By: Dr. Luis Arciniega, ITAM

There is unusual activity in the multipurpose room of the small village of Laguna del Rey, in the Mexican State of Coahuila. Dozens of people enter and leave the premises where the town’s great annual event will take place the next morning. It is not a fair or agro-industrial exhibition. It is the annual continuous improvement contest organized by the company Magnelec. It is not a corporate event closed to the public. On the contrary, family members of the teams that were the finalists in the year just ended attend. The implementation of their ideas for continuous improvement has impacted on the operative efficiency of the processes of the company. They were preselected to reach the great finale, where executives of the corporation to which the company belongs, serve as judges to choose the best teams based on the degree of innovation and scope of the projects.

It is as if it were a great musical event. People line up very early to enter the auditorium, which is filled until there is not a single space available. The emotion and stress are latent. The banners begin to unfold. It is striking to see schoolchildren enthusiastically supporting their parents, including in some cases their grandparents and aunts and uncles, and you can read signs with words such as, “I support my mother of the monarchs team,” “Jaguars will win” or “I support my grandfather Pedro.”

Brief History of the Company

Magnelec is a subsidiary of Grupo Peñoles, which is located next to one of the largest deposits of sodium sulfate on the planet. The nearest urban center is Torreón, which is two and a half hours away by car.  During the summer, it is not uncommon to see temperatures reach nearly 50 degrees Celsius, which is normal in this semi-desert region of the country.

The company has been operating for more than 50 years and although it is part of a leading industrial group in the mining sector, its main focus is the production of chemical inputs for the industry. The plant is one of the world’s largest producers of sodium sulfate, a basic element in the manufacture of detergents, as well as other chemicals highly valued today, such as one used in the manufacture of building coating products, which slow down significantly the propagation of fire in the event of a fire.

In Mexico, the petrochemical and automotive sectors, among others, were pioneers in the implantation of systems of continuous improvement through the different modalities of collaborative work, as for example self-managed or self-directed work teams. In the case of mining, it took a little longer in Mexico to implement these methodologies. The variability in the international price of the star product of Magnelec forced the company more than two decades ago to focus on improving the efficiency of its processes to be able to offer competitive prices before a growing presence of Asian players in the market. Continuous improvement was undoubtedly the best tool to apply to achieve this goal.

The fact that the deposit was located in the middle of the desert made it necessary to build a town where the company’s employees would live. This also brought other immigrants who operate the micro-businesses that attend to the daily needs of the population, such as supermarkets and laundries and, of course, professionals and technicians who provide services to the community, such as doctors, nurses and teachers who teach classes in the elementary, secondary and high schools that educate the children and youth of this town of about 4,500 inhabitants.

A very interesting phenomenon happened in the town and has greatly benefitted the students in Laguna del Rey who have an outstanding academic performance, according to the rankings of the state of Coahuila. When moving to Laguna del Rey, several of the wives of the technicians and professionals who worked in the corporate world in the nearby cities, left that world and emigrated to the educational field and today are the teachers at the secondary and high schools. It is not uncommon to see cases like that of a chemical engineer who worked in the area of quality control of the powerful dairy industry of La Laguna and today is a chemistry teacher in one of the secondary schools in the town. In other words, the local children and youth have benefitted from this migratory phenomenon.

The Rise of the Contest and Aid to the Community

The company’s management made the decision, more than 26 years ago, to hold an annual continuous improvement contest to institutionalize the importance of the company’s philosophy of improvement, to generate positive competition among teams and to strengthen the social link between the company and families, so that the children of the employees would be aware of the contribution of their parents to the organization and that they would feel pride in their parent’s work. The recipe has been so successful that the event is held annually and increasingly on a larger scale, and participating has become an aspiration among the employees of the company.

In the last years, the ideas for improvement proposed by the plants’ teams have gone beyond the processes of the company. Team members realized thattheir collaborative work could transcend the workcontext, so they decided to carry out community projects in Laguna del Rey. For example, one of the teams observed that the people of the town had to spend several minutes under the hot sun while waiting for the arrival of buses passing through the town. With their initiative and work, and with materials donated by the company, the team built a covered bus stop with seats. Another team detected that the families of the town had to cut their hours of recreation in the small park that is located on the outskirts of town, since after sunset it was practically impossible for the children to play. They requested the support of the company to buy lamps and cable and they themselves took charge of developing a lighting system that today allows families in Laguna del Rey to have more hours of outdoor recreation.

The Unexpected Side Effect

A focus group discussion was held with one of the winning teams in a previous edition of the annual competition for improvement, which sought to probe the individual and collective benefits of the system. One of the participants commented that his daughter, who was studying engineering in Monclova, had called him a few days before to ask him about some details of the process of continuous improvement. She had to make a presentation the following day and she had become the star of her group, besides having astonished her teacher with the great amount of knowledge she had about the subject. She had to be careful in the presentation in order not lose her reputation as an expert. With great pride, her father said, “and why wouldn’t you know a lot, if from a young age you never missed a single edition of the annual contest for improvement, as if it were The Voiceor another show like that.” This interesting comment stimulated my interest in tracking whether it was only an individual effect or whether the system had transcended to a collective level. I asked for support of the company to visit one of the elementary and secondary schools in the town and to interview the children who were studying there to assess the extent to which the seeds of continuous improvement planted through their attendance at the annual competition had paid off. During my visit to one of the elementary schools, I had the opportunity to interview three children in fifth and sixth grade simultaneously. All three were randomly selected. One of them was the son of an engineer in the company, one of a supervisor and the youngest of a line operator. With absolute naturalness, the three described to me that to improve something, it was absolutely necessary to measure what they wanted to improve, and from there decide what they would measure and how. The next step was for people to think what actions to take so that the measurements would perform better. In addition, it was very important to share the results with the team and to find ways to celebrate the achievements and to reflect on and analyze the failures. The conclusion of the interview was overwhelming: the seeds of improvement sown in the desert had borne unexpected results, a striking case of how a corporative initiative can have a significant impact on society.

By: Virginia Kalis Letayf

Much has been said and written about the adjustments and eliminations needed in order for groups to present their consolidated financial information, that is, “as if they were one company”. However, there is a problem that goes way back, since it is first necessary to identify whether or not you have control of the companies in which you participate, which is not necessarily transparent in all cases.

Before, control was identified by stock ownership in most situations. However, it is now a matter of identifying who has the right to manage the important activities of the entity.

According to the International Financial Reporting Standards 10 (IFRS 10), Consolidated Financial Statements, an investor will determine whether he/she has control over the investee company, provided that each of the following conditions is met:

1. Power over the investee company.
2. Exposure or rights to variable returns from its involvement with the investee company.
3. The ability to use its power over the investee company to affect the amount of the investor’s returns.

Power refers to the authority to direct the relevant activities of the investee company and is exercised on the basis of rights, which may be as follows:

• Voting rights, that is, derived from the shareholding.
• Rights arising from agreements between shareholders.
• Rights to appoint and remove key managerial personnel, provided that this employee is the one who directs the relevant activities.

As mentioned above, in many cases the rights granted through shareholding are not a strong or significant indication of the exercise of power. In principle, these rights must be on the majority of the shares with the right to vote and even so, it is essential to review the agreements between shareholders and other rights they have to identify if having the majority of the stocks gives control of the company to its shareholder.

In addition, those potential voting rights must be substantive rather than protective. What is understood by substantive right is to have the capacity to exercise power, that is, that there are no barriers preventing the exercise of that power. Possible voting rights are substantive provided that they have a favorable exercise price, that is, that their exercise price is lower than the market price.

By saying that they should not be protective, the rule is that rights should not be designed to protect any party. Normally, these rights are granted to the non-controlling interest, formerly known as minority interest, that is, they protect the interests of minority shareholders. Therefore, if the rights were protective, regardless of the percentage of shareholding participation, they would not give their shareholder control of the company.

There is also no control when deciding only on one or some, but not all relevant business activities. In such a case, it would be treated as a joint control. Therefore, great care must be taken in drafting shareholder agreements, such as those related to resolution of disputes, as well as conscientiously reviewing the clauses of the contracts, in order to determine whether the mechanism that is used is a substantive right.

In the case of joint ventures, normally the agreements include deadlock clauses, which apply when there is a dispute regarding the management of the company. This corporate deadlock is due to the inability of the partners to reach an agreement and put an end to the conflict. Therefore, these clauses are equivalent to a “pact among partners” and are designed to resolve differences, but, as such, they become a barrier to exercise control.

Among the most common deadlock clauses are the following:

• Establish options to buy or sell the shares of any of the parties. They entitle the shareholders who agree on the same solution to the dispute to buy the shares of other shareholders at an agreed upon price. But they also give the other shareholders the power to buy them out at the same price. If no one agrees to sell at this price, counteroffers are allowed, until a suitable price is reached. This solution typically forces the exit of one or more shareholders and favors those who are in a better financial situation.
• Submit the dispute to arbitration and decision of an independent expert appointed beforehand, who has the power to impose a solution and make a decision that breaks the deadlock.
• Give one of the shareholders the right to become the chairperson, in the event of a situation of conflict.
• Liquidate the partnership if the problem persists for a significant period of time. Logically, this clause is only suitable in serious situations.
• Empower one of the shareholders to find a buyer for 100% of the shares. If the designated shareholder fails to secure a buyer, this authority is moved to another shareholder and continues until all shareholders have had a chance or a buyer is found.

For example, company X belongs to shareholders A and B, each of which holds 50% of the voting rights. But shareholder A also has the right to appoint the chairman of the board, who has the casting vote in the event that shareholders A and B do not reach an agreement. Thus, shareholder A exercises control of X. However, if the chairman of the board does not have a casting vote, even when shareholder A has the right to appoint him, that does not give him control of the entity.

It may be the case that, despite these agreements, one of the parties refuses to comply. That is why other clauses are included that impose the obligation to pay compensation to the other party if it breaches the pact. Thus, the compliant partner may demand that the noncompliant partner must comply with the payment of the compensation established in the pact.

Let us take another example. Shareholders A and B each have 50% of the voting rights of company X. What would happen in the case of a dispute between them and they did not reach an agreement? To know who has control it is necessary to review the agreements established between the two.

If the agreement says that in case that no agreement is reached, shareholder A is obliged to buy all the shares of shareholder B, who has the obligation to sell them to A, would it seem that shareholder A has control? Before the reader makes a decision, there are other aspects to consider.

If shareholder A has the resources to buy all the shares of B and gets some benefit for doing so, it can be said that shareholder A’s right is substantive and, therefore, he has the control. But, what would happen if shareholder A were not interested in acquiring B’s shares? Logically, he would not be willing to enter into a dispute with shareholder B, because he knows that, if they do not reach an agreement, he would be forced (by the agreement) to buy them. In this case, it would seem that shareholder B would have control. However, in reality it is a joint control, since shareholder A’s right is not substantive, since there is a barrier to exercising it.

Several problems may be presented over time. The first is the difficulty to lay down the criteria for establishing the deadlock clauses. Another problem may be to detect that a conflict situation has occurred and that it is necessary to apply the corresponding clauses.

Perhaps one may think it is most appropriate to appoint a third party to resolve the conflict. However, for this it is necessary that the designated person not favor one of the parties, so that his appointment is far from simple.

In conclusion, having more than 50% of the voting rights is the easiest way to avoid situations of conflict and the need to establish deadlock clauses. However, there are more and more joint ventures. Due to the above, the lawyers of the company are a key piece in the wording and explanation of the agreements and contracts, as well as of all the derived implications.

Referencias

• IASB. 2016. IFRS 10: Consolidated Financial Statements, in: http://www.checkpointmexico.com/maf/app/document?endChunk=1&startChunk.Consulted on December 5, 2016.
• Hanrahan, Gavin. What types of deadlock clauses are used in shareholder agreements?, en: http://www.turnbullhill.com.au/articles/what-types-of-deadlock-clauses-are-used-in-shareholder-agreements-.html. Consulted on December 5, 2016
• González, Antonio. El bloqueo societario y los pactos de socios, en: http://www.gonzalezasturiano.com/el-bloqueo-societario-y-los-pactos-de-socios/. Consulted on December 7, 2016.
• Fernández, J. Raúl. Evita el bloqueo societario con un pacto de socios, en: http://www.jraulfernandez.es/evita-el-bloqueo-societario-con-un-pacto-de-socios/. Consulted on December 7, 2016

By: Nomara Parra Sánchez

In recent years there has been a significant growth in the number of agents that make up the entrepreneurial ecosystem of Mexico. In this ecosystem, private equity funds, accelerators, incubators, entrepreneurship centers, mentors, angel investors and a host of public and private sector bodies have gradually been added with the same purpose: to help and train high level entrepreneurs. In addition to being perceived by various ecosystem players, this growth has been reflected in studies such as the one conducted by the Global Entrepreneurship Monitor (GEM), which measures the factors that increase entrepreneurship levels worldwide. According to the results of the GEM, from 2010 to 2014, the rate of early entrepreneurial activity in Mexico rose from 10.5% to 19%, that is, the number of entrepreneurs, owners and managers of new businesses between the ages of 18 and 64 nearly doubled. Has this growth also meant that there are more women entrepreneurs?

Everything seems to indicate that yes, although there is still a long way to go to encourage the entrepreneurship of more women and, in this way, reduce the gender gap. According to the Female Entrepreneurship Index, an analysis of 77 countries prepared by the Global Entrepreneurship and Development Institute, which measures the conditions that encourage and motivate women to become entrepreneurs, the country with the best conditions for “entrepreneurship” is the United States, with a score of 82.9 (the maximum score is 100 points), followed by Australia and the United Kingdom. Among the top 15 places, the only country in Latin America we find is Chile. What position does Mexico occupy? The 41st place, and it is among the 61% of countries that obtained a qualification lower than 50 points, indicating that it still does not offer favorable conditions for women entrepreneurs.

What needs improvement? According to the entrepreneurial ecosystem that has been formed in each country, different objectives and public policies must be pursued. For example, in Europe, there is talk of helping women so they can more easily detect business opportunities; in Latin America of focusing on exports and thinking about foreign customers; in Africa, of improving access to sources of finance; and in East Asia, if improving women’s perception of their own knowledge and skills to start their company (Female Entrepreneurship Index, 2015).

Based on the results of the index, it is observed that women entrepreneurs still face several challenges. Ireri Ablanedo, a consultant in social development and civil society, explains that support networks that allow women to dedicate time to their endeavors are needed. The Organization for Economic Cooperation and Development (OECD) indicates that the burden of unpaid work (Mexican women dedicate four hours a day more to unpaid work than men), traditional gender roles and the lack of reconciliation policies between work and family life are barriers faced by women in the labor market (IPADE, 2013).

If we want to see more women become entrepreneurs, we must break these barriers. The idea is not only “to want more female entrepreneurs,” but also to reap the benefits they bring to their community and environment. For example, women spend more than 70% of their earnings on the community and their families, while men only inject between 30 and 40% of their resources to these ends (Mexican Association of Women Entrepreneurs, Ammje, 2013). At the same time, according to Julieta Cayre, director of Girls in Tech Uruguay, the fact that there are women co-founders in the ventures generates another vision and another culture, better teams and work environments. In addition, a study by the Pax Ellevate Global Women’s Index Fund showed that when women hold leadership positions in companies, they achieve better returns and greater degrees of innovation, retention and job satisfaction.

Despite the increase in the number of female entrepreneurs since 2008 and the fact that they are starting up businesses not only in social sectors, but also in various industries, such as retail, technology and health, there is a need to increase this number and, therefore, and to hear more cases of success, as Hernán Fernández, founding partner of Angel Ventures México, says.

The full incorporation of women into these activities will not be solved by quotas, but by measures that ensure equal opportunities in the context of gender differences. It is not a matter of women and men being equal, but of generating conditions with sensitivity to gender issues.

The formulation of policies that take into account gender differences should consider the following factors:

• Equality in access to advanced training, especially in fields traditionally dominated by men.

• Equal conditions for the permanence and consolidation of the training of women.

• Generation of an environment conducive to the full development of women in the business field.

The generation of equal conditions for women’s access to and permanence in education and entrepreneurship implies a deep awareness of their differences and the need to overcome the obstacles that hinder their incorporation into these areas of work.

It is necessary to identify the barriers that inhibit women’s entrepreneurship, such as stereotypes, lack of self-esteem and lack of encouragement and recognition by parents, teachers and counselors. Stimulus strategies should be designed for women. Some of the actions that have been successful are the promotion of networks, the diffusion of new role models and support activities in the initial stages.

At present, the economic, social and cultural potential of women’s work is an essential part of the viability of any national development project. For this reason, and to contribute to the diffusion of new models of social roles, let us look at examples of women who have excelled in the entrepreneurial ecosystem for their innovation and impact:

• Guadalupe Latapi, founder of Aires de Campo

Marketing of organic products with a network of producers integrated by family farms, indigenous and peasant cooperatives, and small and medium scale agro-industries.

• Leticia Jáuregui, founder of Crea

Social enterprise that trains and provides advice to women entrepreneurs from marginalized communities to strengthen and grow their businesses. To date, Crea has worked with more than 16,000 women and has benefited them and more than 65,000 members of their families and communities.

• Juana Ramírez, founder of Sohin (Soluciones Hospitalarias Integrales)

Company with a portfolio of personalized services whose objective is to improve the quality of life of patients and their families, reduce the costs of hospital care and expedite the procedures of insurance companies.

• Gabriela León, founder of Gresmex

Mexican company specializing in antibacterial and home care products, which by means of nanotechnology eliminates up to 99% of viruses and bacteria. (WeGrow, 2014).

• Arali Camacho, founder of School Control

School administration and communication platform that keeps schools connected to students and parents in an easy and safe way.

• Gabriela Enrigue, founder of Prospera

A company that offers solutions for micro and small businesses to grow, offers products that are competitive globally and become instruments that generate wealth for society.

What distinguishes all of them is the passion with which they dedicate themselves to their young companies and that, although they probably did not have the ideal conditions to start a business, they demonstrated that it could be done. Their stories serve to inspire millions of women.

For a woman who is planning to start a business, there are several useful recommendations, such as the following:

1. Take the initiative. More than a third of Mexican women between the ages of 15 and 29 do not study or work (Labor Secretariat, 2011).

2. Believe in your personal abilities. Women tend to underestimate their entrepreneurial skills and do not believe they are sufficiently prepared. The ideal time to start is when the decision is made. Along the way you learn what is needed.

3. Think big. Once the decision to start a business is made, efforts must be directed toward creating a new, scalable and innovative company, rather than a traditional business.

4. Form multidisciplinary teams. No one is looking for virtuous entrepreneurs, but teams that complement each other. It is not ideal to have teams made up of only men or only women.

5. Generate the desired working conditions. In a new company, it is necessary to promote the changes that are required for the business to function well.

6. Be consistent. An entrepreneur’s first initiative may not give results, but what matters is perseverance.

By: Carlos Alcérreca J. and Aurora Monroy.

Introduction

In this article we try to identify the managerial competencies that are important in Mexican organizations and to assess whether these competencies differ in accordance with the hierarchical level of the people. A competency is defined here as a mixture of the knowledge and skills necessary to perform the functions of a job in the organization. The concept of managerial competencies focuses attention on what people are able or required to do to perform their work. The studies listed in the bibliography on this topic were conducted mainly in the United States ((Dai, Tang and De Meuse, 2011; Kaiser, Craig, Overfield and Yarborough, 2011; Mumford, Campion and Morgeson, 2003; De Meuse, Dai and Wu, 2011).

This study may be useful for organizations, universities and career planners. For organizations, the study can provide insights on qualities to be evaluated when considering candidates for positions, especially when the promotion of a person to a new hierarchical level is involved. It could also be used as a framework for evaluating staff performance in their current positions. In addition, it is possible to use this information in establishing the objectives of training and development programs. For universities, the framework would serve to establish learning objectives and to update the curricula of private and public administration academic programs. Finally, budding executives can use the competency framework to plan their personal development. This last perspective is the one that will be addressed in this article.

Methodology

First, a list of competencies was selected from the specialized bibliography. In particular the studies conducted by The Conference Board, The American Management Association and The Wall Street Journal were taken into account. The competencies that were used more frequently were considered in this study. The knowledge in two areas was added to this list. First, basic areas related to business, such as economics, law, public policies and quantitative methods. Then, knowledge in functions of administration, such as knowledge of marketing, finance, accounting, operations and human resources were also included. A final list of 30 competencies was obtained.

Next, a question was designed: “According to your experience and using a scale from 1 to 5, where 1 means ‘not very important’ and 5 ‘very important,’ how important has each of (the competencies) been in the position you currently occupy in your organization?”

In the questionnaire, the respondent was asked to indicate his/her hierarchical level in the organization according to three levels:

1. Directive level: General manager, CEO, CFO, etc.

2. Executive level: Area manager or director

3. Operational level: In charge of no personnel

The questionnaire was sent in 2016 to 6,306 graduates of business programs of a private, non-profit university in Mexico City. The programs were undergraduate, diplomado (specialization courses) and master’s level. We obtained 645 responses that were reviewed and validated, and a final database was compiled with the responses of 348 people, which represented a 5.52% final response rate.

An Analysis of Variance statistical technique was used with the data to determine if people at different hierarchical levels had different perceptions of the importance of each competency.

Results

63% of the respondents were men and 37% were women. Of the total, 19% were in the operational level, 48% in the executive and 33% in the directive level. The average age of the respondents was 42 years, with a standard deviation of 13 years. Regarding the educational level, 57% had a bachelor’s degree, 41% a master’s degree and 2% a Ph.D. In their areas of work, 27% worked in finance, 15% in general management, 12% in marketing and sales, 11% in accounting, auditing and taxes, 8% in operations and purchases, 4% in consulting, 4% in human resources and 19% in other departments.

The average importance attributed to a competency was 4.2. The competencies perceived as of greatest importance in their current position were: use of information technologies, knowledge of operations, analytic/quantitative skills, teamwork/collaboration, care of the environment/procurement of a sustainable environment and adaptation to the organizational culture (Table 1).

Table 1. Perception of the most important competencies.

The competencies perceived as of lesser importance in the current position of the person were: knowledge of public policies, knowledge of economics, strategic thinking, creativity, written communication and global perspective (Table 2).

Table 2. Perception of competencies of lesser importance.

Significant differences were detected in the importance attributed to the competencies at the different hierarchical levels, indicating that the importance of certain competencies increases with the hierarchical level of the person. The most significant differences, from a statistical point of view, were in negotiation skills, knowledge of marketing, teamwork/collaboration, knowledge of public policies, knowledge of law, knowledge of accounting, adaptation to the organizational culture, innovation and knowledge of finance. (Table 3).

Table 3. A variance analysis of competencies whose importance changes according to the hierarchical level.

Discussion

First, the competencies perceived as the most important, especially the importance given to information technologies, confirm that we are well advanced in the third industrial revolution, of digital and information technologies, and that this requires expertise in this area to perform properly in the world of work. The problem of preparing oneself in this area is that it changes very quickly and it is very specific to each organization, which can use different systems and software.

The importance given to the knowledge of operations indicates that the majority of people who work are dedicated to “operating” an existing process or system. Therefore, it is necessary to prepare oneself by learning about process management. Analytical skills are also important because in many positions, for example in the field of finance and consulting, various aspects of reality are analyzed. Teamwork is essential for process operations and the realization of projects in organizations. Care of the environment is present every day in the media, there is legislation on the subject, and it is crucial for our civilization.

The adaptation to the organizational culture is underestimated in the preparation of the people, but it is critical in order to be successful in organizations, especially for those who have the intention of ascending in the organizational hierarchy. This theme is emphasized in the induction programs of companies, but only over time will people come to understand the culture of the organization. Those who fail to adapt to the culture do not advance and often end up leaving the organization.

Secondly, it must be taken into consideration that this is a study of the 30 competencies that had been identified as important in previous studies, and minor competencies were not included. Therefore, the competencies that appear here as of lesser importance should not be considered irrelevant or that it is not worth the effort to cultivate them. The one that appears in the last place, knowledge of public policies, is a competency that increases in importance with the hierarchical level. However, for those who responded, information technologies, operations and analytical skills were considered more important than public policies, economics, strategic thinking and creativity, indicating that, during that at the time, the concern of most people was operating a process or system rather than changing it.

Finally, significant differences were detected in the importance attributed to different competencies by hierarchical level. These competencies, whose importance increases with the hierarchical level, are: negotiation, teamwork, innovation, adaption to the organizational culture, knowledge of marketing, accounting and finance, knowledge of public policies and law.

These competencies can be grouped together to form a conceptual framework integrated by four dilemmas: the dilemma of relationships, the dilemma of change, the functional dilemma and the dilemma of the structure of the environment or institutions.

The dilemma of relationships is the space negotiation-teamwork/collaboration. In this space, before a situation or project in which one must relate to others, a person could consider the problem as one of allocation of resources and seek to negotiate, thus competing for a part of the resources at stake, or one of creating more value seeking to collaborate and cooperate to increase the value of the resources for all participants. The resulting behavior, the mixture of negotiation and collaboration, has four possible profiles: low in negotiation and collaboration, high in negotiation and low in collaboration, low in negotiation and high in collaboration, and high in negotiation and collaboration. When moving to a higher hierarchical level, people must change their competencies so that their profile is increasingly higher both in negotiation and in collaboration. That is, they have to focus on both the creation and allocation of resources.

The dilemma of change is the space innovation-adaptation to the organizational culture. The person may face situations with the idea of adapting or innovating. This leads to four potential profiles for change: low in adaptation and innovation, high in adaptation and low in innovation, low in adaptation and high in innovation, and high in adaptation and innovation. When promoted to higher levels of the hierarchy, people must acquire competencies that provide adaptability and innovation. That is, they need to be “ambidextrous” in their relation to change.

The functional dilemma is the marketing-finance and accounting space and it focuses on the question for whom is the value created. In this space, marketing represents an orientation toward the markets of clients and finance and accounting are inclined toward the financial markets. People with a high or low profile can be identified in each one of these orientations. However, at high hierarchical levels it is necessary to know and conciliate the orientation to marketing with the orientation to finance and accounting.

The institutional, or structure of the environment, dilemma is the space of law-public policies and represents the opportunities and constraints of the environment. In this space, law represents the institutional normativity and the public policies, the discretion of the political leaders. Different profiles of people may have high or low knowledge in each of these areas. However, in high hierarchical levels one must know the two areas.

Conclusion

In general, business program graduates are more involved in the operation and analysis of administrative processes and systems (using information technologies) than in their strategic change. Surely, the operation consumes most of the time of the executives. However, when promoted to a new hierarchical level, they need to reinforce knowledge and skills that they previously considered to be of lesser importance. To do this, they need to acquire competencies that can be conceptualized as dilemmas in relationships, change, functional areas and the structure of the environment in which they operate. People seeking to develop their careers must be prepared in these areas if they are to succeed at the highest hierarchical levels of organizations.

References

• American Management Association, AMA 2010 Critical Skills Survey, April 15, 2010.
• The Conference Board, Developing Business Leaders for 2010. Executive Summary. April 2002. Report R-1315-02-RR.
• Davidson, Kate, The ‘Soft Skills’ Employers Are Looking For, The Wall Street Journal, August 30, 2016.
• Day, G., Tang, K.Y. and De Meuse, K.P., Leadership Competencies Across Organizational Levels: A Test of the Pipeline Model, Journal of Management Development, Vol. 30, No. 4, pp. 366-380, 2011.
• De Meuse, K.P. Dai, G. and Wu, J. Leadership Skills Across Organizational Levels: A Closer Examination, The Psychologist-Manager Journal, 14:130-139, 2011.
• The Wall Street Journal, How the Rankings Were Compiled, September 30, 2010.
• Kaiser, R.B. and Craig, S. B. Do the Behaviors Related to Managerial Effectiveness Really Change with Organizational Level? An Empirical Test, The Psychologist-Manager Journal, 14: 92-119, 2011.
• Kaiser, R.B., Craig, S.B., Overfield, D.V. and Yarborough, P., Differences in Managerial Jobs at the Bottom, Middle and Top: A Review of the Empirical Research, The Psychologist-Manager Journal, 14:76-91, 2011.
• Mumford, T.V., Campion, M.A. and Morgeson, F.P., The Leadership Skills Strataplex: Leadership Skill Requirements Across Organizational Levels, Academy of Management Best Conference Paper 2003.

By: Claudia González Brambila, Luis Arciniega y Daniela Ruiz Massieu

Few stories about Mexican garage entrepreneurs are as fascinating as that of Simón Sacal. His interest in becoming a technological entrepreneur began at the beginning of the 21st century when Simón was barely 18 years old.
The Young University Student
His parents had returned from a trip with a healthy snack they had bought at the airport. Unlike many of the low fat, low calorie products back then, this cookie tasted good. While trying the new snack, the Sacal family commented on the trend toward eating healthy food and people’s growing concern about watching their weight. The idea about how attractive it could be to market products of this type in shopping centers also emerged. They envisioned a Krispy Kreme- type business model, in which customers could see how the snacks are produced and how the aroma from the preparation of these snacks would attract customers. That family talk, which may have seemed inconsequential at first glance, awakened Simón’s entrepreneurial spirit.

By that time, Simón had studied the first semesters of his industrial engineering career at the Universidad Iberoamericana. There he took advantage of the library resources and began to research the productive processes of snack food. With the help of the director of industrial engineering and a professor of food engineering, Simón was able to understand the basic concepts of the subject and he conducted his first experiments in the production of processed foods in the university laboratory.

Simón’s fascination with understanding how food was processed motivated him to attend every exhibition and conference on the subject.

In less than a year, Simon’s tests had progressed so much that he needed more complex laboratories, so he investigated where the most important research infrastructure in our country in food science and technology was located. The best option was the National Institute of Medical Sciences and Nutrition Salvador Zubirán (Instituto Nacional de Ciencias Médicas y Nutrición Salvador Zubirán) (INN), a research institution of the highest level, which is accountable to the Secretariat of Health.

Not knowing anyone at the INN was not an impediment. The 19-year-old young man met with Josefina Morales de León, head of the Department of Food Science and Technology at the INN. He explained to her that he was researching the production processes to produce low-fat foods and asked her for help in using the institute’s research infrastructure and in testing new productive processes. The young entrepreneur’s enthusiasm convinced Josefina to allow him to use the department’s laboratory one afternoon a week, and not only that, he also received the support of the laboratory researchers.

Within a few weeks, the members of the INN laboratory explained to Simón that what he wanted to achieve had almost insurmountable technological limitations. Until that moment, food production processes faced the dilemma of an inversely proportional relationship between good nutrition and good taste. That is, the more fat and calories are removed from a product, the less flavor it has.

But precisely what distinguishes a technological entrepreneur is his ability to invent a process that is conceptually different. Thus, Simón’s focus was on developing a productive process that would produce tasty, good-textured foods that, at the same time, were low in calories and fat. After many attempts, Simón invented a productive process with which he produced rice cookies that tasted good. With the new technology, by means of pressure and temperature changes, a base of rice and fiber was cooked, without frying and without oils, which could be made in any shape and any flavor could be added. Simon’s innovation seemed interesting, so with the help of his father, Simón hired a law firm to do a global patent search. It was necessary to find out if there was a similar productive process and if there were patents that protected the intellectual property of the process. Patent searches are expensive and time consuming, but Simón believed in his idea and that made him persistent and he did not lose his enthusiasm. Several months later, when the firm confirmed that there was no similar productive process in the world, his enthusiasm grew even more. Encouraged by his father, Simón set up a laboratory in his garage and hired a couple of food researchers to help him once a week in his experiments. With the support of the entire family, he made the necessary equipment to begin the production of the first products. Of course, the results were not good at first. In one of several attempts to make the new equipment, Simón burned the whole electrical installation of his house, but that did not keep his family from continuing to support him.

The Snack Market.

Snack food in Mexico is dominated by a single producer, Sabritas, which dominates more than 70% of the market. Barcel has not been able to increase its market share by more than 20%, despite being part of Grupo Bimbo (the largest bread producer in the world) and having the largest distribution channels in the country.

The figures were not encouraging. Simón was convinced he had developed excellent technology, but he could not find a way to scale the business, so that his business potential could be fully exploited. However, his commitment and enthusiasm continued to grow. He began to consider the possibility of moving to the United States to produce and market his products there. He thought that in that country there was greater appreciation for low fat, low calorie products, so people would pay more for them than in Mexico. In addition, the consumption of snacks per capita in that country is much higher than that of Mexico. He also assumed that marketing would be easier, in the sense that the points of sale do not take so long to pay for the products, there is greater competition and the distribution channels do not belong to the producers, which simplifies the task of marketing the products.

Managing Growth

When Simon was planning to leave for the US, the Conacyt-Nafin Fund for entrepreneurs injected capital in order to build a plant to manufacture the snacks. However, the business proposal not only intended to expand the business, but also to change the business model so that Mexican children would benefit from the HIS (International Healthy Snacks) technology. Therefore, the plant manufactured low-fat, protein-rich and iron-rich snacks, which really contribute to a kid’s good health. Obesity, together with child malnutrition, is one of the most important public health problems in Mexico. Simon was aware of that, and he was really satisfied with the idea of using his technology to help overcome such problem.

A few months after the plant in Naucalpan was built, thousands of Fit-Bits bags, in metallic packaging, were being produced and distributed in schools, in Centers for the Integral Development of the Family (day care centers funded by the government), and in Social Development Ministries. The state of Hidalgo was the first one to be pleased and convinced with the technology. The products were also massively distributed in the states of Quintana Roo, México, Nuevo León, Morelos, and in Mexico City.

Moreover, distribution of the products was extended to other points of sales; products were sold at convenience stores and supermarkets.

In 2007, mass production began. The growth was exponential, and in the next couple of years another two production plants were built, one of 1,600 m2 and another of 1,500 m2. Managing the rapid growth was the achievement of Simon’s father. Gabriel Sacal, Simón’s brother, managed and controlled the production of the three plants, which together totaled more than 3,300 m2.

But Simón’s entrepreneurial spirit could not concentrate solely on running a large business. In 2009, he became interested in the development of technologies for the production of the raw materials, primarily rice. In order to improve the technology of snacks, it was essential to produce better raw materials that would allow the vertical integration of the production of healthy snacks. Thus, in that same year, 2009, the construction of a pilot plant for the production of raw materials began.

In 2010, five years after having participated on the Board of Directors of International Healthy Snacks (IHS), the Conacyt-Nafin Entrepreneurs Fund had to conclude its participation in that governing body. As with virtually all investment funds, after a period of five to seven years, the funds sell their shares, either to another investor or to the entrepreneur himself. In this case, the Conacyt-Nafin Entrepreneurs Fund sold its shares to the rest of the other IHS shareholders. A few months after Conacyt-Nafin’s departure from the Board of Directors, Carlyle Group, one of the world’s largest investments funds, became interested in IHS.

There was no greater indicator of the company’s potential. Carlyle Group is not a fund specializing in food technology. On the contrary, it has focused its investment mainly in the aerospace industry, transportation, generation and distribution of energy, and telecommunications and the media. In addition, unlike the endless negotiations between entrepreneurs and investment funds that are typical in this type of agreements, after a few months of negotiation an agreement was reached.

The entry of Carlyle Group in late 2010 had three main purposes.

1. A production plant was built in the State of Mexico with state-of-the-art technology. This allowed the Sacal family to manage the plant from its corporate offices in Bosques de las Lomas.

2. An administrative team of the highest level was hired. In particular, the new director of marketing implemented new product designs and a much more complex and targeted advertising campaign.

3. A new product, Ser O Chips, was designed with more solid production technology, whose intellectual property is even more protected than the previous technology. This new product has zero fat, has fewer calories than low fat and low calorie cereals, such as Special K and, best of all, it tastes like potato chips!

The Future of the Company

The challenge of International Healthy Snacks is to further position the brand, especially in strategic locations, so people know where to buy Ser O Chips and the nutritional benefits it offers. In Mexico, few people consult the tables of the nutritional value of food, and even less of snacks. Consumers who are concerned about their weight and health normally consume products labeled “light” even though they only have 10% fewer calories than the traditional product.

Another important challenge for the company is the internationalization of the brand and the products. In this point, new managers and the new group of investors will have a strategic role.

For Simón, it is clear that the value of IHS is not in marketing or in distribution, as is the case of the leading competitors in this sector. IHS is a technology company and as such it will continue investing in technological innovations. Simón recognizes the role of Conacyt in promoting an ecosystem so that it can be innovated in Mexico.

The Sacal family knows that the applications of IHS technology have a global reach. The next steps are to expand the technology in several ways: to install plants in other countries, to create new products with flavors that correspond to the tastes of each region, to continue elaborating fortified products to combat malnutrition and to make strategic alliances with governments and distributors so that more and more people enjoy and benefit from delicious and healthy snacks with technology made in Mexico.

References

• González Brambila, C., Arciniega, L., Ruiz Massieu, D., 2015, Un camino a la innovación tecnológica en México: Quince casos de éxito. Cengage Learning.

By: Claudia N. González Brambila

Growing through innovation is the dream of all business leaders. The idea of having a predictable and stable portfolio of product, service and administrative innovations, with high margins and with the long-awaited goal of being the first in the market, is what virtually all those in charge of defining a strategy in a company seek. Why, despite the fact that everyone wants it, is innovation still so scarce and complicated?

The reality of many companies is that the top managers have too many incentives to focus on results in the short term. Organizational incentives encourage incremental change, but do not favor experimentation or risk taking. In general, managers do not know how to develop products and disruptive technologies, have little tolerance toward risk and do not know how to measure the performance of creative groups and innovations.

On the other hand, the main obstacles to innovation are the long periods for development, the lack of coordination between the areas of the company, a risk-averse culture, scarce knowledge of the customer, poor selection of ideas and lack of understanding of the adequate measurement tools.

One way to counteract these drawbacks is to co-create. Co-creation is defined as a business or marketing strategy that results in the generation of joint ideas between the company and its clients.

Markets participate in debate and discussion forums for both the most active companies and consumers. Thanks to this, there is a change in the traditional model of passive consumption, and criticism, combinations and new possibilities are generated.

Through co-creation everyone is expected to win: the organization is better aware of the perception of its product or service through the voice of its own users and these individualize the offer.

Thus, co-creation creates close experiences with groups of clients or potential clients, whose cooperation with the company makes both achieve synergies.

Many organizations have implemented co-creation by asking people around the world what ideas they have. What makes co-creation work for some companies and others not?

Co-creation is not recent. At the beginning of the 19th century, Napoleon found the solution to the problem of providing nutritious food to his troops on the march through co-creation. Without a doubt, the internet has extended the use of this tool and we increasingly find more examples of successful cases. For example, Tchibo, a cafeteria and department store of German origin and with stores throughout most of Europe, launched its platform “Tchibo ideas” in 2008, to know the daily problems of its customers and to ask them to propose solutions. Netflix has also used this system. It received more than 44,000 contributions and improved its recommendations system by 10%. Starbucks launched MyStarbucksidea.com to gather ideas from its customers and has received more than 100,000 proposals from around the world.

NASA asked how it could reduce exposure to cosmic rays on the International Space Station. More than 1,000 people proposed solutions and four received an economic compensation for the creativity of their ideas.

One of the main objectives of co-creation is to develop new products, for which you have to have more ideas of products that people need or solves a problem for them. But one must not forget that it is also a way for customers to feel accepted and appreciated.

According to Dahlander and Piezunka (2017), successful organizations in co-creation undertake two types of actions.

1. Proactive attention: give to get

Instead of waiting for ideas to be presented to them, organizations should propose ideas and invite people to discuss them. Thus, people will know what ideas the organization expects, in addition to gaining the confidence of feeling they are part of the innovation process. This will empower the participants, as they can evaluate the ideas of the organization.  A reciprocal communication is established and the exchange of knowledge is encouraged and there is motivation to continue proposing ideas.

This is even more important when a company takes the first step of these initiatives. Nobody wants to be the first to suggest something, so the organization should be the first.

2. Reactive attention: showing that is matters

Organizations that respond publicly to suggestions receive quite a few more outside suggestions. With this, the proponents of ideas are validated and they are encouraged to follow up on their proposals. At the same time, it sends a signal about what kind of suggestions the organization values most.

New proponents also learn what interests the organization and feel cared for and recognized.

In sum, co-creation also has advantages and disadvantages. It makes customers feel accepted and helps the company introduce new products that are more innovative and creative. It can also serve to approach marketing niches that the organization has not yet explored. Another advantage is that it reduces costs of market research, because the company can find out trends and offer improved products. At the same time, the company draws the attention of the media and increases and narrows the relationship with is customers, which currently is a crucial asset.

Among the disadvantages of co-creation is the problem of how to make customers feel needed, without giving much importance to the concrete development of the products. Do not forget that you will not materialize all your ideas. It is possible that a good part of the products that are proposed are “good wishes,” but they are not profitable. When organizations serve different types of customers, the evaluation and selection of ideas is a complex and multi-factored process that can generate great skepticism between customers and designers.

The value of co-creation occurs in the psychological, economic and organizational planes. On the psychological side, customers feel better because they are taken into account not only to externalize their problems, needs or trends, but also to propose solutions. Economically, companies detect business opportunities and increase profits. And on the organizational, the costs of innovation and generation of ideas are reduced, in addition to reducing the uncertainty about whether a new product or service will be successful, which increases the productivity of the company.

In order for co-creation to generate value, the company must focus on the experience of all the participants: customers, employees, suppliers and others. It should seek a direct interaction in order to have the appropriate and efficient tools, such as a well designed, functional and easy-to-use platform.

References

• Dahlander, L., Piezumka, H. (2017) Why Some Crowdsourcing Efforts Work and Others Don’t. Harvard Business Review.

Administration Department, ITAM
By: Renata Herrerías

Today we cannot understand the world of investments without financial innovation. Organized markets and financial intermediaries constantly propose new alternatives to meet investment needs, risk management and financial resources management of governments, companies and individuals. In fact, intermediaries and financial markets exist, among other reasons, so that participants can redistribute their risk among those who are willing to take it.

Like technology, the evolution of the organized financial markets was relatively slow during the first 70 years of the 20th century. Until that time, it was only only possible to trade debt instruments (bonds), equity instruments (shares) and futures contracts subscribed mainly for agricultural raw materials. In 1972, the Chicago Board of Trade (or CBOT) launched the first financial futures contracts, which had underlying currencies setting the bid and ask exchange rate with the US dollar. A few years later, it began to trade interest rate futures. Also in the early 1970s, the Chicago Board Options Exchange (CBOE) began offering options on stock of 16 companies.

In Mexico, the organized derivatives market, as it is known today, was conceived in 1994 and materialized in 1998. Created by the Mexican Stock Exchange (BMV) and the S.D. Indeval, the Derivatives Exchange (MexDer) began operations in December 1998 with futures on US dollar.

Derivatives are financial instruments whose value and risk depend on another asset (underlying asset). For example, a call option is a contract that gives the investor the right to buy a certain asset at a certain price at a future date. By acquiring that right, the contract owner is willing to pay a premium in advance (call price). The price of the option depends on the time of expiration of the contract and the uncertainty about the evolution of the price of the underlying asset and interest rates. If the contract gives the investor the right to sell the underlying asset, then it is called a put option. The popularization of the use of derivative instruments and the search for options for hedging and investment mechanisms have resulted in the impressive development of markets and non-conventional financial instruments.

From a Price Model to a Volatility Indicator

In 1997, the Nobel Prize in Economics was awarded to Robert Merton and Myron Scholes for their method of determining the valuation of a stock option (which they developed with Fisher Black, who died in 1995). The method they proposed gave way to the creation of new instruments, as well as new mechanisms to determine the economic value of many other assets such as insurance contracts, guarantees and flexibility in an investment project. Black and Scholes presented their options pricing formula (later called “Black-Scholes”) in an article in 1973.

Before the Black-Scholes formula, the main problem in determining the theoretical value of an option was to know the attitude of the buyer of the option toward the risks he/she would run. A “very” risk-averse investor would be willing to pay more to eliminate it than a “less” risk-averse investor. The most important contribution of Black and Scholes is that in their method it is not necessary to know the attitude of the investors because the “risk premium” is included in the price of the underlying asset. That is, the risk is reflected in the evolution of the price of the underlying asset (in this case, the stock) and the price of the option depends on the expected price of the asset at the maturity of that option. The method starts from the possibility that a risk-less portfolio can be formed, because from the first moment its final value is known. The investor who has an option knows at what price he could buy or sell the underlying asset at the expiration of the option.

The variables of the Black-Scholes formula are the time to maturity of the option, the current price of the stock option, the risk-free interest rate, the exercise price¹ and the volatility of returns of the underlying. The last variable represents a challenge to value the option. Volatility refers to how much the stock’s price changes from one moment to another: the “more volatile” the return of an asset is, the less is known what the price and the returns will be in the future. The main problem is that if the option gives the right to buy and sell the stock at a future date, the volatility to consider is the one between the time of purchase and the time to expiration. Obviously, we cannot know the future and, therefore, we cannot know what the volatility of the stock’s retunr will be at the expiration of the option.  It is the only unknown variable in the Black-Scholes formula.

There are many stock options underwritten on other underlying assets that are traded in organized markets and of which the market price is known. Although we cannot know the future volatility of a stock’s performance, we can know the market price of the stock options. If we know the market price of the call and put options, solving the Black-Scholes formula for volatility could infer the volatility expected by the investors during the lifetime of the option. The volatility of the yield of an asset that is congruent with the quoted, or market, price of an option over the asset is known as “implied volatility.” If we know the option price, time to maturity, exercise price and interest rate, we can obtain information about the investors’ opinion about the future volatility of the yields of the underlying stock of the option. It is considered an ex ante measure of the perceived risk of an asset.

Latané and Rendleman (1976) had the idea of calculating the volatility with the

Black-Scholes formula. Since then, numerous studies have been written in which the implied volatility has been used, especially as a parameter that provides market information.   From being an equation to estimate the price of an option, the Black-Scholes model became a formula for calculating market expectations about future stock volatility.

The Volatility Indexes

In 1993, the CBOE introduced a volatility index, the VIX. Market indexes, such as the IPC in Mexico or the S&P500, provide information on the performance of shares in the market. They are representative indexes that indicate if at a particular moment the prices of shares rose or fell. The difference is that the VIX measures the expectation of volatility (uncertainty) of stock returns. The VIX is calculated from the implied volatility of the options on the S&P500 index. While the S&P500 is an index that measures the stock returns of the 500 largest and most tradable companies in the United States, the VIX represents the future volatility of those stocks that investors expect. Since the S&P500 is an index that represents market performance very well, the VIX accurately measures the expected volatility of that market ². Graph 1 shows the evolution of the VIX since 1986. Although introduced in 1993, the index was estimated since 1986 to cover the market crash of October 1987. The intention was to document the degree of market anxiety during the worst drop in the market since the Great Depression.  This would give a framework of reference for measuring the magnitude of other cases of turbulence. Had the VIX existed when the stock market collapsed in October 1987, it would have reached its all-time high of 150 points. Since the appearance of the VIX in 1993, the highest level it has reached was in October and November of 2008, during the worst of the subprime mortgage crisis in the United States (80 points). At other times of turbulence, but less deep, the VIX tends to reach 30 or 40 points, while in normal times it is between 10 and 20 points.

The Purchase and Sale of Volatility

Being indexes, the VIX and VIMEX cannot be bought or sold in the financial markets; however, as with return indexes, there are derivatives and structured products that to trade in accordance with the expectations of the investors. In fact, one of the objectives in creating the VIX was to have a volatility indicator on which options and futures could be subscribed.

The CBOE offers options and futures on the VIX. How do futures and options on volatility work? For example, a long position (buyer) in a futures contract has gains when volatility increases. Suppose an investor suffers losses when market volatility increases; therefore, he wants to hedge against increases in volatility. The investor buys 100 futures contracts maturing in June 2017. The exercise price at the time of purchase is 13.0. The contract has a multiplier of 1,000 dollars, so the investor makes a hedge on 1,300,000 dollars (100 x 1,000 x 13). If the volatility index rises to 14.5, the investor will have a gain of 150,000 dollars (= 100 x 1,000 x (14.5 – 13.0). Conversely, if the index decreases to 12, the investor will lose 100,000 dollars (= 100 x 1,000 x (12.0 – 13.0). Graph 2 shows the gains or losses that the investor would have as the value of the VIX changes over the life of the contract. Futures contracts and other structured products subscribed on volatility indexes, allow investors to hedge their portfolios in times of uncertainty. With this type of strategies, the direction of market movements are not relevant because investors can hedge regardless if the market goes up or down.

Graph 2. Example of a transaction with a VIX futures contract.

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