“Megacities are the frontier of innovation,” says Maurizio Molinari, editor of La Stampa (13 March), remembering that 30% of international GDP and the biggest source of technological innovation comes from the 100 most densely-populated cities in the world, a fact confirmed by a recent McKinsey survey. Those cities are precisely where international competition is placing its highest bets: either you’re in or you’re doomed to the wastelands. A huge challenge and Italy is also involved, with Milan in the front line for the unique conditions that developed there recently. Milan the metropolis, of course, key player in a growth process that affects all of Italy and which demands planning, hands-on engagement, and a sense of responsibility from the entire ruling class. Not just politicians. A ruling class that also needs to get “smart”: lively, fast, creative, productive.

Which Milan? First of all, a city at the heart of Europe.

“We could try to define a city like Milan in terms of time units,” we read in Huffington Post Italia. An hour by train to Turin, Bologna or Verona. An hour to fly to Rome, Frankfurt, Munich and Zurich, and not much more to get to Paris or London. An hour there and an hour back. All in a day. Commuting. Quick turnarounds for business meetings but also for life encounters. An hour means it’s central. Milan, in the fast, creative heart of Europe.”

High-speed trains and improved efficiency at airports are changing economic, social, and even sentimental and family geography. The new dimensions of both physical and digital interconnections require a reaction from those who govern Milan now and will do so in the future. Actions regarding essential issues like services, mobility, organization of urban areas, changes in professional and personal schedules. Fundamental political issues considering that both Milan and Turin are about to vote for new mayors. Who is worrying about how to deal with the future of MiTo, the great integrated Milan-Turin metropolis that represents far more than the current financial and cultural ties?

The centrality of Milan is geographical, an historical tradition and a current situation. This city has always been open, even its urban plan is rounded, with no sharp or cutting edges, even during times of conflict it has been welcoming and fundamentally accepting. Milan plays an economic role in the Italy seeking a European dimension. In a radius of 60 kilometres, Italy produces 25% of its exports, and manufacturing with added value is at the same level: a record-breaking share in the EU context. This metropolis (“Greater Milan”) is home to more than three million people, including 500,000 non-Italians. There are more than 200,000 students (with almost 20,000 from abroad, a number that has risen in recent years). Then there are 288,000 businesses headquartered in the city, of which 123 boast a turnover in excess of a billion euros (more than in Munich or Barcelona). Let’s not forget the 3,100 foreign multinationals, spotlighting the city’s international character. “A great, super-metropolitan Milan,” says Gianfelice Rocca, president of Assolombarda industrial association, in the preface to the interesting Milano metropoli possibile [Milan, A Possible Metropolis], edited by Vittorio Biondi and published by Marsilio.

Let’s focus on the descriptor “possible” to proceed with our reasoning, considering what there is already and looking ahead. That “possible” expresses a huge cultural, social and – naturally – political challenge.

Point of fact, Milan already has a metropolitan dimension, but it has to grow fast to safeguard and drive its competitiveness. It has made giant steps forward in recent years, in pursuit of quality development, after the doldrums of economic and administrative insecurity, after the decline of traditional economic and political codes. The city began to recover in the first decade of the Noughties, with Expo serving as a catalyst for innovation, but it can’t stop now.

With the underpinning of a manufacturing industry that accounts for 29% of GDP (which we discussed in last week’s blog), and already way ahead of the ambitious 20% target Brussels has laid down for the entire EU by 2020, Assolombarda talks about “five cities in one”: innovation, beauty, production, wellness, creativity. These are significant indicators that are already supported by plans and schemes under way, with businesses aware that “Italy can only fly if Milan flies”.

The future challenges posed by the Expo site, with the “Human Technopole”, the scientific halls of the Università Statale, and the arrival of a series of cutting-edge companies both the most famous multinationals and the most creative start-ups, are all pointing in this direction.

It will be essential to take further steps, like qualifying Milan as “smart city”, working on all aspects of innovation in the context of the “knowledge-based economy”: production processes, products, relationships, skills, research, new hybrids that graft creative talent onto venerable manufacturing expertise. The city also has to push on with the other aces it has up its sleeve: its sharing economy – as part of circular economy culture – will need to work on territory, energies, human and social capital, acceptance, as Aldo Bonomi explains so well (Il Sole24Ore, 13 March). And innovation. It’s worth underscoring this key word. Ongoing innovation.

In a high-speed world, being speedy yourself is pretty much a mandatory condition, but you do need to take precautions when speeding along. There is the risk that speed may not be the easiest method for becoming a real market winner. Steven J. Spear’s The High-Velocity Edge: How Market Leaders Leverage Operational Excellence to Beat the Competition is a good book for explaining why it’s more important to know how to be fast as opposed to just being fast. 

Spear is Senior Lecturer at MIT’s Sloan School of Management and he has also worked at Harvard Business School. Throughout his career he has seen many organizations operating at high speed, of which some have been winners, but many have not. His book is not about the theory of best business practices but a narrative of case studies drawn from various situations with at least one thing in common: they’re all stories in which the ability to achieve a fast solution was crucial. 

Spear starts with a question and a consideration. How is it that some organizations achieve stellar results compared to anyone else working in the same industry? The same industry, the same markets, often the same suppliers yet these “out-of-the-ordinary” high-speed businesses systematically leave competitors at the starting post and – more importantly – increase the gap.

To understand what can happen, the author describes cases like those of Toyota (the inspiration for most of the volume); the US Navy tackling nuclear propulsion; a hospital system struggling with failures (i.e. deaths of patients); a mega company like Pratt & Whitney in the throes of designing jet engines; and even a pioneering enterprise in internet advertising. The “historic” details of each story are analysed, as are the decision-making and human mechanisms that engineered progress made. 

In this way, Spear is able to define the boundaries of a detailed model applicable in other organizational contexts, sharing a number of traits, including the ability to exploit best technologies of the moment ASAP; stop problems arising by learning from mistakes; multiply the value of micro-innovations; create a workplace that allows for invention and therefore innovation.

Spear’s book may seem “easy”, but it is actually a complex account of business tales from which to learn.

And it’s very readable.

The High-Velocity Edge: How Market Leaders Leverage Operational Excellence to Beat the Competition

Steven J. Spear

McGraw Hill, 2010 

Building networks for growth and for conquering new markets. A mantra for best management practices in the modern enterprise, which, indicative recommendation aside, conceals a cultural shift that goes beyond the guideline and evolves in the wake of evolving production and consumer systems. Understanding how that evolution has proceeded is crucial so it may be useful to read “The Emerging Wave of Agile Business Networks in Italy: a New Strategy for Facing Global Competition”, just published by Silvia Cantele, Silvia Vernizzi and Francesca Ricciardi of Verona University’s Department of Business Administration.

The study was triggered by the realization that a new way of building business networks among companies is developing in Italy, and is based on a juridical format known as a “network agreement”. Over and above the legal aspects of the agreement, the paper explores the “real reasons” for the success or failure of various endeavours. The research then identifies the best conditions for exploiting the network contract so partner companies are better equipped to deal with the new global competitive scenario. The goal is not to understand how effective the agreement may be but what its limitations are, to ensure it will work when applied in a given context.

So what does this agreement have to say? For Vernizzi, Ricciardi and Cantele there are a number of conditions but they’re based on a number on fundamental points: a shared belief that a new way of “doing business” is needed; mutual trust among companies; the commitment and personality of the entrepreneurs involved; the balance of cooperation and competition in the relationships within the network; perception that the success of the network is a shared result. So if we want to list some key words, they are: belief, trust, commitment, balance, cooperation, sharing. Terms behind which we find operational concepts that are easy to implement and maintain. On the other hand, it is precisely this condition that reveals how difficult it is to achieve an effective implementation of the business network and the scope of the cultural change required.

The three researchers then propose a new business concept, which must be agile if it is to be successful within the context of network agreements. Which is tantamount to saying that corporate culture must tend spontaneously to cooperation and collaboration. Situations not that easy to develop but, as we said, it can be done.

 “The Emerging Wave of Agile Business Networks in Italy: a New Strategy for Facing Global Competition”

Silvia Cantele, Silvia Vernizzi, Francesca Ricciardi

World Review of Entrepreneurship, Management and Sustainable Development, Volume 12, Issue 2–3

There is “far too much of a gap between male and female employment and wages,” said Italy’s President, Sergio Mattarella, on 8 March. A gap of 20%. A discrimination that must, of course, be eliminated. But also a waste: a poor use of human capital with a significant cause and effect on innovation, stunting economic growth and slowing down meaningful economic and social development. Nobel-winning economist Gary Becker was adamant that it’s not worthwhile to discriminate (a lesson often mentioned in this blog). And the “gender gap” in terms of employment, roles, responsibilities, and salaries confirms the “economic stupidity” of those who insist on rewarding gender (or religion, culture, skin colour, etc.) rather than merit.

Italy is in good and bad company. The 2016 Gender Gap Report published by Job Pricing, including Eurostat data (IlSole24Ore 2 March), says that women earn an average 3,000 euros less a year than men doing the same job, with the same grade and education. The gap rises to 11,000 euros for management positions. Basically, women earn 10% less than men.

Italy ranks eighth for gender gap among the 31 European states covered by Eurostat data. Not too bad considering France is 18th and Germany is 28th. The gap is there, but it’s shrinking. Let’s say we’ve made some progress towards equality, but also that much remains to be done. This is confirmed by the IlSole24Ore-Fondazione Hume report (published on 8 March), which argues that “the resilience of women makes them winners in the recession but for occupational equality is still lagging behind” and that “the economic decline has had less impact than on men, but the knotty issues are constant: salary and family gap”.

On closer scrutiny, we can see that there are also more women in top management roles but nowhere near enough. The 316 companies listed at Piazza Affari [the Milan Stock Exchange] have 23.7% female presence on their boards (also thanks to the Golfo-Mosca Act), but there are less than 7% women presidents and CEOs. “Women are still not a change factor,” comments IlSole24Ore. Nor are their skills used properly in enhancing competitiveness and business culture to superior levels.

Nonetheless, there are sectors where things fare a little better. A glance at the pharmaceutical industry shows that 43% of employees are women, but that there are also 43% of women in executive and management roles (double the percentage of other industrial sectors). Pharmaceuticals are one of Italy’s best industries. So the smaller gender gap basically weighs in positively.

A recent survey by the International Monetary Fund confirms that the role of women in business is a positive-performance accelerator in terms of turnover and profits, as Danilo Taino wrote for Corriere della Sera on 13 March: “the arrival of women in the upper echelons increases profitability more in industries with a bigger female workforce, in hi-tech and very creative businesses. For instance, there’s a 5.2% growth of EBIT in services, 2.7% in manufacturing, 1.2% in trade, and a 2.2% EBIT drop in the construction industry. The analysis is of females in top roles, not women who arrived at top positions thanks to legal imposition, and hence cannot be applied to interpreting effects on the so-called ‘pink percentages’.” Talent and skill are being rewarded and the fallout is positive for the economy. Gary Becker got it right again.

The best decisions require facts. The “business” version of Luigi Einaudi’s famous but often overlooked motto: “The best resolutions require facts.” Perhaps even more now than in the past. Although acquiring information seems to be easier (not really) than it was it the past. This motto is just as applicable to companies as it is to governments. 

So we recommend Antonio Galdo’s recently published Ultimi. Così le statistiche condannano l’Italia (Last. How statistics damn Italy) as a good read for everyone. 

Galdo, a journalist and writer, tells the story of Italy today which is only apparently entirely negative (even if the ending is quite brutal). 

The title may be misleading: the censure of statistics is a heavy, mathematical, undeniable fact. It’s possible to get away from the numbers, however, by concentrating hard and exploiting all that’s still positive and dynamic, and seriously engaging in the growth of our country. The book has just over a hundred pages that tick over with negative and positive examples, with good things lost during Italy’s more recent history, and all the excellence that survives and serves as the foundation upon which we can build to start over. The examples range from kindergartens to industries, taking in social aspects, tourism and national culture on the way. The publication describes schools of all levels, the relationships among generations, the workplace, businesses that are too small, research, the eternal problem of the South of Italy, health and justice, tender contract systems, the “non-protection” of the environment, and the mirage of a digital age that isn’t there. Galdo lists statistics that condemn Italy but then follows up with examples that suggest things aren’t quite so bad while there’s still much to be sorted out.

In his introduction, however, Galdo writes: “Italy is not on its deathbed, nor does a cynical, cheating fate force us to resignation. On the contrary, we have all the energies and possibilities for recovering with reasonable speed, as we did during the economic boom, when a nation of illiterate peasants became one of the richest nations in the world in a few years. Indeed, statistics prove to us that not everything sinks into the swamp of retrogression.” Or: “In Italy a promising desire for change and modernization can be perceived. 

Our luck lies in being in the right place at the right time.  To achieve this, however, we cannot be complacent and feel proud in describing a country detached from reality, brought to its knees by the laws of political propaganda, and disconnected from analysis of the facts.” 

Galdo’s most recent book certainly contains many extracts that will annoy many people, but they are necessary if we are to look at reality with different eyes that can complete our knowledge of all that revolves around enterprise and all of us. As we said: “The best resolutions require facts.” 

Ultimi. Così le statistiche condannano l’Italia 

Antonio Galdo

Einaudi, 2016 

Ethics are an important aspect of corporate work. For all concerned. The concept has been taken on board in many manufacturing organizations, but not everywhere and it is often absent in those organizations whose role, market ranking and business sector would make them prime candidates for showing many others how it should be done. Yet there is a growing awareness that corporate work ethics also pay a financial price, so it’s important to take a look at the links between organization, ethics and corporate work. The studies undertaken by Christie Hough, Kenneth Green and Gerald Plumlee (Southern Arkansas University, USA) are eye-openers in this respect.

“Impact of ethics environment and organizational trust on employee engagement”, published in Volume 18, Number 3, 2016 of the Journal of Legal, Ethical and Regulatory Issues, is a complex investigation that analyses the relationship between enterprise, management and employees, starting from the premise that making a stronger commitment from an ethical standpoint will also reap benefits in terms of better employee performance. Starting with a good theoretical premise, the research then seeks to put together the results of the various corporate work indices under empirical observation from the Ethical Environment (EE) perspective. Under the microscope came the links between Organizational Trust and Human Resources Management (OT-HRM) policies, Organizational Trust and Business Communication (OT-C), Organizational Trust and Values and Moral Principles (OT-VM), prevalent within the company and perceived by the outside world.

Researchers explain that they are studying the impact of trust as a mediator between the need for an ethical environment and employee engagement in production sites. The University of Arkansas research team was then able to prove that there is a significant link between the perception of what is and is not ethical in the minds of management and employees, and their trust in or mistrust of the organization where they work.

Trust and mistrust, moreover, are closely tied to the level of engagement or lack thereof in production and therefore in corporate growth.

The results of the Hough-Green-Plumlee studies are a hefty step forward in the progress towards awareness of the strong ties (in terms of profits also) between organizational ethics, corporate culture and daily practices in a manufacturing organization.

Impact of ethics environment and organizational trust on employee engagement 

Christie Hough, Kenneth Green, Gerald Plumlee (Southern Arkansas University)

Journal of Legal, Ethical and Regulatory Issues, Volume 18, Number 3, 2016

On 29 May 2016, at the Teatro Bibiena in Mantua, the governor of Lombardy Region awarded the Rosa Camuna Prize to the Pirelli Foundation “for safeguarding and promoting the cultural, historical, and contemporary heritage of the Pirelli Group – materials and archives that tell the story of the company and the history of Italy”. This outstanding honour, which has been awarded every year since 2009 by the Region is a public acknowledgement of the commitment, hard work, creativity, and ingenuity of those who have particularly distinguished themselves in their contribution to the economic, social, cultural and sporting development of Lombardy. It brings with it a rather extraordinary coincidence. The prize itself is a circular golden medal depicting the Rosa camuna, a symbol of the Lombardy Region. This symbol was created in 1975 by a pool of designers that included Pino Tovaglia, Bob Noorda, and Bruno Munari: names that left an indelible mark on the history of Pirelli’s visual communication.

For the Pirelli Foundation, receiving the award was an acknowledgment of the important role it plays in the cultural life of the region of Lombardy and in the city of Milan in particular: not only in preserving the company’s historical heritage but also in its extensive activity of promoting, disseminating, and fostering a modern form of corporate culture. One image gives a perfect idea of how deeply rooted the company is in the Milan area: at the entrance of the Historical Archive at the Foundation, which contains over three thousand linear metres of documents, there is a large photograph entitled Workers Leaving the Pirelli Factory in Via Ponte Seveso. It was taken in 1905 by the photographer and film director Luca Comerio, who wanted to give a sense of the grandness of this industry, which since 1872, the year of its foundation, had expanded into a large multinational group. The thousands of workers immortalised by Luca Comerio outside the gates of the factory in Milan were there precisely to recall the deep Lombard roots of the company founded by Giovanni Battista Pirelli. The Rosa Camuna Prize is conceptually dedicated to all those workers of the early twentieth century, and to the thousands and thousands who have come after them in Pirelli factories around the world.

In the knowledge economy, the key to commercial success lies in the ability to innovate and in the determination by organisations to seek knowledge and to do things better. The European Patent Office, the Munich-based body responsible for managing Europe’s patents, has  recently published some excellent findings: a record number of patent filings were received from Italy in 2015, up 9% on 2014 to 3,979 (the largest percentage increase in the past ten years and also double the EU average). Lombardy recorded the highest rate of innovation, with Milan the top-ranking city: this is testament to the efforts of both business and social bodies in the city (organisations, research institutes, universities) and also of public authorities (Milan City Council and the Lombardy Regional Council) to make the most of the highly effective network of technological institutes the region boasts. The ultimate cradle of humanistic and scientific knowledge and the reason Milan is considered the avant-garde in Italy, this network is about to receive a further boost from the huge life science research centre built on the old Expo site that will focus on genomics using big data as a way of managing knowledge assets.

Let’s take a closer look at the figures. As a result of the boom in patent filings, Italy has risen from 11th to 10th place in the rankings for total filings made, and from 19th to 18th in the world rankings for the number of filings made per capita.  The Lombardy region made 33% of the country’s filings. Strongest growth was seen in the IT field (+76%) and the companies leading the innovation race are Indesit (107 applications), Fiat (84), STMicroelectronics (58), Finmeccanica (39), Pirelli (39) and Chiesi Farmaceutici (35).

EPO recorded a similar rise in patent filings on a global scale: 160 thousand applications compared with 153 thousand the year before. A large part of this can be traced to the USA (up 16.4%) and China (22.2%). US, Germany, Japan, France and Holland lead the way in terms of filings while some inconsistency was seen within the EU, where application figures were down again in Berlin (3.2%). Dutch company Philips shot to the top of the business leader board, overtaking Samsung.

The 9% growth seen in Italy is a positive sign and proof that the downturn seen in previous years, when filings dropped four years in a row, has been inverted. “The figures for 2015,” EPO President, Benoit Battistini explained, “can be traced to Italian businesses having realized that to survive the recession, they need to invest in research and innovation, and by boosting capacity rather than cutting costs.” The volume of applications grew most strongly in the IT field in Italy (+76%) followed by digital communication (+59%), pharmaceuticals (+54%) and measurement systems (+47%). In absolute terms, the majority of applications concerned movement (packaging, pallets, transportation systems, and containers), civil engineering and transportation (which include the automotive sector, already an emblem of Italian excellence.)

Looking at geographical areas, Lombardy was the top Italian region (1,295 patent applications and 33% of the total) followed by Emilia Romagna (15%) and Veneto (13%). In the city-by-city rankings, Milan again led the way with 806 filings, way out in front of second-ranked city Turin which submitted 273 applications.  Rome was third with 226 and Bologna fourth with 209.

At the EU level, many countries showed large swings since 2014: Spain reversed a previous downturn, like Italy, to grow by 3.8%; Belgium made a year-on-year jump of 5.9%, UK 5.7% and Holland 3.3%. France (+1.6%), Austria (+1.4%) and Sweden (down 0.9%) remained relatively stable whereas filings from Germany dropped again (down 3.2%). The same happened in both Finland (down 8.3%) and Denmark (down 2.7%).

That’s good news, then. And reassuring for the future. The key thing, now, is to strengthen public policy on research and roll out solid industrial policy initiatives, starting from blanket broadband coverage (the lack of which stifles research and resultant technological transfer, and also hinders digital manufacturing) and widespread take-up of the digital agenda, needed to modernize the Italian public administration. Creativity is the watchword then. In policy and in infrastructure.  It’s the challenge we face. And as the patent figures clearly show, Italy is more than capable of responding to it.

Business culture is also nourished by images. Images, after all, catch the reader’s attention well before the written analysis of the reality they reproduce. And that is the case especially today, in an inextricable, deep and fascinating intertwining of themes where the culture of production links up with the future while gaining strength from both present and past, and where, at every moment, these very images are used to influence buying behaviours, summarize the effectiveness of a product, and to condense a company’s attitude. This was also the case in the past. And indeed also influenced the present.

A fine example of business culture that relies on business images to define its business culture is the recently released book entitled “Torino ‘900. La città delle fabbriche” (20th Century Turin. The city of factories) written by Enrico Miletto and Donatella Sasso. 

This is a book that is not just, not even mostly, “written”, but that is primarily filled with photographs, drawings and posters – true business images, recounting the history of Turin from the roots of this industrial city to the transformations of the present day, with the redevelopment of various factories. It is the history of a city that for a century has been identified as “the factory city” (that of car-making), but that in reality has also witnessed other manufacturing adventures,  such as textiles, cinema and theatre, as well as the aeronautical sector and rubber industry.

The authors line up eight chapters: roots, first steps toward modernity, First World War, the next twenty years, factories and the War, rebuilding and the economic boom, the crisis of the Seventies, and present day. Each chapter features a brief introduction that records the key events of the period and the names of the factories and personalities that have adorned Turin’s industrial history. Then follows a sequence of images, each one explained by extensive captions, clarifying what can be seen and situating each image within the specific manufacturing company and historical context where it belongs. Factories certainly, but also advertising posters, unknown faces, world-renowned personalities from industrial history, strikes, confrontations, women, children, workmen and women, cars, aeroplanes, features of industrial architecture, fragments of private life and public events, destructions, reconstructions, debates, photographs of posing figures and others snatched at random. 

Miletto and Sasso’s city of factories visually tells its own story and its own culture of manufacturing, taking the onlooker and reader on a journey through times past and present. A wonderful journey that is well worth taking.

Torino ‘900. La città delle fabbriche (20th Century Turin. The city of factories)

Enrico Miletto, Donatella Sasso

Edizioni del Capricorno, 2016 (Capricorn Publications, 2016) 

Businesses grow if they find “fertile ground” to grow in. And more often than not, development is more likely when businesses pool together.   A lot also depends on the prevailing business culture, which is growing more complex, more uncertain, and able to adapt. Very often, the right physical foundations have to be laid for enterprises to take root and grow. Technology parks are responsible for a large part of recent industrial history, in Italy too. But often they are not enough.

One of the latest Occasional Papers published by the Bank of Italy reveals the complex combination of factors necessary for business development. Aside from technology parks, that is.  “Local policies for innovation: the case of technology districts in Italy”, by Federica Bertamino, Raffaello Bronzini, Marco De Maggio and Davide Revelli, takes an in-depth look at the effect of the regional policy introducing technology parks, rolled out in Italy over the past decade with the aim of boosting innovation and, by extension, also business development.

The authors first looked at the features of the parks and of the businesses within them, then at how the relative organisations were performing.  The research paper begins by outlining the theoretical context then presents a detailed examination of Italy’s 29 technology parks located across 18 regions (excluding Marche and Valle d’Aosta) and hosting 2,298 businesses.

The results point to how more technology parks have been set up in southern regions as compared to other parts of the country, although they are smaller, less diverse in terms of sector representation and located further from the centres of regional power. Moreover, the authors found that, generally speaking, businesses joining a technology park tended to be bigger, more innovative and profitable than the ones belonging to the same area who didn’t join the park.

Another interesting fact emerged: “Following the creation of the park, the businesses in the park performed more or less the same as their counterparts outside the technology park”. The numbers tell a story which, translated, shows that imposing conditions from above is not enough to spark growth and development. On top of this it takes widespread enterprise initiative, informal business networks and manufacturing organisation skills.

The document produced by Bertamino, Bronzini, De Maggio and Revelli explains clearly how this takes place.

Local policies for innovation: the case of technology districts in Italy

Federica Bertamino, Raffaello Bronzini, Marco De Maggio, Davide Revelli

Occasional Papers Banca d’Italia, no. 313, February 2016