Promising Benefits of Decentralized Technologies for the Retail Industry

Social changes are typically market-driven and technology driven. We have witnessed new technologies overtaking markets, and likewise, markets creating the need for a new technology. With the pace it's creating a change, blockchain development deserves a ‘hats-off’. It is affecting the retail market in unconventional ways for all of us. Many changes to traditional processes have already happened, and much more is yet to happen. Blockchain is shifting world finances and starts affecting other industries where blockchain developers implement the technology to improve products and services before they reach the end users.

Retail is not only part of the change, but it’s one of the most exciting areas of blockchain development. How come the technology that took off with a new currency spread its impact to finer shopping?   

Current Face of the Retail Industry

Even when we don’t like to get all things at cheaper retailers, we love getting them as soon as possible. In the race of sustaining an optimal role as consumers, we demand and press for better products. But what exactly is a ‘better’ product or service? Does it always come with the tags ‘cheaper’, ‘reliable’ and ‘high-quality’? The definition is a complex web of personal, social and economic factors. We tokenize a variety of values using preferences that not always have to do with money and then decide upon the personal value. Retailers target our needs, injecting additional value with loyalty coupons, special discounts, credit bonuses, gift vouchers, exclusive memberships, priority shipments.

Solving Digital Trust Challenges

It’s not all about the price. A loyal and trusted consumer-retailer relationship has special worth that goes beyond a one-off exchange. In a digital market with strong competition, retailers cope with margins to remain profitable and attractive. This challenge is additionally hampered with creating trust in the multiple offerings.

With the possibility to promise and deliver trust in products and transactions, blockchain development solves the challenge with decentralization. The concept of a World Wide Ledger is at the core of a public and permissionless blockchain. Blockchain applications that can help retailers require some sort of permission or a closed circle of trust. By removing the intermediaries and building a network of participants by invitation, permissioned distributed ledgers are changing the face of the retail industry. Potential benefits include cost reduction, faster processing of transactions, and product originality.

Streamlining, Automation and Cost-Reduction

Data in shared immutable ledgers is easier to manage. Processes can be automated and streamlined, removing the need for back-office work. The retail infrastructure is simplified, in turn improving record-keeping and inventory management. Fraud is minimized, auditing and reporting are made easy, and compliance is straightforward.

All these potential blockchain benefits can help retailers shape competitive product prices, getting access to a borderless global consumer market, and without the need to pay fees to banks, payment processors and online marketplaces. To create better security of the retail chain, businesses adopting blockchain development are basing their trust in the strong built-in encryption of the technology.

From Payments to Ownership and Budgeting

Bitcoin payments are an exemplary blockchain application in retail. Although the coin is not widely accepted, you can already buy a pizza, book a flight and open an e-commerce store. The Russian Burger King chain is accepting bitcoins. Tracking payments is easier. Large purchases won’t need additional verification with official authorities since the ledger record can be shared and used as the single source of truth. The proof of ownership is irrefutable. Retail can go paperless, as the digital receipts issued by shops can be used for refunds and for tracking personal shopping and spending habits.    

Shared Logistics Systems from Manufacturers to Retailers

Traceability of the products in the supply chain enables immediate insight into the origin of the product, ensuring that what you are getting is an original. It will be difficult to sell something inauthentic since the buyer, the seller and any third parties have agreed on all previous transactions and records, limiting the possibility of an untrusted partner to impair the network trust. Counterfeited goods and stolen merchandise can’t get through the replicated unified records. E-warranties are made possible with cloud-based blockchain solutions, removing the need for paper warranties.

Blockchain development has a potential to reshape logistics. Shipments can be tracked at every stage. You can check if your product will be delivered to you in real-time from around the world, without the need to send numerous emails or make phone calls. Since all evidence is kept safe and unchangeable in one distributed ledger, it is easier to locate lost products or check actions that affected the product quality. In turn, the possibility for disputes is smaller.

Intelligent IoT Shops

In view of supermarkets, blockchain development can drastically change how we do our daily shopping for supplies. Intelligent supermarket shops, equipped with IoT sensors and connected to a decentralized database can enable detailed product scrutiny. It might be possible to use the smartphone and check everything about the product with simple code scanning. From supermarkets, the technology can easily be transferred to other branches of the retail industry.

The challenges of market volatility and lack of existing ecosystems for creating trusted partner networks are two problems that blockchain developers are trying to solve. As major obstacles for retailers, they affect adoption. Early adopters will get the chance not only to accrue potential benefits from being the first, but also create new retail ecosystems and influence regulatory authorities in how they shape decentralized shopping on the web.


Special Report on Business Ethics: Moral Philosophy

Civilization runs on ethics the way cars run on gasoline. We may not behave ethically all the time, but if everybody consistently behaved unethically, we would no longer trust one another, and the bonds holding us together would break. The life of man would be “solitary, poor, nasty, brutish, and short,” in the famous words of the English philosopher Thomas Hobbes.
The field of ethics, or moral philosophy, investigates theories and ways of thinking that can systematically describe what makes acts right or wrong. This report explores how to view business behavior through the lens of moral philosophy. This is an important subject because, as we shall see, most business decisions have profound moral implications. They affect the products and services we consume, the work we perform and the world we live in. That is why understanding moral philosophy is a critical part of doing business ethically.
This report is the second in a series of four special reports on business ethics, in collaboration with the AKO Foundation. The first was on corporate governance. In this second report, we consider five themes as they pertain to business: virtue and vice; power and pay; global citizenship; climate change; automation and robotics.
Knowledge@Wharton thanks AKO Foundation for its support in publishing this series. Founded by Nicolai Tangen in 2013, the AKO Foundation is funded in part by the profit from AKO Capital, one of the leading European investment funds. Since its inception, the AKO Foundation has been funded with more than $50 million to support projects that improve education or promote the arts.


The Emperor Has No Clothes: Recasting Leadership in the Open-source Era


Rajeev Peshawaria discusses his new book: Open Source Leadership: Reinventing Management When There's No More Business as Usual.
Open sourceThe digital age has democratized the workplace. Now employees can wield just as much knowledge and voice as their managers. It’s a profound change that is forcing an evolution in leadership. Rajeev Peshawaria, who heads the Iclif Leadership and Governance Centre in Malaysia, explores the idea in his new book, Open Source Leadership: Reinventing Management When There’s No More Business as Usual. He contends that leaders must learn to do things differently if they want their companies to innovate and survive. Peshawaria has held senior leadership positions at American Express, HSBC and Goldman Sachs, and he was chief learning officer at Coca-Cola and Morgan Stanley. He discussed his ideas on the Knowledge@Wharton show, which airs on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)  The following is an edited transcript of the conversation.
Knowledge@Wharton: How has leadership changed in this open-source environment?
Rajeev Peshawaria: If you look at what technology has done in the last five to six years with the way we live at home and at work, there are two major things. One, ordinary people today are much more empowered than ever before because everybody has a super-computer in their pocket. I can join any debate I want to. I can say whatever I want to. Ordinary people are really empowered. Leaders, on the other hand, are totally exposed to the extent of being naked.
The second thing is that the 21st century is facing both amazing opportunities as well as daunting challenges related to basic things like food, water, jobs, environment. When it comes to leadership in the 21st century in the open-source era, just showing up to work and telling people what to do is not enough. Just creating shareholder return is not enough. Leadership today has to be about a burning desire to create a better future and to not give up in the resistance that you’re going to face when you decide to do something different.
Knowledge@Wharton: You have noted that Uber, the world’s biggest taxi company, does not own their taxis. The world’s largest hotel chain, Airbnb, doesn’t own the properties it rents. From that perspective alone, businesses are dynamically changing because of technology. Do you think that change is going to continue significantly in the years to come?
Peshawaria: Absolutely. It is just the tip of the iceberg. Two things that mark the open-source era, one of which we are talking about right now, is uber connectivity. Everything and everyone is super-connected, and that is why these new business models are emerging. Old business models are obliterating at a rate faster than ever before. I think the next five to 10 years are going to be incredibly exciting. Just take cancer, for example. Right now you take chemotherapy or any other treatment, and the good cells are killed along with the bad cells. Very soon there’ll be bots running through your veins where only the bad cells will be attacked. It’s unimaginable the stuff that is coming. People have to be prepared for that.
“The problem with leadership training is we’ve been confusing followership with leadership for a long time.”
Knowledge@Wharton: These are changes that are happening in a majority of sectors, not just a couple of areas.
Peshawaria: Yes…. The question is, are large companies’ management practices keeping pace, and are they prepared for what’s coming?
Knowledge@Wharton: There has been tension at times between millennial employees and their managers, who may be in the baby boomer generation and not willing to accept what they bring to the table. Is that changing as millennials are providing more, partly because they’re the largest segment of the workforce?
Peshawaria: Correct. I hear things like, “these millennials don’t have the work ethic that our generation had. They want everything easy. They want it now just because they can have it.” When people talk like that, I ask them, “do you use Google Maps or Waze when you drive?” If they say yes, I say, “well, why don’t you keep an atlas in your car? Is it because it’s easier? Is it because you can have it? What’s the difference between when millennials want something easier and they can have it when you’re doing the same thing?”
Secondly, I look at college kids today. I don’t remember our generation having the kind of pressure that current college kids are going through with their coursework, etc. To say that they don’t work hard, to say that they don’t have the right work ethics, in my opinion, is dead wrong and not helpful.
Knowledge@Wharton: It’s not that students aren’t working hard, it’s that there is sometimes a mismatch between what they are learning in college and what they need to be the next generation of leaders.
Peshawaria: You’re absolutely right on that because we are in the fourth industrial revolution. If you look at the other previous revolutions in history, education takes a little bit of time to adjust to create what is needed in terms of skills and attitudes for the next wave. That’s the period we are going through now. We are not preparing them enough for the next generation because nobody knows, because it’s still unfolding as we speak, which is why learning agility is probably the biggest competency that’s needed in the next 10 years.
Knowledge@Wharton: You also discuss something called autocratic leadership. What is that?
Peshawaria: If you look at any literature on leadership, chances are you will find that when it talks about leadership style, most books idealize the democratic, all-inclusive style of leadership. You must get to consensus, you must love everybody, you must take everybody along with you. On the other hand, you have people like Steve Jobs, Jeff Bezos, Elon Musk, and if you go east, the former prime minister of Singapore. These people were all autocrats, and they’re the ones who rocked the history of the planet in recent years. So the question is, which one of them is true? All the books that idealize democratic leadership or autocratic?
We asked over 16,000 people in 28 countries what’s common between great leaders. We gave them a set of behaviors to choose from, half of which were autocratic and half were democratic behaviors. Without exception, all 28 countries in our global study overwhelmingly agreed that to create breakthrough innovation and success in today’s high-speed world, you need autocratic leadership. That was the most surprising part of our research. But there was absolutely no difference by country across the world in terms of people’s agreement on which of the two was needed.
“Group innovation within the company and crowdsourced innovation from outside … are going to be the way to go.”
Knowledge@Wharton: Many companies are trying to bring more groups and subsets together within their organizations to focus on innovation. Do you think this trend will continue?
Peshawaria: I think so. I think group innovation — getting people together to put their heads together to innovate — is what it will take because the world is getting way too complex for any one person to have all the answers. I also think that the speed and the frequency of innovation is going to make a difference in terms of whether a company survives or not. Besides just creating collaborative environments within the company for group innovation, companies are going to have to get better crowdsourced innovation, opening it up to billions of people as to who has an idea to solve this problem or to exploit that opportunity. Both group innovation within the company and crowdsourced innovation from outside the company are going to be the way to go.
Knowledge@Wharton: How will this change the structure of companies and the traditional corporate ladder?
Peshawaria: Some people are predicting the death of the corporation in the next 20 to 25 years. I don’t go that far. But there will be profound changes. You will still have traditional research and development departments within organizations, and some of the work they do will still be secretive. But a huge amount will also shift to the crowd, as it is already doing in many industries. To that extent, it will have its bearing on organizational structures.
Knowledge@Wharton: Where do you stand on the state of leadership training?
Peshawaria: The problem with leadership training is we’ve been confusing followership with leadership for a long time. As parents, we love kids who listen to us and obey, and we sort of whack them into submission if they don’t. Then we reward them. In school and college, teachers’ pets are the people who do exactly what they’re told and they’re rewarded.
In big companies, my bonus partly depends on whether I get a good score on my employee engagement survey, which makes me a pleaser, not a leader. And in the boardroom when I present a great strategy, the first question they ask is, “Where is the McKinsey Report that says 10 best-practice companies have already done it?” Right from childhood all the way to the boardroom, we reward followership with leadership. That’s one problem.
The other problem is we equate title and position with leadership. The president is automatically the leader of the country. The prime minister is automatically the leader of the country. The CEO is the leader of the company. These ideas are not going to work in the 21st century. You have to have a burning desire to create a better future, and you’ve got to find inner energy, inner strength to keep going. Something that kept Nelson Mandela going for 27 years. It’s about finding that energy and not about competencies, not about case studies, not about personality tests and what have you.
Knowledge@Wharton: Do you expect more companies will open to accepting innovative ideas from the lower rungs of the corporate ladder?
Peshawaria: Absolutely. Many companies are already doing it. I also think this has bearing on how succession planning and future leaders are identified. I think the days of identifying a pool of high potentials and developing them with a special development diet, as was the case in the 20th century, are over. Let me give you some psychometric tests and assessments and then decide whether you’re a high potential or not. And if you are, we’re going to treat you special. Those days are over.
“Let me give you some psychometric tests and assessments and then decide whether you’re a high potential or not. And if you are, we’re going to treat you special. Those days are over.”
I think today we have to open it up to everybody to say, “Who has a good idea? Who wants to contribute in what way? Submit your projects.” Then make it no barrier to entry and see where the innovation comes from. The people that raise their hands every year and come up with great ideas and are able to back it up with their energy, they’re your future leaders. Your innovation takes places in an organic way, and future leadership development takes place in an organic way. The cream rises to the top naturally.
Knowledge@Wharton: What are the greatest changes you expect to see in leadership?
Peshawaria: We were talking about autocratic leadership before. The biggest change that I see is the fact that leaders are totally exposed and naked, and ordinary people are really empowered. The big dilemma is that our data says that you’ve got to be autocratic if you want to create quick and breakthrough success. The time for consensus is over. But how can you be autocratic in today’s day and age when everybody is so empowered, and somebody can destroy your reputation in just a matter of seconds? That’s the 21st century leadership dilemma.
I think the big change is going to be for leaders to understand what it means to live in the open-source era totally exposed and naked, and practice what we call positive autocracy. You’re going to have to earn the right to be autocratic by living the right values and by pursuing a purpose at all times. You’re going to have to master what we call the dance of a naked autocrat, which means to be completely autocratic about your values and your purpose because you thought through that very deliberately and slowly, at the same time being completely compassionate and humble and respectful with people.
Third, provide freedom within a framework. Don’t just box people up into rules, policies and procedures because the world is working too fast these days. Instead, build a culture based on values. If United Airlines employees had acted according to values rather than procedures, they probably would not have dragged David Dao off the airplane in a bloodied state. That’s the idea of creating culture based on values rather than rules, freedom within the framework.
You’ve got to keep listening and learning and reflecting continuously. That’s fourth. Learning and reflection is something that has to become part of the DNA of leaders.
Finally, if you want to create a culture of innovation, you’re going to have to create a lot more forgiveness within the organization. Why forgiveness? Not because it liberates the soul, but there’s a business reason. If you want your company to innovate, you’re going to want people to take risks and try new things. If they try new things, they’re going to fail a lot. If you forgive failure and celebrate it, you’re going to get a lot of innovation. If you are a no-tolerance culture for mistakes and failure, you can say goodbye to innovation in the open-source era.
Knowledge@Wharton: More companies are giving more employees the flexibility of working from home. How does that fit with innovation?
Peshawaria: Any extreme is not good. You cannot have every job working from home and people never interact. You need some group interaction for innovation to take place. I think what will emerge is a hybrid model where leaders will decide. The key is not whether you’re working from home, the key is how much flexibility and freedom you give to your employees.
By some estimates, 40% of the U.S. workforce is already a free agent, like an Uber driver. The kind of freedom that these people have, you cannot afford not to give a similar kind of freedom to the employees who are full time. Whether that comes purely from working from home or in other ways, leaders are going to have to invent ways in which they can give the freedom that is best suited in their environment.

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What Will Waivers for Convicted Banks Mean for the Financial System?



Wharton's Peter Conti-Brown, David Enrich of The New York Times and William K. Black of the University of Missouri-Kansas City discuss waivers given to banks accused of errant trading practices.
In late December, when the Trump administration permitted five global banks to continue managing corporate retirement plans even after they had pleaded guilty to criminal charges relating to errant currency trading practices, it went almost unnoticed amid the holiday season’s distractions. The administration was also not seen as going out of the way to favor the banks; it merely gave formal effect to the Obama administration’s proposals to grant the banks long-term waivers, as the Wall Street Journal reported.
But experts at Wharton and elsewhere pointed out at least two disconcerting aspects about the waivers granted by the Department of Labor. One was the timing of the move, raising suspicions that the government may have sought to sneak it through during the holiday rush. The second was the waiver granted to Deutsche Bank, which happens to have close banking relationships with President Trump. Trump owed Deutsche Bank about $130 million, according to a report last June from the U.S. Office of Government Ethics.
In a separate case, Deutsche Bank is also being questioned as part of the federal investigation into the suspected Russian meddling in the 2016 U.S. presidential election. The other banks that received waivers of restrictions on managing pension funds and individual retirement accounts are JP Morgan Chase, Citigroup, UBS and Barclays, but no red flags rose in those cases.
Too Close for Comfort?
The Deutsche Bank waiver “is drawing attention because of the opacity of the President’s financial holdings and financial dealings, generally,” said Peter Conti-Brown, Wharton professor of legal studies and business ethics. However, there is no evidence of a quid pro quo between Trump’s finances and Deutsche Bank, he added.
In fact, waivers such as those granted to the five banks were “pretty standard” until a few years ago, Conti-Brown noted. Large, global financial conglomerates do business with “tens of thousands of entities,” and criminal activity in one of those may have nothing to do with their dealings elsewhere, he explained. He pointed out that the Department of Labor in the Obama administration had begun to “exact more scrutiny and issued more conditions on the waivers, and made them shorter.”
“The biggest takeaway from all of this is that the yawning gap between the way big powerful corporations and banks are treated by the criminal justice system and the way individuals have been.”–David Enrich
Even so, the waivers are “newsworthy” for two reasons, said David Enrich, finance editor at The New York Times and author of The Spider Network, a book on the LIBOR (London Interbank Offered Rate) currency trading scandalthat involved the five banks that received the waivers, among several others.
“One is that it was done essentially in the dead of night,” Enrich said of the Labor Department’s action. “I believe December 29 is a time when absolutely nobody is paying attention, and that does not seem likely to be a coincidence. It seems like they’re trying to do something that no one would notice.”
The second reason is that while Trump is a big creditor of Deutsche Bank, he and the bank have not been fully transparent about their financial dealings, said Enrich. “It invites conspiracy theories.”
However, in reality there’s probably no connection between Trump being a creditor of Deutsche Bank and the waivers, Enrich clarified. “If Trump wants to help Deutsche Bank, there are many other, more direct things he can do that would be much more helpful to them.”
William K. Black, professor of economics and law at the University of Missouri-Kansas City, suggested that Trump’s relationship with Deutsche Bank should be examined by Robert Mueller, the special counsel investigating Russian meddling in the 2016 presidential election. Black is also a white-collar criminologist and former regulator in his capacity as executive director of the Institute for Fraud Prevention (2005-2007), and author of The Best Way to Rob a Bank Is to Own One.
Black estimated Deutsche Bank’s loans to Trump at $300 million. “It’s his absolute vital financial lifeline,” he said. Moreover, “if normal criminal provisions were in place, entities like Deutsche Bank would not be allowed to do business in the United States, given their criminal records and in particular their criminal records with regard to Russia as well,” he added.
“We have to remember that these are very unusual, super favorable provisions for corporations,” Black said about the waivers. “They became scandalous under the Obama administration when they were routinely given to banks that were engaging in felony after felony in area after area and in which LIBOR was the largest price fixing-scheme by three orders of magnitude in world history.”
Conti-Brown, Enrich and Black discussed the controversy surrounding the waivers on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
“Don’t give us the worst of both worlds, which is to criminalize this activity but then not enforce this in the way that we would expect for criminal activity.”–Peter Conti-Brown
Disproportionate Penalties
According to Enrich, “the biggest takeaway from all of this is that the yawning gap between the way big powerful corporations and banks are treated by the criminal justice system and the way individuals have been.” He noted that while the LIBOR scandal saw a few mid-level traders convicted of crimes and sentenced to prison, the top executives of the institutions involved got off with monetary penalties and restrictions on doing business in the U.S.
While those restrictions have been waived now for five of the banks, “[the same] leniency has not existed for the lower level individuals who have to bear the brunt of the law enforcement scrutiny on this,” said Enrich. Deutsche Bank did not get the best treatment, though: It, along with UBS, received three-year waivers on grounds that the two banks had more than one criminal conviction, while the others got five-year waivers.
If the objective of the penalties is to prevent future financial crises and hold institutions and individuals accountable for their misconduct, “this is a crazy way to do it,” said Enrich. “You should be going after people who are much higher up in the pecking order and making it that much more painful for institutions in a way that their shareholders will prioritize these cultural and conduct issues with a much greater weight, rather than just letting them off the hook.”
Conti-Brown agreed with Enrich and said the effort must be to “tie personal incentives to personal behavior with personal consequences.” He noted that while the financial institutions “will fight that tooth and nail” and argue in favor of fines over personal penalties, “the question that [arises is]: Is that the best way to run a global financial system?”
Conti-Brown felt fee-based penalties may not be the correct approach to deal with criminality of the kind the five banks indulged in. “Change the criminal code,” he said. “Don’t give us the worst of both worlds, which is to criminalize this activity but then not enforce this in the way that we would expect for criminal activity.”
“If you’re saying that Deutsche Bank just looks like all these other sleazy massive banks then we have a massive failure of deterrence.”–William K. Black
A Fine Mess
Over the years, Frankfurt, Germany-based Deutsche Bank has had to repeatedly cough up large sums of money for transgressions. In January 2017, it was fined a total of $630 million by New York State and the U.K. Financial Conduct Authority for its role in a $10 billion Russian money laundering scheme. That followed a $7.2 billion settlement with the U.S. Justice Department over allegations that it packaged and sold toxic mortgage assets between 2005 and 2007.
Enrich attempted to put Deutsche Bank’s woes in some perspective. While it has had many problems, many other banks — including several U.S. banks – have received “enormous bailouts and tens of billions of dollars in penalties for ripping off their mortgage customers, and in some cases making up accounts. It’s convenient to point the finger at Deutsche Bank as kind of the evil empire, but that ignores some very significant problems that exist in the U.S. banking system as well.”
Black pointed to a larger casualty of such widespread errant behavior within the financial system: “If you’re saying that Deutsche Bank just looks like all these other sleazy massive banks then we have a massive failure of deterrence,” he said. “[It] results in widespread massive fraud, corruption and predation. We should fix that. We shouldn’t just say, ‘Well, they’re not really much worse than the others.’”
Enrich said that while some of the new regulations put in place after the financial crisis “were not that well-conceived and had some unintended consequences … instead of tinkering and fixing things, there [is now] a wholesale rollback of supervision.”