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Competitive information logistics

Pieter Klaas Jagersma

Pieter Klaas Jagersma is an Entrepreneur, Professor of International Entrepreneurship, Nyenrode University and Professor of Strategy, Vrije Universiteit Amsterdam, Amsterdam, The Netherlands.

he information market is booming. During the past two decades, information technology has advanced at an overwhelming pace. Since the mid-1990s, information has replaced capital as the key differentiator in global competition. The result: executive headaches and a great deal of the mother of opportunity, confusion.

The rapid (re- and co-) creation of information represents a substantial challenge and source of competitive advantage for most organizations. Rapid growth in technical complexity and business-user sophistication have placed nearly impossible demands on the director of information services, frequently referred to as the chief information ofcer (CIO). Information is a vital strategic asset not subject to the law of diminishing returns. However, it is worthless unless it is shared. That makes managing information a complex and messy process a mess worth tackling. In todays fast changing global markets, the key to better is to bring the full force of an organizations information to bear on the effort. Information is the stick to beat the competition. Most organizations are struggling to keep up with the information revolution an explosion in the amount of data they must initiate, store and manage as a result of the increased use of information-intensive applications and devices, regulatory requirements, customer requirements and inter- and intraorganizational partnerships. Managing information is a pervasive challenge. Building CRM capabilities, for instance, creates extraordinary complexities for information systems, information and management processes and people. One obvious cost of the information overload is loss of productivity. Most organizations continue to view the information revolution as a technological problem calling for technological solutions. However, delegating the information revolution solution to technologists ignores fundamental question marks that only business managers can answer. Information is more than just a technological issue. IT in general and information management in particular is still often poorly linked to business and competitive strategies. In this article, we look at how a new approach information logistics can lead to a quantum leap in the performance of organizations. Information logistics (IL) deals with a new approach to controlling one of the most important aspects of a business: the ow of information to, through and from the organization.

1. The information challenge


Jonathan Swift, the eighteenth century English satirist, once used a metaphor of insects to speculate on the ideal model for intellectual behavior within organizations. In paraphrase, he said that one should neither be an ant mechanically collecting and hoarding information in times of plenty for times of want nor a spider spinning webs of ideas and theories in isolation. Instead, ones goal should be to emulate the honeybee collecting information, reworking it, and then ultimately, through the intricate and efcient mechanism of inter-group

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BUSINESS STRATEGY SERIES

VOL. 12 NO. 3 2011, pp. 136-145, Q Emerald Group Publishing Limited, ISSN 1751-5637

DOI 10.1108/17515631111130103

communication and production, achieving the sweetest result of all. Which insect metaphor ts your (information) behavior within your organization? Managing information well is vital to a corporations long-term competitive success. If companies are to continue to add value to customers by helping them make substantial, lasting improvements in performance, managing information is a critical tool. And almost every company has exploitable information assets, but few companies systematically explore the opportunities they create. And although there is no simple silver bullet approach to implement, the rewards can more than justify the effort. The challenge for many companies is that information works through reproduction[1], and, thus, is becoming harder to manage, yet more important to exploit as sources proliferate and technology advances. And although the value of intangible assets such as information has greatly increased, many companies continue to pay only limited attention to improving its use (see Box 1). In general, the increased variety, fragmentation and complexity of information has the potential to improve radically the quality of decision making in organizations, provided the risk of information overload can be avoided. However, many companies feel they are drowning in data yet do not truly understand their market. In this case, their information architecture may need a complete overhaul. Such an overhaul helps managers and employees to get the information they need to be able to make rapid decisions and then propagate the effects of those decisions equally rapidly. People, especially todays knowledge workers, excel in their ability to produce information. In todays knowledge economy, the only way to generate additional value, and, thus, to generate more growth, is to produce ever more valuable combinations of the information available to us. Therefore, companies must become better at detecting relevant external and internal information and continuously adding value to it internally and externally (through, for instance, partnerships). The opportunity to design information ows to support management processes is critical for future competitive advantage. Understanding the relevance of information means examining the nature of information and the processes by which it develops growing levels of meaning and added value especially Box 1. Research methodology
For the past few years, I have worked systematically to understand what distinguishes high-performing organizations and what average performers can do to break into the top echelon. I rst selected 20 companies, who from my own knowledge or from reputation among their peers enjoy a reputation for excellence in information logistics. Some came from Europe (Akzo Nobel, Unilever, HSBC, Bayer, Bosch, LVMH, Siemens, Carrefour, Zara), others from North America (Google, Goldman Sachs, Fedex, Merck, Bain&Co, CNN, Home Depot, Booz&Co., Amazon) and Asia (Sony and Matsushita). Next, I identied the decision makers with responsibility for key information tasks within each company. To understand the specic components of great information logistics, I interviewed 44 executives responsible for information logistics-related issues such as IT/IS, knowledge management, information management, R&D, purchasing/supply chain management, operations management and market research. For the most part, these individuals were at (executive) vice president level, senior partner level or members of managing boards. Prior to contacting these senior managers, I developed hypotheses concerning the characteristics which I believed were necessary to excel in information logistics. I then reviewed my hypotheses with the senior managers in in-depth interviews lasting 2-3 hours per interview. The conclusions from these interviews were fed back and the original hypotheses modied in line with the actual experiences of the companies surveyed. This article provides a summary of the key points which emerged from the interviews, conducted in March, April, May and June 2010. The 44 interviews enabled me to understand the underlying motivations organizations have for effective information logistics. Consequently, the results of the study do not represent a large statistically valid sample, but should be considered more as interpretations and considered opinions.

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through the transfer of information from generators to users. Companies need seamless information logistics processes to become better at adding commercial and other value to it. The main issue is to transfer the right information to a specic customer-related need or challenge and help companies overcome the problem of not being able to see the forest for the trees.

2. Information logistics
During the past decade, dissatisfaction with information systems and technology has triggered several changes in IT/IS structure and management. Many corporations have decentralized IT/IS responsibility, established IT/IS steering committees, slashed internal systems costs, outsourced and offshored IT/IS functions and designated non-technical executives to direct IT/IS. Despite these changes, many corporations remain dissatised with their information management performance. For organizations, an underperforming information function represents a major strategic weakness. These organizations have discovered that information systems are constraining their ability to introduce new products, respond to competitor actions or obtain the information needed to run their businesses. They require more than marginal improvements in information management performance. Instead, these organizations need fundamental changes in information philosophy that result in quantum levels of performance improvement. Traditionally, top management of corporations have seen logistics in general and information logistics in particular as something to be left to functional managers. However, it is gradually dawning on management that information logistics has become a key general management lever in the competitive game. The management of information requires more managerial than technical (IT) skill. Getting the most of IT and information investments calls for systematic action and a new holistic information management approach: information logistics management (see Box 2). As an organization grows, it is increasingly difcult to rely on the face-to-face method of sharing the information they acquire. But unless a corporation can continue to tap this accumulated experience, it ceases to be a resource at all. What good is a library if the door is locked? And as organizations information base grows, the likelihood increases of them not nding or building on the best existing information. The explosion of information, not to mention the cost of supporting an increasingly diffuse series of vehicles to communicate it, represent problems of urgent concern. Any organization that tries to exploit information assets runs the risk of not realizing its full potential, and, thus, value. Effective information logistics is a complex undertaking, but it is manageable. Information logistics aims at optimizing the total value and cost of generating, transferring, handling, storage, and controlling information across an organizations value chain. It incorporates the Box 2. Potential benets of information logistics
Several information logistics opportunities exist across an organization. According to our interviewees, the ve most important driving forces for information logistics are: 1. better overall business and customer understanding (by linking a mass of customer data to a mass of sales and product data at a single point in time and over time); 2. cost reduction opportunities (more efcient and effective use of information such as seamless sharing of different kinds of information); 3. improved quality of decision making (by ensuring that decision makers are receiving the key information they need on time and nothing more); 4. innovation and creativity (by using information for cross-fertilized thinking to develop new customer propositions and underpin new forms of commercial activity); 5. speed of management decisions (by improving processes and customer relations).

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information ow from demand planning through procurement planning, and the decision processes and systems that integrate the information ows. It facilitates the ow of information through different pipes to the right people. No company will ever accomplish this instantly. It often requires changes in internal organization and working relationships, information and control systems have to be adapted or introduced, and often responsibilities must be reallocated within the company. The full costs associated with information logistics are high. According to my interviewees (see Box 1), in investment banking, the cost of handling, storing and transporting information including the indirect costs of nancing IT systems and managing the ow of information through an array of channels can run as high as 25 percent of a banks sales dollar and in strategy consulting boutiques it may run as high as 40 percent. Therefore, effective information logistics can provide additional value to a company. They can use it to gain and sustain a competitive advantage over their competitors. Information has to move to add value. However, the average estimate of my interviewees is that information typically spends 90 percent of the overall life-cycle standing still meaning that huge improvements can be realized. According to a senior Goldman Sachs executive, information from knowledge systems spends only 2 percent in the air, the rest of the time being part of a massive database. Ergo: the most important strategic asset has become a warehouse of inactivity, and, therefore, a bottleneck for improved performance. And as the physical and intangible asset (value) chain continues to disaggregate, more opportunities for information logistics will emerge because a growing array of information sources has to be connected, coordinated and integrated to create more valuable products for customers. In fact, information logistics is the glue that keeps organizations together.

3. Information logistics improvement approach


Successful companies such as Zara, Bosch and Amazon follow a disciplined approach to information logistics. At Zara, Bosch and Amazon, for instance, information logistics is a strategic activity driving the total company agenda directly and continuously. Success in information logistics presupposes a systematic approach. The journey towards information logistics can be divided into phases, the main phases and steps of which are outlined in this paragraph (see Box 3). More in general, companies must start (phase one) from a strategic objective that can be achieved, based on the answer to the question: is it really worthwile to start an information logistics project? Like with an expedition, companies must be prepared to spend time and effort on the way towards great information logistics. During phase two, a working group performs a systematic in-depth analysis of the information logistics process in the organization. Based on this analysis, the working group Box 3. Information logistics considerations
Companies wishing to use information logistics to their benet should consider the following: 1. Start with objectives why will information logistics be central to your future? Have you projected what will happen to your business if you dont make the information logistics investment? Answering this question is the hallmark of great information logistics management. Companies and their executives have to include the cost of doing nothing. 2. Is there an architecture (IT and HR) in place to ensure the free ow of data, information and ideas across the organization? Such a habitat is necessary to unlock the potential of an information logistics strategy. 3. Is information logistics an effective approach that could give your organization (better) access to (new) customers and relevant stakeholders? 4. Do you have the metrics in place to measure the added value and cost of information logistics? Companies have to measure the contribution of information logistics to revenues and prots. And although cost is always part of the equation, the real question is: Is it worth it?

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draws up a list of possible ways to improve the business performance obtained through improvements in the eld of information logistics. Based on the outcome of phase two, executives need to develop an operational blueprint in which they specify the operational, day-to-day implications of the series of practical recommendations regarding information logistics along with a time planning for implementation. Implementation will take most of the time. The research indicates ten key tasks which the survey companies tended to do effectively, and which in combination represent the building blocks of excellence in information logistics. Phase 1. Preparation and commitment 1. Ask yourself many critical questions. Successful companies determine if it is really necessary to start an information logistics project or whether a different type of action better ts the companys information management improvement needs. This means asking yourself a number of important questions. Are there any indications that your company might benet importantly from information logistics? Should those efforts gain priority over other improvements? For instance, an information logistics improvement (I2L) project might be important for a company if the product mix in a company or industry is increasing (complexity is in need of better information management), the products in an industry are increasingly becoming systems in the sense that the number of parts is increasing (which results in higher requirements made of information management) or for an increasingly large part of the purchase, companies become dependent on sources that they share with other players (e.g. purchasing alliances). Simultaneously, developments may be taking place within a company which require thorough concentration on information logistics. For example, a company is considering further digitalization of its planning and control systems or closer cooperation with external stakeholders and the costs of information management constitute a considerable part of the total costs or are increasing signicantly. If one or more of the above is at issue in a company, it is wise to investigate a companys information logistics and start an information logistics improvement project (I2L project). 2. Top management commitment and involvement. Engagement from the CEO and the top management team is a key success factor. Direction comes from the pivotal players in an organization. Organizations have to get the right people involved at the right time. In most companies information logistics is not discussed at the CEO and board level. For information logistics to succeed, the CEO and the top management team must be an advocate or shaper of the information logistics strategy. Top management has to start and lead such initiatives and build support through the organization. Information logistics is very easily snuffed out by bureaucracy or even just by day-to-day business routine. When top management fails to lead the process, information logistics may not take place. Executive commitment starts with discussing the information logistics issue and sharing the potential improvements with the management group. Therefore, an I2L working group needs to take a closer look at the internally available data to produce a few global gures that offer a sufciently reliable indication to determine whether or not they should continue. 3. Choose the right I2L working group. The success of an I2L project depends on the quality and composition of the working group. Our interviewees were clear about the importance of this issue: you had better delay the project working group with a few months until the right persons can be disengaged than start hastily with people you do not have full condence in. As soon as you have chosen the right working group members, you need to discuss what has to be done in phase 2. Before doing so, however, you should make sure that the people in your company with relevant knowledge and experience with information management and logistics are

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available and can be disengaged from other duties. You must also make sure that basic data are available. If this is not the case, it is advisable for a company to consider seeking external assistance. Involvement of external advisers may bring in knowledge (or skills) that is not present within the company. 4. Build and embed awareness of information logistics importance. The signicance of the I2L project has to be made clear. Signicance motivates. Many companies can turn a relatively passive function central data keeping into active management of the opportunities data represent. A high level of awareness of the competitive importance of information logistics was noteworthy in all the surveyed companies. What distinguished these companies was that both managers and employees across the company understood the importance of information logistics. This level of awareness can only be awakened by a top management which understands its signicance. However, the process of building awareness of information logistics importance is not an overnight affair. Once a program for raising information logistics awareness has been implemented and initial improvement targets are being met, the company must nd ways of maintaining a high level of interest and commitment, so that information logistics does not become just another passing fad. A frequently used device is to hold interunit and/or interfunctional meetings discussing information logistics issues. Both Fedex and Booz&Co. raised awareness of information logistics to a shared value. Everyone recognized the criticality of superb information and its logistics. Inter-practice -department or -unit communication and cooperation often through informal and impromptu meetings are both frequent and intense.

Phase 2. Alignment and management 5. Strategic alignment: integration of information logistics and business strategy. Developing an effective approach to information logistics starts with a solid understanding of a companys overall corporate strategy. Companies must also ask what unique skills and talents they bring to the information logistics process. Achieving superior performance depends on tailoring information logistics to a winning value and customer proposition or formula. So companies must understand how and where information logistics relates to the corporate strategy. Successful organizations like Bosch and Sony tend to form their information logistics strategies in close cooperation with their business lines and functions. There is a clear idea of the core processes and sources of competitive advantage and of how information logistics will support them. Companies always have to integrate information logistics projects into the normal business planning process. The focus is on value creation levers across businesses that are inuenced by information logistics. 6. Involve customers in the I2L project. In order to make an I2L project succeed, it is necessary to expand the scope beyond the company itself. Improving your information logistics performance is rst and foremost about adding more value to customers. It all starts and ends with the customer base. Is it possible to involve the customers in information logistics improvement processes and are they prepared to cooperate with you in that matter? 7. Classication and codication of information costs. Not information as such but distributed information is a powerful competitive edge. However, only information that can be codied can be distributed and leveraged. And only information that can be distributed and leveraged can become a real source of competitive advantage. Therefore, companies will need a sufciently reliable picture of real information management performance. Companies have to classify their information and information islands across their organization. What kind of information do they have? What kind of information do they use? What is the added value and cost of creating specic types of information? What do you have to do to optimize the value (i.e. benets minus costs) of information across the

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organization and extended organization (i.e. including external constituencies and complementors)? On the basis of this kind of data, the I2L working group can ask further questions, such as, what are the deeper causes and costs of (in)effective information logistics? Lack of cross-organizational processes, an excessive amount of red tape, the customer changing his demands (fast), etcetera? Whatever the case, the working group must go deeper into the causes and costs of these inefciencies. Only then will they discover where improvements can be made. When optimizing information logistics, the entire chain from suppliers to customers and partners should be looked at. Trying to optimize only part of this process would bring only marginal benets. If an organization really wants to optimize overall information logistics and decrease the costs, it will have to look beyond the common horizon. For instance, managing information beyond the rm boundaries gives Fedex the opportunity to outperform and in some cases even pre-empt the competition. Fedex is able to provide superior client service by virtue of faster response, better punctuality, more exibility, and better information. Second, pro-active cooperation with customers enables optimization of the interface between them. This kind of analyses is a good start to really understand the whole information logistics issue in a company. In order to achieve an optimal I2L result, companies will generally need to carry out many analyses, specically tailored to the company.

Phase 3. Architecture, implementation and people The third phase of the I2L project contains the crux of the whole matter. Eventually, companies want more than just an overall picture of the information logistics improvement opportunities. They want to achieve something. Phase one and two are nothing more than working up to the solution. In phase three, you need to establish how the solution should be implemented. 8. Build the right information technology architecture. Being great at information logistics also means that companies have to invest in special software to make information logistics work, to get it done. Technology is helping managers exploit ever-greater amounts of data to make better decisions and develop the insights that create competitive advantages. IT systems are the technical networks carrying formal, hard information through the organization. They can have a powerful effect on both cost and differentiation, since virtually every business activity in a company creates and uses information. A major area of potential for IT is in helping to manage the linkages between business activities, both inside and outside the company. Exploiting these linkages usually requires information ows that allow optimization or coordination to take place. By reducing the cost, improving the quality, and increasing the speed of information ows, IT allows higher levels of coordination and optimization, thereby expanding the effective business scope and scale. For example, in Amazons international package business, an intensive series of information ows on package contents, shipment/ight movements, shipper/consignee/ight requirements, and credit information must move among between freight forwarders, air carriers, customs, local tracking companies, and even banks. Managing these ows better, faster, and more cheaply through IT offers particular promise for achieving competitive advantage in this industry. The challenge for companies will be to stay on top of the ever-changing technologies for obtaining, analyzing, distributing and using information. Many companies are not knowledgeable about the added value of the sophisticated IT software tools available. However, companies have to nurture the information technology that will get them talking about the added value of information logistics.

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9. Clarify the organization approach to information logistics. One of the most important tasks is to clarify the organizational approach to be used for information logistics. The extremes of choice are purely functional responsibility for information logistics control or a specic information logistics manager to take responsibility for information ows across the entire organization. The right answer is situational and not prescriptive. In the survey, about half the companies had installed information logistics managers, while the other half retained the more traditional functional set-up. Although organizational design decisions are both complex and situational, some pointers emerged from the survey interviews. In general, companies have tended to centralize information logistics management under the following conditions:
B

the existing information and IT systems and databases within the company are both fragmented and obsolete, putting a single senior manager in charge of their replacement or rejuvenation simplies systems compatibility and unity in overall design; and likewise, companies where awareness of information logistics importance is low have found that a senior manager can bring both effective promotion and credibility to raise information logistics awareness.

10. Its all about people. Perseverance is needed. Information is a strategic asset so many people are involved in information logistics. Therefore, it is not easy to bring an information logistics improvement (I2L) project to a successful ending. Solving information logistics problems in organizations is like solving whatever management problems, a matter of people. If there is no willingness to improve, and, thus, change, the result will never be satisfactory. Based on the study results, it is possible for a company to make a rst-cut self-evaluation, before deciding on the content and phasing of an I2L program. Any such program must comprise a prominent people solution, since all the key tasks involve changing attitudes and behavior to the information logistics function. New ideas will ourish and new technology can be exploited only if this basic tenet of information logistics is recognized. This applies to other change and improvement processes in business, but it is critical in information logistics, because information ows and control crosses traditional functional lines and, thus, often challenges conventional wisdom. In this respect, information logistics is analogous to business strategy but there the difculty of implementing change is better known.

4. Secret sauce
Oscar Wilde once said, A cynic knows the price of everything and the value of nothing. Managers often know the costs of information, but not what the information the genome of every company is worth. Successful companies excel in information logistics. Information logistics as a management technique helps integrate, coordinate and distribute information to where it can best be applied. Therefore, it helps to bridge the islands of information in an organization. My experience is that there is much to gain from creating an effective information logistics highway. Competitive advantage will shift to companies that can master the art of information logistics. And although information logistics is a term without a lot of currency, it is the secret sauce of many business successes. Companies such as Goldman Sachs, Amazon, Merck, HSBC and Bain & Company thrive through successful information logistics strategies. In fact, all companies need I2L strategies because they all require a much higher information metabolism. Information logistics is important due to the fact that straighter, smoother and speedier information logistics processes lead to much lower company costs. Information logistics helps to improve processes, promote employee learning, improve the speed and quality of services to customers, underpin new forms of commercial activity, and, can go even further by generating entirely new value propositions for customers (Box 4).

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Box 4. Key factors for success


The 44 interviewees suggested a number of key factors for success (in random order):
B

Do not be intimidated by the information logistics jargon. Instead, feel free to ask stupid questions to be sure that it makes sense. Furthermore, be as hypothesis-driven as you would be in any major analysis. Do not contact external information logistics specialists directly without rst consulting your internal IT and information experts. Leverage the expertise of the internal experts as much as possible. Get help from the IT department even if there does not appear to be obvious IT issues yet. Make information logistics consistent with existing IT-related projects. However, effective information logistics must always precede the technical bells and whistles. The information logistics challenge goes beyond building a great IT infrastructure. Information logistics and IT are not synonymous. Do not limit yourself to the IT department. Instead, be sure to involve senior management and other departments (e.g. nance, marketing, purchasing) to nd out what the expectations are. Ensure that the CEO or other top level manager is driving the information logistics effort and that they fully understand their role in translating information logistics into broader organizational improvement processes. For information to create value, employees (and customers including other relevant stakeholders) must want to share information. Good working relationships enhance the vital ow of valuable knowledge. It helps to unite employees into complete communities. It also helps to unite the extended network of suppliers, distributors and other relevant constituencies in a cluster of added value for nal customers. Recognize that sharing information through information logistics can be threatening. For instance, the salesforce might not want marketing to know sales by account or nance might not want to share detailed P&Ls. Do not be constrained by the current organizational hierarchy when implementing an information logistics project. Apply business logic at all times: determine information (logistics) requirements carefully and review them regularly (e.g. dene information needs before dening systems). Ensure that ongoing accountability for information logistics is assigned and allow time for an extensive cost/value review of information logistics to gain (management) buy-in. To see if information logistics works, look for improvements in the bottom-line. Missed opportunities can often be traced to misused or poorly used information. Measure the success of information logistics by the quality of decisions made. Look at the market place to help solve technical problems. Many organizations have similar information systems requirements and numerous information logistics software products have been developed to help turn data into usable information. In the absence of a performance ethos across an organization, employees will feel swamped by information for which they see no need. For information logistics to create value, people must want information and know how to use it to boost performance. Successful companies foster a desire for the continual creation, distribution and application of information.

Better information logistics makes it easier and less costly for companies to integrate and manage the work of an expanding number of external stakeholders (customers, suppliers, complementors) into a companys value proposition. It aims to ensure greater coherence, speed and efciency in a companys efforts to meet its clients needs. But as companies grow larger and more complex, access to and application of its information base becomes increasingly difcult. For all companies, the challenge of making that happen is not trivial, if they are to compete and maintain their high standards in a world that is becoming increasingly information-intensive. At the same time, (re)designing information logistics capabilities creates extraordinary complexities for IT systems, processes and people. Is there a best information logistics strategy? No, there is no one best approach to leveraging the power of information logistics. Is there a best information logistics strategy for

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any given company? Yes, but as the corporate and competitive strategy evolves, the right information logistics approach might change, too. Developing and implementing the optimal information logistics strategy is not a onetime event. Executives must revisit their information logistics strategy as their corporate and competitive strategies evolve.

Note
1. Think about the added value of the printing press for an author (e.g. this journal).

About the author


Pieter Klaas Jagersma is an Entrepreneur, Professor of International Entrepreneurship at Nyenrode University and Professor of Strategy at Vrije Universiteit Amsterdam. He can be contacted at: pkj@wxs.nl

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