In companies, several people besides the CEO perform the functions of General Management , such as the leaders of multifunctional projects, business unit managers, division directors and many of the members of the board of directors.

However, the people performing general management work often do not have a good conceptual framework to carry out their duties. This article proposes a conceptual framework that can diagnose and structure the work of individuals who perform general management duties in companies (Garvin, 2001; Pérez López, 1996). A conceptual framework is a set of concepts that are interrelated and can be used to assess a situation based on the presence and quality of each of the identified elements.

In this conceptual framework it is useful to differentiate between structural elements – the company’s anatomy - and dynamic processes -its physiology. The principal structural elements are aspects of reality that have certain inertia; that is, they normally change slowly. These include the company’s external environment, the organizational architecture, the business model, and the corporate governance system. The principal dynamic processes are sets of activities that include the following: learning and influence on the environment, leadership and management of people, decision-making and performance of actions, and management of resources and results. The dynamic processes operate based on the structural elements and they can affect the structural elements by changing them or keeping them stable despite the existing pressures to change.

All the elements – structural and dynamic – have lifecycles of introduction, growth, maturity and decline, as well as times of evolutionary change that increase or decrease the number of companies in a sector.

Structural Elements The company’s main structural elements are explained below. Also described are examples of the processes or operational mechanisms that make them work on a daily basis.

External environment. One must make a distinction between the macro-environment, composed of the national and international environment, and the company’s industrial environment. The national and international environment contains legal and political components that are related to establishing the rules of the game, socio-economic components that have to do with how the economic players perform in a given country, and technological components that are becoming increasingly important as sources of innovation. As to the change processes in the macro-environment, they could originate in any of the three dimensions described, for example, technological changes could bring about socio-economic changes that in turn result in legal and political changes. The industrial environment has to do with the cluster of elements in the value chain of the industry that one is engaged in: suppliers, sellers of complementary products, distributors and final customers. Countries as well as industries have life cycles that have stages with varying rates of growth or decline. These factors in the macro-environment and the industrial environment interact in different ways in certain situations, often making a company’s future complex and uncertain. Any given company interacts normally with groups of elements from both the macro-environment and the industrial environment; these are groups that can affect or are affected by the performance of the company are called its “stakeholders.” Examples are financial institutions, government regulators, community groups, clients, and suppliers.

Organizational architecture. The organizational architecture involves the organizational structure, the culture and the coordination system of the company. The organizational structure focuses on structuring a company’s tasks. The organizational structure points out how functions are divided horizontally and vertically within the organization; that is, in each hierarchical level and between hierarchical levels. The organizational structure states the hierarchical relations of authority and responsibility in the company. The coordination systems are those that are used to coordinate the organization´s activities once its functions have been divided. That is to say, the coordination system is the way people with different functions interact and establish communication mechanisms and incentives. An integrating factor with strong inertia in organizational architecture is the organizational culture, understood as the system of values and norms shared by members of a group or organization. Normally, it is difficult to change the culture because it takes time and may require changes in personnel or incentives. The organization also changes according to a life cycle and evolutionary processes, although its characteristics are different from those of living beings as it can extend its existence indefinitely.

Business model. Shows how the company creates value in a particular business. Its components include: market segments that are served; value proposition offered, including prices and collection mechanisms; processes used to generate the value proposition; and tangible, intangible and human resources used to create value. Business models explain how value is generated and how much of the created value is retained by the company in relation to its clients, suppliers and complementary product suppliers. Business models describe how the company produces, distributes, charges and collects for the products and services that are delivered. Business models also have life cycles and are subject to evolutionay change, both of which result in changes in the level of performance of the company.

Corporate governance. The corporate governance is the system used by stakeholders to impact and control the behavior of the company. It is based on the legal framework of the country or region. This has to do with the group of legal entities (i.e., corporations) that are part of the company, the type of each one, their resources and important contracts. Of importance in corporate governance are the boards of directors, executive committees and other committees set up to guide the company’s management. The processes in corporate governance involve the partners or owners of a business voting for the board of directors that will represent them, and the board in turn appointing a Chief Executive Officer. Then the CEO will choose a group of collaborators to carry out the management functions in the company. Generally, the board members give guidance to the company through the appointment of the CEO and the ratification of his or her most important executives, the approval of strategic and financial plans, and by monitoring reviewing company performance. Corporate governance normally changes slowly, although it can undergo radical changes when a subsidiary is acquired or sold, or when there is a comprehensive restructuring of the group. For example, when a company receives a major loan, it can sign a contract that significantly restricts its activities so that the institution that granted the loan becomes an important part of its corporate governance system.

The structural elements could be seen as different approaches or perspectives on the company. However, it is convenient to see them as the main subsystems integrating the company. All structural elements are subject to changes due to the life cycle of a specific company and the evolution processes of the population of similar companies.

Dynamic processes Dynamic processes can be identified at several levels. First are those that make the company function on a daily and normal basis; these are the operating mechanisms mentioned earlier. Second arethe processes having to do with attempts to improve the company’s regular activities. Third are those that lead to determining how to improve the company’s processes for change (Collis, 1994). The focus of executive management is on the second and third categories, what we might call “dynamic capabilities.” A dynamic capability can be defined as “a learned and stable pattern of collective activity by which the organization systematically generates and modifies its operating routines in search of improving its effectiveness” (Zollo & Winter, 2002, p. 340).

Relationship with the environment. The company engages in activities to link itself with its external environment. These activities include intelligence or learning efforts to obtain information, analyze it and discover opportunities and threats, as well as public relations efforts by which the company can communicate its view on matters – its “reality” – to groups that are involved or interested in the performance of the company, to its stakeholders and other members of the external environment. Thus, the relationship with the environment involves learning and teaching. Activities of this type have the potential to change the environment. An example would be lobbying the government about a specific regulation. Companies can be more or less proactive in their relationship with the environment. In addition, relationships with environmental elements tend to be about greater competition or cooperation, but they are generally a mixture of the two, with the competitive focus being more important in for-profit companies.

Leadership and management of people. People are in certain roles or positions in companies for only a certain time. Of course, individuals also have a life cycle. Some managers deem it appropriate to separate leadership from management, although these two processes are complementary. The first is more focused on generating consensual visions and on aligning groups toward them. The second is more focused on setting concrete goals, assigning resources and and controlling results. Carrying out specific tasks or activities requires the motivation and the will of its members. The sum total of the motivation of the company’s members can be viewed as the organizational energy. Managers have to worry about maintaining high organizational energy within the companies they lead because the quality and quantity of actions they can perform as a group depends on those energy levels (Bruch & Ghoshal, 2004).

Decision-making and performance of actions. Each company has a portfolio of actions; some are long-term commitments and others are options to invest additional resources that remain open for a period of time. The decision as to which actions will be kept within the portfolio depends not only on the person who makes the decision but on the company’s decision-making system. Different systems of decision-making result in different resolutions, different qualities and a different number of decisions. Specifically, companies need to avoid cultures of indecision where nothing happens, or an excess of decisions that could confuse the participants. It is important to be clear about the role of each person who takes part in the decision and if the decision will be taken by an individual, a committee, or one person with the advice and approval of others.

Management of resources and results. The company needs to define the performance criteria that it will use, and what it will call a success. For example, if it wants to increase market share, increase the value of its shares in the stock market, or a mix of the two. It is also important to identify performance drivers, what variables will impact the level of results, and try to influence them. The results expected include indicators of costs, income, return, assets employed and indicators of risk. What is sought is a combination of these performance variables that is acceptable to each of the company’s stakeholders. Achieving a level of performance generally requires a certain investment in resources. Investments are usually evaluated according to the results expected. If the opportunities available to the company are not adequate, it would do well to return the money to investors in the form of dividends or share buybacks.

The structural and dynamic elements could be combined in a table showing how the dynamic processes are supported or constrained by the structural elements, and the structure is affected by the dynamic processes. See the table below.

General Management Framework: Structural elements and dynamic processes.

Use of the framework Following are some examples of possible uses of the framework. The General Managers could try to change the structural elements, major surgery, or make incremental changes in the dynamic processes such as modifying the networks and information systems of the company, the individuals occupying each job, the leadership and management style, the level of resource allocation or the goals established. An executive who has decided to make changes in some elements of the structure could evaluate how changes in the dynamic processes could affect the structural element that he or she hopes to change. Each cell in the matrix indicates what change will be made and how it will affect the rest of the model’s elements.

When a new CEO is appointed, that person could use the General Management framework to assess the environment, the organizational architecture, the business model and the corporate governance, and see which dynamic processes have the greatest impact on the structural elements that one hopes to change. The executive must periodically evaluate the performance of both the dynamic processes and the structural elements. The structural elements can be evaluated as to their fit with others and their flexibility when the other elements change. That is, the structural elements can be assessed technically in terms of how well they perform the intended function, and they can be assessed evolutionarily as to how well they adapt to changes in the environment (Helfat et al., 2007). The dynamic processes can also be evaluated in terms of cost, speed and flexibility.

An executive facing a crisis in performance could evaluate the dynamic processes to determine if the problems are due to poor performance management, inappropriate actions, incompetent people, or faulty information from the environment. The structural elements can also be evaluated as if the problems are due to the business model, the organizational architecture, the corporate governance, changes in the environment, or a mix of these elements.

ConclusionA dynamic process can affect all of the structural elements. A structural element can affect how a dynamic process works. All the structural elements and dynamic processes are interrelated. The model indicates why actions are taken (current or future changes in the environment), who carries out those actions (people), what is done (decisions and actions) and with what results as far as risk and returns (resources and performance).?

*I would like to thank Carlos González Martínez, Francisco Mendoza Trejo, Antonio Sacristán Roy y Giulio Chiesa for their comments to an earlier version of this article.

References

• Bruch, H. & Ghoshal, S. A bias for action, Harvard Business School Press, 2004.
• Collis, D.J. Research note: How valuable are organizational capabilities? Strategic Management Journal, 15, 143-152.
• Garvin, D. A. General Management: Processes and Action, Nueva York, McGraw-Hill/ Irwin, 2001.
• Helfat, C.E. et al., Dynamic capabilities: Understanding strategic change in organizations, Londres, Blackwell, 2007.
• Pérez López, J. A. Fundamentos de la dirección de empresas, 5a. ed. Madrid, Edicions RIALP, 1996.
• Zollo, M & Winter, S. Deliberate learning and the evolution of dynamic capabilities, Organization Science, 13, 339-351.

The modern function of finance does not resemble the classical view of the practice, since it is now driven and empowered by data and analytic tools and by the new collaborative ways of working. Modern financial organizations are no longer satisfied with containing costs and keeping accounts…

Among the recurring questions in the minds of decision-makers in the financial management offices of businesses are those that focus on the following topics: How can modern financial officers adapt new technologies into their finance functions to enable new capabilities and transform the mission of finance? How can one correctly evaluate the degree of technological empowerment in the area of finance compared to other lines of business? And; how well the area of finance fulfills its new mission of providing the company with guidance and strategic prospects?

The modern function of finance does not resemble the classical view of the practice, since it is now driven and empowered by data and analytic tools and by the new collaborative ways of working. Modern financial organizations are no longer satisfied with containing costs and keeping accounts. Modern finance aims to be part of the evolution of the business by relying on its operational knowledge and analytical expertise to provide management with understanding and guidance regarding where to invest to boost innovation and growth.

Modern finance works hand in hand with other business areas and becomes a key partner to identify bottlenecks and opportunities based on facts rather than opinion. Modern finance is committed to operational excellence and will automate or “outsource” routine transactions whenever possible so that it can focus on activities that add value to differentiate and boost the business.

CFOs who are at the helm of modern financial organizations recognize the value of digital technologies for finance and business in a more general way. They are committed to keeping up to date the competencies of professionals in their areas through next-generation applications with analytical, mobile and social capabilities that are part of their work plan. More and more CFOs are behind corporate transformation projects, providing executives with operational and analytical knowledge and with budgetary discipline in order to maintain the business.

Nearly seven out of every ten (68%) finance and business executives think that the CFO is an evangelist who is sure of issues regarding technological transformation, but only one fifth (20%) thinks that financial organizations have adopted the latest technology, according to a new study from Accenture and Oracle.

The study’s findings, published in the report, “Empowering Modern Finance: The CFO as Technology Evangelist,” show a greater perception of decision-makers in the areas of finance as partners in the implementation of new technologies. For example, 23% of the 300 non-financial senior executives that were surveyed stated that the capacity of the finance area to provide a current view of performance in relation to the budget “does not meet expectations” and even 42% of the 975 finance executives surveyed believe that there are opportunities for improvement. However, finance professionals are increasingly seen as active collaborators and 80% think that the financial area is “excellent” or “above average” as far as its ability to cooperate with the rest of the business.

According to the findings of the new report, almost three quarters (72%) of the finance executives think that cloud technology, mobile devices and social media will change the way in which finance is structured and managed. The study also shows that financial functions are investing in new technologies.

According to the study, 28% of respondents in the financial area already use cloud technology to support development of budgets, planning and forecasting, and another 34% plan to add these functions to the cloud next year. Also, more than two thirds of the respondents have already adopted a cloud-based system in some part of their organization for use with core financial aspects (24%) or are developing a plan to do so (45%).

Finance directors are under great pressure to improve their performance as a result of the perception that they are not sufficiently committed to new technologies. The findings show that financial leaders are in fact investing in cloud and other technologies to create modern financial organizations that are capable of supporting profitable growth.

The survey uncovered the questions that motivate finance leaders when they try to guide their organizations and plan out winning strategies: How do we add prospects and value to the business? How can we help empower decision-makers as part of a service organization? How can we provide them the service they require? How do we add value to our processes and make them more efficient? How do we remain up-to-date on technology so that we are never left behind?

It is clear that a CFO’s crucial role should be to make sure to keep his organization at the forefront of technology and maximize that which can be applied to the business. This involves getting the information out of the office and into the hands of the clients.

Although close to 30% of finance and business executives state that processes still are done on paper, there is a trend to switch to automation and digitization. Currently, almost 50% use applications for mobile devices and 53% use network systems to manage business processes.

Finance functions also show progress in resolving a shortage of skills that is encountered as new responsibilities require staff with greater technical expertise. To meet the need for new skills and analytical capabilities to carry out a modern financial program, almost half of those surveyed have seen an increase in the number of financial analysts hired since 2011. However, when asked to identify barriers to the adoption of new technologies, 38% of the respondents cited lack of internal skills. Only 5% mentioned the lack of support from senior management as an obstacle.

It is encouraging to see the progress and foresight that financial leaders have shown by overcoming traditional operational barriers and making use of new technologies. These modern financial organizations will want to train and hire professionals with solid analytical skills and business knowledge to help the CFOs of today achieve the full potential that finance has to offer.

Data analysis and the new forms of collaborative work enable modern financial organizations, which no longer limit their focus to cost containment but look for new ways to provide value and prospects to the rest of the company. Although there is obvious progress, there remains a significant gap between aspirations and reality.

In the future, the finance function will have to put more emphasis on creating for itself a long-term business vision of the business as a whole and bolstering the growth agenda with better data. It must find new ways to collaborate as a strategic partner with the rest of the organization, while it adopts a much more service-oriented focus.

Many CFOs direct their efforts to the creation of a finance function that is enabled by technology, but there is still a long way to go, given that many companies continue to make decisions based on obsolete data. While great progress has been made in the delivery of valuable data with the aid of analytics tools, this practice can be improved significantly.

We should recognize an important finding: Although CFOs are seen as evangelists of technology, there is still a gap between ambition and reality. While 43% of executive officers believe that their sales organization has adopted the latest technologies, only 20% consider that their finance organization has done the same. Obviously there are still obstacles to the adoption of new technologies in the area of finance.

Modern finance areas are both service providers as well as collaborative strategists, with key analysts in their business lines that contribute to analysis and to decision-making. Modern finance also offers business unit managers detailed reports that they can use to analyze information as needed. Finance teams employ the latest technology tools that are used in social networks, mobile devices and collaboration so as to remain linked to the views, strategies and activities of their business partners.

The finance function of the future will have to be much more automated and efficient, and it will have to take advantage on intelligence of digital technologies, ranging from mobile finance tools and the acquisition of valuable data using the latest analytics to social networks and the cloud.

The finance function can manage internal and external resources to deliver services and solutions of high quality and with competitive costs that address end-to-end business problems and drive value creation. Throughout the business and the regions, as comprehensive business service organizations become strategic partners to the company, they can help revolutionize the way in which a company organizes its administrative and support functions but also more of its office activities and its service to customers. They can also improve the focus on the standardization of processes and the organization. Their proximity to the business allows them to share responsibility with the company to achieve business results.?

The topics addressed at the 5th ECM range from Mexico’s possibilities as a destination for investment and the country’s interests beyond its borders, to areas such as the tax system, regulatory issues, relations with the government, hiring of the labor force and the internal performance of organizations that define their structure and interaction with the community, among other points that outline the performance of CEOs of Mexico. This article addresses some of these issues.

At the beginning of the Enrique Peña Nieto presidency, the international press, such as The Economist and The New York Times, announced “the Mexican moment” following an optimistic forecast for the Mexican economy that did not materialize, because the growth of GDP in 2013 was 1.1%. However, confidence in the government’s ability to pass reforms became apparent, raising good prospects for the country, according to PwC México’s Fifth CEO Survey in Mexico (5th ECM, in Spanish).
The topics addressed at the 5th ECM range from Mexico’s possibilities as a destination for investment and the country’s interests beyond its borders, to areas such as the tax system, regulatory issues, relations with the government, hiring of the labor force and the internal performance of organizations that define their structure and interaction with the community, among other points that outline the performance of CEOs of Mexico. This article addresses some of these issues.

Good Auguries
The results of PwC’s 17th Annual Global CEO Survey (17th EGAC, in Spanish) indicate that Mexico will be important in the development of businesses located in the main countries of the American continent, especially Brazil, Canada, Colombia and the United States. From this point of view, 10% of the participants in PwC’s 5th ECM believe that a change in the global power would transform their business in the next five years and 74% are somewhat or very concerned about the possibility of slow or negative growth in the developed countries. Therefore, it is clear that in Mexico, directors remain cautious with respect to the growth that the United States can achieve, and for this reason, they may consider seeking opportunities in other regions.

The data seems to show that Mexican companies have a strong interest in participating more in Latin America, a natural market in terms of proximity, language and culture, but also where they have greater opportunities for growth.

The importance that this region has become for Mexico is shown by the fact that 67% of the general directors of the 5th ECM who said they were interested in a merger or acquisition, joint venture or strategic alliance would do it in Latin America. It should be noted that 12% of the directors plan to complete a purchase or establish a joint venture abroad in the next 12 months. It is noteworthy that 33% of Mexican CEOs consider Brazil the most important country for their growth prospects in the next 12 months.

Several of the countries that have experienced the highest growth in the last 14 years are found outside of the American continent and do not appear in the plans of the CEOs of Mexico. For example, only 9% of the directors who participated in the 5th ECM considered China an important country for their growth in the next five years. India is considered important in the short term by 4% of the participating directors.

Despite the little attention that directors in Mexico give to countries of greater economic growth, 71% of the participants in the 5th ECM are concerned about a decline in the high-growth markets. Moreover, 47% of the participants in the survey said they were somewhat or very concerned about an increase in the cost of labor in these markets.

Inwards: Opportunities and Threats
Strong confidence in growth is the most notable information from the 5th ECM. Fifty one percent of the Mexican directors are convinced that their company will grow in the next 12 months, a percentage that is higher than the world average of 39%. In this regard, 74% of the directors feel somewhat or very confident about the medium-term growth and 95% are somewhat or very confident about the next three years.

Directors’ priorities for their companies include: aspects related to the development of talent, such as the generation of skilled labor (that is the opinion of 56% of respondents); the creation of work for young people (45%); and the formation of an ecosystem of innovation (34%).

But the CEOs also have concerns: 56% are extremely concerned about a higher tax burden, well above the 32% of the directors who shared the same concern in PwC’s 17th EGAC.

Apart from taxes, 73% of the CEOs surveyed are concerned about the government’s response to Mexico’s fiscal deficit and public debt. The fiscal deficit has an impact on other business risks. For example, 61% of Mexican CEOs are concerned about the volatility of exchange rates and 60% are concerned with the lack of stability of capital markets, which is consistent with 59% of the world average.

Challenges in the Environment and Internal Opportunities
In regard to the more direct environment of the CEOs, their concern revolves around supply chains, communities, and even their own business. With respect to the first point, 68% of the CEOs interviewed in Mexico strongly agree with the importance of ensuring the integrity of the chain, above the world average of 58%. As for the community, in line with the international response, 95% of the CEOs consider it important to promote a culture of ethical behavior. On the internal organization, only 8% of the respondents did not see the need to change the design or structure of their company, slightly below the 10% world average.

In relation to the structure of their company, 48% strongly believe that it is important to increase the diversity of their board of directors and their workforce, above the 33% world average – data that suggests that this issue is more urgent in Mexico. The relationship with the workforce has improved: 45% believe that the confidence of the employees of their industry has been strengthened in the past five years. Another 45% believe that it remains the same and only 8% say it has deteriorated.

The technological field stands out among the big transformation engines with 86% of the opinions of the CEOs in Mexico; the demographic shift in Mexico with 66%, and the changes in global power with 47%.

The PwC’s 5th CEO Survey in Mexico is useful for understanding the environment in which corporations – whose strategies generate employment, as well as economic and social development – are conducted. The information was collected between September and December of 2013.?

In the present context of great uncertainty, market volatility, economic stagnation and international competition, it is necessary to find new ways to boost a country’s economy and development.

In the present context of great uncertainty, market volatility, economic stagnation and international competition, it is necessary to find new ways to boost a country’s economy and development (Venture Institute, 2013). Thomas L. Friedman, in his book, The World is Flat (2007), argues that the reduction in trade and political barriers, as well as the technological advancement, are leveling the way business is conducted worldwide, and as a result, the key to differentiate oneself will be through innovation.

Presently, the sources of economic growth have changed. Slowly, the traditional sources, such as capital or labor, are being replaced by other sources, such as infrastructure in information and communications technologies (ICT). We also see that the greatest problems of our society, such as transportation, education, environmental protection, medicine, agriculture and even “democracy,” require creative and efficient solutions that promote and implement advances in science and technology (Venture Institute, 2013). Without a doubt, innovation is increasingly a key factor to sustain long-term development and economic growth, improve the population’s well-being, generate employment and promote the creation of new industries (Venture Institute, 2013, 2). At the beginning of the 20th century, Joseph Schumpeter pointed out the importance of ideas and technology as factors that determine economic growth, since they generate solutions and radical changes that enable increased productivity (Romer, 1986 and Venture Institute, 2013).

Optimism about the impact of innovation on productivity and economic growth has grown in recent years. There is no doubt that innovation creates a virtuous circle, particularly in emerging countries; thus, economic growth is driven by addresing social problems through innovative solutions, and vice versa Such was the case of the Green Revolution in India in the 1970s (OECD, 2012, 10). What is more important is that beyond the theory, the development of innovation capabilities has been an important factor in the strategy of growth for the most dynamic economies, such as those of China, India and Korea (OECD, 2012, 4-7).

In this way, a fairly broad consensus has been generated regarding innovation as a key factor to bolster and sustain development and economic growth in the long term. However, we cannot say that there is the same consensus on its definition nor, therefore, on its measurement. Different national and international organizations have proposed different definitions of what innovation it is.

• “Unlike an invention, an innovation is the economic sense that accompanies the first commercial transaction with the idea of a new product, process or system, even when the word is used to describe the whole process” (Freeman, 1982).
• “Invention is the creation of a new product or process, but innovation is the introduction of change for something new.” (Rouse, 1992).
• “The ability to innovate has less to do with the ability to make discoveries of technological principles and more to do with the ability to systematically exploit the effects produced by new uses or combinations of the components” (Foray, 1998).
• “The introduction of a new good, one that consumers are not familiar with, or a new quality of a good; the introduction of a new method of production; the opening of a new market; the conquest of a new source of raw material or intermediate goods; or the creation or elimination of a monopoly” (Schumpeter, 2004)
• “The introduction of a new or significantly improved product (good or service), process, marketing method or organizational method in business practices, the organization of work or external relations” (Oslo Manual, 2005).
• “Innovation also occurs when a product or process is introduced; when competition imitates a pioneering business in an innovation; when minor improvements or adaptations are made to a product or process … That is to say, innovation also occurs through creative imitation” (UNCTAD, 2007, 6).
• “Any change or creation that generates value. It is a process that involves the incorporation of new technologies and knowledge that in the long run transform the economy and productivity of a country, region or company” (Venture Institute, 2013).

The list of definitions can continue as we further probe this concept. Similarly, not all actors in the entrepreneurial ecosystem share the same definitions of innovation. Expansion magazine devoted its special 45th-year anniversary issue to innovation in Mexico (April 2014). For that edition, the magazine conducted interviews with subject-matter experts: specialists, academics and entrepreneurs. For some, innovation consists of identifying a need and finding solutions to address it, and it does not imply per se an application of technology.
For others such as Don Strickland, former executive at Apple and Kodak, to innovate is not just creativity in finding new ways of doing things, but it implies the creation of value. Others, including Jeffrey Beir, mentor at Harvard iLab, are more demanding and consider that an incremental improvement is not an innovation unless it meets a clear and specific need. For Rogelio de los Santos, cofounder of Alta Ventures capital fund, innovation differs from an invention by its market perspective. Thus, we can conclude that in general for some actors in the entrepreneurial ecosystem, an innovation is characterized by three components: 1) the creation of something new 2) which transforms the business, market or country, and, therefore, 3) creates value.

Why measure innovation?

In recent years, we have witnessed countless national and international efforts to measure and compare the performance of countries in regards to entrepreneurship, innovation, or science and technology. Evaluating and measuring innovation is important to better understand how it is expressed in each country. Based on such an evaluation, decisions can be made about business strategies and public policy. Measuring and understanding innovation is a crucial activity if one wants these strategies and policies to be truly effective. Thus, specific indicators have become increasingly necessary in order to understand innovation and its relation to the economic development of countries (Anlló, and Schaaper Marins, 2013).

In general, innovative ideas can be classified by their purpose and novelty. According to the goal of knowledge, innovation can be directed toward a product, process, market or organization (OECD, 2005):

1. Product. Introduction of a good or service that is new or significantly better compared to its previous characteristics or uses.
2. Process. Establishment of a production process or a delivery method that is new or significantly improved. This includes technical changes in equipment or software.
3. Market. Establishment of a new marketing technique that represents a major change in the design, packaging, promotion or price of a product.
4. Organizational. Establishment of a new organizational method in the company’s practices or how it works internally and externally.

Because of its novelty, an innovation can be classified as incremental or disruptive, depending on its contribution to knowledge and its geographical impact (Johannessen, Olsen and Lumpkin, 2001, OECD, 2005; Christensen, 1997). A disruptive innovation is one that creates new paradigms or markets. An incremental innovation produces gradual improvements in the same technology or field of knowledge; generally, these changes deal with the effectiveness of the product, not with its function (Fundación IDEA, 2010, 11). These classifications can be divided into categories based on geographical impact.

Any actor within society can give rise to an innovation: business, industry, public sector, academia, etc. (OECD, 2010). However, innovation often arises through the interaction of the complementary activities of such actors.

Innovation in Mexico
To summarize, innovation is now more than ever a determining factor of the levels of productivity and competitiveness and therefore of a nation’s economic growth. A country’s capacity for innovation depends on the suitable interaction between government, scientific community, businesses and industry.
This gives rise to the concern about the state of innovation in Mexico. In terms of innovative capacity, Mexico is well below countries with which it competes directly. Mexico suffers from the Peter Pan syndrome, as it is described by The Economist (May 2014), given that about 90% of companies employ less than 50 people, they are oriented to local markets, their contribution to the total value of production is low, and they yield few innovative activities, which results in a lack of efficiency, productivity, technology and innovation. This explains why much of the investment in research and development is carried out by the public sector. When the private sector allocates very scarse resources to innovation, industrial infrastructure is in a low technological state, and there is a shortage of highly skilled human resources.
If Mexico wants to achieve higher levels of growth and improve its competitive position in the world, it must bet on the path of innovation, which implies a proper alignment among the actors: government, scientific community, universities, businesses and industries.?

References

• Anlló, Guillermo, Luciana Marins y Martin Schaaper. (2013). Estadísticas de innovación: El desafío de la comparabilidad. El Estado de la Ciencia 2012, RICYT: 65-79
• Christensen, Clayton M. (1997). The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Boston, Harvard Business School Press.
• Expansión (2014). “Innovación en México”. April, no. 1138.
• Foray. Dominique (1998). “The economics of knowledge openness”, in Nathalie Lazaric and Edward Lorenz (comps.), In Trust and Economic Learning,. Edward Elgar Publishing.
• Freeman, Christopher (1982). “The Economics of Industrial Innovation”. University of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, http://ssrn.com/abstract=1496190.
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It is undeniable that the technological advances of social media outlets have transformed the way businesses communicate with the public and in particular with investors. Currently, the general director of a company and the members of senior management may disclose corporate information via Facebook, Twitter, Tumblr and other online media as well as traditional means of communication.

Currently, the general director of a company and the members of senior management may disclose corporate information via Facebook, Twitter, Tumblr and other online media as well as traditional means of communication.

Typically, businesses listed on the stock exchange disseminate information through reports submitted to the regulatory marketing body (the Securities and Exchange Commission, SEC, in the United States, or the National Banking and Securities Commission, CNBV, in Mexico) or through press releases. With the expansion of the means that companies can use to disclose information, the need arises to assess whether regulation is appropriate.

The way companies disclose information is regulated to ensure that it is made public to all investors at the same time. When information is disclosed only to a segment of the investors, it is considered privileged information that may give an unfair advantage to some investors over others, which decreases the efficiency of the stock market.

In April 2013, the SEC formally accepted social media communications as a suitable method to disclose information. The SEC authorized the use of Facebook, Twitter and other social media to disseminate key information as long as two conditions are met (Holzer and Bensinger, 2013). First, companies must give advance notice to investors as to which social media the business news will be disclosed. Secondly, access cannot be restricted to a particular group.

The SEC decided in favor of the use of social media after an investigation of Netflix, the entertainment and online video rental company (and by mail in some markets). In July 2012, Netflix CEO Reed Hastings revealed on his Facebook page that Netflix’s monthly online viewing had exceeded one billion viewers for the first time. The announcement was made exclusively on Facebook, not through a press release or an official report to the SEC. The post caused a 13% rise in Netflix’s stock price, from 70.45 to 81.72 dollars. The SEC launched an investigation to determine whether messages on social media, in this case Facebook, complied with the rules laid down in the Regulation Fair Disclosure (Regulation FD).

During the investigation, Joseph Grundfest, a former member of the SEC and currently a law professor at Stanford University, recommended that SEC not punish Hastings, arguing that “the announcement by Hastings on his personal page reported in a practical way to more people and more quickly than if he had used the official reports of the SEC” (SEC, 2013).

The main argument of the SEC against Hastings’ posting on Facebook was that it went against the fair disclosure rules because Netflix had not used Facebook to announce important information nor had it informed the investing public that Facebook would be used to disclose company information. Hastings defended himself arguing that such disclosure was not necessary because he had more than 200,000 followers on his personal Facebook page, which made it, in fact, a “very public” forum (Holzer and Bensinger, 2013).

The fact that the SEC recognized that social media channels are “perfectly acceptable methods” for communication with investors has its antecedents in the Fair Disclosure Regulation promulgated on October 23, 2000 (SEC, 2000). The regulation stipulates that companies must disclose business information to all investors at the same time (and not selectively). The objective was to stop the widespread practice of companies offering information in private to analysts, giving them an advantage in the financial markets. Private investors wrote to the SEC expressing their support for regulation; however, large institutional investors, accustomed to receiving material benefit of privileged information, opposed it.

The authorization of the SEC for companies to use social media to communicate with investors reflects the current trend of using these means. Today, companies and employees use Facebook and Twitter to disseminate a wide variety of information.

A study conducted in 2012 by the Conference Board and Stanford University showed that 14.4% of the companies included in the report communicated with their shareholders by social media (SEC, 2000). It also found that more than 75% of the companies used social media to interact with customers.

Large companies such as Dell Inc. and Pepsico Inc. use Twitter to announce financial information and other key information to investors. In February 2013, Pepsico Inc. sent messages from their official Twitter account with financial data from earnings, dividend payments and comments by its director with links to the original documents.

Another example of the impact of social media communication in the behavior of investors is the automobile company Tesla. The shares of the company rose significantly when its director Elon Musk tweeted on May 22: “Today Tesla met the funds to pay back the loan of DOE. It is the only automaker in the United States to have paid the government in full” (Musk, 2013).

In the previous examples, the companies legitimately informed investors through social media. The information was disseminated quickly and efficiently. However, social media can also have a negative impact on the markets when used illegitimately.

On April 23, 2013, the Twitter account of the U.S. news agency Associated Press was hacked. The hackers falsely tweeted that there had been two explosions at the White House and that U.S. President Barack Obama was wounded: “Alert: Two explosions in the White House and Barack Obama is hurt.” Within seconds, this fake announcement made the Dow Jones index on Wall Street fall dramatically (El Nacional, 2013). Although the market stabilized quickly after the White House denied the news, this example shows that the rapid spread of information through social media can also have a negative impact.

The SEC formally recognized a reality, although it is not known exactly how the acceptance of social media in the efficiency of securities markets will be influenced. However, the lessons for investors are clear: They should use with caution the publications of social media to make investment decisions, because they could be manipulated, and they should try to find more information by other means.

Lessons for companies imply novelties. Given that social media outlets are increasingly being used to communicate with investors, companies are faced with the challenge of creating a policy of responsible use of these media. Practices and company politics must be designed to minimize possible negative or unforeseen consequences and maximize the benefits that the speed of dissemination of information provides.