The document discusses how the underground economy slows down the integration of immigrants in Italy, as empirical evidence suggests territorial differences in integration processes between northern and southern Italy. This difference may be due to variations in social policies between regions as well as differences in local tax bases, and the underground economy hinders immigrants' ability to enter the formal labor market and utilize their skills.
1. Our
View’10
An exclusive collection
of articles by the
Bocconi Faculty
on the world economy,
society, environment,
technology and more.
Bocconi. Empowering talent.
2. Contents*
World Economy
Global Recession Is Affecting the World Food Program 3
by Leonardo Borlini
EU vs US over Open Skies 5
by Stefano Riela
Of Organic Apples and Oranges 7
by Enzo Baglieri
The Underground Economy Slows Down the Integration of Immigrants 9
by Carlo Devillanova
Five Months of Electoral Campaign in One of the World's Largest Democracies 11
by Antonella Mori
China Rising 13
by Carlo Filippini
A Dangerous Country with an Uncertain Future 15
by Giorgio Brunetti
What If Obama Were the New FDR? 17
by Giuseppe Berta
Management
Media Coverage Is for Sale 21
by Diego Rinallo
______________________________________
* Our View is a selection of articles previously published in the Bocconi Newsletter. Articles are available on the web on ViaSarfatti25.eu,
the Bocconi online newsmagazine, at the following address: www.viasarfatti25.eu.
Translations by Office of International Communication.
3. Europe Will Also Be Affected by US Healthcare Reform 23
by Giovanni Fattore
Champions of Earnings 25
by Dino Ruta
Drop the Mantras of Contemporary Management 27
by Francesco Castellaneta
The Profile of Companies Weathering the Crisis 29
by Giovanni Valentini
Getting Back to Basics Is Getting Business Back on Its Feet 31
by Paolo Preti
Companies Are Still Investing in Promising Resources 33
by Claudia Tamarowski
It's Not Only about Low-Cost: Prices Are Polarizing 35
by Sandro Castaldo
Working as Business Innovation Manager 37
by Silvia Zamboni
Super-Sponsored Sports 39
by Paolo Guenzi
Institutional Factors and Competitiveness Determine Where Cars Are Made 41
by Carlo Alberto Carnevale Maffè
Bringing Craftsmanship Back into Fashion 43
by Stefania Saviolo
The Lone Man at the Top Doesn't Come Out on Top 45
by Beatrice Bauer and Massimo Magni
Intangible Assets: You Can't Touch Them, but They Make the Difference 47
by Francesco Perrini
Going to the Beach on the Other Side of Globe 49
by Magda Antonioli
4. Invention: Learning by Doing 51
by Raffaele Conti, Alfonso Gambardella, Myriam Mariani
Europe, America, China: Each is Global in Its Own Way 53
by Margherita Pagani
Revealing Secret Recipes 55
by Giada Di Stefano and Gianmario Verona
Entrepreneurs, Listen to Lao Tzu 57
by Thanos Papadimitriou and Brett Martin
Society and Culture
Work Turns Liquid and Overflows 61
by Vincenzo Perrone
Moms Are Public Opinion 63
by Paola Dubini
European Museums: A Common Idiom for the Contemporary 65
by Stefano Baia Curioni
Stagnating? Certainly Not Culture! 67
by Anna Merlo
Politics as a Profession in Italy 69
by Alex Turrini and Giovanni Valotti
Sickness and Health Are Becoming Global 71
by Eduardo Missoni
Art: The Usual Exaggeration 73
by Stefano Baia Curioni
Once upon a Time There Was Photojournalism 75
by Marina Nicoli
Italy Lags Behind in Women at Work 77
by Paola Profeta
5. The Economics of Influenza 79
by Guido Alfani and Alessia Melegaro
Energy, Environment & Infrastructure
Climate Change: Everybody Waiting 83
by Luigi De Paoli
Italian Infrastructure: Priorities for North and South Are Not the Same 85
by Lanfranco Senn
Renewables, Golden Opportunity 87
by Clara Poletti and Arturo Lorenzoni
Oil Safety: Lessons from the Nuclear Industry 89
by Emanuele Borgonovo
Technology and Innovation
If Users No Longer Generate Content 93
by Luigi Proserpio
Collaboration Is Now Making Hardware Easier 95
by Emanuela Prandelli and Gianmario Verona
Control Freaks Fail Online 97
by Silvia Vianello
Now that the E-book Is Here, Let's Make Books 99
by Paola Dubini
Web 2.0 and Gen Y: the Hidden Truth 101
by Leonardo Caporarello and Giacomo Sarchioni
6. Finance
Overly Expansionist Sovereigns 105
by Carlo Filippini
Do We Really Know How to Measure Family Wealth? 107
by Stefano Gatti
Why Young People No Longer Trust in the Honesty of Accountants 109
by Mara Cameran e Ariela Caglio
The Altruism of Saving 111
by Brunella Bruno
The Phenomenology of Business Scandals 113
by Alessandro Zattoni
Calculating Regret 115
by Alessandra Cillo
How to Hedge Your Bets for a Toast of Burgundy Pinot Noir 117
by Claudio Zara
Law
The Crisis Has Broken a Convergent Path 121
by Maurizio del Conte
Made in Italy Protected by Law 123
by Giorgio Sacerdoti
The Union Has Only Blunt Tools to Impose Budget Discipline 125
by Claudio Dordi
Can I Upload or Not? 127
by Oreste Pollicino
9. World Economy
Global Recession Is Affecting the World Food Program
by Leonardo Borlini
After being in the limelight for much of the 2000s, the attention
lavished on the UN program against planetary hunger and
malnourishment seems to have vanished, as donor countries
are retreating from their commitments.
The silence of global media has fallen over the implementation of the commitments made by countries within
the scope of the UN World Food Program, which was established a decade ago to face the food crisis
affecting a growing share of the world population. The lack of news over the last year is problematic. Although
these are unilateral commitments by UN members and are at best forms of soft law, media gave the World
Food Program attention until mid-2007.
Also, job applicants to international development agencies, including the World Bank, were interviewed on
the content and reach of the World Food Program. Fishing for data, one finds a telling figure: given the billions
and billions of dollars spent to rescue banks and counter the financial crisis, the original $12.3 billion pledged to
fight world hunger are being downscaled because of the macroeconomic difficulties many donor countries
are facing.
What can be done to reduce to a minimum the likelihood of another crisis as damaging as this one? Jacques
Attali, George Soros and Joseph Stiglitz, i.e. a grand commis, a global financier and philantropist, and a Nobel
economist, respectively, concur on a fairer distribution of income and wealth as the main preventive measure
to be taken in order to avoid the recurrence of a world recession. A less unequal income distribution would
obviate the need to take on large quantities of debt (which is then repackaged and sold by others on global
financial markets) to finance primary needs.
This would be a forward-looking policy to be collectively decided and widely implemented at the
international level, along with the reforms in global governance listed by the recent UN Conference on the
World Financial and Economic Crisis and Its Impact on Development. However, the political mechanisms
leading to a collective framework orienting individual economic decision-making and self-interest have yet to
be found. Recent UN reports are not even making the news, but they say the governments of donor countries
are suspending the implementation of the program to feed the world’s hungry. The World Food Program was
3
10. World Economy
launched long before the global recession to guarantee one of the four fundamental freedoms listed by
Franklin Delano Roosevelt in 1941: freedom from want.
The Author
Leonardo Borlini teaches International and European Law at Bocconi.
From Bocconi Newsletter no. 82/2010
4
11. World Economy
EU vs US over Open Skies
by Stefano Riela
In the highly competitive global market for commercial aircraft,
the clash between Boeing and Airbus inevitably ended up in
the WTO court. An initial ruling was issued, but the transatlantic
rivalry could end up providing a new framework agreement
stipulating rules valid for all players.
The aircraft market is special because of its huge size and level of concentration. It’s also interesting for being
at the center of a long-running feud between an American and a European company.
The recently tested 787 Dreamliner by Boeing has been the American answer to Airbus A330, which has sold
over 600 units to date and is being upgraded into the A350. The Airbus family has planned for an expansion of
its offer, which includes the A380, the world’s biggest airliner and direct competitor of the best-selling Boeing
747, which is also being upgraded.
The transatlantic battle started in the 1980s when Boeing acquired McDonnell Douglas. The Federal Trade
Commission approved the deal, while the European Commission did only very partially. Brussels wanted more
transparency and less reliance on government support, especially for military procurements, in order to
prevent the abuse of market position on the European market by the new player.
After Airbus was born, it soon emerged that the tie linking Boeing to the US federal government was as tight as
the budding relationship between the new aircraft company and major European governments, so much that
a bilateral agreement in 1992 committed both parties to reductions in government subsidies: Airbus should not
receive aid in excess of one-third of the production costs for the new models, while indirect government aid to
Boeing should not exceed 4% of its receipts.
This threshold has been surpassed by Airbus, Boeing claims, for the manufacturing of certain components of
the A300 family, since various EU countries gave subsidies for $4.7 billion to the aircraft maker. On 6 October
2004, Boeing decided to take Airbus and the EU to the WTO court. This occurred at the moment when Airbus
5
12. World Economy
was surpassing Boeing both in terms of orders (256 more in the 1998-2004 periods) and deliveries of new planes
(59 more in the 2003-2004 period).
It is true that the public-private nature of Airbus is self-evident. It a company regulated by French law which is
owned by EADS, a Franco-German group (with lesser Spanish involvement) in which private companies and
public actors (including the French and Spanish governments) hold stakes. In September 2009, the WTO sent its
confidential ruling to the EU and the US. According to media leaks, the WTO appellate body ruled in favor of
the claimants, the US and Boeing, in 30% of the instances and against government aid received by Airbus. So
at halftime, Boeing seems to be ahead in the game.
But this could end up being a pyrrhic victory, because the US company is seriously behind schedule with its
new projects, by two years in the case of the Dreamliner, which could cost heavy penalties on its 800 orders.
But the second half still needs to be played and final ruling has not yet been made. The game could even go
into overtime, if Airbus appeals.
On the same day that the US deposited its complaint, the EU fought back by denouncing the subsidies that
the federal government is giving Boeing through NASA, the Department of Defense, the Department of Trade,
several other government agencies, and also through export subsidies (forbidden by the WTO), tax
exemptions, and the financing of infrastructure and product development.
The lengthy process to arrive at a final WTO judicial ruling could favor the renegotiation of the 1992 bilateral
agreement, by making it more flexible. The new agreement could go beyond the transatlantic relation and
set rules for other countries currently developing their domestic aircraft industries. For instance, Canada’s
Bombardier and Brazil’s Embraer are winning market share in the regional aircraft segment hitherto dominated
by Boeing and Airbus, while Japan, Russia, and China are developing ambitious projects. Summing up: the
duopoly ruling over global skies is alive and well, but new players are coming to the fore on the political and
economic scene.
The Author
Stefano Riela teaches European Economic Policy at Bocconi.
From Bocconi Newsletter no. 84/2010
6
13. World Economy
Of Organic Apples and Oranges
by Enzo Baglieri
Localism and organic labelling are causing a lot of confusion,
making it difficult even for the most scrupulous consumers to
evaluate the overall environmental, health and community
impact of their produce purchases, whether at the farmers’
market or the supermarket.
The fear of animal pathologies, higher sophistication in food purchases, the return to forms of local identity are
all driving the demand for “sustainable” forms of consumption. For instance, “Zero-kilometer markets”, where
local produce is exclusively sold are being introduced in the Veneto Region, under the sponsorship of
Coldiretti, Italy’s biggest farmers’ organization. This has favored the emergence of a zero-kilometer supply
chains and networks of producers, and many are pondering the introduction of a “sustainability label” in this
regard. The Regional Law 7/2008 favors the purchase of local foods to feed nurseries, schools, hospitals, and
the like. However, one should not consider “local” a synonym for “sustainable.”
Over the last 50 years traditional methods of cultivation and rearing have been outmoded by the strong
mechanization of agriculture, reliance on artificial fertilizers and chemical pesticides, selection of varieties for
aesthetic appeal and transportability. These developments have been pulled by the need of higher
productivity to supply supermarkets and urban and suburban consumers. The growth in large-scale retailing
has in turn favored a globalization and concentration of agricultural suppliers, while supermarket chains have
seen their bargaining power increase vis-à-vis agricultural producers.
There is however no guarantee that a local product is by definition sustainable, because there only few
producers that don’t rely on tractors and hydrocarbon-based fertilizers. Also “organic” food (biologico, in
Italian) is not necessarily sustainable, if distribution chains are long and logistics is heavy in fossil fuels. The rise of
farmer’s markets and home delivery of local foods will continue to blur the distinction between territoriality and
sustainability, as long as an objective certification of the sustainability of the processes and technologies of
cultivation, grazing, manufacturing and transportation is not available.
The emphasis should those go on designing controls for zero-kilometer produce that have the same standards
of safety and quality that the longer supply chains of agribusiness must satisfy, albeit at the cost of a lesser
7
14. World Economy
freshness and tastiness of their products. However, the consumer must also play her/his part in ensuring that
production, transportation and distribution are sustainable, by not demanding cherries in January and oranges
in June, for a start.
The Author
Enzo Baglieri is Assistant Professor of Corporate Economics and Management at Bocconi and Head of SDA
Bocconi’s Operations and Technology Management Unit. He received the ITP diploma from the Stern School
of Business of New York University, N.Y. (USA) and was Visiting Professor at the University of São Paulo (Brazil) in
2002.
Research Areas
Management of technological innovation processes. Management of new product development processes.
Project management. Strategic management of relations with suppliers.
From Bocconi Newsletter no. 86/2010
8
15. World Economy
The Underground Economy
Slows Down the Integration of Immigrants
by Carlo Devillanova
Immigrant workers are present in every region of Italy.
Scattered empirical evidence points to a certain territorial
disparity in integration processes. The imbalance could be due
to the heterogeneity of social polices and to sharp differences
in local tax bases.
Little has been written about territorial differences in integration among Italian immigrants. Recent events
suggest that there are significant differences between the North and the South of the Peninsula. This impression
seems to find confirmation in a recent study edited by Cesareo and Blangiardo on the “Indicators of
integration”, which shows that an integration index displays lower values on average in Southern provinces.
The factors behind territorial specificities in integration processes are manifold. One could be the difference in
the ethnic composition of immigrants in various Italian regions. Very relevant are also disparities in social policy,
both in general terms and relative to the plea of refugees, which are delegated to local administrations and
are therefore an expression of their political decisions, as well as differences in tax bases.
As far as I’m concerned, I’m persuaded that the integration of immigrants in its various dimensions is strongly
favored by a correct entry into the labor market, in jobs that employ their skills and facilitate upward social
mobility. It is worth noting that overeducated job candidates are much more frequent among immigrants than
Italians. Recent ISTAT estimates that 12% of the labor force works under irregular or unlawful conditions; this
figure doubles when referred to the South. Off-the-books, underground labor pushes immigrants toward low-
skill, underpaid jobs and negatively affects their integration, in terms of housing, health, access to education
and culture.
Being an informal worker means not to have access to papers guaranteeing a legal presence on the territory,
thus perpetuating conditions of irregularity. These in turn often generate blatant phenomena of social
exclusion. This is all the more true in the areas of the country where the underground economy is more
widespread.
9
16. World Economy
Concluding, I think that reducing informal labor can facilitate integration processes and, at the same time,
reduce territorial differences in this domain.
The absence of realistic channels of legal immigration into Italy, the emphasis on border controls, the strong
link between having a labor contract and maintaining regular immigrant status, the recent introduction of the
crime of clandestinity are all measures that make foreign workers easily vulnerable to blackmail on the labor
market, with grave consequences for all other aspects of integration. The culture of the respect of labor laws
must be heavily strengthened, increasing the number of workplace controls and devising a system of
sanctions that provides an incentive for the immigrant (or Italian) irregular worker to cooperate with state
authorities.
The Author
Carlo Devillanova is Associate Professor of Economics at Bocconi. He has also taught Macroeconomics for the
Master of Business Administration at SDA Bocconi, and has worked as a researcher in Finance at the University
of Trieste and an Associate Professor at the Pompeu Fabra University, Barcelona.
Research Areas
Public economics. Migration. Economics of labor.
From Bocconi Newsletter no. 87/2010
10
17. World Economy
Five Months of Electoral Campaign
in One of the World’s Largest Democracies
by Antonella Mori
Brazil is projected to grow by 5% in 2010, but Lula is having
problems projecting his personal popularity onto his own party’s
candidate to succeed him. This difficulty allows the opposition
candidate to make the unusual claim that change will bring
continuity.
It will take months of fierce campaigning to win the minds of 130 million Brazilian voters in the presidential
elections scheduled for October 3, 2010. The electoral contest is between Dilma Rousseff, candidate for the
PT, Lula’s Workers’ Party, and José Serra, candidate of the PSDB, moderate social-democrats, the main
opposition party.
Polls have been consistently giving Serra an advantage, although the gap has closed in the last few weeks.
Now Serra leads by 5 to 10 percentage points. But the opposition will have to fight hard to score a victory.
Dilma Rousseff is Lula’s candidate, and Lula has 80% approval ratings. Brazil was among the last economies to
be hit by the recession and among the first to resume growth: GDP grew by 1% in 2009 and is forecasted to
grow by 5% in 2010.
It’s not only good economic news that support the president’s popularity. Since the start of his mandate, Lula
has put the struggle against poverty and social exclusion at the center of his government’s program. His
welfare programs have had a huge impact on 11 million of Brazilian poor families. It’s only logical he wants to
transfer this political capital to Rousseff: it’s not yet sure if and when it will occur.
Serra presents himself to voters as the candidate that can ensure that Brazil stays on the growth path blazed
by Lula (“Brazil can do more” is his slogan). Although in the opposition, Serra styles himself as a continuity
candidate, building on his good record as governor of the Paulista state. Lula and the Workers’ party are trying
to persuade voters is that the results obtained depend on a progressive political philosophy that only Dilma
Rousseff can carry on. Lula is in fact highlighting the gulf separating him from his predecessor Cardoso, who
11
18. World Economy
belonged to same party as Serra. In order to show his penchant for leftist policies, Lula could energize industrial
and social policy.
There are growing signs of this in the last few months: the Vale mining company has been pressured into
buying Brazilian steels and ships for its production needs; the proposal is on the table to constitute a sovereign
fund fueled by oil receipts and investing in education and social and environmental protection. It’s not by
chance that on March 29, just before Rousseff resigned from Lula’s cabinet (as the electoral law requires), Lula
announced the second phase of the Program for Accelerating Growth (Pac2), which calls for infrastructural
investment to the tune of $880 billion, 60% spent over the 2011-2014 period. If elected, Rousseff would be in
charge of Pac2, after overseeing the first phase launched in 2007.
The next presidential elections are also very important for Italy, not only for the cultural links connecting the
two countries (30 million Brazilians have Italian origins), but also because on January 1, 2011, the year devoted
to “Italy in Brazil” will start, together with the new presidency. It will be unique opportunity to strengthen the
economic and cultural relations between the two countries.
The Author
Antonella Mori is a Researcher in Economics at Bocconi at the Department of Institutional Analysis and Public
Management and the ISLA Center for Latin-American Studies and Transition Economies. She is part of the
teaching faculty of the Master in Diplomacy at ISPI, the Institute for International Political Studies in Milan. From
1995 to 2001 she taught Macroeconomics at the SDA Bocconi MBA.
Research Areas
International economics. Economic development. Latin America.
From Bocconi Newsletter no. 89/2010
12
19. World Economy
China Rising
by Carlo Filippini
The country’s regained hegemony in East Asia is the latest
chapter in its historical rivalry with Japan. From the promotion
of an alternative economic model to the assertion of strategic
and military security, China is re-establishing the leading
position it has held over the millennia.
Eight hundred years ago China tried to consolidate its influence on Japan. It demanded that the neighboring
nation pay a tribute and acknowledge imperial authority. In those times, that was the way of manifesting
political and economic hegemony. But a typhoon – kamikaze, the divine wind –dispersed its fleet.
Three hundred years later, it was the turn of Japan, just reunited, to attempt conquering China. This attempt
also failed for a similar reason: failure to control the sea. The two great powers of East Asia have always had
deep but competitive relations: China was the source of culture, philosophy, religion (ideograms, the arts,
Buddhism, Confucianism). However Japan never really imported or copied them; it always adapted them to
its mentality and needs.
We can think of the “rewritten” ideograms, which became a new script of its own, while in other tributary
nations of China they were left unvaried and used by cultivated elites in parallel to the vernacular. Since the
end of the 1800s, the roles have been inverted: Japan fused Western techniques with the Japanese spirit,
becoming the second economic power of the world. This rapid growth has almost cancelled the former sense
of cultural dependence.
Over the last years, China has been impetuously regaining the position of hegemonic power it occupied for
centuries, historically in Asia and foreseeably in the world. Many are the symptoms of growing Chinese
regional and global influence: the study and reappraisal of Confucius, of Mao, the system of socialist values
with Chinese characteristics all underline the growing confidence in its cultural identity which accompanies
the progressive distancing from either political (Marxism-Leninism) or economic (capitalism or the free market)
ideologies imported from the West.
13
20. World Economy
The Western democratic model (a bit tarnished by the current crisis) is challenged by the Oriental
developmental model of Confucian origin, where the boundaries between market and government, public
and private are grey and uncertain: power must promote the welfare of subjects, and these in turn must give
obedience to authorities.
The concrete expression of such sentiments is the opening of hundreds of Confucius Institutes all over the world
with the aim of spreading the knowledge of the Chinese language and promoting cultural, educational, and
economic cooperation between China and overseas communities; the institutes are generously funded by
Chinese authorities.
At the opposite extreme there is the strengthening of the military navy and the creation of the “necklace of
pearls”, installations of various kinds from China to the Suez Canal, which have the objective of securing the
supply of oil and raw materials, without which China would see its growth strangled: as of 2009, half of China’s
oil was imported.
Countries and even continents that until recently had been considered hunting grounds reserved for Western
powers, such as Africa, or even Latin America, now see a rapidly growing Chinese presence: the medium-low
technological level of Chinese products seem to better fit the needs of African consumers; Chinese
investments are not constrained by conditions on workers’ rights or the environment (unlike international
organizations and Western nations investing there).
Other aspects of the emerging Chinese leadership are better known and certainly more important: the extent
of its foreign currency reserves, the size of its domestic market and its export capabilities. In the near future, a
Chinese could well sit in the IMF’s control room. Naturally, today the world has become multipolar, and there
are several strategic players. Right now a system with China at the center and a periphery of tributary states is
unthinkable, but a few decades down the road...
The Author
Carlo Filippini is Full Professor of Economics at Bocconi, where he was Director of ISESAO, the Center for East
Asian Economic and Social Studies and MEc, the Master in Economics. He is a Professor of Economics at SDA
Bocconi, as well as a member of their Advisory Committee. He has also taught at Universtià degli Studi in
Trento. He is a member of the American Economic Association, the Royal Economic Society, the Italian
Societiy of Economists and Christ’s College in Cambridge, UK.
Research Areas
Economic development. Technical progress. The Japanese economy. Economic integration of Southeast Asia.
From Bocconi Newsletter no. 93/2010
14
21. World Economy
A Dangerous Country with an Uncertain Future
by Giorgio Brunetti
Guatemala: the Central American country is still under the
uncomfortable influence of the United States, as can seen by
its fleets of ancient American cars and buses. Drug trafficking
and gang warfare have provoked more than 10,000 dead:
more than its long civil war.
In Guatemala, the tormented republic in the heart of Mesoamerica, the casual visitor is struck by the quantity
of yellow school buses roaring across the country’s roads. The foreign traveler could be led to believe that this
is an expression of the national fight against illiteracy and poverty plaguing the country: nothing could be
farther from the truth! These are vehicles bought on auction by enterprising individuals who refurbish them in
order to provide rides at competitive rates to the general population.
These former US school buses are then leased to drivers who push them to the max in order to take home a
modest wage. They are jokingly called “chicken buses”, because peasants often bring their poultry on board
in this predominantly rural nation.
In addition to school buses, Guatemalans buy used cars from the US. They clog the roads of the country, which
are perennially being repaired, especially in the plateau where landslides are frequent. From Puerto Barrios-
Izabal, Guatemala’s only port on the Caribbean, they are imported into the country by locals and foreigners
alike. These are noisy, polluting wrecks which feed a whole related industry, consisting of repair shops and
spare parts resellers.
Two maya kids being photographed by a gringo. This image sums up well the country’s position vis-à-vis the
United States, which is not only a source of used buses and cars, but much else besides. The strong presence
of US capital in the archetypal banana republic is one thing. Then there is the accumulated US demand for
cocaine, since drug traffickers use the eastern regions of the country to transfer the product from Colombia up
north. Not coincidentally, these are the regions that appear less poor. Lastly, the US is a prime destination for
Guatemalan immigrants and a precious source of dollar remittances. The Obama administration is cracking
down on illegal immigration, with the unstated aim of containing the growing Latino presence.
15
22. World Economy
Other problems worsen the country’s already precarious predicament. One is human trafficking, especially of
women and children, which is as frequent as drug trafficking. According the UN, it will soon surpass the illegal
drug and arms trade. Another is gang warfare, a bitter leftover of the civil war, which left behind many men
whose only skill is firing weapons. On the side of the law or against it. In 2009, almost 10,000 murders were
committed, more than the deaths caused by the civil war, which ended in 1995.
Guatemala has long been prey of multinationals and businessmen with few scruples. The country is still a tax
haven. After tourism and oil, coffee is the main export. Even Illy buys Guatemalan coffee.
While Colombia and Venezuela are making strides, a solution to this country’s huge economic and social
problems is not in sight. Guatemala suffers from a fragile and corrupt state, which is unable to fulfill its
responsibilities in terms of democratic security and education of the younger generations. From Tegucigalpa,
the future looks uncertain and dangerous!
The Author
Giorgio Brunetti is Professor Emeritus of Corporate Strategy and Policy at Bocconi, where he has taught since
1992. Up to then, he spent most of his academic career at the University of Ca’ Foscari in Venice, where he
graduated in 1960. He has taught at SDA Bocconi, training companies and organizations such as CUOA,
Politecnico of Milan, FIAT-Isvor, IFAP and IRI Management. He has also acted as a corporate consultant at
large companies in leading industrial and banking groups, as well as board member for several companies.
Research Areas
Economics of small and medium enterprises. Corporate governance and controls. Policies of assistance for
small and medium enterprises. Application of networking technologies by district.
From Bocconi Newsletter no. 96/2010
16
23. World Economy
What If Obama Were the New FDR?
by Giuseppe Berta
The task force led by Steven Rattner to rescue the American
auto industry has parallels with the age of Franklin Roosevelt’s
New Deal, as it encourages collaborative interdependence
between business, labor and government rather than imposing
regulation from the top down.
Are there traces of the New Deal in the current US administration? President Obama, so often reprimanded for
his economic interventionism by the republican opposition to to the point of being accused of socialism, can
he be seen as a heir of Franklin Delano Roosevelt? At first sight, the parallels are not obvious. The New Deal did
not match the current Fed’s expansionary stance in monetary policy, and Obama, unlike FDR, has not
launched major public spending programs. However, attitudes and proclivities of the Obama administration
have elements of that tradition, since it revives the great democratic tradition of the 20th century.
The latter aspect emerges from the pages of the book that describes the modus operandi of the Obama
team, looking at the forms of government intervention achieved during the trough of the crisis. The book in
question was authored by Steven Rattner and is titled Overhaul. An Insider’s Account of the Obama
Administration’s Emergency Rescue of the Auto Industry (Boston-New York, Houghton Mifflin Harcourt, 2010).
Rattner, a former journalist who went to work on Wall Street, where he became a successful investment
banker, is the man chosen to lead the task force appointed by Obama at the start of his mandate to rescue
two of Detroit’s Big Three: General Motors and Chrysler, whose survival was seriously threatened.
Rattner was put in charge of an agile organization with a time-limited mandate created within the Treasury,
whose mission was to organize and manage the $82 billion bailout: the largest in US postwar history. It was a
very difficult task which Rattner successfully accomplished, who renounced to a Wall Street’s million-dollar
bonuses and burdened himself with huge responsibilities for a modest government salary. What puts the
automotive industry task force in the tradition of the New Deal is the fact that it was a special agency, acting
in relative autonomy with respect to the presidential administration and thus capable of rapid and flexible
decision-making. Also, Rattner in a sense revived that triangular structure between Big Government, Big
Business and Big Labor that was a feature of the New Deal, since he had to maneuver between the GM and
Chrysler executives and the still powerful UAW, the union of auto workers born during the New Deal that had
17
24. World Economy
helped Obama win the election in the Midwest. And there were furious car dealers, stockholders and
bondholders to be appeased, as they feared to lose everything.
The system was not one of direct government regulation or control. It was in effect a system of bargaining
among the various actors brokered by the task force. It was a method that stressed interdependence rather
than coercive regulation. A forward-looking vision of an organized and dynamic pluralism, which revives the
great lessons of the liberal tradition of the 1900s.
The Author
Giuseppe Berta is Associate Professor of Contemporary History at Bocconi, where he is Director of the ENTER
Center for Research on Entrepreneurship and Entrepreneurs. He was one of the founders of ASSI Associazione
di Storia e Studi sull’Impresa where he was President from 2001 to 2003. He was head of the Fiat Historical
Archive from 1996 to 2002. He is also part of the steering committee of the Biographical Dictionary of Italian
Entrepreneurs, edited by the Italian Encyclopedia Institute.
Research Areas
History of industry. History of the economic élite and representation of interest. Business and politics.
From Bocconi Newsletter no. 98/2010
18
27. Management
Media Coverage Is for Sale
by Diego Rinallo
Fashion: the back door to high visibility. Buying ads warrants
press attention and gets you on the front page.
The media pay attention to many categories of products and services, and the generated visibility significantly
influences consumers and their spending behavior, since media are acknowledged as having information
neutrality. If, however, we consider that most of media revenues are generated by paid ads, it’s natural to
wonder whether decisions are free from bias within these organizations when they cover the products and
services of advertisers. It’s a vital issue that impinges upon freedom of the press, the autonomy of journalists
and objectivity in newsreporting.
In to a recent study with Suman Basuroy of the University of Oklahoma, we have explored a sample of 291
Italian fashion companies, for which we have gathered data on advertising spending and editorial visibility in
the magazines published by 123 Italian, French, English, German, and US publishers, in addition to a host of
control variables.
The findings point beyond doubt to the fact that corporate advertisers receive preferential treatment and
obtain media visibility that is approximately proportional to their investment.
The phenomenon is more marked in specialized fashion magazines. Apparently, general media are a bit freer
in their editorial choices, because their advertising base is wider. There are however significant differences
among various brands in their ability to obtain visibility for a given level of investment. It’s harder for smaller
firms to be out there, even if they spend a lot for advertising. Conversely, more innovative firms get
proportionately broader media coverage
The implications of the study are manifold. Firstly, in capitalistic economies advertising is a major force able to
shape media content. This does not necessarily damages the consumer, though. If big spenders, as it often
happens, market good-quality products, consumer welfare could even be improved because of this. Only
21
28. Management
when inferior products enjoy high levels of “compensatory” advertising, are consumers penalized. The study
also suggests that the impact of advertising on sales is probably underestimated. Insofar as media coverage
drives sales, advertising campaigns have a direct effect on sales plus an indirect effect via media hype.
Looking at managerial implications, firms have several strategies at hand to maximize media visibility for a
given level of investment in advertising. Firstly, media pay greater attention to innovative products, which are
a better source of news. It’s smaller firms that stand to benefit the most from this hunger for constant novelty.
Secondly, firms should consider that there are differences among media outlets in terms of advertisers’
influence. Companies focusing on specialized media are likely to get more coverage, especially in certain
markets: for instance, per euro spent, Italian companies got more extensive coverage in US fashion magazines
than in French magazines
The Author
Diego Rinallo is Assistant Professor of Corporate Economics and Management at Bocconi, where he is also an
analyst for CERMES, the Center for Research on Markets and the Industrial Sector and a faculty member of
MiMec Master of Marketing and Communication.
Research Areas
Marketing communications and branding. Marketing events. Fashion trade events. Theory of consumer
culture.
From Bocconi Newsletter no. 81/2010
22
29. Management
Europe Will Also Be Affected by US Healthcare Reform
by Giovanni Fattore
If Obama’s reform passes, universal coverage models will be
rule among advanced economies, making it more likely that
emergent economies will also embrace universal healthcare
systems. However, Big Pharma raises the spectre of a drop in
R&D spending due to lower prices.
Obama’s proposal for healthcare reform addresses two critical aspects of the US health system: controlling
spending, which has gone out of control, and the absence of any form of health coverage for 15% of the
population. Both issues are complex, and if Obama manages to solve both he will have pulled off an
astounding feat and will have secured a place in American social history. On the other hand simple
accounting shows that a system that spends 15% of GDP and leaves 40 million uninsured, is not only unfair, it’s
highly inefficient. First of all, comparatively higher spending does not translate into comparatively better
health. Higher US spending is mostly due to higher administrative and insurance costs, costlier factors of
production (skilled labor, medical technologies and pharmaceuticals) and malpractice lawsuits (doctors need
to buy costly insurance to protect themselves from them). It’s also a waste providing health care to uninsured
people, who often have to be treated in emergency rooms at a higher cost.
If common sense suggests that a reform is necessary, the analysis of the entrenched interests at play gives
pause for thought. 15% of GDP going to healthcare also means that one seventh of the country’s incomes
come from there, which means that enormous political stakes are involved. The majority of physicians, insurers,
hospitals, pharma companies and medical suppliers are doing all they can to block the reform or diminish its
impact. It also must be remembered that the uninsured are the poorer minority of the population, having little
voice and less clout in American politics. On the other hand, the fear that the quality of healthcare provision
will be lowered among those already insured makes many in the middle classes hostile to any vision of
solidarity, which is traditionally not very strong in most of the United States.
However, US healthcare not only has domestic repercussions, but also international implications. If Obama
succeeds the policy spillovers could be considerable. If Obama were to warrant universal coverage in
healthcare, the symbolic effect would be considerable, since the last bastion of private healthcare among
23
30. Management
advanced countries would fall. Universal systems would thus become the models to be imitated by emergent
economies. For Europe, the effect would be to sanction existing government-funded universal healthcare
systems to the detriment of those in Eastern Europe who still favor privatized healthcare.
A second international effect would be on global health industries, Big Pharma in particular, which claims that
the high prices it secures on the US market are vital to fund R&D. If Obama were to succeed in controlling
prices, would it negatively affect biomedical research? Would there be repercussion on the prices of drugs on
the European market? It’s hard to make forecasts on the global effects of Obama’s reform, but one thing it’s
sure: it will have significant repercussions on the rest of the world.
The Author
Giovanni Fattore is Associate Professor at the Bocconi Department of Institutional Analysis and Public
Management. He was Director of MIHMEP, the Master in International Healthcare Management Economics &
Policy from 2002 to 2008. He is a member of the faculty of the PhD in Business Administration & Management
and a Professor in the Public Management and Policy Department at SDA Bocconi. He is a member of the
Management Committee of CERGAS, the Center for Research on Health and Social Care Management and
the Carlo F. Dondena Center for Research on Social Dynamics. He is also member of the editorial board at
Pharmacoeconomics Italian Research Articles and Politiche Sanitarie and is currently President of the Italian
Association of Healthcare Economics.
Research Areas
Health management. Health policy. Comparative analysis of health systems. Pharmaceutical policy. Cost-
effectiveness and cost-benefit analysis. Research methods for management. Performance management in
public institutions. Governmentablity.
From Bocconi Newsletter no. 83/2010
24
31. Management
Champions of Earnings
by Dino Ruta
Winter Olympics in Vancouver: What will remain after 2010? The
economic potential of sport has multiplied thanks to media
and sponsors. The globalization of sports is big business, but the
social and urban benefits of hosting games should not be
underestimated.
In late months of 2009, notwithstanding the crisis, 1,000 delegates attended the London Sport Conference.
Polls conducted on them have shown that revenues are on the increase, particularly sponsorships. Sports arrive
ever more easily into people’s homes and each sporting event maximizes its economic return by exploiting the
visibility of its protagonists. Sport is used a platform for national and international communication. For instance,
Liverpool will promote Spain as “Official destination partner”, since its manager is a Spaniard, and so are many
of its players.
UEFA has just signed a €32 million agreement to broadcast the Champions League in Croatia, although the
country does not have very strong football clubs. Giro d’Italia is internationalizing its appeal with sites and
athletes that are well-known around the world to stimulate media purchases.
The value of sporting events has grown dramatically with TV rights and the global popularity of certain sports
whose appeal was recently only local. The globalization of sports events, which started with Olympic Games
and the Soccer World Cup, is now spreading to other competitions. The study on the potential economic
impact of having a Formula 1 Grand Prix in Rome, cites €1 billion in terms of value added and 10,000 jobs
created. Rome recently hosted the World Swimming Championships and has made €45 million in revenues just
for having hosed the Champions League finals last May.
Hosting a major sport event requires large investments in infrastructure and often involves the revitalization of
cities and neighborhoods. The planned investment of Chicago, had it won the competition to host the 2016
Olympic Games, would have been €3.3 billion, generating revenues for €3.8 billion. Milano was European sport
capital in 2009, hosting 60 sport events where athletes from 120 nations competed.
25
32. Management
Sport events not only generate economic returns, but yield additional urban, social, and political benefits. The
2009 edition of the Tour de France was physically followed by 15 million people. After the Olympics, it is the
world’s favorite live sport event. Milano’s candidacy to Expo 2015 is a byproduct of Olympic planning. Turin
after the 2006 Winter Olympics has become specialized in managing big sport competions.
Summing up, one need to look not only at the economic impact, but needs to consider the intangible effects
that remain on the ground after the event is over. Vancouver, host of the currently unfolding 2010 Winter
Olympics, has seen the foundation of “2010 Legacy now”, the first organization of its kind working on
developing sustainable heritage in terms of sports, arts, entertainment, philanthropy. These are opportunities
for cultural managers that are attentive to the needs of stakeholders. Of course they shall not forget that when
it comes to sport, l’important c’est de participer.
The Author
Dino Ruta is SDA Bocconi Professor of Organization and Human Resources Management and Scientific
Director of the International Master in Management, Law and Humanities of Sport (FIFA Master). He is also
Assistant Professor of Organization and Human Resource Management at Bocconi, and Director of the
MasterOP, Master in Organization and Human Resources Management.
Research Areas
Strategic HR. Sport management.
From Bocconi Newsletter no. 83/2010
26
33. Management
Drop the Mantras of Contemporary Management
by Francesco Castellaneta
Re-read classics by past experts like Peter Drucker, if you want
to make sense of the current crisis and understand the
unchanging elements of good corporate governance. Or
follow management fashion and risk damage down the road
to the company, shareholders and stock value.
Over the last two decades, management has been a bit like high fashion. From one year to the next you have
to throw away expensive clothes because they have gone out of style.
Management mantras end up being adopted by the majority of companies, but then fall out of fashion, and
sometimes out of luck. The latest version of management by mantra says stock options and executive bonuses
are bad, rather than understanding why and when have been misused or wrongly designed.
Many managers, tired and disillusioned by management fads, have started to re-read last century’s
management classics like Peter Drucker. One of his fundamental statements is that the objective function of a
firm should be neither the shareholders’ nor the stockholders’, not any other simple objective: “The search for
one objective is essentially a search for a magic formula that will make judgment unnecessary. But the
attempt to replace judgment by formula is always an irrational act.”
The compass for managers should be pursuing the good of the company, which means its short-term survival
and long-term prosperity. The good of the firm must be should by looking at “what it’s right for the firm”, rather
than what it’s right for shareholders, employees, or stockmarket value. If a decision is not right for the
company, it is also not right for its stakeholders.
Over twenty years ago, Drucker lambasted top management salaries that went beyond a 40:1 ratio with
respect to wage-earners. Too large differences in personal earnings push executives to take decisions based
on “partial optimizations” on a too-limited time horizon, thus endangering the long-term corporate health.
When Drucker died in 2005, this ratio had skyrocketed to 400:1. He had come to believe such inflated
compensations had become detached from the real value produced and had lost any relation with business
27
34. Management
measurements and long-term performance, and in the end would end up damaging shareholders
themselves.
Drucker’s most famous contribution to business literature, management by objectives, is based on the idea of
linking compensation to performance. However this required a careful balancing of short-term profitability and
long-term objectives. “Predictions concerning five, ten, fifteen years ahead a are always ‘guesses’. Still, there is
a difference between an ‘educated guess’ and a ‘hunch’, between a guess that is based upon a rational
appraisal of the range of possibilities and a guess that is simply a gamble.” Annual bonuses de-linked from
long-term performance have pushed many managers to gamble with the money of shareholders.
Eighteen months into the crisis, the nefarious consequences of management by mantra are clear for all to see.
To get out of the present predicament, good advice for executives would be to re-read two fundamental
books by Peter Drucker The practice of management (1954) and The effective executive (1966). Have a good
read!
The Author
Francesco Castellaneta is a PhD candidate in Business Administration and Management at the Bocconi PhD
School.
From Bocconi Newsletter no. 85/2010
28
35. Management
The Profile of Companies Weathering the Crisis
by Giovanni Valentini
Europe: the results of a poll conducted on 500 medium and
large firms. Those who are managing to overcome the crisis
have long invested in R&D as part of their corporate culture.
Plus, a well-governed growth process appears more benefical
than fast growth itself in resisting the downturn.
The crisis has been with us for a year and a half at least. Some say it is over, some fear it is not. It is
unquestionable however that some companies have fared better than others, obtaining satisfactory
economic performance where others are sinking. What makes them different from the rest? Which factors can
explain their relative success and adaptability?
With Laura Sobrero, I have looked at a sample of 500 medium-to-large European companies. Their 2008
profitability was put into relation with the strategic choices made by those firms over the previous four-year
period.
Checking for industry-related differences, we have found that regression analysis shows that two major factors
are at the basis of these companies’ ability to weather the crisis. Firstly, the study highlighted the importance of
sustaining sizable investments in R&D through time. It’s not enough to invest in R&D, even a lot, if it’s not part of
a protracted effort. In fact, companies having lower variance in their investments have obtained better results.
This means that innovation should not be limited to introducing a new product or a new service having an
ever briefer lifespan on the market, but to develop internal skills over a longer period of time. This makes firms
better able to withstand economic shocks. R&D must be a company policy which becomes a company’s
culture.
Secondly, more profitable companies have followed a peculiar growth path. One could be led to thinking
that fast-growing companies prior to the crisis performed better than companies posting lower growth. The
former could count on higher liquidity and stronger financial resources. Our research shows that there is an
optimal growth rate for sales, beyond which negative effects prevail. There is a non-linear relationship
between earnings and previous sales. The highest profitability is recorded for intermediate growth rates.
29
36. Management
Growing beyond mere survival is important, but growth is not the objective that should be maximized.
Paradoxically, excessively high growth can undermine the bases of sustainable growth in the near future.
These findings are useful in constructing strategies to steer business organizations out of the present crisis and
be ready to face the next round of economic difficulties.
The Author
Giovanni Valentini is Assistant Professor of Strategy at Bocconi.
Research Areas
Competitive strategy. Innovative strategy.
From Bocconi Newsletter no. 85/2010
30
37. Management
Getting Back to Basics
Is Getting Business Back on Its Feet
by Paolo Preti
When financial giants bite the dust, land onwership is restored
to its former status and the value of quality basic products
returns to the fore. A Sardinian shepherd turned entrepreneur
shares some pearls of wisdom that tie into recent changes in
the agricultural economy.
It was last September. As I was vacationing in Sardinia, I had found in a magazine the address of a farm shop
which according to Slow Food was among the best on the island. The directions were sketchy: the turn-off for
Portobello di Gallura was all I got at the phone, but was favorably impressed after talking to the owner.
My wife and I got in the car for a 40-kilometer drive to what I thought was a normal retailer. We got lost and I
had to call back a few times to ask for the way. When I found myself in the midst of nowhere and day was
turning to dusk, I was finally told I was only a kilometer away. Behind a curve on the road, a lamp-post lit a
two-floor building with a stocky man standing outside. On a wooden board, a hand-painted sign said: “Antichi
Sapori di Sardegna” [Ancient Flavors of Sardinia].
Mario Usai is one of those entrepreneurs – although he would probably disagree with the definition – who are
fun to meet. It wasn’t a shop, but a house of his property hosting one of his three retail points. Briefly, he told
me his story. Sixty years of age, married to an accountant, eleven children ranging from thirty-two to twelve
years. Usai lost both his parents as a child. With his grandfather (who went on to live until 107) he went to work
as a servant-shepherd in remote Barbagia at the age of 14. He returned to Gallura years later with 25 sheep
that were all his property.
Today, he owns 200 hectares of pasture, and leases as many, 2000 milk sheep producing 300,000 liters of milk,
60,000 kilos of cheese, 250 cows, 50 goats, 30 horses, hundreds of pigs. The whole business, which includes a
butchery, employs fifteen people and is worth a few million euros. In addition to a punitive work schedule
since he was young, he followed two rules in life. One he heard from his grandfather: “Remember you have to
31
38. Management
buy either gold or land”, while the second he teaches to his children: “Value means your customers and the
quality of your product.”
With the crisis of tertiary sector, the primary sector is back in fashion: with financial markets at historical lows,
ownership of the land goes back to its former status, not only in an economic sense but in a traditional sense. A
brilliant agriculture minister, active farmers’ associations, firms run by young agricultural entrepreneurs, new
modes of distribution such as “farmers’ markets” which match producers’ supply with consumer demand and
yield significant savings, a renewed attention to service and product traceability, heightened interest in
horticulture and organic vegetable gardens, which Michelle Obama has made highly fashionable, all these
elements are driving a return to basics that is boosting the fortunes of the agricultural sector.
The Author
Paolo Preti is Professor of Organization and Human Resources Management at SDA Bocconi and Associate
Professor of Corporate Organization at the University of Valle d’Aosta.
Research Areas
Organization of small and medium enterprises. Human resources management in SMEs. Entrepreneurship.
international agreements. Growth and development of SMEs. Generational succession. Relations between
families and companies.
From Bocconi Newsletter no. 86/2010
32
39. Management
Companies Are Still Investing
in Promising Resources
by Claudia Tamarowski
Managerial education: a look at the evolution of business
schools and their relations with companies, according to SDA
Bocconi School of Management, which is in the top echelon of
European executive education. The trend is toward tailor-made
Corporate Master courses.
Companies increasingly demand managerial education which is both versatile and tailored to their specific
needs: the necessity is to homogenize skills, deepen innovation and valorize talents.
The common objective, via the personalization of content, is to give managers the right tools to deal with
problematic situation, interpreting available data and information to support timely business decisions.
One of the elements of tailored business education initiatives is the initial assessment conducted across the
various corporate functions and continuous fine-tuning with the participants, aimed toward the facilitation of
learning processes and the absorption of the models proposed.
Usually, the first level of tailored business education is represented by non-specialist courses, which have the
objective of creating an organizational culture oriented toward economic management. At the second level,
there are educational tracks that are oriented to the various business professions and top managers. At this
level, the stated objective of corporations is to develop long-term skills in managerial profiles. An indication of
this development is the growing interest for Corporate Masters, the so-called Academies, i.e. long-term
international programs having very ambitious objectives. These programs to develop corporate skills are
usually two years in duration, and delve into interfunctional issues with tutored on-the-field projects.
Corporate Masters are attraction and retention initiatives which show how, even during an economic crisis,
companies are still willing to invest in their more promising human resources. An example is provided by Chiesi
Farmaceutici SpA, a company which has decided to invest in customized executive education to cover the
skills gap of its managers and make them more accountable with respect to economic performance. Thus,
33
40. Management
SDA Bocconi has strongly focused on the specificities of the pharma industry, by customizing issues and
contents of the program accordingly.
The Chiesi experience is a case in point about the value of continuous education, which is successful when it is
stimulating, diffuse, and calibrated to the needs of the people and the requirements of the industry.
The Author
Claudia Tamarowski is a Researcher in Corporate Finance and Financial Analysis at Bocconi and a Professor of
Accounting, Control, Corporate and Real Estate Finance at SDA Bocconi.
Research Areas
Corporate finance. Project financing. Asset allocation. Shareholders value. Financial communication.
From Bocconi Newsletter no. 88/2010
34
41. Management
It’s Not Only about Low-Cost: Prices Are Polarizing
by Sandro Castaldo
Market share of more expensive products is growing: in 2009,
one out of three goods was priced 30% more than the
average. In a context where cheap discount distribution is also
gaining share, the middle ground is shrinking as consumer
loyalty is courted by the extremes.
The logic of low-cost permeates many sectors of our economy. Low-cost has captured the growing interest of
customers for no-frills goods and services. All you buy is an airplane ride: all other services are proposed
separately (e.g. food, drinks), according to the logic of unbundling.
In marketing, the phenomenon has been studied in terms of retail pricing policies, contrasting the Every Day
Low Price (EDLP) with the High-Low (Hi-lo) pricing approach. The first characterizes the supply of retailers such
as Wal-Mart, who have made low prices a key to their positioning. This way, long-term loyalty of consumers is
usually encouraged, improving the company’s consumer levels. High-Low pricing is based on price promotion,
by placing a discount premium only on certain products for a limited period of time.
Hi-Lo rests on a weak assumption, though. It is about attracting customers with a few well-known branded
products, often sold below cost, seeking to expand their in-store purchases on other, fully-priced products. This
pricing policy could turn out to be dangerous for distributors and manufacturers if it is not well managed, since
it rewards consumer opportunism and the segment of so-called cherry-pickers, who somehow benefit from
value created by loyal customers. Cherry-pickers only buy products that are on sale, and thus maximize their
advantage vis-à-vis the retailer. Summing up, the Hi-lo approach risks motivating infidels and demotivating
loyalists. Over the long term, it negatively affects customer loyalty and business performance.
In 2009, Nielsen highlighted the fact that more than 25% of the products sold by large-scale retailers where sold
with price promotions, reaching 30% in giant supermarkets (hypermarchés).
The EDLP approach instead offers the client a proportional return on the value of his/her purchases, warranting
a good deal on each and every product, thus creating a solid and stable relationship of loyalty. This is the
35
42. Management
reason pushing many firms to adopt low-cost pricing policies. Another element highlighted by marketing
studies is the apparent paradox of a low-cost economy. In fact, empirical studies show a polarization of
markets, in which both low-cost goods and services and premium priced products expand their market share,
with a consequent reduction of market share for the medium-priced ranged.
Looking at mass consumption items, and setting at 100 the average price of each category, one can see that
the market share of products priced at less than 70 represented 12.6% of the sales volume, while products with
prices higher than 130 account for 30% of total sales. We can thus finally talk about product differentiation,
from no frills to full frills good and services, which expands the consumer’s freedom of choice and his/her
welfare. It is also good news for firms, which can innovate by knowing that customers will be able to seize on
the elements of differentiation being offered.
The Author
Sandro Castaldo is Full Professor of Management at Bocconi. Between 2004 and 2009 he was Director of the
SDA Bocconi Marketing Department, where he taught in various programs, including the Full Time MBA and
the EMMS, the Executive Master in Marketing & Sales.
Research Areas
Trust in market relations. Industry-distribution relations and channel policies. Analysis of consumers and
purchase processes. Innovation and new product development. E-commerce, loyalty and privacy.
From Bocconi Newsletter no. 89/2010
36
43. Management
Working as Business Innovation Manager
by Silvia Zamboni
Change is the norm nowadays, but pushing rather than
following new events is a challenge every company faces. So
this job position is meant to deal with the issues of change
management: stimulating new ideas, interpreting market
trends, negotiating path-breaking deals.
In a business environment ever more complex and competitive, it can be a significant challenge for
organizations to give rapid answers to market changes. This involves issues like establishing a web of relations
that exceeds the boundaries of the firm, and creating, organizing and managing the virtual links between the
firm, its employees, external collaborators, suppliers, and customers.
Innovation is not only about developing a new product or service: innovation embraces all business processes.
It can be about either process or organizational innovation, in order to foster business growth by entering new
markets and/or expanding existing ones, by introducing new and better products and services and
implementing new ways of working.
Thus in large companies the need has emerged to have a specific role devoted to the promotion and
management of innovation, by creating the ad hoc position of Chief Innovation Officer (CIO), in Italy better
labeled as Business Innovation Manager (BIM).
That of the manager of innovation is an established company position in Anglo-Saxon countries which is
currently emerging also in the Italian and European context. It originates from the evolution of other functional
or process-related corporate functions, depending on the driving factor of innovation within the firm.
According to this perspective, the BIM pushes business innovation through good strategic thinking and a
related ability for economic and financial planning. This job profile calls for good organizational capabilities, in
order to manage change and negotiate the projects and processes of innovation in a structured and
continuous way, by favoring the emergence of a creative and forthcoming company environment. He/she
must also possess high level marketing skills, in order to locate gaps in the existing supply range, stimulate the
generation of new ideas and the market transfer of technological innovations, so that they can generate
37
44. Management
value for the customer and the firm. As corollary, a solid knowledge of ICT and its potential to establish internal
and external collaborations complete the challenging profile of a desirable BIM.
Over the last year, a research study conducted by SDA Bocconi School of Management, in collaboration with
Progetti Manageriali (a service company owned by Federmanager), has looked into the skills required to fill
this new job profile and considered whether existing managerial profiles managing innovation processes
possess them. The study highlighted certain areas of comparative weakness with respect to the management
of teams and external relations, in the dynamic management of core competence and competitive
intelligence, and in the organization of the innovation process in a multi-project environment. The question of
whichone will tend to be the career path for this new job position remains open, especially in Italy where
managerial careers tend to be strictly vertical and specialized.
The Author
Silvia Zamboni is Professor of Operations and Technology Management at SDA Bocconi.
Research Areas
Models of network innovation and open innovation. Research, design and development management.
Collaboration with customer and suppliers in new product development processes. Project management in
settings of research and development of new products/services. Process analysis and management. Service
innovation and operations management. Facility management and services’ purchasing management.
From Bocconi Newsletter no. 90/2010
38
45. Management
Super-Sponsored Sports
by Paolo Guenzi
86% of sponsorships are about sports, so huge marketing
investments have been made for the 2010 World Cup. But the
sponsorship sector in Europe differs widely from one country to
another as soon as the discussion moves away from soccer and
motor sports.
Europeans are very much into sports. In the five major countries of the Old Continent, 25% of the people polled
say they are “very interested”. Add to that the “interested” 35%, and you have 6 out of 10 Europeans who
watch sports. Such interest has led to ever-growing investments to sponsor teams, athletes, and whole
competitions.
In Europe, according to International Marketing Reports, sponsorships involve sports in 70% of the cases, and
sport sponsorships account for 86% of the total value of sponsorship agreements. The growth of the sports
business has led the development of investments in the industry by media and companies. According to many
observers, sports sponsorships have reached a stage of maturity in Europe.
Looking at sponsorship typologies, team sports weigh in for 62% of the total, followed by events (23%) and
individual athletes (12%). Naming rights contracts for facilities such as stadiums and coliseums are spreading,
buy they account for only 2% of the total. In the Old Continent, the sponsors focus on two sports: soccer (38%)
and motoring (32%). Other sports get a lot a less in spite of their popularity: for instance, tennis is liked by 23% of
the population, but attracts only 3% of sponsorships. Such a lower pulling factor is explained by the
heterogeneity of interest into various sports across different European markets. In fact, while soccer, car and
motorcycle racing are liked everywhere, track and field is appreciated by 30% of French, but only by 14% of
Italians.
Thus there are marked cultural and local specificities that heavily influence business potential for different
sports in various countries. Other social profiles also matter. For instance, basketball is very much liked by
people under 30, while skiing is uniformly liked by all age brackets. The concentration of interest in specific
customer segments, while limiting investment opportunities for generic investors, offers the possibility of more
targeted communication for potential sponsors, which is attractive for companies aiming at selected publics.
39
46. Management
For example, sailing attracts a lot of money from the fashion business, which is almost completely absent from
other sports. Looking at the industry of provenance, among sponsoring firms dominate financial services (13%
of the total value of sponsorship contracts), automotive companies (12%) and telecommunication firms (10%).
The main challenges for the actors involved in sponsorships (the sponsor and the property owner) are
optimizing return on investment for all side of the deal and improving the measuring of performance. To reach
these objectives, ever more articulated and specialist marketing and brand management skills are required to
optimize sponsors’ outlays. Market research needs to be deepened to gain a better understanding of sports
consumers and their reactions to sponsorship initiatives.
The Author
Paolo Guenzi is Associate Professor of Corporate Economics and Management at Bocconi and Professor of
Marketing at SDA Bocconi, where he is director of the courses on sales.
Research Areas
Sales management. Relationship marketing. Marketing of leisure.
From Bocconi Newsletter no. 91/2010
40
47. Management
Institutional Factors and Competitiveness
Determine Where Cars Are Made
by Carlo Alberto Carnevale Maffè
FIAT and the others: the industry is changing; a careful
balancing of institutional relations and production priorities is
now the rule of the game. The national identity of a product is
complicated by global supply chains, brand loyalty versus
territorial presence and new twists in labor relations.
When somebody says “Made in Italy”, I say “Not so fast”. In the years of galloping globalization, the “Made in”
concept underwent profound changes in cultural and economic terms: its territorial identity was progressively
eroded, as it turned into an almost accidental organizational option, embedded into a complex and
geographically distributed logistical chain. The corporate brand, this was the mantra of marketing, must
replace geographic origin denomination as guarantee of quality: Made in had to become Made by; the
reference was no longer a nationality and a territory, but a brand and an organization. But the worst
economic crisis in years, with its pangs of protectionism and mercantilism, has taught sharp-minded managers
to consider manufacturing labor as a fundamental arbitrage factor in national and international maneuvering
for fiscal aid and company subsidies.
For major manufacturing firms, today more than ever, labor is a bargaining chip in the institutional and political
game. The great industrial challenge is to marry the constraints imposed by economies of scale and
rationalization of production with the renewed role of national governments in protecting employment.
The case of the auto industry is exemplary. During the period of most acute economic crisis, France, Germany,
and then the other European counties, have come to the rescue of the national car industries with direct or
indirect subsidies, blatantly disregarding EU regulations prohibiting government aid to business companies: the
influence of competition authorities was effectively neutralized by global financial emergency. In an industry
deeply in crisis, the protection of the “Made in” has become the political justification to shelter employment.
In Italy, FIAT. dealing with a crisis too large to be compensated by the intervention of a too small national
state, has immediately seized on the opportunity, with the acquisition of Chrysler, to propose a risky institutional
41
48. Management
deal to the US government, offering technological synergies and maintenance of employment levels in
exchange for a company share with a total control option. And in recent weeks, with the “Fabbrica Italia”
initiative illustrating the new industrial plan, Sergio Marchionne put on the table the doubling of car production
in Italy, in exchange for the unions signing for additional flexibility on the assembly line. This smart move in terms
of industrial relations is accompanied by the choice of unremitting standardization of car components, the
sharing of technological platforms and modules and the pursuit of economies of scale through industrial
collaborations that are global in scope.
In car-making, however, the share of value added represented by the final assembly of the vehicle – i.e. what
is considered “Made in” – has steadily declined through the years, to the benefit of upstream stages of
manufacturing (components and platforms), as well as downstream stages such as selling formulas and
financing schemes. In the automotive industry, the Made in Italy is reinventing itself: it will more and more be
constituted by the optimal minimum perimeter of processes to ensure the right compromise between, on one
side, the level of industrial relations and the national identity of the product, and on the other the
rationalization imperatives of an irreversibly global production chain.
The Author
Carlo Alberto Carnevale Maffè is part of the teaching faculty in the Strategic and Entrepreneurial
Management Department at SDA Bocconi, where he was also coordinator of the Master in Corporate
Strategy (2003-2007).
Research Areas
Competitive intelligence. Non competitive strategies and international strategies. Strategies of technological
innovation. Industry focus: technology, media, telecommunications, luxury goods.
From Bocconi Newsletter no. 91/2010
42
49. Management
Bringing Craftsmanship Back into Fashion
by Stefania Saviolo
The Italian touch is about acknowledging the value that
artisans, tailors and seamstresses bring to the fashion product.
Not easy in a globalized economy, but one company is putting
craftspeople in its stores to show customers just how skilled a
true artisan can be.
The current crisis has made the customer more selective on price and quality. Italian fashion companies can
seize on this opportunity, by exploiting traditional values and skills, which today need to be re-emphasized with
new vigor. Much of the debate on Made in Italy fashion has been on the traceability of production, a
principle which was embodied in recent legislation. But in order to give real content to the Made in Italy
initiative, underlying factors of craftsmanship, innovation and taste, the factors that have made Italian fashion
great, need to become more apparent and better supported.
High-end companies thus have a different role from mass-market companies. In mass fashion, the customer
looks at the price and seeks emerging style trends. In high-end fashion, the customer expects high quality, in
terms of creativity, touch, luscious materials, and connection to a country or landscape. Celebrating the
sophisticated skills that are behind a fashion brand has recently become the communication strategy of
choice for major fashion houses.
“Forever now” is the claim of Gucci’s advertising campaign for 2010. It highlights the role of its artisans in
interpreting the quality and tradition of the fashion firm. At Gucci’s Rome boutique, one can find the “Artisan
Corner”, a project which will soon go the world round, where the artisanal process of making purses and
accessories is made visible to the clients. Gucci has recently stated that its products will continue to be made
100% in Italy, and that it will continue to invest into the craftsmen that work for the company (7,000 in Tuscany
alone).
At their latest fashion show, Dolce & Gabbana have joined the trend toward a higher appreciation of
craftsmanship, by showing the expert female hands of a tailor making an iconic D&G jacket.
43
50. Management
But there are companies that have always put the product and the human touch at the heart of their
strategy. Brunello Cucinelli and Tod’s have always linked excellence of the product to excellence of the
territory. Cucinelli received the 2010 Confindustria Award for Excellence as best company for territorial
valorization. Cucinelli calls his employees “my 500 thinking souls.” Tod’s runs the biggest Western shoe factory,
located in Italy, and puts the “Italian touch” at the heart of its brand philosophy.
The crisis caused by the sorcerer’s apprentices of finance will perhaps give a renewed role to those artisanal
masters whose creations can give new shine to the Italian fashion miracle. This would be the veritable
innovation in a country where the factory shopfloor and artisanal labor have never been given their due. But
it’s not a return to the past. Craftsmanship is today aided by technology and must find its niche within complex
global chains of production and exchange. The new Made in Italy must offer value to the global customer,
balancing tradition with innovation.
To do this, two major problems still need to be solved. Firstly, we must make this culture attractive to our young
people. In order to attract them toward these jobs of craft and skill, we need new forms of education and
training and an adequate social status for those working in them. Secondly, business ethics needs to be
restored in Italian fashion. The drive for lower costs, higher flexibility, and quicker time of delivery has generated
a mass of subcontractors working under conditions of dubious legality, in order to be able to survive. It would
be a paradox if the Made in Italy were to based on underground labor in clandestine sweatshops
The Author
Stefania Saviolo is a Lecturer in the Department of Management and Technology at Bocconi and Co-Director
of SDA Bocconi’s MAFED, the Master in Fashion, Experience and Design Management. She is also Professor of
Strategic and Entrepreneurial Management at SDA Bocconi.
Research Areas
Management of fashion firms. Brand management. Internationalization strategies.
From Bocconi Newsletter no. 92/2010
44
51. Management
The Lone Man at the Top Doesn’t Come Out on Top
by Beatrice Bauer and Massimo Magni
The model of the male manager taking all the decisions and
overstressed by too many activities and too little time is not
working. A Bocconi questionnaire outlines this managerial style
and finds that the remedy for isolated individualism and poor
communication is teamwork.
Over the last few years, more and more managers realize they don’t have the necessary skills to deal with
problematic situations and abrupt changes, and are unable to face stressful situations with a cool and
balanced mind. A recent research study conducted by the Bocconi Institute of Organization and Information
Systems highlighted the fact that 56% of interviewed managers think they have too many activities to perform,
while 57% feels they don’t have sufficient time to deal with all their tasks.
It’s not surprising that the creation of a good team capable of overcoming exasperated individualism and
integrating different skills and attitudes is one of the problems that are absorbing leaders’ energies. Leadership
based on the image of the strong man who imposes his ideas and obtains uncritical obedience from his team
is no longer a factor for success.
Today, aside from knowledge of the market and of one’s business, it has become a fundamental quality for a
leader to be able to stimulate the energy, participation and proactivity of his/her collaborators, in a careful
balance between himself/herself and the others. This aspect is often given scant attention: leaders don’t know
how to transmit their collaborators their vision for the future, are unable to express the objectives to be
reached in an attractive way, often limiting themselves to defining the individual actions to be performed
without providing a larger understanding of the context. From the results of our research, it emerges that 36%
of the difference in the ability to innovate and 44% of the ability to face the unexpected by teams is
attributable to the team leader.
But what are the secrets of a leader who is able to manage a team effectively? The findings point toward
certain essential elements which help the leader act with the right style at the right moment. First of all, self-
knowledge. Good team leaders exhibit a high level of self-awareness regarding their own strengths and
weaknesses. This aspect is important, because it leads the leader to realize when something is beyond his/her
45
52. Management
abilities, and understand what are the complementary skills that need to be brought on board to deal with
highly complex situations.
Secondly, scouting is essential. The team leader must be able to activate his/her network of relations to
understand where the necessary expertise lies to build a good team on short notice, having the right mix of
diversity and abilities to deal with complex problems.
Thirdly, modulation. Self-knowledge and scouting are necessary but not sufficient conditions. In fact, the most
effective team leaders are those that are able to modulate their style of leadership rapidly and coherently
depending on the context, alternating between centralization and empowerment. The ability to modulate
one’s own behavior is not innate and requires experience, exercise and constancy, above all because the
tendency is to replicate the behavior of the “preferred style”.
To test your own leadership style, the reader can compile the following online questionnaire:
http://www.sdabocconi.it/leadingteams (available in Italian only). You will get real time feedback: a concise
report offering an individual evaluation of his/her style of team leadership, and highlighting the contexts where
such behavioral qualities are most effective.
The Authors
Beatrice Bauer teaches Organization and Human Resources Management at SDA Bocconi.
Research Areas
Cognition and behavior during change. Resistance to change, assertiveness, stress, health, and
psychosomatic disorders. Leadership and team building in complex situations, organizational changes and
development of organizations able to stimulate behavioral change, empowerment.
Massimo Magni is Assistant Professor in the Department of Management and Technology at Bocconi. He was a
Visiting Research Scholar at the University of Maryland and a Visiting Instructor at the University of Texas, Austin.
Research Areas
Implementation and development of IT systems. Organizational behavior in the IT area.
From Bocconi Newsletter no. 93/2010
46