologically young people are sometimes
imbued with the label of being an ‘old soul’ by virtue of the psycho-social dis-
play of eldership qualities (Karunamuni and Weerasekera 2019). Eldership
appears connected with a level of social respect earned through time by collect-
ing experiences of hardship, perseverance and long-term success (Wiebe and
Bevan 1986; Berry 2015; North 2019). Advanced age (and naïve youth, for
that matter) on its own translates socially into a negative feature that often
gives rise to discrimination and abuse, and yet eldership with its additional lay-
ers of experience, respect and wisdom is a frequently untapped source of posi-
tive leadership development.
We are in the midst of a major demographic divide with more than half of
the world’s population being young and inexperienced, and a preponderance
of youth in emerging nations (Czaja et al. 2019). Furthermore, in developed
nations there is inexorable aging of the populations to the point of threatening
economic stagnation (Ratten 2019) and environmental sustainability. It is the
young people who hold most of the driving energy of the labor force in the
world, while the elders are the crucibles of genuine experience in complex
economies and, in a global sense, there is increasing demographic separation
except in places where migration policies allow for equilibrium to occur. Young
workers do not migrate to a place specifically to mingle with elders; however,
where such opportunity arises there are potential advantages from systems and
social structures in which elders can share their lived experiences and wisdom
with younger people. It is by learning from the successes and mistakes made by
one’s elders that the young can potentially navigate the best paths for them-
selves, especially as sustainable development goals remain important in the
coming decades.
In essence, we found human morality comes out of the stories, along with
evidence of ancient connection to the environment and a respect for the rela-
tionships between people. Compassion and sensitivity appear necessary in past
and present relationships, and, if the future is going to be better for sustain-
ability and business in general, then storytelling knowledge will need to play a
significant part in condensing and communicating essential wisdom. The last
insight on storytelling for improved sustainability awareness through sensitiv-
ity, compassion and connection goes to former New York Times journalist Irene
Hewitt. Elder and convalescent, institutionalized with declining sensory abili-
ties, motivated by discussion about business, management and the sustainabil-
ity of society, she recounted a metaphor and posed a question using vocabulary
and insights honed from decades of highly refined observational and emo-
tional caché.

Ancient forests at my bedside, trees made strong by wind. Why don’t people
think more of the trees and living things? Lay down memories while they can,
when eyes can see and legs can walk. Find comfort in the permanence of univer-
sal, living things. (Hewitt and Ross 2016, p. 307)
 35 STORYTELLING FOR HUMAN SENSITIVITY, COMPASSION AND CONNECTION… 705

Conclusion: Ever After and Furthermore

Global and local businesses alike, along with aspects of climate change, have
anthropogenic origins and thus require human intervention to ensure sustain-
able practices persist. Science is helping business to improve understanding of
how to create a positive pathway into the future, but there are boundaries in
this form of knowledge. Science normally fits the snapshot kind of knowledge,
while storytelling represents the relational kind of knowledge. This chapter
addressed the question of how stories told of past organizational challenges can
enhance the human values of sensitivity, compassion and connection for cur-
rent and future management of sustainability. The aim was to present positive
prospects for corporations by reaching into the morals derived from elders’
stories and finding ways to translate these to future business strategy. We syn-
thesized in Fig. 35.1 a new conceptual framework using published story data
applied through the ethnographic lenses of culture, creativity and place. An
original matrix of storytelling morals was combined in Table 35.1 with relevant
dimensional analysis, for the benefit of present and future applications of eco-
nomic, social and environmental sustainability. The stories were drawn from a
wellspring of anthologies (see Appendix 1) about people with exemplary expe-
rience and leadership quality, enabling us to apply a rich and deep iterative
approach to interpreting and reinterpreting their accounts through the con-
ceptual framework.
The findings and discussion lead us to recommendations regarding corpo-
rate sustainability. Business managers and entrepreneurs should make times
and places to gather and reflect upon stories derived from authentic experience.
Elders, or any leaders with genuine insights into related sustainability phenom-
ena, can provide stories with relevance. In this context it is necessary to guard
against potential age discrimination that might lead to ignoring important sto-
ries. Academia and educational institutions should take pause over qualitative
and ethnographic research into storytelling, especially as an augmentation of
the more widely accepted scientific methodologies around climate change.
Human elements of and insights from storytelling may connect more meaning-
fully with the very real needs of the earth that science alone is not fully com-
municating to all cultures across the globe. Policymakers should ensure funding
and regulations allowing enhanced opportunities for elders to give their knowl-
edge of experience back to corporations and communities through storytell-
ing media.
Overall, the conceptual framework and matrix for story analysis presented in
this chapter provide an applied tool for engaging with storytelling in dimen-
sions consistent with the needs of sustainability. The method is conducive to
extracting applied knowledge for enhanced sustainability communication. If
our research is accepted for the interpretive and constructive design that it is,
corporations and experienced individuals are now equipped with an application
that facilitates inter-generational solutions to current and compelling environ-
mental problems. However, the subjective nature of the data and method
706 A. CREED ET AL.

leaves room for further research into the conceptual framework that may
include focusing on specific dimensions in the Table 35.1 matrix and seeking
to validate elements of the distilled moral statements with the recorded experi-
ences of organizations and managers engaged in similar experiences. Other
future research may tap stories of ancient wisdom from indigenous communi-
ties, or those of very senior leaders from differentiated corporate or political
spheres. The same broad dimensions of culture, creativity and place aligned
with sensitivity, compassion and connection traverse the different times, places
and contexts of humanity, which makes this chapter an exemplar of communi-
cative practice.

Appendices

Appendix 1 Story Pool Indicating Excerpts for Analysis with Matrix Alignment

Story title Excerpts relevant to dimensions of culture, creativity and Table 35.1
place inclusion

My Hat, My Cattle “Everyone needs meaning in their lives and people to live Yes
and Me for” (Blume and Ross 2016, p. 180)
Lessons From Love “God helped me in many ways, sometimes through No
and Life people and nature, sometimes through dreams” (Benkie
2016, p. 196)
The Judge’s Robe “If a shared humanity is to be restored there must be No
room enough inside that gown for the tools needed for
the job; humility, integrity, empathy, knowledge, humor”
(Buchanan 2016, p. 218)
A Judge’s Journey “We must pick and choose among many competing but Yes
valid claims on ….. our treasure” (Gaede 2016, p. 236)
Journeys Never “In this ‘sacred’ place it almost seems there is no past or No
End immediate future, just a time to be full of thoughts that
fall thick as the fluffy snow” (Bergum 2016, p. 208)
Waiting For My “Waiting for my mother, her death. Cradling between my No
Mother palms a spruce” (Gould 2016, p. 238)
Silver Eyes “‘Breathe in. Breathe out,’ I told myself. ‘Breathe in. No
Breathe out. Stay calm,’” (Skillen 2016, p. 242)
The Art of “It also taught me that, as my life was broken into many No
Recovery pieces, I could pick up some of them in an effort to
rebuild” (Mabbott 2016, p. 250)
Life as a Quilt “It was awful to just sit or lie there day after day, knowing No
that the things I did earlier in my life contributed to the
stroke” (David and Carlson 2016, p. 263)
Somewhere Over “I never dreamed how hard I would have to work to stay No
the Rainbow alive” (Ulrich and Enns 2016, p. 272)
Roses in December “The lake spoke to me about language and how the Yes
words of poetry can, like Nature, can be as close and
beautiful as human touch” (Hewitt and Ross 2016,
p. 290)

(continued)
 35 STORYTELLING FOR HUMAN SENSITIVITY, COMPASSION AND CONNECTION… 707

(continued)
Story title Excerpts relevant to dimensions of culture, creativity and Table 35.1
place inclusion

Afterword “I recognize how what my life became flowed from my Yes

early encounters with the land. Nature’s mysteries, its
wilderness and its bounty were ever present in my
everyday existence” (Martin 2016, p. 311)
“Everyone has a story to tell. And many of us enjoy the
opportunity of sharing ours” (Martin 2016, p. 311)
Heartland “Once hailed tower of earthly riches. Collapsed. Castles No
Heartfelt to ashes. Boom to bust. Dreams to dust” (Stirling 2016,
p. 55)
Pages From Time “When our arms tired, someone else would take over, and No
then Mama would finish the butter” (Smith and
Zimmerman 2016, p. 38)
Bends in the River Burn falsehood, dishonesty, hatred of others, and war Yes
(Louis 2016)

“One hundred and fifty years after he died, Maskepetoon

lives on in spirit. Although we face battles of other kinds:
cultural disintegration and reintegration, technological
imperatives having pre-eminence over centuries-old
traditions, disputes about land and water, as well as the
effects of chemical, gender and other abuse. I take
courage from the fact that Maskepetoon was able to
adjust to the times and even see beyond” (Louis 2016,
p. 34)
Coulee Seasons “And like all who lived here before me and those who No
were yet to come, I would invest my energy in its soil,
look to the sky, listen to the wind and live a significant
portion of my life” (Jensen 2016, p. 56)
Letters From Afar “While I think about the goings on there, I try to remain Yes
focused on here and the unique place this is” (Pattison
2016, p. 144)
Tiananmen Diary “If society breaks down, I am stranded with my family in Yes
the midst of 1.3 billion people who will soon be
scrambling for food, water and the necessities of life”
(Hladik 2016, p. 124)

Like the water in a coulee, the currents of life can connect

and take us all around the world (Hladik 2016)
The Power of Ideas “You will go much further in life by using a little sugar Yes
rather than salt” (Schnell 2016a, p. 116)

“complex changes can, perhaps, be understood as well by

story as by science” (Schnell 2016a, p. 112)
Poppy Seeds and “I loved their [flowers] scent as it mingled with the scent No
Prune Buns of the church incense and I experienced a profound
feeling in my mind and spirit that the garden and the
church became one, each a perfectly safe haven for a little
girl like me or for everyone in the whole world” (Zinter
2016, p. 75)

(continued)
708 A. CREED ET AL.

(continued)

Story title Excerpts relevant to dimensions of culture, creativity and Table 35.1
place inclusion

My Father Comes “Remembering his fatigue, massive and silent as God’s on No

Back the sixth night. Exhaustion that comes with building a
new world, breaking hard land to feed the generations
that will come” (Griebel 2016, p. 71)
Back Matter “Creativity is a divine gift, freely available to everyone. In Yes
the aeons of human existence, people have drawn
inspiration from their landscape and each other” (Ross
2016, p. 324)

“Inspiration awaits us in myriad forms from the elements

we may or may not see, overcomes adversity” (Ross 2016,
p. 324)
Wisdom Man “We never did much damage because we knew that if we Yes
hurt the land it would get sick and die, like a mother. She
would no longer provide food for the people. We had to
look on things that way because we were directly
dependent on nature. No big commercial factories like
today, with money everywhere. No people fighting over
money and dying for it” (Clarke 2003, p. 188)
“The forest belongs to nature and you have to be kind to
her”

“You don’t leave your spirit land in times of trouble”

(Clarke 2003, p. 230)

The old people taught me how to live and how to share

with others. I shared with the old people too (Clarke
2003)

“I believe the solutions for all the different races of the

world is to just understand one another and teach each
other’s cultures. Go up and speak to people! If you can’t
speak their lingo, don’t turn away saying ‘Ah, I don’t
understand him.’ Go up and shake their hand and say, ‘I
am your friend. Speak to me about your culture; I’ll speak
to you about my culture and we’ll be friends.’ Don’t fight
or be angry. …. So just be happy!’ That’s the best way”
(Clarke 2003, p. 191)

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 CHAPTER 36

Developing Gender Equality Marketing Beyond

2025: A Systematic Literature Review

Nicole Böhmer and Kai Michael Griese

Introduction
The discussion in the literature about how marketing activities influence soci-
ety is quite diverse and sometimes even polarizing. Some studies support the
hypothesis that the perpetuation of gender inequality is enmeshed with mar-
keting activities (Bettany et al. 2010). The study “AdReaction: Getting Gender
Right” (Kantar 2019) concludes that stereotypes are still dominate in advertis-
ing. At the same time, research indicates that gender differences in customers’
preferences will increase with increasing standards of living and gender equality
(Falk and Hermle 2018). In recent decades, digitalization, especially that
related to the internet and social media, has influenced not only marketing
practices but also user-generated content in maintaining gender roles in society
(Brandao et al. 2019).
A meta-analysis of gender roles indicates that, for example, “gender stereo-
typing in advertising depends on gender-related developments and value
changes in society rather than the other way around” (Eisend 2010, p. 418).
These results support the idea that gender roles in marketing are used as they
currently appear rather than actively shaped. Therefore, the “mirror argument
over the mold argument in the long-standing debate about advertising’s con-
sequences for society” (Eisend 2010, p. 418) is confirmed.
The mere biological distinction between males and females that assumes
biological differences from birth can be found in many marketing studies

N. Böhmer (*) • K. Michael Griese

Osnabrück University of Applied Sciences, Osnabrück, Germany
e-mail: [email protected]; [email protected]

© The Author(s) 2021 715

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_36
716 N. BÖHMER AND K. MICHAEL GRIESE

(Schertzer et al. 2008). For a comprehensive view on gender issues in market-

ing, this distinction is not sufficient because it leaves out culturally endorsed
identities that impact the social construction of masculinity and femininity.
These constructions manifest in gendered preferences, such as gender-specific
consumer behaviour. Gendered preferences, interests, and living conditions
imply that gender equality is not reached by only providing the same condi-
tions for all genders. Moreover, the surrounding structures and institutions
that reproduce inequality need to be questioned. In this article, the focus on
gender production, such as marketers engraving gender in products and ser-
vices (Peñaloza 1994), and gender consumption, which refers to the way in
which people enact gender in their daily life, in marketing strategies and prac-
tices aims at improving the understanding of different perspectives.
On this basis, this chapter focuses on the general marketing frame and ques-
tions the actual and possible future contributions of marketing to gender
equality and consequently to societal sustainability. Leach et al. commented
that “[m]ost sustainability issues involve multiple, contested framings and nar-
ratives” (Leach et al. 2016, p. 5). Therefore, the aim of this research is to
identify different strands of development in the marketing field to (1) advance
the knowledge of gender challenges in marketing management and to (2)
develop proposals for the development of gender equality marketing (GEM)
beyond 2025.
This chapter comprises four steps. First, four possible pathways of sustain-
able development towards gender equality are introduced to define the context
and background and to deduce a definition of “gender equality marketing”.
Second, this research identifies and analyses the most influential marketing lit-
erature of the past three decades along these pathways by applying design-­
oriented research synthesis. Third, according to the findings from the literature
review, orientation to companies is provided based on the challenges they face
with regard to their sustainable marketing management beyond 2025. These
challenges can be illustrated by the complex relationship between gender con-
sumption and gender production. Another example is the balancing act
between having and using gender knowledge. Fourth, at the end of the chap-
ter, different pathways to gender equality marketing are discussed, and propo-
sitions for practitioners are developed.
Overall, this chapter seeks to discuss the challenges and transformations
required to deliver sustainable business based on gender equality marketing.
Consequently, it provides relevant marketing insights at the intersection of
business, society, environment, and technology.

Theoretical Background: Pathways from Sustainable

Development to Gender Equality Marketing
At the heart of this gender research is the concept of “gender equality”.
Equality implies the quality of being equal. Considering that (1) gender
includes the social construction of masculinity and femininity and that (2)
gender-­specific differences in preferences exist, this quality is hard to specify
 36 DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC… 717

practically. Consequently, gender equality does not mean providing the same
conditions for men and women but rather providing suitable conditions for
perceiving equality and justice. Justice in this article is defined as the mainte-
nance of what is socially just and free from bias. Hereinafter, the term “gender
equality” is used to discuss the marketing literature in a sustainable way.
Therefore, at the outset, gender equality is reflected by the concept of sustain-
able development. More specifically, if gender equality is sustainable, then
equality is a given, or, as Leach et al. (2016) have stated, “In this conceptual-
ization, gender equality is therefore integral to how sustainable development is
defined and pursued” (Leach et al. 2016, p. 4). The following four pathways
dominate the current discussion about sustainable development (Bansal 2005;
Chabowski et al. 2011; UN 2015) and/or gender equality.

1. The Brundtland Report (“Our Common Future”)

One pathway to define sustainable development was described in the

Brundtland Report (1987). Sustainable development was defined as “develop-
ment that meets the needs of the present without compromising the ability of
future generations to meet their own needs” (World Commission on
Environment and Development 1987, p. 41). Based on this understanding,
gender equality is given in marketing, so far as the gender equality needs of the
present generation are fulfilled without compromising the gender equality
needs of future generations. Using this approach, gender equality needs are
separated into intergenerational and intragenerational justice.1 Intragenerational
justice includes fair equality within a generation, for example, by avoiding dif-
ferent wages (Drengner and Griese 2016) for males and females in marketing
departments. Intergenerational justice means that today’s marketing should
ensure that future generations are able to meet their own gender equality needs
as well, for example, by not creating advertising content that hinders the
empowerment of women and girls in the future.

2. The Triple Bottom Line Concept

Another pathway to define sustainable development is based on the concept

of the triple bottom line (TBL) developed by Elkington (op 1998). This model
includes environmental, social, and economic dimensions that should be con-
sidered simultaneously and equally. In this pathway, gender equality can be
seen at the interface of environmental, social, and economic dimensions.
The environmental dimension concerns the protection of natural resources
as a basis for living. In this context, gender equality means using natural
resources only to the extent that they can be regenerated. Spheres of marketing
activities include, for example, less gender production by reducing CO2

1
Extensive discussion about intergenerational justice and intragenerational justice is available
e.g. in Tremmel (2006).
718 N. BÖHMER AND K. MICHAEL GRIESE

emissions due to a standardization of products for males and females (e.g., the
same toys in toyshops instead of separately gendered colours). The aim of the
social dimension is to ensure social justice. Spheres of marketing activities
include, for example, avoiding discrimination against or the stereotyping of
men and women in advertising. The economic dimension includes the macro
and micro levels (Sheth et al. 2011, p. 24). The micro level concerns the pro-
tection of the permanent economic success of a company. Considering this
level, gender equality also includes activities to ensure economic success.
Spheres of marketing activities include, for example, understanding and inte-
grating the target groups of products. The macro level refers to the economic
responsibility of external stakeholders, especially to create a sufficient standard
of living. Accordingly, gender equality includes the responsibility of other
stakeholders. Spheres of marketing activities include, for example, producing
products (e.g., chocolate) in developing countries and ensuring that farmers
obtain enough income for a sufficient living standard.

3. Sustainable Development Goals (SDGs)

The third pathway of sustainable development to gender equality is based

on the United Nations 17 Sustainable Development Goals:

The Sustainable Development Goals are the blueprint to achieve a better and more
sustainable future for all. They address the global challenges we face, including those
related to poverty, inequality, climate, environmental degradation, prosperity, and
peace and justice. The Goals interconnect and in order to leave no one behind, it is
important that we achieve each Goal and target by 2030. (United Nations
2015, n.p.)

Goal 5 especially refers to the topic of gender quality: “Achieve gender

equality and empower all women and girls.” Table 36.1 lists the detailed tar-
gets of Goal 5. Based on Goal 5, gender equality includes different targets that
should be fulfilled by 2030. The spheres of marketing activities include, for
example, terminating discrimination of women in advertisements (5.1) and
giving women equal opportunities for leadership in marketing departments
(5.5). Regard to the digital age, Goal 5 connects women’s empowerment with
increasing use of (information and communication) technology (5B).

4. Specific Gender Policies in Business and Government Policies

The fourth pathway includes different business and government initiatives

that reflect special policies rather than gender equality as a fundamental con-
cept of sustainability. Table 36.1 specifies examples. Spheres of marketing activ-
ities include, for example, creating advertisements with a due sense of social
responsibility (EASA 2019) (Table 36.2).
 36 DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC… 719

Table 36.1 Targets of SDG 5: Gender equality

Part Detailed targets

5.1 End all forms of discrimination against all women and girls everywhere
5.2 Eliminate all forms of violence against all women and girls in the public and private
spheres, including trafficking and sexual and other types of exploitation
5.3 Eliminate all harmful practices, such as child, early and forced marriage and female
genital mutilation
5.4 Recognize and value unpaid care and domestic work through the provision of public
services, infrastructure and social protection policies and the promotion of shared
responsibility within the household and the family as nationally appropriate
5.5 Ensure women’s full and effective participation and equal opportunities for leadership
at all levels of decision-making in political, economic and public life
5.6 Ensure universal access to sexual and reproductive health and reproductive rights, as
agreed in accordance with the Programme of Action of the International Conference
on Population and Development and the Beijing Platform for Action and the outcome
documents of their review conferences
5A Undertake reforms to give women equal rights to economic resources, as well as access
to ownership and control over land and other forms of property, financial services,
inheritance and natural resources, in accordance with national laws
5B Enhance the use of enabling technology, in particular information and communications
technology, to promote the empowerment of women
5C Adopt and strengthen sound policies and enforceable legislation for the promotion of
gender equality and the empowerment of all women and girls at all levels

Source: United Nations Sustainable Development Goals

Table 36.2 Gender policies in business and government policies

Organization Examples

1 Council of the European Eliminate gender stereotypes, ensure equal pay for equal
Union, European Pact for work and promote the equal participation of women in
Gender Equality, 2011 decision-making.
2 European advertising standards Ads are prepared with a due sense of social responsibility.
Alliance (EASA) 2019
3 German Advertising Standards Code of conduct against vilification and discrimination.
Council, 2014
4 Global environment facility This policy sets out the guiding principles and
(GEF), 2017 mandatory requirements for mainstreaming gender
across the GEF’s governance and operations with a view
to promoting gender equality and the empowerment of
women and girls in support of the GEF’s mandate to
achieve global environmental benefits.

Source: Authors’ creation

Overall, the four pathways demonstrate different approaches to conceptual-

izing sustainable development and therefore fostering gender equality.
Depending on the way in which gender equality is conceptualized, it can result
in different focuses and a different discussion of gender equality in marketing.
For example, based on the Brundtland Report, a long-term debate is included,
720 N. BÖHMER AND K. MICHAEL GRIESE

while the triple bottom line concept supports a discussion about conflicts of
social, environmental, and economic values. The SDGs include objectives to be
reached by 2030, while business and government policies suggest a marketing
view in terms of gender equality. Allowing a broad interpretation of the exist-
ing marketing literature, we use all pathways for the analysis in the next sections
of our chapter.
All pathways are linked to gender as a basic structuring principle for indi-
viduals, groups, and societies (Hearn and Hein 2015). Future and equality-­
oriented gender consumption and production can help to transform not only
individuals but also organizational and societal culture. Therefore, organiza-
tions that pursue GEM can accelerate the changes towards more equal oppor-
tunities of women and men and consequently more sustainability beyond
2025. As a result of the interconnections explained thus far, we define GEM
management as building and maintaining sustainable relationships with cus-
tomers, the social environment, and the natural environment through gender-­
sensitive attitudes and activities in all areas of marketing management. In this
framework, GEM management contributes to the wellbeing of women and
men in affected communities. Consequently, GEM comprises gender-sensitive
patterns of planned or emerging marketing strategies and practices intended to
enable organizational goal achievement while simultaneously and permanently
reproducing the customer base and while controlling for self-induced side and
feedback effects of marketing practices on society or nature and thus on the
evolution of the target markets.
To develop implications for GEM beyond 2025, it is pivotal to understand
the scholarly discussion thus far and to capture the status quo of GEM. Therefore,
we conducted a systematic literature review that helps to identify trends in
marketing research regarding social, demographic, technological, and manage-
rial issues (Pickering et al. 2015).

Gender Issues in Marketing Literature

Methodology: Systematic Literature Review

Studying the most influential marketing literature contributes to understand-
ing the current conception of marking, gender, and equality in the scholarly
discussion that influences further research and marketers’ practices. Therefore,
we undertook a systematic literature review (Booth et al. 2016) of the scholarly
discussion on gender in high-ranking academic peer-reviewed marketing
journals.
The critical and feminist marketing literature largely refers to Judith Butler’s
publication Gender Trouble (Butler 1989). In 1992, the European Advertising
Standards Alliance (EASA) was established. Since then, there has been an
ongoing public debate concerning the stereotypical portrayal of women and
men in advertisements. Therefore, the scholarly discussion from 1990 to 2018
is analysed. To provide a credible guarantee of quality for this study, it is based
 36 DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC… 721

on the SJR. The analysis was carried out in a multistage approach. First, in a
scoping study, the top 49 journals were probed for the word “gender” in the
title, abstract or key words (Tranfield et al. 2003). The Journal of Social
Marketing (rank 63) was additionally taken into the sample because of its aims
being in close connection to the research objectives. Taking all available papers
as a starting point, the risk of bias was reduced (Booth et al. 2016). A total of
1004 articles were found and saved in the reference management and knowl-
edge organization database, CITAVI.
The first analysis of the articles showed a high proportion that focuses on
issues of public or human resource management. This is due to the broad scope
of some highly ranked marketing journals. Therefore, the exhaustive accumula-
tion of all the articles did not fit this study’s purposes. Consequently, we
excluded all papers with the term “public” or “federal” in the abstract to extract
the scholarly discussion on profit organizations. By doing so, the sample was
narrowed down to companies that commonly strive for profit as a primary
objective, while organizations mainly aiming at social goals were not analysed
any further (Prynko and Chudzian 2017). To increase the accuracy of the sam-
ple for further analysis, Boolean operators were applied in CIVAVI. After try-
ing several other filtering combinations, the sample was focused on the
marketing discussion by filtering articles that included the term “marketing” in
the title, key words, or abstract. To further analyse issues of equity and equality,
all articles that contained the term “equal” were included. Subsequently to the
next comprehensive sighting we eliminated research on voter, politician, and
fan behaviour that was not connected to marketing in for-profit organizations.
Abstracts and research questions or hypotheses were exported to MS Excel for
in-depth analyses. Both authors coded the papers and discussed the discrepan-
cies. In this process, some papers were eliminated from the sample because the
research aim and research results did not include gender aspects. Therefore, the
final synthesis was carried out with 82 articles. The complete list can be
requested from the corresponding author.
The remaining articles included qualitative, quantitative, mixed methods,
and conceptional approaches. Faced with this fragmented sample of marketing
management articles and the aim of developing solutions beyond 2025, design-­
oriented research synthesis was adapted to the research. Marketing is a part of
the management discipline and therefore a design science that focuses on the
quest for improving people’s reality by finding solutions for practical problems
(Denyer et al. 2008). “Design-oriented research synthesis uses the entire,
diverse knowledge base on a given class of field problems to produce deep
understanding of interventions that, in given contexts, produce intended out-
comes by invoking certain generative mechanisms” (Denyer et al. 2008, p. 408).
Rather than the quest for the truth resulting in predictions similar to those in
natural science, this research aims at prescriptions in a technological manner. In
a certain context, a marketing intervention might lead to more (or less) gender
equality as an outcome by triggering more (or less) gender-specific behaviours
as a mechanism. Consequently, there seems to be a logical sequence of Context
722 N. BÖHMER AND K. MICHAEL GRIESE

Context Intervention Mechanism Outcome

Fig. 36.1 Design-oriented CIMO logic with four components. (Source: Author’s
creation based on Denyer et al. 2008)

influencing Interventions, triggering Mechanisms, and resulting in Outcomes

(CIMO, see Fig. 36.1) that goes beyond the simple intervention-­output (IO)
logic frequently found in management literature (Denyer et al. 2008).
Although CIMO logic has not been applied in marketing research before, it
fits well with the research aims because it shows parallels to marketers’ real-­
world planning processes. Moreover, this logic suits the analysis of gender
issues in marketing studies because it considers the specific contexts (e.g.,
culture-­specific gender stereotypes) in which a certain intervention type is
applied (e.g., language use in claims) to produce intended outcomes (e.g.,
more profit) that are realized through certain mechanisms (e.g., attracting
more female buyers). Therefore, CIMO logic was used to characterize the pro-
cessing of gender issues in the marketing literature and to generate a systematic
map. While analysing the articles, we generated categories in an inductive-­
deductive manner.
Based on the first step of using the CIMO logic as a suitable structure, in a
second step, the intersection of the CIMO logic with the four pathways of
sustainability was compiled. For this purpose, we reviewed the full text of the
articles according to the important keywords of the pathways. The following
words were used: pathway 1 (“Brundtland”, “report”), pathway 2 (“triple”,
“bottom”, “line”, “environmental”, “social”, “economic”), pathway 3 (“sus-
tainable”, “development”, “goals”, “SDG”) and pathway 4 (“policies”).
Any issues of uncertain classifications in the respective analyses were dis-
cussed between the authors to reduce the likelihood of error. Last, the analysis
is the product of our shared interpretation and therefore prone to errors
and bias.

Results

Bibliometric Analysis
Regarding the three decades of analysis, a growing frequency of published arti-
cles can be noted (Fig. 36.2). This trend is partly due to the year 2013, which
has 11 publications. Afterwards, the number of articles slightly abates. Since
1990, the most vivid discussions have occurred in the Journal of Marketing
Management (rank 43), the Journal of Retailing and Consumer Services (rank
27), the European Journal of Marketing (rank 40), and the Journal of Business
Research (rank 25) (Table 36.3). Only three articles made it into the top-ten
marketing journals within the last three decades. From the articles used in the
 36 DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC… 723

12

10
number (n=82)

0
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
year

Fig. 36.2 Articles at the overlap of marketing, gender, and inequality (number per
year). (Source: Authors’ creation)

Table 36.3 Articles at the overlap of marketing, gender, and equality (number per
journal and year of first publication)
Rank Journal title Number of articles First article
(year)

1 Journal of Marketing 2 2009

5 Journal of Consumer Research 1 2016
15 International Journal of Research in Marketing 3 1994
16 Journal of Advertising 1 2010
22 Journal of Public Policy and Marketing 1 2013
23 International Journal of Advertising 5 1992
25 Journal of Business Research 7 1995
27 Journal of Retailing and Consumer Services 8 2005
28 Marketing Theory 2 2010
29 Journal of Hospitality Marketing and Management 1 2007
31 Marketing Letters 2 2006
33 Journal of Marketing Communications 4 2005
34 Journal of Marketing Theory and Practice 4 2007
35 Journal of Services Marketing 6 2000
38 Journal of Product and Brand Management 6 1999
39 Journal of Consumer Culture 1 2008
40 European Journal of Marketing 8 2001
41 Journal of Travel and Tourism Marketing 1 1996
43 Journal of Marketing Management 8 2002
44 International Marketing Review 4 1996
46 Electronic Markets 1 2012
49 International Journal of Retail and Distribution 3 2008
Management
63 Journal of Social Marketing 4 2013

Source: Authors’ creation

724 N. BÖHMER AND K. MICHAEL GRIESE

content analysis, 35 mention the term “gender” in the headline. Almost all of
the analysed articles mention gender in their research aim. Another result is
that in many marketing research designs found in our analysis, gender was
added as one of several variables that might or might not lead to significant
results. While quantitative research dominates marketing research, increasingly
qualitative, mixed-method, and conceptional articles add to the picture.
Figure 36.2 shows the growing number of publications in the narrow field
of journals since 1990. Based on the statistics, it is interesting to note that there
is an ongoing but not lively discussion and research on gender and equality in
the leading marketing journals.

 ategories of the Design-oriented Research Synthesis

C
Following the CIMO logic of design-oriented research synthesis, we identified
between two and four categories in each component. Table 36.4 gives an over-
view of the categories with a short category explanation and the categories’
most pertinent example articles.

Context
The component context focuses on the way the behaviour of humans is influ-
enced by the social system in which they act (Denyer et al. 2008). This means
that in a specific setting, gender roles and expectations lead to reactions such as
buying a product or liking a brand.
The first context category of “culture” includes articles that either focus on
one specific cultural setting or on country differences. Examples are compara-
tive studies such as that of Jayawardhena et al. (2009), which investigates
aspects that impact consumers’ permission to send advertisements to mobile
phones (Jayawardhena et al. 2009), or that of Kayal et al. (2017), which exam-
ines gender differences in consumer guilt (Kayal et al. 2017). The findings in
this category frequently include cultural dimensions (e.g., Hofstede dimen-
sions) and elaborate on diverse countries. For example, Kayal et al. (2017)
found that consumer guilt is felt more in individualistic than collectivist cultures
Second, the category “digital” includes papers that focus on the context of
the internet, online communication, and social media. This category mirrors
the growing importance of digitalization for the reproduction of gender roles.
This category is illustrated by the study of Andrews et al. (2007) on male and
female purchasers and the consumption values that influence the consumer
choice to buy online (Andrews et al. 2007). The authors conclude with practi-
cal implications for on- and offline-marketing campaigns to promote online
purchases. The research of Campbell et al. (2014) focuses on social network
marketing and how consumers engage. In their research, gender is regarded as
one of several variables (Campbell et al. 2014). Within this chapter, a user
typology is developed, and marketing knowledge on how to reach a larger
market share in the social media context is provided.
Third, the intersection of diversity aspects in the analysed article is especially
shown at the juncture of gender and age as well as generation. This intersection
Table 36.4 Categories identified in selected marketing literature along the CIMO logic
36

CIMO-logic Category Explanation Examples

Context Culture Cultures of countries are Karande, Kiran; Rao, C. P.; Singhapakdi, Anusorn (2002), Tan, Thomas Tsu Wee; Ling, Lee
influencing gender Boon; Theng, Eleanor Phua Cheay (2002), Ogden, Denise T. (2005), Hamlett, Jane; Bailey,
equality: Differentiation Adrian R.; Alexander, Andrew; Shaw, Gareth (2008), Leonidou, Leonidas C.; Leonidou,
of cultures Constantinos N.; Kvasova, Olga (2013), Lieven, Theo; Hildebrand, Christian (2016), Lindridge,
Andrew; Peñaloza, Lisa; Worlu, Onipreye (2016), Kayal, Ghadeer G.; Simintiras, Antonis C.;
Rana, Nripendra P. (2017) Lindridge, Andrew; Peñaloza, Lisa; Worlu, Onipreye (2016)
Digital Digital media influences Maddox, L. (1999), Andrews, Lynda; Kiel, Geoffrey; Drennan, Judy; Boyle, Maree V.;
decisions/behaviour Weerawardena, Jay Kiel, G.C. (2007), Roster, Catherine A.; Rogers, Robert D.; Hozier, George
C.; Baker, Kenneth G.; Albaum, Gerald (2007), Zhang, Xiaoni; Prybutok, Victor R.; Strutton,
David (2007), Dabholkar, Pratibha A.; Sheng, Xiaojing (2009), Barber, Nelson A. (2013),
Campbell, Colin; Ferraro, Carla; Sands, Sean (2014), Dabholkar, Pratibha A.; Sheng, Xiaojing
(2009), Jeong, Hyun Ju; Paek, Hye-Jin; Lee, Mira (2013), Maddox, Lynda M. (1999), Moss,
G. A.; Gunn, R. W.; Kubacki, K. (2008), Robinson, Jill L.; LeComte-Hinely, Jenna R. (2012),
Porter, Constance Elise; Donthu, Naveen; Baker, Andrew (2012), Natarajan, Thamaraiselvan;
Balasubramanian, Senthil Arasu; Kasilingam, Dharun Lingam (2017), Moss, G. A.; Gunn, R. W.;
Kubacki, K. (2008)
Age Different age groups Capella, Michael L.; Hill, Ronald Paul; Rapp, Justine M.; Kees, Jeremy (2010),Sharma, Piyush;
influence outcomes Chen, Ivy S.N.; Luk, Sherriff T.K. (2012), Barber, Nelson A. (2013), Melancon, Joanna Phillips;
Forbes, Lukas P.; Fugate, Douglas (2015)
Social group Different social groups Raajpoot, Nusser A.; Sharma, Arun; Chebat, Jean-Charles (2008), Kümpel Nørgaard, Maria;
influence outcomes Nørgaard Hansen, Kathrine; Grunert, Klaus G. (2013), Yannopoulou, Natalia; Elliott, Richard
(2008), Josiassen, Alexander; Assaf, A. George; Karpen, Ingo O. (2011), Garretson Folse, Judith
Anne; Guidry Moulard, Julie; Raggio, Randle D. (2012), Gentina, Elodie; Bonsu, Samuel K.
(2013), Gopaldas, A. (2013), Jeong, Hyun Ju; Paek, Hye-Jin; Lee, Mira (2013), Sheng, Xiaojing;
Zolfagharian, Mohammadali (2014) Lewis, Michael; Mitra, Debanjan; Yoon, Yeujun (2013),
Hutton, Martina (2015), Meyners, Jannik; Barrot, Christian; Becker, Jan U.; Goldenberg, Jacob
(2017)
DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC…

(continued)
725
Table 36.4 (continued)
726

CIMO-logic Category Explanation Examples

Intervention Instruments Instruments to get Jeng, Jiann-Min; Fesenmaier, Daniel R. (1996), Han, Heesup; Ryu, Kisang (2007), Azar, Salim
gender insights L. (2013), Schertzer, Susan M.B.; Laufer, Daniel; Silvera, David H.; Brad McBride, J. (2008),
Folse, Judith A.G.; Moulard, Juli G.; Raggio, Randle D. (2012), Michaelidou, Nina (2012),
Mortimer, Gary (2012), Azar, Salim L. (2013), Gonçalves, Helena Milagre Martins (2013), Han,
Heesup; Ryu, Kisang (2007), Leonidou, Leonidas C.; Leonidou, Constantinos N.; Kvasova, Olga
(2013), Campbell, Colin; Ferraro, Carla; Sands, Sean (2014), Vilela, Alexandra M.; Nelson,
Michelle R. (2016)
Gendered Gendering of products Shani, David; Sandler, Dennis M.; Long, Mary M. (1992), Kempf, DeAnna S.; Laczniak, Russell
products/ and brands influences N.; Smith, Robert E. (2006), Moss, G. A.; Gunn, R. W.; Kubacki, K. (2008), Kyun Choi, Yung;
brands outcomes Kim, Juran; McMillan, Sally J. (2009), Azar, Salim L. (2013), Brace-Govan, Jan (2010),
Guevremont, Amelie; Grohmann, Bianca (2015), Melancon, Joanna Phillips; Forbes, Lukas P.;
Fugate, Douglas (2015)Grohmann, Bianca (2016), Lick, Erhard; König, Bettina; Kpossa,
Monyédodo Régis; Buller, Violetta (2017), Moss, G. A.; Gunn, R. W.; Kubacki, K. (2008)
N. BÖHMER AND K. MICHAEL GRIESE

Problem Marketers providing Milner, Laura M.; Fodness, Dale (1996), Maddox, Lynda M. (1999), Sundstrom, Beth (2013)
solving solutions for customers’
problems
Mechanism Employee- Front end staff Baumann, Chris; Timming, Andrew R.; Gollan, Paul J. (2016), Karatepe, Osman M.; Yavas,
customer interaction influences Ugur; Babakus, Emin; Avci, Turgay (2006), Touzani, Mourad; Hirschman, Elizabeth C.;
interaction outcomes Hechiche Salah, Lamia (2016)
Feminism Feminism insights allow Joy, Annamma; Venkatesh, Alladi (1994), Beetles, Andrea; Crane, Andrew (2005), Bettany,
companies to create Shona; Dobscha, Susan; O″Malley, Lisa; Prothero, Andrea (2010), Stevens, Lorna; Kearney,
innovative marketing Matthew; Maclaran, Pauline (2013), Sundstrom, Beth (2013) Hearn, Jeff; Hein, Wendy (2015)
activities to develop a Valtonen, Anu; Närvänen, Elina (2015)
new and effective
understanding of gender
equality marketing
Gender Marketing activities Karande, Kiran; Rao, C. P.; Singhapakdi, Anusorn (2002), Tan, Thomas Tsu Wee; Ling, Lee
equality include gender equality Boon; Theng, Eleanor Phua Cheay (2002), Ogden, Denise T. (2005), Hamlett, Jane; Bailey,
aspects Adrian R.; Alexander, Andrew; Shaw, Gareth (2008), Leonidou, Leonidas C.; Leonidou,
Constantinos N.; Kvasova, Olga (2013), Lieven, Theo; Hildebrand, Christian (2016), Lindridge,
Andrew; Peñaloza, Lisa; Worlu, Onipreye (2016), Kayal, Ghadeer G.; Simintiras, Antonis C.;
Rana, Nripendra P. (2017) Lindridge, Andrew; Peñaloza, Lisa; Worlu, Onipreye (2016)
Outcome Economic Gender insights allow Maddox, L. (1999), Andrews, Lynda; Kiel, Geoffrey; Drennan, Judy; Boyle, Maree V.;
36

value companies to optimize Weerawardena, Jay Kiel, G.C. (2007), Roster, Catherine A.; Rogers, Robert D.; Hozier, George
marketing activities to C.; Baker, Kenneth G.; Albaum, Gerald (2007), Zhang, Xiaoni; Prybutok, Victor R.; Strutton,
generate economic value David (2007), Dabholkar, Pratibha A.; Sheng, Xiaojing (2009), Barber, Nelson A. (2013),
Campbell, Colin; Ferraro, Carla; Sands, Sean (2014), Dabholkar, Pratibha A.; Sheng, Xiaojing
(2009), Jeong, Hyun Ju; Paek, Hye-Jin; Lee, Mira (2013), Maddox, Lynda M. (1999), Moss,
G. A.; Gunn, R. W.; Kubacki, K. (2008), Robinson, Jill L.; LeComte-Hinely, Jenna R. (2012),
Porter, Constance Elise; Donthu, Naveen; Baker, Andrew (2012), Natarajan, Thamaraiselvan;
Balasubramanian, Senthil Arasu; Kasilingam, Dharun Lingam (2017), Moss, G. A.; Gunn, R. W.;
Kubacki, K. (2008)
Social value Gender insights allow Capella, Michael L.; Hill, Ronald Paul; Rapp, Justine M.; Kees, Jeremy (2010), Sharma, Piyush;
companies to create Chen, Ivy S.N.; Luk, Sherriff T.K. (2012), Barber, Nelson A. (2013), Melancon, Joanna Phillips;
social value/keep ethical Forbes, Lukas P.; Fugate, Douglas (2015)
standards
Ecological Gender insights allow Raajpoot, Nusser A.; Sharma, Arun; Chebat, Jean-Charles (2008), Kümpel Nørgaard, Maria;
value companies to create Nørgaard Hansen, Kathrine; Grunert, Klaus G. (2013), Yannopoulou, Natalia; Elliott, Richard
ecological value (2008), Josiassen, Alexander; Assaf, A. George; Karpen, Ingo O. (2011), Garretson Folse, Judith
Anne; Guidry Moulard, Julie; Raggio, Randle D. (2012), Gentina, Elodie; Bonsu, Samuel K.
(2013), Gopaldas, A. (2013), Jeong, Hyun Ju; Paek, Hye-Jin; Lee, Mira (2013), Sheng, Xiaojing;
Zolfagharian, Mohammadali (2014) Lewis, Michael; Mitra, Debanjan; Yoon, Yeujun (2013),
Hutton, Martina (2015), Meyners, Jannik; Barrot, Christian; Becker, Jan U.; Goldenberg, Jacob
(2017)
Source: Authors’ creation
DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC…
727
728 N. BÖHMER AND K. MICHAEL GRIESE

led to the category of “age”, which is exemplified in the study of Barber (2013),
in which the influence of the internet on the gender-specific socialization of
Generations X and Y is reflected upon (Barber et al. 2010). This research leads
to the conclusion that marketers might pay more attention to the internet as an
agent of socialization.
The fourth category of “social groups” pools articles that focus on the inter-
section of gender with other social groups. This category is evident in the study
of Kümpel Nørgaard et al. (2013), which examines the influence of peer groups
on snacking behaviour (Kümpel Nørgaard et al., 2013). This study might be
used for social marketing campaigns and the promotion of healthy eating and
therefore fosters marketers’ reflections on health and social wellbeing.
From the point of view of marketing practitioners, more gendered knowl-
edge on diverse behaviour in different contexts is provided by the articles’ find-
ings. Mostly, the knowledge might be used for gender consumption. Although
the context component offers plentiful opportunities to approach research in a
gender-sensitive manner, the analysis did not unveil GEM considerations.

Intervention
The nature of interventions as well as their implementation is analysed in the
component interventions. Usually, the decision to apply a certain marketing
intervention is based on the (unverified) hypothesis about its intended positive
outcomes, for example, in brand recognition (Denyer et al. 2008).
In the analysis, the category of “instruments” was assigned to articles that
study gendered reactions to a marketing activity. This is exemplified in the
study of Leonidou et al. (2013), who question the role of cultural characteris-
tics (Hofstede dimensions) on consumers’ ethical perceptions from the per-
spective of the individual (Leonidou et al. 2013). They aim to design and test
a model about the consequences of unethical measures taking place across all
elements of the marketing mix. Perceived unethical marketing behaviour
decreases consumer trust. Among other results, they find that the connection
between idealism and perceived marketing unethicality is stronger among men
and older individuals.
Articles elaborating on the gendering of a brand or product as being male,
female, or neutral led the category of “gendered products/brands”. For exam-
ple, Guevremont and Grohmann (2015) examine the use of consonants in
brand names and their influence on consumers’ perception as male or female
brands (Guevremont and Grohmann 2015). With their study, they provide
gender knowledge for gender production and economically optimizing brand
perception. Furthermore, Azar (2013) investigates brand masculine patterns
and aims at the development of a scale. Again, the study’s production of gender
knowledge can lead to more profit (Azar 2013).
A further intervention was found in the studies that look into approaches to
support customers in solving specific problems. The category of “problem
solving” can be seen in the research of Milner and Fodness (1996), who inves-
tigate how cues regarding the gender of products can help or hinder Chinese
 36 DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC… 729

costumers in identifying the gender images of products (Milner and

Fodness 1996).
The interventions in all analysed categories are based on the hypothesis that
gendered reactions and behaviours are surveyed to discover more about diver-
gent gender roles and possibilities to effectively use them. None of the inter-
ventions focused on the aims or hypotheses derived from GEM.

Mechanism
The component mechanism is strongly determined by the intervention. For
example, if a marketing campaign promotes stronger consumer rights, this
intervention might lead to a changing perception of consumer possibilities and
therefore change long-term consumer behaviour. Men and women might show
different reactions, and therefore, there might be gender-diverging mecha-
nisms. Based on our literature review, we identified three different categories
that belong to the component mechanism.
The first category, “employee-customer-interaction”, includes mechanisms
shaping front-end staff interactions. For example, Bauman et al. (2016) analyse
the mechanism of visibly tattooed front-line staff in two different job positions
(surgeons and automobile mechanics). The results show that “consumers have
a negative reaction to body art, but perceptions of tattoos on male and female
front-line staff differ significantly” (Baumann et al. 2016, p. 31). Consumers
“do not appear to care whether the woman mechanic has a tattoo or not; they
simply do not want a woman working on their car” (Baumann et al. 2016,
p. 37). From a marketing management point of view, it seems that it is chal-
lenging to balance the interests of rights. On the one hand, marketing manage-
ment is interested in meeting consumers’ expectations regarding the appearance
of front-end staff. On the other hand, marketing management should ensure
that employees’ individual rights to self-expression are given (Baumann et al.
2016, pp. 37–38).
The second category, “feminism”, describes feminist insights that allow
companies to create innovative marketing activities to develop a new and effec-
tive understanding of GEM. For example, Bettany et al. (2010) state that gen-
der remains a “substantive opportunity for further development, where gender
and feminist research can offer new insights, critiques, theories and approaches”
(Bettany et al. 2010, p. 3). One example the authors discuss is a study by
Kjeldgaard and Storgaard (2008) (Kjeldgaard and Nielsen 2010). They analyse
the consumption of teenage females to understand how cultural meanings are
handled. The results highlight “the shift in gender studies towards how gender
discourses, including what it is to rebel or conform as a woman, become some-
thing akin to actors within highly complex negotiations of identity construc-
tion, circulating within a simultaneously global and local cultural terrain”
(Bettany et al. 2010, p. 5).
The third category, “gender equality”, shows marketing activities that
already examine gender equality aspects as mechanisms or discuss non-gender
equality marketing and propose how to improve existing activities. For
730 N. BÖHMER AND K. MICHAEL GRIESE

example, Capella et al. (2010) analyse the impact “of portrayals of violence and
abuse by advertising media, especially when directed at women” (Capella et al.
2010, p. 37) because they identify an increasing acceptance of what they call
“cross-gender aggression and rape within society as a result of sexualized vio-
lence” (Capella et al. 2010, p. 37). As a result of the research, the authors can
support the hypothesis that sexualized violence does not influence a “con-
sumer’s attitude towards the firm or behavioural intentions” (Capella et al.
2010, p. 46). Overall, sexualized violence impacts only some advertising vari-
ables but with limited marketing success in general (Capella et al. 2010, p. 37).
The analysed articles in this component provide a great deal of gender
knowledge. However, by themselves, the mechanisms are not linked to the
outcomes; therefore, the articles leave it to practitioners to determine whether
they implement the knowledge for GEM.

Outcome
The outcome component includes “various aspects, such as performance
improvement, cost reduction or low error rates” (Denyer et al. 2008, p. 397)
of the intervention. Overall, most of the analysed articles added to this compo-
nent. Based on our literature review, we identified three different categories
that belong to this component.
The first category, “effectivity and economic outcome”, includes gender
knowledge that allows companies to invest money in an effective kind of way.
For example, Bruwer et al. (2012) identify insights into gender-related wine
preferences (Bruwer et al. 2012, p. 45). There are differences “in the wine
consumption behaviour and wine type preferences of males and females and
between generational cohorts, specifically millennial and older consumers.
Whereas females and males do not differ much in quantity consumed and
money spent on wine, they do differ greatly in wine type consumption, with
females drinking significantly more white wine and males drinking more red
wine” (Bruwer et al. 2012, p. 45). The results have different practical implica-
tions. For example, “it was established that the high usage (and probably high
involvement) by a wine consumer can be directly reached at the winery tasting
room retail channel. This provides the ideal opportunity for direct marketing
to them and establishing a long-term relationship with the brand” (Bruwer
et al. 2012, p. 57).
The second category, “social value”, describes the relation of gender and the
creation of social value. For example, Hyllegard et al. (2010) analyse the influ-
ence of gender on cause-related marketing. Notably, they identify an influenc-
ing effect of Generation Y consumers regarding their interest and involvement
in a social cause. Based on the results, the authors suggest that Generation Y
consumers “are more likely to form positive attitudes towards an apparel brand
when the amount of charitable support is clearly communicated. Gender did
not influence attitude towards brands but did predict purchase intentions”
(Hyllegard et al. 2010, p. 100). Future activities driven by customer relation-
ship marketing “should consider Generation Y’s involvement in a social cause
 36 DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC… 731

(e.g., volunteerism) rather than their stated interest in the given cause, and
they would be well advised to state precisely (in advertisements) the amount of
monetary contribution made to charitable causes” (Hyllegard et al. 2010,
p. 100).
The third category, “ecological value”, consists of gender insights that allow
companies to create ecological value. For example, Noble et al. (2014) analyse
the moderating effect of gender on frequently used measures regarding ad
effectiveness (e.g., behavioural intention) in the context of pro-environmental
social advertising in Australia, the UK and the US. The results show “that
females respond more strongly to negative emotional appeals than males, while
there is no significant difference in how males and females responded to posi-
tive emotional or rational ad appeals” (Noble et al. 2014, p. 4). Overall, the
results of the research lead to “insights for advertising managers and others
commissioned to develop and manage pro-environmental advertising cam-
paigns” (Noble et al. 2014, p. 16).
The outcome component shows a weak connection to the TBL concept in
the three deduced categories. Other approaches, such as the question of justice
or policies, were not found. GEM management in the sense of building and
maintaining sustainable relationships with customers, the social environment,
and the natural environment through gender-sensitive attitudes, activities, and
patterns of planned or emerging marketing strategies is missing thus far. Due
to this lack, in the next section of the chapter, the intersection of the scholarly
discussion with the four pathways is taken into specific focus.

 IMO Logic and Existing Sustainable Pathways to Gender

C
Equality Marketing
Table 36.5 gives an overview of our literature analysis regarding the interface
of CIMO and sustainable pathways.
In general, the results show that most of the articles focus on pathway 2.
These articles especially consider the context (33) and the outcome (20).
Pathways 1, 3, and 4 were hardly examined. The findings suggest that impor-
tant potential parts of GEM were not previously taken into consideration. For
example, a long-term perspective, such as the long-term impacts of advertising
on women as part of the Brundtland Report, is not available in the scholarly
discussion.
The column “Pathway 2” includes articles that consider at least one dimen-
sion of the TBL concept (e.g., social dimension) or more. Most of the articles
in column 2 examine economic aspects. We did not find an article that followed
the TBL pathway of attempting to balance the economic, social, and ecologi-
cal sphere.
Furthermore, the fifth SDG has not been considered regarding understand-
ing the interdependence between marketing activities and the opportunity to
influence the different parts of Goal 5. One important reason is that the SDGs
were announced in 2015, and many articles were written before that year.
Nevertheless, even after 2015, there is no article that considers the SDG.
Table 36.5 CIMO category system and the four sustainable pathways
CIMO-logic # Pathway 1: Pathway 2: TBL Concept (incl. Environmental, social, and economic dimension) Pathway 3: Pathway 4:
Brundtland SDG Specific
Report Policies

Context 33 Jeong, Hyun Ju; Paek, Hye-Jin; Lee, Mira (2013), Maddox, Lynda M. (1999), Maddox, L. van
(1999), Palmer, Adrian; Beggs, Rosalind; Keown-McMullan, Caroline (2000), Karande, Hellemont,
Kiran; Rao, C. P.; Singhapakdi, Anusorn (2002), Tan, Thomas Tsu Wee; Ling, Lee Boon; Corine; van
Theng, Eleanor Phua Cheay (2002), Melancon, Joanna Phillips; Forbes, Lukas P.; Fugate, den Bulck,
Douglas (2015), Ogden, Denise T. (2005), Andrews, Lynda; Kiel, Geoffrey; Drennan, Hilde
Judy; Boyle, Maree V.; Weerawardena, Jay Kiel, G.C. (2007), Roster, Catherine A.; Rogers, (2012)
Robert D.; Hozier, George C.; Baker, Kenneth G.; Albaum, Gerald (2007), Zhang, Xiaoni;
Prybutok, Victor R.; Strutton, David (2007), Hamlett, Jane; Bailey, Adrian R.; Alexander,
Andrew; Shaw, Gareth (2008), Moss, G. A.; Gunn, R. W.; Kubacki, K. (2008),
Yannopoulou, Natalia; Elliott, Richard (2008), Dabholkar, Pratibha A.; Sheng, Xiaojing
(2009), Josiassen, Alexander; Assaf, A. George; Karpen, Ingo O. (2011), Porter, Constance
Elise; Donthu, Naveen; Baker, Andrew (2012), Robinson, Jill L.; LeComte-Hinely, Jenna
R. (2012), Sharma, Piyush; Chen, Ivy S.N.; Luk, Sherriff T.K. (2012), Barber, Nelson A.
(2013), Kümpel Nørgaard, Maria; Nørgaard Hansen, Kathrine; Grunert, Klaus G. (2013),
Gentina, Elodie; Bonsu, Samuel K. (2013), Gopaldas, A. (2013), Leonidou, Leonidas C.;
Leonidou, Constantinos N.; Kvasova, Olga (2013), Lewis, Michael; Mitra, Debanjan;
Yoon, Yeujun (2013), Campbell, Colin; Ferraro, Carla; Sands, Sean (2014), Sheng,
Xiaojing; Zolfagharian, Mohammadali (2014), Hutton, Martina (2015), Lindridge,
Andrew; Peñaloza, Lisa; Worlu, Onipreye (2016), Lieven, Theo; Hildebrand, Christian
(2016), Kayal, Ghadeer G.; Simintiras, Antonis C.; Rana, Nripendra P. (2017), Meyners,
Jannik; Barrot, Christian; Becker, Jan U.; Goldenberg, Jacob (2017), Natarajan,
Thamaraiselvan; Balasubramanian, Senthil Arasu; Kasilingam, Dharun Lingam (2017)
Intervention 19 Shani, David; Sandler, Dennis M.; Long, Mary M. (1992), Jeng, Jiann-Min; Fesenmaier,
Daniel R. (1996), Milner, Laura M.; Fodness, Dale (1996), Kempf, DeAnna S.; Laczniak,
Russell N.; Smith, Robert E. (2006), Moss, G. A.; Gunn, R. W.; Kubacki, K. (2008),
Schertzer, Susan M.B.; Laufer, Daniel; Silvera, David H.; Brad McBride, J. (2008), Kyun
Choi, Yung; Kim, Juran; McMillan, Sally J. (2009), Brace-Govan, Jan (2010), Folse, Judith
A.G.; Moulard, Juli G.; Raggio, Randle D. (2012), Michaelidou, Nina (2012), Mortimer,
Gary (2012), Azar, Salim L. (2013), Gonçalves, Helena Milagre Martins (2013),
Sundstrom, Beth (2013), Guevremont, Amelie; Grohmann, Bianca (2015), Melancon,
Joanna Phillips; Forbes, Lukas P.; Fugate, Douglas (2015), Valtonen, Anu; Närvänen, Elina
(2015), Grohmann, Bianca (2016), Vilela, Alexandra M.; Nelson, Michelle R. (2016),
Lick, Erhard; König, Bettina; Kpossa, Monyédodo Régis; Buller, Violetta (2017)
Mechanism 13 Joy, Annamma; Venkatesh, Alladi (1994), Peñaloza, Lisa (1994), Beetles, Andrea; Crane,
Andrew (2005), Karatepe, Osman M.; Yavas, Ugur; Babakus, Emin; Avci, Turgay (2006),
Nairn, Agnes; Griffin, Christine; Gaya Wicks, Patricia (2008), Maclaran, Pauline; Miller,
Caroline; Parsons, Elizabeth; Surman, Emma (2009), Bettany, Shona; Dobscha, Susan;
O’Malley, Lisa; Prothero, Andrea (2010), Capella, Michael L.; Hill, Ronald Paul; Rapp,
Justine M.; Kees, Jeremy (2010), Hearn, Jeff; Hein, Wendy (2015), Stevens, Lorna;
Kearney, Matthew; Maclaran, Pauline (2013), Hearn, Jeff; Hein, Wendy (2015), Baumann,
Chris; Timming, Andrew R.; Gollan, Paul J. (2016), Touzani, Mourad; Hirschman,
Elizabeth C.; Hechiche Salah, Lamia (2016)
Outcome 20 Dubé, Laurette; Morgan, Michael, S. (1998), Bailey, Ainsworth Anthony (2005), Elliott,
Richard; Elliott, Christine (2005), Han, Heesup; Ryu, Kisang (2007), Inman, J. Jeffrey;
Winer, Russell S.; Ferraro, Rosellina (2009), Jayawardhena, Chanaka; Kuckertz, Andreas;
Karjaluoto, Heikki; Kautonen, Teemu (2009), Carpenter, Jason M. (2008), Rickwood,
Catherine; White, Lesley (2009), Chung-Herrera, Beth G., Gonzalez, Gabriel R.,
Hoffman, K. Douglas (2010), Hyllegard, Karen H.; Yan, Ruoh-Nan; Ogle, Jennifer Paff;
Attmann, Julianne (2010), Bruwer, Johan; Lesschaeve, Isabelle; Campbell, Benjamin L.
(2012), Robinson, Jill L.; LeComte-Hinely, Jenna R. (2012), Tifferet, Sigal; Herstein, Ram
(2012), Jeong, Hyun Ju; Paek, Hye-Jin; Lee, Mira (2013), Noble, Gary; Pomering, Alan;
W. Johnson, Lester (2014), Bhaduri, Gargi; Ha-Brookshire, Jung (2015); Brough, Aaron,
R., Wilkie, James E.B., Ma, JingJing, Isaac, Mathew S., Gal, David (2016), Luceri,
Beatrice; Latusi, Sabrina (2016), Cambra-Fierro, Jesús; Pérez, Lourdes; Grott, Emily
(2017), Walsh, Gianfranco; Schaarschmidt, Mario; Ivens, Stefan (2017)

Source: Authors’ creation

734 N. BÖHMER AND K. MICHAEL GRIESE

One article examines the context in terms of specific policies (Van Hellemont
et al., 2012). In the conclusion, the authors describe the result as fruitful for
policy makers, “as it addresses restrictive and non-restrictive solutions to
unfriendly gender portrayals in advertising adhered to by different cultures,
interest groups or sectors in society” (p. 651).
Overall, the literature analysis using the CIMO logic indicates that only a
small portion of the possibilities the four pathways offer for the analysis of
GEM issues has been used so far in the scholarly discussion.

Discussion
Taking the current public discussion on gender issues in media and marketing
as a starting point, we determined how little the scholarly discussion in the
most relevant marketing journals of the last three decades differs from pursuing
mere effectivity and profitability thinking. Analysing all four components of the
CIMO logic led to the result that the discussion of the outcomes of marketing
activities and strategies beyond economic factors has remained a fringe phe-
nomenon. Following the design-oriented approach of this chapter, CIMO
logic is used as a structure in the following discussion.

Context
The literature analysis clearly indicates that gender knowledge regarding con-
text can more easily help foster traditional role stereotypes than help promote
gender equality. This challenge can be seen in the discussion on green moms
(Atkinson 2014). The concept itself seems current and a positive contribution
to eco-friendliness. However, during pregnancy, women receive the advertising
message that “by sacrificing her own agency, by removing herself from the
frame, women can exchange their autonomy for a healthy, picture-perfect
baby” (Atkinson 2014, pp. 567–568). Marketers’ gender production leads to
strengthening the ideal of a dependent, stay-at-home mom instead of empow-
ering women and encouraging the more equal sharing of child-raising duties
amongst parents. Therefore, regarding the TBL pathway to GEM, it appears
not to be sufficient to look at the environmental component without parallelly
focusing on social impact factors. Consequently, gender knowledge on the
context dimension could be applied in various ways, and the balancing act of
GEM becomes obvious in this component.

Intervention
The decision to apply an intervention is based on an (unverified) hypothesis
about its outcomes (Denyer et al. 2008). If the hypothesis includes the assump-
tion that an intervention delivers a relevant outcome (e.g., a more positive
perception of a brand), the company will probably realize the activity. Based on
our literature analysis, it seems that the considered hypotheses are usually
driven by economic reasons (e.g., masculine brand patterns; Azar 2013).
Hypotheses about social outcomes such as influencing gender equality are not
 36 DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC… 735

part of the hypothesis development. However, if the decision makers would

consider social outcomes and sustainable perspectives (e.g., the fifth SDG), the
(unverified) hypothesis of applying an intervention (e.g., using stereotypes in
advertising) would be modified. The component intervention might be seen as
a very important component from the GEM perspective. The interventions in
the analysed articles open up possibilities to identify mechanisms and to influ-
ence gendered perceptions of brands and products. Therefore, (un)equality
can be promoted by applying gendered marketing interventions. Consequently,
the interventions themselves imply whether the marketing strategy and activi-
ties support GEM or maximize profits in disregard of gender equality.

Mechanism
The mechanisms are triggered by the interventions. If the interventions do not
refer to gender equality, for example, launching a new product that strengthens
stereotypes in society, then the mechanism can hardly be part of a sustainable
pathway. Moreover, if the intervention aims at gender equality, as the fifth SDG
defines, the deriving mechanism can be either sustainable or not. An illustrative
example from the literature can be seen in the intended and unintended mech-
anisms triggered by the intervention of employing visibly tattooed front-line
staff (Baumann et al. 2016). Even if a woman works on customers’ cars and
realizes her individual rights to self-expression by showing a tattoo, the unin-
tended gender-based discrimination found by Baumann et al. (2016) out-
weighs the tattoo-based discrimination because customers do not want a
woman repairing their car.
The literature also highlights creative opportunities for new mechanisms
triggered by feminist insights. In this context, “gender is to be considered as a
two-sided coin, as constructions of masculinity, and what it is to be male, inevi-
tably generate and constitute constructions of femininity, and what it is to be
female” (Bettany et al. 2010, p. 16). The emphasis on completely new mecha-
nisms may offer marketing approaches beyond our existing understanding of
gender equality.
Overall, the literature review reveals several studies (e.g., Capella et al. 2010)
that already analyse opportunities to avoid non-gender equality marketing by
showing general limited marketing economic success due to the identified
mechanisms. Less economic success due to unintended mechanisms might be
one way of convincing marketing management to use GEM.

Outcome
The increasing research activity in the field of gender and marketing shows the
field to be fruitful, and the increase in marketable gender knowledge is rich. In
contrast, considering the possibilities of combining gender equality, namely,
the possible positive effects on society and the natural environment, with prof-
itability, the literature analysis results are poor. Even in studies that include
aspects such as corporate social responsibility, the overall aims are market shares
and profits (Jeong et al. 2013).
736 N. BÖHMER AND K. MICHAEL GRIESE

Considering the three dimensions of the TBL concept, most analysed arti-
cles add to the economic dimension. From this point of view, most articles
focus on one of the four sustainable paths because their purpose is to achieve
improved performance or cost reductions (Denyer et al. 2008, p. 397).
However, the TBL concept includes environmental, social, and economic
dimensions that should be considered simultaneously and equally. Existing
research primarily focuses on the economic dimension and therefore is not
balanced.

Practical Implications Beyond 2025

Our synthesis shows a wealth of marketing management knowledge, underlin-
ing that this knowledge has been used to optimize existing marketing activities
over the last three decades. Nevertheless, it remains challenging to include
pathways 1, 3, and 4. An increase in GEM seems attainable in this sense. If
marketing management wants to obtain responses and outcomes that not only
display more efficiency but also use further pathways of sustainable develop-
ment to develop GEM beyond 2025, the following section provides proposi-
tions for companies to become advocates of GEM.

Pathway 1
Being aware of GEM’s balancing act between mirroring and molding, market-
ing management might find new approaches to design and use marketing
objects, for example, media, products, and brands. Based on their strategies,
they might strive for equality-oriented gender production. The field of gender
remains blurred in many aspects, starting with its definition (Hearn and Hein
2015), and mechanisms are not always clear. Therefore, monitoring gendered
mechanisms triggered by marketing interventions and being aware of long-
term impacts (e.g. Brundtland Report) will be of scholarly and practical value
and includes manifold research avenues. This linkage is of special relevance on
the internet, where GEM can set a contra-point to self-provided user content
that frequently shows very conservative ways of gender consumption (tradi-
tional role stereotypes).

Proposition 1 If gender-sensitive patterns of marketing management are to pro-

mote gender equality, then they require a monitoring of the gendered mechanisms
and an inter- and intragenerational understanding of impacts triggered by the
interventions and mechanisms.

Pathway 2
Considering the TBL concept as a pathway to marketing managements’ con-
tribution to the equal wellbeing of women and men, the economic, social, and
ecological dimensions might lead to the implementation of policies for the
promotion of gender equality. One result would be gender-sensitive patterns of
planned or emerging marketing strategies that trigger matching marketing
 36 DEVELOPING GENDER EQUALITY MARKETING BEYOND 2025: A SYSTEMATIC… 737

practices. These strategies and practices might foster positive environmental

and societal outcomes without ignoring the necessity of economic success.
Therefore, strategy development is also closely linked to the TBL pathway.

Proposition 2 If gender-sensitive marketing management is to promote gender

equality, then it requires an attitude that balances aiming at positive economic
outcomes with societal and environmental aspects.

 athways 3 and 4
P
Being aware of gender issues and structural discrimination in native and other
cultural settings is obligatory for implementing GEM. However, this is accom-
plished by informing and developing rules or policies. Organizational inertia is
one reason why the implementation of GEM requires time and training. Similar
to ethical trainings that affect sales staff attitudes (Taek Yi et al. 2012), gender-
sensitive attitudes and actions in marketers might be developed. To perform
GEM successfully in different cultural settings, marketers can not only make
use of the plethora of high-quality research at the intersection of marketing and
gender but also derive tested models and instruments. Moreover, they can
move along the pathway of the specific gender policies established by several
private and public organizations or the SDG that support their change process
towards GEM.

Proposition 3 If gender-sensitive patterns of marketing management are to pro-

mote gender equality, then they require a good understanding of specific gender
policies or the SDG in the relevant contexts to create suitable interventions with
resulting mechanisms.

Conclusions
Gender is already an important matter in marketing. With the focus on GEM,
new possibilities for research and practice beyond 2025 emerge. Our literature
analysis indicates that previous studies have only partially discussed GEM in the
context of sustainable pathways. The scholarly discussion on the context, the
interventions, the mechanisms, or the outcomes is not carried by gender-sensi-
tive approaches. Strategies or practices that balance the economy, ecology, and
social needs to sustain future consumer markets are not yet available.
Consequently, to establish new sustainable pathways regarding long-term per-
spectives according to the Brundtland Report, the TBL concept, the SDG and
business policies beyond 2025, marketing management still has several oppor-
tunities. Based on the accumulated marketing-relevant gender knowledge and
equipped with the propositions given earlier, the future of GEM management
is promising.
The main contribution of this study to the research stream on gender equal-
ity in marketing lies in developing a conceptional framework of what GEM
might look like. Based on these considerations, GEM and its specific context
738 N. BÖHMER AND K. MICHAEL GRIESE

are in the process of building a new self-conception. If the idea of justice espe-
cially includes that different people are not treated in an equal way but that
equality and justice derive from different treatments of different persons or
social groups to provide equal opportunities, then the development of GEM
includes a range of value decisions. These decisions can only be made by mar-
keters with high levels of gender sensitivity and high standards of ethics.
By using the CIMO logic in the literature analysis, an approach is applied
that resembles marketers’ planning processes. Therefore, this research provides
support for marketing management in terms of structure and different strands
of development in the marketing field. Moreover, our results provide a defini-
tion of GEM and propositions for companies to keep the balance between
fostering societal inertia (as many automotive companies do today) and strate-
gically initiating societal change (as some first movers, e.g., those in feminine
hygiene products, have already started).
The study has certain limitations that require further research activities. For
example, there is a need for the empirical validation of the categories.
Furthermore, literature reviews in the field of gender and marketing are rare.
Among the 1004 papers, literature reviews were mentioned in only five
abstracts. A comprehensive internet search in Google Scholar underlined that
this review is new in its aim and scope, and there are hardly any published
recent (Palan 2001) or thematically connected (Hearn and Hein 2015) litera-
ture reviews.
At the beginning of this chapter, the methodology of this literature review
is stated as an attempt to provide clarity, auditability, replicability, and transpar-
ency (Booth et al. 2016). However, the aspect of replicability is especially dif-
ficult to attain because many points discussed in the synthesis are subject to
personal interpretations. Moreover, the highly ranked journals focus on the
sector of scholarly discussions that primarily publishes research results from
Western, Anglo-Saxon scholars, which leads to an English language bias. Other
relevant regions and contexts may be underrepresented.

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 CHAPTER 37

The Female Way to Happiness at Work:

Happiness for Women and Organisations

Irene Campos-García

Introduction
In recent years, the topic of workplace happiness has gained popularity among
academics and professionals, leading to abundant research (e.g. Fisher 2010;
Simmons 2014; Tasnim 2016; Warr 2011; Wesarat et al. 2015). Happiness
management in the workplace has become an increasingly widespread practice
in the field of human resources; different scales have appeared (e.g. Andrew
2011; Singh and Aggarwal 2018) and chief happiness officer or happiness
managers are everywhere in demand.
A review of the previous literature has shown that ‘happiness at work’ and
‘job satisfaction’ are terms that have often been used interchangeably. These
constructs both refer to pleasant judgments (positive attitudes) or pleasant
experiences (positive feelings, moods, emotions, flow states) at work (Fisher
2010: 385). Measuring happiness as job satisfaction is, however, unnecessarily
limiting (Wright and Cropanzano 2007): happiness at work includes, but is far
more than, job satisfaction. Tasnim (2016) has suggested that the most signifi-
cant cause for individual workplace happiness is job satisfaction, but happiness
at work also requires work engagement and affective organisational commit-
ment (Fisher 2010), so these factors may be its main background (e.g. Fisher
2010; Stairs and Galpin 2010).
The Great Place to Work Institute has shown that job satisfaction, work
engagement and affective organisational commitment increase among

I. Campos-García (*)
Rey Juan Carlos University, Madrid, Spain
e-mail: [email protected]

© The Author(s) 2021 743

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_37
744 I. CAMPOS-GARCÍA

employees—who are therefore happier at work—when they trust the people

for whom they work, have pride in what they do and enjoy the people with
whom they work. In a similar vein, Warr (2011) has argued that valued social
position, availability of money, equity, career outlook and contact with others
are the main determinants of happiness at work. Wesarat et al. (2015) have also
suggested that employee happiness is influenced by employment status, income,
work activities and friendship. Grouping many of those determinants, Sirota
and Klein (2013) have pointed out that there are three key factors that condi-
tion employee happiness, morale and enthusiasm: equity, achievement and
interactions. Equity has both financial components, such as fair salary, and non-­
financial components, such as safe working conditions, respectful and dignified
treatment and equal employment opportunities. Achievement is positively
linked to the meaning of the work and an inspiring organisational purpose: that
is, the way in which the work is carried out and the moral character of the
organisation (e.g. the appearance of greater or lesser ethical practices), as well
as participative management styles that foster a sense of achievement and chal-
lenge that positively impact workers’ enthusiasm. Finally, positive interactions
and relationships with teammates lead to a more pleasant working environment
and greater well-being and happiness at work.
The examination of all these factors proposed by previous research raises
certain questions about women’s happiness at work. The gender pay gap,
inequality in employment opportunities, the glass ceiling and unethical prac-
tices or lack of visibility, inclusion and empowerment are the main factors that
can dilute and reduce female happiness at work (e.g. Fairygodboss 2018;
McKinsey 2018; Payscale 2019). What really makes women happy in the work-
place is related to working conditions (such as safety and the flexibility to rec-
oncile work and family life), and gender equality in terms of daily work
experiences, career development and promotion possibilities (Fairygodboss
2018). In a similar vein, Milhouse (2005) has also revealed that lack of quality
of work-life or work-life balance and high levels of job dissatisfaction caused by
work-related dimensions such as pay, promotion, feeling accepted, equity and
equality are the main conditions that impede women’s happiness in the
workplace.
This chapter therefore seeks to understand workplace happiness through the
advancement and leadership of women. Two research questions are raised: Can
organisations increase women’s happiness in the workplace? From leadership
positions, can women contribute to the happiness of organisations? Paying
greater attention and implementing policies or practices to include and
empower women, enhance female talent, increase career opportunities and
close existing gender gaps could contribute to increase women’s happiness at
work. Previous research has stressed the many benefits of happiness at work: it
increases creativity and proactivity and reduces the possibilities of conflict, anxi-
ety and depression (e.g. Fisher 2010; Gupta 2012). Thus, an emphasis on
increasing the degree of happiness of a good part of the workforce can lead to
an increase in global productivity and organisational competitiveness. Many
 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 745

researchers have, however, underlined that the potential of female virtues and
traits—women are generally more empathetic, cooperative, unselfish, con-
cerned with others and emotionally expressive (Eagly and Wood 2011)—makes
women particularly valuable, especially in leadership positions (e.g. Adams and
Ferreira 2009; Khan and Vieito 2013; Konrad et al. 2008; Strøm et al. 2014;
Lückerath-Rovers 2013). Women leaders can have a positive impact on socially
responsible behaviour and corporate sustainability (e.g. Galbreath 2011; Glass
and Cook 2018; Hyun et al. 2016), which can contribute to creating healthier
and happier work environments. To answer both research questions, an explor-
atory and descriptive analysis as carried out in a set of Spanish and Latin
American multinational companies based on the information contained in their
annual and sustainability reports and company websites. Qualitative and quan-
titative techniques are combined.
This study contributes to the field by adding evidence for how the advance-
ment and leadership of women can favour more fair and equitable workplaces
and more sustainable organisations—a link previously unexplored. More hap-
piness for women and for organisations ultimately helps women’s social prog-
ress and business competitiveness. Important practical implications are derived
for the management of human resources and female talent.
The remainder of this chapter is organised as follows: the second section
highlights the main factors that can condition women’s happiness in the work-
place and offers an overview of gender inequities in the labour market that can
undermine such happiness. The third section shows what initiatives or practices
carried out by companies can contribute to increasing women’s happiness in
the workplace, while also assessing the impact that women leaders can have on
the happiness of organisations. Finally, discussion and conclusions are presented.

Women in the Workplaces: Context and Background

Previous research about women’s job satisfaction and happiness at work has
revealed that women generally report higher levels of job satisfaction than men
because their job expectations are lower; women also tend to show their hap-
piness and positive emotions more frequently at work than men (Clark 1997;
Sloan 2012). Other gender differences have also been underlined: Clark (1997)
concluded that female workers valued workplace social relations more highly
than men, while Helliwell and Huang (2011) noted that female employees
rated trust in management at their workplaces as more important than men,
and Fortin (2005) revealed that women are more likely to value jobs that have
more flexible working conditions.
In a similar vein, recent reports on happiness at work have revealed that
women consider it essential (in a notably greater proportion than men) that
companies have equal opportunity policies (Adecco Group 2017). Women are
also more demanding: they highly value interactions and the relational compo-
nent of work and champion the demands for equality and conciliation (IE
Business School 2018). Women thus exhibit lower levels of happiness and
746 I. CAMPOS-GARCÍA

affective well-being when the work setting is more masculinised (i.e. where
there is greater inequality) (Qian and Fan 2019) and are less committed than
their male counterparts and have lower rates of recommendation as a result of
actions that are detrimental to their happiness (IE Business School 2018).
The traditional gendered division of labour and occupational gender segre-
gation, as well as discriminatory and unethical practices, have favoured signifi-
cant gender inequities in women’s treatment and interactions, employment
opportunities, career development and promotion, which can undermine
women’s happiness at work. With respect to women’s treatment and/or inter-
actions, social role theory and stereotyping theory have explained why indi-
viduals or groups of ‘low status’—such as women—are linked to different
negative stereotypes that place them below the dominant or ‘high status’
groups—such as men (e.g. Eagly and Steffen 1984; Eagly and Wood 2011). In
fact, several reports have warned that ‘gender harassment’ in the workplace—
hostile behaviours that are devoid of sexual interest and can include sexually
crude terminology or displays and sexist comments—remains a persistent
problem (EEOC 2016). In a survey of harassment in the workplace, Ilies et al.
(2003) revealed that 58% of women reported having experienced potentially
harassing behaviours.
Regarding employment opportunities and career development, although
female representation in the labour market has increased markedly in recent
decades in most regions of the world, there are still large differences between
men and women—in 2018, the global female employment rate was 45.3%
compared to a male rate of 71.4% (ILO 2019). In addition, women are gener-
ally the ones most likely to request full-time leave or temporary reductions in
working hours or refuse training programmes outside working hours, overtime
hours or the possibility of geographical mobility due to the difficulty of recon-
ciling work with family and domestic obligations (OECD 2014; World Bank
2019). These disadvantages largely justify the gender pay gap: about a quarter
of the wage: gap comes as a result of mothers taking part-time work (IFS
2019). In 2019, the median salary for men was roughly 21% higher than the
median salary for women. Once all of the compensable factors such as experi-
ence, industry and job level are accounted for, a woman doing the same job as
a man, with the exact same qualifications as a man, is still paid 2% less
(Payscale 2019).
Closely linked to gender roles and the ‘double burden’ of work for women,
there are also imbalances in terms of promotion. The differences in female
representation are even more pronounced in leadership positions (e.g. Deloitte
2017; World Bank 2018). Women occupy 24% of management positions
worldwide (Catalyst 2019) and are an even smaller minority as organisational
leaders—only 33 companies in the Fortune 500 list are led by women (Forbes
2019). The slow progress of women contrasts with the rapid increase of wom-
en’s educational levels and experience, leading to the criticism that female tal-
ent remains unrecognised, under-valued and underutilised (Tatli et al. 2013).
 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 747

Business success has traditionally been linked to male traits and abilities—
men are generally more agentic, that is, assertive, competitive and dominant
(Eagly and Wood 2011)—as has been recognised in the well-known ‘think
manager – think male’ paradigm (e.g. Schein et al. 1996). For men, their own
gender role and managerial (or leadership) roles are similar in content, but for
women these roles are dissimilar—the ‘think follower – think female’ perspec-
tive indicates that the role of the ‘ideal’ follower is strongly associated with the
female gender, so that women ‘fit’ better as followers than as leaders (Braun
et al. 2017).
Women possess a communal orientation and complex interpersonal skills—
such skills include, for example, building relationships, communication and
consensus building (Trinidad and Normore 2005), so they are generally con-
sidered more friendly, unselfish, concerned with others and emotionally expres-
sive (Eagly and Wood 2011). The female gender role incongruity results in
prejudice against women as potential and real leaders (Eagly and Karau 2002).
Nevertheless, numerous studies have shown that some female traits can pro-
vide women with a leadership advantage in certain leadership roles (Eagly
2007; Eagly et al. 1995)—hence the emergence of the ‘think manager – think
female’ perspective (e.g. Eagly and Carli 2003; Helgesen 1995; Rosener 2011).
Some researchers have categorised female leadership practices as focusing on
interactive, participatory, non-hierarchical, flexible and group-oriented prac-
tices (e.g. Burke and Collins 2001; Eagly and Carli 2003; Eagly and Johannesen-­
Schmidt 2001), and abundant research has underlined the positive impact of
female leadership. In a recent meta-analysis of 146 studies conducted in 33
different countries, Jeong and Harrison (2017) have shown that the relation-
ship between leader gender and long-term organisational performance is statis-
tically significant. Post and Byron (2015), combining the results from 140
studies, have revealed that female board or management team representation is
positively related to firm performance. Moreover, based on a sample of 87
studies, Byron and Post (2016) also found a positive link between female board
or management team representation and social performance.
In summary, the gender imbalances that persist in the workplace negatively
affect the factors that condition women’s happiness at work and prevent com-
panies from enjoying the advantages of fully and effectively utilising all their
human resources (e.g. Swailes et al. 2014; Tatli et al. 2013).

Happiness at Work in a Female Way

Methodology, Data Collection and Variables

Many companies publish annual sustainability reports—or even specific diver-
sity and inclusion reports—that offer detailed information on gender issues.
The reports published by large companies that, in recent years, have led the
rankings of most popular employers were reviewed (e.g. Fortune 100 Best
Companies to Work For, World’s Most Attractive Employers, Top Employers
748 I. CAMPOS-GARCÍA

or Merco). Checking the reports of American companies (e.g. Google,

Facebook, Microsoft, Apple, Deloitte, SAP America, Accenture, KPMG, IBM,
Kimberly Clark, and P&G), Asian companies (e.g. Samsung, Sony or Toyota)
and European companies (e.g. Siemens, BMW, Daimler, Nestlé or Danone)
revealed little information regarding gender. More information was provided
in the reports of Latin American and Spanish multinational firms.
The largest Spanish and Latin American multinationals were chosen, elimi-
nating those that offered less information (e.g. Latam Airlines, Femsa, Pemex,
Iberia or Inditex). Six Latin American companies and six Spanish companies
were ultimately selected from the most represented sectors—telecommunica-
tions, banking and energy: América Móvil, Banco do Brasil, Bancolombia,
Ecopetrol, Petrobras, Grupo Energía Bogotá, Telefónica, Santander, BBVA,
Repsol, Iberdrola and Naturgy.
Information was collected from material published in the most recent annual
and sustainability reports (data from the end of 2018) and company websites
related to initiatives to promote female talent, diversity and reconciliation of
family and personal life, the presence of women in different hierarchical posi-
tions (CEOs, boards of directors, leadership positions and total workforce),
types of labour contracts and working hours, health and work climate indica-
tors (occupational diseases, accidents, absenteeism and turnover) and indica-
tors of opportunities and equality (training and gender gap). Many of these
measures can be used as proxies to approximate the organisation’s level of hap-
piness and evaluate the quality of relationships in the work environment. Lack
of health, absenteeism, turnover, salary differences, gaps in professional devel-
opment opportunities and the absence of legislation or good corporate gover-
nance are indicative of unhealthy, unpleasant and unhappy workplaces.1
Like the methodology used by other researchers (e.g. Gill et al. 2008; Jose
and Lee 2007; Langer 2006), a qualitative comparative analysis was carried out
through content analysis of the reports and websites of companies with differ-
ent initiatives that could contribute to women’s happiness at work. Quantitative
analysis with the variables previously considered was also performed to evaluate
the effect that greater female representation in leadership positions can have on
organisational happiness.

1
Some data were not available and some measures found were not comparable—much reporting
remains idiosyncratic and largely non-comparable (Grosser and Moon 2008; Langer 2006). For
example, variables related to illness or accidents were measured by some companies as rates, fre-
quency indexes or number of cases. The measures referring to occupational diseases or accidents
were thus eliminated from the analysis. Some companies showed their general turnover rate and
others only the voluntary turnover rate. Regarding salaries, some companies also published the
difference in the remuneration of men and women who perform the same function and are in the
same position (as percentages), while other companies offered the ratio of women’s to men’s
remuneration. To standardise the information, data were transformed to show the pay gap as a
percentage for all companies.
 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 749

Happiness for Women: Can Organisations Increase Women’s

Happiness in the Workplace?
Using a qualitative comparative analysis, Table 37.1 shows the practices or
initiatives of each company. These initiatives have been classified according to
their main purpose.2 Qualitative research findings reveal that almost all compa-
nies show their concerns about gender issues and recognise in their reports to
be attached to the UN Women’s Empowerment Principles to contribute to
Sustainable Development Goals 5 and 8 and to have gender equality objectives,
but not all companies carry out actions in this regard.
América Móvil has launched the We Care for Mexico campaign with the aim
of promoting more women to study and work in the fields of science and tech-
nology and incorporating the gender perspective at the highest leadership lev-
els across the telecommunications industry; however, it does not have specific
programmes for training and promoting female talent. It also does not show
any conciliation practice that benefits women, but in order to promote diver-
sity and inclusion, the company has recently created the Ethics Executive
Committee and the Sustainability Executive Committee—both chaired
by women.
Banco do Brasil participates in the Gender and Race Pro-Equality Program
of the Brazilian Federal Government and has implemented gender-affirmative
actions through the programme BB Ações Equidade. Specifically, the Women’s
Leadership Program aims to promote the development of leaders and broaden
the participation of women in the Professional Growth Programs. The company
has also included the Gender Equity Indicator in the Units’ Work Agreements.
Bancolombia is a member of different institutions that claim gender par-
ity—for example, the Gender Parity Council in Labor and Education and the
Red Emprende Igualdad—but has no specific programmes to develop female
leadership or favour family and work reconciliation. Its CSR report names its
Diversity and Inclusion Policy but does not include any initiative in this regard.
Ecopetrol has a Diversity and Inclusion Program aimed at increasing the
participation of women in Ecopetrol’s workforce, promoting fair work prac-
tices, greater representation in leadership positions, development of high-­
performance women and working conditions that facilitate their entry into the
industry.
Petrobras also participates in the Gender and Race Pro-Equality Program of
the Brazilian Federal Government and has been recognised with the Gender
and Race Pro-Equality Seal five times. Although it has not implemented any

2
On the one hand, training programmes and promotion of female talent are aimed at increasing
the presence and representation of women in certain positions, favouring women’s access and
promotion—for example, through objectives and quotas—and reducing the gender pay gap. On
the other hand, practises related to work flexibility and the reconciliation of family and work life
may contribute to improving the quality of life of women and reducing their absenteeism rates.
Finally, diversity and inclusion practices also affect female empowerment and the cohesion of work
teams, which can improve the work environment and reduce voluntary turnover rates.
 750
I. CAMPOS-GARCÍA

Table 37.1 Initiatives to increase women’s happiness at work

América Banco do Bancolombia Ecopetrol Petrobras Empresa de Banco Telefónica Iberdrola BBVA Repsol Naturgy
Móvil Brasil Energía Santander
Bogotá

Promotion of X X X X X X
female talent
Flexibility and X X X X X X X
reconciliation
Diversity and X X X X X X X X X X X
inclusion

Source: Author’s creation based on CSR reports

 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 751

specific programme, its gender equity objectives are aimed at stimulating the
allocation of women in operational areas and increasing women’s participation
in management positions, based on meritocracy principles. The company also
has an Administrative System of Flexible Hours for home office work from which
certain employees can benefit.
Grupo Energía Bogotá claims to promote good practices in favour of greater
work and social equality for women. It develops programmes to empower
women in the territories in which it operates. For example, two firm groups
have been awarded the Safe Company Free from Violence and Discrimination
against Women seal and the Labor Inclusion Award for their practices and poli-
cies on the inclusion of women in the electricity sector.
Santander has set the goal of increasing female presence on its board to
40–60% by 2021 and in executive management positions to 30% by 2025 in
order to reduce gender inequality, and has actions aimed at supporting the
growth of women through mentoring and development programmes. The
company leads the Bloomberg Gender-Equality Index—a ranking that includes
the 104 global companies with the best practices in gender diversity—but con-
tinues to add new principles to drive its diversity and inclusion strategy.
Additionally, it has launched online training on diversity and inclusion to con-
tribute to the change of mentality and develop new skills. Santander also
encourages more flexible ways of working with a flexiworking policy that con-
templates the alternative configuration of schedules and teleworking.
Telefónica has a Global Diversity and Inclusion Policy that aims to enhance
the presence of women in the selection processes and has set a goal of reaching
30% of women as executive managers in 2020. It has also created different
global acceleration career programmes, such as Women in Leadership. Other
programmes to improve the prospects for female promotion are Women &
Leaders in Colombia, Talentia in Spain, Female Talent in Mexico and Woman
Network in Peru. Regarding the reconciliation of family and work life, Telefónica
has different measures to improve this balance—for example, teleworking and
Agile Ways of Working methodology.
Iberdrola has a Diversity and Equal Opportunities and Conciliation Policy. It
claims to have numerous actions to increase diversity and promote female pres-
ence in its labour force—for example, in the United States, the CMP Lineworker
Program is aimed at training professionals and prioritising the inclusion of
women in the energy sector—and shows its commitment to increase the num-
ber of women in management positions. Intensive days, flexible hours, tele-
working and extended maternity leave are the main initiatives in the field of
conciliation. Currently, the company is the only Spanish energy company
included in the Bloomberg Gender-Equality Index.
BBVA has different initiatives to promote female talent—for example, the
implementation of the Rooney rule that requires 50% of candidates for manage-
ment positions to be women and coaching programmes for women of high
potential. Its different actions included in the Equal Treatment and
Opportunities Plan have led it to be part of the Bloomberg Gender-Equality
752 I. CAMPOS-GARCÍA

Index and the Equileap Global Report on Gender Equality which selects the 200
best global companies in gender equality. It has also been included in the
D2019 Variable Report that includes the 30 companies in Spain with the best
practices in diversity and inclusion. Finally, BBVA also favours work and family
reconciliation with measures such as setting deadlines for leaving work, respect-
ing the digital disconnection time and implementing teleworking.
Repsol has designed maps of female talent with the intention of achieving
30% of women on its board of directors by 2020. It also has an Equal
Opportunity Plan to improve the employment position of women in relation to
their professional career. The Diversity and Conciliation Committee also ensures
a balance between personal and professional life, with its teleworking pro-
gramme having the greatest acceptance.
Naturgy has launched three programmes in order to promote and empower
women: Take the Lead, Hazte Visible and Mentoring. Its Integral Diversity Plan
includes gender-specific initiatives—for example, online training with pro-
grammes such as Women Empowerment, Inclusive Leadership and Diversity
Management. It also has reconciliation measures and support for the personal
environment, such as the flexible day.
As can be seen, almost all the companies analysed have different plans or
policies to manage gender diversity—and other variables such as age, race or
disability. However, the number of companies that show the existence of dif-
ferent flexibility policies aimed at facilitating family and labour reconciliation,
as well as specific programmes of female leadership or quotas whose objective
is to increase the number of women in management positions is reduced.
Table 37.1 also shows that Latin American companies are lagging behind in
promoting gender equality as compared to Spanish companies3—in fact, four
of the Spanish companies are included in the worldwide list of the 2019
Bloomberg Gender-Equality Index. Therefore, Spanish companies have a wider
set of initiatives that can contribute to a greater extent to the women’s happi-
ness at work.

Happiness for Organisations: Can Women Leaders Contribute

to the Happiness of Organisations?
Previous studies have revealed that the happiest workplaces are characterised by
high involvement and high commitment approaches and have lower rates of
staff turnover, absenteeism or work leave (e.g. Fisher 2010; Simmons 2014).
This section analyses the effect that women leaders can have on measures that

3
This may be due to the adoption or not of some initiatives or public policies related to gender
equality. In Spain, there are gender quotas and/or corporate governance codes that include several
gender recommendations for management and supervisory functions within companies to combat
the still insufficient presence of women (see, for example, the Good Governance Code of Listed
Companies approved by the Board of the Comisión Nacional del Mercado de Valores). Latin
American countries like Argentina, Brazil, Chile, Mexico and Peru have not adopted any legislation
in this regard; Colombia has, but only for state-owned enterprises (Deloitte 2017).
 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 753

can be used to approximate the level of happiness of organisations. Specifically,

the analysis is carried out based on data on female presence in different hierar-
chical positions and indicators of work environment and work opportunities.
The information collected from all Latin American companies is shown in
Table 37.2.
América Móvil is a Mexican company dedicated to telecommunications. It
is run by a man and has only one woman on its 16-member board of directors.
The average percentage of women in management positions is 23.97%: 18.49%,
23.32%, 25.27% and 35.33% female presence in executive positions, first- and
second-level manager and management positions with a commercial role,
respectively. Of the total workforce, 38.74% are women. The turnover rate
stands at 12.90%, and each permanent employee received an average of 30 h of
training, with women taking advantage of 32.8% of the total hours of training.
Banco do Brasil has a woman on its seven-member board of directors. The
percentage of women in senior management positions is 8.62%, and 40.24% of
the total workforce are women. Regarding absenteeism, the lost day rate—days
lost/days planned—was 0.2% for both men and women, and the total absen-
teeism due to health reasons was 2.98%, with 0.19% and 2.78% due to occupa-
tional and non-occupational health and safety issues, respectively. This
absenteeism rate was 2.5% for men and 3.7% for women. The voluntary turn-
over rate stands at 2.2% (0.8% for female employees and 1.4% for male employ-
ees). Moreover, in an organisational climate and engagement survey conducted
by Banco do Brasil in 2018, 77.3% of women and 77.8% of men were evaluated
as engaged employees, and the percentage of satisfied employees was 83.6%. As
for training by gender and role, the average hours per employee was 116.2—126
and 108.12 h for management men and women, and 108.13 and 122.10 h for
non-management men and women (the high number of activities and training
hours is due to the availability of new training initiatives and educational pro-
grammes, as well as new technological innovation releases from UniBB).
Bancolombia has no women on its board of directors—the seven members
are men. The percentage of women with the role of boss (of the total heads) is
57% and the figure for women in high management positions is 36%. However,
the company has a feminised workforce, since 62% of the total employees are
women. With respect to work environment, the company claims to have
numerous activities for employee health and human security, and is investing a
lot in Quality of Life programmes. The absenteeism rate is 1.99%, and employee
turnover by withdrawals is 11%, of which 56.1% are for women and 43.9% for
men. On the other hand, the average training hours per employee is 44 for
non-managers and 35 for managers—in total, women received on-site and vir-
tual training of 52 h, while men were trained 75 h. Concerning the salary
compensation by gender, women are 6.5% below men in strategic positions.
Ecopetrol is a Colombian oil company that has 10% of women on its board
of directors. It also has 12% of women as senior executives and 20% of women
in middle management. The percentage of women in the total workforce is
22%. The labour absenteeism rate is 3.7% (2.7% for men and 6.9% for women).
 754

Table 37.2 Female presence in different hierarchical positions: Latin American companies’ data
Company Woman Women on Women in Women in the Work environment Opportunities and equality
CEO board of management positions total workforce
directors Absenteeism Turnover Training Pay
gap
I. CAMPOS-GARCÍA

América Móvil No 6.25% 23.97% 38.74% n/a 12.90% 30 hours/ n/a

Telecommunications Executive positions: employee
18.49%
Banco do Brasil No 14.28% n/a 40.24% 2.98% 2.20% 116.2 hours/ n/a
Bank Senior management (voluntary) employee
positions: 8.62%
Bancolombia No 0% 57.00% 62.00% 1.99% 11.00% 44 h (non- 6.5%
Bank High management manager); 35 h
positions: 36% (manager)
Ecopetrol No 10.00% 20.00% 22.00% 3.70% 3.50% 65.7 hours/ 6.00%
Oil Senior management: employee
12.00%
Petrobras No 30.00% 18.00% 16.33% 2.13% n/a 52.54 hours/ 6.00%
Oil Executive managers: employee
14.00%
Grupo Energía Astrid 33.00% 32.00% 30.10% 0.90% 28.00% (8.00% 54.66 hours/ 5.00%
Bogotá Álvarez Senior management: voluntary) employee
Energy 31.00%

Source: Author’s creation from CSR reports

 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 755

Additionally, the rate of days lost to absenteeism due to work-related illness is

13.9 (14.7 for men and 13.7 for women). The voluntary worker turnover rate
is 3.5%. Regarding opportunities and equality, the average training hours per
employee is 65.7 (69.6 h for men and 52.1 h for women). The equal pay gap
is, on average, 5%.
Petrobras is a Brazilian oil company that has 30% of women on its board,
18% of women in leadership positions—specifically, 13% as directors and 14%
as executive managers—and 16.33% of female employees. Regarding the work
environment, the lost labour time or absenteeism rate is 2.13%. Concerning
opportunities and equality, employees received an average of 52.74 h of train-
ing, 54.38 h for male employees and 44.33 h for female employees. The ratio
of salary and compensation between women and men is 6% for the highest
positions.
Grupo Energía Bogotá is a Colombian electricity company that is chaired by
a woman and has three women on its nine-member board of directors. It has
about 32% of women in management positions and a workforce composed of
30.1% female employees. The absenteeism rate is 0.9%, the employee turnover
rate is 28% (41% for women and 59% for men) and voluntary employee turn-
over rate is 8%. The total number of hours dedicated to training in 2018 was
54.66, and the pay gap is 5% for senior management.
Table 37.3 shows the information collected from all Spanish companies.
Santander is chaired by a woman and has 33.3% of women on its board of
directors. The percentage of women in management positions is 37.3%, with
35.5% in Continental Europe and 39.8% in Latin America; the figure for execu-
tive management is 20.5%, with 22.2% in Continental Europe and 16.1% in
Latin America. Women occupy 54.5% of the total workforce. Regarding the
work environment, the absenteeism rate is 3.61% (4.4% for women and 2.64%
for men) and the employee turnover rate is 15.4% (15.10% for women and
15.70% for men). With respect to opportunities and equality, each employee
received an average of 33.8 h of training (54.4% of the women were trained
and they received on average of 33.37 h versus 34.27 h for men) and the equal
pay gap is 3%.
Telefónica is a telecommunications company. It has 17.6% of women on its
board of directors, 30.7% in mid-level management positions, 23.3% as execu-
tive directors—25% in Spain, 19% in Brazil, 21% in Colombia and 21% in
Mexico—and 37.7% in the total workforce. The absenteeism rate in Spain is
0.05% (0.04% for men and 0.06% for women) and the voluntary employee
turnover rate is 7.9%. In matters of opportunities and equality, the average
hours of training per employee is 28 (20 h for women directors, 30 h for
women managers and 30 h for women employees versus 16, 29 and 27 h for
men directors, managers and employees, respectively). Finally, the gender gap
is 3.4%.
Iberdrola is an energy company. It has 36% of women on its board of direc-
tors (five women among the 14 members), 31.8% in mid-level management
positions, 20.2% in executive management positions and 23.3% in the total
 756

Table 37.3 Female presence in different hierarchical positions: Spanish data

Woman Women on Women in Women in the Work environment Opportunities & equality
CEO Board of management positions total workforce
Absenteeism Turnover Training Pay
I. CAMPOS-GARCÍA

Directors
gap

Santander Ana 33.30% 37.30% 54.50% 3.61% 15.40% 33.8 hours/ 3.00%
Bank Patricia Executive employee
Botin management: 20.5%
Telefónica No 17.60% 30.70% 37.70% 0.05% 7.90% 28 hours/ 3.40%
Telecommunications Executive (voluntary) employee
management: 23.30%
Iberdrola No 36.00% 31.80% 23.30% 2.30% 10.53% 41.58 hours/ 2.70%
Energy Executive employee
management: 20.20%
BBVA No 26.60% 49.20% 54.00% 1.20% 7.6% (voluntary) 47.3 hours/ 3.20%
Bank Executive employee
management: 22.10%
Repsol No 20.00% 29.20% 28.70% n/a 23.00% 45 hours/ 5.00%
Oil employee
Natury No 8.30% 28.30% 31.00% 2.68% 17.40% 49.9 hours/ 9.60%
Energy employee

Source: Author’s creation from CSR reports

 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 757

workforce. Regarding the work environment, the absenteeism rate is 4.6% and
the employee turnover is 10.53% (10.25% for women and 10.82% for men). As
for equal opportunity and equality, the average training hours per employee is
41.58 (34.78 h for women and 48.38 h for men) and the gender pay gap
is 2.7%.
BBVA has four women on its 15-member board of directors. The percent-
age of women in management positions is 49.2%, in executive management is
22.1% and in the total workforce is 54%. The bank company has an absentee-
ism rate of 1.2% (0.9 for men and 1.5 for women) and the voluntary employee
turnover rate is 7.6%. Employees are trained an average of 47.3 h, and the
gender pay gap is 3.2% in leadership positions.
Repsol has three women on its 15-member board of directors. The oil com-
pany has 20% of women on the board of directors, 29.2% in management posi-
tions and 28.7% in the workforce. Its turnover rate is 23%, with a voluntary
employee turnover rate of 6%. Concerning opportunities and equality, each
employee received an average of 45 h of training—36 h for women and 50 h
for men—and the gender pay gap is 5%.
Naturgy has only one woman on its 12-member board of directors. The
percentage of women in management positions is 28.3% and 31% of the total
workforce are women. The absenteeism rate is 2.68% and the turnover rate is
17.4%, with a voluntary employee turnover rate of 2.5%. The average hours of
training per employee are 49.9, and the total gender pay gap is 9.6%.
An initial analysis of the different CSR reports reveals that only two of the
12 companies analysed have a woman as CEO. There are notable differences in
female representation in the labour force according to the sector—the energy
sector is very masculinised and the gender gap is larger in this sector. In gen-
eral, women have higher absenteeism rates: this is a reflection in most cases of
the imbalance between men and women in family and household responsibili-
ties, since it is also found that women also have the highest percentages of
part-­time working hours. Women also generally receive fewer hours of training
than men, evidencing a gender bias in terms of employment opportunities and
professional development. In most cases, the voluntary turnover rate is higher
for men, who are more likely to change jobs.
Secondly, the Bivariate Pearson Correlation shows different significant rela-
tionships between the variables included. Quantitative research findings reveal
that there is a strong positive linear correlation between female representation
in executive positions and in middle management positions (r = 0.878**).
Similarly, a greater proportion of women in the workforce is also positively
related to a greater female presence in middle management positions (r =
0.872**). That is, in workplaces where there is greater female representation
in the workforce, more women are likely to occupy leadership positions. On
the other hand, female representation on the boards of directors relates signifi-
cantly and negatively to the gender pay gap (r = −0.622*); in other words, the
pay gap is reduced as the presence of women on the boards increases. Regarding
training, it is found that the difference in hours between men and women is
758 I. CAMPOS-GARCÍA

reduced as women increase in leadership positions; therefore, there is greater

equality when there is greater diversity at different hierarchical levels. However,
there is no evidence of a relationship between female leaders and absenteeism
rates or turnover rates.4

Discussion and Conclusions

Different studies have underlined that the background of happiness in the
workplaces—at both employee and organisation levels—is mainly related to
working conditions and climate and, more specifically, to factors related to the
existence of fair and ethical conditions, inclusion and equality of opportunities
and healthy work environments (e.g. Sirota and Klein 2013; Warr 2011;
Wesarat et al. 2015). Analysis of the labour market for gender reveals the imbal-
ances that exist between men and women and finds certain inequities in treat-
ment, training and career development, compensation and promotion practices
that place women at a disadvantage (e.g. McKinsey 2018). It is clear, therefore,
that gender imbalances and inequities generate failures that reduce women’s
happiness at work and affect the happiness of organisations.
This chapter seeks to address happiness in the workplace from a female perspec-
tive. The ways in which organisations can contribute to and increase women’s
happiness at work and the effect of female leadership on the happiness of organisa-
tions have been explored. The findings suggest that organisations can increase and
manage women’s happiness at work more efficiently through the design and
implementation of good practices or initiatives to reduce existing gender gaps. It
was also found that women leaders could have an impact on issues that are indica-
tive of happier organisations. These results are shown in Fig. 37.1.
Regarding happiness for women, the qualitative analysis revealed that most
Latin American and Spanish companies were concerned about gender issues—
although not all of them acted on those concerns. Diversity and inclusion

More happiness for women

through initiatives to eliminate gender gaps

Organisations Women
More happiness for organisations
through the impact of female leadership

Fig. 37.1 Targeting organisational happiness by supporting women. (Source:

Author’s creation)

4
This may be due to the fact that the general turnover rates and the voluntary turnover rate can-
not be compared, and the idiosyncrasy of each sector depends on their dynamism and employment
opportunities.
 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 759

policies abounded, followed by flexibility and personal and work reconciliation

initiatives. Such initiatives and policies could contribute to reducing gender
imbalances in women’s treatment and interactions, recruitment and/or profes-
sional opportunities. However, the commitments and actions aimed at increas-
ing women’s power, talent and presence in positions of maximum responsibility
were scarcer, so more effort and stronger policies in this direction are required.
The institutional context also plays an important role: Latin American compa-
nies lag behind in promoting gender equality compared to Spanish companies,
which have a wider set of initiatives that could contribute to women’s happi-
ness at work.
Regarding happiness for organisations, the results of the correlational study
suggest that women leaders contribute to creating healthier and more equita-
ble workplaces from measures that can be used as proxies for corporate happi-
ness levels. Specifically, companies with more diverse workforces generally
exhibited greater diversity in their leadership positions and boards of directors,
and women leaders contributed more to the promotion of other women
towards management positions, perhaps due to solidarity behaviour between
women in management leading to the formation of alliances, gender awareness
and commitment to changing social structures for women (Korabik &
Abbondanza, 2004). In general, companies with more women in leadership
positions exhibited higher rates of female job satisfaction, and women were
more likely to remain in their current companies if a greater number of them
were promoted to leadership positions (e.g. Fairygodboss 2018; Lee et al.
2015; McKinsey 2011, 2018).
The results also suggest that companies with a higher proportion of women
on their boards of directors enjoy smaller gender pay gaps, and that a greater
female presence in different leadership positions contributes to the reduction
of differences in the amount of training and, therefore, improves women’s job
opportunities. Although it has not been possible to clarify the direction of the
relationship between female presence in leadership positions and the working
environment indicators used here, this study suggests that women leaders can
create more inclusive, diverse and equitable workplaces. There is some doubt,
however, as to whether women need to occupy certain hierarchical positions to
have a significant impact on staff turnover, absenteeism or work leave. That is,
their impact may not be significant because they are still a minority in the high-
est positions and a greater critical mass is required (e.g. Joecks et al. 2013;
Konrad et al. 2008).
Important practical implications can be derived from these findings. First,
happiness at work affects behaviours and has a positive impact on levels of job
satisfaction, commitment and productivity. While unhappiness can lead to a
lack of mental concentration (Killingsworth and Gilbert 2010), happiness
allows employees to devote more attention and effort to solving problems at
work (Oswald et al. 2015). Making subjects happy seems to encourage them to
put in more effort (SMF and CAGE 2015). Pursuing an increase in women’s
happiness at work through practices that promote inclusion and equal
760 I. CAMPOS-GARCÍA

opportunities has two positive effects: the elimination of the gender gap that
harms women and an increase in global labour productivity. That is, the impor-
tance of increasing women’s happiness in workplaces is justified not only for
ethical and equality reasons, but also for reasons of economic efficiency.
Organisational and workplace culture, organisational networking and organ-
isational practices have a significant impact on women’s advancement (Jauhar
and Lau 2018). Directors, HR managers and/or happiness managers should
also strive to ensure that gender goals and initiatives are a vehicle to achieve
greater equality and diversity and a more inclusive and hospitable culture for
women. The scope of such initiatives must be more than good intentions, a
form of advertising or an effort to avoid penalties. As Grosser and Moon
(2008) have affirmed, most companies communicate their policies and pro-
grammes but make little reference to their impacts; it is therefore important to
evaluate and quantify the success of these initiatives and their impact on happi-
ness levels. Women are also encouraged to continue to show their disagree-
ment with unethical or unfair practices and demand more attention and
proactivity from their employers in actions that contribute to their happiness.
This greater attention and proper management of diversity could in fact encour-
age the attraction and retention of female talent (e.g. Ng and Burke 2005).
Lastly, governments and public policy makers—especially in the most lagging
countries in terms of gender—are also called to design and implement codes or
laws that contribute to the promotion and achievement of real and effective
gender equality within organisations and, thereby, women’s happiness at work.
Second, happier organisations increase their chances of success because they
are more competitive—with greater productivity and lower personnel costs—
and have a higher social reputation (e.g. Simmons 2014), and female leadership
can have a positive impact on that happiness level. In line with social role theory,
women have a greater orientation towards moral principles—in large part
because women have better internalised ethical and community values through
their roles (Eagly and Carli 2003)—and show more disinterested, altruistic or
transparent behaviours (Rosener 2011). Women also show more complex moral
reasoning, which essentially involves making fairer decisions and demonstrating
greater sensitivity and justice in ethical and social aspects (Bart and McQueen
2013). Women are better at understanding complex relationships as they
develop, particularly in a global economy (Werhane 2019). Therefore, women
in executive or managerial positions contribute to more socially responsible
organisational practices and behaviours, and relying on female talent could
favour the long-term sustainability of organisations. External and organisational
barriers—women often lack mentors, role models, sponsorship or access to
appropriate networks (Linehan and Scullion 2008)—must therefore be removed
to better prepare women to fill leadership positions (McLean et al. 2016). In
addition, getting rid of internal barriers is critical to gaining power: women hold
themselves back by lacking self-confidence and by pulling back when they
should be leaning in, thus lowering their own expectation of what they can
achieve and compromising their career goals (Sandberg 2015).
 37 THE FEMALE WAY TO HAPPINESS AT WORK: HAPPINESS FOR WOMEN… 761

Finally, the findings obtained must be interpreted in light of some limita-

tions. The absence of standard reporting practices renders direct comparison of
companies impossible (Grosser and Moon 2008: 194), so some indicators that
would have enriched the analysis have not been considered. The number of
companies in the study sample was also small. Happiness in the workplace is
also far from static (Simmons 2014), and this study only focused on a specific
moment in time. A possible future line of research would be to expand the
study sample and conduct a longitudinal analysis to verify the effect of the rela-
tionships presented here.

Acknowledgement Financial support is gratefully acknowledged from the Spanish

Ministry of Science, Innovation and Universities (RTI2018-097447-B-100).

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 CHAPTER 38

Assessment of the Level of Sustainable

Development Based on Agenda 2030

Alexandre Zeni, Daniela Muller de Quevedo,

Moema Pereira Nunes, and Marco Antônio Siqueira Rodrigues

Introduction
The evolution of the knowledge about management given by the consequent
development and improvement of theories and the successful experiences has
been contributed to the amelioration of the municipal management, and results
of research and studies contribute to the improvement of methods, processes,
and controls. Public organizations need to be aware of the needs of people, the
expectations of populations and consumers, and, more recently, the appeals
and demands of environmental guidelines. In municipalities, where the public
management is closer to the population, demands for actions that are more
incisive to discussions about good management, sustainability, and sustainable
development arise. Despite the notable theoretical advance realized by the
publications and examples of good management practices, perceived in some
municipalities, it is noted that there are still several difficulties in advancing
consistently. According to Gonzalez-Perez and Leonard (2015), while the
concept of sustainability incorporates the concept of social advancement
towards a more egalitarian and prosperous planet, at the enterprise level the
implementation and implications of responsible management are predomi-
nantly pragmatic. Responsible management implies changes in corporate

A. Zeni • D. M. de Quevedo (*) • M. P. Nunes • M. A. S. Rodrigues

Feevale University, Novo Hamburgo, Brazil
e-mail: [email protected]; [email protected]; [email protected]

© The Author(s) 2021 767

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_38
768 A. ZENI ET AL.

strategies and objectives, and these changes often transcend existing financial
considerations or corporate social responsibility initiatives.
The Agenda 2030, developed by the UN, is an action plan for people, com-
panies, municipalities, federative units, countries, for the planet in order to
preserve and to thrive. It seeks to strengthen universal peace and the eradica-
tion of poverty in all its forms and dimensions, including extreme poverty. It is
an ambitious set of actions that establishes 17 goals, with 169 targets, in order
to provide the sustainable development (UN 2016). Achieving the millennium
goals means the action of a collective and integrated effort among nations (UN
2016); however, it cannot be considered a responsibility only of central gov-
ernments; they have the duty to create and induce policies and strategies that
force all levels of government and society working in the same direction.
Gonzalez (2016) presents a study on climate change and the 2030 corporate
agenda for sustainable development. The author states that the signing of
COP21 means that governments and companies understand that the future
viability of businesses and societies (sustainability and competitiveness) depends
on this universal agreement. Achieving the established goals requires a long
term, as well as the commitment of companies, governments, and societies.
Identifying what must be prioritized and how to contribute to the specific
interests and needs of each nation is needed.
Uddin (2017) also presents a study on climate change and global environ-
mental policy. In general, poorer and less developed regions contribute little to
environmental degradation compared to more developed and highly industri-
alized regions. By contrast, the poorest regions are those with the greatest
vulnerability to impact on environmental degradation. The political economic
perspective sees vulnerability as the creation of political, social, and economic
policies aiming at the conditions of society and does not consider the
environment.
Thus, good practices for sustainable urban development should be identi-
fied, supported, and reinforced. This requires relevant methods and tools for
testing and designing behavioral and changing scenarios in a socio-ecological
system in support of sustainable development of cities. The sustainable city has
been a global concern in recent years, involving natural sciences and social sci-
ence research. However, few studies have attempted to map global sustainable
city research. While developing a tool for city control and monitoring, focusing
on sustainability, the relationship between social and ecological systems should
be considered, as a basis for improving planning and management of urban
development (Kalentari et al. 2019; Wang et al. 2019).
Sustainable development and municipal management are central and quite
relevant for the study; however, they cannot deviate from their essence, which
is the need to contribute to a better supply of services, since the services pro-
vided by the same government must come in return for the taxes and fees col-
lected. Services such as public health, transportation, security, education,
among others, are constant targets of criticism and discontent of the Brazilian
population, and these services to the population, essence of the existence of
 38 ASSESSMENT OF THE LEVEL OF SUSTAINABLE DEVELOPMENT BASED… 769

this sector, should be a basic premise in the public power, and work as basis for
managers in their decision making.
There is a lack of municipal management assessment tools that portray the
managerial scenario and provide essential data for the formulation of public
policies. It is becoming more apparent that these assessment tools should
include sustainable development. The objective of this study is to propose an
assessment tool for the sustainable development of municipalities based on the
UN Agenda 2030. This chapter presents the development of this tool, so that
it is simple to apply and understand, contextualizing public management, its
historical limits, evolution, and the relationship with sustainable development.
Therefore, the main contribution of this tool is to present the public manager
with a simple methodology, which allows identifying how the municipalities
position themselves in terms of sustainable development, which areas of their
responsibility are aligned with the objectives of the UN Agenda 2030 and
which indicators can be improved.

Public Management and Its Relationship

with Sustainable Development

It is necessary to consider that the resources to be managed by the public

power come from the contributions of the population through taxes and fees
that should return as services provided. Although the principles of public man-
agement are based on the constitutional legal dictates of efficiency and effec-
tiveness in the application of these resources (Brasil 1988), the return through
services such as security, health and education, is not always perceived.
The emergence of public administration in the nineteenth century has
shifted the focus away from the centrality of politics to seek a greater under-
standing of how governments are managed. The great classical ideas of the
good state created and defended by the philosophers Aristotle to Rousseau,
whose management was more political, have been losing ground since the
emergence of the science of administration, that is, over time, have gradually
lost ground to the idea of an efficient state and more specialized and profes-
sional management (Wilson 1887; Denhardt and Denhardt 2015;
Andion 2012).
In 2008, based on the United Nations Millennium Development Goals
(UN 2005), Bresser Pereira stated that public administration reform in devel-
oping countries would contribute to economic development and the achieve-
ment of goals. The author describes a model of public management reform and
calls it the structural model of public management. The goal was to try to make
the state more capable and more efficient by adopting a particular structure of
division of labor among the state organization itself (Bresser Pereira 2008;
Andion 2012).
Advances in public management can be observed in more developed coun-
tries. Importing models from these locations and adapting them to developing
770 A. ZENI ET AL.

countries can be a viable alternative to contribute to development. Hence, it is

necessary to have the ability to import or rebuild models to take advantage of
more modern management practices, seeking sustainable development (Bresser
Pereira 2008; UN 2016).
According to Braun and Mueller (2014), it is inefficient and ineffective to
treat public administration as a private administration; however, one can build
immensely for the other. Public administration should not be distanced from
its social function and the role of listing priorities, focusing only on manage-
ment focused on community interest. It is essential, as well as in the private
sector, that managers work to achieve assessment rates that record quantitative
results.

The Models of Public Management and the Relation

with the Development

After the constitutional and legal aspects that dictate the rules in the public
management, we can resume the presentation of the public management mod-
els, deepening of theoretical references and, thus, clarifying the fundamental
principles of these models. The state-centric current places public administra-
tion as a legal and administrative science. It is one of the most influential cur-
rents in the field of public administration in Brazil. Its predominance extends
from the beginning of the discipline until its consolidation, a period that cor-
responds from the late nineteenth century to the late 1970s (Keinert 2000; De
Paula 2005; Taufick and Alves 2010; Andion 2012; Donner Abreu et al. 2013).
It leads to a unified view of the state, which is the only responsible for planning,
operating, and evaluating public policies, in a decentralized way, from top to
bottom. In this model, power emanates from norms, formal institutions, and
not from the charismatic profile or tradition (Secchi 2009). Concern with
organizational efficiency is central to the bureaucratic model, with the rational
allocation of resources and obedience, leading to formalization (Secchi 2009;
Bresser Pereira 2008; Donner Abreu et al. 2013). Public administrators are
seen as officials responsible for implementing policies and programs, ensuring
the practice of bureaucratic principles and scientific administration, an admin-
istration thought from the inside (Gaetani 1999; Taufick and Alves 2010;
Andion 2012).
In the pluralism, whose management of public administration points solely
and exclusively to the political field, the state is no longer seen only as a syn-
onym of government apparatus and is interpreted as a space of dispute between
different social classes or different groups (Taufick and Alves 2010; Andion
2012; Donner Abreu et al. 2013). On one hand, De Paula (2005) mentions
that the main merit of the pluralism was to bring to light the importance of civil
society as a political actor; On the other hand, Nogueira (2005) and Andion
(2012) warn that radical pluralism can lead to an anti-institutional stance, that
is, civil society could be seen as the quintessential space of politics, weakening
the state itself and representative democracy.
 38 ASSESSMENT OF THE LEVEL OF SUSTAINABLE DEVELOPMENT BASED… 771

Managerial public administration or managerialism (MPA), public gover-

nance (PG), and entrepreneurial government (EG) are organizational models
that incorporate prescriptions for improving the effectiveness of public organi-
zation management and conceptually bring it closer to theories applied to pri-
vate enterprise (Secchi 2009). These models share the values o ​ f productivity,
service orientation, decentralization, service efficiency, marketization,1 and
accountability2 (Kettl 2012). MPA, PG, and EG are often referred to as mana-
gerialism, and the latter two are often considered synonymous.
Other authors point to these models as the new public administration
(NPA), and this new proposition is divided into Neo-institutionalism,
Managerialism and Good Governance; however, they understand that NPA is
not limited to a set of techniques. As demonstrated by Ferlie et al. (1999),
NPA is composed of a series of values and administrative principles that config-
ure different management models focused on efficiency, decentralization, and
excellence of the public service.
Andion (2012) points out that recent studies in the field of public gover-
nance have shown the emergence of these new forms of management (NPA),
including proposals in which traditional models of socioeconomic regulation,
characterized by the centrality of the state or the market, coexist with other
conduction modes of collective action (community governance or partner-
ship). There is a shift from traditional ways of governing to shared governance
models. The same author argues that NPA focuses on unifying the discussion
of the currents (MPA, PG and EG) mentioned above, and deals with the sci-
ence of management, bringing the public administration closer in a profes-
sional manner, seeking pragmatic results and efficiency, in example of private
initiative, but respecting the public legal and political precepts. NPA arises
from constant management crises over the years, being a set of approaches,
which aims at applying market principles and business logic in the sphere of
public administration in several countries of the world (Andion 2012; Denhard
& Denhard 2015).

Methodology
The first stage of this study comprises the development of the municipal analy-
sis tool. The UN Sustainable Development Goals (SDGs) consist of 17 goals
and 169 targets. These goals were interpretatively analyzed and those related
to the municipalities were selected, considering as criteria for choosing the
goals that can be managed and have interference by the municipal managers.
The result was the selection of 56 marks, which were grouped into 40 sets,
defined as the indicators for the final tool. To define the indicators, open public
data were used, which is a prerequisite for the tool to be used by more munici-
palities, associations, and universities. In this context of transparency and con-
dition of access, it is possible to exercise a control of society over the management
of municipalities. These sources are presented in Appendix 1. The tool can be
applied to any municipality, that is, the precept is that the tool is universal. It
772 A. ZENI ET AL.

was conceived and structured in a closed way, that is, the indicators, formulas,
assigned weights, decision criteria, and analysis will be pre-defined and cannot
be changed by the municipalities, thus keeping the reliability and comparability
factors always present.
With the objectives and indicators defined, the indicators were classified
according to the conceptual criteria of the economic, social, and environmental
dimensions, in order to understand if the proposed tool meets the criteria
defined by the UN when defining the concept of sustainable development. In
the adopted classification method, each indicator was evaluated based on the
dimension that is linked, establishing the syllable “EN” for environmental, let-
ter “E” for economic and “S” for social, thus creating a matrix called ESEN
(Economic, Social and Environmental).
To define the weights and values of each objective, the adopted criterion
considered that each of the objectives has a maximum weight of 1 (one); thus,
the maximum total result of the index will have a maximum value of 17 points.
Therefore, considering that each objective has a weight of 1 (one) and can
consist of more than one indicator.
After this step, it was adopted the criterion of dividing the total sum of indi-
cators of each objective in a way that each one reaches the value of 1, for
example: (a) Goal number 2 has one goal and only one indicator, so this indica-
tor has weight = 1, it represents the goal itself; (b) Goal 3 has eight goals and
only four indicators, so each indicator has a weight of 0.25, totaling 1 for the
goal, equal to the others.
For the assembly of the mathematical model and consequently creation of
the index, it is necessary to define relative weights for the indicators that reach
or not the goal. Thus, the following intervals were defined as parameters: 1—
When the indicator reaches the goal; 0.8—When the indicator is within 10% of
the target; 0.5—When the indicator is within 11–20% of the target; and, 0—
When the indicator is at a distance bigger than 20% below the target. To define
as a parameter of achievement of the indicators, it was established that com-
parisons should be based on national indicators, that is, it compares the indica-
tor of the municipality with the national indicator or else the average result of
the municipalities of the country.
Considering that it is essential to define ranges to fit the evaluations, the
criterion established in the bibliography was adopted, where, according to
Magalhães and Lima (2013). Generally, assessment ranges with the same
amplitude must be taken. However, bands of uneven size may be convenient
for representing values at the end of the scale. In this sense, it was considered
that values below 80% would be disregarded, assuming that the municipality
that reaches an index below 80% will have a low contribution to sustainability.
To calculate the score of the objectives (Score), presented in Table 38.1, the
following were considered: the weight of the indicator (second column); the
national reference index (third column); and the calculated municipal data
(fourth column). We consider that the ideal criterion for the municipal indica-
tor should be less than or equal to 100% of the national reference indicator,
depending on each case. With the defined municipal indicator, it was decided
to apply the formula (dividing the municipal indicator by the national indicator
 38 ASSESSMENT OF THE LEVEL OF SUSTAINABLE DEVELOPMENT BASED… 773

Table 38.1 SDG calculation structure

Municipal Index of Sustainable Development

SDG National Municipal IDEAL Goal Contribution Contribution

Goal Weight Score
number Indicator Indicator Parameter Percentage Interval Reference
1 – Poverty
1 1 26% 26,50% < =100% 101% >90%<100% 0,8 0,8
Eradication
2 – Zero
hunger and
2 1 6% 2,90% < = 100% 46% >=100% 1 1
Sustainable
Agriculture
Source: Authors’ creation

times 100), reaching the percentage of the goal achieved, represented in col-
umn 6 of Table 38.1, always taking into consideration that the national indica-
tor is 100% and, therefore, the minimum reference to be reached. This
percentage was compared to the criteria set out in item 6 above, establishing
the values in column 7. Before defining the score, based on column 7, the
weight was assigned and column 8 was filled, which also complies with the
criteria mentioned in item 6 above; the score was calculated by dividing the
contribution reference, column 8, by the weight, represented in column 2;
and, the contribution of each objective, which is the sum of the score of the
indicators of each objective.
It is important to highlight that, by adopting these criteria, an indicator may
represent a percentage greater than 100%. We can cite as an example Goal 1 in
which the ideal reference defined for the goal is less than or equal to 100%. If
the indicator is above the goal, it means that the conditions of the municipality
are worse; in this example case, that poverty is higher in the municipality than
the country average. For the elaboration of the tool, different weights were not
considered for the selected indicators. The option for not weighing the indica-
tors is because it is based on the UN Agenda 2030, which does not assign
weights to the listed indicators.
With all the calculations of the tables set, it is possible to define the condi-
tion of the municipality regarding sustainable development compared to the
conditions of the country; thus, to arrive at the calculation of the Index, in
relation to Agenda 2030, the value of all indicators is added comparing them
to the maximum value of 17, considering as the basis of interpretation the fol-
lowing conditions:

(a) reaching 17 points, it is understood that the municipality has excellent

condition of sustainable development in relation to the country to
which it belongs;
(b) a value between 13 and less than 15 points, the municipality would be
in an average condition of development;
(c) below 13 points, the municipality would be at a low level of development.

In order to validate the tool, this one was employed to analyze the munici-
pality of Novo Hamburgo, Brazil, as shown below.
774 A. ZENI ET AL.

Sustainability Index Based on Un Agenda 2030:

A Case Study
To be able to test the application of the tool, a few data collected in the munici-
pality of Novo Hamburgo and the country were used, comparing them in a
longitudinal space interval with data from 2010 to 2018, always using the most
updated information obtained of each indicator, where the data collection sur-
vey result is December 2018 (Table 38.2).
To consolidate the present methodology, the indicators must be reliable,
representative, and from reliable sources. Therefore, it is worth mentioning
that Table 38.2 was prepared based on information obtained from the sources
presented in Appendix 1.
The result presented in Table 38.2 shows an index of 12.38 points for the
municipality of Novo Hamburgo. Considering the criteria employed for the
results analysis, the municipality of Novo Hamburgo presents a low level of
development and a low contribution in relation to the country. By analyzing
each indicator, we are not proposing to the municipal manager the conception
of actions, but offering a tool with instruments of analysis, so that, applied by
the municipal managers, they can be an instrument to improve the sustainable
development condition of the municipality through effective programs, laws,
actions, and other possible instruments. A more detailed analysis of each indi-
cator is presented in Table 38.3.
As we evaluate the indicators, we get a clearer view of the context that
impacts the goals. As the proposed analysis considers what represents full com-
pliance by municipal management at the sustainable development level, the
ideal scenario is that all indicators could reach 100%, but 9 indicators are below
80% of the reference goal. Two of the remaining three indicators are close to
reaching the target, that is, they are above 90% and one a little further from the
margin, between 80% and 90%. Thus, 12 out of 40 indicators deserve more
specific attention from public management.
We have 28 objectives, of the 40 indicators that can be related and that make
up the tool, that are indicators that have reached 100% or more of the goal
established by the national standard. These indicators make up the majority
and are rated at an excellent level of development. At first sight, because they
are a majority, one can make the mistake that this parameter, by itself, brings a
good development condition to the municipality, but as the proposed tool is
composed of more precise and comprehensive criteria, it is necessary to evalu-
ate the whole scenario and individually. From the remaining 12 indicators, 9
are rated at the low contribution level to sustainable development in the
municipality, while 2 are rated high and only 1 is rated as an average contribu-
tion. Thus, it is necessary to understand the impact of the other 12 indicators
on the result before stating anything more definitive about the condition of
sustainable development of the municipality.
Eight of the 17 objectives have reached a satisfactory level of development
and can be qualified with an excellent contribution to development, namely:
 38 ASSESSMENT OF THE LEVEL OF SUSTAINABLE DEVELOPMENT BASED… 775

Table 38.2 Municipal index of sustainable development UN agenda by 2030

Municipal Index of Sustainable Development
SDG National Municipal IDEAL Goal Contribution Contribution
Objective Weight Score
number Indicator Indicator Parameter Percentage Interval Reference
Goal less than
Calculation of the Indicator’s Contribution Goal 100% Goal less than
100% up to Less than 80%
Interval achieved 90% up to 80%
90%
Contribution Interval >=100% >90%<100% >80%<90% <80%
Contribution 1 0,8 0,5 0
1 – End poverty in all its forms everywhere 1 1 26% 26,5% < =100% 101% >90%<100% 0,80 0,80
2 – End hunger, achieve food security and
improved nutrition and promote sustainable 2 1 6% 2,9% < = 100% 46% >=100% 1,00 1,00
agriculture
3 0,25 14,90 9,36 < = 100% 63% >=100% 1,00 0,25
3 – Ensure healthy lives and promote well- 4 0,25 23,00 7,60 < = 100% 33% >=100% 1,00 0,25
being for all at all ages 5 0,25 15% 17,4% > = 100% 116% >=100% 1,00 0,25
6 0,25 0,075% 0,051% > = 100% 68% <80% 0,00 0,00
7 0,25 96% 81,7% > = 100% 86% >80%<90% 0,50 0,13
4 – Ensure inclusive and equitable quality
8 0,25 9% 10,9% < = 100% 128% <80% 0,00 0,00
education and promote lifelong learning
9 0,25 5,50 5,60 > = 100% 102% >=100% 1,00 0,25
opportunities for al
10 0,25 16,20% 16,8% > = 100% 103% >=100% 1,00 0,25
11 0,334 29% 10,0% > = 100% 34% <80% 0,00 0,00
5 – Achieve gender equality and empower all
12 0,333 14% 7,1% > = 100% 53% <80% 0,00 0,00
women and girls
13 0,333 1,00 1,00 > = 100% 100% >=100% 1,00 0,33
14 0,25 83,3% 83,6% > = 100% 100% >=100% 1,00 0,25
6 – Ensure availability and sustainable 15 0,25 52% 6,9% > = 100% 13% <80% 0,00 0,00
management of water and sanitation for all 16 0,25 75% 100,0% > = 100% 133% >=100% 1,00 0,25
17 0,25 63% 58,0% > = 100% 92% >90%<100% 0,80 0,20
7 – Promote sustained, inclusive and 18 0,5 2,20% 0,4% < = 100% 18% >=100% 1,00 0,50
sustainable economic growth, full and
productive employment and decent work for 19 0,5 1,00 1,00 > = 100% 100% >=100% 1,00 0,50
all
8 - Promote sustained, inclusive and 20 0,334 1,00 1,00 > = 100% 100% >=100% 1,00 0,33
sustainable economic growth, full and 21 0,334 1,00 1,00 > = 100% 100% >=100% 1,00 0,33
productive employment and decent work for
all 22 0,333 21% 15,3% < = 100% 74% >=100% 1,00 0,33
9 – Build resilient infrastructure, promote 23 0,5 12% 21,0% > = 100% 178% >=100% 1,00 0,50
inclusive and sustainable industrialization and
24 0,5 1,00 1,00 > = 100% 100% >=100% 1,00 0,50
foster innovation
10 - Reduce inequality within and among 25 0,5 55% 53,8% < = 100% 98% >=100% 1,00 0,50
countries 26 0,5 100% 66,7% > = 100% 67% <80% 0,00 0,00
27 0,2 41% 31,1% < = 100% 75% >=100% 1,00 0,20
28 0,2 65% 75,0% > = 100% 115% >=100% 1,00 0,20
11 - Make cities and human settlements
29 0,2 5% 100,0% > = 100% 1923% >=100% 1,00 0,20
inclusive, safe, resilient and sustainable
30 0,2 77% 80,0% > = 100% 105% >=100% 1,00 0,20
31 0,2 1,00 1,00 > = 100% 100% >=100% 1,00 0,20
32 0,334 1,00 0,00 > = 100% 0% <80% 0,00 0,00
12 - Ensure sustainable consumption and
33 0,333 1,00 1,00 > = 100% 100% >=100% 1,00 0,33
production patterns
34 0,333 3% 5,0% > = 100% 167% >=100% 1,00 0,33
13 - Take urgent action to combat climate
35 1 1,00 1,00 > = 100% 100% >=100% 1,00 1,00
change and its impacts
14- Conserve and sustainably use the oceans,
seas and marine resources for sustainable 36 1 1,00 0,00 > = 100% 0% <80% 0,00 0,00
development
15 – Protect, restore and promote sustainable
use of terrestrial ecosystems, sustainably
manage forests, combat desertification, and 37 1 100% 100,0% > = 100% 100% >=100% 1,00 1,00
halt and reverse land degradation and halt
biodiversity loss
16 – Promote peaceful and inclusive societies 38 0,5 29,27 23,80 < = 100% 81% >=100% 1,00 0,50
for sustainable development, provide access
to justice for all and build effective,
39 0,5 18,10 11,50 < = 100% 64% >=100% 1,00 0,50
accountable and inclusive institutions at all
levels
17 - Strengthen the means of implementation
and revitalize the global partnership for 40 1 13% 5,5% > = 100% 42% <80% 0,00 0,00
sustainable development
Naonal Reference 17,00 Municipal Index 12,38

Source: Author’s creation, applied to Novo Hamburgo

eradication of hunger and sustainable agriculture; clean and affordable energy;

decent work and economic development; industry, innovation and structure;
sustainable cities and communities; action against global climate change; ter-
restrial life; and peace, justice and effective institutions. Considering these
objectives in comparison with national parameters, we obtained a good result,
but it is necessary to pay attention, as some of these objectives are very close to
the established minimum limit.
776 A. ZENI ET AL.

Table 38.3 Analysis and interpretation of the result of municipal indicators compared
to the national data
Analysis by Indicator (Excellent, High, Medium and Low)
Indicator Number Indicator National Indicator Municipal Indicator
1 % of inhabitants of the municipality with income of less than ½ the minimum wage 26% 26,5%
This municipal indicator compared to its national reference shows that the municipality does not reach the established target, that is, the number of inhabitants residing in the
municipality with income less than 1/2 minimum wage is higher than the national average, so this indicator does not have the expected level of development and needs the
manager attention to be improved.

2 % of population in extreme poverty (up to $ 1.90 a day) 6% 2,9%

This indicator, which represents the portion of the municipal population that lives in conditions of extreme poverty, the municipality presents a reality quite different from the
previous one, it is quite far, considering the percentage references from that we found in the country, which raises the municipality to an excellent condition in this comparison.
3 Infant Mortality 14,90 9,36
Considering that the infant mortality reference needs to be evaluated the lower the better, at this point also the municipality is in excellent condition compared to the national
numbers.
4 Number of fatal accidents 23,00 7,60
Fatal victims in traffic always represent a significant loss and portray the conditions of roads, signaling, enforcement and traffic education. In this indicator, the municipality has
excellent numbers compared to the country, the indicator presented by the municipality is approximately 1/3 of what the country presents, which raises the municipality to a
prominent condition.
5 % of municipal budget invested in health 15% 17,4%
Investment indicators, in any area, are always a bottleneck for municipalities, managers always list priorities according to their beliefs, even if they often excite specific laws of
resource application. In addition, resource constraints are evident, although this context always presents itself with the health investment indicator in the municipality of Novo
Hamburgo proportionally higher than that invested by the central government, which raises the municipality to a position comfortable with Sustainable Development.
6 % of Investments in teacher training 0,075% 0,051%
The investment context characteristic of this indicator occurs in the same scenario of resource limits of indicator5, however, in this case, the municipality has a lower
performance proportionally than the country applies, which puts it in a condition of low development according to criteria established in the methodology.
7 % School Attendance Rate 96% 81,7%
The investment context characteristic of this indicator occurs in the same scenario of resource limits of indicator 5, however, in this case, the municipality has a lower
performance proportionally than the country applies, which puts it in a condition of medium development, according to the criteria established in the methodology.

8 % School-age children without access to education 9% 10,9%

The municipality's responsibility is also to keep school-age children in schools. The municipal indicator, compared to the national indicator, underperforms when compared
to the Development condition in this case, assessing that the margin is less than 10%, puts the municipality in a low condition.

9 Basic Education Development Index 5,50 5,60

This Index is calculated based on the students learning on Portuguese and Math (Brasil Test) and in the scholar approval index. The indicatorof learning varies from 0 to 10 and,
the higher, the better. It is important to highlight that a 10 would mean that every student obtained maximum expected performance.

10 % of budget invested in education 16,20% 16,8%

The investment context characteristic of this indicator is in the same scenario of resource limits of indicator 5, however, in this case, the municipality performs better
proportionally than the country applies, which puts it in an excellent condition of development, according to the criteria established in the methodology.

11 % of women in leadership position in municipal public agencies 29% 10,0%

The municipality of Novo Hamburgo has a low contribution in terms of valuing women by putting them in management positions, while nationally we have 29% of the
positions of female leaders, in the municipality we only have 10%.
12 12% of women in city council 14% 7,1%
The reality of indicator 12 is no different from indicator 11, that is, the representation of women in the city council is almosthalf of what we find in the average of city councils
in the country, leaving the municipality in a low condition of development.
13 Women's empowerment programs in the municipality 1,00 1,00
This indicator represents the municipality's concern and effectiveness in maintaining programs that contribute to gender equality and women's empowerment. It measures
whether the municipality maintains such programs, considering that the research has shown that the municipality is in excellent condition of development.

14 % Urban and rural population served by water supply 83,3% 83,6%

The municipal indicator that indicates the population served by water supply is practically equal to the national average, in this condition, the municipality has a high
development.
15 % Urban and rural population served by sewage collection 52% 6,9%
The population served by sewage collection in Novo Hamburgo is much lower than the national average, which leaves the municipality, in the evaluation of this indicator,
with a lowcontribution. At this point it is necessary that the municipality advances significantly to get close to the national average reality.
16 % treated sewage in relation to collected sewage volume 75% 100,0%
Even though the result of indicator 15 was of low contribution, this indicator (16), which considers the ratio of treated sewage volume in relation to the collected ones, that is,
a cut of the previous indicator, is excellent because all the collection that is made is being treated. Raising the threshold in this indicator of the municipality for an excellent
contribution to development.
17 % Utilization of treated water 63% 58,0%
By wasting water that has already been treated, the municipality has significant losses in all areas, whether economic, social or environmental. The indicator shows an average
development condition considering that the loss is higher than the countryaverage, however, it is very close, being 63% in the country and 58% in the municipality.
18 % population without access to energy 2,20% 0,4%
The municipality presents excellent level of development when evaluated the population that is served by energy.While the country has an average of 2.2% of people without
access to energy, the municipality has only 0.4%.
19 Municipal laws encouraging the implementation of renewable energy programs 1,00 1,00
Like the indicator 13, this indicator is represented by yes or no, in this case, the municipality has laws that encourage the deployment of renewable energy, which puts it in
excellent condition for development.
20 Entrepreneurship incentive projects and programs 1,00 1,00
Like the indicator 19 this indicator is represented by yes or no, in this case the municipality has programs that encourage entrepreneurship, which puts the municipality in
excellent condition of development.
21 Local tourism incentive projects and programs 1,00 1,00
Like the indicator 19, this indicator is represented by yes or no, in this case, the municipality has projects and programs to encourage tourism, which puts it in excellent condition
of development.
22 % of young people without jobs 21% 15,3%
The condition of the municipality in indicator 22, which deals with the percentage of young people without jobs, represents that it performs significantly better than the
national average in practically 6 percentage points, which makes the city in an excellent condition of Sustainable Development.
23 Industrialization Level (% Share of Industry in Municipality Added Value) 12% 21,0%
The level of industrialization, which is measured by the added value of industry to the municipality of Novo Hamburgo, puts it in excellent condition for sustainable
development, that is, while the country's average is 12%, the municipality has 21%.
24 Innovation and development support programs 1,00 1,00

This indicator also points to the existence or not of innovation programs that contribute to development. The municipality has this type of program, which puts it in an
excellent condition of Sustainable Development.
25 Income inequality ratio in the municipality 55% 53,8%

(continued)
 38 ASSESSMENT OF THE LEVEL OF SUSTAINABLE DEVELOPMENT BASED… 777

Table 38.3 (continued)

The income inequality ratio should always be downward, that is, the lower the percentage, the better the equality condition. In this indicator, the municipality of Novo
Hamburgo has a better condition than the country's average, thus placing it at an excellent level of development.
26 % Productive inclusion 100% 66,7%
This indicator, considering that it is at 66.7%, when the ideal should be 100%, leaves the municipality at a low level of development, as well as another, it points to an
imminent need for actions by the municipality to change this reality.
27 Safe housing levels (% of unsafe housing) 41% 31,1%
The indicator measures how many percent of the population lives in unsafe housing conditions. It is noticed that the municipality presents a better indicator than the national
average. While this is 41%,in the municipality we have 31.1%, which gives the municipality an excellent level of development.

28 % of population with access to public transport 65% 75,0%

Effective public transport improves environmental, economic and social conditions. Novo Hamburgo has an excellent performance in this indicator, reaching 75% of the people
served, while the national average is 65%.
29 % Recycled waste index 5% 100,0%
Of the recyclable waste, the indicator indicates that Novo Hamburgo presents an excellent performance condition, that is, all collected waste is sent to recycling. It is noteworthy
that the indicator points, as previously specified, to the ratio of collected waste that can be recycled (selective collection) and not the total waste.
30 Index % of population served at least once a week with waste collection 77% 80,0%
Currently, in Novo Hamburgo, the rate of population that is served by garbage collection reaches 80%, while the national average reaches 77%. Although the percentage
difference does not have a significant margin, it shows that the municipality has an excellent Sustainable Development condition.

31 Existence of contingency plans and natural disaster prevention 1,00 1,00

The existence or not of contingency plans for the prevention of natural disasters is an important condition for the effectivesecurity of the population. In this case, the
municipality has a structured plan.
32 Existence of sustainable purchasing program for the municipality 1,00 0,00
Sustainable purchasing contributes to the improvement of the municipality's economic conditions, but also to the universalization of opportunity for those who want to be a
municipality's supplier. The research pointed to the non-existence of a sustainable purchasing program, which places the municipality at a low level of development in this
indicator.
33 Waste reduction awareness and incentive programs 1,00 1,00
The Public Management keeps active a program to encourage awareness for waste reduction, giving the municipality an excellent condition for sustainable development.
34 % of waste recycled or reused 3% 5,0%
While indicator 29 showed the condition of waste collected and recycled in relation to those collected andpossible to be recycled, this indicator represents the percentage
amount of waste recycled or reused in relation to the totalwaste produced by the municipality, considering that Novo Hamburgo recycles more than the national average
(5% for the municipality and 3% nationally), places the municipality in excellent condition for development.

35 Municipal councils of environment 1,00 1,00

The existence of municipal development councils, in addition to complying with the law, points to a concern of the municipality with the environment. The survey found that
Novo Hamburgo maintains a board, which puts it at an excellent levelof development.
36 Support and incentive program for artisanal fishing 1,00 0,00
The lack of a support program for artisanal fishing points to a low contribution to Sustainable Development in this indicator.
37 % Properties registered and controlled in a rural environmental register 100% 100,0%
Registering rural properties in the Rural Environmental Registry shows a concern with environmental issues, in addition to complying with federal laws. In this indicator, when
reaching 100% of registered properties, the municipality fully meets and puts it in an excellent condition of development.

38 Homicides in the municipality 7

29,27 23,80
Although the municipality of Novo Hamburgo has common sense as a violent place, the indicator that compares the local numbersin relation to the national reality represents
that the municipality is below average, that is, in excellent condition ofdevelopment according to the criteria settled down.
39 Homicides against minors (under 19) 18,10 11,50
As in indicator 38, indicator 39 provides better results when compared to municipal and federal levels, that is, this point also has an excellent contribution to development.
40 % Representation of exports in municipal GDP 13% 5,5%
Finally, indicator 40, which represents the exploitation of the municipality in relation to GDP, indicates that the municipality has a low participation, that is, exportsless
than the national average and places the municipality in this indicator, with low level of development.

Source: Authors’ creation

Another group of seven indicators are poverty eradication; health and wel-
fare; qualified education; gender equality; drinking water and sanitation; reduc-
tion of inequality; and responsible consumption and production, although they
have a low level of development, the indicators, somehow, have a contribution
to sustainable development. These indicators require greater attention from the
public manager, because they point to a difficulty in properly managing public
resources and, consequently, fulfill the demands of the population. It is neces-
sary that the municipality, through its managers, thinks of viable alternatives in
order to transform this reality, it is necessary to debate, develop programs,
projects and actions, and allocate resources of all kinds to change this reality.
The total objectives and the contribution of each objective were
defined according to the following criteria: 1 (≥ 100%); 0.8 (> 90%; <100%);
0.5 (> 80%;<90%); and 0 (<80%). This analysis, with the attribution of weights
at each level, can point to a more objective path for the definition of strategies
and actions of the manager, considering that the worse the level and the
­contribution of the objective, the higher the priority of the actions.
778 A. ZENI ET AL.

From the point of view of the criteria proposed in the general framework,
they are classified as excellent, high, medium, and low level of sustainable
development. The analysis table does not change much compared to those
exposed in the previous analysis. We observed that 8 of the 17 objectives ana-
lyzed for the municipality reach the level of excellence in development, which
represents an index equal to or above 100% of the national reference. Another
8 objectives are classified as low contribution to the established development
goal, with an indicator below 80% of the national reference. This limit is the
minimum tolerable for the municipality to contribute to sustainable develop-
ment. Only one goal is at the high contribution level and none at the medium
contribution level. There is no doubt that the results reflect the reality of low
level of development and low contribution of the municipality analyzed.
As an analysis, considering that the context of sustainable development
needs to be assessed from all angles, it is necessary to have a vision not only of
the indicators and goals together or in isolation, but what they represent for
sustainable development. In this sense, assessing the contribution from the
perspective of the economic, social, and environmental area, which forms the
development tripod, is fundamental. Based on the concepts established above,
it was possible to identify which of the three areas most contribute to the
improvement of the index. We also identified whether there is no distortion in
the actions proposed by the public administration, as shown in Fig. 38.1.
The parameterization of the analysis is based on comparing the possible
sustainable development contributions that the municipality reaches in each of
the dimensions, represented by the blue columns, and what level the munici-
pality reaches, represented by the red columns, supported by a comparative line
of percentages.

18.00 17.00 80.00%

78.82%
16.00 78.00%

14.00 76.00%
12.38
72.36% 74.00%
12.00
72.00%
10.00 72.79%
70.00%
8.00 66.31% 6.48 68.00%
5.67
6.00 4.85 4.69 4.47 66.00%
4.00 3.22
64.00%
2.00 62.00%
0.00 60.00%
Environment Social Economic Total

Possible Contributions Contributions Contributions

Fig. 38.1 Participation of the indicators evaluated by the ESEN matrix. (Source:
Authors’ creation)
 38 ASSESSMENT OF THE LEVEL OF SUSTAINABLE DEVELOPMENT BASED… 779

As already mentioned, the total score reached 12.38 points out of 17 pos-
sible, representing 72.79%, less than the minimum established to consider that
the municipality has an acceptable level of sustainable development, established
as criteria for this tool. By stratifying these data from the perspective of the
three dimensions, it is clear that economic issues, with 4.47 points out of 5.67
possible points, contribute 78.82%, which means the best contribution among
the three points. Social issues, with 4.69 out of 6.48 possible points, represent
a contribution of 72.36%. While environmental issues, with 3.22 of the 4.85
possible points, representing a contribution of 66.31%, are the worst of the
three dimensions analyzed.
In the context of the data used to test the proposed model, it can be implied
that the municipality must pay special attention to the topic of sustainable
development. The UN cites that “The roadmap will also be a useful resource
for national public policymakers, international organizations, civil society orga-
nizations, universities and anyone involved in the implementation and moni-
toring of the SDGs” (UN 2015). At this point, the proposed tool proves to be
structured, applicable, and efficient since tested in different ways and angles; it
is always consistent with the results presented. It is worth noting that this is a
diagnostic tool, and according to Paredo and Chrisman (2004), theoretical
models that separate social, political, and environmental factors from the eco-
nomic dimensions of entrepreneurship may, in certain situations, not explain
failed experiences in development businesses among impoverished
populations.
This analysis brings, in the light of the theoretical and development context,
two essential responses to this research, and its contribution. The first is that
analyzing the set of results presented, it is possible to state that the municipality
of Novo Hamburgo has a low level of sustainable development. Although some
indicators show excellent conditions for development, the general context pre-
sented leaves the municipality in a situation of poor performance in terms of
sustainability. A second finding is the validation and application of the tool, where
it is possible for public managers, public policymakers, and resource allocators to
be able to make more certain decisions and improve the condition of citizens. As
a result of these actions, we can list the increased development and the preserva-
tion of the environment according to the precepts established by the UN.

Conclusion
The 2030 Agenda starts in its preamble, stating that: “This Agenda is a plan of
action for people, the planet and prosperity,” complementing further that every-
one should seek to strengthen universal peace with greater freedom, and the
eradication of poverty in all its forms and dimensions, including extreme poverty.
It was thinking in this context that the research was developed, what would
be the role of each pointed in this basic direction? This question can be
answered if we consider that the statement is broad and needs to be cut out.
The approach proposed by this research seeks to point to the role that munici-
palities have in this context.
780 A. ZENI ET AL.

With the objective of creating a simple application and easy understanding

tool to assess the level of sustainable development of municipalities based on
the UN Agenda 2030, it was possible to reach results that identified and
defined a set of indicators that form a tool to evaluate, quickly, the level of
sustainable development of municipalities in Brazil, as well as for the elabora-
tion of an index that points this development. The results described were
obtained from a sequence of studies that guided and substantiated the discus-
sions and served to apply and test the tool.
The new public administration current, in the public governance model, can
relate more clearly to a proposition of more structured tools that aim to increase
the efficiency and effectiveness of the application of public resources, such as
the tool proposed by this thesis. In addition, this current can provide a broader
view of natural resource issues and, from the evidence of the needs, raise the
level of sustainable development, a proposition given by this thesis and thus
placed as the focus.
In 2015, with the 2030 Agenda, a result of the Sustainable Development
Summit in New York, for the first time the UN makes clear what are the coun-
tries’ determinations and responsibilities. This report builds on more concep-
tual principles and findings for more accurate, structured reporting with
defined goals and actions. The subjects that were orientations became paths to
be followed and goals to be achieved.
It is necessary for municipal managers to change their view of development,
to work towards a significant increase in investments to overcome the existing
gaps in all areas, generating fair and decent work opportunities through entre-
preneurship, innovation, and industrialization without pollution, exports,
reduction in income inequalities and, consequently, the reduction in poverty
and extreme poverty. It also highlights the need to reduce pollution and conse-
quently reduce global warming levels, strengthen and support institutions in
relation to gender equality and women’s empowerment at the global, regional
and national levels. We must also invest in a way to avoid all forms of discrimina-
tion and violence against women, girls and children, accident deaths, murders,
political persecution, drugs, smuggling, and especially corruption. Only by act-
ing in this context the municipalities can contribute to the improvement in
people’s quality of life.
The perceptibly purposeful change of the UN creates conditions for coun-
tries, as well as states and municipalities, to understand their real role in sustain-
able development, but it is necessary to create clearer, more objective and more
focused instruments and tools, goals, and actions, and to create means of mea-
suring, comparing and evaluating for decision making; this is the only way to
adapt public policies to the demands of this development. It is exactly in this
context that the tool, based on the goals of Agenda 2030 and composed of
indicators that culminate in an index, was proposed and developed, not focusing
on the country, but on a cut of this general context that are the municipalities.
Municipalities, especially in Brazil, are dynamic organisms that constantly
change their directions, strategies, and public policies, most often driven by
different ideologies and constantly become the immediate results of their
 38 ASSESSMENT OF THE LEVEL OF SUSTAINABLE DEVELOPMENT BASED… 781

management. In general, we do not have major state policies, but government

policies, and as a consequence of constant changes that end up harming the
population. The idea of creating this tool, based on a UN guideline and
endorsed by the Brazilian state, should also contribute to a reduction in these
previously mentioned directions exchanges. Maintaining an internationally
endorsed sustainable development framework creates stability for citizens and
increases transparency and management efficiency.
By considering this context of dynamic organisms, we must not lose sight of
the fact that, although the proposition of the tool is closed, it must be con-
stantly evaluated over time, understanding the future realities of the munici-
palities and the directions that may come in possible changes set by the UN
itself. The tool proposed in this study cannot be considered definitive and
perennial, it must be dynamic and can be modified and expanded based on the
identification of national and international contexts. However, it must always
maintain the fundamental characteristics, such as comparability, comprehen-
siveness, easy application among others already explicit, which served as a basis
for its development.
The result of the analysis indicates that the municipality of Novo Hamburgo
still has a long way to go to be considered as a municipality that has an ade-
quate level of sustainable development and thus may come to contribute to the
global development context. Even though the result presented points to some
of the indicators and targets with satisfactory and excellent levels, many others
indicate that the municipality makes almost no contribution to sustainable
development. Municipal management should take a closer look at the 2030
Agenda, from which it emits a direction that can reduce social inequalities,
environmental risks, and economic paths that would put the municipality
higher than the current low sustainable development level.
Efforts need to be made to ensure more proportionate development, by
reducing differences and reducing inequalities through opportunities. The UN
claims that we are talking about the survival of future generations and perhaps
the survival of the humankind on Earth and points us a way, depending on
what we will do individually and collectively to succeed on this journey. Let us
begin then, by working on instruments such as this one proposed to ensure
sustainable development.
The proposed tool is an important tool for municipal governments, demon-
strating the lack of data and information, and pointing to available data sources,
which make it possible to compare municipalities with the development
achieved by the country. It is essential to reaffirm that building a tool that mea-
sures the development of a Brazilian municipality and comparing it to more
developed countries or locations worldwide could run into several factors that
would make comparability difficult in different environments, which would
make it challenging to validate. As an example, we can quote the legislation,
culture, investment capacity, natural conditions, and the stage of development
among, establishing a limitation of the tool presented in this study. In this
sense, the context that the tool was developed to compare the reality of munic-
ipalities with the Brazilian context is reinforced, which does not mean that it
cannot be adapted and used in other countries.
 Appendix
Table 38.4 Source of data and references used to research the indicators and to set the tool
Goal Source National source Year Municipal source

1—Poverty www.ibge.gov.br http://www.pedagogia.com.br/artigos/ 2010 https://cidades.ibge.gov.br/brasil/rs/novo-hamburgo/panorama

eradication IBGE, MDS 2010 sistema_nacional_ensino/index.php?pagina=1
2—Starve www.ibge.gov.br, www.ibge.gov.br 2016 https://an.novohamburgo.rs.gov.br/modules/noticias/
eradication and IBGE e portal article.php?storyid=60973&tit=Prefeitura-encaminha-acoes-
sustainable municipal para-erradicacao-da-pobreza-
agriculture
3—Health and IBGE www.ibge. https://cidades.ibge.gov.br/brasil/rs/ 2015 https://cidades.ibge.gov.br/brasil/rs/novo-hamburgo/
welfare gov.br novo-hamburgo/pesquisa/39/30279?tipo=r pesquisa/39/30279?tipo=ranking
anking
Agenda 2020 http://agenda2020.com.br/sinaleira/ 2016 http://agenda2020.com.br/sinaleira/novo-hamburgo/
novo-hamburgo/
Portal Governmental http://www2.planalto.gov.br/acompanhe- 2017 http://portal.camaranh.rs.gov.br/pm3/informacao_e_
federal e portal planalto/noticias/2017/01/ conhecimento/
municipal orcamento-de-2017-e-sancionado-com-mais- noticias/prefeitura-apresenta-orcamento-para-2018
recursos-para-saude-e-educacao
Capes, portal http://www.capes.gov.br/sala-de-imprensa/ 2017 http://novohamburgo.osbrasil.org.br/wp-content/uploads/
municipal noticias/8769-ministerio-da-educacao-vai- sites/72/
investir-r-1-bilhao-para-formacao-de- 2017/05/Novo_Hamburgo_RS_-07.2017_DE-OLHO-NO-PLANO-
professores-com-190-mil-vagas PLURIANUAL.pdf
4—Qualified IBGE http://www.brasil.gov.br/cidadania-e- 2012 https://cidades.ibge.gov.br/brasil/rs/novo-hamburgo/panorama
education justica/2012/09/criancas-beneficiarias-do-
bolsa-familia-tem-frequencia-escolar-maior-
que-85/tabela-de-frequencia-escolar/view
MEC http://portal.mec.gov.br/index. 2012 http://atlasbrasil.org.br/2013/pt/perfil_m/418#educacao
php?option=com_content&view=article&id=
12814&Itemid=872
IBGE https://www.qedu.org.br/brasil/ideb 2018 https://cidades.ibge.gov.br/brasil/rs/novo-hamburgo/panorama
Portal Governmental http://portal.mec.gov.br/index. 2017 http://portal.camaranh.rs.gov.br/pm3/informacao_e_
php?option=com_content&view=article&id= conhecimento/
12814&Itemid=872 noticias/aprovado-orcamento-de-r-1-3-bilhao-para-2018
Goal Source National source Year Municipal source

5—Gender Site Transparência https://biblioteca.ibge.gov.br/visualizacao/ 2017 0

equality PM livros/liv101551_informativo.pdf
Acesso a http://g1.globo.com/politica/ 2016 https://www.eleicoes2016.com.br/candidatos-vereador-
informações PM eleicoes/2016/blog/eleicao-2016-em- novo-hamburgo-rs/2/
numeros/post/proporcao-de-vereadoras-
eleitas-se-mantem-apos-quatro-anos.html
MDS http://www.brasil.gov.br/cidadania-e- 2018 www.novohamburgo.rs.gov.br/noticia/
justica/2016/03/ viva-mulher-saiba-centro-referencia
programas-sociais-fortalecem-o-
empoderamento-das-mulheres
6—Drinking http://app.cidades. Diagnostico dos serviços de água e esgotos – 2016 http://www.prosinos.rs.gov.br/downloads/NOVO%20
water and gov.br/ 2016 (ministério das cidades) HAMBURGO_PMSB_rev_0_pdf.pdf
sanitation serieHistorica/#
http://app.cidades. Diagnostico dos serviços de água e esgotos – 2016 http://www.prosinos.rs.gov.br/downloads/NOVO%20
gov.br/ 2016 (ministério das cidades) HAMBURGO_PMSB_rev_0_pdf.pdf
serieHistorica/#
SNIS Diagnostico dos serviços de água e esgotos – 2016 http://agenda2020.com.br/sinaleira/novo-hamburgo/
2016 (ministério das cidades)
Agenda 2020 http://agenda2020.com.br/sinaleira/ 2016 http://www.prosinos.rs.gov.br/downloads/NOVO%20
novo-hamburgo/ HAMBURGO_PMSB_rev_0_pdf.pdf
7—Clean and Brasil.gov.br http://www.brasil.gov.br/noticias/ 2010 http://www.pgiods.ibge.gov.br/index.html?mapid=128
affordable infraestrutura/2011/11/
energy energia-eletrica-chega-a-97-8-dos-domicilios-
brasileiros-mostra-censo-demografico
IBGE, MME http://www.mme.gov.br/web/guest/ 2018 https://novohamburgo.atende.net/?pg=transparencia#!/
acesso-a-informacao/acoes-e-programas/ grupo/13/item/1/tipo/1
programas/proinfa/o-programa/energias-
renovaveishttp://www.mme.gov.br/web/
guest/acesso-a-informacao/acoes-e-
programas/programas/proinfa/o-programa/
energias-renovaveis

(continued)
Table 38.4 (continued)

Goal Source National source Year Municipal source

8—Decent Projetos e leis https://eusouempreendedor.com/ 2018 https://leismunicipais.com.br/prefeitura/rs/novo-hamburgo?q=em

work and municipais, PM programas-de-incentivo-ao- preendedorismo+e+inova%C3%A7%C3%A3o
economic empreendedorismo/
development IBGE http://investimento.turismo.gov.br/ 2018 https://novohamburgo.atende.net/?pg=transparencia#!/grupo/6/
conheca-a-identidade-digital-do-governo. item/10/tipo/1
html
MDS https://www.ibge.gov.br/estatisticas- 2016 https://www.ibge.gov.br/estatisticas-novoportal/sociais/
novoportal/sociais/trabalho/9180-pesquisa- trabalho/9180-pesquisa-mensal-de-emprego.
mensal-de-emprego. html?=&t=resultadosForam utilizados dados das regiões
html?=&t=resultadosForam utilizados dados metropolitanas
das regiões metropolitanas
9—Industry, DEPECON, FIESP DEPECON, FIESP CIESP, 2015. panorama 2015 http://datasebrae.com.br/municipios/rs/Perfil_Cidades_Gauchas-
innovation and CIESP, 2015. da indústria 14ª edição, 2015 Novo_Hamburgo.pdf
structure Sebrae-RS
MDIC, SEBRAE, https://www.bndes.gov.br/wps/portal/site/ 2018 https://www.jornalnh.com.br/_conteudo/2018/02/noticias/
IBGE home/onde-atuamos/inovacao/ regiao/2236297-centro-de-inovacao-de-novo-hamburgo-e-
inovacao/!ut/p/z1/04_iUlDg4tKPAFJABpS detalhado-pela-prefeitura.html
A0fpReYllmemJJZn5eYk5-
hH6kVFm8T6W3q4eJv4GPv4-7uYGjj7u_
p7BwQEGJk5m-
l5gjQj9IBPw64iA6oAqh1P6kUZFvs6-
6fpRBYklGbqZeWn5-hGZefllicmJ-
foF2VGRAMw9nB8!/
10—Reduction IBGE https://cidades.ibge.gov.br/brasil/rs/ 2018 http://atlasbrasil.org.br/2013/pt/perfil_m/418#rendahttp://
of inequality novo-hamburgo/panorama tabnet.datasus.gov.br/cgi/ibge/censo/cnv/ginibr.def
MDS https://cidades.ibge.gov.br/brasil/rs/ 2014 https://cidades.ibge.gov.br/brasil/rs/novo-hamburgo/
novo-hamburgo/pesquisa/10084/71890 pesquisa/10084/71890
Goal Source National source Year Municipal source

11—Sustainable IBGE https://indicadoresods.ibge.gov.br/ 2010 https://indicadoresods.ibge.gov.br/objetivo11/indicador1111

cities and objetivo11/indicador1111
communities Ministério das http://www.ipea.gov.br/portal/index. 2011 http://www.ipea.gov.br/portal/index.php?option=com_content&vi
Cidades php?option=com_content&view=article ew=article&id=12932
&id=12932
SNIS https://www.mprs.mp.br/media/areas/ 2016 www.snis.gov.br/ - SNIS - http://app3.cidades.gov.br/
ressanear/arquivos/diagnostico_rs_2014_ serieHistorica/#
snis.pdf
SNIS http://www.deepask.com/ 2016 SNIS - www.snis.gov.br/ - http://app3.cidades.gov.br/
goes?page=Veja-ranking-de-estados-pela- serieHistorica/#
populacao-atendida-com-coleta-de-lixo-
domiciliar-no-Brasil
Secretaria Nacional http://www.integracao.gov.br/ 2017 https://www.novohamburgo.rs.gov.br/noticia/defesa-civil-
de Proteção e Defesa documents/3958478/0/II+- apresenta-plano-contingenciahttp://www.pgiods.ibge.gov.br/index.
civil – +Plano+de+Contingencia+-+Livro+Base. html?mapid=128 https://cidades.ibge.gov.br/brasil/rs/novo-
pdf/8bb53620-a1b4-4f3b-ad2d- hamburgo/pesquisa/1/74454
29bfaac55258
12— MMA http://www.mma.gov.br/estruturas/a3p/_ 2017 https://novohamburgo.atende.net/?pg=transparencia#!/
Responsible arquivos/guia_compras_sustentaveis.pdf grupo/13/item/1/tipo/1
consumption MDS http://www.mma.gov.br/ 2010 http://www.prosinos.rs.gov.br/downloads/plano_gestao_residuos_
and production pol%C3%ADtica-de-res%C3%ADduos- solidos_novo_hamburgo_02082012.pdfhttps://novohamburgo.
s%C3%B3lidos atende.net/?pg=transparencia#!/grupo/13/item/1/tipo/1
M. das cidades https://www.cidades.gov.br/ 2018 https://www.cidades.gov.br/desenvolvimento-urbano/
desenvolvimento-urbano/ observatorio-do-desenvolvimento-regional
observatorio-do-desenvolvimento-regional
13—Action Ministério MA http://redd.mma.gov.br/pt/camaras- Existe http://www.pgiods.ibge.gov.br/index.html?mapid=128
against global consultivas-tematicas/pacto conselhos e
climate change leis
14—Water life MDIC, M. da http://www.camara.gov.br/ 2018 https://novohamburgo.atende.net/?pg=transparencia#!/
agricultura, pecuária proposicoesWeb/prop_mostrarintegra?codteo grupo/13/item/1/tipo/1
e abastecimento r=860451&filename=PL+1102/2011

(continued)
Table 38.4 (continued)

Goal Source National source Year Municipal source

15—Terrestrial http://www.mda. http://www.mda.gov.br/sitemda/pagina/ 2.018 http://www.florestal.gov.br/documentos/car/boletim-do-

life gov.br car; Secretaria especial de agricultura familiar car/3913-boletim-sicar-set-2018/file
e desenvolvimento agrário; Prefeitura
municipal; https://www.socioambiental.org/
pt-br/noticias-socioambientais/
governo-divulga-quase-todos-os-dados-do-
cadastro-ambiental-rural
16—Peace, Mapa da violência http://www.ssp.rs.gov.br/ 2017 http://agenda2020.com.br/sinaleira/novo-hamburgo/
justice and no brasil indicadores-criminais
effective http://www. https://igarape.org.br/wp-content/ 2014 https://igarape.org.br/wp-content/
institutions mapadaviolencia. uploads/2017/12/2017-12-04-Homicide- uploads/2017/12/2017-12-04-Homicide-Dispatch_4_PT.pdf
org.br/ Dispatch_4_PT.pdf
17— MDIC, Comex http://www.mdic.gov.br/comercio-exterior/ 2018 http://www.mdic.gov.br/comercio-exterior/estatisticas-de-
Partnerships estatisticas-de-comercio-exterior/comex-vis/ comercio-exterior/comex-vis/frame-municipio?municipio=4313409;
and means of frame-municipio?municipio=4313409; http://www.mdic.gov.br/comercio-exterior/estatisticas-de-
implementation http://www.mdic.gov.br/comercio-exterior/ comercio-exterior/comex-vis/frame-brasil
estatisticas-de-comercio-exterior/comex-vis/
frame-brasil

Source: Authors’ creation

 38 ASSESSMENT OF THE LEVEL OF SUSTAINABLE DEVELOPMENT BASED… 787

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 CHAPTER 39

Advancing the Inclusive Agenda for People

of Determination in the UAE Through
Sustainable Innovations

Racquel Warner and Immanuel Azaad Moonesar

Introduction
This investigation of the increasing public and governmental discourse around
inclusion in the United Arab Emirates reveals the profound transformation in
the social and economic perceptions about disability. The accelerated leverag-
ing of technology and appropriation of resources to remove barriers in the
UAE society that once caused exclusion of a particular group of people is an
example of what future responses around the world should look like. The gov-
ernment has taken the lead in shifting the discourse around people of determi-
nation from being a burden on society to becoming a social and economic
asset. This paradigm shift has now resulted in the UAE becoming active par-
ticipants in the global disability market which comprises of an estimated 1.27
billion consumers, and equating to nearly one in five people worldwide. This
trend is expected to continue into the future as the inclusive agenda of the
UAE gains more traction and more people of determination are brought into
the wider economy. Added to this consumer demography are relatives and
friends with an associated attachment to the consumer-related needs of persons
with disabilities. The total global disability market is approximated at over $8
trillion (Return on Disability Group 2016).

R. Warner (*) • I. A. Moonesar

Mohammed Bin Rashid School of Government, Dubai, United Arab Emirates
e-mail: [email protected]; [email protected]

© The Author(s) 2021 789

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_39
790 R. WARNER AND I. A. MOONESAR

People of Determination
The UAE refers to the people with special needs or disabilities as “people of
determination” in recognition of their achievements in different fields. They
are protected and empowered through services and facilities in the areas of
education, health, jobs and other ventures (UAE Government 2020; Camulli
and Xie 2019). Under the National Policy for Empowering People, a person
with special needs is regarded as someone suffering from a temporary or per-
manent, full or partial deficiency or infirmity in his physical, sensory, mental,
communication, educational or psychological abilities to an extent that limits
his possibility of performing the ordinary requirements as people without spe-
cial needs (UAE Government 2020). The UAE Cabinet approved a People of
Determination Protection from Abuse Policy which aims to protect the people
with special needs from abuse while empowering them (UAE Cabinet 2020.
The government condemns all forms of abuse and neglect of people of deter-
mination. Abuse and neglects involve depriving people of determination of
their basic right to care, rehabilitation, medical care, recreation or community
integration. It also condemns using such people to get material profits (UAE
Cabinet 2020). The People of Determination Retreat was held in March 2019
(UAE Government 2020), as part of the nationwide efforts to mobilize
resources in an innovative way through the use of technology in support of the
people of determination. Several Sheikhs, ministers, national figures, people of
determination and social specialists participated in the retreat sessions where 31
initiatives and programs were approved to support the future of this segment
of society and ensure their integration across various sectors. The retreat out-
lined eight tenets to empower people of determination and facilitate their
needs at all levels. They are sports, quality of life, education and labor, interna-
tional representation, health, media, service and culture (UAE
Government 2020).

UAE Innovation Context for Inclusion

The year 2015 was designated as the year of innovation in the United Arab
Emirates (UAE). There were many successful inclusion awareness raising pro-
grams, workshops, seminars, conferences, forums and debates that were con-
vened to explore innovative ways that the inclusive agenda could be incorporated
across UAE society. Researchers and scholars have defined innovation as the
general process of creating something different which occurs with the conver-
sion of existing knowledge and ideas into a new benefit, such as new or
improved process or services (Edvinsson et al. 2004; McNabb 2006; Mulgan
et al. 2007). The sudden interest and drive for innovation became one of the
many vital dimensions within the UAE in improving government systems for
all residents due to increasing affluence and expectations. This new nationwide
direction created opportunities for showcasing and utilizing technology
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 791

efficiently and effectively (Moonesar et al. 2019). As innovation in government

services increased, the inclusive agenda for the UAE was advanced.
Over the years, there have been shifts in innovation. Researchers have clas-
sified such paradigm shifts according to six themes (Chesbrough and
Vanhaverbeke 2006; Moonesar et al. 2019).

1. Push to Pull: In the context of the innovation era, there has been a shift
from pushing systems, products, services and structures to pulling in
resources and demand. Such mechanisms impact differently on public sup-
port systems by providing new insights, ideas and creating mixed policy
debates for future changes in policy strategies (Costantini et al. 2015).
2. Consume to Create: Such a theme in the context of the innovation moves
from inactively consuming to actively contributing and creating where the
experience is the move of a participatory nature and co-production.
Researchers have highlighted that service and consumption times have
merged to such an extent that we even consumed and invested with our
work; it was, therefore, possible to create a place that in turn creates value
through the offering of innovation experience (Celaschi 2015; Hohberger
et al. 2015). This paradigm shift raises ideas of inclusive co-production and
co-creation among the customers and public, without regard for
social barriers.
3. Assets to Access: This ideology entails to shift from obtaining and hoarding
knowledge to disseminating and sharing the wealth of knowledge such as
big data and open data. Individuals in contemporary times are self-­organized
in open, voluntary technology-enabled collectives to share their enhance-
ments to the data or collaborate on analyzing, disseminating or leveraging
the data for many applications, from enterprise computing to mobile,
consumer-­oriented applications (Brunswicker et al. 2015). In recent times,
“big data” is an increasingly important “engine” to better understand the
complex “nervous system” of open collaboration.
4. Linear to Complex: This is a shift from the “normal” way of doing things in
the workplace such as independent and predictable systems and processes to
one that fosters interdependency and adaptive systems and processes.
Usually, systems are said to be linear within a governmental department or
organization; for instance, when it comes to innovation, such governments
are integrating the systems with other departments when information feeds
into another system and thus creating a more complex and robust public
sector system. Bleda (2014) highlighted that in the past decades, supported
by considerable theoretical and evidence-based empirical analysis, the con-
cept of innovation has progressed dramatically. From being defined as a
sequential linear process of generation and diffusion of novelty, to a more
contemporary view of innovation as a complex distributed process shaped
by the interactions among multiple agents with distinctive features, incen-
tives and goals. The notion here goes back to the thinking of changing our
792 R. WARNER AND I. A. MOONESAR

strategy away from “planning” to more of a “preparing and enacting” cul-

ture when it comes to innovation.
5. Scarcity to Abundance: As economists and market analysts have been fore-
casting the future of the world, they have normally reported on the deple-
tion of the world’s natural resources. The shift in this theme is to move away
from the scarce natural resources to newer and natural abundance of
resources (eCunha et al. 2014; Kumar 2015) such as renewable resources,
labor and good will.
6. Universal to Unique: This is a final shift from mass production to more
tailored and individualized artifacts. For instance, in the healthcare field,
advances in the individualized medicines were tailored to the genetic DNA
of patients. Such a theme shift associates and aligns with the notion of
“responsible innovation” (Davies and Horst 2015), which is currently being
imagined in policy and governance practice.

Given the above elements of innovative intervention in the public and pri-
vate sector, the UAE has sought to remove barriers to including people of
determination through changing the way individuals with disability are referred
to from disabled to the “people of determination.” An objective enumeration
and analysis of the issue of inclusion in the public discourse reveals the areas of
inclusion which have gained traction in the narrative of the UAE. This analysis
identifies where there are still gaps that need to be addressed in the future in
order to achieve the complete transformation to a disability-friendly country.
As the UAE embraces futuristic ambitions, this chapter aims to position the
issue of inclusion in the overall strategic vision for Dubai and the UAE.

Objectives

1. To understand the profound innovative transformations that have taken

place in Dubai/UAE in response to a global inclusion agenda.
2. To make a comparison of how the laws, policies and initiatives regarding the
inclusion address the themes of education, health, equal opportunity, acces-
sibility and advocacy.
3. To predict how Dubai/UAE will adapt to accelerated global changes related
to innovative inclusion.

The significance of this chapter emanates from the fact that the UAE has
demonstrated an active pursuit of inclusion, and by collating the instances in
official documentation where the issue is being addressed across multiple enti-
ties in the country, stakeholders will be able to improve the existing provisions
for people of determination or commence initiatives to activate areas that are
still lacking.
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 793

Literature Review
Globally various groups of people face barriers that exclude them from partici-
pating fully in the society. This exclusion occurs because of stigmas, supersti-
tion or stereotypes about gender, religion, disability, race, ethnicity and sexual
orientation. People who are excluded become marginalized and are often
unable to access opportunities in order to lead a normal life. Kabeer (2000)
describes a continuum of disadvantage that ranges from economic to cultural
marginalization. Morally, this is unacceptable and the United Nations has
become a champion in pushing the boundaries of inclusion to ensure that
those on the fringes of society are brought into the mainstream. The United
Nations and the World Bank encourage all countries around the world to pro-
mote inclusive policies in order to end poverty and achieve the Sustainable
Development Goals. One indicator of the extent to which countries are advanc-
ing toward more inclusion is the increase of the narrative of inclusion in the
laws, policies, scholarly research and in the media. This is an interesting metric
when juxtaposed with the fact that exclusion is not usually covered in the
national narrative in the countries where the practices are perpetuated, and the
upsurge of coverage and interest about inclusion is a marker of a priori assump-
tion of exclusion.

Social Exclusion
From the 1990s the discourse around social issues of poverty, justice and
inequality and the narrative expanded to include the term “social exclusion” as
a way of expanding the definition of social injustice that was being perpetuated
upon many stigmatized and marginalized groups of the population. The multi-­
dimensional construct of social exclusion is not as static as poverty or inequal-
ity. Consequently, policy makers have been challenged to address this issue in
all its forms. Existing institutional mechanisms for distribution of resources
continue to deprive groups of people because of disability, gender, race, ethnic-
ity, religion or sexual orientation, and despite the strides being made, the pat-
tern of deprivation goes unabated in many countries (Kabeer 2000)

Economic Exclusion
According to Greene, et al., “economic exclusion is a multidimensional process
in which particular groups are prevented from participating fully and equally in
the economic life of their city or metropolitan area” (2016). Economic exclu-
sion can be perpetuated by both the private and public sectors over a pro-
longed time and this adversely affects the victims’ educational prospects,
employment, health and wellbeing. Historically, economic exclusion has
occurred more widely based on the demographic features of communities. In
many contexts, low-income, colored or migrant neighborhoods usually do not
have access to the same economic resources as high-income, white
794 R. WARNER AND I. A. MOONESAR

neighborhoods. In the workplace people with disability and women usually

experience more economic exclusion. There are many groups who find them-
selves at the intersection of two or more characteristics that result in their eco-
nomic exclusion such as a disabled woman or a migrant man. Fraser (1997)
refers to this as “bivalent collectivities” which compound the issue of economic
exclusion.
Extant research has helped our society to better understand the economic
impact of exclusion and how important it is to intentionally address this blot
on societies (Piketty 2014; Chetty and Hendren 2015). In a systematic review
of the economic cost of exclusion, Morgon Banks and Polack concluded that
exclusion from education, health and employment made populations vulnera-
ble to poverty. However, promoting inclusion could reverse this outcome.
According to Awan et al. (2012) Pakistan gained US$71.8 million per year by
rehabilitating blind people and including them in the workforce. Many country-­
level studies have quantified the impact of earnings due to exclusion or inclu-
sion of people with disability from work. Lund et al. (2013) report that in
South Africa, severe depression and anxiety disorder amount to a loss of US$3.6
billion per year. Trying to quantify the actual cost of exclusion has been elusive
but in 1995 the UNDP calculated the cost of unpaid productive work in low-/
middle-income countries (LMCIs) at US$439 trillion. In 2008 the World
Bank calculated the macroeconomic cost of reduced labor productivity of peo-
ple with disability in LMCIs at US$473.9–976.2 billion per year (World Bank
2008). These studies indicate among other things that the economic cost of
exclusion is tangible and action should be taken to reverse this economic drain
in the future.

Toward Inclusion
The intersectional nature of exclusion makes it difficult to equate it to the
binary opposite of inclusion. In fact, this would be a reductionist approach to
addressing the ills of exclusion. However, many countries in response to the
United Nations’ SDG goals, have embarked upon national agendas that out-
line inclusive growth, which aims to redistribute resources for the inclusion of
people and groups that were once excluded. Policies and laws are being
reviewed to remove institutional exclusion and promote more social cohesion
across a diverse demographic landscape. The movement toward inclusive edu-
cation was validated internationally by the Salamanca Statement (UNESCO
1994) and reflects the United Nations’ global strategy of Education for All
(Evans and Lunt 2002).
In the United Arab Emirates, the Dubai government has responded with
enthusiasm to making the city a more inclusive place for all. Federal Law No.
29 of 2006 was a pivotal law in the UAE to protect the rights of people of
determination. Article 12 of the law articulates that the country guarantees
people with special needs equal opportunities in education within all
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 795

educational, vocational training, adult education and continuing education

institutions in regular classes or special classes with the availability of curricu-
lum in sign language or Braille and or any other methods as appropriate. The
law further provides for equal care, rights and opportunities for people with
special needs in health care, training and rehabilitation, and aims to ensure
their rights and provide all services within the limits of their abilities and capa-
bilities. Prior to 2006 the only provision in the law for people of determination
was Federal Law No. 2 of 2001 which made provision for monthly assistance
to people of determination under the social welfare clause. Table 39.1 sum-
marizes the various laws and policies that were activated and suggests the areas
of inclusion that are addressed therein. There is a noticeable absence of any
discourse on advocacy by people of determination and the advancement of
issues related to inclusion are mainly found within the government.

Table 39.1 Summary of main laws and policies which enable an inclusive
agenda in UAE
Law (name, number summary) Policies (descriptors and targets) Area of noticeable
impact

• Law No. (2) of 2014 – The National Policy for Empowering Education
Concerning Protection of the People with Special Needs is based Health
Rights of Persons with on the improvement of living Accessibility
Disabilities in the Emirate of conditions of the people of Equal opportunity
Dubai. This law supports the determination on the six main
UAE Disability Act 2006. aspects.
• Cabinet Resolution No. (7) of 1. Health and rehabilitation
2010 Concerning Non-­ 2. Education
governmental Organizations 3. Vocational rehabilitation and
Providing Care and Habilitation employment
to Persons with Disabilities. 4. Mobility
• Federal decree No. 116 of 5. Social protection and family
2009—Ratification of empowerment
Comprehensive and Integral 6. Public Life, culture and sports
International Convention on Ratifying the Comprehensive and
Protection and Promotion of the Integral International Convention
Rights and Dignity of Persons on Protection and Promotion of the
with Disabilities. Rights and Dignity of Persons with
• Law No. (12) of 2008— Disabilities.
Establishing the Community This law benefits UAE disabled
Development Authority in Dubai nationals with assistances and rights
and its amendments. to equal privilege to work in
• Federal law No. 29 of 2006— governmental organizations, to have
Concerning the rights of Persons distinctive infrastructure, healthcare,
with Disabilities and its education and transportation service
amendments. facilities at public places in present
and future developments in the
country.

Source: Authors’ creation

796 R. WARNER AND I. A. MOONESAR

Sectoral Approach to Inclusion

Inclusive Education
It is noteworthy that Federal Law No. 29 of 2006 explicitly identifies educa-
tion as a key pillar for inclusion and inclusive growth. Bakhshi et al. (2013) and
Hanushek and Wößmann (2007) agree that there is a positive relationship
between education, future job opportunities and improved standard of living.
Investments in education enable economic growth on a national level. Allen
(2000) posits that schools are important drivers for establishing social capital
that can lead to employment opportunities and entrepreneurship. Figure 39.1
shows how education as a pathway to inclusion can generate earnings and
increase labor productivity (Morgon Banks and Polack 2014)
At the state level the aforementioned law was activated in 2008 in Abu
Dhabi under the patronage and support of HH Sheikha Fatima Bint Mubarak.
She launched an initiative with the slogan “our life is in our integration”. This
national project for inclusion aimed at complete integration of members of the
society who were people of determination at the social, educational, health and
environmental levels. Through this program necessary provisions were made in
the educational systems to facilitate the inclusion of people of determination
through practical access and required professional faculty who could support
the development of these students. By the 2015 academic year 156 public

Fig. 39.1 Role of inclusive education as a pathway for economic growth. (Source:
Morgon Banks and Polack 2014)
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 797

schools across the UAE had implemented the national project for inclusion
(UAE Cabinet 2019).
Additionally, the UAE has made big efforts to include people of determina-
tion in the mainstream educational settings (UAE Government 2020). The
Ministry of Education provides expert teachers who specialize in dealing with
children of determination. In 2008, the Ministry of Community Development
launched an initiative to integrate people of determination in the government
education system. The initiative which was launched under the slogan “School
of All” and adopted by the Ministry of Education was a major step toward the
social integration of the disabled and their involvement in the development
process. Dozens of disabled people continue their education, many of whom
have since graduated from higher education and some received their PhDs
(UAE Government 2020). The National Project for Inclusion of People with
Special Needs, which was launched in 2008 under the slogan “Our Life is in
Our Integration” (UAE Government 2020), emphasizes providing the neces-
sary environment and facilities for people of determination in order to facilitate
their practical access to the educational system.
In 2013 Dubai announced an inclusion initiative called “My Community…A
city for everyone” under the leadership of HH Sheikh Hamdan bin Mohammed
bin Rashid Al Maktoum. This initiative is part of a wider strategic plan, called
Dubai Disability Strategy 2020, which, in addition to education, incorporates
health and rehabilitation, employment, universal accessibility and social protec-
tion with the aim of making Dubai a fully inclusive city by 2020. To support
this vision of a fully inclusive city the Knowledge and Human Development
Authority (KHDA) launched the Dubai Inclusive Education Policy framework.
It sets out standards that ensure provision of quality inclusive services for stu-
dents with special needs. The framework also seeks to empower educational
stakeholders to closely monitor progress and compliance of inclusive stan-
dard (KHDA 2019).
By articulating a clear inclusive education agenda, the UAE is demonstrat-
ing a shift to a human rights–based approach, in which the social and physical
environment and the pedagogical approaches school are being adapted to meet
the educational needs of students of determination. This is a shift from the
charity perception about disability. Inclusive education equips students of
determination with better life outcomes through improved skills, employment
opportunities and better life chances.

Inclusive Healthcare
In the twenty-first century many countries are grappling with a demographic
shift because of the increasing diversity of the population and because more
previously excluded members of society are now being brought into the main-
stream. This is an immense growth opportunity for sectors like healthcare, but
it is also a challenge for them to ensure that the processes and care offered are
individualized or personalized to meet the varied needs of this diverse
798 R. WARNER AND I. A. MOONESAR

demographic group. An article in the Forbes magazine actually suggests that

inclusion and individuality are a new business competency which is central in
any transformational strategy (Llopis 2018). Other studies at the Johns
Hopkins University have shown that understanding the complexities of diver-
sity, inclusion and cultural competency are important in delivering high-quality
patient care (Institute for Alternative Futures 2014).
The specialized healthcare needs of people with disability are as varied as the
disabilities they present. Some healthcare needs associated with disability
require extensive treatment, and others do not. However, all people with dis-
abilities have the same general healthcare needs as everyone else, and therefore
need access to mainstream healthcare services (WHO 2018). Article 25 of the
UN Convention on the Rights of Persons with Disabilities (CRPD) reinforces
the right of persons with disabilities to attain the highest standard of health-
care, without discrimination. Unfortunately, however, many healthcare systems
around the world have not yet adequately responded to the burden of treating
people with disability, especially mental disability. Consequently, the gap
between the need for treatment and its provision is wide all over the world.
According to a WHO report (2018), “in low- and middle-income countries,
between 76% and 85% of people with mental disorders receive no treatment for
their disorder. In high-income countries, between 35% and 50% of people with
mental disorders are in the same situation” (WHO 2018).
The National Policy for Empowering People with Disabilities in the UAE
has a focal point of healthcare and rehabilitation. This has been operationalized
by an extensive program of healthcare and diagnosis for people of determina-
tion through proper recordkeeping of all the people of determination living
across the UAE and also training healthcare staff across all clinics and hospitals
to support people with special needs. Healthcare laws and policies have also
been passed. One example is found at the Dubai Health Authority (DHA) and
it states that “people of determination are entitled to free, comprehensive
healthcare coverage. The services offered for free include early screening for
autism, early childhood interventions, physiotherapy, speech and language
therapy, rehabilitation programs, and specialized intervention options”
(AlMarzooqi et al. 2020; Al Suwaidi et al. 2019).
To specifically address mental healthcare gap in the UAE, a new mental
health strategy was announced in 2019 by the DHA with nine new initiatives:
legislation, governance and regulation, promotion and awareness, prevention,
early intervention, innovative service delivery, workforce development in
recruitment and retention, facilities and patient empowerment. Humaid Al
Qutami, director-general of Dubai Health Authority, said: “The strategy dem-
onstrates the commitment of the DHA to build a world-class health care sys-
tem to meet the needs of its residents. It clearly reflects the DHA’s vision
towards a healthier and happier community. It also reflects the greater Dubai
2021 vision for the city of Dubai to be a smart and sustainable city, with people
who are happy, creative and empowered, a society that is inclusive and cohe-
sive, and to be the preferred place to live, work and visit” (GulfNews 2019a).
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 799

Additionally, the Ministry of Health and Prevention (MoHAP) issues an elec-

tronic medical card to people of determination entitling its holder to receive
free medical services through MoHAP. Similarly, the Ministry of Community
Development (MoCD) also offers a card entitling people of determination to
free health insurance and medical glasses for children of such cardholders (UAE
Government 2020).

Equal Opportunity
In the UAE generally, employment legislation provides for positive discrimina-
tion in favor of UAE nationals as a way of ensuring a low unemployment rate
among Emirati population. However, on 15 July 2015 Law No. 2 of 2015
against Discrimination and Hatred (the Law) was issued to introduce federal
legislation which specifically prohibits all forms of discrimination on the basis
of religion, belief, sect, faith, creed, race, color or ethnic origin (each being a
“Protected Characteristic”). In regard to gender, the UAE leads the region in
terms of the number of women in ministerial positions, with improvements
recorded in gender parity in the legislators, senior officials and managers and
healthy life expectancy indicators. The UAE ranked 121st out of 149 countries
globally with a score of 64.2% in the gender gap index measured by the World
Economic Forum (WEF 2018)
When examining the inclusion policy in the workforce, the UAE Labor Law
forbids any kind of discrimination. People of determination have the right to
hold jobs under public office Federal Law No. 29 of 2006 Concerning the
Rights of People with Special Needs and Dubai Government Law No. 2 of
2014. However, in the private sector the only law employers must adhere to is
the Emiratization quota.
To facilitate the training for workplace inclusion the “Tamkeen” initiative
was introduced to provide people of determination with the theoretical and
practical knowledge needed to succeed in the organizational context and an
ongoing professional development. The initiative also assists organizations and
entities prepare a suitable environment that can help people with determina-
tion progress in their careers. Through the “Tamkeen” initiative organizations
have been assisted in engaging directly and in a mutually beneficial manner
with people of determination (Tamkeen 2018).
With regard to employment, “El Kayt” initiative was launched by Community
Development Authority (CDA) to integrate people of determination in the
community effectively and to give them the opportunity to effectively contrib-
ute to the society. Also, it prepares them to obtain jobs that match their aca-
demic qualifications and physical capabilities in both the private and government
sectors through training. Moreover, the authority launched the “Sanad Smart
Card,” a free-of-charge privilege card dedicated to people of determination.
The card gives access to various services by more than 70 government and non-­
government entities. Among the offers are discounts, free access to events,
800 R. WARNER AND I. A. MOONESAR

ability to finalize government transactions in car and/or over the phone and/
or at home (Community Development Authority 2019).

Universal Accessibility
The National Policy for Empowering People with Disabilities stipulates acces-
sibility as one of its pillars. The objective of this stipulation is to provide acces-
sibility to every disabled individual around the UAE, by building disabled-friendly
buildings, making public places and transportation easily accessible and provid-
ing disabled-friendly customer service agents in all public places, to communi-
cate with the people of determination.
The Road and Transportation Authority (RTA) has responded positively to
this policy and implemented many changes to increase accessibility. According
to the RTA, tactile floor plans have been installed at all metro stations to aid
visually impaired persons (Roads and Transport Authority, 2019). RTA also
introduced vans that can lift people with wheelchairs safely and comfortably to
drop them off at their destinations. Similarly, the Dubai Metro and its stations
have been specially designed to allow people of determination to move around
and enjoy safe rides on a daily basis. People of determination are exempt from
paying the Salik toll charges and vehicle registration fees. They also now have
designated free parking spaces that have been allocated across Dubai. The RTA
has also created special videos with sign language to provide simultaneous
translation for those with hearing disability. In the same way, full support was
given by Dubai Civil Aviation Authority to provide personalized services at the
airport. Furthermore, each metro ticket booth is handicapped-accessible to
facilitate the needs of persons in wheelchairs. Audio-visual signs have been
installed throughout these public transportation hubs, and escalators have
been remodeled to include side-hand-rests. Finally, pavement heights at curbs
and crosswalks have been lowered to accommodate people in wheelchairs.
In a similar positive response the Dubai Water and Electricity Authority
(DEWA) responded by creating a fully dedicated sign language call center
through a live video chat with highly trained staff to answer the needs of people
with hearing problems. Similarly, the hospitality sector took immediate action
as well as a number of hotels in Dubai have dedicated rooms and facilities to
help people of determination enjoy a hassle-free stay. In addition, among the
unique offerings was the introduction of the UAE’s first ever online Emirati
Sign Language Dictionary. With 5000 words available to help those with hear-
ing difficulties have easier interaction within the society, the dictionary is an
excellent training material for sign language translators and interpreters.
It is noticeable that in the accessibility standards, barrier removal have been
part of the inclusive agenda in the UAE. A “design for all” guideline for quality
standards of services was provided for people of determination in UAE. In this
universal design guidelines there are seven major areas that are addressed:
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 801

equitable use, flexibility in use, simple and intuitive, perceptible information,

tolerance for error, low physical effort and size, and space for approach and use
(Ministry of Community Development, 2016). This universal design is a best
practice in many developed countries and is used as a practical way to remove
the barriers associated with accessibility for people of determination. Services
such as transportation, utilities and communication are now more accessible
than they used to be because of these policies and initiatives.

Advocacy
The concept of advocacy means exercising human agency to give voice to the
issues that affect people. For people of determination, the ability to advocate
for themselves is essential, whether this is at an individual or group level. In
most societies, group advocacy is one of the most effective way to make changes
in systems, policies and procedures that affect the daily lives of people of deter-
mination. Advocacy groups perform a vital function in providing information
about the rights of people of determination and identifying instances of dis-
crimination. These groups assist in raising awareness by keeping the issues that
affect anyone living with a disability in the mainstream public discourse and by
seeking solutions to recurring problems that affect this community. By pro-
moting and protecting the rights of people of determination, advocacy enables
social change as they report and update relevant authorities about the impact
of policies and initiatives on people of determination.
Evidently the UAE government and various quasi-government entities are
committed to supporting inclusion by issuing laws and legislations to empower
people of determination and protect their rights. Continued emphasis is placed
on the role of the community members to accept the integration of people of
determination. The approach taken by the UAE in the past ten years has been
to educate the population to adapt the global changes in order to achieve an
inclusive society. According to Wafa Hamad bin Sulaiman, director of
Rehabilitation and Care Department of People of Determination at the
Ministry of Community Development, social awareness and several campaigns
have been introduced in the workforce, schools and centers to educate the
community on how to treat and support disabled people to improve their con-
fidence, become active participants in the society and reach their full potential
(Zakaria 2018). A series of initiatives to empower special needs and provide full
support to them indicate that Dubai is one of the best examples of a successful
adaption of the global challenge to foster inclusion. Increasingly advocacy for
people of determination is seen as a responsibility for the government. There
are however a few private entities who on a lower scale seek to raise awareness
about issues faced by people of determination. At present there are not many
self-advocacy groups for people of determination.
In a recent study conducted by the Mohammed Bin Rashid School of
Government in Dubai, it was noted that from the citizens’ viewpoint, when
802 R. WARNER AND I. A. MOONESAR

governments or businesses try to harness personal data in order to advocate for

citizens, the key concerns are related to loss of control, breaches of privacy and
misrepresentation or misuse of data (Salem 2017). It is paramount to address-
ing public concerns on data harnessing in the Arab region when looking toward
socially inclusive data-driven public policy. Previous findings demonstrate a
broad spectrum of public concerns about practices affecting personal data gen-
erated by social media and IoT. These concerns are understandably justified in
the era of big data and data-driven governance.

Innovative Public Sector Response to the Inclusive Agenda

At the Federal level, the Telecommunications Regulatory Authority (TRA) of
the United Arab Emirates (UAE) was established according to the UAE Federal
Law by Decree No. 3 of 2003—Telecom Law. TRA is responsible for the man-
agement of every aspect of the telecommunications and information technol-
ogy industries in the UAE. The Information Communication and Technology
(ICT) Fund was initiated by TRA (TRA 2020) to achieve rapid, progressive
and concrete developments within the ICT sector in the UAE. The key objec-
tive is to drive the strategic development of the country’s ICT sector in order
to strengthen the innovation and knowledge capital level of the market by
providing research, education (Randeree and Narwani 2009) and entrepre-
neurial opportunities. The Fund launched its operations to jumpstart innova-
tion within the sector in the UAE mainly in the fields of intellectual capital,
technological leadership, smart research, innovative ideas and incubating start-­
ups (TRA 2020) for all citizens inclusive of people of determination.

Methodology
To evaluate the frequency of reporting about inclusion in the five thematic
areas selected for this study, a content analysis approach was adopted similar to
a study by Bou-Karroum et al. 2017, which systematically reviewed media pub-
lications to determine the impact of health policy-making. Government docu-
ments and published articles online and in-print were analyzed for reference to
the themes only in English language. This enabled us to determine the degree
to which inclusion now plays a part of the national narrative and which of the
five aspects of inclusion requires more attention and reporting in order for it to
be part of the discourse on inclusion. A range of 1–5 was designated to deter-
mine the degree to which the themes are part of the media landscape: five (5)
as the highest reporting and one (1) lowest reporting based on the number of
documents observed on government websites, newspapers online and research
papers. Please see the classification given based on the number of texts:

• 5: Private/public sector companies and public sector departments

adopted this law and developed projects and initiatives in this regard.
There are over eight articles/media published on this item.
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 803

• 4: Public/private sector. There are over eight articles/media published

on this item.
• 3: Public/private sector. There are over five articles/media published on
this item.
• 2: Public/private sector. There are over three articles/media published
on this item.
• 1: Public/private sector. There is more than one article/media published
on this item.

Findings/Results
From the distribution of the 47 publications that were reviewed for this chap-
ter, there was clearly a dearth of any narrative about inclusion or people with
disability prior to 2006 (see Table 39.2). After the passing of the first law there
were only few initiatives that really addressed inclusion in the UAE society. In
2016, the development of the National Policy for Empowering People of
determination seems to have precipitated an increase in initiatives and policies
across the five themes addressed in this chapter. Notably, this occurred after the
year of innovation was launched in 2015. From the data, it is safe to posit that
the issue of inclusion became embedded in the governmental discourse of the
UAE from 2017 onward, and this coincided with the increase of innovative
digital government initiatives which aimed to expand service quality and citi-
zen engagement.
Using the rubric developed to analyze the number of publications as a proxy
for the level of awareness about issues of inclusion in the laws, policies and
initiatives, Table 39.3 gives a picture of each theme related to inclusion and the
types of official publications about each issue. From the data gathered it would
appear that not all the themes have had the same degree of development in
terms of laws, policies, initiatives and regulations. For example, only the theme
of education has been addressed across the four mentioned genre of publica-
tions. Accessibility, equal opportunity and health themes were all addressed in
policies which were activated in various initiatives across the society. The theme

Table 39.2 Meta-analysis of data: Policies, laws and initiatives addressing inclusion in
the UAE by year
UAE inclusion 2006 2009 2014 2015 2016 2017 2018 2019 Grand
development total

Initiatives 1 3 2 6 2 14
Law 1 1
Policies 1 2 1 15 7 5 31
Regulation 1 1
Grand total 1 1 1 5 4 21 9 5 47

Source: Authors’ creation

804 R. WARNER AND I. A. MOONESAR

Table 39.3 Content assessment by document type of inclusive agenda in UAE

(2006–2019)
Average of content with 2006 2009 2014 2015 2016 2017 2018 2019 Average
themes scaled out of 5

Accessibility
Initiative 5 5 5
Policy 4.5 4.5 4.5
Advocacy
Policy 5 4.5 4 4.5
Education
Initiative 5 4.33 5 4.66
Law 5 5
Policy 5 5 5 4.5 4.83
Regulations 5 5
Equal opportunity
Initiative 5 5 4.5 4.75
Policy 5 5
Health
Initiative 5 4 4.5
Policy 5 5 4.5 4.66 4.75

Source: Authors’ creation

of advocacy lags behind in only being addressed in policies but no associated

laws, initiatives and regulations seem to have been developed. The data allows
us to suggest that the awareness about inclusion in the theme of education
seems to be more than in other themes, while in the other themes there is more
awareness and action that is required with reference to Table 39.3.
By simply observing the inputs on Exhibit 1 (see Appendix), it can be
deduced that as the innovative technology agenda was activated in the UAE,
there were more initiatives that reached out to the people of determination
because now there were digital tools that could enable the inclusive agenda
such as digital government facilities and the use of social media for enhancing
citizen engagement.
Recently, key findings on Social Media, Citizen Engagement and Government
Services revealed UAE residents having positive perceptions of the use of social
media for public service design and delivery and its potential benefits (Salem
2014, 2017). Customers in the UAE seem to be ready and willing to engage
with the government via social media in the design and delivery of public ser-
vices for all citizens, including people of determination. This is expected, given
the UAE government’s leading efforts in the region to integrate social media
into government services, and the pervasiveness of social media use among
UAE residents. Customers agreed that their engagement through social media
for public service design and delivery could result in several benefits including
better fit and quality of public services, reduced service costs and enhanced
social inclusiveness (Salem 2014, 2017).
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 805

Discussion
From a critical perspective, the government of Dubai has put practical mea-
sures in place to support the UAE’s national agenda to meet the inclusive poli-
cies advocated globally, by way of legislation and policy. Technology and
innovation have been used to spread awareness, increase accessibility and pro-
vide innovative support of the people of determination in Dubai. These mea-
sures address the core areas of education, meaningful employment and access
to public services. However, on an international scale, the actions being taken
by the UAE (with specific reference to Dubai) have not put in place the advo-
cacy measures required to mandate inclusion and therefore participation in the
inclusion agenda remains largely optional for stakeholders. From what we can
see Dubai does well in terms of providing a wide range of services to people of
determination, but in determining the impact and measuring outcomes, there
is a gap. Education, healthcare and accessibility are represented frequently in
the official and public discourse.
In contrast, equal opportunity and advocacy still seem to be the two elusive
themes in the narrative around people of determination. The absence of quotas
for the private and public sector means that inclusion decisions are left up to
the discretion of the entities; how many people of determination will be accom-
modated and what the experience will be like for those individuals when join-
ing a given organization are not standardized in the existing discourse. In many
UN member states, a quota system for workplace inclusion has been used to
advocate for the meaningful inclusion of the disabled in mainstream organiza-
tions. It should be noted, however, that quotas are not a silver bullet that radi-
cally addresses barriers to inclusion and this type of policy does not bring
immediate cultural shift but it is a starting point of the long journey of embed-
ding inclusion in the social psyche. “Inclusion is not a goal that can be reached
but a journey with a purpose” (Mittler 2000, p.133). Further, in the absence
of any private and independent advocacy groups who can voice the experiences
of people of determination, there is no way to empirically determine the impact
or success of the policies, laws and initiatives. The dearth of evidence will affect
future capacity to plan and allocate required resources, and people of determi-
nation could again become excluded because they have no representation.
Deployment of further resources to the inclusive agenda of the UAE will
require active monitoring to ensure adherence to the existing provisions for
people of determination and to understand what the barriers are to advocacy.
Empirical data gathering about the participation of people with determination
is an imminent need for public sector stakeholders so that better planning and
resource allocation can be achieved. Emphasis on public sector–driven inclu-
sion is an admirable ethos but particularly in the education and healthcare, the
country needs to have a more collaborative partnership with the private sector
806 R. WARNER AND I. A. MOONESAR

to ensure adequate and sustainable resource allocation for the ongoing success
of the inclusive agenda. The UAE needs to continue awareness campaigns for
the public and private sectors with target specific messages across socio-­
economic strata, which take into account the diverse perspectives of the multi-­
cultural demography who reside in the country. The limitation of this study
includes the data outcomes that were assessed based on online searches on
effectiveness of media interventions in English only and not actual evaluation
of effectiveness.

Conclusion
The UAE is continuing the journey toward establishing itself as the smartest
city on the planet by 2030. This agenda is primarily being driven by the city
state of Dubai. The federal and local governments have a vision of inclusion
that allows people of determination to be part of this advancement. Innovation
in the UAE public sector is crucial in creating the public value through good
public sector governance and leadership. The governmental discourse and
actions toward inclusion have steadily increased with the emergence of various
innovative tools at their disposal. As a result, it can be observed that education
and health sectors have used innovative approaches to bring people of determi-
nation into the mainstream by removing any barriers to their participation in
society. UAE government has recognized the need to understand how the
innovative practices can be leveraged in the governance of the inclusive agenda
but there is room for improvement in allowing self-advocacy. However in the
absence of a proper framework to measure the impact of innovative practices to
enhance inclusive policies and initiatives, it will be difficult to evaluate success
or address gaps. Citizens are yet to warm up to the data harnessing that is being
done as they access public service provisions, and further assurances of ethical
use and protection are needed. Despite this challenge the future of an inclusive
agenda in the UAE is predicated on ongoing review of existing laws, policies
and initiatives, evidence-based intervention where needed and the continued
use of innovation to widen participation among the people of determination.

Way Forward: Innovation Assessment and Benchmarking Activities

for Social Inclusion
The policy implications of technological innovation could be to identify and
develop the relevant innovation assessment and benchmarking activities for the
inclusive agenda that the UAE has adopted. This could be achieved by using
the framework by Asgarkhani (2007) which includes factors such as the view of
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 807

management and ICT strategists; economic, social and cultural implications;

the implications of digital inclusion/exclusion and e-readiness upon social
inclusion; and the citizens’ view of the success of digital government in enhanc-
ing public access to information about equal opportunity, universal accessibility
and advocacy. In the simplest terms, an assessment tool that uses the four-step
process suggested by Crossan and Apaydin (2010) would be an initial way to
assess the impact of the various initiative and policies aimed at including people
of determination in all sectors of the UAE.
Step 1: Assessment—to have an independent agency or institute review and
look inside the government entities and its sectors; conduct internal assess-
ments in relation to inclusion; along with several dimensions of innovation,
that is, through the critical analysis of the current state, effectiveness, pain/
barrier points; and identify critical areas to benchmark externally. For instance,
the factor of the view of UAE management and ICT strategists through the
examples provided under Equal Opportunity & Education.
Step 2: Benchmarking—to have again an independent agency or institute
review and look outside the government entities/sectors, with the notion of
understanding the best practices of other the government entities/depart-
ments and sectors (both inside and outside) in relation to inclusion.
Step 3: Development and Adaptation—to allow for this new learning to be
relevant and applicable in relation to inclusion. For instance, “Ask”: How can
we innovate beyond this understanding of “external best-in-class”? and/or
“How can we adopt and adapt this understanding in line with our organiza-
tion’s specific business needs, culture, organizational readiness?” For instance,
the Smart Dubai initiative was founded following the vision of His Highness
Sheikh Mohammad bin Rashid Al Maktoum, Vice President and Prime Minister
of the UAE and Ruler of Dubai, to make Dubai the happiest city on earth.
Participation from all city stakeholders—residents (inclusive of people of deter-
mination), visitors, business owners, parents and families—is a cornerstone of
the UAE strategy.
Step 4: Institutionalization—it would be critical to own and shepherd the
practice into routine operation across the UAE government entities and sectors
for including inclusion together with gathering and incorporating feedback
into cycles of continuous improvement and provision of evidence-based
research.
808 R. WARNER AND I. A. MOONESAR

Appendix
Table 39.4 Exhibit 1: Specific documents in the public domain according to themes
and year of publication
Themes and specific documents 2006 2009 2014 2015 2016 2017 2018 2019

Accessibility, n = 12
Emirates Blockchain Strategy 2021 1
Foreign Aid Strategy 2017–2021 1
Government Communication Strategy 1
2017–2021
Ministry of Finance Strategic Plan 1
2017–2021
National Cybersecurity Strategy 2019 1
National Food Security Strategy 2051 1
National Innovation Strategy 1
National Space Strategy 2030 1
Strategy for the Future 1
The National Policy for Empowering 1
People of Determination
The UAE Strategy for the Fourth 1
Industrial Revolution
UAE Energy Strategy 2050 1
UAE Strategy for Artificial Intelligence 1
Advocacy, n = 4
The National Policy for Empowering 1
People of Determination
The UAE Soft Power Strategy 1
UAE Centennial 2071 1
Vision 2021 1
Education, n = 15
Advanced Skills Strategy 1
Education 2020 Strategy 1
Federal Law No. (29) of 2006 1
Concerning the Rights of People of
Determination
General Rules for the Provision of 1
Special Education Programs and
Services (Public & Private Schools)
Ministry of Education Strategic Plan 1
2017–2021
National Advanced Sciences Agenda 1
2031
National Literacy Strategy 1
National Space Programme 1
National Strategy for Higher 1
Education 2030
Quality standards of services for 1
people of determination in
government and private institutions
The National Employment Strategy 1
2031
The National Environmental 1
Education and Awareness Strategy

(continued)
 39 ADVANCING THE INCLUSIVE AGENDA FOR PEOPLE OF DETERMINATION… 809

Table 39.4 (continued)

Themes and specific documents 2006 2009 2014 2015 2016 2017 2018 2019

The National Policy for Empowering 1

People of Determination
The UAE Astronaut Programme 1
Equal Opportunity, n = 6
Ministry of Justice’s Strategic Plan 1
2021
National Strategy for Empowerment 1
of Emirati Women
National Strategy for the Year of 1
Giving
National Tolerance Programme 1
The National Policy for Empowering 2
People of Determination
Health, n = 6
Mental Health Strategy 1
National Climate Change Plan of the 1
UAE 2017–2050
National Strategy for Advanced 1
Innovation
National Strategy for Wellbeing 2031 1
The National Policy for Empowering 1
People of Determination
The National Policy for Senior 1
Emiratis
The UAE Water Security Strategy 1
2036
UAE National Agenda 1
UAE National Family Policy 1
UAE National Youth Agenda and 1
Strategy
Grand Total, n = 47 1 1 1 5 4 21 9 5

Source: Authors’ creation

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 PART IV

Future-oriented Management Education

 CHAPTER 40

A Serendipitous Road Map to Educate

Cosmopolitan and Sustainable Development-­
Oriented Managers

Sergio Castrillon-Orrego

Introduction
This chapter proposes a critical and creative approach to reframe business edu-
cation, exploring radical (root-based) endeavors towards sustainability. The
dilemmas that emerge as societies and economies face the frenzied rhythms and
unknown consequences of the current Fourth Industrial Revolution, along
with the dire threats that climate change brings, obliges corporations and the
field of management education to reconsider their premises and epistemic
assumptions. Reconceiving the intersections between business and society,
mediated by the tantalizing promises introduced by exciting technologies
enables educators and corporate leaders to better face current political upheav-
als, demographic trends, work-related stress, and the many economic short-
comings that pose a threat to humankind’s survival and flourishing.
Acknowledging the profusion of phenomena related to the current digital
era, including quantum computation and biotechnological metamorphosis,
sometimes excessively embellished and without critical scrutiny, we claim here
that since many of the effects are unforeseen, and perhaps unforeseeable, man-
agers and business educators must improve their decision-making capabilities,
in terms of sustainability and ethical soundness.

S. Castrillon-Orrego (*)
Universidad EAFIT, Medellín, Colombia
e-mail: [email protected]

© The Author(s) 2021 815

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_40
816 S. CASTRILLON-ORREGO

We argue that this purpose can be supported by questioning the premises

that are jeopardizing human prosperity, and seeking a deeper comprehension
of natural and social systems. In this last sense, it seems essential to enhance the
understanding of and sensibility towards diverse mindsets, learning from the
whole spectrum of the human experience, through time, in different contexts.
How can we advance in such a direction? In the era of Big Data, multiple
algorithms can help us analyze millions of data, providing valuable informa-
tion, and certainly enabling new knowledge for consideration. Nevertheless,
what about wisdom? What about quality of life? What about life itself? Echoing
T. S. Eliot, we ask: “Where is the wisdom we have lost in knowledge? Where is
the knowledge we have lost in information?”
In the wake of potential economic crises, where natural resources are increas-
ingly polluted and depleted, where drinkable water is scarcer than ever, where
icebergs are melting, and ocean levels are rising, it is imperative to deflect the
inertial forces that have led us to unsustainable patterns of production.
Increasingly darker footprints and the earlier arrival of the overshoot day as
reported by the Global FootPrint Network (2019) are ethically unacceptable,
and materially unbearable for the planet.
Why have the conventional postulates of economic organization led to eco-
nomic growth for some (depending on how, when, and where it is measured),
but not real prosperity for all? Why has the market never found its equilibrium?
Does a growing GDP equal progress? Which economic indicators constitute
proxies for growth in terms of well-being and value? Which indicators can fore-
warn us about development, evolution, or involution?
Realizing the disruptive challenges that innovative technologies pose to cur-
rent societal settings, business conventions, and environmental agitations, this
chapter invokes the need to recall, recognize, and reinterpret traditional human
perceptions and intuitions about phenomena that relate to current develop-
ment categories.
In general terms, we propose a research agenda that dives into the explora-
tion of non-mainstream forms of societal organization, either ancient, forgot-
ten or merely marginalized. We believe that rescuing and deconstructing the
underlying beliefs of diverse societies can provide new hermeneutics to techno-
logical and economic predicaments. For example, how have material produc-
tion and consumption patterns differed across cultures and time? How have
ideas of economic value-generation varied? How has technology been defined
by different social groups?
Evoking and analyzing how human groups have defined and enacted pat-
terns of social and economic organization may illuminate how current dilem-
mas can be tackled in the present and future, taking hints from the past. Which
set of criteria is used? Which criterion, if any, has prevailed? What kind of beliefs
have emerged and lingered?
For example, examining how diverse causes of and answers to technological
disruptions, have improved or endangered, people’s progressions can help us
learn from previous mistakes and riveev clever solutions. Which environmental
 40 A SERENDIPITOUS ROAD MAP TO EDUCATE COSMOPOLITAN… 817

crises led to innovative adjustments or to community extinctions? For example,

how can we learn from the clues given by Mayas, Australian aborigines, Incas,
Polynesians and inhabitants of eastern islands, among others, in order to pre-
pare for eventual crises?
Thus, we propose to raise awareness about the importance of research into
and learning from the intuitions, feelings and perceptions of diverse human
groups. Combining and comparing their messages may inspire decision-makers
to conceive creative and enduring solutions to contemporary challenges. If
individuals, corporations and all kinds of business and social organizations were
to learn and explore diverse sources of knowledge, for example by exploring
ancient and marginal traditions, the chances of sustainability would be
increased.
For instance, thought experiments can nourish reflection on the sense and
purpose of economic activity that provokes unsustainable externalities and
toxic flows of misleading data. Hopefully, we will discover more intelligent
ways (not merely more efficient) to combine available resources, avoiding their
depletion while stimulating their healthy regeneration.
The inertia of mainstream economic and political organization is so strong
and frenetic, that it hardly allows reflexive interrogation about its nature.
Humans are extremely surrounded by digital novelties, most of the time inhibit-
ing instead of enhancing proper judgment. Paradoxically, the most innovative
technological creations are increasingly, and often entirely, detached from nature.
In order to break those inertias, the chapter offers sections addressing and
putting forward: arguments in favor of pursuing a cosmopolitan horizon and
research agenda; a consequent call for an engaged and mindful methodology;
arguments in favor of a reflexive education; a revision of definitions of technol-
ogy, exploring how it can contribute to better living; and finally, social reflexiv-
ity through diverse cultural lenses is proposed.
Herein is important to state that the purpose of this chapter is not to answer
all the questions which arise throughout the text, but to illustrate how reflexiv-
ity potentiates the emergence of multiple questions that have the potential to
shake inertias and overcome entropic dynamics that threaten sustainability
today; thus reinvigorating creative and transformative forces.

Context and Background

Since the UN Global Compact constitutes “The world’s largest corporate sus-
tainability initiative” (UN Global Compact 2019), it is a convenient and peda-
gogically powerful heuristic to analyze sustainability actions and ideas, around
the Ten Principles it promulgates, and around the whole set of Sustainable
related Goals (SDGs) and targets, which embody the most ambitious develop-
ment agenda of our time.
The Global Compact principles are articulated around four broad areas:
human rights, labor, environment, and anti-corruption. These four areas and
ten principles are more than mere analytical categories, they represent the
818 S. CASTRILLON-ORREGO

political consensus achieved among countries at the global scale, such as “the
Universal Declaration of Human Rights, the International Labour
Organization’s Declaration on Fundamental Principles and Rights at Work, the
Rio Declaration on Environment and Development, and the United Nations
Convention Against Corruption.” (UN Global Compact 2019).
Funneling efforts in these areas helps to potentiate business as a source of
well-being, or as Ellis put it “as force for good” (2001). By tracking down how
this axiomatic consensus has been manifested throughout history, we might
rediscover more balanced ways to relate with nature, rescuing examples of
integrity (against corruption), respect for humans and diverse forms of life, and
reinvent wiser and more dignified working habits.
This quest for better practices through ancestral wisdoms does not imply
nostalgia for the “good old times” – that perfection ever existed in other con-
texts. It just invites us to broaden the possibilities of learning from the mistakes
and lessons that groups outside of the mainstream corporate world might have
produced, and which could be relevant nowadays.
Perhaps by listening to the Inuit, observing indigenous communities from
Polynesia or Amazonia, or by revisiting the heritage of the Celts, examining the
beliefs of Shintoism, or reinterpreting the intuitions represented in diverse cul-
tural myths, we might get some clues to guide us through the maze of unsus-
tainable puzzles, as Theseus did following Ariadne’s thread (Castrillón 2005).

Literature Review
Human stupidity seem limitless (Moreau 1987). Reflect on the way corruption
permeates governments and business causes waste of resource throughout the
whole system, generating expensive entropies (Monteverde 2019), distorting
the functioning of economic agents (Tran 2019), and perpetuating toxic cul-
tural habits (Scholtens and Dam 2007). Even those who appear as short-term
transactional winners, end-up with lots of enemies, hanging from uncertain
relations, and “controlling” a non-sustainable environment. All material
wealth, so easily perishable, exemplifies a delusional model.
Overcoming our senselessness obligates the recognition of the sometimes
psychopathic behavior of corporations (as denounced by Mark Achbar and
Jennifer Abbott in their 2004 film, The Corporation) accompanied by the
pathologies exhibited by so many power holders, as describe by Furnham
2000, Kets de Vries and Miller 1986, and Richardson et al. 1996.
When contemporary intellectuals signal todays’ pressing issues (Harari
2018), it becomes impossible to deny the need for ethical sensibilities and
capabilities. And given the digital agitations, it is imperative to discuss authors
that have specified updated versions of Moral Intelligence, i.e., 2.0 (Kiel and
Lennick 2011). The dreadful scenarios crafted by greed and selfishness call for
the application of renewed intelligence to be solved.
As evidence mounts to demonstrate that the Earth cannot sustain increas-
ingly voracious human populations, the call for action is non-deferrable.
 40 A SERENDIPITOUS ROAD MAP TO EDUCATE COSMOPOLITAN… 819

Although exploring Mars and other planets to assure survival of the species
seems like a laudable endeavor, the real challenge consists in facing and learn-
ing from all the mistakes humans have made through time. Thinking that we
can live in other places, while evading the obligations to our planet, reflect
psychological denial rather than genuine intelligence.
It would be more realistic to scrutinize the human experience, spotting the
right and wrong moves our species has made in the past. A sincere assessment
of our virtues and vices, recognizing and adopting virtues and learning from
vices, can hopefully enlighten our decisional processes.
It is comforting to see the economic benefits of human rights recognition
(Charles 2007), and the benefits of adopting environmentally friendly indus-
trial processes (Albuquerque et al. 2019), or improving business models (Ünal
et al. 2019); nevertheless discussions and actions seem confined to limited
mental models. Although honest and positive, the current sustainable agenda
seems mostly defined in utilitarian terms, where evidence is to be measured
mostly by positivistic economic indicators that somehow encapsulate the per-
spectives for discussions.
Parting from the mainstream, we argue that current times, simultaneously
enriched by information and industrial technologies, disrupted social logics
and economic dynamics, require transcending utilitarian argumentation pro-
moting holistic reflexivity, including more imagination, and of course, a redis-
covery of the human nature and conditions.
Therefore, we should accept the invitation to enjoy and propel the power of
imagination, a human singularity given by nature (Dortier 2004), in order to
escape our uni-dimensionality (Marcuse 1968); dare to question the purposes
of education (Ruano-Borbalan 2001), especially in the field of business, where
is usually reduced to training for profit making, as Friedman bluntly stated
(Friedman 2000).
In order to overcome that dogmatic position, we must disrupt functionalist
training for limited areas, challenging decision-makers for all fields of knowl-
edge, to become exactly the opposite of what Friedman suggested, and what
wisdom traditions have striven to discover and forge: wise decision-makers,
capable of complex thinking.
We believe sustainability will be enhanced by individuals and communities
willing and able to arbitrate among competing demands, guided by long-term
perspectives, respect for natural cycles, and life’s dignity. We believe the capa-
bilities to make wiser decisions, freed from power-pressures and fragmented
interests, will increase when we humbly recognize past mistakes and accept
phylogenetic imperfection.
Which messages were left by societies that collapsed? What teaching can
grasp the cultures that lost balance with their environment? Which learnings
left us insight into those leaders who abused people in undignified labor condi-
tions? Or on the contrary, can we find inspirational ideas and practices that can
create transformative initiatives in order to funnel the potential of state of the
art science in favor of authentic human development?
820 S. CASTRILLON-ORREGO

What can we learn from Hindu epics, like the Ramayana, Mahabharata and
Bhagavad Gita? What does the experience of Gilgamesh teach us? What about
Homer and Hesiod? How can the divergent thought of Confucius and Lao Tse
help us face the world today? What about the Popul Voh? Can we find good
examples of sustainability-oriented leaders? Do we remember the impacts of
corrupted leaders?
Business has a lot to learn from the whole of the human experience.
Fragmented models and assumptions (like perfect market equilibrium,
economic-­calculators of cost–benefit) need to be revised. The artificial, ceteris
paribus, has reduced our awareness of complexity, while complicated externali-
ties place on the water and terrestrial ecosystems that support life on Earth.
Since the simplistic GDP indicator overshadows other measurement (and
perceptual possibilities), we seldom understand the irredeemable lost that
botanic and animal extinction represent, nor the unquantifiable pain that
abused children, or people in slums, suffer. The math seems wrongly used, or
how can we explain hunger alongside morbid obesity? Why do we keep pro-
ducing so much food waste that simultaneously intensifies climate change?
No doubt, economic models have to be deconstructed; but more impor-
tantly, the integrality of human nature has to be crudely decorticated. As recent
studies show, human consumption patterns are unsustainable, only drastic
changes will allow us to survive, let alone develop (Rowlatt 2019).

A Humble Methodological Proposal

This chapter constitutes a humble quest. The methodology proposed for this
quest clearly rejects positivistic standards. Being socially engaged and construc-
tivist favors a critical perspective, one that seeks to promote “insights, critiques
and transformative redefinitions” (Alvesson and Deetz 2000). And given the
fact that any hermeneutic effort might hurt sensibilities, it explicitly demands
to assume a mindful (Bentz and Shapiro 1998) and culturally responsible
(Swartz 1997) approach.
The pursuit of this mindful, reflexive, and critical approach is supported by
the operational orientations of arts-based research, particularly in terms of
learning from histories to explore meanings and change minds (Cahnmann-­
Taylor and Siegesmund 2008). Our proposal is compatible with Coser’s
insightful approach to towards’ societies comprehension through literature
(1972). The sampled texts could come from sacred books, classics, philosophi-
cal compendiums, or even traditional folk tales that reflect the spirit of a given
human group.
Some careful selections can light the way, as Bailkey and Lim (2020) who
propose a rich anthology of ancient texts, or Le Livre des Sagesses, which recov-
ers an exhaustive selections of human expressions of spiritual wisdom (Lenoir
and Tardan-Masqquelier 2002). Since these samples of texts, ideas and arche-
types throughout time and geographical spaces are purposefully inclusive,
anthropological, and historical they offer a non-skewed sample upon which to
 40 A SERENDIPITOUS ROAD MAP TO EDUCATE COSMOPOLITAN… 821

explore the presence of sustainable related concepts, lighting ways to challenge

our current status quo.
For instance, religion constitutes an interesting prism to explore sustainability-­
compatible ideas and warnings. Although ideologically biased, religious beliefs
provide inspiring venues to analyze values, and might serve as an “alternative
perspective in the Organizational Sciences,” such as defined by (Evered and
Louis 1981). For example, how did diverse groups solve dilemmas? How did
they foreshadow consequences? Why was the consumption of some animals
and products prohibited? Or fostered? What were the underlying criteria?
Religions’ natural focus on values and the mindset they shape makes them a
rewarding path to approach values and serves to reinforce mindfulness and
purpose in research. Also, avoiding ideological and non-judgmental examina-
tion of religious ideas for development could serve as “A guide to our Wisdom
Traditions,” as Houston Smith refers to the whole set of world’s religions
(H. Smith 2002).
Learning from diverse cultures can teach us about how sustainability consti-
tutes a non-exclusive and necessarily expandable journey to explore mind-sets.
Through it, we could contrast today’s SDGs, their relationship to Global Compact
Principles, mining for commons concerns and values, and inspiring ideas, as well
as becoming wary of potential risks of approaching SDGs in ways that might be
perceived as arbitrary, absolutist, or even colonialist by involved parties.
Such a research agenda must be flexible. Forcing the cross-examination of
every variable may result in anachronisms. Nevertheless, this reflexive effort to
rethink development in the light of multicultural human experiences will hope-
fully broaden humankind’s capability to transform its unstainable patterns of
behavior, either because we manage to spot predatory approaches to nature, or
we because we find bona fide examples of harmonious social, environmental,
and economic societal settlements.
Exploring the presence or absence of business and sustainable-related con-
cepts through human mentalities, constitutes more than a predetermined aca-
demic task. This urgent imperative also represents a quest to learn from the
best ideas humanity has borne, while humbly acknowledging our previous mis-
takes, identifying the roots of our current problems.
How do the challenges of development and the principles of the Global
Compact appear when examined through the lenses of diverse cultural and
religious groups? How have business principles been forged through time?
Which beliefs can foster or hinder more fair, inclusive and resilient social inter-
actions? Which promote (or erode) mental health?
Reflexively exploring development-related challenges also enables the
deconstruction of positive and negative types; it leads to the exploration of the
semantic possibilities between the extremes and other related concepts, notions,
and categories which enrich the ways development can be conceived. Diverse
philosophical and religious systems can help reveal the mindsets than can help
us question and transform our definitions of human rights, labor, environment,
and corruption. Societies in general, and businesses in particular, can learn a lot
from realms usually excluded from cash-flow considerations.
822 S. CASTRILLON-ORREGO

Some Arguments in Favor of Reflexive Education

Enabling the inclusion and eventual comparison of multiple cultural expres-
sions and the Global Compact’s Principles serve as means to make sense of
eventual ethical considerations. The interdisciplinary openness triggered by
using cultural prisms like philosophical, sacred, literary texts, offers a new per-
spective to re-interpret economic, environmental, social, and governance phe-
nomena. Generating the competence to contemplate and reflect upon diverging
human manifestations certainly stimulates dialogue, a key feature reclaimed by
more pedagogues (Christensen and Garvin 1992) and by ancient masters like
Confucius and Socrates.
Contemporary drivers of change stress the need to promote dialogue at all
levels and among all stakeholders in order develop genuine empathy and deeper
comprehensions. The United Nations, through the Global Compact initiative,
and the correlated educational PRME program, strongly suggests reflecting on
the principles and dialogic practices that contribute to educate more commit-
ted global leaders. As Tayar and Paisley (2015) demonstrate, pragmatic success
is favored by reflexivity and mindfulness.
In times where fake news, false flags, and narcissistic caudillos are populating
the world stage it becomes more urgent that ever to leverage business good-
ness, to defend the love of wisdom and the need for more reflexive decision
makers (Ikujiro and Ryoko 2007; Subotnik 1988; Weick and Putnam 2006).
Reflecting on the customs and social dynamics of others might help us under-
stand and hopefully discern the ‘hidden connections’ that nature deploys
(Capra 2002) and that business ignores, threatening life and eroding sustain-
able value.
We might also discover alternative social orders and features of individual
character building, crafting renewed comprehensions about the replicability of
mores, customs, and the legitimacy of imagined futures. What can ancient cul-
tures teach us about leadership (Goleman et al. 2002), moral intelligence (Kiel
and Lennick 2011), or the plausible foundations for purposeful education
(Castrillon-Orrego 2019).
The recent Business Round Table’s “Statement on the Purpose of a
Corporation” (August 2019), reinforces the call of the Global Compact to
hold corporations accountable. The ten principles are potential prisms to evalu-
ate how managers work towards sustainability, echoing Freeman’s call to con-
sider all stakeholders (Freeman 1999) and finally transcending Friedman’s
anachronism that businesses are only accountable to shareholders
(Friedman 2000).
Reflexive education contains a lot of potential in order to gain awareness of,
prevent, and help overcome diverse problematic issues that might surge within
the accelerated digitalization of life. For instance, as Glass and Newig (2019)
demonstrate, links between governance and sustainability can be more clearly
understood if people participate, reflect, and question the coherence of policies
and institutions.
 40 A SERENDIPITOUS ROAD MAP TO EDUCATE COSMOPOLITAN… 823

In general terms, reflexivity favor the inclusion of theoretical plurality and

diverse pedagogics, eventually fostering varied forms of responsible manage-
ment education (Cicmil and Gaggiotti 2018). Reflexivity could as well gener-
ate capabilities to problematize conventional interpretations, such as history
(Hunter 2019), thus strengthening the potential to criticize non sustainable
business practices.
In terms of business education, promoting reflexivity can help students
become more aware of who they could become (Feldman and Fataar 2019),
also providing them with lifelong learning capabilities to be deployed through
their professional careers.

A Call for Cosmopolitanism - Expanding Horizons

If all the actors of the business community acknowledge their inherent respon-
sibilities within the global system, they might coherently nurture a cosmopoli-
tan drive, effectively taking into consideration the vital concerns of their
multiple constituents. This call for cosmopolitan (from Greek kosmopolitēs,
from kosmos + politēs citizen) commitment, is both, a reminder of the dignity of
all human and sentient beings, and a call for harmonious, natural flow within
the universe where all forms of life interrelate.
Developing a cosmopolitan mentality constitutes a long-term survival and
balanced growth strategy for all economic agents, which simultaneously assures
their own legitimacy; for example, embracing diverse interpretations of what
quality of life could represent for diverse cultures. Pertinence is also fostered
through the potential bridging of diverse perceptions; stimulating comprehen-
sive solutions to the current development challenges, such as embodied in the
SDGs. If economic logics are reflexively questioned through multiple lenses, it
might be possible to acquire and disseminate a more cosmopolitan spirit, pro-
pitiating the achievement of more sustainable life patterns.
Mimicking nature as it unfolds in diverse environments can also open minds
and hearts to other cultural models, thus deconstructing the status quo, and
expanding critical thinking and creative flows, enabling the rediscovery and
reinvention of economic, social, and biological logics of interaction that the
“hidden hand of the market” has institutionalized to a point that now seems
natural.
Conventional capitalism generates multiple exclusive and painful outcomes
which hamper the construction of a common identity in which peoples from
different countries can spontaneously feel citizens of our planet, sharing the
same destiny.
In order to promote a cosmopolitan citizenship, where all human recognize
themselves as navigators or the same “Spaceship Earth” (evoking Kenneth
Boulding’s powerful metaphor), economic logic must be radically subverted in
order to eradicate the unbearable consequences that the current status quo and
establishment generate for the large majority of the world’s inhabitants.
Millions of people suffer poverty, mental disease, lack of access to drinkable
824 S. CASTRILLON-ORREGO

water, deforestation, asymmetrical reception of externalities, toxic air and

water, and are treated like waste and disposable parts of the system.
The exploration of foundational myths across cultures can help us remem-
ber the shared nature and fate of our species, so clearly proven by phylogenetic
science but so hard to accept by xenophobic and ethnocentric groups, per-
vaded by ignorance and divisive interests.
Reflexivity also helps to question prevailing models, boosting the call for
cosmopolitanism. For example, SDGs exemplify a cosmopolitan expression of
global awareness; not only were they achieved through a consensual process
built on and through the United Nations, the most visible scenario where
countries’ governments interact and leave public records, but also, and addi-
tionally, they can claim a “global” perspective.
Comprehensive and multiculturally inclusive initiatives advance the feasibil-
ity of shared sustainability-oriented efforts. Global Compact and SDGs repre-
sent such efforts to enact Kenneth Boulding’s revolutionary conception of
“The Economics of the Coming Spaceship Earth,” which nevertheless might
broaden when amplifying the prisms and proxies through which diverse human
collectives manifest their survival learningand such as sacred texts, artistic
expressions, literature, poetry, folklore….
Approaching cultures through these non-judgmental ways potentially
enhances cosmopolitanism, refreshing perspective and inducing cognitive and
emotional tolerance, which ultimately can contribute to perceive and solve the
clamors and silent pains that reveal the current gaps in the path towards
sustainability.
In order for the business community to contribute to growth and develop-
ment in a sustainable way, it must ineluctably widen the scope and breadth of
its horizons. In this transformative process, the substantial concerns that
humankind has produced and enacted in other cultural and chronological con-
texts, must be included for full consideration.
As a potential venue for research, we emphasize the need to educate manag-
ers to strive for sustainable development. Although this venture could evoke an
endless effort, and some degrees of utopia, in the edge of potentially irrevers-
ible crises it becomes imperative.
Digitalization implies more connections but also more noisy and possible
fragmentations. As McEvoy indicates, this “Shrinking World” also brings cos-
mopolitanism and opportunities – and, we add, obligations- (McEvoy 1968).
As several authors claim, cosmopolitanism makes it essential to highlight the
importance of moral education (Merry and de Ruyter 2011), and to rethink
ethics (Rivera 2016).
Fires in Australia sending smoke and ash to South America, coronaviruses
spreading at the speed of business, make it evident that we share a common des-
tiny, and makes it imperative to review nationalism through the prism of sustain-
ability. The concept of cosmopolitanism can facilitate transcultural dialogues, or
as some authors claim, set the “conditions for educational conversations” in
times of globalization (Wahlström 2016). Nevertheless, cosmopolitanism is not
 40 A SERENDIPITOUS ROAD MAP TO EDUCATE COSMOPOLITAN… 825

panacea; as Peterson warns, there exist “educational limits” (Peterson 2012),

which nevertheless end up giving more importance to ethical considerations and
education (Osler and Starkey 2018; Starkey 2012), specially within the context
of the fourth industrial revolution (Merry and de Ruyter 2011; Waghid
et al. 2019)

Reflexivity as a Flexible Quest for Interrogation

and Divergence

Exploring human groups that diverge from the mainstream might seem useless
for those who want to perpetuate the status quo. However, that is precisely
where exploration’s emancipative power lies. Creativity is unleashed idleness
and leisure; as Ordine demonstrates “the usefulness” provides a lot of utility
(Ordine 2017), and as Judkins shows, innovation and inspiration when we try
to “see things differently” (2016).
How diverse cultures and belief systems can enrich creative administration?
Can knowledge for more consistent governance be extracted from the others’
principles? How can we expand lexical capabilities to reach more stakeholders?
Changes to management practices and ideas can flourish by appreciating other
cultural patterns and value criteria, enriching the language and dynamics for
sustainable development oriented dialogue.
Exploring the perspectives that other human groups from different cultural
and historic contexts provide can also alter our identities for the better, helping
us reframe resource allocation and distribution decisions, and reshaping rela-
tionships with water and terrestrial ecosystems. For instance, communities
indigenous to diverse environmental settings indicate ways through which
people can harmonize with nature’s assets, avoiding pollution and over-­
exploitation. As Wade Davis demonstrates, ancestral knowledge can illuminate
modern communities, teaching us how to mimic a life in equilibrium with
nature (2015). For example, reading Bruchac’s recompilation of work on
North American natives (Bruchac 2003), it is possible to enhance our herme-
neutic power, and discover the potential of native-nation values, culture, and
history, so we can see afresh and reframe our relations with nature and with
other human groups.

Technology as Meaningful, Applied Knowledge

As an apocryphal Chinese proverb has it “May you live interesting times.”
Confucius put it less snappily but more wisely: when asked about how to con-
tribute in the agitated times that he was enduring, he suggested to start by
naming phenomena using most appropriate terms (Analects 13.3)1 (Confucio
1998) which seem to be very pertinent recommendations nowadays, where

1
“If names be not correct, language is not in accordance with the truth of things. If language be
not in accordance with the truth of things, affairs cannot be carried on to success”
826 S. CASTRILLON-ORREGO

propaganda darkens publicity, and fake news is manipulated by obscure

interests.
Therefore, the search for truth(s) emerges as an imperative task, which
requires humility and respect for others’ perspectives, which is part of what this
research agenda proposes. A serene, cosmopolitan quest for essential values
across cultures prevents ethnocentric fundamentalisms, and welcomes diversity
and pluralistic manifestations of virtue. Equally, it opens eyes to recognize
vices, wicked conducts and negative motivations, which had created unsustain-
able patterns of social, economic and environmental behavior. For example,
how have disrespect for human rights, asymmetric labor conditions, wasteful
management resources, and corrupted governments and commerce led to the
destruction of human settlements? To what extent have internal causes extin-
guished some human populations?
More than 50 years ago, Erich Fromm questioned:

Are we confronted with a tragic, insolvable dilemma? Must we produce sick peo-
ple in order to have a healthy economy, or can we use our material resources, our
inventions, our computers to serve the ends of man? Must individuals be passive
and dependent in order to have strong and well-functioning organizations?
(1968, p. 2)

That interpellation regarding how we relate to technology is as relevant

today as it was decades ago. Actually, sometimes it seems that technological
revolutions exacerbate our brainless behavior. We pollute more and deplete
natural resources ever more quickly. Some political leaders seem bitter and
convulsive, as if permeated by an inherent unrest. In addition, the media
records ubiquitous violent social protest and conflicts.
If technological progress has not guaranteed human improvement, it is
worthwhile to evoke the metaphor of Pandora’s Box and reflect on all the
promised gifts predicted by enthusiasts for technological revolution; simultane-
ously we should recall our incapacity to harness them for good.
For example, a current definition of technology (Merriam-Webster 2003),
as “the practical application of knowledge especially in a particular area”; or as
“a capability given by the practical application of knowledge” or as “a manner
of accomplishing a task especially using technical processes, methods, or knowl-
edge.” Examining these meanings, we realize that is not only about gadgets
and novelties. Technological innovation also requires the insight to discern
what to do with the new capabilities, and the means to apply them.
Consequently, we suggest interrogating the kinds of knowledge applied, the
capabilities generated, and most importantly, the purpose of those novel knowl-
edge applications. Do they serve a noble purpose? Do they respect human
dignity? Are they compatible with all forms of life and natural ecosystems?
For example, engineering fields create technology by applying math and sci-
ence, based on energy and characteristics laws of physics to create useful items.
But have we applied the learning derived from anthropological experiences?
 40 A SERENDIPITOUS ROAD MAP TO EDUCATE COSMOPOLITAN… 827

In the face of indisputable climate change, and being at the crossroads of

extinction, it seems humankind has not reflected enough on how to use inno-
vations in sustainable and life-compatible ways. For instance, what do old leg-
ends teach us about survival and technological disruptions? What did Gilgamesh
learn in his quest of immortality? Did he became a moral, rational ruler after
learning of the impossibility of eternal youth? What messages were transmitted
through the figures of gods and demons, like Baal? How did Babylonians solve
conflict? What roles did the Hittite’s “Master Good and Master Bad” repre-
sent? How were crises managed? What kind of collective action and individual
leadership erupted when the crops were insufficient? When flooding and
droughts threaten survival? Perhaps, some of the “Oldest Stories in the World”
(Gaster 1968) can teach us a lot about governance, or respect for, and proper
connections with, nature.
Conceivably, a clue to the resolution of many dilemmas that emerge at the
intersection of technology, societal changes, and volatile economic cycles could
eventually be found through reflection on human traces.

Reflecting on Experience, Deflecting Current Inertias

The proposal to reflect upon the diverse manifestations of humankind’s experi-
ence through its existence also infuses all stakeholders (including managers and
owners) with the ethical perspectives necessary to heighten sustainability.
Reflecting upon the human condition does not exclude deflecting. Actually
deviating from that which has been previously established might open venues
for serendipitous discoveries. Like collective introspections, reminiscences of
our best intuitions might emerge and combine with the emerging technologies
and potentiating valuable clues to solve imminent threats to the survival of
humanity.
Human stupidity has never been as conspicuous as now, when scientific evi-
dence denounces all our mistakes and regrettable effects on the environment
and social balances. Like a fish within a bowl, our pride and narrow focus on
monetary maximization prevent us from seeing alternative forms of socioeco-
nomic organization.
As UNESCO has signaled, our ignorance is tremendous, but worst of all, is
hardly ever held up for questioning (Sureau 1995). Ignorance is ignored.
Deliberately. As in Socrates’ time, leaving the cave can be painful. Humanity
seems to prefer gloom, shadows of a harsh reality, especially those capital hold-
ers who obscure externalities, and the people who renounce complex learning,
happily adapting to their world of diffuse shadows.
Our call for reflexivity echoes not only recent epistemology, but also ancient
traditions, which might acknowledge circular causality, showing how effects and
causes influence each other. By proposing to learn from diverse human experi-
ences, it might be possible to discern the beliefs that had led to unstainable
governance, social interactions, and patterns of production–consumption.
828 S. CASTRILLON-ORREGO

As sociology teaches us, high reflexivity enables the active shaping of inter-
actions, while a low reflexivity leaves people reactive, passively shaped by struc-
tural forces. Humans have gained the knowledge to manipulate some raw
material and innovate productive processes, which have improved our material
standards, but unfortunately, we have not been able to overcome destructive
inertias. As Bohler points out (Bohler 2019), we blindly follow individual brain
instincts for short term satisfaction that on an aggregate basis will cause the
insane destruction of the planet.
Instead of pursuing autonomy, most people prefer the easiness of automa-
tion. As Erich Fromm denounced, we seem afraid of freedom (Fromm 1984),
and seek to escape our responsibilities. How can we escape our escapism?
Mirroring our fears and hopes in others’ stories and histories, could provide
hints on how to leave the maze.
That requires mindful efforts to develop personal mastery (which most wis-
dom traditions suggest has to be done); and develop our multiple potential
intelligences, trying to conquer autonomy and build the capacities for positive
freedom. But, this requires awareness, for, as Bourdieu adverted, biases are
inherent to social research (Bourdieu 1973; Bourdieu and Nice 1980). We
have to careful with ideas, because they can become “self-fulfilling prophecies,”
and as Ghoshal alerted, business is not immune (2005). Actually, self-fulfilling
prophecies are most likely in the field of business, which is never
interest-neutral.
About three decades ago, Anthony Giddens optimistically suggested that
societies (at least Western ones) were gaining in awareness and reflexivity
(Giddens 1983). Fakeness, bots, struggling democracies, painful migration cri-
ses, prove him wrong. None the less, herein we highlight the reflexive potential
of his structuration; as a potential tool to hermeneutically make sense of the
structures and roles of agents in diverse cultures. Today’s agents of society can
learn from past phenomena and discover means through which active agents
can break unsustainable inertias and initiate the constitution of sustainable
structures.
As experts demonstrate, deflecting the suicidal rhythms of humanity requires
the shifting of economic trends, dramatically changing our lifestyles (Rowlatt
2019). We believe that these breakthroughs towards survival might be possible
if humans awake from cybernation and respond to the call of autonomy and
the need to emancipate from institutionalized indolence. Evoking Scott’s pil-
lars (Dacin and Scott 1997; R. Scott 1994), which normative, regulative and
cultural-cognitive pillars have determined the institutions that have propitiated
unsustainability? What alternative can be discovered in other collective institu-
tions, something that can serve as luminary and lever for sustainability?
Can humans be capable of intelligent behavior? Yes, … at least theoretically;
but our obtuseness keeps denouncing us. No wonder folly has been so elo-
quently praised. Erasmus (Packard 2016), Rabelais, and Shakespeare (Greenfield
and Kaiser 1968) seem talking directly to us. But folly has also been criticized,
by figures such as Confucius, Socrates, and even the Ancient Egyptians through
 40 A SERENDIPITOUS ROAD MAP TO EDUCATE COSMOPOLITAN… 829

the Book of the Dead, whose spells precognized the admonitions (and judg-
mental criteria) to guide social life. Like the Ten Commandments, the Spells
were not intended for the afterlife but addressed directly social organization,
just as ancient poets like Homer and Hesiod do – praising the noble and laud-
able ethos, and denouncing the despicable and non-sustainable mores.
Although the 21st century is significantly different from previous eras, some
substantial challenges aren quite similar. For example, why do we behave in
senseless ways? Why does our powerful brain, capable of the nicest discern-
ment, find it so hard to carry out wise, ethical decision-making? Humankind
seems to be the only species that destroys its own habitat (knowingly). Perhaps,
a radical review (i.e., by revisiting our roots) can help us escape insanity. How
did traditional knowledge denounce madness, corruption, abusive behavior,
environmental degradation, and social unbalance?
Many ancient wisdom tracts advocated shrewd diagnosis and severe sanc-
tions toward enemies of lucidity. Today’s social and neural scientists suggest
one should seek “ to empower consciousness in order to regain control of our
destiny” (Bohler 2019: 187–217), evoking historic commands to form savvy
leaders (Clemens n.d.), or integral governors, like king-philosophers (Bauman
2018; Plato and Jowett 1937) motivated by ethical principles.
Corporate-compatible concepts such as ‘reflective practitioners’ (Khin Sek
and Fatt Kwai 2010), emotional intelligence (Goleman 1995), and primal
leadership (Goleman et al. 2002), reflect old human eagerness to cultivate vir-
tuous cycles, igniting the quest for educational technologies that might lead to
enduring governance, social dynamics, productive arrangements, and balanced
interaction with the environment.
Another way of rethinking the dominant arrangements of today is by foster-
ing imagination. As Dortier neatly demonstrated after decorticating the origins
of human language, culture, and cognition, a unique human trait is the capac-
ity to imagine (Dortier 2004). Unfortunately, this power of imagination has
been painfully curtailed (or perhaps painlessly, since we love the effortless life)
by simplifying economic models and assumptions, such as the “ceteris paribus”
that ends up reducing our conceptions of reality.
Through an induced process of self-fulfilled prophetization, complex vari-
ables are conveniently ignored and imagination (for many) is obscured to the
point of extinction. Intercultural sensibility should awaken inter-contextual
imagination, shaking heads-up the linear and oversimplified perceptions of
businesses and their effects.
What if, in the wake of unsustainable foolishness, business explores other
philosophical paradigms, and through the anthropological traces of religion
and art (among other manifestations of human praxis) upgrades its senses in
order to redesign itself? Building on Slobodkin who exposes how peculiar sto-
ries are to humans (Slobodkin 1992), we argue that there are many stories
dispersed through religious beliefs that might guide us towards sustainable
arrangements.
830 S. CASTRILLON-ORREGO

Intercultural sensitivity lead us to recognize the phylogenetic truth that

humankind is a single species, and that ethnic features are just superficial, thus
enhancing solidarity and reducing xenophobia. Additionally, it promotes imag-
ination and openness to interdisciplinary knowledge, enabling the transcen-
dence of the short-sighted corporate conception where “the manager is the
agent of the individuals who own the corporation” (Friedman 2000, p. 234),
which bluntly ignores the needs of a sustainable ethos.
In the wake of environmental collapse, Global Compact’s principles com-
mand the implementation of ethical market standards, which can lead to truly
sustainable social and economic practices; and of course interrogating business
education throughout the human experience, discovering the best possible
benchmarks. For example, exploring how contemplative aesthetics can comple-
ment ethics (Don 2008), or how systems of thinking like Taoism provide intui-
tive comprehensions to physics (Hasegawa 1994) or politics.

Conclusions
The twenty-first century has proven to be convulsive, in economic, sociocul-
tural, political, and technological dimensions. Multiple forms of terrorism,
clashes of cultural identities, revival of religious fundamentalisms, xenophobia,
erosion of institutional arrangements (such us the European Union, NATO,
COP 21, WHO); seem to increase simultaneously with the most amazing sci-
entific discoveries and technological inventions.
The Fourth Industrial Revolution (a term coined by Klaus Schwab; WEF
2016) has not liberated humankind from all the unrest and despair. On the
contrary, individuals with mental distress, and stressed societies, are on the rise
(WHO). The promises of progress, of modernity, that reappear with every
industrial revolution, are stuck somewhere on the way; and the positive impacts
do not seem to reach human groups as smoothly and evenly as promoted.
Embodying a post-modern Pandora’s Box, most dreamed gifts contained
feared nightmares that we, humans, do not seem able to discern. Artificial
intelligence is not making us any smarter, robotics might be reducing our most
basic dexterity skills, block-chains and crypto currencies are consuming more
energy and introducing more volatility than conventional monetary arrange-
ments. Even the definition of living entities is being challenged in unprece-
dented manners, threatening the dignity of humans and other forms of life.
The implications of the digital era go well beyond drastic shifts in produc-
tion and consumption patterns; quantic computation and autonomous
machines have the potential to shake society and business, in unforeseen (and
perhaps unforeseeable) ways. How can humans prepare to make sense of dis-
rupting changes? Of emerging realities? How shall businesses prepare to make
wiser decisions that protect life and generate sustainable value for all
stakeholders?
Contemporary managerial and business challenges need to be continuously
revisited, auscultating developmental needs that must adjust to some trends
 40 A SERENDIPITOUS ROAD MAP TO EDUCATE COSMOPOLITAN… 831

(e.g., sociocultural and demographic), and even help shape prospective phe-
nomena, like technological priorities, and scientific research connected to gen-
uine human concerns.
Instead of being frozen by the daunting challenges, intelligent initiatives
and reactions are urgently needed. For instance, reflexivity might provide the
key to liberate the hope hidden within the Pandora’s box, and cosmopolitan-
ism might potentiate empathy, awareness about share destiny, and a decisive
call for sustainable oriented actions.
Ultimately, we need wiser decision-makers, like the platonic King
Philosopher, capable of seeking virtue even if it is not easily recognizable.
Cultivating truth, beauty, and goodness, as Socrates suggested, nourishes and
enhances ethical reasoning, and moral development, both in terms of justice
(Kohlberg) and compassion (Gilligan).
The unstoppable and frenetic changes of communication and business
rhythms leave individuals struggling and vulnerable to severe emotional and
transactional exchanges. In the case of the elderly, or those peripheral popula-
tions marginalized by poverty, with no or limited access to safe information and
communications technologies (ICTs), the reactions are predictably flailing and
ineffectual.
All efforts to reduce the digital divide, and alphabetize people to manage
the most recent technologies are certainly worth the labor. Nonetheless, a lack
of orienting, ethically sound criteria, will condemn all efforts to wild swings,
frenetically moving without clear targets.
Current turbulent times clearly demand deep transformations from people,
both at the personal and collective levels. Individuals and organizations must
develop the capabilities to adjust to increasingly sudden and unexpected
changes. Nevertheless, fast reactions are not enough, regardless of how clever
or how fast. Responsible action requires intelligent reflexivity in order to con-
tribute in the shaping of a plausible future; foreshadowing ideals, instead of
passively shadowing inertial replies.
By evoking the powerful meanings, symbols, metaphors, experiences, reflec-
tions, and heritages of ancient civilizations and diverse cultural mentalities, we
hope to contribute to help people make sense (both hermeneutically and
action-oriented) of the profound transformations of the epoch, which carry
unheard-of and usually inconspicuous consequences.
Reflexive observation of the abundant traces of human culture, can enrich
our understanding of diverse mentalities, enabling us to learn from the similari-
ties and differences of perception, and action. Thus, besides fostering our com-
munalities and empathically recognizing that everyone on Earth shares the
same destiny, reflectively looking at the phylogenic and anthropologic nature
of humanity can provide us with wiser inspiration in order to construct a more
sustainable, meaningful and plentiful future.
Reinforcing the contact with diverse human mentalities can help us unearth
the core of humanity’s identity and full potential, empowering the discovery
and creation of the most laudable futures, perhaps in serendipitous ways, but
832 S. CASTRILLON-ORREGO

always gaining awareness of our common destiny and need for sustainability, as
we navigate through the same cosmopolitan venture.
The Digital Era ushers in unforeseen uncertainties, and perhaps unexpected
threats to the survival of corporations and overall sustainability of natural eco-
systems. Throughout this chapter multiple questions have been suggested as
potential enquiry concerns, trying to nurture critical thinking and reflexivity,
so emerging trends can be scrutinized in ways that are mindful of the well-­
being of all forms of life, social balances, and long-term economic prosperity.
Reflexivity requires flexibility, even more in the context of exponential
changes that characterize the digital turbulences of current times. That is why
continuous interrogation is promulgated throughout the text; not necessarily
seeking definitive answers, but wishing to impregnate the quest for meaning-
ful action.
Reflexivity cannot guaranteed predetermined results, but obliges us to
explore life-saving epiphanies, seeking open-mindedness and warm-heartiness
through serendipitous journeys, welcoming amazement; so humankind does
not get lost, and, like T.S. Eliot, keeps searching and guarding the wisdom that
might get lost in information.

Acknowledgements This chapter was produced with the gracious support of

Universidad EAFIT, a leading academic center within Colombia, which has demon-
strated genuine interest in contributing to the sustainable progress of society, and all its
stakeholders, through teaching, research, and social engagement with multiple parties.
Working at EAFIT has enable me to become aware of the multiplying effect of manage-
ment and education in multiple ways. Thanks to the challenges of teaching, EAFIT has
provided me with endless opportunities to learn, and be inspired by friendly faces, and
challenging students.

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 CHAPTER 41

Promoting Business Sustainability through

Experiential Learning: Connecting Multiple
Dimensions

Sergio Castrillon-Orrego and Paula Almonacid

Introduction
Current societal transformations are triggered by environmental factors, such
as climate change and technological disruptions that galvanize demographic,
political, and socioeconomic transformations. These changes are amplified by
digital vectors that magnify effects and accelerate turbulence. The effects on
societal actors are asymmetrical, varying by age and access to state-of-the-art
technology, and depending on income, geographic location, and degree of
education.
These changes are more highly visible in businesses and within the younger
generations which adopt them more quickly, both because they are more
exposed to them, and because the relations of the means and purposes of dis-
rupting technology flow more easily. Nevertheless, instead of affirming identi-
ties and proper relations with the others and the world, paradoxically, business
and youngsters seem to have become more detached from nature, from the
whole of society, and less aware of how their own actions generate conse-
quences on them.
Accordingly, thinking about young people and business, and inspired by a
teleological concern to improve management education for sustainability this
chapter presents an action-research project, its design and results, hoping it will

S. Castrillon-Orrego (*) • P. Almonacid

Universidad EAFIT, Medellín, Colombia
e-mail: [email protected]; [email protected]

© The Author(s) 2021 837

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_41
838 S. CASTRILLON-ORREGO AND P. ALMONACID

inspire similar learning experiences and be replicated in different contexts with

similarly positive results in terms of education for sustainability. As the first
quarter of the new century nears completion, it becomes imperative for the
field of education to contribute responsible leaders, aware of complex contem-
porary challenges and capable of harnessing digital forces towards sustainably.
The overall research problem consists of exploring how these prospective
young professionals interpret the challenges of sustainability, and their own
transformative power, using business and management as vectors for change.
By interrogating their perceptions, priorities, arguments, reflections, and
appropriation of concepts, we explore to what extent diverse variables (digital
ones among others) help them project their careers into the complexity of
our times.
Inspired by important efforts to identify the transformative power of educa-
tion, specially of experiential learning (Gonzalez-Perez et al. 2019; Taras and
Gonzalez-Perez 2015), this project was originally conceived to investigate how
young management students make sense of current business challenges in
terms of Sustainable Development Goals (SDGs).
By organizing a fieldtrip to the local Botanical Garden, we tried to shake
their taken for granted interpretations of theories; we invited them to explore
economic, environmental and social problems that could be transformed
through business solutions, thus creating awareness about the leverage power
of businesses and the need to renew their connections with their territories and
contexts in coherent and sustainable ways.
In this field trip, we pursued a learning experience, articulating the destina-
tion with the journey, daring students to face the shortcomings of their own
city, and making them confront the challenges of development, locally, but
with a global mindset. For instance, we asked them to question the sense and
purpose they give to their profession, requiring them to scrutinize the aspira-
tions and expectations they have in terms of responsiveness. We also wanted
them to rethink the impacts they want to produce, examining technological
combinations and envisioning the skills they are willing to develop and
implement.
The studied group provided us with a privileged way to learn how young
people, interested in becoming business managers and entrepreneurs, are per-
ceiving the times they live in, therefore helping us identify potential demo-
graphic trends and revealing mis/conceptions about development, and hence
identifying threats and opportunities for educators to intervene ethically, pro-
moting the transformations that human survival and blooming might require.
Understanding persons who will join the labor market by 2025 might be
quite revealing, since they have been born and raised within the current digital
era, embedded but not overwhelmed by technological gadgets. Their perspec-
tives can help educators and policy makers to identify how multiple dimensions
of development and levels of analysis can be interpreted. Given the impact they
will have in society, as tech-users, as consumers, as citizens, it is also important
 41 PROMOTING BUSINESS SUSTAINABILITY THROUGH EXPERIENTIAL… 839

for governments and corporations that seek sustainability to anticipate the

strategies to engage them in meaningful ways.
Being conscious that the current digital era alters the way behavior is affected
within society, and that business interactions with nature could be altered in
unforeseen ways, this chapter seeks to share the results of an action-research
project designed to discover what students think about the challenges of devel-
opment and about their potential to contribute to achieving it, as well as the
means they perceive as necessary. It seeks to discover something about business
students, rather than assume stereotypes or prejudgments. It aims to detect the
prevailing perceptions and ideas within these young students, taking their
answers as clues to better ways to reconnect management, technology, and
sustainable enterprise.
The survey’s questions were formulated around the axis provided by the
Sustainable Development Goals (SDGs) which constitute an elegant expres-
sion of the 2030 Agenda. In addition to the answers and contents addressing
the specific questions, throughout the whole exercise we paid attention to the
emergence of spontaneous elements. We also tried to spot the degree of com-
plexity evoked by students, seeking to identify the kinds of associations stu-
dents suggested and the number of variables involved.
The questions were mostly open, avoiding the conditioning of replies. Also
it is important to mention that questions echo Kolb’s learning cycle (Kolb et al.
1981, 1986), in the sense that students were invited to evoke personal experi-
ences, to reflect, to conceptualize, and to propose active business ideas, all
within the contexts of SDGs.
In order to protect privacy and assure the respect freedom of opinion, per-
sonal interpellations were sought from individuals, at a personal level, but indi-
rectly, inviting them to think about people like themselves (i.e., their peers), so
they would feel free to mention taboos or stigmatized topics of which they
could have first-hand experience.
It is important to mention that the time horizon for reflection was immedi-
ate, asking participants to enrich debate with their ideas, for now and for local
settings, all within a pressing timeframe of concrete action. Action as part of
learning, and as developing awareness of the technical, cognitive, interpersonal,
and axiological ideas they might want to develop by the time of graduation
(just before 2025 for most). They need to be ready.
Among the benefits of the activity, we found that it helps participants recon-
nect (or at least recognize the importance of reconnecting) with the territory,
with non-visible parts of society, and, in this specific trip, with nature, its forces,
and some of its potential contributions to business, economic growth, and
overall development.
Arguably this kind of pedagogic exercise renews belief in individuals, as
empowered and capable of assume larger responsibilities. Part of the gain is
re-­signifying connections among people and communities, beyond virtual real-
ity. Hopefully making people more intelligent, not just cyber-connected, but
connected to the usually ignored multi-dimensional realities.
840 S. CASTRILLON-ORREGO AND P. ALMONACID

Context and Background

To create sustainable value, businesses require new strategic visions.
Shortcomings in terms of balanced development and rapid technological trans-
formations oblige reconfigurations of conventional functional arrangements in
businesses. Not only corporations’ legitimacy is at stake, but the probably the
whole patter of established socioeconomic organization. These complex reali-
ties represent enormous challenges for the field of education.
Exponential and digital technologies have the power to accelerate business
and to integrate markets and people. As experts point out, “international busi-
ness is becoming more transversal” (Gonzalez-Perez et al. 2019, p. 3).
Nevertheless, not all stakeholders are aware of the vicissitudes that world
dynamics imply.
Although global warming, greenhouse gases, waste of material resources,
poverty, and many negative effects of economic activity have been profusely
documented by responsible media, mainstream management and business edu-
cation are not responding as promptly as they should to the forthcoming envi-
ronmental crisis. Many of the conceived strategies for a sustainable future are
yet to be implemented. (Hazel 2006)
Hence, what can be done to foster education for sustainability? We suggest
that experiential learning and interdisciplinary sensibility might help partici-
pants to acknowledge the multiple dimensions and complexity inherent to the
environments in which business organizations operate.
In this sense, educators must provide frameworks than can help students
make sense of their experiences, while fostering useful reactions. Therefore, we
have designed activities through the whole semester, and incorporated ques-
tions in the survey, that invite students to complement their diverse learning
styles and opportunities, according to Kolb’s learning cycle. This implies valu-
ing their experiences, reflecting and learning, so conceptualizations can make
sense and prepare them for active experimentation. As Vince (1998) remarks,
this cycle is not critique-free, but supports useful learning
When designing the experiential exercise we also considered Clayton
Christensen’s analysis of entrepreneurs, and findings regarding how innova-
tions emerge (2008). Hence, prior to the field trip, students were invited to
challenge the status quo and reflect on how to take risks. Immediately before
the activity, students were instructed to observe everything in non-judgmental
ways, to question everything, to work with others connecting ideas and experi-
menting with their initiatives at small scales. Given the fact that the activity also
asked students to think about ulterior entrepreneurship, they were exposed to
Prahalad’s ideas regarding the importance of watching for opportunities at the
bottom of the pyramid (Prahalad and Hammond 2002), a location where not
only fortunes can be found, but also where advancements toward sustainability
can be made (Prahalad and Hart 1999).
Taking accepted typologies regarding corporate social responsibility
(Gonzalez-Perez 2013) as a reference, and guiding strategic reflection, SDGs
 41 PROMOTING BUSINESS SUSTAINABILITY THROUGH EXPERIENTIAL… 841

were proposed as beacons to help students organize their experiences and con-
ceptual efforts. This approach is not completely novel (Constantine and
Pontual 2015; Griggs et al. 2014; Pedersen 2018) and has proven useful is
different settings. Most importantly, SDGs had demonstrated didactic poten-
tial with the students in the weeks before the field-trip. For instance, the most
controversial issues that happen every day, or the most theoretically elaborated,
were more easily understood by the students when faculty used the SDGs as
articulating categories to explain them. One of the strengths of taking SDGs as
reference is that they are supported by the United Nations’ Principles for
Responsible Management Education (Alcaraz and Thiruvattal 2010), thus
potentiating their educative impact.

A Literature Review
The experiential learning exercise was supported by a theoretical framework
covering some fundamentals of management (Robbins et al. 2017), so stu-
dents could elaborate a comprehensive view of management, and encounter
the jargon of corporations.
As mentioned before, a critical spirit permeates the activity, and following
Alvesson and Deetz’ critical approach (2000), students are challenged to gen-
erate insights about business dynamics, to criticize (in this case, outcomes in
terms of unsustainable effects), so that they can eventually propose ideas for
transformation. These are expected to fall within the realm of integrity, given
the university efforts and the plausibility of Wankel’s call for Management
Education for Integrity, which is fostered among students throughout the aca-
demic period (Wankel 2011).
Before the fieldtrip (which served to synthesize the course), students were
sensitized in class about the importance of some core competences, which were
practiced in several assignments and class discussions. The references used are
those developed by the Association of American Colleges and Universities, and
labeled as the AACU Value Rubric (“Value Rubrics of the Association of
American Colleges & Universities” n.d.). The competences we focused on
were: critical thinking, creative thinking, civic engagement and ethical
reasoning.
Through this exercise, we intend to disrupt conventional didactic approaches
to introduce students to the management field, trying to shake the status quo
at the organizational level (Alajoutsijärvi et al. 2017), but most purposefully
challenging students to see differently, to explore their own ways of looking at
their profession and everyday reality.
In this sense, reflexive pedagogy (Bailey et al. 1997) proves to be quite use-
ful – it offers multiple strengths and is not totally exhausted (Dehler et al.
2001). Of course, the idea is to build upon critical thinking to empower people
and organizations to contribute to the transformation of the world
(Mochizuki 2016).
842 S. CASTRILLON-ORREGO AND P. ALMONACID

Transformation in what sense? What about sustainability? Karl Weick has

repeatedly demonstrated the importance of proper sense-making in different
contexts. More than 20 years ago he showed how order can emerge from chaos
in the electronic world (Weick 1997), and over time has explained organizing
processes that facilitate more meaningful learning outcomes (Colville et al.
1999; Weick et al. 2005)
In this sense, it is essential to highlight the meta-learning that occurs through
experiential learning, such as the recognition of multiple stakeholders (Freeman
1999), or how poverty might be produced by capitalism within their own city
(Freeman et al. 1988). As has been demonstrated, the theoretical foundations
for experiential learning are sound and diverse (Gonzalez-Perez and Taras
2015), offering multiple paths to stimulate authentic learning in students.
In this sense, we believe critical and reflexive education (Tayar and Paisley
2015), combined with experiential learning, can enhance global citizenship
(Lei et al. 2015). Belonging to a country with significant developmental chal-
lenges, we believe business education has the power to be part of the solution.
Management has the power and the responsibility to propitiate dialogue and
bridge society and the corporate world. As Lozano and Sauquet have stated,
practitioners’ dialogue must integrate business and ethical values (1999).
Thus, and given the threats to sustainability brought by the frenetic rhythms
of digital changes, we have designed this pedagogic exercise to broaden stu-
dents’ perspectives of business, sharpening their critical and creative skills and
helping them comprehend the ethical concerns of diverse stakeholders so they
start crafting the capabilities to transform companies that hurt (De Gaulejac
2005) into those that generate well-being (Honeyman 2014). Sustainability
requires deep reflection, and nowadays, urgent action. All current issues need
revision (Mochizuki 2016), but also rapid development of pertinent skills
(Kate and Delyse 2003).
A global consensual agenda, such as constituted by SDGs, enables the busi-
ness community to use them as a power source for business and most impor-
tantly, as articulator of human collective action (Pedersen 2018). They also
enable the assumption of critical perspectives (Prasad and Caproni n.d.), which
provide valuable inputs that connect dimensions, and ultimately improve and
legitimize businesses and corporations as valuable contributors to society. As
Anderson has put it, through connections, it becomes possible to reach the
goal of educating better students, for better companies (de las Anderson 2019).

Methodology
This chapter combines qualitative and quantitative analysis of the answers pro-
vided by participants to a survey that examines the learning derived from a field
trip to a botanical garden in Medellin, the second largest and most important
city in Colombia; a vibrant city, with exciting development challenges.
Nevertheless the quantitative analysis does not divert the epistemic orientation
of the research, which promotes and builds upon Alvesson and Deetz’s “critical
 41 PROMOTING BUSINESS SUSTAINABILITY THROUGH EXPERIENTIAL… 843

methodology” (2000), complemented by responsible intentions and proce-

dures (Swartz 1997) and eagerness to be mindful and awaken mindfulness
among participants (Bentz and Shapiro 1998) and, hopefully, the public.
Basically it consists of an action-research willing to link theory and empirical
applications (Gordon and Rosemary 2006), which might inspire students to
engage in more responsible business endeavors, or even pave the way for ser-
vice learning as means to carry on developing management skills (Goldberg
and Coufal 2009).
Although some quantitative analyses are made, it is important to highlight
that potential findings do not seek generalizations. Instead, we aspire to con-
structivist quality criteria of research such as acknowledgement of subjectivi-
ties, reflexivity, and verstehen-deepened understanding (Patton 2002: 544). In
other words, instead of seeking strong conclusions, we seek deeper compre-
hensions and authentic sensibility in order to gain the ability to educate better.
Hopefully, we accomplish this by balancing purposes and means (e.g., digital),
including genuine concerns for sustainability, and enacting an enriched array of
instruments (e.g., digital ones) to face the corporate challenges of generating
lasting value for all stakeholders.
Students were asked, to voluntarily answer ten questions whenever they
pleased, within a 48-hour deadline, and with all theoretical resources at hand.
The survey was given to them a week after they voluntarily participated in the
field trip. It is important to mention that participation, although voluntary, was
stimulated by bonus points in grades, a fact that certainly increased
participation.
4.1 Description of the Fieldtrip
The trip lasted one day, and students were given the opportunity to join any
of four different groups. The destiny was the Botanical Garden, where expert
biologists would offer a guided tour and a workshop on climate change and the
eco services that could enrich society, benefit living ecosystems, and dynamize
business in sustainable ways, provided they fine-tuned with nature.
The quantitative analysis had the purpose of measuring the distance between
the answers provided by the students for each of the questions, and regrouping
them in some categories by topic. This was performed through a text-mining
analysis.
This specific text-mining analysis consists fundamentally in calculating a
similarity measure between the documents and then taking it as an input for an
appropriate clustering algorithm. In our case we used as a similarity measure
the cosine similarity of TF-IDF (term frequency–inverse document frequency
vectors), and an algorithm to cluster the documents, applying hierarchical clus-
tering and the K-means clustering methods.
We selected the criterion of the cosine similarity because of its potential to
provide us with thematic clusters, which could be relevant descriptors of the
students’ concerns, interests, and ideas regarding each of the questions. In
addition, it considers the orientation and not the magnitude of the distances.
Mathematically, it represents the measure of the angle between two vectors
844 S. CASTRILLON-ORREGO AND P. ALMONACID

projected in a multi-dimensional space, provided by the cosine. The smaller the

angle, the higher the cosine similarity.
K-means clustering and hierarchical clustering are unsupervised machine
learning methods that have the objective of creating homogenous subgroups
among observations. According to (James et al. 2013), K-means clustering is
an iterative algorithm that randomly assigns each of the observations a K,
where the value of K is a pre-specified number allocated by the researcher
according to his experience and knowledge. The algorithm seeks to reduce the
Euclidean distance between each observation and its centroid, which means
that when it finds the minimum distance it stops.
In conclusion, we performed the analysis in two steps, calculating first the
distance between the documents using the cosine metric criterion and then
applying the clustering algorithms to each question. For the clustering step, we
first incorporated hierarchical clustering to have a general idea of the number
of the thematic clusters, and then explored each of the questions by including
the K-means clustering with a pre-determined number of clusters in order to
extract the main trends of each particular question. As recommended by the
best practices of machine learning, before applying the two steps of data min-
ing mentioned, we preprocessed the data by performing a tokenization process
and removing the stop words.
Notwithstanding the quantitative analyses performed, it is important to
emphasize the exploratory nature of the action-research, which mostly aims to
focus on a specific group, in line with the logic of case study (Yin 1994), and
qualitative research (Patton 2002). Our main purpose is to explore adequate
pedagogic strategies to empower young students to better use current digital
technologies and other didactic procedures as means to help a move toward
responsible and sustainable business practices. Results should be taken only as
bases for propositions, as invitations to design further research.

Results
The results were analyzed after all entries were format-cleaned and the database
provided comparable data. In total, we had 78 students who voluntarily took
the survey. The age profile showed an age average of 19 years, with a maximum
age of 31 years and a minimum age of 17 years. Seventy-five percent of partici-
pants were between 17 and 20 years.
In the first question, students were asked to review the whole set of SDGs,
examining their full descriptors, and after paying close attention to their con-
tents, to classify the 17 different SDGs, in one and only one category of sus-
tainability, i.e., environmental, economic, or social. The purpose of this
assortment was to make students reflect upon the semantic spectrum of con-
tents that each SDG embodies and subsequently to make them think about the
diverse possibilities to frame them.
Interpreting sustainability challenges constitutes a core step into the mobi-
lization of political and technological means that would support its
 41 PROMOTING BUSINESS SUSTAINABILITY THROUGH EXPERIENTIAL… 845

achievement. In managerial terms, it certainly influences how causalities are

comprehended, and how impacts are assessed. In general terms, eight (8)
SGDs are classified as mostly “social,” five (5) as mainly “environmental,” and
4 as mostly “economic” in their nature.
According to the results, for SDGs 1, 2, 3, 4, and 5, which correspond
respectively to No Poverty, Zero Hunger, Good Health and Well-being,
Quality Education, and Gender Equality, most of the students selected the
“social” category. These results are interesting, because they show students can
escape conventionally economic indicators, such as poverty, recognizing its
qualitative nature, beyond quantitative standards regarding poverty or misery
as dictated by the World Bank, for example.
It also remarkable to observe that some SDGs are clearly ranged within a
single category. For example, SDGs 13, 14 and 15, were ranked by almost all
participants as “environmental.” This could reflect semantic clarity, but also
represents isomorphic and linear thinking. Eventually, educators will work to
reduce compartmentalization by strengthening complex thinking.
Some SDGs reflect more diverse groupings; for example SDGs 1, 10, 11, 12
and 17, were classified in different categories illustrating lower levels of consen-
sual perception, though simultaneously embracing more potential to recognize
circular causalities and nurture multivariable, complex solutions. It is notice-
able that 37% of the students classified the first goal into the “economic” cat-
egory and approximately 18% of the students classified the second goal into the
“environmental” category. This result implies that poverty is recognized as a
complex problem that spills over multiple dimensions. It is also consistent with
participants’ interpretation of SDG 17, where they acknowledge that strength-
ening “the means of implementation and revitalization the Global Partnership
for Sustainable Development” comprehends more than a single, compartmen-
talized dimension.
The second question asked them to select one SDG out of each category,
according to their perception of its achievability if good business-management
practices were implemented. They were directly asked to pick one SDG as most
feasible through profit-oriented activity. This command was intended to have
them focus on business opportunities, but also to force them away from the
idea that it is up to governments and non-profits to solve social problems.
After the feasibility prioritizing, students were asked to “Briefly discuss each
of your 3 selections (50 words maximum for each).” In this question 3, stu-
dents could argue about impacts, benefits, pragmatism, personal taste, urgency,
importance, the ideas of Prahalad, and news of interest, etc. It is interesting to
notice the variety of responses, and the absence of technological or digital
dimensions. Topics evoked covered: the progress of countries, aspects about
government and justice, children’s education, guaranteeing health, improve-
ments in nutrition and agriculture, gender equity, environmental damage, fam-
ine, deaths, and poverty aspects. Table 41.1 displays the clusters obtained by
K-means derived from students’ discussion and justification of their selections.
846 S. CASTRILLON-ORREGO AND P. ALMONACID

Table 41.1 Arguing preferences when selecting a given SDG

Cluster Key word 1 Key word 2 Key word 3

1 Countries EEUU To progress

2 Government Corruption Justice
3 Children Capital Education
4 Study Society Education
5 To guarantee Healthy Life
6 Problem Society Great
7 Success Achieve Great
8 Men We Beings
9 Agriculture Nutrition Sustainable
10 Equality Women Gender
11 Hunger Food Sense
12 Environment Damage Community
13 Peace Health Awareness
14 Hunger Deaths Poor
15 Economic Promoting Studies

Source: Authors’ creation

Notes: The K-means clustering algorithm was applied to the answers given by the students to the following ques-
tion: Briefly discuss each of your 3 selections (50 words maximum for each). For example, you can argue impacts,
benefits, pragmatism, personal taste, urgency, importance, ideas of Prahalad, news of interest, etc.

After this round of argumentations, students were instructed to select only

one SDG, explaining their choice and answering, in no more than 50 words,
the question: “Why, from a Business Administration perspective, do you prefer
to work towards the achievement of this SDG?”
We can observe some trends inferred from the top keywords obtained after
the clustering process and the TF-IDF score. The topics and the number of
clusters obtained are presented in Table 41.2.
Among the answers, the following topics were emphasized: needs of the
base of the pyramid, income-generation and business career, generation of new
sources of energy, discovery and initiatives that generate profits, Colombian
fruits, end hunger, global financial exchange, forests and indigenous from
Colombia, ideas for ensure good education and marine and flora related prod-
ucts. The absence of technological contents, or digital means and aspirations is,
again, noticeable.
In the fifth question, we analyzed experiences, in an indirect way. The ques-
tion was: “How do you think that young people like you (for example, first-­
year students of Business Administration), may have experienced or may
directly experience the realities associated with the selected SDG? Please
describe at least 3 experiences that bring young people closer to the issues
related to the SDG of their choice.” We opted for this vicarious inquiry of
experiences, in order to prevent hurting sensitivities that might arise out of
personal conditions, and in order to assure the privacy of respondents.
Table 41.3, displays the clusters obtained by K-means corresponding to this
specific inquiry.
 41 PROMOTING BUSINESS SUSTAINABILITY THROUGH EXPERIENTIAL… 847

Table 41.2 Why do students prefer a given SDG, when assuming a Business
perspective?
Cluster Key word 1 Key word 2 Key word 3

1 Needs Base of pyramid Segment

2 Generate income Career Business
3 Wind energy Solar energy Business
4 Hunger Agriculture Malnutrition
5 Profit Discovery Initiatives
6 Fruits Colombia Importance
7 Run out Hide Hunger
8 Financial Exchange Global
9 Forest Indigenous Colombia
10 Idea Good education Ensure
11 Organization Women Development
12 Produce Maritime Flora
13 Keep Planet Environmental
14 Ideas Our To promote
15 Strategies Economic Environmental

Source: Authors’ creation

Notes: The K-means clustering algorithm was applied to the answers given by the students to the following ques-
tion: “Why, from a Business Administration perspective, do you prefer to work towards the achievement of this
SDG?” (Minimum 350 characters, maximum 400 characters.)

Table 41.3 Interpreting the vicarious experience with SDGs

Cluster Key word 1 Key word 2 Key word 3

1 Discriminant Income Women

2 Poverty Ecosystem Pollution
3 City Planet Trees
4 Knowing Affect Can
5 Technology Climate change Unemployment
6 Changing Variable Notorious
7 Sweetness Consume Children
8 Services Youth Environment
9 Example Production For
10 Coal Generators Energy
11 Quality Improve Jobs
12 Stable Company Economy
13 Subsoil Extraction Systematic
14 Indicator Macroeconomic Analyzing

Source: Authors’ creation

Notes: The K-means clustering algorithm was applied to the answers given by the students to the following ques-
tion: How do you think that young people like you (for example, first-year students of Business Administration),
may have experienced or may directly experience the realities associated with the selected SDG? Please describe
at least 3 experiences that bring young people closer to the issues related to the SDG of their choice.
848 S. CASTRILLON-ORREGO AND P. ALMONACID

The most frequently found aspects were: discrimination against women in

terms of income, aspects related to pollution and poverty, aspects related to
trees, city and planet, issues about technology, climate change and unemploy-
ment, aspects about notorious changes, the feeding of children, youth services,
energy and coal generators, quality of employment, stable economies and com-
panies, subsoil extraction and macroeconomic indicators. Here it is worth
noticing that “technological issues” appear as “experiences” that might help
young people to get closer to the SDG they have selected.
The sixth question of the survey invited participants to propose reflections
to their fellow classmates, so that they would gain awareness about the prob-
lematic dimensions and eventual solutions related to their selected SDG. We
found the following topics emerged most frequently: the ecosystem and the
links between animals, education of the people of a country, aspects about
understanding, coping, acts, vacancies, industry levels, informing, adopting,
remembering, renewing, value, undertaking, effective, important, needs, think,
power, service coverage, patients, implement, sell, states, experience, rebuild,
fight, family, work and faith. It is interesting to notice that popular components
of the digital universe are not propose as elements to reflect about. The follow-
ing table displays the clusters obtained by K-means corresponding to this
reflexive question (Table 41.4).
As part of the effort to promote critical thinking, the survey also asked stu-
dents to “Describe and explain three administrative failures and/or errors in the
business dynamics, which can generate the problems that each specific SDG tries
to address.” When we analyzed the answers (which could not exceed 100 words),
we found diverse items emerging, such as: problematic waste, filters and forests,

Table 41.4 Proposing reflections to their peers, raising sustainability awareness

Cluster Key word 1 Key word 2 Key word 3

1 Ecosystem Animals Links

2 Country People Education
3 Face Acts Understanding
4 Holding Vacancies Will begin
5 Environment Without Use
6 Industrial Levels Compare
7 Reminder Informed Adopt
8 Renewable Value Ventures
9 Effective Matter Import
10 Needs Think Can
11 Patients Services Coverage
12 Implement States Sold
13 Experience Rebuilt it Fight
14 Families Works Faith

Source: Authors’ creation

Notes: The K-means clustering algorithm was applied to the answers given by the students to the following ques-
tion: What reflection would you propose to your colleagues to become more aware of the problems that are
related to this SDG, and to the possible solutions
 41 PROMOTING BUSINESS SUSTAINABILITY THROUGH EXPERIENTIAL… 849

friendly products, consumerism, incentives, resources, non-profit, extinction,

different, purpose, water, companies and pollution, theory, learning, induction,
economic project and monopolies, objectives and problems, research in energy,
expensive, ineffective, problem, administration and development of employees,
cash, efficiency and leaders, vehicles, transportation and supplies, agricultural and
food calendar, prophecy and administration, import, trade, rigidity.
Although results could provide diverse interpretations, and the variety of
criticisms reveal the complicated and multivariate nature of the problems, it is
worth noticing that no explicit allusions to digital components appear. One
possible conjecture is that most young students assume technology and the
changes brought along by the digital era, as neutral.
Following Kolb’s learning cycle, the eighth question of the survey instructed
students to conceptualize theoretical connections between business manage-
ment and SDGs. The ninth question invited students to briefly formulate sus-
tainable business proposals where contributions to SDGs can be evidenced, for
example, adapting Prahalad’s ideas, or offering biodiverse services (profiting
from the learnings derived of the visit to the Botanical Garden). Because of the
nature and duration of the course, rather than asking for full projects, the invi-
tations were to conceive hypothetical scenarios, which hopefully would stimu-
late students to mature them later on. Table 41.5 displays the clusters obtained

Table 41.5 Identifying Administrative Failures, Criticizing Business Dynamics

Cluster Key word 1 Key word 2 Key word 3

1 Operational Problematic Waste

2 Forest Filters Motivated
3 Friendly products Consumerism Incentive
4 Resources Non-Profit Many
5 Different Extinction Problem
6 Purpose To count Water
7 Resources Companies Pollution
8 Theory Induction Learning
9 Monopoly Economy Project
10 Goals Objectives Problems
11 Research Energy Expensive
12 Ineffective Conclusion Problem
13 Development Employees Management
14 Effectiveness Efficiency Leaders
15 Vehicles Transport Decide
16 Food Agricultural Schedule
17 Administration Prophecy Affirmative
18 Importing Trade Rigid

Source: Authors’ creation

Notes: The K-means clustering algorithm was applied to the answers given by the students to the following ques-
tion: Describe and explain three administrative failures and/or errors in business dynamics, which can generate
the problems that the SDG tries to address. (Minimum 350 characters, maximum 400)
850 S. CASTRILLON-ORREGO AND P. ALMONACID

by K-means corresponding to the inquiry about identifying and denouncing

administrative failures, business mistakes, and related SDGs shortcomings.
The final question directly required students to explore their own educative
responsibility, by asking them “How do you think you should prepare to
become a personal and socially responsible Business Administrator?” The
themes that emerged from the students’ responses were the following: incor-
porate innovations, updates, teamwork, leader, challenges, preparation, guide,
criticism, repercussions, purposes, unique, subsistence, find sustainable solu-
tions, evolution of demands, managed, in charge, focus, route, work, study,
improve, discipline, ethics, technology, solutions, information, visualize, col-
laborate. Although the question introduced an ontological bias, it is interesting
to notice that some digital elements appear, such as “technology,” “informa-
tion,” “incorporate innovations.”

Conclusions
The year 2025 is just around the corner, and the stakes for humanity are high,
not only because of the urgency of the problems we face, but because their
structural significance. How we face sustainability threats and act towards the
huge and problematic environmental, social and economic concerns, may sig-
nify the difference between human blossoming, plain survival, or even
extinction.
As educators wishing to contribute to a more sustainable future we have
conducted an experiential-learning project, exploring how these prospective
young professionals interpret the power of business and management in order
to achieve the challenges of sustainability. By interrogating their perceptions,
priorities, arguments, reflections, and appropriation of concepts, we explore to
what extent diverse variables (digital ones among others), help them project
their careers within the complexities of our digital times.
Multiple questions propelled this action-research. Some were kept tacit,
given the limited nature of the activity. In general, we wanted to learn more
about some specificities of this particular digital-native generation, their sus-
tainability concerns, their expectations regarding their career, and their top-of-­
mind interests. Although many questions enticed and motivated this ethical
quest, only some materialized as part of the survey. The answers to the survey
provide interesting contents that educators could analyze. For instance,
thoughts on how digital tools could be mobilized towards sustainability in
terms of purposes and possible means.
The results of this experiential fieldtrip conducted with students who will be
joining the ranks of business organizations in a few years raise important chal-
lenges for business educators. Young people constitute a marvelous opportu-
nity to understand how current demographics combine with technological
disruptions, and to understand the diverse ways in which the digital revolution
is affecting society. A deeper comprehension of this segment of society will
 41 PROMOTING BUSINESS SUSTAINABILITY THROUGH EXPERIENTIAL… 851

reveal possible points and forces of inflexion, guiding potential interventions

with ethical leverage.
Although new generations are digital natives, they do not necessarily per-
ceive the potential for change that the digital revolution implies. They are often
seen to be ignoring both threats and the potential to enforce sustainability.
Naivety regarding how drinkable water comes out of the tap, and how energy
is produced and transported, is as common as ignorance regarding the social
patterns of interaction that tend to condemn entire segments of the population
to structural poverty.
Consequently, one of the responsibilities of management schools is to culti-
vate empirical and conceptual connections that enable students to make sense
of the multi-dimensionality of reality. If this multi-dimensionality is acknowl-
edged, we might get closer to achieving SDGs and helping students to con-
ceive more integral and sustainable business strategies.
This obliges business schools to assume an active educational role, making it
imperative to get involved in controversies and taking the lead in societal
debates, discussing how digital technologies can be harnessed to generate sus-
tainable economic and moral value, even if that implies questioning the role of
business itself. We can no longer assume business education to be contained
within a few classrooms and factories.
One finding from this activity is that as students engage in participation,
they commit to deeper learning, gaining awareness about the purpose of
“being” there and becoming aware that preparing their careers obliges to con-
nect to the world. For instructors, it raises multiple questions regarding how to
integrate the digital skills of young generations into educative strategies, escap-
ing the trivial, spontaneous usage of data, devices and social networks.
The fieldtrip activity proved to be meaningful to students, enjoyable and
eye-opening in terms of the destination (the Botanical Garden), and the jour-
ney (collectively walking to, and using public transportation from the univer-
sity, moving through downtown), seeing the city afresh, visiting an ignored place.
Many of them owned to this being their first visit to the Botanical Garden
(or this type of site), and to being surprised by its scientific nature. Many of
them seldom use public transportation, almost never scrutinize the city, or
think about the complex causality of its problems. It is no exaggeration to
claim that education sometimes keeps pseudo happening in a bubble.
Nevertheless, if we are to achieve the 2030 Sustainable Agenda it is imperative
that all actors within the business community act promptly to educate all gen-
erations, questioning the role and purpose of education, and technological
means through which positive examples are enacted.
As the answers to the survey demonstrated, abundant use of digital means
does not signify consciousness about the enormous advantage it represents. If
all stakeholders scrutinize their own contributions, and explore their mutual
causalities, sustainable development may take place.
Nonetheless, this implies an active quest for different perspectives.
Experiential learning activities that promote empathy and invite vicarious
852 S. CASTRILLON-ORREGO AND P. ALMONACID

learning could be part of the effort to enact a sustainable future. Improved

pedagogy can spark significant impact. Future generations deserve all the
efforts we can make to assure them a sustainable future, profiting from the
digital conveniences, to create life-sustaining businesses which acknowledge
the complex and genuine aspirations of development.
The fieldtrip reminds faculty that management schools have to make greater
efforts to connect students (and faculty) with surrounding ecosystems, with
the complexities of society, and even with business dynamics. This transforma-
tive endeavor could resort to digital resources when trying to discover business
opportunities and when enacting the corresponding solutions; so market
dynamics, and value creation (and destruction), can be fully understood by
future managers.

Acknowledgements This article was possible to the gracious support of Universidad

EAFIT, a leading academic center within Colombia, which has demonstrated a genuine
interest in contributing to the sustainable progress of society, and all its stakeholders,
through teaching, research, and social engagement with multiple parties.
Universidad EAFIT employs both of the authors, and provided the financial support
of the trip, paying for transportation and the professional services of the biologists at the
botanical garden. Thanks to Universidad EAFIT we get the chance to meet students,
and learn from them, as we prepare our best trying to teach them.

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 Correction to: Augmented Reality:
The Game Changer of Travel and Tourism
Industry in 2025

Tan Gek-Siang, Kamarulzaman Ab. Aziz,

and Zauwiyah Ahmad

Correction to:

Chapter 9 in: S. H. Park et al. (eds.),

The Palgrave Handbook of Corporate Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_9

In chapter opening page of Chapter 9, one of the editors name (Tan Gek-­Siang)
was misspelled as Ten Gek-Siang. This has now been corrected.

The updated versions of the chapters can be found at

https://doi.org/10.1007/978-­3-­030-­42412-1_9

© The Author(s) 2021 C1

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1_42
 Index1

A artificial intelligence revolution,

Accountability 270, 275–276
accountable government, 363, automatic decision-making, 260, 263,
365–367, 372 264, 275
climate change disclosure, 672–675, Business Intelligence
681, 682 Culture, 259–276
corporate sustainability dynamics of artificial
accounting, 651–666 intelligence, 259–276
sustainability report, 651, 671–683 ethical standards, 261–263, 268, 270,
transparency, 143, 203, 260, 366 272, 274–276, 364
Accounting, 400, 431, 434, 440, 603, See also Machine learning (ML)
635, 651–653, 656, 659–662, Attention
664–666, 672, 673 attentional vigilance, 387
corporate sustainability economy of attention, 283–302
accounting, 651–666 executive attention, 387
Advertising, 40, 77, 94, 95, 273, 275, selective attention, 387
287, 289, 390, 547, 548, 551–552, wise attention, 386–388
715, 717, 718, 730, 731, 734, Augmented reality (AR),
735, 760 38, 169–178
See also Digital marketing Automation
Agenda 2030, 563, 575, 576, 767–781 challenges of automation and
Algorithms, 29–47, 266–268, 270–272, digitalisation, 613–624
286, 289–291, 296, 301, 356–358, companies, 65, 67, 294
364, 401, 446, 564, 577, 640, 641, digitalisation and the new
643, 816, 843, 844, 846–849 opportunties, 613–624
code, 642 stages, 65, 66, 296, 436
Artificial Intelligence (AI) Autonomy, 66, 185, 399–400, 490, 572,
artificial intelligence regulations, 270 734, 828

1
Note: Page numbers followed by ‘n’ refer to notes.

© The Author(s) 2021 857

S. H. Park et al. (eds.), The Palgrave Handbook of Corporate
Sustainability in the Digital Era,
https://doi.org/10.1007/978-3-030-42412-1
858 INDEX

B Brave New World, 218, 220, 223,

Balanced scorecard perspective, 479–495 229, 230
Banking Huxley, Aldous, 218, 220, 223,
Fintech, 160, 314, 325, 430–437, 229, 230
439–441, 443, 445–447 Brazil, 57, 58, 118, 119, 121, 122, 124,
incumbent banks, 433, 442–445 125, 197, 216, 242, 253, 309n1,
Big Data 356, 369, 370, 412, 419, 422, 423,
data analytics, 398, 631, 698 755, 770, 773, 780
triple bottom line big data Brexit (British exit), 214, 215, 220, 222,
analytics, 631 225, 229, 237, 238, 242–244, 247,
Big tech companies 251, 320, 329, 355, 359
Amazon, 35, 36, 40, 41, 94, 216, 267, Brundtland Commission, The, 337
272, 274, 286–288, 290, 292, Brundland report, 717, 719, 722, 731,
294, 318, 319, 363, 388, 400, 736, 737
411, 418, 433, 446, 491, 531, World Commission on Environment
583, 621, 622, 630 and Development, 337, 717
Apple, 35, 40, 94, 268, 272, 274, 360, Buddhism, 384
363, 371, 389, 418, 433, 446, Business 2025, 32, 214, 582
583, 587, 605–608, 621, Business culture, 259, 270, 275, 547
623, 748 Business Intelligence, 266
Facebook, 30, 35, 36, 40–43, 95, 99, Business Intelligence Culture
274, 286, 287, 289, 290, (BIC), 259–276
292–294, 297, 298, 316, 318, Business Intelligence Culture
319, 360, 362–364, 411, 433, (BIC), 259–276
446, 513, 549, 552, 597, Business managers, 46, 158, 196,
601–608, 748 203–204, 213, 214, 217, 219–221,
Google, 30, 36, 40, 95, 174, 268, 270, 225, 229, 351, 590, 644, 705, 838
286, 287, 289, 290, 292–294, See also CEOs
297, 299, 318, 363, 411, 433, Business model, 33, 56, 60–62, 64, 75,
446, 531, 549, 563, 583, 91, 92, 94–97, 99, 101, 121, 124,
605–608, 621, 623, 738, 748 126, 239, 299, 314, 319, 398, 399,
Paypal, 35, 433 402, 403, 413, 430, 432–434, 436,
Biodiversity, 636, 775 441–442, 444, 445, 457, 474,
Bitcoin, 30, 269, 561–563, 569, 574 504–507, 510, 529, 533, 561, 565,
See also Blockchain 581, 583–585, 588–590, 616–618,
Blockchain 620, 639, 652, 819
Bitcoin, 561–563, 569, 570, 574 Business roundtable, 227, 308, 322,
and business sustainability, 324–325, 330, 373
565, 573–575 Business, 47, 78, 86, 198, 205, 237–254,
Nakamoto, Satoshi, 563, 569 634, 635, 693, 705, 851
and transparency, 569–573
and trust, 565–569
See also Distributed ledger C
technology (DLT) Capabilities, 29, 30, 33, 38, 42, 44, 47,
Born circular firms, 505, 507 77–79, 86, 113, 115–117, 126,
Born digital, 533, 536 150, 152, 196, 198, 199, 239, 338,
Born global firms 339, 343, 362, 380, 382, 385–388,
international new ventures, 391, 399, 401, 412, 415–418, 422,
111–113, 583–584 423, 436, 439, 446, 480, 488, 490,
 INDEX 859

532, 534, 536, 548, 552, 572, Telefónica, 748, 750, 751, 755, 756
581–583, 588, 590, 642, 643, 652, Teñimos, 63
795, 799, 815, 818, 819, 821, 823, Theranos, 588, 590
825, 826, 831, 842 Tincol, 63
digital capabilities, 67, 411–424, 441 Up2Go, 519
Capitalism WeWork, 589
digital capitalism, 260, 265–267, Womsh, 511, 515–517, 519–521
269–271, 273, 274, 296, Case study, 63, 93, 97, 113, 115, 117,
363, 369 133, 148–150, 153, 154, 201,
stakeholder capitalism, 307–330 458, 459, 462, 472, 475, 510, 522,
Cases 585, 652, 654, 656, 657,
Ak Enerji, 675, 679, 681, 682 664–666, 844
América Móvil, 749, 750 Central banks, 162, 248, 309, 313, 314,
Anfibia, 92, 93, 96, 98, 101, 102 316, 327, 433
Apepak, 413, 511, 512, 519, 520 Centrist, 222–225, 356
Animal Político, 96 CEOs, 217, 227, 228, 324, 366, 373,
Arrivo, 585, 588–590 571, 586, 587, 656, 657, 659–661,
Banco do Brasil, 749, 753, 754 663, 680, 748, 757
Banco Santander, 748, 750 See also Business managers
Bancolombia, 748–750 Challenges
BBVA, 751–752, 757 global challenges, 262–263, 322, 631,
Cairn, 674 718, 801
Ciper, 96 local challenges, 262–263
Colhilado, 63 See also Scenarios
Color y Diseño, 63 China, 30, 43, 57, 149, 169, 172, 201,
Creytext, 63 214, 216, 220, 243, 309n1, 320,
Crystal, 63 321, 336, 342, 344, 345, 347,
Ecopetrol, 748, 749, 753 349–351, 356, 358, 362, 364,
El Faro, 99 419, 490, 575, 586, 589, 603,
Empresa de Energía Bogotá, 750 604, 697
ERG, 674, 676, 680, 681 Chinese Catalogue, 337, 342–343,
Fabricato, 63 350, 351, 355–373
Iberdrola, 674, 678, 684, 685, 748, Church, George, 217
751, 755, 756 Circular economy
IDL Reporteros, 96 born circular firms, 505, 507
JUUL Labs, 586 circular advantages, 504
La Silla Vacía, 99 circular business models, 503, 504,
Leonardo S.p.A., 133, 148–151, 506–507, 509, 517, 519
154 co-creation, 503–522
Leonisa, 63 sustainable production, 503
Linde, 678, 684 value creation process, 510
Línea Directa, 63 Citizens, 30, 32, 35, 47, 132, 204,
Naturgy, 748, 750, 752, 757 213–215, 217, 220, 221, 224, 225,
Pelco, 63 227, 229, 252, 264, 268, 272, 288,
Petrobras, 748–750, 754, 755 291, 294, 300, 301, 355, 356,
Plaza Pública, 96 359–363, 366, 371, 555, 565, 577,
Repsol, 748, 750, 752, 756, 757 779, 781, 801–804, 806, 807,
Rexel, 674, 678, 687 823, 838
Rifò, 511, 513–515, 519, 520 citizenship activism, 197, 226
860 INDEX

Climate change Corporate culture, 338

climate change disclosure, 671–683 See also Culture
CO2 emissions, 456, 458, 460, 461, Corporate governance, 405, 673, 683,
463, 467, 482–484, 490, 493, 748, 752n3
515, 574, 718 Corporate political activity
Paris Accord of 2015, 220, 221 (CPA), 195–205
Co-creation, 33, 170, 418, Corporate social and environmental
503–522, 791 responsibility (CSRE), 543–556
value creation process, 510 digital marketing and CSRE, 543, 544,
Code, 11, 144, 145, 174, 175, 273, 274, 547–550, 554
338, 345, 361, 545, 550, 587, 637, Corporate social responsibility
642, 752n3, 760 (CSR), 545
See also Algorithm discretionary responsibility, 544, 555
Collaboration, 41, 43, 62, 78, 146, 150, economic responsibility, 544, 546
154, 158, 161, 399, 417, 418, 430, environmental responsibility, 545, 547
431, 434, 436, 442–444, 446, 447, ethical responsibility, 544, 545
480, 484, 516, 565, 619, 621, 791 legal responsibility, 544–546
skillful collaboration, 388–390 Corporate sustainability
Colombia, 55–59, 66, 67, 69, 100–101, corporate sustainability accounting
120–122, 574, 751, 752n3, (CSA), 651–666
842, 846 corporate sustainability endeavors,
Communication, 7, 20, 34, 35, 37, 43, 651–654, 657, 665, 666
46, 59, 60, 62, 100, 104, 138, 183, stakeholders’ impressions, 202
273, 274, 288, 294, 296, 300, 318, See also Sustainability
319, 323, 338, 356, 368, 372, 390, Corporations, viii, 35, 36, 45, 202, 227,
399, 403, 432, 456–458, 463, 510, 228, 259, 261, 264, 265, 284, 297,
514, 515, 517, 530, 532, 550, 299–301, 322, 325, 328, 355, 360,
596–598, 600, 601, 605, 607, 608, 363, 366, 367, 373, 556, 588, 636,
619, 621, 622, 671, 681, 683, 693, 637, 652, 703, 705, 815, 817, 818,
696, 705, 718, 724, 747, 790, 822, 830, 832, 839–842
801, 831 Corporatocracy, 366, 371, 372
Comparative management, 398, Corruption, 104, 205, 216, 229, 250,
404, 405 327–329, 384, 574, 780, 818,
Compassion, 693–706, 831 821, 829
Competitiveness, 59, 61, 66, 79, 116, Cosmopolitanism, 831
154, 171, 197, 205, 337, 338, 340, CO2 emissions, 456, 458, 460, 461, 463,
351, 380, 384, 419, 434, 467, 475, 467, 482–484, 490, 493, 515,
484, 601, 638, 744, 745, 768 574, 718
Compliance, 137, 140, 143–148, Countries
147n17, 153, 154, 217, 226, 227, Brazil, 57, 58, 118, 119, 121, 122,
429, 434–435, 441–443, 513, 124, 125, 197, 216, 242, 253,
774, 797 309n1, 356, 369, 370, 412, 419,
Connectivity, 10, 318, 380, 386, 422, 423, 752n3
388–391, 400, 417, 418, 423, 488 Colombia, 55–59, 66, 67, 69,
Conservative, 121, 213, 217, 219–225, 100–101, 120–122, 574, 755
227, 230, 488, 736 European Union (EU), 57, 132, 133,
Conspiracy theories, 264, 268–271, 276 143, 153, 189, 214, 217,
Consumer buying patterns, 530–531 242–244, 248, 251, 252, 260,
Consumers’ trust, 537 262, 269, 297, 313, 325, 355,
 INDEX 861

364, 368, 371, 455, 460, 461, 439–441, 488, 550, 551, 563,
550, 616, 618–620, 623, 575, 576, 584, 586, 590, 603,
624, 830 613–614, 618, 631, 634,
Finland, 76, 81, 215, 229, 260, 360, 731, 751
373, 574 Creative economy, 300
France, 98, 172, 186, 326, 328, 356, Creativity, 19, 31, 33, 69, 313, 367,
359, 404, 616, 672, 674, 411–424, 429, 507, 508, 619,
675, 680–682 693–696, 698, 699, 701, 705, 706,
Germany, 186, 349, 356, 360, 364, 744, 825
368, 516, 603, 616, 672, 674, organizational creativity,
675, 682 411–412, 414–424
India, 57, 60, 69, 169, 201, 243, CRISPR, 217
309n1, 328, 356, 362, 509, 697 Cryptocurrencies, 30, 432, 433, 441,
Iran, 216, 356, 369 561–563, 568, 569, 571,
Italy, 118, 119, 122, 125, 126, 134, 574–576
141, 150, 151, 186, 241, 328, Bitcoin, 30, 561, 562, 569
360, 511, 515, 518, 603, 616, Culture
672, 674, 675, 680, 682 Business Intelligence Culture
Malaysia, 169–173 (BIC), 259–276
Mexico, 57, 58, 120–122, 356, 358, corporate culture, 338
370, 491, 562, 656, 657, Hofstede’s cultural values, 672,
751, 752n3 674, 680
North Korea, 216 national culture, 672, 674, 682
Poland, 60, 241, 246, 248, 249, 260 Customer-oriented focus, 442
Russia, 57, 149, 201, 216, 309n1 KYC (Know-Your- Client), 442
Saudi Arabia, 216 Customization, 33, 286, 444, 445, 461,
Spain, 119, 295, 328, 360, 603, 672, 549, 550
674, 675, 680–682, 751, 752, mass customization, 406
752n3, 755 Cyberattacks, 134, 136, 138,
Switzerland, 224, 370, 371, 516, 142, 149–152
562, 574 Cybercommerce, 446
Turkey, 57, 672, 674, 675, 681–685 Cybercrime, 132, 134, 137, 154
Ukraine, 201, 360 Cybernetics, 31, 42–44, 47, 60, 141
United Arab Emirates Cybersecurity, 38, 131–154, 217, 218,
(UAE), 789–807 430, 431, 442, 443, 568
United Kingdom, 172, 173, 185, 186, See also Data security
220–222, 225, 228, 229,
242–244, 251, 260, 286, 326,
328, 339, 345, 346, 349, 488, D
603, 672, 674, 675, 679, Data
681–685, 731 data analysis, 11, 59, 118, 299, 510,
United States, 31, 40, 57, 58, 92, 132, 642, 655–656, 698
139n7, 151, 172, 173, 185, 196, data protection, 30, 131–154, 262,
201, 204, 214, 217, 220–222, 379, 572
225, 226, 228–230, 243, 250, See also Cybersecurity
254, 272, 274, 286, 308, Data security, 132, 133, 143, 153,
310–313, 315–321, 323, 324, 362n2
326–328, 339, 349, 355, 356, Deloitte, 185, 437, 438, 443–446, 564,
359, 360, 365, 366, 369, 370, 746, 748, 752n3
862 INDEX

Democracy, 30, 196, 224–226, 228, digital privacy, 435–436

229, 241, 262, 271, 295, 298, 366, digital revolution, 10, 30, 132, 307,
770, 828 318–322, 356–358, 430, 435,
Democratic governance, 216, 221, 229, 437, 447, 480, 485, 488, 493,
365, 366 494, 537, 538, 543, 850, 851
Digital era, 45, 259–276, 307, 329, 379, (see also Technological revolution)
380, 384, 386, 391, 481, 484, 543, digital strategy, 441, 444, 461
544, 546, 549, 582–584, 590, digital transactions; human decision-­
595–608, 815, 830, 832, 838, making, 262; info-communication
839, 849 globalization, 260, 268, 273;
digital anarchy, 268–271 robots governing, 275
digital capabilities, 67, 411–424, 441 digital transformation, 31–33, 38, 42,
digital capitalism, 260, 265–267, 46, 47, 60, 63, 75, 76, 159, 165,
269–271, 273, 274, 296, 170, 259, 270–272, 299, 311,
363, 369 379, 398, 404, 405, 411–414,
digital disparity, 534, 537 416–419, 422–424, 429, 441,
digital journalism, 92, 94–96, 98 459, 474, 562, 573,
digital marketing; content marketing, 575–577, 651–666
547, 548, 552, 555; digital Digitalization
marketing challenges, 547, 548; bright side of digitalization, 398–400
digital marketing professionals, dark side of digitalization, 401–402
543, 548; disruptions in the data-driven, 532, 533, 536
digital marketing tools, 551–554; digitalisation of economies, 613–624
e-commerce, 79, 121, 260, 267, digitalization and joblessness, 401
445, 547, 548, 553–554, 568; digitalization of work, 397, 402,
email marketing, 547, 548, 553; 405, 406
outsourcing of marketing services, digitalization skills, 399, 403
549; search engine and display groundbreaking digitalization,
advertising, 547, 548, 551–552; 533, 536
search engine optimization and platform-based, 533, 536
search results, 551; social media threats to digitalization, 406
marketing, 547, 548, Disruption, 43, 45, 216, 251, 252, 261,
552–553, 555 314, 316, 319, 324, 326, 329, 338,
digital media, 91–105, 188, 534, 355, 356, 359, 360, 362, 364, 371,
537–539, 551 372, 380–390, 404, 429–436, 440,
digital orientation, 75–88 446, 536, 543–556, 624, 640, 816,
digital platforms, 515, 604; Facebook, 827, 837, 850
30, 35, 36, 40–43, 95, 99, 186, Distributed ledger technology (DLT),
274, 286, 287, 289, 290, 430–432, 435, 436, 442, 573,
292–294, 297, 298, 316, 318, 575, 576
319, 360, 362–364, 411, 433, See also Blockchain
446, 512, 513, 549, 552, 597, Disturbance, 382, 388
601–608, 748; Instagram, 95, 99, age of disturbance, 386–390
102, 602–608; Linkedin, 186, Diversity
319, 400, 552, 597, 602–608; class, 184
Netflix, 35, 94, 103, 292, 446; cultural diversity, 184, 273
Twitter, 35, 40, 95, 99, 102, 243, diversity training, 181–187, 189–191
292, 597, 601–607, 643; ethnicity, 184
WhatsApp, 35, 99, 100, 102 race, 184
 INDEX 863

religion, 184 Emotional intelligence, 41, 384–386,

sexual orientation, 184 391, 829
Dystopia, 219, 294 Environment
biodiversity, 636, 775
climate change, 47, 213, 215–218,
E 220, 221, 229, 325, 562, 563,
Economy of attention, 283–302 631, 632, 671–690, 694, 703,
Education, 641 705, 768, 815, 820, 827, 837,
cosmopolitanism, 823–825, 831 843, 848
education reform, 367 environmental change, 19, 322,
experiential learning, 837–852 324, 379
reflexive education, 817, environmental risk, 781
822–823, 842 environmental sustainability, 373,
re-skilling, 399, 402–404 406, 458, 460, 467, 530,
Vocational Education and Training 533–537, 539, 632, 633, 636,
(VET), 402, 403 640, 696, 698, 699,
See also Learning; Skilling; Training 702–705
Electronic money, 159 Equality, 181–191, 328, 369, 595, 644,
Electronic remittances, 159 715–721, 723, 724, 729, 734–738,
See also Mobile money 744, 745, 748, 751, 755, 757,
Emerging economies 758, 760
Brazil, 57, 58, 118, 119, 121, 122, gender, 715–738, 744, 749, 752, 759,
124, 125, 197, 216, 242, 253, 760, 776, 779
309n1, 356, 369, 370, 412, 419, See also Diversity; Inclusion
422, 423, 752n3, 773, 780 Equality and diversity inclusion (EDI),
China, 43, 57, 149, 169, 172, 201, 188–189, 191
214, 216, 220, 243, 309n1, 320, Ethics
321, 336, 342, 344, 345, 347, lifeboat ethics, 214, 217, 224
349–351, 356, 358, 362, 364, Ethnography, 695, 698
419, 490, 575, 586, 589, 603, European Union (EU), 57, 143, 153,
604, 697 189, 214, 217, 242–244, 248, 251,
Colombia, 55–59, 66, 67, 69, 252, 260, 262, 269, 297, 313, 325,
100–101, 120–122, 574, 751, 355, 368, 371, 455, 460, 461, 616,
752n3, 755, 846 619, 620, 623, 624
Ghana, 9, 12
India, 57, 60, 69, 169, 201, 216, 243,
309n1, 328, 356, 362, 509, 697 F
Malaysia, 169–173 Financial crises
North Korea, 216 global financial crisis, 237, 241,
Russia, 57 307–330, 349, 356
Turkey, 57, 672, 674, 675, 681, subprime crisis, 308, 309,
682 311
Emerging market firms (EMFs), 110, Financial inclusion, 160, 163, 166, 430,
111, 115–117, 252, 253, 433, 435, 440, 444, 571
335–351 Financial innovation, 308, 441
Emerging markets, 60, 110, 111, Finland, 76, 81, 215, 229, 260, 360,
113–115, 117, 197, 198, 201, 202, 373, 574
238, 252, 309, 314, 315, 335–351, Fintech, 160, 314, 325, 430–437,
356, 442–447 439–441, 443, 445–447
864 INDEX

Flexibility, 21, 46, 60, 86, 239, 254, Globalization, 56, 113, 122, 127, 183,
285, 300, 315, 384–386, 391, 397, 184, 238, 253, 254, 339, 340, 351,
400, 406, 432, 440, 442, 460, 463, 379, 584, 840
466, 487, 488, 492–494, 576, 619, dark side of globalization, 355–373
744, 749n2, 752, 759, 801, 832 digitally-enable globalization, 362,
Fordist manufacturing revolution, 363, 367, 372, 373
613 new globalization, 355–373
Foreign direct investment (FDI), 110, Going back to the future, 488–489
203, 323, 328, 335–351 Great Place to Work Institute, The, 743
Inward FDI, 335–342, 344–351 GRI, 637, 674
outward FDI, 336–338, 344–351; See also Reporting
outward FDI policies, 336
Fourth industrial revolution, 61, 67,
317, 322, 329, 397, 405, 456, 815, H
825, 830 Happiness, 291, 298, 384, 743–761
Free market economy, 261, 263, happiness at work, 743–761
265–269, 272, 324 Hardin, Garrett, 214, 217
Funding, 99, 101, 201, 247, 261, 308, lifeboat ethics, 214, 217, 224
314, 315, 317, 323, 325, 328, 439, Hofstede’s cultural values, 672–674, 680
587, 588, 705 Human dynamics, 613–624
innovative funding sources, 99 Humanity, 29, 30, 37, 45, 284, 291,
Future 298–301, 308, 329, 337, 358, 535,
dystopian, 213–230 562, 569, 693, 694, 699–703, 706,
future of work, 398–401 821, 827, 828, 831, 850
qualitative narratives, 217 Human sensibilities
quantitative models, 217 compassion, 693–706
Shell Scenarios, 227 connection, 693–706
Utopian, 213–230 Huxley, Aldous, 218, 220, 223, 229, 230
Future of consumption, 532–534 Brave New World, 218, 220, 223,
See also Circular economy 229, 230
Future of work, 398–401
See also Jobs; Work
I
ICRG, 249
G Identity politics, 216, 221
Gender Ideology
gender consumption, 716, 720, capitalism, 216, 224, 229
728, 736 socialism, 216, 224, 229
gender equality, 715–738, 744, 749, Impeachment, 220, 222
752, 752n3, 759, 760, 777, Inclusion
780, 845 equality, 181–191
gender inequality, 715, 751 financial inclusion, 160, 161, 163,
gender production, 716, 717, 728, 166, 430, 433, 435, 440,
734, 736 444, 571
See also Diversity; Inclusion inequality, 751
Geoengineering, 218 people of determination, 789–807
Global Compact, United Nations, people with special needs, 790, 794,
817, 818 795, 798
 INDEX 865

India, 57, 60, 69, 169, 201, 216, 243, 436–439, 441, 455, 459, 472,
309n1, 328, 356, 362, 509, 697 479–495, 504, 507, 509, 518, 529,
Industrial Revolution, 30, 67, 456 532, 533, 536, 582, 583, 596, 599,
Industries 621, 622, 637, 652, 653, 695, 701,
digital media, 92, 104, 385, 615 753, 780, 789–807, 825–827,
financial sector, 430, 437 840, 850
industry 4.0, 30, 55, 60, 64, 66, 67, innovation driving efficiency, 436–437
456, 474 Institutional environment
knowledge-intensive industries, 336, emerging economies; institutional
343, 345, 346, 348 voids, 202; weak institutional
manufacturing, 59, 84, 484, 506 environment, 125, 252
textile industry, 55–69, 119, 513, regulation, 203
516 Institutional framework, 67, 248, 404,
tourism, 169–178 546, 550
See also Sectors Intellectual capital
Industry 4.0, 30, 55, 60, 64, 66, 67, intellectual capital disclosure,
456, 474 595–608; intellectual capital
See also Industrial revolution 4.0 disclosure practices, 598–600
Inequality, 66, 68, 104, 163, 184, 216, intellectual capital reporting, 596–603,
217, 228, 262, 276, 300, 301, 307, 607, 608
316, 322–324, 328, 329, 358, 359, International Business, see Globalization;
367–369, 371–373, 397, 398, 534, Multinational corporations
537, 641, 644, 674, 680, 715, 716, International cooperation, 93, 101, 227,
718, 723, 744, 746, 751, 777, 780, 371–372, 575
781, 793 Internationalization
digital disparity, 534, 537 M&A, 442, 444, 446
See also Inclusion; Poverty motivations, 110, 117, 118, 123,
Information 124, 126
information, communication, and outward FDI, 336–338, 344–351
technology (ICT), 62, 284, 300, permanence in foreign markets, 110
318, 324, 403, 405, 456–458, post-entry internationalization, 110,
467, 472, 535, 671, 718, 112, 124
802, 807 speed of internationalization, 109–127
information society, 132, 284, 285, strategic asset seeking, 336, 337, 340,
289, 294, 295, 301 343, 345–351
information technology, 60, 62, 75, Internet, 10, 29, 35, 38, 40–42, 47, 91,
81, 137, 138, 141, 146, 173, 94–95, 98, 100, 102, 131, 146,
175, 178, 261, 299, 345, 367, 164, 175, 187, 273, 274, 283–291,
429, 437–439, 458, 562, 581, 293, 294, 297, 298, 301, 302, 316,
585, 620, 639, 642, 802 318, 323, 326, 345, 363–365, 402,
information transmission, 345, 457 403, 446, 457, 508, 530–532, 536,
Innovation, 3–12, 15, 20–22, 33, 40, 538, 551, 553, 562, 583, 596, 600,
45–47, 59, 61, 62, 67, 78, 95–96, 604, 613, 616, 617, 632, 638, 715,
102–104, 112, 113, 117, 122–124, 724, 728, 736, 738
126, 132, 133, 139, 142, 148, 153, Internet of Things (IoT), 33, 36–39, 46,
170, 184, 216, 220, 260, 268, 270, 47, 62, 260, 262, 264, 319, 397,
284, 308, 317, 318, 339, 342–344, 406, 412, 414, 417, 436, 442, 456,
357, 364, 369, 370, 386, 391, 399, 457, 472, 532, 536, 563, 575, 614,
403, 413–416, 419, 429–434, 615, 617, 618, 641, 802
866 INDEX

Investment 494, 504, 582, 619, 621, 640, 673,

foreign direct investment, 110, 203, 696, 702, 704, 807, 816–821, 823,
323, 328, 335–351 826, 827
sustainable investment, 325, 507 Learning in organizations, 182–183
Iran, 216, 356, 369 Leonardo S.p.A., 148–152, 154
See also Case study
Lifeboat ethics, 214, 217, 224
J Hardin, Garrett, 214, 217
Jobs Literature analysis
digitalization and joblessness, 401 bibliometric study, 264
digitalization of work, 397, 402, content analysis, 98, 724
405, 406 Logistics
green jobs, 406 4.0, 457, 458, 461, 472, 475
job matching, 400 logistics service provider, 455–457,
job satisfaction, 743, 745, 759 459, 460, 463, 475
platform workers, 402, 406 See also Supply chain
relocation, 406 Long-term
remote work, 399–400 orientation, 346, 673
re-skilling, 399 sustainability, 95, 109–127, 390,
self-employment, 295, 402, 406 643, 760
sustainable work, 398, 404 LRN, 217
work intensification, 401
See also Labor market; Work
Johnson, Boris (Prime Minister), 222, M
225, 244 Machine Learning (ML), 29–31, 36–39,
45–47, 398, 434, 439, 442, 445,
529, 844
K See also Artificial Intelligence (AI)
Knowledge Macroeconomics, 237, 239, 245–250,
diffusion channel, 338–339 329, 440, 794, 848
economy, 34 macroeconomy policies, 237,
-intensive industries, 343, 345, 239, 245–248
346, 348 Malaysia, 169–173
management, 68, 417 Market entry barriers, 433–434
spillover effects, 339–341 Marketing, 6, 22, 79, 95, 112, 113,
121, 132, 166, 170, 172, 226, 286,
287, 326, 338, 339, 400, 435, 437,
L 461, 508, 513, 514, 516, 530, 531,
Labor market 534, 543–556, 586, 590,
future of work, 403 701, 715–738
labor market reform, 363, See also Digital marketing
368–369, 372 McKinsey, 398, 400, 405, 437, 438,
sustainable work, 402–404 440, 443–445, 447, 531, 548, 552,
See also Jobs; Work 744, 758, 759
Learning, 37, 42, 46, 77, 104, 113, 176, Media silos, 357
177, 182–183, 186, 266, 317, 336, Median voter perspective
340, 341, 343, 351, 367, 373, 380, median voter model,
382–383, 386, 399, 400, 403, 432, 221–224
441, 443, 460, 467, 487, 491, 493, median voter theorem, 222
 INDEX 867

Migration O
electronic remittances, 159 Oligopoly, 287–290, 294, 296, 300
refugees, 214 Organisation for Economic Co-operation
Military conflict, 215, 321 and Development (OECD), 6, 29,
Mobile devices, 10, 95–97, 99, 157, 173, 30, 295, 320, 323, 328, 336, 337,
174, 435 343–344, 350, 351, 358, 368, 397,
Mobile money (MM), 15, 157–166, 400, 401, 482, 535, 575, 746
444, 445 Guidelines for Multinational
See also Electronic money Enterprises, 336, 343, 350
Monetary policy, 307, 308, 310, 311, Orwell, George, 31, 218, 220–223,
313–315, 327, 329 229, 230
exhaustion, 327
Monopoly, 264, 363–364, 372
Multinational corporations, 56, 113, P
122, 127, 183, 184, 238, 253, Paris Accord of 2015, 215, 220
254, 339, 340, 351, 379, 584, People of determination, 789–809
840 Perfornance
Multinational enterprises (MNEs), 252, organizational performance, 4, 185,
328, 336, 339–341, 343–344, 413, 416, 418–423, 481,
350, 595–608 484, 491
See also Corporations performance management, 401
Museum experience, 173 performance measurement system,
480, 481, 485, 487, 491,
493, 494
N Platform economy, 318, 400, 403,
Nakamoto, Satoshi, 563, 569 406
National business systems, 405 Policy implications, 87, 530, 538–539,
Nationalism, 215, 229, 329, 368, 615, 622, 623, 806
824 Political activity, 195, 196, 199–201, 204
Nation states, 134n2, 260, 355, 357, See also Corporate political
359–362, 372 activity (CPA)
Necessary condition analysis (NCA), Political decisions, 198, 223
337, 346–350 Political positions
Neoliberalism, 361 conservatism, 225
Netflix, 35, 94, 103, 292 liberals, 238, 292
1984, 218, 220–222, 229, 230, neoliberalism, 361
239, 618 Political risk, 245, 247–250, 253
Orwell, George, 218, 220–223, Political uncertainty, 237–254
229, 230 Populism, 215, 229, 237–254, 329
1971, 238, 432 populism’s moment, 237–254
Nonmarket strategies Porter, Michael, 459, 480, 481, 491
corporate political activity, Poverty, 5, 9, 132, 160, 161, 163, 165,
197 286, 317, 322, 355, 370, 569, 631,
political capabilities, 198 641, 718, 768, 773, 777, 779, 780,
political connections, 199 793, 794, 823, 831, 840, 842, 845,
North Korea, 216 848, 851
Nuclear weapons, 216, 229 See also Inclusion
868 INDEX

Privacy, 36, 38, 136, 153, 154, 160, 262, Risk

264, 265, 267, 270–274, 276, 298, economic risk, 246, 248, 249
301, 316, 362, 364, 401, 430, 435, environmental risk, 781
436, 442, 539, 547, 552, 563, 565, political risk, 245, 247–250, 253
569, 572, 573, 577, 617, 802, Robotics, 37, 41, 59, 67, 300, 319,
839, 846 356–358, 361, 432, 445, 575,
digital privacy, 435–436 613–617, 830
Public interest Robots, 29–31, 34, 37, 40, 41, 43–45,
dynamics of global 58, 59, 252, 259–264, 267, 268,
regulation, 259–276 271, 272, 274–276, 358, 368, 371,
the public interest theory, 264, 265, 399, 457, 461, 463, 466, 467, 472,
273, 276 475, 481, 616, 620, 624
self-regulation mechanisms, 266 robots governing, 275
Public management, 767, 769–771, 774 See also Artificial Intelligence (AI);
PwC, 398 Industry 4.0
Romney, Senator Mitt, 216
Russia, 57, 149, 201, 216, 309n1
R
Refugees, 191, 214, 217
Regtech, 434, 437, 444 S
Regulation Sanders, Bernie (Senator), 216, 222,
artificial Intelligence (AI) 228, 229
regulations, 259–276 Saudi Arabia, 216
cybersecurity, 138, 153 Scenarios
digital anarchy, 268–271 dystopian, 213–215, 217–222,
global regulation, 259–276, 434, 482 226, 227
regulation theories, 263–265, 276 utopian, 213–215, 217–221, 226,
regulatory agencies, 158, 166, 198, 227, 285
201, 203, 264–276 See also Future
regulatory regimes, 363–365, 372 Schwab, Klaus, 398, 615
Regulatory agencies, 158, 166, 198, 201, Sectors, viii, 9, 31, 55, 81, 91, 114, 132,
203, 264–276 158, 169, 170, 197, 225, 241, 265,
Remittances, 158–161, 166, 323, 287, 314, 336, 358, 397, 414, 429,
435, 445 455, 481, 530, 602, 614, 631, 653,
See also Electronic remittances 671, 734, 748, 768, 790
Reporting Seidman, Dov, 217
Global Reporting Initiative (GRI), Shared value
637, 674 co-creation, 33, 170, 418, 503–522
intellectual capital reporting, 596–603, value creation process, 510
607, 608 Sharing economy, 308, 322, 326–327,
non-financial reporting, 673 330, 364, 433, 536, 568
sustainability report, 10, 202, 461, Shell Scenarios, 227
576, 599, 651, 671–683, 745, Skillful means (SM), 380, 383–386, 390
747, 748 Skills, 9, 38, 59, 60, 63, 66, 69, 77, 95,
Resilience 149, 152, 154, 182–185, 189, 252,
organizational resilience, 382–383, 253, 260, 272, 295, 319, 322, 338,
386, 388 341, 358, 367, 373, 385, 397, 399,
skillful resilience, 379–391 400, 402, 403, 412–415, 417, 424,
Reskilling, 403, 621 432, 460, 467, 471, 472, 487, 535,
 INDEX 869

548, 596, 615, 619–624, 747, 751, supply chain management (SCM), 62,
797, 830, 838, 842, 843, 851 457, 458, 472, 480, 481, 483,
re-skilling, 399, 402–404 486–487, 492, 493, 574, 638
skills development, 183, 619, 621, 622 supply chains disruptive
See also Education; Training innovation, 488–491
Small-to-medium-scale enterprises sustainable supply chain management
(SMEs), 4, 9–10, 12, 15, 19, 22, (SSCM), 481, 483–485, 493
23, 109–127, 260, 440 See also Logistics
Social fragmentation, 359, 362, 372 Survival, 110, 111, 115, 122, 126, 370,
Socialism, 216, 219–222, 224, 228, 229 388, 389, 391, 494, 583, 635, 637,
Social media, 3, 10, 46, 79, 196, 272, 694, 702, 703, 781, 815, 819, 823,
274, 298, 357, 359, 364, 417, 433, 824, 827, 828, 838, 850
512, 515, 516, 531, 534, 535, 547, Sustainability, 530
549, 552, 553, 586, 588, 596–608, biodiversity, 636
639, 643, 702, 715, 724, 802, 804 economic sustainability, 463–467, 632,
social media marketing, 547, 548, 635, 639, 696, 699, 702
552–553, 555 environmental sustainability, 373, 406,
Social networks 458, 460, 467, 530, 533–537,
Facebook, 30, 35, 36, 40–42, 95, 99, 539, 632, 633, 636, 640, 696,
186, 274, 286, 287, 289, 290, 698, 699, 702–705
292–294, 297, 298, 316, 318, 319, ethical sustainability, 222, 261, 637,
360, 362–364, 411, 433, 446, 815, 827
512, 513, 549, 552, 597, financial sustainability, 92, 165
601–608 societal sustainability, 716
Instagram, 95, 99, 102, 326, sustainability and the wisdom of elders,
515, 602–608 701, 703–704
LinkedIn, 186, 319, 400, 552, sustainability index, 774–779;
597, 602–608 municipal index of sustainable
Twitter, 35, 40, 95, 99, 102, 243, development, 775
292, 597, 601–607, 643 sustainability reports, 202, 461, 576,
Software, 31, 38, 40, 59, 118–121, 137, 599, 671–683, 745, 747, 748
138, 152, 174, 188, 261, 264, triple bottom line (TBL), 226, 460,
266–268, 270, 272, 275, 287, 302, 631, 699, 717–718, 720, 731,
345, 346, 399, 438, 444, 461–463, 734, 736, 737
466, 467, 471, 472, 475, 554, 620, Sustainable consumption, 326, 505,
656, 662, 664 531, 538
Spain, 119, 295, 328, 603, 672, 674, consumer buying patterns,
675, 680–682, 752, 752n3, 755 530–531
Specialization, 59, 94, 479 Sustainable development
Stakeholder perspective, 308 cosmopolitan, 815–832; reflexivity,
Stakeholders 817, 819, 823–825, 827, 828,
stakeholders capitalism, 307–330 831, 832
Start up, 260, 443, 507, 511, 514, 517, Sustainable Development Goals
519, 590, 622, 802 (SDGs); SDG 1, 493, 845;
Storytelling, 190, 693–706 SDG 2, 41, 773, 775, 845–847;
Strategy SDG 3, 36, 775, 776, 845, 846;
strategic goals; balanced scorecard, 480 SDG 5, 719, 731, 735;
Supply chain SDG 13, 845
green supply chain management sustainable development-oriented
(GSCM), 483 managers, 815–832
870 INDEX

Sustainable finance, 308, 322, Training, 59, 63, 67, 68, 101–104, 144,
325–326, 330 149, 150, 152, 154, 181–183, 186,
Sustainable investment, 325, 507 189–191, 252, 296, 300, 344, 367,
Sustainable production, 503, 641 372, 384, 402, 403, 443, 471, 472,
circular economy (see Circular 554, 622–624, 737, 746, 748, 749,
economy) 749n2, 751–753, 755, 757–759,
Switzerland, 224, 370, 371, 516, 795, 798–800, 819
562, 574 See also Education; Learning in
organizations; Skills development;
Reskilling
T Transparency, 103, 140, 143, 159, 162,
Taxes, 166, 196, 204, 216, 223–225, 195–197, 203–205, 260, 328, 366,
227–230, 243, 270, 272, 297, 300, 445, 457, 466, 471, 533, 537, 539,
317, 323, 324, 327–329, 345, 360, 545, 561–577, 582, 597, 642, 738,
368, 371, 372, 402, 433, 656, 657, 771, 781
768, 769 intellectual capital disclosure, 597
taxation, 224, 228–230, 297, 327, See also Accountability, Trust
328, 360, 371, 624 Transportation
Technological revolution, 429, 482, 484, electrifying cargo transport, 490
488, 530, 614, 826 lift truck automation, 491
Technology merging transportation with
decentralized technology, 295, 565 manufacturing, 489–490
technology adoption, 3–23 sustainable transportation, 481–482
technology as meaningful, applied Triple bottom line (TBL)
knowledge, 825–827 approach, 632–637
technology leader effect, 341 big data analytics, 631
technology orientation, 75–78, 80, 81, pillars, 634
83, 84, 86, 87 Trump, Donald J. (President), 41, 220,
technology transfer, 336, 339, 340 222, 230, 237, 238, 243, 250, 254,
Textile industry, 55–69, 119, 513, 516 355, 359, 586
Thatcher, Margaret (Prime Minister), Trust, 10, 12, 14, 19, 132, 137, 154,
228, 266, 573 159, 161, 227, 228, 300, 311, 325,
Theories 329, 389, 431, 435–437, 443, 446,
Capitalist state theory, 264, 271–272 513, 515, 530, 533–535, 537, 539,
Conspiracy theories, 264, 561–577, 607, 615, 617, 728,
268–271, 276 744, 745
dynamic capabilities, 415, 582–583 2015, 147n17, 151, 161, 215, 241, 248,
institutional framework, 67, 248, 404, 261, 311, 319, 322, 323, 328, 342,
546, 550 586, 588, 641, 672, 731, 790, 796,
public interest theory, 264–265, 799, 803
273, 276 2050, 220, 320, 482
3-D manufacturing, 614, 618 2100, 218, 631
3-D printing, 369, 575, 614, 615, 2030, 220, 259, 261, 262, 271, 322,
617, 618 411, 438, 456, 561–577, 631,
Tourism, 38, 91, 169–173, 177, 636, 718, 720, 767–781, 806,
178, 484 839, 851
museums, 172 See also Agenda 2030; United Nations’
Trade wars, 213, 215, 307, 320, Sustainable Development
329, 544 Goals (SDGs)
 INDEX 871

2020, 169, 171, 214, 222, 225, 228, Global Compact, United Nations, 817,
242, 261, 316, 320, 358, 370, 515, 818, 821, 822, 824, 830
561, 563, 565, 570, 573, 574, 586, United States (USA)
617, 641, 751, 752, 797 Sanders, Senator Bernie, 216, 222,
2025, 4, 29, 30, 32, 44, 45, 47, 55, 59, 228, 229
66, 169–178, 203, 213–230, 261, Trump, Donald J. (President), 41,
268, 336, 347, 350, 411, 412, 424, 220, 222, 230, 237, 238, 243,
440, 447, 494, 544, 582, 702, 250, 254, 355, 359, 586
715–738, 751, 838, 839, 850 Warren, Senator Elizabeth, 216, 229
Universal basic income (UBI),
369–372, 624
U User’s adoption and acceptance, 170,
Ukraine, 201, 360 173–175, 177, 178
Uncertainty, 57, 197, 205, 218, 227, Utopia, 219, 221, 824
237–239, 243–245, 247–250, 252,
253, 263, 291, 292, 320, 329, 355,
379–391, 415, 429, 483, 545, 547, V
550, 596, 673, 832 Value chain, 30, 67, 94, 95, 239,
political uncertainty, 237–254 245, 247, 250–252, 380, 416,
Unicorns 430, 432, 456, 457, 529, 584,
Start Up, 584, 589, 590 589, 680
unicorn companies, 581–590 global value chains, 239, 335,
United Arab Emirates (UAE) 406, 533
National Policy for Empowering Value co-creation, 33, 503–522
People, 790, 798, 800, 803 Value creation, 33, 45, 75, 78, 227, 457,
people of determination, 460, 506, 507, 510, 519, 573, 582,
789–809 595, 597, 599, 852
UAE innovation context for Virtual reality (VR), 67, 181–191, 457,
inclusion, 790–792 474, 839
United Kingdom (UK) virtual reality technology, 181, 188,
Johnson, Boris (Prime Minister), 222, 189, 191
225, 244, 652 See also Augmented Reality (AR)
Thatcher, Margaret (Prime Minister), Virtual workplace, 191
228, 266
United Nations Conference for Trade
and Development (UNCTAD), 30, W
32, 316, 322, 327, 482, 569, Warren, Senator Elizabeth, 216, 229
575, 576 Wealth, 43, 45, 160, 164, 185, 213,
United Nations’ Sustainable 215, 216, 219, 225, 227–229,
Development Goals (SDGs), 132, 266, 286, 297, 307, 308, 310, 316,
157, 166, 322, 323, 480, 482, 494, 324, 328, 329, 363, 369–372, 435,
536, 573, 575, 749, 771, 779, 793, 436, 438, 442, 583, 680, 736,
794, 817, 821, 824 791, 818
United Nations (UN), 132, 322, 323, Well-being, 165, 169, 291, 293, 614,
480, 482, 493, 494, 536, 562, 633, 637, 744, 746, 816, 818,
563, 573, 717, 718, 768–770, 772, 832, 842
779–781, 793, 794, 805, 822, consumers wellbeing, 530, 533–539
841 See also Happiness
872 INDEX

Work World Commission on Environment and

digitalization and joblessness, 401 Development, 337, 717
digitalization of work, 397, 402, Brundtland Commission, The, 337
405, 406 World Economic Forum (WEF), 30, 42,
green jobs, 406 59, 403, 456, 482, 529, 621,
job matching, 400 799, 830
platform workers, 402, 406 Schwab, Klaus, 830
relocation, 406
remote work, 399–400
re-skilling, 399, 402–404 Y
self employment, 402, 406, 619, 620, Year
627, 809 1984, 220, 221, 618
sustainable work, 397–406 2025, 29, 30, 45, 47, 66, 214,
work intensification, 401 336, 544
See also Jobs; Labor market 2030, 220, 271, 456, 563
Workplace
virtual workplace, 191
women in the workplace, 745–747 Z
World Bank, 9, 185, 320–322, 356–358, Zero moment of truth (ZMOT), 530,
360, 363–369, 371, 373, 481, 631, 531, 536
675, 746, 793, 794, 845 Zhang, James, 576